<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 MARCH 31, 1997
-------------------------
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 OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
430 PARK AVENUE, NEW YORK, N.Y. 10022-3505
(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 MARCH 31, 1997 THERE WERE 7,744,091 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 8
Financial Condition 8
Asset/Liability Management 10
Securities 12
Credit Risk 12
Results of Operations 13
Average Balance Sheets 15
Rate/Volume Analysis 16
Interest Rate Sensitivity 17
Risk-Based Capital Components and Ratios 18
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
EXHIBIT INDEX 20
Exhibit 11 Computation of Per Share Earnings 21
Exhibit 27 Financial Data Schedule 22
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------------ -----------
<S> <C> <C>
Cash and due from banks $ 37,668,258 $ 54,512,462
Interest-bearing deposits with other banks 3,010,000 3,010,000
Federal funds sold -- 3,000,000
Investment securities
Available for sale (at estimated market value) 76,315,917 77,597,117
Held to maturity (estimated market value
$224,158,427 and $223,668,650, respectively) 230,239,405 226,733,888
------------- ------------
Total investment securities 306,555,322 304,331,005
------------- ------------
Loans, net of unearned discounts 451,960,314 465,516,556
Less allowance for possible loan losses 7,883,345 8,003,392
------------- ------------
Loans, net 444,076,969 457,513,164
------------- ------------
Customers' liability under acceptances 789,220 613,430
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 6,612,703 5,508,740
Accrued interest receivable 4,254,789 4,257,142
Other assets 8,403,341 7,700,928
------------- ------------
$ 832,529,042 $861,605,311
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 220,642,922 $229,976,783
Interest-bearing deposits 356,648,187 344,445,578
------------- ------------
Total deposits 577,291,109 574,422,361
Federal funds purchased and securities
sold under agreements to repurchase 82,586,572 88,144,400
Commercial paper 21,093,400 32,569,900
Other short-term borrowings 6,695,962 30,419,791
Acceptances outstanding 789,220 613,430
Due to factoring clients 27,495,186 23,140,504
Accrued expenses and other liabilities 16,260,829 14,228,490
------------- ------------
732,212,278 763,538,876
------------- ------------
Long-term convertible subordinated debentures 6,261,000 6,389,000
Other long-term debt 14,500,000 14,500,000
------------- ------------
Total long-term debt 20,761,000 20,889,000
------------- ------------
Total liabilities 752,973,278 784,427,876
------------- ------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares 2,501,790 2,506,600
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 7,786,434 and 7,725,533 shares, respectively 7,786,434 7,725,533
Capital surplus 39,315,968 38,619,434
Retained earnings 33,412,014 31,648,806
Net unrealized (depreciation) appreciation on securities
available for sale, net of tax (145,915) 90,001
------------- ------------
82,870,291 80,590,374
Less
Common shares in treasury at cost, 42,343 shares 418,959 418,959
Unearned compensation 2,895,568 2,993,980
------------- ------------
Total shareholders' equity 79,555,764 77,177,435
------------- ------------
$ 832,529,042 $861,605,311
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
INTEREST INCOME
<S> <C> <C>
Investment loans $11,083,522 $ 8,531,269
Investment securities
Available for sale 1,317,517 1,620,314
Held to maturity 3,782,856 3,565,310
Federal funds sold 74,113 277,433
Deposits with other banks 58,307 42,093
----------- -----------
Total interest income 16,316,315 14,036,419
----------- -----------
INTEREST EXPENSE
Deposits 3,318,730 2,951,678
Federal funds purchased
and securities sold under agreements
to repurchase 1,092,076 884,721
Commercial paper 330,693 330,543
Other short-term borrowings 146,069 124,456
Long-term debt 331,346 719,108
----------- -----------
Total interest expense 5,218,914 5,010,506
----------- -----------
Net interest income 11,097,401 9,025,913
Provision for possible loan losses 771,000 577,000
----------- -----------
Net interest income after provision
for possible loan losses 10,326,401 8,448,913
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 509,920 372,505
Factoring commissions 928,395 602,512
Letter of credit commissions 240,079 215,411
Trust fees 192,949 150,796
Mortgage banking income 692,698 32,236
Gain on sale of securities -- 22,161
Other income 549,348 265,913
----------- -----------
Total noninterest income 3,113,389 1,661,534
----------- -----------
NONINTEREST EXPENSES
Salaries 4,143,598 3,183,825
Employee benefits 887,617 749,966
----------- -----------
Total personnel expenses 5,031,215 3,933,791
Occupancy expense, net 732,779 587,883
Equipment expense 565,391 312,153
Other expenses 2,576,670 1,909,251
----------- -----------
Total noninterest expenses 8,906,055 6,743,078
----------- -----------
Income before income taxes 4,533,735 3,367,369
Provision for income taxes 2,071,259 1,607,624
----------- -----------
Net income $ 2,462,476 $ 1,759,745
=========== ===========
Average number of common shares outstanding
Primary 7,872,366 6,519,458
Fully diluted 8,616,748 8,664,599
Per average common share
Primary $ .31 $ .27
Fully diluted .29 .23
Dividends per common share .09 .07
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 77,177,435 $ 59,657,224
------------ ------------
Net income 2,462,476 1,759,745
Dividends paid
Common stock- $.09 and $.07 per share,
respectively (689,479) (453,542)
Preferred stock - at prescribed rates (9,578) (5,305)
Conversions of subordinated debentures
into common stock 749,000 193,000
Options exercised 3,625 --
Amortization of unearned compensation 98,201 23,021
Change in valuation account for securities
available for sale, net of tax (235,916) (430,351)
------------ ------------
Net change in shareholders' equity 2,378,329 1,086,568
------------ ------------
Shareholders' equity at end of period $ 79,555,764 $ 60,743,792
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,462,476 $ 1,759,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 771,000 577,000
Depreciation and amortization of premises and equipment 314,789 162,434
Deferred income tax provision/(benefit) 64,350 (139,792)
Gain on sale of securities -- (22,161)
Net change in loans held for sale (3,515,264) --
Amortization of unearned compensation 98,201 23,021
Amortization of premiums of securities 326,796 418,954
Accretion of discounts on securities (40,058) (39,040)
Decrease/(Increase) in accrued interest receivable 2,353 (360,514)
Increase in due to factored clients 4,354,682 288,859
Increase in other liabilities 2,032,339 2,035,420
Other, net (836,039) (3,327,691)
------------ ------------
Net cash provided by operating activities 6,035,625 1,376,235
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (1,418,753) (573,201)
Net increase in interest-bearing deposits
with other banks -- (10,000)
Net decrease in Federal funds sold 3,000,000 5,000,000
Proceeds from sale of loans
Net decrease in loans 17,071,242 35,955,482
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 7,853,630 7,981,976
Purchases of securities - held to maturity (11,570,419) (45,650,703)
Proceeds from sale of securities-available for sale -- 5,017,969
Proceeds from prepayments, redemptions or maturities of
securities - available for sale 769,322 2,649,048
------------ ------------
Net cash provided by investing activities 15,705,022 10,370,571
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (9,333,861) (51,917,206)
Net increase in interest-bearing deposits 12,202,609 3,302,957
Net (decrease)/increase in Federal funds purchased and
securities sold under agreements to repurchase (5,557,828) 24,677,270
Net (decrease)/increase in commercial paper
and other short-term borrowings (35,200,329) 15,203,247
Prepayments of debentures, net (128,000) --
Decrease in other long-term debt -- (250,000)
Proceeds from exercise of stock options 3,625 --
Cash dividends paid on common and preferred stock (699,057) (458,847)
------------ ------------
Net cash used in financing activities (38,584,851) (9,442,579)
------------ ------------
Net (decrease)/increase in cash and due from banks (16,844,204) 2,304,227
Cash and due from banks - beginning of period 54,512,462 40,720,401
------------ ------------
Cash and due from banks - end of period $ 37,668,258 $ 43,024,628
============ ============
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 753,810 $ 193,000
Issuance of treasury shares -- 1,381,250
Supplemental disclosure of cash flow information:
Interest paid $ 4,951,378 $ 5,480,943
Income taxes paid 981,012 518,650
</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 and its subsidiaries ("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 March 31, 1997 and 1996 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 1996 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, 1996.
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 247,719 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. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128, which supersedes Accounting Principles
Board Opinion NO. 15, "Earnings per Share," establishes standards for
computing, presenting and disclosing earnings per share.
SFAS 128 requires the presentation of basic earnings per share and, for
entities with complex, capital structures, diluted earnings per share.
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity.
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. Earlier application of SFAS 128 is not
permitted and all prior period earnings per share data must be restated
upon its adoption.
7
<PAGE> 8
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
Sterling Bancorp ("the parent company") is a bank holding company, as defined by
the Bank Holding Company Act of 1956("the BHCA"), as amended. Throughout the
report, the term "the Company" refers to Sterling Bancorp and its subsidiaries.
The Sterling companies provide a full range of products and services, including
business and consumer loans, commercial and residential mortgage lending and
brokerage, asset-based financing, factoring, trade financing, leasing, trust and
estate administration and investment management services. Sterling has
operations in New York and Virginia and conducts business throughout the United
States. The parent company owns all of the outstanding shares of Sterling
National Bank ("the bank"), its principal subsidiary, and all of the outstanding
shares of Universal Finance Corporation, Sterling Industrial Loan Association
and Sterling Banking Corporation ("finance subsidiaries"). On January 1, 1997, a
new subsidiary - Sterling National Mortgage Corp. ("SNMC - Virginia") - was
formed. On March 1, 1997, a wholly-owned subsidiary of the bank- Sterling Real
Estate Holding Company Inc. - was formed. Sterling National Mortgage Company,
Inc. ("SNMC-New York"), Sterling National Mortgage Corp. ("SNMC-Virginia") and
Sterling Factors Corporation ("Factors") are wholly owned subsidiaries of the
bank. Until 1997, Factors was a finance subsidiary of the parent company.
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
March 31, 1997, the bank's year-to-date average earning assets (of which loans
were 48% and securities were 43%) represented approximately 96% of the Company's
year-to-date average earning assets. See page 15 for the composition of the
Company's average balance sheets for the three months ended March 31, 1997 and
March 31, 1996.
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 March 31, 1997,
the parent company had on hand approximately $10,232,000 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.
8
<PAGE> 9
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
At March 31, 1997, 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 $8,199,000. To
the extent convertible subordinated debentures are converted to common stock of
the parent company (as has been the case with approximately $22 million
principal amount since 1982), the subordinated debt related thereto is retired
and becomes part of shareholders' equity. The parent company's 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 March 31, 1997, the parent company's short-term debt, consisting principally
of commercial paper, was approximately $21,343,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$43,030,000 and back-up credit lines with banks of $24,000,000. 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 4%) which is calculated by dividing Tier 1 capital by adjusted
quarterly average assets (after deducting goodwill). In addition the Company and
the bank are subject to the provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1981 ("FDICIA") which imposes a number of
mandatory supervisory measures. Among other matters, FDICIA established five
capital categories ranging from "well capitalized" to "critically under
capitalized". Such classifications are used by regulatory agencies to determine
a bank's deposit insurance premium, approval of applications authorizing
institutions to increase their asset size or otherwise expand business
activities or acquire other institutions. Under the provisions of FDICIA a "well
capitalized" institution must maintain minimum leverage, Tier 1 and Total
Capital ratios of 5%, 6% and 10%, respectively. At March 31, 1997, the Company
and the bank exceeded the requirements for "well capitalized" institutions.
Information regarding the Company's and the bank's risk-based capital, at March
31, 1997 and December 31, 1996, is presented on page 18.
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.
The parent company regularly evaluates acquisition opportunities and regularly
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, is some cases negotiations, regularly take
place and future acquisitions could occur.
9
<PAGE> 10
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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 various 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.
10
<PAGE> 11
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
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 March 31, 1997, all counterparties have investment grade credit
ratings from the major rating agencies. Each counterparty is specifically
approved for applicable credit exposure.
At March 31, 1997, the Company's off-balance sheet financial instruments
consisted of three interest rate floor contracts having a notional amount
totaling $100 million; one contract with a notional amount of $50 million has a
final maturity of February 27, 2000, another contract with a notional amount of
$25 million has a final maturity of October 10, 1999 and another 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 $807,000 for the interest rate floor contracts which are amortized
monthly against interest income from the designated assets. At March 31, 1997,
the unamortized premiums on these contracts totaled $452,000 and are included in
other assets. At March 31, 1997, $24,000 was receivable under the contracts.
11
<PAGE> 12
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 March 31, 1997, the Company's portfolio of
securities totalled $306,507,000, of which U.S. Government and U.S. Government
corporation and agency guaranteed mortgage-backed securities having an average
life of approximately 2.5 years amounted to $297,712,000. 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 $348,000 and $6,477,000, 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 $161,000 and gross unrealized
losses of $433,000. 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 March 31, 1997 were as follows:
<TABLE>
<CAPTION>
Company Bank
-------- --------
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $331,006 $301,007
Real estate - mortgage 69,439 69,439
Real estate - construction 1,189 1,189
Installment - individuals 15,443 15,443
Lease financing 42,009 42,009
Foreign
Government and official institutions 789 789
-------- --------
Loans, gross 459,875 429,876
Less unearned discounts 7,915 7,735
-------- --------
Loans, net of unearned discounts $451,960 $422,141
======== ========
</TABLE>
12
<PAGE> 13
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 March 31, 1997, the Company's allowance was $7,883,000; the
ratio of the allowance to loans, net of unearned discount, was 1.7%. At March
31, 1997, $57,000 of loans were impaired within the scope of SFAS No. 114 and
required a valuation allowance of $28,000. The average recorded investment in
impaired loans during the three months ended March 31, 1997 was approximately
$89,000. 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 $220,000 at March 31, 1997. At March 31, 1997, non-accrual loans
amounted to $1,345,000. 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 March 31, 1997.
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 17. The increases
(decreases) for the components of interest income and interest expense,
expressed in terms of fluctuation in average volume and rate are shown on page
16. Information as to the components of interest income and interest expense and
average rates is provided in the Average Balance Sheets shown on page 15.
13
<PAGE> 14
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Total interest income increased $2,279,000 for the three months ended March 31,
1997 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $2,553,000
principally due to higher average outstandings. A decrease in average Federal
funds sold outstandings produced a decrease in related income of $204,000.
Total interest expense for the three months ended March 31, 1997 increased
$208,000 when compared with the same period in 1996 principally due to higher
rates paid for those funds. Interest expense on interest-bearing deposits rose
$367,000 as a result of increased rates coupled with an increase in average
outstandings. Interest expense on borrowings increased $159,000 for the three
months ended March 31, 1997 versus the like period a year ago due to a decrease
in average outstandings coupled with lower rates paid for those funds.
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, $771,000 was provided for possible loan losses for the three
months ended March 31, 1997.
Noninterest income increased $1,452,000 for the third quarter of 1997 when
compared with the same period in 1996 due primarily to increased factoring
commissions and mortgage banking income.
Noninterest expenses increased $2,163,000 for the three months ended March 31,
1997 versus the same period last year reflecting higher personnel and general
business costs associated with the Company's higher levels of business
activities.
The provision for income taxes increased $464,000 for the first quarter of 1997
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 $702,000 for the three
months ended March 31, 1997 when compared with the same period in 1996.
14
<PAGE> 15
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended March 31,
<TABLE>
<CAPTION>
1997 1996
-------------------------------------- --------------------------------------
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 $ 58 5.16% $ 3,025 $ 42 5.60%
Investment securities
Available for sale [2] 76,956 1,317 6.71 97,795 1,621 6.71
Held to maturity 225,536 3,783 6.91 217,915 3,565 6.54
Federal funds sold 5,544 74 5.42 19,879 278 5.52
Loans, net of unearned
discounts [3] 427,226 11,084 11.26 340,156 8,531 10.85
-------- -------- -------- --------
TOTAL INTEREST-EARNING
ASSETS 738,272 16,316 9.24 678,770 14,037 8.58
-------- ------ -------- ------
Cash and due from banks 48,410 39,057
Allowance for possible
loan losses (8,367) (5,418)
Goodwill 21,158 21,158
Other assets 17,255 15,523
-------- --------
TOTAL ASSETS $816,728 $749,090
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $191,997 1,243 2.63 $183,303 1,066 2.34
Other time 162,025 2,076 5.20 154,037 1,886 4.92
-------- -------- -------- --------
Total interest-bearing
deposits 354,022 3,319 3.80 337,340 2,952 3.52
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 84,899 1,092 5.21 69,012 885 5.16
Commercial paper 26,521 331 5.06 25,944 331 5.12
Other short-term debt 7,209 146 4.86 5,740 124 5.09
Long-term debt 20,670 331 6.50 39,342 719 7.35
-------- -------- -------- --------
Total borrowings 139,299 1,900 5.36 140,038 2,059 5.76
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 493,321 5,219 4.24 477,378 5,011 4.18
-------- ---- -------- ----
Noninterest-bearing deposits 200,987 170,418
Other liabilities 44,673 40,786
-------- --------
Total liabilities 738,981 688,582
Shareholders' equity 77,747 60,508
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $816,728 $749,090
======== ========
Net interest income/spread $ 11,097 5.00% $9,026 4.40%
======== ==== ====== ====
Net yield on interest-earning
assets (margin) 6.26% 5.51%
==== ====
</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.
15
<PAGE> 16
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Three Months Ended March 31,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
March 31, 1997 and 1996
--------------------------------
Volume Rate Total[1]
------- ----- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ 9 $ 7 $ 16
------- ----- -------
Investment securities
Available for sale [2] (333) 29 (304)
Held to maturity 51 167 218
------- ----- -------
Total (282) 196 (86)
------- ----- -------
Federal funds sold (199) (5) (204)
------- ----- -------
Loans, net of unearned discounts [3] 2,222 331 2,553
------- ----- -------
TOTAL INTEREST INCOME $ 1,750 $ 529 $ 2,279
======= ===== =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ 42 $ 135 $ 177
Other time 80 110 190
------- ----- -------
Total 122 245 367
------- ----- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 188 19 207
Commercial paper 4 (4) --
Other short-term debt 21 1 22
Long-term debt (326) (62) (388)
------- ----- -------
Total (113) (46) (159)
------- ----- -------
TOTAL INTEREST EXPENSE $ 9 $ 199 $ 208
======= ===== =======
NET INTEREST INCOME $ 1,741 $ 330 $ 2,071
======= ===== =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume
and rate. The variance due to one less day in 1997 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.
16
<PAGE> 17
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 $ 1,430 $ 1,580 $ -- $ -- $ -- $ 3,010
Investment securities 31,358 7,296 29,904 231,904 6,093 306,555
Loans, net of unearned
discounts 331,232 28,055 54,884 45,704 (7,915) 451,960
Noninterest-earning assets
and allowance for possible
loan losses -- -- -- -- 71,004 71,004
--------- -------- --------- -------- --------- --------
Total Assets 364,020 36,931 84,788 277,608 69,182 832,529
--------- -------- --------- -------- --------- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 223,298 43,641 89,709 -- -- 356,648
Securities sold under
agreements to repurchase 80,315 2,272 -- -- -- 82,587
Commercial paper 21,093 -- -- -- -- 21,093
Other short-term borrowings 3,446 3,250 -- -- -- 6,696
Long-term debt 6,261 -- 14,150 350 -- 20,761
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 344,744 344,744
--------- -------- --------- -------- --------- --------
Total Liabilities and
Shareholders' Equity $ 334,413 $ 49,163 $ 103,859 $ 350 $ 344,744 $832,529
========= ======== ========= ======== ========= ========
Net Interest Rate
Sensitivity Gap $ 29,607 $(12,232) $ (19,071) $277,258 $(275,562) $ --
========= ======== ========= ======== ========= ========
Cumulative Gap at
March 31, 1997 $ 29,607 $ 17,375 $ (1,696) $275,562 $ -- $ --
========= ======== ========= ======== ========= ========
Cumulative Gap at
March 31, 1996 $ (10,910) $(32,869) $ (73,850) $201,786 $ -- $ --
========= ======== ========= ======== ========= ========
Cumulative Gap at
December 31, 1996 $ 67,266 $ 20,475 $ (11,245) $261,380 $ -- $ --
========= ======== ========= ======== ========= ========
</TABLE>
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Risk-Based Capital Components and Ratios
<TABLE>
<CAPTION>
The Company The Bank
----------------------- ----------------------
3/31/97 12/31/96 3/31/97 12/31/96
-------- -------- ------- --------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 79,556 $ 77,177 $49,660 $ 46,503
Add/(Subtract):
Goodwill (21,158) (21,158) -- --
Net unrealized depreciation(appreciation)
on securities available for sale,
net of tax effect (1) 146 (90) 148 (89)
-------- -------- ------- --------
Tier 1 Capital 58,544 55,929 49,808 46,414
-------- -------- ------- --------
Allowance for possible loan losses
(limited to 1.25% of total risk-
weighted assets) 6,382 6,580 5,934 5,014
Subordinated debt (limited to 50%
of Tier 1 Capital) 1,252 1,278 -- --
-------- -------- ------- --------
Tier 2 Capital 7,634 7,858 5,934 5,014
-------- -------- ------- --------
Total Risk-based Capital $ 66,178 $ 63,787 $55,742 $ 51,428
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
RATIOS AND MINIMUMS
Capital Well Capital Well
As of As of Adequacy Capitalized Adequacy Capitalized
March 31, December 31, Minimum Minimum Minimum Minimum
1997 1996 Requirement Requirement Capital Capital
- ----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage
The Company 7.36% 6.89% $31,823 $39,779
} 4.00% 5.00%
The bank 6.50 6.13 30,654 38,317
Tier 1 Risk-based Capital
The Company 11.50% 10.65% $20,363 $30,544
} 4.00% 6.00%
The bank 10.37 9.63 19,218 28,827
Total Risk-based Capital
The Company 13.00% 12.15% $40,725 $50,907
} 8.00% 10.00%
The bank 11.60 10.67 38,437 48,045
</TABLE>
(1) As directed by regulatory agencies this amount must be excluded from the
computation of Tier 1 Capital.
18
<PAGE> 19
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 5/ /97 /s/ Louis J. Cappelli
-------------------- -------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 5/ /97 /s/ John W. Tietjen
-------------------- -------------------------------
John W. Tietjen
Senior Vice President, Treasurer
and Chief Financial Officer
19
<PAGE> 20
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 21
Per Share Earnings
27 Financial Data X 22
Schedule
</TABLE>
20
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Income for primary earnings per share:
Net income A $2,462,476 $1,759,745
========== ==========
Income for fully diluted earnings per share:
Net income $2,462,476 $1,759,745
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 73,364 246,516
Amortization of bond discount
and expense 1,132 2,991
---------- ----------
Income for fully diluted shares B $2,536,972 $2,009,252
========== ==========
Common shares for primary earnings per share:
Average shares issued 7,763,908 6,505,595
Add assumed conversion at the beginning
of the period or issuance date if later:
Stock options 86,562 44,947
ESOP shares allocated 64,239 36,384
Less: Average Treasury shares 42,343 67,468
---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 7,872,366 6,519,458
========== ==========
Common shares for fully diluted earnings per share:
Average common shares 7,872,366 6,519,458
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 500,880 1,926,309
Series B preferred shares 2,576 2,576
ESOP shares unallocated 183,483 213,616
Stock options 57,443 2,640
---------- ----------
Average common shares for computation
of fully diluted earnings per
share (See Note below) D 8,616,748 8,664,599
========== ==========
Per average common share:
Net income (A + C) $ 0.31 $ 0.27
========== ==========
Net income assuming full dilution (B + D) $ 0.29 $ 0.23
========== ==========
</TABLE>
Note: Based on shares at end of each month.
21
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 37,668
<INT-BEARING-DEPOSITS> 3,010
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,316
<INVESTMENTS-CARRYING> 230,239
<INVESTMENTS-MARKET> 224,158
<LOANS> 451,960
<ALLOWANCE> 7,883
<TOTAL-ASSETS> 832,529
<DEPOSITS> 577,291
<SHORT-TERM> 110,376
<LIABILITIES-OTHER> 44,545
<LONG-TERM> 20,761
0
2,502
<COMMON> 7,786
<OTHER-SE> 69,268
<TOTAL-LIABILITIES-AND-EQUITY> 832,529
<INTEREST-LOAN> 11,084
<INTEREST-INVEST> 5,100
<INTEREST-OTHER> 132
<INTEREST-TOTAL> 16,316
<INTEREST-DEPOSIT> 3,319
<INTEREST-EXPENSE> 5,219
<INTEREST-INCOME-NET> 11,097
<LOAN-LOSSES> 771
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,906
<INCOME-PRETAX> 4,534
<INCOME-PRE-EXTRAORDINARY> 2,462
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,462
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 6.26
<LOANS-NON> 1,345
<LOANS-PAST> 303
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 220
<ALLOWANCE-OPEN> 8,003
<CHARGE-OFFS> 1,059
<RECOVERIES> 168
<ALLOWANCE-CLOSE> 7,883
<ALLOWANCE-DOMESTIC> 4,659
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,224
</TABLE>
