UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2000
[ ] 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 July 28, 2000, there were 7,581,614 shares of Common Stock outstanding.
<PAGE>
STATE BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999
(Unaudited) 1.
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2000 and 1999 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2000 and 1999 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss) for the Six Months Ended June 30, 2000 and 1999 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14.
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 16.
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
JUNE 30, 2000 AND DECEMBER 31, 1999 (UNAUDITED)
-----------------------------------------------------
-----------------------------------------------------
ASSETS: 2000 1999
----------------------------------------------------- ----------- -------------
CASH AND DUE FROM BANKS $35,490,045 $37,428,471
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - 27,000,000
----------- -------------
CASH AND CASH EQUIVALENTS 35,490,045 64,428,471
SECURITIES:
HELD TO MATURITY (ESTIMATED FAIR VALUE -
$273,066 IN 2000 AND $565,528 IN 1999) 275,600 569,002
AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 354,557,381 376,861,995
------------- -------------
TOTAL SECURITIES 354,832,981 377,430,997
LOANS - NET OF ALLOWANCE FOR PROBABLE LOAN LOSSES
($8,079,223 IN 2000 AND $7,106,627 IN 1999) 472,740,846 481,841,758
BANK PREMISES AND EQUIPMENT - NET 4,289,466 3,639,681
OTHER ASSETS 24,985,839 22,488,503
-------------------------------------------------- ------------- -------------
TOTAL ASSETS $892,339,177 $949,829,410
-------------------------------------------------- ============= =============
--------------------------------------------------
LIABILITIES:
--------------------------------------------------
DEPOSITS:
DEMAND $135,398,359 $132,961,189
SAVINGS 185,458,617 198,396,801
TIME 471,819,815 473,104,936
------------- -------------
TOTAL DEPOSITS 792,676,791 804,462,926
FEDERAL FUNDS PURCHASED 1,300,000 16,450,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 13,711,000 26,888,000
OTHER SHORT-TERM BORROWINGS 21,000,000 40,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 4,280,733 5,925,387
-------------------------------------------------- ------------- -------------
TOTAL LIABILITIES 832,968,524 893,726,313
-------------------------------------------------- ------------- -------------
--------------------------------------------------
STOCKHOLDERS' EQUITY:
--------------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES - -
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 7,709,195 SHARES IN 2000
AND 7,644,479 SHARES IN 1999; OUTSTANDING 7,573,853
SHARES IN 2000 AND 7,519,615 SHARES IN 1999 38,545,975 35,391,105
SURPLUS 34,240,239 29,492,832
RETAINED EARNINGS 1,370,507 5,119,181
TREASURY STOCK (87,700 SHARES IN 2000
AND 62,200 SHARES IN 1999) (1,251,117) (918,649)
ACCUMULATED OTHER COMPREHENSIVE LOSS (13,140,116) (12,501,470)
UNEARNED COMPENSATION (394,835) (479,902)
-------------------------------------------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 59,370,653 56,103,097
-------------------------------------------------- ------------- -------------
--------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $892,339,177 $949,829,410
-------------------------------------------------- ============= =============
(1)
<PAGE>
------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------------
<TABLE>
-----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
-----------------------------------------------------------------------------
<CAPTION>
--------------------------------- --------------------------
THREE MONTHS SIX MONTHS
--------------------------------- --------------------------
--------------- --------------- ------------ -----------
2000 1999 2000 1999
--------------- --------------- ------------ -----------
------------------------------------------------
INTEREST INCOME:
------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $ 11,477,386 $ 9,731,998 $ 22,851,009 $ 19,017,994
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 342,742 367,034 474,826 724,288
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 860,369 189,017 1,582,905 351,245
MORTGAGE-BACKED SECURITIES 299,880 456,270 621,340 925,892
GOVERNMENT AGENCY SECURITIES 4,941,079 3,625,556 9,862,207 7,028,477
OTHER SECURITIES 75,475 40,742 203,429 85,528
------------ ------------ ------------ -----------
TOTAL INTEREST INCOME 17,996,931 14,410,617 35,595,716 28,133,424
------------ ------------ ------------ -----------
------------------------------------------------
INTEREST EXPENSE:
------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 5,078,375 3,000,415 9,971,408 5,742,568
OTHER DEPOSITS AND TEMPORARY BORROWINGS 3,830,868 2,477,105 7,145,064 4,957,629
------------ ------------ ------------ -----------
TOTAL INTEREST EXPENSE 8,909,243 5,477,520 17,116,472 10,700,197
------------ ------------ ------------ -----------
NET INTEREST INCOME 9,087,688 8,933,097 18,479,244 17,433,227
PROVISION FOR PROBABLE LOAN LOSSES 750,000 750,000 1,750,000 1,500,000
------------ ------------ ------------ -----------
NET INTEREST INCOME AFTER PROVISION
FOR PROBABLE LOAN LOSSES 8,337,688 8,183,097 16,729,244 15,933,227
------------ ------------ ------------ -----------
------------------------------------------------
OTHER INCOME:
------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 526,362 339,651 1,024,724 637,748
NET SECURITY LOSSES (108,330) (103,021) (196,836) (57,469)
OTHER OPERATING INCOME 335,149 335,849 650,196 489,705
------------ ------------ ------------ -----------
TOTAL OTHER INCOME 753,181 572,479 1,478,084 1,069,984
------------ ------------ ------------ -----------
INCOME BEFORE OPERATING EXPENSES 9,090,869 8,755,576 18,207,328 17,003,211
------------ ------------ ------------ -----------
------------------------------------------------
OPERATING EXPENSES:
------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 3,660,287 3,138,436 7,305,865 6,231,956
OCCUPANCY 479,152 443,211 923,751 890,699
EQUIPMENT 166,857 200,067 384,420 395,853
MARKETING AND ADVERTISING 180,000 144,000 360,000 288,000
DEPOSIT ASSESSMENT FEES 46,721 36,448 86,822 74,838
AMORTIZATION OF INTANGIBLES 9,034 9,034 18,068 18,068
OTHER OPERATING EXPENSES 993,043 1,023,593 1,760,304 2,073,414
------------ ------------ ------------ -----------
TOTAL OPERATING EXPENSES 5,535,094 4,994,789 10,839,230 9,972,828
------------ ------------ ------------ -----------
INCOME BEFORE INCOME TAXES 3,555,775 3,760,787 7,368,098 7,030,383
PROVISION FOR INCOME TAXES 931,702 1,191,879 2,027,765 2,212,710
------------------------------------------------ ------------ ------------ ------------ -----------
NET INCOME $ 2,624,073 $ 2,568,908 $ 5,340,333 $ 4,817,673
------------------------------------------------ ------------ ------------ ------------ -----------
------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $ 0.35 $ 0.33 $ 0.71 $ 0.64
------------------------------------------------ ------------ ------------ ------------ -----------
------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $ 0.34 $ 0.33 $ 0.70 $ 0.63
------------------------------------------------ ------------ ------------ ------------ -----------
------------------------------------------------
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,551,702 7,521,468 7,542,248 7,496,830
------------------------------------------------ ------------ ------------ ------------ -----------
</TABLE>
(2)
<PAGE>
----------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
----------------------------------------------------------------
---------------------------------------------------- ----------- ------------
OPERATING ACTIVITIES: 2000 1999
---------------------------------------------------- ----------- ------------
NET INCOME $5,340,333 $4,817,673
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR PROBABLE LOAN LOSSES 1,750,000 1,500,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 405,974 399,456
AMORTIZATION OF INTANGIBLES 18,068 18,068
(ACCRETION) AMORTIZATION OF NET (DISCOUNT)
PREMIUM ON SECURITIES (669,616) 1,405
AMORTIZATION OF UNEARNED COMPENSATION 108,395 127,646
NET SECURITY LOSSES 196,836 57,469
GAIN ON SALE OF OTHER REAL ESTATE OWNED ("OREO") - (39,086)
INCREASE IN OTHER ASSETS, NET (2,213,097) (1,033,306)
DECREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES (1,648,924) (1,144,526)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,287,969 4,704,799
------------ ------------
-----------------------------------------------------
INVESTING ACTIVITIES:
-----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 293,400 342,400
PURCHASES OF SECURITIES HELD TO MATURITY - (994,500)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 52,153,293 70,707,135
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 72,494,746 57,149,978
PURCHASES OF SECURITIES AVAILABLE FOR SALE (102,811,596) (148,125,020)
PROCEEDS FROM SALE OF OREO - 216,858
DECREASE (INCREASE) IN LOANS - NET 7,350,912 (32,231,830)
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (1,055,758) (185,863)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 28,424,997 (53,120,842)
------------ ------------
-----------------------------------------------------
FINANCING ACTIVITIES:
-----------------------------------------------------
(DECREASE) INCREASE IN DEMAND AND SAVINGS DEPOSITS (10,501,014) 7,937,628
(DECREASE) INCREASE IN TIME DEPOSITS (1,285,121) 52,479,670
(DECREASE) INCREASE IN FEDERAL FUNDS PURCHASED (15,150,000) 3,100,000
(DECREASE) INCREASE IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE (13,177,000) 7,247,500
(DECREASE) INCREASE IN OTHER SHORT-TERM
BORROWINGS (19,000,000) 3,500,000
CASH DIVIDENDS PAID (1,813,492) (1,565,465)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 435,941 375,219
PROCEEDS FROM STOCK OPTIONS EXERCISED 171,762 214,215
PURCHASE OF TREASURY STOCK (332,468) -
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (60,651,392) 73,288,767
------------ ------------
-----------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (28,938,426) 24,872,724
-----------------------------------------------------
-----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 64,428,471 19,274,435
-----------------------------------------------------
----------------------------------------------------- ----------- ------------
CASH AND CASH EQUIVALENTS - JUNE 30 $35,490,045 $44,147,159
----------------------------------------------------- ----------- ------------
-----------------------------------------------------
SUPPLEMENTAL DATA:
-----------------------------------------------------
INTEREST PAID $18,034,087 $10,945,071
INCOME TAXES PAID $2,486,000 $2,975,000
ADJUSTMENT TO UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE ($940,953) ($9,137,235)
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER
END $910,743 $854,213
(3)
<PAGE>
--------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------
<TABLE>
-----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
-----------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
OTHER COMPRE-
COMPRE- UNEARNED HENSIVE
COMMON RETAINED TREASURY HENSIVE COMPEN- INCOME
STOCK SURPLUS EARNINGS STOCK LOSS SATION TOTAL (LOSS)
----- ------- -------- ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $35,391,105 $29,492,832 $5,119,181 ($918,649) ($12,501,470) ($479,902) $56,103,097
COMPREHENSIVE INCOME:
NET INCOME 5,340,333 5,340,333 $5,340,333
----------
OTHER COMPREHENSIVE LOSS,
NET OF TAX:
UNREALIZED HOLDING LOSSES
ARISING DURING THE PERIOD (680,790)
RECLASSIFICATION ADJUSTMENT
FOR LOSSES INCLUDED IN NET INCOME 42,144
----------
TOTAL OTHER COMPREHENSIVE LOSS (638,646) (638,646) (638,646)
----------
TOTAL COMPREHENSIVE INCOME $4,701,687
----------
CASH DIVIDEND
($0.24 PER SHARE) (1,817,761) (1,817,761)
8% STOCK DIVIDEND (564,757 SHARES
AT MARKET VALUE) 2,823,785 4,447,461 (7,271,246) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (33,207 SHARES
AT 95% OF MARKET VALUE) 166,035 269,906 435,941
STOCK OPTIONS EXERCISED 165,050 6,712 171,762
TREASURY STOCK PURCHASED (332,468) (332,468)
AMORTIZATION OF UNEARNED
COMPENSATION 23,328 85,067 108,395
----------- ----------- ---------- --------- ------------ ---------- ------------
-----------------------------
BALANCE, JUNE 30, 2000 $38,545,975 $34,240,239 $1,370,507($1,251,117) ($13,140,116) ($394,835) $59,370,653
-----------------------------
----------- ----------- ---------- --------- ------------ ---------- ------------
BALANCE, JANUARY 1, 1999 $32,966,700 $24,236,479 $4,866,852 ($188,375) ($364,710) ($659,054) $60,857,892
COMPREHENSIVE LOSS:
NET INCOME 4,817,673 4,817,673 $4,817,673
----------
OTHER COMPREHENSIVE LOSS,
NET OF TAX:
UNREALIZED HOLDING LOSSES ARISING
DURING THE PERIOD (5,897,864)
RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME (34,109)
----------
TOTAL OTHER COMPREHENSIVE LOSS (5,931,973) (5,931,973)(5,931,973)
----------
TOTAL COMPREHENSIVE LOSS ($1,114,300)
-----------
CASH DIVIDEND
($0.22 PER SHARE) (1,639,193) (1,639,193)
6% STOCK DIVIDEND (398,404 SHARES
AT MARKET VALUE) 1,992,020 4,631,447 (6,623,467) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (36,880 SHARES
AT 95% OF MARKET VALUE) 120,310 254,909 375,219
STOCK OPTIONS EXERCISED 173,350 40,865 214,215
AMORTIZATION OF UNEARNED
COMPENSATION 39,536 88,110 127,646
------------ ----------- ---------- ---------- ---------- ---------- -----------
-----------------------------
BALANCE, JUNE 30, 1999 $35,252,380 $29,203,236 $1,421,865 ($188,375) ($6,296,683) ($570,944) $58,821,479
----------------------------- ------------ ----------- ---------- ---------- ---------- ---------- -----------
</TABLE>
(4)
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------
In the opinion of the management of State Bancorp, Inc. (the "Company"), the
preceding unaudited consolidated financial statements contain all adjustments,
consisting of normal accruals, necessary for a fair presentation of its
consolidated financial condition as of June 30, 2000 and December 31, 1999, its
consolidated earnings for the six months ended June 30, 2000 and 1999 and cash
flows and changes in stockholders' equity and comprehensive income (loss) for
the six months ended June 30, 2000 and 1999. The results of operations for the
six months ended June 30, 2000 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 1999 annual report on Form 10-K. Certain
amounts have been reclassified to conform with the current year's presentation.
STOCKHOLDERS' EQUITY
The Company has 250,000 shares of preferred stock authorized. No shares were
issued as of June 30, 2000.
Stock held in treasury by the Company is accounted for using the cost method,
which treats stock held in treasury as a reduction to total stockholders'
equity. During the quarter the Company purchased 20,000 common shares at an
average price of $13.
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
144,245 (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 June 30, 2000, 96,603 shares
have been released from the suspense account and are considered outstanding for
earnings per share computations.
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, "Earnings Per Share."
(5)
<PAGE>
For the Six Months Ended June 30, 2000 1999
--------------------------------------- ---- ----
Net income $5,340,333 $4,817,673
Average dilutive stock options outstanding 259,565 286,148
Average exercise price per share $6.08 $8.06
Average market price - diluted basis $13.25 $16.61
Average common shares outstanding 7,542,248 7,496,830
Increase in shares due to exercise of options -
diluted basis 78,907 116,037
----------- ----------
Adjusted common shares outstanding - diluted 7,621,155 7,612,867
=========== ==========
Net income per share-basic $0.71 $0.64
=========== ==========
Net income per share-diluted $0.70 $0.63
=========== ==========
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
probable loan losses of approximately $1,140,000 and $608,000 was established
for $4,728,020 and $3,981,474 of the total impaired loans at June 30, 2000 and
December 31, 1999, respectively, with the balance of impaired loans in 2000
requiring no specific allowance. The total average impaired loan balance was
$5,330,136 for the quarter ended June 30, 2000 and $6,581,068 for the year ended
December 31, 1999. Total impaired loans amounted to $5,253,654 and $3,981,474 at
June 30, 2000 and December 31, 1999, respectively. At June 30, 2000, all
impaired loans are collateral-dependent loans, and are measured based on the
fair value of the underlying collateral. Total interest income recognized for
impaired, nonaccrual and restructured loans was $0 and $7,533 for the three
months ended June 30, 2000 and 1999, respectively, and $42,947 and $27,699 for
the six months ended June 30, 2000 and 1999, respectively.
(6)
<PAGE>
Activity in the allowance for probable loan losses for the six months ended
June 30, 2000 and 1999 is as follows:
2000 1999
---- ----
Balance, January 1 $7,106,627 $5,788,440
Provision charged to income 1,750,000 1,500,000
Charge-offs, net of recoveries of
$166,561 in 2000 and $174,136 in 1999 (777,404) (1,039,800)
----------- -----------
Balance, June 30 $8,079,223 $6,248,640
=========== ===========
(7)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - State Bancorp, Inc. (the "Company") is a one-bank holding company,
which was formed on June 24, 1986. The Company operates as the parent for its
wholly-owned subsidiary, State Bank of Long Island and subsidiaries (the
"Bank"), a New York State chartered commercial bank founded in 1966. The income
of the Company is derived through the operation of the Bank and its
subsidiaries, SB Portfolio Management Corp. ("SB Portfolio"), SB Financial
Services Corp. ("SB Financial"), New Hyde Park Leasing Corporation and SB ORE
Corp.
Material Changes in Financial Condition - Total assets of the Company amounted
to $892.3 million at June 30, 2000, a decrease of $57.5 million or 6.1% when
compared to December 31, 1999. The decline of $31.3 million in municipal
securities, primarily related to maturing securities, was offset by an increase
in higher yielding agency securities of $14.0 million, due to the activity of SB
Portfolio. There was also a decrease of $27.0 million in securities purchased
under agreements to resell that was directly related to lower short-term
borrowings discussed below. The loan portfolio decreased 1.7% or $8.1 million
during the first six months but management anticipates some expansion of the
loan portfolio throughout the balance of the year.
At June 30, 2000, total deposits decreased by $11.8 million to $792.7 million
when compared to December 31, 1999. This decrease was primarily due to declines
of $12.9 million in seasonal money market account balances. In addition, there
was a $48.2 million or 39.9% increase in other time deposits that management
expected due to a retail certificate of deposit promotion that began in
April. The Company raised approximately $100 million in retail certificates
of deposit between October 1999 and the second quarter of 2000. The average
rate on these funds is approximately 25 basis points less than other
short-term borrowing rates. This was offset by a decrease in $50.0 million
of certificates of deposit over $100,000 ("Jumbo certificates of deposit"),
primarily municipal deposits. The increase in time deposits, besides providing
deposit diversification, reduced the Company's short-term borrowings by $47.3
million during the first six months. This additional liquidity not only reduced
the need to borrow at higher rates, but decreased the amount of securities
needed to collateralize municipal deposits, since some of the borrowed funds
at year end were used to purchase securities under agreements to resell.
Core deposit balances are also expected to grow as a result of the July 2000
opening of the Company's tenth branch, located in East Setauket, New York.
Average assets for the second quarter of 2000 were up by $162.4 million or 20.6%
to $951.1 million from the comparable 1999 period. Sources of asset expansion
included a $110.6 million or 39.6% average increase in securities available for
sale, primarily municipal securities and taxable agency securities, and an
increase in average commercial loans and mortgages of approximately $42.7
million or 10.2%. Total growth in the loan portfolio in the second quarter 2000
is up on average $43.4 million or 9.8% from second quarter 1999. Funding this
growth were increases in money fund accounts and certificates of deposit.
Average borrowed funds, primarily securities sold under agreements to
repurchase, decreased by $13.6 million or 27.0% during the second quarter of
2000, compared to 1999 for the same reasons noted above. The net result of these
activities was a shift in the mix of the Company's balance sheet that yielded a
40 basis point narrowing of the first six months net interest margin to 4.20%.
Management anticipates that growth in loans during the balance of 2000 coupled
with a continued increase in core deposit balances will serve to widen the net
interest rate spread during the last two quarters of the year.
(8)
<PAGE>
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 June 30,
2000, management believes that the Company and the Bank meet all capital
adequacy requirements to which they are subject. The Bank's capital adequacy
ratios are 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 $59.4 million at June 30, 2000, a decrease of
$0.5 million or 0.9% versus the comparable 1999 date. Excluding valuations
related to SFAS No. 115 at June 30, 2000 and 1999, total stockholders' equity
grew at a year-to-year rate of 11.4%. 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 June 30, 2000 and compares
them to current regulatory guidelines and December 31 and June 30, 1999 actual
results.
TABLE 2-1
Tier I capital/ Total Capital/
Tier I Risk-Weighted Risk-Weighted
Leverage Assets Assets
Regulatory Minimum 3.00%-4.00% 4.00% 8.00%
Ratios as of:
June 30, 2000 7.43% 12.62% 13.87%
December 31, 1999 7.02% 11.78% 13.01%
June 30, 1999 8.11% 12.44% 13.64%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
(9)
<PAGE>
Liquidity - 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. The Board of Directors' Funds
Management Committee is responsible to ensure a stable source of funding to meet
both the expected and unexpected cash demands of loan and deposit customers.
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. The Company
compliments its stable base of core deposits provided by long-standing customer
relationships with short-term borrowings from correspondent banks in addition to
other corporate customers and municipalities. 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 second quarter of 2000, the
Company's liquidity position remained stable and well within acceptable
industry standards. During the second quarter of 2000, the retail certificates
of deposit promotion, and to some extent seasonal paydowns on loans, provided
a source of readily available funds to meet general liquidity needs. In
addition, at June 30, 2000, the Company had access to $35.4 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 $6.5 million in formal and
$10.0 million in informal lines of credit extended by
correspondent banks to be utilized, if needed, for short-term funding purposes.
There was also approximately $25.9 million in securities available to be pledged
to secure repurchase agreements or other borrowings at June 30, 2000.
Material Changes in Results of Operations - Despite a 16.7% increase in the
provision for probable loan losses during 2000 versus 1999, net income for the
six months ended June 30, 2000 was $5.3 million, a 10.8% improvement over the
comparable 1999 period. The higher level of earnings in 2000 resulted from 6.0%
and 48.6% improvements in net interest income and noninterest income,
respectively, coupled with a lower effective income tax rate. Somewhat
offsetting these improvements were increases in total operating expenses and net
security losses during the second quarter of 2000.
The increase in net interest income, up $1.0 million to $18.5 million, resulted
from an expanded interest-earning asset base, principally commercial loans and
mortgages and agency securities, and an increase in the prime rate (9.50% in
June 2000 versus 7.75% in June 1999.) The Company's average loan portfolio grew
by $50.5 million or 11.6% compared to the first six months of 1999, mostly
attributable to increases in commercial loans and mortgages. The strength of
the Long Island economy, particularly the real estate market, and the
ongoing consolidation of the local banking market continue to provide
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
(10)
<PAGE>
through conservative underwriting and credit standards. Products such as the
Small Business Line of Credit 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. In
addition, management has added full time staff who will concentrate on the
marketing and sales efforts of new and existing retail products. We opened our
tenth branch in July and expect an additional branch to be opened in Nassau
County by year-end. Management of the Company has also targeted the Queens
County market for deposit and loan expansion during 2000.
The Company's investment portfolio expanded, on average for the six months in
2000 versus 1999 by $110.7 million or 40.3%, primarily through growth in
callable Government agency securities (up on average $76.9 million or 35.2%) and
local municipal securities (up on average $67.1 million). A decrease in
mortgage-backed securities of $15.5 million offset the net increase in the
portfolio. The Company continues to be an active purchaser of agency
securities due to their high credit quality, attractive yields and their
pledgeability to secure municipal deposits.
Other income increased by 38.1% for the six months ended June 30, 2000 versus
1999 due to an increase in service charges on deposit accounts. Excluding the
impact of securities transactions, other income increased by 48.6% in 2000.
Annuity sales, wire transfer fees and ATM fees were the primary drivers behind
this growth. Management expects that other income will grow at a somewhat slower
rate during the balance of 2000 when compared to last year's results.
Total operating expenses rose by 8.7% during the first six months of 2000,
mainly due to increases in salaries and employee benefits arising from staff
expansion in product support areas offset by decreases in miscellaneous other
operating expenses.
The increase in operating expenses during the first six months of 2000 was
offset by an increase in net revenue, resulting in a lower operating efficiency
ratio (total operating expenses as a percentage of fully taxable equivalent net
interest revenue, excluding securities transactions). The 2000 efficiency ratio
decreased to 51.5% from 52.6% a year ago. The Company's other primary measure of
expense control, the ratio of total operating expenses to average total assets,
decreased during the first six months of 2000 to 2.33% from a level of 2.60% in
1999. 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.
Asset Quality - Nonperforming assets (defined by the Company as nonaccrual loans
and other real estate owned) totaled $6.1 million at June 30, 2000, an increase
from $5.2 million at December 31, 1999 and a decrease from $9.7 million at the
comparable 1999 date. The significant decrease from June 2000 versus 1999
relates to payments of approximately $4 million in nonaccrual loans at June 30,
1999 and the sale of Other Real Estate Owned property. In addition, the
nonaccrual amount includes one credit totaling $3.2 million, $3.5 million and
$4.0 million at June 30, 2000, December 31, 1999 and June 30, 1999,
respectively. $500 thousand was charged off from June 1999 to December 1999 and
an additional $265 thousand was charged off in 2000 related to this credit.
This credit is collateralized by Long Island commercial real estate with a
current appraised value in excess of the credit. Furthermore, $2 million in
loans to the operating companies for this credit went
(11)
<PAGE>
on nonaccrual status in the first quarter of 2000 because of some uncertainty of
collection of the collateral. The Company continues to receive principal
payments on the loans and $1.3 million of these loans is secured by the
borrower's receivables.
As of June 30, 2000, restructured, accruing loans declined from June 1999 by
$159 thousand, and the balance is still significantly less than 1% of total
gross loans. Although classified as nonperforming for reporting purposes,
restructured loans continue to accrue and pay interest in accordance with their
revised terms. Loans 90 days or more past due and still accruing interest
amounted to $339 thousand, also significantly less than 1% of total
gross loans.
The allowance for probable loan losses amounted to $8.1 million or 1.7% of total
loans at June 30, 2000 versus $6.2 million and 1.4%, respectively, at the
comparable 1999 date. The allowance for probable loan losses as a percentage of
nonaccrual loans, restructured and accruing loans and loans 90 days or more past
due and still accruing improved to 119.8% at June 30, 2000 from 64.8% at June
30, 1999. This is down slightly from 126.5% at December 31, 1999. The higher
2000 provision for probable loan losses during the first six months reflects the
slightly higher level of nonperforming loans at June 30, 2000. A further
review of the Company's nonperforming assets may be found in Table 2-2
following this analysis.
(12)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
-----------------------
TABLE 2 - 2
-----------------------
-----------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR PROBABLE LOAN LOSSES
JUNE 30, 2000 VERSUS DECEMBER 31, 1999 AND JUNE 30, 1999
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
----------------------------------
6/30/00 12/31/99 6/30/99
--------- ---------- ---------
NONACCRUAL LOANS $6,074 (1) $5,194 (1) $9,159 (1)
OTHER REAL ESTATE OWNED - - 527
-------- ---------- ---------
TOTAL NONPERFORMING ASSETS $6,074 $5,194 $9,686
-------- ---------- ---------
RESTRUCTURED, ACCRUING LOANS $ 329 $ 422 $ 488
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $ 339 $ 3 -
GROSS LOANS OUTSTANDING $480,820 $488,948 $451,828
TOTAL STOCKHOLDERS' EQUITY $59,371 $56,103 $58,821
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
PROBABLE LOAN LOSSES: ----------------------------------
6/30/00 12/31/99 6/30/99
--------- ---------- ---------
BEGINNING BALANCE $7,353 $6,961 $6,510
PROVISION 750 750 750
NET CHARGE-OFFS (24) (604) (1,011)
--------- ---------- ---------
ENDING BALANCE $8,079 $7,107 $6,249
--------- ---------- ---------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.7% 1.5% 1.4%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.3% 1.1% 2.0%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.3% 1.1% 2.1%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 133.0% 136.8% 68.2%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 119.8% 126.5% 64.8%
(1) INCLUDES ONE CREDIT TOTALING $5.2 MILLION AT JUNE 30, 2000, $3.5 MILLION
AT DECEMBER 31, 1999 AND $4.0 MILLION AT JUNE 30, 1999.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING INTEREST.
(13)
<PAGE>
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
December 31, 1999 in our Annual Report on Form 10-K. There have been no material
changes in our market risk at June 30, 2000 compared to June 30, 1999. The
following is an update of the discussion provided therein:
Our largest component of market risk continues to be interest rate risk,
virtually all at the Bank level. The degree by which interest income may vary
due to changes in interest rates is measured through interest rate sensitivity
management. A static gap report (see Table 2-3), measured at a single point in
time, measures the difference between assets and liabilities that reprice in a
future given time period. . We used the same assumptions in the table as in the
prior year. The Company's gap ratio (the percentage of assets repricing against
liabilities) at June 30, 2000 was 70.3%. The Company's liability sensitive
position, meaning that more liabilities reprice on a cumulative basis than
assets, indicates that net interest income should increase in declining rate
scenarios and decrease in rising rate scenarios. However, because rate movements
are rarely parallel, a static gap report can only be considered a rough
measurement of the impact a rate movement could have on interest income.
The Company is still not subject to foreign currency exchange or commodity price
risk. At June 30, 2000, we own no trading assets, nor did we use hedging
transactions such as interest rate swaps. There has been no material change in
the composition of assets or deposit liabilities from December 31, 1999. We
continue to monitor the impact of interest rate volatility upon net interest
income and net portfolio value in the same manner as at December 31, 1999. The
Board of Directors has not amended the approved limits of acceptable variances.
(14)
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK (CONTINUED)
<TABLE>
===============================================================================
JUNE 30, 2000
-----------------
TABLE 2-3 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) $ 293,333 $ 14,924 $ 104,567 $ 61,922 $ 6,074 $ 480,820
Securities Held to Maturity - - 276 - - 276
Securities Available for Sale 3) 34,645 28,482 39,504 267,978 4,286 374,895
--------- --------- --------- --------- --------- ---------
Total Interest-Earning Assets 327,978 43,406 144,347 329,900 10,360 855,991
Unrealized Net Loss on Securities Available for Sale (20,338) - - - - (20,338)
Cash and Due from Banks 35,490 - - - - 35,490
All Other Assets 7) 9,077 2,875 - - 9,244 21,196
--------- --------- --------- --------- --------- ---------
Total Assets $ 352,207 $ 46,281 $ 144,347 $ 329,900 $ 19,604 $ 892,339
--------- --------- --------- --------- --------- ---------
---------------------------------------------------------
INTEREST - SENSITIVE LIABILITIES : 1)
---------------------------------------------------------
Savings Accounts 4) $ 5,224 $ 5,224 $ 41,791 $ 52,239 $ - $ 104,478
Money Fund and Now Accounts 5) 37,551 4,826 38,604 - - 80,981
Time Deposits 6) 363,207 75,880 32,355 378 - 471,820
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Deposits 405,982 85,930 112,750 52,617 - 657,279
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 36,011 - - - - 36,011
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 441,993 85,930 112,750 52,617 - 693,290
All Other Liabilities, Equity and Demand Deposits 7) 3,815 401 64 - 194,769 199,049
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 445,808 $ 86,331 $ 112,814 $ 52,617 $ 194,769 $ 892,339
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap 8) ($ 114,015) ($ 156,539)($ 124,942) $ 152,341 $ 162,701
Cumulative Interest-Sensitivity Ratio 9) 74.2% 70.3% 80.5% 122.0% 123.5%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets (12.8%) (17.5%) (14.0%) 17.1% 18.2%
<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 10% per year over a
ten-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 20% per year over a five-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>
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on April 18, 2000
for the purpose of electing three directors.
Election of Directors:
Nominee Term For Withheld
------- ---- --- --------
Carl R. Bruno 3 years 5,685,787 33,901
Gary Holman 3 years 5,685,445 34,243
Richard W. Merzbacher 3 years 5,693,128 26,560
The proposal was passed.
The proxy statement for this meeting was filed with the Securities and Exchange
Commission.
(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.
8/11/00 s/Daniel T. Rowe
-------- -------------------------
Date Daniel T. Rowe, President
8/11/00 s/Brian K. Finneran
-------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(17)
<PAGE>
