1
FINANCIAL INFORMATION
Consolidated Financial Statements
of Sterling Bancorp and Subsidiaries 12
Statements of Condition
of Sterling National Bank &
Trust Company of New York 16
Notes to Consolidated Financial Statements 17
Independent Auditors' Report 35
Selected Financial Data 36
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 37
CORPORATE DIRECTORIES
Sterling Bancorp and Subsidiaries 46
11
2
STERLING BANCORP and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 40,720,401 $ 39,224,764
Interest-bearing deposits with other banks 3,000,000 2,970,000
Federal funds sold 5,000,000 8,000,000
Securities held to maturity (estimated market value $196,573,342 and
$227,248,000, respectively) 197,567,406 244,445,988
Securities available for sale (at estimated market value) 101,670,466 67,335,889
------------------------------
Total investment securities 299,237,872 311,781,877
------------------------------
Loans, net of unearned discounts 397,228,786 312,769,179
Less allowance for possible loan losses 5,192,203 4,135,810
------------------------------
Loans, net 392,036,583 308,633,369
------------------------------
Customers' liability under acceptances 2,395,089 624,083
Excess cost over equity in net assets of the banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 2,733,105 3,423,320
Accrued interest receivable 4,151,950 3,985,290
Other assets 5,175,001 6,834,576
------------------------------
$775,608,441 $706,635,719
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $224,080,543 $174,897,143
Interest-bearing deposits 326,947,260 342,405,372
------------------------------
Total deposits 551,027,803 517,302,515
Securities sold under agreements to repurchase 51,265,620 44,050,836
Commercial paper 26,607,200 14,672,800
Other short-term borrowings 5,331,640 7,104,224
Acceptances outstanding 2,395,089 624,083
Due to factoring clients 22,596,179 11,382,321
Accrued expenses and other liabilities 17,381,686 8,755,132
Long-term convertible subordinated debentures 21,346,000 26,446,000
Other long-term borrowings--FHLB 18,000,000 22,500,000
------------------------------
Total liabilities 715,951,217 652,837,911
------------------------------
Commitments and contingent liabilities
Convertible preferred stock, Series D--market value guarantee feature -- 875,000
Less unearned compensation--unallocated shares -- 796,506
Shareholders' Equity
Preferred stock, $5 par value 2,525,760 1,650,760
Common stock, $1 par value. Shares authorized 20,000,000;
issued 6,496,854 and 6,496,605 shares, respectively 6,496,854 6,496,605
Capital surplus 28,091,878 28,089,137
Retained earnings 25,641,804 21,592,244
Net unrealized appreciation (depreciation) on securities available for sale,
net of tax 543,747 (1,140,969)
------------------------------
63,300,043 56,687,777
Less
Common stock in treasury at cost, 150,343 shares 1,489,239 1,489,239
Unearned compensation 2,153,580 1,479,224
------------------------------
Total shareholders' equity 59,657,224 53,719,314
------------------------------
$775,608,441 $706,635,719
==============================
See Notes to Consolidated Financial Statements.
12
3
STERLING BANCORP and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $32,725,860 $23,732,841 $17,395,939
Deposits with other banks 183,230 123,632 97,504
Investment securities 20,040,236 19,314,475 14,849,795
Federal funds sold 534,255 322,714 138,908
----------------------------------------------
Total interest income 53,483,581 43,493,662 32,482,146
----------------------------------------------
INTEREST EXPENSE
Deposits 11,540,344 8,473,494 6,518,141
Federal funds purchased and securities sold under
agreements to repurchase 2,967,516 2,076,395 896,440
Commercial paper 1,176,269 523,648 410,552
Other short-term borrowings 316,192 553,369 210,846
Long-term convertible subordinated debentures 2,234,786 2,016,417 1,823,475
Other long-term borrowings--FHLB 1,083,911 1,239,073 308,483
----------------------------------------------
Total interest expense 19,319,018 14,882,396 10,167,937
----------------------------------------------
Net interest income 34,164,563 28,611,266 22,314,209
Provision for possible loan losses 1,866,000 1,053,000 690,000
----------------------------------------------
Net interest income after provision for
possible loan losses 32,298,563 27,558,266 21,624,209
----------------------------------------------
NONINTEREST INCOME
Commissions on letters of credit 741,189 811,372 623,019
Service charges on deposit accounts 1,684,300 1,419,475 1,104,469
Factoring commissions 1,650,761 755,794 457,667
Trust fees 657,318 564,318 817,760
Gain on sale of loans 59,782 -- --
Gain on sale of securities, net 4,801 41,931 --
Other income 1,180,060 878,158 926,440
----------------------------------------------
Total noninterest income 5,978,211 4,471,048 3,929,355
----------------------------------------------
NONINTEREST EXPENSES
Salaries 11,116,147 9,604,384 8,684,823
Employee benefits 2,654,956 2,497,197 2,092,417
----------------------------------------------
Total personnel expense 13,771,103 12,101,581 10,777,240
Occupancy expense, net 3,380,095 2,515,084 2,594,388
Equipment expense 1,795,052 1,341,366 1,094,328
Other expenses 7,714,006 6,040,638 5,304,486
----------------------------------------------
Total noninterest expenses 26,660,256 21,998,669 19,770,442
----------------------------------------------
Income before income taxes 11,616,518 10,030,645 5,783,122
Provision for income taxes 5,978,852 6,024,776 2,627,725
----------------------------------------------
Net income $ 5,637,666 $ 4,005,869 $ 3,155,397
==============================================
Average number of common shares outstanding
Primary 6,387,072 6,362,220 6,351,040
Fully diluted 8,562,891 8,972,378 8,734,423
Earnings per average common share
Primary $ .88 $ .63 $ .50
Fully diluted .80 .57 .47
Dividends per common share .25 .21 .20
See Notes to Consolidated Financial Statements.
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STERLING BANCORP and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
Balance at beginning of year $ 1,650,760 $ 1,963,260 $ 25,760
Issuance of Series D shares -- -- 2,500,000
Market value guarantee feature 875,000 (312,500) (562,500)
----------------------------------------------
Balance at end of year $ 2,525,760 $ 1,650,760 $ 1,963,260
==============================================
COMMON STOCK
Balance at beginning of year $ 6,496,605 $ 6,496,605 $ 6,496,001
Conversions of subordinated debentures 249 -- 604
----------------------------------------------
Balance at end of year $ 6,496,854 $ 6,496,605 $ 6,496,605
==============================================
CAPITAL SURPLUS
Balance at beginning of year $28,089,137 $28,089,487 $28,083,276
Common stock issued from treasury stock -- (350) --
Conversions of subordinated debentures 2,741 -- 6,211
----------------------------------------------
Balance at end of year $28,091,878 $28,089,137 $28,089,487
==============================================
RETAINED EARNINGS
Balance at beginning of year $21,592,244 $18,920,583 $17,034,557
Net income 5,637,666 4,005,869 3,155,397
Cash dividends paid--common shares (1,586,603) (1,332,707) (1,269,242)
--preferred shares (1,503) (1,501) (129)
----------------------------------------------
Balance at end of year $25,641,804 $21,592,244 $18,920,583
==============================================
NET UNREALIZED APPRECIATION (DEPRECIATION)
ON SECURITIES AVAILABLE FOR SALE, NET OF TAX
Balance at beginning of year $(1,140,969) $ 734,686 $ --
Change in valuation account for securities
available for sale, net of tax 1,502,081 (1,875,655) 734,686
Net unrealized gain on securities transferred from
held to maturity to available for sale, net of tax 182,635 -- --
----------------------------------------------
Balance at end of year $ 543,747 $(1,140,969) $ 734,686
==============================================
TREASURY STOCK
Balance at beginning of year $(1,489,239) $(1,489,589) $(1,489,589)
Common stock issued from treasury stock -- 350 --
----------------------------------------------
Balance at end of year $(1,489,239) $(1,489,239) $(1,489,589)
==============================================
UNEARNED COMPENSATION
Balance at beginning of year $(1,479,224) $(1,858,357) $ --
Issuance of Series D preferred shares -- -- (2,500,000)
Amortization of unearned compensation 122,150 122,150 102,120
Market value guarantee feature--unallocated shares (796,506) 256,983 539,523
----------------------------------------------
Balance at end of year $(2,153,580) $(1,479,224) $(1,858,357)
==============================================
TOTAL SHAREHOLDERS' EQUITY
Balance at beginning of year $53,719,314 $52,856,675 $50,150,005
Net changes during year 5,937,910 862,639 2,706,670
----------------------------------------------
Balance at end of year $59,657,224 $53,719,314 $52,856,675
==============================================
See Notes to Consolidated Financial Statements.
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STERLING BANCORP and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 5,637,666 $ 4,005,869 $ 3,155,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses 1,866,000 1,053,000 690,000
Depreciation and amortization of premises and equipment 1,405,813 526,351 445,297
Deferred income tax benefit (877,554) (2,146,314) (22,114)
Gain on sale of loans (59,782) -- --
Gain on sale of securities, net (4,801) (41,931) --
Amortization of unearned compensation 122,150 122,150 102,120
Amortization of premiums on investment securities 1,494,661 2,750,640 4,307,679
Accretion of discounts on investment securities (137,407) (136,021) (33,345)
Increase in accrued interest receivable (166,660) (483,440) (629,131)
Increase in due to factoring clients 11,213,858 5,597,369 38,603
Increase (Decrease) in accrued expenses and other liabilities 8,626,554 5,119,454 (643,534)
Other, net 1,107,225 1,390,453 282,987
-----------------------------------------------
Net cash provided by operating activities 30,227,723 17,757,580 7,693,959
-----------------------------------------------
INVESTING ACTIVITIES
Purchase of premises and equipment (715,598) (1,355,781) (439,814)
Net (increase) decrease in interest-bearing deposits with other banks (30,000) -- 660,000
Decrease (Increase) in Federal funds sold 3,000,000 (8,000,000) --
Net increase in loans (85,209,432) (14,349,495) (10,413,356)
Proceeds from prepayments, redemptions or maturities of
securities--held to maturity 31,047,989 53,830,442 134,105,019
Purchases of securities--held to maturity (20,534,657) (104,202,276) (204,263,816)
Proceeds from sale of securities--available for sale 8,977,432 9,955,694 --
Proceeds from prepayments, redemptions or maturities of
securities--available for sale 5,734,390 54,912,931 --
Purchases of securities--available for sale (10,918,982) (45,504,995) --
-----------------------------------------------
Net cash used in investing activities (68,648,858) (54,713,480) (80,351,967)
-----------------------------------------------
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 49,183,400 808,172 14,854,389
Net (decrease) increase in interest-bearing deposits (15,458,112) 43,508,417 1,972,098
Net increase in securities sold under repurchase agreements 7,214,784 6,825,836 30,582,689
Net increase (decrease) in commercial paper and other
short-term borrowings 10,161,816 (6,157,340) 8,092,500
Issuance of debentures -- 7,020,000 --
Prepayments and maturities of debentures (5,097,010) (7,466,000) (8,267,185)
(Decrease) Increase in other long-term borrowings--FHLB (4,500,000) (3,000,000) 25,500,000
Issuance of Series D preferred shares -- -- 2,500,000
Funding provided for purchase of Series D preferred shares -- -- (2,500,000)
Cash dividends paid on preferred and common shares (1,588,106) (1,334,208) (1,269,371)
-----------------------------------------------
Net cash provided by financing activities 39,916,772 40,204,877 71,465,120
-----------------------------------------------
Net increase (decrease) in cash and due from banks 1,495,637 3,248,977 (1,192,888)
Cash and due from banks--beginning of year 39,224,764 35,975,787 37,168,675
-----------------------------------------------
Cash and due from banks--end of year $ 40,720,401 $ 39,224,764 $ 35,975,787
===============================================
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 2,990 $ -- $ 6,815
Issuance of treasury shares -- 350 --
Supplemental schedule of non-cash investing activities:
Net unrealized gain on securities transferred from held to maturity
to available for sale 354,424 -- --
Amortized cost of securities transferred from held to maturity to
available for sale 35,436,261 -- --
Supplemental disclosure of cash flow information:
Interest paid 16,627,551 12,505,156 10,381,307
Income taxes paid 7,105,020 4,928,459 1,178,884
Cash paid for assets acquired -- -- 7,905,912
See Notes to Consolidated Financial Statements
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STERLING NATIONAL BANK & Trust Company of New York
STATEMENTS OF CONDITION
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 40,472,572 $ 38,626,651
Interest-bearing deposits with other banks 3,000,000 2,970,000
Federal funds sold 5,000,000 8,000,000
Securities held to maturity (estimated market value $196,573,342 and
$227,248,000, respectively) 197,567,406 244,445,988
Securities available for sale (at estimated market value) 101,621,564 67,290,338
------------------------------
Total investment securities 299,188,970 311,736,326
------------------------------
Loans, net of unearned discounts 349,464,192 284,473,257
Less allowance for possible loan losses 3,649,003 3,435,427
------------------------------
Loans, net 345,815,189 281,037,830
------------------------------
Receivables from affiliates 660,570 1,967,549
Customers' liability under acceptances 2,395,089 624,083
Premises and equipment, net 2,646,716 3,369,790
Accrued interest receivable 4,129,541 3,726,434
Other assets 3,610,213 4,889,253
------------------------------
$706,918,860 $656,947,916
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $224,691,191 $175,059,538
Interest-bearing deposits 337,787,544 353,560,049
------------------------------
Total deposits 562,478,735 528,619,587
Securities sold under agreements to repurchase 51,265,620 44,050,836
Other short-term borrowings 5,331,640 7,104,224
Acceptances outstanding 2,395,089 624,083
Due to factoring clients 9,041,535 2,643,968
Accrued expenses and other liabilities 10,465,600 5,704,780
Long-term borrowings--FHLB 18,000,000 22,500,000
------------------------------
Total liabilities 658,978,219 611,247,478
------------------------------
Commitments and contingent liabilities
Shareholders' Equity
Common stock, $50 par value
Authorized and issued, 358,526 shares 17,926,300 17,926,300
Surplus 18,414,000 18,414,000
Undivided profits 11,058,904 10,501,898
Net unrealized appreciation (depreciation) on securities
available for sale, net of tax 541,437 (1,141,760)
------------------------------
Total shareholders' equity 47,940,641 45,700,438
------------------------------
$706,918,860 $656,947,916
==============================
See Notes to Consolidated Financial Statements.
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STERLING BANCORP and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Sterling Bancorp ("the parent company") is a bank holding company, as defined
by the Bank Holding Company Act of 1956, as amended, with subsidiaries
providing a full range of financial services, including business and consumer
loans, asset based financing, factoring, trade financing, mortgage lending,
leasing, and trust and estate services.
The following summarizes the significant accounting policies of Sterling
Bancorp and its subsidiaries. Throughout the notes, the term "the Company"
refers to Sterling Bancorp and its subsidiaries.
Principles of Consolidation The consolidated financial statements include the
accounts of the parent company and its subsidiaries, principally Sterling
National Bank & Trust Company of New York ("the bank"), after elimination of
material intercompany transactions.
General Accounting Policies The Company follows generally accepted accounting
principles and prevailing practices within the banking industry. Any
preparation of financial statements requires management to make assumptions and
estimates that impact the amounts reported in those statements and are, by
their nature, subject to change in the future as additional information becomes
available or as circumstances vary. Certain reclassifications have been made to
the prior years' consolidated financial statements to conform to the current
presentation.
Investment Securities The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," as of December 31, 1993. SFAS No. 115 requires, among other
things, that securities designated as available for sale be reported at
estimated market value at each period end with the unrealized gain or loss, net
of tax effect, recorded as a component of shareholders' equity.
Securities are designated as available for sale or held to maturity at the
time of acquisition. Securities which the Company will hold for indefinite
periods of time and which might be sold in the future as part of efforts to
manage interest rate risk or in response to changes in interest rates, changes
in prepayment risk, changes in market conditions or changes in economic
factors, are classified as available for sale and carried at estimated market
values. Net aggregate unrealized gains or losses are included in a valuation
allowance account and are reported, net of taxes, as a component of
shareholders' equity. Securities which the Company has the positive intent and
ability to hold to maturity are designated as held to maturity and are carried
at amortized cost, adjusted for amortization of premiums and accretion of
discounts over the period to maturity. Interest and dividends on securities are
reported in interest income. Gains and losses realized on sales of securities
are determined on the specific identification method and are reported in
noninterest income as gain on sale of securities, net.
Loans Loans, other than those held for sale, are reported at their principal
amount outstanding, net of unearned discounts and unamortized nonrefundable
fees and direct costs associated with their origination or acquisition.
Interest earned on loans without discounts is credited to income based on loan
principal amounts outstanding at appropriate interest rates. Material
origination fees net of direct costs and discounts on loans are credited to
income over the terms of the loans using a method which results in an
approximate level rate of return. Mortgage loans held for sale, including
deferred fees and costs, are reported at the lower of cost or market value as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate loan basis. Gains or losses resulting
from sales of mortgage loans, net of unamortized deferred fees and costs, are
recognized when the proceeds are received from investors and are reported in
noninterest income as gain on sale of loans.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures." The
provisions of these statements are discussed more fully below under "Allowance
for Possible Loan Losses."
Nonaccrual loans are those on which the accrual of interest has ceased.
Loans, including loans that are individually identified as being impaired under
SFAS No. 114, are generally placed on nonaccrual status immediately if, in the
opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more and collateral, if any, is insufficient to cover
principal and interest. Interest accrued but not collected at the date a loan
is placed on nonaccrual status is reversed against interest income. Interest
income is recognized on nonaccrual loans only to the extent received in cash.
However, where there is doubt regarding the ultimate collectibility of the loan
principal, cash receipts, whether designated as principal or interest, are
thereafter applied to reduce the carrying value of the loan. Loans are restored
to accrual status only when interest and principal payments are brought current
and future payments are reasonably assured.
Allowance for Possible Loan Losses The allowance for possible loan losses,
which is available for losses incurred in
17
8
the loan portfolio, is increased by a provision charged to expense and
decreased by charge-offs, net of recoveries.
SFAS No. 114 and No. 118 address the accounting for impairment of certain
loans when it is probable that all amounts due pursuant to the contractual
terms of the loan will not be collected. Adoption of these standards entailed
the identification of commercial and industrial, real estate-mortgage, real
estate-construction and foreign loans which were considered impaired under the
provisions of SFAS 114. Adoption did not have a material impact on the
Company's financial position or results of operations.
Under the provisions of these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or for
loans that are solely dependent on the collateral for repayment, measurement
may be based on the fair value of the collateral. Loans that are to be
foreclosed are measured based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is required as a component of the allowance for possible
loan losses. Changes to the valuation allowance are recorded as a component of
the provision for possible loan losses.
The adequacy of the allowance for possible loan losses is reviewed regularly
by management. Additions to the allowance for possible loan losses are made by
a provision charged to expense. On a quarterly basis, a comprehensive review of
the adequacy of the allowance for possible loan losses is performed. This
assessment is made in the context of historical losses and other factors,
including changes in the composition and volume of the loan portfolio, current
economic conditions and the relationship of the allowance to the loan
portfolio.
Excess Cost Over Equity in Net Assets of the Banking Subsidiary Since the bank
was acquired by the parent company prior to October 31, 1970 and the excess
cost over equity in net assets has a continuing value, this excess is not being
amortized.
Premises and Equipment Premises and equipment, excluding land, are stated at
cost less accumulated depreciation and amortization. Land is reported at cost.
Depreciation is computed on a straight-line basis and is charged to noninterest
expense over the estimated useful lives of the related assets. Amortization of
leasehold improvements is charged to noninterest expense over the terms of the
respective leases or the estimated useful lives of the improvements, whichever
is shorter. Maintenance, repairs and minor improvements are charged to
noninterest expenses as incurred.
Income Taxes The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109 "Accounting for Income Taxes" as of January 1, 1993. The
adoption of SFAS No. 109 had no effect on the Company's results of operations.
SFAS No. 109 required a change to the asset and liability method of accounting
for income taxes from the deferred method of accounting for income taxes
previously followed. Deferred income tax expense (benefit) under SFAS No. 109
is determined by recognizing deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The realization of deferred tax assets is assessed and a valuation
allowance provided for that portion of the assets for which it is more likely
than not that it will not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates and will be adjusted for the effects of future
changes in tax laws or rates, if any.
For income tax purposes, the Company files: a consolidated Federal income tax
return; combined New York City and New York State income tax returns; and
separate state income tax returns for its out-of-state subsidiaries. The parent
company either pays or collects on account of current income taxes to or from
its subsidiaries.
The provision for income taxes for each subsidiary is recorded as if separate
income tax returns had been filed. Income taxes currently payable or receivable
by each subsidiary are paid to or received from the parent company.
Statements of Cash Flows For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks.
Earnings Per Average Common Share Primary earnings per average common share is
computed by dividing net income by the average number of common and common
equivalent shares outstanding during the period. Common shares outstanding
exclude treasury shares. Common equivalent shares include Series D convertible
preferred shares released to participant accounts under the provisions of the
Company's Employee Stock Ownership Plan and the dilutive effect of outstanding
stock options. Series B convertible preferred shares, considered common stock
equivalents, were not significant in any period and have been excluded.
The average common shares outstanding in the computation of fully diluted
earnings per share includes the common shares outstanding adjusted for the
assumed conversion of convertible subordinated debentures and preferred shares
and the additional dilutive effect of outstanding stock options. Net income is
adjusted for interest and amortization of debt expense (after tax effect) on
the convertible subordinated debentures.
18
9
Off-Balance Sheet Instruments The Company enters into interest rate floor
contracts to manage interest rate exposure. These instruments are entered into
as hedges against interest rate risk associated with certain identified assets.
The premiums paid for these instruments are amortized to interest income over
the term of the related asset. Amounts receivable are accounted for on an
accrual basis and are recognized as adjustments to the interest income of the
related assets.
NOTE 2. CASH AND DUE FROM BANKS
The bank is required to maintain average reserves, net of vault cash, on
deposit with the Federal Reserve Bank of New York against outstanding domestic
deposit liabilities. The required reserves, which are reported in cash and due
from banks, were $17,304,000 and $13,231,000 at December 31, 1995 and 1994,
respectively. Average required reserves during 1995 and 1994 were $11,053,000
and $8,998,000, respectively.
NOTE 3. INVESTMENT SECURITIES
The carrying value and estimated market value of securities held to maturity
are as follows:
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 VALUE GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government corporations
and agencies--mortgage-backed securities $194,067,406 $1,078,113 $ 2,072,177 $193,073,342
Debt securities issued by foreign governments 3,500,000 -- -- 3,500,000
---------------------------------------------------------------
Total $197,567,406 $1,078,113 $ 2,072,177 $196,573,342
===============================================================
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 10,871,768 $ -- $ 340,518 $ 10,531,250
Obligations of U.S. government corporations
and agencies--mortgage-backed securities 228,425,880 26,076 16,877,992 211,573,964
Obligations of states and political subdivisions 29,986 365 -- 30,351
Debt securities issued by foreign governments 4,000,000 -- -- 4,000,000
Other debt securities 1,118,354 -- 5,919 1,112,435
---------------------------------------------------------------
Total $244,445,988 $ 26,441 $17,224,429 $227,248,000
===============================================================
The amortized cost and estimated market value of securities available for
sale are as follows:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 51,153,545 $1,219,655 $ -- $ 52,373,200
Obligations of U.S. government corporations
and agencies--mortgage-backed securities 44,548,562 263,964 482,813 44,329,713
Federal Reserve Bank and other equity securities 4,963,107 5,240 794 4,967,553
---------------------------------------------------------------
Total $100,665,214 $1,488,859 $ 483,607 $101,670,466
===============================================================
December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 30,682,402 $ -- $ 532,402 $ 30,150,000
Obligations of U.S. government corporations
and agencies--mortgage-backed securities 34,585,046 -- 1,578,058 33,006,988
Federal Reserve Bank and other equity securities 4,177,806 2,421 1,326 4,178,901
---------------------------------------------------------------
Total $ 69,445,254 $ 2,421 $2,111,786 $ 67,335,889
===============================================================
19
10
The following tables present information regarding securities held to
maturity and securities available for sale at December 31, 1995, based on
contractual maturity. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties. The average yield is based on the
ratio of actual income divided by the average outstanding balances during the
year.
ESTIMATED
CARRYING MARKET AVERAGE
SECURITIES HELD TO MATURITY VALUE VALUE YIELD
- --------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government corporations and agencies--
mortgage-backed securities $194,067,406 $193,073,342 6.49%
-----------------------------
Debt securities issued by foreign governments
Due within 1 year 1,000,000 1,000,000
Due after 1 year but within 5 years 1,000,000 1,000,000
Due after 5 years 1,500,000 1,500,000
-----------------------------
Total 3,500,000 3,500,000 8.18
-----------------------------
Total $197,567,406 $196,573,342 6.53
=============================
ESTIMATED
AMORTIZED MARKET AVERAGE
SECURITIES AVAILABLE FOR SALE COST VALUE YIELD
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities
Due within 1 year $ 9,986,648 $ 10,104,688
Due after 1 year but within 5 years 41,166,897 42,268,512
-----------------------------
Total 51,153,545 52,373,200 6.87%
-----------------------------
Obligations of U.S. government corporations and agencies--
mortgage-backed securities 44,548,562 44,329,713 6.35
-----------------------------
Federal Reserve Bank and other equity securities 4,963,107 4,967,553 7.29
-----------------------------
Total $100,665,214 $101,670,466 6.72
=============================
Based on a decision by the Financial Accounting Standards Board to allow
companies a one-time opportunity to reassess their investment securities
classifications in December 1995, the Company transferred certain U.S. Treasury
securities and certain mortgage-backed securities with an amortized cost of
$35,436,261 and an estimated fair value of $35,790,685 from held to maturity to
available for sale. This action was taken by management in connection with its
Asset/Liability Management process and was designed to provide flexibility in
the management of interest rate risk, yield and collateral requirements. The
net unrealized gain after tax effect on the transferred securities was $182,635
($354,424 before tax effect) and is included in shareholders' equity.
Information regarding securities sales from the available for sale portfolio
is as follows:
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Proceeds $ 8,977,432 $ 9,955,694 $ --
Gross gains 85,221 63,136 --
Gross losses 80,420 21,205 --
The book value of investment securities pledged to secure public funds on
deposit, securities sold under agreements to repurchase, advances from the
Federal Home Loan Bank of New York and for other purposes required by law
amounted to $128,580,000 and $110,549,000 at December 31, 1995 and 1994,
respectively.
20
11
NOTE 4. LOANS
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Domestic
Commercial and industrial $337,429,407 $260,868,892
Real estate--mortgage 49,789,721 42,078,553
Real estate--construction 1,039,546 1,486,418
Installment 14,876,277 12,919,642
Foreign
Government and official institutions 789,424 789,424
-----------------------------
Loans, gross 403,924,375 318,142,929
Less unearned discounts 6,695,589 5,373,750
-----------------------------
Loans, net of unearned discounts $397,228,786 $312,769,179
=============================
Beginning in the third quarter of 1995, the Company began a program of
originating mortgage loans with the intention of reselling those loans,
including the servicing rights, without recourse. To date approximately
$2,201,000 of such loans have been originated and sold. The gain on these sales
amounted to $59,782 and is separately reported on the income statement. At
December 31, 1995 the Company had approximately $419,000 of loans available for
resale which are included in "Real estate--mortgage."
There are no industry concentrations (exceeding 10% of loans, gross) in the
commercial and industrial loan portfolio. Approximately 81% of the bank's
loans are to borrowers located in the metropolitan New York area.
Nonaccrual loans at December 31, 1995 and 1994 totalled $357,000 and
$575,000, respectively. There were no reduced rate loans at December 31, 1995
or 1994. The interest income that would have been earned on nonaccrual loans
outstanding at December 31, 1995, 1994 and 1993 in accordance with their
original terms is estimated to be $22,000, $86,000 and $169,000, respectively,
for the years then ended. The applicable interest income actually realized for
aforementioned years was $-0-, $18,000 and $98,000, respectively. At the end of
these years there were no commitments to lend additional funds on nonaccrual
loans.
Loans are made at normal lending limits and credit terms to officers or
directors (including their immediate families) of the Company or for the
benefits of corporations in which they have a beneficial interest. There were
no outstanding balances on such loans in excess of $60,000 to any individual or
entity at December 31, 1995 or 1994.
NOTE 5. CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $4,135,810 $3,413,947 $3,177,121
Provision for possible loan losses 1,866,000 1,053,000 690,000
---------------------------------------------
6,001,810 4,466,947 3,867,121
---------------------------------------------
Less charge-offs, net of recoveries:
Charge-offs 1,000,751 532,345 714,976
Recoveries (191,144) (201,208) (52,175)
----------------------------------------------
Net charge-offs 809,607 331,137 662,801
----------------------------------------------
Acquired allowance -- -- 209,627
----------------------------------------------
Balance at end of year $5,192,203 $4,135,810 $3,413,947
==============================================
21
12
On June 1, 1993, the Company purchased for cash, the assets (principally
loans) of Zenith Financial Corporation, a nationwide provider of consumer
receivables financing. The purchase price included the allowance for loan
losses of $209,627.
Effective January 1, 1995, the Company adopted SFAS No. 114, which
establishes new rules for calculating certain components of the allowance for
credit losses. Adoption of the new Standard had no impact on the level of the
overall allowance for credit losses or on operating results, and does not
affect the Company's policies regarding charge-offs, recoveries, or income
recognition.
SFAS No. 114 requires that impairment of larger-balance, non-homogenous loans
that are individually evaluated be measured by comparing the net carrying
amount of the loan to the present values of the expected future principal and
interest cash flows discounted at the loan's effective rate, the secondary
market value of the loan, or the fair value of the collateral for
collateral-dependent loans. A valuation allowance for any shortfall is
established within the overall allowance for credit losses. The net carrying
amount of the loan reflects credit write-offs, cash receipts applied to reduce
the recorded investment in the loan, and unearned fees. SFAS No. 114 does not
apply to smaller-balance homogenous consumer loans that are collectively
evaluated for impairment, such as residential mortgages, and consumer
installment loans.
As of December 31, 1995, $316,000 of loans were judged to be impaired within
the scope of SFAS No. 114 and carried on a cash basis. The average recorded
investment in impaired loans during the year ended December 31, 1995 was
approximately $857,000. The application of SFAS No. 114 measurement principles
indicated that these loans required valuation allowances totalling $160,000,
which are included within the overall allowance for possible loan losses.
NOTE 6. INTEREST-BEARING DEPOSITS
Foreign deposits totalled $3,240,000 and $2,670,000 at December 31, 1995 and
1994.
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest-bearing deposits in domestic offices $11,385,646 $ 8,369,984 $ 6,438,900
Interest-bearing deposits in foreign offices 154,698 103,510 79,241
--------------------------------------------
Total $11,540,344 $ 8,473,494 $ 6,518,141
============================================
The aggregate of domestic time certificates of deposit in denominations of
$100,000 or more by remaining maturity range and related interest expense is
presented below; there were no foreign time certificates of deposit:
DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Remaining Maturity Range
Three months or less $50,130,956 $52,758,925 $62,391,007
More than three months through six months 10,377,893 6,878,526 15,656,912
More than six months through twelve months 5,157,534 6,742,806 1,613,158
More than twelve months 4,503,102 9,699,636 1,329,289
---------------------------------------------
Total $70,169,485 $76,079,893 $80,990,366
=============================================
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense $ 3,644,778 $ 2,429,283 $ 1,700,241
==============================================
22
13
NOTE 7. SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements
At December 31 --Balance $51,265,620 $44,050,836 $37,225,000
--Average interest rate 5.36% 5.37% 2.83%
--Average original maturity 86 days 44 days 100 days
During the year --Maximum month-end balance 71,063,346 62,756,854 52,481,192
--Daily average balance 53,295,000 55,813,000 31,315,000
--Average interest rate paid 5.56% 3.72% 2.86%
--Range of interest rates paid 2.55-6.00% 2.25-5.85% 2.50-3.31%
==============================================
Commercial paper
At December 31 --Balance $26,607,200 $14,672,800 $14,320,400
--Average interest rate 5.11% 4.50% 2.85%
--Average original maturity 68 days 47 days 39 days
During the year --Maximum month-end balance 26,627,500 17,872,500 20,936,500
--Daily average balance 21,850,000 14,491,000 14,221,000
--Average interest rate paid 5.38% 3.62% 2.89%
--Range of interest rates paid 3.50-6.08% 2.50-6.05% 2.50-3.30%
==============================================
Other short-term borrowings include collateralized advances from the Federal
Home Loan Bank of New York due within one year and treasury tax and loan funds.
The Federal Home Loan Bank advance of $250,000 is repayable in March, 1996 at a
rate of 4.59% and advances totalling $4,250,000 are repayable in October, 1996
at rates between 4.50% and 4.61%.
The parent company has agreements with its line banks to pay a fee at the
annual rate of 1/4 of 1% times the line of credit extended. At December 31,
1995, these back-up bank lines of credit totalled $15,000,000. No lines were
used at any time during 1995 and 1994.
NOTE 8. LONG-TERM CONVERTIBLE SUBORDINATED DEBENTURES
The parent company's floating interest rate convertible subordinated debentures
are traded on the New York Stock Exchange. A summary of changes in these
debentures follows (amounts in thousands):
MATURITY DATES
-------------------------------
JULY 1, NOV. 1, JULY 1,
-------------------------------
1996 1998 2001 TOTAL
------------------------------------------
Series Third 4th Fifth
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $12,060 $14,832 $ -- $ 26,892
New issue, August 1, 1994 -- -- 7,020 7,020
Repayments, conversions and retirements
during the year (7,096) (370) -- (7,466)
------------------------------------------
Balance at December 31, 1994 4,964 14,462 7,020 26,446
Repayments, conversions and retirements
during the year (4,964) (136) -- (5,100)
------------------------------------------
Balance at December 31, 1995 $ -- $14,326 $7,020 $21,346
==========================================
Estimated market value at December 31, 1995 $14,702 $8,073 $22,775
==============================
23
14
The debentures bear interest at a floating interest rate equal to one half of
one percent (1/2%) above the daily average reference rate of interest of a
designated major New York City bank, payable semi-annually. The daily average
interest rates paid on the Third and 4th series for the six-month interest
periods ended December 31, 1995, June 30, 1995, December 31, 1994, June 30,
1994, December 31, 1993, and June 30, 1993 were 9.30% and 9.30%, 8.10% and
6.80%, 6.50% and 6.50%, respectively. The daily average interest rates paid on
the Fifth series for the six-month interest periods ended December 31, 1995,
June 30, 1995, and for the initial period August 1 to December 31, 1994 were
9.30% and 9.30%, and 8.20%, respectively. The debentures are convertible into
common shares of the parent company. The conversion rate is subject to
anti-dilution provisions of the indenture. The following table presents
selected information regarding the debentures:
AMOUNT
ISSUE MATURITY INITIALLY CONVERSION
SERIES DATE DATE ISSUED PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
4th 10/17/88 11/01/98 $15,000,000 $12.50
Fifth 08/01/94 07/01/01 7,020,000 8.75
On June 9, 1994 the parent company offered to exchange its Third Series
Debentures due July 1, 1996 for Fifth Series Debentures due July 1, 2001.
Following the expiration of the exchange offer on July 29, 1994, $7,020,000
principal amount of Third Series Debentures were exchanged for Fifth Series
Debentures.
NOTE 9. OTHER LONG-TERM BORROWINGS
These borrowings represent advances from the Federal Home Loan Bank of New York
("FHLB"), as follows:
INTEREST RATES AND DECEMBER 31,
MATURITY DATES 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
4.50% to 4.61%, due 1996 $ -- $ 4,500,000
4.84% to 5.20%, due 1997 3,500,000 3,500,000
5.05% to 5.44%, due 1998 12,750,000 12,750,000
5.68%, due 1999 350,000 350,000
5.92%, due 2000 350,000 350,000
6.07%, due 2001 350,000 350,000
6.22%, due 2002 350,000 350,000
6.37%, due 2003 350,000 350,000
-----------------------------
Total $18,000,000 $22,500,000
=============================
Weighted average interest rate 5.15% 5.03%
=============================
Under the terms of a collateral agreement with the FHLB, advances are secured
by stock in the FHLB and by certain qualifying assets (primarily
mortgage-backed securities) having market values at least equal to 110% of the
advances outstanding.
24
15
NOTE 10. PREFERRED STOCK
The parent company is authorized to issue up to 644,389 shares of convertible
preferred stock, $5 par value, in one or more series. At December 31, 1995,
two series of preferred stock had been issued--Series B and Series D.
The following table presents information regarding the parent company's
preferred stock:
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------
Series B shares.
Authorized 4,389
shares; issued
and outstanding--
1,288 shares, at
liquidation value $ 25,760 $ 25,760
---------------------------
Series D shares.
Authorized 300,000
shares; issued
and outstanding--
250,000 shares, at
liquidation value 2,500,000 2,500,000
Less market value
guarantee feature -- 875,000
---------------------------
2,500,000 1,625,000
---------------------------
Total $2,525,760 $1,650,760
===========================
SERIES B
Series B shares may be redeemed, in whole or in part, at the election of the
parent company at a price of $28 per share, plus accrued and unpaid dividends
to the date of redemption. In the event of involuntary liquidation of the
parent company, the holders of these shares are entitled to receive, before any
distribution to the holders of common shares, $20 per share ("liquidation
value"). At the option of holders of these shares, such shares are convertible
into common shares of the parent company at a conversion rate of two common
shares for each Series B share surrendered. There were no conversions during
1995, 1994 or 1993. Dividends on the Series B shares are paid at the rate of
$.10 per annum, payable semi-annually and are cumulative. Holders of these
shares are entitled to one vote for each share held and vote together as one
class with the holders of the common shares of the parent company.
SERIES D
Series D shares may only be issued to the trustee acting on behalf of an
employee stock ownership plan ("ESOP") or other employee benefit plan of the
Company. The Series D shares are convertible into common shares of the parent
company on a share for share basis. During 1993, the parent company issued
250,000 shares to the trustee of the
Company's ESOP. A transfer is made out of shareholders' equity to the extent
that the aggregate value of the outstanding Series D shares at the specified
redemption price exceeds the aggregate market value of the same number of
common shares ("market value guarantee feature"). At December 31, 1995 and 1994
such amounts were $-0- and $875,000, respectively. These shares are entitled to
receive cash dividends in the amount of $.6125 per annum (subject to
adjustment), payable quarterly. Participants in the Company's ESOP are entitled
to vote in accordance with the terms of the ESOP and vote together as one class
with the holders of the common shares of the parent company. The holders of
these shares are entitled to receive $10 per share and certain other
preferences on liquidation, dissolution or winding up. See note 14 for a
discussion of the Company's ESOP.
NOTE 11. COMMON STOCK
Number of shares reserved for issuance:
1995 1994
- --------------------------------------------------------------------------------------
Conversion of subordinated
debentures:
Floating rate due 7/1/96 -- 413,667
Floating rate due 11/1/98 1,146,080 1,156,960
Floating rate due 7/1/01 802,286 802,286
Conversion of Series B
preferred shares 2,576 2,576
Conversion of Series D
preferred shares 300,000 300,000
--------------------------
2,250,942 2,675,489
==========================
Number of shares outstanding
at December 31 6,346,511 6,346,262
==========================
Number of shareholders
at December 31 2,430 2,612
==========================
NOTE 12. RESTRICTIONS ON THE BANK
Various legal restrictions limit the extent to which the bank can supply funds
to the parent company and its non-bank subsidiaries. All national banks are
limited in the payment of dividends without the approval of the Comptroller of
the Currency ("the Comptroller") to an amount not to exceed the net profits (as
defined) for that year to date combined with its retained net profits for the
preceding two calendar years. During 1994, with the Comptroller's approval, the
bank paid dividends aggregating $3,639,038; the bank's net income was
$4,222,664. During 1995, the bank declared and paid dividends aggregating
$4,786,349; the bank's net income was $5,343,355.
25
16
NOTE 13. STOCK INCENTIVE PLANS
In April 1992, shareholders approved a Stock Incentive Plan ("the plan")
covering up to 100,000 common shares of the parent company. Under the plan, key
employees of the parent company and its subsidiaries could be granted awards in
the form of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock or a combination of these. The plan is
administered by committees of the Board of Directors. In April 1995,
shareholders approved amendments to the plan which increased the number of
shares covered under the plan by 300,000 and which provided for the annual
automatic grant of non-qualified stock options to each director who is not an
employee or officer ("outside director") of the Company. Under this provision
annual awards covering 2,000 common shares of the parent company are granted to
each outside director beginning April 1995 and continuing through April 1999.
The following table presents information on awards granted:
NUMBER FAIR MARKET OPTION
GRANT OF OPTIONS VALUE ON EXERCISE
DATE GRANTED GRANT DATE PRICE
- ---------------------------------------------------------------------------------------
Incentive
Stock
Options 8/93 60,000 $7.25 $7.25
Incentive
Stock
Options 12/93 40,000 8.00 8.00
Non-
qualified
Stock
Options 4/95 16,000 7.25 7.25
Incentive stock options, granted to key officers, expire ten years from the
date of grant and become exercisable in four annual installments, starting one
year from the date of grant, or upon the death or disability of the grantee. At
December 31, 1995, 90% of the incentive stock options granted are exercisable.
Non-qualified stock options, granted to outside directors, expire five years
from the date of grant and become exercisable in four annual installments,
starting one year from the date of grant, or upon the death or disability of
the grantee. No expense is required to be recognized in connection with options
granted under the plan. Amounts received upon exercise of options are recorded
as common stock and capital surplus. No options have been exercised or
terminated since the date granted.
NOTE 14. EMPLOYEE STOCK OWNERSHIP PLAN
On March 5, 1993, the Company established an Employee Stock Ownership Plan
("ESOP"). This plan covers substantially all employees with one or more years
of service of at least 1,000 hours who are at least 21 years of age. During
1993, the parent company issued 250,000 shares of Series D preferred stock at a
price of $10.00 per share to the Company's ESOP trust. The trust borrowed
$2,500,000 from the bank, to pay for the shares. Since the ESOP trust borrowed
from the bank, the Company recorded a deduction from shareholders' equity to
reflect the unearned compensation for the shares. The unearned compensation is
reduced as payments are made on the loan. In addition, because the parent
company has guaranteed a liquidation and redemption price of $10.00 per share,
the difference between $10.00 and the respective year end market price of the
parent company common stock into which the outstanding Series D shares are
convertible has been reflected outside shareholders' equity less its related
share of unearned compensation for the unallocated share. The ESOP loan is at a
fixed interest rate for a term of ten years with quarterly payments of interest
only through December 31, 1995. Quarterly principal payments at an annual rate
of $250,000 and $350,000 commence on March 31, 1996 and March 31, 1999,
respectively, plus interest. The bank match-funded the ESOP loan with
collateralized advances from the Federal Home Loan Bank of New York. The ESOP
shares, pledged as collateral for the ESOP loan, are held in a suspense account
and released for allocation among the participants as principal and interest on
the ESOP loan is repaid. Under the terms of the ESOP, participants may vote
both allocated and unallocated shares.
The Company makes quarterly contributions to the ESOP equal to the debt
service on the ESOP loan less dividends paid on the ESOP shares. All dividends
paid are used for debt service. ESOP shares released from the suspense account
are allocated among the participants on the basis of salary in the year of
allocation. The Company accounts for its ESOP in accordance with Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the shares pledged as collateral are reported as unearned
compensation in the consolidated balance sheets. As shares are released from
the suspense account, the Company recognizes compensation expense equal to the
current market price of the common shares into which the preferred shares are
convertible, and the shares become outstanding for earnings per share
computations. Dividends on unallocated ESOP shares are recorded as a reduction
of accrued interest payable; dividends on allocated ESOP shares are recorded as
a reduction of retained earnings.
26
17
Compensation expense was $122,150, $122,150 and $102,120 for 1995, 1994 and
1993, respectively, with a corresponding reduction in unearned compensation. As
of December 31, 1995, 22,427 shares had been allocated and 12,215 shares had
been released for allocation; 215,358 shares were not released ("unallocated").
The fair value of unallocated shares at December 31, 1995 was $2,153,580. The
following table presents interest paid on the ESOP loan, dividends paid on the
Series D preferred shares and contributions made by the Company:
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Interest paid $190,104 $190,104 $156,771
Dividends paid 153,125 153,125 127,594
Company contributions 36,979 36,979 29,177
NOTE 15. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan that covers
substantially all employees with one or more years of service of at least 1,000
hours who are at least 21 years of age. The quarterly payments to the plan are
determined annually based upon the amount needed to satisfy the Employee
Retirement Income Security Act funding standards.
The following table sets forth the pension plan funded status:
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of ($7,444,199) and
($5,745,268), respectively $ (8,111,748) $(6,217,822)
==============================
Projected benefit obligation for service rendered to date $(11,016,949) $(8,696,965)
Plan assets at fair value (U.S. Treasury securities, insurance contract and listed stock) 10,299,659 7,542,975
------------------------------
Funded status (717,290) (1,153,990)
Unrecognized prior service cost (5,326) (313,218)
Unrecognized net loss 2,142,345 2,645,372
------------------------------
Prepaid pension cost $ 1,419,729 $ 1,178,164
==============================
Net pension expense included the following components:
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Service cost $ 509,817 $ 514,083 $ 403,074
Interest cost 723,038 609,807 582,544
Return on assets (2,075,850) 250,311 (265,969)
Deferral of asset (loss) gain 1,570,743 (761,159) (248,273)
----------------------------------------------
Total included in employee benefits $ 727,748 $ 613,042 $ 471,376
==============================================
Pension cost is determined using assumptions at the beginning of the year.
The projected benefit obligation (PBO) is determined using assumptions at the
end of the year. Assumptions used to determine pension cost and the PBO were:
DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Discount rate 7.0% 8.25% 7.25%
Rate of increase in future compensation levels 4.0% 5.0% 4.0%
Long-term rate of return on plan assets 8.0% 8.0% 8.0%
27
18
NOTE 16. INCOME TAXES
The current and deferred tax provisions (benefits) for each of the last three
fiscal years are as follows:
YEARS ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
FEDERAL
Current $3,896,674 $ 3,429,163 $1,549,307
Deferred (666,228) (1,365,534) (8,825)
---------------------------------------------
Total $3,230,446 $ 2,063,629 $1,540,482
=============================================
STATE AND LOCAL
Current $2,959,732 $ 4,741,927 $1,100,532
Deferred (211,326) (780,780) (13,289)
----------------------------------------------
Total $2,748,406 $ 3,961,147 $1,087,243
==============================================
TOTAL
Current $6,856,406 $ 8,171,090 $2,649,839
Deferred (877,554) (2,146,314) (22,114)
----------------------------------------------
Total $5,978,852 $ 6,024,776 $2,627,725
==============================================
Reconciliations of income tax provisions with taxes or tax benefits computed
at Federal statutory rates are as follows:
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
Federal statutory rate 34% 34% 34%
Computed tax $3,949,616 $ 3,410,419 $1,966,261
Increase in tax resulting from:
Principally state and local taxes,
net of Federal income tax benefit 2,029,236 2,614,357 661,464
----------------------------------------------
Total $5,978,852 $ 6,024,776 $2,627,725
==============================================
The components of the net deferred tax asset are as follows:
DECEMBER 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets
Difference between financial statement provision for
possible loan losses and tax bad debt deduction $1,785,000 $1,406,175
Nonaccrual and other interest 2,723,207 2,916,249
Deferred compensation 186,901 102,052
Other 958,586 2,421
----------------------------
Total deferred tax assets 5,653,694 4,426,897
----------------------------
Deferred tax liabilities
Pension and benefit plans 558,687 376,800
Other 336,476 169,120
----------------------------
Total deferred tax liabilities 895,163 545,920
----------------------------
Net deferred tax asset 4,758,531 3,880,977
SFAS No. 115 deferred tax (liability) asset (461,126) 968,396
----------------------------
Total net deferred tax asset $4,297,405 $4,849,373
============================
Federal income tax returns of the Company for all years through December 31,
1987 have been settled with the Internal Revenue Service.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes" as of January 1, 1993.
The adoption of SFAS No. 109 had no material effect on the Company's results of
operations.
28
19
Federal income tax returns of the Company for all years through December 31,
1987 have been settled with the Internal Revenue Service.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes" as of January 1, 1993.
The adoption of SFAS No. 109 had no material effect on the Company's results of
operations.
Taxes, other than taxes on income, are charged against noninterest expenses
and amounted to $1,346,664, $1,170,721 and $1,160,770 for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures about
Fair Value of Financial Instruments" requires the Company to disclose the "fair
values" of certain financial instruments for which it is practical to estimate
"fair value."
Much of the information used to arrive at fair value is highly subjective and
judgmental in nature and therefore the results may not be precise. The
subjective factors include, among other things, estimated cash flows, risk
characteristics, credit quality and interest rates all of which are subject to
change. With the exception of investment securities and long-term debt, the
Company's financial instruments are not readily marketable and market prices do
not exist. Since negotiated prices for the instruments which are not readily
marketable depend greatly on the motivation of the buyer and seller, the
amounts which will actually be realized or paid per settlement or maturity of
these instruments could be significantly different.
The following disclosures represent the Company's best estimate of the "fair
value" of both on- and off-balance sheet financial instruments.
Financial Instruments with Carrying Amount Equal to Fair Value The carrying
amount of cash and due from banks, interest-bearing deposits with other banks,
customers' liabilities under acceptances, accrued interest receivable,
agreements to repurchase, commercial paper, other short-term borrowings,
acceptances outstanding, due to factoring clients, and accrued interest
payable, as a result of their short-term nature, is considered to be equal to
fair value.
Investment Securities For investment securities, fair value has been based upon
current market quotations, where available. If quoted market prices are not
available, fair value has been estimated based upon the quoted price of similar
instruments.
Loans The fair value of loans which reprice within 90 days reflecting changes
in the base rate is equal to their carrying amount. For other loans, the
estimated fair value is calculated based on discounted cash flows analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality and for similar maturities. These
calculations have been adjusted for credit risk based on the Company's
historical credit loss experience.
The estimated fair value for secured nonaccrual loans is the value of the
underlying collateral which is sufficient to repay each loan. For other
nonaccrual loans, the estimated fair value represents book value less a credit
risk adjustment based on the Company's historical credit loss experience.
Deposits SFAS No. 107 requires that the fair value of demand, savings, NOW and
certain money market deposits be equal to their carrying amount. The Company
believes that the fair value of these deposits is clearly greater than that
prescribed by SFAS No. 107.
For other types of deposits with fixed maturities, fair value has been
estimated based upon interest rates currently being offered on deposits with
similar characteristics and maturities.
Long-Term Debt The fair value of the Company's convertible subordinated
debentures is based on current market quotations. For other long-term
borrowings, the estimated fair value is calculated based on discounted cash
flow analyses, using interest rates currently being quoted for similar
characteristics and maturities.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees The notional amount of off-balance sheet commitments to extend
credit, standby letters of credit, and financial guarantees, is considered
equal to fair value. Resulting from the uncertainty involved in attempting to
assess the likelihood and timing of a commitment being drawn upon, coupled with
lack of an established market and the wide diversity of fee structures, the
Company does not believe it is meaningful to provide an estimate of fair value
that differs from the notional value of the commitment.
29
20
Off-Balance Sheet Financial Instruments The Company enters into interest rate
floor contracts to manage interest rate exposure. These instruments are
entered into as hedges against interest rate risk associated with certain
identified assets. At December 31, 1995 the notional amount of these
instruments was $75,000,000. The Company paid up front premiums of $715,000
which are amortized over the term of the related assets. At December 31, 1995,
the unamortized premiums on these contracts totalled $581,667 and the amount
receivable was $4,153. The estimated fair value of these contracts generally
reflects the amount the Company would receive to terminate the contracts,
thereby taking into account the current unrealized gain on these contracts.
Dealer quotes are available on all of these contracts. At December 31, 1995 the
estimated fair value of these contracts was $2,982,500.
The following is a summary of the book values and estimated fair values of
the Company's financial assets and liabilities:
1995 1994
-------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
DECEMBER 31, AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks $ 40,720,401 $ 40,720,401 $ 39,224,764 $ 39,224,764
Interest-bearing deposits with other banks 3,000,000 3,000,000 2,970,000 2,970,000
Investment securities 299,237,872 298,243,808 311,781,877 294,583,889
Loans, net 392,036,583 389,880,382 308,633,369 307,896,190
Customers' liability under acceptances 2,395,089 2,395,089 624,083 624,083
Accrued interest receivable 4,151,950 4,151,950 3,985,290 3,985,290
FINANCIAL LIABILITIES
Demand, NOW, savings and money
market deposits 401,852,750 401,852,750 356,561,257 356,561,257
Time deposits 149,175,053 150,115,000 160,741,258 162,057,000
Securities sold under agreements
to repurchase 51,265,620 51,265,620 44,050,836 44,050,836
Commercial paper 26,607,200 26,607,200 14,672,800 14,672,800
Other short-term borrowings 5,331,640 5,331,640 7,104,224 7,104,224
Acceptances outstanding 2,395,089 2,395,089 624,083 624,083
Due to factoring clients 22,596,179 22,596,179 11,382,321 11,382,321
Accrued interest payable 6,784,851 6,784,851 4,093,383 4,093,383
Long-term convertible subordinated
debentures 21,346,000 22,775,000 26,446,000 25,847,000
Other long-term borrowings--FHLB 18,000,000 17,824,000 22,500,000 19,715,000
30
21
NOTE 18. PARENT COMPANY
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 284,259 $ 331,691
Interest-bearing deposits--banking subsidiary 10,525,000 10,765,000
Loans, net of unearned discounts 30,311,913 19,369,743
Less allowance for possible loan losses 957,447 509,627
-----------------------------
Loans, net 29,354,466 18,860,116
-----------------------------
Investment in subsidiaries
Bank 69,090,657 66,850,847
Others 2,736,174 2,804,120
Due from subsidiaries 6,934,241 1,866,929
Other assets 1,731,726 2,148,437
-----------------------------
$120,656,523 $103,627,140
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 26,607,200 $ 14,672,800
Due to subsidiaries 2,843,156 2,256,904
Accrued expenses and other liabilities 7,952,943 4,032,122
Long-term convertible subordinated debentures 21,346,000 26,446,000
Other long-term borrowings 2,250,000 2,500,000
Shareholders' equity 59,657,224 53,719,314
-----------------------------
$120,656,523 $103,627,140
=============================
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME
Dividends and interest from
Banking subsidiary $ 5,257,669 $3,880,700 $2,953,629
Other subsidiaries 491,981 414,219 --
Management and service fees from
Banking subsidiary 1,088,290 877,260 1,106,522
Other subsidiaries 111,600 111,600 111,600
Interest and fees on loans 5,074,121 2,914,933 1,396,522
Other income 33,025 60,220 191,396
------------------------------------------------
Total income 12,056,686 8,258,932 5,759,669
------------------------------------------------
EXPENSES
Interest expense 3,503,035 2,680,746 2,333,077
Provision for possible loan losses 534,000 350,000 50,000
Salaries and employee benefits 1,223,985 1,140,687 1,035,811
Computer service fees and rent paid to banking subsidiary 73,677 77,663 58,688
Other expenses 1,438,763 902,908 645,596
------------------------------------------------
Total expenses 6,773,460 5,152,004 4,123,172
------------------------------------------------
Income before income taxes and equity in undistributed
net income of subsidiaries 5,283,226 3,106,928 1,636,497
Provision (Benefit) for income taxes 134,524 (294,452) (487,283)
------------------------------------------------
5,148,702 3,401,380 2,123,780
Equity in undistributed net income of subsidiaries 488,964 604,489 1,031,617
------------------------------------------------
Net income $ 5,637,666 $4,005,869 $3,155,397
================================================
31
22
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 5,637,666 $ 4,005,869 $ 3,155,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses 534,000 350,000 50,000
Amortization of unearned compensation 122,150 122,150 102,120
Decrease (Increase) in accrued interest receivable 242,548 (123,895) (124,554)
Increase (Decrease) in accrued expenses and other liabilities 3,999,315 1,981,567 (297,459)
Increase (Decrease) in due to subsidiaries, net 586,252 (561,538) (308,120)
(Increase) Decrease in due from subsidiaries, net (5,067,312) (695,945) 372,727
Equity in undistributed net income of subsidiaries (488,964) (604,489) (1,031,617)
Other, net 175,979 79,273 822,737
-------------------------------------------------
Net cash provided by operating activities 5,741,634 4,552,992 2,741,231
-------------------------------------------------
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits--banking subsidiary 240,000 1,186,815 11,219,185
Net increase in loans (11,028,350) (4,143,542) (7,116,574)
-------------------------------------------------
Net cash (used in) provided by investing activities (10,788,350) (2,956,727) 4,102,611
-------------------------------------------------
FINANCING ACTIVITIES
Net increase in commercial paper 11,934,400 352,400 239,200
Cash dividends paid on preferred and common shares (1,588,106) (1,334,208) (1,269,371)
Issuance of debentures -- 7,020,000 --
Prepayments and maturities of debentures (5,097,010) (7,466,000) (8,267,185)
Issuance of Series D preferred shares -- -- 2,500,000
Funding provided for purchase of Series D preferred shares -- -- (2,500,000)
(Decrease) Increase in other long-term borrowings (250,000) -- 2,500,000
-------------------------------------------------
Net cash provided by (used in) financing activities 4,999,284 (1,427,808) (6,797,356)
-------------------------------------------------
Net (decrease) increase in cash and due from banks (47,432) 168,457 46,486
Cash and due from banks--beginning of year 331,691 163,234 116,748
-------------------------------------------------
Cash and due from banks--end of year $ 284,259 $ 331,691 $ 163,234
=================================================
Supplemental schedule of non-cash financing activities:
Debenture and preferred stock conversions $ 2,990 $ -- $ 6,815
Issuance of Treasury shares -- 350 --
Supplemental disclosure of cash flow information
Interest paid 3,473,980 2,438,821 2,811,046
Income taxes paid 7,105,020 4,928,459 1,178,884
Cash paid for assets acquired -- -- 7,905,912
The parent company is required to maintain a deposit with the bank in an
amount equal to the unpaid principal balance on the bank's loan to the trustee
of the Employee Stock Ownership Plan. The required deposit which is reported in
interest-bearing deposits on the parent company's condensed balance sheet was
$2,500,000 at December 31, 1995.
32
23
NOTE 19: COMMITMENTS AND CONTINGENT LIABILITIES
Total rental expenses under cancelable and noncancelable leases for premises
and equipment were $1,659,638, $1,521,151 and $1,644,315, respectively, for the
years ended December 31, 1995, 1994 and 1993.
The future minimum rental commitments as of December 31, 1995 under
noncancelable leases follow:
RENTAL
YEAR(S) COMMITMENTS
- ---------------------------------------------------------------------------------------------
1996 $ 1,657,934
1997 1,048,862
1998 943,716
1999 924,830
2000 880,840
2001 and thereafter 4,950,961
------------
Total $10,407,143
============
Certain of the leases included above have escalation clauses and/or provide
that the Company pay maintenance, electric, taxes and other operating expenses
applicable to the leased property.
In the normal course of business, there are various commitments and
contingent liabilities outstanding which are properly not recorded on the
balance sheet. Management does not anticipate that losses, if any, as a result
of these transactions would materially affect the financial position of the
Company.
Loan commitments, substantially all of which have an original maturity of one
year or less, were approximately $11,161,000 as of December 31, 1995. These
commitments are agreements to lend to a customer as long as the conditions
established in the contract are met. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
The total commitment amounts do not necessarily represent future cash
requirements because some of the commitments are expected to expire without
being drawn upon. The bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, by
the bank upon extension of credit is based on management's credit evaluation of
the borrower. Collateral held varies but may include cash, U.S. Treasury and
other marketable securities, accounts receivable, inventory and property, plant
and equipment.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the bank to guarantee the performance of a customer to a
third party. At December 31, 1995, these commitments totalled $21,365,273 of
which $16,437,911 expired within one year, $4,604,712 within two years and
$322,650 within three years. Approximately 32% of the commitments were
automatically renewable for periods of one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The bank holds cash or cash equivalents and
marketable securities as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1995 ranged from 0 percent to 100 percent; the
average amount collateralized is approximately 32 percent.
The Company uses interest rate floor contracts to manage fluctuating interest
rates. In exchange for the payment of a premium, an interest rate floor gives
the Company the right to receive at specified future dates the amount, if any,
by which the market interest rate specified in the floor falls below the fixed
floor rate, multiplied by the notional amount of the floor. The credit exposure
on a floor is limited to this interest derived amount. Potential credit losses
are minimized through careful evaluation of counter party credit standing. The
floors currently held by the Company have an average remaining term of
approximately 3 years and total notional amount of $75 million.
In the normal course of business there are various legal proceedings pending
against the Company. Management, after consulting with counsel, is of the
opinion that there should be no material liability with respect to such
proceedings, and accordingly no provision has been made in the accompanying
consolidated financial statements.
33
24
NOTE 20. QUARTERLY DATA (UNAUDITED)
1995 QUARTER MAR 31 JUN 30 SEPT 30 DEC 31
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income $12,611,695 $13,403,743 $13,553,104 $13,915,039
Total interest expense 4,632,482 4,907,565 4,815,870 4,963,101
Net interest income 7,979,213 8,496,178 8,737,234 8,951,938
Provision for possible loan losses 315,000 345,000 574,000 632,000
Gain on sale of securities, net -- 4,801 -- --
Noninterest income 1,286,450 1,272,497 1,649,889 1,764,574
Noninterest expenses 6,272,133 6,750,210 6,680,334 6,957,579
Income before income taxes 2,678,530 2,678,266 3,132,789 3,126,933
Net income 1,257,074 1,296,564 1,492,369 1,591,659
Earnings per average common share
Primary .20 .20 .23 .25
Fully diluted .18 .18 .21 .23
Common stock price
High 7 1/4 8 3/4 9 5/8 12 1/2
Low 6 1/2 7 8 3/4 9
Quarter--end 7 8 3/4 9 1/8 12 1/2
1994 QUARTER MAR 31 JUN 30 SEPT 30 DEC 31
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income $9,141,205 $10,669,053 $11,377,809 $12,305,595
Total interest expense 2,885,971 3,596,126 4,073,893 4,326,406
Net interest income 6,255,234 7,072,927 7,303,916 7,979,189
Provision for possible loan losses 190,000 200,000 310,000 353,000
Gain (Loss) on sale of securities, net 42,361 -- -- (430)
Noninterest income 972,236 1,061,651 1,183,939 1,211,291
Noninterest expenses 5,328,703 5,635,399 5,355,236 5,679,331
Income before income taxes 1,751,128 2,299,179 2,822,619 3,157,719
Net income 910,467 962,404 974,761 1,158,237
Earnings per average common share
Primary .14 .15 .16 .18
Fully diluted .13 .14 .13 .17
Common stock price
High 7 3/4 7 1/8 7 1/8 7
Low 7 6 3/4 6 1/2 6 1/2
Quarter--end 7 7 7 6 1/2
34
25
INDEPENDENT AUDITORS' REPORT
[KPMG PEAT MARWICK LLP LETTERHEAD]
The Shareholders and Board of Directors
Sterling Bancorp:
We have audited the accompanying consolidated balance sheets of Sterling
Bancorp and Subsidiaries as of December 31, 1995 and 1994, the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995
and the statements of condition of Sterling National Bank & Trust Company of
New York as of December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sterling
Bancorp and Subsidiaries as of December 31, 1995 and 1994, the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 and the financial position of Sterling National Bank &
Trust Company of New York as of December 31, 1995 and 1994 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 2, 1996
35
26
STERLING BANCORP and Subsidiaries
SELECTED FINANCIAL DATA
(in thousands except per share data)
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 53,484 $ 43,493 $ 32,482 $ 30,572 $ 36,445
Total interest expense 19,319 14,882 10,168 11,510 20,208
Net interest income 34,165 28,611 22,314 19,062 16,237
Provision for possible loan losses 1,866 1,053 690 1,290 8,000(1)
Gain on sale of securities, net 5 42 -- 1,568 12
Noninterest income 5,973 4,429 3,929 3,682 2,753
Noninterest expenses 26,660 21,998 19,770 18,659 17,741
Income (Loss) before taxes 11,617 10,031 5,783 4,363 (6,739)
Provision (Benefit) for income taxes 5,979 6,025 2,628 1,786 (2,047)
Net income (loss) 5,638 4,006 3,155 2,577 (4,692)
Per average common share .88 .63 .50 .41 (.74)
Dividends per common share .25 .21 .20 .20 .22
AT YEAR END
Interest-bearing deposits with other banks
and Federal funds sold 8,000 10,970 2,970 3,630 4,635
Investment securities 299,238 311,782 286,816 219,571 220,629
Term Federal funds sold -- -- 40,000 99,000 75,000
Other loans, net of unearned discounts 397,229 312,769 258,751 189,791 152,598
Total assets 775,608 706,636 653,039 578,248 512,012
Noninterest-bearing deposits 224,081 174,897 174,089 159,234 114,052
Interest-bearing deposits 326,947 342,405 298,897 296,925 264,804
Securities sold under agreements to repurchase 51,266 44,051 37,225 6,642 5,282
Long-term convertible subordinated debentures 21,346 26,446 26,892 35,166 41,151
Other long-term borrowings--FHLB 18,000 22,500 25,500 -- --
Shareholders' equity 59,657 53,719 52,857 50,150 48,657
(1) During the third quarter of 1991, a single large borrower of the bank filed
for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In light
of this and based upon management's continuing evaluation of the
collectibility of the loan portfolio, an $8,000,000 addition to the
allowance was made.
36
27
STERLING BANCORP and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
Sterling Bancorp (the parent company) is a bank holding company, as defined by
the Bank Holding Company Act of 1956, as amended, with subsidiaries providing a
full range of financial services, including business and consumer loans, asset
based financing, factoring, trade financing, mortgage lending, leasing, and
trust and estate services. The parent company owns all of the outstanding
shares of Sterling National Bank & Trust Company of New York (the bank), its
principal subsidiary, and of Standard Factors Corporation/Sterling Factors,
Universal Finance Corporation, Sterling Banking Corporation and Sterling
Industrial Loan Association (finance subsidiaries). As used throughout this
report, "the Company" refers to Sterling Bancorp and its subsidiaries.
Beginning in the third quarter of 1995, the Company, through a wholly owned
subsidiary, began a program of originating mortgage loans with the intention of
reselling those loans, including the servicing rights, with limited recourse.
In 1995 approximately $2,201,000 of such loans have been originated and sold.
The gain on such sales amounted to $59,782 and is separately reported on the
income statement. As at December 31, 1995 the Company had approximately
$419,000 of loans available for resale. These loans are carried at the lower of
cost or market and are included in loans, net of unearned discount.
There is intense competition in all areas in which the Company conducts its
business, including deposits, loans, domestic and international financing and
trust services. In addition to competing with other banks, the Company also
competes in certain areas of its business with other financial institutions. At
December 31, 1995, the bank's year to date average earning assets (of which
loans were 46% and securities were 52%) represented approximately 94% of the
Company's year to date average earning assets. See page 42 for the composition
of the Company's average balance sheets for the three most recent years.
FINANCIAL CONDITION
Liquidity is the ability to meet cash needs arising from changes in various
categories of assets and liabilities. Liquidity is constantly monitored and
managed at both the parent company and the bank levels. Liquid assets consist
of cash and due from banks, interest-bearing deposits in banks and Federal
funds sold and securities available for sale. Primary funding sources include
core deposits, capital market funds and other money market sources. Core
deposits include domestic noninterest-bearing and interest-bearing retail
deposits, which historically have been relatively stable. The parent company
and the bank have significant unused borrowing capacity. Contingency plans
exist and could be implemented on a timely basis to minimize the impact of any
dramatic change in market conditions.
While the parent company generates income from its own operations, it also
depends for its cash requirements on funds maintained or generated by its
subsidiaries, principally the bank. Such sources have been adequate to meet the
parent company's cash requirements throughout its history. At December 31,
1995, the parent company had on hand approximately $10,809,000 in cash.
Various legal restrictions limit the extent to which the bank can supply
funds to the parent company and its non-bank subsidiaries. All national banks
are limited in the payment of dividends without the approval of the Comptroller
of the Currency ("the Comptroller") to an amount not to exceed the net profits
(as defined) for that year to date combined with its retained net profits for
the preceding two calendar years. During 1994, with the Comptroller's approval,
the bank paid dividends aggregating $3,639,038; the bank's net income was
$4,222,664. During 1995, the bank declared and paid dividends aggregating
$4,786,349; the bank's net income was $5,343,355. In addition, from time to
time dividends are paid to the parent company by the finance subsidiaries from
their retained earnings without regulatory restrictions.
At December 31, 1995, the parent company's outstanding long-term debt,
consisting principally of convertible subordinated debentures (originally
issued pursuant to rights offerings to shareholders of the Company), aggregated
$23,596,000. To the extent convertible subordinated debentures are converted to
common stock of the parent company (as has been the case with $11,000,000
principal amount since 1982), the subordinated debt related thereto is retired
and becomes part of shareholders' equity. The parent company's long-term
indebtedness is also met through funds generated from profits and new
financing. Since becoming a public company in 1946, the parent company and its
predecessors have been able to obtain the financing required and have paid at
maturity all outstanding long-term indebtedness. The parent company expects to
continue to meet its obligations in accordance with their terms.
At December 31, 1995, the parent company's short-term debt, consisting
principally of commercial paper, was approximately $26,607,200. The parent
company had cash, interest-bearing deposits with banks and other current assets
aggregating $47,251,000 and back-up credit lines with banks of $15,000,000. The
parent company and its predecessor have issued and repaid at maturity
approximately $12 billion of commercial paper since 1955. Since 1979, the
parent company has had no need to use available back-up lines of credit.
The Company and the bank are subject to risk-based capital regulations. The
purpose of these regulations is to measure capital against risk-weighted
assets, including off-balance sheet items. These regulations define the
elements of total capital into Tier 1 and Tier 2 components and establish
minimum ratios of 4% for Tier 1 capital and 8%
37
28
for Total Capital. Supplementing these regulations is a leverage requirement.
This requirement establishes a minimum leverage ratio, (at least 3%) which is
calculated by dividing Tier 1 capital by adjusted quarterly average assets
(after deducting goodwill). At December 31, 1995, the risk-based capital ratios
and the leverage ratio for the Company and the bank exceeded the most stringent
requirements contemplated by these guidelines. Information regarding the
Company's and the bank's risk-based capital, at December 31, 1995 and December
31, 1994, is presented on page 44.
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.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is its net interest income; therefore the
Company devotes significant time and has invested in resources to assist in the
management of interest rate risk and asset quality. The Company's net interest
income is affected by changes in market interest rates, and by the level and
composition of interest-earning assets and interest-bearing liabilities. The
Company's objectives in its asset/liability management are to utilize its
capital effectively, to provide adequate liquidity and to enhance net interest
income, without taking undue risks or subjecting the Company unduly to interest
rate fluctuations.
The Company takes a coordinated approach to the management of its liquidity,
capital and interest rate risk. This risk management process is governed by
policies and limits established by senior management which are reviewed and
approved by its 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.
The Company's balance sheet structure is primarily short-term in nature with
most assets and liabilities repricing or maturing in less than five years. The
Company monitors the interest rate sensitivity of its on- and off-balance sheet
positions by examining its near-term sensitivity and its longer term gap (as
defined below) position. The Company utilizes several tools in its management
of interest rate risk, primarily utilizing a sophisticated income simulations
model and complementing this with a traditional gap analysis.
The income simulation model measures the Company's net interest income
sensitivity or volatility to interest rate changes utilizing statistical
techniques that allow the Company to consider various factors which impact net
interest income. These factors include actual maturities, estimated cash flows,
repricing characteristics, deposits growth/retention and, most importantly, the
relative sensitivity of the Company's assets and liabilities to changes in
market interest rates. This relative sensitivity is important to consider as
the Company's core deposit base is not subject to the same degree of interest
rate sensitivity as its assets. The core 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
Company has established certain limits for the potential volatility of its net
interest margin assuming certain levels of changes in market interest rates
with the objective of maintaining a stable net interest margin under various
probable rate scenarios. The Company can also utilize this technique to stress
test its portfolio to determine the impact of various interest rate scenarios
on the Company's net interest income.
The traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest-earning assets and interest-bearing liabilities for
selected time bands. The mismatch between repricings or maturities within a
time band is commonly referred to as the "gap" for that period. A positive gap
(asset sensitive) where interest-rate sensitive assets exceed interest-rate
sensitive liabilities generally will result in an institution's net interest
margin increasing in a rising rate environment and decreasing in a falling rate
environment. A negative gap (liability sensitive) will generally have the
opposite results on an institution's net interest margin. However, the
traditional gap analysis does not assess the relative sensitivity of assets and
liabilities to changes in interest rates. The Company utilizes the gap analysis
to complement its income simulations modeling, primarily focusing on the longer
term structure of the balance sheet.
As part of its interest rate risk strategy, the Company uses off-balance
sheet financial instruments (derivatives) to hedge the interest rate
sensitivity of assets with the corresponding amortization reflected in the
yield of the related on-balance sheet assets being hedged. The Company has
written policy guidelines, which have been approved by the Board of Directors
and the Asset/Liability Committee,
38
29
governing the use of off-balance sheet financial instruments, including
approved counterparties, risk limits and appropriate internal control
procedures. The credit risk of derivatives arises principally from the
potential for a counterparty to fail to meet its obligation to settle a
contract on a timely basis. At December 31, 1995, all counterparties have
investment grade credit ratings from the major rating agencies. Each
counterparty is specifically approved for applicable credit exposure.
At December 31, 1995, the Company's off-balance sheet financial instruments
consisted of two interest rate floor contracts having a notional amount
totalling $75 million; one contract with a notional amount of $50 million has a
final maturity of February 27, 2000 and the other contract with a notional
amount of $25 million has a final maturity of March 17, 1998. These financial
instruments are being used as part of the Company's interest rate risk
management and not for trading purposes.
Interest rate floor contracts require the counterparty to pay the Company at
specified future dates the amount, if any, by which the specified interest rate
(3 month LIBOR) falls below the fixed floor rates, applied to the notional
amounts. The Company utilizes these financial instruments to adjust its
interest rate risk position without exposing itself to principal risk and
funding requirements. The interest rate floor contracts require the Company to
pay a fee for the right to receive a fixed interest payment.
The Company purchased interest rate floor contracts to reduce the impact of
falling rates on its floating rate commercial loans. The Company paid up front
premiums of $715,000 for the interest rate floor contracts that it entered into
in 1995. These premiums are amortized monthly against interest income from the
designated assets. At December 31, 1995, the unamortized premiums on these
contracts totalled $582,000 and are included in other assets. At December 31,
1995, $4,000 was receivable under these contracts.
SECURITIES
The Company's securities portfolios are comprised principally of U.S.
Government and U.S. Government corporation and agency mortgage backed
securities along with other debt and equity securities. At December 31, 1995,
the Company's portfolio of securities totalled $299,238,000 of which U.S.
Government and U.S. Government corporation and agency guaranteed mortgage
backed securities having an average life of approximately 2 1/2 years amounted
to $290,770,000. The Company has the intent and ability to hold to maturity
securities classified "held to maturity." These securities are carried at cost,
adjusted for amortization of premiums and accretion of discounts. The gross
unrealized gains and losses on "held to maturity" securities were $1,078,000
and $2,072,000, 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 $1,489,000 and gross unrealized losses of $484,000.
Given the relatively short-term nature of the portfolio and its generally high
credit quality, management expects to realize all of its investment upon the
maturity of such instruments, and thus believes that any market value
impairment is temporary in nature.
Based on a decision by the Financial Accounting Standards Board to allow
companies a one-time opportunity to reassess their investment securities
classifications, in December 1995, the Company transferred certain U.S.
Treasury securities and certain mortgage-backed securities with an amortized
cost of $35,436,000 and an estimated fair value of $35,791,000 from held to
maturity to available for sale. This action was taken by management in
connection with its Asset/Liability Management process and was designed to
provide flexibility in the management of interest rate risk, yield and
collateral requirements. The net unrealized gain after tax effect on the
transferred securities was $183,000 ($354,000 before tax effect) and is
included in shareholders' equity.
CREDIT RISK
A key management objective is to maintain the quality of the loan portfolio.
This objective is achieved by maintaining high underwriting standards coupled
with regular evaluation of the creditworthiness of and the designation of
lending limits for each borrower. The portfolio strategies seek to avoid
concentrations by industry or loan size in order to minimize credit exposure
and to originate loans in markets with which it is familiar. See Footnote 4
shown on page 21 for the composition of the loan portfolio.
The Company's commercial and industrial loan portfolio represents
approximately 83% 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 13% of gross loans, is secured by mortgages on real
property located principally in the City of New York and the State of Virginia.
The collateral securing any loan may vary in value based on the success of the
business and economic conditions.
39
30
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Company's portfolio of loans is
increased. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which in turn
depends on current and expected economic conditions, the financial condition of
borrowers and the credit management process.
The allowance for possible loan losses is maintained through the provision
for possible loan losses, which is a charge to operating earnings. The adequacy
of the provision and the resulting allowance for possible loan losses is
determined by management's continuing review of the loan portfolio, including
identification and review of individual problem situations that may affect the
borrower's ability to repay, review of overall portfolio quality through an
analysis of current charge-offs, delinquency and nonperforming loan data,
estimates of the value of any underlying collateral, review of regulatory
examinations, an assessment of current and expected economic conditions and
changes in the size and character of the loan portfolio. The allowance reflects
management's evaluation of both loans presenting identified loss potential and
of the risk inherent in various components of the portfolio, including loans
identified as impaired as required by SFAS No. 114 and No. 118. Thus an
increase in the size of the portfolio or in any of its components could
necessitate an increase in the allowance even though there may not be a decline
in credit quality or an increase in potential problem loans. A significant
change in any of the evaluation factors described above could result in future
additions to the allowance. At December 31, 1995, the ratio of the allowance to
loans, net of unearned discounts was 1.3% and the allowance was $5,192,000. At
such date, the Company's non-accrual loans amounted to $357,000; $316,000 of
such loans were judged to be impaired within the scope of SFAS No. 114 and
required valuation allowances of $160,000. Based on the foregoing, as well as
management's judgement as to the current risks inherent in the loan portfolio,
the Company's allowance for possible loan losses was deemed adequate to absorb
all reasonably anticipated losses on specifically known and other possible
credit risks associated with the portfolio as of December 31, 1995. 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
$268,000, at December 31, 1995.
RESULTS OF OPERATIONS
Net interest income, which represents the difference between interest earned on
interest-earning assets and interest incurred on interest-bearing liabilities,
is the Company's primary source of earnings. Net interest income can be
affected by changes in market interest rates as well as the level and
composition of interest-earning assets and interest-bearing liabilities. An
analysis of the Company's interest rate sensitivity is presented on page 45.
The increases (decreases) for the components of interest income and interest
expense, expressed in terms of fluctuation in average volume and rate are shown
on page 43. Information as to the components of interest income and interest
expense and average rates is provided in the Average Balance Sheets shown on
page 42.
Comparison of Years Ended December 31, 1995 and December 31, 1994 Net interest
income for 1995 increased $5,554,000 to $34,165,000 from $28,611,000 in 1994.
Total interest income aggregated $53,484,000 up $9,991,000 for 1995 as
compared to $43,493,000 for the same period of 1994. The yield on interest
earning assets was 8.65% for 1995 compared with 7.44% for the comparable period
in 1994. The increase in interest income was principally due to an increase in
income earned on the Company's loan portfolio as a result of asset growth and
higher market interest rates.
Interest earned on the loan portfolio amounted to $32,726,000 up $8,993,000
when compared to a year ago. Average loan balances amounted to $311,119,000 up
$55,896,000 from $255,223,000 the prior year. The increase in the average
loans, primarily in the Company's commercial and industrial loan portfolio,
accounted for $5,201,000 or 58% of the increase in interest earned on loans,
with the balance attributable to higher rates.
Interest expense increased $4,437,000 to $19,319,000 for 1995 from
$14,882,000 for the comparable period in 1994. The cost of funds increased to
4.26% for 1995 up from 3.35% for 1994. The increase in interest expense was
substantially due to the higher rate environment.
Interest expense on savings and time deposits increased $3,068,000 for 1995
to $11,541,000 from $8,473,000 for the comparable 1994 period primarily due to
an increase in the cost of funds. The average rate paid on interest-bearing
deposits rose to 3.53% in 1995 compared to 2.75% in the comparable year ago
period. Average balances for interest-bearing deposits increased approximately
$19 million in 1995 when compared to the like period a year ago.
40
31
Interest expense associated with borrowed funds was $1,369,000 higher when
comparing 1995 to the same period in 1994. The impact of the higher interest
rate environment increased interest expense associated with borrowed funds by
$1,932,000. This increase was partially offset by a reduction in the cost of
funds of $563,000 as a result of lower average borrowings.
Reference is made to "CREDIT RISK" above for information as to management's
continuing evaluation of the loan portfolio and the allowance for possible loan
losses appropriate thereto. Based on such evaluation, and principally as the
result of the growth in the portfolio, $1,866,000 was provided for possible
loan losses for the year ended December 31, 1995.
Noninterest income increased $1,507,000 for 1995 when compared with 1994 as a
result of increased fees from factoring services and higher income from other
fee based services.
Noninterest expenses increased $4,662,000 for 1995 versus the same period
last year reflecting higher salary and employee benefit costs as well as higher
general business costs and professional fees associated with increased business
development efforts. Offsetting these increases was a decrease in Federal
deposit insurance premiums as a result of a reduction in premiums charged.
The higher level of pretax profitability was offset by lower additional
provisions for unresolved state tax issues, so that the provision for income
taxes declined by $46,000 in 1995 when compared to the prior year.
As a result of the above factors, net income increased $1,632,000 for the
year ended December 31, 1995 when compared to 1994.
Comparison of Years Ended December 31, 1994 and December 31, 1993 Total
interest income increased $11,011,000 due to higher average funds employed at
higher rates. An increase in average investment securities outstandings coupled
with higher yields, resulted in an increase in income from investment
securities of $4,464,000. Higher average loan outstandings employed at higher
rates resulted in an increase of $6,337,000 in interest and fees on loans.
Total interest expense for the year ended December 31, 1994 increased
$4,714,000 due to higher average outstandings and higher rates. Higher rates
paid coupled with higher outstandings, resulted in an increase of $1,955,000 in
interest expense on deposits. Interest expense on borrowings was $2,759,000
higher principally due to higher average outstandings.
Based on management's continuing evaluation of the collectibility of the loan
portfolio, $1,053,000 was provided for possible loan losses for the year ended
December 31, 1994.
Higher service charges on deposit accounts and higher volume for letters of
credit and factoring services, partially offset by lower income for trust
services, resulted in an increase in noninterest income of $542,000 for the
year ended December 31, 1994 compared with 1993.
Noninterest expenses increased $2,228,000 for the year ended December 31,
1994 versus the prior year reflecting higher personnel and other costs
associated with the Company's higher levels of business activities, increased
investments in technology and higher general costs.
Due to the higher level of pre-tax profitability and additional provisions
for unresolved state tax issues, the provision for income taxes increased
$3,397,000 for the year ended December 31, 1994.
As a result of the above factors, net income for the year ended December 31,
1994 increased $850,000 when compared with the same period in 1993.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The parent company's common stock is traded on The New York Stock Exchange
under the symbol STL. Information regarding the quarterly prices of the common
stock is presented in Footnote 20 on page 34. Information regarding the average
common shares outstanding and dividends per common share is presented in the
Consolidated Statements of Income on page 13. Information regarding legal
restrictions on the ability of the bank to pay dividends is presented in
Footnote 12 on page 25. There are no such restrictions on the ability of the
parent company to pay dividends to its shareholders. Information related to the
parent company's preferred stock is presented in Footnote 10 on page 25.
ACCOUNTING STANDARDS NOT YET ADOPTED
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
The Statement is effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 generally requires either employers to account for stock-based
employee compensation plans using the fair value based method or the intrinsic
value based method and report the pro forma amounts, if any, as if the fair
value based method had been applied.
This Statement is not expected to have a material effect on the Company's
financial condition or results of operations when adopted in the first quarter
of 1996.
41
32
STERLING BANCORP and Subsidiaries
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST EARNINGS(1)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ------ --------- -------- ------ --------- -------- ------
($ IN THOUSANDS)
ASSETS
Interest-bearing deposits
with other banks $ 3,037 $ 183 5.93% $ 2,963 $ 123 4.17% $ 3,119 $ 97 3.13%
Investment securities
Available for sale 69,675 4,683 6.72 80,498 4,480 5.55 -- -- --
Held to maturity 234,933 15,349 6.53 240,364 14,825 6.17 254,815 14,835 5.83
Tax-exempt(2) 133 8 6.12 143 9 6.29 264 15 5.74
Federal funds sold 9,153 535 5.92 7,033 323 4.59 4,542 139 3.06
Loans, net of unearned
discounts
Domestic(3) 310,330 32,669 10.87 254,434 23,690 9.37 227,815 17,362 7.65
Foreign 789 57 7.18 789 43 5.44 789 34 4.29
--------- -------- --------- -------- --------- --------
TOTAL INTEREST-
EARNING ASSETS 628,050 53,484 8.65% 586,224 43,493 7.44% 491,344 32,482 6.62%
-------- ====== -------- ====== -------- ======
Cash and due from banks 37,178 40,564 35,160
Allowance for possible
loan losses (4,765) (3,768) (3,175)
Excess cost over equity
in net assets of the bank 21,158 21,158 21,158
Other 13,901 14,706 11,624
--------- --------- ----------
TOTAL ASSETS $695,522 $658,884 $ 556,111
========= ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits
Domestic
Savings $175,473 4,032 2.30% $178,149 3,257 1.83% $198,772 4,254 2.14%
Other time 148,849 7,354 4.94 126,935 5,112 4.03 82,008 2,185 2.66
Foreign
Other time 2,780 155 5.56 2,663 104 3.89 2,819 79 2.80
Borrowings
Federal funds purchased
and securities sold
under agreements
to repurchase 53,295 2,967 5.56 55,824 2,076 3.72 31,315 896 2.86
Commercial paper 21,850 1,176 5.38 14,491 524 3.62 14,702 411 2.79
Other short-term debt 6,156 316 5.14 14,464 553 3.83 6,774 211 3.11
Long-term debt 45,606 3,319 7.28 51,581 3,256 6.31 33,204 2,132 6.42
--------- -------- --------- -------- --------- --------
TOTAL INTEREST-
BEARING LIABILITIES 454,009 19,319 4.26% 444,107 14,882 3.35% 369,594 10,168 2.75%
====== ====== ======
Noninterest-bearing
demand deposits 153,244 -- 144,974 -- 125,804 --
--------- -------- --------- -------- --------- --------
Total including noninterest-
bearing demand deposits 607,253 19,319 3.18% 589,081 14,882 2.53% 495,398 10,168 2.05%
-------- ====== -------- ====== -------- ======
Other liabilities 31,868 16,554 9,595
--------- --------- ---------
Total Liabilities 639,121 605,635 504,993
Shareholders' equity 56,401 53,249 51,118
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $695,522 $658,884 $556,111
========= ========= =========
Net interest income/spread $34,165 4.39% $28,611 4.09% $22,314 3.87%
======== ====== ======== ====== ======== ======
Net yield on interest
earning assets 5.52% 4.91% 4.55%
====== ====== ======
(1) The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages for the bank and monthly averages
for the parent company and its finance subsidiaries.
(2) Interest on these securities is not presented on a tax equivalent basis.
(3) Nonaccrual loans are included in the average balance which reduces the
average yields.
42
33
STERLING BANCORP and Subsidiaries
RATE/VOLUME ANALYSIS
DECEMBER 31, 1994 TO DECEMBER 31, 1993 TO
INCREASE (DECREASE) FROM YEARS ENDED, DECEMBER 31, 1995 DECEMBER 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
VOLUME RATE TOTAL(1) VOLUME RATE TOTAL(1)
---------------------------------------------------
($ IN THOUSANDS)
INTEREST INCOME
Interest-bearing deposits with other banks $ 5 $ 55 $ 60 $ (6) $ 32 $ 26
---------------------------------------------------
Investment securities
Available for sale (670) 873 203 2,240 2,240 4,480
Held to maturity (342) 866 524 (847) 837 (10)
Tax-exempt(2) (1) -- (1) (10) 4 (6)
---------------------------------------------------
Total (1,013) 1,739 726 1,383 3,081 4,464
---------------------------------------------------
Federal funds sold 108 104 212 95 89 184
---------------------------------------------------
Loans, net of unearned discount
Domestic(3) 5,201 3,778 8,979 2,238 4,090 6,328
Foreign -- 14 14 -- 9 9
---------------------------------------------------
Total 5,201 3,792 8,993 2,238 4,099 6,337
---------------------------------------------------
TOTAL INTEREST INCOME $4,301 $5,690 $9,991 $3,710 $7,301 $11,011
===================================================
INTEREST EXPENSE
Savings and time deposits
Domestic
Savings $ (54) $ 829 $ 775 $ (409) $ (588) $ (997)
Other time 986 1,256 2,242 1,503 1,424 2,927
Foreign
Other time 5 46 51 (5) 30 25
----------------------------------------------------
Total 937 2,131 3,068 1,089 866 1,955
----------------------------------------------------
Borrowings
Federal funds purchased and securities sold
under agreements to repurchase (116) 1,007 891 806 374 1,180
Commercial paper 331 321 652 (7) 120 113
Other short-term debt (372) 135 (237) 266 76 342
Long-term debt (406) 469 63 1,170 (46) 1,124
---------------------------------------------------
Total (563) 1,932 1,369 2,235 524 2,759
---------------------------------------------------
TOTAL INTEREST EXPENSE $ 374 $4,063 $4,437 $3,324 $1,390 $ 4,714
===================================================
NET INTEREST INCOME $3,927 $1,627 $5,554 $ 386 $5,911 $ 6,297
===================================================
(1) The rate/volume variance is allocated equally between changes in volume and
rate.
(2) Interest on the securities is not calculated on a tax equivalent basis.
(3) Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent accrued.
43
34
STERLING BANCORP and Subsidiaries
CAPITAL COMPONENTS AND RATIOS
THE COMPANY THE BANK
-------------------------------------------------------------
12/31/95 12/31/94 12/31/95 12/31/94
-------------------------------------------------------------
($ IN THOUSANDS)
Components
Shareholders' equity $ 59,657 $ 53,719 $ 47,940 $ 45,700
Add/(Subtract):
Minority interest 8 8 -- --
Goodwill (21,158) (21,158) -- --
Net unrealized (appreciation) depreciation
on securities available for sale, net of tax effect(1) (544) 1,141 (541) 1,142
-------------------------------------------------------------
Tier 1 Capital 37,963 33,710 47,399 46,842
-------------------------------------------------------------
Allowance for possible loan losses (limited to 1.25%
of total risk-weighted assets) 5,192 4,136 3,649 3,435
Subordinated debt (limited to 50% of Tier 1 Capital) 12,751 16,690 -- --
-------------------------------------------------------------
Tier 2 Capital 17,943 20,826 3,649 3,435
-------------------------------------------------------------
Total Risk-based Capital $ 55,906 $ 54,536 $ 51,048 $ 50,277
=============================================================
Ratios
Tier 1 Capital 8.54% 8.73% 11.98% 13.09%
Total Capital 12.58 14.12 12.90 14.05
Leverage 5.37 5.12 7.19 7.42
Memoranda
Tier 1 Capital minimum requirement $ 17,777 $ 15,450 $ 15,826 $ 14,318
Total Capital minimum requirement 35,554 30,900 31,652 28,636
Risk-weighted assets, net of goodwill 444,425 386,241 395,645 357,946
Quarterly average assets, net of goodwill 706,632 658,976 659,574 630,932
(1) As directed by regulatory agencies, this amount must be excluded from the
computation of Tier 1 capital.
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35
STERLING BANCORP and Subsidiaries
INTEREST RATE SENSITIVITY
To mitigate the vulnerability of earnings due to changes in interest rates, the
Company manages the repricing characteristics of assets and liabilities in an
attempt to control net interest rate sensitivity. Management attempts to
confine significant rate sensitivity gaps predominantly to repricing intervals
of a year or less so that adjustments can be made quickly. Assets and
liabilities with predetermined repricing dates are placed in a time of the
earliest repricing period. Based on the interest rate sensitivity analysis
shown below, the Company's net interest income would increase during periods of
rising interest rates and decrease during periods of falling interest rates.
Amounts are presented in thousands.
REPRICING DATE
--------------------------------------------------------------------------------
MORE THAN NON
3 MONTHS 3 MONTHS 1 YEAR TO OVER RATE
OR LESS TO 1 YEAR 5 YEARS 5 YEARS SENSITIVE TOTAL
--------------------------------------------------------------------------------
ASSETS
Interest-bearing deposits
with other banks $ 2,000 $ 1,000 $ -- $ -- $ -- $ 3,000
Investment securities -- 31,496 59,094 203,680 4,968 299,238
Federal funds sold 5,000 -- -- -- -- 5,000
Loans, net of unearned discounts 314,479 17,934 41,264 29,909 (6,357) 397,229
Noninterest-earning assets and
allowance for possible loan losses -- -- -- -- 71,141 71,141
--------------------------------------------------------------------------------
Total Assets 321,479 50,430 100,358 233,589 69,752 775,608
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits 161,667 52,086 113,194 -- -- 326,947
Securities sold under agreements
to repurchase 34,165 17,100 -- -- -- 51,265
Commercial paper 26,607 -- -- -- -- 26,607
Other short-term borrowings 1,082 4,250 -- -- -- 5,332
Long-term convertible subordinated
debentures 21,346 -- -- -- -- 21,346
Other long-term borrowings--FHLB -- -- 16,950 1,050 -- 18,000
Noninterest-bearing liabilities and
shareholders' equity -- -- -- -- 326,111 326,111
--------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity 244,867 73,436 130,144 1,050 326,111 775,608
--------------------------------------------------------------------------------
Net Interest Rate Sensitivity Gap $ 76,612 $(23,006) $(29,786) $232,539 $(256,359) $ --
================================================================================
Cumulative Gap at December 31, 1995 $ 76,612 $ 53,606 $ 23,820 $256,359 $ -- $ --
================================================================================
Cumulative Gap at December 31, 1994 $ 38,812 $ 10,115 $(87,710) $179,179 $ -- $ --
================================================================================
Cumulative Gap at December 31, 1993 $ 29,476 $ 9,319 $(59,671) $170,526 $ -- $ --
================================================================================
45