<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ____________________
COMMISSION FILE NUMBER: 1-5273-1
STERLING BANCORP
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2565216
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
430 PARK AVENUE, NEW YORK, N.Y. 10022-3505
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
212-826-8000
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
[X] YES [] NO
AS OF MARCH 31, 1998 THERE WERE 8,219,929 SHARES OF
COMMON STOCK, $1.00 PAR VALUE, OUTSTANDING.
<PAGE> 2
STERLING BANCORP
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business 10
Overview 10
Income Statement Analysis 11
Balance Sheet Analysis 12
Capital 14
Average Balance Sheets 15
Rate/Volume Analysis 16
Regulatory Capital and Ratios 17
Item 3.Quantitative and Qualitative Disclosures About
Market Risk
Asset/Liability Management 18
Interest Rate Sensitivity 21
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 22
EXHIBIT INDEX 23
Exhibit 11 Computation of Per Share Earnings 24
Exhibit 27 Financial Data Schedule 25
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------------- --------------
<S> <C> <C>
Cash and due from banks $ 44,604,554 $ 40,065,863
Interest-bearing deposits with other banks 1,300,000 3,010,000
Investment securities
Available for sale (at estimated market value) 122,086,064 148,921,006
Held to maturity (estimated market value
$231,755,242 and $236,009,925, respectively) 231,603,292 236,030,004
-------------- --------------
Total investment securities 353,689,356 384,951,010
-------------- --------------
Loans, net of unearned discounts 531,669,934 558,481,845
Less allowance for credit losses 8,595,155 8,677,610
-------------- --------------
Loans, net 523,074,779 549,804,235
-------------- --------------
Customers' liability under acceptances 2,217,906 1,125,654
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 7,099,826 7,330,062
Accrued interest receivable 4,187,390 4,147,008
Other assets 8,469,877 8,387,386
-------------- --------------
$ 965,802,128 $1,019,979,658
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 233,849,224 $ 312,461,489
Interest-bearing deposits 431,984,521 418,946,491
-------------- --------------
Total deposits 665,833,745 731,407,980
Federal funds purchased and securities
sold under agreements to repurchase 73,361,175 106,752,546
Commercial paper 28,117,900 24,070,600
Other short-term borrowings 15,035,664 19,891,252
Acceptances outstanding 2,217,906 1,125,654
Due to factoring clients 32,667,264 30,798,610
Accrued expenses and other liabilities 12,015,226 11,560,450
-------------- --------------
829,248,880 925,607,092
Long-term debt - FHLB 41,750,000 1,750,000
-------------- --------------
Total liabilities 870,998,880 927,357,092
-------------- --------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares
Series B ($20 liquidation value), issued 1,230 shares 24,600 24,600
Series D ($10 liquidation value), issued 244,691 and
246,213 shares, respectively 2,446,910 2,462,130
-------------- --------------
2,471,510 2,486,730
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 8,264,522 and 8,262,500 shares, respectively 8,264,522 8,262,500
Capital surplus 44,792,582 44,775,759
Retained earnings 41,763,582 39,590,806
Accumulated other comprehensive income, net of tax
Net unrealized appreciation on securities
available for sale 121,447 197,374
-------------- --------------
97,413,643 95,313,169
Less
Common shares in treasury at cost,
44,593 shares 441,257 441,257
Unearned compensation 2,169,138 2,249,346
-------------- --------------
Total shareholders' equity 94,803,248 92,622,566
-------------- --------------
$ 965,802,128 $1,019,979,658
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans $12,259,919 $11,083,522
Investment securities:
Available for sale 1,878,135 1,317,517
Held to maturity 3,837,126 3,782,836
Federal funds sold 138,639 74,113
Deposits with other banks 74,671 58,307
----------- -----------
Total interest income 18,188,490 16,316,315
----------- -----------
INTEREST EXPENSE
Deposits 4,404,727 3,318,730
Federal funds purchased
and securities sold under agreements
to repurchase 1,217,449 1,092,076
Commercial paper 361,031 330,543
Other short-term borrowings 244,432 146,069
Long-term debt 204,264 331,346
----------- -----------
Total interest expense 6,431,903 5,218,914
----------- -----------
Net interest income 11,756,587 11,097,401
Provision for credit losses 844,000 771,000
----------- -----------
Net interest income after provision
for credit losses 10,912,587 10,326,401
----------- -----------
NONINTEREST INCOME
Factoring commissions 850,792 928,395
Mortgage banking income 833,827 692,698
Service charges on deposit accounts 674,588 509,920
Letter of credit commissions 271,702 240,079
Other income 844,416 742,297
----------- -----------
Total noninterest income 3,475,325 3,113,389
----------- -----------
NONINTEREST EXPENSES
Salaries 4,407,664 4,143,598
Employee benefits 1,006,345 887,617
----------- -----------
Total personnel expenses 5,414,009 5,031,215
Occupancy expense, net 792,798 732,779
Equipment expense 590,631 565,391
Other expenses 2,322,229 2,576,670
----------- -----------
Total noninterest expenses 9,119,667 8,906,055
----------- -----------
Income before income taxes 5,268,245 4,533,735
Provision for income taxes 2,265,280 2,071,259
----------- -----------
Net income $ 3,002,965 $ 2,462,476
=========== ===========
Average number of common shares outstanding
Basic 8,218,288 7,721,565
Diluted 8,663,144 8,551,809
Per average common share
Basic $.36 $.32
Diluted .35 .30
Dividends per common share .10 .09
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 3,002,965 $ 2,462,476
Other comprehensive income, net of tax:
Unrealized holding losses arising during the period (75,927) (235,916)
----------- -----------
Comprehensive income $ 2,927,038 $ 2,226,560
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Preferred Stock
Balance at January 1 $ 2,486,730 $ 2,506,600
Conversions of Series D shares (15,220) (4,810)
------------ ------------
Balance at March 31 $ 2,471,510 $ 2,501,790
============ ============
Common Stock
Balance at January 1 $ 8,262,500 $ 7,725,533
Conversions of subordinated debentures -- 59,920
Conversions of preferred shares
into common shares 1,522 481
Options exercised 500 500
------------ ------------
Balance at March 31 $ 8,264,522 $ 7,786,434
============ ============
Capital Surplus
Balance at January 1 $ 44,775,759 $ 38,619,434
Conversions of subordinated debentures -- 689,080
Conversions of preferred shares
into common shares 13,698 4,329
Options exercised 3,125 3,125
------------ ------------
Balance at March 31, $ 44,792,582 $ 39,315,968
============ ============
Retained Earnings
Balance at January 1 $ 39,590,806 $ 31,648,812
Net income 3,002,965 2,462,476
Cash dividends paid - common shares (816,616) (689,479)
- preferred shares (13,573) (9,795)
------------ ------------
Balance at March 31 $ 41,763,582 $ 33,412,014
============ ============
Accumulated Other Comprehensive Income
Balance at January 1 $ 197,374 $ 90,001
------------ ------------
Unrealized holding losses arising during
the period:
Before tax (140,346) (436,634)
Tax benefit 64,419 200,718
------------ ------------
Net of tax (75,927) (235,916)
------------ ------------
Balance at March 31 $ 121,447 $ (145,915)
============ ============
Treasury Stock
Balance at January 1 and March 31 $ (441,257) $ (418,959)
============ ============
Unearned Compensation
Balance at January 1 $ (2,249,346) $ (2,993,980)
Amortization of unearned compensation 80,208 98,412
------------ ------------
Balance at March 31 $ (2,169,138) $ (2,895,568)
============ ============
Total Shareholders' Equity
Balance at January 1 $ 92,622,566 $ 77,177,441
Net changes during the period 2,180,682 2,378,323
------------ ------------
Balance at March 31 $ 94,803,248 $ 79,555,764
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
Operating Activities
Net income $ 3,002,965 $ 2,462,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 844,000 771,000
Depreciation and amortization of premises and equipment 269,577 314,789
Deferred income tax (provision) benefit (36,754) 64,350
Net change in loans held for sale (3,109,823) (3,515,264)
Amortization of unearned compensation 80,208 98,201
Amortization of premiums of securities 441,950 326,796
Accretion of discounts on securities (221,864) (40,058)
(Increase)Decrease in accrued interest receivable (40,382) 2,353
Increase in due to factored clients 1,868,654 4,354,682
Increase in other liabilities 454,776 2,032,339
Other, net (907,773) (707,832)
------------- -------------
Net cash provided by operating activities 2,645,534 6,163,832
------------- -------------
Investing Activities
Purchase of premises and equipment (39,341) (1,418,753)
Net decrease in interest-bearing deposits
with other banks 1,710,000 --
Net decrease in Federal funds sold -- 3,000,000
Net decrease in loans 29,921,734 17,071,242
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 13,848,623 7,853,630
Purchases of securities - held to maturity (9,794,813) (11,570,419)
Purchases of securities - available for sale (192,995,719) --
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 219,843,131 769,322
------------- -------------
Net cash provided by investing activities 62,493,615 15,705,022
------------- -------------
Financing Activities
Net decrease in noninterest-bearing deposits (78,612,265) (9,333,861)
Net increase in interest-bearing deposits 13,038,030 12,202,609
Net decrease in Federal funds purchased and
securities sold under agreements to repurchase (33,391,371) (5,557,828)
Net decrease in commercial paper
and other short-term borrowings (808,288) (35,200,329)
Prepayment of debentures -- (128,000)
Increase in other long-term debt 40,000,000 --
Proceeds from exercise of stock options 3,625 3,625
Cash dividends paid on common and preferred stock (830,189) (699,274)
------------- -------------
Net cash used in financing activities (60,600,458) (38,713,058)
------------- -------------
Net increase (decrease) in cash and due from banks 4,538,691 (16,844,204)
Cash and due from banks - beginning of period 40,065,863 54,512,462
------------- -------------
Cash and due from banks - end of period $ 44,604,554 $ 37,668,258
============= =============
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 15,220 $ 753,810
Supplemental disclosure of cash flow information:
Interest paid $ 6,146,435 $ 4,951,378
Income taxes paid 309,052 981,012
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. The consolidated financial statements include the accounts of Sterling
Bancorp ("the parent company") and its subsidiaries, principally Sterling
National Bank and its subsidiaries ("the bank"), after elimination of
material intercompany transactions. The term "the Company" refers to
Sterling Bancorp and its subsidiaries. The consolidated financial
statements as of and for the interim periods ended March 31, 1998 and 1997
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 1997 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, 1997.
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 Series B shares authorized) and 244,691 Series D shares (of
300,000 Series D shares 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. SFAS No. 128, "Earnings per Share," which superseded Accounting Principles
Board Opinion No. 15, "Earnings per Share," established standards for
computing, presenting and disclosing earnings per share ("EPS"). SFAS No.
128 required 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 Company.
The Company has applied the provisions of SFAS No. 128 for the year
ended December 31, 1997 and, in conformity with the provisions of SFAS No.
128, has restated prior-period EPS data presented in this report. Adoption
of SFAS No. 128 has resulted in modest changes in EPS data from previously
reported amounts.
8
<PAGE> 9
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 established 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 required 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.
The Company has applied the provisions of SFAS No. 130 as of January
1, 1998, and in conformity with the provisions of SFAS No. 130, has
restated prior-period amounts presented in this report. Adoption of SFAS
No. 130 had no effect on previously reported amounts.
6. 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 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. SFAS 131 is effective
for financial statements for fiscal years beginning after December 15,
1997 and, accordingly, will be adopted by the Company in its fiscal year
ending December 31, 1998.
7. In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
132"). SFAS 132 standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable. SFAS 132 provides
information that assists users in (a) evaluating the employer's
obligations under pension and other postretirement plans and the effects
on the employer's prospects for future cash flows, (b) analyzing the
quality of currently reported net income, and (c) estimating future
reputed net income. SFAS 132 addresses disclosure only. SFAS 132 is
effective for fiscal years beginning after December 15, 1997, and, as
appropriated will be adopted in the financial statement of the Company for
the year ended December 31, 1998.
9
<PAGE> 10
STERLING BANCORP AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following commentary presents management's discussion and analyses of the
consolidated results of operations and financial condition of Sterling Bancorp
(the "parent company"), a bank holding company as defined by the Bank Holding
Company Act of 1956, as amended, and its wholly-owned subsidiaries Sterling
Banking Corporation, Sterling Industrial Loan Association, and Sterling National
Bank (the "Bank"). The Bank, which is the principal subsidiary, owns all of the
outstanding shares of Sterling Factors Corporation ("Factors"), Sterling
National Mortgage Company, Inc.("SNMC-New York"), Sterling National Mortgage
Corp. ("SNMC-Virginia") and Sterling Real Estate Holding Company Inc. ("SREHC").
Throughout this discussion and analysis, the term "the Company" refers to
Sterling Bancorp and its subsidiaries. This discussion and analysis should be
read in conjunction with the company's annual report on form 10-K for the year
ended December 31, 1997. This report contains statements that constitute
forward-looking statements and are subject to certain risks and uncertainties
that could cause actual facts to differ materially from those presented in this
report. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date of this report.
COMPANY BUSINESS
The Company provides a full range of financial products and services, including
business and consumer loans, commercial and residential mortgage lending and
brokerage, asset-based financing, accounts receivable management services, trade
financing, equipment leasing, corporate and consumer deposits services, trust
and estate administration and, investment management services. The Company has
operations in New York and Virginia and conducts business throughout the United
States.
There is intense competition in all areas in which the Company conducts
its business. In addition to competing with other banks, the Company competes in
certain areas of its business with other financial institutions. At March 31,
1998, the Bank's year-to-date average earning assets (of which loans were 55%
and investment securities were 44%) represented approximately 96% of the
Company's year-to-date average earning assets.
The Company regularly evaluates acquisition opportunities and conducts due
diligence activities in connection with possible acquisition. As a result,
acquisition discussions and, in some cases negotiations, regularly take place
and future acquisitions could occur.
OVERVIEW
The Company reported net income for the three months ended March 31, 1998 of
$3.0 million, representing $0.35 per share, calculated on a diluted basis,
compared to $2.5 million, or $0.30 per share calculated on a diluted basis, for
the like period in 1997. This increase reflects the improvement in net interest
income and continued growth in noninterest income.
Net interest income increased to $11.8 million for first quarter of 1998
compared with $11.1 million for same period in 1997, principally due to higher
average earning asset outstandings. The net interest margin was 5.77% for the
10
<PAGE> 11
first three months of 1998 compared to 6.26% for the like 1997 period. This
decrease was due to a decrease in average yield an earning assets of 27 basis
points coupled with a 22 basis point increase in the average cost of funds.
Noninterest income rose to $3.5 million for the three months ended March
31, 1998 compared to $3.1 million for the like 1997 period principally due to
continued growth in fees from mortgage banking and deposit services.
INCOME STATEMENT ANALYSIS
Net Interest Income
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
assets, liabilities and shareholders' equity. The increases (decreases) for the
components of interest income and interest expense, expressed in terms of
fluctuation in average volume and rate are shown on page 16. Information as to
the components of interest income and interest expense and average rates is
provided in the Average Balance Sheets shown on page 15.
Net interest income for the three months ended March 31, 1998 increased
$660,000 to $11,757,000 from $11,097,000 for the comparable period in 1997.
Total interest income aggregated $18,188,000 up $1,872,000 for the first
quarter of 1998 as compared to $16,316,000 for the same period of 1997. The
yield on interest earning assets was 8.97% for the first three months of 1998
compared with 9.24% for the comparable period in 1997. The increase in interest
income was principally due to an increase in income earned on the Company's loan
portfolio as a result of management's strategy of increasing loan outstandings
as a percentage of total assets. The decrease in yield on earning assets was due
to lower yields on loans and investment securities.
Interest earned on the loan portfolio amounted to $12,260,000 up
$1,176,000 when compared to a year ago. Average loan balances amounted to
$485,003,000 up $57,777,000 from an average of $427,226,000 in the prior year
period. The increase in the average loans, primarily in the Company's leasing,
mortgage and in the short-term money market component of commercial and
industrial loan portfolio, accounted for the increase in interest earned on
loans. The decrease in the yield on the loan portfolio to 11.10% for the three
months ended March 31, 1998 from 11.26% for the comparable 1997 period was
attributable to a greater proportion of short-term, lower-yielding loans within
the portfolio.
Interest earned on investment securities increased $615,000 to $5,715,000
in 1998 principally due to higher average outstandings partially offset by lower
yields due to a flattening of the U.S. Treasury yield curve.
Interest expense increased $1,213,000 to $6,432,000 for the first three
months of 1998 from $5,219,000 for the comparable period in 1997. The increase
in interest expense was due to the higher average funds employed and average
rates paid for savings and time deposits.
Interest expense on savings and time deposits increased $1,086,000 for the
three months ended March 31, 1998 to $4,405,000 from $3,319,000 for the
comparable 1997 period due to increases in average outstandings and the cost of
funds. Average outstandings increased $75,450,000 to $429,472,000 in 1998 from
$354,022,000 in 1997. The average rate paid on interest-bearing deposits rose to
4.16% in 1998 compared to 3.80% in the comparable year ago period.
11
<PAGE> 12
Provision for Credit Losses
Based on management's continuing evaluation of the loan portfolio (discussed
under "Asset Quality" below), and principally as the result of the growth in the
loan portfolios, the provision for credit losses increased to $844,000 up
$73,000 when compared to the same period last year.
Noninterest Income
Noninterest income increased $362,000 for the first quarter of 1998 when
compared with the like 1997 period primarily as a result of increased fees from
mortgage banking and deposit services.
Noninterest Expense
Noninterest expenses increased $214,000 for the first three months of 1998 when
compared with the like 1997 period primarily due to increased personnel expenses
incurred to support growing levels of business activity and continued
investments in the business franchise.
Provision for Income Taxes
The increase in the provision for income taxes was principally due to higher
pretax earnings partially offset by tax strategies implemented during 1997.
BALANCE SHEET ANALYSIS
Securities
The Company's securities portfolios are comprised of principally U.S. Government
and U.S. Government corporation and agency guaranteed mortgage backed securities
along with other debt and equity securities. At March 31, 1998, the Company's
portfolio of securities totalled $353,689,000 of which U.S. Government and U.S.
Government corporation and agency guaranteed mortgage-backed securities having
an average life of approximately 4.3 years amounted to $338,708,000. The Company
has the intent and ability to hold to maturity securities classified as "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 $1,541,000 and $1,389,000, 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
$499,000 and gross unrealized losses of $274,000. Given the generally high
credit quality of the portfolio, 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.
Loan Portfolio
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 Company's commercial and industrial loan portfolio represents
approximately 71% of gross loans. Loans in this category are typically made to
small and medium sized businesses and range between $250,000 and $10 million.
The primary source of repayment is from the borrower's operating profits and
cash flows. Based on underwriting standards, loans may be secured in whole or in
part by collateral such as liquid assets, accounts receivable, equipment,
inventory or real property. The Company's real estate loan portfolio, which
represents
12
<PAGE> 13
approximately 16% of gross loans, is secured by mortgages on real property
located principally in the City of New York and the State of Virginia. The
Company's leasing portfolio, which consists of finance leases for various types
of business equipment, represents approximately 10% of gross loans. The
collateral securing any loan may vary in value based on the success of the
business and economic conditions.
The following table sets forth the composition of the Company's loan
portfolio.
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------
1998 1997
---------------------- ----------------------
($ in thousands)
% of % of
Balances Gross Balances Gross
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Domestic
Commercial and industrial $383,150 70.9% $331,006 72.0%
Equipment lease financing 52,142 9.7 42,009 9.1
Real estate 87,906 16.3 70,628 15.3
Installment - individuals 16,277 3.0 15,443 3.4
Foreign
Government and official institutions 788 0.1 789 0.2
-------- ----- -------- -----
Gross loans 540,263 100.0% 459,875 100.0%
===== =====
Unearned discounts 8,593 7,915
-------- --------
Loans, net of unearned discounts $531,670 $451,960
======== ========
</TABLE>
Asset Quality
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 credit losses is maintained through the provision for
credit losses, which is a charge to operating earnings. The adequacy of the
provision and the resulting allowance for credit 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. Thus an increase in the size of the
portfolio or in any of its components could necessitate an increase in the
allowance even though there may not be a decline in credit quality or an
increase in potential problem loans. A significant change in any of the
evaluation factors described above could result in future additions to the
allowance. At March 31, 1998, the ratio of the allowance to loans, net of
unearned discounts, was 1.6% and the allowance was $8,595,000. At such date, the
Company's non-accrual loans amounted to $1,229,000; $710,000 of such loans were
judged to be impaired within the scope of SFAS No. 114 and required valuation
allowances of $200,000. 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 credit losses was deemed adequate to absorb all reasonably
anticipated losses on specifically known and other possible credit risks
associated with the portfolio as of March 31, 1998. 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 $4,415,000 at March 31,
1998.
13
<PAGE> 14
Deposits
The Company's principal source of funds continues to be deposits, consisting of
demand (noninterest-bearing), NOW, Savings, money market and time deposits
(principally certificates of deposit).
The following table provides certain information with respect to the
Company's deposits:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------
1998 1997
---------------------- ----------------------
($ in thousands)
% of % of
Balances Total Balances Total
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Domestic
Demand $233,849 35.1% $220,643 38.2%
NOW 63,798 9.6 29,120 5.0
Savings 22,710 3.4 24,542 4.3
Money Market 122,066 18.3 131,334 22.7
Time deposits 220,681 33.2 168,942 29.3
-------- ----- -------- -----
Total domestic deposits 663,104 99.6 574,581 99.5
Foreign
Time deposits 2,730 0.4 2,710 0.5
-------- ----- -------- -----
Total deposits $665,834 100.0% $577,291 100.0%
======== ===== ======== =====
</TABLE>
Fluctuations of balances in total or among categories at any date may occur
based on the Company's mix of assets and liabilities as well as on customer's
balance sheet strategies. Historically, however, average balances for deposits
have been relatively stable. Information regarding these average balances is
presented on page 15.
CAPITAL
The Company and the bank are subject to risk-based capital regulations. The
purpose of these regulations is to quantitatively 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 for
capital adequacy purposes. Supplementing these regulations, is a leverage
requirement. This requirement establishes a minimum leverage ratio, (at least 3%
to 5%) which is calculated by dividing Tier 1 capital by adjusted quarterly
average assets (after deducting goodwill). Information regarding the Company's
and the bank's risk-based capital is presented on page 17. In addition the
Company and the bank are subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1981 ("FDICIA") which imposes a number
of mandatory supervisory measures. Among other matters, FDICIA established five
capital categories ranging from "well capitalized" to "critically under
capitalized". Such classifications are used by regulatory agencies to determine
a bank's deposit insurance premium, approval of applications authorizing
institutions to increase their asset size or otherwise expand business
activities or acquire other institutions. Under the provisions of FDICIA a "well
capitalized" institution must maintain minimum leverage, Tier 1 and Total
Capital ratios of 5%, 6% and 10%, respectively. At March 31, 1998, the Company
and the bank exceeded the requirements for "well capitalized" institutions.
14
<PAGE> 15
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended March 31,
<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with other banks $ 2,658 $ 75 5.12% $ 3,010 $ 58 5.16%
Investment securities
Available for sale [2] 122,086 1,878 6.20 76,956 1,317 6.71
Held to maturity 234,149 3,837 6.56 225,536 3,783 6.91
Federal funds sold 10,171 139 5.45 5,544 74 5.42
Loans, net of unearned
discounts [3] 485,003 12,260 11.10 427,226 11,084 11.26
-------- -------- -------- --------
TOTAL INTEREST-EARNING
ASSETS 854,067 18,189 8.97 738,272 16,316 9.24
-------- ------ -------- ------
Cash and due from banks 41,304 48,410
Allowance for credit losses (8,999) (8,367)
Goodwill 21,158 21,158
Other assets 20,979 17,255
-------- --------
TOTAL ASSETS $928,509 $816,728
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 23,549 $ 130 2.24 $ 25,501 $ 135 2.16
NOW 53,563 374 2.83 31,177 86 1.12
Money Market 135,128 1,023 3.07 135,319 1,022 3.06
Time 214,506 2,842 5.37 159,315 2,042 5.20
Foreign
Time 2,726 36 5.36 2,710 34 5.17
-------- -------- -------- --------
Total interest-bearing
deposits 429,472 4,405 4.16 354,022 3,319 3.80
-------- -------- -------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 91,196 1,217 5.41 84,899 1,092 5.21
Commercial paper 28,146 361 5.20 26,521 331 5.06
Other short-term debt 14,513 245 5.19 7,209 146 4.86
Long-term debt 16,306 204 5.08 20,670 331 6.50
-------- -------- -------- --------
Total borrowings 150,161 2,027 5.32 139,299 1,900 5.36
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES 579,633 6,432 4.46 493,321 5,219 4.24
-------- ---- -------- ----
Noninterest-bearing deposits 213,851 200,987
Other liabilities 42,162 44,673
-------- --------
Total liabilities 835,646 738,981
Shareholders' equity 92,863 77,747
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $928,509 $816,728
======== ========
Net interest income/spread $ 11,757 4.51% $ 11,097 5.00%
======== ==== ======== ====
Net yield on interest-earning
assets (margin) 5.77% 6.26%
==== ====
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages. Dollars are presented in
thousands.
[2] Interest on tax-exempt securities included herein is immaterial and is not
presented on a tax equivalent basis.
[3] Non-accrual loans are included in the average balance, which reduces the
average yields.
15
<PAGE> 16
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis
Three Months Ended March 31,
(000 omitted)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
March 31, 1998 and 1997
-----------------------------
Volume Rate Net[1]
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ 17 $ -- $ 17
------- ------- -------
Investment securities
Available for sale [2] 695 (134) 561
Held to maturity 139 (85) 54
------- ------- -------
Total 834 (219) 615
------- ------- -------
Federal funds sold 65 -- 65
------- ------- -------
Loans, net of unearned discounts [3] 1,369 (193) 1,176
------- ------- -------
TOTAL INTEREST INCOME $ 2,285 $ (412) $ 1,873
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ (10) $ 5 $ (5)
NOW 93 195 288
Money Market (1) 2 1
Time 731 69 800
Foreign
Time -- 2 2
------- ------- -------
Total 813 273 1,086
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 84 41 125
Commercial paper 21 9 30
Other short-term debt 93 6 99
Long-term debt (63) (64) (127)
------- ------- -------
Total 135 (8) 127
------- ------- -------
TOTAL INTEREST EXPENSE $ 948 $ 265 $ 1,213
======= ======= =======
NET INTEREST INCOME $ 1,337 $ (677) $ 660
======= ======= =======
</TABLE>
[1] The change in interest income and interest expense due to both rate and
volume has been allocated to change due to rate and the change due to
volume in proportion to the relationship of the absolute dollar amounts of
the changes in each.
[2] Includes Federal Reserve Bank and other stock investments.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
16
<PAGE> 17
STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios
<TABLE>
<CAPTION>
Ratios and Minimums
(Dollars in thousands)
For Capital To Be Well
Actual Adequacy Minimum Capitalized
---------------- ---------------- -----------------
As of March 31, 1998 Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
The Company $80,983 13.59% $47,655 8.00% $59,569 10.00%
The Bank 63,899 11.41 44,802 8.00 56,003 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 73,523 12.34 23,828 4.00 35,741 6.00
The Bank 57,552 10.28 22,401 4.00 33,602 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 73,523 8.10 36,294 4.00 45,368 5.00
The Bank 57,552 6.60 34,895 4.00 43,618 5.00
As of December 31, 1997
- ---------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets):
The Company $79,698 11.82% $53,935 8.00% $67,419 10.00%
The Bank 61,521 9.64 51,038 8.00 63,798 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 71,268 10.57 26,968 4.00 40,451 6.00
The Bank 55,028 8.63 25,519 4.00 38,279 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 71,268 8.31 34,320 4.00 42,900 5.00
The Bank 55,028 6.66 33,032 4.00 41,290 5.00
</TABLE>
17
<PAGE> 18
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is net interest income; therefore, the
Company devotes significant time and has invested in resources to assist in the
management of market risk, liquidity risk, capital 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 market risk,
liquidity and capital. This risk management process is governed by policies and
limits established by senior management which are reviewed and approved by the
Asset/Liability Committee ("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.
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market indices such as interest rates, foreign exchange rates and
equity prices. The Company's principal market risk exposure is interest rate
risk, with no material impact on earnings from changes in foreign exchange rates
or equity prices.
Interest rate risk is the exposure to changes in market interest rates.
Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. 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 position. In its management of interest rate risk, the Company
utilizes several tools including traditional gap analysis and sophisticated
income simulation models.
A 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 result 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.
The Company's balance sheet structure is primarily short-term in nature
with a substantial portion of assets and liabilities repricing or maturing
within one year. The Company's gap analysis at March 31, 1998, presented on page
21, reveals that net interest income would increase during periods of rising
interest rates and decrease during periods of falling interest rates.
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 based on recommendations of
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.
18
<PAGE> 19
The Company purchased interest rate floor contracts to reduce the impact
of falling rates on its floating rate commercial loans. 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.
At March 31, 1998, the Company's off-balance sheet financial instruments
consisted of three interest rate floor contracts having a notional amount
totaling $125 million consisting of a contract with a notional amount of $50
million and a final maturity of February 27, 2000, another contract with a
notional amount of $25 million and a final maturity of October 10, 1999, another
contract with a notional amount of $25 million and a final maturity of February
9, 2001 and another contract with a notional amount of $25 million and a final
maturity of May 1, 2001. These financial instruments are being used as part of
the Company's interest rate risk management and not for trading purposes. At
March 31, 1998, all counterparties have investment grade credit ratings from the
major rating agencies. Each counterparty is specifically approved for applicable
credit exposure.
The interest rate floor contracts require the Company to pay a fee for the
right to receive a fixed interest payment. The Company paid up front premiums of
$878,750 which are amortized monthly against interest income from the designated
assets. At March 31, 1998, the unamortized premiums on these contracts totaled
$464,000 and are included in other assets. At March 31, 1998, $15,000 was
receivable under these contracts.
The Company utilizes income simulation models to complement its
traditional gap analysis. While ALCO routinely monitors simulated net interest
income sensitivity over a rolling two-year horizon, it also utilizes additional
tools to monitor potential longer-term interest rate risk. The income simulation
models measure 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 concert with
market interest rates.
The Company's interest rate sensitivity is determined by identifying the
probable impact of changes in market interest rates on the yields on the
Company's assets and the rates which would be paid on it's 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
estimated effects of the Company's interest rate floors are included in the
results of the sensitivity analysis. 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 following table
reflects the estimated exposure of the Company's net interest income for the
next twelve months, assuming a parallel and pro rata shift in interest rates.
<TABLE>
<CAPTION>
Rate Change Estimated Impact on
(Basis Points) Net Interest Income
-------------- -------------------
$ %
--------- ---
<S> <C> <C>
+200 1,255,000 2.6
-200 (2,775,000) (3.1)
</TABLE>
19
<PAGE> 20
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including: yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cashflows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that the Asset/Liability
Committee might take in responding to or anticipating changes in interest rates.
Liquidity Risk
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, interests-bearing deposits in banks and Federal funds
sold and securities available for sale. Primary funding sources include core
deposits, capital markets 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 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 equivalents throughout its history.
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.
At March 31, 1998, the parent company's short-term debt, consisting
principally of commercial paper used to finance ongoing current business
activities, was approximately $28,368,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$48,578,000 and back-up credit lines with banks of $19,000,000. Since 1979, the
parent company has had no need to use available back-up lines of credit.
While the 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.
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 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 $ -- $ -- $ -- $ -- $ 1,300
Investment securities 19,994 15,637 17,211 294,052 6,795 353,689
Loans, net of unearned
discounts 399,858 21,468 71,421 47,515 (8,592) 531,670
Noninterest-earning assets
and allowance for
credit losses -- -- -- -- 79,143 79,143
--------- --------- --------- --------- --------- ---------
Total Assets 421,152 37,105 88,632 341,567 77,346 965,802
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings [1] -- -- 22,710 -- -- 22,710
NOW [1] -- -- 63,798 -- -- 63,798
Money market [1] 98,892 -- 23,174 -- -- 122,066
Time - domestic 132,449 68,494 19,738 -- -- 220,681
- foreign 1,000 1,730 -- -- -- 2,730
Federal funds purchased &
securities sold u/a/r 63,161 10,200 -- -- -- 73,361
Commercial paper 28,118 -- -- -- -- 28,118
Other short-term borrowings 2,536 12,500 -- -- -- 15,036
Long-term borrowings - FHLB -- 20,000 21,750 -- -- 41,750
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 375,552 375,552
--------- --------- --------- --------- --------- ---------
Total Liabilities and
Shareholders' Equity 326,156 112,924 151,170 -- 375,552 965,802
--------- --------- --------- --------- --------- ---------
Net Interest Rate
Sensitivity Gap $ 94,996 $ (75,819) $ (62,538) $ 341,567 $(298,206) $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
March 31, 1998 $ 94,996 $ 19,177 $ (43,361) $ 298,206 $ -- $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
March 31, 1997 $ 29,607 $ 17,375 $ (1,696) $ 275,562 $ -- $ --
========= ========= ========= ========= ========= =========
Cumulative Gap at
December 31, 1997 $ 158,116 $ 97,742 $ 60,343 $ 377,414 $ -- $ --
========= ========= ========= ========= ========= =========
</TABLE>
[1] Historically, balances in non-maturity deposit accounts have remained
relatively stable despite changes in levels of interest rates. Balances are
shown in repricing periods based in management's historical repricing
practices and runoff experience.
21
<PAGE> 22
STERLING BANCORP AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING BANCORP
.............................
(Registrant)
Date 5/14/98 /s/ Louis J. Cappelli
------------------------ ---------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 5/14/98 /s/ John W. Tietjen
------------------------ ---------------------------------
John W. Tietjen
Executive Vice President, Treasurer
and Chief Financial Officer
22
<PAGE> 23
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 24
Per Share Earnings
27 Financial Data X 25
Schedule
</TABLE>
23
<PAGE> 1
Exhibit (11)
STERLING BANCORP AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $3,002,965 $2,462,476
Less: preferred dividends 12,807 9,578
---------- ----------
Net income available for common shareholders 2,990,158 2,452,898
Add: interest on convertible subordinated debt -- 74,990
---------- ----------
Net income adjusted for diluted computation $2,990,158 $2,527,888
========== ==========
Weighted average common shares outstanding 8,218,288 7,721,565
Add dilutive effect of:
Stock options 200,165 87,724
Convertible preferred stock 244,691 248,080
Convertible subordinated debt -- 494,440
---------- ----------
Adjusted for assumed diluted computation 8,663,144 8,551,809
========== ==========
Basic Earnings per share $0.36 $0.32
===== =====
Diluted Earnings per shares $0.35 $0.30
===== =====
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 44,605
<INT-BEARING-DEPOSITS> 1,300
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 122,086
<INVESTMENTS-CARRYING> 231,603
<INVESTMENTS-MARKET> 231,755
<LOANS> 531,670
<ALLOWANCE> 8,595
<TOTAL-ASSETS> 965,802
<DEPOSITS> 665,834
<SHORT-TERM> 116,515
<LIABILITIES-OTHER> 46,900
<LONG-TERM> 41,750
0
2,472
<COMMON> 8,265
<OTHER-SE> 84,066
<TOTAL-LIABILITIES-AND-EQUITY> 965,802
<INTEREST-LOAN> 12,259
<INTEREST-INVEST> 5,715
<INTEREST-OTHER> 214
<INTEREST-TOTAL> 18,188
<INTEREST-DEPOSIT> 4,405
<INTEREST-EXPENSE> 6,432
<INTEREST-INCOME-NET> 11,756
<LOAN-LOSSES> 844
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,120
<INCOME-PRETAX> 5,268
<INCOME-PRE-EXTRAORDINARY> 3,003
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,003
<EPS-PRIMARY> 0.36<F1>
<EPS-DILUTED> 0.35<F1>
<YIELD-ACTUAL> 5.77
<LOANS-NON> 1,229
<LOANS-PAST> 1,075
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,415
<ALLOWANCE-OPEN> 8,678
<CHARGE-OFFS> 970
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 8,595
<ALLOWANCE-DOMESTIC> 5,911
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,684
<FN>
<F1>
*Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." Accordingly, the Company has restated EPS for March 31, 1997 as follows:
BASIC $.32
DILUTED $.30
</FN>
</TABLE>
