JERICHO, N.Y., Jan. 30, 2008 (PRIME NEWSWIRE) -- State Bancorp, Inc. (Nasdaq:STBC), parent company of State Bank of Long Island, today reported earnings for the fourth quarter and year ended December 31, 2007. Net income for the fourth quarter of 2007 was $470 thousand versus earnings of $3.4 million a year ago. Diluted earnings per common share of $0.03 were recorded in the fourth quarter of 2007 and $0.29 in the comparable 2006 period. The decrease in fourth quarter net income was primarily attributable to a non-cash goodwill impairment accounting charge of $2.4 million, $1.4 million in additional legal expenses related to the previously disclosed purported shareholder derivative lawsuit and a $1.3 million increase in the provision for loan and lease losses, as well as the impact of a $12.1 million reversal of previously accrued legal expenses in the fourth quarter of 2006. Total operating expenses, excluding the goodwill impairment charge, the additional 2007 legal expenses and the 2006 reversal of legal expenses, decreased by $2.0 million in the fourth quarter of 2007 versus 2006. Fourth quarter 2007 results were also negatively impacted by a reduction in net interest income resulting from a lower level of average interest earning assets, primarily available for sale investment securities and short-term money market investments. Somewhat mitigating these factors was a reduction in the provision for income taxes of $12.5 million in the fourth quarter of 2007 and an increase in net interest margin to 3.87% from 3.78% a year ago. The substantial reduction in income tax expense in the fourth quarter of 2007 resulted primarily from the previously disclosed establishment of a $10 million reserve for a potential tax liability for New York State income taxes during the fourth quarter of 2006. Full year 2007 net income was $6.2 million, or $0.45 per diluted share, compared to $11.5 million or $1.00 per diluted share in 2006.
Performance Highlights
* Increased Loans & Leases: Average loans and leases outstanding increased by 5% to $1.0 billion versus the fourth quarter of 2006; * Increased Core Deposits: Average core deposits totaled $973 million or 69% of total deposits in the fourth quarter of 2007 versus $971 million or 61% of total deposits in the fourth quarter of 2006, and $885 million or 67% of total deposits in the third quarter of 2007. Average demand deposits were $324 million in the fourth quarter of 2007 versus $323 million a year ago and $317 million in the third quarter of 2007; * Improved Net Interest Margin: Net interest margin increased to 3.87% in the fourth quarter of 2007 from 3.78% in the fourth quarter of 2006 and declined nominally from 3.89% in the third quarter of 2007; * Decision to Exit Leasing Business: A non-cash goodwill impairment accounting charge of $2.4 million related to a decision to sell substantially all the assets of the Company's leasing subsidiary was recorded in the fourth quarter of 2007; * Improved Operating Efficiency: Total operating expenses for the fourth quarter of 2007 were $14.7 million compared to $796 thousand in the fourth quarter of 2006. Total operating expenses for the fourth quarter of 2007 includes the $2.4 million non-cash goodwill impairment accounting charge and $1.4 million in additional legal fees related to the previously disclosed purported shareholder derivative lawsuit. Excluding those two amounts, the resulting run rate of approximately $10.9 million in fourth quarter 2007 operating expenses compares favorably to total operating expenses of approximately $12.9 million in the fourth quarter of 2006, which excludes the impact of a $12.1 million legal expense credit realized at that time. * Increased Loan Loss Provision: Provision for loan and lease losses increased by $1.3 million in the fourth quarter of 2007 versus the fourth quarter of 2006 and by $1.0 million versus the third quarter of 2007; * Settlement of New York State Tax Audit: In December 2007, the Company executed a closing agreement with the New York State Tax Department which constitutes a final and conclusive settlement of the previously reported audit covering the 1999 - 2001 period and all subsequent years through 2006. The final settlement was for an amount less than the reserve previously accrued in the fourth quarter of 2006 and resulted in a reduction of the Company's fourth quarter 2007 provision for income taxes of approximately $450,000. * Asset Quality: Non-accrual loans and leases totaled $6 million or 0.6% of loans and leases outstanding at December 31, 2007 versus $8 million or 0.8% of loans and leases outstanding at September 30, 2007 and $2 million or 0.2% of loans and leases outstanding at December 31, 2006; * Capital Strength: Tier I leverage capital ratio increased to 7.03% at December 31, 2007 versus 6.30% at December 31, 2006; * Performance Ratios: Returns on average assets and stockholders' equity were 0.11% and 1.64%, in the fourth quarter of 2007 and 0.75% and 18.69% in the comparable 2006 period, respectively.
The Company recently concluded a comprehensive review of its wholly owned subsidiary Studebaker-Worthington Leasing Corp. After carefully assessing its available alternatives, the Company has made the strategic decision to exit the leasing business, and is in active discussions to sell Studebaker-Worthington to an out-of-state firm whose main focus is the equipment leasing business. The Company chose this course of action in order to significantly reduce its consolidated operating expenses, improve its operating efficiency ratio and to more effectively allocate capital resources to its core commercial lending and branch banking operations. As a result, the Company recorded a goodwill impairment charge of $2.4 million in the fourth quarter of 2007 in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142. This represents a non-cash accounting charge which has no impact on the Bank's regulatory capital ratios.
Commenting on the fourth quarter and full year 2007 results, President and CEO, Thomas M. O'Brien stated, "During the past year, we have made a series of significant improvements across the organization to comprehensively address the challenges that curtailed the Bank's strategic growth and profitability in recent years. We have added a number of highly skilled professionals in key management positions throughout the Bank to further strengthen our leadership team and significantly bolster our business expansion capabilities. Although much of 2007 centered on restructuring critical areas of the Bank, we believe these efforts have positioned us to successfully compete and will yield increasing market share and financial returns in 2008 and the years beyond. We have a highly entrepreneurial and energized workforce and a clear strategy to build on our past successes and to capitalize on the attractive opportunities ahead for us in our chosen markets.
"While our concerted efforts to make substantial improvements in our Company's operating effectiveness and marketing capabilities during the past twelve months have required financial investments and the realignment of resources, we believe we now have a solid foundation upon which we can effectively execute our strategic plans for growth. The economic forecast for 2008 remains very uncertain both nationally and in our region. While the risks of a downturn increased throughout the second half of 2007 and into 2008, each of the strategic actions that we have taken in 2007 should serve the Company well in the period ahead.
"As we pursue market opportunities to profitably build our core businesses, we will remain vigilant to identify and mitigate risks in the process. We have built a successful banking franchise without resorting to participation in high risk segments such as sub-prime lending or imprudently investing our balance sheet in volatile structured securities. The current economic climate has had a negative impact on the financial services sector and, despite the fact that State Bank has no exposure to the sub-prime lending business, the Company, like many others, has been affected by the overall weakened market conditions. It is difficult to predict when a more favorable market will return bank valuations to more traditional trading multiples. Notwithstanding the volatility in the equity markets, we remain diligent in upholding our prudent credit underwriting standards and will continue to dynamically build our franchise with an unwavering focus on developing and enhancing quality financial relationships within our core target markets.
"Our decision to divest the Studebaker-Worthington leasing subsidiary represents the final phase of our corporate restructuring and sets the stage for the Bank to redeploy the capital resources formerly committed to the leasing operation towards our core business competencies. This divestiture, expected to be completed late in the first quarter of 2008, will result in an annual cost savings to the Bank of approximately $3.0 million in cash operating expense. The resultant goodwill write-down of $2.4 million from the strategic decision to exit the leasing business and sell Studebaker-Worthington, while not a cash charge, was fully recognized in the fourth quarter of 2007 as prescribed by SFAS No. 142. This non-cash accounting charge has no impact on the Bank's capital ratios.
"The already disclosed purported shareholder derivative lawsuit surrounding the previously settled Island Mortgage litigation continues to represent a financial burden on our shareholders and required a commitment of additional legal expenses by the Bank in the fourth quarter of this year. The lawsuit is proceeding through the internal investigatory stage and while the Bank cannot offer any assurances on the anticipated time of its resolution, we are satisfied with the significant progress being made.
"We have aggressively realigned our organizational structure to more effectively pursue our business growth opportunities. Compared with the fourth quarter of 2006, our total full-time equivalent head count, including the impact of the proposed sale of Studebaker-Worthington, is projected to be down by 47 or 14%. We are more focused and more nimble to react to emerging opportunities in our market areas. We have also strengthened our Corporate Governance through the appointment of a new General Counsel, Chief Auditor, Comptroller, BSA Officer and Security Director. We have bolstered our Marketing and Planning functions with the appointment of a new Chief Marketing and Corporate Planning Officer. We have added seasoned commercial bankers to support our business expansion in the middle market and commercial real estate areas and to capture market share in the attractive Manhattan market. In the fourth quarter of this year we completed an exhaustive assessment of our technology and operational infrastructure and have appointed a new Chief Information Officer to introduce state of the art systems enhancements to support our expansion plans. I am very encouraged by the considerable organizational progress we made throughout 2007 and look forward to accelerating our strategic business initiatives in 2008 to improve both profitability and shareholder value. I greatly appreciate the patience and support of our shareholders and employees during this time."
Earnings Summary for the Quarter Ended December 31, 2007
Net income totaled $470 thousand during the fourth quarter of 2007 versus $3.4 million in the comparable 2006 period. Net interest income decreased by $144 thousand or 0.9% to $15.6 million in the fourth quarter of 2007 versus 2006 primarily as a result of a 3% reduction in interest-earning assets. The average investment portfolio decreased by 13% in 2007, principally due to an anticipated runoff of Government agency securities. Average money market investments also declined by 28%. Partially offsetting these reductions was growth in the average loan portfolio of 5% to $1.0 billion during the fourth quarter of 2007 versus 2006. Average total deposits decreased by $181 million or 11% during the fourth quarter of 2007, due to a $183 million or 30% reduction in time deposits resulting from the Company's strategic decision to permit the runoff of higher cost maturing retail CDs. Average core deposit balances (demand, savings, money fund and super NOW deposits), which have an average cost of 1.88%, increased by $2 million during the fourth quarter of 2007 to $973 million. The reduction in average total deposits was offset by increases in other temporary borrowings and stockholders equity of $138 million and $42 million, respectively. Other temporary borrowings consisted primarily of Federal Home Loan Bank overnight and short-term advances which are fully secured by marketable collateral.
The Company's net interest margin increased to 3.87% in the fourth quarter of 2007 from 3.78% a year ago. This increase resulted from a 12 basis point decrease in the Company's cost of funds. This reduction in cost of funds was offset somewhat by a 3 basis point decrease in the Company's earning asset yield to a weighted average rate of 6.90% in the fourth quarter of 2007. The lower asset yield resulted principally from a 41 basis point reduction in the yield on loans and leases offset in part by a 33 basis point increase in the yield on the securities portfolio.
The provision for loan and lease losses increased by $1.3 million in the fourth quarter of 2007 versus 2006 to $1.6 million. The increase in the provision is a result of higher net charge-offs and an increase in non- performing and classified assets in 2007 compared with 2006.
Non-interest income decreased by $89 thousand or 6.5% in the fourth quarter of 2007 compared to the 2006 period. The reduction was due to $169 thousand in net security losses recorded in 2007 versus $27 thousand in net gains recorded in 2006, combined with an 11.9% decrease in service charges on deposits, primarily attributable to reductions in deposit-related fees and overdraft charges resulting from a lower level of overdrafts in the fourth quarter of 2007. These reductions were partially offset by a 30% increase in other operating income resulting from growth in several categories most notably sweep account fees, financial products sales fees and merchant servicing fees.
Fourth quarter 2007 total operating expenses amounted to $14.7 million, including the previously mentioned $2.4 million goodwill impairment accounting charge and $1.4 million in legal expenses related to a purported shareholder derivative lawsuit brought against certain directors and former executive officers of the Company. As reported in a Form 8-K filing with the SEC on July 24, 2007, the Company is a nominal defendant in this action. Fourth quarter 2006 total operating expenses were $796 thousand, net of the impact of a $12.1 million reversal of previously accrued legal expenses in connection with the final settlement of the Island Mortgage Network ("IMN") litigation which occurred in January 2007. No IMN-related legal expenses were recorded in the fourth quarter of 2007. Somewhat offsetting the year over year increase in legal fees were reductions in marketing and advertising expenses and salaries and other employee benefits of $655 thousand and $425 thousand, respectively. Marketing and advertising expenses decreased by 93.2%, primarily the result of reductions in TV/ radio advertising and other corporate marketing programs. Salaries and other employee benefits decreased by 6.1% in the 2007 fourth quarter versus the comparable 2006 period, reflecting in part expense reductions attributable to the previously announced Voluntary Exit Window program, which was completed in the second quarter of 2007, as well as other net staff reductions. Occupancy expenses increased by 6.9% due to higher rental, utility, maintenance and building depreciation costs. Credit and collection expenses decreased by 50.9% due to lower costs associated with home equity closing fees. Equipment expenses increased by 28.5% due to higher depreciation costs.
Income tax expense decreased by $12.5 million in the fourth quarter of 2007 versus the comparable period a year ago. The substantial decrease in income tax expense in 2007 resulted from the previously disclosed establishment of a $10 million reserve during the fourth quarter of 2006 for a potential tax liability for New York State income taxes. In December 2007, the Company executed a closing agreement with the New York State Tax Department which constitutes a final and conclusive settlement of the previously reported audit covering the 1999-2001 period and all subsequent years through 2006. The final settlement was for an amount less than the reserve previously accrued and resulted in a reduction of the Company's fourth quarter 2007 provision for income taxes of approximately $450,000. The Company's effective tax rate was 18.1% in the fourth quarter of 2007 and 78.9% in the fourth quarter of 2006. The 2007 rate is substantially impacted by the non-deductible $2.4 million goodwill impairment accounting charge and the settlement with the New York State Tax Department. Excluding these items, the Company's effective tax rate was 21.0% in the fourth quarter of 2007.
Earnings Summary for the Year Ended December 31, 2007
Net income for 2007 was $6.2 million versus $11.5 million in 2006. The reduction in net income in 2007 compared with 2006 results from several factors, most notably a reduction in net interest income of $2.1 million (3.3%) to $60.2 million in 2007, combined with lower non-interest income and increases in the provision for loan and lease losses and total operating expenses, including the goodwill impairment charge. Partially offsetting these negative factors was a reduction in the provision for income taxes in 2007.
The reduction in net interest income was due to a 19 basis point decline in the Company's net interest margin to 3.82% in 2007.
Non-interest income decreased by 5.5% to $5.4 million, principally due to reductions in deposit service charges and an increase in net security losses, offset in part by increased earnings from bank owned life insurance.
The provision for loan and lease losses increased by $2.0 million in 2007 versus the comparable 2006 period as the result of higher net charge-offs and an increase in non-performing and classified assets in 2007.
Full year 2007 total operating expenses amounted to $51.9 million, including the goodwill impairment accounting charge of $2.4 million, $1.9 million in legal fees related to the purported shareholder derivative lawsuit and a $3.1 million charge attributable to the second quarter 2007 Voluntary Exit Window program. Full year 2006 total operating expenses were $37.6 million, including a $12.1 million reversal of previously accrued legal expenses related to the IMN litigation settlement.
Salaries and other employee benefits expenses increased by $3.3 million in 2007 versus 2006, largely due to the cost of the Voluntary Exit Window program. Occupancy expenses rose by 8.6% due to increases in rental, utility and building depreciation costs. Marketing expenses decreased by 27.9% resulting from a reduction in advertising and corporate marketing programs. Audit and assessment expenses declined by 19.6% as the result of a one-time FDIC deposit insurance assessment credit in 2007. Other operating expenses increased by 8.3% due to a real estate tax refund recorded in 2006 resulting from a successful certiorari proceeding. The Company's effective tax rate was 32.0% in 2007 and 58.7% in 2006.
The reduction in the effective tax rate in 2007 versus 2006 is substantially due to the impact of the $10 million reserve recorded in 2006 for the potential New York State income tax liability. The 2007 rate is also impacted by the non-deductible $2.4 million goodwill impairment accounting charge and the subsequent settlement with New York State. Excluding these items, the Company's effective tax rate was 29.9% in 2007.
Allowance for Loan and Lease Losses
As of December 31, 2007, the Company's allowance for loan and lease losses amounted to $15 million or 1.41% of period-end loans and leases outstanding. The allowance as a percentage of loans and leases outstanding was 1.45% at September 30, 2007 and 1.67% at December 31, 2006. The reduction in the allowance as a percentage of the total loan and lease portfolio at December 31, 2007 compared with prior periods is primarily due to charge-offs of classified watch list loans and loans that were transferred to loans held for sale in the third quarter of 2007. The allowance as a percentage of non-accrual loans and leases amounted to 254% at December 31, 2007 versus 191% at September 30, 2007 and 754% at December 31, 2006.
The decline in the reserve coverage ratio at December 31, 2007 from December 31, 2006 is due to an increase in non-performing assets resulting primarily from the addition of one commercial loan relationship to non-accrual status in the first quarter of 2007. The increase in the reserve coverage ratio at December 31, 2007 from September 30, 2007 is due to a reduction in non-performing assets resulting from the partial charge-off of the aforementioned commercial loan relationship and an increase in the provision for loan and lease losses recorded in the fourth quarter of 2007.
The Company recorded net loan and lease charge-offs in the fourth quarter of 2007 and 2006 of $1.6 million and $800 thousand, respectively. As a percentage of average total loans and leases outstanding, these charge-off totals represented 0.61% and 0.33% in 2007 and 2006, respectively. Net charge-offs for the fourth quarter of 2007 include write-downs of classified watch list loans that were non-performing. Based upon historical trends, inherent risk in the loan portfolio, and the downward pressures the local economy is currently experiencing, the Company expects to record loan and lease charge-offs in future periods, which management believes have been adequately reserved for in the allowance for loan and lease losses reported at December 31, 2007.
Non-performing Assets
Non-performing assets are defined by the Company as non-accrual loans and leases and other real estate owned ("OREO"). Non-accrual loans and leases totaled $6 million or 0.6% of loans and leases outstanding at December 31, 2007, versus $8 million or 0.8% of loans and leases outstanding at September 30, 2007 and $2 million or 0.2% of loans and leases outstanding at December 31, 2006. The increase in non-accrual loans and leases at December 31, 2007 versus December 31, 2006 resulted from the addition of one commercial loan relationship to non-accrual status during the first quarter of 2007. While this long-term relationship had been on the Bank's internal watch list for deteriorating credit conditions, the borrower abruptly ceased operations at the end of the first quarter of 2007 and subsequently filed for bankruptcy. In the fourth quarter of 2007, the Bank recorded a partial charge-off of this relationship. The Bank is pursuing its remaining secured claims through the bankruptcy court and expects to recover all remaining balance sheet receivables. The Company held no OREO at December 31, 2007, September 30, 2007 or December 31, 2006.
Capital
Total stockholders' equity was $114 million at December 31, 2007 compared to $104 million at December 31, 2006. The increase from 2006 is primarily due to net income earned in 2007 less dividends declared during the year. Also contributing to the growth in stockholders' equity in 2007 versus 2006 was an increase in accumulated other comprehensive income, net of deferred income taxes, related to an increase in the market value of the Company's investment securities portfolio in 2007. The Company currently has $20 million in outstanding trust preferred securities that qualify as Tier I capital. During 2007, the weighted average rate on the Company's trust preferred securities was 8.46% versus 8.24% a year ago. The Company also has $10 million of 8.25% subordinated notes outstanding which qualify as Tier II capital.
The Company's capital ratios exceeded all regulatory requirements at December 31, 2007. State Bank of Long Island's Tier I leverage, Tier I risk-weighted and total risk-weighted capital ratios were 7.43%, 10.62% and 11.85%, respectively, at December 31, 2007. Each of these ratios is in excess of the regulatory guidelines for a "well capitalized" institution, the highest regulatory capital category.
During 2007, the Company declared three cash dividends on its common stock of $0.15 per share. In June 2007, the Company announced a change to its cash dividend schedule to a quarterly declaration during the first month of each calendar quarter. Based on the new dividend schedule, the Board of Directors of the Company declared a cash dividend of $0.15 per share at its January 29, 2008 meeting. The cash dividend will be paid on March 17, 2008 to stockholders of record on February 22, 2008.
The Company did not repurchase any of its common stock in 2007. Under the Board of Directors' existing authorization, an additional 512,348 shares may be repurchased from time to time as conditions warrant. The Company does not presently anticipate repurchasing any of its shares in the immediate future.
Corporate Information
State Bancorp, Inc. (Nasdaq:STBC), is the holding company for State Bank of Long Island, the largest independent commercial bank headquartered on Long Island. In addition to its sixteen branch locations throughout Nassau, Suffolk and Queens Counties, the Bank also maintains a lending operation in Jericho. State Bank has built a reputation for providing high-quality personal service to meet the needs of commercial, small business, municipal and consumer markets throughout Long Island and Queens. The Company maintains a web site at www.statebankofli.com with corporate, investor and branch banking information.
Forward-Looking Statements and Risk Factors
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "project," "is confident that," and similar expressions are intended to identify forward-looking statements. The forward-looking statements involve risk and uncertainty and a variety of factors that could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in: market interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, the quality and composition of the loan and lease or investment portfolios, demand for loan and lease products, demand for financial services in the Company's primary trade area, litigation, tax and other regulatory matters, accounting principles and guidelines, other economic, competitive, governmental, regulatory and technological factors affecting the Company's operations, pricing and services and those risks detailed in the Company's periodic reports filed with the SEC. 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. The Company undertakes no obligation to publish revised events or circumstances after the date hereof.
Financial Highlights Follow
STATE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three and Twelve Months Ended December 31, 2007 and 2006 (unaudited) Three Months Twelve Months --------------------------------------------------- 2007 2006 2007 2006 --------------------------------------------------------------------- INTEREST INCOME: Interest and fees on loans and leases $ 20,567,279 $ 20,625,089 $ 82,489,409 $ 77,737,172 Federal funds sold and securities purchased under agreements to resell 1,283,374 2,096,557 3,388,753 4,319,772 Securities held to maturity: Taxable -- 91,985 80,541 412,737 Securities available for sale: Taxable 5,690,664 5,953,641 23,816,124 23,314,553 Tax-exempt 104,872 116,606 498,961 500,617 Dividends 29,750 31,000 119,000 95,861 Dividends on Federal Home Loan Bank and other restricted stock 159,426 21,688 487,590 108,625 --------------------------------------------------------------------- Total interest income 27,835,365 28,936,566 110,880,378 106,489,337 --------------------------------------------------------------------- INTEREST EXPENSE: Deposits 9,759,612 12,398,063 42,254,508 41,230,176 Temporary borrowings 1,805,049 99,182 5,716,361 719,720 Subordinated notes 231,185 230,212 922,449 515,764 Junior subordinated debentures 440,114 465,958 1,821,679 1,787,165 --------------------------------------------------------------------- Total interest expense 12,235,960 13,193,415 50,714,997 44,252,825 --------------------------------------------------------------------- Net interest income 15,599,405 15,743,151 60,165,381 62,236,512 Provision for loan and lease losses 1,610,000 295,000 4,463,500 2,489,998 --------------------------------------------------------------------- Net interest income after provision for loan and lease losses 13,989,405 15,448,151 55,701,881 59,746,514 --------------------------------------------------------------------- NON-INTEREST INCOME: Service charges on deposit accounts 512,109 581,438 2,098,697 2,398,992 Net security (losses) gains (168,716) 27,494 (218,607) (69,475) Income from bank owned life insurance 291,992 264,537 1,115,603 1,011,081 Other operating income 648,854 499,490 2,380,307 2,350,168 --------------------------------------------------------------------- Total non-interest income 1,284,239 1,372,959 5,376,000 5,690,766 --------------------------------------------------------------------- Income before operating expenses 15,273,644 16,821,110 61,077,881 65,437,280 --------------------------------------------------------------------- OPERATING EXPENSES: Salaries and other employee benefits 6,522,832 6,947,488 30,404,429 27,094,530 Occupancy 1,349,666 1,262,525 5,395,273 4,968,083 Equipment 410,171 319,206 1,346,002 1,226,505 Legal 1,731,464 (10,776,919) 2,737,900 (5,543,603) Marketing and advertising 48,030 703,480 1,256,736 1,743,341 Credit and collection 147,831 300,807 903,490 829,521 Audit and assessment 395,728 372,283 1,251,695 1,557,693 Goodwill impairment 2,390,924 -- 2,390,924 -- Other operating expenses 1,703,489 1,666,818 6,226,412 5,750,399 --------------------------------------------------------------------- Total operating expenses 14,700,135 795,688 51,912,861 37,626,469 --------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 573,509 16,025,422 9,165,020 27,810,811 PROVISION FOR INCOME TAXES 103,746 12,646,134 2,935,542 16,316,932 --------------------------------------------------------------------- NET INCOME $ 469,763 $ 3,379,288 $ 6,229,478 $ 11,493,879 ===================================================================== STATE BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2007 and 2006 (unaudited) 2007 2006 --------------------------------------------------------------------- ASSETS: Cash and due from banks $ 35,380,214 $ 46,210,873 Federal funds sold -- 29,000,000 Securities purchased under agreements to resell 61,000,000 131,000,000 --------------------------------------------------------------------- Total cash and cash equivalents 96,380,214 206,210,873 Securities held to maturity (estimated fair value - $6,361,036 in 2006) -- 6,372,080 Securities available for sale - at estimated fair value 401,229,235 511,408,685 --------------------------------------------------------------------- Total securities 401,229,235 517,780,765 Federal Home Loan Bank and other restricted stock 8,053,643 1,708,343 Loans and leases (net of allowance for loan and lease losses of $14,704,864 in 2007 and $16,411,925 in 2006) 1,026,304,532 967,312,849 Bank premises and equipment - net 5,777,493 6,043,450 Bank owned life insurance 29,006,619 27,891,017 Net deferred income taxes 17,494,843 36,665,263 Receivable - current income taxes 14,034,377 -- Receivable - securities sales 14,822,820 -- Other assets 14,910,638 25,109,916 --------------------------------------------------------------------- TOTAL ASSETS $ 1,628,014,414 $ 1,788,722,476 ===================================================================== LIABILITIES: Deposits: Demand $ 332,464,460 $ 316,618,448 Savings 566,999,841 621,969,615 Time 430,474,815 627,595,416 --------------------------------------------------------------------- Total deposits 1,329,939,116 1,566,183,479 Other temporary borrowings 139,031,328 56,400 Subordinated notes 10,000,000 10,000,000 Junior subordinated debentures 20,620,000 20,620,000 Accrued legal expenses 700,839 66,050,208 Other accrued expenses and liabilities 14,085,463 21,671,879 --------------------------------------------------------------------- Total Liabilities 1,514,376,746 1,684,581,966 --------------------------------------------------------------------- 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 14,996,348 shares in 2007 and 14,604,203 shares in 2006; outstanding 14,008,696 shares in 2007 and 13,616,551 shares in 2006 74,981,740 73,021,015 Surplus 86,654,142 83,767,505 Retained deficit (32,164,263) (32,158,439) Treasury stock (987,652 shares in 2007 and 2006) (16,646,426) (16,646,426) Accumulated other comprehensive income (loss) (net of taxes of $357,564 in 2007 and ($2,118,436) in 2006) 812,475 (3,843,145) --------------------------------------------------------------------- Total Stockholders' Equity 113,637,668 104,140,510 --------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,628,014,414 $ 1,788,722,476 ===================================================================== STATE BANCORP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA For the Three and Twelve Months Ended December 31, 2007 and 2006 (unaudited) (dollars in thousands, except share and per share data) Three Months Twelve Months ----------------------- ----------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- SELECTED AVERAGE BALANCES (1): Total assets $ 1,718,162 $ 1,784,830 $ 1,698,295 $ 1,682,640 Loans and leases - net of unearned income $ 1,014,175 $ 968,674 $ 1,003,507 $ 937,021 Investment securities $ 465,096 $ 532,626 $ 504,709 $ 534,593 Deposits $ 1,406,271 $ 1,587,292 $ 1,425,209 $ 1,490,721 Stockholders' equity $ 113,743 $ 71,723 $ 109,238 $ 62,488 FINANCIAL PERFORMANCE RATIOS: Return on average assets 0.11% 0.75% 0.37% 0.68% Return on average stockholders' equity 1.64% 18.69% 5.70% 18.39% Net interest margin 3.87% 3.78% 3.82% 4.01% Operating efficiency ratio 85.10% 4.60% 77.85% 54.64% CAPITAL RATIOS: Tier I leverage ratio 7.03% 6.30% 7.03% 6.30% Tier I risk-based capital ratio 10.04% 9.48% 10.04% 9.48% Total risk-based capital ratio 12.11% 11.58% 12.11% 11.58% ASSET QUALITY SUMMARY: Non-accrual loans and leases $ 5,792 $ 2,177 $ 5,792 $ 2,177 Other real estate owned -- -- -- -- ----------- ----------- ----------- ----------- Total non- performing assets $ 5,792 $ 2,177 $ 5,792 $ 2,177 =========== =========== =========== =========== Non-accrual loans and leases/total loans and leases 0.56% 0.22% 0.56% 0.22% Allowance for loan and lease losses/ non-accrual loans and leases 253.88% 753.88% 253.88% 753.88% Allowance for loan and lease losses/ total loans and leases 1.41% 1.67% 1.41% 1.67% Net charge-offs $ 1,564 $ 800 $ 6,171 $ 1,795 Net charge-offs (annualized)/average loans and leases 0.61% 0.33% 0.61% 0.19% COMMON SHARE DATA: Average common shares outstanding (2) 13,886,263 11,507,876 13,738,101 11,227,278 Period-end common shares outstanding 14,008,696 13,616,551 14,008,696 13,616,551 Basic earnings per common share $ 0.03 $ 0.29 $ 0.45 $ 1.02 Diluted earnings per common share $ 0.03 $ 0.29 $ 0.45 $ 1.00 Book value per share $ 8.11 $ 7.65 $ 8.11 $ 7.65 Cash dividends per share $ 0.15 $ 0.15 $ 0.45 $ 0.45 (1) Weighted daily average balance for period noted. (2) Amount used for earnings per common share computation. STATE BANCORP, INC. AND SUBSIDIARIES NET INTEREST INCOME ANALYSIS For the Three Months Ended December 31, 2007 and 2006 (unaudited) (dollars in thousands) 2007 2006 --------------------------- --------------------------- Average Average Average Yield Average Yield Balance (1) Interest /Cost Balance (1) Interest /Cost --------------------------- --------------------------- ASSETS: Interest- earning assets: Securities (2) $ 465,096 $ 5,824 4.97% $ 532,626 $ 6,226 4.64% Federal Home Loan Bank and other restricted stock 8,258 160 7.69 1,925 22 4.53 Federal funds sold 620 6 3.84 23,560 308 5.19 Securities purchased under agreements to resell 112,804 1,278 4.49 134,359 1,789 5.28 Interest- bearing deposits 4,351 49 4.47 1,201 18 5.95 Loans and leases (3) 1,014,175 20,590 8.05 968,674 20,657 8.46 --------------------------- --------------------------- Total interest- earning assets 1,605,304 $ 27,907 6.90% 1,662,345 $ 29,020 6.93% --------------------------- --------------------------- Non-interest- earning assets 112,858 122,485 ---------- ---------- Total Assets $1,718,162 $1,784,830 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest- bearing liabilities: Savings deposits $ 649,464 $ 4,615 2.82% $ 648,035 $ 4,675 2.86% Time deposits 432,933 5,145 4.71 616,416 7,723 4.97 --------------------------- --------------------------- Total savings and time deposits 1,082,397 9,760 3.58 1,264,451 12,398 3.89 --------------------------- --------------------------- Federal funds purchased 6,817 83 4.83 792 11 5.51 Other temporary borrowings 143,584 1,722 4.76 5,362 89 6.59 Subordinated notes 10,000 231 9.16 10,000 230 9.13 Junior subordinated debentures 20,620 440 8.47 20,620 466 8.97 --------------------------- --------------------------- Total interest- bearing liabil- ities 1,263,418 12,236 3.84 1,301,225 13,194 4.02 --------------------------- --------------------------- Demand deposits 323,873 322,841 Other liabil- ities 17,128 89,041 ---------- ---------- Total Liabil- ities 1,604,419 1,713,107 Stockholders' Equity 113,743 71,723 ---------- ---------- Total Liabilities and Stockholders' Equity $1,718,162 $1,784,830 ========== ========== Net interest income/ margin 15,671 3.87% 15,826 3.78% ==== ==== Less tax- equivalent basis adjustment (72) (83) ---------- ---------- Net interest income $ 15,599 $ 15,743 ========== ========== (1) Weighted daily average balance for period noted. (2) Interest on securities includes the effects of tax-equivalent basis adjustments, using a 34% tax rate. Tax-equivalent basis adjustments were $49 and $51 in 2007 and 2006, respectively. (3) Interest on loans and leases includes the effects of tax- equivalent basis adjustments, using a 34% tax rate. Tax- equivalent basis adjustments were $23 and $32 in 2007 and 2006, respectively. STATE BANCORP, INC. AND SUBSIDIARIES NET INTEREST INCOME ANALYSIS For the Twelve Months Ended December 31, 2007 and 2006 (unaudited) (dollars in thousands) 2007 2006 --------------------------- --------------------------- Average Average Average Yield Average Yield Balance (1) Interest /Cost Balance (1) Interest /Cost --------------------------- --------------------------- ASSETS: Interest- earning assets: Securities (2) $ 504,709 $ 24,621 4.88% $ 534,593 $ 24,478 4.58% Federal Home Loan Bank and other restricted stock 6,414 488 7.61 2,073 109 5.26 Federal funds sold 6,292 325 5.17 17,699 896 5.06 Securities purchased under agreements to resell 62,173 3,064 4.93 68,853 3,424 4.97 Interest- bearing deposits 2,164 102 4.71 1,123 57 5.08 Loans and leases (3) 1,003,507 82,605 8.23 937,021 77,873 8.31 --------------------------- --------------------------- Total interest- earning assets 1,585,259 $ 111,205 7.01% 1,561,362 $ 106,837 6.84% --------------------------- --------------------------- Non-interest -earning assets 113,036 121,278 ---------- ---------- Total Assets $1,698,295 $1,682,640 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Interest- bearing liabil- ities: Savings deposits $ 620,054 $ 18,486 2.98% $ 656,802 $ 17,600 2.68% Time deposits 485,500 23,769 4.90 509,368 23,630 4.64 --------------------------- --------------------------- Total savings and time deposits 1,105,554 42,255 3.82 1,166,170 41,230 3.54 --------------------------- --------------------------- Federal funds purchased 7,196 382 5.31 2,997 150 5.01 Other temporary borrowings 103,138 5,334 5.17 10,393 570 5.48 Subordinated notes 10,000 922 9.22 5,671 516 9.10 Junior subordinated debentures 20,620 1,822 8.84 20,620 1,787 8.67 --------------------------- --------------------------- Total interest- bearing liabil- ities 1,246,508 50,715 4.07 1,205,851 44,253 3.67 --------------------------- --------------------------- Demand deposits 319,655 324,551 Other liabil- ities 22,894 89,750 ---------- ---------- Total Liabil- ities 1,589,057 1,620,152 Stockholders' Equity 109,238 62,488 ---------- ---------- Total Liabilities and Stockholders' Equity $1,698,295 $1,682,640 ========== ========== Net interest income/ margin 60,490 3.82% 62,584 4.01% ==== ==== Less tax- equivalent basis adjustment (325) (347) ---------- ---------- Net interest income $ 60,165 $ 62,237 ========== ========== (1) Weighted daily average balance for period noted. (2) Interest on securities includes the effects of tax-equivalent basis adjustments, using a 34% tax rate. Tax-equivalent basis adjustments were $209 and $211 in 2007 and 2006, respectively. (3) Interest on loans and leases includes the effects of tax- equivalent basis adjustments, using a 34% tax rate. Tax- equivalent basis adjustments were $116 and $136 in 2007 and 2006, respectively.