<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
June 30, 1994
For Quarter Ended...............................................................
1-5273-1
Commission file number..........................................................
Sterling Bancorp
................................................................................
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 13-2565216
......................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
540 Madison Avenue, New York, N.Y. 10022-3299
......................................................................................
(Address of principal executive offices) (Zip Code)
</TABLE>
212-826-8000
................................................................................
(Registrant's telephone number, including area code)
N/A
................................................................................
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
As of June 30, 1994 there were outstanding 6,346,212 shares of common
stock, $1.00 par value, the registrant's only class of common shares
outstanding.
<PAGE> 2
STERLING BANCORP
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business 8
Financial Condition 8
Credit Risk 10
Results of Operations 11
Average Balance Sheets 14
Rate/Volume Analysis 16
Interest Rate Sensitivity 18
Risk-Based Capital Components and Ratios 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
EXHIBIT INDEX 21
Exhibit 11 Computation of Per Share Earnings 22
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Cash and due from banks $ 36,168,351 $ 35,975,787
Interest-bearing deposits with other banks 2,970,000 2,970,000
Federal funds sold 20,000,000 --
Securities
Available for sale 82,157,903 91,125,104
Held to maturity (market value
$233,768,712 and $196,784,084, respectively) 246,455,851 195,690,687
------------ ------------
Total securities 328,613,754 286,815,791
------------ ------------
Loans, net of unearned discounts 281,794,916 298,750,821
Less allowance for possible loan losses 3,819,551 3,413,947
------------ ------------
Loans, net 277,975,365 295,336,874
------------ ------------
Customers' liability under acceptances 155,510 201,669
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 3,217,282 2,593,890
Other assets 9,754,719 7,986,790
------------ ------------
$700,013,421 $653,039,241
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $155,713,009 $174,088,971
Interest-bearing deposits 331,700,084 298,896,955
------------ ------------
Total deposits 487,413,093 472,985,926
Securities sold under repurchase agreements 65,496,226 37,225,000
Commercial paper 13,766,200 14,320,400
Other short-term borrowings 11,724,797 13,613,964
Acceptances outstanding 155,510 201,669
Other liabilities 16,240,846 9,420,630
------------ ------------
594,796,672 547,767,589
------------ ------------
Long-term convertible subordinated debentures 26,713,000 26,892,000
Other long-term debt 25,500,000 25,500,000
------------ ------------
Total long-term debt 52,213,000 52,392,000
------------ ------------
Total liabilities 647,009,672 600,159,589
------------ ------------
Commitments and contingent liabilities
Convertible preferred stock, Series D
- market value guarantee feature 750,000 562,500
Less unearned compensation - unallocated shares 719,364 539,523
Shareholders' equity
Preferred shares, $5 par value. Authorized 644,389 shares
Series B 25,760 25,760
Series D 1,750,000 1,937,500
Common shares, $1 par value. Authorized 20,000,000 shares;
issued 6,496,605 shares 6,496,605 6,496,605
Capital surplus 28,089,487 28,089,487
Retained earnings 20,158,769 18,920,583
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax effect (379,403) 734,686
------------ ------------
56,141,218 56,204,621
Less:
Common shares in treasury at cost, 150,393 shares 1,489,589 1,489,589
Unearned compensation 1,678,516 1,858,357
------------ ------------
52,973,113 52,856,675
------------ ------------
$700,013,421 $653,039,241
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,636,674 $ 4,269,702 $10,579,696 $ 8,141,931
Interest and dividends on securities
Available for sale 1,136,370 -- 2,123,749 --
Held to maturity 3,834,873 3,649,235 7,010,570 7,594,201
Interest on Federal funds sold 64,661 44,824 92,135 51,830
Interest on deposits with other banks 28,457 23,696 53,301 115,752
----------- ----------- ----------- -----------
Total interest income 10,701 035 7,987,457 19,859,451 15,903,714
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 1,959,711 1,704,133 3,473,308 3,425,463
Interest on Federal funds purchased
and securities sold under
repurchase agreements 493,600 186,548 868,243 324,815
Interest on commercial paper 125,176 101,412 227,056 203,733
Interest on other short-term borrowings 224,838 9,104 373,249 64,782
Interest on long-term debt 792,801 497,627 1,540,241 976,238
----------- ----------- ----------- -----------
Total interest expense 3,596,126 2,498,824 6,482,097 4,995,031
----------- ----------- ----------- -----------
Net interest income 7,104,909 5,488,633 13,377,354 10,908,683
Provision for possible loan losses 200,000 160,000 390,000 320,000
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses 6,904,909 5,328,633 12,987,354 10,588,683
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 320,978 274,104 624,295 516,144
Factoring and letters of credit
commissions 449,026 310,563 854,079 618,627
Trust fees 116,235 199,247 260,615 416,494
Gain on sale of securities -- -- 42,361 --
Other 143,430 160,495 245,705 270,110
----------- ----------- ----------- -----------
Total noninterest income 1,029,669 944,409 2,027,055 1,821,375
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 2,899,527 2,632,683 5,751,549 5,265,888
Occupancy 638,082 624,930 1,240,656 1,243,796
Equipment 354,830 269,656 676,506 535,765
Legal and other professional fees 330,132 212,641 583,278 405,173
Federal deposit insurance premium 243,228 228,064 486,456 456,128
Marketing 151,380 91,088 301,554 235,588
Other 1,018,220 705,503 1,924,103 1,377,702
----------- ----------- ----------- -----------
Total noninterest expenses 5,635,399 4,764,565 10,964,102 9,520,040
----------- ----------- ----------- -----------
Income before income taxes 2,299,179 1,508,477 4,050,307 2,890,018
Provision for income taxes 1,336,775 706,519 2,177,436 1,346,296
----------- ----------- ----------- -----------
Net income $ 962,404 $ 801,958 $ 1,872,871 $ 1,543,722
=========== =========== =========== ===========
Average number of common shares outstanding 6,360,249 6,346,212 6,359,721 6,346,056
=========== =========== =========== ===========
Per average common share
Net income $0.15 $0.12 $0.29 $0.24
===== ===== ===== =====
Average number of common shares outstanding
assuming full dilution 8,775,778 8,833,131 8,777,025 8,666,308
=========== =========== =========== ===========
Per average common share assuming
full dilution
Net income $0.13 $0.12 $0.26 $0.23
===== ===== ===== =====
Dividends paid per common share $0.05 $0.05 $0.10 $0.10
===== ===== ===== =====
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Six Months Ended
June 30,
June 30, June 30,
1994 1993
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 52,856,675 $ 50,150,005
------------ ------------
Net income 1,872,871 1,543,722
Dividends declared:
Common stock - $.05 per share (634,621) (634,621)
Preferred stock at prescribed rates (64) (64)
Conversion of subordinated debentures
into common stock -- 6,815
Issuance of Series D preferred shares -- 2,500,000
Unearned compensation - Series D shares -- (2,500,000)
Change in market value guarantee feature
Convertible preferred stock, Series D (187,500) --
Unearned compensation - unallocated shares 179,841 --
Change in valuation account for securities
available for sale, net of tax effect (1,114,089) --
------------ ------------
Net change in shareholders' equity 116,438 915,852
------------ ------------
Shareholders' equity at end of period $ 52,973,113 $ 51,065,857
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1994 1993
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,872,871 $ 1,543,722
Adjustments to reconcile net income to net cash
from operating activities:
Provision for possible loan losses 390,000 320,000
Allowance of acquired portfolio -- 209,628
Depreciation and amortization of premises and equipment 247,497 218,679
Deferred income tax (benefit) provision (262,208) 117,944
Gain on sale of securities (42,361) --
Amortization of premiums on securities 1,856,925 1,758,255
Accretion of discounts on securities (51,286) (28,385)
(Increase) Decrease in accrued interest receivable (213,186) 87,247
Increase (Decrease) in other liabilities 6,820,216 (98,288)
Other, net (344,708) 20,499
------------ ------------
Net cash provided by operating activities 10,273,760 4,149,301
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (870,889) (262,457)
Net decrease in interest-bearing deposits
with other banks -- 630,000
Net (increase) in Federal funds sold (20,000,000) (25,000,000)
Net decrease in loans 16,971,509 22,877,318
Proceeds from sale of securities 9,955,694 --
Proceeds from prepayments, redemptions or maturities
of securities 58,371,050 79,255,463
Purchase of securities (113,949,901) (88,445,599)
------------ ------------
Net cash used by investing activities (49,522,537) (10,945,275)
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (18,375,962) (36,941,687)
Net increase (decrease) in interest-bearing deposits 32,803,129 (2,056,819)
Net increase in securities sold under
repurchase agreements 28,271,226 33,232,350
Net (decrease) in other short-term borrowings (2,443,367) (504,853)
Cash dividends paid on common shares (634,685) (634,685)
Issuance of Series D preferred shares -- 2,500,000
Maturities and prepayments on debentures (179,000) (7,752,185)
Increase in long-term debt -- 2,500,000
Funding provided for purchase of Series D
preferred shares -- (2,500,000)
------------- ------------
Net cash provided (used) by financing activities 39,441,341 (12,157,879)
------------ ------------
Net increase (decrease) in cash and due from banks 192,564 (18,953,853)
Cash and due from banks - beginning of period 35,975,787 37,168,675
------------ ------------
Cash and due from banks - end of period $ 36,168,351 $ 18,214,822
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 5,947,012 $ 5,349,729
Income taxes paid 1,619,551 610,000
Supplemental schedule of non-cash financing activities:
Change in valuation account for securities available for sale,
net of tax effect $ (1,114,089) $ --
Conversion of debentures -- 3,815
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. The consolidated financial statements include the accounts of Sterling
Bancorp ("the parent company") and its subsidiaries, principally Sterling
National Bank & Trust Company of New York ("the bank"), after elimination
of material intercompany transactions. The term "the Company" refers to
Sterling Bancorp and its subsidiaries. The consolidated financial
statements as of and for the interim periods ended June 30, 1994 and 1993
are unaudited; however, in the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for a fair
presentation of such periods have been made. The interim financial
statements should be read in conjunction with the Company's annual report
on Form 10-K for the year ended December 31, 1993.
2. For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks.
3. During the first quarter of 1993, the Company established an Employee
Stock Ownership Plan ("ESOP"), which replaces the profit-sharing plans.
This plan covers substantially all employees with one or more years of
service of at least 1,000 hours who are at least 21 years of age. A
trust established under the ESOP borrowed $2,500,000 from Sterling
National Bank and purchased 250,000 shares of the parent company's new
issue of ESOP Preferred Stock, Series D, which are convertible into
approximately 250,000 common shares and have voting rights equivalent to
the common shares. Shares purchased by the ESOP are held in a suspense
account for allocation among the participants as the loan is paid. Under
the terms of the ESOP, participants may vote both allocated and
unallocated shares.
The ESOP is to be funded by cash contributions made by the Company.
Contributions to the ESOP and shares released from the suspense account
are allocated among the participants on the basis of salary in the year
of allocation.
4. The Company's outstanding Preferred Shares comprise 1,288 Series B shares
(of 4,389 authorized) and 250,000 Series D Shares (of 300,000
authorized). Each Series B share is entitled to cumulative dividends at
the rate of $0.10 per year, to one vote per share (voting with the Common
Shares) upon liquidation or redemption equal to accrued and unpaid
dividends to the date of redemption or liquidation plus an amount which
is $20 in the case of involuntary liquidation and $28 otherwise; each
Series D share (all of such shares are owned by the Company's Employee
Stock Ownership Trust) is entitled to dividends at the rate of $0.6125
per year, to one vote per share (voting with the Common Shares except as
otherwise required by law), is convertible into one Common Share, and is
entitled to a liquidation preference (together with accrued dividends) of
$10.
7
<PAGE> 8
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
Sterling Bancorp (the parent company) is a bank holding company, as defined by
the Bank Holding Company Act of 1956, as amended, with subsidiaries engaged
principally in commercial banking as well as accounts receivable financing,
factoring and other financial services. The parent company owns virtually 100%
of Sterling National Bank & Trust Company of New York (the bank), its principal
subsidiary, all of the outstanding shares of Standard Factors Corporation,
Universal Finance Corporation, Sterling Banking Corporation and virtually 100%
of Security Industrial Loan Association (finance subsidiaries). As used
throughout this report, "the Company" refers to Sterling Bancorp and its
subsidiaries.
There is intense competition in all areas in which the Company conducts its
business, including deposits, loans, domestic and international financing and
trust services. In addition to competing with other banks, the Company also
competes in certain areas of its business with many other financial
institutions. At June 30, 1994, the bank's year to date average earning assets
(of which loans were 41% and securities were 58%) represented approximately 96%
of the Company's year to date average earning assets. See pages 14 and 15 for
the composition of the Company's average balance sheets for the three and six
months ended June 30, 1994 and June 30, 1993.
FINANCIAL CONDITION
Liquidity is the ability to meet cash needs arising from changes in various
categories of assets and liabilities. Liquidity is constantly monitored and
managed at both the parent company and the bank levels. Liquid assets consist
of cash and due from banks, interest-bearing deposits in banks and Federal
funds sold and securities available for sale. Primary funding sources include
core deposits, capital market funds and other money market sources. Core
deposits include domestic noninterest-bearing and interest- bearing retail
deposits, which historically have been relatively stable. The parent company
and the bank have significant unused borrowing capacity. Contingency plans
exist and could be implemented on a timely basis to minimize the impact of any
dramatic change in market conditions.
While the parent company generates income from its own operations, it also
depends for its cash requirements on funds maintained or generated by its
subsidiaries, principally the bank. Such sources have been adequate to meet
the parent company's cash requirements throughout its history. At June 30,
1994, the parent company had on hand approximately $11,021,653 in cash.
Various legal restrictions limit the extent to which the bank can supply funds
to the parent company and its non-bank subsidiaries. All national banks are
limited in the payment of dividends without the approval of the Comptroller of
the Currency (the Comptroller) to an amount not to exceed the net profits (as
defined) for that year to date combined with its retained net profits for the
preceding two calendar years. The bank with the Comptroller's approval paid
dividends aggregating $37,330,000 in 1992 (significantly exceeding net profits)
as well as dividends aggregating $2,599,314 during 1993 and $1,577,514 to date
in 1994. The bank's net income was $3,463,950 for 1993 and $2,274,308 for the
six months ended June 30, 1994. In addition, from time to time dividends are
paid to the parent company by other subsidiaries from their retained earnings
without regulatory restrictions.
8
<PAGE> 9
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The parent company's long-term indebtedness is also met through funds generated
from profits and new financing. Since becoming a public company in 1946, the
parent company and its predecessors have been able to obtain the financing
required and have paid at maturity all outstanding long-term indebtedness. The
parent company expects to continue to meet its obligations in accordance with
their terms. At June 30, 1994, the parent company's outstanding long-term
debt, consisting principally of convertible subordinated debentures (originally
issued pursuant to rights offerings to shareholders of the Company), aggregated
$29,213,000. To the extent convertible subordinated debentures are converted
to common stock of the parent company (as has been the case with $11,000,000
principal amount since 1982), the subordinated debt related thereto is retired
and becomes part of shareholders' equity. On June 9, 1994 the parent company
offered to exchange its Third Series Debentures due July 1, 1996 for Fifth
Series Debentures due July 1, 2001. Both Series of debentures bear a floating
interest rate equal to one half of one percent ( 1/2%) above the daily average
reference rate of interest of a designated major New York City bank, payable
semi-annually, and are convertible into the parent company's common stock as
follows - Third Series, at $12.00 and Fifth Series, at 8.75. Following the
expiration of the exchange offer on July 29, 1994, $7,020,000 principal amount
of Third Series Debentures were exchange for Fifth Series Debentures.
At June 30, 1994, the parent company's short-term debt, consisting solely of
commercial paper, was approximately $13,766,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$30,561,000 and back-up credit lines with banks of $15,000,000. The parent
company and its predecessor have issued and repaid at maturity approximately
$12 billion of commercial paper since 1955. Since 1979, the parent company has
had no need to use available back-up lines of credit.
The bank's asset-liability management program is designed to achieve acceptable
yields while managing interest rate risk, maturity distribution and credit
risk. At June 30, 1994, the bank maintained a portfolio of securities
totalling $328,569,000 of which U.S. Government and U.S. Government
corporation and agency guaranteed mortgage backed securities having an average
life of approximately 3 1/2 years amounted to $312,859,000. As of December 31,
1993, the bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115 "Accounting for Certain Investment in Debt and Equity Securities". As a
result of the adoption of SFAS No. 115, the bank reclassified securities as
either "held to maturity" or "available for sale". The bank has the intent and
ability to hold to maturity securities classified "held to maturity". These
securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts. At June 30, 1994, the gross unrealized gains and
losses on "held to maturity" securities were $195,000 and $12,882,000,
respectively. Securities classified as "available for sale" may be sold in the
future, prior to maturity. These securities are carried at market value. Net
aggregate unrealized gains or losses on these securities are included in a
valuation allowance account and are shown net of taxes, as a component of
shareholder's equity. "Available for sale" securities included gross
unrealized gains of $180,000 and gross unrealized losses of $882,000 at June
30, 1994. During the six months ended June 30, 1994 securities in the
"available for sale" portfolio with a carrying value of $9,913,000 were sold at
a net gain of $42,361.
9
<PAGE> 10
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company and the bank are subject to risk-based capital regulations. The
purpose of these regulations is to measure capital against risk-weighted
assets, including off-balance sheet items. These regulations define the
elements of total capital into Tier 1 and Tier 2 components and establish
minimum ratios of 4% for Tier 1 capital and 8% for Total Capital.
Supplementing these regulations, is a leverage requirement. This requirement
establishes a minimum leverage ratio, (at least 3%) which is calculated by
dividing Tier 1 capital by adjusted average assets (after deducting goodwill).
At June 30, 1994, the risk-based capital ratios and the leverage ratio for the
Company and the bank significantly exceeded the required ratios. Information
regarding the Company's and the bank's risk-based capital, at June 30, 1994
and December 31, 1993, is presented on page 19.
While the past performance is no guarantee of the future, management believes
that the Company's funding sources (including dividends from all its
subsidiaries) and the bank's funding sources will be adequate to meet their
liquidity and capital requirements in the future.
CREDIT RISK
A key management objective is to maintain the quality of the loan portfolio.
This objective is achieved by maintaining high underwriting standards coupled
with regular evaluation of the creditworthiness of and the designation of a
lending limit for each borrower. The portfolio strategies seek to avoid
concentrations by industry or loan size in order to minimize credit exposure
and to originate loans in markets with which it is familiar. The composition
of the Company's and the bank's loan portfolio at June 30, 1994 were as
follows:
<TABLE>
<CAPTION>
Company Bank
------------ ------------
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $ 235,290 $ 210,996
Real estate - mortgage 39,633 39,633
Real estate - construction 1,732 1,732
Installment - individuals 9,394 9,394
Foreign
Government and official institutions 789 789
---------- ----------
Loans, gross 286,838 262,544
Less unearned discounts 5,043 4,810
---------- ----------
Loans, net of unearned discounts $ 281,795 $ 257,734
========== ==========
</TABLE>
The strength of the Company's commercial and industrial loan portfolio, which
represents approximately 82% of gross loans, is substantially dependent on the
borrower's ability to repay the loan out of profits and cash flows of the
borrower's business and the assets underlying the borrower's business, such as
accounts receivable, equipment, inventory and real property. The Company's
real estate mortgage loan portfolio, which represents approximately 14% of
gross loans, is secured by mortgages on real property located principally in
the city of New York and the state of Virginia. The collateral securing any
loan may vary in value based on the success of the business and economic
conditions.
10
<PAGE> 11
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Company's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes
that loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which in turn
depends on current and expected economic conditions, the financial condition of
borrowers and the credit management process.
The allowance for possible loan losses is maintained through the provision for
possible loan losses, which is a charge to operating earnings. The adequacy of
the provision and the resulting allowance for possible loan losses is
determined by management's continuing review of the loan portfolio, including
identification and review of individual problem situations that may affect the
borrower's ability to repay, review of overall portfolio quality through an
analysis of current charge-offs, delinquency and nonperforming loan data,
estimates of the value of any underlying collateral, review of regulatory
examinations, an assessment of current and expected economic conditions and
changes in the size and character of the loan portfolio. Thus, the allowance
level reflects identified loss potential and inherent risk in the portfolio. A
significant change in any of the evaluation factors described above could
result in future additions in the allowance. At June 30, 1994, the ratio of
the allowance to loans, net of unearned discounts, was 1.36%. At June 30,
1994, the Company's allowance, was $3,820,000 and its non-accrual loans
amounted to $1,209,000. Based on the foregoing, as well as management's
judgement as to the current risks inherent in the loan portfolio, the Company's
allowance for possible loan losses was deemed adequate to absorb all reasonably
anticipated losses on specifically known and other possible credit risks
associated with the portfolio as of June 30, 1994.
RESULTS OF OPERATIONS
The Company's earnings are primarily dependent on net interest income which can
be affected by changes in interest rates. An analysis of the Company's
interest rate sensitivity is presented on page 18. Net interest income varies
with the mix of interest- earning assets and interest-bearing liabilities and
their respective yields earned and rates paid. The increases (decreases) for
the components of interest income and interest expense, expressed in terms of
fluctuation in average volume and rate are shown on page 16 and 17.
Information as to the components of interest income and interest expense and
average rates is provided in the Average Balance Sheets shown on page 14 and
15.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1994 AND JUNE 30, 1993
The increase of $2,713,000 in total interest income for the second quarter of
1994 when compared with the same period in 1993 was principally due to higher
average funds employed. An increase in average securities outstandings,
resulted in an increase in income from securities of $1,322,000. Higher
average outstandings employed at higher rates resulted in an increase of
$1,367,000 in interest and fees on loans.
11
<PAGE> 12
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total interest expense for the three months ended June 30, 1994 increased
$1,097,000 when compared with the same period in 1993 principally due to higher
average balances. Higher outstandings resulted in an increase of $255,000 in
interest expense on savings and time deposits. Interest expense associated
with borrowings was increased $842,000 principally due to higher outstandings.
Based on management's continuing evaluation of the collectibility of the loan
portfolio, $200,000 was provided for possible loan losses for the three months
ended June 30, 1994.
Noninterest income increased $85,000 for the second quarter of 1994 when
compared with the same period in 1993 as the result of higher service charges
on deposit accounts and higher volume for letters of credit, and factoring
services.
Noninterest expenses increased $871,000 for the three months ended June 30,
1994 versus the same period last year. Salaries and employee benefits expense
increased $267,000 principally due to higher costs for pension and other
benefit plans. The increase of $117,000 in legal and other professional fees
was principally due to expenses related to the parent company's debt exchange
offer (see FINANCIAL CONDITION above). Marketing expenses increased $60,000
reflecting higher costs associated with the Company's business development
efforts. The increase of $313,000 in other expenses was attributable to
expenses related to the parent company's debt exchange ($172,000) and higher
general business costs.
The provision for income taxes increased $630,000 for the second quarter 1994
when compared with the same period last year mainly due to higher level of
pre-tax profitability.
As a result of the above factors, net income increased $160,000 for the three
months ended June 30, 1994 when compared with the same period in 1993.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 30, 1993
The increase of $3,955,000 in total interest income for the six months ended
June 30, 1994 compared with the same period in 1993 was due to higher average
funds employed at slightly higher yields. An increase in average securities
outstandings partially offset by reduced yields, resulted in an increase in
income from securities of $1,540,000. Higher average outstandings employed at
higher rates resulted in an increase of $2,438,000 in interest and fees on
loans.
Total interest expense for the six months ended June 30, 1994 increased
$1,487,000 when compared with the same period in 1993 principally due to higher
average balances. Interest expense associated with borrowings was increased
$1,438,000 principally due to higher outstandings.
Based on management's continuing evaluation of the collectibility of the loan
portfolio, $390,000 was provided for possible loan losses for the six months
ended June 30, 1994.
Noninterest income increased $206,000 for the first six months of 1994 when
compared with the same period in 1993 as the result of higher service charges
on deposit accounts and higher volume for letters of credit, and factoring
services.
12
<PAGE> 13
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Noninterest expenses increased $1,444,000 for the six months ended June 30,
1994 versus the same period last year. Salaries and employee benefits expense
increased $486,000 principally due to higher costs for pension and other
benefit plans. Equipment expense increased $141,000 as a result of higher
costs for equipment rentals and maintenance contracts coupled with upgrading
non- capitalized computer equipment and peripherals. The increase of $178,000
in legal and other professional fees was principally due to expenses related to
the parent company's debt exchange offer (see FINANCIAL CONDITION above).
Marketing expenses increased $66,000 reflecting higher costs associated with
the Company's business development efforts. The increase of $546,000 in other
expenses was attributable to expenses related to the parent company's debt
exchange ($172,000) and higher general business costs.
The provision for income taxes increased $831,000 for the first six months 1994
when compared with the same period last year mainly due to the higher level of
pre-tax profitability.
As a result of the above factors, net income increased $329,000 for the six
months ended June 30, 1994 when compared with the same period in 1993.
13
<PAGE> 14
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 30,
<TABLE>
<CAPTION>
1994 1993
----------------------------------- -----------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with other banks $ 2,970 $ 28 3.84% $ 3,000 $ 24 3.21%
Securities
Available for sale [2] 84,958 1,136 5.36 -- -- --
Held to maturity 252,889 3,835 6.08 244,473 3,649 5.99
Federal funds sold 6,319 65 4.15 5,846 45 3.09
Loans, net of unearned
discounts [3] 246,248 5,637 9.26 220,445 4,270 6.98
-------- -------- -------- --------
TOTAL EARNING ASSETS 593,384 10,701 7.23 473,764 7,988 6.41
-------- ------ -------- ------
Cash and due from banks 40,948 32,854
Allowance for possible
loan losses (3,657) (2,962)
Goodwill 21,158 21,158
Other assets 13,830 10,850
-------- --------
TOTAL ASSETS $665,663 $535,664
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $177,727 771 1.74 $198,129 1,105 2.23
Other time 122,667 1,188 3.89 85,121 599 2.82
-------- -------- -------- --------
Total interest-bearing
deposits 300,394 1,959 2.62 283,250 1,704 2.41
-------- -------- -------- --------
Borrowings
Federal funds purchased
and securities sold under
agreements to repurchase 60,568 494 3.27 25,797 187 2.91
Commercial paper 15,158 125 3.31 13,758 102 2.94
Other short-term debt 24,027 225 3.76 2,713 9 1.33
Long-term debt 52,246 793 6.09 32,407 497 6.16
-------- -------- -------- --------
Total borrowings 151,999 1,637 4.32 74,675 795 4.27
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 452,393 3,596 3.19 357,925 2,499 2.80
-------- ----- -------- -----
Noninterest-bearing deposits 145,740 119,890
Other liabilities 14,493 6,983
-------- --------
Total liabilities 612,626 484,798
Shareholders' equity 53,037 50,866
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $665,663 $535,664
======== ========
Net interest income/spread $ 7,105 4.04% $ 5,489 3.61%
======== ==== ======== ====
Net yield on earning assets
(margin) 4.77% 4.29%
==== =====
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages for the bank and monthly averages
for the parent company and its finance subsidiaries. Dollars are
presented in thousands.
[2] Based on amortized or historical cost with the FASB 115 market value
adjustment included in other assets.
[3] Non-accrual loans are included in the average balance which reduces the
average yields.
14
<PAGE> 15
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Six Months Ended June 30,
<TABLE>
<CAPTION>
1994 1993
----------------------------------- -----------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with other banks $ 2,956 $ 53 3.64% $ 3,261 $ 52 3.22%
Securities
Available for sale [2] 84,274 2,124 5.06 -- -- --
Held to maturity 235,157 7,010 5.96 244,325 7,594 6.27
Federal funds sold 4,834 92 3.84 7,685 116 3.04
Loans, net of unearned
discounts [3] 244,914 10,580 8.72 218,802 8,142 6.68
-------- -------- -------- --------
TOTAL EARNING ASSETS 572,135 19,859 6.96 474,073 15,904 6.38
-------- ------ -------- ------
Cash and due from banks 41,438 33,347
Allowance for possible
loan losses (3,584) (3,077)
Goodwill 21,158 21,158
Other assets 13,624 10,942
-------- --------
TOTAL ASSETS $644,771 $536,443
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $183,057 1,674 1.84 $197,816 2,341 2.39
Other time 107,370 1,800 3.38 85,519 1,084 2.56
-------- -------- -------- --------
Total interest-bearing
deposits 290,427 3,474 2.41 283,335 3,425 2.44
-------- -------- -------- --------
Borrowings
Federal funds purchased
and securities sold under
agreements to repurchase 57,176 868 3.06 22,426 325 2.92
Commercial paper 14,552 227 3.15 14,101 204 2.92
Other short-term debt 20,757 373 3.63 4,673 65 2.80
Long-term debt 52,255 1,540 5.94 30,288 976 6.50
-------- -------- -------- --------
Total borrowings 144,740 3,008 4.19 71,488 1,570 4.43
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 435,167 6,482 3.00 354,823 4,995 2.84
-------- ----- -------- -----
Noninterest-bearing deposits 144,085 123,152
Other liabilities 12,497 7,937
-------- --------
Total liabilities 591,749 485,912
Shareholders' equity 53,022 50,531
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $644,771 $536,443
======== ========
Net interest income/spread $ 13,377 3.96% $ 10,909 3.54%
======== ==== ======== =====
Net yield on earning assets
(margin) 4.73% 4.26%
==== =====
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages for the bank and monthly averages
for the parent company and its finance subsidiaries. Dollars are
presented in thousands.
[2] Based on amortized or historical cost with the FASB 115 market value
adjustment included in other assets.
[3] Non-accrual loans are included in the average balance which reduces the
average yields.
15
<PAGE> 16
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Three Months Ended June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
June 30, 1994 and 1993
------------------------------------
Volume Rate Total[1]
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ -- $ 4 $ 4
-------- ------- -------
Securities
Available for sale 568 568 1,136
Held to maturity [2] 127 59 186
------- ------- -------
Total 695 627 1,322
------- ------- -------
Federal funds sold 4 16 20
------- ------- -------
Loans, net of unearned discounts [3] 281 1,086 1,367
------- ------- -------
TOTAL INTEREST INCOME $ 980 $ 1,733 $ 2,713
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (103) $ (231) $ (334)
Other time 314 275 589
------- ------- -------
Total 211 44 255
------- ------- -------
Borrowings
Federal funds purchased and securities sold
under agreements to repurchase 268 39 307
Commercial paper 10 13 23
Other short-term debt 135 81 216
Long-term debt 303 (7) 296
------- ------- -------
Total 716 126 842
------- ------- -------
TOTAL INTEREST EXPENSE $ 927 $ 170 $ 1,097
======= ======= =======
NET INTEREST INCOME $ 53 $ 1,563 $ 1,616
======= ======= =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume
and rate.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Non-accrual loans have been included in the amounts outstanding and
income has been included to the extent accrued.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Six Months Ended June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Six Months Ended
June 30, 1994 and 1993
--------------------------------------
Volume Rate Total[1]
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (5) $ 6 $ 1
------- ------- -------
Securities
Available for sale 1,062 1,062 2,124
Held to maturity [2] (247) (337) (584)
------- ------- -------
Total 815 725 1,540
------- ------- -------
Federal funds sold (49) 25 (24)
------- ------- -------
Loans, net of unearned discounts [3] 545 1,893 2,438
------- ------- -------
TOTAL INTEREST INCOME $ 1,306 $ 2,649 $ 3,955
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (153) $ (514) $ (667)
Other time 322 394 716
------- ------- -------
Total 169 (120) 49
------- ------- -------
Borrowings
Federal fund purchased and securities sold
under agreements to repurchase 516 27 543
Commercial paper 7 16 23
Other short-term debt 255 53 308
Long-term debt 678 (114) 564
------- ------- -------
Total 1,456 (18) 1,438
------- ------- -------
TOTAL INTEREST EXPENSE $ 1,625 $ (138) $ 1,487
======= ======= =======
NET INTEREST INCOME $ (319) $ 2,787 $ 2,468
======= ======= =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume
and rate.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Non-accrual loans have been included in the amounts outstanding and
income has been included to the extent accrued.
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Interest Rate Sensitivity
To mitigate the vulnerability of earnings to changes in interest rates, the
Company manages the repricing characteristics of assets and liabilities in an
attempt to control net interest rate sensitivity. Management attempts to
confine significant rate sensitivity gaps predominantly to repricing intervals
of a year or less so that adjustments can be made quickly. Assets and
liabilities with predetermined repricing dates are placed in a time of the
earliest repricing period. Based on the interest rate sensitivity analysis
shown below, the Company's net interest income would decrease during periods of
rising interest rates and increase during periods of falling interest rates.
Amounts are presented in thousands.
<TABLE>
<CAPTION>
Repricing Date
---------------------------------------------------------------------------------------
More than Non
3 months 3 months 1 year to Over Rate
or less to 1 year 5 years 5 years Sensitive Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with other banks $ 1,870 $ 1,100 $ -- $ -- $ -- $ 2,970
Securities 11,451 5,996 44,571 258,633 7,963 328,614
Federal funds sold 20,000 -- -- -- -- 20,000
Loans, net of unearned
discounts 242,928 3,171 21,255 19,252 (4,811) 281,795
Noninterest-earnings assets
and allowance for possible
loan losses: -- -- -- -- 66,634 66,634
--------- --------- --------- --------- --------- ---------
Total Assets 276,249 10,267 65,826 277,885 69,786 700,013
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 165,334 18,725 147,641 -- -- 331,700
Securities sold under
repurchase agreements 60,996 4,500 -- -- -- 65,496
Commercial paper 13,766 -- -- -- -- 13,766
Other short-term borrowings 11,725 -- -- -- -- 11,725
Long-term debt 26,713 -- 24,100 1,400 -- 52,213
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 225,113 225,113
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 278,534 $ 23,225 $ 171,741 $ 1,400 $ 225,113 $ 700,013
========= ========= ========= ========= ========= =========
Net Interest Rate
Sensitivity Gap $ (2,285) $ (12,958) $(105,915) $ 276,485 $(155,327) $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
June 30, 1994 $ (2,285) $ (15,243) $(121,158) $ 155,327 $ -- $ --
========= ========= ========= ========= ========== =========
Cumulative Gap at
June 30, 1993 $ (774) $ (5,414) $ (26,558) $ 139,168 $ -- $ --
========= ========= ========= ========= ========== =========
Cumulative Gap at
December 31, 1993 $ 29,476 $ 9,319 $ (59,671) $ 170,526 $ -- $ --
========= ========= ========= ========= ========== =========
</TABLE>
18
<PAGE> 19
STERLING BANCORP AND SUBSIDIARIES
Risk-Based Capital Components and Ratios
<TABLE>
<CAPTION>
The Company The Bank
------------------------- -----------------------
06/30/94 12/31/93 06/30/94 12/31/93
-------- -------- -------- --------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 52,973 $ 52,857 $ 46,575 $ 46,993
Minority interest 8 8 -- --
Net unrealized depreciation (appreciation)
on securities available for sale,
net of tax effect (1) 379 (735) 380 (734)
Less Goodwill 21,158 21,158 -- --
-------- -------- --------- ---------
Tier 1 Capital 32,202 30,972 46,955 46,259
-------- -------- -------- --------
Allowance for possible loan losses
(limited to 1.25% of total risk-weighted
assets) 3,820 3,414 3,367 3,042
Subordinated debt (limited to 50%
of Tier 1 Capital) 16,101 15,486 -- --
-------- -------- --------- ---------
Tier 2 Capital 19,921 18,900 3,367 3,042
-------- -------- -------- --------
Total Risk-based Capital $ 52,123 $ 49,872 $ 50,322 $ 49,301
======== ======== ======== ========
RATIOS
Tier 1 Capital 9.00% 9.37% 14.12% 14.95%
======== ======== ======== ========
Total Capital 14.57% 15.08% 15.13% 15.94%
======== ======== ======== ========
Leverage 4.74% 4.90% 7.17% 7.57%
======== ======== ======== ========
Memoranda
Tier 1 Capital minimum requirement $ 14,308 $ 13,226 $ 13,304 $ 12,374
======== ======== ======== ========
Total Capital minimum requirement $ 28,615 $ 26,451 $ 26,608 $ 24,747
======== ======== ======== ========
Risk-weighted assets, net of goodwill $357,688 $330,641 $332,598 $309,343
======== ======== ======== ========
Total assets, net of goodwill $678,855 $631,881 $654,806 $611,149
======== ======== ======== ========
</TABLE>
(1) As directed by regulatory agencies this amount must be excluded from the
computation of Tier 1 capital.
19
<PAGE> 20
STERLING BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(b) No reports on Form 8-K have been filed during the quarter.
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.
<TABLE>
<S> <C>
STERLING BANCORP
.............................
(Registrant)
Date
------------------------- -----------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date
------------------------- -----------------------------
John W. Tietjen
Senior Vice President, Treasurer and
Chief Financial Officer
</TABLE>
20
<PAGE> 21
STERLING BANCORP AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------- ----------- ------------ -------- ---
<S> <C> <C>
11 Computation of X
Per Share Earnings
</TABLE>
21
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income for primary earnings per share:
Net income A $ 962,404 $ 801,958 $1,872,871 $1,543,722
========== ========== ========== ==========
Income for fully diluted earnings
per share:
Net income $ 962,404 $ 801,958 $1,872,871 $1,543,722
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 218,950 237,262 417,292 471,915
Amortization of bond discount
and expense 2,874 3,239 5,818 11,047
---------- ---------- ---------- ----------
Income for fully diluted shares B $1,184,228 $1,042,459 $2,295,981 $2,026,684
========== ========== ========== ==========
Common shares for primary earnings
per share:
Average shares issued 6,496,605 6,496,605 6,496,605 6,496,449
Added assumed conversion at the beginning
of the period or issuance date if later:
Stock options -- -- 1,111 --
ESOP shares allocated 14,037 -- 12,398 --
Less: Average Treasury shares 150,393 150,393 150,393 150,393
---------- ---------- ---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 6,360,249 6,346,212 6,359,721 6,346,056
========== ========== ========== ==========
Common shares for fully diluted
earnings per share:
Average common shares 6,360,249 6,346,212 6,359,721 6,346,056
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 2,176,990 2,234,343 2,176,990 2,234,343
Series B preferred shares 2,576 2,576 2,576 2,576
ESOP shares unallocated 235,963 250,000 237,602 83,333
Stock options -- -- 136 --
----------- ----------- ---------- -----------
Average common shares for computation
of fully diluted earnings per
share (See Note below)
D 8,775,778 8,833,131 8,777,025 8,666,308
========== ========== ========== ==========
Per average common share:
Net income (A / C) $0.15 $0.12 $0.29 $0.24
===== ===== ===== =====
Net income assuming full dilution (B / D) $0.13 $0.12 $0.26 $0.23
===== ===== ===== =====
</TABLE>
Note: Based on shares at end of each month.
22
