State Bancorp Inc. in Jericho, N.Y., said it has settled a 5-year-old fraud case for $65 million so its executives can focus on the business of banking.
The $1.8 billion-asset company said late Monday that it had reached a settlement with a Texas mortgage warehouse lender that claimed State had helped a depositor misappropriate millions of dollars.
State maintains that it did nothing wrong, but Thomas M. O'Brien, who joined the company in November as its president and chief operating officer, said he helped convince other executives that the troublesome case had gone on long enough.
"It was kind of like the elephant in the room for everything that we did. It was a big expense and a big distraction, and who knew the outcome?" he said. "I didn't want to make that the story of the bank for the next couple of years."
The settlement is $6.2 million less than State would have paid under a judgment against the company in December 2005.
State Bancorp is the parent of State Bank of Long Island, which held deposit accounts for Island Mortgage Network Inc. from February 1999 to July 2000.
The New York State Banking Department revoked Island's mortgage-banking license in June 2000, because it was hanging on to funds that should have been disbursed to property sellers. Island went out of business shortly after that.
HSA Residential Mortgage Services of Texas Inc., which had made loans to Island, claimed that State had helped Island misappropriate funds.
A Long Island jury found State liable for $44 million of damages in late 2005. Counting interest and other expenses, State had to reserve $74 million to cover the judgment while the legal jousting continued.
State asked the judge to set aside the verdict, but that request was denied around August, Mr. O'Brien said.
The company never formally filed an appeal and decided shortly after Mr. O'Brien came on board to seek a settlement, he said.
The case originally included at least two other warehouse lenders, but State settled with them before the trial.
Mr. O'Brien, 55, had been the president and chief executive officer of Atlantic Bank of New York when New York Community Bancorp acquired it last year.
He is expected to succeed Thomas F. Goldrick Jr. as State's CEO when Mr. Goldrick, 65, retires at yearend. Mr. Goldrick, who has been with the company for 35 years, intends to remain the chairman.
Mr. O'Brien had been behind State's decision to raise $36 million in a private placement in December, restoring it to well-capitalized status. Its capital had been drained by the long legal battle.
He said State, which has 16 branches in Nassau, Suffolk, and Queens counties, would use the money to fuel growth. The strategy is still being worked out, but the possibilities include building or buying branches.
"This is just out of the starting gate here," Mr. O'Brien said. "I think you'll probably start to see that unfold over the course of the first quarter."
The company reported a fourth-quarter profit of $3.4 million, versus a $42.3 million loss for the same period a year earlier.
State also reported full-year earnings of $11.5 million, versus a $36.5 million loss for 2005.
The difference in the quarterly and annual results largely had to do with the legal case.
