UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2002
[ ] 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 November 6, 2002, there were 8,011,319 shares of registrant's Common
Stock outstanding.
STATE BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2002 and December 31, 2001
(Unaudited) 1.
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2002 and 2001 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2002 and 2001 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss)for the Nine Months Ended September 30, 2002 and 2001 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9.
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18.
Item 4. Controls and Procedures 20.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21.
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 22.
SIGNATURES 23.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT 24.
- -------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -------------------------------------
- -------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001 (UNAUDITED)
- -------------------------------------------------------
- ----------------------------------------------
ASSETS: 2002 2001
- ---------------------------------------------- ------------- ------------
CASH AND DUE FROM BANKS $45,031,939 $25,310,091
FEDERAL FUNDS SOLD - 2,800,000
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL - 110,000,000
------------- ------------
TOTAL CASH AND CASH EQUIVALENTS 45,031,939 138,110,091
SECURITIES:
HELD TO MATURITY (ESTIMATED FAIR VALUE -
$3,451,303 IN 2002 AND $203,770 IN 2001) 3,430,604 196,200
AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 576,353,563 275,213,366
------------- ------------
TOTAL SECURITIES 579,784,167 275,409,566
LOANS - NET OF ALLOWANCE FOR PROBABLE LOAN LOSSES
($10,151,993 IN 2002 AND $9,255,414 IN 2001) 587,741,458 542,342,284
BANK PREMISES AND EQUIPMENT - NET 7,980,663 6,420,476
NET RECEIVABLE - SECURITIES SALES 1,215,000 -
OTHER ASSETS 17,426,792 23,488,580
------------- ------------
- ----------------------------------------------
TOTAL ASSETS $1,239,180,019 $985,770,997
- ---------------------------------------------- ============= ============
- ----------------------------------------------
LIABILITIES:
- ----------------------------------------------
DEPOSITS:
DEMAND $210,408,063 $181,439,730
SAVINGS 390,951,442 326,984,662
TIME 391,328,598 376,285,070
------------- ------------
TOTAL DEPOSITS 992,688,103 884,709,462
FEDERAL FUNDS PURCHASED 24,300,000 -
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 62,750,000 -
OTHER BORROWINGS 53,386,100 19,099,591
NET PAYABLE - SECURITIES PURCHASES 11,928,125 -
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 5,194,490 5,673,515
------------- ------------
- ----------------------------------------------
TOTAL LIABILITIES 1,150,246,818 909,482,568
- ---------------------------------------------- ------------- ------------
- ----------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
- ----------------------------------------------
- ----------------------------------------------
STOCKHOLDERS' EQUITY:
- ----------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES - -
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 8,732,307 SHARES IN 2002
AND 8,645,825 SHARES IN 2001; OUTSTANDING 8,102,405
SHARES IN 2002 AND 8,122,187 SHARES IN 2001 43,661,535 41,170,595
SURPLUS 45,407,266 39,202,494
RETAINED EARNINGS 3,432,955 5,588,315
TREASURY STOCK (629,902 SHARES IN 2002
AND 476,700 SHARES IN 2001) (9,763,450) (7,071,149)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAXES 6,271,542 (2,427,503)
UNEARNED COMPENSATION (76,647) (174,323)
------------- ------------
- ----------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 88,933,201 76,288,429
- ---------------------------------------------- ------------- ------------
- ----------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,239,180,019 $985,770,997
- ---------------------------------------------- ============= ============
See accompanying notes to unaudited consolidated financial statements.
(1)
- -------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------
- --------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
- ---------------------------------------------------------------------------
------------------------- ------------------------
THREE MONTHS NINE MONTHS
------------------------- ------------------------
----------- ------------ ----------- -----------
2002 2001 2002 2001
- ------------------------------------------- ----------- ------------ ----------- -----------
INTEREST INCOME:
- -------------------------------------------
LOANS $11,110,665 $12,164,502 $32,547,243 $36,984,409
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 71,835 528,299 470,122 2,348,573
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 968,110 1,382,647 2,683,041 3,925,137
MORTGAGE-BACKED SECURITIES 2,756,274 728,983 8,738,558 1,316,625
GOVERNMENT AGENCY SECURITIES 1,877,788 2,428,898 4,516,344 9,721,483
OTHER SECURITIES 331,951 213,593 759,867 474,531
----------- ------------ ----------- -----------
TOTAL INTEREST INCOME 17,116,623 17,446,922 49,715,175 54,770,758
----------- ------------ ----------- -----------
- -------------------------------------------
INTEREST EXPENSE:
- -------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 1,347,686 3,373,789 4,158,380 11,523,134
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,668,473 3,209,987 7,372,643 11,292,565
----------- ------------ ----------- -----------
TOTAL INTEREST EXPENSE 4,016,159 6,583,776 11,531,023 22,815,699
----------- ------------ ----------- -----------
NET INTEREST INCOME 13,100,464 10,863,146 38,184,152 31,955,059
PROVISION FOR PROBABLE LOAN LOSSES 816,000 890,000 2,738,000 2,430,000
----------- ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR PROBABLE LOAN LOSSES 12,284,464 9,973,146 35,446,152 29,525,059
----------- ------------ ----------- -----------
- -------------------------------------------
NONINTEREST INCOME:
- -------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 376,723 444,540 1,115,063 1,281,700
NET SECURITY GAINS 34,643 1,419,332 1,455,153 1,360,112
OTHER OPERATING INCOME 336,329 241,220 989,105 730,150
----------- ------------ ----------- -----------
TOTAL NONINTEREST INCOME 747,695 2,105,092 3,559,321 3,371,962
----------- ------------ ----------- -----------
INCOME BEFORE OPERATING EXPENSES 13,032,159 12,078,238 39,005,473 32,897,021
----------- ------------ ----------- -----------
- -------------------------------------------
OPERATING EXPENSES:
- -------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 5,125,584 4,433,838 15,029,254 12,801,329
OCCUPANCY 879,269 669,508 2,422,550 1,858,796
EQUIPMENT 334,442 282,188 996,173 816,887
LEGAL FEES 814,663 1,945,255 2,727,017 2,128,399
MARKETING AND ADVERTISING 538,220 318,122 1,376,526 1,002,683
OTHER OPERATING EXPENSES 1,849,324 1,578,164 5,441,275 4,431,280
----------- ------------ ----------- -----------
TOTAL OPERATING EXPENSES 9,541,502 9,227,075 27,992,795 23,039,374
----------- ------------ ----------- -----------
INCOME BEFORE INCOME TAXES 3,490,657 2,851,163 11,012,678 9,857,647
PROVISION FOR INCOME TAXES 883,392 319,632 2,810,576 1,661,842
- ------------------------------------------- ----------- ------------ ----------- -----------
NET INCOME $2,607,265 $2,531,531 $8,202,102 $8,195,805
- ------------------------------------------- ----------- ------------ ----------- -----------
- ------------------------------------------
BASIC EARNINGS PER COMMON SHARE $0.32 $0.31 $1.01 $0.99
------ ------ ------ ------
- ------------------------------------------
- ------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $0.31 $0.29 $0.99 $0.97
------ ------ ------ ------
- ------------------------------------------
- -------------------------------------------
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,091,842 8,237,899 8,121,873 8,261,710
- ------------------------------------------- ----------- ------------ ----------- -----------
See accompanying notes to unaudited consolidated financial statements.
(2)
- ---------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------
- -----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
- -----------------------------------------------------------------
- --------------------------------------------- -------------- -------------
OPERATING ACTIVITIES: 2002 2001
- --------------------------------------------- -------------- -------------
NET INCOME $8,202,102 $8,195,805
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR PROBABLE LOAN LOSSES 2,738,000 2,430,000
DEPRECIATION AND AMORTIZATION OF BANK PREMISES
AND EQUIPMENT 915,049 768,305
AMORTIZATION OF INTANGIBLES 27,103 71,103
AMORTIZATION (ACCRETION) OF NET PREMIUM (DISCOUNT)
ON SECURITIES 2,739,665 (2,669,054)
AMORTIZATION OF UNEARNED COMPENSATION 168,541 171,375
NET SECURITY GAINS (1,455,153) (1,360,112)
DECREASE IN OTHER ASSETS, NET 1,608,547 1,456,538
DECREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES (925,273) (2,005,816)
-------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,018,581 7,058,144
-------------- -------------
- ---------------------------------------------
INVESTING ACTIVITIES:
- ---------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 51,400 51,400
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 487,501,802 410,667,922
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 120,117,431 238,295,849
PURCHASES OF SECURITIES HELD TO MATURITY (3,283,100) -
PURCHASES OF SECURITIES AVAILABLE FOR SALE (885,808,796) (504,004,743)
INCREASE IN LOANS - NET (48,137,174) (59,411,631)
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (2,475,236) (1,761,132)
-------------- -------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (332,033,673) 83,837,665
-------------- -------------
- ---------------------------------------------
FINANCING ACTIVITIES:
- ---------------------------------------------
INCREASE IN DEMAND AND SAVINGS DEPOSITS 92,935,113 59,965,345
INCREASE (DECREASE) IN TIME DEPOSITS 15,043,528 (65,945,905)
INCREASE IN FEDERAL FUNDS PURCHASED 24,300,000 300,000
INCREASE (DECREASE)IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE 62,750,000 (325,000)
INCREASE IN OTHER BORROWINGS 34,286,509 642,847
CASH DIVIDENDS PAID (3,253,726) (2,997,130)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 1,421,699 660,847
PROCEEDS FROM STOCK OPTIONS EXERCISED 146,118 294,326
PROCEEDS FROM SHARES ISSUED UNDER DIRECTORS' STOCK PLAN - 2,355
PURCHASES OF TREASURY STOCK (2,692,301) (2,946,329)
-------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 224,936,940 (10,348,644)
-------------- -------------
- ---------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (93,078,152) 80,547,165
- ---------------------------------------------
- ---------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 138,110,091 90,848,865
- ---------------------------------------------
-------------- -------------
- ---------------------------------------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $45,031,939 $171,396,030
- --------------------------------------------- -------------- -------------
- ---------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------
INTEREST PAID $11,538,851 $23,921,429
INCOME TAXES PAID $2,631,200 $1,790,000
ADJUSTMENT TO UNREALIZED NET GAIN ON SECURITIES
AVAILABLE FOR SALE $13,524,725 $6,060,565
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER END $1,131,102 $1,092,451
TRANSFER FROM LOANS TO OREO - $3,525,634
See accompanying notes to unaudited consolidated financial statements.
(3)
- -----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------
- ------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
- ------------------------------------------------------------------------
ACCUMULATED
OTHER COMPRE-
COMPRE- UNEARNED HENSIVE
COMMON RETAINED TREASURY HENSIVE COMPEN- INCOME
STOCK SURPLUS EARNINGS STOCK (LOSS)INCOME SATION TOTAL (LOSS)
----- ------- -------- ----- ------------ ------ ----- ------
BALANCE, JANUARY 1, 2002 $41,170,595 $39,202,494 $5,588,315 ($7,071,149) ($2,427,503) ($174,323) $76,288,429
COMPREHENSIVE INCOME:
NET INCOME 8,202,102 8,202,102 $8,202,102
----------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED HOLDING GAINS ARISING
DURING THE PERIOD 9,665,447
RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME (966,402)
----------
TOTAL OTHER COMPREHENSIVE INCOME 8,699,045 8,699,045 8,699,045
----------
TOTAL COMPREHENSIVE INCOME $16,901,147
----------
CASH DIVIDEND
($0.41 PER SHARE) (3,300,432) (3,300,432)
5% STOCK DIVIDEND (389,246 SHARES
AT MARKET VALUE) 1,946,230 5,110,800 (7,057,030) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (89,724 SHARES
AT 95% OF MARKET VALUE) 448,620 973,079 1,421,699
STOCK OPTIONS EXERCISED 96,090 50,028 146,118
TREASURY STOCK PURCHASED (2,692,301) (2,692,301)
AMORTIZATION OF UNEARNED
COMPENSATION 70,865 97,676 168,541
---------- --------- --------- ----------- ----------- -------- ----------
- ------------------------------
BALANCE, SEPTEMBER 30, 2002 $43,661,535 $45,407,266 $3,432,955 ($9,763,450) $6,271,542 ($76,647) $88,933,201
- ------------------------------
---------- --------- --------- ----------- ----------- -------- ----------
BALANCE, JANUARY 1, 2001 $38,724,480 $34,518,406 $4,779,837 ($2,422,428) ($2,972,336) ($321,222) $72,306,737
COMPREHENSIVE INCOME:
NET INCOME 8,195,805 8,195,805 $8,195,805
----------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED HOLDING GAINS ARISING
DURING THE PERIOD 3,161,009
RECLASSIFICATION ADJUSTMENT
FOR LOSSES INCLUDED IN NET INCOME 779,398
----------
TOTAL OTHER COMPREHENSIVE INCOME 3,940,407 3,940,407 3,940,407
----------
TOTAL COMPREHENSIVE INCOME $12,136,212
----------
CASH DIVIDEND
($0.38 PER SHARE) (3,112,766) (3,112,766)
5% STOCK DIVIDEND (375,416 SHARES
AT MARKET VALUE) 1,877,080 3,938,114 (5,815,194) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (46,830 SHARES
AT 95% OF MARKET VALUE) 234,150 426,697 660,847
STOCK OPTIONS EXERCISED 229,940 64,386 294,326
STOCK ISSUED UNDER
DIRECTORS' PLAN 785 1,570 2,355
TREASURY STOCK PURCHASED (2,946,329) (2,946,329)
AMORTIZATION OF UNEARNED
COMPENSATION 60,581 110,794 171,375
---------- --------- --------- ----------- ----------- -------- ----------
- ------------------------------
BALANCE, SEPTEMBER 30, 2001 $41,066,435 $39,009,754 $4,047,682 ($5,368,757) $968,071 ($210,428) $79,512,757
- ------------------------------ ---------- --------- --------- ----------- ----------- -------- ----------
See accompanying notes to unaudited consolidated financial statements.
(4)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
1. 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, 2002 and December 31, 2001,
its consolidated earnings for the three and nine months ended September 30, 2002
and 2001, and cash flows and changes in stockholders' equity and comprehensive
income (loss) for the nine months ended September 30, 2002 and 2001. The results
of operations for the three and nine months ended September 30, 2002 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 2001 annual
report on Form 10-K. Certain amounts have been reclassified to conform with the
current year's presentation.
2. STOCKHOLDERS' EQUITY
The Company has 250,000 shares of preferred stock authorized. No shares were
issued as of September 30, 2002.
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 88,425 common shares at an
average price of $17.92 per share.
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
159,030 (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, 2002, 148,872
shares have been released from the suspense account and are considered
outstanding for earnings per share computations.
3. 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 price for the common stock.
Retroactive recognition has been given for stock dividends and splits.
(5)
For the Nine Months Ended September 30, 2002 2001
- --------------------------------------- ---- ----
Net income $8,202,102 $8,195,805
Average dilutive stock options outstanding 591,435 486,872
Average exercise price per share $12.78 $9.72
Average market price - diluted basis $16.68 $17.10
Average common shares outstanding 8,121,873 8,261,710
Increase in shares due to exercise of options - diluted basis 138,413 209,871
------- -------
Adjusted common shares outstanding - diluted 8,260,286 8,471,581
--------- ---------
Net income per share - basic $1.01 $0.99
----- -----
Net income per share - diluted $0.99 $0.97
----- -----
4. 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.
5. LOANS
As a result of the Company's evaluation of impaired loans, an allowance for
probable loan losses of approximately $2,648,000 and $4,143,000 was established
for $6,220,534 and $8,084,568 of the total impaired loans at September 30, 2002
and December 31, 2001, respectively. The total average impaired loan balance was
$6,779,192 for the quarter ended September 30, 2002 and $8,378,960 for the year
ended December 31, 2001. Total impaired loans amounted to $6,220,534 and
$8,084,568 at September 30, 2002 and December 31, 2001, respectively. At
September 30, 2002, the aggregate amount of impaired collateral-dependent loans,
measured based on the fair value of the underlying collateral, and of impaired
loans measured using the present value of expected future cash flows discounted
at each loan's effective interest rate, was $2,830,531 and $3,390,003,
respectively. No interest income was recognized for impaired, nonaccrual and
restructured loans for the three months ended September 30, 2002 and 2001. Total
interest income recognized for such loans was $7,903 and $1,202 for the nine
months ended September 30, 2002 and 2001, respectively.
(6)
Activity in the allowance for probable loan losses for the nine months ended
September 30, 2002 and 2001 is as follows:
2002 2001
---- ----
Balance, January 1, $9,255,414 $9,207,243
Adjustments (1) - 542,312
Provision charged to income 2,738,000 2,430,000
Charge-offs, net of recoveries of $185,075 in 2002 and $136,529 in 2001 (1,841,421) (3,082,938)
----------- ----------
Balance, September 30, $10,151,993 $9,096,617
========== ==========
(1) Opening balance of allowance for probable loan losses of acquired leasing
company.
6. LEGAL PROCEEDINGS
The Bank is involved in a number of legal proceedings related to Island Mortgage
Network, Inc. and certain related entities, which held deposit accounts at the
Bank during portions of 1999 and 2000. The Bank is defending these lawsuits
vigorously, and management believes that the Bank has substantial defenses, both
substantive and procedural, to the claims that have been threatened or asserted
to date. However, the ultimate outcome of litigation cannot be predicted with
certainty. For a fuller description of the foregoing, see Part II, Item 1.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues." SAB No. 102 expresses the SEC staff's views on the
development, documentation, and application of a systematic methodology for
determining the allowance for probable loan losses in accordance with accounting
principles generally accepted in the United States of America. Also in July
2001, the federal banking agencies issued guidance on this topic through the
Federal Financial Institutions Examination Council interagency guidance, "Policy
Statement on Allowance for Loan and Lease Losses Methodologies and Documentation
for Banks and Savings Institutions." In management's opinion, the Company's
methodology and documentation of the allowance for probable loan losses meets
the guidance issued.
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued by
the Financial Accounting Standards Board ("FASB"). This statement requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This statement, as amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," and by SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," was
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
and was not to be applied retroactively to financial statements of prior
periods. The adoption of this statement as of January 1, 2001 did not have a
significant impact on the Company's financial position or results of operations.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." The most
significant changes made by SFAS No. 141 are: 1) requiring that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001; and 2) establishing specific criteria for the recognition of
intangible assets separately from goodwill. The Company adopted SFAS No. 141
as of July 1, 2001, and the impact of such adoption did not have a material
effect on the Company's financial statements.
(7)
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 primarily addresses the accounting for acquired goodwill
and intangible assets (i.e., the post-acquisition accounting). The
provisions of SFAS No. 142 are effective for fiscal years beginning after
December 15, 2001. The most significant changes made by SFAS No. 142 are:
1) goodwill and indefinite-lived intangible assets are no longer amortized;
2) goodwill and indefinite-lived intangible assets are tested for
impairment at least annually; and 3) the amortization period of intangible
assets with finite lives is no longer limited to forty years. The Company
adopted SFAS No. 142 effective January 1, 2002. The principal effect
of SFAS No. 142 was ceasing the amortization of goodwill, which amounted
to approximately $100,000 annually after taxes for the year ended
December 31, 2001. The goodwill, which relates to the acquisition of a leasing
subsidiary, Studebaker-Worthington Leasing Corp., in February 2001, equals
approximately $2.4 million. In accordance with SFAS No. 142, the Company
completed the transitional goodwill impairment test in the second quarter of
2002, and no evidence of impairment was identified.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Company adopted SFAS No. 144 as of
January 1, 2002, and the impact of such adoption did not have a material
impact on the Company's financial position or results of operations.
8. SUBSEQUENT EVENT
On October 29, 2002, the Company raised $10 million from its participation in a
pooled trust preferred securities offering. The trust preferred securities were
issued by a newly established subsidiary, State Bancorp Capital Trust I.
The securities qualify as Tier I capital for regulatory purposes and will bear
an interest rate tied to three-month LIBOR. The securities are redeemable in
whole or in part after five years or earlier under certain circumstances. The
proceeds of this offering will be used for general corporate purposes, including
the Company's ongoing stock repurchase program.
(8)
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview - The Company, a one-bank holding company, 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 operations of the Bank and its subsidiaries, SB Portfolio Management Corp.,
SB Financial Services Corp., New Hyde Park Leasing Corporation and its
subsidiary P.W.B. Realty, L.L.C., Studebaker-Worthington Leasing Corp. ("SWLC")
and SB ORE Corp.
Material Changes in Financial Condition - Total assets of the Company were $1.2
billion at September 30, 2002. When compared to December 31, 2001, total assets
increased by $253.4 million or 25.7%. Increases in the investment and loan
portfolios of $304.4 million and $46.3 million, respectively, were the primary
contributors to the asset growth. Somewhat offsetting these increases was a
reduction in lower-yielding securities purchased under agreements to resell
("SPUARs") of $110.0 million. The increase in investment securities resulted
from a leverage strategy utilizing medium-term (average life) mortgage-backed
securities and callable Government Agency issues. During the second and third
quarters of 2002, sales of Government Agency and mortgage-backed securities were
undertaken as a result of the decline in interest rates. Management expects to
reinvest the proceeds of these sales in fixed income instruments at various
maturity structures during the remainder of this year. The growth in the loan
portfolio was primarily attributable to an increase in commercial mortgages of
$36.9 million, coupled with increases in home equity lines of credit and
consumer installment loans. Management anticipates continued expansion of the
loan and lease portfolios during the remainder of 2002 at a pace somewhat slower
than that experienced during the first nine months of the year.
At September 30, 2002, total deposits increased $108.0 million to $992.7 million
when compared to December 31, 2001, helping to fund the Company's asset growth.
This rise was largely attributable to increases in the core deposit categories
of demand, NOW and savings accounts of $29.0 million, $31.2 million and $59.6
million, respectively, coupled with an increase of $15.0 million in time
deposits. Partially offsetting these increases was a decrease in money fund
accounts of $26.8 million. Management expects that low-cost core deposit
balances (demand, NOW, savings and money fund accounts) will continue to grow
throughout 2002 as a result of the Company's expanded branch network, including
the newest locations in Port Washington and Long Island City. The Company now
has fifteen branches located throughout the tri-county area of Queens, Nassau
and Suffolk. Core deposits represented approximately 60.6% of total deposits at
September 30, 2002 versus 57.5 % at year-end 2001. Short-term borrowed funds
also helped to fuel the Company's asset growth. Increases of $62.8 million and
$24.3 million in securities sold under agreements to repurchase ("SSUARs") and
Federal Funds purchased, respectively, were coupled with an increase of $34.3
million in other short-term borrowings, primarily Federal Home Loan Bank
overnight funding.
Average assets for the third quarter of 2002 were up by $203.1 million or 19.9%
to $1.2 billion from the comparable 2001 period. Sources of asset expansion
included a $33.7 million or 6.1% increase in average loans, primarily commercial
mortgages, coupled with growth in mortgage-backed securities. This growth was
partially offset by a decline in average money market instruments of $43.7
million. Average mortgage-backed securities and Government Agency paper
increased by $198.6 million and $23.8 million, respectively, while municipal
securities declined on average by $43.1 million due to sales activity. Funding
the third quarter asset growth was a $107.1 million increase in average
deposits, mainly demand deposits and other low-cost core funding. Average core
deposits increased by $176.7 million or 41.1% during the third quarter of 2002
as compared to the same period in 2001. Partially offsetting the growth in core
balances was a decline in high-cost CDs over $100 thousand of $84.0 million.
Average borrowed funds increased by $72.7 million during the third quarter of
2002 when compared to last year due primarily to an increase in SSUARs. These
activities resulted in a third quarter net interest margin of 4.71%, unchanged
(9)
from the third quarter of one year ago. Management anticipates that any further
reduction in interest rates during the remainder of 2002 will likely result in
moderate compression of the Company's net interest margin. Growth in loans
during the balance of the year coupled with a continued increase in core deposit
balances, however, should serve to mitigate some of the downward pressure on the
Company's net interest margin. The higher level of core deposits allowed the
Company to reduce its dependence on higher-cost funding which, combined with the
lower interest rate environment in 2002, resulted in a 128 basis point decline
in the Company's third quarter average cost of funds to 1.38% as compared to the
same period in 2001.
Capital - 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, 2002, the Company's and the Bank's capital ratios are in excess of those
necessary for classification 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 $88.9 million at September 30,
2002, representing increases of 16.6% and 11.8%, respectively, from December 31,
and September 30, 2001. Excluding valuations related to SFAS No. 115 at the same
dates, total stockholders' equity grew at rates of 5.0% and 5.2% from December
31, and September 30, 2001, respectively. The Company has no plans or
commitments for capital utilization or expenditures that would affect its
current capital position or would impact its future financial performance. Table
2-1 summarizes the Company's capital ratios as of September 30, 2002 and
compares them to current regulatory guidelines and December 31, and September
30, 2001 actual results.
The Company's stock repurchase program has expended $2.7 million thus far in
2002 to repurchase 153,202 shares at an average cost of $17.57 per share. Since
1998, 629,902 shares of Company stock have been repurchased at an average cost
of $15.50 per share. Under the Board of Directors' existing authorization, an
additional 370,098 shares may be repurchased from time to time as conditions
warrant.
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, 2002 6.58% 10.97% 12.22%
December 31, 2001 7.79% 11.81% 13.06%
September 30, 2001 7.45% 11.64% 12.89%
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, the ability to meet payments under
(10)
various leases, and the capacity to take advantage of business opportunities as
they arise. The Board of Directors' Funds Management Committee and the
management Asset Liability Committee are 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, brokered deposits and the capital
markets. The Company complements its stable base of core deposits, provided by
long-standing customer relationships, with short-term borrowings from
correspondent banks and time deposits from other corporate customers and
municipalities.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby and
documentary letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
financial statements. The Company has not engaged in derivatives activities for
any of the reported periods.
The Bank's exposure to credit loss in the event of nonperformance by third
parties for commitments to extend credit and letters of credit is represented by
the contractual notional amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral required varies, but may include
accounts receivable, inventory, equipment, real estate, and income-producing
commercial properties. At September 30, 2002 and 2001, commitments to originate
loans and commitments under unused lines of credit for which the Bank is
obligated amounted to approximately $185,937,000 and $147,424,000, respectively.
Letters of credit are conditional commitments issued by the Bank guaranteeing
payments of drafts in accordance with the terms of the letter of credit
agreements. Commercial letters of credit are used primarily to facilitate trade
or commerce and are also issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. Collateral may be required to support letters of credit based upon
management's evaluation of the creditworthiness of each customer. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Most letters of credit
expire within one year. Management does not anticipate any material losses as a
result of these transactions. At September 30, 2002 and 2001, the Bank had
letters of credit outstanding of approximately $8,370,000 and $7,288,000,
respectively.
The Company is obligated under various leases covering certain equipment,
branches, office space and the land on which its head office is built. The
minimum payments under these leases, certain of which contain escalation
clauses, are as follows: in 2002, $531,344; in 2003, $2,174,482; in 2004,
$2,187,342; in 2005, $2,090,905; in 2006, $1,662,821; and the remainder to 2011,
$7,367,793.
Liquidity at the Company is measured and monitored daily, thereby allowing
(11)
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 2002, the Company's liquidity position remained stable and well within
acceptable industry standards. During the third quarter of 2002, higher levels
of core deposits coupled with calls on Government Agency securities and paydowns
on mortgage-backed securities provided a source of readily available funds to
meet general liquidity needs. In addition, at September 30, 2002, the Company
had access to approximately $66 million in Federal Home Loan Bank lines of
credit for overnight or term borrowings with maturities of up to thirty years.
At September 30, 2002, the Company also had $16.5 million in formal and $15.0
million in informal lines of credit extended by correspondent banks to be
utilized, if needed, for short-term funding purposes.
Material Changes in Results of Operations - Net income for the nine months ended
September 30, 2002 was $8.2 million, essentially flat when compared to the same
2001 period. Improvements in net interest income (up 19.5%) to $38.2 million and
noninterest income (up 4.6% excluding the impact of securities sales) were
offset by growth in operating expenses (up 21.5%), a higher provision for
probable loan losses and an increase of 8.6% in the effective income tax rate.
Basic earnings per common share were $1.01 in 2002 and $0.99 in 2001, while
fully diluted earnings per share were $0.99 and $0.97, respectively. The
Company's returns on average assets and stockholders' equity were 0.95% and
13.53% in 2002 and 1.08% and 14.26% in 2001, respectively. Excluding the impact
of SFAS No. 115, the Company's returns on average stockholders' equity were
13.58% and 14.18% during the first nine months of 2002 and 2001, respectively.
As shown in Table 2-2 following this discussion, the increase in net interest
income, up $6.2 million to $38.2 million, resulted from an expanded
interest-earning asset base, principally loans and mortgage-backed securities.
The Company's average loan portfolio grew by $35.6 million or 6.6% compared to
the first nine months of 2001, mostly attributable to an increase in commercial
mortgages. The newer branch locations in both Nassau and Queens Counties are
expected to provide additional opportunity for the Company to further increase
the loan portfolio. The Company, offering superior service and response time
coupled with competitive product pricing, has been able to steadily improve its
market share through conservative underwriting and credit standards. Products
such as the Small Business Line of Credit and the home equity product, Prime for
Life, continue to be well received and are generating loan volume and creating
new cross sell opportunities for the Company's full range of deposit and credit
products. In addition, the Company has full time staff that concentrates on the
marketing and sales efforts of new and existing retail products, including a
full range of lease-financing transactions that are handled by SWLC.
The Company's investment portfolio increased, on average, by 35.2% in the first
nine months of 2002 as compared to 2001. This is primarily due to an increase in
average mortgage-backed securities (up $215.5 million), partially offset by
declines in average callable Government Agency securities (down $60.2 million)
and average municipal issues (down $30.7 million). This re-balancing of the
investment portfolio should provide defensive yield protection if interest rates
rise in the coming months.
Excluding securities transaction income, noninterest income improved $92
thousand, or 4.6%, for the first nine months of 2002 as compared to 2001. This
was due in large measure to increases in service charges on deposit accounts,
annuity commissions, ATM fees, letter of credit fees and sweep account income.
Excluding non-recurring items, management expects that other income will improve
moderately during the remainder of 2002 when compared to the same period in
2001.
Net securities transactions resulted in gains of $1.5 million for the first nine
months of 2002 as compared to gains of $1.4 million for the same period last
year. During the second and third quarters of 2002, sales of Government Agency
(12)
and mortgage-backed securities were undertaken as a result of the decline in
interest rates and management expects to reinvest the proceeds of these sales in
fixed income instruments at various maturity structures during the remainder of
this year. Management will continue to closely monitor the fixed income markets
during the fourth quarter of 2002 for opportunities that may arise due to
movements in interest rates or short-term anomalies in the marketplace.
The 21.5% growth in total operating expenses during the first nine months of
2002 as compared to 2001 was due to increases in several categories. The most
significant increases pertained to salaries and other employee benefits (up $2.2
million), occupancy costs (up $564 thousand), legal fees (up $599 thousand) and
other expenses (up $1.0 million). Equipment and marketing and advertising
expenses also increased during the first nine months of the year, but by lesser
amounts than for the previously noted categories. The increases in salaries and
benefits, occupancy, equipment and marketing and advertising expenses were due
principally to growth in both staff and facilities. This growth primarily
resulted from the acquisition of SWLC during the first quarter of 2001, the
Company's expanded branch network and the additional occupancy requirements in
the Jericho Plaza location for support personnel. The growth in legal fees
expense was due to the cost of ongoing litigation related to Island Mortgage
Network ("IMN") and its affiliates, as previously discussed in detail in the
Company's 2001 and 2002 SEC filings and as discussed in Part II, Item 1 herein.
The Company expects to incur additional costs related to this litigation during
the remainder of 2002. Excluding IMN-related legal fees, total operating
expenses increased at a year-over-year rate of 20.9%. The 22.8% increase in
other operating expenses resulted primarily from increases in loan collection
expenses, telecommunications costs, computer service fees, insurance expenses,
messenger and delivery fees and branch opening costs. The increase in marketing
and advertising expenses in 2002 was due principally to promotions related to
the Company's new branch locations and a corporate sponsorship of the recent
U.S. Open golf event held on Long Island.
The foregoing expense factors resulted in an operating efficiency ratio (total
operating expenses as a percentage of fully taxable equivalent net interest and
noninterest revenue, excluding securities transactions) of 66.9% for the first
nine months of 2002 as compared to 63.8% in 2001. Excluding costs related to
litigations and SWLC, total operating expenses increased by 22.7% in 2002 and
would have produced an efficiency ratio of 60.2%. The Company's other primary
measure of expense control, the ratio of total operating expenses to average
total assets, also increased during the first nine months of 2002 to 3.24% from
a level of 3.04% in 2001.
Income tax expense rose by $1.1 million for the first nine months of 2002 as
compared to 2001, resulting in an increase in the Company's effective tax rate
to 25.5% from 16.9% a year ago. This rise is largely due to a reduction in
tax-exempt income coupled with a higher effective New York State tax rate in
2002.
Net income for the three months ended September 30, 2002 grew by 3.0% when
compared to the comparable 2001 period. This was largely attributable to an
improvement in net interest income (up 20.6%), higher other noninterest income
excluding securities transactions income (up 4.0%) and a lower provision for
probable loan losses (down $74 thousand). Partially offsetting the foregoing
positive factors was a higher level of operating expenses (up 3.4%), a decrease
of $1.4 million in net security gains and a higher effective income tax rate.
Basic earnings per common share were $0.32 and $0.31 in the third quarter of
2002 and 2001, respectively, while fully diluted earnings per share were $0.31
and $0.29, respectively. The Company's returns on average assets and
stockholders' equity were 0.85% and 12.19% for the third quarter of 2002 and
0.99% and 12.73% for the third quarter of 2001, respectively. Excluding the
impact of SFAS No. 115, the Company's returns on average stockholders' equity
were 12.60% and 12.80% during the third quarter of 2002 and 2001, respectively.
The reasons supporting the third quarter earnings performance are, for the most
part, the same as those discussed in the nine-month analysis. Growth in average
(13)
interest-earning assets, primarily loans ($33.7 million) and mortgage-backed
securities (up $198.6 million), largely accounted for the growth in net interest
income. Net security gains of $35 thousand were recorded in the third quarter of
2002 compared to $1.4 million for the same period in 2001. Sales of Government
Agency and mortgage-backed securities during the third quarter of last year
produced the 2001 gain. Other income improved primarily as the result of growth
in deposit service charges, higher annuity commissions and increases in ATM and
sweep account fees.
Total operating expenses grew by $314 thousand in the third quarter of 2002 as
compared to the third quarter of 2001. The most significant increases pertained
to salaries and other employee benefits (up $692 thousand), occupancy expenses
(up $210 thousand) and marketing and advertising costs (up $220 thousand). The
increase in salaries and benefits was due principally to growth in staff as a
result of the Company's expanded branch network. The growth in occupancy expense
was due to the expanded branch network and growth in leased space for the
Company's support areas. The increase in marketing and advertising expense was
due largely to promotions related to the Company's new branch locations and a
corporate sponsorship of the recent Long Island U.S. Open golf event. These
increases were partially offset by a $1.1 million decline in legal fees expense
due to a large expense recorded in the third quarter of 2001. The Company's
legal fees expense is primarily due to the cost of ongoing litigation related to
IMN and its affiliates, as previously discussed in detail in the Company's 2001
and 2002 SEC filings and as discussed in Part II, Item 1 herein. The Company
expects to incur additional costs related to this litigation during the
remainder of 2002. The foregoing expense factors resulted in an operating
efficiency ratio of 66.5% for the third quarter of 2002 versus 75.2% in 2001.
Excluding IMN-related legal fees, total operating expenses increased at a rate
of 19.6% in the third quarter of 2002 as compared to the same period in 2001.
Income tax expense rose $564 thousand during the third quarter of 2002 as
compared to 2001, resulting in an increase in the Company's effective tax rate
to 25.3% from 11.2% a year ago. This rise is largely due to a reduction in
tax-exempt income coupled with a higher effective New York State tax rate in
2002.
Asset Quality - Nonperforming assets (defined by the Company as nonaccrual loans
and other real estate owned) totaled $7.6 million at September 30, 2002, a $1.3
million or 14.9% decrease from December 31, 2001 and a $3.2 million or 29.8%
reduction from the comparable 2001 date. As of September 30, 2002, restructured,
accruing loans declined by $172 thousand (60.6%) versus year-end 2001.
Restructured loans continue to accrue and pay interest in accordance with their
modified terms. Loans 90 days or more past due and still accruing interest
declined by $324 thousand or 80.0% when compared to year-end 2001 and $3.4
million or 97.7% versus September 30, 2001.
In management's opinion, the most critical accounting policy impacting the
Company's financial statements is the evaluation of the allowance for probable
loan losses. Management carefully monitors the credit quality of the loan
portfolio and makes estimates about the amount of credit losses that have been
incurred at each financial statement date. Management evaluates the fair value
of collateral supporting the impaired loans using independent appraisals and
other measures of fair value. This process involves subjective judgments and
assumptions and is subject to change based on factors that may be outside the
control of the Company.
The allowance for probable loan losses amounted to $10.2 million or 1.7% of
total loans at September 30, 2002 versus $9.1 million and 1.7%, respectively, at
the comparable 2001 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% at September 30, 2002 from 96% at
December 31, 2001 and 89% one year ago, with the decline in nonperforming assets
largely resulting in the improved coverage ratios. As disclosed in prior
(14)
filings, the balance in nonaccrual loans and other real estate owned associated
with one relationship's related credits totaled $303 thousand at September 30,
2002, $1.2 million at December 31, 2001 and $5.5 million at September 30, 2001.
The original credit was partially written down during the years of 1999, 2000
and 2001, and was transferred to nonaccrual status when the collection of
interest became doubtful. The Bank transferred a portion of the previously
described related credit from nonaccrual loans to other real estate owned during
the second quarter of 2001. This property was subsequently sold during the
fourth quarter of 2001.
The Company's loan portfolio is concentrated in commercial and industrial loans
and commercial mortgages, the majority of which are fully secured by collateral
with market values in excess of the carrying value of the underlying loans. The
provision for probable loan losses for the first nine months of 2002 and 2001
was $2.7 million and $2.4 million, respectively. Net loan charge-offs during the
same periods were $1.8 million and $3.1 million, respectively. The provision for
probable loan losses is continually evaluated relative to portfolio risk and
regulatory guidelines considering all economic factors that affect the loan loss
reserve, such as fluctuations in the Long Island real estate market and interest
rates, economic slowdowns in industries and other uncertainties. It will
continue to be closely reviewed during the last quarter of 2002. Due to the
uncertain nature of the current economy, management anticipates further loan
charge-offs during the remainder of 2002. A further review of the Company's
nonperforming assets may be found in Table 2-3 following this analysis.
Cautionary Statement - This report contains forward-looking statements within
the meaning of and pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The words "expects," "believes,"
"anticipates" and other similar expressions are intended to identify
forward-looking statements. A forward-looking statement encompasses any
estimate, prediction, opinion or statement of belief. Such forward-looking
statements in this report include, among other things, identifications of
trends, loan growth, comments on the adequacy of the allowance for probable loan
losses, effects of asset sensitivity and interest changes, and information
concerning market risk referenced in Item 3 of Part I. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The results may ultimately vary from the forward-looking
statements made. The Company undertakes no obligation to publish revised
statements to reflect the occurrence of unanticipated events or circumstances
after the date hereof.
(15)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- ----------- ---------------------------------------------------------------------------------------
TABLE 2 - 2 NET INTEREST INCOME ANALYSIS
- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
---------------------------------------------------------------------------------------
($ IN THOUSANDS)
2002 2001
------------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------------------------------------- ------------------------------------------
ASSETS:
Interest-earning assets:
Mortgage-backed securities $ 245,715 $ 8,739 4.76 % $ 30,182 $ 1,317 5.83 %
Municipal securities 90,609 2,683 3.96 121,331 3,925 4.33
Government Agency and other securities 145,279 5,260 4.84 204,693 10,107 6.60
-------- ------ ----- -------- ------- ----
Total securities 481,603 16,682 4.63 356,206 15,349 5.76
-------- ------- ----- -------- ------- ----
Federal funds sold 3,062 38 1.66 6,893 226 4.38
Securities purchased under agreements to
resell 33,141 432 1.74 62,903 2,123 4.51
Interest-bearing deposits 1,752 16 1.22 2,693 89 4.42
Loans 577,220 32,547 7.54 541,663 36,984 9.13
-------- ------- ----- -------- ------- ----
Total interest-earning assets 1,096,778 49,715 6.06 970,358 54,771 7.55
-------- ------- ----- -------- ------- ----
Non-interest-earning assets 58,075 41,384
-------- -------
Total Assets $1,154,853 $ 1,011,742
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings deposits $ 381,666 $ 2,718 0.95 % $ 284,999 $ 4,354 2.04 %
Time deposits 412,726 7,401 2.40 468,773 17,327 4.94
-------- ------ ----- -------- ------- ----
Total savings and time deposits 794,392 10,119 1.70 753,772 21,681 3.85
-------- ------- ----- -------- ------- ----
Federal funds purchased 3,075 45 1.96 1,243 44 4.73
Securities sold under agreements to
repurchase 46,871 674 1.92 84 3 4.77
Other borrowed funds 26,949 693 3.44 21,469 1,088 6.78
------- ---- ----- ------- ------ ----
Total interest-bearing liabilities 871,287 11,531 1.77 776,568 22,816 3.93
------- ------- ----- ------- ------- ----
Demand deposits 192,365 153,214
Other liabilities 10,145 5,124
------- -----
Total liabilities 1,073,797 934,906
Stockholders' equity 81,056 76,836
------- ------
Total Liabilities and
Stockholders' Equity $1,154,853 $ 1,011,742
======= =======
Net interest income/rate spread $ 38,184 4.29 % $ 31,955 3.62 %
======== ===== ======= =====
Net interest margin 4.52 % 4.43 %
===== =====
(16)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- ---------------------
TABLE 2 - 3
- ---------------------
- --------------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR PROBABLE LOAN LOSSES
SEPTEMBER 30, 2002 VERSUS DECEMBER 31, 2001 AND SEPTEMBER 30, 2001
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
- -----------------------------
---------------------------------------------
9/30/02 12/31/01 9/30/01
------------ ----------- -----------
NONACCRUAL LOANS $7,595 (1) $8,920 (1) $6,514 (1)
OTHER REAL ESTATE OWNED - - 4,308 (1)
------------ ----------- -----------
TOTAL NONPERFORMING ASSETS $7,595 $8,920 $10,822
------------ ----------- -----------
RESTRUCTURED, ACCRUING LOANS $112 $284 $291
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $81 $405 $3,461
GROSS LOANS OUTSTANDING $597,893 $551,598 $550,338
TOTAL STOCKHOLDERS' EQUITY $88,933 $76,288 $79,513
ANALYSIS OF THE ALLOWANCE FOR
PROBABLE LOAN LOSSES: QUARTER ENDED:
- -----------------------
---------------------------------------------
9/30/02 12/31/01 9/30/01
------------ ----------- -----------
BEGINNING BALANCE $9,894 $9,096 $9,812
PROVISION 816 1,170 890
NET CHARGE-OFFS (558) (1,011) (1,606)
------------ ----------- -----------
ENDING BALANCE $10,152 $9,255 $9,096
------------ ----------- -----------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.7% 1.7% 1.7%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.3% 1.6% 1.2%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.3% 1.6% 2.0%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 133.7% 103.8% 139.6%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 130.4% 96.3% 88.6%
(1) INCLUDES RELATED CREDITS TOTALING $303 THOUSAND AT SEPTEMBER 30, 2002,
$1.2 MILLION AT DECEMBER 31, 2001 AND $5.5 MILLION AT SEPTEMBER 30, 2001.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING INTEREST.
CERTAIN PRIOR PERIOD AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT
YEAR'S PRESENTATION.
(17)
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
December 31, 2001 in our Annual Report on Form 10-K. There have been no material
changes in our market risk at September 30, 2002 compared to December 31, 2001.
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 3-1), measured at a single point in
time, measures the difference between assets and liabilities that reprice in a
future given time period. The assumptions used in the table are the same as
those used for the December 31, 2001 analysis. The Company's gap ratio (the
percentage of assets repricing against liabilities) at September 30, 2002 was
103.8%. The Company's asset-sensitive position, meaning that more assets reprice
on a cumulative basis than liabilities, indicates that net interest income
should decrease in declining rate scenarios and increase 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 September 30, 2002, the Company owned no trading assets, nor did it 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,
2001. The Company continues to monitor the impact of interest rate volatility
upon net interest income and net portfolio value in the same manner as at
December 31, 2001. The Board of Directors has not amended the approved limits of
acceptable variances.
(18)
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK (CONTINUED)
======================================================================
SEPTEMBER 30, 2002
- ----------------
TABLE 3-1 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------- ======================================================================
============================================================================
SENSITIVITY TIME HORIZON
($ IN THOUSANDS) Noninterest-
- ------------------------------
INTEREST - SENSITIVE ASSETS : 1) 0 - 6 Months 6-12 Months 1 - 5 Years Over 5 Years Sensitive Total
- ------------------------------ ------------ ----------- ----------- ------------ ------------ ---------
Loans (net of unearned income) 2) $311,153 $13,805 $196,636 $68,704 $7,595 $597,893
Interest-Bearing Deposits 1,936 1,936
Securities Held to Maturity 3,286 145 3,431
Securities Available for Sale 3) 118,510 120,162 223,520 101,126 3,268 566,586
------------ ---------- ----------- ------------ ------------ ---------
Total Interest-Earning Assets 434,885 133,967 420,301 169,830 10,863 1,169,846
Unrealized Net Gain on Securities
Available for Sale 9,767 9,767
Noninterest-Bearing Cash and Due
from Banks 43,096 43,096
Net Receivable - Securities Sales 1,215 1,215
All Other Assets 7) 7,226 2,543 145 83 5,259 15,256
------------ ---------- ----------- ------------ ------------ ---------
Total Assets $496,189 $136,510 $420,446 $169,913 $16,122 $1,239,180
------------ ---------- ----------- ------------ ------------ ---------
- -----------------------------------
INTEREST - SENSITIVE LIABILITIES : 1)
- -----------------------------------
Savings Accounts 4) $13,931 $12,481 $99,849 $74,886 $201,147
Money Fund and NOW Accounts 5) 35,181 12,436 99,490 42,697 189,804
Time Deposits 6) 282,724 51,682 56,278 645 391,329
------------ ---------- ----------- ------------ ------------ ---------
Total Interest-Bearing Deposits 331,836 76,599 255,617 118,228 - 782,280
Securities Sold Under Agreements
to Repurchase, Federal Funds
Purchased and Other Borrowings 138,566 984 886 140,436
------------ ---------- ----------- ------------ ------------ ---------
Total Interest-Bearing Liabilities 470,402 77,583 256,503 118,228 - 922,716
Net Payable - Securities Purchases 11,928 11,928
All Other Liabilities, Equity and
Demand Deposits 7) 14,860 9,274 69,378 122,091 88,933 304,536
------------ ---------- ----------- ------------ ------------ ---------
Total Liabilities and Equity $497,190 $86,857 $325,881 $240,319 $88,933 $1,239,180
------------ ---------- ----------- ------------ ------------ ---------
Cumulative Interest-Sensitivity Gap 8) ($35,517) $20,867 $184,665 $236,267 $247,130
Cumulative Interest-Sensitivity Ratio 9) 92.4 % 103.8 % 123.0 % 125.6 % 126.8 %
Cumulative Interest-Sensitivity Gap
As a % of Total Assets (2.9)% 1.7 % 14.9 % 19.1 % 19.9 %
(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 noninterest-sensitive category.
(3) Estimated principal reductions have been assumed for mortgage-backed
securities based upon their current constant prepayment rates.
(4) Savings deposits, excluding short-term municipal deposits, are assumed to
decline at a rate of 12.5% per year over an eight-year period based upon the
nature of their historically stable core deposit relationships. Short-term
municipal deposits are included in the 0 - 6 months category.
(5) Money fund and NOW accounts of individuals, partnerships and corporations
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. Money fund and NOW accounts of municipalities are assumed to
decline at a rate of 20% per year over a five-year period, except for short-
term municipal deposits that are included in the 0 - 6 months category.
(6) Reflected as maturing in each instrument's period of contractual maturity.
(7) Other assets and liabilities are shown according to their contractual
payment schedule or a reasonable estimate thereof. Demand deposits,
excluding short-term municipal deposits, are assumed to decline at a rate of
8.3% per year over a twelve-year period based upon the nature of their
historically stable core deposit relationships. Short-term municipal
deposits are included in the 0 - 6 months category.
(8) Total interest-earning assets minus total interest-bearing liabilities.
(9) Total interest-earning assets as a percentage of total interest-bearing
liabilities.
(19)
ITEM 4. - CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Principal Financial Officer,
the Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c)
and 15d-14(c)) within 90 days of the filing date of this
quarterly report, and, based on their evaluation, the Chief Executive Officer
and Principal Financial Officer have concluded that these disclosure controls
and procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
(20)
PART II
ITEM 1 - LEGAL PROCEEDINGS
As previously reported, the Bank has been named (along with other defendants) in
lawsuits related to the activities of Island Mortgage Network, Inc. and certain
related companies ("IMN"). The seven such cases pending against the Bank as of
November 12, 2002 are as follows:
Blanton, et al. v. IMN Financial Corp., et al., Adv. Proc.
------------------------------------------------
No. 01-8096, Bankruptcy Court for the Eastern District of New York.
Moritz, et al. v. National Settlement Services Corp., et al.,
----------------------------------------------------------------
Civil Action No. 3 :00 CV 426 MU, Western District of North Carolina.
Duboff, et al. v. Island Mortgage Network, Inc., et al., Index
-------------------------------------------------------
No. 10738/00, Supreme Court of the State of New York.
First American Title Insurance Co. v. State Bank of Long Island,
---------------------------------------------------------------
Index No. 13438/01, Supreme Court of the State of New York.
Broward Title Co. v. Alan Jacobs, et al., Adv. Proc. No. 01-8181,
-----------------------------------------
Bankruptcy Court for the Eastern District of New York.
Household Commercial Financial Services, Inc., et al. v. Action
-------------------------------------------------------------------
Abstract, Inc., et al., Adv. Proc. No. 02-8167,
- -----------------------
Bankruptcy Court for the Eastern District of New York.
Alan M. Jacobs, as Chapter 11 Trustee v. State Bank of Long Island,
-------------------------------------------------------------------
Adv. Proc. No. 02-8157, Bankruptcy Court for the Eastern District of New York.
The Bank is defending these lawsuits vigorously, and management believes that
the Bank has substantial defenses to the claims that have been asserted.
However, the ultimate outcome of these lawsuits cannot be predicted with
certainty. It also remains possible that other parties may pursue additional
claims against the Bank related to the Bank's dealings with IMN and its
affiliates. The Bank's legal fees and expenses will be significant, and those
costs, in addition to any costs associated with settling the IMN-related
litigations or satisfying any adverse judgments, could have a material adverse
effect on the Bank's results of operations or financial position. The Bank is
continuing to explore the extent to which insurance coverage may be available to
defray some of the costs associated with the IMN-related litigations, and the
Bank is also, in certain of the litigations, pursuing cross-claims against
co-defendants and claims against various non-parties.
The Company and the Bank are subject to other legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability, if any, with respect to such matters will not
materially affect future operations.
(21)
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(22)
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.
11/14/02 s/Daniel T. Rowe
- -------- -------------------------
Date Daniel T. Rowe, President
11/14/02 s/Brian K. Finneran
- -------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(23)
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Thomas F. Goldrick, Jr., Chairman and Chief Executive Officer of the Company,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of State Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
11/14/02 s/Thomas F. Goldrick, Jr.
- -------- ----------------------------------
Date Thomas F. Goldrick, Jr.,
Chairman and Chief Executive Officer
(24)
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Brian K. Finneran, Secretary and Principal Financial Officer of the Company,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of State Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
11/14/02 s/Brian K. Finneran
- -------- ----------------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(25)