<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, 2000
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, 2000 THERE WERE 8,275,548 SHARES OF COMMON STOCK,
$1.00 PAR VALUE, OUTSTANDING.
<PAGE> 2
STERLING BANCORP
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
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 11
Results for Three Months 11
Results for Six Months 13
Balance Sheet Analysis 15
Capital 17
Average Balance Sheets 18
Rate/Volume Analysis 20
Regulatory Capital and Ratios 22
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Asset/Liability Management 23
Interest Rate Sensitivity 26
PART II OTHER INFORMATION
Item 4. Submission of Matters to a
Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 28
EXHIBIT INDEX 29
Exhibit 11 Computation of Per Share Earnings 30
Exhibit 27 Financial Data Schedule 31
</TABLE>
2
<PAGE> 3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 44,983,968 $ 35,505,342
Interest-bearing deposits with other banks 515,000 515,000
Investment securities
Available for sale (at estimated market value) 151,132,944 162,463,715
Held to maturity (estimated market value
$293,576,333 and $286,220,249, respectively) 302,043,675 294,938,717
--------------- ---------------
Total investment securities 453,176,619 457,402,432
--------------- ---------------
Loans, net of unearned discounts 670,952,848 689,096,080
Less allowance for credit losses 11,923,476 11,116,848
--------------- ---------------
Loans, net 659,029,372 677,979,232
--------------- ---------------
Customers' liability under acceptances 2,362,562 3,888,140
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 5,534,484 5,847,842
Accrued interest receivable 4,415,699 4,541,954
Other real estate owned 767,078 358,175
Other assets 15,693,187 11,690,695
--------------- ---------------
$ 1,207,636,409 $ 1,218,887,252
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 275,513,667 $ 291,807,803
Interest-bearing deposits 512,817,473 570,712,149
--------------- ---------------
Total deposits 788,331,140 862,519,952
Federal funds purchased and securities
sold under agreements to repurchase 190,959,504 118,238,418
Commercial paper 28,970,400 40,319,200
Other short-term borrowings 19,911,135 10,993,363
Acceptances outstanding 2,362,562 3,888,140
Due to factoring clients 36,972,030 37,933,948
Accrued expenses and other liabilities 21,063,184 18,704,104
--------------- ---------------
1,088,569,955 1,092,597,125
Long-term debt - FHLB 10,700,000 21,050,000
--------------- ---------------
Total liabilities 1,099,269,955 1,113,647,125
--------------- ---------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares
Series B, issued 1,230 shares 24,600 24,600
Series D, issued 238,961 and
241,883 shares, respectively 2,389,610 2,418,830
--------------- ---------------
2,414,210 2,443,430
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 8,734,373 and 8,723,051 shares, respectively 8,734,373 8,723,051
Capital surplus 51,786,329 51,911,883
Retained earnings 57,887,674 52,360,024
Accumulated other comprehensive loss,
net of tax (2,345,285) (2,634,509)
--------------- ---------------
118,477,301 112,803,879
Less
Common shares in treasury at cost, 458,825 and
357,993 shares, respectively 7,766,173 6,515,522
Unearned compensation 2,344,674 1,048,230
--------------- ---------------
Total shareholders' equity 108,366,454 105,240,127
--------------- ---------------
$ 1,207,636,409 $ 1,218,887,252
=============== ===============
</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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $16,618,892 $13,436,810 $31,801,096 $26,575,285
Investment securities:
Available for sale 2,396,050 1,998,226 4,837,071 3,962,990
Held to maturity 5,228,184 3,404,408 10,363,228 6,025,763
Federal funds sold 9,740 84,352 179,028 272,629
Deposits with other banks 23,378 50,122 58,863 74,308
----------- ----------- ----------- -----------
Total interest income 24,276,244 18,973,918 47,239,286 36,910,975
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 5,347,931 3,669,573 11,447,629 6,978,173
Federal funds purchased
and securities sold under agreements
to repurchase 2,465,584 1,055,616 3,618,124 2,027,958
Commercial paper 340,502 445,200 736,632 933,472
Other short-term borrowings 306,992 250,139 562,339 352,919
Long-term debt 107,412 519,843 302,434 1,045,126
----------- ----------- ----------- -----------
Total interest expense 8,568,421 5,940,371 16,667,158 11,337,648
----------- ----------- ----------- -----------
Net interest income 15,707,823 13,033,547 30,572,128 25,573,327
Provision for credit losses 1,626,800 1,370,000 3,039,600 2,753,000
----------- ----------- ----------- -----------
Net interest income after provision
for credit losses 14,081,023 11,663,547 27,532,528 22,820,327
----------- ----------- ----------- -----------
NONINTEREST INCOME
Factoring income 1,224,570 1,263,979 2,314,211 2,420,242
Mortgage banking income 1,695,273 1,473,373 2,890,137 2,681,015
Service charges on deposit accounts 1,197,647 747,750 1,996,219 1,540,345
Trade finance income 690,613 523,558 1,527,937 1,047,164
Trust fees 166,199 205,131 351,858 401,316
Other service charges and fees 531,888 354,642 965,273 682,168
Other income 33,208 27,562 68,949 51,633
----------- ----------- ----------- -----------
Total noninterest income 5,539,398 4,595,995 10,114,584 8,823,883
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries 5,858,470 5,014,677 11,252,397 9,654,320
Employee benefits 1,313,822 1,145,049 2,458,705 2,156,201
----------- ----------- ----------- -----------
Total personnel expenses 7,172,292 6,159,726 13,711,102 11,810,521
Occupancy expense, net 976,208 803,159 1,948,678 1,562,804
Equipment expense 585,899 849,956 1,176,072 1,399,898
Other expenses 3,971,261 2,645,571 7,478,425 5,327,471
----------- ----------- ----------- -----------
Total noninterest expenses 12,705,660 10,458,412 24,314,277 20,100,694
----------- ----------- ----------- -----------
Income before income taxes 6,914,761 5,801,130 13,332,835 11,543,516
Provision for income taxes 2,916,103 2,249,699 5,455,618 4,527,463
----------- ----------- ----------- -----------
Net income $ 3,998,658 $ 3,551,431 $ 7,877,217 $ 7,016,053
=========== =========== =========== ===========
Average number of common shares outstanding
Basic 8,290,665 8,519,698 8,326,385 8,552,318
Diluted 8,609,114 8,895,815 8,646,743 8,935,196
Per average common share
Basic $ .48 $ .42 $ .94 $ .82
Diluted .47 .40 .91 .78
Dividends per common share .14 .12 .28 .24
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $3,998,658 $ 3,551,431 $7,877,217 $ 7,016,053
Other comprehensive income, net of tax:
Unrealized holding gains(losses)
arising during the period 284,942 (1,380,138) 289,224 (1,842,024)
---------- ----------- ---------- -----------
Comprehensive income $4,283,600 $ 2,171,293 $8,166,441 $ 5,174,029
========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------- -------------
<S> <C> <C>
PREFERRED STOCK
Balance at January 1 $ 2,443,430 $ 2,463,890
Conversions of Series D shares (29,220) (20,460)
------------- -------------
Balance at June 30 $ 2,414,210 $ 2,443,430
============= =============
COMMON STOCK
Balance at January 1 $ 8,723,051 $ 8,310,284
Conversions of preferred shares
into common shares 2,922 2,046
Options exercised 8,400 10,500
------------- -------------
Balance at June 30 $ 8,734,373 $ 8,322,830
============= =============
CAPITAL SURPLUS
Balance at January 1 $ 51,911,883 $ 45,287,315
Conversion of preferred shares
into common shares 26,298 18,414
Issuance of shares under
incentive compensation plan (214,369) --
Options exercised 62,517 116,125
------------- -------------
Balance at June 30 $ 51,786,329 $ 45,421,854
============= =============
RETAINED EARNINGS
Balance at January 1 $ 52,360,024 $ 48,817,648
Net income 7,877,217 7,016,053
Cash dividends paid - common shares (2,308,040) (1,946,909)
- preferred shares (41,527) (33,013)
------------- -------------
Balance at June 30 $ 57,887,674 $ 53,853,779
============= =============
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Balance at January 1 $ (2,634,509) $ 538,840
------------- -------------
Unrealized holding (losses)gains arising during
the period:
Before tax 534,615 (3,404,853)
Tax (expense) benefit (245,391) 1,562,829
------------- -------------
Net of tax 289,224 (1,842,024)
------------- -------------
Balance at June 30 $ (2,345,285) $ (1,303,184)
============= =============
TREASURY STOCK
Balance at January 1 $ (6,515,522) $ (1,592,690)
Issuance of shares under
incentive compensation plan 1,537,179 --
Purchase of common shares (2,787,830) (2,946,377)
------------- -------------
Balance at June 30 $ (7,766,173) $ (4,539,067)
============= =============
UNEARNED COMPENSATION
Balance at January 1 $ (1,048,230) $ (1,673,963)
Issuance of shares under
incentive compensation plan (1,462,656) --
Amortization of unearned compensation 166,212 160,417
------------- -------------
Balance at June 30 $ (2,344,674) $ (1,513,546)
============= =============
TOTAL SHAREHOLDERS' EQUITY
Balance at January 1 $ 105,240,127 $ 102,151,324
Net changes during the period 3,126,327 534,772
------------- -------------
Balance at June 30 $ 108,366,454 $ 102,686,096
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,877,217 $ 7,016,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 3,039,600 2,753,000
Depreciation and amortization of premises and equipment 807,385 921,452
Deferred income tax (provision)benefit (335,773) 32,048
Net change in loans held for sale (6,633,994) 9,150,353
Amortization of unearned compensation 166,212 160,417
Amortization of premiums of securities 436,043 1,165,089
Accretion of discounts on securities (558,104) (422,276)
Decrease(Increase) in accrued interest receivable 126,255 (361,912)
(Decrease)Increase in due to factored clients (961,918) 1,812,487
Increase in other liabilities 2,359,080 2,906,158
Other, net (6,284,927) (3,885,580)
------------ -------------
Net cash provided by operating activities 37,076 21,247,289
------------ -------------
INVESTING ACTIVITIES
Purchase of premises and equipment (494,027) (1,029,859)
Net increase in federal funds sold -- (10,000,000)
Increase in other real estate owned (408,903) (48,524)
Net decrease in loans 24,777,226 28,100,306
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 17,845,771 36,205,621
Purchases of securities - held to maturity (25,217,336) (93,889,533)
Purchases of securities - available for sale (46,813,583) (105,988,302)
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 59,067,636 109,938,657
------------ -------------
Net cash provided by(used in) investing activities 28,756,784 (36,711,634)
------------ -------------
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (16,294,136) (66,186,754)
Net(decrease)increase in interest-bearing deposits (57,894,676) 47,564,989
Net increase in Federal funds purchased and
securities sold under agreements to repurchase 72,721,086 47,740,062
Net decrease in commercial paper
and other short-term borrowings (2,431,028) (9,908,555)
Purchase of Treasury stock (2,787,830) (2,946,377)
Decrease in other long-term debt (10,350,000) (350,000)
Proceeds from exercise of stock options 70,917 126,625
Cash dividends paid on common and preferred stock (2,349,567) (1,979,922)
------------ -------------
Net cash (used in)provided by financing activities (19,315,234) 14,060,068
------------ -------------
Net increase in cash and due from banks 9,478,626 (1,404,277)
Cash and due from banks - beginning of period 35,505,342 43,311,268
------------ -------------
Cash and due from banks - end of period $ 44,983,968 $ 41,906,991
============ =============
Supplemental schedule of non-cash financing activities:
Issuance of treasury shares $ 1,537,179 $ --
Preferred stock conversions 29,220 20,460
Supplemental disclosure of cash flow information:
Interest paid $ 18,128,827 $ 12,111,553
Income taxes paid 5,407,951 4,301,231
</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 June 30, 2000 and 1999
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 1999 financial statements to conform to the 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, 1999.
The Board announced on November 18, 1999, the declaration of a 5% stock
dividend payable on December 14, 1999 to shareholders of record on that
date. Fractional shares were cashed-out and payments were made to
shareholders in lieu of fractional shares. The basic and diluted average
number of shares outstanding and earnings per share information for all
prior reporting periods have been restated to reflect the effect of the
stock dividend.
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 238,965 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. In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 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
stockholders and establishes standards for related disclosures about an
enterprise's products and services, geographic areas, and major customers.
8
<PAGE> 9
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company provides a full range of financial products and services,
including business and consumer loans, asset-based financing, accounts
receivable management services, trade financing, equipment leasing, corporate
and consumer deposit services, commercial and residential mortgage lending and
brokerage, trust and estate administration and investment management services.
The Company's primary source of earnings is net interest income, which
represents the difference between interest earned on interest-earning assets and
the interest incurred on interest-bearing liabilities. The Company's 2000
year-to-date average interest-earning assets were 55.9% loans (corporate lending
was 82.0% and real estate lending was 16.5% of total loans, respectively) and
44.1% investment securities and money market investments. There are no industry
concentrations exceeding 10% of loans, gross, in the corporate loan portfolio.
Approximately 76% of loans are to borrowers located in the metropolitan New York
area. In order to comply with the provisions of SFAS No. 131, the Company has
determined that it has three reportable operating segments: corporate lending,
real estate lending and company-wide treasury.
The following tables provide certain information regarding the Company's
operating segments for the three and six month periods ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
Corporate Real Estate Company-wide
Lending Lending Treasury Totals
------- ------- -------- ------
<S> <C> <C> <C> <C>
Three Months Ended June 30, 2000
--------------------------------
Net interest income $ 8,932,589 $ 2,657,235 $ 3,379,524 $ 14,969,348
Noninterest income 2,978,498 1,747,675 30,275 4,756,448
Depreciation and amortization 46,559 54,234 170 100,963
Segment profit 4,650,488 2,393,846 5,591,899 12,636,233
Segment assets 528,307,089 109,116,551 525,970,164 1,163,393,804
Three Months Ended June 30, 1999
--------------------------------
Net interest income $ 6,846,298 $ 2,084,666 $ 3,278,171 $ 12,209,135
Noninterest income 2,116,442 1,472,458 36,476 3,625,376
Depreciation and amortization 39,381 52,548 172 92,101
Segment profit 4,211,429 2,118,600 4,555,600 10,885,629
Segment assets 497,681,191 95,099,347 437,691,934 1,030,472,472
Six Months Ended June 30, 2000
------------------------------
Net interest income $ 14,873,362 $ 4,923,907 $ 9,191,108 $ 28,988,377
Noninterest income 5,625,505 3,102,363 76,825 8,804,693
Depreciation and amortization 89,408 97,819 340 187,567
Segment profit 8,181,135 4,316,246 11,660,299 24,157,680
Segment assets 528,307,089 109,116,551 525,970,164 1,163,393,804
Six Months Ended June 30, 1999
------------------------------
Net interest income $ 13,445,463 $ 4,385,882 $ 6,000,110 $ 23,831,455
Noninterest income 4,051,285 2,663,347 78,079 6,792,711
Depreciation and amortization 77,424 95,697 343 173,464
Segment profit 6,967,262 4,143,700 9,728,700 20,839,662
Segment assets 497,681,191 95,099,347 437,691,934 1,030,472,472
</TABLE>
9
<PAGE> 10
The following table sets forth reconciliations of reportable operating
segments net interest income, noninterest income, profits and assets to the
Company's consolidated totals:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- --------------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net interest income:
Total for reportable operating segments $ 14,969,348 $ 12,209,135 $ 28,988,377 $ 23,831,455
Other [1] 741,475 824,412 1,583,751 1,741,872
--------------- --------------- --------------- ---------------
Consolidated net interest income $ 15,710,823 $ 13,033,547 $ 30,572,128 $ 25,573,327
=============== =============== =============== ===============
Noninterest income:
Total for reportable operating segments $ 4,756,448 $ 3,625,376 $ 8,804,693 $ 6,792,711
Other [1] 782,950 970,619 1,309,891 2,031,172
--------------- --------------- --------------- ---------------
Consolidated noninterest income $ 5,539,398 $ 4,595,995 $ 10,114,584 $ 8,823,883
=============== =============== =============== ===============
Profit:
Total for reportable operating segments $ 12,636,233 $ 10,885,629 $ 24,157,680 $ 20,839,662
Other [1] (5,721,472) (5,084,499) (10,824,845) (9,296,146)
--------------- --------------- --------------- ---------------
Consolidated income before income taxes $ 6,914,761 $ 5,801,130 $ 13,332,835 $ 11,543,516
=============== =============== =============== ===============
Assets:
Total for reportable operating segments $ 1,163,393,804 $ 1,030,472,472 $ 1,163,393,804 $ 1,030,472,472
Other [1] 44,242,605 38,050,709 44,242,605 38,050,709
--------------- --------------- --------------- ---------------
Consolidated assets $ 1,207,636,409 $ 1,068,523,181 $ 1,207,636,409 $ 1,068,523,181
=============== =============== =============== ===============
</TABLE>
[1] Represents operations not considered to be a reportable segment and/or
general operating expenses of the Company.
5. In June 1998, the Financial Accounting Standard Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statements of financial condition and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative (that
is, unrealized gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 as amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement 133," and SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities - An
Amendment to FASB Statement 133," is effective for fiscal quarters of
fiscal years beginning after September 15, 2000 and does not require
restatement of prior periods. Management of the Company believes the
implementation of SFAS No. 133 will not have a material impact on the
Company's financial condition or results of operations.
10
<PAGE> 11
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. Sterling National 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 Holding Company of Virginia, Inc. Sterling
Holding Company of Virginia, Inc. owns all of the outstanding shares of Sterling
Real Estate Holding Company, Inc. ("SREHC"). Throughout this discussion and
analysis, the term "the Company" refers to Sterling Bancorp and its subsidiaries
and the term "the bank" refers to Sterling National Bank 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, 1999. This report
contains statements that may 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.
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 metropolitan New York and Washington, DC areas, as well as
Virginia and other mid-Atlantic states 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 June 30,
2000, the Bank's year-to-date average earning assets (of which loans were 55%
and investment securities were 44%) represented approximately 97% 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 acquisitions. As a result,
acquisition discussions and, in some cases negotiations, regularly take place
and future acquisitions could occur.
Results for the Three Months Ended June 30, 2000 and 1999
---------------------------------------------------------
OVERVIEW
The Company reported net income for the three months ended June 30, 2000 of $4.0
million, representing $0.47 per share, calculated on a diluted basis, compared
to $3.6 million, or $0.40 per share, calculated on a diluted basis, for the like
period in 1999. This increase reflects higher net interest income and continued
growth in noninterest income.
Net interest income , on a tax equivalent basis, increased to $16.0
million for the second quarter of 2000 compared with $13.2 million for the same
period in 1999, principally due to higher average earning assets outstanding.
The net interest margin, on a tax equivalent basis, was 6.04% for the second
quarter
11
<PAGE> 12
of 2000 compared to 6.02% for the like 1999 period. This increase was
principally due to an increase of 62 basis points in the average yield on
earning assets partially offset by an increase in average cost of funds of 77
basis points.
Noninterest income rose to $5.5 million for the three months ended June
30, 2000 compared to $4.6 million for the like 1999 period principally due to
continued growth in fees from trade finance, mortgage banking deposit servicing
and leasing activities.
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) in the
components of interest income and interest expense, expressed in terms of
fluctuation in average volume and rate are shown on page 20. Information as to
the components of interest income and interest expense and average rates is
provided in the Average Balance Sheets shown on page 18.
Net interest income, on a tax equivalent basis, for the three months ended
June 30, 2000 increased to $15,951,000 from $13,199,000 for the comparable
period in 1999.
Total interest income, on a tax equivalent basis, aggregated $24,520,000
which was up $5,380,000 for the second quarter of 2000 when compared to
$19,140,000 for the same period of 1999. The tax equivalent yield on interest
earning assets was 9.33% for the three months ended June 30, 2000 compared with
8.71% for the comparable period in 1999. The increase in interest income was due
to an increase in income earned on the Company's loan portfolio and on the
investment securities portfolio principally as a result of higher average
outstandings. Loan balances increased as the result of the implementation of
business plans, including the purchase of portfolios, designed to increase funds
employed in this asset category. The increase in investment securities balances
reflects the implementation of asset/liability management strategies. The
increase in yield on earning assets was due to higher yields on loans and
investment securities.
Interest earned on the loan portfolio amounted to $16,618,000 which was up
$3,181,000 when compared to a year ago. Average loan balances amounted to
$621,537,000 which were up $88,426,000 from an average of $533,111,000 in the
prior year period. The increase in the average loans (primarily in the leasing
and commercial and industrial loan segments of the Company's loan portfolio),
coupled with higher yields, accounted for the increase in interest earned on
loans. The increase in the yield on the domestic loan portfolio to 11.36% for
the three months ended June 30, 2000 from 10.65% for the comparable 1999 period
was primarily attributable to a higher rate environment.
Tax equivalent interest earned on investment securities increased
$2,300,000 to $7,869,000 in 2000 due to higher average outstandings and higher
yields. Average investment securities outstandings increased to $460,654,000
from $357,579,000 in the prior year period. The increase in average balances was
primarily in U.S. Government and U.S. Government corporation and agency
guaranteed mortgage-backed securities. The increase in yield on investment
securities to 6.85% for the second quarter of 2000 from 6.25% in the prior year
period reflects the higher rate environment in the current year period.
Interest expense increased $2,628,000 to $8,569,000 for the second quarter
of 2000 from $5,941,000 for the comparable period in 1999. The increase in
interest expense was due to higher average funds employed coupled with higher
average rates paid for those funds.
12
<PAGE> 13
Interest expense on deposits increased $1,678,000 for the three months
ended June 30, 2000 to $5,348,000 from $3,670,000 for the comparable 1999 period
due to increases in average outstandings and higher rates paid on deposits.
Average interest-bearing deposit balances amounted to $520,681,000 which were up
$94,582,000 from an average of $426,099,000 in the prior year period. The
increase in average balances was principally in certificates of deposit which
are included in time deposits. The average rate paid on interest-bearing
deposits increased to 4.13% for the first quarter of 2000 compared to 3.45%
comparable year-ago period.
Interest expense associated with borrowed funds increased to $3,221,000
for the second quarter of 2000 from $2,271,000 in the comparable 1999 period as
the result of higher average outstandings and rates paid principally for Federal
funds purchased and securities sold under agreements to repurchase. Average
amounts outstanding for this category of borrowing increased $78,535,000 to
$169,115,000 for the three months ended June 30, 2000 and the average rates
paid rose to 5.73% from 4.78% in the prior year period.
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 $1,627,000 up
$257,000 when compared to the same period last year.
Noninterest Income
Noninterest income increased $943,000 for the second quarter of 2000 when
compared with the like 1999 period primarily as a result of increased fees from
mortgage banking, leasing, trade finance and deposit services.
Noninterest Expenses
Noninterest expenses increased $2,247,000 for the second quarter of 2000 when
compared with the like 1999 period primarily due to increased personnel,
occupancy and various other expenses incurred to support growing levels of
business activity and continued investment in the business franchise.
Results for the Six Months Ended June 30, 2000 and 1999
-------------------------------------------------------
OVERVIEW
The Company reported net income for the six months ended June 30,2000 of $7.9
million, representing $0.91 per share, calculated on a diluted basis, compared
to $7.0 million, or $0.78 per share calculated on a diluted basis, for the like
period in 1999. This increase reflects continued growth in both net interest
income and noninterest income as explained below.
Net interest income, on a tax equivalent basis, increased to $31.0 million
for the first six months of 2000 compared with $25.9 million for the same period
in 1999, principally due to higher average earning assets outstanding. The net
interest margin, on a tax equivalent basis, was 5.93% for the first six months
of 2000 compared to 6.10% for the like 1999 period. This decrease was due to a
63 basis point increase in the average cost of funds partially offset by a 37
basis point increase in average yield on earning assets.
Noninterest income rose to $10.1 million for the six months ended June
30,2000 compared to $8.8 million for the like 1999 period principally due to
continued growth in fees from mortgage banking, factoring, leasing, trade
finance and deposit services.
13
<PAGE> 14
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) in the
components of interest income and interest expense for the first six months,
expressed in terms of fluctuation in average volume and rate are shown on page
21. Information as to the components of interest income and interest expense and
average rates for the first six months is provided in the Average Balance Sheets
shown on page 19.
Net interest income, on a tax equivalent basis, for the six months ended
June 30,2000 increased $5,145,000 to $31,036,000 from $25,891,000 for the
comparable period in 1998.
Total interest income, on a tax equivalent basis, aggregated $47,702,000
up $10,473,000 for the first half of 2000 as compared to $37,229,000 for the
same period of 1999. The tax equivalent yield on interest-earning assets was
9.14% for the first six months of 2000 compared with 8.77% for the comparable
period in 1999. The increase in interest income was due to increases in income
earned on the Company's loan and investment securities portfolios as a result of
management's strategy to increase funds employed in these asset categories. The
increase in yield on earning assets was due to higher yields on loans and
investment securities.
Interest earned on the loan portfolio amounted to $31,801,000 up
$5,226,000 when compared to a year ago. Average loan balances amounted to
$610,439,000 up $79,599,000 from an average of $530,840,000 in the prior year
period. The increase in the average loans, primarily in the Company's leasing
and commercial and industrial loan portfolio, accounted for the increase in
interest earned on loans. The increase in the yield on the domestic loan
portfolio to 11.11% for the six months ended June 30,2000 from 10.69% for the
comparable 1999 period was primarily attributable to the higher rate environment
in the 2000 period.
Tax equivalent interest earned on investment securities increased
$5,356,000 to $15,663,000 in 2000 due to higher average outstandings and higher
yields. Average investment securities outstandings increased to $460,055,000
from $337,269,000 in the prior year period. The increase in average balances was
primarily in U.S. Government and U.S. Government corporation and agency
guaranteed mortgage-backed securities. The yield on investment securities
increased to 6.81% for the six months ended June 30, 2000 from 6.12% for the
prior year period reflecting the higher rate environment in the current year
period.
Total interest expense increased $5,328,000 to $16,666,000 for the first
six months of 2000 from $11,338,000 for the comparable period in 1999. The
increase in interest expense was due to higher funds employed coupled with
higher average rates paid for interest-bearing deposits.
Interest expense on deposits increased $4,468,000 for the six months ended
June 30,2000 to $11,447,000 from $6,979,000 for the comparable 1999 period due
to increases in average outstandings and the cost of funds. Average outstandings
increased $145,137,000 to $550,558,000 in 2000 from $405,421,000 in 1999. The
average rate paid on interest-bearing deposits increased to 4.18% in 2000
compared to 3.47% in the comparable year ago period.
Interest expense associated with borrowed funds increased to $5,219,000
for the first six months of 2000 from $4,359,000 in the comparable 1999 period
as the result of higher average outstandings and rates paid principally for
Federal funds purchased and securities sold under agreements to repurchase.
Average amounts outstanding for this category of borrowing increased $43,929,000
to $129,600,000 for the six months ended June 30, 2000.
14
<PAGE> 15
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 $3,040,000 up
$287,000 when compared to the same period last year.
Noninterest Income
Noninterest income increased $1,291,000 for the first six months of 2000 when
compared with the like 1999 period primarily as a result of increased fees from
mortgage banking, leasing, trade finance and deposit services.
Noninterest Expense
Noninterest expenses increased $4,214,000 for the first six months of 2000 when
compared with the like 1999 period primarily due to increased personnel and
occupancy expenses incurred to support growing levels of business activity and
continued investments in the business franchise.
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 June 30, 2000, the
Company's portfolio of securities totalled $453,177,000 of which U.S. Government
and U.S. Government corporation and agency guaranteed mortgage-backed securities
having an average life of approximately 6.7 years amounted to $411,733,000. 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 $133,000 and $8,600,000,
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 $79,000 and gross unrealized losses of $4,423,000. Given the generally
high credit quality of the portfolio, management currently 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 and will not ultimately
be realized.
Loan Portfolio
A key management objective is to maintain the quality of the loan portfolio. The
Company seeks to achieve this objective by maintaining rigorous 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 65% of gross loans. Loans in this category are typically made to
small and medium sized businesses and range between $250,000 and $10 million.
The primary source of repayment is from the borrower's operating profits and
cash flows. Based on underwriting standards, loans may be secured in whole or in
part by collateral such as liquid assets, accounts receivable, equipment,
inventory
15
<PAGE> 16
or real property. The Company's real estate loan portfolio, which represents
approximately 15% of gross loans, is secured by mortgages on real property
located principally in the State of New York and the Commonwealth of Virginia.
The Company's leasing portfolio, which consists of finance leases for various
types of business equipment, represents approximately 15% of gross loans. The
collateral securing any loan may vary in value based on market conditions.
The following table sets forth the composition of the Company's loan
portfolio.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
($ in thousands)
% of % of
Balances Gross Balances Gross
-------- ---------- -------- -----
<S> <C> <C> <C> <C>
Domestic
Commercial and industrial $442,195 64.6% $425,100 69.2%
Equipment lease financing 101,134 14.8 79,417 12.9
Real estate 113,058 16.5 94,838 15.5
Installment - individuals 7,783 1.1 14,037 2.3
Loan to depository institutions 20,000 2.9 -- --
Foreign
Government and official institutions 777 0.1 785 0.1
-------- ---------- -------- -----
Gross loan 684,947 100.0% 614,177 100.0%
========== =====
Unearned discounts 13,994 11,221
-------- --------
Loans, net of unearned discounts $670,953 $602,956
======== ========
</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 may be
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 June 30, 2000, the ratio of the allowance to loans, net of
unearned discounts, was 1.8% and the allowance was $11,923,000. At such date,
the Company's non-accrual loans amounted to $1,510,000; $456,000 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 judgment as to the current risks inherent in the loan portfolio,
the Company's allowance for credit losses was deemed adequate to absorb all
estimable losses on specifically known and other possible credit risks
associated with the portfolio as of June 30, 2000. Potential problem loans,
which are loans that are currently performing
16
<PAGE> 17
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 $302,000 at June 30, 2000 and 2,630,000 at June 30, 1999.
Deposits
A significant source of funds for the Company continues to be deposits,
consisting of demand (noninterest-bearing), NOW, Savings, money market and time
deposits (principally certificates of deposit).
The following table provides certain information with respect to the
Company's deposits:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
2000 1999
------------------------- -------------------------
($ in thousands)
% of % of
Balances Total Balances Total
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Domestic
Demand $275,514 35.0% $262,834 38.4%
NOW 69,710 8.8 65,601 9.6
Savings 25,590 3.2 24,105 3.5
Money Market 144,305 18.3 138,172 20.2
Time deposits 270,382 34.3 190,689 27.9
-------- ----- -------- -----
Total domestic deposits 785,501 99.6 681,401 99.6
Foreign
Time deposits 2,830 0.4 2,780 0.4
-------- ----- -------- -----
Total deposits $788,331 100.0% $684,181 100.0%
======== ===== ======== =====
</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 pages 18 and 19.
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 22. 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, 2000, the Company
and the bank exceeded the requirements for "well capitalized" institutions.
17
<PAGE> 18
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
--------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with other banks $ 515 $ 23 5.29% $ 515 $ 50 4.24%
Investment securities
Available for sale 124,048 2,047 6.60 114,917 1,762 6.28
Held to maturity 304,323 5,228 6.87 219,696 3,404 6.20
Tax-exempt [2] 32,283 594 7.40 22,966 403 7.06
Federal funds sold 604 10 6.38 7,275 84 4.59
Loans, net of unearned discounts
Domestic [3] 620,755 16,604 11.36 532,325 13,425 10.65
Foreign 782 14 7.42 786 12 6.05
----------- ------- --------- -------
TOTAL INTEREST-EARNING
ASSETS 1,083,310 24,520 9.33% 898,480 19,140 8.71%
------- ====== ------- ======
Cash and due from banks 40,779 47,322
Allowance for credit losses (12,051) (10,651)
Goodwill 21,158 21,158
Other assets 22,013 19,213
----------- ---------
TOTAL ASSETS $ 1,155,209 $ 975,522
=========== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 24,254 143 2.37% $ 23,875 139 2.34%
NOW 69,337 430 2.50 69,901 431 2.47
Money Market 158,586 1,238 3.14 144,961 984 2.72
Time 265,674 3,505 5.31 184,609 2,086 4.53
Foreign
Time 2,830 32 4.54 2,753 30 4.34
----------- ------- --------- -------
Total interest-bearing
deposits 520,681 5,348 4.13 426,099 3,670 3.45
----------- ------- --------- -------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 169,115 2,466 5.86 90,580 1,056 4.67
Commercial paper 26,463 341 5.18 37,913 445 4.71
Other short-term debt 12,728 307 5.58 3,760 250 5.06
Long-term debt 10,700 107 5.22 41,050 520 5.07
----------- ------- --------- -------
Total borrowings 219,006 3,221 5.73 173,303 2,271 4.78
----------- ------- --------- -------
TOTAL INTEREST-BEARING
LIABILITIES 739,687 8,569 4.61% 599,402 5,941 3.84%
----------- ------- ====== ------- ======
Noninterest-bearing deposits 251,972 231,188
Other liabilities 58,317 42,723
----------- ---------
Total liabilities 1,049,976 873,313
Shareholders' equity 105,233 102,209
----------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,155,209 $ 975,522
=========== =========
Net interest income/spread 15,951 4.72% 13,199 4.87%
====== ======
Net yield on interest-earning
assets (margin) 6.04% 6.02%
====== ======
Less: Tax equivalent adjustment 244 166
------- ------
Net interest income $15,707 $13,033
======= =======
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages. Average rates are presented on a
tax equivalent basis. Certain reclassifications have been made to 1999
amounts to conform to current presentations.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Nonaccrual loans are included in amounts outstanding and income has been
included to the extent earned.
18
<PAGE> 19
Average Balance Sheets [1]
Six Months Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
------------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with other banks $ 515 $ 59 4.98% $ 515 $ 74 4.20%
Investment securities
Available for sale 126,952 4,175 6.58 114,996 3,507 6.13
Held to maturity 302,333 10,363 6.86 200,438 6,026 6.01
Tax-exempt [2] 30,770 1,125 7.35 21,835 774 7.15
Federal funds sold 6,418 179 5.52 11,696 273 4.64
Loans, net of unearned discounts
Domestic [3] 609,657 31,773 11.11 530,053 26,551 10.69
Foreign 782 28 7.22 787 24 6.12
----------- ------- --------- -------
TOTAL INTEREST-EARNING
ASSETS 1,077,427 47,702 9.14% 880,320 37,229 8.77%
------- ===== ------- =====
Cash and due from banks 39,148 45,670
Allowance for credit losses (11,801) (10,563)
Goodwill 21,158 21,158
Other assets 22,386 19,603
----------- ---------
TOTAL ASSETS $ 1,148,318 $ 956,188
=========== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 24,242 285 2.37% $ 24,427 284 2.34%
NOW 70,802 875 2.49 66,081 809 2.47
Money Market 161,014 2,537 3.17 135,211 1,827 2.72
Time 291,670 7,688 5.30 176,960 3,996 4.55
Foreign
Time 2,830 62 4.44 2,742 63 4.63
----------- ------- --------- -------
Total interest-bearing
deposits 550,558 11,447 4.18 405,421 6,979 3.47
----------- ------- --------- -------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 129,600 3,618 5.61 85,671 2,028 4.77
Commercial paper 29,247 737 5.06 39,897 933 4.72
Other short-term debt 9,764 562 5.54 3,691 353 5.07
Long-term debt 13,407 302 5.47 41,172 1,045 5.08
----------- ------- --------- -------
Total borrowings 182,018 5,219 5.51 170,431 4,359 4.84
----------- ------- --------- -------
TOTAL INTEREST-BEARING
LIABILITIES 732,576 16,666 4.51% 575,852 11,338 3.88%
------- ===== ------- =====
Noninterest-bearing deposits 252,157 236,107
Other liabilities 59,022 42,013
----------- ---------
Total liabilities 1,043,755 853,972
Shareholders' equity 104,563 102,216
----------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,148,318 $ 956,188
=========== =========
Net interest income/spread 31,036 4.63% 25,891 4.89%
------- ===== =====
Net yield on interest-earning
assets (margin) 5.93% 6.10%
===== =====
Less: Tax equivalent adjustment 463 318
------- -------
Net interest income $30,573 $25,573
======= =======
</TABLE>
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages. Average rates are presented on a
tax equivalent basis. Certain reclassifications have been made to 1999
amounts to conform to current presentations.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Nonaccrual loans are included in amounts outstanding and income has been
included to the extent earned.
19
<PAGE> 20
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
Three Months Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease)
Three Months Ended
June 30, 2000 and 1999
-------------------------------------
Volume Rate Net[2]
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ -- $ (27) $ (27)
------- ------- -------
Investment securities
Available for sale 173 112 285
Held to maturity 1,424 400 1,824
Tax-exempt 171 20 191
------- ------- -------
Total 1,768 532 2,300
------- ------- -------
Federal funds sold (97) 23 (74)
------- ------- -------
Loans, net of unearned discounts [3]
Domestic 2,183 996 3,179
Foreign -- 2 2
------- ------- -------
Total 2,183 998 3,181
------- ------- -------
TOTAL INTEREST INCOME $ 3,854 $ 1,526 $ 5,380
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ 2 $ 2 $ 4
NOW (4) 3 (1)
Money Market 96 158 254
Time 1,019 400 1,419
Foreign
Time 1 1 2
------- ------- -------
Total 1,114 564 1,678
------- ------- -------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 1,089 321 1,410
Commercial paper (145) 41 (104)
Other short-term debt 55 2 57
Long-term debt (426) 13 (413)
------- ------- -------
Total 573 377 950
------- ------- -------
TOTAL INTEREST EXPENSE $ 1,687 $ 941 $ 2,628
======= ======= =======
NET INTEREST INCOME $ 2,167 $ 585 $ 2,752
======= ======= =======
</TABLE>
[1] The above table is presented on tax equivalent basis.
[2] 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. The effect of the extra day in 2000 has been included
in the change in volume.
[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
Rate/Volume Analysis [1]
Six Months Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease)
Six Months Ended
June 30, 2000 and 1999
--------------------------------------
Volume Rate Net[2]
------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest-bearing deposits with other banks $ (5) $ (10) $ (15)
------- ------- --------
Investment securities
Available for sale 408 260 668
Held to maturity 3,408 929 4,337
Tax-exempt 328 23 351
------- ------- --------
Total 4,144 1,212 5,356
------- ------- --------
Federal funds sold (137) 43 (94)
------- ------- --------
Loans, net of unearned discounts [3]
Domestic 4,195 1,027 5,222
Foreign -- 4 4
------- ------- --------
Total 4,195 1,031 5,226
------- ------- --------
TOTAL INTEREST INCOME $ 8,197 $ 2,276 $ 10,473
======= ======= ========
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ (1) $ 2 $ 1
NOW 60 6 66
Money Market 390 320 710
Time 2,953 739 3,692
Foreign
Time 3 (4) (1)
------- ------- --------
Total 3,405 1,063 4,468
------- ------- --------
Borrowings
Federal funds purchased and securities
sold under agreements to repurchase 1,190 400 1,590
Commercial paper (259) 63 (196)
Other short-term debt 198 11 209
Long-term debt (810) 67 (743)
------- ------- --------
Total 319 541 860
------- ------- --------
TOTAL INTEREST EXPENSE $ 3,724 $ 1,604 $ 5,328
======= ======= ========
NET INTEREST INCOME $ 4,473 $ 672 $ 5,145
======= ======= ========
</TABLE>
[1] The above table is presented on tax equivalent basis.
[2] 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. The effect of the extra day in 2000 has been included
in the change in volume.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
21
<PAGE> 22
STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios
RATIOS AND MINIMUMS
(dollars in thousands)
<TABLE>
<CAPTION>
For Capital To Be Well
Actual Adequacy Minimum Capitalized
------------------ ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 2000
Total Capital (to Risk Weighted Assets):
The Company $98,585 13.70% $57,573 8.00% $71,967 10.00%
The bank 82,287 11.97 55,000 8.00 68,750 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 89,553 12.44 28,787 4.00 43,180 6.00
The bank 73,680 10.72 27,500 4.00 41,250 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 89,553 7.90 45,362 4.00 56,703 5.00
The bank 73,680 6.69 44,076 4.00 55,095 5.00
AS OF DECEMBER 31, 1999
Total Capital (to Risk Weighted Assets):
The Company $95,880 13.11% $58,488 8.00% $73,109 10.00%
The bank 74,694 10.79 55,402 8.00 69,252 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 86,717 11.86 29,244 4.00 43,866 6.00
The bank 66,034 9.54 27,701 4.00 41,551 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 86,717 7.75 44,729 4.00 55,911 5.00
The bank 66,034 6.13 43,102 4.00 53,877 5.00
</TABLE>
22
<PAGE> 23
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET
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. The Company's gap
analysis at June 30, 2000, is presented on page 26.
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. However, since 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 simulation modeling,
primarily focusing on the longer term structure of the balance sheet. The
results of the income simulation analysis, reveal 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
23
<PAGE> 24
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.
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 June 30, 2000, the Company's off-balance sheet financial instruments
consisted of four interest rate floor contracts having a notional amount
totaling $125 million consisting of a contract with a notional amount of $25
million and a final maturity of February 9, 2001, another contract with a
notional amount of $25 million and a final maturity of May 1, 2001, another
contract with a notional amount of $25 million and a final maturity of November
15, 2001 and two contracts with a notional amount of $25 million each and a
final maturity of November 15, 2002. These financial instruments are being used
as part of the Company's interest rate risk management and not for trading
purposes. At June 30, 2000, 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
$476,000 which are amortized monthly against interest income from the designated
assets. At June 30, 2000, the unamortized premiums on these contracts totaled
$234,000 and are included in other assets. At June 30, 2000, there were no
amounts 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 deposit costs are internally managed and tend to exhibit less
sensitivity to changes in interest rates than the Company's adjustable rate
assets whose yields are based on external indices and change in concert with
market interest rates.
The Company's interest rate sensitivity is determined by identifying the
probable impact of changes in market interest rates on the yields on the
Company's assets and the rates which would be paid on its liabilities. This
modeling technique involves a degree of estimation based on certain assumptions
that management believes to be reasonable. Utilizing this process, management
can project the impact of changes in interest rates on net interest margin. The
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. Management generally
has maintained a risk position well within the policy limits. As of June 30,
2000, the model indicated the impact of a 200 basis point parallel and pro rata
rise in rates over twelve months would approximate a 0.76% ($61,000) increase
in net interest income, while the impact of a 200 basis point decline in rates
over the same period would approximate a 1.60% ($960,000) decline from an
unchanged rate environment.
24
<PAGE> 25
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 cash flows,
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 throughout the Company. 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
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 a
timely basis to minimize the impact of any dramatic change in market conditions.
The parent company generates income from its own operations. Its cash
requirements are supplemented from funds maintained or generated by its
subsidiaries, principally the bank. Such sources have been adequate to meet the
parent company's cash requirements.
The bank can supply funds to the parent company and its nonbank subsidiaries
subject to various legal restrictions. 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 June 30, 2000, the parent company's short-term debt, consisting
principally of commercial paper used to finance ongoing current business
activities, was approximately $29,320,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$52,689,000 and back-up credit lines with banks of $24,000,000. Since 1979, the
parent company has had no need to use available back-up lines of credit.
While the past performance is no guarantee of the future, management
currently 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.
25
<PAGE> 26
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. Amounts are presented in thousands.
<TABLE>
<CAPTION>
Repricing Date
-------------------------------------------------------------------------------------------
More than 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 $ 515 $ -- $ -- $ -- $ -- $ 515
Investment securities 16,170 4,867 9,997 415,061 7,081 453,176
Loans, net of unearned
discounts
Commercial and Industrial 438,185 1,887 1,984 139 (519) 441,676
Lease financing 30,767 3,374 64,750 2,243 (13,281) 87,853
Real estate 28,056 4,196 29,158 51,648 (95) 112,963
Installment 101 4,257 2,110 1,315 (99) 7,684
Loans to depository
institutions 20,000 -- -- -- -- 20,000
Foreign government and
official institutions 777 -- -- -- -- 777
Noninterest-earning assets
and allowance for
credit losses -- -- -- -- 82,992 82,992
-------- --------- --------- -------- --------- ----------
Total Assets 534,571 18,581 107,999 470,406 76,079 1,207,636
-------- --------- --------- -------- --------- ----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Savings [1] -- -- 25,590 -- -- 25,590
NOW [1] -- -- 69,710 -- -- 69,710
Money Market [1] 116,545 -- 27,761 -- -- 144,306
Time - domestic 151,516 88,476 30,389 -- -- 270,381
- foreign 1,250 1,580 -- -- -- 2,830
Federal funds purchased &
securities sold under
agreements to repurchase 158,762 32,197 -- -- -- 190,959
Commercial paper 28,970 -- -- -- -- 28,970
Other short-term borrowings 19,561 350 -- -- -- 19,911
Long-term borrowings - FHLB 10,000 -- 700 -- -- 10,700
Noninterest-bearing
liabilities and share-
holders' equity -- -- -- -- 444,279 444,279
-------- --------- --------- -------- --------- ----------
Total Liabilities and
Shareholders' Equity 486,604 122,603 154,150 -- 444,279 1,207,636
-------- --------- --------- -------- --------- ----------
Net Interest Rate
Sensitivity Gap $ 47,967 $(104,022) $ (46,151) $470,406 $(368,200) $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at
June 30, 2000 $ 47,967 $ (56,055) $(102,206) $368,200 $ -- $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at
June 30, 1999 $ 53,412 $ (19,898) $ (49,904) $343,290 $ -- $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at
December 31, 1999 $ 32,513 $ (82,261) $ (65,726) $389,893 $ -- $ --
======== ========= ========= ======== ========= ==========
</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 on management's historical repricing
practices and runoff experience.
26
<PAGE> 27
STERLING BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a)The Annual Meeting of Shareholders of the Company was held on
April 18, 2000.
(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>
Robert Abrams 7,478,280 63,502
Joseph M. Adamko 7,486,499 55,333
Lillian Berkman 7,474,595 67,187
Louis J. Cappelli 7,484,665 57,117
Walter Feldesman 7,414,370 127,412
Allan F. Hershfield 7,486,449 55,333
Henry J. Humphreys 7,480,376 61,406
John C. Millman 7,486,673 55,109
Maxwell M. Rabb 7,230,057 311,725
Eugene T. Rossides 7,482,699 59,583
William C. Warren 7,228,808 312,974
</TABLE>
27
<PAGE> 28
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 8/14/00 /s/ Louis J. Cappelli
------------------ ---------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 8/14/00 /s/ John W. Tietjen
------------------ ---------------------------------
John W. Tietjen
Executive Vice President, Treasurer
and Chief Financial Officer
28
<PAGE> 29
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
Per Share Earnings
27 Financial Data X
Schedule
</TABLE>
29
