UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 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 October 31, 1998, there were 6,517,721 shares of Common Stock outstanding.
<PAGE>
STATE BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1998 and December 31, 1997
(Unaudited) 1.
Consolidated Statements of Earnings for the Three and Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1998 and 1997 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity for the Nine Months Ended
September 30, 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 - None N/A
SIGNATURES 17.
<PAGE>
- -----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------------------------------
- -----------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED)
- -----------------------------------------------------
- -----------------------------------------------------
ASSETS: 1998 1997
- ----------------------------------------------------- ----------- -------------
CASH AND DUE FROM BANKS $15,424,109 $26,932,820
FEDERAL FUNDS SOLD 27,000,000 0
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 34,000,000 34,000,000
------------- -------------
CASH AND CASH EQUIVALENTS 76,424,109 60,932,820
SECURITIES:
HELD TO MATURITY (ESTIMATED FAIR VALUE -
$3,729,424 IN 1998 AND $10,644,882 IN 1997) 3,724,268 10,637,143
AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 230,477,414 277,577,567
------------- -------------
TOTAL SECURITIES 234,201,682 288,214,710
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
($5,478,781 IN 1998 AND $5,123,651 IN 1997) 383,144,401 372,509,616
BANK PREMISES AND EQUIPMENT - NET 3,432,456 3,501,031
OTHER ASSETS 11,568,055 12,930,760
- -------------------------------------------------- ------------- -------------
TOTAL ASSETS $708,770,703 $738,088,937
- -------------------------------------------------- ============= =============
- --------------------------------------------------
LIABILITIES:
- --------------------------------------------------
DEPOSITS:
DEMAND $112,739,318 $107,639,101
SAVINGS 167,550,042 179,958,856
TIME 328,692,347 323,629,963
------------- -------------
TOTAL DEPOSITS 608,981,707 611,227,920
FEDERAL FUNDS PURCHASED 0 6,000,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 500,000 14,818,000
OTHER SHORT-TERM BORROWINGS 35,000,000 47,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 4,527,590 4,112,754
- -------------------------------------------------- ------------- -------------
TOTAL LIABILITIES 649,009,297 683,158,674
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
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 6,578,499 SHARES IN 1998
AND 6,503,832 SHARES IN 1997; OUTSTANDING 6,504,272
SHARES IN 1998 AND 6,414,537 SHARES IN 1997 32,892,495 30,970,630
SURPLUS 24,189,758 18,457,388
RETAINED EARNINGS 2,926,012 6,567,744
UNREALIZED NET GAIN (LOSS) ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX PROVISION (BENEFIT)
OF $223,193 IN 1998 AND ($149,144) IN 1997) 460,052 (215,067)
UNEARNED COMPENSATION (706,911) (850,432)
- -------------------------------------------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 59,761,406 54,930,263
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $708,770,703 $738,088,937
- -------------------------------------------------- ============= =============
(1)
<PAGE>
- ------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- -----------------------------------------------------------------------------
<CAPTION>
--------------------------------- ---------------------------------
THREE MONTHS NINE MONTHS
--------------------------------- ---------------------------------
--------------- --------------- --------------- ----------------
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
- ------------------------------------------------
INTEREST INCOME:
- ------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $ 9,178,208 $ 8,655,327 $ 27,141,603 $ 25,392,489
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 701,042 229,701 2,691,801 1,365,823
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 664,848 432,515 1,755,117 1,501,166
MORTGAGE-BACKED SECURITIES 506,014 1,177,363 2,011,044 3,801,356
GOVERNMENT AGENCY SECURITIES 2,267,091 1,817,246 6,908,746 4,943,731
OTHER SECURITIES 48,168 32,414 144,155 96,488
------------ ------------ ------------ -------------
TOTAL INTEREST INCOME 13,365,371 12,344,566 40,652,466 37,101,053
------------ ------------ ------------ -------------
- ------------------------------------------------
INTEREST EXPENSE:
- ------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 3,196,241 2,600,650 9,531,181 7,298,373
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,973,358 2,905,656 9,182,912 9,078,924
------------ ------------ ------------ -------------
TOTAL INTEREST EXPENSE 6,169,599 5,506,306 18,714,093 16,377,297
------------ ------------ ------------ -------------
NET INTEREST INCOME 7,195,772 6,838,260 21,938,373 20,723,756
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 450,000 1,350,000 1,500,000
------------ ------------ ------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,745,772 6,388,260 20,588,373 19,223,756
------------ ------------ ------------ -------------
- ------------------------------------------------
OTHER INCOME:
- ------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 302,833 291,865 862,590 916,999
NET SECURITY LOSSES (13,877) (30,457) (58,100) (84,794)
OTHER OPERATING INCOME 84,517 102,994 327,859 321,167
------------ ------------ ------------ -------------
TOTAL OTHER INCOME 373,473 364,402 1,132,349 1,153,372
------------ ------------ ------------ -------------
INCOME BEFORE OPERATING EXPENSES 7,119,245 6,752,662 21,720,722 20,377,128
------------ ------------ ------------ -------------
- ------------------------------------------------
OPERATING EXPENSES:
- ------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,737,565 2,476,272 8,226,343 7,273,846
OCCUPANCY 444,951 382,062 1,287,629 1,116,406
EQUIPMENT 166,836 149,751 519,421 436,539
MARKETING AND ADVERTISING 119,000 99,000 347,000 297,000
DEPOSIT ASSESSMENT FEES 35,389 32,885 108,461 96,703
AMORTIZATION OF INTANGIBLES 9,034 124,184 74,520 426,757
OTHER OPERATING EXPENSES 934,238 971,784 2,830,588 2,641,118
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,447,013 4,235,938 13,393,962 12,288,369
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,672,232 2,516,724 8,326,760 8,088,759
PROVISION FOR INCOME TAXES 880,068 894,449 2,845,541 2,852,968
- ------------------------------------------------ ------------ ------------ ------------ ------------
NET INCOME $ 1,792,164 $ 1,622,275 $ 5,481,219 $ 5,235,791
- ------------------------------------------------ ------------ ------------ ------------ ------------
- ------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 0.28 $ 0.25 $ 0.85 $ 0.82
- ------------------------------------------------ ------------ ------------ ------------ ------------
- ------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 0.27 $ 0.25 $ 0.84 $ 0.82
- ------------------------------------------------ ------------ ------------ ------------ ------------
- ------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,498,360 6,387,215 6,467,243 6,361,745
- ------------------------------------------------ ------------ ------------ ------------ ------------
</TABLE>
(2)
<PAGE>
- ----------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- ----------------------------------------------------------------
- ---------------------------------------------------- ----------- ------------
OPERATING ACTIVITIES: 1998 1997
- ---------------------------------------------------- ----------- ------------
NET INCOME $5,481,219 $5,235,791
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 1,350,000 1,500,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 494,254 399,810
AMORTIZATION OF INTANGIBLES 74,520 426,757
AMORTIZATION OF NET PREMIUM ON SECURITIES 769,145 1,142,529
AMORTIZATION OF UNEARNED COMPENSATION 315,748 210,544
NET SECURITY LOSSES 58,100 84,794
GAIN ON SALE OF OTHER REAL ESTATE OWNED ("OREO") 0 (56,680)
DECREASE (INCREASE) IN OTHER ASSETS 1,240,849 (1,823,923)
INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES 366,657 314,745
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,150,492 7,434,367
------------ ------------
- -----------------------------------------------------
INVESTING ACTIVITIES:
- -----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 13,441,950 31,558,512
PURCHASES OF SECURITIES HELD TO MATURITY (6,531,200) (7,707,701)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 360,615,464 162,741,639
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 238,408,002 101,759,853
PURCHASES OF SECURITIES AVAILABLE FOR SALE (551,700,977)(341,274,880)
INCREASE IN LOANS - NET (12,309,785) (20,225,447)
PROCEEDS FROM SALE OF OREO 0 1,083,343
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (425,678) (732,336)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 41,497,776 (72,797,017)
------------ ------------
- -----------------------------------------------------
FINANCING ACTIVITIES:
- -----------------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (7,308,597) (37,810,916)
INCREASE IN TIME DEPOSITS 5,062,384 82,598,583
(DECREASE) INCREASE IN FEDERAL FUNDS PURCHASED (6,000,000) 10,900,000
DECREASE IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE (14,318,000) (22,133,000)
(DECREASE) INCREASE IN OTHER SHORT-TERM
BORROWINGS (12,000,000) 9,000,000
CASH DIVIDENDS PAID (2,515,802) (1,809,421)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 669,088 587,045
PROCEEDS FROM STOCK OPTIONS EXERCISED 253,948 50,152
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (36,156,979) 41,382,443
------------ ------------
- -----------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,491,289 (23,980,207)
- -----------------------------------------------------
- -----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 60,932,820 64,676,593
- -----------------------------------------------------
- ----------------------------------------------------- ----------- ------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $76,424,109 $40,696,386
- ----------------------------------------------------- ----------- ------------
- -----------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------
INTEREST PAID $18,578,316 $16,332,717
INCOME TAXES PAID $3,518,592 $3,298,779
TRANSFERS FROM LOANS TO OREO $325,000 $0
ADJUSTMENT TO UNREALIZED NET GAIN (LOSS) ON SECURITIES
AVAILABLE FOR SALE $1,047,456 $1,046,021
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER
END $778,704 $730,997
(3)
<PAGE>
- --------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------
<CAPTION>
UNREALIZED
NET (LOSS)
GAIN ON
SECURITIES UNEARNED
COMMON RETAINED AVAILABLE COMPEN-
STOCK SURPLUS EARNINGS FOR SALE SATION TOTAL
----- ------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 30,970,630 $ 18,457,388 $ 6,567,744 ($ 215,067) ($ 850,432) $54,930,263
NET INCOME 5,481,219 5,481,219
CASH DIVIDEND
($0.40 PER SHARE) (2,563,979) (2,563,979)
5% STOCK DIVIDEND (312,332 SHARES
AT MARKET VALUE) 1,561,660 4,997,312 (6,558,972) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (31,102 SHARES
AT 95% OF MARKET VALUE) 155,510 513,578 669,088
STOCK OPTIONS EXERCISED 204,695 49,253 253,948
AMORTIZATION OF UNEARNED
COMPENSATION 172,227 143,521 315,748
CHANGE IN UNREALIZED NET GAIN
ON SECURITIES AVAILABLE FOR SALE 675,119 675,119
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1998 $ 32,892,495 $ 24,189,758 $ 2,926,012 $ 460,052 ($ 706,911) $59,761,406
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 1997 $ 25,505,240 $ 22,915,331 $ 2,130,980 ($ 936,100) ($ 1,045,980) $48,569,471
NET INCOME 5,235,791 5,235,791
CASH DIVIDEND
($0.30 PER SHARE) (1,940,292) (1,940,292)
6 FOR 5 STOCK SPLIT (1,026,672
SHARES AT $5.00 PAR VALUE) 5,133,360 (5,133,360) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (43,207 SHARES
AT 95% OF MARKET VALUE) 216,035 371,010 587,045
STOCK OPTIONS EXERCISED 39,390 10,762 50,152
AMORTIZATON OF UNEARNED
COMPENSATION 66,618 143,926 210,544
CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE 617,675 617,675
- ------------------------------------ ------------ ------------ ------------ ------------- ------------ -------------
BALANCE, SEPTEMBER 30, 1997 $ 30,894,025 $ 18,230,361 $ 5,426,479 ($ 318,425) ($ 902,054) $53,330,386
- ------------------------------------ ------------ ------------ ------------ ------------- ------------ -------------
</TABLE>
(4)
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
In the opinion of the management of State Bancorp, Inc. (the "Company"), the
preceding unaudited consolidated financial statements contain all adjustments,
consisting of normal accruals, necessary for a fair presentation of its
consolidated financial condition as of September 30, 1998 and December 31, 1997,
its consolidated earnings for the nine months ended September 30, 1998 and 1997
and cash flows and changes in stockholders' equity for the nine months ended
September 30, 1998 and 1997. The results of operations for the nine months
ended September 30, 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 September 30, 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
126,000 (adjusted for stock dividends and splits) of the Company's shares. As
such, the Company recognizes a deduction from stockholders' equity to reflect
the unearned compensation for the shares. The unearned ESOP shares, pledged as
collateral for the ESOP loan, are held in a suspense account and legally
released for allocation among the participants as principal and interest on the
loan is repaid annually. Shares are committed to be released monthly from the
suspense account, and the Company recognizes compensation expense equal to the
current market price of the common shares. As of September 30, 1998, 51,773
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 nine month periods
ended September 30, 1998 and 1997 amounted to $6,183,577 and $5,903,537,
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 Nine Months Ended September 30, 1998 1997
- --------------------------------------- ---- ----
Net income $5,481,219 $5,235,791
Average dilutive stock options outstanding 153,321 158,908
Average exercise price per share $11.03 $8.17
Average market price - diluted basis $27.43 $16.05
Average common shares outstanding 6,467,243 6,361,745
Increase in shares due to exercise of options -
diluted basis 43,035 30,319
--------- ---------
Adjusted common shares outstanding - diluted 6,510,278 6,392,064
========= =========
Net income per share-basic $0.85 $0.82
========= =========
Net income per share-diluted $0.84 $0.82
========= =========
UNREALIZED NET GAIN (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 $1,146,158 and $953,106 was established for $7,992,004
and $9,085,357 of the total impaired loans at September 30, 1998 and
December 31, 1997, respectively, with the balance of impaired loans requiring no
specific allowance. The total average impaired loan balance was $8,606,863 for
the quarter ended September 30, 1998 and $9,575,104 for the year ended December
31, 1997. Total impaired loans amounted to $8,305,561 at September 30, 1998
and $9,085,357 at December 31, 1997. At September 30, 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 $5,529,049 and the amount
of impaired collateral-dependent loans, measured based on the fair value of the
underlying collateral, is $2,776,512. Total interest income recognized for
impaired, nonaccrual and restructured loans was $8,106 and $125,606 for the
three months ended September 30, 1998 and 1997, respectively, and $197,432 and
$302,284 for the nine months ended September 30, 1998 and 1997, respectively.
(6)
<PAGE>
Activity in the allowance for possible loan losses for the nine months ended
September 30, 1998 and 1997 is as follows:
1998 1997
---- ----
Balance, January 1 $5,123,651 $5,008,965
Provision charged to income 1,350,000 1,500,000
Charge-offs, net of recoveries of
$316,745 in 1998 and $109,357 in 1997 (994,870) (1,357,194)
---------- ----------
Balance, September 30 $5,478,781 $5,151,771
========== ==========
(7)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Material Changes in Financial Condition - As of September 30, 1998, total
assets of the Company amounted to $708.8 million, a decline of $29.3 million or
4.0% when compared to December 31, 1997. A lower level of investment securities
(down $54.0 million), in both the available for sale and held to maturity
classifications, accounted for the decline in total assets. Somewhat offsetting
the contraction in the investment portfolio were increases in loans (up $11.0
million) and Federal funds sold (up $27.0 million). The decrease in holdings of
available for sale securities resulted from principal paydowns and maturities in
the mortgage-backed portfolio (down $24.2 million) along with a decline in
short-term municipal holdings (down $32.2 million) primarily due to sales of
short-term bond and tax anticipation notes. The decline in total assets resulted
in a reduced dependence on short-term borrowings at the end of the third
quarter. Reductions in Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings amounted to $32.3 million while
total deposits declined by $2.2 million or 0.4%. The deposit reduction was due
to a lower level of savings deposits (down $12.4 million), largely municipal
money fund balances. The savings shortfall was partially offset by increases in
both demand deposits, primarily business and municipal accounts, and large
denomination time CDs. The Company's third quarter net interest rate spread was
4.10% in 1998 versus 4.43% a year ago. The net interest spread for the first
nine months of 1998 was 4.13%, lagging the prior year period by 25 basis points.
This narrowing of the spread was largely the result of nominal growth in the
Company's loan portfolio thus far in 1998 coupled with accelerated paydowns in
the mortgage-backed securities portfolio which were reinvested at rates well
below 1997 levels.
The Company's loan portfolio increased by 2.9% during the September 1998
Year-to-date period. The loss of several large credits due to the acquisition of
several of the Company's customers coupled with normal principal amortization
and clean-up activity were the primary forces accounting for the slow rate of
growth in the loan portfolio thus far in 1998. Management anticipates that the
loan portfolio will expand at a somewhat faster rate during the last quarter of
the year resulting in a year to year growth rate of approximately 6% - 7% based
on current market and interest rate conditions. At this point in the economic
cycle, management of the Company feels that, more than ever, it is prudent to
carefully evaluate all requests for credit. Management of the Company has always
let growth targets take a back seat to the need for high credit quality. As
such, the Company has substantial collateral support for its existing loans
outstanding and it is not a competitor in either the subprime or high
loan-to-value markets. Depending upon the Company's mix of deposits during the
fourth quarter of 1998 and the very real likelihood of further interest rate
reductions by the Federal Reserve Open Market Committee, further compression of
the Company's net interest rate spread during the last three months of the year
is a distinct possibility due to its near term asset-sensitive position.
Total deposits declined by $2.2 million to $609.0 million when compared to
year-end 1997. The small decline in total deposits was primarily due to a
reduction in savings balances, mainly municipal money fund accounts which are
seasonal in nature. Largely offsetting this decline was
(8)
<PAGE>
growth in business demand and savings deposits. Total demand deposits (up $5.1
million) have continued to show excellent growth as average balances have grown
by 13.9% thus far in 1998 following increases of 13.1% and 26.0% in 1997 and
1996, respectively. Time deposits (up $5.1 million) increased by only 1.6% over
year-end 1997 as the result of an expanded level of large denomination business
certificates of deposit. The decrease in purchased liabilities of $32.3 million
resulted from a reduced dependence on securities sold under agreements to
repurchase and Federal Home loan Bank advances. The use of purchased liabilities
is seasonal in nature and is utilized as a replacement for deposit outflows and
to support short-term asset expansion.
Average total assets increased by 13.8% to $725.7 million during the third
quarter of 1998 versus the comparable 1997 period. Growth in interest-earning
assets totaled 14.6%, including investment securities up $30.5 million (13.2%)
and loans up $24.3 million (6.8%). The growth in the investment portfolio was
concentrated in the tax-exempt municipal sector and in callable Government
Agency paper. Much of the municipal paper purchased during the third quarter of
1998 was sold prior to the end of the quarter as part of the previously
mentioned balance sheet restructuring. The increase in loans outstanding took
place in the commercial and commercial mortgage categories, mainly prime- based
advances. In addition, Federal funds sold and securities purchased under
agreements to resell increased on average by $34.0 million, largely the result
of municipal collateralization activity. Third quarter average deposits grew by
$79.0 million or 14.4% to $627.1 million. Increases in core deposits (demand,
NOW, savings and money fund accounts - up $30.9 million or 11.2%) and large
denomination certificates of deposit accounted for the growth in third quarter
deposits. Average borrowed funds advanced by 6.5% in 1998, as compared to the
same period in 1997. Average stockholders' equity increased by $6.1 million or
11.6% over the same period. The net result of these activities along with the
interest rate compression experienced during 1998 produced a 33 basis point
narrowing of the third quarter net interest rate spread to 4.10%. The Company's
average rate earned on its interest-earning assets declined by 42 basis points
while the average rate paid on supporting funds declined by only 9 basis points.
The Company's returns on average assets and average stockholders' equity were
0.98% and 12.13% versus 1.01% and 12.25% for the quarters ended September 30,
1998 and 1997, respectively.
The Company's ability to grow its assets and earnings stems, to a large degree,
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 September
30, 1998, the Company continued to maintain capital adequacy ratios
significantly in excess of those necessary for it to be classified as a "well
capitalized" institution pursuant to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA). Total stockholders'
equity amounted to $59.8 million at September 30, 1998, an increase of $6.4
million or 12.1% versus the comparable 1997 date. Excluding valuations related
to SFAS No. 115 at September 30, 1998 and 1997, total stockholders' equity grew
at a year to year rate of 10.5%. The following table (2-1) summarizes the
(9)
<PAGE>
Company's capital ratios as of September 30, 1998 and compares them to current
regulatory guidelines and December 31 and September 30, 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:
September 30, 1998 8.13% 13.29% 14.53%
December 31, 1997 7.50% 12.55% 13.73%
September 30, 1997 8.32% 12.67% 13.91%
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 ensure 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 deposits, 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 nine months of 1998,
the Company's liquidity position remained stable and well within acceptable
industry standards. As previously described, core deposit balances grew strongly
during the first three quarters of the year, while at the same time, paydowns on
mortgage-backed securities also provided a source of readily available funds to
meet general liquidity needs. In addition, at September 30, 1998, the Company
had access to $47 million in Federal Home Loan Bank lines of credit for
overnight or term borrowings with maturities of up to thirty years. The Company
also had $16.5 million in informal lines of credit extended by correspondent
banks to be utilized, if needed, for short-term funding purposes as well as
approximately $7.9 million in securities available to be pledged to secure
repurchase agreements or Federal Reserve Discount Window borrowings at
quarter-end 1998.
(10)
<PAGE>
2. Material Changes in Results of Operations - Net income for the nine months
ended September 30, 1998 was $5,481,000, a 4.7% improvement over the comparable
1997 period. The improvement in earnings in 1998 resulted from a 5.9% increase
in net interest income coupled with a lower provision for loan losses.
Mitigating these improvements somewhat were increases in total operating
expenses and a decline in other income during the first nine months of 1998.
The higher level of net interest income, up $1.2 million to $21.9 million,
resulted from an expanded interest-earning asset base, principally commercial
loans, commercial mortgages, callable Government Agency and municipal securities
and SPUARs, along with growth in loan fees. Loan growth improved during the
third quarter of 1998 resulting in an increase in average loans outstanding of
6.6% during the first nine months of 1998 versus the comparable 1997 period.
Strong local economic trends and continued consolidation in the local banking
market have been the driving forces behind the expansion of the Company's recent
lending activities. Management anticipates that products such as the Company's
small business line of credit and the home equity product "Prime for Life,"
promoted through focused calling efforts in targeted markets and industries will
provide ample opportunity to expand the loan portfolio during the last three
months of 1998. Management anticipates average loan growth of approximately 6% -
7% for the full year, primarily in the commercial, commercial mortgage and
installment loan areas.
The Company's investment portfolio increased, on average, by $21.8 million or
9.4% in 1998 versus 1997. Purchases of callable Agency securities (volume up
$40.6 million) and local tax-exempt municipal paper (up $12.6 million) more than
offset paydowns on mortgage-backed issues. Management of the Company continues
to be an active purchaser of agency securities both in New York and in its
Delaware subsidiary, SB Portfolio Management Corp. Their competitive yields and
pledgeability to secure municipal deposits make Agency issues a viable
investment option in the current interest rate environment. Management
anticipates that the average volume of local municipal issues will decline
during the last quarter of 1998 as the result of a seasonal slowdown in new
issues.
Other income decreased by 1.8% during the first nine months of 1998, mainly due
to reductions in service charges on deposits and overdraft fees and a lower
level of annuity commission income. Partially offsetting these lower fees were
increases in letter of credit fees, merchant credit card transaction income,
wire transfers and ATM processing fees versus 1997.
Total operating expenses advanced by 9.0% during the first three quarters of
1998, mainly due to increases in salaries and employee benefits arising from
staff expansion in various operating groups, in particular the commercial
lending function and product support areas, along with an increase in
supplementary compensation costs related to incentive compensation plans and
retirement plan contributions to fund the Company's 401(k) and employee stock
ownership plans. Occupancy costs rose due to additional space occupied at the
Company's lending facility in Jericho and the impact of the Company's new
branches in Suffolk county which were opened in December 1997. Utility and
equipment expenses increased by 19.2% and 18.9%, respectively, due to expansion
of the branch
(11)
<PAGE>
network coupled with an expanded personal computer network. Other operating
expenses were essentially flat on a year over year basis. Marketing and
advertising expenditures, costs related to credit and collection
efforts, stationery and supplies and equipment depreciation all exceeded
comparable 1997 levels. Offsetting the operating expense increases previously
described was a decline in intangibles amortization expense due to the run-off
of core deposit intangibles incurred in 1992 branch purchases, along with
reductions in messenger and delivery costs and commercial insurance premiums due
to the use of multi-year contracts.
The Company's operating efficiency ratio (total operating expenses as a
percentage of fully taxable equivalent net interest revenue, excluding
securities transactions) increased to 55.8% from 54.0% during the first nine
months of 1998 versus a year ago. The Company's ratio of total operating
expenses to average total assets was 2.44% and 2.49% during the first nine
months of 1998 and 1997, respectively. These ratios continue to place the
Company in the top 15% of its peer group for this efficiency measure. Management
of the Company is encouraged by these ratios, however, 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 $5.1 million at September 30, 1998, representing increases
of $689 thousand and $232 thousand versus December 31, 1997 and September 30,
1997, respectively. The increase in nonperforming assets at September 30, 1998
versus each comparison period was largely due to an increase in other real
estate owned resulting from 1998 foreclosure proceedings on two residential
properties. Management anticipates that each of these properties will be sold
during the fourth quarter of 1998 or early 1999 with no material impact on the
Company's financial statements. The level of restructured, accruing loans at
September 30, 1998 decreased by $1.1 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. As
outlined in the Company's 1997 Annual Report to Stockholders, restructured,
accruing loans include $5.0 million related to one credit which is
collateralized by commercial real estate with a current appraised value 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. The Company is confident that a market rate
of interest will again be in effect on this credit during the first half of
1999.
The provision for possible loan losses declined by $150 thousand (10.0%) when
compared to the first nine months of 1997 due to the reduced growth rate of, and
the improved credit quality in, the loan portfolio. The allowance for possible
loan losses amounted to $5.5 million or 1.41% of total loans at September 30,
1998 versus $5.2 million and 1.38%, respectively, at the comparable 1997 date.
The allowance for possible loan losses as a percentage of nonaccrual loans
amounted to 118.5%, 120.3% and 105.1% at September 30, 1998, December 31, 1997
and September 30, 1997, respectively. Nonperforming assets (as defined by the
Company) as a percentage of total loans and other real estate owned was 1.32%,
1.18% and 1.32% at September 30, 1998, December 31, 1997 and September 30, 1997,
respectively. Management of the Company believes that the current
(12)
<PAGE>
level of the allowance for possible loan losses is adequate in relation to the
risks present in the portfolio. The Company's loan portfolio is concentrated in
commercial and industrial loans and commercial mortgages, the majority of which
are secured by collateral with a market value in excess of the carrying amounts
of the individual loans. A further review of the Company's nonperforming assets
may be found in Table 2-3 following this analysis.
Year 2000 Compliance
The Year 2000 ("Y2K") problem centers on the inability of certain computer
systems to recognize the Year 2000. Many existing computer programs may
incorrectly identify a four digit date field ending in "00" as the year 1900
rather than the year 2000. The Company, like other banks and financial services
firms that rely on date-sensitive information in their calculations, may be
negatively impacted by the Y2K problem. If computer systems are not corrected to
properly identify the Year 2000, computer systems applications may fail or
produce erroneous results which could impact the Company's ability to transact
normal business activities. In addition, in certain instances, failure to
adequately address the Y2K problem could adversely impact Company's suppliers,
creditors and the creditworthiness of its borrowers.
The Company's Y2K Action Team was formed in 1996 to address this problem. The
Y2K Action Team has completed the first two phases of the Company's Y2K project:
the Awareness and Assessment phases. The renovation phase, which includes
upgrading all noncompliant hardware and software, is expected to be completed
during the fourth quarter of 1998. The Company has already replaced and/or
upgraded several internal systems. Upon completion of the Renovation phase, the
Action team will embark on the most important phase of the project: the
Validation phase. The Company is on schedule to have all critical applications
tested prior to year-end 1998.
The Company has also sent out Year 2000 awareness literature to all of its
deposit customers, and, in addition, Y2K questionnaires have been sent to each
of the Company's commercial and municipal customers to assess their awareness of
the Year 2000 problem. The Company, in certain instances, relies on outside
vendors and other third party service providers to perform various services.
Before proceeding with any new contracts or extensions of existing contracts,
the Company will require each of these service providers to provide written
proof of their Y2K compliance.
Management of the Company anticipates that all of the Company's date-sensitive
hardware, software and other systems will be tested and founds to be Y2K
compliant prior to year-end 1998. The Company has not developed any of its own
computer programs internally nor does it employ a programming staff. All of the
software related to its major application systems has been purchased from third
party vendors. Generally, software provided by third parties and included in the
Company's systems is developed by leading software suppliers with Y2K programs
underway and a majority of these vendors have certified that their products are
Y2K compliant. As part of its assessment procedures, the Company assessed the
action plans of each major outside vendor.
(13)
<PAGE>
However, there can be no guarantee that the software of other companies, on
which the Company's systems rely, will be timely converted or that failure to
properly convert by another company would not have a material adverse effect on
the Company. The Company presently believes that, with continued modifications
to existing software and conversions to new software, the Y2K problems will be
mitigated without causing a material adverse effect upon the operations of the
Company and that its internal systems and equipment will be Y2K compliant in a
timely manner.
In the event that system failures occur related to the Y2K problem, the Company
has developed contingency plans, which involve, among other actions, utilization
of an alternate service provider or alternate products available throught the
current vendor. The contingency plan also addresses a temporary disruption of
electric or communication services.
Monitoring and managing the Y2K Project will result in additional direct and
indirect costs to the Company. Direct charges include potential charges by third
party software vendors for product enhancements, costs involved in testing
software products for Y2K compliance, training, and any resulting costs for
developing and implementing contingency plans for critical software products
that are not enhanced. Indirect costs will principally consist of the time
devoted by employees in monitoring software vendor progress, testing enhanced
software products and implementing any contingency plans. The Company estimates
that the total costs related to the Y2K problem are $225,000, of which $80,000
is primarily related to the costs to enhance or replace software and hardware
problems. The balance is not likely to be incremental costs, but rather will
represent the redeployment of existing resources. Two of the Company's other
information technology projects, document and check imaging and personal
computer banking, have been delayed due to the implementation of the Y2K
project. Both direct and indirect costs of addressing the Y2K Problem will be
charged to earnings as incurred. To date, $80,000 of the total estimated costs
associated with the Y2K problem have been expended. Funds are provided by
operations and are included in existing operating budgets.
The preceding Y2K issue discussion contains various forward-looking statements
which represent the Company's beliefs or expectations regarding future events.
When used is the Y2K discussion, the words "believes", "expects", "estimates"
and similar expressions are intended to identify forward-looking statements. All
forward-looking statements involve a number of risks and uncertainties. The
anticipated impact and costs of the Y2K project, as well as the date on which
the Company expects to complete the remediation and testing phases and the
contingency plan of its Y2K the project, are based on management's best
estimates using information currently available and numerous assumptions about
future events. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
Differences include, but are not limited to, the availability of qualified
personnel and other information technology; the ability to identify and
remediate all date sensitive lines of computer code or to replace computer chips
in affected systems or equipment; and the actions of governmental agencies or
other third parties with respect to Y2K problems. Based on its current estimates
and information currently available, costs associated to ensure compliance with
Y2K issues are not expected to have a material adverse effect on the Company's
consolidated financial statements in either 1998 or 1999.
(14)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
===============================================================================
SEPTEMBER 30, 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) $ 247,120 $ 19,825 $ 63,702 $ 53,354 $ 4,622 $ 388,623
Securities Purchased Under Agreements to Resell
and Federal Funds Sold 61,000 0 0 0 0 61,000
Securities Held to Maturity 1,547 2,079 0 98 0 3,724
Securities Available for Sale 3) 92,951 92,686 40,841 949 2,368 229,795
--------- --------- --------- --------- --------- ---------
Total Interest-Earning Assets 402,618 114,590 104,543 54,401 6,990 683,142
Unrealized Net Gain on Securities Available for Sale 683 0 0 0 0 683
Cash and Due from Banks 15,424 0 0 0 0 15,424
All Other Assets 7) 4,015 2,951 0 0 2,556 9,522
--------- --------- --------- --------- --------- ---------
Total Assets $ 422,740 $ 117,541 $ 104,543 $ 54,401 $ 9,546 $ 708,771
--------- --------- --------- --------- --------- ---------
- ---------------------------------------------------------
INTEREST - SENSITIVE LIABILITIES : 1)
- ---------------------------------------------------------
Savings Accounts 4) $ 10,991 $ 10,991 $ 87,923 0 $ 0 $ 109,905
Money Fund and Now Accounts 5) 22,800 6,885 27,960 0 0 57,645
Time Deposits 6) 280,838 17,997 29,371 $ 486 0 328,692
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Deposits 314,629 35,873 145,254 486 0 496,242
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 35,500 0 0 0 0 35,500
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 350,129 35,873 145,254 486 0 531,742
All Other Liabilities, Equity and Demand Deposits 7) 3,984 448 96 0 172,501 177,029
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 354,113 $ 36,321 $ 145,350 $ 486 $ 172,501 $ 708,771
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap 8) $ 52,489 $ 131,206 $ 90,495 $ 144,410 $ 151,400
Cumulative Interest-Sensitivity Ratio 9) 115.0% 134.0% 117.0% 127.2% 128.5%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 7.4% 18.5% 12.8% 20.4% 21.4%
<FN>
1) Allocations to specific interest sensitivity periods are based on the
earlier of the repricing or maturity date.
2) Nonaccrual loans are shown in the non-interest sensitive category.
3) Estimated principal reductions have been assumed for mortgage-backed
securities based upon their current constant prepayment rates.
4) Savings deposits are assumed to decline at a rate of 20% per year over a
five-year period based upon the nature of their historically stable core
deposit relationships.
5) Money Fund and NOW accounts of individuals, partnerships and corporations
are assumed to decline at a rate of 33% per year over a three-year period
based upon the nature of their historically stable core deposit
relationships. Money Fund and NOW accounts of municipalities are included
in the 0 - 6 months category.
6) Reflected as maturing in each instrument's period of contractual maturity.
7) Other Assets and Liabilities are shown according to payment schedule or 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>
(15)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------
TABLE 2 - 3
- -----------------------
- -----------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
SEPTEMBER 30, 1998 VERSUS DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
----------------------------------
9/30/98 12/31/97 9/30/97
--------- ---------- ---------
NONACCRUAL LOANS $4,622 $4,258 $4,904
OTHER REAL ESTATE OWNED 514 189 0
-------- ---------- ---------
TOTAL NONPERFORMING ASSETS $5,136 $4,447 $4,904
-------- ---------- ---------
RESTRUCTURED, ACCRUING LOANS $5,548 (1) $6,696 (1) $6,220 (1)
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $545 $1,590 $1,743
GROSS LOANS OUTSTANDING $388,623 $377,633 $372,251
TOTAL STOCKHOLDERS' EQUITY $59,761 $54,930 $53,330
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
----------------------------------
POSSIBLE LOAN LOSSES: 9/30/98 12/31/97 9/30/97
--------- ---------- ---------
BEGINNING BALANCE $5,374 $5,152 $5,220
PROVISION 450 450 450
NET CHARGE-OFFS (345) (478) (518)
--------- ---------- ---------
ENDING BALANCE $5,479 $5,124 $5,152
--------- ---------- ---------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.41% 1.36% 1.38%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.19% 1.13% 1.32%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.32% 1.18% 1.32%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 118.54% 120.34% 105.06%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 51.13% 40.85% 40.04%
(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.
(16)
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE BANCORP, INC.
11/13/98 s/Daniel T. Rowe
- -------- -------------------------
Date Daniel T. Rowe, President
11/13/98 s/Brian K. Finneran
- -------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(17)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723458
<NAME> STATE BANCORP INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 15,245,804
<INT-BEARING-DEPOSITS> 178,305
<FED-FUNDS-SOLD> 61,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 229,794,169
<INVESTMENTS-CARRYING> 3,724,268
<INVESTMENTS-MARKET> 3,729,424
<LOANS> 388,623,182
<ALLOWANCE> 5,478,781
<TOTAL-ASSETS> 708,770,703
<DEPOSITS> 608,981,707
<SHORT-TERM> 35,500,000
<LIABILITIES-OTHER> 4,527,590
<LONG-TERM> 0
0
0
<COMMON> 32,892,495
<OTHER-SE> 26,868,911
<TOTAL-LIABILITIES-AND-EQUITY> 708,770,703
<INTEREST-LOAN> 27,141,603
<INTEREST-INVEST> 10,802,897
<INTEREST-OTHER> 2,707,966
<INTEREST-TOTAL> 40,652,466
<INTEREST-DEPOSIT> 17,077,166
<INTEREST-EXPENSE> 18,714,093
<INTEREST-INCOME-NET> 21,938,373
<LOAN-LOSSES> 1,350,000
<SECURITIES-GAINS> (58,100)
<EXPENSE-OTHER> 13,393,962
<INCOME-PRETAX> 8,326,760
<INCOME-PRE-EXTRAORDINARY> 5,481,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,481,219
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 7.68
<LOANS-NON> 4,622,470
<LOANS-PAST> 544,939
<LOANS-TROUBLED> 5,547,502
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,123,651
<CHARGE-OFFS> 1,311,615
<RECOVERIES> 316,745
<ALLOWANCE-CLOSE> 5,478,781
<ALLOWANCE-DOMESTIC> 5,756,872
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (278,091)
</TABLE>
