UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-5273-1
Sterling Bancorp
(Exact name of registrant as specified in its charter)
New York 13-2565216
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
650 Fifth Avenue, New York, N.Y. 10019-6108
(Address of principal executive offices) (Zip Code)
212-757-3300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act,
|X| Yes |_| No
As of July 31, 2004 there were 15,175,580 shares of common stock,
$1.00 par value, outstanding.
STERLING BANCORP
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview 13
Income Statement Analysis 14
Balance Sheet Analysis 18
Capital 22
Cautionary Statement Regarding Forward-Looking Statements 23
Average Balance Sheets 24
Rate/Volume Analysis 26
Regulatory Capital and Ratios 28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Asset/Liability Management 29
Interest Rate Sensitivity 33
Item 4. Controls and Procedures 34
PART II OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 35
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES 38
EXHIBIT INDEX
Exhibit 3 (i)(F) The Certificate of Amendment of the Certificate
of Incorporation of Sterling Bancorp filed with
the State of New York Department of State,
June 1, 2004. 40
Exhibit 3(ii)(A) The By-Laws, as in effect on August 5, 2004 42
Exhibit 10 (i) Form of Change in Control Severance Agreement
dated June 8, 2004 entered into between the
Registrant and one Executive 71
Exhibit 11 Statement Re: Computation of Per Share
Earnings 86
Exhibit 31 Certifications of the CEO and CFO pursuant to
Exchange Act Rule 13a-14(a) 87
Exhibit 32 Certifications of the CEO and CFO required by
Section 1350 of Chapter 63 of Title 18 of the
U.S. Code 89
2
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
ASSETS 2004 2003
-------------- --------------
Cash and due from banks $ 74,604,802 $ 63,947,722
Interest-bearing deposits with other banks 2,160,545 1,656,338
Securities available for sale 160,693,254 195,477,473
Securities available for sale - pledged 139,758,890 117,250,082
Securities held to maturity 234,151,954 203,480,172
Securities held to maturity - pledged 161,458,400 166,910,347
-------------- --------------
Total investment securities 696,062,498 683,118,074
-------------- --------------
Loans held for sale 44,457,783 40,556,380
-------------- --------------
Loans held in portfolio, net of unearned discounts 903,136,193 900,556,215
Less allowance for loan losses 15,027,815 14,458,951
-------------- --------------
Loans, net 888,108,378 886,097,264
-------------- --------------
Customers' liability under acceptances 1,066,643 953,571
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 10,284,889 9,226,183
Other real estate 1,033,022 829,856
Accrued interest receivable 5,256,349 5,069,423
Bank owned life insurance 22,348,999 21,872,266
Other assets 32,076,969 24,260,063
-------------- --------------
$1,798,619,317 $1,758,745,580
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 444,343,195 $ 474,091,890
Interest-bearing deposits 811,443,452 737,648,930
-------------- --------------
Total deposits 1,255,786,647 1,211,740,820
Securities sold under agreements to repurchase - customers 80,681,067 42,490,862
Securities sold under agreements to repurchase - dealers 58,616,079 51,327,944
Federal funds purchased -- 10,000,000
Commercial paper 36,200,700 28,799,055
Other short-term borrowings 15,524,830 56,871,359
Acceptances outstanding 1,066,643 953,571
Accrued expenses and other liabilities 75,717,156 77,602,887
Long-term debt 135,774,000 135,774,000
-------------- --------------
Total liabilities 1,659,367,122 1,615,560,498
-------------- --------------
Shareholders' equity
Preferred stock, $5 par value. Authorized
644,389 shares; Series D issued 0
and 224,432 shares,respectively -- 2,244,320
Common stock, $1 par value. Authorized
20,000,000 shares; issued 16,794,483
and 16,244,549 shares, respectively 16,794,483 16,244,549
Capital surplus 145,402,844 142,393,959
Retained earnings 25,141,114 17,751,859
Accumulated other comprehensive loss, net of tax (5,265,501) (976,782)
-------------- --------------
182,072,940 177,657,905
Less
Common shares in treasury at cost, 1,618,903
and 1,306,587 shares, respectively 42,297,109 33,577,847
Unearned compensation 523,636 894,976
-------------- --------------
Total shareholders' equity 139,252,195 143,185,082
-------------- --------------
$1,798,619,317 $1,758,745,580
============== ==============
See Notes to Consolidated Financial Statements.
3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
INTEREST INCOME
Loans $15,412,372 $15,380,839 $30,494,367 $30,140,752
Investment securities
Available for sale 3,453,895 2,394,809 7,145,715 4,906,586
Held to maturity 4,677,056 5,297,940 9,383,464 10,628,939
Federal funds sold 5,794 17,926 56,136 39,902
Deposits with other banks 3,067 3,941 7,176 12,494
----------- ----------- ----------- -----------
Total interest income 23,552,184 23,095,455 47,086,858 45,728,673
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 2,373,990 2,309,285 4,847,135 4,510,920
Securities sold under agreements
to repurchase 365,728 383,906 681,360 682,851
Federal funds purchased 47,553 24,293 63,443 35,765
Commercial paper 78,597 55,418 141,359 126,069
Other short-term borrowings 93,377 140,841 205,571 330,609
Long-term debt 1,559,683 1,604,814 3,119,375 3,209,132
----------- ----------- ----------- -----------
Total interest expense 4,518,928 4,518,557 9,058,243 8,895,346
----------- ----------- ----------- -----------
Net interest income 19,033,256 18,576,898 38,028,615 36,833,327
Provision for loan losses 2,470,500 2,172,500 4,897,000 3,963,800
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 16,562,756 16,404,398 33,131,615 32,869,527
----------- ----------- ----------- -----------
NONINTEREST INCOME
Factoring income 1,767,472 1,410,679 3,194,341 2,763,181
Mortgage banking income 3,914,419 3,690,889 7,545,810 6,933,537
Service charges on deposit accounts 1,159,177 1,269,782 2,222,520 2,501,780
Trade finance income 518,000 588,631 1,010,807 1,161,644
Trust fees 166,038 165,051 347,735 330,448
Other service charges and fees 480,825 531,504 955,229 966,714
Bank owned life insurance income 243,039 277,150 476,734 537,980
Securities gains 148,500 100,366 684,804 196,358
Other income 327,830 81,248 511,429 177,955
----------- ----------- ----------- -----------
Total noninterest income 8,725,300 8,115,300 16,949,409 15,569,597
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 9,735,529 8,562,583 18,087,304 17,046,238
Occupancy expenses, net 1,085,164 1,234,531 2,310,894 2,530,252
Equipment expenses 658,105 719,575 1,414,259 1,366,089
Advertising and marketing 924,463 859,565 2,017,923 1,650,383
Professional fees 1,073,961 899,357 1,987,632 1,625,989
Data processing fees 300,483 260,022 587,943 525,054
Stationery and printing 194,434 236,797 461,005 445,115
Communications 391,466 405,989 798,193 848,679
Mortgage tax expense 200,685 256,909 362,381 434,576
Other expenses 1,499,320 1,585,383 2,729,926 2,940,554
----------- ----------- ----------- -----------
Total noninterest expenses 16,063,610 15,020,711 30,757,460 29,412,929
----------- ----------- ----------- -----------
Income before income taxes 9,224,446 9,498,987 19,323,564 19,026,195
Provision for income taxes 2,504,847 3,638,985 6,143,456 7,319,770
----------- ----------- ----------- -----------
Net income $ 6,719,599 $ 5,860,002 $13,180,108 $11,706,425
=========== =========== =========== ===========
Average number of common
shares outstanding
Basic 15,332,631 14,850,210 15,234,781 14,846,243
Diluted 16,034,529 15,683,465 16,017,106 15,664,707
Earnings per average common share
Basic $ 0.44 $ 0.39 $ 0.87 $ 0.78
Diluted 0.42 0.37 0.82 0.74
Dividends per common share 0.19 0.15 0.38 0.30
See Notes to Consolidated Financial Statements.
4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net Income $ 6,719,599 $ 5,860,002 $ 13,180,108 $ 11,706,425
Other comprehensive income,
net of tax:
Unrealized holding gains (losses)
arising during the period (4,981,422) 108,583 (3,553,842) (411,225)
Reclassification adjustment for
gains included in net income (80,338) (54,298) (370,479) (106,230)
Minimum pension liability adjustment -- -- (364,398) --
------------ ------------ ------------ ------------
Comprehensive income $ 1,657,839 $ 5,914,287 $ 8,891,389 $ 11,188,970
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Six Months Ended
June 30,
2004 2003
------------- -------------
Preferred Stock
Balance at January 1 $ 2,244,320 $ 2,322,060
Conversions of Series D shares (2,244,320) (38,370)
------------- -------------
Balance at June 30 $ -- $ 2,283,690
============= =============
Common Stock
Balance at January 1 $ 16,244,549 $ 13,124,002
Conversions of preferred shares into common shares 428,304 5,851
Options exercised 121,630 73,579
------------- -------------
Balance at June 30 $ 16,794,483 $ 13,203,432
============= =============
Capital Surplus
Balance at January 1 $ 142,393,959 $ 143,495,362
Conversions of preferred shares into common shares 1,816,016 32,519
Options exercised 1,192,869 1,099,847
------------- -------------
Balance at June 30 $ 145,402,844 $ 144,627,728
============= =============
Retained Earnings
Balance at January 1 $ 17,751,859 $ 3,783,539
Net Income 13,180,108 11,706,425
Cash dividends paid - common shares (5,790,853) (4,474,055)
- preferred shares -- (63,144)
------------- -------------
Balance at June 30 $ 25,141,114 $ 10,952,765
============= =============
Accumulated Other Comprehensive Income
Balance at January 1 $ (976,782) $ 1,330,239
------------- -------------
Unrealized holding gains (losses)
arising during the period:
Before tax (6,569,026) (760,122)
Tax effect 3,015,184 348,897
------------- -------------
Net of tax (3,553,842) (411,225)
------------- -------------
Reclassification adjustment for gains:
included in net income:
Before tax (684,804) (196,358)
Tax effect 314,325 90,128
------------- -------------
Net of tax (370,479) (106,230)
------------- -------------
Minimum pension liability adjustment:
Before tax (673,563) --
Tax effect 309,165 --
------------- -------------
Net of tax (364,398) --
------------- -------------
Balance at June 30 $ (5,265,501) $ 812,784
============= =============
Treasury Stock
Balance at January 1 $ (33,577,847) $ (32,400,952)
Purchase of common shares (8,310,004) (256,007)
Surrender of shares issued under
incentive compensation plan (409,258) (820,779)
------------- -------------
Balance at June 30 $ (42,297,109) $ (33,477,738)
============= =============
Unearned Compensation
Balance at January 1 $ (894,976) $ (1,873,926)
Amortization of unearned compensation 371,340 371,340
------------- -------------
Balance at June 30 $ (523,636) $ (1,502,586)
============= =============
Total Shareholders' Equity
Balance at January 1 $ 143,185,082 $ 129,780,324
Net changes during the period (3,932,887) 7,119,751
------------- -------------
Balance at June 30 $ 139,252,195 $ 136,900,075
============= =============
See Notes to Consolidated Financial Statements.
6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2004 2003
------------- -------------
Operating Activities
Net Income $ 13,180,108 $ 11,706,425
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses 4,897,000 3,963,800
Depreciation and amortization of premises and equipment 865,456 834,745
Securities gains (684,804) (196,358)
Income from bank owned life insurance (476,734) (537,980)
Deferred income tax benefit (1,234,789) (188,357)
Net change in loans held for sale (3,901,403) (15,126,145)
Amortization of unearned compensation 371,340 371,340
Amortization of premiums on securities 834,498 1,075,929
Accretion of discounts on securities (238,570) (715,271)
Increase in accrued interest receivable (186,926) (106,699)
Increase in accrued expenses and
other liabilities (1,885,731) (7,473,496)
Increase in other assets (3,252,610) (3,122,002)
Other, net (773,655) (798,756)
------------- -------------
Net cash provided by (used in) operating activities 7,513,180 (10,312,825)
------------- -------------
Investing Activities
Purchase of premises and equipment (1,924,162) (883,584)
(Increase) Decrease in interest-bearing deposits
with other banks (504,207) 585,021
Decrease in Federal funds sold -- 5,000,000
Net increase in loans held in portfolio (6,908,114) (12,992,807)
Increase in other real estate (203,166) (141,812)
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 77,816,013 114,664,371
Purchases of securities - held to maturity (103,447,707) (134,863,881)
Proceeds from sales of securities - available for sale 47,105,146 5,846,762
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 49,902,606 228,127,812
Purchases of securities - available for sale (91,485,434) (209,722,161)
------------- -------------
Net cash used in investing activities (29,649,025) (4,380,279)
------------- -------------
Financing Activities
Decrease in noninterest-bearing deposits (29,748,695) (16,458,686)
Increase in interest-bearing deposits 73,794,522 34,360,843
Decrease in Federal funds purchased (10,000,000) --
Net increase in securities sold under agreements
to repurchase 45,478,340 17,796,802
Decrease in commercial paper and
other short-term borrowings (33,944,884) (17,391,405)
Purchase of treasury stock (8,310,004) (256,007)
Proceeds from exercise of stock options 1,314,499 1,173,426
Cash dividends paid on common and preferred stock (5,790,853) (4,537,199)
------------- -------------
Net cash provided by financing activities 32,792,925 14,687,774
------------- -------------
Net increase (decrease) in cash and due from banks 10,657,080 (5,330)
Cash and due from banks - beginning of period 63,947,722 58,173,569
------------- -------------
Cash and due from banks - end of period $ 74,604,802 $ 58,168,239
============= =============
Supplemental disclosures:
Interest paid $ 8,945,095 $ 7,769,165
Income taxes paid 10,614,100 7,405,194
See Notes to Consolidated Financial Statements.
7
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include the accounts of Sterling
Bancorp ("the parent company") and its subsidiaries, principally Sterling
National Bank and its subsidiaries ("the bank"), after elimination of
material intercompany transactions. The term "the Company" refers to
Sterling Bancorp and its subsidiaries. The consolidated financial
statements as of and for the interim periods ended June 30, 2004 and 2003
are unaudited; however, in the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of such periods have been made. Certain reclassifications have been made
to prior period amounts to conform to the current presentation. The
interim consolidated financial statements should be read in conjunction
with the Company's annual report on Form 10-K for the year ended December
31, 2003. The Company effected a five-for-four stock split on September
10,2003 and paid stock dividends as follows: 20% on December 9, 2002; 10%
on December 10, 2001; 10% on December 11, 2000; and 5% on December 14,
1999. Fractional shares were cashed-out and payments were made to
shareholders in lieu of fractional shares. All capital and share amounts
as well as basic and diluted average number of shares outstanding and
earnings per average common share information for all prior reporting
periods have been restated to reflect the effect of the stock split and
stock dividends.
2. At June 30, 2004, the Company has a stock-based employee compensation
plan, which is described more fully in Note 15 of the Company's annual
report on Form 10-K for the year ended December 31, 2003. The Company
accounts for this plan under the recognition and measurement principles of
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 148, the following table illustrates the effect on
net income and earnings per average common share if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," to the stock-based employee compensation
plans.
Three Months Ended June 30, 2004 2003
------------- -------------
Net income available for
common shareholders $ 6,719,599 $ 5,828,651
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (134,599) (297,668)
------------- -------------
Pro forma, net income $ 6,585,000 $ 5,530,983
============= =============
Earnings per average common share:
Basic- as reported $ 0.44 $ 0.39
Basic- pro forma 0.43 0.37
Diluted- as reported 0.42 0.37
Diluted- pro forma 0.41 0.35
8
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Six Months Ended June 30, 2004 2003
----------- -----------
Net income available for
common shareholders $13,180,108 $11,643,281
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (260,199) (586,656)
----------- -----------
Pro forma, net income $12,919,909 $11,056,625
=========== ===========
Earnings per average common share:
Basic- as reported $ 0.87 $ 0.78
Basic- pro forma 0.85 0.74
Diluted- as reported 0.82 0.74
Diluted- pro forma 0.80 0.70
3. The major components of domestic loans held for sale and loans held in
portfolio are as follows:
June 30,
------------------------------
2004 2003
------------ ------------
Loans held for sale
Real estate-mortgage $ 44,457,783 $ 69,811,132
============ ============
Loans held in portfolio
Commercial and industrial $560,670,257 $490,035,642
Lease financing 180,223,253 154,600,599
Real estate-mortgage 167,778,306 141,411,118
Real estate-construction 2,341,340 2,392,639
Installment 14,734,012 11,767,941
Loans to depository institutions -- 20,000,000
------------ ------------
Loans, gross 925,747,168 820,207,939
Less unearned discounts 22,610,975 19,229,238
------------ ------------
Loans, net of unearned discounts $903,136,193 $800,978,701
============ ============
4. The Financial Accounting Standards Board SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," established standards
for the way that public business enterprises report and disclose selected
information about operating segments in interim financial statements
provided to stockholders.
The Company provides a broad range of financial products and services,
including commercial loans, asset-based financing, factoring and accounts
receivable management services, trade financing, equipment leasing,
corporate and consumer deposit services, commercial and residential
mortgage lending and brokerage, trust and estate administration and
investment management services. The Company's primary source of
9
earnings is net interest income, which represents the difference between
interest earned on interest-earning assets and the interest incurred on
interest-bearing liabilities. The Company's 2004 year-to-date average
interest-earning assets were 55.0% loans (corporate lending was 72.9% and
real estate lending was 24.2% of total loans, respectively) and 44.1%
investment securities and money market investments. There are no industry
concentrations exceeding 10% of loans, gross, in the corporate loan
portfolio. Approximately 68% of loans are to borrowers located in the
metropolitan New York area. In order to comply with the provisions of SFAS
No. 131, the Company has determined that it has three reportable operating
segments: corporate lending, real estate lending and company-wide
treasury.
The following tables provide certain information regarding the Company's
operating segments for the three-and six-month periods ended June 30, 2004 and
2003:
Corporate Real Estate Company-wide
Lending Lending Treasury Totals
------------ ------------ ------------ --------------
Three Months Ended June 30, 2004
Net interest income $ 8,692,580 $ 3,856,463 $ 6,049,927 $ 18,598,970
Noninterest income 3,249,504 3,973,944 360,348 7,583,796
Depreciation and amortization 80,383 99,944 -- 180,327
Segment income before taxes 4,264,833 4,023,196 7,338,517 15,626,546
Segment assets 696,664,861 255,535,670 810,705,254 1,762,905,785
Three Months Ended June 30, 2003
Net interest income $ 8,441,398 $ 4,175,562 $ 5,550,286 $ 18,167,246
Noninterest income 3,023,464 3,762,007 402,537 7,188,008
Depreciation and amortization 38,472 78,136 -- 116,608
Segment income before taxes 4,911,158 3,995,067 6,413,440 15,319,665
Segment assets 641,338,480 217,811,425 693,158,365 1,552,308,270
Six Months Ended June 30, 2004
Net interest income $ 17,035,596 $ 7,662,696 $ 12,450,158 $ 37,148,450
Noninterest income 6,174,555 7,677,372 1,209,721 15,061,648
Depreciation and amortization 141,164 199,715 -- 340,879
Segment income before taxes 6,891,986 8,091,804 15,244,746 30,228,536
Segment assets 696,664,861 255,535,670 810,705,254 1,762,905,785
Six Months Ended June 30, 2003
Net interest income $ 16,764,934 $ 7,927,652 $ 11,320,679 $ 36,013,265
Noninterest income 6,028,036 7,067,164 779,670 13,874,870
Depreciation and amortization 88,637 154,392 -- 243,029
Segment income before taxes 8,646,012 7,316,417 12,949,568 28,911,997
Segment assets 641,338,480 217,811,425 693,158,365 1,552,308,270
10
The following table sets forth reconciliations of net interest income,
noninterest income, profits and assets of reportable operating segments to the
Company's consolidated totals:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- -------------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Net interest income:
Total for reportable operating segments $ 18,598,970 18,167,246 $ 37,148,450 36,013,265
Other [1] 434,286 409,653 880,165 820,062
--------------- --------------- --------------- ---------------
Consolidated net interest income $ 19,033,256 $ 18,576,898 $ 38,028,615 $ 36,833,327
=============== =============== =============== ===============
Noninterest income:
Total for reportable operating segments $ 7,583,796 $ 7,188,008 $ 15,061,648 $ 13,874,870
Other [1] 1,141,504 927,292 1,887,761 1,694,727
--------------- --------------- --------------- ---------------
Consolidated noninterest income $ 8,725,300 $ 8,115,300 $ 16,949,409 $ 15,569,597
=============== =============== =============== ===============
Income before taxes:
Total for reportable operating segments $ 15,626,546 $ 15,319,665 $ 30,228,536 $ 28,911,997
Other [1] (6,402,100) (5,820,678) (10,904,972) (9,885,802)
--------------- --------------- --------------- ---------------
Consolidated income before income taxes $ 9,224,446 $ 9,498,987 $ 19,323,564 $ 19,026,195
=============== =============== =============== ===============
Assets:
Total for reportable operating segments $ 1,762,905,785 $ 1,552,308,270 $ 1,762,905,785 $ 1,552,308,270
Other [1] 35,713,532 28,388,355 35,713,532 28,388,355
--------------- --------------- --------------- ---------------
Consolidated assets $ 1,798,619,317 $ 1,580,696,625 $ 1,798,619,317 $ 1,580,696,625
=============== =============== =============== ===============
[1] Represents operations not considered to be a reportable segment and/or
general operating expenses of the Company.
5. On December 31, 2003, the Company adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 46R ("FIN 46R") "Consolidation of
Variable Interest Entities," which clarified certain provisions of a
previously released interpretation. Under the provisions of FIN 46R,
Sterling deconsolidated the issuer trust and accounts for its investment
in the trust as an asset, its junior subordinated debentures as long-term
debt and the interest paid on those debentures as interest expense. As a
result of the adoption of FIN 46R, the Company's prior period
presentations have been restated to conform to the current presentation.
11
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
6. The following information is provided in connection with the sales of
available for sale securities:
Three Months Ended June 30, 2004 2003
----------- ----------
Proceeds $10,073,504 $3,281,747
Gross Gains 148,500 100,366
Gross Losses -- --
Six Months Ended June 30, 2004 2003
----------- ----------
Proceeds $47,105,146 $5,846,762
Gross Gains 684,804 196,358
Gross Losses -- --
7. In February 2004, 224,432 Series D preferred shares were converted into
428,304 common shares.
8. The following tables set forth the disclosures required for net periodic
benefit cost and net benefit cost:
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2004 2003 2004 2003
--------- --------- ----------- -----------
COMPONENTS OF NET PERIODIC COST
Service Cost $ 392,495 $ 326,750 $ 803,041 $ 598,565
Interest Cost 497,743 510,598 1,014,487 924,903
Expected return on plan assets (423,490) (395,035) (875,519) (737,648)
Amortization of prior service cost 19,331 19,331 38,662 38,662
Recognized actuarial loss 217,970 228,198 427,091 403,256
--------- --------- ----------- -----------
Net periodic benefit cost 704,049 689,842 1,407,762 1,227,738
Settlement gain -- -- (1,331,190) --
--------- --------- ----------- -----------
Net benefit cost $ 704,049 $ 689,842 $ 76,572 $ 1,227,738
========= ========= =========== ===========
The Company previously disclosed in its financial statements for the quarter
ended March 31,2004, that it expected to contribute approximately $1,000,000 to
the defined benefit pension plan in 2004. As of June 30, 2004, the expected
contribution remained $1,000,000. No contribution has been made as of June 30,
2004.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following commentary presents management's discussion and analysis of the
financial condition and results of operations of Sterling Bancorp ("the parent
company"), a financial holding company under the Gramm-Leach-Bliley Act of 1999,
and its subsidiaries, principally Sterling National Bank ("the bank").
Throughout this discussion and analysis, the term "the Company" refers to
Sterling Bancorp and its subsidiaries. This discussion and analysis should be
read in conjunction with the consolidated financial statements and supplemental
data contained elsewhere in this quarterly report and the Company's annual
report on Form 10-K for the year ended December 31, 2003. Certain
reclassifications have been made to prior years' financial data to conform to
current financial statement presentations as well as to reflect the effect of
the five-for-four stock split effected on September 10, 2003.
OVERVIEW
The Company provides a broad range of financial products and services, including
business and consumer loans, commercial and residential mortgage lending and
brokerage, asset-based financing, factoring/accounts receivable management
services, deposit services, trade financing, equipment leasing, trust and estate
administration, and investment management services. The Company has operations
in New York, Virginia and North Carolina and conducts business throughout the
United States. The economic conditions in these areas and throughout the United
States have a significant impact on loan demand, the ability of borrowers to
repay these loans and the value of any collateral securing these loans.
For the three months ended June 30, 2004, the bank's average earning assets
represented approximately 97.5% of the Company's average earning assets. Loans
represented 54.3% and investment securities represented 45.3% of the bank's
average earning assets for the second quarter of 2004.
For the six months ended June 30, 2004, the bank's average earning assets
represented approximately 97.5% of the Company's average earning assets. Loans
represented 53.9% and investment securities represented 45.2% of the bank's
average earning assets for the first six months of 2004.
The Company's primary source of earnings is net interest income, and its
principal market risk exposure is interest rate risk. The Company is not able to
predict market interest rate fluctuations, and its asset-liability management
strategy may not prevent interest rate changes from having a material adverse
effect on the Company's results of operations and financial condition.
Although management endeavors to minimize the credit risk inherent in the
Company's loan portfolio, it must necessarily make various assumptions and
judgments about the collectibility of the loan portfolio based on its
13
experience and evaluation of economic conditions. If such assumptions or
judgments prove to be incorrect, the current allowance for loan losses may not
be sufficient to cover loan losses and additions to the allowance may be
necessary, which would have a negative impact on net income.
There is intense competition in all areas in which the Company conducts its
business. The Company competes with banks and other financial institutions,
including savings and loan associations, savings banks, finance companies and
credit unions. Many of these competitors have substantially greater resources
and lending limits and provide a wider array of banking services. To a limited
extent, the Company also competes with other providers of financial services,
such as money market mutual funds, brokerage firms, consumer finance companies
and insurance companies. Competition is based on a number of factors, including
prices, interest rates, service, availability of products, and geographic
location.
The Company regularly evaluates acquisition opportunities and conducts due
diligence activities in connection with possible acquisitions. As a result,
acquisition discussions, and in some cases negotiations, regularly take place
and future acquisitions could occur.
INCOME STATEMENT ANALYSIS
Net interest income, which represents the difference between interest earned on
interest-earning assets and interest incurred on interest-bearing liabilities,
is the Company's primary source of earnings. Net interest income can be affected
by changes in market interest rates as well as the level and composition of
assets, liabilities and shareholders' equity. Net interest spread is the
difference between the average rate earned, on a tax-equivalent basis, on
interest-earning assets and the average rate paid on interest-bearing
liabilities. The net yield on interest-earning assets ("net interest margin") is
calculated by dividing tax equivalent net interest income by average interest-
earnings assets. Generally, the net interest margin will exceed the net interest
spread because a portion of interest-earning assets are funded by various
noninterest-bearing sources, principally noninterest-bearing deposits and
shareholders' equity. The increases (decreases) in the components of interest
income and interest expense, expressed in terms of fluctuation in average volume
and rate, are provided in the Rate/Volume Analysis shown on pages 26 and 27.
Information as to the components of interest income and interest expense and
average rates is provided in the Average Balance Sheets shown on pages 24 and
25.
Comparisons of the Three Months Ended June 30, 2004 and 2003
The Company reported net income for the three months ended June 30, 2004 of $6.7
million, representing $0.42 per share, calculated on a diluted basis, compared
to $5.9 million, or $0.37 per share calculated on a diluted basis, for the
second quarter of 2003. This increase reflects continued growth in both net
interest income and noninterest income and a lower provision for income taxes,
which more than offset increases in the provision for loan losses and
noninterest expenses.
14
Net Interest Income
Net interest income on a tax equivalent basis, increased to $19.2 million for
the second quarter of 2004 from $18.8 million for the 2003 period, due to higher
average earning assets outstanding coupled with lower average cost of funding
partially offset by a lower yield on earning assets and higher average interest-
bearing deposit balances. The net interest margin, on a tax equivalent basis,
was 4.75% for the second quarter of 2004 compared to 5.31% for 2003. The
decrease in the net interest margin was primarily the result of the impact of
the lower interest rate environment in 2004, partially offset by the impact of
an increase in average investment securities and loan outstandings.
Total interest income, on a tax-equivalent basis, aggregated $23.7 million for
the second quarter of 2004, up from $23.3 million for the 2003 period. The tax-
equivalent yield on interest-earning assets was 5.91% for the second quarter of
2004 compared to 6.62% for the 2003 period.
Interest earned on the loan portfolio amounted to $15.4 million for the second
quarter of 2004, unchanged from a year ago. Average loan balances amounted to
$901.2 million, an increase of $67.0 million from an average of $834.2 million
in the prior year period. The increase in the average loans (across virtually
all segments of the Company's loan portfolio), primarily due to the Company's
business development activities and the ongoing consolidation of banks in the
Company's marketing area, accounted for the increase in interest earned on
loans. The decrease in the yield on the loan portfolio to 7.02% for the second
quarter of 2004 from 7.64% for 2003 was primarily attributable to the mix of
outstanding balances on average among the components of the loan portfolio and
the lower interest rate environment in 2004.
Interest earned on the securities portfolio, on a tax-equivalent basis,
increased to $8.3 million for the second quarter of 2004 from $7.9 million in
the prior year period. Average outstandings increased to $717.2 million from
$593.7 in the prior year period. The average life of the securities portfolio
was approximately 3.9 years at June 30, 2004 compared to 2.9 years at June 30,
2003, reflecting the impact of purchases made in the third and fourth quarters
of 2003 and the first quarter of 2004. The decrease in yields on the securities
portfolio reflects the impact of purchases made during the lower rate
environment on average in the 2004 period and of the principal prepayments
primarily in the third and fourth quarters of 2003.
Total interest expense was $4.5 million for the second quarter of 2004,
unchanged from the 2003 period. An increase in average balances for
interest-bearing deposits was partially offset by lower rates paid for those
balances.
Interest expense on deposits increased to $2.4 million for the second quarter of
2004 from $2.3 million for the 2003 period due to an increase in average balance
partially offset by a decrease in the cost of those funds. Average interest-
bearing deposit balances increased to $798.3 million for the second quarter of
2004 from $676.2 in the 2003 period primarily as a result of branching
initiatives and other business development activities. Average rate paid on
15
interest-bearing deposits was 1.20%, 17 basis points lower than the prior year
period. The decrease in average cost of deposits reflects the lower interest
rate environment during 2004.
Provision for Loan Losses
Based on management's continuing evaluation of the loan portfolio (discussed
under "Asset Quality" below), the provision for loan losses for the second
quarter of 2004 increased to $2.5 million from $2.2 million for the prior year
period. Factors affecting the level of provision for loan losses included the
growth in the loan portfolios, changes in general economic conditions and the
amount of nonaccrural loans.
Noninterest Income
Noninterest income increased to $8.7 million for the second quarter of 2004 from
$8.1 million in the 2003 period, primarily due to increased income from mortgage
banking, principally the result of a change in the mix of loans sold due to a
broader array of loan products and an increased focus on higher margin mortgage
loans, and from factoring activities. Partially offsetting these increases were
lower revenues from fees for deposit and various other services and from bank-
owned life insurance program.
Noninterest Expenses
Noninterest expenses increased $1.0 million for the second quarter of 2004 when
compared to the 2003 period. The increase was primarily due to investments in
the Sterling franchise, including the new branches, with higher expenses related
to salaries and employee benefits and professional fees.
Provision for Income Taxes
The provision for income taxes decreased to $2.5 million for the second quarter
of 2004 from $3.6 in the 2003 period. The lower provision for taxes in the
second quarter of 2004 was due to the resolution of certain state tax issues for
tax years 1999-2001.
Comparisons of the Six Months Ended June 30, 2004 and 2003
The Company reported net income for the six months ended June 30, 2004 of $13.2
million, representing $0.82 per share, calculated on a diluted basis, compared
to $11.7 million, or $0.74 per share calculated on a diluted basis, for the
first six months of 2003. This increase reflects continued growth in both net
interest income and noninterest income and a lower provision for income taxes,
which more than offset increases in the provision for loan losses and
noninterest expenses.
Net Interest Income
Net interest income on a tax equivalent basis, increased to $38.5 million for
the first six months of 2004 from $37.3 million for the 2003 period, due to
higher average earning assets outstanding coupled with lower average cost of
funding partially offset by a lower yield on earning assets and higher average
interest-bearing deposit balances. The net interest margin, on a tax equivalent
basis, was 4.87% for the first six months of 2004 compared to 5.43% for 2003.
The decrease in the net
16
interest margin was primarily the result of the impact of the lower interest
rate environment in 2004, partially offset by the impact of an increase in
average investment securities and loan outstandings.
Total interest income, on a tax-equivalent basis, aggregated $47.5 million for
the first six months of 2004, up from $46.2 million for the 2003 period. The
tax-equivalent yield on interest-earning assets was 6.04% for the first six
months of 2004 compared to 6.76% for the 2003 period.
Interest earned on the loan portfolio amounted to $30.5 million for the first
six months of 2004, up $0.4 million from a year ago. Average loan balances
amounted to $881.9 million, an increase of $63.3 million from an average of
$818.6 million in the prior year period. The increase in the average loans
(across virtually all segments of the Company's loan portfolio), primarily due
to the Company's business development activities and the ongoing consolidation
of banks in the Company's marketing area, accounted for the increase in interest
earned on loans. The decrease in the yield on the loan portfolio to 7.22% for
the first six months of 2004 from 7.77% for 2003 was primarily attributable to
the mix of outstanding balances on average among the components of the loan
portfolio and the lower interest rate environment in 2004.
Interest earned on the securities portfolio, on a tax-equivalent basis,
increased to $16.9 million for the first six months of 2004 from $16.0 million
in the prior year period. Average outstandings increased to $706.2 million from
$580.9 in the prior year period. The average life of the securities portfolio
was approximately 3.9 years at June 30, 2004 compared to 2.9 years at June 30,
2003, reflecting the impact of purchases made in the third and fourth quarters
of 2003 and the first quarter of 2004. The decrease in yields on the securities
portfolio reflects the impact of purchases made during the lower rate
environment on average in the 2004 period and of the principal prepayments
primarily in the third and fourth quarters of 2003.
Total interest expense increased to $9.1 million for the first six months of
2004 from $8.9 million for the 2003 period, primarily due to higher average
balances for interest-bearing deposits partially offset by lower rates paid for
those balances and for borrowed funds.
Interest expense on deposits increased to $4.8 million for the first six months
of 2004 from $4.5 million for the 2003 period due to an increase in average
balance partially offset by a decrease in the cost of those funds. Average
interest-bearing deposit balances increased to $796.2 million for the first six
months of 2004 from $665.8 in the 2003 period primarily as a result of branching
initiatives and other business development activities. Average rate paid on
interest-bearing deposits was 1.22% which was 15 basis points lower than the
prior year period. The decrease in average cost of deposits reflects the lower
interest rate environment during 2004.
Provision for Loan Losses
Based on management's continuing evaluation of the loan portfolio (discussed
under "Asset Quality" below), the provision for loan losses for the first six
months of 2004 increased to $4.9 million from $4.0 million for the prior year
period. Factors
17
affecting the level of provision for loan losses included the growth in the loan
portfolios, changes in general economic conditions and the amount of nonaccrural
loans.
Noninterest Income
Noninterest income increased to $16.9 million for the first six months of 2004
from $15.6 million in the 2003 period, primarily due to increased income from
mortgage banking, principally the result of a change in the mix of loans sold
due to a broader array of loan products and an increased focus on higher margin
mortgage loans, and from factoring activities, and gains on sales of available
for sale securities. Partially offsetting these increases were lower revenues
from fees for deposit and various other services and from bank-owned life
insurance program.
Noninterest Expenses
Noninterest expenses increased $1.3 million for the first six months of 2004
when compared to the 2003 period. The increase was primarily due to investments
in the Sterling franchise, including the new branches, with higher expenses
related to salaries and employee benefits, advertising and marketing, and
professional fees. These higher expenses were partially offset by a $1.3 million
reduction in employee benefit costs in the first quarter of 2004 as a result of
an executive relinquishing his right to receive pension payments in exchange for
a life insurance policy.
Provision for Income Taxes
The provision for income taxes decreased to $6.1 million for the first six
months of 2004 from $ 7.3 million in the 2003 period. The lower provision for
taxes in the 2004 period was due to the resolution, during the second quarter of
2004, of certain state tax issues for tax years 1999-2001.
BALANCE SHEET ANALYSIS
Securities
The Company's securities portfolios are comprised of principally U.S. government
and U.S. government corporation and agency guaranteed mortgage-backed securities
along with other debt and equity securities. At June 30, 2004, the Company's
portfolio of securities totaled $696.1 million, of which U.S. government
corporation and agency guaranteed mortgage-backed securities and collateralized
mortgage obligations having an average life of approximately 3.9 years amounted
to $625.1 million. The Company has the intent and ability to hold to maturity
securities classified as "held to maturity." These securities are carried at
cost, adjusted for amortization of premiums and accretion of discounts. The
gross unrealized gains and losses on "held to maturity" securities were $3.6
million and $7.4 million, 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 $2.5 million and gross unrealized losses of $5.9
million. Given the generally high credit quality of the portfolio, management
expects to realize all of its investment upon the maturity of such instruments
and thus believes that any market value impairment is temporary.
18
The following table presents information regarding securities available for
sale:
Gross Gross Gross
Amortized Unrealized Unrealized Market
June 30, 2004 Cost Gains Losses Value
------------ ------------ ------------ ------------
U.S. Treasury securities $ 2,499,735 $ -- $ (204) $ 2,499,531
Obligations of U.S. govern-
ment corporations and
agencies--mortgage-backed
securities 177,858,734 919,515 (2,515,914) 176,262,335
Obligations of U.S. govern-
ment corporations and
agencies--collateralized
mortgage obligations 57,570,726 -- (3,071,481) 54,499,245
Obligations of state and
political institutions 29,289,067 1,255,317 -- 30,544,384
Trust preferred securities 3,220,969 318,090 -- 3,539,059
Other debt securities 24,993,872 -- (340,747) 24,653,125
Federal Reserve Bank and
other equity securities 8,435,142 19,323 -- 8,454,465
------------ ------------ ------------ ------------
Total $303,868,245 $ 2,512,245 $ (5,928,346) $300,452,144
============ ============ ============ ============
The following table presents information regarding securities held to maturity:
Gross Gross Estimated
Carrying Unrealized Unrealized Market
June 30, 2004 Value Gains Losses Value
------------ ------------ ------------ ------------
Obligations of U.S. govern-
ment corporations and
agencies-- mortgage-backed
securities $314,724,447 $ 3,518,689 $ (3,603,150) $314,639,986
Obligations of U.S. govern-
ment corporations and
agencies--collateralized
mortgage obligations 79,635,907 51,712 (3,821,720) 75,865,899
Debt securities issued by
Foreign governments 1,250,000 -- -- 1,250,000
------------ ------------ ------------ ------------
Total $395,610,354 $ 3,570,401 $ (7,424,870) $391,755,885
============ ============ ============ ============
19
Loan Portfolio
A management objective is to maintain the quality of the loan portfolio. The
Company seeks to achieve this objective by maintaining rigorous underwriting
standards coupled with regular evaluation of the creditworthiness of and the
designation of lending limits for each borrower. The portfolio strategies
include seeking industry and loan size diversification in order to minimize
credit exposure and the origination of loans in markets with which the Company
is familiar.
The Company's commercial and industrial loan portfolio represents approximately
59% of all loans. Loans in this category are typically made to small and
medium-sized businesses and range between $25,000 and $10 million. Sources of
repayment are from the borrower's operating profits, cash flows and liquidation
of pledged collateral. Based on underwriting standards, loans may be secured in
whole or in part by collateral such as liquid assets, accounts receivable,
equipment, inventory, and real property. The Company's real estate loan
portfolio, which represents approximately 22% of all loans, is secured by
mortgages on real property located principally in the states of New York and
Virginia. The Company's leasing portfolio, which consists of finance leases for
various types of business equipment, represents approximately 17% of all loans.
The collateral securing any loan may vary in value based on market conditions.
The following table sets forth the composition of the Company's loans held for
sale and loans held in portfolio:
June 30,
---------------------------------------------------
2004 2003
---------------------- ----------------------
($ in thousands)
% of % of
Balances Gross Balances Gross
-------- ----- -------- -----
Domestic
Commercial and industrial $560,257 59.1% $489,525 56.2%
Equipment lease financing 158,033 16.7 135,903 15.6
Real estate - mortgage 212,234 22.4 211,215 24.2
Real estate - construction 2,341 0.2 2,393 0.3
Installment - individuals 14,729 1.6 11,754 1.4
Loans to depository institutions -- -- 20,000 2.3
-------- -------- -------- --------
Loans, net of unearned discounts $947,594 100.0% $870,790 100.0%
======== ======== ======== ========
Asset Quality
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk of loss inherent in the Company's portfolio of loans
may be increased. While management endeavors to minimize this risk, it
recognizes that loan losses will occur and that the amount of these losses will
fluctuate depending on the risk characteristics of the loan portfolio which in
turn depend on current and expected economic conditions, the financial condition
of borrowers, the realization of collateral, and the credit management process.
Management views the allowance for loan losses as a critical accounting policy
due to its subjectivity. The allowance for loan losses is maintained through the
20
provision for loan losses, which is a charge to operating earnings. The adequacy
of the provision and the resulting allowance for loan losses is determined by a
management evaluation process 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, an assessment of current and expected
economic conditions and changes in the size and character of the loan portfolio.
Other data utilized by management in determining the adequacy of the allowance
for loan losses includes, but is not limited to, the results of regulatory
reviews, the amount of, trend of and/or borrower characteristics on loans that
are identified as requiring special attention as part of the credit review
process, and peer group comparisons. The impact of this other data might result
in an allowance which will be greater than that indicated by the evaluation
process previously described. The allowance reflects management's evaluation
both of loans presenting identified loss potential and of the risk inherent in
various components of the loan portfolio, including loans identified as impaired
as required by SFAS No. 114. Thus, an increase in the size of the portfolio or
in any of its components could necessitate an increase in the allowance even
though there may not be a decline in credit quality or an increase in potential
problem loans. A significant change in any of the evaluation factors described
above could result in future additions to the allowance. At June 30, 2004, the
ratio of the allowance to loans held in portfolio, net of unearned discounts,
was 1.66% and the allowance was $15.0 million. At such date, the Company's
nonaccrual loans amounted to $2.8 million; $848 thousand of such loans was
judged to be impaired within the scope of SFAS No. 114. Based on the foregoing,
as well as management's judgment as to the current risks inherent in loans held
in portfolio, the Company's allowance for 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 June 30, 2004. Net
losses within loans held in 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 the first six months
of 2004. 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 causes management to have serious doubts as to the
ability of the borrowers to continue to comply with the present repayment terms,
aggregated $1.1 million at June 30, 2004.
21
Deposits
A significant source of funds for the Company continues to be deposits,
consisting of demand (noninterest-bearing), NOW, savings, money market and time
deposits (principally certificates of deposit).
The following table provides certain information with respect to the
Company's deposits:
June 30,
-------------------------------------------------------
2004 2003
------------------------ ------------------------
($ in thousands)
% of % of
Balances Total Balances Total
-------- ----- -------- -----
Domestic
Demand $ 444,343 35.4% $ 385,144 36.2%
NOW 134,964 10.7 120,323 11.3
Savings 31,672 2.5 27,880 2.6
Money market 204,868 16.3 164,514 15.4
Time deposits 436,939 34.8 364,183 34.2
---------- -------- ---------- --------
Total domestic deposits 1,252,786 99.7 1,062,044 99.7
Foreign
Time deposits 3,000 0.3 3,000 0.3
---------- -------- ---------- --------
Total deposits $1,255,786 100.0% $1,065,044 100.0%
========== ======== ========== ========
Fluctuations of balances in total or among categories at any date may occur
based on the Company's mix of assets and liabilities as well as on customers'
balance sheet strategies. Historically, however, average balances for deposits
have been relatively stable. Information regarding these average balances is
presented on pages 24 and 25.
The Company does not have any off-balance sheet arrangements that are reasonably
likely to have a material current or future effect on the Company's financial
condition, revenues, expenses, results of operations, liquidity or regulatory
capital.
CAPITAL
The Company and the bank are subject to risk-based capital regulations which
quantitatively measure capital against risk-weighted assets, including certain
off-balance sheet items. These regulations define the elements of the Tier 1
and Tier 2 components of Total Capital and establish minimum ratios of 4% for
Tier 1 capital and 8% for Total Capital for capital adequacy purposes.
Supplementing these regulations is a leverage requirement. This requirement
establishes a minimum leverage ratio (at least 3% to 5%) which is calculated by
dividing Tier 1 capital by adjusted quarterly average assets (after deducting
goodwill). Information regarding the Company's and the bank's risk-based capital
is presented on page 28. In addition, the bank is subject to the Federal Deposit
Insurance Corporation Improvement Act of 1981 ("FDICIA") which imposes a number
of mandatory supervisory measures. Among other matters, five capital categories,
ranging from "well capitalized" to "critically under capitalized", are used by
regulatory agencies
22
to determine a bank's deposit insurance premium, approval of applications
authorizing institutions to increase their asset size or otherwise expand
business activities or acquire other institutions. Under FDICIA, a "well
capitalized" bank must maintain minimum leverage, Tier 1 and Total Capital
ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies
comparable tests for holding companies such as the Company. At June 30, 2004,
the Company and the bank exceeded the requirements for "well capitalized"
institutions.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report, including but not limited
to, statements concerning future results of operations or financial position,
borrowing capacity and future liquidity, future investment results, future
credit exposure, future loan losses and plans and objectives for future
operations, and other statements contained herein regarding matters that are not
historical facts, are "forward-looking statements" as defined in the Securities
Exchange Act of 1934. These statements are not historical facts but instead are
subject to numerous assumptions, risks and uncertainties, and represent only our
belief regarding future events, many of which, by their nature, are inherently
uncertain and outside our control. Any forward-looking statements we may make
speak only as of the date on which such statements are made. Our actual results
and financial position may differ materially from the anticipated results and
financial condition indicated in or implied by these forward-looking statements.
Factors that could cause our actual results to differ materially from those in
the forward-looking statements include, but are not limited to, the following:
inflation, interest rates, market and monetary fluctuations; geopolitical
development including acts of war and terrorism and their impact on economic
conditions; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; changes particularly declines, in general economic
conditions and in the local economies in which the Company operates; the
financial condition of the Company's borrowers; competitive pressures on loan
and deposit pricing and demand; changes in technology and their impact on the
marketing of new products and services and the acceptance of these products and
services by new and existing customers; the willingness of customers to
substitute competitors' products and services for the Company's product and
services; the impact of changes in the financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance); changes in
accounting principles, policies and guidelines; the success of the Company at
managing the risks involved in the foregoing as well as other risks and
uncertainties detailed from time to time in press releases and other public
filings. The foregoing list of important factors is not exclusive, and we will
not update any forward-looking statement, whether written or oral, that may be
made from time to time.
23
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 30,
(dollars in thousands)
2004 2003
------------------------------------- ------------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------------ -------- -------- ----------- ----------- -------
Interest-bearing deposits
with other banks $ 2,952 $ 3 0.58% $ 3,087 $ 4 0.73%
Securities available for sale 291,038 3,126 4.30 159,581 2,039 5.11
Securities held to maturity 395,637 4,676 4.73 401,479 5,298 5.28
Securities tax-exempt [2] 30,494 516 6.81 32,622 605 7.44
Federal funds sold 2,418 7 0.95 5,879 18 1.21
Loans, net of unearned discounts [3] 901,156 15,412 7.02 834,160 15,381 7.64
------------ -------- ----------- -----------
TOTAL INTEREST-EARNING ASSETS 1,623,695 23,740 5.91% 1,436,808 23,345 6.62%
-------- ====== ----------- =====
Cash and due from banks 58,365 57,931
Allowance for loan losses (15,597) (14,481)
Goodwill 21,158 21,158
Other assets 72,470 64,186
------------ -----------
TOTAL ASSETS $ 1,760,091 $ 1,565,602
============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 32,636 33 0.41% $ 27,407 23 0.34%
NOW 135,345 147 0.44 116,406 160 0.55
Money market 203,133 191 0.38 161,943 200 0.50
Time 424,602 1,995 1.89 367,452 1,916 2.09
Foreign
Time 3,000 8 1.10 3,000 10 1.29
------------ -------- ----------- -----------
Total interest-bearing deposits 798,716 2,374 1.20 676,208 2,309 1.37
------------ -------- ----------- -----------
Borrowings
Securities sold under agreements
to repurchase - customers 78,753 219 1.12 71,449 224 1.26
Securities sold under agreements
to repurchase - dealers 50,730 146 1.16 49,032 160 1.31
Federal funds purchased 17,399 47 1.10 7,528 25 1.29
Commercial paper 28,323 78 1.12 19,981 56 1.11
Other short-term debt 18,886 94 1.99 30,410 141 1.97
Long-term debt 135,774 1,561 4.59 140,774 1,605 4.56
------------ -------- ----------- -----------
Total borrowings 329,865 2,145 2.60 319,174 2,211 2.78
------------ -------- ----------- -----------
TOTAL INTEREST-BEARING LIABILITIES 1,128,581 4,519 1.61% 995,382 4,520 1.83%
-------- ====== ----------- =====
Noninterest-bearing deposits 408,520 358,902
Other liabilities 81,029 77,964
------------ -----------
Total liabilities 1,618,130 1,432,248
------------ -----------
Shareholders' equity 141,961 133,354
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,760,091 $ 1,565,602
============ ===========
Net interest income/spread 19,221 4.30% 18,825 4.79%
====== =====
Net yield on interest-earning
assets (margin) 4.75% 5.31%
====== =====
Less: Tax equivalent adjustment 188 249
-------- -----------
Net interest income $ 19,033 $ 18,576
======== ===========
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages. Average rates are presented on a
tax equivalent basis. Certain reclassifications have been made to amounts
for prior periods to conform to the current presentation.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Includes loans held for sale and loans held in portfolio; all loans are
domestic. Nonaccrual loans are included in amounts outstanding and income
has been included to the extent collected.
24
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Six Months Ended June 30,
(dollars in thousands)
2004 2003
------------------------------------- ------------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
------------ -------- -------- ----------- ----------- -------
Interest-bearing deposits
with other banks $ 3,150 $ 7 0.82% $ 3,391 $ 12 0.84%
Securities available for sale 290,568 6,479 4.42 157,505 4,194 5.33
Securities held to maturity 384,888 9,384 4.88 390,773 10,629 5.44
Securities tax-exempt [2] 30,697 1,091 7.15 32,638 1,211 7.48
Federal funds sold 11,703 56 0.95 6,558 40 1.21
Loans, net of unearned discounts [3] 881,878 30,494 7.22 818,564 30,141 7.77
------------ -------- ----------- -----------
TOTAL INTEREST-EARNING ASSETS 1,602,884 47,511 6.04% 1,409,429 46,227 6.76%
-------- ====== ----------- -----
Cash and due from banks 62,511 55,899
Allowance for loan losses (15,460) (14,363)
Goodwill 21,158 21,158
Other assets 70,207 63,849
------------ -----------
TOTAL ASSETS $ 1,741,300 $ 1,535,972
============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 32,791 65 0.40% $ 26,812 49 0.37%
NOW 134,683 301 0.45 115,571 297 0.52
Money market 206,540 561 0.55 156,573 375 0.48
Time 419,143 3,904 1.87 363,879 3,768 2.09
Foreign
Time 3,000 16 1.08 3,000 22 1.48
------------ -------- ----------- -----------
Total interest-bearing deposits 796,157 4,847 1.22 665,835 4,511 1.37
------------ -------- ----------- -----------
Borrowings
Securities sold under agreements
to repurchase - customers 77,061 430 1.12 64,522 404 1.26
Securities sold under agreements
to repurchase - dealers 43,677 251 1.16 42,704 279 1.32
Federal funds purchased 11,653 63 1.08 5,608 36 1.27
Commercial paper 25,871 141 1.10 21,982 126 1.16
Other short-term debt 21,816 206 1.89 30,881 331 2.21
Long-term debt 135,774 3,120 4.59 140,774 3,209 4.56
------------ -------- ----------- -----------
Total borrowings 315,852 4,211 2.67 306,471 4,385 2.87
------------ -------- ----------- -----------
TOTAL INTEREST-BEARING LIABILITIES 1,112,009 9,058 1.64% 972,306 8,896 1.84%
-------- ====== ----------- =====
Noninterest-bearing deposits 405,315 352,237
Other liabilities 81,082 79,522
------------ -----------
Total liabilities 1,598,406 1,404,065
------------ -----------
Shareholders' equity 142,894 131,907
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,741,300 $ 1,535,972
============ ===========
Net interest income/spread 38,453 4.40% 37,331 4.92%
====== =====
Net yield on interest-earning
assets (margin) 4.87% 5.43%
====== =====
Less: Tax equivalent adjustment 424 498
-------- -----------
Net interest income $ 38,029 $ 36,833
======== ===========
[1] The average balances of assets, liabilities and shareholders' equity are
computed on the basis of daily averages. Average rates are presented on a
tax equivalent basis. Certain reclassifications have been made to amounts
for prior periods to conform to the current presentation.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Includes loans held for sale and loans held in portfolio; all loans are
domestic. Nonaccrual loans are included in amounts outstanding and income
has been included to the extent collected.
25
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(in thousands)
Increase/(Decrease)
Three Months Ended
June 30, 2004 to June 30, 2003
-----------------------------------
Volume Rate Net [2]
------- ------- -------
INTEREST INCOME
Interest-bearing deposits with other banks $ -- $ (1) $ (1)
------- ------- -------
Securities available for sale 1,452 (365) 1,087
Securities held to maturity (76) (546) (622)
Securities tax-exempt (39) (50) (89)
------- ------- -------
Total investment securities 1,337 (961) 376
------- ------- -------
Federal funds sold (8) (3) (11)
Loans, net of unearned discounts [3] 1,298 (1,267) 31
------- ------- -------
TOTAL INTEREST INCOME $ 2,627 $(2,232) $ 395
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ 4 $ 6 $ 10
NOW 23 (36) (13)
Money market 45 (54) (9)
Time 276 (197) 79
Foreign
Time -- (2) (2)
------- ------- -------
Total interest-bearing deposits 348 (283) 65
------- ------- -------
Borrowings
Securities sold under agreements
to repurchase - customers 22 (27) (5)
Securities sold under agreements
to repurchase - dealers 6 (20) (14)
Federal funds purchased 27 (5) 22
Commercial paper 22 -- 22
Other short-term debt (49) 2 (47)
Long-term debt (55) 11 (44)
------- ------- -------
Total borrowings (27) (39) (66)
------- ------- -------
TOTAL INTEREST EXPENSE $ 321 $ (322) $ (1)
======= ======= =======
NET INTEREST INCOME $ 2,306 $(1,910) $ 396
======= ======= =======
[1] This table is presented on a tax equivalent basis.
[2] Changes in interest income and interest expense due to a combination of
both volume and rate have been allocated to the change due to volume and
the change due to rate in proportion to the relationship of the change due
solely to each. The effect of the extra day in 2004 has been included in
the change in volume.
[3] Includes loans held for sale and loans held in portfolio; all loans are
domestic. Nonaccrual loans are included in amounts outstanding and income
has been included to the extent collected.
26
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(in thousands)
Increase/(Decrease)
Six Months Ended
June 30, 2004 to June 30, 2003
-----------------------------------
Volume Rate Net [2]
------- ------- -------
INTEREST INCOME
Interest-bearing deposits with other banks $ (5) $ -- $ (5)
------- ------- -------
Securities available for sale 3,094 (809) 2,285
Securities held to maturity (110) (1,135) (1,245)
Securities tax-exempt (68) (52) (120)
------- ------- -------
Total investment securities 2,916 (1,996) 920
------- ------- -------
Federal funds sold 26 (10) 16
Loans, net of unearned discounts [3] 2,608 (2,255) 353
------- ------- -------
TOTAL INTEREST INCOME $ 5,545 $(4,261) $ 1,284
======= ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ 12 $ 4 $ 16
NOW 47 (43) 4
Money market 128 58 186
Time 560 (424) 136
Foreign
Time -- (6) (6)
------- ------- -------
Total interest-bearing deposits 747 (411) 336
------- ------- -------
Borrowings
Securities sold under agreements
to repurchase - customers 75 (49) 26
Securities sold under agreements
to repurchase - dealers 8 (36) (28)
Federal funds purchased 33 (6) 27
Commercial paper 22 (7) 15
Other short-term debt (83) (42) (125)
Long-term debt (108) 19 (89)
------- ------- -------
Total borrowings (53) (121) (174)
------- ------- -------
TOTAL INTEREST EXPENSE $ 694 $ (532) $ 162
======= ======= =======
NET INTEREST INCOME $ 4,851 $(3,729) $ 1,122
======= ======= =======
[1] This table is presented on a tax equivalent basis.
[2] Changes in interest income and interest expense due to a combination of
both volume and rate have been allocated to the change due to volume and
the change due to rate in proportion to the relationship of the change due
solely to each. The effect of the extra day in 2004 has been included in
the change in volume.
[3] Includes loans held for sale and loans held in portfolio; all loans are
domestic. Nonaccrual loans are included in amounts outstanding and income
has been included to the extent collected.
27
STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios
Ratios and Minimums
(dollars in thousands)
For Capital To Be Well
Actual Adequacy Minimum Capitalized
------------------ ------------------ ------------------
As of June 30, 2004 Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- -------- -----
Total Capital(to Risk Weighted Assets):
The Company $162,142 14.72% $88,114 8.00% $110,143 10.00%
The bank 126,964 12.17 83,487 8.00 104,359 10.00
Tier 1 Capital(to Risk Weighted Assets):
The Company 148,359 13.47 44,057 4.00 66,086 6.00
The bank 113,898 10.91 41,744 4.00 62,616 6.00
Tier 1 Leverage Capital(to Average Assets):
The Company 148,359 8.53 69,557 4.00 86,947 5.00
The bank 113,898 6.75 67,534 4.00 84,418 5.00
As of December 31, 2003
Total Capital(to Risk Weighted Assets):
The Company $161,593 14.88% $86,898 8.00% $108,623 10.00%
The bank 123,092 11.85 83,130 8.00 103,912 10.00
Tier 1 Capital(to Risk Weighted Assets):
The Company 148,004 13.63 43,449 4.00 65,174 6.00
The bank 110,086 10.59 41,565 4.00 62,347 6.00
Tier 1 Leverage Capital(to Average Assets):
The Company 148,004 8.87 66,741 4.00 83,426 5.00
The bank 110,086 6.76 65,112 4.00 81,390 5.00
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIIABILITY 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 the Asset/Liability Committee. This committee, which is comprised of
members of senior management, 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 financial instruments.
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market indices such as interest rates, foreign exchange rates and
equity prices. The Company's principal market risk exposure is interest rate
risk, with no material impact on earnings from changes in foreign exchange rates
or equity prices.
Interest rate risk is the exposure to changes in market interest rates. Interest
rate sensitivity is the relationship between market interest rates. Interest
rate sensitivity is the relationship between market interest rates and net
interest income due to the repricing characteristics of assets and liabilities.
The Company monitors the interest rate sensitivity of its balance sheet
positions by examining its near-term sensitivity and its longer-term gap
position. In its management of interest rate risk, the Company utilizes several
financial and statistical tools including traditional gap analysis and
sophisticated income simulation models.
A traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest-earning assets and interest-bearing liabilities for
selected time bands. The mismatch between repricings or maturities within a time
band is commonly referred to as the "gap" for that period. A positive gap (asset
sensitive) where interest rate sensitive assets exceed interest rate sensitive
liabilities generally will result in the net interest margin increasing in a
rising rate environment and decreasing in a falling rate environment. A negative
gap (liability sensitive) will generally have the opposite result on the net
interest margin. However, the traditional gap analysis does not assess the
relative sensitivity of assets and liabilities to changes in interest rates and
other factors that could have an impact on interest rate sensitivity or net
interest income. The Company utilizes the gap analysis to complement its income
simulations modeling, primarily focusing on the longer-term structure of the
balance sheet.
29
The Company's balance sheet structure is primarily short-term in nature with a
substantial portion of assets and liabilities repricing or maturing within one
year. The Company's gap analysis at March 30, 2004, presented on page 28,
indicates that net interest income would increase during periods of rising
interest rates and decrease during periods of falling interest rates, but, as
mentioned above, gap analysis may not be an accurate predictor of net interest
income.
As part of its interest rate risk strategy, the Company may use financial
instrument derivatives to hedge the interest rate sensitivity of assets with the
corresponding amortization reflected in the yield of the related balance sheet
assets being hedged. The Company has written policy guidelines, approved by the
Board of Directors, governing the use of financial instruments, including
approved counterparties, risk limits and appropriate internal control
procedures. The credit risk of derivatives arises principally from the potential
for a counterparty to fail to meet its obligation to settle a contract on a
timely basis.
The Company utilizes income simulation models to complement its traditional gap
analysis. While the Asset/Liability Committee routinely monitors simulated net
interest income sensitivity over a rolling two-year horizon, it also utilizes
additional tools to monitor potential longer-term interest rate risk.
The income simulation models measure the Company's net interest income
volatility or sensitivity 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 has not been 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
generally 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 that 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
projects the impact of changes in interest rates on net interest margin. The
Company has established certain policy limits for the potential volatility of
its net interest margin assuming certain levels of changes in market interest
rates with the objective of maintaining a stable net interest margin under
various probable rate scenarios. Management generally has maintained a risk
position well within the policy limits. As of June 30, 2004, the model indicated
the impact of a 200 basis point parallel and pro rata rise in rates over 12
months would approximate a 2.9% ($2.2 million) increase in net interest income,
while the impact of a 200 basis point decline in rates over the same period
would approximate a 5.0% ($3.8 million) decline from an unchanged rate
environment.
30
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
pre-payments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cash flows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot provide any assurances as to the
predictive nature of these assumptions, including how customers preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: pre-payment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other variables. Furthermore, the sensitivity
analysis does not reflect actions that the Asset/Liability Committee might take
in responding to or anticipating changes in interest rates.
Liquidity Risk
Liquidity is the ability to meet cash needs arising from changes in various
categories of assets and liabilities. Liquidity is constantly monitored and
managed at both the parent company and the bank levels. Liquid Assets consist of
cash and due from banks, 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
included domestic noninterest-bearing and interest-bearing retail deposits,
which historically have been relatively stable. The parent company and the bank
believe that they have significant unused borrowing capacity. Contingency plans
exist which we believe could be implemented on a timely basis to mitigate 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.
Various legal restrictions limit the extent to which the bank can supply funds
to the parent company and its nonbank subsidiaries. All national banks are
limited in the payment of dividends without the approval of the Comptroller of
the Currency to an amount not to exceed the net profits as defined, for the year
to date combined with its retained net profits for the preceding two calendar
years.
At June 30, 2004, the parent company's short-term debt, consisting principally
of commercial paper used to finance ongoing current business activities, was
approximately $36.2 million. The parent company had cash, interest-bearing
deposits with banks and other current assets aggregating $39.6 million. The
parent company also has back-up credit lines with banks of $24.0 million. Since
1979, the parent company has had no need to use the available back-up lines of
credit.
31
The following table sets forth information regarding the Company's obligations
and commitments to make future payments under contract as of June 30, 2004:
Payments Due by Period
--------------------------------------------------------------------------
Contractual Less than 1-3 4-5 After 5
Obligations Total 1 Year Years Years Years
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Long-Term Debt $ 110,000 $ -- $ -- $ 10,000 $ 100,000
Operating Leases 26,906 3,306 6,115 6,142 11,343
---------- ---------- ---------- ---------- ----------
Total Contractual Cash Obligations $ 136,906 $ 3,306 $ 6,115 $ 16,142 $ 111,343
========== ========== ========== ========== ==========
The following table sets forth information regarding the Company's obligations
under other commercial commitments as of June 30, 2004:
Amount of Commitment Expiration Per Period
--------------------------------------------------------------------------
Other Commercial Total Amount Less than 1-3 4-5 After 5
Commitments Committed 1 Year Years Years Years
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Residential loans $ 68,884 $ 68,884 $ -- $ -- $ --
Standby Letters of Credit 31,258 28,903 2,355 -- --
Other Commercial Commitments 53,343 34,400 18,883 60
---------- ---------- ---------- ---------- ----------
Total Commercial Commitments $ 153,485 $ 132,187 $ 21,238 $ -- $ 60
========== ========== ========== ========== ==========
INFORMATION AVAILABLE ON OUR WEB SITE
Our Internet address is www.sterlingbancorp.com and the investor relations
section of our web site is located at www.sterlingbancorp.com/ir/investor.cfm.
We make available free of charge, on or through the investor relations section
of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as
soon as reasonably practicable after we electronically file such material with,
or furnish it to, the Securities and Exchange Commission.
Also posted on our web site, and available in print upon request of any
shareholder to our Investor Relations Department, are the charters for our Board
of Directors' Audit Committee, Compensation Committee and Corporate Governance
and Nominating Committee, our Corporate Governance Guidelines, our Method for
Interested Persons to Communicate with Non-Management Directors and a Code of
Business Conduct and Ethics governing our directors, officers and employees.
Within the time period required by the Securities and Exchange Commission and
the New York Stock Exchange, we will post on our web site any amendment to the
Code of Business Conduct and Ethics and any waiver applicable to our senior
financial officers, as defined in the Code, or our executive officers or
directors. In addition, information concerning purchases and sales of our equity
securities by our executive officers and directors is posted on our web site.
32
STERLING BANCORP AND SUBSIDIARIES
Interest Rate Sensitivity
To mitigate the vulnerability of earnings to changes in interest rates, the
Company manages the repricing characteristics of assets and liabilities in an
attempt to control net interest rate sensitivity. Management attempts to
confine significant rate sensitivity gaps predominantly to repricing intervals
of a year or less so that adjustments can be made quickly. Assets and
liabilities with predetermined repricing dates are classified based on the
earliest repricing period. Amounts are presented in thousands.
Repricing Date
--------------------------------------------------------------------------------------------
More than More than
3 Months 3 Months 1 Year to Over Nonrate
or Less to 1 Year 5 Years 5 Years Sensitive Total
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Interest-bearing deposits
with other banks $ 2,161 $ -- $ -- $ -- $ -- $ 2,161
Investment securities 2,700 5,559 57,810 621,539 8,454 696,062
Loans, net of unearned
discounts
Commercial and industrial 552,036 1,142 7,385 108 (414) 560,257
Loans to depository
institutions -- -- -- -- -- --
Lease financing 1,681 15,898 153,179 9,466 (22,191) 158,033
Real estate 92,148 12,147 76,135 34,147 (2) 214,575
Installment 13,292 59 1,353 29 (4) 14,729
Noninterest-earning
assets and allowance
for loan losses -- -- -- -- 152,802 152,802
---------- ---------- ---------- ---------- ---------- ----------
Total Assets 664,018 34,805 295,862 665,289 138,645 1,798,619
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits
Savings [1] -- -- 31,672 -- -- 31,672
NOW [1] -- -- 134,964 -- -- 134,964
Money market [1] 167,181 -- 37,687 -- -- 204,868
Time - domestic 186,217 163,756 85,950 1,016 -- 436,939
- foreign 1,645 1,355 -- -- -- 3,000
Securities sold u/a/r - cust 79,535 1,146 -- -- -- 80,681
Securities sold u/a/r - deal 58,616 -- -- -- -- 58,616
Federal funds purchased -- -- -- -- -- --
Commercial paper 36,201 -- -- -- -- 36,201
Other short-term borrowings 10,525 5,000 -- -- -- 15,525
Long-term borrowings - FHLB -- -- 10,000 100,000 25,774 135,774
Noninterest-bearing liabilities
and shareholders' equity -- -- -- -- 660,379 660,379
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity 539,920 171,257 300,273 101,016 686,153 1,798,619
---------- ---------- ---------- ---------- ---------- ----------
Net Interest Rate
Sensitivity Gap $ 124,098 $ (136,452) $ (4,411) $ 564,273 $ (547,508) $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
June 30, 2004 $ 124,098 $ (12,354) $ (16,765) $ 547,508 $ -- $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
June 30, 2003 $ 185,460 $ 106,959 $ 61,010 $ 504,625 $ -- $ --
========== ========== ========== ========== ========== ==========
Cumulative Gap
December 31, 2003 $ 230,662 $ 77,756 $ 46,397 $ 595,450 $ -- $ --
========== ========== ========== ========== ========== ==========
[1] Historically, balances in non-maturity deposit accounts have remained
relatively stable despite changes in levels of interest rates. Balances
are shown in repricing periods based on management's historical repricing
practices and run-off experience.
33
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation
of the Company's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e)
under the Securities Exchange Act of 1934). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective as of
the end of the period covered by this report. No changes in our internal control
over financial reporting ( as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
34
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company was held on April
15, 2004.
(b) The following matters were submitted to a vote of the Shareholders
of the Company:
(1) Election of Directors
Total Votes
Nominee Total Votes For Withheld
---------------- --------------- -----------
Robert Abrams 13,796,404 446,725
Joseph M. Adamko 13,695,145 547,984
Louis J. Cappelli 13,786,357 456,772
Walter Feldesman 11,241,528 3,001,601
Fernando Ferrer 13,789,952 453,177
Allan F. Hershfield 13,795,817 447,312
Henry J. Humphreys 13,747,524 495,605
John C. Millman 13,797,592 445,537
Eugene T. Rossides 13,640,863 602,266
There were no abstentions or broker nonvotes.
(2) Amendment of the Certificate of Incorporation of
Sterling Bancorp to (a) increase the number of
authorized common shares of Sterling Bancorp to
50,000,000 shares from 20,000,000 shares and(b) delete
Section Three of Article Fifth of the Certificate of
Incorporation.
Total Votes For 12,096,249
Total Votes Against 2,119,790
Total Absentions 27,090
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
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).
35
(i)(C) Certificate of Amendment of the Certificate of
Incorporation filed with the State of New York
Department of State, March 3, 1989 (Filed as Exhibit A
to the Registrant's Form 8-A dated March 6,1989 and
incorporated by reference herein).
(i)(D) 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).
(i)(E) Certificate of Amendment of the Certificate of
Incorporation filed with the State of New York
Department of State, February 26, 2004 (Filed as Exhibit
3(i)(E) to Registrant's Form 10-K for the fiscal year
ended December 31, 2003 and incorporated by reference
herein.
(i)(F) The Certificate of Amendment of the Certificate of
Incorporation of Sterling Bancorp filed with the State
of New York Department of State, June 1, 2004.
(ii)(A) The By-Laws, as in effect on August 5,2004.
10.(i) Form of Change in Control Severance Agreement dated June
8, 2004 entered into Between the Registrant and one
Executive.
11. Statement Re: Computation of Per Share Earnings
31. Certifications of the CEO and CFO pursuant to Exchange
Act Rule 13a-14(a)
32. Certifications of the CEO and CFO required by Section
1350 of Chapter 63 of Title 18 of the U.S. Code
(b) Reports on Form 8-K:
In a report on Form 8-K dated April 12,2004 and filed on April 13,
2004, the Company reported under Items 9 and 12 "Results of
Operations and Financial Condition and Regulation FD Disclosure",
the press release announcing a conference call on April 16, 2004 to
discuss the results of operations for the quarter ended March 31,
2004.
In a report on Form 8-K dated April 15, 2004 and filed on April 16,
2004, the Company reported, under Items 9 and 12 "Results of
Operations and Financial Condition and Regulation FD Disclosure",
the press release announcing the results of operations for the
quarter ended March 31, 2004.
36
In a report on Form 8-K dated June 8, 2004 and filed on June 9,
2004, the Company reported, under Item 5. "Other Events", the press
release announcing the appointment of Anthony E. Burke to the Board
of Directors of both Sterling Bancorp and Sterling National Bank.
In a report on Form 8-K dated May 20, 2004 and filed on May 21,
2004, the Company reported under Item 5."Other Events" and under
Item 7. "Financial Statements, Pro Forma Financial Information and
Exhibits", the press release announcing the declaration of a
quarterly cash dividend of $0.19 payable June 30, 2004 to
shareholders of record on June 15, 2004.
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING BANCORP
-----------------------------------
(Registrant)
Date 8/9/04 /s/ Louis J. Cappelli
--------------------- -----------------------------------
Louis J. Cappelli
Chairman and
Chief Executive Officer
Date 8/9/04 /s/ John W. Tietjen
--------------------- -----------------------------------
John W. Tietjen
Executive Vice President, Treasurer
and Chief Financial Officer
38
STERLING BANCORP AND SUBSIDIARIES
EXHIBIT INDEX
Incorporated Sequential
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------ ----------- ------------ -------- ---
3(i)(F) The Certificate of Amendment of the
Certificate of Incorporation of Sterling
Bancorp filed with the State of New York
Department of State, June 1, 2004. X
3(ii)(A) The By-Laws, as in effect on August 5, 2004 X
10(i) Form of Change in Control Severance
Agreement dated June 8,2004 entered into
between the Registrant and one Executive X
11 Statement re: Computation of Per Share
Earnings X
31 Certifications of the CEO and CFO pursuant
to Exchange Act Rule 13a-14(a) X
32 Certifications of the CEO and CFO required
by Section 1350 of Chapter 63 of Title 18 X
of the U.S. Code
39