<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 SEPTEMBER 30, 1997 THERE WERE 7,890,187 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 (Unaudited)
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 11
Securities 13
Credit Risk 13
Results of Operations 14
Average Balance Sheets 17
Rate/Volume Analysis 19
Interest Rate Sensitivity 21
Risk-Based Capital Components and Ratios 22
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 23
EXHIBIT INDEX 24
Exhibit 11 Computation of Per Share Earnings 25
Exhibit 27 Financial Data Schedule 26
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and due from banks $ 31,550,103 $ 54,512,462
Interest-bearing deposits with other banks 3,010,000 3,010,000
Federal funds sold 8,000,000 3,000,000
Investment securities
Available for sale (at estimated market value) 54,327,824 77,597,117
Held to maturity (estimated market value
$248,361,954 and $223,668,650, respectively) 249,066,216 226,733,888
------------ ------------
Total investment securities 303,394,040 304,331,005
------------ ------------
Loans, net of unearned discounts 480,175,019 465,516,556
Less allowance for possible loan losses 9,004,891 8,003,392
------------ ------------
Loans, net 471,170,128 457,513,164
------------ ------------
Customers' liability under acceptances 1,421,260 613,430
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 7,262,838 5,508,740
Accrued interest receivable 3,922,191 4,257,142
Other assets 8,996,453 7,700,928
------------ ------------
$859,885,453 $861,605,311
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $200,380,836 $229,976,783
Interest-bearing deposits 407,413,966 344,445,578
------------ ------------
Total deposits 607,794,802 574,422,361
Federal funds purchased and securities
sold under agreements to repurchase 64,923,008 88,144,400
Commercial paper 24,725,300 32,569,900
Other short-term borrowings 7,625,735 30,419,791
Acceptances outstanding 1,421,260 613,430
Due to factoring clients 36,915,711 23,140,504
Accrued expenses and other liabilities 11,722,907 14,228,490
------------ ------------
755,128,723 763,538,876
------------ ------------
Long-term convertible subordinated debentures 4,608,000 6,389,000
Other long-term debt 14,250,000 14,500,000
------------ ------------
Total long-term debt 18,858,000 20,889,000
------------ ------------
Total liabilities 773,986,723 784,427,876
------------ ------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares 2,486,730 2,506,600
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 7,934,780 and 7,725,533 shares, respectively 7,934,780 7,725,533
Capital surplus 41,005,980 38,619,434
Retained earnings 37,448,743 31,648,806
Net unrealized appreciation on securities
available for sale, net of tax 134,373 90,001
------------ ------------
89,010,606 80,590,374
Less
Common shares in treasury at cost, 44,593 and
42,343 shares, respectively 441,257 418,959
Unearned compensation 2,670,619 2,993,980
------------ ------------
Total shareholders' equity 85,898,730 77,177,435
------------ ------------
$859,885,453 $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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $11,861,135 $10,055,302 $34,351,112 $27,845,666
Investment securities
Available for sale 1,038,655 1,599,990 3,439,300 4,794,597
Held to maturity 4,056,425 3,849,618 11,839,527 11,227,920
Federal funds sold 103,259 2,153 193,000 279,586
Deposits with other banks 35,057 35,854 158,185 117,844
----------- ----------- ----------- -----------
Total interest income 17,094,531 15,542,917 49,981,124 44,265,613
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,762,009 3,071,996 10,582,238 8,986,515
Federal funds purchased
and securities sold under agreements
to repurchase 1,168,890 1,217,882 3,519,567 3,061,155
Commercial paper 323,318 414,377 968,780 1,108,987
Other short-term borrowings 126,010 342,468 431,589 722,969
Long-term debt 296,536 552,266 912,520 1,689,651
----------- ----------- ----------- -----------
Total interest expense 5,676,763 5,598,989 16,414,694 15,569,277
----------- ----------- ----------- -----------
Net interest income 11,417,768 9,943,928 33,566,430 28,696,336
Provision for possible loan losses 781,500 401,250 2,162,500 1,540,750
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses 10,636,268 9,542,678 31,403,930 27,155,586
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 504,575 516,603 1,489,289 1,334,488
Factoring commissions 1,101,413 949,364 3,029,874 2,322,883
Mortgage banking income 916,576 672,340 2,445,265 741,448
Letter of credit commissions 244,118 198,495 678,234 614,523
Gain on sale of securities -- -- -- 22,161
Other income 692,143 766,377 1,951,399 1,711,320
----------- ----------- ----------- -----------
Total noninterest income 3,458,825 3,103,179 9,594,061 6,746,823
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries 4,268,039 4,033,350 12,556,154 10,524,295
Employee benefits 840,120 813,315 2,654,452 2,327,486
----------- ----------- ----------- -----------
Total personnel expenses 5,108,159 4,846,665 15,210,606 12,851,781
Occupancy expense, net 817,312 654,983 2,292,955 1,837,171
Equipment expense 604,461 466,353 1,705,554 1,209,401
Other expenses 2,473,656 2,542,058 7,377,468 6,701,260
----------- ----------- ----------- -----------
Total noninterest expenses 9,003,588 8,510,059 26,586,583 22,599,613
----------- ----------- ----------- -----------
Income before income taxes 5,091,505 4,135,798 14,411,408 11,302,796
Provision for income taxes 2,273,788 1,974,438 6,498,099 5,396,605
----------- ----------- ----------- -----------
Net income $ 2,817,717 $ 2,161,360 $ 7,913,309 $ 5,906,191
=========== =========== =========== ===========
Average number of common shares outstanding
Primary 8,094,419 7,415,904 7,984,405 6,969,510
Fully diluted 8,822,568 8,763,215 8,671,088 8,325,791
Per average common share
Primary $ .35 $ .30 $ .99 $ .85
Fully diluted .33 .27 .93 .77
Dividends per common share .09 .08 .27 .23
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 77,177,435 $ 59,657,224
------------ ------------
Net income 7,913,309 5,906,191
Dividends paid
Common stock- $.27 and $.23 per share,
respectively (2,086,653) (1,623,111)
Preferred stock - at prescribed rates (26,508) (10,672)
Conversions of subordinated debentures
into common stock 2,396,789 6,953,485
Options exercised 184,750 10,875
Issuance of common stock for acquisition -- 262,995
Amortization of unearned compensation 295,236 161,147
Change in valuation account for securities
available for sale, net of tax 44,372 (616,652)
------------ ------------
Net change in shareholders' equity 8,721,295 11,044,258
------------ ------------
Shareholders' equity at end of period $ 85,898,730 $ 70,701,482
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,913,309 $ 5,906,191
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 2,162,500 1,540,750
Depreciation and amortization of premises and equipment 1,063,196 650,927
Deferred income tax benefit (312,821) (877,131)
Gain on sale of securities -- (22,161)
Net change in loans held for sale (3,837,764) (69,108)
Amortization of unearned compensation 295,236 161,147
Amortization of premiums of securities 983,823 1,311,474
Accretion of discounts on securities (113,031) (119,583)
Decrease in accrued interest receivable 334,951 (731,737)
Increase in due to factored clients 13,775,207 2,443,664
Decrease in other liabilities (2,505,583) (342,737)
Other, net (1,565,220) (1,840,868)
------------ ------------
Net cash provided by operating activities 18,193,803 8,010,828
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (2,817,294) (2,188,235)
Net increase in interest-bearing deposits
with other banks -- (10,000)
Net (increase)decrease in Federal funds sold (5,000,000) 5,000,000
Net increase in loans (10,820,699) (30,406,615)
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 26,972,962 28,067,802
Purchases of securities - held to maturity (50,034,272) (59,323,005)
Proceeds from sale of securities-available for sale -- 5,017,969
Purchases of securities - available for sale (6,011,743) (6,083,164)
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 29,220,902 7,083,790
------------ ------------
Net cash used in investing activities (18,490,144) (52,841,458)
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (29,595,947) (45,811,725)
Net increase in interest-bearing deposits 62,968,388 7,882,048
Net (decrease)increase in Federal funds purchased and
securities sold under agreements to repurchase (23,221,392) 56,965,409
Net (decrease)increase in commercial paper
and other short-term borrowings (30,638,656) 34,291,432
Prepayments of debentures -- (66,515)
Decrease in other long-term debt (250,000) (250,000)
Issuance of common stock -- 262,995
Proceeds from exercise of stock options 184,750 10,875
Cash dividends paid on common and preferred stock (2,113,161) (1,633,783)
------------ ------------
Net cash (used in) provided by financing activities (22,666,018) 51,650,736
------------ ------------
Net (decrease)increase in cash and due from banks (22,962,359) 6,820,106
Cash and due from banks - beginning of period 54,512,462 40,720,401
------------ ------------
Cash and due from banks - end of period $ 31,550,103 $ 47,540,507
============ ============
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 2,396,789 $ 6,953,485
Issuance of treasury shares -- 1,381,250
Forfeiture of shares issued under incentive
compensation plan 28,125 --
Supplemental disclosure of cash flow information:
Interest paid $ 17,936,398 $ 17,190,180
Income taxes paid 6,507,233 6,078,493
</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 September 30, 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 246,213 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
Notes to Consolidated Financial Statements
5. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129"). SFAS 129 supersedes
specific disclosure requirements of Accounting Principles Board Opinions
No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings Per Share," and
Statement of Financial Accounting Standards No. 47, "Disclosure of Long-
Term Obligations," and consolidates them in SFAS 129 for ease of retrieval
and for greater visibility to non-public entities. SFAS 129 is effective
for financial statements issued for periods ending after December 15,
1997.
6. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It does not
address issues of recognition or measurement of comprehensive income and
its components. SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. Under the requirements of
SFAS 130, an enterprise must classify items of other comprehensive income
by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings
and additional paid-in capital in the equity section of a balance sheet.
SFAS 130 is effective for fiscal years beginning after December 15, 1997
and requires reclassification of financial statements for earlier periods
provided for comparative purposes.
7. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements, requires that
selected information about operating segments be reported in interim
financial statements issued to shareholders, and establishes standards for
related disclosures about an enterprise's products and services,
geographic areas and major customers. As defined in SFAS 131, operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the enterprise's
chief operating decision maker in deciding how to allocate resources and
in assessing performance. SFAS 131 supersedes "Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a
Business," and amends Statement of Financial Accounting Standards No. 94,
"Consolidation of All Majority-Owned Subsidiaries." SFAS 131 is effective
for financial statements for periods beginning after December 15, 1997.
SFAS 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application.
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("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, equipment
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
September 30, 1997, the bank's year-to-date average earning assets (of which
loans were 56% and securities were 42%) represented approximately 96% of the
Company's year-to-date average earning assets. See pages 17 and 18 for the
composition of the Company's average balance sheets for the three and nine
months ended September 30, 1997 and September 30, 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 September 30,
1997, the parent company had on hand approximately $11,496,000 in cash.
9
<PAGE> 10
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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.
At September 30, 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
$4,608,000. On September 18, 1997, all of the remaining debentures were called
for redemption as of November 7, 1997. Holders of the debentures were entitled
under the termsof the Indenture governing such debentures, to convert the
debentures into common shares of the parent company, at a conversion ratio of
$12.50, up to the close of business on the redemption date.
At September 30, 1997, the parent company's short-term debt, consisting
principally of commercial paper, was approximately $ 24,975,000. The parent
company had cash, interest-bearing deposits with banks and other current assets
aggregating $47,730,000 and back-up credit lines with banks of $24,000,000.
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 September 30, 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 September 30, 1997 and December 31, 1996, is presented on page 22.
10
<PAGE> 11
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 Company regularly evaluates acquisition opportunities and regularly
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases negotiations, regularly take
place and future acquisitions could occur.
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.
11
<PAGE> 12
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
opposite results on an institution's net interest margin. However, the
traditional gap analysis does not assess the relative sensitivity of assets and
liabilities to changes in interest rates. The Company utilizes the gap analysis
to complement its income simulations modeling, primarily focusing on the longer
term structure of the balance sheet.
As part of its interest rate risk strategy, the Company uses off-balance sheet
financial instruments (derivatives) to hedge the interest rate sensitivity of
assets with the corresponding amortization reflected in the yield of the related
on-balance sheet assets being hedged. The Company has written policy guidelines,
which have been approved by the Board of Directors and the Asset/Liability
Committee, governing the use of off-balance sheet financial instruments,
including approved counterparties, risk limits and appropriate internal control
procedures. The credit risk of derivatives arises principally from the potential
for a counterparty to fail to meet its obligation to settle a contract on a
timely basis. At September 30, 1997, all counterparties have investment grade
credit ratings from the major rating agencies. Each counterparty is specifically
approved for applicable credit exposure.
At September 30, 1997, the Company's off-balance sheet financial instruments
consisted of four interest rate floor contracts having a notional amount
totaling $125 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, another contract with a
notional amount of $25 million has a final maturity of May 1, 2001 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.
12
<PAGE> 13
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 $939,000 for the interest rate floor contracts which are amortized
monthly against interest income from the designated assets. At September 30,
1997, the unamortized premiums on these contracts totaled $474,000 and are
included in other assets. At September 30, 1997, $16,000 was receivable under
the contracts.
SECURITIES
The Company's securities portfolios are comprised of principally U.S. Government
and U.S. Government corporation and agency mortgage-backed securities along with
other debt and equity securities. At September 30, 1997, the Company's portfolio
of securities totalled $303,394,000, 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 $293,517,000. 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 $1,448,000 and $2,152,000, 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
$393,000 and gross unrealized losses of $147,000. Given the relatively
short-term nature of the portfolio and its generally high credit quality,
management expects to realize all of its investment upon the maturity of such
instruments, and thus believes that any market value impairment is temporary in
nature.
CREDIT RISK
A key management objective is to maintain the quality of the loan portfolio.
This objective is achieved by maintaining high underwriting standards coupled
with regular evaluation of the creditworthiness of and the designation of
lending limits for each borrower. The portfolio strategies seek to avoid
concentrations by industry or loan size in order to minimize credit exposure and
to originate loans in markets with which it is familiar. The composition of the
Company's and the bank's loan portfolio at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Company Bank
-------- --------
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $350,172 $316,048
Real estate - mortgage 71,559 71,559
Real estate - construction 1,117 1,117
Installment - individuals 16,828 16,828
Lease financing 48,236 48,236
Foreign
Government and official institutions 789 789
-------- --------
Loans, gross 488,701 454,577
Less unearned discounts 8,526 8,345
-------- --------
Loans, net of unearned discounts $480,175 $446,232
======== ========
</TABLE>
13
<PAGE> 14
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Company's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which, in turn,
depends on current and expected economic conditions, the financial condition of
borrowers and the credit management process.
The allowance for possible loan losses is maintained through the provision for
possible loan losses, which is a charge to operating earnings. The adequacy of
the provision and the resulting allowance for possible loan losses is determined
by management's continuing review of the loan portfolio, including
identification and review of individual problem situations that may affect the
borrower's ability to repay, review of overall portfolio quality through an
analysis of current charge-offs, delinquency and nonperforming loan data,
estimates of the value of any underlying collateral, review of regulatory
examinations, an assessment of current and expected economic conditions and
changes in the size and character of the loan portfolio. The allowance reflects
management's evaluation of both loans presenting identified loss potential and
of the risk inherent in various components of the portfolio including loans
identified as impaired as required by SFAS No. 114 and No. 118. Thus an increase
in the size of the portfolio or in any of its components could necessitate an
increase in the allowance even though there may not be a decline in credit
quality or an increase in potential problem loans. A significant change in any
of the evaluation factors described above could result in future additions to
the allowance. At September 30, 1997, the Company's allowance was $9,005,000;
the ratio of the allowance to loans, net of unearned discount, was 1.9%. At
September 30, 1997, $761,000 of loans were impaired within the scope of SFAS No.
114 and required a valuation allowance of $225,000. The average recorded
investment in impaired loans during the nine months ended September 30, 1997 was
approximately $504,000. 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 $1,730,000 at September 30, 1997. At
September 30, 1997, non-accrual loans amounted to $1,218,000. Based on the
foregoing, as well as management's judgement as to the current risks inherent in
the loan portfolio, the Company's allowance for possible loan losses was deemed
adequate to absorb all reasonably anticipated losses on specifically known and
other possible credit risks associated with the portfolio as of September 30,
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 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 September 30, 1997 and September 30, 1996
Total interest income increased $1,551,000 for the three months ended September
30, 1997 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $1,806,000
principally due to higher average outstandings. A decrease in average investment
securities outstandings produced a decrease in related income of $355,000.
Total interest expense for the three months ended September 30, 1997 increased
$78,000 when compared with the same period in 1996 principally due to higher
rates paid for interest-bearing deposits funds. Interest expense on
interest-bearing deposits rose $690,000 as a result of increased rates coupled
with an increase in average outstandings. Interest expense on borrowed funds
decreased $612,000 primarily due to a decrease in average outstandings.
Based on management's continuing evaluation of the loan portfolio (discussed
under "CREDIT RISK" above), and principally as the result of the growth in the
loan portfolios, $782,000 was provided for possible loan losses for the three
months ended September 30, 1997.
Noninterest income increased $356,000 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 $494,000 for the three months ended September 30,
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 $299,000 for the third 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 $656,000 for the three
months ended September 30, 1997 when compared with the same period in 1996.
15
<PAGE> 16
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of nine months ended September 30, 1997 and September 30, 1996
Total interest income increased $5,716,000 for the nine months ended September
30, 1997 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $6,505,000
principally due to higher average outstandings. A decrease in average investment
securities outstanding partially offset by higher yields, resulted in a decrease
in related income of $743,000.
Total interest expense for the nine months ended September 30, 1997 increased
$846,000 when compared with the same period in 1996 principally due to higher
rates paid for those funds. Interest expense on interest-bearing deposits rose
$1,596,000 as a result of increased rates coupled with an increase in average
outstandings. Interest expense on borrowings decreased $750,000 for the nine
months ended September 30, 1997 versus the like period a year ago primarily due
to a decrease in average outstandings.
Based on management's continuing evaluation of the loan portfolio (discussed
under "CREDIT RISK" above), and principally as the result of the growth in the
loan portfolios, $2,162,000 was provided for possible loan losses for the nine
months ended September 30, 1997.
Noninterest income increased $2,847,000 for the first nine months of 1997 when
compared with the same period in 1996 due primarily to increased factoring
commissions and mortgage banking income.
Noninterest expenses increased $3,987,000 for the nine months ended September
30, 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 $1,101,000 for the first nine months 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 $2,007,000 for the nine
months ended September 30, 1997 when compared with the same period in 1996.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended September 30,
<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 $ 3,054 $ 35 5.58% $ 3,010 $ 36 5.03%
Investment securities
Available for sale [2] 58,280 1,038 6.53 95,148 1,600 6.71
Held to maturity 240,451 4,057 6.75 233,375 3,850 6.60
Federal funds sold 7,478 103 5.40 152 2 5.52
Loans, net of unearned
discounts [3] 452,122 11,861 11.30 379,385 10,055 11.06
--------- ------- --------- -------
TOTAL INTEREST-EARNING
ASSETS 761,385 17,094 9.31 711,070 15,543 8.90
------- ----- ------- -----
Cash and due from banks 42,784 40,153
Allowance for possible
loan losses (8,670) (6,450)
Goodwill 21,158 21,158
Other assets 21,501 15,499
--------- ---------
TOTAL ASSETS $ 838,158 $ 781,430
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $ 183,128 1,213 2.63 $ 168,182 1,036 2.45
Other time 193,407 2,549 5.15 159,226 2,036 5.09
--------- ------- --------- -------
Total interest-bearing
deposits 376,535 3,762 3.96 327,408 3,072 3.73
--------- ------- --------- -------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 85,133 1,169 5.45 89,455 1,218 5.42
Commercial paper 24,257 324 5.29 31,169 414 5.29
Other short-term debt 5,850 125 5.01 21,737 343 5.02
Long-term debt 19,388 297 6.07 32,076 552 6.85
--------- ------- --------- -------
Total borrowings 134,628 1,915 5.49 174,437 2,527 5.61
--------- ------- --------- -------
TOTAL INTEREST-BEARING
LIABILITIES 511,163 5,677 4.37 501,845 5,599 4.38
------- ----- ------- -----
Noninterest-bearing deposits 196,337 173,964
Other liabilities 47,592 36,895
--------- ---------
Total liabilities 755,092 712,704
Shareholders' equity 83,066 68,726
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 838,158 $ 781,430
========= =========
Net interest income/spread $11,417 4.94% $ 9,944 4.52%
======= ===== ======= =====
Net yield on interest-earning
assets (margin) 6.20% 5.67%
===== =====
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity
are computed on the basis of daily averages for the bank and monthly
averages for the parent company and its finance subsidiaries. Dollars
are presented in thousands.
[2] Interest on tax-exempt securities included herein is immaterial and is
not presented on a tax equivalent basis.
[3] Non-accrual loans are included in the average balance, which reduces
the average yields.
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Nine Months Ended September 30,
<TABLE>
<CAPTION>
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 $ 3,381 $ 158 5.48% $ 2,995 $ 118 5.26%
Investment securities
Available for sale [2] 68,609 3,439 6.68 95,304 4,794 6.71
Held to maturity 234,439 11,840 6.73 228,836 11,228 6.54
Federal funds sold 4,725 193 5.39 6,653 279 5.52
Loans, net of unearned
discounts [3] 434,983 34,351 11.48 356,209 27,846 11.14
--------- ------- --------- -------
TOTAL INTEREST-EARNING
ASSETS 746,137 49,981 9.37 689,997 44,265 8.82
------- ----- ------- -----
Cash and due from banks 46,046 38,840
Allowance for possible
loan losses (8,383) (5,930)
Goodwill 21,158 21,158
Other assets 19,636 15,408
--------- ---------
TOTAL ASSETS $ 824,594 $ 759,473
========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $ 185,342 3,685 2.66 $ 173,729 3,115 2.40
Other time 177,149 6,897 5.11 156,179 5,871 5.02
--------- ------- --------- -------
Total interest-bearing
deposits 362,491 10,582 3.90 329,908 8,986 3.64
--------- ------- --------- -------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 87,641 3,520 5.37 78,192 3,061 5.23
Commercial paper 24,783 969 5.23 28,536 1,109 5.19
Other short-term debt 6,705 431 5.15 13,998 723 5.08
Long-term debt 20,026 913 6.09 35,736 1,690 6.84
--------- ------- --------- -------
Total borrowings 139,155 5,833 5.44 156,462 6,583 5.55
--------- ------- --------- -------
TOTAL INTEREST-BEARING
LIABILITIES 501,646 16,415 4.33 486,370 15,569 4.21
------- ----- ------- -----
Noninterest-bearing deposits 197,559 170,397
Other liabilities 45,150 38,580
--------- ---------
Total liabilities 744,355 695,347
Shareholders' equity 80,239 64,126
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 824,594 $ 759,473
========= =========
Net interest income/spread $33,566 5.04% $28,696 4.61%
======= ===== ======= =====
Net yield on interest-earning
assets (margin) 6.30% 5.72%
===== =====
</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.
18
<PAGE> 19
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Three Months Ended September 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
September 30, 1997 and 1996
-----------------------------------
Volume Rate Total[1]
------- ----- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (2) $ 1 $ (1)
------- ----- -------
Investment securities
Available for sale [2] (571) 9 (562)
Held to maturity 118 89 207
------- ----- -------
Total (453) 98 (355)
------- ----- -------
Federal funds sold 101 -- 101
------- ----- -------
Loans, net of unearned discounts [3] 1,802 4 1,806
------- ----- -------
TOTAL INTEREST INCOME $ 1,448 $ 103 $ 1,551
======= ===== =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ 96 $ 81 $ 177
Other time 464 49 513
------- ----- -------
Total 560 130 690
------- ----- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase (57) 8 (49)
Commercial paper (91) 1 (90)
Other short-term debt (209) (9) (218)
Long-term debt (206) (49) (255)
------- ----- -------
Total (563) (49) (612)
------- ----- -------
TOTAL INTEREST EXPENSE $ (3) $ 81 $ 78
======= ===== =======
NET INTEREST INCOME $ 1,451 $ 22 $ 1,473
======= ===== =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume
and rate.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Nonaccrual loans have been included in the amounts outstanding and
income has been included to the extent accrued.
19
<PAGE> 20
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Nine Months Ended September 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Nine Months Ended
September 30, 1997 and 1996
-----------------------------------
Volume Rate Total[1]
------- ----- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ 25 $ 15 $ 40
------- ----- -------
Investment securities
Available for sale [2] (1,345) (10) (1,355)
Held to maturity 260 352 612
------- ----- -------
Total (1,085) 342 (743)
------- ----- -------
Federal funds sold (80) (6) (86)
------- ----- -------
Loans, net of unearned discounts [3] 6,031 474 6,505
------- ----- -------
TOTAL INTEREST INCOME $ 4,891 $ 825 $ 5,716
======= ===== =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ 215 355 $ 570
Other time 843 183 1,026
------- ----- -------
Total 1,058 538 1,596
------- ----- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 368 91 459
Commercial paper (149) 9 (140)
Other short-term debt (290) (2) (292)
Long-term debt (693) (84) (777)
------- ----- -------
Total (764) 14 (750)
------- ----- -------
TOTAL INTEREST EXPENSE $ 294 $ 552 $ 846
======= ===== =======
NET INTEREST INCOME $ 4,597 $ 273 $ 4,870
======= ===== =======
</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.
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 $ 1,300 $ 1,710 $ -- $ -- $ -- $ 3,010
Investment securities 5,785 11,273 28,853 251,390 6,093 303,394
Federal funds sold 8,000 -- -- -- -- 8,000
Loans, net of unearned
discounts 356,624 26,452 62,152 43,473 (8,526) 480,175
Noninterest-earning assets
and allowance for possible
loan losses -- -- -- -- 65,306 65,306
-------- -------- --------- -------- --------- --------
Total Assets 371,709 39,435 91,005 294,863 62,873 859,885
-------- -------- --------- -------- --------- --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 221,223 76,388 109,803 -- -- 407,414
Securities sold under
agreements to repurchase 51,873 13,050 -- -- -- 64,923
Commercial paper 24,725 -- -- -- -- 24,725
Other short-term borrowings 7,376 250 -- -- -- 7,626
Long-term debt 4,608 -- 13,900 350 -- 18,858
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 336,339 336,339
-------- -------- --------- -------- --------- --------
Total Liabilities and
Shareholders' Equity $309,805 $ 89,688 $ 123,703 $ 350 $ 336,339 $859,885
======== ======== ========= ======== ========= ========
Net Interest Rate
Sensitivity Gap $ 61,904 $(50,253) $ (32,698) $294,513 $(273,466) $ --
======== ======== ========= ======== ========= ========
Cumulative Gap at
September 30, 1997 $ 61,904 $ 11,651 $ (21,047) $273,466 $ -- $ --
======== ======== ========= ======== ========= ========
Cumulative Gap at
September 30, 1996 $ 33,475 $ (8,885) $ (65,663) $213,513 $ -- $ --
======== ======== ========= ======== ========= ========
Cumulative Gap at
December 31, 1996 $ 67,266 $ 20,475 $ (11,245) $261,380 $ -- $ --
======== ======== ========= ======== ========= ========
</TABLE>
21
<PAGE> 22
STERLING BANCORP AND SUBSIDIARIES
Risk-Based Capital Components and Ratios
<TABLE>
<CAPTION>
The Company The bank
------------------------ ------------------------
9/30/97 12/31/96 9/30/97 12/31/96
-------- -------- -------- --------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 85,899 $ 77,177 $ 52,751 $ 46,503
Add/(Subtract):
Goodwill (21,158) (21,158) -- --
Net unrealized appreciation
on securities available for sale,
net of tax effect (1) (134) (90) (133) (89)
-------- -------- -------- --------
Tier 1 Capital 64,607 55,929 52,618 46,414
-------- -------- -------- --------
Allowance for possible loan losses
(limited to 1.25% of total risk-
weighted assets) 6,836 6,580 6,407 5,014
Subordinated debt (limited to 50%
of Tier 1 Capital) 922 1,278 -- --
-------- -------- -------- --------
Tier 2 Capital 7,758 7,858 6,407 5,014
-------- -------- -------- --------
Total Risk-based Capital $ 72,365 $ 63,787 $ 59,025 $ 51,428
======== ======== ======== ========
</TABLE>
RATIOS AND MINIMUMS
<TABLE>
<CAPTION>
Capital Well Capital Well
As of As of Adequacy Capitalized Adequacy Capitalized
September 30, 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 7.91% 6.89% $32,680 $40,850
) 4.00% 5.00%
The bank 6.71 6.13 31,373 39,216
Tier 1 Risk-based Capital
The Company 11.86% 10.65% $21,788 $32,682
) 4.00% 6.00%
The bank 10.28 9.63 20,482 30,723
Total Risk-based Capital
The Company 13.29% 12.15% $43,576 $54,471
) 8.00% 10.00%
The bank 11.53 10.67 40,963 51,204
</TABLE>
(1) As directed by regulatory agencies this amount must be excluded from
the computation of Tier 1 Capital.
22
<PAGE> 23
STERLING BANCORP AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING BANCORP
.............................
(Registrant)
Date 11/13/97 /s/ Louis J. Cappelli
--------------------- ------------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 11/13/97 /s/ John W. Tietjen
--------------------- ------------------------------------
John W. Tietjen
Senior Vice President, Treasurer
and Chief Financial Officer
23
<PAGE> 24
STERLING BANCORP AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------ ----------- ------------ -------- ---
<S> <C> <C> <C> <C>
11 Computation of X 25
Per Share Earnings
27 Financial Data X 26
Schedule
</TABLE>
24
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income for primary earnings per share:
Net income A $2,817,717 $2,161,360 $7,913,309 $5,906,191
========== ========== ========== ==========
Income for fully diluted earnings per share:
Net income $2,817,717 $2,161,360 $7,913,309 $5,906,191
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 38,522 160,885 167,434 494,253
Amortization of bond discount
and expense 1,145 2,179 3,435 24,385
---------- ---------- ---------- ----------
Income for fully diluted shares B $2,857,384 $2,324,424 $8,084,178 $6,424,829
========== ========== ========== ==========
Common shares for primary earnings per share:
Average shares issued 7,893,521 7,363,318 7,831,388 6,932,702
Add assumed conversion at the beginning
of the period or issuance date if later:
Stock options 166,137 41,984 124,963 44,630
ESOP shares allocated 77,666 50,445 70,622 43,071
Less: Average Treasury shares 42,905 39,843 42,568 50,893
---------- ---------- ---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 8,094,419 7,415,904 7,984,405 6,969,510
========== ========== ========== ==========
Common shares for fully diluted earnings per share:
Average common shares 8,094,419 7,415,904 7,984,405 6,969,510
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 365,120 1,146,080 365,120 1,146,080
Series B preferred shares 2,460 2,460 2,460 2,530
ESOP shares unallocated 168,676 198,525 176,513 206,517
Stock options 191,893 246 142,590 1,154
---------- ---------- ---------- ----------
Average common shares for computation
of fully diluted earnings per
share (See Note below) D 8,822,568 8,763,215 8,671,088 8,325,791
========== ========== ========== ==========
Per average common share:
Net income (A / C) $ 0.35 $ 0.30 $ 0.99 $ 0.85
========== ========== ========== ==========
Net income assuming full dilution (B / D) $ 0.33 $ 0.27 $ 0.93 $ 0.77
========== ========== ========== ==========
</TABLE>
Note: Based on shares at end of each month.
25
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 31,550
<INT-BEARING-DEPOSITS> 3,010
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,328
<INVESTMENTS-CARRYING> 249,066
<INVESTMENTS-MARKET> 248,362
<LOANS> 480,175
<ALLOWANCE> 9,005
<TOTAL-ASSETS> 859,885
<DEPOSITS> 607,795
<SHORT-TERM> 97,274
<LIABILITIES-OTHER> 50,059
<LONG-TERM> 18,858
0
2,487
<COMMON> 7,935
<OTHER-SE> 75,477
<TOTAL-LIABILITIES-AND-EQUITY> 859,885
<INTEREST-LOAN> 34,351
<INTEREST-INVEST> 15,279
<INTEREST-OTHER> 351
<INTEREST-TOTAL> 49,981
<INTEREST-DEPOSIT> 10,582
<INTEREST-EXPENSE> 16,415
<INTEREST-INCOME-NET> 33,566
<LOAN-LOSSES> 2,163
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 26,587
<INCOME-PRETAX> 14,411
<INCOME-PRE-EXTRAORDINARY> 7,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,913
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 6.30
<LOANS-NON> 1,218
<LOANS-PAST> 235
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,682
<ALLOWANCE-OPEN> 8,003
<CHARGE-OFFS> 1,396
<RECOVERIES> 235
<ALLOWANCE-CLOSE> 9,005
<ALLOWANCE-DOMESTIC> 5,322
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,683
</TABLE>
