<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 June 30, 1997 there were 7,824,340 shares of common stock.
$1.00 PAR VALUE, OUTSTANDING.
<PAGE> 2
STERLING BANCORP
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business 9
Financial Condition 9
Asset/Liability Management 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 4. Submission of Matter to a Vote of Security-Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
EXHIBIT INDEX 25
Exhibit 11 Computation of Per Share Earnings 26
Exhibit 27 Financial Data Schedule 27
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and due from banks $ 40,720,187 $ 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) 54,963,323 77,597,117
Held to maturity (estimated market value
$238,632,476 and $223,668,650, respectively) 241,267,034 226,733,888
------------ ------------
Total investment securities 296,230,357 304,331,005
------------ ------------
Loans, net of unearned discounts 467,096,083 465,516,556
Less allowance for possible loan losses 8,422,719 8,003,392
------------ ------------
Loans, net 458,673,364 457,513,164
------------ ------------
Customers' liability under acceptances 1,213,262 613,430
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 7,221,745 5,508,740
Accrued interest receivable 3,756,328 4,257,142
Other assets 8,068,353 7,700,928
------------ ------------
$840,052,036 $861,605,311
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $218,281,311 $229,976,783
Interest-bearing deposits 344,861,009 344,445,578
------------ ------------
Total deposits 563,142,320 574,422,361
Federal funds purchased and securities
sold under agreements to repurchase 92,644,554 88,144,400
Commercial paper 24,087,400 32,569,900
Other short-term borrowings 8,911,372 30,419,791
Acceptances outstanding 1,213,262 613,430
Due to factoring clients 36,134,726 23,140,504
Accrued expenses and other liabilities 11,601,687 14,228,490
------------ ------------
737,735,321 763,538,876
------------ ------------
Long-term convertible subordinated debentures 5,336,000 6,389,000
Other long-term debt 14,250,000 14,500,000
------------ ------------
Total long-term debt 19,586,000 20,889,000
------------ ------------
Total liabilities 757,321,321 784,427,876
------------ ------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares 2,489,300 2,506,600
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 7,866,683 and 7,725,533 shares, respectively 7,866,683 7,725,533
Capital surplus 40,229,334 38,619,434
Retained earnings 35,336,792 31,648,806
Net unrealized appreciation on securities
available for sale, net of tax 24,721 90,001
------------ ------------
85,946,830 80,590,374
Less
Common shares in treasury at cost, 42,343 shares 418,959 418,959
Unearned compensation 2,797,156 2,993,980
------------ ------------
Total shareholders' equity 82,730,715 77,177,435
------------ ------------
$840,052,036 $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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Investment loans $11,406,455 $ 9,259,095 $22,489,977 $17,790,364
Investment securities
Available for sale 1,083,128 1,574,293 2,400,645 3,194,607
Held to maturity 4,000,246 3,812,992 7,783,102 7,378,302
Federal funds sold 15,628 -- 89,741 277,433
Deposits with other banks 64,821 39,897 123,128 81,990
----------- ----------- ----------- -----------
Total interest income 16,570,278 14,686,277 32,886,593 28,722,696
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,501,499 2,962,841 6,820,229 5,914,519
Federal funds purchased
and securities sold under agreements
to repurchase 1,258,601 958,552 2,350,677 1,843,273
Commercial paper 314,769 364,067 645,462 694,610
Other short-term borrowings 159,510 256,045 305,579 380,501
Long-term debt 284,638 418,277 615,984 1,137,385
----------- ----------- ----------- -----------
Total interest expense 5,519,017 4,959,782 10,737,931 9,970,288
----------- ----------- ----------- -----------
Net interest income 11,051,261 9,726,495 22,148,662 18,752,408
Provision for possible loan losses 610,000 562,500 1,381,000 1,139,500
----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses 10,441,261 9,163,995 20,767,662 17,612,908
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 474,794 445,380 984,714 817,885
Factoring commissions 1,000,066 771,007 1,928,461 1,373,519
Letter of credit commissions 194,037 200,617 434,116 416,028
Mortgage banking income 835,991 36,872 1,528,689 69,108
Gain on sale of securities -- -- -- 22,161
Other income 516,959 528,234 1,259,256 944,943
----------- ----------- ----------- -----------
Total noninterest income 3,021,847 1,982,110 6,135,236 3,643,644
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries 4,144,517 3,307,120 8,288,115 6,490,945
Employee benefits 926,715 764,205 1,814,332 1,514,171
----------- ----------- ----------- -----------
Total personnel expenses 5,071,232 4,071,325 10,102,447 8,005,116
Occupancy expense, net 742,864 594,305 1,475,643 1,182,188
Equipment expense 535,702 430,895 1,101,093 743,048
Other expenses 2,327,142 2,249,951 4,903,812 4,159,202
----------- ----------- ----------- -----------
Total noninterest expenses 8,676,940 7,346,476 17,582,995 14,089,554
----------- ----------- ----------- -----------
Income before income taxes 4,786,168 3,799,629 9,319,903 7,166,998
Provision for income taxes 2,153,052 1,814,543 4,224,311 3,422,167
----------- ----------- ----------- -----------
Net income $ 2,633,116 $ 1,985,086 $ 5,095,592 $ 3,744,831
=========== =========== =========== ===========
Average number of common shares outstanding
Primary 7,985,308 6,965,918 7,931,233 6,767,391
Fully diluted 8,745,787 8,321,730 8,661,890 8,127,876
Per average common share
Primary $ .33 $ .28 $ .64 $ .55
Fully diluted .31 .25 .60 .50
Dividends per common share .09 .08 .18 .15
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------ ------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 77,177,435 $ 59,657,224
------------ ------------
Net income 5,095,592 3,744,831
Dividends paid
Common stock - $.18 and $.15 per share,
respectively (1,386,117) (1,021,418)
Preferred stock - at prescribed rates (21,278) (10,672)
Conversions of subordinated debentures
into common stock 1,673,789 6,953,485
Options exercised 59,750 10,875
Amortization of unearned compensation 196,824 92,084
Change in valuation account for securities
available for sale, net of tax (65,280) (690,486)
------------ ------------
Net change in shareholders' equity 5,553,280 9,078,699
------------ ------------
Shareholders' equity at end of period $ 82,730,715 $ 68,735,923
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,095,592 $ 3,744,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,381,000 1,139,500
Depreciation and amortization of premises and equipment 581,341 345,111
Deferred income tax benefit (183,706) (327,769)
Gain on sale of securities - (22,161)
Net change in loans held for sale (2,018,020) (69,108)
Amortization of unearned compensation 196,824 92,084
Amortization of premiums of securities 656,936 900,620
Accretion of discounts on securities (75,907) (78,110)
Decrease in accrued interest receivable 500,814 19,115
Increase/(decrease) in due to factored clients 12,994,222 (3,830,016)
Decrease in other liabilities (2,626,803) (2,187,790)
Other, net (1,912,711) (2,522,660)
------------ ------------
Net cash provided by (used in) operating activities 14,589,582 (2,796,353)
------------ ------------
INVESTING ACTIVITIES
Purchase of premises and equipment (2,294,346) (1,012,897)
Net increase in interest-bearing deposits
with other banks - (10,000)
Net decrease in Federal funds sold 3,000,000 5,000,000
Net decrease in loans 1,882,322 19,984,137
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 16,862,986 18,496,830
Purchases of securities - held to maturity (31,850,173) (59,323,005)
Proceeds from sale of securities-available for sale - 5,017,969
Purchases of securities - available for sale (5,452,844) (5,175,461)
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 27,838,649 5,040,446
------------ ------------
Net cash provided by (used in) investing activities 9,986,594 (11,981,981)
------------ ------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (11,695,472) (43,560,189)
Net increase in interest-bearing deposits 415,431 349,187
Net increase in Federal funds purchased and
securities sold under agreements to repurchase 4,500,154 32,806,343
Net (decrease)/increase in commercial paper
and other short-term borrowings (29,990,919) 23,120,203
Prepayments of debentures - (66,515)
Decrease in other long-term debt (250,000) (250,000)
Proceeds from exercise of stock options 59,750 10,875
Cash dividends paid on common and preferred stock (1,407,395) (1,032,090)
------------ ------------
Net cash (used in) provided by financing activities (38,368,451) 11,377,814
------------ ------------
Net decrease in cash and due from banks (13,792,275) (3,400,520)
Cash and due from banks - beginning of period 54,512,462 40,720,401
------------ ------------
Cash and due from banks - end of period $ 40,720,187 $ 37,319,881
============ ============
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 1,673,782 $ 6,953,485
Issuance of treasury shares - 1,381,250
Supplemental disclosure of cash flow information:
Interest paid $ 12,375,149 $ 11,479,649
Income taxes paid 1,630,749 3,370,750
</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 June 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 246,470 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 -- 1996," 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, 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
June 30, 1997, the bank's year-to-date average earning assets (of which loans
were 56% and securities were 43%) 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 six months ended June 30,
1997 and June 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 June 30, 1997, the
parent company had on hand approximately $11,037,000 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 (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.
At June 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 $7,211,000. 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 long-term
indebtedness is also met through funds generated from profits and new financing.
Since becoming a public company in 1946, the parent company and its predecessors
have been able to obtain the financing required and have paid at maturity all
outstanding indebtedness. The parent company expects to continue to meet its
obligations in accordance with their terms.
At June 30, 1997, the parent company's short-term debt, consisting principally
of commercial paper, was approximately $24,337,400. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$44,401,000 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 June 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 June
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 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.
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 June 30, 1997, all counterparties have investment grade credit
ratings from the major rating agencies. Each counterparty is specifically
approved for applicable credit exposure.
At June 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 June 30, 1997,
the unamortized premiums on these contracts totaled $531,000 and are included in
other assets. At June 30, 1997, $19,000 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 June 30, 1997, the Company's portfolio of
securities totalled $296,230,000, 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 $286,918,000. 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 $906,000 and $3,545,000, 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 $266,000 and gross unrealized
losses of $224,000. Given the relatively short-term nature of the portfolio and
its generally high credit quality, management expects to realize all of its
investment upon the maturity of such instruments, and thus believes that any
market value impairment is temporary in nature.
CREDIT RISK
A key management objective is to maintain the quality of the loan portfolio.
This objective is achieved by maintaining high underwriting standards coupled
with regular evaluation of the creditworthiness of and the designation of
lending limits for each borrower. The portfolio strategies seek to avoid
concentrations by industry or loan size in order to minimize credit exposure and
to originate loans in markets with which it is familiar. The composition of the
Company's and the bank's loan portfolio at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Company Bank
-------- --------
(in thousands)
<S> <C> <C>
Domestic
Commercial and industrial $344,939 $312,831
Real estate - mortgage 69,270 69,270
Real estate - construction 1,125 1,125
Installment - individuals 15,822 15,822
Lease financing 42,932 42,932
Foreign
Government and official institutions 789 789
-------- --------
Loans, gross 474,877 442,769
Less unearned discounts 7,781 7,598
-------- --------
Loans, net of unearned discounts $467,096 $435,171
======== ========
</TABLE>
13
<PAGE> 14
STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Company's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which, in turn,
depends on current and expected economic conditions, the financial condition of
borrowers and the credit management process.
The allowance for possible loan losses is maintained through the provision for
possible loan losses, which is a charge to operating earnings. The adequacy of
the provision and the resulting allowance for possible loan losses is determined
by management's continuing review of the loan portfolio, including
identification and review of individual problem situations that may affect the
borrower's ability to repay, review of overall portfolio quality through an
analysis of current charge-offs, delinquency and nonperforming loan data,
estimates of the value of any underlying collateral, review of regulatory
examinations, an assessment of current and expected economic conditions and
changes in the size and character of the loan portfolio. The allowance reflects
management's evaluation of both loans presenting identified loss potential and
of the risk inherent in various components of the portfolio including loans
identified as impaired as required by SFAS No. 114 and No. 118. Thus an increase
in the size of the portfolio or in any of its components could necessitate an
increase in the allowance even though there may not be a decline in credit
quality or an increase in potential problem loans. A significant change in any
of the evaluation factors described above could result in future additions to
the allowance. At June 30, 1997, the Company's allowance was $8,423,000; the
ratio of the allowance to loans, net of unearned discount, was 1.8%. At June 30,
1997, $881,000 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 six months ended June 30, 1997 was approximately
$353,000. 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 $155,000 at June 30, 1997. At June 30, 1997, non-accrual loans
amounted to $987,000. Based on the foregoing, as well as management's judgement
as to the current risks inherent in the loan portfolio, the Company's allowance
for possible loan losses was deemed adequate to absorb all reasonably
anticipated losses on specifically known and other possible credit risks
associated with the portfolio as of June 30, 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 JUNE 30, 1997 AND JUNE 30, 1996
Total interest income increased $1,855,000 for the three months ended June 30,
1997 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $2,148,000
principally due to higher average outstandings. A decrease in average investment
securities available for sale outstandings produced a decrease in related income
of $491,000.
Total interest expense for the three months ended June 30, 1997 increased
$559,000 when compared with the same period in 1996 due to increased average
outstandings and higher rates paid for those funds. Interest expense on
interest-bearing deposits rose $539,000 as a result of increased rates coupled
with an increase in average outstandings.
Based on management's continuing evaluation of the loan portfolio (discussed
under "CREDIT RISK" above), and principally as the result of the growth in the
loan portfolios, $610,000 was provided for possible loan losses for the three
months ended June 30, 1997.
Noninterest income increased $1,040,000 for the second quarter of 1997 when
compared with the same period in 1996 due primarily to increased factoring
commissions and mortgage banking income.
Noninterest expenses increased $1,330,000 for the three months ended June 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 $339,000 for the second 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 $649,000 for the three
months ended June 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 SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Total interest income increased $4,164,000 for the six months ended June 30,
1997 when compared with the same period last year principally due to higher
average outstandings. Interest and fees on loans increased $4,700,000
principally due to higher average outstandings. A decrease in average Federal
funds sold outstandings produced a decrease in related income of $188,000. A
decrease in average investment securities outstanding partially offset by higher
yields, resulted in a decrease in related income of $389,000.
Total interest expense for the six months ended June 30, 1997 increased $768,000
when compared with the same period in 1996 principally due to higher rates paid
for those funds. Interest expense on interest-bearing deposits rose $905,000 as
a result of increased rates coupled with an increase in average outstandings.
Interest expense on borrowings decreased $137,000 for the six months ended June
30, 1997 versus the like period a year ago due to a decrease in average
outstandings partially offset by higher 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, $1,381,000 was provided for possible loan losses for the six
months ended June 30, 1997.
Noninterest income increased $2,492,000 for the first six months of 1997 when
compared with the same period in 1996 due primarily to increased factoring
commissions and mortgage banking income.
Noninterest expenses increased $3,493,000 for the six months ended June 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 $802,000 for the first six 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 $1,351,000 for the six
months ended June 30, 1997 when compared with the same period in 1996.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 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 $ 4,077 $ 65 5.21% $ 2,950 $ 40 5.44%
Investment securities
Available for sale [2] 65,368 1,083 6.64% 93,941 1,574 6.72
Held to maturity 237,168 4,000 6.75 235,168 3,813 6.49
Federal funds sold 1,132 16 5.46 -- -- --
Loans, net of unearned
discounts [3] 430,753 11,407 11.33 349,158 9,259 11.36
-------- -------- -------- --------
TOTAL INTEREST-EARNING
ASSETS 738,498 16,571 9.31 681,217 14,686 8.90
-------- ------ -------- ------
Cash and due from banks 47,005 37,291
Allowance for possible
loan losses (8,108) (5,917)
Goodwill 21,158 21,158
Other assets 20,880 15,095
-------- --------
TOTAL ASSETS $819,433 $748,844
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $180,998 1,229 2.72 $169,760 1,012 2.40
Other time 175,669 2,273 5.08 155,240 1,951 5.05
-------- -------- -------- --------
Total interest-bearing
deposits 356,667 3,502 3.94 325,000 2,963 3.67
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 92,891 1,258 5.43 75,986 959 5.07
Commercial paper 23,596 315 5.35 28,467 364 5.14
Other short-term debt 7,455 159 5.28 14,431 256 5.22
Long-term debt 20,027 285 5.70 35,831 418 6.70
-------- -------- -------- --------
Total borrowings 143,969 2,017 5.45 154,715 1,997 5.44
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 500,636 5,519 4.37 479,715 4,960 4.20
-------- ---- -------- ----
Noninterest-bearing deposits 195,492 167,634
Other liabilities 43,395 38,407
-------- --------
Total liabilities 739,523 685,756
Shareholders' equity 79,910 63,088
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $819,433 $748,844
======== ========
Net interest income/spread $ 11,052 4.94% $ 9,726 4.70%
======== ==== ======== ====
Net yield on interest-earning
assets (margin) 6.18% 5.81%
==== ====
</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]
Six Months Ended June 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 $ 3,546 $ 123 5.39% $ 2,987 $ 82 5.52%
Investment securities
Available for sale [2] 71,131 2,401 6.78 95,382 3,195 6.72
Held to maturity 231,384 7,783 6.73 226,542 7,378 6.51
Federal funds sold 3,326 90 5.37 9,940 278 5.52
Loans, net of unearned
discounts [3] 428,999 22,490 11.36 344,657 17,790 11.07
-------- -------- -------- --------
TOTAL INTEREST-EARNING
ASSETS 738,386 32,887 9.31 679,508 28,723 8.73
-------- ------ -------- ------
Cash and due from banks 47,703 38,175
Allowance for possible
loan losses (8,237) (5,668)
Goodwill 21,158 21,158
Other assets 19,034 15,397
-------- --------
TOTAL ASSETS $818,044 $748,570
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings $186,468 2,472 2.67 $176,532 2,079 2.37
Other time 168,885 4,348 5.09 154,639 3,836 4.99
-------- -------- -------- --------
Total interest-bearing
deposits 355,353 6,820 3.87 331,171 5,915 3.59
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 88,917 2,351 5.33 72,499 1,843 5.11
Commercial paper 25,051 645 5.20 27,205 695 5.13
Other short-term debt 7,626 306 4.88 10,085 381 5.19
Long-term debt 20,346 616 6.11 37,587 1,137 6.84
-------- -------- -------- --------
Total borrowings 141,940 3,918 5.39 147,376 4,056 5.51
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 497,293 10,738 4.31 478,547 9,971 4.12
-------- ---- -------- ----
Noninterest-bearing deposits 198,181 168,624
Other liabilities 43,735 39,598
-------- --------
Total liabilities 739,209 686,769
Shareholders' equity 78,835 61,801
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $818,044 $748,570
======== ========
Net interest income/spread $ 22,149 5.00% $ 18,752 4.61%
======== ==== ======== ====
Net yield on interest-earning
assets (margin) 6.25% 5.69%
==== ====
</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 June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
June 30, 1997 and 1996
-------------------------------------
Volume Rate Total[1]
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ 21 $ 4 $ 25
------- ------- -------
Investment securities
Available for sale [2] (484) (7) (491)
Held to maturity 13 174 187
------- ------- -------
Total (471) 167 (304)
------- ------- -------
Federal funds sold 8 8 16
------- ------- -------
Loans, net of unearned discounts [3] 2,192 (44) 2,148
------- ------- -------
TOTAL INTEREST INCOME $ 1,750 $ 135 $ 1,885
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ 69 $ 148 $ 217
Other time 273 49 322
------- ------- -------
Total 342 197 539
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 217 82 299
Commercial paper (65) 16 (49)
Other short-term debt (96) (1) (97)
Long-term debt (156) 23 (133)
------- ------- -------
Total (100) 120 20
------- ------- -------
TOTAL INTEREST EXPENSE $ 242 $ 317 $ 559
======= ======= =======
NET INTEREST INCOME $ 1,508 $ (182) $ 1,326
======= ======= =======
</TABLE>
[1] The rate/volume variance is allocated equally between changes in volume and
rate.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
19
<PAGE> 20
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Six Months Ended June 30,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Six Months Ended
June 30, 1997 and 1996
-------------------------------------
Volume Rate Total[1]
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ 29 $ 12 $ 41
------- ------- -------
Investment securities
Available for sale [2] (824) 30 (794)
Held to maturity 137 268 405
------- ------- -------
Total (687) 298 (389)
------- ------- -------
Federal funds sold (182) (6) (188)
------- ------- -------
Loans, net of unearned discounts [3] 4,368 332 4,700
------- ------- -------
TOTAL INTEREST INCOME $ 3,528 $ 636 $ 4,164
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Savings $ 118 $ 275 $ 393
Other time 383 129 512
------- ------- -------
Total 501 404 905
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 417 91 508
Commercial paper (59) 9 (50)
Other short-term debt (62) (12) (74)
Long-term debt (488) (33) (521)
------- ------- -------
Total (192) 55 (137)
------- ------- -------
TOTAL INTEREST EXPENSE $ 309 $ 459 $ 768
======= ======= =======
NET INTEREST INCOME $ 3,219 $ 177 $ 3,396
======= ======= =======
</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 $ 2,010 $ 1,000 $ -- $ -- $ -- $ 3,010
Investment securities 5,038 12,277 29,636 243,186 6,093 296,230
Loans, net of unearned
discounts 344,283 29,085 58,792 42,717 (7,781) 467,096
Noninterest-earning assets
and allowance for possible
loan losses -- -- -- -- 73,716 73,716
--------- --------- --------- --------- --------- ---------
Total Assets 351,331 42,362 88,428 285,903 72,028 840,052
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits 181,555 61,229 102,077 -- -- 344,861
Securities sold under
agreements to repurchase 90,373 2,272 -- -- -- 92,645
Commercial paper 24,087 -- -- -- -- 24,087
Other short-term borrowings 5,411 3,500 -- -- -- 8,911
Long-term debt 5,336 -- 13,900 350 -- 19,586
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 349,962 349,962
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 306,762 $ 67,001 $ 115,977 $ 350 $ 349,962 $ 840,052
========= ========= ========= ========= ========= =========
Net Interest Rate
Sensitivity Gap $ 44,569 $ (24,639) $ (27,549) $ 285,553 $(277,934) $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
June 30, 1997 $ 44,569 $ 19,930 $ (7,619) $ 277,934 $ -- $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
June 30, 1996 $ 9,776 $ (6,605) $ (71,196) $ 216,450 $ -- $ --
========= ========= ========= ========= ========= =========
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
------------------------ ------------------------
6/30/97 12/31/96 6/30/97 12/31/96
-------- -------- -------- --------
($ in thousands)
<S> <C> <C> <C> <C>
COMPONENTS
Stockholders' equity $ 82,731 $ 77,177 $ 52,310 $ 46,503
Add/(Subtract):
Goodwill (21,158) (21,158) -- --
Net unrealized appreciation
on securities available for sale,
net of tax effect (1) (25) (90) (23) (89)
-------- -------- -------- --------
Tier 1 Capital 61,548 55,929 52,287 46,414
-------- -------- -------- --------
Allowance for possible loan losses
(limited to 1.25% of total risk-
weighted assets) 6,649 6,580 6,246 5,014
Subordinated debt (limited to 50%
of Tier 1 Capital) 1,067 1,278 -- --
-------- -------- -------- --------
Tier 2 Capital 7,716 7,858 6,246 5,014
-------- -------- -------- --------
Total Risk-based Capital $ 69,264 $ 63,787 $ 58,533 $ 51,428
======== ======== ======== ========
</TABLE>
RATIOS AND MINIMUMS
<TABLE>
<CAPTION>
Capital Well Capital Well
As of As of Adequacy Capitalized Adequacy Capitalized
June 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 7.71% 6.89% $31,931 $39,914
} 4.00% 5.00%
The bank 6.81 6.13 30,695 38,369
Tier 1 Risk-based Capital
The Company 11.61% 10.65% $21,207 $31,811
} 4.00% 6.00%
The bank 10.47 9.63 19,979 29,969
Total Risk-based Capital
The Company 13.06% 12.15% $42,415 $53,019
} 8.00% 10.00%
The bank 11.72 10.67 39,958 49,948
</TABLE>
(1) As directed by regulatory agencies this amount must be excluded from the
computation of Tier 1 Capital.
22
<PAGE> 23
STERLING BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Shareholders of the Company was held
on April 17, 1997.
(b) The following matters were submitted to a vote of the
Shareholders of the Company:
(1) Election of Directors *
<TABLE>
<CAPTION>
Nominee Total Votes For Total Votes Withheld
------- --------------- --------------------
<S> <C> <C>
Joseph M. Adamko 6,709,903 567,165
Lillian Berkman 6,656,159 567,165
Louis J. Cappelli 6,715,330 567,165
Walter Feldesman 6,652,852 567,165
Allan F. Hershfield 6,709,103 567,165
Henry J. Humphreys 6,708,823 567,165
John C. Millman 6,715,403 567,165
Maxwell M. Rabb 6,652,534 567,165
Eugene T. Rossides 6,712,148 567,165
William C. Warren 6,653,100 567,165
</TABLE>
* All nominees were incumbents at the time of the
Annual Meeting of Shareholders and all nominees
were re-elected.
(2) Amendment of Stock Incentive Plan
<TABLE>
<S> <C>
Total Votes For 6,399,530
Total Votes Against 850,692
Total Abstentions 52,165
Total Broker Nonvotes 0
</TABLE>
23
<PAGE> 24
STERLING BANCORP AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STERLING BANCORP
----------------------------
(Registrant)
Date 8/13/97 /s/ Louis J. Cappelli
- ------------- -----------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 8/13/97 /s/ John W. Tietjen
- ------------- -----------------
John W. Tietjen
Senior Vice President, Treasurer
and Chief Financial Officer
24
<PAGE> 25
STERLING BANCORP AND SUBSIDIARIES
Exhibit Index
<TABLE>
<CAPTION>
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------ ----------- ------------ -------- ---
<S> <C> <C> <C> <C>
11 Computation of X 26
Per Share Earnings
27 Financial Data X 27
Schedule
</TABLE>
25
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income for primary earnings per share:
Net income A $2,633,116 $1,985,086 $5,095,592 $3,744,831
========== ========== ========== ==========
Income for fully diluted earnings per share:
Net income $2,633,116 $1,985,086 $5,095,592 $3,744,831
Add expenses, net of tax effect
on assumed conversion of
Convertible Subordinated
Debentures:
Interest 54,499 86,816 128,349 333,049
Amortization of bond discount
and expense 1,140 19,197 2,280 22,184
---------- ---------- ---------- ----------
Income for fully diluted shares B $2,688,755 $2,091,099 $5,226,221 $4,100,064
========== ========== ========== ==========
Common shares for primary earnings per share:
Average shares issued 7,834,320 6,915,858 7,800,926 6,738,130
Add assumed conversion at the beginning
of the period or issuance date if later:
Stock options 122,355 46,454 105,285 45,228
ESOP shares allocated 70,976 43,449 67,365 39,662
Less: Average Treasury shares 42,343 39,843 42,343 55,629
---------- ---------- ---------- ----------
Average common shares for compu-
tation of primary earnings
per share (See Note below) C 7,985,308 6,965,918 7,931,233 6,767,391
========== ========== ========== ==========
Common shares for fully diluted earnings per share:
Average common shares 7,985,308 6,965,918 7,931,233 6,767,391
Add assumed conversion at the beginning
of the period of issuance date if later:
Convertible Subordinated Debentures 426,080 1,146,080 426,080 1,146,080
Series B preferred shares 2,547 2,547 2,559 2,559
ESOP shares unallocated 175,987 206,551 180,128 210,338
Stock options 155,865 634 121,890 1,508
---------- ---------- ---------- ----------
Average common shares for computation
of fully diluted earnings per
share (See Note below) D 8,745,787 8,321,730 8,661,890 8,127,876
========== ========== ========== ==========
Per average common share:
Net income (A / C) $0.33 $0.28 $0.64 $0.55
===== ===== ===== =====
Net income assuming full dilution (B / D) $0.31 $0.25 $0.60 $0.50
===== ===== ===== =====
</TABLE>
Note: Based on shares at end of each month.
26
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 40,720
<INT-BEARING-DEPOSITS> 3,010
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,963
<INVESTMENTS-CARRYING> 241,267
<INVESTMENTS-MARKET> 238,632
<LOANS> 467,096
<ALLOWANCE> 8,423
<TOTAL-ASSETS> 840,052
<DEPOSITS> 563,142
<SHORT-TERM> 125,643
<LIABILITIES-OTHER> 48,950
<LONG-TERM> 19,586
0
2,489
<COMMON> 7,867
<OTHER-SE> 72,375
<TOTAL-LIABILITIES-AND-EQUITY> 840,052
<INTEREST-LOAN> 22,490
<INTEREST-INVEST> 10,184
<INTEREST-OTHER> 213
<INTEREST-TOTAL> 32,887
<INTEREST-DEPOSIT> 6,820
<INTEREST-EXPENSE> 10,738
<INTEREST-INCOME-NET> 22,149
<LOAN-LOSSES> 1,381
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 17,583
<INCOME-PRETAX> 9,320
<INCOME-PRE-EXTRAORDINARY> 5,096
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,096
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 6.25
<LOANS-NON> 987
<LOANS-PAST> 130
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 155
<ALLOWANCE-OPEN> 8,003
<CHARGE-OFFS> 1,162
<RECOVERIES> 200
<ALLOWANCE-CLOSE> 8,423
<ALLOWANCE-DOMESTIC> 4,978
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,445
</TABLE>
