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, 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
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(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 27, 2000, there were 7,546,126 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, 2000 and December 31, 1999
(Unaudited) 1.
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2000 and 1999 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2000 and 1999 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss) for the Nine Months Ended September 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 7.
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13.
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 15.
<PAGE>
----------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
----------------------------------------
<TABLE>
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STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (UNAUDITED)
-----------------------------------------------------------
<CAPTION>
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ASSETS: 2000 1999
------------------------------------------------- -------------- --------------
<S> <C> <C>
CASH AND DUE FROM BANKS $37,058,294 $37,428,471
FEDERAL FUNDS SOLD 9,000,000 -
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 10,000,000 27,000,000
-------------- --------------
CASH AND CASH EQUIVALENTS 56,058,294 64,428,471
SECURITIES:
HELD TO MATURITY (ESTIMATED FAIR VALUE -
$273,198 IN 2000 AND $565,528 IN 1999) 275,600 569,002
AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 385,232,786 376,861,995
-------------- --------------
TOTAL SECURITIES 385,508,386 377,430,997
LOANS - NET OF ALLOWANCE FOR PROBABLE LOAN LOSSES
($8,704,613 IN 2000 AND $7,106,627 IN 1999) 468,969,642 481,841,758
BANK PREMISES AND EQUIPMENT - NET 4,358,384 3,639,681
OTHER ASSETS 21,851,621 22,488,503
-------------- --------------
-------------------------------------------------
TOTAL ASSETS $936,746,327 $949,829,410
------------------------------------------------- ============== ==============
-------------------------------------------------
LIABILITIES:
-------------------------------------------------
DEPOSITS:
DEMAND $142,688,633 $132,961,189
SAVINGS 196,189,395 198,396,801
TIME 486,244,880 473,104,936
-------------- --------------
TOTAL DEPOSITS 825,122,908 804,462,926
FEDERAL FUNDS PURCHASED 7,000,000 16,450,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - 26,888,000
OTHER SHORT-TERM BORROWINGS 35,000,000 40,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 6,232,123 5,925,387
-------------- --------------
-------------------------------------------------
TOTAL LIABILITIES 873,355,031 893,726,313
------------------------------------------------- -------------- --------------
-------------------------------------------------
STOCKHOLDERS' EQUITY:
-------------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES - -
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 7,727,758 SHARES IN 2000
AND 7,644,479 SHARES IN 1999; OUTSTANDING 7,578,988
SHARES IN 2000 AND 7,519,615 SHARES IN 1999 38,638,790 35,391,105
SURPLUS 34,375,115 29,492,832
RETAINED EARNINGS 2,882,792 5,119,181
TREASURY STOCK (105,400 SHARES IN 2000
AND 62,200 SHARES IN 1999) (1,466,953) (918,649)
ACCUMULATED OTHER COMPREHENSIVE LOSS (10,677,652) (12,501,470)
UNEARNED COMPENSATION (360,796) (479,902)
-------------- --------------
-------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 63,391,296 56,103,097
------------------------------------------------- -------------- --------------
-------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $936,746,327 $949,829,410
------------------------------------------------- ============== ==============
</TABLE>
(1)
<PAGE>
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------
<TABLE>
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STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
------------------------------------------------------------------------------------
<CAPTION>
---------------------------- ----------------------------
THREE MONTHS NINE MONTHS
---------------------------- ----------------------------
------------- ------------- ------------- -------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
--------------------------------------------------
INTEREST INCOME:
--------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $11,739,072 $10,397,512 $34,590,081 $29,415,506
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 214,441 68,280 689,267 792,568
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 957,568 629,580 2,540,473 980,825
MORTGAGE-BACKED SECURITIES 247,355 409,759 868,695 1,335,651
GOVERNMENT AGENCY SECURITIES 4,966,258 4,466,677 14,828,465 11,495,154
OTHER SECURITIES 103,522 42,803 306,951 128,331
------------- ------------- ------------- -------------
TOTAL INTEREST INCOME 18,228,216 16,014,611 53,823,932 44,148,035
------------- ------------- ------------- -------------
--------------------------------------------------
INTEREST EXPENSE:
--------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 5,561,696 3,894,232 15,533,104 9,636,800
OTHER DEPOSITS AND TEMPORARY BORROWINGS 3,760,405 2,891,398 10,905,469 7,849,027
------------- ------------- ------------- -------------
TOTAL INTEREST EXPENSE 9,322,101 6,785,630 26,438,573 17,485,827
------------- ------------- ------------- -------------
NET INTEREST INCOME 8,906,115 9,228,981 27,385,359 26,662,208
PROVISION FOR PROBABLE LOAN LOSSES 750,000 750,000 2,500,000 2,250,000
------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR PROBABLE LOAN LOSSES 8,156,115 8,478,981 24,885,359 24,412,208
------------- ------------- ------------- -------------
--------------------------------------------------
OTHER INCOME:
--------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 425,046 427,209 1,449,770 1,064,957
NET SECURITY LOSSES (207,064) (106,889) (403,900) (164,358)
OTHER OPERATING INCOME 231,333 231,477 881,529 721,182
------------- ------------- ------------- -------------
TOTAL OTHER INCOME 449,315 551,797 1,927,399 1,621,781
------------- ------------- ------------- -------------
INCOME BEFORE OPERATING EXPENSES 8,605,430 9,030,778 26,812,758 26,033,989
------------- ------------- ------------- -------------
--------------------------------------------------
OPERATING EXPENSES:
--------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 3,363,882 3,170,334 10,669,747 9,402,290
OCCUPANCY 486,948 440,819 1,410,699 1,331,518
EQUIPMENT 209,051 202,458 593,471 598,311
MARKETING AND ADVERTISING 180,000 144,000 540,000 432,000
DEPOSIT ASSESSMENT FEES 44,882 36,686 131,704 111,524
AMORTIZATION OF INTANGIBLES 9,035 9,035 27,103 27,103
OTHER OPERATING EXPENSES 1,077,539 1,102,312 2,837,843 3,175,726
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 5,371,337 5,105,644 16,210,567 15,078,472
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 3,234,093 3,925,134 10,602,191 10,955,517
PROVISION FOR INCOME TAXES 738,446 1,169,784 2,766,211 3,382,494
------------- ------------- ------------- -------------
--------------------------------------------------
NET INCOME $2,495,647 $2,755,350 $7,835,980 $7,573,023
-------------------------------------------------- ------------- ------------- ------------- -------------
--------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $0.33 $0.37 $1.04 $1.01
------ ------ ------ -----
--------------------------------------------------
--------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $0.33 $0.36 $1.03 $0.99
------ ------ ------ -----
--------------------------------------------------
--------------------------------------------------
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,579,205 7,543,198 7,554,657 7,512,456
-------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
(2)
<PAGE>
----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------
<TABLE>
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STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
-----------------------------------------------------------------
<CAPTION>
---------------------------------------------------- ------------ -------------
OPERATING ACTIVITIES: 2000 1999
---------------------------------------------------- ------------ -------------
<S> <C> <C>
NET INCOME $7,835,980 $7,573,023
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR PROBABLE LOAN LOSSES 2,500,000 2,250,000
DEPRECIATION AND AMORTIZATION OF BANK PREMISES AND EQUIPMENT 608,373 606,450
AMORTIZATION OF INTANGIBLES 27,103 27,103
ACCRETION OF NET DISCOUNT ON SECURITIES (1,041,420) (229,171)
AMORTIZATION OF UNEARNED COMPENSATION 154,986 190,991
NET SECURITY LOSSES 403,900 164,358
GAIN ON SALE OF OTHER REAL ESTATE OWNED ("OREO") - (39,086)
INCREASE IN OTHER ASSETS, NET (491,360) (1,492,119)
INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES 229,847 538,567
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,227,409 9,590,116
------------ -------------
----------------------------------------------------
INVESTING ACTIVITIES:
----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 293,400 2,278,700
PURCHASES OF SECURITIES HELD TO MATURITY - (994,500)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 204,223,342 229,857,009
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE 92,544,894 65,871,633
PURCHASES OF SECURITIES AVAILABLE FOR SALE (301,576,548) (436,408,820)
PROCEEDS FROM SALE OF OREO - 112,798
DECREASE (INCREASE) IN LOANS - NET 10,372,116 (46,342,735)
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (1,327,076) (325,656)
------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,530,128 (185,951,571)
------------ -------------
----------------------------------------------------
FINANCING ACTIVITIES:
----------------------------------------------------
INCREASE (DECREASE) IN DEMAND AND SAVINGS DEPOSITS 7,520,038 (7,954,289)
INCREASE IN TIME DEPOSITS 13,139,944 89,916,192
(DECREASE) INCREASE IN FEDERAL FUNDS PURCHASED (9,450,000) 12,700,000
(DECREASE) INCREASE IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE (26,888,000) 65,955,875
(DECREASE) INCREASE IN OTHER SHORT-TERM BORROWINGS (5,000,000) 15,000,000
CASH DIVIDENDS PAID (2,724,234) (2,419,678)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND REINVESTMENT PLAN 648,880 560,952
PROCEEDS FROM STOCK OPTIONS EXERCISED 173,962 219,430
PURCHASE OF TREASURY STOCK (548,304) (300,000)
------------ -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (23,127,714) 173,678,482
------------ -------------
----------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,370,177) (2,682,973)
----------------------------------------------------
----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 64,428,471 19,274,435
----------------------------------------------------
---------------------------------------------------- ----------- -------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $56,058,294 $16,591,462
---------------------------------------------------- ----------- -------------
----------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------
INTEREST PAID $26,693,778 $17,199,803
INCOME TAXES PAID $3,546,000 $3,955,000
ADJUSTMENT TO UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE $2,924,958 ($13,702,033)
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER END $983,362 $907,246
</TABLE>
(3)
<PAGE>
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ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------
<TABLE>
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STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 7,835,980 7,835,980 $7,835,980
----------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED HOLDING GAINS
ARISING DURING THE PERIOD 1,770,848
RECLASSIFICATION ADJUSTMENT
FOR LOSSES INCLUDED IN NET INCOME 52,970
----------
TOTAL OTHER COMPREHENSIVE INCOME 1,823,818 1,823,818 1,823,818
----------
TOTAL COMPREHENSIVE INCOME $9,659,798
----------
CASH DIVIDEND
($0.37 PER SHARE) (2,801,123) (2,801,123)
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 (51,314 SHARES
AT 95% OF MARKET VALUE) 256,570 392,310 648,880
STOCK OPTIONS EXERCISED 167,330 6,632 173,962
TREASURY STOCK PURCHASED (548,304) (548,304)
AMORTIZATION OF UNEARNED
COMPENSATION 35,880 119,106 154,986
----------- ----------- ---------- --------- ------------ ---------- ------------
-----------------------------
BALANCE, SEPTEMBER 30, 2000 $38,638,790 $34,375,115 $2,882,792($1,466,953) ($10,677,652) ($360,796) $63,391,296
-----------------------------
----------- ----------- ---------- --------- ------------ ---------- ------------
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 7,573,023 7,573,023 $7,573,023
----------
OTHER COMPREHENSIVE LOSS,
NET OF TAX:
UNREALIZED HOLDING LOSSES ARISING
DURING THE PERIOD (8,836,285)
RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME (34,109)
----------
TOTAL OTHER COMPREHENSIVE LOSS (8,870,394) (8,870,394)(8,870,394)
----------
TOTAL COMPREHENSIVE LOSS ($1,297,371)
----------
CASH DIVIDEND
($0.34 PER SHARE) (2,546,439) (2,546,439)
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) 184,400 376,552 560,952
STOCK OPTIONS EXERCISED 177,730 41,700 219,430
TREASURY STOCK PURCHASED (300,000) (300,000)
AMORTIZATION OF UNEARNED
COMPENSATION 58,811 132,180 190,991
------------ ----------- ---------- ---------- ---------- ---------- -----------
-----------------------------
BALANCE, SEPTEMBER 30, 1999 $35,320,850 $29,344,989 $3,269,969 ($488,375) ($9,235,104) ($526,874) $57,685,455
----------------------------- ------------ ----------- ---------- ---------- ---------- ---------- -----------
</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, 2000 and December 31, 1999,
its consolidated earnings for the nine months ended September 30, 2000 and 1999
and cash flows and changes in stockholders' equity and comprehensive income
(loss) for the nine months ended September 30, 2000 and 1999. The results of
operations for the nine months ended September 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 September 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 repurchased 17,700 common shares at an
average price of $12.19.
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 September 30, 2000, 100,875
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 Nine Months Ended September 30, 2000 1999
--------------------------------------- ---- ----
Net income $7,835,980 $7,573,023
Average dilutive stock options outstanding 256,075 216,303
Average exercise price per share $6.11 $4.87
Average market price - diluted basis $13.05 $16.25
Average common shares outstanding 7,554,657 7,512,456
Increase in shares due to exercise of options -
diluted basis 75,103 111,696
----------- ----------
Adjusted common shares outstanding - diluted 7,629,760 7,624,152
=========== ==========
Net income per share-basic $1.04 $1.01
=========== ==========
Net income per share-diluted $1.03 $0.99
=========== ==========
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 $934,000 and $608,000 was established for
$4,528,020 and $3,981,474 of the total impaired loans at September 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
$5,116,894 for the quarter ended September 30, 2000 and $6,581,068 for the year
ended December 31, 1999. Total impaired loans amounted to $5,053,654 and
$3,981,474 at September 30, 2000 and December 31, 1999, respectively. At
September 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
$8,400 for the three months ended September 30, 2000 and 1999, respectively, and
$42,947 and $36,099 for the nine months ended September 30, 2000 and 1999,
respectively.
Activity in the allowance for probable loan losses for the nine months ended
September 30, 2000 and 1999 is as follows:
2000 1999
---- ----
Balance, January 1 $7,106,627 $5,788,440
Provision charged to income 2,500,000 2,250,000
Charge-offs, net of recoveries of
$242,987 in 2000 and $294,108 in 1999 (902,014) (1,077,731)
----------- -----------
Balance, September 30 $8,704,613 $6,960,709
=========== ===========
(6)
<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 $936.7 million at September 30, 2000, a decrease of $13.1 million or 1.4%
when compared to December 31, 1999. The decrease is attributable primarily to a
decrease in the loan portfolio of $11.3 million or 2.3%. Loans outstanding have
been below expectations during the first nine months of 2000. Management
anticipates that fourth quarter loan activity will result in a year-end loan
balance of approximately 1999's year-end total of $489 million. The reduction in
loans was offset somewhat by growth in the investment portfolio of $8.1 million,
primarily related to increases in higher yielding Agency and municipal
securities, offset in part by paydowns on mortgage-backed securities. The
Company's Delaware investment subsidiary, SB Portfolio Management Corp.,
provides investment and balance sheet management strategy consulting to the
Company. Utilizing a variety of asset allocation strategies, SB Portfolio
Management Corp. recommends an appropriate mix of taxable and tax-exempt
investments at various maturities to effectively utilize the Company's excess
liquidity within the parameters outlined in its investment policy.
At September 30, 2000, total deposits increased by $20.7 million to $825.1
million when compared to December 31, 1999. This fluctuation was primarily due
to an increase of $9.7 million in demand balances and $13.1 million in time
deposits. Core deposit balances grew as expected as a result of the July 2000
opening of our tenth branch, located in East Setauket, New York. Management
anticipates opening two more branches by the first quarter of 2001, which will
also provide opportunity for further growth in low-cost core balances, and open
opportunities for lending relationships. The Company's entree into Queens
County, expected in early 2001, will provide substantial opportunity for new
deposit and loan relationships in a geographic market contiguous to the
Company's existing market area.
The increase in time deposits during 2000 was due largely to a $44.7 million
increase in retail time deposits with maturities of six months to two years. The
Company raised approximately $100 million with two time deposit promotions
conducted during the last twelve months. The average rate on these funds is
approximately 50 basis points less than the Federal funds or other short-term
borrowing rates. This time deposit growth was offset by a decrease of $32.1
million in certificates of deposit over $100,000 ("Jumbo certificates of
deposit"), primarily municipal deposits. The increase in retail time deposits,
besides providing deposit diversification, also reduced the Company's reliance
on higher-cost short-term borrowings by $41.4 million during the first nine
months of 2000. The additional funds not only reduced the need to borrow at
higher rates, but decreased the amount of securities needed to collateralize
municipal deposits, thereby creating additional liquidity and flexibility.
(7)
<PAGE>
Average assets for the third quarter of 2000 grew by $69.6 million or 8.1% to
$931.1 million from the comparable 1999 period. Sources of asset expansion
included a $25.1 million (6.9%) average increase in securities available for
sale, primarily tax-exempt, non-local municipal securities and taxable Agency
securities, and an increase in average loans of $26.0 million (5.7%), primarily
commercial loans and commercial and residential mortgages. Predominantly funding
this growth was an increase in retail certificates of deposit, up an average of
$135.0 million, due to the promotions discussed above. Borrowed funds, primarily
securities sold under agreements to repurchase, decreased on average by $72.2
million (89.1%) during the third quarter of 2000 versus 1999 for the same
reasons previously noted. The net result of these activities was a shift in the
mix of the Company's balance sheet that yielded a 37 basis point narrowing of
the third quarter's net interest margin to 4.21%, due primarily to a 91 basis
point increase in the Company's average cost of funds. Management anticipates
that moderate growth in loans during the fourth quarter of 2000 coupled with an
increase in core deposit balances should serve to stabilize and possibly widen
the net interest rate spread during the last quarter of the year.
The Company's capacity to grow its assets and earnings stems, in part, from the
significance of its capital strength. The Company strives to maintain an optimal
level of capital, commensurate with its risk profile, on which an attractive
rate of return to stockholders will be realized over both the short and long
term, while serving the needs of depositors, creditors and regulators. In
determining an optimal capital level, the Company also considers the capital
levels of its peers and the evaluations of its primary regulators. At September
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 $63.4 million at September 30, 2000, an
increase of $5.7 million or 9.9% versus the comparable 1999 date. Excluding
valuations related to SFAS No. 115 at September 30, 2000 and 1999, total
stockholders' equity grew at a year-to-year rate of 15.6%.
In February 2000, the Board of Directors authorized an increase in the Company's
stock repurchase program to 500,000 shares. As of September 30, 2000, 105,400
shares, at an average price of $13.92 per share, have been repurchased and,
based upon the recent closing price of $13.25 per common share, approximately
$5.2 million in funds would be utilized to repurchase all of the remaining
shares under the existing authorization.
The Company has no other 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 September 30, 2000 and compares them to current regulatory
guidelines and December 31 and September 30, 1999 actual results.
(8)
<PAGE>
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:
September 30, 2000 7.78% 12.74% 14.00%
December 31, 1999 7.02% 11.78% 13.01%
September 30, 1999 7.60% 12.01% 13.26%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
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 third quarter
of 2000, the Company's liquidity position remained stable and well within
acceptable industry standards. Our primary sources of funds are deposits,
proceeds from principal and interest payments on loans, mortgage-backed
securities and investments, and borrowings. The aforementioned retail CD
promotion and, to a lesser extent the paydowns on loans and mortgage-backed
securities for the first three quarters of the year, have provided a source of
readily available funds to meet general liquidity needs. In addition, at
September 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 $23.4
million in securities available to be pledged to secure repurchase agreements or
other borrowings at the same date.
(9)
<PAGE>
Material Changes in Results of Operations - Net income for the nine months ended
September 30, 2000 was $7.8 million, a 3.5% improvement over the comparable 1999
period. The higher level of earnings in 2000 resulted from 2.7% and 30.5%
improvements in net interest income and noninterest income, respectively,
coupled with a lower effective income tax rate. Somewhat offsetting these
improvements were a narrower net interest margin, higher operating expenses, an
increase in the allowance for probable loan losses and higher net security
losses.
Net income for the third quarter of 2000 was $2.5 million, down 9.4% versus
1999. The third quarter earnings decline was due primarily to a 3.5% decrease in
net interest income, the result of a 37 basis point reduction in net interest
margin to 4.21%. Also adding to the reduction in earnings were increased
operating expenses and a higher level of security losses in 2000. The Company's
average loan portfolio grew by $42.3 million (9.6%) when compared to the first
nine months of 1999, largely the result of increases in commercial loans and
mortgages. Continued strength in the Long Island economy, in particular in the
real estate market that supports much of the Company's lending activity, and the
ongoing consolidation of the local banking market provide ever-present
opportunity for the Company to expand its loan portfolio. The Company, offering
superior service and response time coupled with competitive product pricing, has
been able to steadily improve its market share through conservative underwriting
and credit standards. In addition, management has added full time staff who will
concentrate on the marketing and sales efforts of new and existing retail
products. The Company's tenth branch was opened in July and management expects
to open an additional branch in Nassau County, and one in Queens, by early 2001.
Management of the Company has targeted the Queens County market for expansion of
the loan portfolio during the next eighteen months.
The Company's investment portfolio expanded, on average, for the first nine
months of 2000 versus 1999, by $81.8 million (26.8%), primarily through growth
in callable Government Agency securities (up $59.4 million or 25.2%) and
municipal securities (up $50.3 million). A decrease in mortgage-backed
securities of $14.6 million, primarily related to principal payments, offset the
net increase in the portfolio. The Company's Funds Management Committee and its
subsidiary, SB Portfolio Management Corp., continue to monitor the fixed income
markets for opportunities to expand the investment portfolio.
Other income improved by 18.8% during the first nine months of 2000 largely as
the result of a higher level of service charge income. Excluding the impact of
securities transactions, other income increased by 30.5% versus 1999. Also
adding to the growth in other income were increases in annuity sales, wire
transfer income and ATM fees. Management anticipates continued growth in other
income during the fourth quarter of 2000, though at a somewhat slower rate than
during the first nine months of the year.
(10)
<PAGE>
Total operating expenses rose by 7.5% during the first nine months of 2000,
mainly due to increases in salaries and employee benefits arising from staff
expansion in the branch network and product support areas. This was offset
somewhat by a decrease in miscellaneous other operating expenses resulting from
lower credit and collection costs and a lower accrual for audits and
examinations.
The increase in operating expenses during the first nine months of 2000 resulted
in a slightly higher operating efficiency ratio (total operating expenses as a
percentage of fully taxable equivalent net interest revenue, excluding
securities transactions) versus 1999. The 2000 efficiency ratio increased to
52.4% from 51.8% 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 nine months of 2000 to 2.32% from a level of 2.51% 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 $5.9 million at September 30, 2000, an
increase from $5.2 million at December 31, 1999, and a decrease from $7.8
million at the comparable 1999 date. The significant decrease at September 30,
2000 versus 1999 relates to write-downs on an existing nonaccrual loan coupled
with the sale of an Other Real Estate Owned property in late 1999. The
nonaccrual total includes one credit totaling $3.2 million, $3.5 million and
$4.0 million at September 30, 2000, December 31, 1999 and September 30, 1999,
respectively. Charge-offs of $500 thousand in the fourth quarter of 1999 and an
additional $265 thousand in 2000 were taken on this credit. Furthermore, $1.8
million in loans to the operating companies for this credit went on nonaccrual
status in 2000. $1.3 million is secured by the borrower's receivables and the
remainder of the related credits is secured by Long Island commercial real
estate with a current appraised value in excess of the credit.
As of September 30, 2000, restructured, accruing loans declined since September
1999 by $154 thousand and the remaining balance is 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
increased to $500 thousand, also significantly less than 1% of total gross
loans.
The allowance for probable loan losses amounted to $8.7 million or 1.8% of total
loans at September 30, 2000 versus $7.0 million and 1.5%, 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 130.2% at September 30, 2000 from 126.5% at
December 31, 1999 and 90.5% at September 30, 1999. A further review of the
Company's nonperforming assets may be found in Table 2-2 following this
analysis.
(11)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
-----------------------
TABLE 2 - 2
-----------------------
------------------------------------------------------------------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR PROBABLE LOAN LOSSES
SEPTEMBER 30, 2000 VERSUS DECEMBER 31, 1999 AND SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
-----------------------------
---------------------------------------------------------
9/30/00 12/31/99 9/30/99
---------------- --------------- ------------
<S> <C> <C> <C>
NONACCRUAL LOANS $5,855 (1) $5,194 (1) $7,172 (1)
OTHER REAL ESTATE OWNED - - 631
---------------- --------------- ------------
TOTAL NONPERFORMING ASSETS $5,855 $5,194 $7,803
---------------- --------------- ------------
RESTRUCTURED, ACCRUING LOANS $333 $422 $487
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $500 $3 $29
GROSS LOANS OUTSTANDING $477,674 $488,948 $465,901
TOTAL STOCKHOLDERS' EQUITY $63,391 $56,103 $57,685
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
---------------------------------------------------------
PROBABLE LOAN LOSSES: 9/30/00 12/31/99 9/30/99
-----------------------
---------------- --------------- ------------
BEGINNING BALANCE $8,079 $6,961 $6,249
PROVISION 750 750 750
NET CHARGE-OFFS (124) (604) (38)
---------------- --------------- ------------
ENDING BALANCE $8,705 $7,107 $6,961
---------------- --------------- ------------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.8% 1.5% 1.5%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.2% 1.1% 1.5%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.2% 1.1% 1.7%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 148.7% 136.8% 97.1%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 130.2% 126.5% 90.5%
<FN>
(1) INCLUDES RELATED CREDITS TOTALING $5.1 MILLION AT SEPTEMBER 30, 2000, $3.5
MILLION AT DECEMBER 31, 1999 AND $4.0 MILLION AT SEPTEMBER 30, 1999.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING INTEREST.
</FN>
</TABLE>
(12)
<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 September 30, 2000 compared to September 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 September 30, 2000 was 73.0%. The Company is liability sensitive
at the one-year interval, meaning that more liabilities reprice on a cumulative
basis than assets. This 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 direction of a rate movement could have on interest
income.
The Company is still not subject to foreign currency exchange or commodity price
risk. At September 30, 2000, there were no trading assets, nor have hedging
transactions such as interest rate swaps been used. 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 changed approved limits of acceptable
variances.
(13)
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK (CONTINUED)
<TABLE>
===============================================================================
SEPTEMBER 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) $ 286,798 $ 15,297 $ 106,734 $ 62,990 $ 5,855 $ 477,674
Securities Purchased Under Agreements to Resell
and Federal Funds Sold 19,000 - - - - 19,000
Securities Held to Maturity - - 276 - - 276
Securities Available for Sale 3) 31,080 55,036 39,104 272,199 4,286 401,705
--------- --------- --------- --------- --------- ---------
Total Interest-Earning Assets 336,878 70,333 146,114 335,189 10,141 898,655
Unrealized Net Loss on Securities Available for Sale (16,473) - - - - (16,473)
Cash and Due from Banks 37,058 - - - - 37,058
All Other Assets 7) 6,528 3,520 - - 7,458 17,506
--------- --------- --------- --------- --------- ---------
Total Assets $ 363,991 $ 73,853 $ 146,114 $ 335,189 $ 17,599 $ 936,746
--------- --------- --------- --------- --------- ---------
---------------------------------------------------------
INTEREST - SENSITIVE LIABILITIES : 1)
---------------------------------------------------------
Savings Accounts 4) $ 5,288 $ 5,288 $ 42,305 $ 52,882 $ - $ 105,763
Money Fund and Now Accounts 5) 43,802 5,180 41,444 - - 90,426
Time Deposits 6) 385,495 70,513 29,649 588 - 486,245
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Deposits 434,585 80,981 113,398 53,470 - 682,434
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 42,000 - - - - 42,000
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 476,585 80,981 113,398 53,470 - 724,434
All Other Liabilities, Equity and Demand Deposits 7) 5,862 295 75 - 206,080 212,312
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 482,447 $ 81,276 $ 113,473 $ 53,470 $ 206,080 $ 936,746
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap 8) ($ 139,707) ($ 150,355)($ 117,639) $ 164,080 $ 174,221
Cumulative Interest-Sensitivity Ratio 9) 70.7% 73.0% 82.5% 122.6% 124.0%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets (14.9%) (16.1%) (12.6%) 17.5% 18.6%
<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>
(14)
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE BANCORP, INC.
11/14/00 s/Daniel T. Rowe
-------- -------------------------
Date Daniel T. Rowe, President
11/14/00 s/Brian K. Finneran
-------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(15)
<PAGE>
