-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KgR13a0/E8HwaISy6ItAXn8SqGYY95t5RCqcHJdw1D+UwzKJgRkDDKqzo1g42vgh GIuJ6ektOETuQM0w+dHsBw== 0000950123-96-001523.txt : 19960402 0000950123-96-001523.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950123-96-001523 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING BANCORP CENTRAL INDEX KEY: 0000093451 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 132565216 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05273 FILM NUMBER: 96543206 BUSINESS ADDRESS: STREET 1: 540 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022-3299 BUSINESS PHONE: 2128268000 MAIL ADDRESS: STREET 1: 540 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022-3299 FORMER COMPANY: FORMER CONFORMED NAME: STANDARD PRUDENTIAL CORP /NEW/ DATE OF NAME CHANGE: 19781210 FORMER COMPANY: FORMER CONFORMED NAME: STANDARD PRUDENTIAL UNITED CORP DATE OF NAME CHANGE: 19681125 10-K 1 ANNUAL REPORT 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 Commission File No. 1-5273-1 --------------------------- STERLING BANCORP (Exact Name of Registrant as specified in charter) NEW YORK 13-2565216 (State or other jurisdiction of (I.R.S. employer identification No.) incorporation or organization) 540 MADISON AVENUE, NEW YORK, N.Y. 10022-3299 (Address of principal executive offices) (Zip Code) (212) 826-8000 (Registrant's telephone number, including area code) --------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ---------------------- Common Shares, $1 par value New York Stock Exchange Floating Interest Rate Convertible Subordinated Debentures, 4th Series, due November 1, 1998 New York Stock Exchange Floating Interest Rate Convertible Subordinated Debentures, Series V, due July 1, 2001 New York Stock Exchange
--------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] On February 29, 1996 the aggregate market value of the voting stock held by non-affiliates of the Registrant was $74,412,162. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: THE REGISTRANT HAS ONE CLASS OF COMMON STOCK OF WHICH 6,479,063 SHARES WERE OUTSTANDING AT MARCH 15, 1996. DOCUMENTS INCORPORATED BY REFERENCE (1) Specified portions of the Sterling Bancorp 1995 Annual Report are incorporated by reference in Parts I and II. (2) Specified portions of the Sterling Bancorp definitive Proxy Statement dated March 14, 1996 are incorporated by reference in Part III. ================================================================================ 2 STERLING BANCORP FORM 10-K TABLE OF CONTENTS
PAGE ------ PART I Item 1. BUSINESS ............................................. I- 1 Item 2. PROPERTIES ........................................... I-12 Item 3. LEGAL PROCEEDINGS .................................... I-12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......................................... I-12 PART II Item 5. MARKET FOR THE REGISTRANT"S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ..................... II-1 Item 6. SELECTED FINANCIAL DATA .............................. II-1 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............. II-1 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......... II-1 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .................. II-1 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...................................... III-1 Item 11. EXECUTIVE COMPENSATION ............................... III-1 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................... III-1 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....... III-1 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................ IV-1 SIGNATURES Exhibits Submitted in a Separate Volume.
3 PART I ITEM 1. BUSINESS GENERAL Sterling Bancorp (the Registrant), organized in 1966, is a bank holding company, as defined by the Bank Holding Company Act of 1956 (the BHCA), 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 Registrant 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). Zenith Financial Services Company operates as a division of the Registrant. As used throughout this report, "the Company" refers to Sterling Bancorp and its subsidiaries. There is 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. The following table presents the components of the loan portfolio for both the Company and the bank as of December 31, 1995 and 1994. Reference is made to the information beginning on page 39 of the Company's 1995 Annual Report (pages 11 to 45 of which are incorporated by reference herein) under the caption "CREDIT RISK".
December 31, 1995 December 31, 1994 ---------------------- --------------------- The Company The bank The Company The bank ----------- --------- ----------- -------- (in thousands) Domestic Commercial and industrial $337,429 $289,326 $260,869 $232,303 Real estate - mortgage 49,790 49,790 42,079 42,079 Real estate - construction 1,040 1,040 1,486 1,486 Installment - individuals 14,876 14,876 12,920 12,920 Foreign Governments and official institutions 789 789 789 789 -------- -------- -------- -------- Loans, gross 403,924 355,821 318,143 289,577 Less: Unearned discounts 6,695 6,357 5,374 5,104 -------- -------- -------- -------- Loans, net of unearned discounts $397,229 $349,464 $312,769 $284,473 ======== ======== ======== ========
The BHCA requires the prior approval of the Federal Reserve Board for the acquisition by a bank holding company of more than 5% of the voting stock or substantially all of the assets of any bank or bank holding company. Also, under the BHCA, bank holding companies are prohibited, with certain exceptions, from engaging in, or from acquiring more than 5% of the voting stock of any company engaging in, activities other than banking or managing or controlling banks or furnishing services to or performing services for their subsidiaries. The BHCA also authorized the Federal Reserve Board to permit bank holding companies to I-1 4 engage in, and to acquire or retain shares of companies that engage in, activities which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board has ruled on a number of activities and found some of them to come within such standard while finding that other activities do not fall within the permissible scope of such standard; other activities have been proposed by the Federal Reserve Board for consideration. The effect of the Federal Reserve Board's findings under the standard has been to expand the financially related activities in which bank holding companies may engage. Revisions of the Federal Reserve Board's principal regulation (Regulation Y) affecting bank holding companies have expanded the scope of permissible bank-related activities and liberalized procedures to allow the entry into such activities. In addition, the BHCA prohibits the Registrant from acquiring direct or indirect control of more than a 5% interest in a bank or bank holding company located in a state other than New York unless the laws of such state expressly authorize such acquisition. There are also various requirements and restrictions imposed by the laws of the United States and the State of New York and by regulations of the Federal Reserve System, of which the bank is a member, affecting the operations of the Company including the requirement to maintain reserves against deposits, restrictions relating to: (a) the nature and amount of loans that may be made by the bank and the interest that may be charged thereon; (b) extensions of credit by subsidiary banks of a bank holding company to the bank holding company or certain of its subsidiaries; (c) on investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower; and (d) other investments, branching and other activities of the Company and the bank. Regulatory limitations on the payment of dividends to the Registrant by the bank are discussed in the "FINANCIAL CONDITION" section beginning on page 37 of the Company's 1995 Annual Report. The Registrant and its finance subsidiaries are subject to supervision and regulation by the Federal Reserve Board (FRB); Sterling Industrial Loan Association is subject to supervision and regulation by the Bureau of Financial Institutions of the State Corporation Commission of the Commonwealth of Virginia; Sterling Banking Corporation is subject to supervision and regulation by the Banking Department of the State of New York; the bank is subject to supervision and regulation by the Office of the Comptroller of the Currency (the Comptroller) and, by reason of the insurance of its deposits to the extent permitted by law, to the regulations of the Federal Deposit Insurance Corporation (FDIC). The Company and the bank are subject to risk-based capital and leverage guidelines issued by U.S. banking industry regulators for banks and bank holding companies in the United States. Pursuant to provisions of FDICIA, which, among other things, requires the federal depository institution regulatory agencies to take specific prompt actions with respect to institutions that do not meet minimum capital standards, the agencies have adopted regulations creating and defining five capital tiers, the highest of which is "well capitalized". As of December 31, 1995 the bank was "well capitalized". The capital components and ratios for the Company and the bank are presented in the Company's 1995 Annual Report on page 44. I-2 5 There have been a number of legislative and regulatory proposals that would have an impact on the operations of bank holding companies and their banks. While the changing legislation and regulatory environment does not permit forecasts to be made with any degree of certainty, the Company is unaware of any pending legislative reforms or regulatory activities which would materially affect its financial position or operating results in the foreseeable future. The Federal Reserve Board has issued regulations under the BHCA that require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve Board, pursuant to such regulations, may require the Registrant to stand ready to use its resources to provide adequate capital funds to its banking subsidiaries during periods of financial stress or adversity. This support may be required at times when, absent such regulations, the bank holding company might not otherwise provide such support. The earnings of the Registrant and its finance subsidiaries and the bank are affected by legislative changes and by regulations and policies of various governmental authorities, including the Federal Reserve System, the Comptroller, and the states in which the Registrant's subsidiaries operate. Such changes and policies significantly affect the growth of deposits as well as the cost of purchased funds and the return on earning assets. Changing conditions in the national economy and in the money markets make it impossible to predict future changes in interest rates, deposit levels, loan demand or their effects on the business and earnings of the Registrant and its subsidiaries. Foreign activities of the Company are not considered to be material. I-3 6 THE BANK Sterling National Bank & Trust Company of New York was organized in 1929 under the National Bank Act and commenced operations in New York City. The bank maintains six offices in New York City (three branches and an International Banking Facility in Manhattan and two branches in Queens). The executive office is located at 540 Madison Avenue, New York, New York. There are regional representatives located in Los Angeles, California and Richmond, Virginia. The bank provides a range of banking services to businesses and individuals including checking, savings and money market accounts, certificates of deposit, business loans, personal and installment loans, VISA/MASTERCARD, safe deposit and night depository facilities. Business lending, depository and related financial services are furnished to a wide range of customers in diverse industries, including commercial, industrial and financial companies of all sizes as well as government and non-profit agencies. Loan facilities available to these customers include short-term revolving credit arrangements, term loans, letters of credit, factoring, accounts receivable financing, equipment financing, real estate and mortgage loans, leasing and lock box services. Through its international division and International Banking Facility, the bank offers financial services to its customers and correspondents in the world's major financial centers. These services consist of financing import and export transactions, issuance of letters of credit and creation of bankers acceptances. In addition to its direct worldwide correspondent banking relationships, active bank account relationships are maintained with leading foreign banking institutions in major financial centers. The bank's trust division provides a variety of fiduciary, investment management, advisory and corporate agency services to individuals, corporations and foundations. The bank acts as trustee for pension, profit-sharing and other employee benefit plans and personal trusts and estates. For corporations, the bank acts as trustee, transfer agent, registrar and in other corporate agency capacities. 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. The bank's legal lending limit to a single borrower was approximately $7.6 million at December 31, 1995. The composition of income from the bank's operations for the years ended: [1] December 31, 1995 included interest and fees on commercial and other loans (52%), interest and dividends on investment securities (38%) and other (10%); [2] December 31, 1994 included interest and fees on commercial and other loans (47%), interest and dividends on investment securities (44%), and other (9%); [3] December 31, 1993 included interest on term Federal funds sold (2%), interest and fees on commercial and other loans (44%), interest and dividends on investment securities (43%), and other (11%). At December 31, 1995, the bank had 183 employees, consisting of 78 officers and 105 supervisory and clerical employees. The bank considers its relations with its employees to be satisfactory. I-4 7 REGISTRANT AND FINANCE SUBSIDIARIES The Registrant and its finance subsidiaries engage in various types of secured financing activities such as asset based financing, factoring, consumer receivables financing and residential mortgage loans and service certain such accounts for the bank. Asset based financing services rendered by the Registrant and its finance subsidiaries include new business referral, collection, supervisory, examination and bookkeeping to the bank for fees; and the bank assumes all credit risks. Standard Factors Corporation/Sterling Factors ("Factors") provides factoring services. Factors purchases client's accounts receivable, assumes credit risk on approved orders and handles credit and collection details and bookkeeping requirements. Income for these services is derived from commissions charged for receivables serviced and interest charged on advances to the client. In addition, Factors services the bank's portfolio without assuming the credit risk for those factored receivables managed for the bank. For these services, Standard Factors Corporation receives a portion of factoring commissions paid by the clients plus a portion of interest charged on advances. The accounts receivable factored are for clients primarily engaged in the apparel and textile industries. The Registrant and its finance subsidiaries make business and consumer loans. The loans are usually secured by real estate, personal property, accounts receivable or other collateral; occasionally unsecured working capital advances are provided to its customers. Sterling Industrial Loan Association (S.I.L.A.), located in Richmond, Virginia, jointly originates and services mortgage loans to homeowners funded by the bank. S.I.L.A. receives a service fee. The loans are repayable in equal monthly installments over periods ranging from 36 to 180 months. Loans are usually made to allow the borrower to make home repairs, to consolidate debt or to meet educational, medical or other expenses. The loans are secured by first or second mortgages. The amounts loaned are less than the borrower's equity in the home, as determined by appraisals. S.I.L.A. also originates mortgage loans with the intention of reselling those loans, including servicing rights, with limited recourse. Zenith Financial Services Corporation, a nationwide provider of consumer receivables financing, is a division of the Registrant. Zenith engages in asset based lending with independent dealers who market products (i.e., housewares, appliances, automobiles, educational material, et al) to consumers on an installment basis with repayment terms between 12 and 48 months. Zenith administers these installment contracts for the dealer, providing billing, payment processing and other bookkeeping services. Zenith makes advances to each dealer of up to 80% of the discounted aggregate value of the dealer's installment contracts. I-5 8 The composition of income (excluding equity in undistributed net income of the banking subsidiary) of the Registrant and its finance subsidiaries for the years ended: [1] December 31, 1995 included interest and fees on loans (47%), interest and fees on accounts receivable factored (19%), dividends, interest and service fees (33%) and other (1%); [2] December 31, 1994 included interest and fees on loans (46%) interest and fees on accounts receivable factored (18%), dividends, interest and service fees (35%), and other (1%); [3] December 31, 1993 included interest and fees on loans (32%), interest and fees on accounts receivable factored (14%), dividends, interest and service fees (50%), and other (4%). At December 31, 1995, the Registrant and its finance subsidiaries employed 48 persons consisting of 14 officers with the balance of the employees performing supervisory and clerical functions. The Registrant and its finance subsidiaries consider employee relations to be satisfactory. SELECTED CONSOLIDATED STATISTICAL INFORMATION I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential. The information appearing on pages 42,43, and 45 of the Company's 1995 Annual Report is incorporated by reference herein. II. Investment Portfolio Shown below is a summary of the Company's investment securities by type with related book values:
December 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (in thousands) U.S. Treasury securities $ 52,373 $ 41,022 $ 40,835 Obligations of U.S. government corporations and agencies--mortgage-backed securities 238,397 261,433 222,532 Obligations of states and political sub- divisions -- 30 30 Debt securities issued by foreign governments 3,500 4,000 4,500 Corporate debt securities -- -- 2,005 Other debt securities -- 1,118 10,104 Federal Reserve Bank and other equity securities 4,968 4,179 6,810 -------- -------- -------- Total $299,238 $311,782 $286,816 ======== ======== ========
Information regarding book values and range of maturities by type of security and weighted average yields for totals of each category is presented in the Company's 1995 Annual Report on pages 19 and 20 and is incorporated by reference herein. The average yield by maturity range is not available. I-6 9 III. Loan Portfolio The following table sets forth the composition of the Company's loan portfolio, net of unearned discounts, at the end of each of the most recent five fiscal years:
December 31, --------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- % of % of % of % of % of Balances Total Balances Total Balances Total Balances Total Balances Total -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- ($ in thousands) Domestic Term Federal funds sold $ -- -- % $ -- -- % $ 40,000 13.39% $ 99,000 34.28% $ 75,000 32.95% Commercial and industrial 333,484 83.95 258,493 82.65 216,677 72.53 149,272 51.69 114,407 50.27 Real estate - mortgage 48,588 12.23 39,997 12.79 31,474 10.54 30,987 10.73 28,982 12.73 Real estate - construction 1,040 0.26 1,486 0.48 1,666 0.56 1,606 0.56 1,833 0.81 Installment - individuals 13,328 3.36 12,003 3.84 8,145 2.73 7,136 2.47 6,588 2.89 Foreign Government and official insti- tutions 789 0.20 789 0.25 789 0.26 789 0.27 789 0.35 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Loans, net of unearned discounts $397,229 100.00% $312,769 100.00% $298,751 100.00% $288,791 100.00% $227,598 100.00% ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
The following table sets forth the maturities and sensitivity to changes in interest rates of loans, excluding "installment - individuals" loans, of the Company's loan portfolio at December 31, 1995:
Due One Due One Due After Total Year to Five Five Gross or Less Years Years Loans ------- ------- ------- -------- (in thousands) Commercial and industrial $295,580 $40,481 $ 1,358 $337,429 Real estate - mortgage 5,413 17,783 26,594 49,790 Real estate - construction 1,040 -- -- 1,040 Foreign 789 -- -- 789 -------- ------- ------- -------- Total $302,832 $58,264 $27,952 $389,048 ======== ======= ======= ======== Loans due after one year, which have: Predetermined interest rates $41,766 $27,952 $ 69,718 Floating or adjustable interest rates 16,498 -- 16,498 ------- ------- -------- Total $58,264 $27,952 $ 86,216 ======= ======= ========
I-7 10 It is the policy of the Company to consider all customer requests for extensions of original maturity dates (rollovers), whether in whole or in part, as though each was an application for a new loan subject to standard approval criteria, including credit evaluation. The information appearing in the Company's 1995 Annual Report beginning on page 39 under the caption "CREDIT RISK", beginning on page 21 in footnote 4 and on page 17 in footnote 1 under the caption "Loans" is incorporated by reference herein. The following table sets forth the aggregate amount of domestic non-accrual, past due and restructured loans of the Company at the end of each of the most recent five fiscal years; as of December 31, 1995, there were no foreign loans accounted for on a nonaccrual basis or which were troubled debt restructurings:
December 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ------ ------ -------- -------- ------ (in thousands) Nonaccrual basis loans* $ 357[1] $ 575[1] $ 2,297[1] $ 3,309[1] $4,499[1] Past due 90 days or more (other than the above)[2] 1,961 293 146 619 3,873 ------ ------ -------- -------- ------ Total $2,318 $ 868 $ 2,443 $ 3,928 $8,372 ====== ====== ======== ======== ====== Note:Includes restructured debt of $ -- $ -- $ -- $ -- $ -- ====== ====== ======== ======== ====== *Interest income that would have been earned on non- accrual and reduced rate loans outstanding $ 22 $ 86 $ 169 $ 313 $ 378 ====== ====== ======== ======== ====== Applicable interest income actually realized $ -- $ 18 $ 98 $ 72 $ 16 ====== ====== ======== ======== ====== Nonaccrual, past due and restructured loans as a percentage of total gross loans .58% .27% .80% 1.33% 3.55% ====== ====== ======== ======== ======
[1] Includes $-0-, $-0-, $1.4, $1.9 and $2.5 million at December 31, 1995, 1994, 1993,1992 and 1991, respectively, representing the balance of a loan to a single borrower who filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code during the third quarter of 1991. [2] Loans contractually past due 90 days or more as to principal or interest and still accruing are loans which are both well secured or guaranteed by financially responsible third parties and are in the process of collection. I-8 11 IV. Summary of Loan Loss Experience The information appearing in the Company's 1995 Annual Report beginning on page 21 in footnote 5 is incorporated by reference herein. The following table sets forth certain information with respect to the Company's loan loss experience for each of the most recent five fiscal years:
December 31, ---------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (in thousands) Average loans outstanding, net of unearned discounts, during year $311,119 $255,223 $228,604 $211,917 $248,490 ======== ======== ======== ======== ======== Allowance for possible loan losses: Balance at beginning of year $ 4,136 $ 3,414 $ 3,177 $ 3,734 $ 3,373 -------- -------- -------- -------- -------- Charge-offs: Commercial and industrial 966 401 670 1,799 7,661 Real estate 16 109 -- -- -- Installment 19 22 45 120 29 -------- -------- -------- -------- -------- Total charge-offs 1,001 532 715 1,919 7,690 -------- -------- -------- -------- -------- Recoveries: Commercial and industrial 144 201 41 25 38 Real estate 47 -- -- -- -- Installment -- -- 11 47 13 -------- -------- -------- -------- -------- Total recoveries 191 201 52 72 51 -------- -------- -------- -------- -------- Less: Net charge-offs 810 331 663 1,847 7,639 -------- -------- -------- -------- -------- Provision for possible loan losses 1,866 1,053 690 1,290 8,000 -------- -------- -------- -------- -------- Allowance - acquired portfolio -- -- 210 -- -- -------- -------- -------- -------- -------- Balance at end of year $ 5,192 $ 4,136 $ 3,414 $ 3,177 $ 3,734 ======== ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding, net of unearned discounts during year .26% .13% .29% .87% 3.07% ======== ======== ======== ======== ========
On June 1, 1993 the parent 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 $209,627. The Company considers its allowance for possible loan losses to be adequate based upon the size and risk characteristics of the outstanding loan portfolio at December 31, 1995. Net losses within the loan portfolio are not statistically predictable and changes in conditions in the next twelve months could result in future provisions for loan losses varying from the level taken in 1995. The Company does not anticipate any recurrence of net credit losses of the magnitude experienced in 1991. I-9 12 To comply with a regulatory requirement to provide an allocation of the allowance for possible loan losses, the following table presents the Company's allocation of the allowance. This allocation is based on subjective estimates by management and may vary from year to year based on management's evaluation of the risk characteristics of the loan portfolio. The information appearing in the Company's 1995 Annual Report beginning on page 39 under the caption "CREDIT RISK" is incorporated by reference herein. The amount allocated to a particular loan category may not necessarily be indicative of actual future charge-offs in a loan category. Management believes that the allowance must be viewed in its entirety and is therefore available for future charge-offs in any loan category.
December 31, -------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- ------ % of % of % of % of % of Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ($ in thousands) Domestic Commercial and industrial $2,812 0.84% $2,487 0.96% $1,757 0.81% $1,135 0.76% $1,802 1.58% Real estate - mortgage 472 0.97 434 1.09 291 0.92 323 1.04 406 1.40 Real estate - construction 8 0.77 12 0.81 63 3.78 63 3.92 26 1.42 Installment - individuals 167 1.25 142 1.18 94 1.15 98 1.37 92 1.40 Unallocated 1,733 -- 1,061 -- 1,209 -- 1,558 -- 1,408 -- ----- ------ ----- ------ ----- Loans, net of unearned discounts $5,192 1.31% $4,136 1.32% $3,414 1.14% $3,177 1.10% $3,734 1.64% ====== ==== ====== ==== ====== ==== ====== ==== ====== ====
V. Deposits Average deposits and average rates paid for each of the most recent three years is presented in the Company's 1995 Annual Report on page 42 and is incorporated by reference herein. Outstanding time certificates of deposit issued from domestic offices in amounts of $100,000 or more and interest expense on domestic and foreign deposits are presented in the Company's 1995 Annual Report on page 22 in footnote 6 and is incorporated by reference herein. The following table provides certain information with respect to the Company's deposits for each of the most recent three fiscal years:
December 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (in thousands) Domestic Demand $224,081 $174,897 $174,089 NOW 30,150 34,055 32,253 Savings 26,967 29,201 33,078 Money Market 120,655 118,571 127,939 Time deposits, by remaining maturity Within 3 months 68,689 58,527 67,128 After 3 months but within 1 year 49,715 23,172 23,249 After 1 but within 5 years 27,531 76,210 12,580 -------- -------- -------- Total domestic deposits 547,788 514,633 470,316 -------- -------- -------- Foreign Time deposits, by remaining maturity Within 3 months 2,240 1,670 1,670 After 3 months but within 1 year 1,000 1,000 1,000 -------- -------- -------- Total foreign deposits 3,240 2,670 2,670 -------- -------- -------- Total deposits $551,028 $517,303 $472,986 ======== ======== ========
I-10 13 Interest expense for the most recent three fiscal years is as follows:
Years Ended December 31, 1995 1994 1993 ------- ------- ------- (in thousands) NOW $ 286 $ 273 $ 394 Savings 585 685 907 Money market 3,205 2,353 2,735 Time--domestic 7,328 5,058 2,403 --foreign 155 104 79 ------- ------- ------- Total interest expense $11,540 $ 8,473 $ 6,518 ======= ======= =======
VI. Return on Assets and Equity The Company's returns on average total assets and average shareholders' equity, dividend payout ratio and average shareholders' equity to average total assets for each of the most recent three years follow:
Years Ended December 31, --------------------------- 1995 1994 1993 ----- ----- ----- Return on average total assets (Net income divided by average total assets) .81% .61% .57% Return on average shareholders' equity (Net income divided by average equity) 10.00% 7.52% 6.17% Dividend payout ratio (Dividends declared per share divided by net income per share) 28.41% 33.33% 40.00% Average shareholders' equity to average total assets (Average equity divided by average total assets) 8.11% 8.08% 9.19%
VII. Short-Term Borrowings Balance and rate data for significant categories of the Company's Short-Term Borrowings, for each of the most recent three years is presented in the Company's 1995 Annual Report on page 23 in footnote 7 and is incorporated by reference herein. I-11 14 ITEM 2. PROPERTIES The principal offices of the Company occupy four contiguous floors at 540 Madison Avenue at 55th Street, New York, N.Y. consisting of approximately 29,000 square feet. These are held under two leases, of which the one covering the upper floor expires December 31, 1996. The other, covering the lower three floors, expires December 31, 1996 with a renewal option to December 31, 2001. Annual rental commitments approximate $876,000. Certain finance subsidiaries maintain offices in Beverly Hills, California and Richmond, Virginia. In addition to the principal offices, the bank maintains operating leases for three additional branch offices, the International Banking Facility and an Operations Center with an aggregate of approximately 43,100 square feet. The annual office rental commitments for these premises approximates $600,000. The leases have expiration dates ranging from 2001 through 2008 with varying additional renewal options. The bank also maintains a branch located in Forest Hills owned by the bank (and not subject to a mortgage). ITEM 3. LEGAL PROCEEDINGS Neither Registrant nor any of its subsidiaries is party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information beginning on page 10 of the Sterling Bancorp Proxy Statement dated March 14, 1996 under the caption "APPROVAL OF STOCK INCENTIVE PLAN AMENDMENT" is incorporated by reference herein. I-12 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information appearing on page 41 of the Sterling Bancorp 1995 Annual Report under the caption "MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS" is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA The information appearing on page 36 of the 1995 Annual Report under the caption "SELECTED FINANCIAL DATA" is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information appearing on pages 37 - 41 of the 1995 Annual Report under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated herein by reference. Supplementary data appearing on page 34 footnote 20 of the 1995 Annual Report is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements as of December 31, 1995 and 1994 and 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, notes thereto and Independent Auditors' Report thereon appearing on pages 11 - 35 of the 1995 Annual Report, are incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-1 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information beginning on page 1 of the Sterling Bancorp Proxy Statement dated March 14, 1996 under the caption "ELECTION OF DIRECTORS" and on page 9 of the same proxy statement under the caption "Security Ownership of Directors and Executive Officers and Certain Beneficial Owners" are incorporated by reference herein. Executive Officers - This information is included pursuant to Instruction 3 to Item 401 (b) and (c) of Regulation S-K:
Held Executive Office Name of Executive Title Age Since ----------------- ----------------------- --- ---------- Louis J. Cappelli Chairman of the Board and Chief Executive Officer, Director 65 1967 John C. Millman President, Director 53 1986 Jerrold Gilbert Executive Vice President, General Counsel & Secretary 59 1974 John W. Tietjen Senior Vice President, Treasurer and Chief Financial Officer 51 1989 John A. Aloisio Vice President 53 1992 Leonard Rudolph Vice President 48 1992 Frank J. Voso Vice President 52 1989
All executive officers are elected annually by the Board of Directors and serve at the pleasure of the Board. There are no arrangements or understandings between any of the foregoing officers and any other person or persons pursuant to which he was selected as an executive officer. ITEM 11. EXECUTIVE COMPENSATION The information beginning on page 3 of the Sterling Bancorp Proxy Statement dated March 14, 1996 under the caption " Executive Compensation and Related Matters" and on page 8 of the same Proxy Statement under the caption "Transactions with the Company and Other Matters" are incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information beginning on page 9 of the Sterling Bancorp Proxy Statement dated March 14, 1996 under the caption "Security Ownership of Directors and Executive Officers and Certain Beneficial Owners" is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing on page 8 of the Sterling Bancorp Proxy Statement dated March 14, 1996 under the caption "Transactions with the Company and Other Matters" is incorporated by reference herein. III-1 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The documents filed as a part of this report are listed below: 1. Financial Statements Annual Report to security holders, Sterling Bancorp 1995 Annual Report (This document is filed only to the extent of pages 11 through 45 which are incorporated by reference herein). 2. Financial Statement Schedules None 3. Exhibits 3(i)(A) Amended and restated Certificate of Incorporation filed with the State of New York, Department of State, August 14, 1986 (Filed as Exhibit 3.3 to Registrant's Form 10-K for the fiscal year ended December 31, 1986 and incorporated by reference herein). (i)(B) Certificate of Amendment of The Certificate of Incorporation filed with the State of New York Department of State, June 13, 1988 (Filed as Exhibit 3.5 to Registrant's Form 10-K for the fiscal year ended December 31, 1988 and incorporated by reference herein). (i)(C) Certificate of Amendment of the Certificate of Incorporation filed with the State of New York Department of State, March 5, 1993 (Filed as Exhibit 4.1 to Registrant's Form 8-K dated March 5, 1993 and incorporated by reference herein). (ii) By-Laws as in effect on March 15, 1993 (Filed as Exhibit 3.3 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). 4 (a) Indenture relating to floating interest rate convertible subordinated debentures, 4th series, due November 1, 1998 (Filed as Exhibit 4(a) to Registrant's Registration Statement 33-23877 and incorporated by reference herein). (b) Indenture dated as of August 1, 1994 relating to floating interest rate convertible subordinated debentures, series V, due July 1, 2001 (Filed as Exhibit T3C to Registrant's Application for Qualification of Indenture No. 022-22183 and incorporated by reference herein). 10(i) Employment Agreements, dated as of February 19, 1993 (Filed as Exhibits 3.4(a) and 3.4(b), respectively, to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (ii) Amendments to Employment Agreements dated February 14, 1995 (Filed as Exhibits 3.10(ii)(a) and 3.10(ii)(b), respectively to the Registrant's Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (iii) Amendments to Employment Agreements dated February 8, 1996 (a) For Louis J. Cappelli (b) For John C. Millman 11 Statement re Computation of Per Share Earnings. IV-1 18 13 Annual Report to security holders, Sterling Bancorp 1995 Annual Report (This document is filed only to the extent of pages 11 through 45 which are incorporated by reference herein). 21 Subsidiaries of the Registrant. 27 Financial Data Schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the last quarter of the period covered by this report. IV-2 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STERLING BANCORP /s/ Louis J. Cappelli ----------------------------- Louis J. Cappelli, Chairman (Principal Executive Officer) March 28, 1996 -------------- Date /s/ John W. Tietjen ----------------------------- John W. Tietjen, Treasurer (Principal Financial and Accounting Officer) March 28, 1996 -------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: March 28, 1996 /s/ Louis J. Cappelli Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title) March 28, 1996 /s/ John C. Millman Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title) March 28, 1996 /s/ Lillian Berkman Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title) March 28, 1996 /s/ Henry J. Humphreys Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title) March 28, 1996 /s/ Allan F. Hershfield Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title) March 28, 1996 /s/ Walter Feldesman Director - -------------- ----------------------------------- --------------------- (Date) (Signature) (Title)
20 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 DOCUMENTS FILED AS A PART OF THIS REPORT ON FORM 10-K ANNUAL REPORT - 1995 -------------- STERLING BANCORP 21 DOCUMENT INDEX 1. Financial Statements Annual Report to security holders, Sterling Bancorp 1995 Annual Report (This document is filed only to the extent of pages 11 through 45 which are incorporated by reference herein). 2. Financial Statement Schedules None 3. Exhibits 3(i)(A) Amended and restated Certificate of Incorporation filed with the State of New York, Department of State, August 14, 1986 (Filed as Exhibit 3.3 to Registrant's Form 10-K for the fiscal year ended December 31, 1986 and incorporated by reference herein). (i)(B) Certificate of Amendment of The Certificate of Incorporation filed with the State of New York Department of State, June 13, 1988 (Filed as Exhibit 3.5 to Registrant's Form 10-K for the fiscal year ended December 31, 1988 and incorporated by reference herein). (i)(C) Certificate of Amendment of the Certificate of Incorporation filed with the State of New York Department of State, March 5, 1993 (Filed as Exhibit 4.1 to Registrant's Form 8-K dated March 5, 1993 and incorporated by reference herein). (ii) By-Laws as in effect on March 15, 1993 (Filed as Exhibit 3.3 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). 4 (a) Indenture relating to floating interest rate convertible subordinated debentures, 4th series, due November 1, 1998 (Filed as Exhibit 4(a) to Registrant's Registration Statement 33-23877 and incorporated by reference herein). (b) Indenture dated as of August 1, 1994 relating to floating interest rate convertible subordinated debentures, series V, due July 1, 2001 (Filed as Exhibit T3C to Registrant's Application for Qualification of Indenture No. 022-22183 and incorporated by reference herein). 10(i) Employment Agreements, dated as of February 19, 1993 (Filed as Exhibits 3.4(a) and 3.4(b), respectively, to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (ii) Amendments to Employment Agreements dated February 14, 1995 (Filed as Exhibits 3.10(ii)(a) and 3.10(ii)(b), respectively to the Registrant's Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (iii) Amendments to Employment Agreements dated February 8, 1996 (a) For Louis J. Cappelli (b) For John C. Millman 11 Statement re Computation of Per Share Earnings. 13 Annual Report to security holders, Sterling Bancorp 1995 Annual Report (This document is filed only to the extent of pages 11 through 45 which are incorporated by reference herein). 21 Subsidiaries of the Registrant. 27 Financial Data Schedule. 4. Reports on Form 8-K: There were no reports on Form 8-K filed during the last quarter of the period covered by this report.
22 EXHIBIT INDEX
Exhibit Number ------ 3(i)(A) Amended and restated Certificate of Incorporation filed with the State of New York, Department of State, August 14, 1986 (Filed as Exhibit 3.3 to Registrant's Form 10-K for the fiscal year ended December 31, 1986 and incorporated by reference herein). (i)(B) Certificate of Amendment of The Certificate of Incorporation filed with the State of New York Department of State, June 13, 1988 (Filed as Exhibit 3.5 to Registrant's Form 10-K for the fiscal year ended December 31, 1988 and incorporated by reference herein). (i)(C) Certificate of Amendment of the Certificate of Incorporation filed with the State of New York Department of State, March 5, 1993 (Filed as Exhibit 4.1 to Registrant's Form 8-K dated March 5, 1993 and incorporated by reference herein). (ii) By-Laws as in effect on March 15, 1993 (Filed as Exhibit 3.3 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). 4 (a) Indenture relating to floating interest rate convertible subordinated debentures, 4th series, due November 1, 1998 (Filed as Exhibit 4(a) to Registrant's Registration Statement 33-23877 and incorporated by reference herein). (b) Indenture dated as of August 1, 1994 relating to floating interest rate convertible subordinated debentures, series V, due July 1, 2001 (Filed as Exhibit T3C to Registrant's Application for Qualification of Indenture No. 022-22183 and incorporated by reference herein). 10(i) Employment Agreements, dated as of February 19, 1993 (Filed as Exhibits 3.4(a) and 3.4(b), respectively, to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (ii) Amendments to Employment Agreements dated February 14, 1995 (Filed as Exhibits 3.10(ii)(a) and 3.10(ii)(b), respectively, to the Registrant's Form 10-K for the fiscal year ended December 31, 1994 and incorporated by reference herein). (a) For Louis J. Cappelli (b) For John C. Millman (iii) Amendments to Employment Agreements dated February 8, 1996 (a) For Louis J. Cappelli (b) For John C. Millman 11 Statement re Computation of Per Share Earnings. 13 Annual Report to security holders, Sterling Bancorp 1995 Annual Report (This document is filed only to the extent of pages 11 through 45 which are incorporated by reference herein). 21 Subsidiaries of the Registrant. 27 Financial Data Schedule.
EX-10.III.A 2 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10(iii)(a) [STERLING BANCORP LETTERHEAD] February 8, 1996 Mr. Louis J. Cappelli Chairman Sterling Bancorp 540 Madison Avenue New York, New York 10022 Dear Mr. Cappelli: This will confirm the following amendment to your employment agreement, dated February 19, 1993 ( as amended, February 14, 1995), with our Company: (1) Paragraph 1. is hereby deleted and the following paragraph is inserted in lieu thereof: "1. Term. The Company will continue to employ you, and you will continue to accept employment, as provided herein, for a term expiring on December 31, 2000, which term will be automatically extended thereafter for successive periods of one year each, upon the same terms and conditions, unless at least 60 days prior to the expiration of the then current term, either party will give notice to the other of the intention not to extend." The foregoing amendment was recommended by the Compensation Committee and was approved by the Board of Directors at its February 8, 1996 meeting. Kindly sign and return the enclosed copy to the Company in order to confirm your understanding and acceptance of the foregoing amendment. Sincerely, STERLING BANCORP By /s/ Jerrold Gilbert -------------------------------------- Executive Vice President Agreed: /s/ Louis J. Cappelli - -------------------------------------- Louis J. Cappelli EX-10.III.B 3 AMENDMENT TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10(iii)(b) [STERLING BANCORP LETTERHEAD] February 8, 1996 Mr. John C. Millman President Sterling Bancorp 540 Madison Avenue New York, New York 10022 Dear Mr. Millman: This will confirm the following amendment to your employment agreement, dated February 19, 1993 ( as amended, February 14, 1995), with our Company: (1) Paragraph 1. is hereby deleted and the following paragraph is inserted in lieu thereof: "1. Term. The Company will continue to employ you, and you will continue to accept employment, as provided herein, for a term expiring on December 31, 1998, which term will be automatically extended thereafter for successive periods of one year each, upon the same terms and conditions, unless at least 60 days prior to the expiration of the then current term, either party will give notice to the other of the intention not to extend." The foregoing amendment was recommended by the Compensation Committee and was approved by the Board of Directors at its February 8, 1996 meeting. Kindly sign and return the enclosed copy to the Company in order to confirm your understanding and acceptance of the foregoing amendment. Sincerely, STERLING BANCORP By /s/ Jerrold Gilbert ----------------------------------- Executive Vice President Agreed: /s/ John C. Millman - ------------------------------------ John C. Millman EX-11 4 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STERLING BANCORP AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Years Ended December 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Income for primary earnings per share: Net income A $5,637,666 $4,005,869 $3,155,397 ========== ========== ========== Income for fully diluted earnings per share: Net income $5,637,666 $4,005,869 $3,155,397 Add expenses, net of tax effect on assumed conversion of convertible subordinated debentures: Interest 1,183,255 1,061,345 964,248 Amortization of bond discount and expense 14,814 17,841 18,140 ---------- ---------- ---------- Income for fully diluted shares B $6,835,735 $5,085,055 $4,137,785 ========== ========== ========== Common shares for primary earnings per share: Average shares issued (note a) 6,496,739 6,496,605 6,496,521 Add assumed conversion at the beginning of the period of issuance date if later: Stock options 13,094 598 1,370 ESOP shares allocated 27,582 15,410 3,542 Less average treasury shares (note b) 150,343 150,393 150,393 ---------- ---------- ---------- Average common shares for compu- tation of primary earnings per share C 6,387,072 6,362,220 6,351,040 ========== ========== ========== Common shares for fully diluted earnings per share: Average common shares 6,387,072 6,362,220 6,351,040 Add assumed conversion at the beginning of the period or issuance date if later: Convertible subordinated debentures 1,948,366 2,372,913 2,191,560 Series B preferred shares 2,576 2,576 2,576 ESOP shares unallocated 222,418 234,590 188,766 Stock options 2,459 79 481 ---------- ---------- ---------- Average common shares for computation of fully di- luted earnings per share D 8,562,891 8,972,378 8,734,423 ========== ========== ========== Net income per average common share (A / C) $ .88 $ .63 $ .50 ========== ========== ========== Net income per average common share assuming full dilution (B / D) $ .80 $ .57 $ .47 ========== ========== ==========
(a) Based on shares issued as at end of each month. (b) Based on shares in treasury as at end of each month. EX-13 5 ANNUAL REPORT 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. 13 4 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. 14 5 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 15 6 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. 16 7 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. 44 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 EX-21 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 STERLING BANCORP Subsidiaries of the Registrant a) Sterling National Bank & Trust Company of New York b) Standard Factors Corporation/Sterling Factors c) Sterling Industrial Loan Association d) Universal Finance Corporation e) Sterling Banking Corporation EX-27 7 FINANCIAL DATA SCHEDULE
9 STERLING BANCORP AND SUBSIDIARIES Article 9 of Regulation S-X Financial Data Schedule December 31, 1995 ($ in 000's, except per share) 1,000 YEAR DEC-31-1995 DEC-31-1995 40,270 3,000 5,000 0 101,671 197,567 196,573 397,229 5,192 775,608 551,028 59,204 42,373 39,346 0 2,526 6,497 50,634 775,608 32,726 20,040 718 53,484 11,541 19,319 34,165 1,866 5 26,660 11,617 11,617 0 0 5,638 .88 .80 5.52 357 199 0 268 4,136 1,001 191 5,192 3,459 0 1,733
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