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, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-5273-1
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Sterling Bancorp
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(Exact name of registrant as specified in its charter)
New York 13-2565216
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
430 Park Avenue, New York, N.Y. 10022-3505
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(Address of principal executive offices) (Zip Code)
212-826-8000
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(Registrant's telephone number, including area code)
N/A
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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, 2001 there were 9,108,635 shares of common stock,
$1.00 par value, outstanding.
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STERLING BANCORP
PART I FINANCIAL INFORMATION Page
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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 13
Results for Three Months 13
Balance Sheet Analysis 15
Capital 19
Average Balance Sheets 20
Rate/Volume Analysis 21
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 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 27
EXHIBIT INDEX 28
Exhibit 11 Computation of Per Share Earnings 29
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
ASSETS 2001 2000
--------------- ---------------
Cash and due from banks $ 30,757,236 $ 50,212,689
Interest-bearing deposits with other banks 1,961,901 2,656,678
Securities available for sale 111,129,562 62,060,656
Securities available for sale - pledged 77,019,040 90,138,534
Securities held to maturity 104,697,386 104,585,942
Securities held to maturity - pledged 161,714,906 177,011,726
--------------- ---------------
Total investment securities 454,560,894 433,796,858
--------------- ---------------
Loans, net of unearned discounts 728,166,649 750,887,822
Less allowance for credit losses 12,849,561 12,675,052
--------------- ---------------
Loans, net 715,317,088 738,212,770
--------------- ---------------
Customers' liability under acceptances 1,500,067 987,048
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 5,525,865 5,469,462
Other real estate 1,183,874 647,994
Accrued interest receivable 5,308,800 5,195,956
Other assets 11,862,904 12,410,719
--------------- ---------------
$ 1,249,137,069 $ 1,270,748,614
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 278,453,763 $ 341,039,328
Interest-bearing deposits 563,084,398 525,242,856
--------------- ---------------
Total deposits 841,538,161 866,282,184
Federal funds purchased and securities
sold under agreements to repurchase 139,250,008 162,763,009
Commercial paper 38,536,500 25,655,020
Other short-term borrowings 531,478 17,733,482
Acceptances outstanding 1,500,067 987,048
Accrued expenses and other liabilities 66,141,543 69,611,777
--------------- ---------------
1,087,497,757 1,143,032,520
Long-term debt - FHLB 40,350,000 10,700,000
--------------- ---------------
Total liabilities 1,127,847,757 1,153,732,520
--------------- ---------------
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $5 par value. Authorized 644,389 shares
Series B, issued 1,199 shares 23,980 23,980
Series D, issued 237,878 shares 2,378,780 2,378,780
--------------- ---------------
2,402,760 2,402,760
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 9,591,909 and 9,563,329 shares, respectively 9,591,909 9,563,329
Capital surplus 67,788,164 67,450,110
Retained earnings 50,529,248 47,466,602
Accumulated other comprehensive income(loss), net of tax 934,689 (22,652)
--------------- ---------------
131,246,770 126,860,149
Less
Common shares in treasury at cost, 483,274 and
473,125 shares, respectively 8,199,892 7,986,763
Unearned compensation 1,757,566 1,857,292
--------------- ---------------
Total shareholders' equity 121,289,312 117,016,094
--------------- ---------------
$ 1,249,137,069 $ 1,270,748,614
=============== ===============
See Notes to Consolidated Financial Statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended
March 31,
2001 2000
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INTEREST INCOME
Loans $17,259,102 $15,019,107
Investment securities
Available for sale 2,561,771 2,441,021
Held to maturity 4,704,691 5,135,044
Federal funds sold 19,492 169,288
Deposits with other banks 36,444 35,485
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Total interest income 24,581,500 22,799,945
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INTEREST EXPENSE
Deposits 5,347,779 6,099,698
Federal funds purchased and
securities sold under agreements
to repurchase 1,799,365 1,152,540
Commercial paper 414,591 396,130
Other short-term borrowings 59,350 92,250
Long-term debt 294,867 195,022
----------- -----------
Total interest expense 7,915,952 7,935,640
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Net interest income 16,665,548 14,864,305
Provision for credit losses 1,685,800 1,412,800
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Net interest income after provision
for credit losses 14,979,748 13,451,505
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NONINTEREST INCOME
Factoring income 1,401,051 1,089,641
Mortgage banking income 1,289,407 1,194,864
Service charges on deposit accounts 1,401,219 798,572
Trade finance income 680,392 837,324
Trust fees 186,804 185,659
Other service charges and fees 339,880 433,385
Other income 50,370 35,741
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Total noninterest income 5,349,123 4,575,186
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NONINTEREST EXPENSES
Salaries and employee benefits 6,993,018 6,538,810
Occupancy expenses, net 1,126,965 972,470
Equipment expenses 571,671 590,173
Other expenses 3,924,286 3,507,164
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Total noninterest expenses 12,615,940 11,608,617
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Income before income taxes 7,712,931 6,418,074
Provision for income taxes 3,176,646 2,539,515
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Net income $ 4,536,285 $ 3,878,559
=========== ===========
Average number of common
shares outstanding
Basic 9,092,275 9,181,647
Diluted 9,651,263 9,511,576
Per average common share
Basic $ 0.50 $ 0.42
Diluted 0.47 0.41
Dividends per common share 0.16 0.14
See Notes to Consolidated Financial Statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three Months Ended
March 31,
2001 2000
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Net Income $4,536,285 $3,878,559
Other comprehensive income,
net of tax:
Unrealized holding gains
arising during the period 957,341 4,282
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Comprehensive income $5,493,626 $3,882,841
========== ==========
See Notes to Consolidated Financial Statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended
March 31,
2001 2000
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Preferred Stock
Balance at January 1 and March 31, $ 2,402,760 $ 2,443,430
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Common Stock
Balance at January 1 $ 9,563,329 $ 8,723,051
Options exercised 28,580 2,625
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Balance at March 31 $ 9,591,909 $ 8,725,676
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Capital Surplus
Balance at January 1 $ 67,450,110 $ 51,911,883
Issuance of shares under incentive compensation plan -- (214,369)
Options exercised 338,054 15,514
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Balance at March 31 $ 67,788,164 $ 51,713,028
============= =============
Retained Earnings
Balance at January 1 $ 47,466,602 $ 52,360,024
Net Income 4,536,285 3,878,559
Cash dividends paid - common shares (1,448,856) (1,157,834)
- preferred shares (24,783) (20,987)
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Balance at March 31 $ 50,529,248 $ 55,059,762
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Accumulated Other Comprehensive (Loss), Net of Tax
Balance at January 1 $ (22,652) $ (2,634,509)
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Unrealized holding gains
arising during the period
Before tax 1,769,576 7,918
Tax expense (812,235) (3,636)
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Net of tax 957,341 4,282
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Balance at March 31 $ 934,689 $ (2,630,227)
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Treasury Stock
Balance at January 1 $ (7,986,763) $ (6,515,522)
Issuance of shares under incentive compensation plan -- 1,677,025
Surrender of shares issued under incentive
compensation plan (213,129) (139,846)
Purchase of common shares -- (2,248,400)
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Balance at March 31 $ (8,199,892) $ (7,226,743)
============= =============
Unearned Compensation
Balance at January 1 $ (1,857,292) $ (1,048,230)
Issuance of shares under incentive compensation plan -- (1,396,170)
Amortization of unearned compensation 99,726 --
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Balance at March 31 $ (1,757,566) $ (2,444,400)
============= =============
Total Shareholders' Equity
Balance at January 1 $ 117,016,094 $ 105,240,127
Net changes during the period 4,273,218 400,399
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Balance at March 31 $ 121,289,312 $ 105,640,526
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See Notes to Consolidated Financial Statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
2001 2000
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Operating Activities
Net Income $ 4,536,285 $ 3,878,559
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for credit losses 1,685,800 1,412,800
Depreciation and amortization of premises and equipment 383,539 387,052
Deferred income tax benefit (61,050) (103,538)
Net change in loans held for sale (5,879,000) 1,267,006
Amortization of unearned compensation 99,726 --
Amortization of premiums of securities 251,438 223,103
Accretion of discounts on securities (136,765) (274,823)
Increase in accrued interest receivable (112,844) (176,427)
Decrease in other liabilities and accrued expenses (3,470,234) (133,562)
Increase in other assets (203,370) (2,161,027)
Other, net (213,129) (73,360)
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Net cash (used in) provided by operating activities (3,119,604) 4,245,783
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Investing Activities
Purchase of premises and equipment (439,942) (87,963)
Decrease in interest-bearing deposits 694,777 --
Increase in other real estate (535,880) (168,301)
Net decrease in loans 27,088,882 28,495,301
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 15,058,625 7,888,282
Purchases of securities - held to maturity -- (19,979,836)
Purchases of securities - available for sale (39,129,630) (32,027,596)
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 4,961,872 44,201,462
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Net cash provided by investing activities 7,698,704 28,321,349
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Financing Activities
Decrease in noninterest-bearing deposits (62,585,565) (21,118,089)
Increase (Decrease) in interest-bearing deposits 37,841,542 (15,459,738)
(Decrease) Increase in Federal funds purchased
and securities sold under agreements to repurchase (23,513,001) 33,352,097
Decrease in commercial paper and
other short-term borrowings (4,320,524) (12,054,387)
Purchase of treasury stock -- (2,248,400)
Increase (Decrease)in other long-term debt 29,650,000 (10,350,000)
Proceeds from exercise of stock options 366,634 18,139
Cash dividends paid on common and preferred stock (1,473,639) (1,178,821)
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Net cash used in financing activities (24,034,553) (29,039,199)
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Net (decrease) increase in cash and due from banks (19,455,453) 3,527,933
Cash and due from banks - beginning of period 50,212,689 35,505,342
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Cash and due from banks - end of period $ 30,757,236 $ 39,033,275
============ ============
Supplemental schedule of non-cash financing activities:
Issuance of treasury stock $ -- $ 1,537,179
Surrender of treasury shares issued under incentive
compensation plan 213,129 --
Supplemental disclosure of cash flow information:
Interest paid 7,729,258 9,108,734
Income taxes paid 621,500 645,400
See Notes to Consolidated Financial Statements.
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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, 2001 and 2000 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 2000 consolidated
financial statements to conform to the current presentation. The
interim consolidated financial statements should be read in conjunction
with the Company's annual report on Form 10-K for the year ended
December 31, 2000. The Board announced stock dividends as follows: on
November 16, 2000, the declaration of a 10% stock dividend payable on
December 11, 2000 to shareholders of record on December 1, 2000; and 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 238,961 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 1.1561 Common Shares,
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. The Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," established standards for the
way that public business enterprises report and disclose selected
information about operating segments in interim financial statements
issued to stockholders.
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STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company provides a full range of financial products and
services, including commercial 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 2001
year-to-date average interest-earning assets were 60.6% loans
(corporate lending was 76.8% and real estate lending was 18.9% of total
loans, respectively) and 39.4% investment securities and money market
investments. There are no industry concentrations exceeding 10% of
loans, gross, in the corporate loan portfolio. Approximately 74% of
loans are to borrowers located in the metropolitan New York area. 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 month periods ended
March 31, 2001 and 2000:
Corporate Real Estate Company-wide
Lending Lending Treasury Totals
-------------- -------------- -------------- --------------
Three Months Ended March 31, 2001
Net interest income $ 7,951,788 $ 3,350,229 $ 4,807,329 $ 16,109,346
Noninterest income 3,287,188 1,321,539 41,731 4,650,458
Depreciation and amortization 40,745 46,385 84 87,214
Segment profit 4,658,360 2,597,615 5,719,134 12,975,109
Segment assets 560,067,578 132,628,549 516,059,951 1,208,756,078
Three Months Ended March 31, 2000
Net interest income $ 5,943,773 $ 2,266,672 $ 5,811,584 $ 14,022,029
Noninterest income 2,647,007 1,354,688 46,550 4,048,245
Depreciation and amortization 42,849 43,585 170 86,604
Segment profit 3,530,647 1,922,400 6,068,400 11,521,447
Segment assets 526,831,959 103,356,342 523,618,722 1,153,807,023
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STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table sets forth reconciliations of net interest income,
noninterest income, profits and assets of reportable operating segments to the
Company's consolidated totals:
Three Months Ended March 31,
--------------------------------------
2001 2000
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Net interest income:
Total for reportable operating segments $ 16,109,346 $ 14,022,029
Other [1] 556,202 842,276
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Consolidated net interest income $ 16,665,548 $ 14,864,305
=============== ===============
Noninterest income:
Total for reportable operating segments $ 4,650,458 $ 4,048,245
Other [1] 698,665 526,941
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Consolidated noninterest income $ 5,349,123 $ 4,575,186
=============== ===============
Profit:
Total for reportable operating segments $ 12,975,109 $ 11,521,447
Other [1] (5,262,178) (5,103,373)
--------------- ---------------
Consolidated income before income taxes $ 7,712,931 $ 6,418,074
=============== ===============
Assets:
Total for reportable operating segments $ 1,208,756,078 $ 1,153,807,023
Other [1] 40,380,991 42,146,135
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Consolidated assets $ 1,249,137,069 $ 1,195,953,158
=============== ===============
[1] Represents operations not considered to be a reportable segment and/or
general operating expenses of the Company.
5. On September 29, 2000, the Financial Accounting Standards Board issued
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS
No. 125 and addresses implementation issues that were identified in
applying SFAS No. 125. SFAS No. 140 is effective for transfers of
financial assets (including securitizations) occurring after March 31,
2001. However, the provisions of SFAS No. 140 related to the recognition
and reclassification of collateral in financial statements and
disclosures related to securitization transactions and collateral are
effective for fiscal years ending after December 15, 2000.
In accordance with SFAS No. 140, the Company reports securities
pledged as collateral separately in the consolidated balance sheets if
the secured party has the right by contract or custom to sell or
repledge the collateral. Securities are pledged by the Company to secure
trust and public deposits, securities sold under agreements to
repurchase, advances from the Federal Home Loan Bank of New York and for
other purposes required or permitted by law.
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STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
6. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, is effective January 1, 2001 for the Company,
and requires the recognition of all derivatives as either assets or
liabilities measured at fair value. The accounting for derivative
instruments depends on the intended use of the derivative and its
classification as a fair value hedge, cash flow hedge, or a hedge of
foreign currency exposure.
Special hedge accounting treatment is permitted only if specific
criteria are met. One requirement is that the hedging relationship be
highly effective both at inception and on an ongoing basis. Hedge
accounting is determined based on the type of hedge-fair value, cash
flow or foreign currency hedge of a net investment in a foreign
operation. Effective hedge results are recognized in current earnings
for fair value hedges, in other comprehensive income for cash flow
hedges and as part of the cumulative transaction adjustment in other
comprehensive income for foreign currency net investment hedges.
Ineffective portions of hedges are recognized immediately in current
earnings.
The Company adopted the provisions of SFAS No. 133 effective
January 1, 2001. At adoption, the Company recorded an insignificant loss
and believes that SFAS No. 133 will not have a material impact on the
Company's 2001 consolidated financial statements since the only
derivatives that the Company has are interest rate floor contracts with
a notional amount of $100 million.
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STERLING BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following commentary presents management's discussion and analysis of the
consolidated results of operations and financial condition of Sterling Bancorp
(the "parent company"), a bank holding company and a financial holding company
as defined by the Bank Holding Company Act of 1956, as amended, and its wholly-
owned subsidiaries Sterling Banking Corporation 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"), Sterling National Servicing, Inc.
("SNS- 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, 2000.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral statements that are
considered "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may
include, but are not limited to, financial projections, statements of plans and
objectives for future operations, estimates of future economic performance and
assumptions relating thereto.
The Company may include forward-looking statements in its filings with
the Securities and Exchange Commission, including this 10-Q, in reports to
stockholders, in other written materials, and in statements made by officers and
representatives of the Company to analysts, rating agencies, institutional
investors, representatives of the media and others.
These statements are not historical facts but instead are subject to
numerous assumptions, risks and uncertainties and represent only our belief
regarding future events, many of which, by their nature, are inherently
uncertain and outside of our control. Any forward-looking statements we may make
speak only as of the date on which such statements are made. It is possible that
our actual results and financial position may differ, possibly materially, from
the anticipated results and financial condition indicated in or implied by these
forward-looking statements.
Factors that could cause our actual results to differ, possibly
materially, from those in the forward-looking statements include, but are not
limited to, the following: inflation, interest rates, market and monetary
fluctuations; the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve; changes, particularly declines, in general economic
conditions and in the local economies in which we operate; competitive pressures
on loan and deposit pricing and demand; changes in technology and their impact
on the marketing of products and services; the timely development and effective
marketing of competitive new products and services and the acceptance of these
products and services by new and existing customers; the willingness of
customers to substitute competitors' products and services for our products and
services; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance); changes in
accounting principles, policies and guidelines; the success of the Company at
managing the risks involved in the foregoing as well as other risks and
uncertainties detailed from time to time in
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press releases and other public filings. The foregoing list of important factors
is not exclusive, and we will not update any forwarding- looking statement,
whether written or oral, that may be made from time to time.
BUSINESS
The Company provides a wide 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 area, 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
most areas of its business with other financial institutions. At March 31, 2001,
the bank's year-to-date average earning assets (of which loans were 59% and
investment securities were 40%) 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 March 31, 2001 and 2000
OVERVIEW
The Company reported net income for the three months ended March 31, 2001 of
$4.5 million, representing $0.47 per share, calculated on a diluted basis,
compared to $3.9 million, or $0.41 per share, calculated on a diluted basis, for
the like period in 2000. This increase reflects higher net interest income and
continued growth in noninterest income.
Net interest income , on a tax equivalent basis, increased to $16.9
million for the first quarter of 2001 compared with $15.1 million for the same
period in 2000, principally due to higher average earning assets outstanding.
The net interest margin, on a tax equivalent basis, was 6.28% for the first
quarter
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of 2001 compared to 5.78% for the like 2000 period. This increase was
principally due to an increase of 43 basis points in the average yield on
earning assets.
Noninterest income rose to $5.3 million for the three months ended
March 31, 2001 compared to $4.6 million for the like 2000 period principally due
to continued growth in fees from factoring, deposit services and mortgage
banking.
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 21. Information as to the components of interest
income and interest expense and average rates is provided in the Average Balance
Sheets shown on page 20. Net interest income, on a tax equivalent basis, for the
three months ended March 31, 2001 increased to $16,916,000 from $15,082,000 for
the comparable period in 2000. Total interest income, on a tax equivalent basis,
aggregated $24,832,000 for the first quarter of 2001 up from $23,018,000 for the
same period of 2000. The tax equivalent yield on interest earning assets was
9.32% for the three months ended March 31, 2001 compared with 8.89% for the
comparable period in 2000. The increase in interest income was primarily due to
an increase in income earned on the Company's loan portfolio principally as a
result of higher average outstandings. Loan balances increased as the result of
the implementation of business plans designed to increase funds employed in this
asset category. The increase in yield on earning assets was primarily due to
higher yields on loans.
Interest earned on the loan portfolio amounted to $17,259,000 which was
up $2,239,000 when compared to a year ago. Average loan balances amounted to
$678,248,000 which were up $78,907,000 from an average of $599,341,000 in the
prior year period. The increase in the average loans, primarily in the
commercial and industrial, leasing and real estate loan segments of the
Company's loan portfolio, principally accounted for the increase in interest
earned on loans. The increase in the yield on the domestic loan portfolio to
11.07% for the three months ended March 31, 2001 from 10.79% for the comparable
2000 period was primarily attributable to a higher rate environment on average
in the 2001 period.
Interest expense on deposits decreased $752,000 for the three months
ended March 31, 2001 to $5,348,000 from $6,100,000 for the comparable 2000
period principally due to a decrease in average outstandings. Average
interest-bearing deposit balances amounted to $537,673,000 which were down
$42,762,000 from an average of $580,435,000 in the prior year period. The
decrease in average balances reflects the impact of Y-2K strategies, including
raising deposits in the capital markets and lengthening funding maturities into
year 2000, designed to maximize year-end liquidity.
14
15
Interest expense associated with borrowed funds increased to $2,568,000
for the first quarter of 2001 from $1,836,000 in the comparable 2000 period
primarily as the result of higher Federal funds purchased and securities sold
under agreements to repurchase. Average amounts outstanding for this category of
borrowing increased $39,473,000 to $129,559,000 for the three months ended March
31, 2001 and the average rates paid rose to 5.63% from 5.15% 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 $1,686,000 up
$273,000 when compared to the same period last year.
Noninterest Income
Noninterest income increased $774,000 for the first quarter of 2001 when
compared with the like 2000 period primarily as a result of increased fees from
factoring, deposit services and mortgage banking.
Noninterest Expenses
Noninterest expenses increased $1,007,000 for the first quarter of 2001 when
compared with the like 2000 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.
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, 2001, the Company's
portfolio of securities totalled $454,561,000 of which U.S. Government and U.S.
Government corporations and agencies guaranteed mortgage-backed securities
having an average life of approximately 5.6 years amounted to $405,528,000.
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. The following table presents information regarding
securities available for sale:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
MARCH 31, 2001 COST GAINS LOSSES VALUE
-------------- ------------ ------------ ----------- ------------
U.S. Treasury securities $ 2,930,820 $ 14,805 $ -- $ 2,945,625
Obligations of U.S. govern-
ment corporations and
agencies--mortgage-backed
securities 140,619,106 1,054,341 307,945 141,365,502
Obligations of state and
political institutions 32,803,299 903,495 2,002 33,704,792
Other debt securities 2,995,525 51,350 -- 3,046,875
Federal Reserve Bank and
other equity securities 7,072,142 14,272 606 7,085,808
------------ ------------ ----------- ------------
Total $186,420,892 $ 2,038,263 $ 310,553 $188,148,602
============ ============ =========== ============
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.
15
16
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 following table
presents information regarding securities held to maturity:
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
MARCH 31, 2001 VALUE GAINS LOSSES VALUE
-------------- ------------ ------------ ----------- ------------
Obligations of U.S. government
corporations and agencies--
mortgage-backed securities $264,162,292 $ 4,223,105 $ 408,100 $267,977,297
Debt securities issued by
Foreign governments 2,250,000 -- -- 2,250,000
------------ ------------ ----------- ------------
Total $266,412,292 $ 4,223,105 $ 408,100 $270,227,297
============ ============ =========== ============
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 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 63% of gross loans. Loans in this category are typically made to
small and medium sized businesses and range between $250,000 and $10 million.
The primary source of repayment is from the borrower's operating profits and
cash flows. Based on underwriting standards, loans may be secured in whole or in
part by collateral such as liquid assets, accounts receivable, equipment,
inventory or real property. The Company's real estate loan portfolio, which
represents approximately 18% of gross loans, is secured by mortgages on real
property located principally in the State of New York and the Commonwealth of
Virginia.
16
17
The Company's leasing portfolio, which consists of finance leases for various
types of business equipment, represents approximately 14% of gross loans. The
collateral securing any loan may vary in value based on market conditions.
The following table sets forth the composition of the Company's loan
portfolio.
March 31,
----------------------------------------------------
2001 2000
-------------------- ----------------------
($ in thousands)
% of % of
Balances Gross Balances Gross
-------- ----- -------- -----
Domestic
Commercial and industrial $471,187 63.4% $437,578 65.1%
Equipment lease financing 105,429 14.2 103,587 15.4
Real estate 132,785 17.9 102,225 15.2
Installment - individuals 8,803 1.2 9,517 1.4
Loans to depository institutions 24,000 3.2 19,000 2.8
Foreign
Government and official institutions 777 0.1 782 0.1
-------- ----- -------- -----
Gross loan 742,981 100.0% 672,689 100.0%
===== =====
Unearned discounts 14,814 14,436
-------- --------
Loans, net of unearned discounts $728,167 $658,253
======== ========
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 March 31, 2001, the ratio of the allowance to loans, net of
unearned discounts, was 1.76% and the allowance was $12,850,000. At such date,
the Company's non-accrual loans amounted to $1,806,000; $310,000 of such loans
were judged to be impaired within the scope of SFAS No. 114 and required
valuation allowances of $150,000. 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
17
18
losses was deemed adequate to absorb all estimable losses on specifically known
and other possible credit risks associated with the portfolio as of March 31,
2001. 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 $863,000 at March 31, 2001.
Deposits
A significant source of funds for the Company continues to be deposits,
consisting of demand (noninterest-bearing), NOW, Savings, money market and time
deposits (principally certificates of deposit).
The following table provides certain information with respect to the
Company's deposits:
March 31,
---------------------------------------------------------
2001 2000
---------------------- ----------------------
($ in thousands)
% of % of
Balances Total Balances Total
-------- ----- -------- -----
Domestic
Demand $278,454 33.1% $270,690 32.8%
NOW 71,924 8.5 71,345 8.6
Savings 25,651 3.1 24,423 3.0
Money Market 205,401 24.4 167,446 20.3
Time deposits 257,133 30.5 289,208 35.0
-------- ----- -------- -----
Total domestic deposits 838,563 99.6 823,112 99.7
Foreign
Time deposits 2,975 0.4 2,830 0.3
-------- ----- -------- -----
Total deposits $841,538 100.0% $825,942 100.0%
======== ===== ======== =====
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 20.
18
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 March 31, 2001, the Company and the bank
exceeded the requirements for "well capitalized" institutions.
19
20
Sterling Bancorp and Subsidiaries
Average Balance Sheets [1]
Three Months Ended March 31,
(Dollars in Thousands)
2001 2000
----------------------------------- ----------------------------------
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- --------
Interest-Bearing Deposits
with other Banks $ 2,922 $ 36 5.39 % $ 3,089 $ 35 4.80 %
Investment Securities:
Available for sale 128,151 2,204 6.88 129,857 2,128 6.56
Held to maturity 275,570 4,705 6.83 300,343 5,135 6.84
Tax-exempt [2] 32,927 608 7.49 29,259 531 7.30
Federal Funds sold 1,389 20 5.61 12,231 169 5.48
Loans, net of unearned discounts
Domestic [3] 677,471 7,244 11.07 598,558 15,006 10.79
Foreign 777 15 7.63 783 14 7.02
---------- ------- ---------- --------
Total interest-earning assets 1,119,207 24,832 9.32 % 1,074,120 23,018 8.89 %
------- ====== -------- ======
Cash and due from banks 45,883 34,947
Allowance for credit losses (13,210) (11,551)
Goodwill 21,158 21,158
Other assets 25,719 22,752
---------- ----------
Total assets $1,198,757 $1,141,426
========== ==========
Liabilities and shareholders'
equity
Interest-bearing deposits
Domestic
Savings $ 24,932 146 2.38 % $ 24,230 142 2.36 %
NOW 72,244 435 2.44 72,267 445 2.48
Money market 181,670 1,311 2.93 163,443 1,299 3.20
Time 255,852 3,419 5.42 317,665 4,183 5.30
Foreign
Time 2,975 37 5.05 2,830 31 4.34
---------- ------- ---------- -------
Total interest-bearing deposits 537,673 5,348 4.03 580,435 6,100 4.23
---------- ------- ---------- -------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 129,559 1,799 5.63 90,086 1,153 5.15
Commercial paper 31,672 415 5.31 32,032 396 4.97
Other short-term debt 4,073 59 5.10 6,802 92 5.45
Long-term debt 25,488 295 4.63 16,115 195 5.64
---------- ------- ---------- -------
Total borrowings 190,792 2,568 5.45 145,035 1,836 5.18
---------- ------- ---------- -------
Total interest-bearing liabilities 728,465 7,916 4.40 % 725,470 7,936 4.42 %
------- ==== ------- ====
Noninterest-bearing deposits 285,183 252,342
Other liabilities 68,384 59,721
---------- ----------
Total liabilities 1,082,032 1,037,533
Shareholders' equity 116,725 103,893
---------- ----------
Total liabilities and
shareholders' equity $1,198,757 $1,141,426
========== ==========
Net interest income/spread 16,916 4.92 % 15,082 4.47 %
==== ====
Net yield on interest-earning
assets (margin) 6.28 % 5.78 %
==== ====
Less: tax equivalent adjustment 250 218
------- -------
Net interest income $16,666 $14,864
======= =======
[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 2000
amounts to conform to the current presentation.
[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.
20
21
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(in thousands)
Increase/(Decrease)
From Three Months Ended
March 31, 2001 to March 31, 2000
-------------------------------------
Volume Rate Net [2]
------- ------- -------
INTEREST INCOME
Interest-bearing deposits with other banks $ (2) $ 3 $ 1
------- ------- -------
Investment securities
Available for sale (43) 119 76
Held to maturity (424) (6) (430)
Tax-exempt 63 14 77
------- ------- -------
Total investment securities (404) 127 (277)
------- ------- -------
Federal funds sold (153) 4 (149)
------- ------- -------
Loans, net of unearned discounts
Domestic [3] 1,842 396 2,238
Foreign -- 1 1
------- ------- -------
Total loans, net of unearned discount 1,842 397 2,239
------- ------- -------
TOTAL INTEREST INCOME $ 1,283 $ 531 $ 1,814
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ 3 $ 1 $ 4
NOW (4) (6) (10)
Money market 125 (113) 12
Time (858) 94 (764)
Foreign
Time 2 4 6
------- ------- -------
Total interest-bearing deposits (732) (20) (752)
------- ------- -------
Borrowings
Federal funds purchased and securities sold
under agreements to repurchase 530 116 646
Commercial paper (8) 27 19
Other short-term debt (40) 7 (33)
Long-term debt 137 (37) 100
------- ------- -------
Total borrowings 619 113 732
------- ------- -------
TOTAL INTEREST EXPENSE $ (113) $ 93 $ (20)
======= ======= =======
NET INTEREST INCOME $ 1,396 $ 438 $ 1,834
======= ======= =======
[1] The above table is presented on a tax equivalent basis.
[2] The change in interest income and interest expense due to both rate and
volume has been allocated to the 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 one 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
22
STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios
Ratios and Minimums
(dollars in thousands)
For Capital To Be Well
Actual Adequacy Minimum Capitalized
---------------------- ------------------------ ----------------------
As of March 31, 2001 Amount Ratio Amount Ratio Amount Ratio
-------------------- ------ ----- ------ ----- ------ -----
Total Capital (to Risk Weighted Assets):
The Company $108,713 14.34% $ 60,640 8.00% $ 75,800 10.00%
The bank 90,394 12.66 57,125 8.00 71,406 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 99,196 13.09 30,320 4.00 45,480 6.00
The bank 81,443 11.41 28,562 4.00 42,843 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 99,196 8.42 47,104 4.00 58,880 5.00
The bank 81,443 7.14 45,655 4.00 57,069 5.00
As of December 31, 2000
-----------------------
Total Capital (to Risk Weighted Assets):
The Company $105,503 13.35% $ 63,205 8.00% $ 79,006 10.00%
The bank 86,877 11.44 60,746 8.00 75,933 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 95,593 12.10 31,602 4.00 47,404 6.00
The bank 77,367 10.19 30,373 4.00 45,560 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 95,593 8.11 47,141 4.00 58,926 5.00
The bank 77,367 6.73 46,015 4.00 57,519 5.00
22
23
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
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, 2001, is presented on
page 26. The results of both the income simulation analysis and the gap
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
recommendations of the Asset/Liability Committee, governing the use of off-
balance sheet financial instruments, including approved counterparties, risk
23
24
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 March 31, 2001, the Company's off-balance sheet financial instruments
consisted of four interest rate floor contracts having a notional amount
totaling $100 million consisting of a 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 March
31, 2001, 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
$366,000 which are amortized monthly against interest income from the designated
assets. At March 31, 2001, the unamortized premiums on these contracts totaled
$124,000 and are included in other assets. At March 31, 2001, 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 March 31,
2001, the model indicated the impact of a 200 basis point parallel and pro rata
rise in rates over twelve months would approximate a 2.00% ($1,285,000) increase
in net interest income, while the impact of a 200 basis point decline in rates
over the same period would approximate a 3.04% ($1,959,000) decline from an
unchanged rate environment.
24
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 March 31, 2001, the parent company's short-term debt, consisting
principally of commercial paper used to finance ongoing current business
activities, was approximately $38,887,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$43,367,000 and back-up credit lines with banks of $29,000,000. 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.
25
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.
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
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Interest-bearing deposits
with other banks $ 1,962 $ -- $ -- $ -- $ -- $ 1,962
Investment securities 3,393 2,960 40,698 400,424 7,086 454,561
Loans, net of unearned
discounts --
Commercial and industrial 487,900 2,510 2,024 133 (434) 492,133
Loans to depository -- -- -- --
institutions 24,000 -- -- -- -- 24,000
Lease financing 29,058 3,373 64,750 8,248 (14,259) 91,170
Real estate 44,936 22,004 6,499 39,584 (61) 112,962
Installment 3,832 145 2,437 771 (60) 7,125
Foreign government and
official institutions -- 777 -- -- -- 777
Noninterest-earning
assets and allowance
for credit losses -- -- -- -- 64,447 64,447
---------- ---------- ---------- ---------- ---------- ----------
Total Assets 595,081 31,769 116,408 449,160 56,719 1,249,137
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits
Savings [1] -- -- 25,651 -- -- 25,651
NOW [1] -- -- 71,924 -- -- 71,924
Money market [1] 166,514 -- 38,887 -- -- 205,401
Time - domestic 148,884 79,420 28,829 -- 257,133
- foreign 1,180 1,795 -- -- -- 2,975
Federal funds purchased &
securities sold u/a/r 138,741 509 -- -- -- 139,250
Commercial paper 38,537 -- -- -- -- 38,537
Other short-term borrowings 181 350 -- -- -- 531
Long-term borrowings - FHLB 10,000 10,350 20,000 -- -- 40,350
Noninterest-bearing liabilities
and shareholders' equity -- -- -- -- 467,385 467,385
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity 504,037 92,424 185,291 -- 467,385 1,249,137
---------- ---------- ---------- ---------- ---------- ----------
Net Interest Rate
Sensitivity Gap $ 91,044 $ (60,655) $ (68,883) $ 449,160 $ (410,666) $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
March 31, 2001 $ 91,044 $ 30,389 $ (38,494) $ 410,666 $ -- $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
March 31, 2000 $ 30,538 $ (49,098) $ (96,730) $ 366,574 $ -- $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
December 31, 2000 $ 101,033 $ 24,199 $ (9,231) $ 455,154 $ -- $ --
========== ========== ========== ========== ========== ==========
[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
27
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
(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 05/15/01 /s/ Louis J. Cappelli
----------------- ------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 05/15/01 /s/ John W. Tietjen
----------------- -----------------------------
John W. Tietjen
Executive Vice President, Treasurer
and Chief Financial Officer
27
28
STERLING BANCORP AND SUBSIDIARIES
EXHIBIT INDEX
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------- ----------- ------------ -------- ----------
11 Computation of X
Per Share Earnings
28