SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-14874
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
STATE BANCORP, INC.
(Exact name of registrant as specified in its charter)
New York 11-2846511
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
699 Hillside Avenue
New Hyde Park, N.Y. 11040
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code (516) 437-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($5.00 par value)
------------------------------
(Title of Class)
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
requirement for the past 90 days.
Yes X No
----- -----
As of March 21, 1997, there were 5,118,429 shares of common stock outstanding
and the aggregate market value of common stock of State Bancorp, Inc. held by
nonaffiliates was approximately $83,174,000 based upon the last trade per share
known to Management.
<PAGE>
STATE BANCORP, INC.
Form 10-K
INDEX
PART I Page
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Item 1. Business
General 1.
Statistical Information 4.
Item 2. Properties 4.
Item 3. Legal Proceedings 5.
Item 4. Submission of Matters to a Vote of Stockholders 5.
PART II
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Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 6.
Item 6. Selected Consolidated Financial Data 6.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
Item 8. Consolidated Financial Statements and
Supplementary Data 7.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7.
PART III
--------
Item 10. Directors and Executive Officers of the
Registrant 8.
Item 11. Executive Compensation 8.
Item 12. Security Ownership of Certain Beneficial
Owners and Management 9.
Item 13. Certain Relationships and Related Transactions 9.
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 9.
Signatures 13.
Exhibits
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents incorporated by reference and the parts of
the Form 10-K into which such documents are incorporated:
(1) The Annual Report to Stockholders for the year ended December 31,
1996. Referenced in Parts I and II of the December 31, 1996 Annual
Report on Form 10-K, Items 1, 5, 6, 7 and 8.
(2) The 1997 Proxy Statement, dated March 28, 1997. Referenced in Part III
of the December 31, 1996 Annual Report on Form 10-K, Items 10, 11, 12
and 13.
PART I
------
ITEM 1. BUSINESS
General
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Incorporated herein by reference is the Company's 1996 Annual Report to
Stockholders. A discussion of the organization and nature of operations may be
found on page 13.
State Bancorp, Inc. (the "Company") was incorporated under the laws of the State
of New York on November 18, 1985. The acquisition by the Company of 100% of the
outstanding shares of State Bank of Long Island (the "Bank"), on a share for
share basis, was consummated as of the close of business on June 24, 1986.
The Company has no other subsidiaries and does not engage in any activities
other than acting as holding company for the common stock of the Bank. The
business of the Company is conducted through the Bank, which continues to
conduct its business in the same manner and from the same offices as it had done
before the effective date of the reorganization. The Bank, therefore, accounts
for all of the consolidated assets and revenues of the Company.
The Company is subject to supervision and regulation by the Board of Governors
of the Federal Reserve System ("Federal Reserve Board") pursuant to the Bank
Holding Company Act of 1956, as amended. The Bank is subject to periodic
examination and regulation by the State of New York Banking Department and the
Federal Deposit Insurance Corporation.
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<PAGE>
The Bank was organized in 1966 and is the only independent commercial bank
headquartered in New Hyde Park. It provides general banking services to
residents and businesses located substantially in the eastern end of Queens
County, Nassau County and the western end of Suffolk County. It offers a full
range of deposit products including checking, fixed and variable rate savings,
time, money market and IRA and Keogh accounts. Credit services offered include
commercial mortgages, commercial and installment loans, home equity lines of
credit, residential mortgages and auto loans. In addition, the Bank provides
merchant credit card services, access to annuity products and offers a consumer
debit card with membership in a national ATM network. The Bank currently has
ATMs at five of its seven branch locations. The Bank also offers its retail
customers the ability to verify their account balances, affect transfers between
accounts and access current deposit and loan rates through an automated
telephone voice response system. Commercial customers can also access this same
system or they may utilize Business Direct Access (BDA), the Company's real-time
cash management system. Through BDA, business and municipal customers can
perform all of the foregoing transactions as well as initiate wire transfers,
ACH payments and stop payment orders from a personal computer.
There is strong competition in the area serviced by the Bank from branches of
several savings banks and savings and loan associations, as well as branches of
the major New York City banks. Of these, the Bank is considerably smaller in
size than virtually all of its commercial competitors, and approximates the size
of only one or two of its thrift competitors. Nonetheless, the Bank has
demonstrated the ability to compete profitably with larger financial
institutions.
- 2 -
<PAGE>
The Bank's business is not of a seasonal nature nor does it depend on one or a
few large customers for its existence. The Bank does not have any foreign
commitments, with the exception of letters of credit issued on behalf of several
of its depositors. The Bank's nature and conduct of business have remained
unchanged since year-end 1995.
In 1979, the Bank established the New Hyde Park Leasing Corporation to lease
various types of commercial equipment. During 1994, the Bank established SB ORE
Corp. to hold foreclosed property acquired in connection with extensions of
credit. Total operating income and income before income taxes of these
subsidiaries are less than ten percent of the respective amounts for the
consolidated entity.
Compliance with provisions regulating environmental controls will have no effect
upon the capital expenditures, earnings or competitive position of the Company.
The Company employed 180 full-time and part-time officers and employees as of
December 31, 1996.
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<PAGE>
Statistical Information
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Statistical information is furnished pursuant to the requirements of Guide 3
(Statistical Disclosure by Bank Holding Companies) promulgated under the
Securities Act of 1933.
Incorporated by reference is the Company's 1996 Annual Report to stockholders.
The Company's statistical information may be found on pages 34 - 40.
ITEM 2. PROPERTIES
The main office of the Company is located at the Bank's main branch at 699
Hillside Avenue, New Hyde Park, N.Y. The lease on the land used by the Bank
expires on March 27, 2009 and contains an option to renew for an additional
ten-year period.
Effective November 1996, the Bank's lending division was consolidated from three
locations into one at Two Jericho Plaza, Jericho, N.Y. This lease expires on
March 31, 2007. The Bank also maintains a Regional Financial Center at 2 Lincoln
Avenue, Rockville Centre, N.Y. The Rockville Centre lease expires on October 31,
1997. Facilities located in Lake Success (Triad IV), N.Y. and Jericho (Jericho
Atrium), N.Y., formerly occupied by lending division personnel, have leases
scheduled to expire on March 31 and May 31, 1997, respectively. The Bank no
longer occupies either of these locations.
The Bank operates full service branches at 501 North Broadway, Jericho, N.Y.;
580 East Jericho Turnpike, Huntington, N.Y.; 740 Veterans Memorial Highway,
Hauppauge, N.Y.; 339 Nassau Boulevard, Garden City South, N.Y. and 135 South
Street, Oyster Bay, N.Y. The Jericho lease expires on October 31, 2011 and
contains a twelve-year renewal option. The Huntington lease expires on December
31, 1999 and has two five-year renewal options. The Bank's operations center is
also located in the Huntington facility. The Hauppauge lease expires June 30,
2005 and contains two ten-year renewal options. The Garden City South and Oyster
Bay facilities are owned by the Company.
-4-
<PAGE>
The fixtures and equipment contained in these operating facilities are owned or
leased by the Bank. The Company considers that all of its premises, fixtures and
equipment are adequate for the conduct of its business.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any pending legal proceedings,
other than ordinary, routine litigation incidental to the banking business. In
the opinion of management, liabilities, if any, resulting from these matters
would not have a material adverse effect on the consolidated financial
statements of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the quarter
ended December 31, 1996.
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<PAGE>
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Incorporated herein by reference is the Company's 1996 Annual Report
to Stockholders. The Company's common stock market data for the past
three years may be found on page 40 thereof, below the Selected
Quarterly Financial Data.
(b) At December 31, 1996, the approximate number of equity stockholders
were as follows:
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock 1,268
(c) Annual cash dividends of 44, 52, and 27 cents per share, restated to
give retroactive effect to stock dividends, were paid in 1996, 1995,
and 1994, respectively. Annual stock dividends were paid in each of
1996, 1995 and 1994 at rates of 8%, 10% and 10%, respectively. It is
the Company's expectation that dividends will continue to be paid in
the future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(a) Incorporated herein by reference is the Company's 1996 Annual Report
to Stockholders. The Company's five year summary of operations may be
found on page 41.
(b) Additional years are not considered necessary to keep the above
referenced summary from being misleading.
- 6 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Incorporated herein by reference is the Company's 1996 Annual Report
to Stockholders. Management's Discussion and Analysis of Financial
Condition and Results of Operations may be found on pages 24 - 33.
(b) There are no known trends or any known demands, commitments, events or
uncertainties which will result in, or which are reasonably likely to
result in, the Company's liquidity increasing, or decreasing, in any
material way.
(c) As of December 31, 1996, the Company had no material commitments for
capital expenditures.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference is the Company's 1996 Annual Report to
Stockholders. The Company's audited Consolidated Balance Sheets as of the close
of the last two years may be found on page 9. Reference again is made to State
Bancorp, Inc.'s 1996 Annual Report to Stockholders for the Company's audited
Statements of Consolidated Earnings, Cash Flows and Stockholders' Equity for
each of the three years in the period ended December 31, 1996. These items may
be found on pages 10 - 12.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
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<PAGE>
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Incorporated herein by reference is the Company's 1997 Proxy
Statement, dated March 28, 1997. The identification of the directors
of the Company may be found on pages 11 - 12.
(b) Incorporated herein by reference is the Company's 1997 Proxy
Statement, dated March 28, 1997. The identification of the executive
officers of the Company may be found under "Principal Officers" on
page 2.
There exists no family relationships between any director or executive
officer.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the Company's 1997 Proxy Statement, dated
March 28, 1997. Management remuneration may be found on page 3.
- 8 -
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the Company's 1997 Proxy Statement, dated
March 28, 1997. Security ownership of certain beneficial owners and management
may be found on page 14.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the Company's 1997 Proxy Statement, dated
March 28, 1997. Certain relationships and related transactions may be found on
page 10.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements Included in the 1996 Annual Report to
Stockholders of State Bancorp, Inc. and enclosed herewith, are the
following financial statements and notes thereon:
- Consolidated Balance Sheets as of December 31, 1996 and 1995.
- Statements of Consolidated Earnings for the years ended December
31, 1996, 1995 and 1994.
- Statements of Consolidated Cash Flows for the years ended December
31, 1996, 1995 and 1994.
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
- 9 -
<PAGE>
- Summary of Significant Accounting and Reporting Policies (1)
- Securities Held to Maturity and Securities Available for Sale (2)
- Loans - Net (3)
- Bank Premises and Equipment - Net (4)
- Other Assets (5)
- Lines of Credit (6)
- Income Taxes (7)
- Incentive Stock Option Plans (8)
- Employee Benefit Plans (9)
- Commitments and Contingent Liabilities (10)
- Effect of New Accounting Pronouncements (11)
- State Bancorp, Inc. (Parent Company Only) (12)
- Financial Instruments with Off-Balance Sheet Risk (13)
- Disclosures About Fair Value of Financial Instruments (14)
- Regulatory Matters (15)
Independent Auditors' Report
Schedules are omitted because they are not applicable or because
required information is shown in the consolidated financial statements
or the notes thereto.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
-10-
<PAGE>
(c) Exhibits
Ex-
hibit
No. Item Method of Filing
- --- ---- ----------------
(3) Articles of incorporation and Incorporated by reference from exhibit B to
by-laws the Company's Registration Statement on
a) Articles of incorporation Form S-4, file No. 33-2958, Filed February
3, 1986.
b) By-laws, as amended Incorporated by reference from exhibit 3b
to the Company's December 31, 1995 Form
10-K.
(4) Instruments defining the Pages 22-28 of the above
rights of security holders referenced Registration Statement.
(10) Material contracts
a) Deferred compensation Incorporated by reference from exhibit
plan 10b to the Company's December 31, 1986
Form 10-K.
b) (i) Directors' incentive Incorporated by reference from exhibit
retirement plan 10c to the Company's December 31, 1986
Form 10-K.
b) (ii) Agreements of Incorporated by reference from exhibit
participants surrendering 10b (ii) to the Company's December 31,
their rights under the 1992 Form 10-K.
directors' incentive
retirement plan.
b) (iii) Agreements of Incorporated by reference from exhibit
participants modifying 10b (iii) to the Company's December 31,
agreements described in 1995 Form 10-K.
item b) (ii)
c) 1987 incentive stock Incorporated by reference from exhibit
option plan, as amended 10c to the Company's December 31, 1991
Form 10-K.
d) 1994 incentive stock Incorporated by reference from exhibit
option plan 10d to the Company's December 31, 1993
Form 10-K.
e) (i) Executive severance Incorporated by reference from exhibit
plan no.1 10f to the Company's December 31, 1987
Form 10-K.
e) (ii) Executive severance Incorporated by reference from exhibit
plan no.2 10d to the Company's December 31, 1990
Form 10-K.
e) (iii) Executive severance Incorporated by reference from exhibit
plan no.3 10e (iii) to the Company's December 31,
1995 Form 10-K.
- 11 -
<PAGE>
e) (iv) Executive severance Incorporated by reference from exhibit
plan no.4 10e (iv) to the Company's December 31,
1995 Form 10-K.
e) (v) Executive severance Incorporated by reference from exhibit
plan no.5 10e (v) to the Company's December 31,
1995 Form 10-K.
f) State Bank of Long Island Incorporated by reference from exhibit
401k retirement plan and 10g to the Company's December 31, 1987
trust Form 10- K.
g) State Bancorp, Inc. Incorporated by reference from exhibit
employee stock ownership 10g to the Company's December 31, 1987
plan Form 10- K.
h) Deferred compensation Incorporated by reference from exhibit
agreement 10h to the Company's December 31, 1995
Form 10- K.
(13) Annual report to stockholders Filed herein
(24) Independent Auditors' Consent Filed herein
- 12 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15d of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned,
STATE BANCORP, INC.
By: s/Thomas F. Goldrick, Jr.
-----------------------------------------
Thomas F. Goldrick, Jr., Chairman & C.E.O.
Date: March 25, 1997
-----------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
on the dates indicated.
Signature Title Date
- --------- ----- ----
s/Thomas F. Goldrick, Jr. Chairman of the Board 3/25/97
- -------------------------
Thomas F. Goldrick, Jr. (Principal Executive Officer)
s/Daniel T. Rowe President 3/25/97
- -------------------------
Daniel T. Rowe
s/Richard W. Merzbacher Vice Chairman 3/25/97
- -------------------------
Richard W. Merzbacher
s/Brian K. Finneran Secretary 3/25/97
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Brian K. Finneran (Principal Financial Officer)
s/Gary Holman Vice Chairman of the Board 3/25/97
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Gary Holman
s/J. Robert Blumenthal Director 3/25/97
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J. Robert Blumenthal
s/Carl R. Bruno Director 3/25/97
- -------------------------
Carl R. Bruno
s/Arthur Dulik, Jr. Director 3/25/97
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Arthur Dulik, Jr.
s/Robert J. Grady Director 3/25/97
- -------------------------
Robert J. Grady
s/Joseph F. Munson Director 3/25/97
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Joseph F. Munson
s/Raymond M. Piacentini Director 3/25/97
- -------------------------
Raymond M. Piacentini
s/John F. Picciano Director 3/25/97
- -------------------------
John F. Picciano
s/Suzanne Rueck Director 3/25/97
- -------------------------
Suzanne Rueck
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[PHOTOS]
State Bancorp, Inc.
1996 Annual Report
30 Years
Providing bank services for business, commercial, municipal and personal
customers in the
of
greater Long Island community for over thirty years, while maintaining a strong
platform for growth and investment for our stockholders.
Growth.
================================================================================
...We Are Long Island
<PAGE>
[PHOTOS]
1966
The Board of Directors inspects the temporary site of State Bank's office.
State Bank of Long Island was officially chartered on November 1, 1966.
1971
The Bank opens its new headquarters facility at 699 Hillside Avenue, New Hyde
Park.
1987
Our first Regional Financial Center is opened in the Jericho Atrium on Route 106
as a commercial and business development office.
Attendees at the Bank's opening included; Dr. Frank E. Picciano, the organizing
President and Chairman of the Board, and New York Yankee greats Casey Stengel,
Whitey Ford and Mickey Mantle.
[Graphic]map
State Bancorp, we are Long Island
<PAGE>
[PHOTOS]
1992
With the acquisition of four new banking offices, the Bank dramatically expanded
its capacity to service commercial, small business, municipal and personal
customers.
1996
The Lending Group moves into larger facilities at the Two Jericho Plaza Complex.
[GRAPHIC]map
[THE FOLLOWING TABLE WAS A BAR CHART IN THE PRINTED MATERIAL]
Net Income
5 Year Average
Growth Rate 12.8%
(dollars in thousands)
Year $ Amount
- ---- --------
1992 3,463
1993 3,708
1994 4,019
1995 5,039
1996 5,702
[THE FOLLOWING TABLE WAS A BAR CHART IN THE PRINTED MATERIAL]
Stockholders' Equity
5 Year Average
Growth Rate 11.4%
(dollars in millions)
Year $ Amount
- ---- --------
1992 31.0
1993 34.7
1994 36.2
1995 40.6
1996 48.6
[THE FOLLOWING TABLE WAS A BAR CHART IN THE PRINTED MATERIAL]
Total Average Assets
5 Year Average
Growth Rate 13.8%
(dollars in millions)
Year $ Amount
- ---- --------
1992 401.1
1993 477.2
1994 488.6
1995 537.2
1996 588.4
<PAGE>
Financial Highlights (in thousands)
1996 %Change 1995
- --------------------------------------------------------------------------------
Total Assets $615,418 (5.5)% 650,950
Stockholders' Equity 48,569 19.7% 40,588
Net Income 5,702 13.2% 5,039
Return on Average Assets 0.97% 0.94%
Return on Average
Stockholders' Equity 12.98% 13.11%
Table of Contents
===================================================
Financial Highlights 1
Message from the Chairman 2
Preparing for the Future 4
Financial Table of Contents 8
Board of Directors and
Executive Officers 42
State Bank of Long Island
Officers and Administration 43
Advisory Board 44
Corporate Information IBC
[THE FOLLOWING TABLE WAS A BAR CHART IN THE PRINTED MATERIAL]
Net Income Trend 1967 - 1996
(dollars in thousands)
State
Year Bank
- ---- ----
1967 $ 0
1968 $ 8
1969 $ 117
1970 $ 101
1971 $ 148
1972 $ 198
1973 $ 230
1974 $ 340
1975 $ 438
1976 $ 439
1977 $ 494
1978 $ 584
1979 $ 730
1980 $ 865
1981 $ 996
1982 $1,224
1983 $1,352
1984 $1,420
1985 $1,736
1986 $2,073
1987 $2,212
1988 $2,416
1989 $2,603
1990 $2,759
1991 $3,146
1992 $3,463
1993 $3,708
1994 $4,019
1995 $5,039
1996 $5,702
30
Years of Growth
A Brief History
State Bank of Long Island was founded in 1966 by an energetic group of civic
minded businessmen seeking to enhance the quality of banking services in New
Hyde Park. They succeeded perhaps beyond their fondest expectations .... and for
many years now State Bank has ranked among the highest performing banks in New
York State.
Over the years, the Bank has shown measured, orderly growth. By adhering to that
philosophy, the Bank has grown to be the largest independent commercial bank
headquartered in Nassau County. We have built a reputation for providing
high-quality personal service and have specialized in meeting the needs of the
commercial, small business, municipal and consumer markets throughout Long
Island.
<PAGE>
[PHOTO]
To Our Stockholders, Customers and Friends:
- --------------------------------------------------------------------------------
As we begin the new year, it is once again with a great measure of pride
and satisfaction that we are able to reflect upon the year 1996 just ended and
report to our many friends the completion of yet another year of record earnings
and growth in equity capital. While it is difficult to imagine, this is now our
twenty-sixth consecutive year of earnings improvement, a record we believe to be
unique among commercial banks in the State of New York. The year 1997 brings
with it the much anticipated celebration of our thirtieth year of operation,
marking the foresight of our founding fathers and their diligent efforts in
obtaining our charter on November 1, 1966. These are all significant milestones
which the entire State Bank family, past and present, can look upon with an
enormous amount of pride and sense of accomplishment.
Perhaps no recent event holds any greater significance for the future
course of our Company than the action taken by our Board of Directors in
creating the new Office of the Chairman, effective February 1, 1997. While I
will remain as Chairman and Chief Executive Officer of both State Bancorp, Inc.
and State Bank of Long Island, joining me in the Office of the Chairman will be
Richard W. Merzbacher, as President of State Bank of Long Island and Vice
Chairman of State Bancorp, and Daniel T. Rowe as President of State Bancorp, and
Vice Chairman of State Bank of Long Island. It is especially rewarding for me to
recognize the creation of this new office, for as many of you know, Messrs.
Merzbacher, Rowe and myself have worked very closely together over the past
fifteen years in continuing the record of growth and prosperity of our Company
begun more than three decades ago. Beyond the creation of the Office of the
Chairman, several additional senior appointments were approved by our Board of
Directors, as we continually strive to structure our organization to best meet
the anticipated challenges ahead. Accordingly, I am delighted to report the
promotions of Frederick C. Braun to the post of Executive Vice President and
Senior Lending Officer, and Brian K. Finneran to the post of Executive Vice
President and Chief Financial Officer. Both of these executives have made
significant contributions to our success in recent years, and I am confident
their talents will be even further utilized in these new positions.
Turning to the more far reaching issues facing our local economy, we have
again experienced during 1996 a continuing modest improvement in the Long Island
business climate. While the past year brought with it some significant signs of
increasing economic vitality to the Long Island region, the overall condition of
our area's economy, of which we are so much a part, continues to lag many areas
of the country in terms of solid, sustainable growth. While our local
manufacturing and industrial base continues to contract, we again have seen some
modest expansion in the service and technology sectors of the Long Island
economy. Both residential and commercial real estate markets have firmed
somewhat, but the critical employment sector of our economy has shown few signs
of expansion during the past year. Consequently, our region continues to await
the broaderbased economic recovery experienced in other areas of the country.
Summarizing the financial highlights of 1996, net income was $5.7 million,
or $1.20 per share, representing an increase of 13.2% as compared to 1995.
Earnings for the year were reflective of a one-time governmental assessment
imposed by the Federal Deposit Insurance Corporation in the amount of $498
thousand before tax effect, related to the final resolution of the thrift
industry crisis. As noted earlier, our record level of earnings in 1996
represented the twenty-sixth consecutive year of such record results, truly a
remarkable accomplishment given the somewhat sluggish nature of our local
economy and the aforementioned FDIC assessment. While the Company's return on
assets improved by three basis points to .97%, return on equity declined
slightly to 12.98%, entirely due to our stockholder rights offering concluded
during July 1996. The Company was successful in raising $4.3 million in
additional common equity as a result of this offering, and this capital
expansion will serve us well as we seek to achieve longer range growth targets,
as set forth in our Mission 2000 strategic plan. The Company's capital ratios,
of course, continued at levels well in excess of Federal regulatory criteria for
well-capitalized institutions. Loans and deposits, the core of our business and
key components of our asset and liability structure, increased on average by 20%
and 8% during the course of 1996 as compared with the prior year. This is truly
an encouraging trend, and one which will be diligently fostered as we move
through 1997. The continuing growth of our Company, coupled with efficiency
enhancing measures such as stringent expense controls, will certainly serve us
well as we approach the year 2000.
For a more detailed analysis of the consolidated financial statements,
please refer to Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 24 of this report.
2
<PAGE>
State Bancorp, Inc.
- --------------------------------------------------------------------------------
The continuing growth and success of our Company has brought with it the
opportunity to promote a number of our talented executives to new positions
throughout the Bank. Foremost among these advancements are the promotions of
Susanne Pheffer (MIS), Robert J. Valli (Municipal Finance) and Jan Yngstrom
(Commercial Lending) to the post of Senior Vice President. Additionally, Jeffrey
N. Barber (Commercial Lending), Jean M. Cassese (Retail Lending), Mary E. Durkin
(Human Resources), John J. Kurek (Hauppauge) and Richard J. O'Brien (Commercial
Lending) have been promoted to Vice President, and Geraldine Harden (Credit
Administration), John J. McEniry (Retail Lending) and Katherine A. O'Brien
(Finance) have been advanced to the position of Assistant Vice President. During
the early part of 1996, we were pleased to announce the appointment of Diane T.
Beck (MIS), Karyn F. Rodriguez (Credit Training) and Karen M. Williams
(Huntington) also to the position of Assistant Vice President.
Finally, the Board of Directors has appointed Paul R. Cronen (Garden City)
and Cynthia Monahan (Bank Operations) to the post of Manager, and Anne N.
Capogrosso (Commercial Lending), Deanne L. Fitteron (Commercial Lending), Lisa
Ramos-Lopez (Rockville Centre), and Janine Martini (MIS) to the post of
Assistant Manager.
One of the more significant developments affecting our Company during 1996
was the consolidation of our Lending Division into our new 26,000 square-foot
facility at Two Jericho Plaza. This move was accomplished during the fourth
quarter of 1996, and now provides a centralized location for all of our
commercial and consumer lenders. This state-of-the-art facility will also serve
as the new home for our Board of Directors, as well as for our Office of the
Chairman, all during the first quarter of 1997. It is with much enthusiasm that
we look toward the enhanced operating efficiencies this beautiful new facility
will create.
Once again, the untiring efforts of both our Board of Directors and our
Advisory Board have contributed greatly to the successes enjoyed by our Company
over these many years. We were delighted to welcome Arthur Dulik, Jr. to our
Board of Directors in July 1996, bringing our total number of directors to
twelve. Mr. Dulik is the Chief Financial Officer of Melville-based Altana, Inc.,
a diversified manufacturer of pharmaceuticals, chemicals and instruments. Prior
to joining Altana, Inc., Mr. Dulik was employed by Deloitte & Touche, where he
managed the State Bank relationship. It is with much enthusiasm that we look
forward to the contribution his long-term familiarity with our organization and
his valued insights will bring to our Board.
As I have reported on several occasions, our Dividend Reinvestment Plan,
created in 1993, continues to afford our stockholders the opportunity to
reinvest their cash dividends into Company stock. Additional purchases of stock
can be made each quarter, both through the reinvestment of the cash dividend as
well as the contribution of additional cash for investment. Since its inception
just a few years ago, this Plan has been exceptionally well received and has
served to contribute $2 million in capital toward the continuing growth of our
Company.
As a final item, I am pleased to report on the continuing progress toward
the realization of our long-range goals, as set forth several years ago in our
Mission 2000 strategic plan. You may recall that this ambitious program
suggested that we would be an institution of $1 billion in assets and $10
million in net income in the year 2000. Remarkably, as of year-end 1996, we were
within three percent of our net income objective at this stage of Mission 2000's
duration. Our 1997 Profit Plan, likewise, suggests that we will be within three
percent of realizing our set of net income goals for 1997 as we advance toward
the year 2000. This is all quite exciting to us, and I trust our many valued
stockholders, customers and friends share this sense of ongoing excitement.
The year 1996 was one of significant accomplishment for all of us here at
State Bancorp and State Bank of Long Island. It is with eager anticipation that
we now look forward to the few years remaining in the 20th century, and beyond,
to the continued growth and prosperity of our fine organization. We are
confident that the years ahead will bring us even greater successes as we
continue to serve the people, businesses and governments of our Long Island
marketplace, as the region's pre-eminent independent commercial bank.
Sincerely,
s/Thomas F. Goldrick, Jr.
Thomas F. Goldrick, Jr.
Chairman of the Board and
Chief Executive Officer
March 15, 1997
3
<PAGE>
Preparing for the Future
1996
[PHOTO]
- --------------------------------------------------------------------------------
- ----------------------------
| | NEW TECHNOLOGIES
| | o Wide Area Network
| | o Upgrading Hardware
| | o Data Warehouse
| | o World Wide Web Site
- ----------------------------
The rapid changes that are occurring in technology have altered, forever, the
way we lead our lives and conduct our business. Everyday there is a new
announcement about technical improvements in either hardware or software that
promises to expedite or facilitate how we work or play.
Through existing technologies, many things have become seemingly reversed and
readily accepted. Instead of going to work, work can now come to you via a
computer. On the internet, local companies can have a global presence and
face-to-face conferences no longer require a meeting room.
New Technologies
Technology's potential has not been lost on the banking industry. At State Bank
of Long Island, we have strived to implement technological improvements that
recognize the inherent value of our customers and their needs. For example, in
1996 we began installing a Wide Area Network across our branch system that, when
completed, will greatly improve our ability to respond to customer requests at
any location. For the same reason, branch terminals are being systematically
replaced with desktop personal computers.
- --------------------------------------------------------------------------------
By investing in technologies, and evaluating our expanding
4
<PAGE>
[PHOTO] [PHOTO]
In 1997, we will install a new data warehouse that will enable us to convert
in-house data to useful business information for ourselves and our customers. By
itself, data has little value until it is converted into information that
supports decision making.
We are also exploring the development of a World Wide Web site on the Internet.
As individuals and businesses become more proficient in using the Web, this
free-form marketplace will continue to experience phenomenal growth and we
intend to be part of it. Through the Web, customers, stockholders and prospects
will have access to current information about our products and services,
interest rates, up-coming community events, branch locations and corporate
developments. Going forward, customers will be able to pre-qualify for mortgages
and other loans or open an account on our Web site.
In this electronic age, customers are looking for greater flexibility and
control over how and when they carry out routine banking services. At State Bank
of Long Island, we are committed to delivering our services to customers in as
user-friendly a manner as possible.
[PHOTO]
State Bank of Long
Island is committed
to implementing
technological
improvements that
provide value to
our customers.
- --------------------------------------------------------------------------------
services, we are prepared for continued growth into the next century.
5
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
New technologies will
make it easier for our
customers to bank as
they choose and access
services tailored to
their needs.
New Products and Services
To stay current with the demands of the marketplace, we introduced several new
business services during 1996 that offer our customers the flexibility and
control they seek.
Business Direct Access is a new electronic cash management system that provides
selected companies a link to all of their business bank accounts. Business and
municipal customers can, through easy-to-use menu interfaces, have quick access
to their account balances, make transfers between accounts, initiate wire and
ACH transfers, stop payments and send and receive electronic messages with the
Bank. With Business Direct Access, customers can handle most of their daily
business banking transactions from their desk.
For businesses that don't need a sophisticated cash management system, the Bank
has expanded its automated voice response system, Touch24. From any telephone,
small business customers can obtain account information, deposit and loan rates,
transfer funds
[PHOTO] [PHOTO]
6
<PAGE>
- --------------------------------------------------------------------------------
[MAP OF LONG ISLAND]
between designated accounts, verify check postings and receive a fax copy of
their statement. Users can also link directly to a Customer Service
Representative.
Also, in 1997, we expect to introduce a new small business line of credit that
will put the decision of how and when to use credit into the hands of business
owners. Customers will be able to apply for a revolving line of credit of up to
$100,000 and receive an answer usually within a few days. We will use a
customized credit scoring system that will help us evaluate customers based on a
simplified application.
At State Bank of Long Island, we will continue to invest in technologies that
meet the needs of our customers and enhance our capacity to serve them.
- --------------------------------
| | NEW PRODUCTS
& SERVICES
| | o Business Direct Access -
a new electronic cash
management system
| | o Business Touch24
| | o Small Business Line
of Credit
- --------------------------------
[logo] State Bank of Long Island
...We are Long Island
- --------------------------------------------------------------------------------
7
<PAGE>
- -------------------------------------------------------------------------------
Financial Table of Contents
- ----------------------------------------------------------
Consolidated Financial Statements 9
Notes to Consolidated Financial Statements 13
Auditor's Report 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Statistical Information 34
Market Data 40
Five Year Summary of Operations 41
8
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Notes 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash and due from banks 10,14 $ 34,676,593 $ 45,853,678
Securities purchased under agreements to resell 1,14 30,000,000 76,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 64,676,593 121,853,678
Securities held to maturity (approximate market value
of $30,486,626 in 1996 and $28,224,224 in 1995) 1,2,14 30,469,524 28,222,798
Securities available for sale-- at market value 1,2,14 156,931,674 204,391,430
Loans (net of allowance for possible loan losses of
$5,008,965 in 1996 and $5,004,216 in 1995) 1,3,13,14 348,293,930 282,574,525
Bank premises and equipment-- net 1,4 2,996,124 2,959,399
Other assets 1,5,7,14 12,049,810 10,948,638
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 615,417,655 $ 650,950,468
===================================================================================================================================
Liabilities:
Deposits: 1,14
Demand $ 96,600,418 $ 72,821,175
Savings 200,744,964 245,970,879
Time 177,105,107 178,947,900
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 474,450,489 497,739,954
Federal funds purchased 6,14 3,600,000 17,000,000
Securities sold under agreements to repurchase 14 74,079,000 83,217,774
Other short-term borrowings 6, 14 12,000,000 10,000,000
Accrued expenses, taxes and other liabilities 7,14 2,718,695 2,405,188
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 566,848,184 610,362,916
===================================================================================================================================
Commitments and Contingent Liabilities 9,10,13,14
Stockholders' Equity: 8
Preferred stock, $0.01 par value, authorized 250,000 shares -- --
Common stock, $5.00 par value, authorized 20,000,000 shares;
issued 5,101,048 shares in 1996 and 4,211,912 shares in 1995;
outstanding-- 5,013,883 shares in 1996 and 4,211,912 shares in 1995 25,505,240 21,059,560
Surplus 22,915,331 16,402,404
Retained earnings 2,130,980 3,159,000
Unrealized net loss on securities available for sale (net of deferred
income tax benefit of $649,167 in 1996 and $23,456 in 1995) (936,100) (33,412)
Unearned compensation 9 (1,045,980) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 48,569,471 40,587,552
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 615,417,655 $ 650,950,468
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Statements of Consolidated Earnings
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Notes 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income: 1
Loans 3 $29,063,647 $25,022,021 $19,754,955
Federal funds sold and securities purchased
under agreements to resell 1,734,542 1,466,075 907,144
Securities held to maturity and securities available for sale:
United States Treasury securities 648,878 1,616,262 1,440,419
States and political subdivisions 1,607,059 2,132,573 1,699,473
Mortgage-backed securities 7,658,115 7,521,153 7,196,680
Government Agency securities 2,343,098 1,584,265 268,333
Other 123,386 84,007 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 43,178,725 39,426,356 31,267,004
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Time certificates of deposit of $100,000 or more 7,390,698 6,167,786 3,108,368
Other deposits and temporary borrowings 11,739,929 12,501,783 8,869,348
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 19,130,627 18,669,569 11,977,716
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 24,048,098 20,756,787 19,289,288
Provision for possible loan losses 1,3 1,500,000 1,200,000 1,950,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible
loan losses 22,548,098 19,556,787 17,339,288
- -----------------------------------------------------------------------------------------------------------------------------------
Other Income:
Service charges on deposit accounts 1,305,089 1,113,625 972,809
Net security gains (losses) 135,130 (55,162) (30,272)
Other operating income 417,912 365,684 322,693
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income 1,858,131 1,424,147 1,265,230
- -----------------------------------------------------------------------------------------------------------------------------------
Income before operating expenses 24,406,229 20,980,934 18,604,518
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and other employee benefits 9 8,857,594 7,765,544 6,852,059
Occupancy 10 1,341,643 1,314,268 1,243,096
Equipment 514,630 506,673 494,034
Deposit assessment fees 729,386 542,034 941,869
Amortization of intangibles 605,147 634,007 589,601
Other operating expenses 3,488,113 2,720,530 2,612,517
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 15,536,513 13,483,056 12,733,176
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 8,869,716 7,497,878 5,871,342
Provision for Income Taxes 1,7 3,167,704 2,459,213 1,852,709
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,702,012 $ 5,038,665 $ 4,018,633
===================================================================================================================================
Earnings Per Common Share 1 $1.20 $1.12 $0.91
===================================================================================================================================
Average Number of Common Shares Outstanding 1 4,763,988 4,505,246 4,434,438
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
10
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Statements of Consolidated Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 5,702,012 $ 5,038,665 $ 4,018,633
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses 1,500,000 1,200,000 1,950,000
Depreciation and amortization of bank premises and equipment 536,390 532,136 486,484
Amortization of intangibles 605,147 634,007 589,601
Deferred income tax benefit (203,029) (280,277) (153,290)
Amortization of net premium on securities 1,336,874 1,234,306 1,279,221
Net security (gains) losses (135,130) 55,162 30,272
Gain on sale of other real estate owned ("OREO") (89,084) (7,330) --
Amortization of unearned compensation 155,254 -- --
Decrease (increase) in other assets, net 149,082 (80,725) (554,419)
(Decrease) increase in accrued expenses, taxes
and other liabilities (286,619) 1,034,645 73,382
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,270,897 9,360,589 7,719,884
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Proceeds from maturities of securities held to maturity 28,255,808 60,852,844 71,032,818
Purchases of securities held to maturity (30,562,652) (41,797,155) (86,787,664)
Proceeds from sales of securities available for sale 149,572,257 46,892,356 34,845,693
Proceeds from maturities of securities available for sale 82,595,593 37,053,383 31,191,843
Purchases of securities available for sale (187,378,118) (120,245,893) (61,076,933)
Increase in loans-- net (68,946,068) (33,558,101) (26,229,296)
Proceeds from sale of OREO 789,084 461,099 --
Purchases of bank premises and equipment, net (573,114) (771,721) (509,989)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,247,210) (51,113,188) (37,533,528)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
(Decrease) increase in demand and savings deposits (21,446,672) 77,520,526 (16,628,137)
(Decrease) increase in time deposits (1,842,793) 42,894,826 26,123,978
(Decrease) increase in Federal funds purchased (13,400,000) 1,000,000 15,575,000
(Decrease) increase in securities sold under agreements to repurchase (9,138,774) 8,301,479 (11,953,705)
Increase in other short-term borrowings 2,000,000 10,000,000 --
Cash dividends paid (1,530,848) (1,932,701) (1,182,519)
Proceeds from shares issued under the dividend reinvestment plan 703,183 679,813 394,643
Proceeds from stock options exercised 191,825 175,378 --
Proceeds from rights exercised 4,263,307 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (40,200,772) 138,639,321 12,329,260
- -----------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (57,177,085) 96,886,722 (17,484,384)
Cash and Cash Equivalents at Beginning of Year 121,853,678 24,966,956 42,451,340
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 64,676,593 $ 121,853,678 $ 24,966,956
===================================================================================================================================
Supplemental Data:
Interest paid $ 19,121,173 $ 18,355,250 $ 11,656,559
===================================================================================================================================
Income taxes paid $ 3,557,075 $ 2,472,750 $ 1,463,416
===================================================================================================================================
Transfer from loans to OREO $ 1,726,663 $ -- $ 453,769
===================================================================================================================================
Adjustment to unrealized net loss on securities available for sale $ 1,528,398 $ (1,500,759) $ 3,044,933
===================================================================================================================================
Dividends declared but not paid as of year end $ 600,126 $ 421,191 $ --
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Net Gain (Loss)
on Securities
Common Retained Available Unearned
Notes Stock Surplus Earnings for Sale Compensation Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $16,870,255 $11,066,551 $ 5,913,437 $ 865,005 $ -- $ 34,715,248
Net income - -- 4,018,633 -- -- 4,018,633
Cash dividend ($.27 per share) 1 -- -- (1,182,519) -- -- (1,182,519)
10% stock dividend (337,863
shares at market value) 1 1,689,315 1,858,247 (3,547,562) -- -- --
Shares issued under the dividend
reinvestment plan (40,905 shares
at 95% of market value) 204,525 190,118 -- -- -- 394,643
Change in unrealized net gain
on securities available for sale 2 -- -- -- (1,775,535) -- (1,775,535)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 18,764,095 13,114,916 5,201,989 (910,530) -- 36,170,470
Net income -- -- 5,038,665 -- -- 5,038,665
Cash dividend ($.52 per share) 1 -- -- (2,353,892) -- -- (2,353,892)
10% stock dividend (378,221
shares at market value) 1 1,891,105 2,836,657 (4,727,762) -- -- --
Shares issued under the dividend
reinvestment plan (58,824 shares
at 95% of market value) 294,120 385,693 -- -- -- 679,813
Stock options exercised 8 110,240 65,138 -- -- -- 175,378
Change in unrealized net loss
on securities available for sale 2 -- -- -- 877,118 -- 877,118
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 21,059,560 16,402,404 3,159,000 (33,412) -- 40,587,552
Net income -- -- 5,702,012 -- -- 5,702,012
Cash dividend ($.44 per share) 1 -- -- (2,130,974) -- -- (2,130,974)
8% stock dividend (340,671
shares at market value) 1 1,703,355 2,895,703 (4,599,058) -- -- --
Shares issued under the dividend
reinvestment plan (57,752 shares
at 95% of market value) 288,760 414,423 -- -- -- 703,183
Stock options exercised 8 125,000 66,825 -- -- -- 191,825
Rights exercised 9 2,328,565 3,134,742 -- -- (1,200,000) 4,263,307
Amortization of unearned
compensation 9 -- 1,234 -- -- 154,020 155,254
Change in unrealized net loss on
securities available for sale 2 -- -- -- (902,688) -- (902,688)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $25,505,240 $22,915,331 $ 2,130,980 $ (936,100) $(1,045,980) $ 48,569,471
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and
Reporting Policies
Organization and Nature of Operations -- The consolidated financial
statements include the accounts of State Bancorp, Inc. and its wholly-owned
subsidiary, State Bank of Long Island (the "Bank"). The Bank's consolidated
financial statements include the accounts of its wholly-owned subsidiaries, New
Hyde Park Leasing Corporation and SB ORE Corp. State Bancorp, Inc. and
subsidiary are collectively referred to hereafter as the "Company." All
intercompany accounts and transactions have been eliminated.
The Company was incorporated as a bank holding company under the laws of
the state of New York in 1985 to provide consumer, commercial and municipal
banking services to clients located primarily in the Queens, Nassau and Suffolk
County areas. It offers a full range of deposit and loan products through seven
full service branches. In addition, the Company offers merchant credit card
services, access to annuity products and offers a consumer debit card with
membership in a national ATM network. The Company currently has ATMs at five of
its seven branch locations.
Basis of Presentation -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant accounting and
reporting policies:
Securities Held to Maturity and Securities Available For Sale -- At the
time of purchase of a security, the Bank designates the security as either
available for sale or held to maturity, depending upon investment objectives,
liquidity needs and intent. Securities held to maturity are stated at cost,
adjusted for premium amortized or discount accreted, if any. The Bank has the
intent and ability to hold such securities to maturity. Securities available for
sale are stated at estimated market value. Unrealized gains and losses are
excluded from earnings and reported as a net amount as a separate component of
stockholders' equity until realized. Trading securities are purchased and held
principally for the purpose of selling them in the near term. Trading generally
reflects active and frequent buying and selling, and trading securities are
generally used with the objective of generating profits on short-term
differences in price. As of December 31, 1996 and 1995, the Bank did not hold
any trading securities. Interest earned on investment securities is included in
interest income. The cost used in computing realized gains and losses is
determined by the specific identification method.
Income Recognition -- The Bank discontinues the accrual of interest on
loans whenever there is reasonable doubt that interest and/or principal will be
collected, or when either principal or interest is ninety days or more past due
and the loan is not well collateralized nor in the process of collection. Income
is not accrued for installment loans which are 90 days past due unless the Bank
holds cash collateral therefor. Interest received on nonaccrual loans is either
applied against principal or reported as income, according to management's
judgement as to the collectibility of the principal.
Allowance for Possible Loan Losses -- The allowance for possible loan
losses is established through a provision for loan losses charged to expenses.
Loans are charged against the allowance when management believes that the
collectibility of the principal is unlikely, while recoveries of previously
charged-off loans are credited to the reserve. The balance in the allowance for
possible loan losses is maintained at a level that, in the opinion of
management, is sufficient to absorb future losses. To determine that level,
management identifies problem loans based on the financial condition of the
borrower, and the value of any collateral and/or guarantor support. Based upon
the resultant risk categories assigned to each loan and the procedures regarding
impairment described below, an appropriate reserve level is determined.
Management also evaluates the quality of, and changes in, the portfolio, while
also taking into consideration the Bank's historical loss experience, the
existing economic climate of the service area in which the Bank operates,
examinations by regulatory authorities, internal reviews and other evaluations
in determining the appropriate allowance balance. While management utilizes all
available information to estimate the adequacy of the allowance for possible
loan losses, the ultimate collectibility of a substantial portion of the loan
portfolio and the need for future additions to the allowance will be based upon
changes in economic conditions and other relevant factors.
Effective January 1, 1995, the Company adopted Statements of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"), and No. 118, "Accounting by Creditors for Impairment of a Loan
- -- Income Recognition and Disclosures" ("SFAS No. 118"). Commercial and
commercial real estate loans are considered impaired when, based on current
information and events, it is probable that the Company will not be able to
collect all of the principal and interest due under the contractual terms of the
loan. Management considers all nonaccrual loans for impairment. Large groups of
smaller-balance homogeneous loans, such as consumer and residential mortgages,
are collectively evaluated for impairment. The following assumptions are used by
management in evaluating loans for impairment:
Loans individually evaluated for impairment -- The Company evaluates all
nonaccrual commercial mortgages, nonaccrual commercial and industrial loans and
certain accruing, restructured loans over $250,000. Loans restructured
subsequent to January 1, 1995 are required to be reported as impaired in the
year of restructuring. Thereafter, such loans are excluded from impaired loans
if the loans were at a market rate of interest at the time the loan was
restructured and are performing in accordance with their renegotiated terms. The
Company generally considers six months as demonstration of performance.
13
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Measurement of impairment -- The allowance for possible loan losses related
to loans that are impaired includes reserves which are based upon the expected
future cash flows, discounted at the loan's effective interest rate, the fair
value of the underlying collateral for collateral-dependent loans or the
observable market price. This evaluation is inherently subjective as it requires
material estimates, including the amount and timing of future cash flows
expected to be received on impaired loans, that may be susceptible to
significant change.
Payments on impaired loans -- Payments on impaired loans that are on
nonaccrual status are typically applied to principal unless the collectibility
of the principal amount is fully assured; in which case, interest is recognized
on a cash basis. Interest on other impaired loans is recognized on the accrual
basis in accordance with the contractual terms. Charge-offs on impaired loans
are applied against the allowance for possible loan losses whenever there is
reasonable doubt that principal will be collected.
Bank Premises and Equipment-Net -- Bank premises and equipment are stated
at cost, less accumulated depreciation and amortization. Depreciation expense is
computed on the straight-line method over the estimated useful lives of the
related assets which range from 3 to 40 years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the remaining
terms of the leases.
Loan Origination Fees and Costs -- Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
on the related loan.
Income Taxes -- The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the Company's consolidated financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. As changes in tax laws are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Cash Dividends -- Cash dividends per common share have been restated to
give retroactive effect to stock dividends.
Stock Dividends -- Stock dividends issued are recorded by transferring the
aggregate market value of the shares issued from retained earnings to common
stock and surplus. All per share information included in the consolidated
financial statements and the notes thereto has been restated to give retroactive
effect to stock dividends.
Earnings Per Common Share -- Earnings per common share are computed based
on the weighted average number of shares outstanding after giving retroactive
effect to stock dividends. The impact of the assumed exercise of stock options
is immaterial or antidilutive in all years presented.
Statements of Cash Flows -- For the purpose of presenting the statements of
consolidated cash flows, the Company considers Federal funds sold and securities
purchased under agreements to resell to be cash equivalents because such assets
are convertible into fixed amounts of cash within several days of initial
purchase.
Loans Foreclosed -- Property acquired through foreclosure (other real
estate owned or "OREO") is stated at the lower of cost or fair value, less
estimated selling costs. Losses arising at the time of foreclosure are charged
against the allowance for possible loan losses. Revenues and expenses from
operations and changes in the carrying value of these assets are included in
other income and operating expenses.
Intangibles -- Intangibles consist of core deposit intangibles and the
excess market value of leases acquired. Intangibles are carried at cost less
accumulated amortization. Amortization is provided over the period of
anticipated benefit (3 to 19 years).
Reclassifications -- Certain reclassifications have been made to prior
years' amounts to conform them to the current year's presentation.
2. Securities Held to Maturity and Securities
Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated market
value of securities held to maturity and securities available for sale at
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
Obligations of states
and political subdivisions $ 30,469,524 $ 17,102 $ -- $ 30,486,626
- --------------------------------------------------------------------------------------------------------
Total Securities
Held to Maturity 30,469,524 17,102 -- 30,486,626
- --------------------------------------------------------------------------------------------------------
Securities Available for Sale:
Obligations of states
and political subdivisions 18,162,605 9,738 (4,343) 18,168,000
Corporate securities 1,971,050 -- -- 1,971,050
Government Agency
securities 44,785,256 5,282 (408,808) 44,381,730
Mortgage-backed securities
and collateralized
mortgage obligations 93,598,030 48,814 (1,235,950) 92,410,894
- --------------------------------------------------------------------------------------------------------
Total Securities
Available for Sale 158,516,941 63,834 (1,649,101) 156,931,674
- --------------------------------------------------------------------------------------------------------
Total Securities $188,986,465 $ 80,936 $(1,649,101) $187,418,300
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1995 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
Obligations of states
and political subdivisions $ 28,222,798 $ 1,426 $ -- $ 28,224,224
- --------------------------------------------------------------------------------------------------------
Total Securities
Held to Maturity 28,222,798 1,426 -- 28,224,224
- --------------------------------------------------------------------------------------------------------
Securities Available for Sale:
U.S. Treasury securities 25,482,454 249,146 -- 25,731,600
Obligations of states and
political subdivisions 14,731,728 17,521 (3,248) 14,746,001
Corporate securities 1,429,850 -- -- 1,429,850
Government Agency
securities 24,989,444 78,056 -- 25,067,500
Mortgage-backed securities
and collateralized
mortgage obligations 137,814,822 -- (398,343) 137,416,479
- --------------------------------------------------------------------------------------------------------
Total Securities
Available for Sale 204,448,298 344,723 (401,591) 204,391,430
- --------------------------------------------------------------------------------------------------------
Total Securities $232,671,096 $346,149 $(401,591) $232,615,654
========================================================================================================
</TABLE>
14
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasury securities $ 6,199,237 $ -- $(187,677) $ 6,011,560
Obligations of states
and political subdivisions 35,490,031 10,625 (183,654) 35,317,002
Corporate securities 18,150 -- -- 18,150
Government Agency
securities 10,000,000 -- (306,500) 9,693,500
Mortgage-backed securities 84,649,381 -- (5,674,781) 78,974,600
- --------------------------------------------------------------------------------------------------------
Total Securities
Held to Maturity 136,356,799 10,625 (6,352,612) 130,014,812
- --------------------------------------------------------------------------------------------------------
Securities Available for Sale:
U.S. Treasury securities 19,639,417 -- (516,417) 19,123,000
Obligations of states
and political subdivisions 25,227,064 -- (89,623) 25,137,441
Mortgage-backed securities
and collateralized
mortgage obligations 35,492,819 4,141 (955,728) 34,541,232
- --------------------------------------------------------------------------------------------------------
Total Securities
Available for Sale 80,359,300 4,141 (1,561,768) 78,801,673
- --------------------------------------------------------------------------------------------------------
Total Securities $216,716,099 $ 14,766 $(7,914,380) $208,816,485
========================================================================================================
</TABLE>
The amortized cost and estimated market value of securities held to
maturity and securities available for sale at December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
- --------------------------------------------------------------------------------
Securities Held to Maturity:
Due in one year or less $ 30,272,724 $ 30,279,124
Due after one year through five years 84,800 84,862
Due after five years through ten years 112,000 122,640
- --------------------------------------------------------------------------------
Total Securities Held to Maturity $ 30,469,524 $ 30,486,626
- --------------------------------------------------------------------------------
Securities Available for Sale:
Due in one year or less $ 18,067,605 $ 18,063,262
Due after five years through ten years 44,880,256 44,486,468
Due after ten years 1,971,050 1,971,050
- --------------------------------------------------------------------------------
Subtotal 64,918,911 64,520,780
Mortgage-backed securities and
collateralized mortgage obligations 93,598,030 92,410,894
- --------------------------------------------------------------------------------
Total Securities Available for Sale $158,516,941 $156,931,674
================================================================================
In 1996, 1995 and 1994, gross gains of $325,979, $7,758 and $4,748, and
gross losses of $190,849, $62,920 and $35,020, respectively, were realized on
the sale of securities available for sale.
During the fourth quarter of 1995, the Company reclassified $86,500,000 of
securities held to maturity to securities available for sale as the Financial
Accounting Standards Board permitted a one-time opportunity for institutions to
reassess the appropriateness of the designation of securities. The fair value of
the securities at the date of transfer was $86,000,000 and the net unrealized
loss of $500,000 was reported, net of deferred tax benefits, as a separate
component of stockholders' equity.
At December 31, 1996, the Bank owned securities held to maturity and
securities available for sale in excess of ten percent of stockholder's equity
for the following issuers:
Estimated
Amortized Market
Cost Value
- --------------------------------------------------------------------------------
Town of North Hempstead $9,359,266 $9,357,488
Rockville Centre Union Free School District $5,009,655 $5,009,540
Securities held to maturity and securities available for sale with an
amortized cost of $175,123,931 and $210,974,658 and an estimated market value of
$173,565,163 and $210,869,615 at December 31, 1996 and 1995, respectively, were
pledged for public deposits, securities sold under agreements to repurchase and
fiduciary purposes.
3. Loans -- Net
At December 31, 1996 and 1995, net loans consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Commercial and industrial $163,780,246 $130,617,409
Real estate-- mortgage 160,104,423 137,066,419
Real estate-- construction 13,131,899 7,797,685
Loans to individuals 7,525,603 6,323,169
Tax exempt and other 8,841,199 5,838,035
- --------------------------------------------------------------------------------
Gross loans 353,383,370 287,642,717
Less:
Unearned income 80,475 63,976
Allowance for possible loan losses 5,008,965 5,004,216
- --------------------------------------------------------------------------------
Loans-- net $348,293,930 $282,574,525
================================================================================
The Bank's real estate loans and loan commitments are primarily for
properties located throughout Long Island. It is the Bank's policy to spread
risk among a broad range of industries and to monitor concentration and
associated levels of risk on an ongoing basis. As of December 31, 1996, the only
concentration of loans exceeding 10% of total loans was the Bank's loans
totaling $67,400,000 from real estate operators, lessors and developers.
Repayment of these loans is dependent in part upon the overall economic health
of the Company's market area and current real estate values. Credit losses
arising from lending transactions in this industry compare favorably with the
Bank's credit loss experience on its portfolio as a whole. The Bank considers
the credit circumstances, the nature of the project, and loan to value ratios
for all real estate loans. The Bank's loan to value policies are generally more
conservative than regulatory guidelines.
The Bank makes loans to its directors and executive officers, as well as to
other related parties, in the ordinary course of its business. These loans are
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and, in the opinion of management, do not bear more than normal credit
risk. Loans made to directors and executive officers, either directly or
indirectly, totaled $2,171,487 and $2,439,505 at December 31, 1996 and 1995,
respectively.
15
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
New loans totaling $2,083,206 and $3,081,645 were extended and payments of
$2,351,224 and $2,693,332 were received during 1996 and 1995, respectively, on
these loans.
Activity in the allowance for possible loan losses for the three years
ended December 31, 1996 is as follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Balance, January 1, $ 5,004,216 $ 4,928,521 $ 4,725,033
Provision charged to income 1,500,000 1,200,000 1,950,000
Charge-offs, net of
recoveries of $99,796,
$69,744 and $168,053 (1,495,251) (1,124,305) (1,746,512)
- -------------------------------------------------------------------------------
Balance, December 31, $ 5,008,965 $ 5,004,216 $ 4,928,521
===============================================================================
Effective January 1, 1995, the Bank adopted the provisions of SFAS No. 114
and SFAS No. 118, as discussed in Note 1. As of December 31, 1996 and 1995, the
recorded investment in loans that are considered to be impaired is summarized
below.
1996 1995
- --------------------------------------------------------------------------------
Amount measured using the present
value of expected future cash flows,
discounted at each loan's effective
interest rate $6,254,441 $1,632,257
Impaired collateral-dependent loans 3,024,091 6,150,429
- --------------------------------------------------------------------------------
Total amount evaluated
as impaired $9,278,532 $7,782,686
- --------------------------------------------------------------------------------
Average impaired loan balance $7,428,255 $6,498,542
- --------------------------------------------------------------------------------
Interest income recognized on impaired loans $ 113,108 $ 153,903
================================================================================
As a result of the Bank's measurement of impaired loans, an allowance for
possible loan losses of approximately $1,244,000 and $1,177,000 was established
for $8,602,044 and $6,416,198 of the total impaired loans at December 31, 1996
and 1995, respectively. No specific allowance is required for the remaining
balance of impaired loans.
At December 31, 1996 and 1995, loans with unpaid principal balances were
$5,869,349 and $8,246,847, respectively, on which the Bank is no longer accruing
interest income. Interest income would have been approximately $741,000 and
$511,000 greater in 1996 and 1995, respectively, had these loans been current.
Interest income on total nonaccrual loans, which is recorded only when received,
amounted to approximately $35,000, $61,000 and $124,000 for 1996, 1995 and 1994,
respectively.
At December 31, 1996 and 1995, loans restructured, and still accruing
interest in accordance with the modified terms, were $6,524,403 and $3,344,015,
respectively. Interest income would have been approximately $428,000 and $66,000
greater in 1996 and 1995, respectively, had the restructured loans performed
according to their original terms.
4. Bank Premises and Equipment -- Net
At December 31, 1996 and 1995, Bank premises and equipment consisted of the
following:
Accumulated
Depreciation/ Net Book
Cost Amortization Value
- --------------------------------------------------------------------------------
December 31, 1996:
Building and improvements $1,699,259 $ 603,032 $1,096,227
Leasehold improvements 1,283,642 536,657 746,985
Furniture and fixtures 4,174,451 3,021,539 1,152,912
- --------------------------------------------------------------------------------
Total $7,157,352 $4,161,228 $2,996,124
- --------------------------------------------------------------------------------
December 31, 1995:
Building and improvements $1,686,729 $ 546,259 $1,140,470
Leasehold improvements 1,218,281 428,834 789,447
Furniture and fixtures 3,711,800 2,682,318 1,029,482
- --------------------------------------------------------------------------------
Total $6,616,810 $3,657,411 $2,959,399
================================================================================
5. Other Assets
At December 31, 1996 and 1995, other assets consisted of the following:
1996 1995
- --------------------------------------------------------------------------------
Core deposit intangibles (net of
accumulated amortization of
$2,679,895 and $2,110,885) $ 616,427 $ 1,185,438
Interest receivable-- investments 2,540,648 3,146,140
Interest receivable-- loans 2,190,192 2,027,698
Net deferred income taxes 3,123,074 2,295,700
Prepaid expenses 673,454 529,343
Excess market value of leases acquired
(net of accumulated amortization of
$150,560 and $114,423) 471,906 508,043
Cash surrender value of life
insurance policies 1,000,731 864,135
Principal receivable--
mortgage-backed securities 169,777 218,556
Other real estate owned 1,026,663 --
Other 236,938 173,585
- --------------------------------------------------------------------------------
Total $12,049,810 $10,948,638
================================================================================
6. Lines of Credit
At December 31, 1996 and 1995, correspondent banks extended informal
unsecured lines of credit aggregating $16,500,000 and $17,000,000, respectively,
to the Bank for foreign exchange transactions and for the purchase of Federal
funds. The average amount outstanding under these credit facilities was
$3,578,000 in 1996 and $2,578,000 in 1995. At December 31, 1996 and 1995,
$3,600,000 and $17,000,000, respectively, were outstanding under these
facilities.
In addition to the above, the Bank may use a line of credit with the
Federal Home Loan Bank of New York ("FHLB") for overnight funding or on a term
basis to match fund asset purchases. Based upon a multiple of the FHLB stock
that the Bank owns, approximately $13,700,000 of this line may be drawn, of
which $12,000,000 was outstanding as of December 31, 1996. The average amount
outstanding under this facility was $1,425,000 in 1996 and $263,000 in 1995.
This line is renewed on an annual basis.
16
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
7. Income Taxes
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994 are as follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Federal:
Current $ 2,465,747 $ 1,915,595 $ 1,358,914
Deferred (202,633) (204,411) (110,438)
- -------------------------------------------------------------------------------
Subtotal 2,263,114 1,711,184 1,248,476
- -------------------------------------------------------------------------------
State:
Current 904,986 823,895 647,085
Deferred (396) (75,866) (42,852)
- -------------------------------------------------------------------------------
Subtotal 904,590 748,029 604,233
- -------------------------------------------------------------------------------
Total $ 3,167,704 $ 2,459,213 $ 1,852,709
===============================================================================
Total income tax expense was different from the amounts computed by
applying the statutory Federal income tax rate to income before income taxes due
to the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
at statutory rate $ 3,015,703 34.0% $ 2,549,279 34.0% $ 1,996,257 34.0%
Increase (reduction)
in taxes resulting from:
Tax exempt interest
on investments, net
of interest expense
disallowed of
$190,349, $269,939
and $149,959 (520,137) (5.9) (601,743) (8.0) (559,980) (9.5)
State income tax,
net of Federal
tax benefit 597,029 6.7 493,699 6.6 398,794 6.8
Other 75,109 0.9 17,978 0.2 17,638 0.3
- ------------------------------------------------------------------------------------------------------------------------
Income tax expense $ 3,167,704 35.7% $ 2,459,213 32.8% $ 1,852,709 31.6%
========================================================================================================================
The components of the deferred tax benefit are as follows:
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess of book over
tax depreciation $ (42,080) $ (50,451) $ (26,395)
Deficiency (excess) of book
over tax bad debt provision 31,199 (31,334) (1,947)
Excess of book over tax
amortization of intangibles (135,772) (146,787) (131,911)
Recapture of allowance
for possible loan losses (99,391) (60,505)
Other-- net 43,015 8,800 6,963
- -------------------------------------------------------------------------------
Total $(203,029) $(280,277) $(153,290)
- -------------------------------------------------------------------------------
At December 31, 1996 and 1995, the deferred tax assets and liability are
comprised of the following:
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 2,058,599 $ 2,071,510
Unrealized holding loss on securities
available for sale 649,167 23,456
Intangible assets 733,823 602,374
Property and equipment 105,660 77,333
Other 73,039 65,570
- -------------------------------------------------------------------------------
Subtotal 3,620,288 2,840,243
- --------------------------------------------------------------------------------
Deferred tax liability--
Recapture of allowance for
possible loan losses (497,214) (544,543)
- -------------------------------------------------------------------------------
Net deferred tax asset $ 3,123,074 $ 2,295,700
- -------------------------------------------------------------------------------
</TABLE>
The deferred tax assets and liability are netted and presented in a single
amount, which is included in other assets in the accompanying consolidated
balance sheets. The income tax expense (benefit) associated with net realized
security gains (losses) amounted to $55,376, $(22,891) and $(12,612) in 1996,
1995 and 1994, respectively.
8. Incentive Stock Option Plans
Under the terms of the Company's incentive stock option plans adopted in
January 1987 and April 1994, options have been granted to certain key personnel
which entitle each holder to purchase shares of the Company's common stock. The
option price is the higher of the fair market value or the book value of the
shares at the date of grant. Such options are exercisable commencing one year
from the date of grant, at the rate of 25 percent per year, and expire eight
years from the date of the grant.
At December 31, 1996, 72,033 options for the purchase of 115,574 shares
were exercisable, and 167,755 shares were reserved for possible issuance. A
summary of stock option activity follows after giving retroactive effect to all
stock dividends:
17
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Weighted
Average
Option Price Exercise
Number Number (Approximate Fair Price
of Options of Shares Value at Date of Grant) Total Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding --
January 1, 1994 89,800 181,238 $10.60 -- $31.00 $ 1,298,394 $ 7.16
Forfeited (1,100) (2,661) $10.60 -- $31.00 (18,850) $ 7.08
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding --
December 31, 1994 88,700 178,577 $10.60 -- $31.00 1,279,544 $ 7.17
Granted 29,300 34,808 $12.63 369,913 $10.63
Exercised (5,659) (26,182) $30.00 -- $31.00 (175,378) $ 6.70
Cancelled or forfeited (2,694) (5,653) $10.60 -- $31.00 (41,716) $ 7.38
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding --
December 31, 1995 109,647 181,550 $10.60 -- $30.00 1,432,363 $ 7.89
Granted 30,900 33,372 $14.25 440,325 $13.19
Exercised (7,453) (26,899) $10.60 -- $30.00 (191,825) $ 7.13
Cancelled or forfeited (4,199) (6,966) $10.60 -- $30.00 (54,339) $ 7.80
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding --
December 31, 1996 128,895 181,057 $10.60 -- $14.25 $1,626,524 $ 8.98
=================================================================================================================================
</TABLE>
The following summarizes shares subject to purchase from options
outstanding and exercisable as of December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average
Remaining Weighted Average Shares Weighted Average
Range of Exercise Prices Shares Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 6.96 -- $ 7.91 114,140 2.9 yrs. $ 7.28 107,080 $ 7.27
$10.63 -- $13.19 66,917 6.7 yrs. $11.89 8,494 $10.63
------- -------
181,057 4.3 yrs. $ 8.98 115,574 $ 7.52
</TABLE>
The estimated fair value of options granted during 1996 and 1995 was $5.81
and $5.57, respectively, per share. The Company applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its incentive stock option plans. Had
compensation cost for the Company's two plans been determined at the fair value
on the grant dates for awards under those plans, consistent with the method in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation," the Company's net income and earnings per share for the year
ended December 31, 1996 would have been reduced to the pro forma amounts
indicated below.
1996 1995
- --------------------------------------------------------------------------------
Net income
As reported $5,702,012 $5,038,665
Pro Forma $5,616,292 $4,997,865
- --------------------------------------------------------------------------------
Earnings per common share
As reported $1.20 $1.12
Pro Forma $1.18 $1.11
- --------------------------------------------------------------------------------
The fair value of options granted under the Company's incentive stock
option plans during 1996 was estimated on the date of grant using the Binomial
option-pricing model with the following weighted average assumptions used: 2.9%
dividend yield, expected volatility of 38.74% in 1996 and $43.11% in 1995, risk
free interest rate of 6.25%, and expected lives of 7.8 years.
9. Employee Benefit Plans
The Bank has an Employee Stock Ownership Plan (the "ESOP") which is a
defined contribution plan covering substantially all full-time employees. Bank
contributions to the ESOP represent a minimum of three percent of an employee's
annual gross compensation. Employees become 20 percent vested after two years of
employment, with an additional 20 percent vesting each year. Full vesting takes
place upon the completion of six years of employment. Employee contributions are
not permitted. At December 31, 1996, the ESOP had all of its assets invested in
the Company's common stock. The Bank funds all amounts when due.
In July 1996, 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.
As the unearned shares are released from collateral and allocated among
participants, the Company recognizes compensation expense equal to the current
market price of the shares released and the shares become outstanding for
earnings per share computations. Contributions under the ESOP charged to
operations amounted to $433,294, $346,284 and $306,307 in 1996, 1995 and 1994,
respectively. Compensation expense of $155,254 is applicable to the 12,835
shares allocated in 1996. As of December 31, 1996, the value of the 87,165
unallocated shares was $1,100,458.
The Bank has a 401(k) Retirement Plan and Trust (the "401(k) Plan"), which
covers substantially all full-time employees. Employees may elect to contribute
up to sixteen percent of their annual gross compensation to the 401(k) Plan, and
the Bank will match one-half of the employee's
18
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
contribution up to a maximum of three percent of the employee's annual gross
compensation. Employees are fully vested in both their own and Bank
contributions. Bank contributions under the 401(k) Plan amounted to $151,731,
$129,730 and $121,413 in 1996, 1995 and 1994, respectively. The Bank funds all
amounts when due. At December 31, 1996, contributions to the 401(k) Plan were
invested in either a bond, equity, money market, capital appreciation,
international equity, emerging markets equity, or diversified fund as directed
by each employee.
During 1995, the Bank adopted non-qualified deferred compensation plans
(the "Plans) for each officer for whom contributions under the ESOP are limited
by the applicable provisions of the Internal Revenue Code. Bank contributions
under the Plans totaled $25,297 and $24,923 in 1996 and 1995, respectively.
10. Commitments and Contingent Liabilities
Leases -- The Bank is obligated under various leases covering branches,
office space and the land on which its head office is built. The minimum
payments under these leases, certain of which contain escalation clauses, are:
1997 $ 766,224
1998 821,009
1999 843,148
2000 837,585
2001 864,178
Remainder to 2011 5,403,076
- --------------------------------------------------------------------------------
Total $9,535,220
================================================================================
Rent expense was approximately $657,000, $643,000 and $570,000 for 1996,
1995 and 1994, respectively.
Directors' Incentive Retirement Plan -- The Company has a Directors'
Incentive Retirement Plan for former directors of the Company who elected to
retire after having completed certain minimum service requirements. Under the
retirement plan, directors who elected to retire are entitled to receive, for a
period of five years after such retirement, certain compensation, as defined in
the retirement plan, as long as such director continues to consult with the
Company in an advisory capacity (or, if the director expires prior to the
completion of the consulting period, the beneficiary or estate designated by the
director is entitled to receive such remaining compensation).
In 1992, the Company adopted a new retirement plan, whereby five
individuals (four directors and the secretary to the Board of Directors), who
had been eligible to receive benefits under the old retirement plan, agreed to
cancel and surrender their rights in the old retirement plan in exchange for the
terms of the new retirement plan. The new retirement plan provides for the
payment of certain compensation annually to these five individuals through March
1, 2007. These individuals must be available to consult with the Company in an
advisory capacity during this period (or, if the director or secretary expires
prior to the completion of the consulting period, the beneficiary or estate
designated by the director or secretary is entitled to receive such remaining
compensation).
During 1996, 1995 and 1994, the Bank charged $263,038, $160,045 and
$211,967, respectively, to operations relating to the retirement plans.
Severance Commitments -- The Company has five Executive Severance Plans
(the "Plans") for certain key executives who are full-time employees of the rank
of First Vice President and above and who are designated as Plan participants by
the Board of Directors. The Plans provide for certain rights accruing to
participants in the event of a termination of the participant's employment
within one year after a change in control of the Company. These rights include a
cash payment and the continuation of certain employee benefits. In addition, all
stock options held by a participant will become immediately exercisable. In the
event that the participant enters into an employment contract, as defined in the
Plans, all rights to the severance payment and other benefits set forth above
will terminate. No amounts have been paid or accrued under the Plans.
Pending Claims and Contingent Liabilities -- There are various pending
claims and contingent liabilities arising in the normal course of business which
are not reflected in the accompanying consolidated financial statements.
Management considers that the aggregate liability, if any, resulting from
pending claims and contingent liabilities will not be material.
Other -- The Bank is required to maintain balances with the Federal Reserve
Bank of New York to satisfy reserve requirements. These balances averaged
approximately $4,408,000 in 1996 and $2,017,000 in 1995.
11. Effect of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFASNo. 125"), establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities based on
consistent application of a financial components approach that focuses on
control. Under this approach, an entity, subsequent to a transfer of financial
assets, must recognize the financial and servicing assets it controls and the
liabilities it has incurred, at fair value, if practical, and must derecognize
financial assets when control has been surrendered and liabilities when
extinguished. SFAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from those that are secured borrowings. A
transfer not meeting the criteria for a sale must be accounted for as a secured
borrowing with a pledge of collateral. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996, except for certain provisions which were deferred for
one year by Statement of Financial Accounting Standards No. 127, "Deferral of
the Effective Date of Certain Provisions of SFAS No. 125." Management is
currently assessing the effect that the adoption of SFAS No. 125 and SFAS No.
127 will have on the consolidated financial statements.
19
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
12. State Bancorp, Inc. (Parent Company Only)
(in thousands of dollars)
Certain condensed financial information follows:
December 31, 1996 1995
- -------------------------------------------------------------------------------
BALANCE SHEET
Assets:
Cash $ 4,418 $ --
Other assets 600 421
Investment in the Bank 44,151 40,588
- -------------------------------------------------------------------------------
Total Assets $ 49,169 $ 41,009
================================================================================
Liability-- Dividends Payable $ 600 $ 421
================================================================================
Stockholders' Equity:
Preferred stock -- --
Common stock 25,505 21,060
Surplus 22,915 16,402
Retained earnings 2,131 3,159
Unrealized net loss on securities
available for sale (936) (33)
Unearned compensation (1,046) --
- -------------------------------------------------------------------------------
Total Stockholders' Equity 48,569 40,588
================================================================================
Total Liability and Stockholders' Equity $ 49,169 $ 41,009
================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------
INCOME STATEMENT
Dividends from the Bank $ 2,131 $ 2,354 $ 1,183
Equity in the undistributed
earnings of the Bank 3,571 2,685 2,836
- -------------------------------------------------------------------------------
Net Income $ 5,702 $ 5,039 $ 4,019
================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------
CASH FLOWS
Operating Activities:
Net income $ 5,702 $ 5,039 $ 4,019
Less-- equity in the
undistributed earnings
of the Bank 3,571 2,685 2,836
- -------------------------------------------------------------------------------
Net cash provided by
operating activities 2,131 2,354 1,183
- -------------------------------------------------------------------------------
Financing Activities:
Cash dividends (2,131) (2,354) (1,183)
Proceeds from issuance of
common stock 5,313 855 395
Capital contribution to the Bank (895) (855) (395)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 2,287 (2,354) (1,183)
- -------------------------------------------------------------------------------
Net Change in Cash $ 4,418 $ -- $ --
================================================================================
13. Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off- balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby and
documentary letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
financial statements. The Company has not engaged in derivatives activities for
any of the reported periods.
The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit, and letters of credit is represented
by the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate and income-producing
commercial properties. At December 31, 1996 and 1995, commitments to originate
loans and commitments under unused lines of credit for which the bank is
obligated, amounted to approximately $84,263,000 and $53,372,000, respectively.
Letters of credit are conditional commitments issued by the Bank
guaranteeing payments of drafts in accordance with the terms of the letter of
credit agreements. Commercial letters of credit are used primarily to facilitate
trade or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluations of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions. At December 31, 1996 and 1995, the Bank had
letters of credit outstanding of approximately $4,180,000 and $3,190,000,
respectively.
See Note 3 for additional information regarding concentrations of credit
risk.
14. Disclosures About Fair Value of Financial Instruments
Fair value estimates are made as of a specific point in time based on the
characteristics of financial instruments and market information. Where
available, quoted market prices are used. However, markets do not exist for a
portion of the Bank's financial instruments and, as a result, fair value
estimates require judgements regarding future cash flows. These judgements are
subjective in nature, involve uncertainties and therefore may change
significantly at future measurement dates. The fair value information that
follows is intended to supplement, but not replace, the basic consolidated
financial statements and other traditional financial data presented
20
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STATE BANCORP, INC. AND SUBSIDIARY
throughout this report. In addition, the calculation of estimated fair values is
based on market conditions at December 31, 1996 and 1995 and is not reflective
of current or future fair values. Furthermore, the value of long-term
relationships with depositors are not reflected. The value of those
relationships is significant.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Short-Term Investments -- For cash and short-term investments (due
from banks, Federal funds sold, securities purchased under agreements to resell,
accrued interest receivable and certain other short-term assets), the carrying
amount is a reasonable estimate of fair value.
Securities Held to Maturity and Securities Available for Sale -- For
securities held to maturity and securities available for sale, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using a quoted market price for similar securities.
Loans -- The fair value of loans is estimated by discounting the expected
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings accounts and time
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Other Short-Term Liabilities -- Other short-term liabilities (Federal funds
purchased, securities sold under agreements to repurchase, accrued interest
payable and certain other short-term liabilities) are considered to have fair
values equal to their carrying amounts due to their short-term nature. These
instruments are presented in the table below as other short-term liabilities.
Commitments to Extend Credit, Standby Letters of Credit and Commercial
Letters of Credit -- The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit and commercial letters of credit is
based on fees currently charged for similar agreements.
The estimated fair values of the Bank's financial instruments are as
follows (in thousands):
Carrying Fair
1996 Amount Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $ 70,081 $ 70,081
Securities held to maturity and
securities available for sale 187,401 187,418
Loans -- net of the allowance
for possible loan losses 348,294 352,445
- --------------------------------------------------------------------------------
Total $605,776 $609,944
- --------------------------------------------------------------------------------
Financial liabilities:
Deposits $474,450 $479,234
Other short-term liabilities 90,547 90,547
- --------------------------------------------------------------------------------
Total $564,997 $569,781
================================================================================
Carrying Fair
1995 Amount Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and short-term investments $127,439 $127,439
Securities held to maturity and
securities available for sale 232,614 232,616
Loans -- net of the allowance
for possible loan losses 282,575 288,429
- --------------------------------------------------------------------------------
Total $642,628 $648,484
- --------------------------------------------------------------------------------
Financial liabilities:
Deposits $497,740 $498,557
Other short-term liabilities 111,076 111,076
- --------------------------------------------------------------------------------
Total $608,816 $609,633
================================================================================
As of December 31, 1996 and 1995, the fair value of the net deferred income
arising from unrecognized financial instruments (commitments to extend credit,
standby letters of credit and commercial letters of credit) approximated the
carrying values.
15. Regulatory Matters
Dividends paid by the Company are subject to restrictions by certain
regulatory agencies. Under these restrictions, approximately $6,514,000 was
available for payment of dividends at December 31, 1996, without prior approval
of those regulatory agencies.
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
the capital adequacy guidelines, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company's and Bank's capital amounts, and the Bank's
classification under the regulatory framework for prompt corrective action, are
also subject to qualitative judgements by the regulators about components, risk
weighting and other factors.
21
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STATE BANCORP, INC. AND SUBSIDIARY
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
capital and core (Tier I) capital, as defined in the regulation, to
risk-weighted assets and Tier I capital to adjusted average assets. Management
believes, as of December 31, 1996, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Company's and the Bank's capital amounts and ratios are as follows
(in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- --------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Tier I Capital to Total Adjusted
Average Assets (Leverage):
The Company $48,417 7.71% $18,840 4.00% $ N/A N/A
The Bank 43,999 7.01% 18,840 4.00% 31,400 5.00%
Tier I Capital to Risk-Weighted
Assets:
The Company 48,417 12.48% 15,515 4.00% N/A N/A
The Bank 43,999 11.11% 15,841 4.00% 23,762 6.00%
Total Capital to Risk-Weighted
Assets:
The Company 53,267 13.73% 31,029 8.00% N/A N/A
The Bank 48,950 12.36% 31,682 8.00% 39,603 10.00%
As of December 31, 1995:
Tier I Capital to Total Adjusted
Average Assets (Leverage):
The Company $38,928 6.56% $17,812 4.00% $ N/A N/A
The Bank 38,928 6.56% 17,812 4.00% 29,686 5.00%
Tier I Capital to Risk-Weighted
Assets:
The Company 38,928 11.35% 13,720 4.00% N/A N/A
The Bank 38,928 11.35% 13,720 4.00% 20,580 6.00%
Total Capital to Risk-Weighted
Assets:
The Company 43,932 12.81% 27,440 8.00% N/A N/A
The Bank 43,932 12.81% 27,440 8.00% 34,300 10.00%
</TABLE>
22
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Independent Auditors' Report
To the Board of Directors and Stockholders of
State Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of State
Bancorp, Inc. and subsidiary (the "Company") as of December 31, 1996 and 1995
and the related statements of consolidated earnings, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the financial position of State
Bancorp, Inc. and subsidiary at December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
s/ Deloitte & Touche LLP
- -------------------------
Jericho, New York
January 24, 1997
23
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition and Results of
Operations
State Bancorp, Inc. (the "Company") is a one-bank holding company which was
formed on June 24, 1986. The Company operates as the parent for its wholly-owned
subsidiary, State Bank of Long Island and subsidiaries (the "Bank"), a New York
State chartered commercial bank founded in 1966. The income of the Company is
derived through the operation of the Bank and its subsidiaries, the New Hyde
Park Leasing Corporation and SB ORE Corp.
For the year ended December 31, 1996, the Company again achieved record
levels of earnings and stockholders' equity. The following discussion is
intended to provide the reader with further insight into the principal factors
contributing to the Company's 1996 financial results.
Results of Operations and Financial Condition
Summary of Performance
The Company achieved its twenty-sixth consecutive year of record earnings
during 1996. Net income grew by 13.2% to $5.7 million or $1.20 per common share
in 1996 versus $5.0 million or $1.12 per share in 1995. Growth in net interest
income (up 15.9%) and other income (up 30.5%) were the principal reasons for the
growth in earnings during 1996. Somewhat offsetting the foregoing factors were
increases in operating expenses, principally salaries and benefits, and the
provision for loan losses along with a higher effective income tax rate.
The Company's capital position, by industry-standard measures, remains
strong. The ratio of average total stockholders' equity to average total assets
was 7.47% and 7.15% in 1996 and 1995, respectively. At December 31, 1996, this
ratio was 7.89%. 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 December 31, 1996, the Company's Tier I leverage
ratio was 7.71%, while its risk-weighted ratios were 12.48% for Tier I capital
and 13.73% for total capital. These ratios are substantially in excess of the
foregoing regulatory guidelines and also compare favorably to the Company's
peers.
The increase in net income during 1996 resulted in an improvement in one of
the Company's primary measures of financial performance. During 1996, return on
average assets increased by 3 basis points versus 1995 to 0.97%, while the
return on average equity was 12.98%, a slight decline from 13.11% in 1995. The
lower return on equity during 1996 was directly related to the increase in
equity resulting from the Company's 1996 common stock rights offering. In July
1996, the Company raised $4.3 million in common equity related to the rights
offering. Although this equity, which is being used to support expansion of the
Company's balance sheet, improves the Company's capital ratios, it depressed
return on average equity in the near term. During 1997, management of the
Company expects that the return on equity ratio will improve as the rights
offering proceeds will be utilized for a full year. The Company's primary trade
area is Long Island and 1996 was the first year of sustained recovery for the
local economy since the early 1990s. Job creation improved and small businesses
continued to expand and grow throughout the year. Long Island has become a
fertile growth area for small business creation, particularly in the high-tech
sector. The Company is an active participant in lending to small businesses in a
variety of Long Island industries. Throughout 1996, the Company experienced
strong loan demand and equally strong growth in demand deposit balances. This
growth was particularly in evidence during the fourth quarter of the year and
has shown signs of continuing into 1997. This scenario bodes well for the
Company if the local economy continues its momentum throughout the remainder of
the year. An unsettled interest rate picture, combined with strong loan demand
has resulted in limited investment portfolio activity during the past two years.
Management anticipates that a continued shift in the Company's asset mix from
investments to loans will improve both the interest rate spread and net income
and, as a result, enhance financial performance ratios in 1997.
Technology and Product Delivery Channels
Like all financial services firms in the Long Island area, the Company is
faced with intense competition for both consumer and business market share. As a
community bank, the Company is, and always has been, relationship driven.
Management of the Company is committed to creating stockholder value by offering
a competitive array of products that meet the needs of our customers in every
way. The Company's Mission Statement indicates that "high-quality customer
service is the first mission of this organization." A logical extension of these
objectives is to offer these products and provide quality service through the
most efficient and convenient delivery channels available. Highlights of the
Company's efforts during 1996 to utilize technology to enhance service quality
and to provide alternative product delivery channels are as follows.
Improving the way that the Company's business customers do business was the
primary focus of the 1996 technology initiatives. Business Direct Access, the
Company's corporate cash management product, was successfully introduced during
the fourth quarter of the year. Business and municipal customers now have access
to their account balances on a "real-time" basis and they can also make
transfers between accounts, initiate wire transfers, ACH payments and stop
payment orders, as well as send electronic messages to their account
representative through a personal computer. For those commercial customers that
do not need the
24
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
sophistication of a cash management product, the Company's automated voice
response system, Touch24, was expanded to include this customer segment during
1996. All of the benefits of 24-hour per day account information are now
available to even the smallest of the Company's commercial clients. In addition
to the foregoing product enhancements, customer service was also improved during
the past year through the introduction of a wide area network linking a majority
of the Company's staff via a frame relay circuit. Customer inquiries can now be
handled much faster through this state of the art data communications
technology. A process that was begun in 1996 and will likely extend through 1997
involves putting a personal computer on the desk of every employee in the
Company. The advent of client/ server technology makes the P.C. an even more
powerful tool for customer service, product delivery and financial analysis than
it has recently been. The Company always strives to stay ahead of the rapidly
changing technology that is available in the financial services industry, and
the expanded use of P.C.s as a productivity tool is but one way to achieve that.
The outlook for 1997 is even more ambitious on the technology front. Home
banking, bill payment via telephone or P.C., a teller automation system and an
Internet site are but a few of the items on the 1997 agenda. Although the
backbone of the Company is its personal service, a large and growing portion of
the population needs and desires alternative delivery systems to perform their
routine banking transactions. State Bancorp intends to be the Company of choice
in the markets that it serves and an ever expanding stable of automated banking
products is an essential element of that strategy.
Net Interest Income
1996 versus 1995
Net interest income, the difference between interest earned on loans and
investments and interest paid on deposits and borrowed funds, increased by 15.9%
to $24.0 million in 1996 as the result of growth in average interest-earning
assets of $46 million ( 9.0%) coupled with a widening of the Company's net
interest rate spread. The asset expansion was largely loan-driven with
commercial loans, commercial mortgages and tax-exempt lending all showing strong
growth from year to year. Short-term money market instruments increased by $7
million, on average, primarily as collateral for the Company's municipal deposit
gathering function. Average investment securities declined by $14 million (6.1%)
as the Company redeployed maturing U.S. Treasury and municipal securities into
higher-yielding loans. The growth in earning assets during 1996 followed
increases of 10.3% and 2.0% in 1995 and 1994, respectively. Funding the asset
expansion were increases in core deposits, principally business demand balances,
large denomination certificates of deposit and securities sold under agreements
to repurchase.
Management of the Company was especially pleased with the increase in
average core deposit balances during 1996. Retention and growth of these funds
(demand, money market and savings deposits) are of paramount importance to the
Company's efforts to improve its net interest rate spread. Increased calling
efforts by both branch managers and lending officers were responsible for the
growth in all core deposit balances. During 1996, the Company's spread improved
by 22 basis points to 4.48%, its widest margin since 1989. The improved spread
was due solely to a lower cost of funds resulting principally from the foregoing
factors. Despite an enhanced mix of interest-earning assets, the rate on total
earning assets was flat in 1996 versus 1995 due to the lower interest rate
environment in which to reinvest cash flows from mortgage-backed securities
("MBS") and a large interest reversal related to a commercial mortgage workout.
Management anticipates further expansion of the net interest rate spread in 1997
as demand deposit balances and loan volumes are each projected to increase.
Following rates of growth of 11.6% and 4.5% in 1995 and 1994, respectively,
average loans rose by 19.9% in 1996, their strongest rate of growth since 1990.
A combination of an expanded lending group within the Company, an improved and
growing local economy and an enhanced awareness of the Company in the local
marketplace have all combined to generate the recent strong growth in loans. The
economic optimism that began to take hold on Long Island during the latter half
of 1994 began to manifest itself during 1995 and 1996 in the form of expanded
business lines of credit, draw downs of existing lines and additional
investments in plant and equipment to expand local middle market businesses. The
Company, offering superior service and response time coupled with competitive
product pricing, has been an active lender during the past two years. Average
commercial loans, commercial and residential mortgages and tax-exempt lending
grew at rates of 27.7%, 15.5% and 24.9%, respectively, during 1996. At December
31, 1996, total loans outstanding amounted to $353 million, up 22.9% when
compared to the comparable 1995 date.
Based upon recent local and national economic forecasts, management of the
Company is confident that loan growth will be strong in 1997, though it is
unlikely that the rate of growth will approach 1996's level. A continuation of
the banking industry's recent consolidation and a redoubled effort to penetrate
the Queens County marketplace are expected to provide ample opportunity to
increase the loan portfolio over the next 12-18 months.
25
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
1995 versus 1994
Net interest income rose by 7.6% during 1995 as the result of a $48 million
increase in average interest-earning assets, principally commercial loans and
commercial mortgages. Growth in investment securities, mainly taxable government
agency issues, and short-term money market instruments also contributed to the
asset expansion. Funding the increase in interest-earning assets were increases
in retail and municipal certificates of deposit, demand deposits and securities
sold under agreements to repurchase (repos). These increases offset a
year-to-year decline in savings balances as the Company faced disintermediation
of these low cost funds in the higher interest rate environment that prevailed
during 1995.
The result of the foregoing shift in the Company's mix of supporting funds
was a ten basis point narrowing of the net interest rate spread to 4.26% in
1995. Substantially higher rates on short-term sources of funds, principally
retail and municipal certificates of deposit and repos, coupled with the
Company's greater reliance on these funds during 1995, combined to squeeze the
spread from 1994's level. The Company introduced a competitively priced savings
product, Prosperity Savings, in early 1995. This product, with a rate tied to
the 90-day T-bill rate, was successful in stemming some of the outflow of retail
savings balances to mutual funds and financial intermediaries. In addition, the
product brought new customers to the Company's branches and created cross-sell
opportunities for branch staff.
Securities Held to Maturity and Securities Available for Sale
SFAS No. 115 requires the Company, at the time of purchase, to designate
each investment security as either "available for sale"("AFS"), "held to
maturity" or "trading," depending upon investment objectives, liquidity needs
and ultimate intent. Securities available for sale are stated at the lower of
aggregate cost or market value, with unrealized gains or losses reported as a
separate component of stockholders' equity until realized. Securities held to
maturity are stated at cost, adjusted for amortization of premium or accretion
of discount, if any. Trading securities are generally purchased with the intent
of capitalizing on short-term price differences by selling them in the near
term. The Company did not hold any trading securities at December 31, 1996 and
1995.
At December 31, 1996, the Company held $157 million in AFS securities
(approximately 84% of the investment portfolio) at a pre-tax unrealized net loss
of $1.6 million. At year-end, the AFS portfolio was divided into the following
categories: 49% MBS (mainly FNMA and GNMA obligations); 24% callable U.S.
government agency securities; and 11% local municipal and other securities. The
balance of the investment portfolio was comprised of local municipal notes
classified as held to maturity. An uncertain interest rate environment and a
yield curve that did not provide investment value within the Company's
Investment Policy purchase parameters resulted in a year of little activity in
the investment portfolio. Maturities and principal pay downs were replaced at
higher yields within specific criteria established by the Company's Funds
Management Committee. Purchases of intermediate-term callable government agency
securities were made during the year when market conditions were favorable.
These taxable issues replaced cash flows from MBS as well as maturing U.S.
Treasury and local municipal obligations, which had been on the books at
substantially lower yields.
The Company's investment portfolio is low-risk in nature due to its
concentration of U.S. government agency and AAA-rated MBS balloon and
pass-through securities. As of December 31, 1996, the MBS portfolio had an
average life of 2.9 years after adjusting for historical prepayment patterns.
Approximately 43% of the MBS portfolio, including collateralized mortgage
obligations ("CMOs"), had final maturities in excess of five years. In general,
principal prepayments on these securities will increase as interest rates fall
and, conversely, prepayments will slow down as interest rates rise. CMOs
accounted for approximately 8% of the total investment portfolio as of year-end
1996. None of the CMOs held by the Company met the regulatory definition of a
high-risk security nor did the Company own any structured notes as of December
31, 1996. The government agency portfolio, callable in 1997, had final
maturities in the seven-year to ten-year maturity range.
Summary of Loan Loss Experience and Allowance for Possible Loan Losses
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 for possible loan losses.
Management actively seeks to reduce the level of nonperforming assets through
aggressive collection efforts and, where necessary, litigation and charge-off.
As illustrated in Table I, the Company's nonperforming assets, defined by the
Company as nonaccrual loans and other real estate owned, declined by $1.4
million at year-end 1996 versus 1995 following only a nominal increase at
year-end 1995 versus 1994.
26
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STATE BANCORP, INC. AND SUBSIDIARY
At December 31, 1996, total nonperforming assets as a percentage of loans
and other real estate owned was 1.95% as compared to 2.87% and 3.22% at year-end
1995 and 1994, respectively. Nonaccrual loans as a percentage of total loans
declined significantly to 1.66% at year-end 1996 versus 2.87% at the comparable
1995 date. Nonperforming assets, as defined by the Company, declined by $1.4
million in 1996 as the result of a $2.4 million reduction in nonaccrual loans,
primarily loans secured by real estate, net of a $1.0 million increase in other
real estate owned. The reduction in nonaccrual loans during 1996 resulted from a
combination of loan repayments, foreclosures and charge-offs. The year-end 1996
other real estate owned balance is comprised of two commercial properties
formerly on nonaccrual status. These properties are actively being marketed for
sale, and management expects that the larger of the two will be sold during 1997
with no material income statement impact. Although nonperforming assets were
virtually unchanged at year-end 1995 versus year-end 1994, a significant shift
in the component elements took place. During 1995, $1.6 million in commercial
loans secured by real estate went on nonaccrual status while the Company sold
three other real estate owned properties and transferred two properties
classified as in-substance foreclosures back into the loan portfolio. Losses on
the sale of other real estate owned resulted in no material impact on the 1995
income statement.
Management of the Company has spent considerable time during 1996 and 1995
strategizing over the Company's level of nonperforming loans. A more aggressive
strategy of collection through litigation, combined with enhanced collateral
positions on virtually all nonperforming assets, has yielded improved coverage
ratios at year-end 1996. Nonaccrual loans and nonperforming assets to total
loans and the allowance for loan losses as a percentage of nonaccrual loans have
all improved substantially since year-end 1995. The only ratio showing a decline
is the allowance for loan losses as a percentage of nonaccrual loans, other real
estate owned, restructured, accruing loans and loans 90 days or more past due
and still accruing interest. This ratio's decline results from a significant
increase in restructured, accruing loans during 1996. As outlined in the
Company's 1996 Form 10-Q filings, one commercial mortgage credit totaling $4.7
million was restructured during 1996 to a rate of interest below its contractual
rate and will remain so until the underlying project is complete. Management
expects that cash flows will again be sufficient to support a market rate of
interest on this credit by year-end 1997. 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 value of
the individual loans. In recognition of the growth in the portfolio recorded
during 1996 and the higher level of net charge-offs experienced ($1.5 million
versus $1.1 million in 1995), the provision for loan losses was increased by
$300 thousand to a level of $1.5 million. The resulting allowance for loan
losses balance of $5.0 million at December 31, 1996 amounted to 1.42% of loans
outstanding versus 1.74% in 1995 and 1.93% in 1994. Although the local economy
has continued to show signs of growth and improvement during the past year,
weaknesses in certain sectors of the economy are still in evidence. The
potential consequences of an increase in interest rates or a prolonged slowdown
in either the housing or retail sectors, both of which impact the Company's
borrower base, makes it difficult to forecast the impact on asset quality that
will result during 1997 or any additional charge-offs that will be required
during the year.
It is the present intent of management to further increase the level of the
allowance for possible loan losses to reflect any exposure represented by
fluctuations in the Long Island real estate market, and the underlying value
that the market provides as collateral to certain segments of the loan
portfolio. In recognition of the economic uncertainties previously elaborated
upon, the normal risks inherent in any credit portfolio and anticipated growth
in the loan portfolio, management anticipates that the 1997 provision for loan
losses will approximate, or moderately exceed, 1996's level. The provision is
continually evaluated relative to portfolio risk and regulatory guidelines and
will continue to be closely reviewed throughout 1997.
The Company has no foreign loans outstanding. The only concentration of
loans exceeding 10% of total loans is the Bank's loans totaling $67.4 million
from real estate operators, lessors and developers. Repayment of these loans is
dependent in part upon the overall economic health of the Company's market area
and current real estate values. Management of the Company is not aware of any
trends, events or uncertainties that will have, or that are reasonably likely to
have, a material effect on the Company's liquidity, capital resources or future
operating results. For loans not separately disclosed herein, management is not
aware of information relating to any material credit that would impact the
ability of those borrowers to comply with loan repayment terms.
27
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Table I
<TABLE>
<CAPTION>
Analysis of Nonperforming Assets
----------------------------------------------------------
At December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Nonaccrual Loans $ 5,869 $ 8,247 $ 6,707 $ 7,142 $ 8,381
Other Real Estate Owned 1,027 -- 1,555 1,053 396
- ------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets $ 6,896 $ 8,247 $ 8,262 $ 8,195 $ 8,777
- ------------------------------------------------------------------------------------------------------------
Restructured, Accruing Loans $ 6,524(1) $ 3,344 $ 3,608 $ 1,084 $ 1,181
Loans 90 Days or More Past Due
and Still Accruing Interest $ 1,228 $ 337 $ 1,162 $ 3,289 $ 4,188
- ------------------------------------------------------------------------------------------------------------
Total Loans Outstanding $353,303 $287,579 $255,145 $231,116 $220,637
Total Stockholders' Equity $ 48,569 $ 40,588 $ 36,170 $ 34,715 $ 31,000
Allowance for Loan Losses $ 5,009 $ 5,004 $ 4,929 $ 4,725 $ 5,068
Key Ratios at December 31:
Allowance for Loan Losses as a % of Total Loans 1.42% 1.74% 1.93% 2.04% 2.30%
Nonaccrual Loans as a % of Total Loans 1.66% 2.87% 2.63% 3.09% 3.80%
Nonperforming Assets (2) as a % of Total Loans
and Other Real Estate Owned 1.95% 2.87% 3.22% 3.53% 3.97%
Allowance for Loan Losses as a
% of Nonaccrual Loans 85.35% 60.68% 73.49% 66.16% 60.47%
Allowance for Loan Losses as a % of
Nonaccrual Loans, Restructured, Accruing
Loans and Loans 90 Days or more Past
Due and Still Accruing Interest 36.77% 41.95% 42.95% 41.03% 36.86%
</TABLE>
(1) Includes one credit totaling $4.7 million, 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 interest.
Other Income
1996 versus 1995
Other income totaled $1.9 million in 1996, an increase of 30.5% over 1995.
This improvement follows a 12.6% increase in 1995 and a 61.6% decrease in 1994.
The 1994 decrease was due solely to a negative variance in securities
transaction income from year to year. If securities transactions are excluded
from other income, the Company has recorded growth rates of 16.5%, 14.2% and
35.3% in 1996, 1995 and 1994, respectively.
Service charges on deposit accounts, the largest component of other income,
rose by 17.2% in 1996 versus 1995. Approximately 40% of this growth related to
increased account service charges resulting from continued growth in commercial
demand deposit balances. The remainder of the increase related to higher levels
of insufficient funds fees on both personal and business accounts, largely the
result of improved monitoring of waivers.
During 1996, the Company recorded $135 thousand in net security gains as
the result of selected sales of investment securities to achieve certain
portfolio restructuring goals. This increase compares to a net loss of $55
thousand in 1995.
Other operating income rose by 14.3% in 1996 as the result of improvements
in ATM service charges, wire transfer and letter of credit fees and higher safe
deposit charges. Products introduced in late 1996, such as Business Direct
Access, and others slated for roll-out in 1997, such as telephonic bill payment
and home banking, are expected to generate additional revenue in 1997. In
addition, continued growth of the Company's commercial customer base is also
expected to yield increases in deposit service charges and related fees next
year.
1995 versus 1994
The 14.2% increase in other income recorded during 1995, adjusted to
exclude securities transaction losses, resulted from improvements in deposit
service charges (up 14.5%) and other operating revenue such as letters of
credit, annuity commissions, wire transfer fees and ATM service charges.
28
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Operating Expenses
1996 versus 1995
Operating expenses increased to $15.5 million in 1996, representing a
growth rate of 15.2%. The largest component of the increase was in salaries and
other employee benefits, up $1.1 million or 14.1%, due to growth in staff count,
higher supplementary compensation accruals, and related increases in 401(K) and
employee stock ownership plan contributions. Also contributing to the higher
level of expenses in 1996 were increases in Federal Deposit Insurance
Corporation ("FDIC") deposit assessment fees (up 34.6%) and other operating
expenses (up 28.2%).
Despite the high rate of growth in operating expenses during 1996, the
Company's expense control ratios, relative to its peer group, are still strong.
Expense control is measured many different ways, however, the Company utilizes
the operating efficiency ratio and the ratio of operating expenses to average
assets as its primary yardsticks. The Company's operating efficiency ratio
(total operating expenses divided by the sum of fully taxable equivalent net
interest income and other income) was 58.1% in 1996 and 1995, after improving
from 59.3% in 1994. Excluding a one-time savings association insurance fund
(SAIF) recapitalization fee of $498 thousand paid by the Company during 1996,
the operating efficiency ratio would have improved to 56.2%. The second measure
of expense control utilized by the Company is total operating expenses to
average assets. The Company recorded ratios of 2.64%, 2.51% and 2.61% in 1996,
1995 and 1994, respectively, in this category. Excluding the SAIF assessment,
the 1996 ratio would have been 2.56%. These ratios all compare very favorably to
the Company's peers and place it in the top 20% of its industry group.
Management of the Company places great emphasis on control of operating expenses
while also providing the resources necessary to grow the Company's revenue base.
Growth in loans and other income are expected to outpace increases in operating
expenses during 1997, thereby resulting in anticipated improvements in each of
the foregoing expense control ratios next year. The Company's long-term goal is
to reduce its operating efficiency ratio to a level of 50% or less and to lower
the operating expenses to average assets ratio to 2.25% by the year 2000. An
analysis of the components of 1996 operating expenses, by category, follows.
Occupancy expenses amounted to $1.3 million in 1996, up 2.1% versus 1995.
This nominal increase resulted from higher maintenance fees at various locations
coupled with rental escalations on leased properties. Occupancy costs are
expected to rise in 1997 as the result of the relocation of the Company's
lending group to new and larger space in the Jericho Plaza office complex. The
consolidation of the lending group from three locations to one occurred in
November 1996. While this move will increase costs in the short run, it has
already created efficiencies in operations and also provides for future growth
in staff, while at the same time creating a more central location for the group
to conduct its activities.
Equipment expenses were up a modest 1.6% in 1996 due to higher costs for
equipment rental, maintenance and repairs. Depreciation expense was flat on a
year-over-year basis. Depreciation expense will increase in 1997 due to the
purchase of additional furniture and office equipment related to the
aforementioned relocation of the lending group and the roll-out of various
technology initiatives throughout the year.
Deposit assessment fees were up substantially during 1996 as the result of
the $498 thousand payment to the FDIC, related to the much publicized SAIF
recapitalization. This one-time fee was paid by the Company as the result of
deposits acquired in 1992 under the OAKAR provision. Deposit assessment expenses
will decline dramatically in 1997 under the current FDIC assessment rate
structure. The majority of the Company's deposits are insured by the Bank
Insurance Fund (BIF), while the balance are insured by SAIF. Currently, the BIF
assessment rate is $0.013 per $100 of deposits while SAIF deposits are assessed
at a rate of $0.065 per $100 of deposits. Based upon year-end 1996 deposit
levels and preliminary projections for 1997 deposit growth, management
anticipates a decline of approximately 75% in the Company's 1997 deposit
assessment fees.
Amortization of intangibles declined by 4.6% in 1996 as the result of the
run-off of certain intangible assets acquired in 1992 branch purchase
transactions. Excluding further acquisition activity, intangibles amortization
is expected to remain flat in 1997 before declining significantly in 1998, when
the premiums paid on deposits acquired in 1992 are fully amortized.
Other operating expenses increased by 28.2% to $3.5 million in 1996 versus
1995. This increase resulted from growth in several categories, most notably
credit and collection fees, marketing and advertising expenses, computer
software maintenance, audit and examination fees and directors retirement costs.
The increase in credit and collection expenses was due to additional use of
outside counsel to pursue legal remedies with respect to past due and
nonperforming loans. Marketing and advertising costs were up as the result of
new business development efforts in additional markets, principally Suffolk and
Queens Counties. It is expected that marketing and advertising programs will
expand further in 1997 as the result of increased utilization of television and
other media for corporate image promotion. Computer software maintenance cost
increases directly result from expanded product offerings and licensing of
software related to expanded usage of P.C.s by all Company staff. Management of
the Company expects that operating expenses will continue to grow as the Company
expands its operations, the markets it serves and the products it offers,
however, a rate of growth of 5% - 10% is a more likely estimate for 1997.
29
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
The Company's effective tax rate increased to 36% in 1996 from 33% a year
earlier. This increase was largely due to a lower level of tax-exempt income,
resulting from a decline in the average volume of municipal securities owned.
Somewhat offsetting these factors was the sunset provision, on July 1, 1996, of
the New York State business surtax. This surtax had declined from 15% in 1993 to
its phase-out in mid-year 1996. Management of the Company anticipates that the
1997 effective tax rate will approximate the 36% recorded during 1996.
1995 versus 1994
Operating expenses rose by 5.9% to $13.5 million during 1995. Growth in
salaries and other employee benefits of 13.3% was the principal reason for this
increase. An increase in staff count, mainly in the commercial lending area,
along with related increases in supplementary compensation, pension
contributions and health insurance costs accounted for the growth in this
expense category. Excluding the aforementioned increase in staff-related
expenses, total operating expenses declined by 2.8% in 1995 versus 1994.
Occupancy costs increased by 5.7% over 1994, due to higher rental costs on
leased properties coupled with an increase in building maintenance and
depreciation expense.
Equipment expenses were up by 2.6% when compared to 1994, due to a higher
level of depreciation in 1995. A 2.8% decline in equipment maintenance, repairs
and service contracts expenses, resulting from benefits associated with
consolidating service contracts under an umbrella maintenance agreement during
1994, somewhat offset the higher depreciation.
Deposit assessment fees declined substantially during 1995 to $542 thousand
from $942 thousand in the prior year. This reduction resulted from a decline in
the Company's assessment rate on its BIF-insured deposits. The Company,
classified by the FDIC risk-rating system as "well capitalized," was assessed
during 1995 at the lowest premium rates allowed. Effective June 1, 1995, the
FDIC lowered the deposit assessment premium on BIF deposits from $0.23 per $100
of deposits to $0.04 on an annual basis. Due to branch acquisitions made in 1992
under the OAKAR provision, the Company has assessable deposits in both the BIF
and SAIF. The FDIC did not lower the assessment rate on SAIF deposits during
1995 due to that fund's then current financial condition, therefore, the Company
was assessed at a rate of $0.23 per $100 of deposits on its SAIF deposits during
1995.
Intangibles amortization expense increased by 7.5% in 1995 due to
adjustments made in 1994 related to the final amortization of certain
intangibles acquired as a result of 1992 branch purchase activity.
Other operating expenses advanced by 4.1% to $2.7 million in 1995, due to
higher marketing and advertising, other real estate and computer software costs.
Somewhat offsetting these negative factors were declines in credit and
collection and legal fees.
The Company's effective tax rate increased slightly during 1995 to 33% from
32% in 1994. The higher tax rate in 1995 resulted from a higher proportion of
taxable income, principally related to loans and government agency securities,
which is taxed at a combined Federal and state marginal rate of 41%.
Capital Resources
A strong capital position is absolutely essential to support continued
growth and profitability, to serve the needs of depositors and creditors, and to
yield an attractive and com-petitive rate of return to stockholders. At December
31, 1996, stockholders' equity totaled $48.6 million, an increase of $8.0
million or 19.7% over year-end 1995. Total equity at December 31, 1995 and 1994
was $40.6 million and $36.2 million, respectively. The application of SFAS No.
115 resulted in a $936 thousand reduction in stockholders' equity at December
31, 1996 and a $33 thousand reduction in equity at December 31, 1995. Excluding
the impact of SFAS No. 115 in 1996, 1995 and 1994, stockholders' equity has
grown at rates of 21.9%, 9.5% and 9.5%, respectively. The increase in
stockholders' equity during 1996 was bolstered by the Company's common stock
rights offering, which added $4.3 million in net proceeds to the equity base
upon its completion. Excluding capital raised under the rights offering,
stockholders' equity grew at a rate of 9.2% in 1996 versus 1995.
Earnings less cash dividends paid on common stock, also known as internal
capital generation, is the primary catalyst supporting the Company's future
growth of assets and, most importantly, stockholder value. Management constantly
evaluates the Company's capital position in light of current and future growth
objectives. Although the Company accessed the equity market in 1996 and has not
utilized the debt market, management continues to monitor these markets closely.
Strength in the Company's stock price also makes raising additional equity a
viable alternative in the capital planning process. During 1996, stockholders
approved a resolution amending the Company's certificate of incorporation to
increase the number of authorized shares from 10 million to 20 million and to
include up to 250 thousand shares of preferred stock. The Company has no present
plans to issue or utilize the preferred shares. These shares do, however, afford
management additional flexibility with respect to future equity financings to
support business expansion.
As previously described, the Company added $4.3 million to capital during
1996 through a rights offering. The Company's Employee Stock Ownership
Plan("ESOP"), already the largest owner of record of Company stock, leveraged
itself to purchase 100,000 shares in the offering. As of December 31, 1996, the
ESOP owned over 9% of the Company's outstanding shares.
30
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Management strives to provide stockholders with a competitive return on
their investment in the Company. During 1996, the Board of Directors increased
the quarterly cash dividend on the Company's common stock from $0.10 per share
to $0.12, in addition to paying an 8% stock dividend. This was the fifteenth
year in a row that the Company has declared a stock dividend.
The Company makes a common stock dividend reinvestment plan available to
its stockholders. This plan allows existing stockholders to reinvest cash
dividends in Company stock and/or to purchase additional shares through optional
cash investments on a quarterly basis. Shares are purchased at a 5% discount
from the current market price under either plan option. During 1996 and 1995,
$703 thousand and $680 thousand, respectively, were added to stockholders'
equity through plan participation. Approximately 25% of the Company's cash
dividends were reinvested in 1996 under this plan, and since inception, $2.0
million in additional equity has been added through plan participation.
Management anticipates continued future growth in equity through the program.
State Bancorp, Inc. and its subsidiary are subject to various regulatory
capital requirements administered by the Federal Reserve Board and the Federal
Deposit Insurance Corporation. These regulatory authorities measure capital
adequacy on a risk-weighted assets basis. Their guidelines provide a method of
monitoring capital adequacy that is sensitive to the risk factors inherent in a
bank's asset base, including off-balance sheet exposures. The guidelines assign
various weights to different asset types depending upon their risk profile.
Generally speaking, assets with greater risk require more capital support than
do less risky assets. In addition, a leverage standard has been established to
supplement the risk-based ratios in assessing an institution's overall capital
adequacy. Failure to maintain the Bank's capital ratios in excess of minimum
regulatory guidelines requires bank regulatory authorities to take prompt
corrective action in accordance with the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The regulations
arising from FDICIA established five categories of capitalization for depository
institutions: (1) well-capitalized, (2) adequately capitalized, (3)
undercapitalized, (4) significantly undercapitalized and (5) critically
undercapitalized. Based upon its December 31, 1996 capital position as outlined
in Table II, the Bank's capital ratios far exceed the minimums established for a
well-capitalized institution. Failure to meet minimum capital requirements can
initiate certain actions by regulators that could have a direct effect on the
Company's and the Bank's operations and financial statements. The Company has no
plans or commitments for capital utilization or expenditures that would affect
its current capital position or would impact its future financial performance.
Table II
<TABLE>
<CAPTION>
Regulatory
Bank's Ratios as of December 31, Criteria for
Regulatory ---------------------------------- Well Capitalized
Minimum 1996 1995 1994 Institution
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leverage Ratio -- Tier I Capital to
Total Adjusted Assets 4.00% 7.01% 6.56% 6.75% 5.00%
Tier I Capital/Risk Weighted Assets 4.00% 11.11% 11.35% 11.83% 6.00%
Total Capital/Risk Weighted Assets 8.00% 12.36% 12.81% 13.51% 10.00%
</TABLE>
Liquidity
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. These funds can be
obtained by converting liquid assets to cash or by attracting new deposits or
other sources of funding. Many factors affect the Company's ability to meet its
liquidity needs, including variations in the markets served, loan demand, its
asset/liability mix, its reputation and credit standing in its markets, and
general economic conditions.
The Funds Management Committee is responsible for oversight of the
Company's liquidity position and management of its asset/liability structure.
This Committee monitors the loan and investment portfolios, while also examining
the maturity structure and volatility characteristics of the Company's
liabilities to develop an optimum asset/liability mix. Funding sources available
to the Company include retail, commercial and municipal deposits, purchased
liabilities and stockholders' equity. If needed for short-term liquidity
purposes, the Company has access to $16.5 million in informal unsecured lines of
credit extended by correspondent banks. In addition, the Company can utilize its
line of credit with the Federal Home Loan Bank of New York ("FHLB-NY") to access
up to $13.7 million in market-rate funds with maturities of up to thirty years.
The Company does not utilize brokered deposits as a source of funds, nor has it
engaged in any
31
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
derivatives activities during 1995 or 1996 to manage its liquidity or interest
rate risk.
Asset liquidity is provided by short-term investments and the marketability
of securities available for sale. At December 31, 1996, the Company had $187
million in such liquid assets. The Company's loan portfolio and investment
securities held to maturity also provide an excellent source of internal
liquidity through maturities and periodic repayments of principal. At year-end
1996, approximately $179 million of these assets, including mortgage-backed
securities, were due to mature or be repaid within one year. Cash flows provided
by the loan and investment portfolios are typically utilized to reduce the
Company's borrowed funds position and/or to fund loan growth.
Interest Rate Sensitivity
Interest rate sensitivity and the repricing characteristics of assets and
liabilities are managed by the Company's Funds Management Committee. The
Committee's mandate is to maximize net interest income within acceptable levels
of risk established by policy. Interest rate risk is measured using financial
modeling techniques, including stress tests, to measure the impact of changes in
interest rates on future earnings.
Net interest income, the Company's primary source of earnings, is affected
by interest rate movements. To mitigate the impact of changes in interest rates,
the balance sheet must be structured so that repricing opportunities exist for
both assets and liabilities in approximately equivalent amounts at basically the
same time intervals. Imbalances in these repricing opportunities at any point in
time constitute an interest-sensitivity gap, which is the difference between
interest-sensitive assets and interest-sensitive liabilities. These static
measurements do not reflect the results of any projected activity and are best
utilized as early indicators of potential interest rate exposures.
The accompanying table sets forth the amounts of assets and liabilities
outstanding as of December 31, 1996 which, based upon certain assumptions, are
expected to reprice or mature in each of the time frames shown. Except as
stated, the amount of assets and liabilities shown to reprice or mature within a
particular time frame was determined in accordance with the earlier of the term
to repricing or the contractual terms of the asset or liability. The Company
bases its deposit decay rates on assumptions established by management which
reflect historical experience over the three years ended December 31, 1996.
Thus, the decay rates for deposit accounts, with the exception of C.D.s, for
which contractual maturities are readily available, were as follows: 20% per
year for savings deposits; 33% per year for money fund and NOW accounts of
individuals, partnerships and corporations; all money fund and NOW accounts of
municipalities are included in the 0-6 months time frame due to their
seasonality and volatility. Management feels that these decay assumptions
reflect the historical stability of the Company's core deposit base, which may
or may not be indicative of the industry average of its peers.
An asset-sensitive gap indicates an excess of interest-sensitive assets
over interest-sensitive liabilities, whereas a liability-sensitive gap indicates
the opposite. At December 31, 1996, the Company had a one-year cumulative
asset-sensitivity gap of $104 million. In a rising rate environment, an asset
sensitive gap position generally indicates that increases in income from
interest-earning assets will outpace increases in expenses associated with
funding those assets. In addition, the Company's net interest spread and net
income would also improve under this scenario. Conversely, in a declining
interest rate environment, the Company's cost of funds would decline more slowly
than the yield on its rate-sensitive assets and would likely result in a
contraction of net interest income. This risk can be reduced by various
strategies, including the administration of liability costs and the investment
of asset maturities and cash flows in such a way as to insulate net interest
income from the effects of changes in interest rates. As previously mentioned, a
static gap position is best utilized as a tool for early detection of potential
interest rate exposure. Management's goal is to manage the Company's cumulative
one-year gap such that rate-sensitive assets and liabilities are approximately
equal in that time frame. Due to the nature of the Company's business, primarily
the seasonality of its municipal funding function, an exactly matched one-year
gap is unlikely to occur. Rather, management relies on simulation analysis to
manage the Company's asset/liability position on a dynamic repricing basis.
Simulation modeling applies alternative interest rate scenarios and periodic
forecasts of future business activity to estimate the related impact on net
interest income. The use of simulation modeling assists management in its
continuing efforts to achieve earnings growth in a variety of interest rate
environments. Asset and liability management efforts also may involve the use of
off-balance sheet instruments such as interest rate swaps to minimize risk. The
Company does not utilize swaps or other derivative instruments to manage its
asset/liability position.
32
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
TABLE III
<TABLE>
<CAPTION>
Sensitivity Time Horizon
----------------------------------------------------------------------------
Over Noninterest-
0-6 Months 6-12 Months 1-5 Years 5 Years Sensitive Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS (1)
(Dollars in Thousands)
Loans (net of unearned income) (2) $ 239,056 $ 20,506 $ 58,177 $ 29,695 $ 5,869 $ 353,303
Securities Purchased Under
Agreements to Resell 30,000 -- -- -- -- 30,000
Securities Held to Maturity 23,974 6,355 84 56 -- 30,469
Securities Available for Sale (3) 33,019 20,181 60,743 42,603 1,971 158,517
Unrealized Net Loss on Securities
Available for Sale (1,585) -- -- -- -- (1,585)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets 324,464 47,042 119,004 72,354 7,840 570,704
Cash and Due from Banks 34,677 -- -- -- -- 34,677
All Other Assets (7) 4,098 2,281 -- -- 3,658 10,037
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 363,239 $ 49,323 $119,004 $ 72,354 $ 11,498 $ 615,418
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-SENSITIVE LIABILITIES (1)
Savings Accounts (4) $ 11,018 $ 11,018 $ 88,146 $ -- $ -- $ 110,182
Money Fund and Now Accounts (5) 53,511 7,321 29,730 -- -- 90,562
Time Deposits (6) 114,003 19,349 43,518 235 -- 177,105
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 178,532 37,688 161,394 235 -- 377,849
Federal Funds Purchased, Securities Sold
Under Agreements to Repurchase and
Other Short-term Borrowings 89,679 -- -- -- -- 89,679
All Other Liabilities, Equity and
Demand Deposits (7) 2,439 186 96 -- 145,169 147,890
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity $ 270,650 $ 37,874 $161,490 $ 235 $145,169 $ 615,418
====================================================================================================================================
Cumulative Interest-Sensitivity Gap $ 92,589 $104,038 $ 61,552 $133,671 $ 0 $ 0
====================================================================================================================================
Cumulative Interest-Sensitivity Ratio 134.2% 133.7% 113.1% 128.4%
Cumulative Interest-Sensitivity Gap
as a % of Total Assets 25.5% 25.2% 11.6% 22.1%
</TABLE>
(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 their contractual
payment schedule or a reasonable estimate thereof.
Effect of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFASNo. 125"), establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities based on
consistent application of a financial components approach that focuses on
control. Under this approach, an entity, subsequent to a transfer of financial
assets, must recognize the financial and servicing assets it controls and the
liabilities it has incurred, at fair value, if practical, and must derecognize
financial assets when control has been surrendered and liabilities when
extinguished. SFAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from those that are secured borrowings. A
transfer not meeting the criteria for a sale must be accounted for as a secured
borrowing with pledge of collateral. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996, except for certain provisions which were deferred for one
year by Statement of Financial Accounting Standards No. 127, "Deferral of the
Effective Date of Certain Provisions of SFAS No. 125" ("SFAS No. 127").
Management is currently assessing the effect that the adoption of SFAS No. 125
and SFAS No. 127 will have on the consolidated financial statements.
33
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Statistical Information
Distribution of Assets, Liabilities and Stockholder's Equity:
Net Interest Income and Rates
The following table presents the average daily balances of the Bank's
assets, liabilities and stockholder's equity, together with an analysis of net
interest earnings and average rates, for each major category of interest-earning
assets and interest-bearing liabilities. Interest and average rates are computed
on a fully taxable-equivalent basis, adjusted for certain disallowed interest
expense deductions, using a tax rate of 34% in 1996, 1995 and 1994. Nonaccruing
loans are included in the average balances (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Securities held to maturity and
securities available for sale:
Taxable $168,826 $10,793 6.39% $171,924 $10,813 6.29% $150,713 $ 8,906 5.91%
Tax-exempt 41,316 2,172 5.26 51,834 2,872 5.54 56,585 2,382 4.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 210,142 12,965 6.17 223,758 13,685 6.12 207,298 11,288 5.45
Federal funds sold and
securities purchased
under agreements
to resell 32,004 1,735 5.42 24,776 1,467 5.92 20,779 907 4.36
Loans (net of unearned income):
Taxable 306,646 28,560 9.31 255,993 24,582 9.60 228,341 19,366 8.48
Tax-exempt 7,116 752 10.57 5,683 659 11.60 6,182 608 9.84
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans-- net 313,762 29,312 9.34 261,676 25,241 9.65 234,523 19,974 8.52
Total interest-earning assets 555,908 $44,012 7.92% 510,210 $40,393 7.92% 462,600 $32,169 6.95%
Allowance for loan losses (5,114) (5,050) (5,171)
- ------------------------------------------------------------------------------------------------------------------------------------
550,794 505,160 457,429
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 24,434 18,453 17,431
Bank premises and
equipment-- net 3,028 2,935 2,692
Other assets 10,154 10,664 11,007
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $588,410 $537,212 $488,559
====================================================================================================================================
Liabilities and
Stockholder's Equity:
Savings and time deposits:
Savings $191,828 $ 4,825 2.52% $190,518 $ 5,179 2.72% $210,587 $ 4,558 2.16%
Time 230,559 12,490 5.42 210,244 11,926 5.67 152,035 6,381 4.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total savings and
time deposits 422,387 17,315 4.10 400,762 17,105 4.27 362,622 10,939 3.02
Federal funds purchased 3,578 207 5.79 2,578 160 6.21 3,277 149 4.55
Securities sold under
agreements to repurchase 27,667 1,529 5.53 23,273 1,387 5.96 20,341 890 4.38
Other borrowed funds 1,425 80 5.61 263 17 6.46 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 455,057 19,131 4.20 426,876 18,669 4.37 386,240 11,978 3.10
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 87,136 69,177 64,577
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 2,285 2,735 2,640
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 544,478 498,788 453,457
Stockholder's equity 43,932 38,424 35,102
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholder's Equity $588,410 $537,212 $488,559
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/rate --
tax-equivalent basis 24,881 4.48% 21,724 4.26% 20,191 4.36%
Less -- tax equivalent
basis adjustment 833 967 902
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $24,048 $20,757 $19,289
====================================================================================================================================
</TABLE>
34
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Analysis of Changes in Net Interest Income
The following table presents a comparative analysis of the changes in the
Bank's interest income and interest expense due to the changes in the average
volume and the average rates earned on interest-earning assets and due to the
changes in the average volume and the average rates paid on interest-bearing
liabilities. Interest and average rates are computed on a fully
taxable-equivalent basis, adjusted for certain disallowed interest expense
deductions, using a tax rate of 34% in 1996, 1995 and 1994. Variances in
rate/volume relationships have been allocated proportionately to average volume
and average rate as they compare to each other (in thousands):
<TABLE>
<CAPTION>
Year 1996 over 1995 Year 1995 over 1994
------------------------------------------------------------------------------------
Due to Change in: Due to Change in:
------------------------- Net ---------------------- Net
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Securities held to maturity and
securities available for sale:
Taxable $ (197) $ 177 $ (20) $ 1,309 $ 598 $1,907
Tax-exempt (559) (141) (700) (213) 703 490
- -----------------------------------------------------------------------------------------------------------------------------
Total securities (756) 36 (720) 1,096 1,301 2,397
Federal funds sold and securities
purchased under agreements
to resell 400 (132) 268 196 364 560
Loans (net of unearned income):
Taxable 4,737 (759) 3,978 2,493 2,723 5,216
Tax-exempt 155 (62) 93 (52) 103 51
- -----------------------------------------------------------------------------------------------------------------------------
Total loans-- net 4,892 (821) 4,071 2,441 2,826 5,267
Total Interest Income 4,536 (917) 3,619 3,733 4,491 8,224
---------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Savings and time deposits:
Savings 35 (389) (354) (465) 1,086 621
Time 1,117 (553) 564 2,891 2,654 5,545
- -----------------------------------------------------------------------------------------------------------------------------
Total savings and time deposits 1,152 (942) 210 2,426 3,740 6,166
Federal funds purchased 58 (11) 47 (36) 47 11
Securities sold under agreements
to repurchase 248 (106) 142 142 355 497
Other borrowed funds 66 (3) 63 17 -- 17
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 1,524 (1,062) 462 2,549 4,142 6,691
- -----------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income
(Tax-Equivalent Basis) $ 3,012 $ 145 $ 3,157 $ 1,184 $ 349 $1,533
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Investment Portfolio
The following table presents the amortized cost of held to maturity and
available for sale securities held by the Company for each reported period (in
thousands):
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Type
U.S. Treasury securities $ -- $ -- $ 25,482 $ 25,732 $ 25,839 $ 25,135
Obligations of states and political subdivisions 48,632 48,654 42,955 42,970 60,717 60,454
Mortgage-backed securities and
collateralized mortgage obligations 93,598 92,411 137,815 137,416 120,142 113,515
Government Agency securities 44,785 44,382 24,989 25,068 10,000 9,694
Corporate securities 1,971 1,971 1,430 1,430 18 18
- ------------------------------------------------------------------------------------------------------------------------
Total $188,986 $187,418 $232,671 $232,616 $216,716 $208,816
========================================================================================================================
</TABLE>
The following table presents the maturity distribution and the weighted
average yield of the Company's investment portfolio at December 31, 1996 (in
thousands). The yield information does not give effect to changes in fair value
of investments available for sale that are reflected as a component of
stockholders' equity.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
---------------------------------------------------------------------------------------------
Amount Yield* Amount Yield* Amount Yield* Amount Yield*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Type
Obligations of states and
political subdivisions $48,335 5.15% $ 85 6.24% $ 217 8.57% $ -- --%
Mortgage-backed securities
and collateralized
mortgage obligations** 1,609 6.54 85,502 6.38 5,300 8.23 -- --
Government Agency securities 44,382 7.38 -- -- -- -- -- --
Corporate securities -- -- -- -- -- -- 1,971 6.40
- ---------------------------------------------------------------------------------------------------------------------------------
Total $94,326 6.23% $85,587 6.38% $5,517 8.24% $1,971 6.40%
=================================================================================================================================
</TABLE>
* Fully tax-equivalent basis using a tax rate of 34%.
** Assumes maturity dates pursuant to average life as determined by constant
prepayment rates.
36
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Loan Portfolio
The following table categorizes the Company's loan portfolio for each
reported period (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $163,780 $130,617 $112,286 $ 95,644 $ 91,063
Real estate-- mortgage 160,104 137,067 126,107 117,275 104,916
Real estate-- construction 13,132 7,798 3,349 3,203 5,743
Loans to individuals 7,526 6,323 6,746 8,193 11,022
Tax-exempt and other 8,841 5,838 6,742 6,801 7,893
- --------------------------------------------------------------------------------------------------------------
Gross loans 353,383 287,643 255,230 231,116 220,637
Less: unearned income 80 64 85 -- --
- --------------------------------------------------------------------------------------------------------------
Loans-- net of unearned income $353,303 $287,579 $255,145 $231,116 $220,637
==============================================================================================================
</TABLE>
The following table presents the maturities of selected loans and the
sensitivities of those loans to changes in interest rates at December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
One Year One Through Over
or Less Five Years Five Years Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $106,913 $49,051 $7,816 $163,780
Real estate-- construction 11,714 1,418 -- 13,132
- ---------------------------------------------------------------------------------------
Total $118,627 $50,469 $7,816 $176,912
=======================================================================================
Loans maturing after
one year with:
Fixed interest rate $ 7,842 $2,178 $ 10,020
Variable interest rate $42,627 $5,638 $ 48,265
</TABLE>
The following table presents the Company's nonaccrual, past due and
restructured loans for each reported period (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $5,869 $8,247 $6,707 $7,142 $8,381
Loans 90 days or more past due and
still accruing interest $1,228 $ 337 $1,162 $3,289 $4,188
Restructured, accruing loans $6,524(1) $3,344 $3,608 $1,084 $1,181
Interest income on nonaccrual and restructured
loans which would have been recorded under
original loan terms $1,432 $ 837 $ 571 $ 686 $ 813
Interest income on nonaccrual and restructured
loans recorded during the period $ 263 $ 260 $ 124 $ 48 $ 22
</TABLE>
(1) Includes one credit totaling $4.7 million, which is collateralized by
commercial real estate with a current appraised value significantly in
excess of the carrying value of the credit.
37
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Summary of Loan Loss Experience
The determination of the balance of the allowance for possible loan losses
is based upon a review and analysis of the Company's loan portfolio and reflects
an amount which, in management's judgement, is adequate to provide for possible
future losses. Management's review includes monthly analysis of past due and
nonaccrual loans and detailed, periodic loan by loan analysis. The adoption of
SFAS No. 114 and SFAS No. 118 did not have a material effect on the financial
statements and the allowance for possible loan losses.
The principal factors considered by management in determining the adequacy
of the allowance are the growth and composition of the loan portfolio,
historical loss experience, the level of nonperforming loans, economic
conditions, the value and adequacy of collateral and the current level of the
allowance. While management utilizes all available information to estimate the
adequacy of the allowance for loan losses, the ultimate collectibility of a
substantial portion of the loan portfolio and the need for future additions to
the allowance will be based upon changes in economic conditions and other
relevant factors.
The following table presents an analysis of the Company's allowance for
possible loan losses for each reported period (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $5,004 $4,929 $4,725 $5,068 $3,039
Charge-offs:
Commercial and industrial 1,018 777 1,175 1,645 840
Real estate-- mortgage 445 239 694 1,663 66
Loans to individuals 132 133 45 103 25
Loans to others -- 45 -- -- --
- ----------------------------------------------------------------------------------------------------------
Total charge-offs 1,595 1,194 1,914 3,411 931
- ----------------------------------------------------------------------------------------------------------
Recoveries:
Commercial and industrial 79 52 119 59 53
Real estate-- mortgage 14 6 47 5 --
Loans to individuals 7 11 2 4 2
- ----------------------------------------------------------------------------------------------------------
Total recoveries 100 69 168 68 55
- ----------------------------------------------------------------------------------------------------------
Net charge-offs 1,495 1,125 1,746 3,343 876
- ----------------------------------------------------------------------------------------------------------
Additions charged to operations 1,500 1,200 1,950 3,000 2,905
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $5,009 $5,004 $4,929 $4,725 $5,068
- ----------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.48% 0.43% 0.74% 1.49% 0.42%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the allocation of the Company's allowance for
possible loan losses for each reported period (in thousands):
<TABLE>
<CAPTION>
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
1996 Loans 1995 Loans 1994 Loans 1993 Loans 1992 Loans
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $2,452 46.4% $1,972 45.4% $2,004 44.0% $2,527 41.4% $2,465 41.3%
Real estate-- mortgage 1,658 45.3 1,746 47.7 1,503 49.4 1,726 50.7 1,086 47.5
Real estate-- construction 423 3.7 43 2.7 19 1.3 167 1.4 271 2.6
Loans to individuals 143 2.1 158 2.2 54 2.7 149 3.6 26 5.0
Tax exempt and other 51 2.5 70 2.0 39 2.6 48 2.9 21 3.6
Unallocated 282 -- 1,015 -- 1,310 -- 108 -- 1,199 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $5,009 100.0% $5,004 100.0% $4,929 100.0% $4,725 100.0% $5,068 100.0%
===================================================================================================================================
</TABLE>
38
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Deposits
The following table presents the average balance and the average rate paid
on the Company's deposits for each reported period (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits $ 87,136 $ 69,177 $ 64,577
Interest-bearing transaction accounts 26,545 1.81% 22,286 1.79% 21,226 1.38%
Money market deposit accounts 56,636 2.18% 60,307 2.40% 66,591 1.87%
Savings deposits 108,647 2.86% 107,925 3.09% 122,770 2.46%
Time certificates of deposit of
$100,000 or more 134,837 5.35% 106,510 5.79% 75,988 4.11%
Other time deposits 95,722 5.51% 103,734 5.56% 76,047 4.29%
- -------------------------------------------------------------------------------------------------------------------------------
Total $509,523 3.40% $469,939 3.64% $427,199 2.56%
===============================================================================================================================
</TABLE>
The following table sets forth, by time remaining to maturity, the
Company's certificates of deposit of $100,000 or more, at December 31, 1996 (in
thousands):
3 months or less $74,194
Over 3 months through 6 months 6,971
Over 6 months through 12 months 2,622
Over 12 months 5,086
- --------------------------------------------------------------------------------
Total $88,873
- --------------------------------------------------------------------------------
Return on Equity and Assets
The following table presents the Company's return on average stockholder's
equity and assets, the dividend payout ratio and the average equity to average
assets ratio for each reported period. The calculations are based on recorded
assets and give effect to the changes in fair value of securities available for
sale.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average stockholder's equity 12.98% 13.11% 11.45%
Return on average assets 0.97% 0.94% 0.83%
Dividend payout ratio 37.37% 46.72% 29.43%
Average equity to average assets 7.47% 7.15% 7.21%
</TABLE>
Short-Term Borrowings
The following information is provided on the Company's short-term
borrowings for each reported period (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, --
Securities sold under agreements to repurchase $74,079 $83,218 $74,916
Federal Funds purchased $ 3,600 $17,000 $16,000
Federal Home Loan Bank advances $12,000 $10,000 --
- --------------------------------------------------------------------------------------------------------------------
Weighted average interest rate on Balance, December 31, 1996 --
Securities sold under agreements to repurchase 5.62% 5.85% 6.01%
Federal Funds purchased 9.00% 6.00% 6.38%
Federal Home Loan Bank advances 6.88% 6.05% --
- --------------------------------------------------------------------------------------------------------------------
Maximum outstanding at any month end --
Securities sold under agreements to repurchase $74,079 $89,358 $77,687
Federal Funds purchased $14,500 $17,000 $16,000
Federal Home Loan Bank advances $12,000 $10,000 --
- --------------------------------------------------------------------------------------------------------------------
Average daily amount outstanding --
Securities sold under agreements to repurchase $27,667 $23,273 $20,341
Federal Funds purchased $ 3,578 $ 2,578 $ 3,277
Federal Home Loan Bank advances $ 1,425 $ 263 --
- --------------------------------------------------------------------------------------------------------------------
Weighted average interest rate on average daily amount outstanding --
Securities sold under agreements to repurchase 5.53% 5.96% 4.38%
Federal Funds purchased 5.79% 6.21% 4.55%
Federal Home Loan Bank advances 5.61% 6.46% --%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Selected Quarterly Financial Data (in thousands of dollars)
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $10,733 $10,656 $10,411 $11,379 $8,936 $9,820 $9,826 $10,844
Interest expense 4,898 4,727 4,522 4,984 4,078 4,773 4,604 5,214
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 5,835 5,929 5,889 6,395 4,858 5,047 5,222 5,630
Provision for possible
loan losses 375 375 375 375 375 375 375 75
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 5,460 5,554 5,514 6,020 4,483 4,672 4,847 5,555
Other income 445 438 386 589 347 344 365 368
Operating expenses 3,667 3,754 4,297 3,818 3,365 3,494 3,187 3,437
- ------------------------------------------------------------------------------------------------------------------------------------
Income before
income taxes 2,238 2,238 1,603 2,791 1,465 1,522 2,025 2,486
Provision for
income taxes 810 825 545 988 436 454 693 876
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,428 $ 1,413 $ 1,058 $ 1,803 $1,029 $1,068 $1,332 $ 1,610
====================================================================================================================================
Earnings per
common share $ 0.31 $ 0.31 $ 0.22 $ 0.36 $ 0.23 $ 0.24 $ 0.29 $ 0.36
====================================================================================================================================
</TABLE>
Market Data
The following is a three-year comparison of dividends and stock prices:
1996 1995 1994
- -------------------------------------------------------------------------------
Annual cash dividends $0.44 $0.52 $0.27
Annual stock dividends issued 8% 10% 10%
The Company's common stock trades on the NASDAQ Small-Cap market under the
symbol STBC. As quoted by the National Association of Securities Dealers, Inc.,
the approximate high and low bid prices for the years ended December 31, 1996,
1995 and 1994 were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1996
High Bid 14 1/4 14 1/8 12 1/4 12 5/8
Low Bid 14 1/8 12 11 1/2 11 7/8
1995
High Bid 12 12 1/2 12 1/4 14 1/4
Low Bid 10 1/4 11 3/8 12 12 1/4
1994
High Bid 10 1/4 11 11 11
Low Bid 10 9 3/4 10 1/2 10
40
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Five Year Summary of Operations
For the Years Ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 43,178,725 $ 39,426,356 $ 31,267,004 $ 29,139,761 $ 27,481,046
Interest expense 19,130,627 18,669,569 11,977,716 11,397,441 13,529,510
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 24,048,098 20,756,787 19,289,288 17,742,320 13,951,536
Provision for possible loan losses 1,500,000 1,200,000 1,950,000 3,000,000 2,905,367
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible loan losses 22,548,098 19,556,787 17,339,288 14,742,320 11,046,169
Other income 1,858,131 1,424,147 1,265,230 3,293,765 4,474,728
Operating expenses 15,536,513 13,483,056 12,733,176 12,521,708 10,347,956
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,869,716 7,497,878 5,871,342 5,514,377 5,172,941
Provision for income taxes 3,167,704 2,459,213 1,852,709 1,806,029 1,709,856
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,702,012 $ 5,038,665 $ 4,018,633 $ 3,708,348 $ 3,463,085
===================================================================================================================================
Earnings per common share $ 1.20 $ 1.12 $ 0.91 $ 0.84 $ 0.79
===================================================================================================================================
Stock dividends 8% 10% 10% 10% 10%
Cash dividends per common share $ 0.44 $ 0.52 $ 0.27 $ 0.24 $ 0.21
Weighted average number of
shares outstanding adjusted
for stock dividends 4,763,988 4,505,246 4,434,438 4,390,078 4,378,457
Total assets $615,417,655 $650,950,468 $505,360,719 $490,714,979 $424,453,010
Total deposits $474,450,489 $497,739,954 $377,324,602 $367,828,761 $391,844,076
Total stockholders' equity $ 48,569,471 $ 40,587,552 $ 36,170,470 $ 34,715,248 $ 31,000,458
Return on total average assets 0.97% 0.94% 0.83% 0.78% 0.86%
Return on total average
stockholders' equity 12.98% 13.11% 11.45% 11.53% 11.65%
</TABLE>
41
<PAGE>
Board of Directors and Executive Officers
Effective February 1, 1997
STATE BANCORP, INC. and STATE BANK OF LONG ISLAND
Board of Directors
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
State Bancorp, Inc. and State Bank of Long Island
Gary Holman
Vice Chairman of the Board
State Bancorp, Inc. and State Bank of Long Island
Of Counsel, Cahn Wishod & Lamb LLP, Attorneys
J. Robert Blumenthal
President, Harwyn Enterprises, Inc.
Carl R. Bruno
Chief Financial Officer, Di Fazio Electric, Inc.
Arthur Dulik, Jr.
Chief Financial Officer, Altana, Inc.
Robert J. Grady
Retired
Richard W. Merzbacher
President, State Bank of Long Island
Vice Chairman, State Bancorp, Inc.
Joseph F. Munson
President, TRM International, Inc.
Raymond M. Piacentini
President, Piacentini, Hadlock, Harvey & Co., LLC
A Professional Services Firm
John F. Picciano, Esq.
Attorney
Daniel T. Rowe
President, State Bancorp, Inc.
Vice Chairman, State Bank of Long Island
Suzanne H. Rueck
Manager, New Hyde Park Inn
STATE BANCORP, INC.
Officers
Office of the Chairman
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
Daniel T. Rowe
President
Richard W. Merzbacher
Vice Chairman
Brian K. Finneran
Secretary/Treasurer
STATE BANK OF LONG ISLAND
Executive Officers
Office of the Chairman
Thomas F. Goldrick, Jr.
Chairman and Chief Executive Officer
Richard W. Merzbacher
President
Daniel T. Rowe
Vice Chairman
Frederick C. Braun
Executive Vice President and
Senior Lending Officer
Brian K. Finneran
Executive Vice President and
Chief Financial Officer
<PAGE>
State Bank of Long Island - Officers and Administration
Effective February 1, 1997
Financial Group
Theresa DiVittorio
Vice President and Comptroller
Philip J. Nardella
Vice President
John P. Rom
Vice President
Katherine A. O'Brien
Assistant Vice President
Management Information Systems
Susanne Pheffer
Senior Vice President
Diane T. Beck
Assistant Vice President
Janine M. Martini
Assistant Manager
Annette DiRe
Administrative Assistant
Corporate Services
Robert J. Valli
Senior Vice President
Director of Municipal Finance
and Community Relations
Mary E. Durkin
Vice President
Director of Human Resources and Training
John McWhirk
Vice President
Director of Marketing
and Product Development
Lillian C. Hegler
Assistant to the Chairman
Branch Administration
Thomas A. Arnone
Senior Vice President
Kevin J. Carroll
Manager
Elizabeth A. Mead
Assistant Manager
Bank Operations/Facilities
Raymond D. Wagner
First Vice President
Joseph M. McNeill
Vice President
Carol J. Bergmann
Assistant Vice President and Assistant Secretary
Cynthia M. Monahan
Manager
Garden City South Branch
Paul R. Cronen
Manager
Lisa A. Pandolfo
Assistant Manager
Hauppauge Branch
John J. Kurek
Vice President
Stephen N. Pedersen
Assistant Manager
Gloria F. Heim
Administrative Assistant
Huntington Branch
Karen M. Williams
Assistant Vice President
Helen M. Gilfedder
Assistant Manager
Denise Cummings
Administrative Assistant
Jericho Branch
Rocco Reda
Vice President
Blanche Stanford
Manager
Robert Insalaco
Assistant Manager
Cara Orlando
Administrative Assistant
Eftihia Karachalios
Administrative Assistant
New Hyde Park Branch
Edward L. Kelly
Vice President
Lucille N. Jessen
Manager
Rosemary DiMario
Assistant Manager
Rina Miletic
Administrative Assistant
Oyster Bay Branch
Robert J. Connors
Vice President
Maureen McTiernan
Manager
Diane Grochocki
Assistant Manager
Regional Financial Center Rockville Centre
Dominick Principato
Vice President
Lisa Ramos-Lopez
Assistant Manager
Commercial Lending Group
Senior Vice Presidents:
Charles A. Hoffman
Robert J. Nicols
Kenneth M. Scheriff
William H. Tucker
Jan Yngstrom
First Vice President:
George K. DeHaven
Vice Presidents:
Jeffrey N. Barber
James T. Burns
Patrick M. Demery
Kevin T. Hennessy
Fred A. Heruth
Kevin R. McHale
Stephen B. Mischo
Richard J. O'Brien
Michael O'Leary
Richard E. Ryan
Michael P. Sabala
Thomas Scott Swain
Assistant Vice Presidents:
Geraldine Harden
Karyn F. Rodriguez
Assistant Managers:
Maria Billiris
Anne N. Capogrosso
Deanne L. Fitteron
Administrative Assistants:
Daniel Lehan
Sean Umhafer
Suzanne E. Weber
Peter Welch
Consumer Loan Department
Jean M. Cassese
Vice President
John J. McEniry
Assistant Vice President
Lisa Prete
Administrative Assistant
Loan Operations Group
Siu Chan
Assistant Manager
Norma N. Casello
Administrative Assistant
Patricia Salvatore
Administrative Assistant
<PAGE>
STATE BANCORP, INC. AND SUBSIDIARY
Advisory Board
Henry Alpert, Secretary
Spartan Petroleum Corp.
Andrew C. Andron, President
Century 21 Andron Realty
Maureen Appel, Headmistress
Connelly School of the Holy Child
Marvin Buchner, President
Council Commerce Corp.
Salvatore Catania, Secretary
Murray M. Braunstein, Inc.
Angelo Francis Corva, President
Angelo Francis Corva & Associates
Monroe Diefendorf, Jr., President
Diefendorf Capital Planning Associates
Fred H. Fellows, President
Fibre Materials Co., Inc.
Ronald F. Friedenthal, Associate
Surre & Goldberg Associates
Frank Giorgio, Jr., Esq.
Giorgio & DePoto
George Goettelmann, Jr., President
A. E. Goettelmann & Co.
Kermit Gordon
Kermit Enterprises
Henry P. Greve, CPA
Greve, Schmidt & Trageser, P.C.
Joan Griesmeyer, Consultant
Bradley & Parker
Joseph M. Gunning, President
Gunning Business Machines
Conrad P. Homler, CPA
Homler & Dalessandro
Seymour Katchen, CPA
Katchen, Palmetto, Fellerman & Company
Robert F. Kearns, Executive Vice President
B. H. Aircraft Company, Inc.
Owen Kilgannon, CPA
Kilgannon, Furey, Dufek & Company
Patrick McAllister
Great Eastern Printing Co.
Lynn McAuley, Ph.D.
Madonna Heights Services
Gerard J. McKeon, Retired
The New York Racing Association
Robert E. Meyer
Real Estate Appraiser
Donald Monti, President
Concorde Management
Dominick Nuzzi
Nuzzi Transportation Services
John J. Nuzzi
Nuzzi Fuel Co.
Peter N. Paternostro, CPA
Paternostro, Ruckh, Callahan & DeFreitas
Charles Peluso, CPA
Margolin, Winer & Evens
Joseph Provenzano, President
Long Island Floors, Inc.
Fred Scott, Chairman
State Bank of Long Island Advisory Board
Ralph Somma, Vice President
Brueton Industries, Inc.
William G. Spanos
Attorney at Law
Charles I. Steinberg, CFO
Continental Global Equipment Corp.
Jerome Stubenhaus, CLU
Nassau Radiologic Group, P.C.
<PAGE>
Corporate Information
EXECUTIVE OFFICES
699 Hillside Avenue
New Hyde Park, NY 11040-2512
Tel:(516) 437-1000
Fax:(516) 437-1032
ANNUAL MEETING OF STOCKHOLDERS
State Bancorp, Inc.'s Annual Stockholders' Meeting
will be held on Tuesday, April 29, 1997 at 10:00 a.m.
at the New Hyde Park Inn, New Hyde Park, NY.
INVESTOR RELATIONS
Stockholders, security analysts and others seeking
financial information about State Bancorp, Inc.
should contact Brian K. Finneran, Executive Vice
President and Chief Financial Officer at (516)
465-2251.
Copies of the Company's earnings releases and
other financial publications, including the Annual
Report on Form 10-K filed with the Securities and
Exchange Commission, are available without charge
upon written request.
FDIC RULES AND REGULATIONS, PART 350.4(d)
This statement has not been reviewed, or confirmed
for accuracy or relevance, by the Federal Deposit
Insurance Corporation.
STOCKHOLDER ACCOUNT INQUIRIES
To expedite changes of address or registration,
consolidation of accounts and the replacement of
stock certificates or dividend checks,
stockholders should contact the Company's
registrar and transfer agent directly:
Chase Mellon Shareholder Services LLC
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 526-0801
STOCK LISTING
State Bancorp, Inc. is traded on the NASDAQ
Small-Cap market under the symbol STBC.
Price information appears in the Wall Street Journal,
New York Times and other newspapers under StateBcp.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two Jericho Plaza
Jericho, NY 11753
COUNSEL
Cahn, Wishod & Lamb LLP
534 Broadhollow Road
Melville, NY 11747
<PAGE>
[PHOTO
[GRAPHIC] State Bank of Long Island
[PHOTO]
Branch Locations
MAIN OFFICE
699 Hillside Avenue
New Hyde Park, NY 11040-2512
(516) 437-1000
135 South Street
Oyster Bay,
NY 11771-2283
(516) 922-0200
339 Nassau Boulevard
Garden City South, NY 11530-5313
(516) 481-3900
Lincoln Plaza
2 Lincoln Avenue
Rockville Centre, NY 11570-5724
(516) 678-6000
501 North Broadway
Jericho, NY 11753-2107
(516) 822-4000
580 East Jericho Turnpike
Huntington Station, NY 11746-7378
(516) 271-5900
740 Veterans Memorial Highway
Hauppauge, NY 11788-1231
(516) 979-0700
Regional Lending Facility
Two Jericho Plaza
Jericho, NY 11753-1683
(516) 465-2300
[PHOTO]
[GRAPHIC] Touch 24
(516) 437-1111
DELOITTE & TOUCHE LLP
Two Jericho Plaza
Jericho, New York 11753-1683
Telephone: (516) 935-9000
Facsimile: (516) 935-9056
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-15167 and No. 33-82172 of State Bancorp, Inc. on Forms S-8 of
our report dated January 24, 1997, appearing in this Annual Report on
Form 10-K of State Bancorp, Inc. for the year ended December 31, 1996.
s/ DELOITTE & TOUCHE LLP
March 28, 1997
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
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<FISCAL-YEAR-END> DEC-31-1996
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