UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
STATE BANCORP, INC.
-------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2846511
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
699 HILLSIDE AVENUE, NEW HYDE PARK, NEW YORK 11040
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 437-1000
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of April 30, 1998, there were 6,162,226 shares of Common Stock outstanding.
<PAGE>
STATE BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
(Unaudited) 1.
Consolidated Statements of Earnings for the Three Months Ended March 31, 1998
and 1997 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998
and 1997 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity for the Three Months Ended March
31, 1998 and 1997 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None N/A
Item 2. Changes in Securities - None N/A
Item 3. Defaults upon Senior Securities - None N/A
Item 4. Submission of Matters to a Vote of Security Holders - None N/A
Item 5. Other Information - None N/A
Item 6. Exhibits and Reports on Form 8-K 14.
SIGNATURES 15.
<PAGE>
- -----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------------------------------
- -----------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
- -----------------------------------------------------
- -----------------------------------------------------
ASSETS: 1998 1997
- ----------------------------------------------------- ----------- -------------
CASH AND DUE FROM BANKS $28,676,798 $26,932,820
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 23,000,000 34,000,000
------------- -------------
CASH AND CASH EQUIVALENTS 51,676,798 60,932,820
SECURITIES:
HELD TO MATURITY (ESTIMATED FAIR VALUE -
$9,123,108 IN 1998 AND $10,644,882 IN 1997) 9,111,630 10,637,143
AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 222,238,610 277,577,567
------------- -------------
TOTAL SECURITIES 231,350,240 288,214,710
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
($5,350,751 IN 1998 AND $5,123,651 IN 1997) 372,849,278 372,509,616
BANK PREMISES AND EQUIPMENT - NET 3,466,501 3,501,031
OTHER ASSETS 11,765,221 12,930,760
- -------------------------------------------------- ------------- -------------
TOTAL ASSETS $671,108,038 $738,088,937
- -------------------------------------------------- ============= =============
- --------------------------------------------------
LIABILITIES:
- --------------------------------------------------
DEPOSITS:
DEMAND $105,664,463 $107,639,101
SAVINGS 174,365,364 179,958,856
TIME 278,744,894 323,629,963
------------- -------------
TOTAL DEPOSITS 558,774,721 611,227,920
FEDERAL FUNDS PURCHASED 0 6,000,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 6,225,000 14,818,000
OTHER SHORT-TERM BORROWINGS 46,000,000 47,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 3,866,502 4,112,754
- -------------------------------------------------- ------------- -------------
TOTAL LIABILITIES 614,866,223 683,158,674
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
STOCKHOLDERS' EQUITY:
- --------------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES 0 0
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 6,233,421 SHARES IN 1998
AND 6,194,126 SHARES IN 1997; OUTSTANDING 6,153,199
SHARES IN 1998 AND 6,109,083 SHARES IN 1997 31,167,105 30,970,630
SURPLUS 18,721,173 18,457,388
RETAINED EARNINGS 7,564,480 6,567,744
UNREALIZED NET LOSS ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX BENEFIT
OF $283,440 IN 1998 AND $149,144 IN 1997) (408,721) (215,067)
UNEARNED COMPENSATION (802,222) (850,432)
- -------------------------------------------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 56,241,815 54,930,263
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $671,108,038 $738,088,937
- -------------------------------------------------- ============= =============
(1)
<PAGE>
- ------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- -----------------------------------------------------------------------------
<CAPTION>
---------------------------------
THREE MONTHS
---------------------------------
--------------- ---------------
1998 1997
--------------- ---------------
- ------------------------------------------------
INTEREST INCOME:
- ------------------------------------------------
<S> <C> <C>
LOANS $ 8,900,250 $ 8,169,411
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 1,153,370 449,783
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 576,369 507,133
MORTGAGE-BACKED SECURITIES 820,614 1,362,031
GOVERNMENT AGENCY SECURITIES 2,422,427 1,002,118
OTHER SECURITIES 47,398 33,524
------------ ------------
TOTAL INTEREST INCOME 13,920,428 11,524,000
------------ ------------
- ------------------------------------------------
INTEREST EXPENSE:
- ------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 3,623,731 2,095,982
OTHER DEPOSITS AND TEMPORARY BORROWINGS 3,110,342 2,836,020
------------ ------------
TOTAL INTEREST EXPENSE 6,734,073 4,932,002
------------ ------------
NET INTEREST INCOME 7,186,355 6,591,998
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 450,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,736,355 6,141,998
------------ ------------
- ------------------------------------------------
OTHER INCOME:
- ------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 290,144 320,035
NET SECURITY LOSSES (8,255) (13,808)
OTHER OPERATING INCOME 124,625 108,595
------------ ------------
TOTAL OTHER INCOME 406,514 414,822
------------ ------------
INCOME BEFORE OPERATING EXPENSES 7,142,869 6,556,820
------------ ------------
- ------------------------------------------------
OPERATING EXPENSES:
- ------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,764,703 2,349,083
OCCUPANCY 402,881 335,394
EQUIPMENT 172,545 138,852
MARKETING AND ADVERTISING 114,000 99,000
DEPOSIT ASSESSMENT FEES 34,098 31,186
AMORTIZATION OF INTANGIBLES 56,452 151,287
OTHER OPERATING EXPENSES 945,654 801,005
------------ ------------
TOTAL OPERATING EXPENSES 4,490,333 3,905,807
------------ ------------
INCOME BEFORE INCOME TAXES 2,652,536 2,651,013
PROVISION FOR INCOME TAXES 917,995 936,987
- ------------------------------------------------ ------------ ------------
NET INCOME $ 1,734,541 $ 1,714,026
- ------------------------------------------------ ------------ ------------
- ------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 0.28 $ 0.28
- ------------------------------------------------ ------------ ------------
- ------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 0.28 $ 0.28
- ------------------------------------------------ ------------ ------------
- ------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,125,208 6,033,950
- ------------------------------------------------ ------------ ------------
</TABLE>
(2)
<PAGE>
- ----------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- ----------------------------------------------------------------
- ---------------------------------------------------- ----------- ------------
OPERATING ACTIVITIES: 1998 1997
- ---------------------------------------------------- ----------- ------------
NET INCOME $1,734,541 $1,714,026
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 450,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 156,787 132,752
AMORTIZATION OF INTANGIBLES 56,452 151,287
AMORTIZATION OF NET PREMIUM ON SECURITIES 375,027 283,513
AMORTIZATION OF UNEARNED COMPENSATION 114,691 58,191
NET SECURITY LOSSES 8,255 13,808
DECREASE (INCREASE) IN OTHER ASSETS 1,243,384 (497,778)
(DECREASE) INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES (253,531) 208,621
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,885,606 2,514,420
------------ ------------
- -----------------------------------------------------
INVESTING ACTIVITIES:
- -----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 4,227,000 1,325,600
PURCHASES OF SECURITIES HELD TO MATURITY (2,702,500) (3,765,000)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 84,732,324 42,500,847
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 70,509,942 15,344,725
PURCHASES OF SECURITIES AVAILABLE FOR SALE (100,613,529) (92,345,357)
INCREASE IN LOANS - NET (789,662) (611,664)
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (122,257) (161,579)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 55,241,318 (37,712,428)
------------ ------------
- -----------------------------------------------------
FINANCING ACTIVITIES:
- -----------------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (7,568,130) (29,800,099)
(DECREASE) INCREASE IN TIME DEPOSITS (44,885,069) 52,127,576
(DECREASE) INCREASE IN FEDERAL FUNDS PURCHASED (6,000,000) 6,400,000
DECREASE IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE (8,593,000) (37,691,291)
DECREASE IN OTHER SHORT-TERM
BORROWINGS (1,000,000) 0
CASH DIVIDENDS PAID (730,526) (600,126)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 212,522 196,008
PROCEEDS FROM STOCK OPTIONS EXERCISED 181,257 7,389
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (68,382,946) (9,360,543)
------------ ------------
- -----------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,256,022) (44,558,551)
- -----------------------------------------------------
- -----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 60,932,820 64,676,593
- -----------------------------------------------------
- ----------------------------------------------------- ----------- ------------
CASH AND CASH EQUIVALENTS - MARCH 31 $51,676,798 $20,118,042
- ----------------------------------------------------- ----------- ------------
- -----------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------
INTEREST PAID $6,837,963 $5,015,832
INCOME TAXES PAID $288,592 $228,779
ADJUSTMENT TO UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE ($327,950) ($1,537,651)
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER
END $737,805 $603,626
(3)
<PAGE>
- --------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------
<CAPTION>
UNREALIZED
NET LOSS ON
SECURITIES UNEARNED
COMMON RETAINED AVAILABLE COMPEN-
STOCK SURPLUS EARNINGS FOR SALE SATION TOTAL
----- ------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 30,970,630 $ 18,457,388 $ 6,567,744 ($ 215,067) ($ 850,432) $54,930,263
NET INCOME 1,734,541 1,734,541
CASH DIVIDEND
($0.12 PER SHARE) (737,805) (737,805)
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (8,685 SHARES
AT 95% OF MARKET VALUE) 43,425 169,097 212,522
STOCK OPTIONS EXERCISED 153,050 28,207 181,257
AMORTIZATION OF UNEARNED
COMPENSATION 66,481 48,210 114,691
CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE ( 193,654) (193,654)
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1998 $ 31,167,105 $ 18,721,173 $ 7,564,480 ($ 408,721) ($ 802,222) $56,241,815
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 1997 $ 25,505,240 $ 22,915,331 $ 2,130,980 ($ 936,100) ($ 1,045,980) $48,569,471
NET INCOME 1,714,026 1,714,026
CASH DIVIDEND
($0.12 PER SHARE) (603,626) (603,626)
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (16,334 SHARES
AT 95% OF MARKET VALUE) 81,670 114,338 196,008
STOCK OPTIONS EXERCISED 5,235 2,154 7,389
AMORTIZATON OF UNEARNED
COMPENSATION 8,895 49,296 58,191
CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE ( 907,983) ( 907,983)
- ------------------------------------ ------------ ------------ ------------ ------------- ------------ -------------
BALANCE, MARCH 31, 1997 $ 25,592,145 $ 23,040,718 $ 3,241,380 ($ 1,844,083) ($ 996,684) $49,033,476
- ------------------------------------ ------------ ------------ ------------ ------------- ------------ -------------
</TABLE>
(4)
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
In the opinion of the management of State Bancorp, Inc. (the "Company"), the
preceding unaudited consolidated financial statements contain all adjustments,
consisting of normal accruals, necessary for a fair presentation of its
consolidated financial condition as of March 31, 1998 and December 31, 1997, its
consolidated earnings for the three months ended March 31, 1998 and 1997 and
cash flows and changes in stockholders' equity for the three months ended March
31, 1998 and 1997. The results of operations for the three months ended March
31, 1998 are not necessarily indicative of the results of operations to be
expected for the remainder of the year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's 1997 annual report on Form 10-K. Certain amounts have been
reclassified to conform with the current year's presentation.
STOCKHOLDERS' EQUITY
The Company has 250,000 shares of preferred stock authorized. No shares were
issued as of March 31, 1998.
In connection with the rights offering in July 1996, the Bank's Employee Stock
Option Plan (the "ESOP") borrowed $1,200,000 from the Company to purchase
100,000 of the Company's shares. As such, the Company recognizes a deduction
from stockholders' equity to reflect the unearned compensation for the shares.
The unearned ESOP shares, pledged as collateral for the ESOP loan, are held in a
suspense account and legally released for allocation among the participants as
principal and interest on the loan is repaid annually. Shares are committed to
be released monthly from the suspense account and the Company recognizes
compensation expense equal to the current market price of the common shares. As
of March 31, 1998, 39,778 shares have been released from the suspense account
and are considered outstanding for earnings per share computations.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," effective January 1, 1998. The statement
requires disclosure of amounts from transactions and other events which are
currently excluded from the statement of operations and are recorded directly to
stockholders' equity. Total comprehensive income for the three month periods
ended March 31, 1998 and 1997 amounted to $1,546,286 and $814,977, respectively.
EARNINGS PER SHARE
Basic earnings per common share is computed based on the weighted average
number of shares outstanding. Diluted earnings per share is computed based on
the weighted average number of shares outstanding, increased by the number of
common shares that are assumed to have been purchased with the proceeds from the
exercise of stock options (treasury stock method). These purchases were assumed
to have been made at the average market price of the common stock. The average
market price is based on the average closing bid price for the common stock.
Retroactive recognition has been given for stock dividends and splits, as well
as for the adoption of SFAS No. 128.
(5)
<PAGE>
For the Three Months Ended March 31, 1998 1997
- ------------------------------------ ---- ----
Net income $1,734,541 $1,714,026
Average dilutive stock options outstanding 145,422 123,809
Average exercise price per share $8.48 $9.72
Average market price - diluted basis $23.05 $14.26
Average common shares outstanding 6,125,208 6,033,950
Increase in shares due to exercise of options -
diluted basis 65,693 9,762
--------- ---------
Adjusted common shares outstanding - diluted 6,190,901 6,043,712
========= =========
Net income per share-basic $0.28 $0.28
========= =========
Net income per share-diluted $0.28 $0.28
========= =========
UNREALIZED NET LOSS ON SECURITIES AVAILABLE FOR SALE
Securities available for sale are stated at estimated fair value and unrealized
gains and losses are excluded from earnings and reported as a separate component
of stockholders' equity until realized. Securities held to maturity are stated
at amortized cost. Management designates each security, at the time of purchase,
as either available for sale or held to maturity depending upon investment
objectives, liquidity needs and intent.
LOANS
As a result of the Company's evaluation of impaired loans, an allowance for
possible loan losses of $1,233,182 and $953,106 was established for $7,399,362
and $9,085,357 of the total impaired loans at March 31, 1998 and December 31,
1997, respectively, with the balance of impaired loans requiring no specific
allowance. The total average impaired loan balance was $7,861,093 for the
quarter ended March 31, 1998 and $9,575,104 for the year ended December 31,
1997. Total impaired loans amounted to $7,724,362 at March 31, 1998 and
$9,085,357 at December 31, 1997. At March 31, 1998, the aggregate amount of
impaired loans measured using the present value of expected future cash flows
discounted at each loan's effective interest rate is $5,829,049 and the amount
of impaired collateral-dependent loans, measured based on the fair value of the
underlying collateral, is $1,895,313. Total interest income recognized for
impaired, nonaccrual and restructured loans was $34,000 and $81,306 during the
three months ended March 31, 1998 and 1997, respectively.
(6)
<PAGE>
Activity in the allowance for possible loan losses for the three months ended
March 31, 1998 and 1997 is as follows:
1998 1997
---- ----
Balance, January 1 $5,123,651 $5,008,965
Provision charged to income 450,000 450,000
Charge-offs, net of recoveries of
$165,311 in 1998 and $18,289 in 1997 (222,900) (450,190)
---------- ----------
Balance, March 31 $5,350,751 $5,008,775
========== ==========
(7)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Material Changes in Financial Condition - Total assets of the Company
amounted to $671.1 million at March 31, 1998, a decline of $67.0 million or 9.1%
when compared to December 31, 1997. A reduction of $56.9 million in investment
securities, principally available for sale callable Government agency paper and
local municipal securities, coupled with an $11.0 million decline in securities
purchased under agreements to resell (SPUARs), accounted for the asset reduction
experienced by the Company. Total loans outstanding were relatively flat at
March 31, 1998 as compared to year-end 1997 ($372.8 million versus $372.5
million, respectively). First quarter amortization and normal clean-up activity
offset the new business that was generated during the first three months of the
year. Management anticipates that expansion of the loan portfolio will take
place throughout the balance of the year, with year-to-year growth of
approximately 5% - 7%.
At March 31, 1998, total deposits declined by $52.5 million to $558.8 million
when compared to year-end 1997. This decrease was due solely to a seasonal
outflow of short-term municipal tax deposits, primarily CD's over $100M with
maturities of less than thirty days. Growth in core deposits of individuals,
partnerships and corporations remains strong, due largely to the Company's two
new branch locations in Suffolk County. These locations are expected to provide
a low cost source of deposits as well as opportunities to expand the Company's
loan portfolio due to their proximity to commercial and industrial centers. The
Company also experienced a net decline in short-term borrowings of $15.6 million
during the first quarter due to lower levels of securities sold under agreements
to repurchase (SSUARs), Federal funds purchased and other short-term borrowings.
Average assets for the first quarter of 1998, a measure more indicative of the
Company's growth, grew by $139.0 million or 22.2% to $765.6 million from the
comparable 1997 period. Growth in investment securities (up $64.0 million or
31.9%), SPUARs (up $49.5 million) and loans (up $21.9 million to $376.9 million)
were the primary sources of the asset expansion during the first quarter.
Funding this growth were increases in demand deposits, money fund accounts and
certificates of deposit over $100,000. Average borrowed funds, primarily Federal
Home Loan Bank advances, also increased by $27.5 million during the first
quarter of 1998. The net result of these activities was a shift in the mix of
the Company's balance sheet that yielded a 53 basis point narrowing of the first
quarter net interest rate spread to 3.94%. Management anticipates that growth in
loans during the balance of 1998 coupled with a continued increase in core
deposit balances will serve to widen the the net interest rate spread during the
last three quarters of the year.
The Company's capacity to grow its assets and earnings stems, in part, from the
significance of its capital strength. The Company strives to maintain an optimal
level of capital, commensurate with its risk profile, on which an attractive
rate of return to stockholders will be realized over both the short and long
term, while serving the needs of depositors, creditors and regulators. In
determining an optimal capital level, the Company also considers the capital
levels of its peers and the evaluations of its primary regulators. At March 31,
1998, the Company continued to maintain capital
(8)
<PAGE>
adequacy ratios significantly in excess of those necessary for it to be
classified as a "well capitalized" institution pursuant to the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Total
stockholders' equity amounted to $56.2 million at March 31, 1998, an increase of
$7.2 million or 14.7% versus the comparable 1997 date. Excluding valuations
related to SFAS No. 115 at March 31, 1998 and 1997, total stockholders' equity
grew at a year-to-year rate of 11.3%. 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. The following table
(2-1) summarizes the Company's capital ratios as of March 31, 1998 and compares
them to current regulatory guidelines and December 31 and March 31, 1997 actual
results.
TABLE 2-1
- ---------
Tier I capital/ Total Capital/
Tier I Risk-Weighted Risk-Weighted
Leverage Assets Assets
-------- --------------- --------------
Regulatory Minimum 3.00%-5.00% 4.00% 8.00%
Ratios as of:
March 31, 1998 7.34% 13.22% 14.47%
December 31, 1997 7.50% 12.55% 13.73%
March 31, 1997 7.94% 12.60% 13.85%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
Liquidity management is a fundamental component of the Company's business
strategy. The objective of liquidity management is to assure the ability of the
Company and its subsidiary to meet their financial obligations. These
obligations include the withdrawal of deposits on demand or at their contractual
maturity, the repayment of borrowings as they mature, the ability to fund new
and existing loan commitments and to take advantage of business opportunities as
they arise. Liquidity is composed of the maintenance of a strong base of core
customer funds, maturing short-term assets, the ability to sell marketable
securities and access to lines of credit and the capital markets. Liquidity at
the Company is measured and monitored daily, thereby allowing management to
better understand and react to emerging balance sheet trends. After assessing
actual and projected cash flow needs, management seeks to obtain funding at the
most economical cost to the Company. Throughout the first quarter of 1998, the
Company's liquidity position remained stable and well within acceptable industry
standards. As previously described, low-cost demand and money fund deposit
balances continued to grow during the first quarter of 1998, while at the same
time, paydowns on mortgage-backed securities also provided a source of readily
available funds to meet general liquidity needs. In addition, at March 31, 1998,
the Company had access to $47 million in
(9)
<PAGE>
Federal Home Loan Bank lines of credit for overnight or term borrowings with
maturities of up to thirty years. The Company also had $16.5 million in informal
lines of credit extended by correspondent banks to be utilized, if needed, for
short-term funding purposes as well as approximately $11.1 million in securities
available to be pledged to secure repurchase agreements or other borrowings at
quarter-end 1998.
2. Material Changes in Results of Operations - Net income for the three months
ended March 31, 1998 was $1,735,000, a 1.2% improvement over the comparable 1997
period. The higher level of earnings in 1998 resulted from a 9.0% improvement in
net interest income. Somewhat offsetting this improvement was an increase in
total operating expenses, a decline in other income and a narrower net interest
rate spread during the first quarter of 1998.
The increase in net interest income, up $594 thousand to $7.2 million, resulted
from an expanded interest-earning asset base, principally callable Government
agency securities, SPUARs and commercial loans. The Company's loan portfolio,
although flat thus far during 1998, is expected to grow by approximately 5% - 7%
during the remainder of the year. The continued strength of the Long Island
economy and the ongoing consolidation of the local banking market continue to
provided opportunity for the Company to increase the loan portfolio. The
Company, offering superior service and response time coupled with competitive
product pricing, has been able to steadily improve its market share through
conservative underwriting and credit standards. New products such as the Small
Business Line of Credit (SBLOC) have been extremely well received by the local
business community and are generating loan volume and creating new cross sell
opportunities for the Company's full range of deposit and credit products.
Management of the Company has targeted the Suffolk and Queens County markets as
the most obvious candidates for expansion of the loan portfolio during 1998.
The Company's investment portfolio expanded, on average, by 31.9% in 1998 versus
1997. Growth in callable Government agency securities (up $84.7 million) and
tax-exempt local municipal notes (up $9.7 million) more than offset paydowns on
the mortgage-backed portfolio. Management of the Company has been an active
purchaser of agency securities throughout 1997 and thus far in 1998 due to their
attractive yields and their pledgeability to secure municipal deposits. The
local municipal portfolio also continues to grow as the Company's expands its
relationships with local Towns, School Districts, Villages and special purpose
districts.
Other income fell by 2.0% in the first quarter of 1998 due to a reduction in
service charges on deposit accounts. Excluding the impact of securities
transactions, other income would have declined by 3.2% in 1997. Somewhat
offsetting the lower level of service charge income, other operating income
improved by 14.8% during the first quarter of 1998 versus the comparable 1997
period. Growth in letter of credit, wire transfer and cash management fees were
the primary drivers behind this growth.
Total operating expenses rose by 15.0% during the first quarter of 1998, mainly
due to increases in salaries and employee benefits arising from staff expansion
in product support areas along with an
(10)
<PAGE>
increase in supplementary compensation costs resulting from higher accruals
related to incentive compensation and retirement plans. Occupancy expenses
increased by 20.1% versus 1997 due to the two new branches opened in December
1997 and the relocation of the Company's lending group to additional space in
Jericho. In addition, other operating expenses increased due to higher marketing
and advertising costs coupled with increases in credit and collection fees and
depreciation costs. Somewhat offsetting the foregoing expense increases was a
decline in core deposit intangibles amortization expense and a reduction in
costs related to maintenance on foreclosed properties.
The increase in operating expenses during the first quarter of 1998 resulted in
a higher operating efficiency ratio (total operating expenses as a percentage of
fully taxable equivalent net interest revenue, excluding securities
transactions). The 1998 ratio increased to 56.9% versus 53.6% a year ago. The
Company's other primary measure of expense control, the ratio of total operating
expenses to average total assets, improved during the first three months of 1998
to 2.38% from a level of 2.53% in 1997. This ratio places the Company in the top
15% of its peer group for this efficiency measure. It continues to be the
Company's stated goal to reduce each of these ratios as part of its efforts to
improve efficiencies and, ultimately, stockholder value.
Nonperforming assets (defined by the Company as nonaccrual loans and other real
estate owned) totaled $4.3 million at March 31, 1998, a decrease of $0.1 million
versus December 31, 1997 and $2.5 million versus the comparable 1997 date. The
level of restructured, accruing loans at March 31, 1998 declined by $6.0 million
when compared to year-end 1997. Although classified as nonperforming for
reporting purposes, restructured loans continue to accrue and pay interest in
accordance with their revised terms. The reduction in restructured, accruing
loans that took place during the first quarter of 1998 resulted from the shift
of a $5.0 million credit to the ninety days past due and still accruing
category. As outlined in the Company's 1997 Annual Report to Stockholders, this
credit is collateralized by commercial real estate with a current appraised
value in excess of the carrying value of the credit. The restructured rate on
this credit will remain below the contractual rate until cash flows are again
sufficient to support a market rate of interest. Management of the Company is
confident that this credit will be performing in accordance with its revised
terms during the second quarter of 1998 and it is estimated that a market rate
of interest will again be in effect during the first quarter of 1999.
The 1998 provision for possible loan losses was equal to 1997's level during the
first quarter of the year. Growth in the loan portfolio was more than offset by
improved credit quality throughout the loan portfolio. The allowance for
possible loan losses amounted to $5.4 million or 1.41% of total loans at March
31, 1998 versus $5.0 million and 1.42%, respectively, at the comparable 1997
date. The allowance for loan losses as a percentage of nonaccrual loans improved
to 131.7% from 120.3% and 86.3% at December 31, 1997 and March 31, 1997,
respectively. Nonperforming assets (as defined by the Company) as a percentage
of total loans and other real estate owned was 1.12%, 1.18% and 1.93% at March
31, 1998, December 31, 1997 and March 31, 1997, respectively. A further review
of the Company's nonperforming assets may be found in Table 2-3 following this
analysis.
(11)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
===============================================================================
MARCH 31, 1998
- -----------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ----------------- ===============================================================================
<CAPTION>
==================================================================
SENSITIVITY TIME HORIZON
($ IN THOUSANDS)
- --------------------------------------------------------- Over Noninterest
INTEREST - SENSITIVE ASSETS : 1) 0-6 Months 6-12 Months 1-5 Years 5 Years Sensitive Total
- --------------------------------------------------------- ========== =========== ========= ========= =========== =========
<S> <C> <C> <C> <C> <C> <C>
Loans (net of unearned income) 2) $ 250,307 $ 18,868 $ 61,516 $ 43,447 $ 4,062 $ 378,200
Securities Purchased Under Agreements to Resell 23,000 0 0 0 0 23,000
Securities Held to Maturity 7,716 1,298 0 98 0 9,112
Securities Available for Sale 3) 126,814 26,783 29,603 37,362 2,368 222,930
--------- --------- --------- --------- --------- ---------
Total Interest-Earning Assets 407,837 46,949 91,119 80,907 6,430 633,242
Unrealized Net Loss on Securities Available for Sale (692) 0 0 0 0 (692)
Cash and Due from Banks 28,677 0 0 0 0 28,677
All Other Assets 7) 4,975 2,255 0 0 2,651 9,881
--------- --------- --------- --------- --------- ---------
Total Assets $ 440,797 $ 49,204 $ 91,119 $ 80,907 $ 9,081 $ 671,108
--------- --------- --------- --------- --------- ---------
- ---------------------------------------------------------
INTEREST - SENSITIVE LIABILITIES : 1)
- ---------------------------------------------------------
Savings Accounts 4) $ 10,679 $ 10,679 $ 85,436 0 $ 0 $ 106,794
Money Fund and Now Accounts 5) 32,203 6,989 28,379 0 0 67,571
Time Deposits 6) 213,250 34,490 30,586 $ 419 0 278,745
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Deposits 256,132 52,158 144,401 419 0 453,110
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 17,225 35,000 0 0 0 52,225
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 273,357 87,158 144,401 419 0 505,335
All Other Liabilities, Equity and Demand Deposits 7) 2,945 825 97 0 161,906 165,773
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 276,302 $ 87,983 $ 144,498 $ 419 $ 161,906 $ 671,108
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap 8) $ 134,480 $ 94,271 $ 40,989 $ 121,477 $ 127,907
Cumulative Interest-Sensitivity Ratio 9) 149.2% 126.1% 108.1% 124.0% 125.3%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 20.0% 14.0% 6.1% 18.1% 19.1%
<FN>
1) Allocations to specific interest sensitivity periods are based on the
earlier of the repricing or maturity date.
2) Nonaccrual loans are shown in the non-interest sensitive category.
3) Estimated principal reductions have been assumed for mortgage-backed
securities based upon their current constant prepayment rates.
4) Savings deposits are assumed to decline at a rate of 20% per year over a
five-year period based upon the nature of their historically stable core
deposit relationships.
5) Money Fund and NOW accounts of individuals, partnerships and corporations
are assumed to decline at a rate of 33% per year over a three-year period
based upon the nature of their historically stable core deposit
relationships. Money Fund and NOW accounts of municipalities are included
in the 0 - 6 months category.
6) Reflected as maturing in each instrument's period of contractual maturity.
7) Other Assets and Liabilities are shown according to payment schedule or a
reasonable estimate thereof.
8) Total interest-earning assets minus total interest-bearing liabilities.
9) Total interest-earning assets as a percentage of total interest bearing
liabilities.
</FN>
</TABLE>
(12)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------
TABLE 2 - 3
- -----------------------
- -----------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
MARCH 31, 1998 VERSUS DECEMBER 31, 1997 AND MARCH 31, 1997
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
----------------------------------
3/31/98 12/31/97 3/31/97
--------- ---------- ---------
NONACCRUAL LOANS $4,062 $4,258 $5,805
OTHER REAL ESTATE OWNED 189 189 1,027
-------- ---------- ---------
TOTAL NONPERFORMING ASSETS $4,251 $4,447 $6,832
-------- ---------- ---------
RESTRUCTURED, ACCRUING LOANS $ 805 $6,696 (1) $6,782 (1)
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $6,401 (1) $1,590 $1,046
GROSS LOANS OUTSTANDING $378,200 $377,633 $353,544
TOTAL STOCKHOLDERS' EQUITY $56,242 $54,930 $49,033
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
----------------------------------
POSSIBLE LOAN LOSSES: 3/31/98 12/31/97 3/31/97
--------- ---------- ---------
BEGINNING BALANCE $5,124 $5,152 $5,009
PROVISION 450 450 450
NET CHARGE-OFFS (223) (478) (450)
--------- ---------- ---------
ENDING BALANCE $5,351 $5,124 $5,009
--------- ---------- ---------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.41% 1.36% 1.42%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.07% 1.13% 1.64%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.12% 1.18% 1.93%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 131.73% 120.34% 86.29%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 47.49% 40.85% 36.74%
(1) INCLUDES ONE CREDIT TOTALING $5.0 MILLION WHICH IS COLLATERALIZED BY
COMMERCIAL REAL ESTATE WITH A CURRENT APPRAISED VALUE IN EXCESS OF THE
CARRYING VALUE OF THE CREDIT. THE RESTRUCTURED RATE ON THIS CREDIT WILL
REMAIN BELOW THE CONTRACTUAL RATE UNTIL CASH FLOWS ARE AGAIN SUFFICIENT TO
SUPPORT A MARKET RATE OF INTEREST.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING INTEREST.
(13)
<PAGE>
PART II
-------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
On March 2, 1998, the Company filed a report on Form 8-K indicating that on
February 24, 1998, the Company's Board of Directors authorized a stock
repurchase program under which the Company may buy back up to 50,000 shares
of its common stock. The repurchases may be made from time to time as
market conditions permit, at prevailing prices on the open market. The program
may be discontinued at any time. State Bancorp, Inc. currently has
6.2 million shares of common stock outstanding.
(14)
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE BANCORP, INC.
5/14/98 s/Daniel T. Rowe
- -------- -------------------------
Date Daniel T. Rowe, President
5/14/98 s/Brian K. Finneran
- -------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(15)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723458
<NAME> STATE BANCORP INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 28,436,128
<INT-BEARING-DEPOSITS> 240,670
<FED-FUNDS-SOLD> 23,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 222,930,772
<INVESTMENTS-CARRYING> 9,111,630
<INVESTMENTS-MARKET> 9,123,108
<LOANS> 378,200,029
<ALLOWANCE> 5,350,751
<TOTAL-ASSETS> 671,108,038
<DEPOSITS> 558,774,721
<SHORT-TERM> 52,225,000
<LIABILITIES-OTHER> 3,866,502
<LONG-TERM> 0
0
0
<COMMON> 31,167,105
<OTHER-SE> 25,074,710
<TOTAL-LIABILITIES-AND-EQUITY> 671,108,038
<INTEREST-LOAN> 8,900,250
<INTEREST-INVEST> 3,858,523
<INTEREST-OTHER> 1,161,655
<INTEREST-TOTAL> 13,920,428
<INTEREST-DEPOSIT> 6,097,378
<INTEREST-EXPENSE> 6,734,073
<INTEREST-INCOME-NET> 7,186,355
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> (8,255)
<EXPENSE-OTHER> 4,490,333
<INCOME-PRETAX> 2,652,536
<INCOME-PRE-EXTRAORDINARY> 1,734,541
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,734,541
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 7.67
<LOANS-NON> 4,061,921
<LOANS-PAST> 6,400,526
<LOANS-TROUBLED> 804,799
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,123,651
<CHARGE-OFFS> 388,211
<RECOVERIES> 165,311
<ALLOWANCE-CLOSE> 5,350,751
<ALLOWANCE-DOMESTIC> 4,486,213
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 864,538
</TABLE>
