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: JUNE 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
STATE BANCORP, INC.
-------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2846511
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
699 HILLSIDE AVENUE, NEW HYDE PARK, NEW YORK 11040
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 437-1000
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
----- -----
As of August 7, 2003, there were 8,510,771 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 - June 30, 2003 and December 31, 2002
(Unaudited) 1.
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2003 and 2002 (Unaudited) 2.
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 2003 and 2002 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss)for the Six Months Ended June 30, 2003 and 2002 (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 19.
Item 4. Controls and Procedures 21.
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 22.
Item 5. Other Information 22.
Item 6. Exhibits and Reports on Form 8-K 22.
SIGNATURES 24.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT 25.
- -------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -------------------------------------
- -------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002 (UNAUDITED)
- -------------------------------------------------------
- ----------------------------------------------
ASSETS: 2003 2002
- ---------------------------------------------- ---------------- -----------------
CASH AND DUE FROM BANKS $45,913,872 $50,586,855
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 60,000,000 48,000,000
----------------- -----------------
TOTAL CASH AND CASH EQUIVALENTS 105,913,872 98,586,855
SECURITIES HELD TO MATURITY (ESTIMATED FAIR VALUE -
$82,293 IN 2003 AND $26,713,300 IN 2002) 79,400 26,711,314
SECURITIES AVAILABLE FOR SALE - AT ESTIMATED FAIR VALUE 603,871,892 582,899,187
----------------- -----------------
TOTAL SECURITIES 603,951,292 609,610,501
LOANS (NET OF ALLOWANCE FOR PROBABLE LOAN LOSSES
OF $10,394,888 IN 2003 AND $10,045,516 IN 2002) 632,942,483 610,338,357
BANK PREMISES AND EQUIPMENT - NET 7,598,206 7,879,767
NET RECEIVABLE - SECURITIES SALES 57,889,858 14,173,044
OTHER ASSETS 14,929,393 21,693,660
----------------- -----------------
- -----------------------------------------------------------
TOTAL ASSETS $1,423,225,104 $1,362,282,184
- ----------------------------------------------------------- ================= =================
- -----------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------
DEPOSITS:
DEMAND $242,202,412 $215,876,137
SAVINGS 567,562,664 498,767,318
TIME 293,044,746 432,383,053
----------------- -----------------
TOTAL DEPOSITS 1,102,809,822 1,147,026,508
FEDERAL FUNDS PURCHASED 28,050,000 4,800,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - 49,983,000
OTHER BORROWINGS 74,007,109 52,665,644
NET PAYABLE - SECURITIES PURCHASES 110,035,122 2,009,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 6,931,703 8,115,401
----------------- -----------------
- -----------------------------------------------------------
TOTAL LIABILITIES 1,321,833,756 1,264,599,553
- ----------------------------------------------------------- ----------------- -----------------
GUARANTEED PREFERRED BENEFICIAL INTEREST
IN SUBORDINATED DEBT 10,000,000 10,000,000
COMMITMENTS AND CONTINGENT LIABILITIES
- -----------------------------------------------------------
STOCKHOLDERS' EQUITY:
- -----------------------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES; 0 SHARES ISSUED - -
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 9,271,575 SHARES IN 2003
AND 9,201,863 SHARES IN 2002; OUTSTANDING 8,452,648
SHARES IN 2003 AND 8,378,855 SHARES IN 2002 46,357,875 43,818,395
SURPLUS 52,341,358 45,714,829
RETAINED EARNINGS 1,741,012 5,419,517
TREASURY STOCK (818,927 SHARES IN 2003
AND 783,817 SHARES IN 2002) (13,086,939) (12,444,116)
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF TAXES 4,038,042 5,218,101
UNEARNED COMPENSATION - (44,095)
----------------- -----------------
- -----------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 91,391,348 87,682,631
- ----------------------------------------------------------- ----------------- -----------------
- -----------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,423,225,104 $1,362,282,184
- ----------------------------------------------------------- ================= =================
See accompanying notes to unaudited consolidated financial statements.
(1)
- -------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------
- --------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
- ---------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
------------ ----------
2003 2002 2003 2002
---- ---- ---- ----
INTEREST INCOME:
- ----------------
LOANS $10,911,816 $10,846,301 $21,848,036 $21,436,578
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 139,150 77,032 324,384 398,287
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
STATES AND POLITICAL SUBDIVISIONS 797,175 917,517 1,678,820 1,714,931
MORTGAGE-BACKED SECURITIES 1,955,097 3,243,328 4,365,865 5,982,284
GOVERNMENT AGENCY SECURITIES 2,307,177 1,733,713 4,569,776 2,638,556
OTHER SECURITIES 384,857 287,242 729,293 427,916
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 16,495,272 17,105,133 33,516,174 32,598,552
---------- ---------- ---------- ----------
INTEREST EXPENSE:
- -----------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 646,863 1,386,309 1,518,594 2,810,694
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,509,659 2,710,146 4,900,440 4,704,170
GUARANTEED PREFERRED BENEFICIAL INTEREST
IN SUBORDINATED DEBT 137,267 - 278,900 -
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE 3,293,789 4,096,455 6,697,934 7,514,864
--------- --------- --------- ---------
NET INTEREST INCOME 13,201,483 13,008,678 26,818,240 25,083,688
PROVISION FOR PROBABLE LOAN LOSSES 983,751 963,000 1,967,502 1,922,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR PROBABLE LOAN LOSSES 12,217,732 12,045,678 24,850,738 23,161,688
---------- ---------- ---------- ----------
NONINTEREST INCOME:
- -------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 366,144 356,951 757,070 738,340
NET SECURITY GAINS 1,585,472 1,454,055 3,581,550 1,420,510
OTHER OPERATING INCOME 542,410 369,238 860,871 652,776
--------- --------- --------- ---------
TOTAL NONINTEREST INCOME 2,494,026 2,180,244 5,199,491 2,811,626
--------- --------- --------- ---------
INCOME BEFORE OPERATING EXPENSES 14,711,758 14,225,922 30,050,229 25,973,314
---------- ---------- ---------- ----------
OPERATING EXPENSES:
- -------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 5,559,618 4,979,184 11,119,628 9,903,670
OCCUPANCY 963,702 790,962 1,896,384 1,543,281
EQUIPMENT 403,669 333,463 792,196 661,731
LEGAL 819,650 1,097,120 3,152,550 1,912,354
MARKETING AND ADVERTISING 277,396 458,543 608,751 838,306
OTHER OPERATING EXPENSES 1,809,581 1,885,290 3,721,131 3,591,951
--------- --------- ---------- ----------
TOTAL OPERATING EXPENSES 9,833,616 9,544,562 21,290,640 18,451,293
--------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,878,142 4,681,360 8,759,589 7,522,021
PROVISION FOR INCOME TAXES 1,477,630 1,264,913 2,581,197 1,927,184
--------- --------- --------- ---------
NET INCOME $3,400,512 $3,416,447 $6,178,392 $5,594,837
- ---------- ---------- ---------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE $0.40 $0.40 $0.73 $0.65
- ------------------------------- ----- ----- ----- -----
DILUTED EARNINGS PER COMMON SHARE $0.40 $0.39 $0.72 $0.64
- --------------------------------- ----- ----- ----- -----
AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,453,602 8,554,486 8,431,460 8,543,994
------------------------- --------- --------- --------- ---------
See accompanying notes to unaudited consolidated financial statements.
(2)
- ---------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------------
- -----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
- -----------------------------------------------------------------
- --------------------------------------------- -------------- -------------
OPERATING ACTIVITIES: 2003 2002
- --------------------------------------------- -------------- -------------
NET INCOME $6,178,392 $5,594,837
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR PROBABLE LOAN LOSSES 1,967,502 1,922,000
DEPRECIATION AND AMORTIZATION OF BANK PREMISES AND EQUIPMENT 818,563 579,094
AMORTIZATION OF INTANGIBLES 18,068 18,068
AMORTIZATION OF NET PREMIUM ON SECURITIES 4,312,264 1,259,966
AMORTIZATION OF UNEARNED COMPENSATION 82,601 111,432
NET SECURITY GAINS (3,581,550) (1,420,510)
DECREASE IN OTHER ASSETS, NET 7,119,752 3,141,563
(DECREASE) INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES (1,206,443) 1,542,443
---------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,709,149 12,748,893
---------------------- -------------------
- -----------------------------------------------------------------------
INVESTING ACTIVITIES:
- -----------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 26,680,886 51,400
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 344,662,125 155,221,137
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE 203,071,779 61,384,360
PURCHASES OF SECURITIES AVAILABLE FOR SALE (506,730,599) (509,042,108)
INCREASE IN LOANS - NET (24,571,628) (34,496,200)
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (537,002) (1,767,825)
---------------------- -------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 42,575,561 (328,649,236)
---------------------- -------------------
- -----------------------------------------------------------------------
FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
INCREASE IN DEMAND AND SAVINGS DEPOSITS 95,121,621 67,560,397
DECREASE IN TIME DEPOSITS (139,338,307) (7,913,324)
INCREASE IN FEDERAL FUNDS PURCHASED 23,250,000 3,700,000
(DECREASE) INCREASE IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE (49,983,000) 96,276,000
INCREASE IN OTHER BORROWINGS 21,341,465 52,419,566
CASH DIVIDENDS PAID (2,236,767) (2,166,916)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND REINVESTMENT PLAN 1,275,630 864,173
PROCEEDS FROM STOCK OPTIONS EXERCISED 237,262 143,778
PROCEEDS FROM SHARES ISSUED UNDER DIRECTORS' STOCK PLAN 17,226 -
PURCHASES OF TREASURY STOCK (642,823) (1,107,403)
---------------------- -------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (50,957,693) 209,776,271
---------------------- -------------------
- -----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,327,017 (106,124,072)
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 98,586,855 138,110,091
- -----------------------------------------------------------------------
- ----------------------------------------------------------------------- ---------------------- -------------------
CASH AND CASH EQUIVALENTS - JUNE 30 $105,913,872 $31,986,019
- ----------------------------------------------------------------------- ---------------------- -------------------
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------
INTEREST PAID $6,967,844 $7,563,591
INCOME TAXES PAID $2,547,974 $1,111,200
ADJUSTMENT TO UNREALIZED NET GAIN OR LOSS ON SECURITIES
AVAILABLE FOR SALE ($1,553,613) $5,924,512
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER END $1,136,691 $1,086,810
See accompanying notes to unaudited consolidated financial statements.
(3)
- -----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------
- ------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED)
- ------------------------------------------------------------------------
ACCUMULATED
OTHER TOTAL COMPRE-
COMPRE- UNEARNED STOCK- HENSIVE
COMMON RETAINED TREASURY HENSIVE COMPEN- HOLDERS' INCOME
STOCK SURPLUS EARNINGS STOCK INCOME (LOSS) SATION EQUITY (LOSS)
----- ------- -------- ----- ------------ ------ ----- ------
BALANCE, JANUARY 1, 2003 $43,818,395 $45,714,829 $5,419,517 ($12,444,116) $5,218,101 ($44,095) $87,682,631
COMPREHENSIVE INCOME:
NET INCOME 6,178,392 6,178,392 $6,178,392
-----------
OTHER COMPREHENSIVE LOSS,
NET OF TAX:
UNREALIZED HOLDING GAINS ARISING
DURING THE PERIOD 1,154,864
RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME (2,334,923)
-----------
TOTAL OTHER COMPREHENSIVE LOSS (1,180,059) (1,180,059)(1,180,059)
-----------
TOTAL COMPREHENSIVE INCOME $4,998,333
-----------
CASH DIVIDEND
($0.27 PER SHARE) (2,259,512) (2,259,512)
5% STOCK DIVIDEND (401,978 SHARES
AT MARKET VALUE) 2,009,890 5,587,495 (7,597,385) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (74,168 SHARES
AT 95% OF MARKET VALUE) 370,840 904,790 1,275,630
STOCK OPTIONS EXERCISED 153,965 83,297 237,262
STOCK ISSUED UNDER
DIRECTORS' STOCK PLAN 4,785 12,441 17,226
TREASURY STOCK PURCHASED (642,823) (642,823)
AMORTIZATION OF UNEARNED
COMPENSATION 38,506 44,095 82,601
------------ ------------- ---------- ----------- ------------ ----------- ----------
- --------------------------------
BALANCE, JUNE 30, 2003 $46,357,875 $52,341,358 $1,741,012 ($13,086,939) $4,038,042 $ - $91,391,348
- --------------------------------
------------- -------- ---------- ----------- ------------ ----------- ----------
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 5,594,837 5,594,837 $5,594,837
-----------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED HOLDING GAINS ARISING
DURING THE PERIOD 4,725,903
RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME (936,966)
-----------
TOTAL OTHER COMPREHENSIVE INCOME 3,788,937 3,788,937 3,788,937
-----------
TOTAL COMPREHENSIVE INCOME $9,383,774
-----------
CASH DIVIDEND
($0.25 PER SHARE) (2,169,330) (2,169,330)
5% STOCK DIVIDEND (398,246 SHARES
AT MARKET VALUE) 1,946,230 5,110,800 (7,057,030) -
SHARES ISSUED UNDER THE DIVIDEND
REINVESTMENT PLAN (56,419 SHARES
AT 95% OF MARKET VALUE) 282,095 582,078 864,173
STOCK OPTIONS EXERCISED 94,340 49,438 143,778
TREASURY STOCK PURCHASED (1,107,403) (1,107,403)
AMORTIZATION OF UNEARNED
COMPENSATION 46,308 65,124 111,432
------------ --------- ---------- ----------- ------------ ----------- ----------
- -------------------------------
BALANCE, JUNE 30, 2002 $43,493,260 $44,991,118 $1,956,792 ($8,178,552) $1,361,434 ($109,199) $83,514,853
- ------------------------------- ------------ --------- ---------- ----------- ------------ ----------- ----------
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 balance sheets as of June 30, 2003 and December 31, 2002, its
consolidated statements of income for the three and six months ended June 30,
2003 and 2002, its consolidated statements of cash flows for the six months
ended June 30, 2003 and 2002 and its consolidated statements of stockholders'
equity and comprehensive income (loss) for the six months ended June 30, 2003
and 2002. The results of operations for the three and six months ended June 30,
2003 are not necessarily indicative of the results of operations to be expected
for the remainder of the year. For further information, please refer to the
consolidated financial statements and footnotes thereto included in the
Company's 2002 annual report on Form 10-K. Certain amounts have been
reclassified to conform to the current year's presentation.
Accounting for Stock Options
- ----------------------------
The Company accounts for stock-based compensation using the intrinsic value
method which recognizes as expense the difference between the market value of
the stock and the exercise price at grant date. The Company discloses the pro
forma effects of accounting for stock-based compensation using the fair value
method.
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This statement is effective for financial statements
for fiscal years ending after December 15, 2002. The Company adopted SFAS No.
148 as of December 31, 2002, and the impact of such adoption did not have a
material impact on the Company's financial statements.
The estimated fair value of options granted during 2003 and 2002 was $4.40 and
$3.10 per share, respectively. The Company applies Accounting Principles Board
Opinion ("APB") No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its incentive stock
option plans. Had compensation cost for the Company's four plans been determined
at the fair value on the grant dates for awards under those plans, consistent
with the method in SFAS No. 123, "Accounting for Stock-based Compensation," the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below.
(5)
For the Six Months Ended June 30, 2003 2002
- ------------------------------------ ---- ----
Net income, as reported $6,178,392 $5,594,837
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects (140,975) (115,065)
-------- --------
Pro forma net income $6,037,417 $5,479,772
========== ==========
Earnings per share:
Basic - as reported $0.73 $0.65
Basic - pro forma $0.72 $0.64
Diluted - as reported $0.72 $0.64
Diluted - pro forma $0.70 $0.63
The fair value of options granted under the Company's incentive stock option
plans during 2003 and 2002 were estimated on the date of grant using the
Black-Scholes Single Option Pricing Model with the following weighted-average
assumptions used:
2003 2002
---- ----
Dividend yield 3.1% 3.4%
Expected volatility 28.4% 17.7%
Risk-free interest rate 3.38% 4.77%
Expected life of options 7.4 years 7.3 years
2. STOCKHOLDERS' EQUITY
The Company has 250,000 shares of preferred stock authorized. No shares were
issued as of June 30, 2003.
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 22,804 common shares at an
average price of $18.44 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
166,981 (adjusted for stock dividends) 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
(6)
recognizes compensation expense equal to the current market price of the common
shares. As of June 30, 2003, all 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.
For the Six Months Ended June 30, 2003 2002
- ------------------------------------ ---- ----
Net income $6,178,392 $5,594,837
Average dilutive stock options outstanding 776,870 621,815
Average exercise price per share $13.67 $12.17
Average market price - diluted basis $17.91 $15.78
Average common shares outstanding 8,431,460 8,543,994
Increase in shares due to exercise of options - diluted basis 183,944 142,398
------- -------
Adjusted common shares outstanding - diluted 8,615,404 8,686,392
--------- ---------
Net income per share - basic $0.73 $0.65
----- -----
Net income per share - diluted $0.72 $0.64
----- -----
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
The recorded investment in loans that are considered to be impaired, for the
quarter ended June 30, 2003 and for the year ended December 31, 2002, is
summarized below.
(7)
---------------------------- --------------------------
For the Quarter Ended For the Year Ended
June 30, 2003 December 31, 2002
---------------------------- --------------------------
Amount measured using the present value of expected future
cash flows, discounted at each loan's effective interest rate $2,294,042 $3,352,079
Impaired collateral-dependent loans 7,914,449 1,602,115
--------- ---------
Total amount evaluated as impaired $10,208,491 $4,954,194
=========== ==========
Average impaired loan balance $10,725,383 $6,486,261
As a result of the Company's evaluation of impaired loans, an allowance for
probable loan losses of approximately $3,051,000 and $2,027,000 was established
for $9,627,943 and $4,954,194 of the total impaired loans at June 30, 2003 and
December 31, 2002, respectively. No specific allowance was required for the
remaining balance of impaired loans in 2003. Interest income of $43,547 and
$7,903 was recognized on impaired loans for the three and six months ended June
30, 2003 and 2002, respectively.
Activity in the allowance for probable loan losses for the six months ended June
30, 2003 and 2002 is as follows:
2003 2002
---- ----
Balance, January 1, $10,045,516 $9,255,414
Provision charged to income 1,967,502 1,922,000
Charge-offs, net of recoveries of $148,680 in 2003 and $153,100 in 2002 (1,618,130) (1,283,335)
--------- ---------
Balance, June 30, $10,394,888 $9,894,079
=========== ==========
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.
(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 subsidiaries, State Bank
of Long Island and subsidiaries (the "Bank"), a New York State-chartered
commercial bank founded in 1966, and State Bancorp Capital Trust I (the
"Trust"), an entity formed in 2002 to issue Trust Preferred securities. 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.
Recent Accounting Developments - On October 1, 2002, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of
Certain Financial Institutions," which allows financial institutions meeting
certain criteria to reclassify their unidentifiable intangible asset balances to
goodwill and retroactively cease amortization beginning as of January 1, 2002.
The adoption of this statement did not have a material effect on the Company's
financial statements.
In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of Indebtedness of
Others." This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. This
Interpretation also incorporates, without change, the guidance in FIN No. 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others," which is being
superseded. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The Company's adoption of this Interpretation as of December 31, 2002, did
not have a material impact on the Company's financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." The Interpretation clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The Company has participated in the issue of trust preferred
securities through a trust established for such purpose. The Company is
currently assessing the trust preferred securities structure and the continued
consolidation of the related trust pursuant to FIN No. 46. Management does not
believe the results of the assessment will result in a material change to the
Company's financial statements upon the adoption of FIN No. 46 in the third
quarter of 2003.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," resulting in more consistent reporting of contracts as
either derivatives or hybrid instruments. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and should be applied
prospectively. Implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003 should continue to be applied in
accordance with their respective effective dates. The Company's adoption of SFAS
No. 149 as of July 1, 2003, did not have a material impact on the Company's
financial statements.
(9)
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
requires that certain financial instruments, which under prior accounting
principles generally accepted in the United States of America could be
designated as equity, be classified as liabilities on the balance sheet. SFAS
No. 150 is effective for certain financial instruments entered into or modified
after May 31, 2003, and otherwise is effective July 1, 2003. The Company
currently classifies its trust preferred securities in the mezzanine section of
the Consolidated Balance Sheet. These securities will be reclassified as debt
under the provisions of SFAS No. 150, effective July 1, 2003. The adoption of
SFAS No. 150 is not expected to have a material effect on the Company's
consolidated financial statements.
Material Changes in Financial Condition - Total assets of the Company were $1.4
billion at June 30, 2003. When compared to December 31, 2002, total assets
increased by $60.9 million or 4.5%. Increases in the loan portfolio of $23.0
million, lower-yielding money market investments of $12.0 million and the
receivable for investment securities sales of $43.7 million were the primary
contributors to the asset growth, partially offset by decreases in the
investment portfolio and cash balances due from correspondent banks. Sales of
mortgage-backed securities and long-term municipal notes during the first half
of 2003 were undertaken as a result of the dramatic decline in interest rates.
Management will continue to closely monitor the fixed income markets throughout
the balance of the year to take advantage of any opportunities that may arise
due to any further movement in interest rates.
At June 30, 2003, total deposits were $1.1 billion, a decrease of $44.2 million
or 3.9% when compared to December 31, 2002. This decline was largely
attributable to a decrease in time deposits of $139.3 million, coupled with a
decrease in money fund accounts of $16.0 million. Partially offsetting these
decreases were increases in the core deposit categories of demand, NOW and
savings of $26.3 million, $16.9 million and $67.9 million, respectively.
Management expects that low-cost core deposit balances (such as demand, NOW,
savings and money fund accounts) will continue to grow as a result of the
Company's expanded branch network that now totals fifteen branches located
throughout the tri-county area of Nassau, Suffolk and Queens. Low-cost core
deposits represented approximately 73.4% of total deposits at June 30, 2003
versus 62.3 % at year-end 2002. The increase in core deposit balances continues
to allow the Company to reduce its dependence on short-term borrowed funds.
Average interest-earning assets for the second quarter of 2003 were up by $193.0
million or 17.1% to $1.3 billion from the comparable 2002 period. Sources of
asset expansion included a $105.6 million or 20.0% increase in average
investment securities, a $56.9 million or 9.8% increase in average loans,
primarily commercial mortgages, and an increase in average money market
instruments of $30.5 million.
Funding the second quarter asset growth was a $199.6 million increase in average
deposits, mainly demand deposits and other low-cost core funding. Average core
deposits increased $320.3 million or 55.2% during the second quarter of 2003 as
compared to the same period in 2002. Partially offsetting the growth in average
core balances was a decline in average total time deposits of $120.7 million or
28.5%, including a decrease of $97.7 million or 34.9% in CDs over $100 thousand.
Average borrowed funds decreased by $31.7 million or 32.0% during the second
quarter of 2003 when compared to the same period last year. This is primarily
attributable to a $41.9 million decline in securities sold under agreements to
repurchase, partially offset by a $9.3 million increase in Federal Home Loan
Bank overnight funding. These activities resulted in a second quarter net
interest margin on a tax-equivalent basis of 4.12%, down from 4.80% one year
ago. Management anticipates a slightly lower net interest margin during the
remainder of 2003 as reductions in asset yields offset growth in low-cost core
deposit balances and loans. Pricing pressure in the loan portfolio is expected
to offset any improvement in funding costs that will result from continued core
deposit expansion. The increased level of core deposits has allowed the Company
to reduce its dependence on higher-cost funding which, combined with the lower
interest rate environment, resulted in a 46 basis points decline in the
Company's second quarter average cost of funds to 0.99% as compared to the same
period in 2002.
(10)
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 June 30,
2003, 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 $91.4 million at June 30, 2003,
representing increases of $3.7 million and $7.9 million, respectively, from
December 31 and June 30, 2002. Total stockholders' equity grew at rates of 4.2%
and 9.4% from December 31 and June 30, 2002, 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 June 30, 2003 and
compares them to current regulatory guidelines and December 31 and June 30, 2002
actual results.
TABLE 2-1
Tier I Capital/ Total Capital/
Tier I Risk-Weighted Risk-Weighted
Leverage Assets Assets
-------- ------ ------
Regulatory Minimum 3.00%-4.00% 4.00% 8.00%
Ratios as of:
June 30, 2003 6.82% 11.30% 12.55%
December 31, 2002 6.95% 11.36% 12.62%
June 30, 2002 6.71% 11.00% 12.26%
Regulatory Criteria for a "Well
Capitalized" Institution 5.00% 6.00% 10.00%
The Company's stock repurchase program expended $421 thousand during the second
quarter of 2003 to repurchase 22,804 shares at an average cost of $18.44 per
share. Since 1998, a total of 818,927 shares of Company stock have been
repurchased at an average cost of $15.98 per share. Under the Board of
Directors' existing authorization, an additional 181,073 shares may be
repurchased from time to time as conditions warrant.
During the fourth quarter of 2002, the Company raised $10 million from its
participation in a pooled trust preferred securities offering. The trust
preferred securities, which qualify as Tier I capital for regulatory capital
purposes, were issued by the Trust, bear an interest rate tied to three-month
LIBOR and are redeemable by the Company in whole or in part after five years or
earlier under certain circumstances. The initial rate on the securities was
5.27%. During the second quarter of 2003, the weighted average rate on the trust
preferred securities was 4.76%.
Liquidity and Off-Balance Sheet Arrangements - 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
subsidiaries to meet their financial obligations. These obligations include the
withdrawal of deposits on
(11)
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 various leases, and the capacity to take advantage of
business opportunities as they arise. The Board of Directors' Funds Management
Committee and Management's Asset Liability Committee are responsible for
ensuring 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 June 30, 2003 and 2002, commitments to originate loans
and commitments under unused lines of credit for which the Bank is obligated
amounted to approximately $221.2 million and $150.0 million, 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 June 30, 2003 and 2002, the Bank had letters of
credit outstanding of approximately $11.8 million and $8.0 million,
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 2003, $1.1 million; in 2004, $2.3 million; in 2005,
$2.2 million; in 2006, $1.7 million; in 2007, $1.6 million; and the remainder to
2012, $6.1 million.
Liquidity at the Company is measured and monitored daily, thereby allowing
management to better understand
(12)
and react to emerging balance sheet trends. After assessing actual and projected
cash flow needs, management seeks to obtain funding at the most economical cost
to the Company. Throughout the second quarter of 2003, the Company's liquidity
position remained stable and well within acceptable industry standards. During
the second quarter of 2003, higher levels of core deposits coupled with calls on
Government Agency securities and pay-downs on mortgage-backed securities
provided a source of readily available funds to meet general liquidity needs. In
addition, at June 30, 2003, the Company had access to approximately $85 million
in Federal Home Loan Bank lines of credit for overnight or term borrowings with
maturities of up to thirty years. At June 30, 2003, 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.
Tabular Disclosure of Contractual Obligations - Shown below are the amounts of
payments due under specified contractual obligations, aggregated by category of
contractual obligation, for specified time periods. All information is as of
June 30, 2003.
Payments due by period (in thousands)
-------------------------------------
Contractual obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
- ----------------------- ----- ---------------- ----------- ----------- -----------------
Leases covering various Bank equipment,
branches, office space and land $14,952 $1,124 $4,408 $3,326 $6,094
Federal funds purchased 28,050 28,050 - - -
Federal Home Loan Bank of New York
overnight funding 72,500 72,500 - - -
Obligations under equipment lease financing 1,507 1,154 353 - -
Guaranteed preferred beneficial interest in
subordinated debt 10,000 - - - 10,000
Total $127,009 $102,828 $4,761 $3,326 $16,094
- ----- -------- -------- ------ ------ -------
Material Changes in Results of Operations for the Six Months Ended June 30, 2003
versus 2002 - Net income for the six months ended June 30, 2003 was $6.2
million, an increase of $584 thousand or 10.4%, when compared to the same 2002
period. Improvements in net interest income to $26.8 million (up 6.9%) and
noninterest income to $5.2 million were offset by growth in operating expenses
(up 15.4%), a slightly higher provision for probable loan losses and an increase
in the effective income tax rate. Basic earnings per common share were $0.73 in
2003 and $0.65 in 2002, while fully diluted earnings per share were $0.72 and
$0.64, respectively. The Company's returns on average assets and stockholders'
equity were 0.90% and 13.72% in 2003 and 1.01% and 14.26% in 2002, respectively.
As shown in Table 2-2 following this discussion, the increase in net interest
income, up $1.7 million to $26.8 million, resulted from an expanded
interest-earning asset base, principally loans, Government Agency and
mortgage-backed securities. The Company's average loan portfolio grew by $56.2
million or 9.8% compared to
(13)
the first six months of 2002, primarily 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 and
responsive personal customer service 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, as well as the web-based
commercial cash management system and an online banking service, 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 37.6%, on average, during the first
six months of 2003 as compared to 2002. This is primarily due to increases in
average U.S. Government Agency securities and average mortgage-backed securities
of $119.8 million and $32.9 million, respectively, somewhat offset by a
continued reduction in exposure to lower-yielding, short-term local municipal
paper.
The continued decline in interest rates during the second quarter of 2003, which
included another 25 basis points reduction in the Company's prime rate,
negatively impacted the Company's six-month net interest margin. Although the
average rate on interest-bearing liabilities declined to 1.03%, reductions in
the average yields on loans and investment securities resulted in a 63 basis
points narrowing of the June year-to-date net interest margin to 4.29% from
4.92% a year ago.
Noninterest income improved $2.4 million, or 84.9%, for the first six months of
2003 as compared to 2002. This was due in large measure to a $2.2 million
increase in net security gains, coupled with an increase in other operating
income. Sales of mortgage-backed securities and long-term municipal notes during
the first half of 2003, undertaken as a result of the dramatic decline in
interest rates, produced these gains. Management will continue to closely
monitor the fixed income markets throughout the balance of the year to take
advantage of any opportunities that may arise due to any further movement in
interest rates. Other operating income increased as the result of growth in
residential mortgage loan sale fees, letter of credit fees, cash management fees
and annuity sales commissions in 2003.
The 15.4% growth in total operating expenses during the first six months of 2003
as compared to 2002 was due to increases in several categories. The most
significant increases pertained to salaries and other employee benefits (up $1.2
million), occupancy costs (up $353 thousand) and legal expenses (up $1.2
million). The increase in salaries and benefits costs resulted largely from the
opening of two new branches in the first half of 2002 coupled with growth in
support staff and related benefit costs during 2003, while the growth in
occupancy expense was due to both the expanded branch network and the additional
occupancy requirements for the Company's support areas. The growth in legal
expenses was due solely to the ongoing litigations related to Island Mortgage
Network ("IMN") and its affiliates, as previously discussed in detail in the
Company's 2001, 2002 and 2003 Securities and Exchange Commission ("SEC") filings
and as discussed in detail in Part II, Item 1 herein. The Company will incur
additional costs, not quantifiable at this time, related to the IMN litigations
during the remainder of 2003 and expects that the second quarter legal expenses
are generally indicative of quarterly expenses to be incurred for the balance of
the year.
The above 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 72.5% for the first
six months of 2003 as compared to 67.1% in 2002. The Company's other primary
measure of expense control, the ratio of total operating expenses to average
total assets, improved during the first six months of 2003 to
(14)
3.09% from a level of 3.32% in 2002.
Income tax expense rose by $654 thousand for the first six months of 2003 as
compared to 2002, resulting in an increase in the Company's effective tax rate
to 29.5% from 25.6% 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.
Material Changes in Results of Operations for the Three Months Ended June 30,
2003 versus 2002 - Net income for the three months ended June 30, 2003 was $3.4
million, a slight decrease of $16 thousand or 0.5%, when compared to the same
2002 period. Growth in operating expenses (up 3.0%), a nominally higher
provision for probable loan losses and an increase in the effective income tax
rate were partially offset by improvements in net interest income (up 1.5%) and
noninterest income. Basic earnings per common share were $0.40 in 2003 and 2002,
while fully diluted earnings per share were $0.40 and $0.39, respectively. The
Company's returns on average assets and stockholders' equity were 0.97% and
14.92% in 2003 and 1.16% and 17.19% in 2002, respectively.
The reasons supporting the second quarter earnings performance are, for the most
part, similar to those already discussed in the six-month analysis. The increase
in net interest income, up $193 thousand to $13.2 million, resulted from an
expanded interest-earning asset base, principally loans and Government Agency
securities. The Company's average loan portfolio grew by $56.9 million or 9.8%
compared to the second quarter of 2002, primarily attributable to an increase in
commercial mortgages. The Company's investment portfolio increased 20.0%, on
average, during the second quarter of 2003 as compared to 2002. This is
primarily due to an increase in average U.S. Government Agency securities of
$92.4 million, somewhat offset by a continued reduction in exposure to
lower-yielding, short-term local municipal paper. The asset growth was partially
offset by a 68 basis points narrowing of the net interest margin to 4.12% in
2003 resulting from the ongoing low interest rate environment. Future rate
reductions, if any, will negatively impact margins and, because of the Company's
dependence on spread income, will also have a negative impact on earnings.
Noninterest income improved $314 thousand, or 14.4%, for the second quarter of
2003 as compared to 2002. This was due in large measure to a $131 thousand
increase in net security gains, coupled with a $173 thousand increase in other
operating income, mainly due to growth in residential mortgage loan sale fees,
letter of credit fees and annuity sales commissions in 2003.
The 3.0% growth in total operating expenses during the second quarter of 2003 as
compared to 2002 was primarily due to increases in salaries and other employee
benefits (up $580 thousand) and occupancy costs (up $173 thousand), partially
offset by decreases in legal and marketing expenses of $277 thousand and $181
thousand, respectively.
The above 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 67.7% for the second
quarter of 2003 as compared to 66.9% in 2002. The Company's other primary
measure of expense control, the ratio of total operating expenses to average
total assets, improved during the second quarter of 2003 to 2.82% from a level
of 3.23% in 2002.
Income tax expense rose by $213 thousand for the second quarter of 2003 as
compared to 2002, resulting in an increase in the Company's effective tax rate
to 30.3% from 27.0% a year ago.
Asset Quality - Nonperforming assets (defined by the Company as nonaccrual loans
and other real estate owned) totaled $12.1 million at June 30, 2003, a $5.8
million increase from December 31, 2002 and a $3.9 million
(15)
increase from the comparable 2002 date. The increase in nonperforming assets is
primarily the result of the second quarter 2003 movement to nonaccrual status of
two large commercial credits totaling $4.6 million. As of June 30, 2003, there
were no restructured accruing loans. This compares to balances of $107 thousand
and $117 thousand at year-end 2002 and June 30, 2002, respectively. 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 totaled $963
thousand, reflecting increases of $834 thousand and $833 thousand when compared
to year-end 2002 and June 30, 2002, respectively.
In management's opinion, one of the most critical accounting policies 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 on a quarterly basis charges off the amounts of those loans
deemed uncollectible. Management continually evaluates the loan portfolio to
insure the level of the allowance for probable loan losses is adequate to absorb
any future losses. 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 $10.4 million or 1.6% of
total loans at June 30, 2003 versus $9.9 million and 1.7%, respectively, at the
comparable 2002 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, declined to 80% at June 30, 2003 from 153% at December
31, 2002 and from 117% one year ago.
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 six months of 2003 and 2002 was
$2.0 million and $1.9 million, respectively. Net loan charge-offs during the
same periods were approximately $1.6 million and $1.3 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 remainder of
2003. Due to the uncertain nature of the current economy, management anticipates
further loan charge-offs during the rest of 2003. A further review of the
Company's nonperforming assets may be found in Table 2-3 following this
analysis.
Forward-Looking Statements and Risk Factors - This report contains
forward-looking statements, including 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. The words "expects,"
"believes," "anticipates" and other similar expressions are intended to identify
forward-looking statements. The forward-looking statements involve certain risks
and uncertainties. Factors that may cause actual results or earnings to differ
materially from such forward-looking statements include, but are not limited to,
the following: (1) general economic conditions, (2) competitive pressure among
financial services companies, (3) changes in interest rates, (4) deposit flows,
(5) loan demand, (6) changes in legislation or regulation, (7) changes in
accounting principles, policies and guidelines, (8) litigation liabilities,
including costs, expenses, settlements and judgments and (9) other economic,
competitive, governmental, regulatory and technological factors affecting State
Bancorp, Inc.'s operations, pricing, products and services. Investors are
encouraged to access the Company's periodic reports filed with the SEC for
financial and business information regarding the Company at
www.statebankofli.com/corporate. The Company undertakes no obligation to publish
revised events or circumstances after the date hereof.
(16)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- ----------- ---------------------------------------------------------------------------------------
TABLE 2 - 2 NET INTEREST INCOME ANALYSIS
- -----------
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
---------------------------------------------------------------------------------------
($ IN THOUSANDS)
2003 2002
------------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------------------------------------- ------------------------------------------
ASSETS:
Interest-earning assets:
Mortgage-backed securities $ 276,454 $ 4,366 3.14 % $ 243,592 $ 5,982 4.88 %
Municipal securities 78,272 1,679 4.27 83,115 1,715 4.10
Government Agency and other securities 264,007 5,291 3.99 123,006 3,055 4.94
------- ----- ---- ------- ----- ----
Total securities 618,733 11,336 3.64 449,713 10,752 4.76
------- ------ ---- ------- ------ ----
Federal funds sold 2,762 14 1.01 2,655 22 1.65
Securities purchased under agreements to
resell 51,942 310 1.19 43,501 376 1.72
Interest-bearing deposits 2,153 8 0.75 1,953 12 1.24
Loans 628,121 21,848 6.92 571,919 21,437 7.46
------- ------ ---- ------- ------ ----
Total interest-earning assets 1,303,711 33,516 5.11 1,069,741 32,599 6.06
--------- ------ ---- --------- ------ ----
Non-interest-earning assets 86,930 50,766
------ ------
Total Assets $1,390,641 $1,120,507
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Savings deposits $ 624,154 $ 2,585 0.84 % $ 371,642 $ 1,732 0.94 %
Time deposits 340,879 3,337 1.95 410,929 4,901 2.37
------- ----- ---- ------- ----- ----
Total savings and time deposits 965,033 5,922 1.23 782,571 6,633 1.69
------- ----- ---- ------- ----- ----
Federal funds purchased 7,348 54 1.46 2,109 21 1.98
Securities sold under agreements to
repurchase 17,161 118 1.37 42,426 403 1.89
Other borrowed funds 33,144 325 1.95 24,383 458 3.74
Guaranteed preferred beneficial interest
in subordinated debt 10,000 279 5.55 - - -
------ --- ---- ---- --- ---
Total interest-bearing liabilities 1,032,686 6,698 1.30 851,489 7,515 1.76
--------- ----- ---- ------- ----- ----
Demand deposits 227,555 186,018
Other liabilities 39,570 3,890
------ -----
Total liabilities 1,299,811 1,041,397
Stockholders' equity 90,830 79,110
------ ------
Total Liabilities and
Stockholders' Equity $1,390,641 $1,120,507
========== ==========
Net interest income/rate spread 26,818 3.82 % 25,084 4.30 %
---- ----
Add tax-equivalent basis adjustment 938 1,012
---- -----
Net interest margin - tax-equivalent basis $ 27,756 4.29 % $ 26,096 4.92 %
======== ==== ======== ====
(17)
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
JUNE 30, 2003 VERSUS DECEMBER 31, 2002 AND JUNE 30, 2002
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
- -----------------------------
---------------------------------------------
6/30/2003 12/31/2002 6/30/2002
------------ ----------- -----------
NONACCRUAL LOANS $12,107 $6,317 $8,194
OTHER REAL ESTATE OWNED - - -
-------------- ------------ -------------
TOTAL NONPERFORMING ASSETS $12,107 $6,317 $8,194
-------------- ------------ -------------
RESTRUCTURED ACCRUING LOANS - $107 $117
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $963 $129 $130
GROSS LOANS OUTSTANDING $643,337 $620,384 $584,811
TOTAL STOCKHOLDERS' EQUITY $91,391 $87,683 $83,515
ANALYSIS OF THE ALLOWANCE FOR
PROBABLE LOAN LOSSES: QUARTER ENDED:
- -----------------------
---------------------------------------------------
6/30/2003 12/31/2002 6/30/2002
-------------- ------------ -------------
BEGINNING BALANCE $10,225 $10,152 $9,239
PROVISION 984 822 963
NET CHARGE-OFFS (814) (928) (308)
-------------- ------------ -------------
ENDING BALANCE $10,395 $10,046 $9,894
-------------- ------------ -------------
KEY RATIOS:
PERIOD ENDED:
---------------------------------------------
6/30/2003 12/31/2002 6/30/2002
------------ ----------- -----------
ALLOWANCE AS A % OF TOTAL LOANS 1.6% 1.6% 1.7%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.9% 1.0% 1.4%
NONPERFORMING ASSETS (1) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.9% 1.0% 1.4%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 85.9% 159.0% 120.7%
ALLOWANCE FOR PROBABLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 79.5% 153.3% 117.2%
(1) EXCLUDES RESTRUCTURED ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST
DUE AND STILL ACCRUING INTEREST.
(18)
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
December 31, 2002 in the Company's Annual Report on Form 10-K. There have been
no material changes in the Company's market risk at June 30, 2003 compared to
December 31, 2002. The following is an update of the discussion provided
therein.
The Company's largest component of market risk continues to be interest rate
risk, virtually all at the Bank level. Interest rate risk is the risk to
earnings or capital arising from movements in interest rates. This risk can be
quantified by measuring the change in net interest margin relative to changes in
market rates. The Company's Funds Management Committee sets forth guidelines
that limit the level of interest rate risk within specified tolerance ranges.
Management must determine the appropriate level of risk which will enable the
Company to achieve its performance objectives within the confines imposed by its
business objectives and the external environment within which it operates.
Interest rate risk arises from repricing risk, basis risk, yield curve risk and
options risk, and is measured using financial modeling techniques, including
quarterly interest rate shock simulations, to measure the impact of changes in
interest rates on earnings for periods of up to two years. These simulations are
used to determine whether corrective action may be warranted or required in
order to adjust the overall interest rate risk profile of the Company.
Simulation results, utilizing the Sendero asset/liability model, are influenced
by a number of estimates and assumptions that are inherently uncertain and, as a
consequence, results will neither precisely estimate net interest income nor
precisely measure the impact of higher or lower interest rates on net interest
income.
To mitigate the impact of changes in interest rates, the balance sheet may be
structured so that repricing opportunities exist for both assets and liabilities
in approximately equivalent amounts at basically the same time intervals.
Imbalances in these repricing opportunities at any point in time constitute an
interest-sensitivity gap, which is the difference between interest-sensitive
assets and interest-sensitive liabilities. These static measurements are best
utilized as early indicators of potential interest rate exposures. The primary
objectives of the Company's asset/liability management are to continually
evaluate the interest rate risk inherent in the Company's balance sheet and its
possible impact on net interest income; to determine the level and direction of
risk appropriate given the Bank's strategic focus, operating environment,
liquidity requirements and performance objectives; and to manage this risk in a
prudent manner consistent with approved policy.
A static "behavioral" gap report (see Table 3-1), a snapshot at a single point
in time, measures the difference between assets and liabilities repricing
characteristics in selected future time periods based on the current interest
rate environment. The assumptions used in the report are the same as those used
for the December 31, 2002 analysis. The Company's one-year cumulative gap ratio
at June 30, 2003 was 148.1%. The Company's asset-sensitive position, meaning
that more assets reprice on a cumulative basis than liabilities, may imply that
net interest income could decrease in declining rate scenarios and increase in
rising rate scenarios. However, a static gap report should only be considered a
directional indicator of the possible changes to net interest income given
changes in interest rates.
The Company is still not subject to foreign currency exchange or commodity price
risk. At June 30, 2003, the Company owned no trading assets, nor did it use
hedging transactions such as interest rate swaps or any other derivative
instrument. There have been no material changes in the composition of assets or
deposit liabilities from December 31, 2002. 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, 2002. The Board of Directors has not
amended the approved limits of acceptable variances.
(19)
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK (CONTINUED)
============================================================================
JUNE 30, 2003
- ----------------
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) $337,333 $32,701 $193,508 $67,688 $12,107 $643,337
Securities Purchased Under Agreements
to Resell and
Interest-Bearing Deposits 60,841 60,841
Securities Held to Maturity 51 28 79
Securities Available for Sale 3) 153,123 183,137 162,647 94,266 4,043 597,216
-------------- ------------- ------------- ------------ ------------ -------------
Total Interest-Earning Assets 551,297 215,889 356,183 161,954 16,150 1,301,473
Unrealized Net Gain on Securities
Available for Sale 6,656 6,656
Noninterest-Bearing Cash and Due from Banks 45,073 45,073
Net Receivable - Securities Sales 57,890 57,890
All Other Assets 7) 6,281 1,826 145 56 3,825 12,133
-------------- ------------- ------------- ------------ ------------ -------------
Total Assets $667,197 $217,715 $356,328 $162,010 $19,975 $1,423,225
-------------- ------------- ------------- ------------ ------------ -------------
- ----------------------------------
INTEREST-SENSITIVE LIABILITIES : 1)
- ----------------------------------
Savings Accounts 4) $39,790 $22,790 $182,460 $47,930 $292,970
Money Fund and NOW Accounts 5) 56,537 14,537 116,297 87,222 274,593
Time Deposits 6) 205,249 67,282 20,088 426 293,045
-------------- ------------- ------------- ------------ ------------ -------------
Total Interest-Bearing Deposits 301,576 104,609 318,845 135,578 - 860,608
Federal Funds Purchased and
and Other Borrowings 101,331 373 353 102,057
Guaranteed Preferred Beneficial Interest
in Subordinated Debt 10,000 10,000
-------------- ------------- ------------- ------------ ------------ -------------
Total Interest-Bearing Liabilities 412,907 104,982 319,198 135,578 - 972,665
Net Payable - Securities Purchases 110,035 110,035
All Other Liabilities, Equity
and Demand Deposits 7) 16,421 12,485 88,228 132,000 91,391 340,525
-------------- ------------- ------------- ------------ ------------ -------------
Total Liabilities and Equity $539,363 $117,467 $407,426 $267,578 $91,391 $1,423,225
-------------- ------------- ------------- ------------ ------------ -------------
Cumulative Interest-Sensitivity Gap 8) $138,390 $249,297 $286,282 $312,658 $328,808
Cumulative Interest-Sensitivity Ratio 9) 133.5 % 148.1 % 134.2 % 132.1 % 133.8 %
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 9.7 % 17.5 % 20.1 % 22.0 % 23.1 %
(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. Securities
containing embedded options are reflected in the sensitivity time
horizon category that best reflects the impact of the "moneyness" of the
embedded option.
(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 16.7% per year over a six-year period and
5.9% per year over a seventeen-year period, respectively, 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 9.1% per
year over an eleven-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.
(20)
ITEM 4. - CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the Company's
Chief Executive Officer and Principal Financial Officer, the effectiveness of
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report. Based on such evaluation, the Company's Chief
Executive Officer and Principal Financial Officer have concluded that these
disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and regulations and are operating in an effective manner. No
change in the Company's internal control over financial reporting (as defined in
Rules 13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934)
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
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 cases pending against the Bank as of August 7,
2003 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, and Moritz,
-------
et al. v. National Settlement Services Corp., et al., Civil Action No. 3:00
- ------------------------------------------------------
CV 426 MU, Western District of North Carolina. While technically these cases
remain pending, the Bank has executed binding settlement agreements with the
plaintiffs in both cases, and finalization of those settlements is contingent
only upon the fulfillment of certain conditions precedent by the plaintiffs,
which have not yet occurred but are expected to occur. The amount of money the
Bank has agreed to pay to settle these litigations is immaterial.
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 Court recently denied the Trustee's motion for summary
judgment on its $14 million preference claim and granted State Bank's
cross-motion for summary judgment, dismissing that claim. A conference
has been scheduled for September 9 to discuss the remaining claims of the
Trustee and the Bank, which had been stayed while the preference claim was
being litigated.
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.
In addition, the Bank recently settled the previously reported litigation
filed by First American Title Insurance Company and nine of its affiliates
in the case of First American Title Insurance Co., et al. v. State Bank
-------------------------------------------------------------
of Long Island, Index No. 13438/01, Supreme Court of the State of New York.
- ---------------
The settlement did not have a material impact on the Bank's financial
condition. All of the First American plaintiffs' claims against the Bank have
been dismissed with prejudice.
The Bank is defending the active lawsuits vigorously, and management believes
that the Bank has substantial
(21)
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.
In addition to the litigations noted above, 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.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders of the Company, held on April 29,
2003, the following directors were elected:
Nominee Term For Withheld
- ---------------------------------- -------------------------------- -------------------------------- -------------------------------
Carl R. Bruno 3 years 6,802,582 22,098
Thomas E. Christman 3 years 6,802,747 21,933
Richard W. Merzbacher 3 years 6,774,097 50,583
The following directors continue to serve on the Board:
J. Robert Blumenthal, Arthur Dulik, Jr., Thomas F. Goldrick, Jr.,
Joseph F. Munson, John F. Picciano, Daniel T. Rowe, Suzanne H. Rueck,
Jeffrey S. Wilks
There were no broker non-votes on this matter.
ITEM 5. - OTHER INFORMATION
At its April 29, 2003 meeting the Board of Directors amended the Company's
By-laws to change certain references to a Vice Chairman of the Board of
Directors in Sections 210 (Special Meetings), 401 (Officers), 402 (Chairman of
the Board) and 403(President). See Exhibit 3(b).
At its June 24, 2003 meeting the Board of Directors adopted Amendment No.2 to
the Director Stock Plan (1998) to provide that commencing on July 1, 2003
Directors will no longer receive an award of share credits equal to 200 per
year, but will receive annual share credits equal in amount to the quotient of
the division of $14,000.00 by the market value of a share of Stock. See Exhibit
10(j)(iii).
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
---------
3(b) By-laws, as amended
(22)
10(j)(iii) 1998 Director Stock Plan Amendment No. 2
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
--------------------
On April 17, 2003, the Company issued the earnings release for the
period ended March 31, 2003.
(23)
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE BANCORP, INC.
8/14/03 s/Daniel T. Rowe
- -------- -------------------------
Date Daniel T. Rowe, President
8/14/03 s/Brian K. Finneran
- -------- ----------------------------
Date Brian K. Finneran, Secretary/Treasurer
(Principal Financial 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, 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.
8/14/03 s/Thomas F. Goldrick, Jr.
- -------- ----------------------------------
Date Thomas F. Goldrick, Jr.,
Chairman and Chief Executive Officer
(25)
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/Treasurer 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.
8/14/03 s/Brian K. Finneran
- -------- ----------------------------------
Date Brian K. Finneran, Secretary/Treasurer
(Principal Financial Officer)
(26)