<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 JUNE 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 JUNE 30, 1996 THERE WERE 7,293,154 SHARES OF COMMON STOCK,
$1.00 PAR VALUE, 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 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 4. Submission of Matters to a Vote of Security-Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
EXHIBIT INDEX 25
Exhibit 11 Computation of Per Share Earnings 26
Exhibit 27 Financial Data Schedule 27
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 37,319,881 $ 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
$231,518,317 and $196,573,342, respectively) 237,831,251 197,567,406
Available for sale (at estimated market value) 95,273,102 101,670,466
------------ ------------
Total investment securities 333,104,353 299,237,872
------------ ------------
Loans, net of unearned discounts 377,244,649 397,228,786
Less allowance for possible loan losses 6,233,425 5,192,203
------------ ------------
Loans, net 371,011,224 392,036,583
------------ ------------
Customers' liability under acceptances 775,545 2,395,089
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 3,400,891 2,733,105
Accrued interest receivable 4,132,835 4,151,950
Other assets 8,582,165 5,175,001
------------ ------------
$782,495,334 $775,608,441
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $180,520,354 $224,080,543
Interest-bearing deposits 327,296,447 326,947,260
------------ ------------
Total deposits 507,816,801 551,027,803
Securities sold under agreements to repurchase 84,071,963 51,265,620
Commercial paper 31,705,000 26,607,200
Other short-term borrowings 23,354,043 5,331,640
Acceptances outstanding 775,545 2,395,089
Due to factoring clients 18,766,163 22,596,179
Accrued expenses and other liabilities 15,193,896 17,381,686
------------ ------------
681,683,411 676,605,217
------------ ------------
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 713,759,411 715,951,217
------------ ------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares 2,524,600 2,525,760
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 7,293,154 and 6,496,854 shares, respectively 7,293,154 6,496,854
Capital surplus 34,547,293 28,091,878
Retained earnings 28,354,545 25,641,804
Net unrealized (depreciation) appreciation securities
available for sale, net of tax (146,739) 543,747
------------ -----------
72,572,853 63,300,043
Less
Common shares in treasury at cost, 39,843 and
150,343 shares, respectively 394,184 1,489,239
Unearned compensation 3,442,746 2,153,580
------------ ------------
Total shareholders' equity 68,735,923 59,657,224
------------ ------------
$782,495,334 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 9,259,095 $ 8,104,352 $17,790,364 $15,418,364
Securities held to maturity 3,812,992 3,854,381 7,378,302 7,776,791
Securities available for sale 1,574,293 1,234,431 3,194,607 2,397,665
Federal funds sold -- 83,992 277,433 203,149
Deposits with other banks 39,897 49,199 81,990 90,917
----------- ----------- ----------- -----------
Total interest income 14,686,277 13,326,355 28,722,696 25,886,886
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 2,962,841 2,928,644 5,914,519 5,732,986
Federal funds purchased and
securities sold under agreements
to repurchase 958,552 736,306 1,843,273 1,385,130
Commercial paper 364,067 282,505 694,610 501,779
Other short-term borrowings 256,045 64,629 380,501 140,334
Long-term debt 418,277 895,481 1,137,385 1,779,818
----------- ----------- ----------- -----------
Total interest expense 4,959,782 4,907,565 9,970,288 9,540,047
----------- ----------- ----------- -----------
Net interest income 9,726,495 8,418,790 18,752,408 16,346,839
Provision for possible loan losses 562,500 345,000 1,139,500 660,000
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses 9,163,995 8,073,790 17,612,908 15,686,839
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 445,380 438,076 817,885 864,470
Factoring commissions 771,007 310,478 1,373,519 589,598
Letter of credit commissions 200,617 174,849 416,028 346,605
Trust fees 122,319 118,246 273,115 286,435
Gain on sales of loans 36,872 -- 69,108 --
Gain on sales of securities -- 4,801 22,161 4,801
Other income 405,915 308,236 671,828 600,391
----------- ----------- ----------- -----------
Total noninterest income 1,982,110 1,354,686 3,643,644 2,692,300
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries 3,307,120 2,813,678 6,490,945 5,543,274
Employee benefits 764,205 767,468 1,514,171 1,415,203
----------- ----------- ----------- -----------
Total personnel expenses 4,071,325 3,581,146 8,005,116 6,958,477
Occupancy expense, net 594,305 718,560 1,182,188 1,441,952
Equipment expense 430,895 339,214 743,048 702,380
Other expenses 2,249,951 2,111,290 4,159,202 3,919,534
----------- ----------- ----------- -----------
Total noninterest expenses 7,346,476 6,750,210 14,089,554 13,022,343
----------- ----------- ----------- -----------
Income before income taxes 3,799,629 2,678,266 7,166,998 5,356,796
Provision for income taxes 1,814,543 1,381,702 3,422,167 2,803,158
----------- ----------- ----------- -----------
Net income $ 1,985,086 $ 1,296,564 $ 3,744,831 $ 2,553,638
=========== =========== =========== ===========
Average number of common shares outstanding
Primary 6,965,918 6,375,022 6,767,391 6,372,308
Fully diluted 8,321,730 8,954,674 8,127,896 8,951,937
Earnings per average common share
Primary $.28 $.20 $.55 $.40
Fully diluted .25 .18 .50 .36
Dividends per common share .08 .06 .15 .12
</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,
1996 1995
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 59,657,224 $ 53,719,314
------------ ------------
Net income 3,744,831 2,553,638
Dividends paid
Common stock- $.15 and $.12 per share,
respectively (1,021,418) (761,557)
Preferred stock - at prescribed rates (10,672) (751)
Conversions of subordinated debentures
into common stock 6,953,485 2,990
Options exercised 10,875 --
Amortization of unearned compensation 92,084 --
Change in valuation account for securities
available for sale, net of tax (690,486) 1,299,102
------------ ------------
Net change in shareholders' equity 9,078,699 3,093,422
------------ ------------
Shareholders' equity at end of period $ 68,735,923 $ 56,812,736
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,744,831 $ 2,553,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,139,500 660,000
Depreciation and amortization of premises and equipment 345,111 484,246
Deferred income tax (benefit)provision (327,769) 35,017
Gain on sale of securities (22,161) (4,801)
Gain on sale of loans (69,108) --
Amortization of unearned compensation 92,084 --
Amortization of premiums of investment securities 900,620 707,270
Accretion of discounts on securities (78,110) (51,414)
Decrease in accrued interest receivable 19,115 577,616
(Decrease)Increase in accrued expenses and
other liabilities (6,017,806) 7,468,654
Other, net (2,522,660) (902,002)
------------ ------------
Net cash (used in) provided by operating activities (2,796,353) 11,528,224
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (1,012,897) (220,367)
Net increase in interest-bearing deposits
with other banks (10,000) (30,000)
Net decrease in Federal funds sold 5,000,000 (17,000,000)
Net decrease(increase) in loans 19,984,137 (12,307,318)
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 18,496,830 12,892,304
Purchases of securities - held to maturity (59,323,005) (6,122,212)
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 5,040,446 2,581,245
Purchases of securities - available for sale (5,175,461) (10,038,782)
------------ ------------
Net cash used in investing activities (11,981,981) (21,267,698)
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (43,560,189) (10,196,967)
Net increase(decrease) in interest-bearing deposits 349,187 (24,697,550)
Net increase in securities sold under
agreements to repurchase 32,806,343 27,012,510
Net increase in commercial paper
and other short-term borrowings 23,120,203 16,043,451
Decrease in other long-term debt (250,000) --
Options exercised on common shares 10,875 --
Cash dividends paid on common and preferred stock (1,032,090) (762,308)
Maturities and prepayments on debentures (66,515) (534,000)
------------ ------------
Net cash provided by financing activities 11,377,814 6,865,136
------------ ------------
Net decrease in cash and due from banks (3,400,520) (2,874,338)
Cash and due from banks - beginning of period 40,720,401 39,224,764
------------ ------------
Cash and due from banks - end of period $ 37,319,881 $ 36,350,426
============ ============
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 $ 11,479,649 $ 8,077,886
Income taxes paid 3,370,750 2,832,156
</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, 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 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 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.
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.
7
<PAGE> 8
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 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/Sterling Factors,
Universal Finance Corporation, Sterling Banking Corporation and Sterling
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 other financial institutions. At
June 30, 1996, the bank's year to date average earning assets (of which loans
were 47% 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 six
months ended June 30, 1996 and June 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 June 30,
1996, the parent company had on hand approximately $14,077,000 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 June 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. 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, 1996, the parent company's short-term debt, consisting principally
of commercial paper, was approximately $31,705,000. The parent company had
cash, interest-bearing deposits with banks and other current assets
aggregating $53,623,000 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 June 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 June 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 deposit 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 concert 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 June 30, 1996, all counterparties have
investment grade credit ratings from the major rating agencies. Each
counterparty is specifically approved for applicable credit exposure.
At June 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 June 30, 1996, the unamortized premiums on these
contracts totaled $499,000 and are included in other assets. At June 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 June 30, 1996, the
Company's portfolio of securities totalled $333,104,000 of which U.S.
Government and U.S. Government corporation and agency guaranteed mortgage-
backed securities having an average life of approximately 3 years amounted to
$320,930,000. 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
$403,000 and $6,718,000, 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 $450,000 and gross unrealized losses of
$726,000. 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 June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
Company Bank
---------- ----------
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $ 292,061 $ 238,256
Real estate - mortgage 48,898 48,736
Real estate - construction 1,289 1,289
Installment - individuals 12,475 12,475
Lease financing 28,515 28,515
Foreign
Government and official institutions 789 789
---------- ----------
Loans, gross 384,027 330,060
Less unearned discounts 6,782 6,290
---------- ----------
Loans, net of unearned discounts $ 377,245 $ 323,770
========== ==========
</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 June 30, 1996, the ratio of the allowance to
loans, net of unearned discounts, was 1.7%. At June 30, 1996, the Company's
allowance was $6,233,000 and its non-accrual loans amounted to $335,000. At
June 30, 1996, $544,000 of loans were impaired within the scope of SFAS No. 114
and required valuation allowance of $195,000. The average recorded investment
in impaired loans during the six months ended June 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 $424,000 at June 30, 1996. 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, 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
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Total interest income increased $1,360,000 for the three months ended June 30,
1996 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $1,155,000
principally due to higher average outstandings. An increase in average
securities outstandings partially offset by lower yields, resulted in an
increase in income from securities of $298,000.
Total interest expense for the three months ended June 30, 1996 increased
$53,000 when compared with the same period in 1995 due to increased average
outstandings partially offset by lower rates paid for those funds. Interest
expense on interest-bearing deposits rose $35,000 as a result of increased
rates coupled with an increase in average outstandings. Interest expense on
borrowings increased $18,000 for the three months ended June 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
portfolio, $563,000 was provided for possible loan losses for the three months
ended June 30, 1996.
Noninterest income increased $627,000 for the second quarter of 1996 when
compared with the same period in 1995 due primarily to increased factoring
commissions.
Noninterest expenses increased $596,000 for the three months ended June 30,
1996 versus the same period last year reflecting higher salary and employee
benefit costs associated with the Company's higher levels of business
activities as well as higher general business costs.
The provision for income taxes increased $433,000 for the second 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 $688,000 for the three
months ended June 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 SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Total interest income increased $2,836,000 for the six months ended June 30,
1996 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $2,372,000
principally due to higher average outstandings. An increase in average
securities outstandings resulted in an increase in income from securities of
$398,000.
Total interest expense for the six months ended June 30, 1996 increased
$431,000 when compared with the same period in 1995 principally due to
increased average outstandings. Interest expense on interest-bearing deposits
rose $182,000 as a result of increased rates coupled with an increase in
average outstandings. Interest expense on borrowings increased $249,000 for
the six months ended June 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
portfolio, $1,140,000 was provided for possible loan losses for the six months
ended June 30, 1996.
Noninterest income increased $951,000 for the first six months of 1996 when
compared with the same period in 1995 due primarily to increased factoring
commissions.
Noninterest expenses increased $1,067,000 for the six months ended June 30,
1996 versus the same period last year reflecting higher salary and employee
benefit costs associated with the Company's higher levels of business
activities as well as higher general business costs.
The provision for income taxes increased $619,000 for the first six 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 $1,191,000 for the six
months ended June 30, 1996 when compared with the same period in 1995.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 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 $ 2,950 $ 40 5.44% $ 2,989 $ 49 6.60%
Securities
Held to maturity 235,168 3,813 6.49 235,312 3,854 6.55
Available for sale [2] 93,941 1,574 6.72 73,020 1,235 6.78
Federal funds sold -- -- -- 6,176 84 6.03
Loans, net of unearned
discounts [3] 349,158 9,259 11.36 294,121 8,104 11.43
-------- -------- -------- --------
TOTAL EARNING ASSETS 681,217 14,686 8.90 611,618 13,326 8.87
-------- ------ -------- ------
Cash and due from banks 37,291 37,069
Allowance for possible
loan losses (5,917) (4,443)
Goodwill 21,158 21,158
Other assets 15,095 13,897
-------- --------
TOTAL ASSETS $748,844 $679,299
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $169,760 1,012 2.40 $175,679 1,073 2.45
Other time 155,240 1,951 5.05 149,377 1,855 4.98
-------- -------- -------- --------
Total interest-bearing
deposits 325,000 2,963 3.67 325,056 2,928 3.61
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 75,986 959 5.07 50,689 736 5.75
Commercial paper 28,467 364 5.14 20,965 283 5.40
Other short-term debt 14,431 256 5.22 5,353 65 4.84
Long-term debt [4] 35,831 418 6.70 48,411 895 7.42
-------- -------- -------- --------
Total borrowings 154,715 1,997 5.44 125,418 1,979 6.30
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 479,715 4,960 4.20 450,474 4,907 4.36
-------- ---- -------- ----
Noninterest-bearing deposits 167,634 146,943
Other liabilities 38,407 26,223
-------- --------
Total liabilities 685,756 623,640
Shareholders' equity 63,088 55,659
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $748,844 $679,299
======== ========
Net interest income/spread $ 9,726 4.70% $ 8,419 4.51%
======== ==== ======== ====
Net yield on earning assets
(margin) 5.81% 5.60%
==== ====
</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] Since no interest was payable in 1996 with respect to the parent
company's convertible debentures which were converted in May 1996 (see
"FINANCIAL CONDITION" above), the yield for the 1996 period has been
calculated without regard for the aforesaid debentures.
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Six Months Ended June 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 $ 2,987 $ 82 5.52% $ 2,980 $ 91 5.95%
Securities
Held to maturity 226,542 7,378 6.51 238,285 7,777 6.53
Available for sale [2] 95,382 3,195 6.72 72,180 2,398 6.69
Federal funds sold 9,940 278 5.52 7,011 203 6.05
Loans, net of unearned
discounts [3] 344,657 17,790 11.07 290,403 15,418 11.09
-------- -------- -------- --------
TOTAL EARNING ASSETS 679,508 28,723 8.73 610,859 25,887 8.67
-------- ------ -------- ------
Cash and due from banks 38,175 38,373
Allowance for possible
loan losses (5,668) (4,334)
Goodwill 21,158 21,158
Other assets 15,397 13,182
-------- --------
TOTAL ASSETS $748,570 $679,238
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $176,532 2,079 2.37 $177,445 2,071 2.35
Other time 154,639 3,836 4.99 151,210 3,662 4.88
-------- -------- -------- --------
Total interest-bearing
deposits 331,171 5,915 3.59 328,655 5,733 3.52
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 72,499 1,843 5.11 49,514 1,385 5.61
Commercial paper 27,205 695 5.13 18,984 502 5.33
Other short-term debt 10,085 381 5.19 5,835 140 4.85
Long-term debt [4] 37,587 1,137 6.84 48,682 1,780 7.37
-------- -------- -------- --------
Total borrowings 147,376 4,056 5.51 123,015 3,807 6.23
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 478,547 9,971 4.12 451,670 9,540 4.26
-------- ---- -------- ----
Noninterest-bearing deposits 168,624 148,689
Other liabilities 39,598 23,855
-------- --------
Total liabilities 686,769 624,214
Shareholders' equity 61,801 55,024
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $748,570 $679,238
======== ========
Net interest income/spread $ 18,752 4.61% $ 16,347 4.41%
======== ==== ======== ====
Net yield on earning assets
(margin) 5.69% 5.47%
==== ====
</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] Since no interest was payable in 1996 with respect to the parent
company's convertible debentures which were converted in May 1996 (see
"FINANCIAL CONDITION" above), 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 June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
June 30, 1996 and 1995
------------------------------------
Volume Rate Total[1]
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ -- $ (9) $ (9)
-------- ------- -------
Securities
Available for sale [2] 352 (13) 339
Held to maturity (4) (37) (41)
------- ------- -------
Total 348 (50) 298
------- ------- -------
Federal funds sold (42) (42) (84)
------- ------- -------
Loans, net of unearned discounts [3] 1,387 (232) 1,155
------- ------- -------
TOTAL INTEREST INCOME $ 1,693 $ (333) $ 1,360
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (38) $ (23) $ (61)
Other time 71 25 96
------- ------- -------
Total 33 2 35
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 328 (105) 223
Commercial paper 98 (17) 81
Other short-term debt 148 43 191
Long-term debt (311) (166) (477)
------- ------- -------
Total 263 (245) 18
------- ------- -------
TOTAL INTEREST EXPENSE $ 296 $ (243) $ 53
======= ======= =======
NET INTEREST INCOME $ 1,397 $ (90) $ 1,307
======= ======= =======
</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
Six Months Ended June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Six Months Ended
June 30, 1996 and 1995
-----------------------------------
Volume Rate Total[1]
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (1) $ (8) $ (9)
------- ------- -------
Securities
Available for sale [2] 787 10 797
Held to maturity (357) (42) (399)
------- ------- -------
Total 430 (32) 398
------- ------- -------
Federal funds sold 92 (17) 75
------- ------- -------
Loans, net of unearned discounts [3] 2,743 (371) 2,372
------- ------- -------
TOTAL INTEREST INCOME $ 3,264 $ (428) $ 2,836
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ (4) $ 12 $ 8
Other time 97 77 174
------- ------- -------
Total 93 89 182
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 609 (151) 458
Commercial paper 217 (24) 193
Other short-term debt 167 74 241
Long-term debt (456) (187) (643)
------- ------- -------
Total 537 (288) 249
------- ------- -------
TOTAL INTEREST EXPENSE $ 630 $ (199) $ 431
======= ======= =======
NET INTEREST INCOME $ 2,634 $ (229) $ 2,405
======= ======= =======
</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 $ 1,910 $ 1,100 $ -- $ -- $ -- $ 3,010
Securities -- 49,697 30,633 247,586 5,188 333,104
Federal funds sold -- -- -- -- -- --
Loans, net of unearned
discounts 298,583 6,128 38,556 40,760 (6,782) 377,245
Noninterest-earning assets
and allowance for possible
loan losses -- -- -- -- 69,136 69,136
--------- --------- --------- --------- --------- ---------
Total Assets 300,493 56,925 69,189 288,346 67,542 782,495
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 152,735 57,831 116,730 -- -- 327,296
Securities sold under
repurchase agreements 73,097 10,975 -- -- -- 84,072
Commercial paper 31,705 -- -- -- -- 31,705
Other short-term borrowings 18,854 4,500 -- -- -- 23,354
Long-term debt 14,326 -- 17,050 700 -- 32,076
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 283,992 283,992
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 290,717 $ 73,306 $ 133,780 $ 700 $ 283,992 $ 782,495
========= ========= ========= ========= ========= =========
Net Interest Rate
Sensitivity Gap $ 9,776 $ (16,381) $ (64,591) $ 287,646 $(216,450) $ --
========= ========= ========= ========= ========= ==========
Cumulative Gap at
June 30, 1996 $ 9,776 $ (6,605) $ (71,196) $ 216,450 $ -- $ --
========= ========= ========= ========= ========== ==========
Cumulative Gap at
June 30, 1995 $ 31,328 $ 9,038 $ (49,610) $ 185,310 $ -- $ --
========= ========= ========= ========= ========== ==========
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
------------------------ -------------------------
6/30/96 12/31/95 6/30/96 12/31/95
-------- -------- -------- ---------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 68,736 $ 59,657 $ 47,947 $ 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) 147 (544) 150 (541)
-------- -------- -------- --------
Tier 1 Capital 47,725 37,963 48,097 47,399
-------- -------- -------- --------
Allowance for possible loan losses
(limited to 1.25% of total risk-
weighted assets) 5,350 5,192 3,862 3,649
Subordinated debt (limited to 50%
of Tier 1 Capital) 5,730 12,751 -- --
-------- -------- -------- --------
Tier 2 Capital 11,080 17,943 3,862 3,649
-------- -------- -------- --------
Total Risk-based Capital $ 58,805 $ 55,906 $ 51,959 $ 51,048
======== ======== ======== ========
RATIOS
Tier 1 Risk-based Capital 11.15% 8.54% 12.85% 11.98%
======== ======== ======== ========
Total Risk-based Capital 13.74% 12.58% 13.88% 12.90%
======== ======== ======== ========
Tier 1 Leverage 6.56% 5.37% 7.14% 7.19%
======== ======== ======== ========
Memoranda
Tier 1 Capital minimum requirement $ 17,119 $ 17,777 $ 14,975 $ 15,826
======== ======== ======== ========
Total Capital minimum requirement $ 34,239 $ 35,554 $ 29,950 $ 31,652
======== ======== ======== ========
Risk-weighted assets, net of goodwill $427,986 $444,425 $374,376 $395,645
======== ======== ======== ========
Quarterly average assets, net of goodwill $727,412 $706,632 $673,587 $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
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Shareholders of the Company was
held on April 18, 1996.
(b) The following matters were submitted to a vote of the
Shareholders of the Company:
(1) Election of Directors *
<TABLE>
<CAPTION>
Nominee Total Votes For Total Votes Withheld
---------------- --------------- --------------------
<S> <C> <C>
Joseph M. Adamko 5,684,566 26,820
Lillian Berkman 5,709,261 2,125
Louis J. Cappelli 5,691,241 20,145
Walter Feldesman 5,685,836 25,550
Allan F. Hershfield 5,706,231 5,155
Henry J. Humphreys 5,704,386 7,000
John C. Millman 5,691,461 19,925
Maxwell M. Rabb 5,627,125 84,261
Eugene T. Rossides 5,688,311 23,075
William C. Warren 5,631,405 79,981
</TABLE>
* All nominees were incumbents at the time of the Annual Meeting of
Shareholders and all nominees were re-elected.
(2) Amendment of Stock Incentive Plan
<TABLE>
<S> <C>
Total Votes For 5,533,647
Total Votes Against 318,761
Total Abstentions 33,734
Total Broker Nonvotes -0-
</TABLE>
23
<PAGE> 24
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 08/13/96 /s/ Louis J. Cappelli
------------------------- ------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 08/13/96 /s/ John W. Tietjen
------------------------- ------------------------------
John W. Tietjen
Senior Vice President, Treasurer
and Chief Financial Officer
24
<PAGE> 25
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>
11 Computation of X 26
Per Share Earnings
27 Financial Data X 27
Schedule
</TABLE>
25
<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,
---------------------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income for primary earnings per share:
Net income A $1,985,086 $1,296,564 $3,744,831 $2,553,638
========== ========== ========== ==========
Income for fully diluted earnings
per share:
Net income $1,985,086 $1,296,564 $3,744,831 $2,553,638
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 86,816 329,885 333,049 647,141
Amortization of bond discount
and expense 19,197 3,429 22,184 7,250
----------- ---------- ---------- ----------
Income for fully diluted shares B $2,091,099 $1,629,878 $4,100,064 $3,208,029
========== ========== ========== ==========
Common shares for primary earnings
per share:
Average shares issued 6,915,858 6,496,667 6,738,130 6,496,641
Add assumed conversion at the beginning
of the period or issuance date if later:
Stock options 46,454 2,448 45,228 1,399
ESOP shares allocated 43,449 26,250 39,662 24,611
Less: Average Treasury shares 39,843 150,343 55,629 150,343
---------- ---------- ---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 6,965,918 6,375,022 6,767,391 6,372,308
========== ========== ========== ==========
Common shares for fully diluted
earnings per share:
Average common shares 6,965,918 6,375,022 6,767,391 6,372,308
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 1,146,080 2,349,449 1,146,080 2,349,449
Series B preferred shares 2,547 2,576 2,559 2,576
ESOP shares unallocated 206,551 223,750 210,338 225,389
Stock options 634 3,877 1,508 2,215
---------- ---------- ---------- ----------
Average common shares for computation
of fully diluted earnings per
share (See Note below)
D 8,321,730 8,954,674 8,127,876 8,951,937
========== ========== ========== ==========
Per average common share:
Net income (A / C) $0.28 $0.20 $0.55 $0.40
===== ===== ===== =====
Net income assuming full dilution (B / D) $0.25 $0.18 $0.50 $0.36
===== ===== ===== =====
</TABLE>
Note: Based on shares at end of each month.
26
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 37,320
<INT-BEARING-DEPOSITS> 3,010
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,273
<INVESTMENTS-CARRYING> 237,831
<INVESTMENTS-MARKET> 231,518
<LOANS> 377,245
<ALLOWANCE> 6,233
<TOTAL-ASSETS> 782,495
<DEPOSITS> 507,817
<SHORT-TERM> 139,131
<LIABILITIES-OTHER> 15,194
<LONG-TERM> 32,076
0
2,525
<COMMON> 7,293
<OTHER-SE> 58,918
<TOTAL-LIABILITIES-AND-EQUITY> 782,495
<INTEREST-LOAN> 17,790
<INTEREST-INVEST> 10,573
<INTEREST-OTHER> 360
<INTEREST-TOTAL> 28,723
<INTEREST-DEPOSIT> 5,915
<INTEREST-EXPENSE> 9,970
<INTEREST-INCOME-NET> 18,752
<LOAN-LOSSES> 1,140
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 14,090
<INCOME-PRETAX> 7,167
<INCOME-PRE-EXTRAORDINARY> 7,167
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,745
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 5.69
<LOANS-NON> 335
<LOANS-PAST> 449
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,192
<CHARGE-OFFS> 196
<RECOVERIES> 98
<ALLOWANCE-CLOSE> 6,233
<ALLOWANCE-DOMESTIC> 4,152
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,081
</TABLE>
