<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO _____________________
COMMISSION FILE NUMBER: 1-5273-1
---------------------------------------------------
STERLING BANCORP
- ----------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2565216
- ----------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
540 MADISON AVENUE, NEW YORK, N.Y. 10022-3299
- ----------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
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. [X] YES [] NO
AS OF SEPTEMBER 30, 1996 THERE WERE 7,346,863 SHARES OF COMMON STOCK, $1.00
PAR VALUE, OUTSTANDING.
<PAGE> 2
STERLING BANCORP
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <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 9
Financial Condition 9
Asset/Liability Management 10
Securities 13
Credit Risk 13
Results of Operations 14
Average Balance Sheets 17
Rate/Volume Analysis 19
Interest Rate Sensitivity 21
Risk-Based Capital Components and Ratios 22
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 23
EXHIBIT INDEX 24
Exhibit 11 Computation of Per Share Earnings 25
Exhibit 27 Financial Data Schedule 26
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Cash and due from banks $ 47,540,507 $ 40,720,401
Interest-bearing deposits with other banks 3,010,000 3,000,000
Federal funds sold -- 5,000,000
Securities
Held to maturity (estimated market value
$222,799,273 and $196,573,342, respectively) 227,999,046 197,567,406
Available for sale (at estimated market value) 94,167,371 101,670,466
------------- -------------
Total investment securities 322,166,417 299,237,872
------------- -------------
Loans, net of unearned discounts 428,760,130 397,228,786
Less allowance for possible loan losses 7,788,574 5,192,203
------------- -------------
Loans, net 420,971,556 392,036,583
------------- -------------
Customers' liability under acceptances 468,200 2,395,089
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 4,270,413 2,733,105
Accrued interest receivable 4,883,687 4,151,950
Other assets 8,414,681 5,175,001
------------- -------------
$ 832,883,901 $ 775,608,441
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 178,268,818 $ 224,080,543
Interest-bearing deposits 334,829,308 326,947,260
------------- -------------
Total deposits 513,098,126 551,027,803
Securities sold under agreements to repurchase 108,231,029 51,265,620
Commercial paper 31,684,400 26,607,200
Other short-term borrowings 34,545,872 5,331,640
Acceptances outstanding 468,200 2,395,089
Due to factoring clients 25,039,843 22,596,179
Accrued expenses and other liabilities 17,038,949 17,381,686
------------- -------------
730,106,419 676,605,217
------------- -------------
Long-term convertible subordinated debentures 14,326,000 21,346,000
Other long-term debt 17,750,000 18,000,000
------------- -------------
Total long-term debt 32,076,000 39,346,000
------------- -------------
Total liabilities 762,182,419 715,951,217
------------- -------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares 2,510,870 2,525,760
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 7,386,706 and 6,496,854 shares, respectively 7,386,706 6,496,854
Capital surplus 34,730,466 28,091,878
Retained earnings 29,914,212 25,641,804
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax (72,905) 543,747
------------- -------------
74,469,349 63,300,043
Less
Common shares in treasury at cost, 39,843 and
150,343 shares, respectively 394,184 1,489,239
Unearned compensation 3,373,683 2,153,580
------------- -------------
Total shareholders' equity 70,701,482 59,657,224
------------- -------------
$ 832,883,901 $ 775,608,441
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $10,055,302 $ 8,409,633 $27,845,666 $23,827,997
Securities held to maturity 3,849,618 3,864,344 11,227,920 11,641,135
Securities available for sale 1,599,990 1,135,015 4,794,597 3,532,680
Federal funds sold 2,153 97,708 279,586 300,857
Deposits with other banks 35,854 46,404 117,844 137,321
----------- ----------- ----------- -----------
Total interest income 15,542,917 13,553,104 44,265,613 39,439,990
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,071,996 2,841,289 8,986,515 8,574,275
Federal funds purchased
and securities sold under agreements
to repurchase 1,217,882 744,376 3,061,155 2,129,506
Commercial paper 414,377 353,753 1,108,987 855,532
Other short-term borrowings 342,468 84,243 722,969 224,577
Long-term debt 552,266 792,209 1,689,651 2,572,027
----------- ----------- ----------- -----------
Total interest expense 5,598,989 4,815,870 15,569,277 14,355,917
----------- ----------- ----------- -----------
Net interest income 9,943,928 8,737,234 28,696,336 25,084,073
Provision for possible loan losses 401,250 574,000 1,540,750 1,234,000
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses 9,542,678 8,163,234 27,155,586 23,850,073
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 516,603 436,582 1,334,488 1,301,052
Factoring commissions 949,364 493,484 2,322,883 1,083,082
Letter of credit commissions 198,495 212,631 614,523 559,236
Trust fees 236,986 211,395 510,101 497,830
Mortgage banking income 672,340 19,539 741,448 19,539
Gain on sale of securities -- -- 22,161 4,801
Other income 529,391 276,258 1,201,219 876,649
----------- ----------- ----------- -----------
Total noninterest income 3,103,179 1,649,889 6,746,823 4,342,189
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries 4,033,350 2,652,311 10,524,295 8,195,585
Employee benefits 813,315 658,562 2,327,486 2,073,765
----------- ----------- ----------- -----------
Total personnel expenses 4,846,665 3,310,873 12,851,781 10,269,350
Occupancy expense, net 654,983 835,877 1,837,171 2,277,829
Equipment expense 466,353 551,833 1,209,401 1,254,213
Other expenses 2,542,058 1,981,751 6,701,260 5,901,285
----------- ----------- ----------- -----------
Total noninterest expenses 8,510,059 6,680,334 22,599,613 19,702,677
----------- ----------- ----------- -----------
Income before income taxes 4,135,798 3,132,789 11,302,796 8,489,585
Provision for income taxes 1,974,438 1,640,420 5,396,605 4,443,578
----------- ----------- ----------- -----------
Net income $ 2,161,360 $ 1,492,369 $ 5,906,191 $ 4,046,007
=========== =========== =========== ===========
Average number of common shares outstanding
Primary 7,415,904 6,390,444 6,969,510 6,378,428
Fully diluted 8,763,215 8,563,855 8,325,791 8,555,024
Per average common share
Primary $ .30 $ .23 $ .85 $ .63
Fully diluted .27 .21 .77 .57
Dividends per common share .08 .06 .23 .18
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 59,657,224 $ 53,719,314
------------ ------------
Net income 5,906,191 4,046,007
Dividends paid
Common stock- $.23 and $.18 per share,
respectively (1,623,111) (1,142,347)
Preferred stock - at prescribed rates (10,672) (1,095)
Conversions of subordinated debentures
into common stock 6,953,485 2,990
Options exercised 10,875 --
Issuance of common stock for acquisition 262,995 --
Amortization of unearned compensation 161,147 --
Change in valuation account for securities
available for sale, net of tax (616,652) 1,285,575
------------ ------------
Net change in shareholders' equity 11,044,258 4,191,130
------------ ------------
Shareholders' equity at end of period $ 70,701,482 $ 57,910,444
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1995
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,906,191 $ 4,046,007
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,540,750 1,234,000
Depreciation and amortization of premises and equipment 650,927 867,397
Deferred income tax benefit (877,131) (171,720)
Gain on sale of securities (22,161) (4,801)
Gain on sale of loans (69,108) (19,539)
Amortization of unearned compensation 161,147 --
Amortization of premiums of securities 1,311,474 1,096,498
Accretion of discounts on securities (119,583) (95,315)
Increase in accrued interest receivable (731,737) (409,837)
Increase in other liabilities 2,100,927 20,062,606
Other, net (1,840,868) (1,173,104)
------------ ------------
Net cash provided by operating activities 8,010,828 25,432,192
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (2,188,235) (512,356)
Net increase in interest-bearing deposits
with other banks (10,000) (30,000)
Net decrease in Federal funds sold 5,000,000 3,000,000
Net increase in loans (30,406,615) (52,060,323)
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 28,067,802 22,738,157
Purchases of securities - held to maturity (59,323,005) (10,241,813)
Proceeds from sale of securities-available for sale 5,017,969 8,977,432
Proceeds from prepayments, redemptions or maturities of
securities - available for sale 7,083,790 4,108,204
Purchases of securities - available for sale (6,083,164) (10,918,982)
------------ ------------
Net cash used in investing activities (52,841,458) (34,939,681)
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (45,811,725) (8,774,882)
Net increase(decrease) in interest-bearing deposits 7,882,048 (17,373,736)
Net increase in securities sold under
agreements to repurchase 56,965,409 7,524,041
Net increase in commercial paper
and other short-term borrowings 34,291,432 31,244,062
Decrease in other long-term debt (250,000) --
Issuance of common stock 262,995 --
Options exercised on common shares 10,875 --
Cash dividends paid on common and preferred stock (1,633,783) (1,143,442)
Maturities and prepayments on debentures (66,515) (5,347,010)
------------ ------------
Net cash provided by financing activities 51,650,736 6,129,033
------------ ------------
Net increase in cash and due from banks 6,820,106 (3,378,456)
Cash and due from banks - beginning of period 40,720,401 39,224,764
------------ ------------
Cash and due from banks - end of period $ 47,540,507 $ 35,846,308
============ ============
Supplemental schedule of non-cash financing activities:
Conversion of debentures $ 6,953,485 $ 2,990
Issuance of treasury shares 1,381,250 --
Supplemental disclosure of cash flow information:
Interest paid $ 17,190,180 $ 12,713,016
Income taxes paid 6,078,493 4,863,462
</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 September 30, 1996 and 1995 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. Certain
reclassifications have been made to the 1995 financial statements
to conform to current presentation. 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, 1995.
2. For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks.
3. The Company's outstanding Preferred Shares comprise 1,230 Series B
shares (of 4,389 authorized) and 248,627 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 and
upon liquidation or redemption to an amount 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, is convertible into one
Common Share, and is entitled to a liquidation preference of $10
(together with accrued dividends). All preferred shares are
entitled to one vote per share (voting with the Common Shares
except as otherwise required by law).
4. Under the provisions of the Stock Incentive Plan, on January 3,
1996, the parent company made restricted stock awards to key
employees of 110,500 shares from treasury stock and granted key
employees incentive stock options to purchase 109,500 shares.
The restricted stock awards vest in four equal annual installments
starting one year from the date of the award, with any unvested
shares to revert to the parent company if the holder's employment
terminates other than for certain specified reasons. In connection
with the issuance of the restricted shares, the Company recognized
unearned incentive compensation, equal to the market value of the
shares issued on the date of the award, which will be amortized as
a charge to salaries expense over the vesting period. The balance
of unearned compensation is reported as a reduction of
shareholders' equity. For income tax purposes, the Company is
entitled to deductions as each installment vests in an amount
equal to the average market value of the shares on the vesting
date and for dividends paid on unvested shares.
7
<PAGE> 8
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The incentive stock options, awarded at the closing market price
on the date of grant, expire ten years from the date of grant and
become exercisable in four annual installments, starting one year
from the date of grant, or upon death or disability of the
grantee. No expense is required to be recognized in connection
with options granted.
In October 1995, the Financial Accounting Standards Board,
("FASB") issued Statements of Financial Accounting Standards No.
123,"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 established financial accounting and reporting standards for
stock-based compensation plans. Such plans include all
arrangements by which employees or others receive shares of stock
or other equity instruments of the parent company, or arrangements
by which the parent company incurs liabilities in amounts based on
the price of the parent company's stock. Examples are incentive
stock options, non-qualified stock options, restricted stock,
stock appreciation rights or any combination thereof. SFAS 123
allows two alternative accounting methods: (1) a fair-value based
method, or (2) an intrinsic-value based method which is already
prescribed by Accounting Principles Board Opinion No.25,
"Accounting for Stock Issued to Employees" ("APB25"). Both the
accounting and disclosure requirement of SFAS 123 are effective
for fiscal years beginning after December 15, 1995. The parent
company intends to continue accounting for its employee stock
compensation plans under its current method (APB25), and will
adopt the disclosure requirements of SFAS 123 in 1996.
5. On July 1, 1996, the Company acquired The Real Estate Funding
Center (now operating as Sterling National Mortgage Company, Inc.)
for 92,179 shares of common stock. The acquisition was accounted
for as a pooling of interests. However, prior periods have not
been restated as the acquisition was not material.
8
<PAGE> 9
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 providing a
full range of financial services, including business and consumer loans, asset
based financing, factoring, trade financing, mortgage lending, leasing, and
trust and estate services. The parent company owns Sterling National Bank &
Trust Company of New York (the bank), its principal subsidiary, and Standard
Factors Corporation/Sterling Factors, Universal Finance Corporation, Sterling
Banking Corporation and Sterling Industrial Loan Association (finance
subsidiaries). On July 1, 1996, the Company acquired The Real Estate Funding
Center (now operating as Sterling National Mortgage Company, Inc.). 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 other financial institutions. At
September 30, 1996, the bank's year-to-date average earning assets (of which
loans were 48% and securities were 51%) represented approximately 92% of the
Company's year to date average earning assets. See pages 17 and 18 for the
composition of the Company's average balance sheets for the three and nine
months ended September 30, 1996 and September 30, 1995.
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 September 30,
1996, the parent company had on hand approximately $12,169,000 in cash.
Various legal restrictions limit the extent to which the bank can supply funds
to the parent company and its nonbank 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. In addition, from time to time dividends are paid
to the parent company by the finance subsidiaries from their retained earnings
without regulatory restrictions.
9
<PAGE> 10
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
At September 30, 1996, 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
$14,326,000. To the extent convertible subordinated debentures are converted to
common stock of the parent company (as has been the case with approximately $18
million principal amount since 1982), the subordinated debt related thereto is
retired and becomes part of shareholders' equity. On April 18, 1996, the parent
company called for redemption as of May 20, 1996, the entire outstanding balance
($7,020,000 ) Fifth Series Convertible Debentures due July 1, 2001. Virtually
all of the debentures were converted into 794,684 shares of common stock. The
parent company's long-term indebtedness is also met through funds generated from
profits and new financing.
At September 30, 1996, the parent company's short-term debt, consisting
principally of commercial paper, was approximately $31,934,000. The parent
company had cash, interest-bearing deposits with banks and other current assets
aggregating $53,984,000 and back-up credit lines with banks of $14,000,000. 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 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
quarterly average assets (after deducting goodwill). At September 30, 1996, the
risk-based capital ratios and the leverage ratio for the Company and the bank
exceeded the most stringent requirements contemplated by these guidelines.
Information regarding the Company's and the bank's risk-based capital, at
September 30, 1996 and December 31, 1995, is presented on page 22.
While 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.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is its net interest income; therefore the
Company devotes significant time and has invested in resources to assist in the
management of interest rate risk and asset quality. The Company's net interest
income is affected by changes in market interest rates, and by the level and
composition of interest-earning assets and interest-bearing liabilities. The
Company's objectives in its asset/liability management are to utilize its
capital effectively, to provide adequate liquidity and to enhance net interest
income, without taking undue risks or subjecting the Company unduly to interest
rate fluctuations.
10
<PAGE> 11
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company takes a coordinated approach to the management of its liquidity,
capital and interest rate risk. This risk management process is governed by
policies and limits established by senior management which are reviewed and
approved by the Asset/Liability Committee of the Board of Directors ("ALCO").
ALCO, which is comprised of members of senior management and the Board, meets to
review among other things, economic conditions, interest rates, yield curve,
cash flow projections, expected customer actions, liquidity levels, capital
ratios and repricing characteristics of assets, liabilities and off-balance
sheet financial instruments.
The Company's balance sheet structure is primarily short-term in nature with
most assets and liabilities repricing or maturing in less than five years. The
Company monitors the interest rate sensitivity of its on-and off-balance sheet
positions by examining its near-term sensitivity and its longer term gap (as
defined below) position. The Company utilizes several tools in its management of
interest rate risk, primarily utilizing a sophisticated income simulation model
and complementing this with a traditional gap analysis.
The income simulation model measures the Company's net interest income
sensitivity or volatility to interest rate changes utilizing statistical
techniques that allow the Company to consider various factors which impact net
interest income. These factors include actual maturities, estimated cash flows,
repricing characteristics, deposits growth/retention and, most importantly, the
relative sensitivity of the Company's assets and liabilities to changes in
market interest rates. This relative sensitivity is important to consider as the
Company's core deposit base is not subject to the same degree of interest rate
sensitivity as its assets. The core deposits costs are internally managed and
tend to exhibit less sensitivity to changes in interest rates than the Company's
adjustable rate assets whose yields are based on external indices and change in
tandem with market interest rates.
The Company's interest rate sensitivity is determined by identifying the
probable impact of changes in market interest rates on the yields on the
Company's assets and the rates which would be paid on its liabilities. This
modeling technique involves a degree of estimation based on certain assumptions
that management believes to be reasonable. Utilizing this process, management
can project the impact of changes in interest rates on net interest margin. The
Company has established certain limits for the potential volatility of its net
interest margin, assuming certain levels of changes in market interest rates,
with the objective of maintaining a stable net interest margin under various
probable rate scenarios. The Company can also utilize this technique to stress
test its portfolio to determine the impact of various interest rate scenarios on
the Company's net interest income.
The traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest-earning assets and interest-bearing liabilities for
selected time bands. The mismatch between repricings or maturities within a time
band is commonly referred to as the "gap" for that period. A positive gap (asset
sensitive) where interest rate sensitive assets exceed interest rate sensitive
liabilities generally will result in an institution's net interest margin
increasing in a rising rate environment and decreasing in a falling rate
environment. A negative gap (liability sensitive) will generally have the
11
<PAGE> 12
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
opposite results on an institution's net interest margin. However, the
traditional gap analysis does not assess the relative sensitivity of assets and
liabilities to changes in interest rates. The Company utilizes the gap analysis
to complement its income simulations modeling, primarily focusing on the longer
term structure of the balance sheet.
As part of its interest rate risk strategy, the Company uses off-balance sheet
financial instruments (derivatives) to hedge the interest rate sensitivity of
assets with the corresponding amortization reflected in the yield of the related
on-balance sheet assets being hedged. The Company has written policy guidelines,
which have been approved by the Board of Directors and the Asset/Liability
Committee, governing the use of off-balance sheet financial instruments,
including approved counterparties, risk limits and appropriate internal control
procedures. The credit risk of derivatives arises principally from the potential
for a counterparty to fail to meet its obligation to settle a contract on a
timely basis. At September 30, 1996, all counterparties have investment grade
credit ratings from the major rating agencies. Each counterparty is specifically
approved for applicable credit exposure.
At September 30, 1996, the Company's off-balance sheet financial instruments
consisted of two interest rate floor contracts having a notional amount totaling
$75 million; one contract with a notional amount of $50 million has a final
maturity of February 27, 2000 and the other contract with a notional amount of
$25 million has a final maturity of March 17, 1998. These financial instruments
are being used as part of the Company's interest rate risk management and not
for trading purposes.
Interest rate floor contracts require the counterparty to pay the Company at
specified future dates the amount, if any, by which the specified interest rate
(3-month LIBOR) falls below the fixed floor rates, applied to the notional
amounts. The Company utilizes these financial instruments to adjust its interest
rate risk position without exposing itself to principal risk and funding
requirements. The interest rate floor contracts require the Company to pay a fee
for the right to receive a fixed interest payment.
The Company purchased interest rate floor contracts to reduce the impact of
falling rates on its floating rate commercial loans. The Company paid up-front
premiums of $715,000 for the interest rate floor contracts that it entered into
in 1995. These premiums are amortized monthly against interest income from the
designated assets. At September 30, 1996, the unamortized premiums on these
contracts totaled $457,000 and are included in other assets. At September 30,
1996, $28,000 was receivable under the contracts.
12
<PAGE> 13
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECURITIES
The Company's securities portfolios are comprised of principally U.S. Government
and U.S. Government corporation and agency mortgage-backed securities along with
other debt and equity securities. At September 30, 1996, the Company's portfolio
of securities totalled $322,166,000, of which U.S. Government and U.S.
Government corporation and agency guaranteed mortgage-backed securities having
an average life of approximately 2.9 years amounted to $309,087,000. The Company
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. The gross unrealized gains and losses on
"held to maturity" securities were $448,000 and $5,648,000, 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 shareholders'
equity. "Available for sale" securities included gross unrealized gains of
$425,000 and gross unrealized losses of $560,000. Given the relatively
short-term nature of the portfolio and its generally high credit quality,
management expects to realize all of its investment upon the maturity of such
instruments, and thus believes that any market value impairment is temporary in
nature.
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
lending limits 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 September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Company Bank
------- ----
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $ 328,211 $ 273,923
Real estate - mortgage 59,692 58,551
Real estate - construction 1,348 1,348
Installment - individuals 14,881 14,881
Lease financing 30,873 30,873
Foreign
Government and official institutions 789 789
---------- ----------
Loans, gross 435,794 380,365
Less unearned discounts 7,034 6,669
---------- ----------
Loans, net of unearned discounts $ 428,760 $ 373,696
========== ==========
</TABLE>
13
<PAGE> 14
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. The allowance reflects
management's evaluation of both loans presenting identified loss potential and
of the risk inherent in various components of the portfolio including loans
identified as impaired as required by SFAS No. 114 and No. 118. Thus an increase
in the size of the portfolio or in any of its components could necessitate an
increase in the allowance even though there may not be a decline in credit
quality or an increase in potential problem loans. A significant change in any
of the evaluation factors described above could result in future additions to
the allowance. At September 30, 1996, the Company's allowance was $7,789,000
(after giving effect to a third quarter recovery of $1,333,000 on a previously
charged-off loan in the bank); the ratio of the allowance to loans, net of
unearned discount, was 1.8%. At September 30, 1996, $265,000 of loans were
impaired within the scope of SFAS No. 114 and required a valuation allowance of
$120,000. The average recorded investment in impaired loans during the nine
months ended September 30, 1996 was approximately $400,000. Potential problem
loans, which are loans that are currently performing under present loan
repayment terms but where known information about possible credit problems of
borrowers cause management to have serious doubts as to the ability of the
borrowers to continue to comply with the present repayment terms, aggregated
$376,000 at September 30, 1996. At September 30, 1996, non-accrual loans
amounted to $654,000. 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 September 30, 1996.
RESULTS OF OPERATIONS
Net interest income, which represents the difference between interest earned on
interest-earning assets and interest incurred on interest-bearing liabilities,
is the Company's primary source of earnings. Net interest income can be affected
by changes in market interest rates as well as the level and composition of
interest-earning assets and interest-bearing liabilities. An analysis of the
Company's interest rate sensitivity is presented on page 21. 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 pages
19 and 20. Information as to the components of interest income and interest
expense and average rates is provided in the Average Balance Sheets shown on
pages 17 and 18.
14
<PAGE> 15
second STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Total interest income increased $1,990,000 for the three months ended September
30, 1996 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $1,645,000
principally due to higher average outstandings. An increase in average
securities outstandings resulted in an increase in income from securities of
$451,000.
Total interest expense for the three months ended September 30, 1996 increased
$783,000 when compared with the same period in 1995 due to increased average
outstandings and higher rates paid for those funds. Interest expense on
interest-bearing deposits rose $231,000 as a result of increased rates coupled
with an increase in average outstandings. Interest expense on borrowings
increased $552,000 for the three months ended September 30, 1996 versus the like
period a year ago primarily due to an increase in average outstandings.
Based on management's continuing evaluation of the loan portfolio (discussed
under "CREDIT RISK" above), and principally as the result of the growth in the
loan portfolios, $401,000 was provided for possible loan losses for the three
months ended September 30, 1996.
Noninterest income increased $1,453,000 for the third quarter of 1996 when
compared with the same period in 1995 due primarily to increased mortgage
banking income, principally due to the acquisition of The Real Estate Funding
Center (See Note 5 on page 8), and increased factoring commissions.
Noninterest expenses increased $1,830,000 for the three months ended September
30, 1996 versus the same period last year reflecting higher personnel and
general business costs associated with the Company's higher levels of business
activities (including the acquisition of The Real Estate Funding Center).
The provision for income taxes increased $334,000 for the third quarter of 1996
when compared with the same period last year principally based on the level of
pre-tax profitability.
As a result of the above factors, net income increased $669,000 for the three
months ended September 30, 1996 when compared with the same period in 1995.
15
<PAGE> 16
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Total interest income increased $3,612,000 for the nine months ended September
30, 1996 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $4,018,000
principally due to higher average outstandings. An increase in average
securities outstandings resulted in an increase in income from securities of
$848,000.
Total interest expense for the nine months ended September 30, 1996 increased
$1,213,000 when compared with the same period in 1995 principally due to
increased average outstandings. Interest expense on interest-bearing deposits
rose $412,000 as a result of increased rates coupled with an increase in average
outstandings. Interest expense on borrowings increased $801,000 for the nine
months ended September 30, 1996 versus the like period a year ago. The increase
is attributable to an increase in average outstandings partially offset by lower
rates paid.
Based on management's continuing evaluation of the loan portfolio (discussed
under "CREDIT RISK" above), and principally as the result of the growth in the
loan portfolios, $1,541,000 was provided for possible loan losses for the nine
months ended September 30, 1996.
Noninterest income increased $2,405,000 for the first nine months of 1996 when
compared with the same period in 1995 due primarily to increased mortgage
banking income, principally due to the acquisition of The Real Estate Funding
Center (see Note 5 on page 8), and increased factoring commissions.
Noninterest expenses increased $2,897,000 for the first nine months ended
September 30, 1996 versus the same period last year, reflecting higher personnel
and general business costs associated with the Company's higher levels of
business activities (including the acquisition of The Real Estate Funding
Center).
The provision for income taxes increased $953,000 for the first nine months of
1996 when compared with the same period last year principally based on the level
of pre-tax profitability.
As a result of the above factors, net income increased $1,860,000 for the nine
months ended September 30, 1996 when compared with the same period in 1995.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended September 30,
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -------------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with other banks $ 3,010 $ 36 5.03% $ 2,997 $ 46 6.14%
Securities
Held to maturity 233,375 3,850 6.60 235,952 3,864 6.55
Available for sale [2] 95,148 1,600 6.71 66,625 1,135 6.78
Federal funds sold 152 2 5.52 6,522 98 5.86
Loans, net of unearned
discounts [3] 379,385 10,055 11.06 317,896 8,410 10.69
-------- -------- -------- --------
TOTAL EARNING ASSETS 711,070 15,543 8.90 629,992 13,553 8.62
-------- ------ -------- ------
Cash and due from banks 40,153 35,066
Allowance for possible
loan losses (6,450) (4,913)
Goodwill 21,158 21,158
Other assets 15,499 14,746
-------- --------
TOTAL ASSETS $781,430 $696,049
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $168,182 1,036 2.45 $171,294 965 2.23
Other time 159,226 2,036 5.09 148,867 1,876 5.00
-------- -------- -------- --------
Total interest-bearing
deposits 327,408 3,072 3.73 320,161 2,841 3.52
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 89,455 1,218 5.42 53,328 744 5.54
Commercial paper 31,169 414 5.29 25,536 354 5.50
Other short-term debt 21,737 343 5.02 6,769 85 4.94
Long-term debt 32,076 552 6.85 44,799 792 7.02
-------- -------- -------- --------
Total borrowings 174,437 2,527 5.61 130,432 1,975 6.01
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 501,845 5,599 4.38 450,593 4,816 4.24
-------- ---- -------- ----
Noninterest-bearing deposits 173,964 153,361
Other liabilities 36,895 34,926
-------- --------
Total liabilities 712,704 638,880
Shareholders' equity 68,726 57,169
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $781,430 $696,049
======== ========
Net interest income/spread $ 9,944 4.52% $ 8,737 4.38%
======== ==== ======== ====
Net yield on earning assets
(margin) 5.67% 5.54%
==== ====
</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] Interest on tax-exempt securities included herein is immaterial and is not
presented on a tax equivalent basis.
[3] Non-accrual loans are included in the average balance, which reduces the
average yields.
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Nine Months Ended September 30,
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -------------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with other banks $ 2,995 $ 118 5.26% $ 2,986 $ 137 6.01%
Securities
Held to maturity 228,836 11,228 6.54 237,554 11,641 6.54
Available for sale [2] 95,304 4,794 6.71 70,252 3,533 6.74
Federal funds sold 6,653 279 5.52 6,846 301 6.02
Loans, net of unearned
discounts [3] 356,209 27,846 11.14 299,629 23,828 10.94
-------- -------- -------- --------
TOTAL EARNING ASSETS 689,997 44,265 8.82 617,267 39,440 8.65
-------- ------ -------- ------
Cash and due from banks 38,840 37,257
Allowance for possible
loan losses (5,930) (4,539)
Goodwill 21,158 21,158
Other assets 15,408 13,597
-------- --------
TOTAL ASSETS $759,473 $684,740
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $173,729 3,115 2.40 $175,692 3,035 2.31
Other time 156,179 5,871 5.02 150,422 5,539 4.92
-------- -------- -------- --------
Total interest-bearing
deposits 329,908 8,986 3.64 326,114 8,574 3.52
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 78,192 3,061 5.23 50,799 2,129 5.60
Commercial paper 28,536 1,109 5.19 20,840 856 5.49
Other short-term debt 13,998 723 5.08 6,121 225 4.91
Long-term debt [4] 35,736 1,690 6.84 47,178 2,572 7.29
-------- -------- -------- --------
Total borrowings 156,462 6,583 5.55 124,938 5,782 6.19
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 486,370 15,569 4.21 451,052 14,356 4.26
-------- ---- -------- ----
Noninterest-bearing deposits 170,397 150,181
Other liabilities 38,580 27,768
-------- --------
Total liabilities 695,347 629,001
Shareholders' equity 64,126 55,739
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $759,473 $684,740
======== ========
Net interest income/spread $ 28,696 4.61% $ 25,084 4.39%
======== ==== ======== ====
Net yield on earning assets
(margin) 5.72% 5.49%
==== ====
</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] Interest on tax-exempt securities included herein is immaterial and is not
presented on a tax equivalent basis.
[3] Non-accrual loans are included in the average balance, which reduces the
average yields.
[4] Parent company convertible debentures were converted in May 1996 (see
"FINANCIAL CONDITION" above). As a result, no interest was payable in 1996
on the converted debentures and the yield for the 1996 period has been
calculated without regard for the aforesaid debentures.
18
<PAGE> 19
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Three Months Ended September 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
September 30, 1996 and 1995
Volume Rate Total[1]
------ ---- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (1) $ (9) $ (10)
------- ------- -------
Securities
Held to maturity (43) 29 (14)
Available for sale [2] 482 (17) 465
------- ------- -------
Total 439 12 451
------- ------- -------
Federal funds sold (92) (4) (96)
------- ------- -------
Loans, net of unearned discounts [3] 1,503 142 1,645
------- ------- -------
TOTAL INTEREST INCOME $ 1,849 $ 141 $ 1,990
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (21) $ 92 $ 71
Other time 128 32 160
------- ------- -------
Total 107 124 231
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 486 (12) 474
Commercial paper 76 (16) 60
Other short-term debt 221 36 258
Long-term debt (222) (17) (240)
------- ------- -------
Total 561 (9) 552
------- ------- -------
TOTAL INTEREST EXPENSE $ 668 $ 115 $ 783
======= ======= =======
NET INTEREST INCOME $ 1,181 $ 26 $ 1,207
======= ======= =======
</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] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
19
<PAGE> 20
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Nine Months Ended September 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Nine Months Ended
September 30, 1996 and 1995
Volume Rate Total[1]
------ ---- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (1) $ (18) $ (19)
------ ------- -------
Securities
Held to maturity (399) (14) (413)
Available for sale [2] 1,279 (18) 1,261
------ ------- -------
Total 880 (32) 848
------ ------- -------
Federal funds sold (2) (20) (22)
------ ------- -------
Loans, net of unearned discounts [3] 4,151 (133) 4,018
------ ------- -------
TOTAL INTEREST INCOME $5,028 $ (203) $ 4,825
====== ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (31) $ 111 $ 80
Other time 226 106 332
------ ------- -------
Total 195 217 412
------ ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 1,097 (165) 932
Commercial paper 310 (57) 253
Other short-term debt 391 107 498
Long-term debt (670) (212) (882)
------ ------- -------
Total 1,128 (327) 801
------ ------- -------
TOTAL INTEREST EXPENSE $1,323 $ (110) $ 1,213
====== ======= =======
NET INTEREST INCOME $3,705 $ (93) $ 3,612
====== ======= =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume
and rate. The extra day in 1996 has been included in the change due to
volume.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
20
<PAGE> 21
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 increase during periods of rising interest
rates and decrease 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 $ 1,530 $ 1,480 $ -- $ -- $ -- $ 3,010
Securities 6,016 42,665 30,839 236,555 6,091 322,166
Federal funds sold -- -- -- -- -- --
Loans, net of unearned
discounts 348,502 4,290 39,681 43,321 (7,034) 428,760
Noninterest-earning assets
and allowance for possible
loan losses -- -- -- -- 78,948 78,948
--------- --------- --------- --------- --------- ---------
Total Assets 356,048 48,435 70,520 279,876 78,005 832,884
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 148,569 76,012 110,248 -- -- 334,829
Securities sold under
repurchase agreements 93,698 14,533 -- -- -- 108,231
Commercial paper 31,684 -- -- -- -- 31,684
Other short-term borrowings 34,296 250 -- -- -- 34,546
Long-term debt 14,326 -- 17,050 700 -- 32,076
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 291,518 291,518
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 322,573 $ 90,795 $ 127,298 $ 700 $ 291,518 $ 832,884
========= ========= ========= ========= ========= =========
Net Interest Rate
Sensitivity Gap $ 33,475 $ (42,360) $ (56,778) $ 279,176 $(213,513) $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
September 30, 1996 $ 33,475 $ (8,885) $ (65,663) $ 213,513 $ -- $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
September 30, 1995 $ 50,076 $ 6,428 $ (24,721) $ 199,821 $ -- $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
December 31, 1995 $ 76,612 $ 53,606 $ 23,820 $ 256,359 $ -- $ --
========= ========= ========= ========= ========= =========
</TABLE>
21
<PAGE> 22
STERLING BANCORP AND SUBSIDIARIES
Risk-Based Capital Components and Ratios
<TABLE>
<CAPTION>
The Company The Bank
------------------------- ------------------------
9/30/96 12/31/95 9/30/96 12/31/95
------- -------- ------- --------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 70,701 $ 59,657 $ 48,067 $ 47,940
Add/(Subtract):
Minority interest -- 8 -- --
Goodwill (21,158) (21,158) -- --
Net unrealized depreciation(appreciation)
on securities available for sale,
net of tax effect (1) 73 (544) 73 (541)
--------- --------- --------- ---------
Tier 1 Capital 49,616 37,963 48,140 47,399
--------- --------- --------- ---------
Allowance for possible loan losses
(limited to 1.25% of total risk-
weighted assets) 6,060 5,192 5,119 3,649
Subordinated debt (limited to 50%
of Tier 1 Capital) 5,730 12,751 -- --
--------- --------- --------- ---------
Tier 2 Capital 11,790 17,943 5,119 3,649
--------- --------- --------- ---------
Total Risk-based Capital $ 61,406 $ 55,906 $ 53,259 $ 51,048
========= ========= ========= =========
RATIOS
Tier 1 Risk-based Capital 10.27% 8.54% 11.27% 11.98%
========= ========= ========= =========
Total Risk-based Capital 12.71% 12.58% 12.47% 12.90%
========= ========= ========= =========
Tier 1 Leverage 6.53% 5.37% 6.82% 7.19%
========= ========= ========= =========
Memoranda
Tier 1 Capital minimum requirement $ 19,321 $ 17,777 $ 17,090 $ 15,826
========= ========= ========= =========
Total Capital minimum requirement $ 38,643 $ 35,554 $ 34,180 $ 31,652
========= ========= ========= =========
Risk-weighted assets, net of goodwill
& excess allowance for loan losses $ 483,035 $ 444,425 $ 427,251 $ 395,645
========= ========= ========= =========
Quarterly average assets, net of goodwill $ 760,272 $ 706,632 $ 705,729 $ 659,574
========= ========= ========= =========
</TABLE>
(1) As directed by regulatory agencies this amount must be excluded from the
computation of Tier 1 capital.
22
<PAGE> 23
STERLING BANCORP AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(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.
STERLING BANCORP
.............................
(Registrant)
Date 11/14/96 /s/ Louis J. Cappelli
--------------------- ------------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 11/14/96 /s/ John W. Tietjen
--------------------- ------------------------------------
John W. Tietjen
Senior Vice President, Treasurer
and Chief Financial Officer
23
<PAGE> 24
STERLING BANCORP AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
<S> <C> <C> <C> <C>
11 Computation of X 26
Per Share Earnings
27 Financial Data X 27
Schedule
</TABLE>
24
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income for primary earnings per share:
Net income A $2,161,360 $1,492,369 $5,906,191 $4,046,007
========== ========== ========== ==========
Income for fully diluted earnings per share:
Net income $2,161,360 $1,492,369 $5,906,191 $4,046,007
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 160,885 268,099 494,253 799,617
Amortization of bond discount
and expense 2,179 4,501 24,385 11,751
---------- ---------- ---------- ----------
Income for fully diluted shares B $2,324,424 $1,764,969 $6,424,829 $4,857,375
========== ========== ========== ==========
Common shares for primary earnings per share:
Average shares issued 7,363,318 6,496,854 6,932,702 6,496,705
Add assumed conversion at the beginning
of the period or issuance date if later:
Stock options 41,984 14,659 44,630 5,995
ESOP shares allocated 50,445 29,274 43,071 26,071
Less: Average Treasury shares 39,843 150,343 50,893 150,343
---------- ---------- ---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 7,415,904 6,390,444 6,969,510 6,378,428
========== ========== ========== ==========
Common shares for fully diluted earnings per share:
Average common shares 7,415,904 6,390,444 6,969,510 6,378,428
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 1,146,080 1,948,366 1,146,080 1,948,366
Series B preferred shares 2,460 2,576 2,530 2,576
ESOP shares unallocated 198,525 220,726 206,517 223,929
Stock options 246 1,743 1,154 1,725
---------- ---------- ---------- ----------
Average common shares for computation
of fully diluted earnings per
share (See Note below)
D 8,763,215 8,563,855 8,325,791 8,555,024
========== ========== ========== ==========
Per average common share:
Net income (A + C) $0.30 $0.23 $0.85 $0.63
===== ===== ===== =====
Net income assuming full dilution (B + D) $0.27 $0.21 $0.77 $0.57
===== ===== ===== =====
</TABLE>
Note: Based on shares at end of each month.
25
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 47,541
<INT-BEARING-DEPOSITS> 3,010
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,167
<INVESTMENTS-CARRYING> 227,999
<INVESTMENTS-MARKET> 222,799
<LOANS> 428,760
<ALLOWANCE> 7,789
<TOTAL-ASSETS> 832,884
<DEPOSITS> 513,098
<SHORT-TERM> 174,461
<LIABILITIES-OTHER> 42,547
<LONG-TERM> 32,076
0
2,511
<COMMON> 7,387
<OTHER-SE> 60,804
<TOTAL-LIABILITIES-AND-EQUITY> 832,884
<INTEREST-LOAN> 27,846
<INTEREST-INVEST> 16,022
<INTEREST-OTHER> 397
<INTEREST-TOTAL> 44,265
<INTEREST-DEPOSIT> 8,987
<INTEREST-EXPENSE> 15,569
<INTEREST-INCOME-NET> 28,696
<LOAN-LOSSES> 1,541
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 22,600
<INCOME-PRETAX> 11,303
<INCOME-PRE-EXTRAORDINARY> 11,303
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,906
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 5.72
<LOANS-NON> 654
<LOANS-PAST> 190
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,192
<CHARGE-OFFS> 395
<RECOVERIES> 1,451
<ALLOWANCE-CLOSE> 7,789
<ALLOWANCE-DOMESTIC> 5,187
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,602
</TABLE>
