Exhibit 13
Sterling Bancorp
CONSOLIDATED BALANCE SHEETS
December 31, 2003 2002
- ------------ ---------------- ----------------
ASSETS
Cash and due from banks $ 63,947,722 $ 58,173,569
Interest-bearing deposits with other banks 1,656,338 2,872,710
Federal funds sold -- 5,000,000
Securities available for sale (at estimated fair value;
pledged: $117,250,082 in 2003 and $90,969,577 in 2002) 312,727,555 219,435,089
Securities held to maturity (pledged: $166,910,347 in 2003 and
$222,229,901 in 2002) (estimated fair value: $374,977,771
in 2003 and $382,083,685 in 2002) 370,390,519 369,339,331
---------------- ----------------
Total investment securities 683,118,074 588,774,420
---------------- ----------------
Loans held for sale 40,556,380 54,684,987
Loans held in portfolio, net of unearned discounts 900,556,215 791,315,047
Less allowance for loan losses 14,458,951 13,549,297
---------------- ----------------
Loans, net 886,097,264 777,765,750
---------------- ----------------
Customers' liability under acceptances 953,571 1,545,335
Goodwill 21,158,440 21,158,440
Premises and equipment, net 9,226,183 9,263,172
Other real estate 829,856 822,820
Accrued interest receivable 5,069,423 4,881,937
Bank owned life insurance 21,872,266 20,830,688
Other assets 24,260,063 16,176,113
---------------- ----------------
$ 1,758,745,580 $ 1,561,949,941
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $ 474,091,890 $ 401,568,479
Interest-bearing deposits 737,648,930 645,539,745
---------------- ----------------
Total deposits 1,211,740,820 1,047,108,224
Securities sold under agreements to repurchase--customers 42,490,862 60,925,635
Securities sold under agreements to repurchase--dealers 51,327,944 40,000,000
Federal funds purchased 10,000,000 --
Commercial paper 28,799,055 29,318,920
Other short-term borrowings 56,871,359 37,030,404
Acceptances outstanding 953,571 1,545,335
Accrued expenses and other liabilities 77,602,887 75,467,099
Long-term borrowings 135,774,000 140,774,000
---------------- ----------------
Total liabilities 1,615,560,498 1,432,169,617
---------------- ----------------
Shareholders' Equity
Preferred stock, $5 par value 2,244,320 2,322,060
Common stock, $1 par value. Authorized 20,000,000 shares;
issued 16,244,549 and 16,107,005 shares, respectively 16,244,549 16,107,005
Capital surplus 142,393,959 140,512,359
Retained earnings 17,751,859 3,783,539
Accumulated other comprehensive (loss) income (976,782) 1,330,239
---------------- ----------------
177,657,905 164,055,202
Common stock in treasury at cost, 1,306,587 and 1,261,061 shares,
respectively (33,577,847) (32,400,952)
Unearned compensation (894,976) (1,873,926)
---------------- ----------------
Total shareholders' equity 143,185,082 129,780,324
---------------- ----------------
$ 1,758,745,580 $ 1,561,949,941
================ ================
See Notes to Consolidated Financial Statements.
STERLING BANCORP . 16
Exhibit 13
Sterling Bancorp
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
INTEREST INCOME
Loans $ 61,621,929 $ 57,913,946 $ 65,282,135
Investment securities
Available for sale 10,601,611 16,213,837 12,715,635
Held to maturity 19,269,037 19,758,646 17,554,909
Federal funds sold 64,435 276,974 215,973
Deposits with other banks 25,464 33,564 96,842
------------ ------------ ------------
Total interest income 91,582,476 94,196,967 95,865,494
------------ ------------ ------------
INTEREST EXPENSE
Deposits 8,887,090 12,466,276 19,029,850
Securities sold under agreements to repurchase--customers 876,790 1,162,822 1,737,635
Securities sold under agreements to repurchase--dealers 565,552 129,063 2,165,781
Federal funds purchased 65,407 45,059 186,064
Commercial paper 264,254 655,355 1,489,137
Other short-term borrowings 544,722 572,717 151,368
Long-term borrowings 6,387,024 6,178,360 2,056,103
------------ ------------ ------------
Total interest expense 17,590,839 21,209,652 26,815,938
------------ ------------ ------------
Net interest income 73,991,637 72,987,315 69,049,556
Provision for loan losses 8,740,400 10,770,900 7,400,864
------------ ------------ ------------
Net interest income after provision for loan losses 65,251,237 62,216,415 61,648,692
------------ ------------ ------------
NONINTEREST INCOME
Factoring income 5,947,029 6,155,897 5,571,178
Mortgage banking income 14,606,494 10,254,430 7,545,079
Service charges on deposit accounts 4,905,900 4,961,897 5,608,733
Trade finance income 2,337,480 2,574,949 2,478,258
Trust fees 646,979 664,346 878,106
Other service charges and fees 1,922,590 1,846,103 1,666,285
Bank owned life insurance income 1,041,577 1,290,316 --
Securities gains 550,505 996,041 --
Other income 597,410 511,783 375,822
------------ ------------ ------------
Total noninterest income 32,555,964 29,255,762 24,123,461
------------ ------------ ------------
NONINTEREST EXPENSES
Salaries 27,022,023 25,993,675 24,255,002
Employee benefits 8,031,099 6,161,254 3,976,926
------------ ------------ ------------
Total personnel expense 35,053,122 32,154,929 28,231,928
Occupancy expense, net 4,788,150 4,920,392 4,711,216
Equipment expense 2,854,169 2,657,571 2,547,288
Advertising and marketing 3,160,122 3,308,915 2,971,206
Professional fees 3,121,771 3,738,163 5,127,067
Data processing fees 1,012,309 1,270,974 1,258,975
Stationery and printing 903,915 1,052,394 862,385
Communications 1,580,678 1,626,467 1,605,626
Mortgage tax expense 915,547 718,938 709,197
Other expenses 5,520,325 5,945,860 5,670,797
------------ ------------ ------------
Total noninterest expenses 58,910,108 57,394,603 53,695,685
------------ ------------ ------------
Income before income taxes 38,897,093 34,077,574 32,076,468
Provision for income taxes 14,693,439 12,299,848 12,688,920
------------ ------------ ------------
Net income $ 24,203,654 $ 21,777,726 $ 19,387,548
============ ============ ============
Average number of common shares outstanding
Basic 14,883,440 14,947,313 15,089,720
Diluted 15,758,058 15,797,524 15,857,352
Earnings per average common share
Basic $ 1.62 $ 1.45 $ 1.28
Diluted 1.53 1.37 1.22
Dividends per common share .68 .56 .50
See Notes to Consolidated Financial Statements.
STERLING BANCORP . 17
Exhibit 13
Sterling Bancorp
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------- ------------- ------------
Net income $ 24,203,654 $ 21,777,726 $ 19,387,548
------------- ------------- ------------
Other comprehensive (loss) income, net of tax:
Unrealized gains on securities:
Unrealized holding (losses) gains arising during the year (1,227,254) 3,020,923 1,141,875
Reclassification adjustment for gains included in net income (297,823) (538,858) --
Minimum pension liability adjustment (781,944) (2,271,049) --
------------- ------------- ------------
Other comprehensive (loss) income (2,307,021) 211,016 1,141,875
------------- ------------- ------------
Comprehensive income $ 21,896,633 $ 21,988,742 $ 20,529,423
============= ============= ============
See Notes to Consolidated Financial Statements.
STERLING BANCORP . 18
Exhibit 13
Sterling Bancorp
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 2003 2002 2001
- ------------------------ -------------- -------------- --------------
PREFERRED STOCK
Balance at beginning of year $ 2,322,060 $ 2,346,060 $ 2,402,760
Conversions of Series B and Series D shares (77,740) (24,000) (35,180)
Redemption of Series B shares -- -- (21,520)
-------------- -------------- --------------
Balance at end of year $ 2,244,320 $ 2,322,060 $ 2,346,060
============== ============== ==============
COMMON STOCK
Balance at beginning of year $ 16,107,005 $ 13,817,856 $ 12,546,332
Conversions of preferred shares into common shares 12,799 3,070 4,047
Options exercised 124,745 312,740 331,643
Common shares issued in connection with stock dividend -- 1,973,339 935,834
-------------- -------------- --------------
Balance at end of year $ 16,244,549 $ 16,107,005 $ 13,817,856
============== ============== ==============
CAPITAL SURPLUS
Balance at beginning of year $ 140,512,359 $ 95,504,762 $ 64,467,107
Conversions of preferred shares into common shares 64,941 20,930 31,137
Options exercised 1,849,017 3,886,119 3,847,869
Common shares issued in connection with stock dividend -- 40,724,200 27,167,261
Issuance of shares under incentive compensation plan -- 386,400 --
Common stock issued in connection with acquisition -- (10,052) --
Stock split--cash paid in lieu (32,358) -- --
Redemption of Series B shares -- -- (8,612)
-------------- -------------- --------------
Balance at end of year $ 142,393,959 $ 140,512,359 $ 95,504,762
============== ============== ==============
RETAINED EARNINGS
Balance at beginning of year $ 3,783,539 $ 32,419,767 $ 47,466,602
Net income 24,203,654 21,777,726 19,387,548
Cash dividends paid--common shares (10,110,315) (7,571,667) (6,209,939)
--preferred shares (125,019) (112,700) (98,014)
Stock dividend paid--common shares -- (42,697,539) (28,103,095)
--cash in lieu -- (32,048) (23,335)
-------------- -------------- --------------
Balance at end of year $ 17,751,859 $ 3,783,539 $ 32,419,767
============== ============== ==============
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance at beginning of year $ 1,330,239 $ 1,119,223 $ (22,652)
-------------- -------------- --------------
Unrealized holding (losses) gains arising during the period:
Before tax (2,268,495) 5,583,963 2,110,676
Tax effect 1,041,241 (2,563,040) (968,801)
-------------- -------------- --------------
Net of tax (1,227,254) 3,020,923 1,141,875
-------------- -------------- --------------
Reclassification adjustment for gains included in net income:
Before tax (550,505) (996,041) --
Tax effect 252,682 457,183 --
-------------- -------------- --------------
Net of tax (297,823) (538,858) --
-------------- -------------- --------------
Minimum pension liability adjustment:
Before tax (1,445,369) (4,197,872) --
Tax effect 663,425 1,926,823 --
-------------- -------------- --------------
Net of tax (781,944) (2,271,049) --
-------------- -------------- --------------
Balance at end of year $ (976,782) $ 1,330,239 $ 1,119,223
============== ============== ==============
TREASURY STOCK
Balance at beginning of year $ (32,400,952) $ (15,542,454) $ (7,986,763)
Purchase of common shares (256,007) (15,501,195) (6,063,976)
Issuance of shares under incentive compensation plan -- 1,267,200 --
Surrender of shares issued under incentive compensation plan (920,888) (3,034,547) (1,491,715)
Common shares issued in connection with acquisition -- 410,044 --
-------------- -------------- --------------
Balance at end of year $ (33,577,847) $ (32,400,952) $ (15,542,454)
============== ============== ==============
UNEARNED COMPENSATION
Balance at beginning of year $ (1,873,926) $ (1,187,798) $ (1,857,292)
Issuance of shares under incentive compensation plan -- (1,653,600) --
Amortization of unearned compensation 978,950 967,472 669,494
-------------- -------------- --------------
Balance at end of year $ (894,976) $ (1,873,926) $ (1,187,798)
============== ============== ==============
TOTAL SHAREHOLDERS' EQUITY
Balance at beginning of year $ 129,780,324 $ 128,477,416 $ 117,016,094
Net changes during the year 13,404,758 1,302,908 11,461,322
-------------- -------------- --------------
Balance at end of year $ 143,185,082 $ 129,780,324 $ 128,477,416
============== ============== ==============
See Notes to Consolidated Financial Statements
STERLING BANCORP . 19
Exhibit 13
Sterling Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 2002 2001
- ------------------------ -------------- -------------- --------------
OPERATING ACTIVITIES
Net income $ 24,203,654 $ 21,777,726 $ 19,387,548
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for loan losses 8,740,400 10,770,900 7,400,864
Depreciation and amortization of premises and equipment 1,750,153 1,735,633 1,758,622
Securities gains (550,505) (996,041) --
Income from bank owned life insurance (1,041,578) (1,290,316) --
Deferred income tax (benefit) provision (357,314) (484,211) 1,973,791
Net change in loans held for sale 14,128,607 (6,082,146) (36,086,841)
Amortization of unearned compensation 978,950 967,472 669,494
Amortization of premiums on investment securities 2,341,462 1,516,143 1,312,890
Accretion of discounts on investment securities (1,112,329) (1,152,553) (783,332)
(Increase) Decrease in accrued interest receivable (187,486) 985,184 (671,165)
Increase (Decrease) in accrued expenses and other liabilities 2,135,788 (157,335) 6,012,658
Increase in other assets (5,978,191) (3,126,459) (638,935)
Other, net (2,157,352) (6,067,643) (4,434,301)
-------------- -------------- --------------
Net cash provided by (used in) operating activities 42,894,259 18,396,354 (4,098,707)
-------------- -------------- --------------
INVESTING ACTIVITIES
Purchase of premises and equipment (1,713,164) (3,146,443) (4,141,522)
Net decrease (increase) in interest-bearing deposits with other banks 1,216,372 (385,532) 674,248
Decrease (Increase) in Federal funds sold 5,000,000 5,000,000 (10,000,000)
Net increase in loans held in portfolio (117,071,914) (42,490,939) (27,749,805)
Increase in other real estate (7,036) (13,636) (161,190)
Purchase of bank owned life insurance -- (20,000,000) --
Proceeds from sales of securities 24,208,035 44,653,909 --
Proceeds from prepayments, redemptions or
maturities of securities--held to maturity 253,379,199 111,703,134 81,874,168
Purchases of securities--held to maturity (255,512,023) (175,033,767) (107,147,984)
Proceeds from prepayments, redemptions or
maturities--available for sale 367,057,916 193,790,227 184,137,834
Purchases of securities--available for sale (486,974,411) (182,639,726) (299,513,848)
-------------- -------------- --------------
Net cash used in investing activities (210,417,026) (68,562,773) (182,028,099)
-------------- -------------- --------------
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 72,523,411 45,265,171 15,263,980
Net increase in interest-bearing deposits 92,109,185 16,919,099 103,377,790
Increase (Decrease) in Federal funds purchased 10,000,000 -- (10,000,000)
Net (decrease) in securities sold under agreements to repurchase (7,106,829) (46,170,000) (5,667,374)
Net increase in commercial paper and other short-term borrowings 19,321,090 15,558,453 7,402,369
(Decrease) Increase in long-term borrowings (5,000,000) 45,424,000 84,650,000
Purchase of treasury shares (256,007) (15,501,195) (6,063,976)
Redemption of preferred stock -- -- (30,132)
Proceeds from exercise of stock options 1,973,762 4,198,859 4,179,512
Cash dividends paid on preferred and common shares (10,235,334) (7,684,367) (6,307,953)
Cash paid in lieu of fractional shares in connection with
stock dividend/split (32,358) (32,048) (23,335)
-------------- -------------- --------------
Net cash provided by financing activities 173,296,920 57,977,972 186,780,881
-------------- -------------- --------------
Net increase in cash and due from banks 5,774,153 7,811,553 654,075
Cash and due from banks--beginning of year 58,173,569 50,362,016 49,707,941
-------------- -------------- --------------
Cash and due from banks--end of year $ 63,947,722 $ 58,173,569 $ 50,362,016
============== ============== ==============
Supplemental disclosure of cash flow information:
Interest paid $ 17,613,850 $ 20,291,854 $ 27,220,986
Income taxes paid 12,366,194 13,078,303 12,212,440
See Notes to Consolidated Financial Statements
STERLING BANCORP . 20
Exhibit 13
Sterling National Bank
Consolidated STATEMENTS OF CONDITION
December 31, 2003 2002
- ------------ ---------------- ----------------
ASSETS
Cash and due from banks $ 63,593,547 $ 57,771,604
Interest-bearing deposits with other banks 921,338 2,137,710
Federal funds sold -- 5,000,000
Securities available for sale (at estimated fair value;
pledged: $117,250,082 in 2003 and $90,969,577 in 2002) 312,662,701 219,374,091
Securities held to maturity (pledged: $166,910,347 in 2003 and
$222,229,901 in 2002) (estimated fair value: $374,977,771 in 2003
and $382,083,685 in 2002) 370,390,519 369,339,331
---------------- ----------------
Total investment securities 683,053,220 588,713,422
---------------- ----------------
Loans held for sale 40,556,380 54,684,987
Loans held in portfolio, net of unearned discounts 860,539,887 750,163,236
Less allowance for loan losses 14,355,380 12,270,071
---------------- ----------------
Loans, net 846,184,507 737,893,165
---------------- ----------------
Receivables from affiliates 20,996 687,170
Customers' liability under acceptances 953,571 1,545,335
Premises and equipment, net 9,196,442 9,215,223
Other real estate 829,856 822,820
Accrued interest receivable 5,056,786 4,880,288
Bank owned life insurance 21,872,266 20,830,688
Other assets 17,934,807 11,641,364
---------------- ----------------
$ 1,690,173,716 $ 1,495,823,776
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest-bearing deposits $ 498,036,577 $ 406,792,373
Interest-bearing deposits 745,285,616 670,307,106
---------------- ----------------
Total deposits 1,243,322,193 1,077,099,479
Securities sold under agreements to repurchase--customers 42,490,862 60,925,635
Securities sold under agreements to repurchase--dealer 51,327,944 40,000,000
Federal funds purchased 10,000,000 --
Other short-term borrowings 56,871,359 37,030,404
Due to affiliates -- 1,239,158
Acceptances outstanding 953,571 1,545,335
Accrued expenses and other liabilities 63,056,502 65,332,947
Long-term borrowings--FHLB 110,000,000 115,000,000
---------------- ----------------
Total liabilities 1,578,022,431 1,398,172,958
---------------- ----------------
Commitments and contingent liabilities
Shareholder's Equity
Common stock, $50 par value
Authorized and issued, 358,526 shares 17,926,300 17,926,300
Surplus 19,762,560 19,762,560
Undivided profits 72,397,259 56,369,627
Accumulated other comprehensive income:
Net unrealized appreciation on securities available for sale,
net of tax 2,065,166 3,592,331
---------------- ----------------
Total shareholder's equity 112,151,285 97,650,818
---------------- ----------------
$ 1,690,173,716 $ 1,495,823,776
================ ================
See Notes to Consolidated Financial Statements.
STERLING BANCORP . 21
Exhibit 13
Sterling Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sterling Bancorp ("the parent company") is a financial holding company, pursuant
to an election made under the Gramm-Leach-Bliley Act of 1999. Throughout the
notes, the term "the Company" refers to Sterling Bancorp and its subsidiaries.
The Sterling companies provide a full 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, trade financing, leasing, deposit services, trust and
estate administration and investment management services. Sterling has
operations principally in New York and conducts business throughout the United
States.
The following summarizes the significant accounting policies of Sterling Bancorp
and its subsidiaries.
Basis of Presentation
The consolidated financial statements include the accounts of the parent company
and its subsidiaries, principally Sterling National Bank ("the bank"), after
elimination of material intercompany transactions.
The Company effected a five-for-four stock split on September 10, 2003. All
capital and share amounts as well as basic and diluted average number of shares
outstanding and earnings per share information for all prior reporting periods
have been restated.
General Accounting Policies
The Company follows accounting principles generally accepted in the United
States of America (U.S. GAAP) and prevailing practices within the banking
industry. The preparation of financial statements in accordance with U.S. GAAP
requires management to make assumptions and estimates that impact the amounts
reported in those statements and are, by their nature, subject to change in the
future as additional information becomes available or as circumstances vary.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current presentation.
New Accounting Standards and Interpretations
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132 (revised),
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132R"). This standard prescribes employers' disclosures about
pension plans and other postretirement benefit plans, but does not change the
measurement of recognition of those plans. SFAS No. 132R retains and revises the
disclosure requirements contained in the original standard. It also requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit costs of defined benefit pension plans and other postretirement
benefit plans. For public companies SFAS No. 132R is effective for fiscal years
ending after December 15, 2003. The Company's disclosures in Note 17 incorporate
the revised disclosure requirements. Certain disclosures are also required in
financial statements for interim periods beginning after December 15, 2003.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" ("SFAS No. 150"), was issued in May 2003. This
statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. Under SFAS No.150, certain freestanding financial instruments that
embody obligations of the issuer, and that are now classified as equity, must be
classified as liabilities (or as assets in some circumstances). SFAS No. 150
also includes required disclosures for financial instruments within its scope.
For public companies such as the Company, SFAS No.150 was generally effective
for financial instruments entered into or modified after May 31, 2003 and
otherwise at the beginning of the first interim period beginning after June 15,
2003 (July 1, 2003 for the Company). The adoption of SFAS No. 150 in 2003 had no
material effect on the Company's consolidated financial statements.
In December 2003, FASB issued Interpretation No. 46 (revised), "Consolidation of
Variable Interests Entities" ("FIN 46R"), which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and, accordingly, should
consolidate the variable interest entity ("VIE"). FIN 46R replaces FASB
Interpretation No. 46 that was issued in January 2003. The Company is required
to apply FIN 46R to variable interests generally as of March 31, 2004 and to
special-purpose entities as of December 31, 2003. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and non-controlling interest of the VIE initially would be measured
at their carrying amounts, and any difference between the net amount added to
the balance sheet and any previously recognized interest would be recorded as a
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure the assets, liabilities and non-controlling interest of the VIE. The
Company
STERLING BANCORP . 22
Exhibit 13
has an interest in a special-purpose entity as of December 31, 2003. Upon
adoption of FIN 46R as of December 31, 2003, the Company's interest in Sterling
Bancorp Trust I (see Note 10) required the deconsolidation of this entity in the
Company's consolidated financial statements.
Investment Securities
Securities are designated as available for sale or held to maturity at the time
of acquisition. Securities that the Company will hold for indefinite periods of
time and that might be sold in the future as part of efforts to manage interest
rate risk or in response to changes in interest rates, changes in prepayment
risk, changes in market conditions or changes in economic factors, are
classified as available for sale and carried at estimated market values. Net
aggregate unrealized gains or losses are included in a valuation allowance
account and are reported, net of taxes, as a component of shareholders' equity.
Securities that the Company has the positive intent and ability to hold to
maturity are designated as held to maturity and are carried at amortized cost,
adjusted for amortization of premiums and accretion of discounts over the period
to maturity. Gains and losses realized on sales of securities are determined on
the specific identification method and are reported in noninterest income as net
securities gains.
Securities pledged as collateral are reported separately in the consolidated
balance sheets if the secured party has the right by contract or custom to sell
or repledge the collateral. Securities are pledged by the Company to secure
trust and public deposits, securities sold under agreements to repurchase,
advances from the Federal Home Loan Bank of New York and for other purposes
required or permitted by law.
A periodic review is conducted by management to determine if the decline in the
fair value of any security appears to be other than temporary. Factors
considered in determining whether the decline is other-than-temporary include,
but are not limited to: the length of time and the extent to which fair value
has been below cost; the financial condition and near-term prospects of the
issuer; and the Company's ability and intent to hold the investment for a period
of time sufficient to allow for any anticipated recovery. If the decline is
deemed to be other than temporary, the security is written down to a new cost
basis and the resulting loss is reported in non-interest income.
Loans
Loans, other than those held for sale, are reported at their principal amount
outstanding, net of unearned discounts and unamortized nonrefundable fees and
direct costs associated with their origination or acquisition. Interest earned
on loans without discounts is credited to income based on loan principal amounts
outstanding at appropriate interest rates. Material origination fees net of
direct costs and discounts on loans are credited to income over the terms of the
loans using a method that results in an approximate level rate of return.
Mortgage loans held for sale, including deferred fees and costs, are reported at
the lower of cost or market value as determined by outstanding commitments from
investors or current investor yield requirements calculated on the aggregate
loan basis and are included under the caption "Loans held for sale" in the
Consolidated Balance Sheets. Net unrealized losses, if any, are recognized in a
valuation allowance by a charge to income.Mortgage loans are sold, including
servicing rights, without recourse. Gains or losses resulting from sales of
mortgage loans, net of unamortized deferred fees and costs, are recognized when
the proceeds are received from investors and are included under the caption
"Mortgage banking income" in the Consolidated Statements of Income.
Nonaccrual loans are those on which the accrual of interest has ceased. Loans,
including loans that are individually identified as being impaired under SFAS
No. 114, are generally placed on nonaccrual status immediately if, in the
opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more and collateral, if any, is insufficient to cover
principal and interest. Interest accrued but not collected at the date a loan is
placed on nonaccrual status is reversed against interest income. Interest income
is recognized on nonaccrual loans only to the extent received in cash. However,
where there is doubt regarding the ultimate collectibility of the loan
principal, cash receipts, whether designated as principal or interest, are
thereafter applied to reduce the carrying value of the loan. Loans are restored
to accrual status only when interest and principal payments are brought current
and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses, which is available for losses incurred in the
loan portfolio, is increased by a provision charged to expense and decreased by
charge-offs, net of recoveries.
Under the provisions of SFAS No. 114 and No. 118, individually identified
impaired loans are measured based on the present value of payments expected to
be received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices; or,
for loans that are solely dependent on the collateral for repayment, measurement
may be based on the fair value of the collateral.
STERLING BANCORP . 23
Exhibit 13
Loans that are to be foreclosed are measured based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds fair value,
a valuation allowance is required as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
The adequacy of the allowance for loan losses is reviewed regularly by
management. The allowance for loan losses is maintained through the 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
management's continuing review of the loan portfolio, including identification
and review of individual problem situations that may affect the borrower's
ability to repay, review of overall portfolio quality through an analysis of
current charge-offs, delinquency and nonperforming loan data, estimates of the
value of any underlying collateral, review of regulatory examinations, an
assessment of current and expected economic conditions and changes in the size
and character of the loan portfolio. The allowance reflects management's
evaluation both of loans presenting identified loss potential and of the risk
inherent in various components of the portfolio, including loans identified as
impaired as required by SFAS No. 114. Thus, an increase in the size of the
portfolio or in any of its components could necessitate an increase in the
allowance even though there may not be a decline in credit quality or an
increase in potential problem loans. A significant change in any of the
evaluation factors described above could result in future additions to the
allowance.
Goodwill
Goodwill reflected in the consolidated balance sheets arose from the Company's
acquisition of the bank, under the purchase method of accounting in 1968.
Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). Under the provisions of SFAS No. 142,
goodwill is deemed to have an indefinite useful life and the Company is required
to complete an annual assessment by segment for the impairment. There was no
impairment expense recorded in 2003 or 2002. Prior to the adoption of SFAS No.
142, the Company was not amortizing goodwill.
Goodwill is tested for impairment using a two-step approach that involves the
identification of "reporting units" and the estimation of their respective fair
values. An impairment loss is recognized as a charge to expense for any excess
of the goodwill carrying amount over implied fair value.
Premises and Equipment
Premises and equipment, excluding land, are stated at cost less accumulated
depreciation and amortization. Land is reported at cost. Depreciation is
computed on a straight-line basis and is charged to noninterest expense over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is charged to noninterest expense over the terms of the respective
leases or the estimated useful lives of the improvements, whichever is shorter.
Maintenance, repairs and minor improvements are charged to noninterest expenses
as incurred.
Bank Owned Life Insurance
The bank invested in Bank Owned Life Insurance ("BOLI") policies to fund certain
future employee benefit costs. The cash surrender value of the BOLI policies is
recorded in the Consolidated Balance Sheets under the caption "Bank owned life
insurance." Changes in the cash surrender value are recorded in the Consolidated
Statements of Income under the caption "Bank owned life insurance income."
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred income tax expense (benefit) is determined by recognizing
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. The realization of
deferred tax assets is assessed and a valuation allowance provided for that
portion of the assets for which it is more likely than not that it will not be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates and will be adjusted for the effects of future changes in tax laws or
rates, if any.
For income tax purposes, the Company files: a consolidated Federal income tax
return; combined New York City and New York State income tax returns; and
separate state income tax returns for its out-of-state subsidiaries. The parent
company, under tax sharing agreements, either pays or collects on account of
current income taxes to or from its subsidiaries.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks.
STERLING BANCORP . 24
Exhibit 13
Stock Incentive Plans
At December 31, 2003, the Company has a stock-based employee compensation plan,
which is described more fully in Note 15. 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
SFAS No. 148, the following table illustrates the effect on net income and
earnings per 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.
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
Net income available for common shareholders $ 24,078,769 $ 21,665,041 $ 19,289,652
Deduct: Total stock-based compensation expense determined under
fair value based method for all awards, net of related tax effects (1,162,833) (1,002,318) (1,925,589)
------------ ------------ ------------
Pro forma net income $ 22,915,936 $ 20,662,723 $ 17,364,063
============ ============ ============
Earnings per share:
Basic--as reported $ 1.62 $ 1.45 $ 1.28
Basic--pro forma 1.54 1.38 1.15
Diluted--as reported 1.53 1.37 1.22
Diluted--pro forma 1.45 1.31 1.10
Earnings Per Average Common Share
Basic earnings per share are computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
NOTE 2.
ACQUISITION
On December 18, 2002, the Company acquired the assets and business of Capital
Mortgage Funding, Inc. ("Capital") for common stock and cash. The acquisition
was accounted for as a purchase with no resulting goodwill. Future operations of
Capital will be conducted within the Company's subsidiary, Sterling National
Mortgage Company, Inc.
NOTE 3.
CASH AND DUE FROM BANKS
The bank is required to maintain average reserves, net of vault cash, on deposit
with the Federal Reserve Bank of New York against outstanding domestic deposits
and certain other liabilities. The required reserves, which are reported in cash
and due from banks, were $22,830,000 and $16,200,000 at December 31, 2003 and
2002, respectively. Average required reserves during 2003 and 2002 were
$20,247,000 and $14,499,000, respectively.
STERLING BANCORP . 25
Exhibit 13
NOTE 4.
MONEY MARKET INVESTMENTS
The Company's money market investments include interest-bearing deposits with
other banks and Federal funds sold. The following table presents information
regarding money market investments.
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
Interest-bearing deposits with other banks
At December 31 --Balance $ 1,656,338 $ 2,872,710 $ 2,487,178
--Average interest rate 1.00% 0.85% 1.31%
--Average original maturity 72 Days 66 Days 107 Days
During the year --Maximum month-end balance 3,311,594 4,472,980 4,748,678
--Daily average balance 3,473,000 3,494,000 3,216,000
--Average interest rate earned 0.73% 1.20% 3.01%
--Range of interest rates earned 0.29-1.50% 0.55-2.10% 0.50-6.00%
============ ============ ============
Federal funds sold
At December 31 --Balance $ -- $ 5,000,000 $ 10,000,000
--Average interest rate -- 1.1875% 1.56%
--Average original maturity -- 1 Day 1 Day
During the year --Maximum month-end balance 10,000,000 50,000,000 30,000,000
--Daily average balance 5,759,000 16,704,000 8,638,000
--Average interest rate earned 1.12% 1.66% 2.50%
--Range of interest rates earned 0.875-1.375% 1.125-1.91% 1.25-5.875%
============ ============ ============
NOTE 5.
INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available for sale are
as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 2003 Cost Gains Losses Value
- ----------------- ------------ ------------ ------------ ------------
U.S. Treasury securities $ 2,496,316 $ 25 $ 91 $ 2,496,250
Obligations of U.S. government corporations and
agencies--mortgage-backed securities 219,875,124 2,807,751 521,976 222,160,899
Obligations of U.S. government corporations and
agencies--collateralized mortgage obligations 38,725,153 51 831,651 37,893,553
Obligations of state and political institutions 30,885,649 1,930,582 -- 32,816,231
Trust preferred securities 3,221,443 432,625 -- 3,654,068
Other debt securities 4,001,000 -- -- 4,001,000
Federal Reserve Bank and other equity securities 9,685,142 21,011 599 9,705,554
------------ ------------ ------------ ------------
Total $308,889,827 $ 5,192,045 $ 1,354,317 $312,727,555
============ ============ ============ ============
December 31, 2002
- ----------------- ------------ ------------ ------------ ------------
U.S. Treasury securities $ 2,493,908 $ 1,248 $ -- $ 2,495,156
Obligations of U.S. government corporations and
agencies--mortgage-backed securities 79,219,960 3,081,030 1,103 82,299,887
Obligations of U.S. government corporations and
agencies--collateralized mortgage obligations 69,591,523 941,153 4,521 70,528,155
Obligations of state and political institutions 32,547,937 2,399,998 -- 34,947,935
Trust preferred securities 3,222,391 222,367 -- 3,444,758
Other debt securities 15,000,000 -- -- 15,000,000
Federal Reserve Bank and other equity securities 10,702,642 17,131 575 10,719,198
------------ ------------ ------------ ------------
Total $212,778,361 $ 6,662,927 $ 6,199 $219,435,089
============ ============ ============ ============
STERLING BANCORP . 26
Exhibit 13
The carrying value and estimated fair value of securities held to maturity are
as follows:
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
December 31, 2003 Value Gains Losses Value
- ----------------- ------------- ------------ ----------- -------------
Obligations of U.S. government corporations and
agencies--mortgage-backed securities $ 291,159,791 $ 6,054,814 $ 499,343 $ 296,715,262
Obligations of U.S. government corporations and
agencies--collateralized mortgage obligations 77,980,728 66,885 1,035,104 77,012,509
Debt securities issued by foreign governments 1,250,000 -- -- 1,250,000
------------- ------------ ----------- -------------
Total $ 370,390,519 $ 6,121,699 $ 1,534,447 $ 374,977,771
============= ============ =========== =============
December 31, 2002
- ----------------- ------------- ------------ ----------- -------------
Obligations of U.S. government corporations and
agencies--mortgage-backed securities $ 304,873,526 $ 12,119,220 $ 53,318 $ 316,939,428
Obligations of U.S. government corporations and
agencies--collateralized mortgage obligations 62,965,805 678,452 -- 63,644,257
Debt securities issued by foreign governments 1,500,000 -- -- 1,500,000
------------- ------------ ----------- -------------
Total $ 369,339,331 $ 12,797,672 $ 53,318 $ 382,083,685
============= ============ =========== =============
The following table presents information regarding securities available for sale
with temporary unrealized losses for the periods indicated at December 31, 2003:
Less Than 12 Months 12 Months or Longer Total
------------------------ ------------------------ ------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----------- ---------- ----------- ---------- ------------ ----------
U.S. Treasury securities $ 1,496,250 $ 91 $ -- $ -- $ 1,496,250 $ 91
Obligations of U.S. government corporations
and agencies--mortgage-backed securities -- -- 62,317,202 521,976 62,317,202 521,976
Obligations of U.S. government corporations
and agencies--collateralized mortgage
obligations -- -- 33,962,734 831,651 33,962,734 831,651
Federal Reserve Bank and other equity securities 1,128 599 -- -- 1,128 599
----------- ---------- ----------- ---------- ------------ ----------
Total $ 1,497,378 $ 690 $96,279,936 $1,353,627 $ 97,777,314 $1,354,317
=========== ========== =========== ========== ============ ==========
The following table presents information regarding securities held to maturity
with temporary unrealized losses for the periods indicated at December 31, 2003:
Less Than 12 Months 12 Months or Longer Total
--------------------- -------------------------- -------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
-------- ---------- ------------- ---------- ------------ ----------
Obligations of U.S. government corporations and
agencies--mortgage-backed securities $ -- $ -- $ 38,865,155 $ 499,343 $ 38,865,155 $ 499,343
Obligations of U.S. government corporations and
agencies--collateralized mortgage obligations -- -- 61,393,597 1,035,104 61,393,597 1,035,104
-------- ---------- ------------- ---------- ------------ ----------
Total $ -- $ -- $ 100,258,752 $1,534,447 $100,258,752 $1,534,447
======== ========== ============= ========== ============ ==========
The Company invests principally in U.S. Treasury, U.S. government corporation
and agency obligations and A rated or better investments. The fair value of
these investments fluctuates based on several factors, including credit quality
and general interest rate changes. The Company has made an evaluation that it
has the ability to hold its investments until maturity and therefore, realize
the full carrying value of its investment.
STERLING BANCORP . 27
Exhibit 13
The following tables present information regarding securities available for sale
and securities held to maturity at December 31, 2003, based on contractual
maturity. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties. The average yield is based on the ratio of actual income
divided by the average outstanding balances during the year. The average yield
on obligations of state and political subdivisions and Federal Reserve Bank
securities is stated on a tax-equivalent basis.
Amortized Estimated Average
Securities available for sale Cost Fair Value Yield
- ----------------------------- ------------- ------------- ---------
U.S. Treasury securities
Due within 1 year $ 2,496,316 $ 2,496,250 1.10%
------------- -------------
Obligations of U.S. government corporations and agencies--
mortgage-backed securities 219,875,124 222,160,899 5.30
------------- -------------
Obligations of U.S. government corporations and agencies--
collateralized mortgage obligations 38,725,153 37,893,553 4.38
------------- -------------
Obligations of state and political subdivisions
Due within 1 year 1,766,680 1,791,753 7.56
Due after 1 year but within 5 years 27,353,919 29,123,205 7.41
Due after 5 years 1,765,050 1,901,273 7.56
------------- -------------
Total 30,885,649 32,816,231 7.43
------------- -------------
Trust preferred securities
Due after 5 years 3,221,443 3,654,068 8.39
------------- -------------
Other debt securities
Due within 1 year 4,001,000 4,001,000 2.75
------------- -------------
Federal Reserve Bank and other securities 9,685,142 9,705,554 3.97
------------- -------------
Total $ 308,889,827 $ 312,727,555 5.49%
============= =============
Carrying Estimated Average
Securities held to maturity Value Fair Value Yield
- --------------------------- ------------- ------------- ---------
Obligations of U.S. government corporations and agencies--
mortgage-backed securities $ 291,159,791 $ 296,715,262 5.40%
------------- -------------
Obligations of U.S. government corporations and agencies--
collateralized mortgage obligations 77,980,728 77,012,509 4.32
------------- -------------
Debt securities issued by foreign governments
Due after 1 year but within 5 years 1,250,000 1,250,000 6.54
------------- -------------
Total $ 370,390,519 $ 374,977,771 5.18%
============= =============
Information regarding securities sales from the available for sale portfolio is
as follows:
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ---------
Proceeds $ 24,208,035 $ 44,653,909 $ --
Gross gains 550,505 996,041 --
Investment securities are pledged to secure trust and public deposits,
securities sold under agreements to repurchase, advances from the Federal Home
Loan Bank of New York and for other purposes required or permitted by law.
STERLING BANCORP . 28
Exhibit 13
NOTE 6.
LOANS
The major components of domestic loans held for sale and loans held in portfolio
are as follows:
December 31, 2003 2002
- ------------ ------------- -------------
Loans held for sale
Real estate--mortgage $ 40,556,380 $ 54,684,987
============= =============
Loans held in portfolio
Commercial and industrial $ 564,378,943 $ 500,909,553
Lease financing 168,555,202 146,347,602
Real estate--mortgage 161,357,698 130,742,377
Real estate--construction 2,367,574 2,400,000
Installment 14,304,822 9,146,695
Loans to depository institutions 10,000,000 20,000,000
------------- -------------
Loans, gross 920,964,239 809,546,227
Less unearned discounts 20,408,024 18,231,180
------------- -------------
Loans, net of unearned discounts $ 900,556,215 $ 791,315,047
============= =============
There are no industry concentrations (exceeding 10% of loans, gross) in the
commercial and industrial loan portfolio. Approximately 71% of loans are to
borrowers located in the metropolitan New York area.
Nonaccrual loans at December 31, 2003 and 2002 totaled $3,343,000 and
$1,784,000, respectively. There were no reduced rate loans at December 31, 2003
or 2002. The interest income that would have been earned on nonaccrual loans
outstanding at December 31, 2003, 2002 and 2001 in accordance with their
original terms is estimated to be $196,000, $136,000 and $153,000, respectively,
for the years then ended. Applicable interest income actually realized was
$141,000, $83,000 and $92,000, respectively, for the aforementioned years, and
there were no commitments to lend additional funds on nonaccrual loans.
Loans are made at normal lending limits and credit terms to officers or
directors (including their immediate families) of the Company or for the benefit
of corporations in which they have a beneficial interest. There were no
outstanding balances on such loans in excess of $60,000 to any individual or
entity at December 31, 2003 or 2002.
NOTE 7.
ALLOWANCE FOR LOAN LOSSES
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
Balance at beginning of year $ 13,549,297 $ 14,038,322 $ 12,675,052
Provision for loan losses 8,740,400 10,770,900 7,400,864
------------ ------------ ------------
22,289,697 24,809,222 20,075,916
------------ ------------ ------------
Less charge-offs, net of recoveries:
Charge-offs 8,310,703 12,048,352 6,798,616
Recoveries (637,556) (1,024,809) (761,022)
------------ ------------ ------------
Net charge-offs 7,673,147 11,023,543 6,037,594
------------ ------------ ------------
Less losses on loans transferred to
held for sale 157,599 236,382 --
------------ ------------ ------------
Balance at end of year $ 14,458,951 $ 13,549,297 $ 14,038,322
============ ============ ============
The Company follows SFAS No. 114 which establishes rules for calculating
certain components of the allowance for loan losses. As of December 31, 2003,
2002 and 2001, $2,022,000, $500,000 and $-0-, respectively, of loans were judged
to be impaired within the scope of SFAS No. 114 and carried on a cash-basis. The
average recorded investment in impaired loans during the years ended December
31, 2003, 2002 and 2001, was approximately $970,000, $332,000 and $282,000,
respectively. The
STERLING BANCORP . 29
Exhibit 13
application of SFAS No. 114 indicated that these loans required valuation
allowances totaling $890,000, $230,000 and $-0- at December 31, 2003, 2002 and
2001, respectively, which are included within the overall allowance for loan
losses. The interest income that would have been earned on impaired loans
outstanding at December 31, 2003, 2002 and 2001 in accordance with their
original terms is estimated to be $108,000, $71,000 and $-0-, respectively, for
the years then ended. Applicable interest income actually realized was $91,000,
$60,000 and $-0-, respectively, for the aforementioned years, and there were no
commitments to lend additional funds on impaired loans.
NOTE 8.
INTEREST-BEARING DEPOSITS
The following table presents certain information for interest expense on
deposits:
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
Interest expense
Interest-bearing deposits in domestic offices
Savings $ 97,501 $ 154,625 $ 557,282
NOW 585,954 879,952 1,549,957
Money Market 791,810 1,320,735 4,222,446
Time
Three months or less 3,697,126 5,982,183 7,448,523
More than three months through twelve months 2,232,482 2,024,765 3,239,586
More than twelve months through sixty months 1,440,917 2,045,820 1,883,253
------------ ------------ ------------
8,845,790 12,408,080 18,901,047
Interest-bearing deposits in foreign offices
Time
Three months or less 20,048 29,098 64,402
More than three months through twelve months 21,252 29,098 64,401
------------ ------------ ------------
Total $ 8,887,090 $ 12,466,276 $ 19,029,850
============ ============ ============
Foreign deposits totaled $3,000,000 at both December 31, 2003 and 2002.
The aggregate of time certificates of deposit and other time deposits in
denominations of $100,000 or more was $230,840,239 at December 31, 2003.
The aggregate of time certificates of deposit and other time deposits by
remaining maturity range is presented below:
December 31, 2003 2002 2001
- ------------ -------------- -------------- --------------
Domestic
Three months or less $ 168,686,490 $ 201,103,529 $ 180,553,367
More than three months through six months 55,924,655 33,203,650 38,218,721
More than six months through twelve months 92,641,396 53,956,927 35,166,600
More than twelve months through twenty-three months 70,478,871 48,707,638 54,605,456
More than twenty-four months through thirty-five months 2,726,759 12,004,923 6,958,964
More than thirty-six months through forty-seven months 2,020,961 806,203 338,498
More than forty-eight months through sixty months 755,978 5,424,466 704,755
-------------- -------------- --------------
393,235,110 355,207,336 316,546,361
-------------- -------------- --------------
Foreign
Three months or less 1,645,000 1,820,000 1,795,000
More than three months through six months 1,355,000 1,180,000 1,180,000
-------------- -------------- --------------
3,000,000 3,000,000 2,975,000
-------------- -------------- --------------
Total $ 396,235,110 $ 358,207,336 $ 319,521,361
============== ============== ==============
STERLING BANCORP . 30
Exhibit 13
Interest expense related to the aggregate of time certificates of deposit and
other time deposits is presented below:
Years Ended December 31, 2003 2002 2001
- ------------------------ ---------- ----------- -----------
Interest expense
Domestic $7,370,525 $10,052,768 $12,571,362
Foreign 41,300 58,196 128,803
---------- ----------- -----------
Total $7,411,825 $10,110,964 $12,700,165
========== =========== ===========
NOTE 9.
SHORT-TERM BORROWINGS
The following table presents information regarding Federal funds purchased,
securities sold under agreements to repurchase--customers and dealers, and
commercial paper:
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------- ------------- -------------
Federal funds purchased
At December 31 --Balance $ 10,000,000 $ -- $ --
--Average interest rate 1.00% -- --
--Average original maturity 1 Day -- --
During the year --Maximum month-end balance 25,000,000 30,000,000 28,000,000
--Daily average balance 5,463,000 2,613,000 3,935,000
--Average interest rate paid 1.20% 1.72% 4.73%
--Range of interest rates paid 1.00-1.50% 1.25-2.3125% 1.00-6.375%
============= ============= =============
Securities sold under agreements to repurchase--customers
At December 31 --Balance $ 42,490,862 $ 60,925,635 $ 101,896,635
--Average interest rate 1.06% 1.28% 2.56%
--Average original maturity 43 Days 27 Days 14 Days
During the year --Maximum month-end balance 82,006,437 64,328,739 101,896,635
--Daily average balance 71,648,000 63,540,000 45,624,000
--Average interest rate paid 1.22% 1.83% 3.81%
--Range of interest rates paid 0.95-1.25% 1.00-3.95% 1.25-5.50%
============= ============= =============
Securities sold under agreements to repurchase--dealers
At December 31 --Balance $ 51,327,944 $ 40,000,000 $ 45,199,000
--Average interest rate 1.16% 1.36% 1.91%
--Average original maturity 26 Days 22 Days 17 Days
During the year --Maximum month-end balance 78,274,000 40,000,000 92,762,000
--Daily average balance 46,219,000 6,960,000 43,453,000
--Average interest rate paid 1.22% 1.85% 4.98%
--Range of interest rates paid 1.00-1.36% 1.36-1.88% 1.90-6.55%
============= ============= =============
Commercial paper
At December 31 --Balance $ 28,799,055 $ 29,318,920 $ 42,103,200
--Average interest rate 1.00% 1.26% 2.25%
--Average original maturity 49 Days 67 Days 59 Days
During the year --Maximum month-end balance 28,799,055 40,286,500 42,103,200
--Daily average balance 23,819,000 31,885,000 36,498,000
--Average interest rate paid 1.11% 2.06% 4.08%
--Range of interest rates paid 0.65-2.25% 0.95-2.35% 1.75-5.85%
============= ============= =============
STERLING BANCORP . 31
Exhibit 13
The parent company has agreements with its line banks for back-up lines of
credit for which it pays a fee at the annual rate of 1/4 of 1% times the line
of credit extended. At December 31, 2003, these back-up bank lines of credit
totaled $24,000,000; no lines were used at any time during 2003, 2002 or 2001.
Other short-term borrowings include advances from the Federal Home Loan Bank of
New York due within one year and treasury tax and loan funds. At December 31,
2003, Federal Home Loan Bank borrowings included an advance of $20,000,000
payable on January 2, 2004 at a rate of 1.04%, an advance of $20,000,000 payable
on January 30, 2004 at a rate of 1.47%, an advance of $10,000,000 payable on May
3, 2004 at a rate of 1.33% and an advance of $5,000,000 payable on August 13,
2004 at a rate of 3.62%.
At December 31, 2002, Federal Home Loan Bank borrowings included an advance of
$5,000,000 payable on January 30, 2003 at a rate of 1.92%, an advance of
$15,000,000 payable on January 30, 2003 at a rate of 2.50%, an advance of
$350,000 payable on March 5, 2003 at a rate of 6.37% and an advance of
$10,000,000 payable on May 3, 2003 at a rate of 2.65%.
NOTE 10.
LONG-TERM BORROWINGS
These borrowings represent advances from the Federal Home Loan Bank of New York
("FHLB") and junior subordinated debt securities issued by the parent company.
The following table presents information regarding FHLB advances:
December 31,
Advance Interest Maturity Initial --------------------------
Type Rate Date Call Date 2003 2002
- -------- -------- -------- --------- ------------ ------------
Term 3.62 10/26/04 -- $ -- $ 5,000,000
Callable 5.13 2/20/08 2/20/01 10,000,000 10,000,000
Callable 4.26 2/13/11 8/13/01 10,000,000 10,000,000
Callable 4.36 2/13/11 2/13/02 10,000,000 10,000,000
Callable 4.70 2/20/11 2/20/03 10,000,000 10,000,000
Callable 3.17 10/22/11 10/22/03 10,000,000 10,000,000
Callable 2.52 11/14/11 11/14/03 10,000,000 10,000,000
Callable 3.66 10/22/11 10/22/04 10,000,000 10,000,000
Callable 3.62 10/15/11 10/15/04 10,000,000 10,000,000
Callable 4.28 10/15/11 10/15/06 10,000,000 10,000,000
Callable 3.33 1/16/12 1/16/03 10,000,000 10,000,000
Callable 2.42 1/16/12 1/16/03 10,000,000 10,000,000
------------ ------------
Total $110,000,000 $115,000,000
============ ============
Weighted-average interest rate 3.77% 3.76%
Under the terms of a collateral agreement with the FHLB, advances are secured by
stock in the FHLB and by certain qualifying assets (primarily mortgage-backed
securities) having market values at least equal to 110% of the advances
outstanding. After the initial call date, each callable advance is callable by
the FHLB quarterly from the initial call date.
In February 2002, the Company completed its issuance of trust capital securities
("capital securities") that raised $25,000,000 ($24,062,500 net proceeds after
issuance costs). The 8.375 percent capital securities, due March 31, 2032, were
issued by Sterling Bancorp Trust I ("Trust"), a wholly-owned non-consolidated
statutory business trust. The Trust was formed with initial capitalization of
common stock and for the exclusive purpose of issuing the capital securities.
The Trust used the proceeds from the issuance of the capital securities to
acquire $25,774,000 junior subordinated debt securities that pay interest at
8.375 percent
STERLING BANCORP . 32
Exhibit 13
("debt securities") issued by the parent company. The debt securities are due
concurrently with the capital securities which may not be redeemed, except under
limited circumstances until March 31, 2007, and thereafter at a price equal to
their principal amount plus interest accrued to the date of redemption. The
Company may also reduce outstanding capital securities through open market
purchases. Dividends and interest are paid quarterly.
Capital securities qualify as Tier 1 or core capital for the Company under the
Federal Reserve Board's risk-based capital guidelines to the extent such capital
securities equal 25 percent or less of Tier 1 Capital. The Company is permitted
to deduct interest payments on the capital securities under Federal tax law.
If the Company is in default under the capital or debt securities it is
prohibited from repurchasing or making distributions, including dividends, on or
with respect to its common or preferred stock and from making payments on any
debt or guarantee which ranks pari passu or junior to such securities.
NOTE 11.
PREFERRED STOCK
The parent company is authorized to issue up to 644,389 shares of convertible
preferred stock, $5 par value, in one or more series. The following table
presents information regarding the parent company's preferred stock:
December 31, 2003 2002
- ------------ ----------- -----------
Series D shares. Authorized 300,000 shares; issued and
outstanding--224,432 and 232,206 shares, respectively,
at liquidation value $ 2,244,320 $ 2,322,060
Series D shares may only be issued to the trustee acting on behalf of an
Employee Stock Ownership Plan ("ESOP") or other employee benefit plan of the
Company. Each Series D share is convertible as of December 31, 2003 into 1.9084
common shares of the parent company. During 1993, the parent company issued
250,000 shares to the trustee of the Company's ESOP. These shares are entitled
to receive cash dividends in the amount of $.6125 per annum (subject to
adjustment), payable quarterly. Participants in the Company's ESOP are entitled
to vote in accordance with the terms of the ESOP and vote together as one class
with the holders of the common shares. The holders of these shares are entitled
to receive $10 per share and certain other preferences on liquidation,
dissolution or winding up. During 2003 and 2002, 7,774 shares and 2,400 shares,
respectively, were converted into common shares. See Note 16 for a discussion of
the Company's ESOP.
NOTE 12.
COMMON STOCK
December 31, 2003 2002
- ------------- ---------- ----------
Number of shares reserved for issuance upon
conversion of Series D preferred shares 428,306 354,509
========== ==========
Number of shares outstanding 14,937,962 14,845,944
========== ==========
Number of shareholders 1,742 1,774
========== ==========
STERLING BANCORP . 33
Exhibit 13
NOTE 13.
OTHER COMPREHENSIVE INCOME
The following table presents the components of accumulated other comprehensive
(loss) income as of December 31, 2003 and 2002 included in shareholders' equity:
Pre-tax Tax After-tax
Amount Effect Amount
----------- ----------- -----------
December 31, 2003
Net unrealized gain on securities available for sale $ 3,837,728 $(1,761,517) $ 2,076,211
Minimum pension liability (5,643,241) 2,590,248 (3,052,993)
----------- ----------- -----------
Total $(1,805,513) $ 828,731 $ (976,782)
=========== =========== ===========
December 31, 2002
Net unrealized loss on securities available for sale $ 6,656,728 $(3,055,440) $ 3,601,288
Minimum pension liability (4,197,872) 1,926,823 (2,271,049)
----------- ----------- -----------
Total $ 2,458,856 $(1,128,617) $ 1,330,239
=========== =========== ===========
NOTE 14.
RESTRICTIONS ON THE BANK
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 in any year without the approval of the
Comptroller of the Currency to an amount not to exceed the net profits (as
defined) for that year to date combined with its retained net profits for the
preceding two calendar years. In addition, from time to time dividends are paid
to the parent company by the finance subsidiaries from their retained earnings
without regulatory restrictions.
NOTE 15.
STOCK INCENTIVE PLAN
In April 1992, shareholders approved a Stock Incentive Plan ("the plan")
covering up to 100,000 common shares of the parent company. Under the plan, key
employees of the parent company and its subsidiaries could be granted awards in
the form of incentive stock options ("ISOs"), non-qualified stock options
("NQSOs"), stock appreciation rights ("SARs"), restricted stock or a combination
of these. The plan is administered by committees of the Board of Directors.
Since the inception of the plan, shareholders have approved amendments
increasing the number of shares covered under the plan; the total number of
shares authorized by shareholders through December 31, 2003 was 2,650,000. The
plan provides for proportional adjustment to the number of shares covered by the
plan and by outstanding awards, and in the exercise price of outstanding stock
options, to reflect, among other things, stock splits and stock dividends. After
giving effect to stock option and restricted stock awards granted and the effect
of the five-for-four stock split effected September 10, 2003, the 20% stock
dividend paid in December 2002, the 10% stock dividends paid in December 2001
and December 2000, and the 5% stock dividend paid in December 1999, shares
available for grant were 669,971, 711,299 and 593,368 at December 31, 2003, 2002
and 2001, respectively.
STERLING BANCORP . 34
Exhibit 13
Stock Options
The following tables present information on the qualified and non-qualified
stock options outstanding (after the effect of the five-for-four stock split
effected September 10, 2003, the 20% stock dividend paid in December 2002, the
10% stock dividends paid in December 2001 and December 2000 and the 5% stock
dividend paid in December 1999) as of December 31, 2003, 2002 and 2001 and
changes during the years then ended:
2003 2002 2001
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Qualified Stock Options Options Price Options Price Options Price
- ----------------------- --------- --------- --------- --------- --------- ---------
Outstanding at beginning of year 793,104 $ 12.46 943,036 $ 9.73 1,367,237 $ 8.88
Granted -- -- 222,441 18.38 44,400 13.34
Exercised (112,288) 12.46 (363,623) 8.85 (447,241) 7.38
Forfeited -- -- (8,750) 18.38 (21,360) 11.94
--------- --------- ---------
Outstanding at end of year 680,816 12.46 793,104 12.46 943,036 9.73
========= ========= ========= ========= ========= =========
Options exercisable at end of year 287,402 201,491 467,915
========= ========= =========
Weighted-average fair value of
options granted during the year $ -- $ 3.66 $ 3.01
========= ========= =========
2003 2002 2001
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Non-Qualified Stock Options Options Price Options Price Options Price
- --------------------------- --------- --------- --------- --------- --------- ---------
Outstanding at beginning of year 1,096,818 $ 12.74 1,083,119 $ 11.41 1,111,592 $ 10.73
Granted 51,660 22.96 144,596 20.32 78,771 18.13
Exercised (43,083) 13.47 (105,486) 9.29 (99,622) 8.83
Forfeited -- -- (25,411) 13.54 (7,622) 14.18
--------- --------- ---------
Outstanding at end of year 1,105,395 13.19 1,096,818 12.74 1,083,119 11.41
========= ========= ========= ========= ========= =========
Options exercisable at end of year 914,161 781,121 890,598
========= ========= =========
Weighted-average fair value of
options granted during the year $ 3.75 $ 4.74 $ 3.86
========= ========= =========
The following table presents information regarding qualified and non-qualified
stock options outstanding at December 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/03 Life Price 12/31/03 Price
------------ ----------- ----------- --------- ----------- ---------
Qualified $ 8.14-18.38 680,816 5.92 years $ 12.46 287,402 $ 13.12
Non-Qualified 6.56-23.81 1,105,395 4.46 years 13.19 914,161 12.10
Other than director NQSOs which expire five years from the date of the grant and
become exercisable in four annual installments, starting one year from the date
of the grant, or upon the death or disability of the grantee, stock options
generally expire ten years from the date of grant or, to the extent appropriate
to qualify to the maximum extent possible as ISOs vest in installments, subject
to earlier exercisability upon the death or disability of the grantee or other
specified events. Amounts received upon exercise of options are recorded as
common stock and capital surplus.
STERLING BANCORP . 35
Exhibit 13
The Company follows the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." The statement encourages, but does not require companies to use a
fair value-based method of accounting for stock-based employee compensation
plans, including stock options and stock appreciation rights. Under this method,
compensation expense is measured as of the date the awards are granted based on
the estimated fair value of the awards, and the expense is generally recognized
over the vesting period. If a company elects to continue using the intrinsic
value-based method under APB Opinion No. 25, pro forma disclosures of net income
and net income per share are required as if the fair value-based method had been
applied. Under the intrinsic method, compensation expense is the excess, if any,
of the market price of the stock as of the grant date over the amount employees
must pay to acquire the stock or over the price established for determining
appreciation. Under the Company's current compensation policies, there is no
such excess on the date of grant and therefore, no compensation expense is
recorded.
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option-pricing model with the following assumptions:
2003 2002 2001
--------- --------- --------
Dividend yield 2.53% 2.95% 2.56%
Volatility 25% 25% 25%
Expected term
Qualified N/A 4 years 4 years
Non-Qualified (Directors) 4 years 4 years 4 years
Non-Qualified (Officers) N/A 8 years N/A
Risk-free interest rate 2.79% 4.66% 5.15%
The Company has elected to continue to apply APB Opinion No. 25 and related
interpretations in accounting for its stock incentive plan. Accordingly, no
compensation expense related to the plan has been recognized in the consolidated
statements of income. Had compensation expense been determined based on the
estimated fair value of the awards at the grant dates, the Company's net income
and earnings per share would have been reduced to the pro forma amounts as shown
in Note 1 on page 25.
Restricted Stock
On February 11, 2000, 92,500 shares of restricted stock were awarded from
Treasury shares. The fair value was $15.8125 per share. These awards vest to
recipients over a four-year period at the rate of 25% per year; the initial
awards vested on February 11, 2000.
On February 6, 2002, 60,000 shares of restricted stock were awarded from
Treasury shares. The fair value was $27.56 per share. These awards vest to
recipients over a four-year period at the rate of 25% per year.
The plan calls for the forfeiture of non-vested shares which are restored to the
Treasury and become available for future awards. During 2002, 2001 and 2000,
there were no shares forfeited. Unearned compensation resulting from these
awards is amortized as a charge to compensation expense over a four-year period;
such charges were $742,680, $714,032 and $398,904 in 2003, 2002 and 2001,
respectively. The balance of unearned compensation is shown as a reduction of
shareholders' equity. For income tax purposes, the Company is entitled to a
deduction in an amount equal to the average market value of the shares on
vesting date and dividends paid on shares for which restrictions have not
lapsed.
STERLING BANCORP . 36
Exhibit 13
NOTE 16.
EMPLOYEE STOCK OWNERSHIP PLAN
On March 5, 1993, the Company established an Employee Stock Ownership Plan
("ESOP"). This plan covers substantially all employees with one or more years of
service of at least 1,000 hours who are at least 21 years of age. During 1993,
the parent company issued 250,000 shares of Series D preferred stock at a price
of $10.00 per share to the Company's ESOP trust. The trust borrowed $2,500,000
from the bank, to pay for the shares. The ESOP loan is at a fixed interest rate
for a term of ten years with quarterly payments of interest. Quarterly principal
payments at an annual rate of $250,000 and $350,000 commenced on March 31, 1996
and March 31, 1999, respectively. The bank match-funded the ESOP loan with
collateralized advances from the Federal Home Loan Bank of New York. The ESOP
shares, pledged as collateral for the ESOP loan, are held in a suspense account
and released for allocation among the participants as principal and interest on
the ESOP loan is repaid. Under the terms of the ESOP, participants may vote both
allocated and unallocated shares.
The Company makes quarterly contributions to the ESOP equal to the debt service
on the ESOP loan less dividends paid on the ESOP shares. All dividends paid are
used for debt service. ESOP shares released from the suspense account are
allocated among the participants on the basis of salary in the year of
allocation. The Company accounts for its ESOP in accordance with Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the Company initially recorded a deduction from shareholders'
equity equal to the purchase price of the shares reflecting such amount as
unearned compensation. The consolidated balance sheets report as unearned
compensation the remaining shares pledged as collateral. The unearned
compensation is reduced as payments are made on the loan and, as shares are
released from the suspense account, the Company recognizes compensation expense
equal to the current market price of the common shares into which the preferred
shares are convertible, and the shares become outstanding for earnings per share
computations. Dividends on unallocated ESOP shares are recorded as a reduction
of accrued interest payable; dividends on allocated ESOP shares are recorded as
a reduction of retained earnings.
Compensation expense was $236,270, $253,440 and $270,590 for 2003, 2002 and
2001, respectively, with a corresponding reduction in unearned compensation. As
of December 31, 2003, 226,373 shares had been allocated and 23,627 shares had
been released for allocation; there were no unreleased shares ("unallocated").
There were no contributions made by the Company during the years ended December
31, 2003, 2002 or 2001. The following table presents interest paid on the ESOP
loan and dividends paid on the Series D preferred shares:
Years Ended December 31, 2003 2002 2001
- ------------------------ --------- --------- --------
Interest paid $ 16,224 $ 42,984 $ 69,672
Dividends paid 139,491 142,695 144,464
NOTE 17.
EMPLOYEE BENEFIT PLAN
The Company has a noncontributory defined benefit pension plan that covers the
majority of employees with one or more years of service of at least 1,000 hours
who are at least 21 years of age. The benefits are based upon years of credited
service, primary social security benefits and a participant's highest average
compensation as defined. The funding requirements for the plan are determined
annually based upon the amount needed to satisfy the Employee Retirement Income
Security Act of 1974 funding standards. The Company also has a supplemental
non-qualified, non-funded retirement plan which is designed to supplement the
pension plan for key officers.
STERLING BANCORP . 37
Exhibit 13
The following tables set forth the disclosures required for pension benefits:
At or For the Years Ended December 31, 2003 2002
- -------------------------------------- ------------ ------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year (PBO) $ 27,593,693 $ 23,036,384
Service cost 1,304,504 1,189,407
Interest cost 2,038,372 1,883,524
Amendments 191,925 241,330
Actuarial loss 4,100,731 3,811,324
Benefits paid (1,483,371) (2,568,276)
------------ ------------
Benefit obligation at end of year $ 33,745,854 $ 27,593,693
============ ============
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year $ 16,837,701 $ 17,840,545
Actual return on plan assets 1,986,812 (761,931)
Employer contributions 2,300,000 2,327,363
Benefits paid (1,483,371) (2,568,276)
------------ ------------
Fair value of assets at end of year $ 19,641,142 $ 16,837,701
============ ============
Funded status $(14,104,712) $(10,755,992)
Unrecognized prior service cost 647,756 533,154
Unrecognized net actuarial loss 12,203,248 9,422,918
------------ ------------
Net amount recognized $ (1,253,708) $ (799,920)
============ ============
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost $ 4,541,420 $ 3,187,963
Accrued benefit liability (11,438,369) (8,185,755)
Accumulated other comprehensive loss (pre-tax) 5,643,241 4,197,872
------------ ------------
Net amount recognized $ (1,253,708) $ (799,920)
============ ============
Rate of Compen-
Discount Rate sation Increase
------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE THE BENEFIT OBLIGATION:
Defined benefit pension plan 6.25% 6.75% 3.00% 3.00%
Supplemental retirement plan 6.25 6.75 3.00 3.00
STERLING BANCORP . 38
Exhibit 13
Years Ended December 31, 2003 2002 2001
- ------------------------ ----------- ----------- -----------
COMPONENTS OF NET PERIODIC COST
Service cost $ 1,304,504 $ 1,189,407 $ 1,029,986
Interest cost 2,038,372 1,883,524 1,536,199
Expected return on plan assets (1,577,285) (1,720,188) (1,675,485)
Amortization of prior service cost 77,323 38,045 63,932
Recognized actuarial loss 910,874 470,095 262,512
----------- ----------- -----------
Net periodic benefit cost $ 2,753,788 $ 1,860,883 $ 1,217,144
=========== =========== ===========
Expected Return Rate of Compen-
Discount Rate on Plan Assets sation Increase
------------- ------------- ---------------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC COST:
Defined benefit pension plan 6.75% 7.25% 9.25% 9.75% 3.00% 4.00%
Supplemental retirement plan 6.75 7.25 N/A N/A 3.00 4.00
To determine the expected return on plan assets, we consider historical return
information on plan assets, the mix of investments that comprise plan assets and
the actual income derived from plan assets.
The accumulated benefit obligation for the defined benefit pension plan at
December 31, 2003 and 2002 was $18,099,716 and $15,662,986, respectively.
The tables presented on the previous page and above include the supplemental
retirement plan which is an unfunded plan. The following information is
presented regarding the supplemental retirement plan:
December 31, 2003 2002
- ------------ ----------- ----------
Projected benefit obligation $12,924,800 $9,611,312
Accumulated benefit obligation 12,365,096 9,336,897
The following table sets forth information regarding the assets of the
defined benefit pension plan:
December 31, 2003 2002
- ------------ ---- ----
U.S. government corporation and agency debt obligation 30% 41%
Corporate debt obligation 23 23
Common equity securities 40 30
Other 7 6
---- ----
Total 100% 100%
==== ====
The defined benefit pension plan owns common stock of Sterling Bancorp
which is included in common equity securities above. At December 31, 2003, the
value of Sterling Bancorp common stock was $1,562,598 and represented 8% of plan
assets. At December 31, 2002, the value of Sterling Bancorp common stock was
$1,154,474 and represented 7% of plan assets.
The overall strategy of the Pension Plan Investment Policy is to have a diverse
portfolio that reasonably spans established risk/return levels and preserves
liquidity. The strategy allows for a moderate risk approach in order to achieve
greater long-term asset growth. The asset mix can vary but is targeted at 50%
equity securities, inclusive of up to 10% in Sterling Bancorp common stock, 25%
in corporate obligations and 25% in federal and agency obligations. The money
market position will vary but will generally be held under 5%. The Plan's
allocation to common stock, excluding shares of Sterling Bancorp, will represent
investment in those companies from time to time comprising the growth and value
Model Portfolio as advised by the trustee's investment advisor.
The Company expects to contribute approximately $2,000,000 to the defined
benefit pension plan in 2004.
STERLING BANCORP . 39
Exhibit 13
NOTE 18.
INCOME TAXES
The current and deferred tax provisions (benefits) for each of the last three
fiscal years are as follows:
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------ ------------ ------------
FEDERAL
Current $ 12,247,533 $ 10,815,018 $ 8,962,569
Deferred (342,515) (231,947) 1,011,960
------------ ------------ ------------
Total $ 11,905,018 $ 10,583,071 $ 9,974,529
============ ============ ============
STATE AND LOCAL
Current $ 2,803,220 $ 1,969,041 $ 1,752,560
Deferred (14,799) (252,264) 961,831
------------ ------------ ------------
Total $ 2,788,421 $ 1,716,777 $ 2,714,391
============ ============ ============
TOTAL
Current $ 15,050,753 $ 12,784,059 $ 10,715,129
Deferred (357,314) (484,211) 1,973,791
------------ ------------ ------------
Total $ 14,693,439 $ 12,299,848 $ 12,688,920
============ ============ ============
Reconciliations of income tax provisions with taxes computed at Federal
statutory rates are as follows:
Years Ended December 31, 2003 2002 2001
- ------------------------ ----------- ----------- -----------
Federal statutory rate 35% 35% 35%
----------- ----------- -----------
Computed tax $13,613,983 $11,927,151 $11,226,764
Increase in tax resulting from:
Principally state and local taxes,
net of Federal income tax benefit 1,079,456 372,697 1,462,156
----------- ----------- -----------
Total $14,693,439 $12,299,848 $12,688,920
=========== =========== ===========
The components of the net deferred tax asset, included in other assets, are
as follows:
December 31, 2003 2002
- ----------- ----------- -----------
Deferred tax assets
Difference between financial statement provision
for loan losses and tax bad debt deduction $ 5,060,633 $ 4,742,254
Deferred compensation 2,743,207 1,860,131
Other 847,870 794,521
----------- -----------
Total deferred tax assets 8,651,710 7,396,906
----------- -----------
Deferred tax liabilities
Pension and benefit plans 2,111,306 1,447,614
Other 1,298,422 1,064,624
----------- -----------
Total deferred tax liabilities 3,409,728 2,512,238
----------- -----------
Net deferred tax asset 5,241,982 4,884,668
SFAS No. 115 deferred tax liability (1,761,517) (3,055,440)
Minimum pension liability adjustment 2,590,248 1,926,823
----------- -----------
Total net deferred tax asset $ 6,070,713 $ 3,756,051
=========== ===========
Management believes, based upon current facts, that more likely than not there
will be sufficient taxable income in future years to realize the deferred tax
assets. However, there can be no assurance about the level of future earnings.
STERLING BANCORP . 40
Exhibit 13
NOTE 19.
EARNINGS PER SHARE
Basic EPS is computed by dividing net income less dividends on allocated Series
D convertible preferred shares held on behalf of the Employee Stock Ownership
Plan ("basic net income"), by the weighted-average common shares outstanding
during the year.
Diluted EPS is computed by dividing basic net income by the weighted-average
common shares and common equivalent shares outstanding during the year. The
common equivalent shares outstanding include the weighted-average number of
Series D convertible preferred shares (held on behalf of the Employee Stock
Ownership Plan) and the dilutive effect of unexercised stock options using the
treasury stock method. When applying the treasury stock method, the average
price of the Company's common stock is utilized.
The following table provides a reconciliation of basic and diluted EPS as
required by SFAS No. 128:
For the Year Ended 12/31/03 For the Year Ended 12/31/02 For the Year Ended 12/31/01
----------------------------------- ----------------------------------- -----------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ --------- ----------- ------------- --------- ----------- ------------- ---------
BASIC EPS
Net income $24,203,654 $21,777,726 $19,387,548
Less preferred
dividends 124,885 112,685 97,896
----------- ----------- -----------
Net income available
for common shareholders 24,078,769 14,883,440 $ 1.62 21,665,041 14,947,313 $ 1.45 19,289,652 15,089,720 $ 1.28
========= ========= =========
DILUTED EPS
Options[1] 646,247 617,009 531,434
Convertible preferred
stock 228,371 233,202 236,198
----------- ------------ ----------- ------------- ----------- -------------
Net income available
for common
shareholders plus
assumed conversions $24,078,769 15,758,058 $ 1.53 $21,665,041 15,797,524 $ 1.37 $19,289,652 15,857,352 $ 1.22
=========== ============ ========= =========== ============= ========= =========== ============= =========
[1] Options issued with exercise prices greater than the average market price
of the common shares for each of the years ended December 31, 2003, 2002
and 2001 have not been included in computation of diluted EPS for those
respective years. As of December 31, 2003, there were no options excluded;
as of December 31, 2002, 45,732 options to purchase shares at a price of
$23.81 were not included; as of December 31, 2001, 78,764 options to
purchase shares at prices between $17.26 and $18.56 were not included.
NOTE 20.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Company to disclose the "fair value" of certain financial instruments for
which it is practical to estimate "fair value."
Much of the information used to arrive at "fair value" is highly subjective and
judgmental in nature and therefore the results may not be precise. The
subjective factors include, among other things, estimated cash flows, risk
characteristics, credit quality and interest rates, all of which are subject to
change. With the exception of investment securities and long-term debt, the
Company's financial instruments are not readily marketable and market prices do
not exist. Since negotiated prices for the instruments that are not readily
marketable depend greatly on the motivation of the buyer and seller, the amounts
that will actually be realized or paid per settlement or maturity of these
instruments could be significantly different.
STERLING BANCORP . 41
Exhibit 13
The following disclosures represent the Company's best estimate of the "fair
value" of financial instruments.
Financial Instruments with Carrying Amount Equal to Fair Value
The carrying amount of cash and due from banks, interest- bearing deposits
with other banks, Federal funds sold, investment securities available for sale,
loans held for sale, customers' liabilities under acceptances, accrued interest
receivable, Federal funds purchased and securities sold under agreements to
repurchase, commercial paper, other short-term borrowings, acceptances
outstanding, and other liabilities and accrued expenses, as a result of their
short-term nature, is considered to be equal to fair value.
Investment Securities
For investment securities, fair value has been based upon current market
quotations, where available. If quoted market prices are not available, fair
value has been estimated based upon the quoted price of similar instruments.
Loans Held in Portfolio
The fair value of loans held in portfolio which reprice within 90 days
reflecting changes in the base rate is equal to their carrying amount. For other
loans held in portfolio, the estimated fair value is calculated based on
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality and for similar
maturities. These calculations have been adjusted for credit risk based on the
Company's historical credit loss experience.
The estimated fair value for secured nonaccrual loans is the value of the
underlying collateral which is sufficient to repay each loan. For other
nonaccrual loans, the estimated fair value represents book value less a credit
risk adjustment based on the Company's historical credit loss experience.
Deposits
SFAS No. 107 requires that the fair value of demand, savings, NOW (negotiable
order of withdrawal) and certain money market deposits be equal to their
carrying amount. The Company believes that the fair value of these deposits is
clearly greater than that prescribed by SFAS No. 107.
For other types of deposits with fixed maturities, fair value has been estimated
based upon interest rates currently being offered on deposits with similar
characteristics and maturities.
Long-Term Debt
For long-term borrowings, the estimated fair value is calculated based on
discounted cash flow analyses, using interest rates currently being quoted for
similar characteristics and maturities.
Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
The notional amount of commitments to extend credit, standby letters of credit,
and financial guarantees, is considered equal to fair value. Due to the
uncertainty involved in attempting to assess the likelihood and timing of a
commitment being drawn upon, coupled with lack of an established market and the
wide diversity of fee structures, the Company does not believe it is meaningful
to provide an estimate of fair value that differs from the notional value of the
commitment.
STERLING BANCORP . 42
Exhibit 13
The following is a summary of the carrying amounts and estimated fair values of
the Company's financial assets and liabilities:
December 31, 2003 2002
- ------------ ----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
FINANCIAL ASSETS
Cash and due from banks $ 63,947,722 $ 63,947,722 $ 58,173,569 $ 58,173,569
Interest-bearing deposits with other banks 1,656,338 1,656,338 2,872,710 2,872,710
Federal funds sold -- -- 5,000,000 5,000,000
Investment securities 683,118,074 687,705,326 588,774,420 601,518,774
Loans held for sale 40,556,380 40,567,380 54,684,987 54,856,055
Loans held in portfolio, net 886,097,264 886,875,247 777,765,750 778,393,886
Customers' liability under acceptances 953,571 953,571 1,545,335 1,545,335
Accrued interest receivable 5,069,423 5,069,423 4,881,937 4,881,937
FINANCIAL LIABILITIES
Demand, NOW, savings and money market deposits 815,505,710 815,505,710 701,461,649 701,461,649
Time deposits 396,235,110 397,980,110 345,631,459 348,697,064
Securities sold under agreements to repurchase 93,818,806 93,818,806 100,925,635 100,925,635
Federal funds purchased 10,000,000 10,000,000 -- --
Commercial paper 28,799,055 28,799,055 29,318,920 29,318,920
Other short-term borrowings 56,871,359 56,871,359 37,030,404 37,030,404
Acceptances outstanding 953,571 953,571 1,545,335 1,545,335
Accrued expenses and other liabilities 77,602,877 77,602,877 75,467,099 75,467,099
Long-term borrowings 135,774,000 142,494,000 140,774,000 142,360,518
NOTE 21.
CAPITAL MATTERS
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). In
addition, the bank is subject to the provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") which imposes a number of
mandatory supervisory measures. Among other matters, FDICIA established five
capital categories ranging from "well capitalized" to "critically under
capitalized." Such classifications are used by regulatory agencies to determine
a bank's deposit insurance premium, approval of applications authorizing
institutions to increase their asset size or otherwise expand business
activities or acquire other institutions. Under 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 December 31, 2003, the Company and the
bank exceeded the requirements for "well capitalized" institutions.
STERLING BANCORP . 43
Exhibit 13
The following tables present information regarding the Company's and the bank's
regulatory capital ratios:
For Capital To Be Well
Actual Adequacy Minimum Capitalized
----------------- ---------------- -------------------
As of December 31, 2003 Amount Ratio Amount Ratio Amount Ratio
- ----------------------- --------- ----- -------- ----- ---------- ------
(dollars in thousands)
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
As of December 31, 2002
- ----------------------- --------- ----- -------- ----- ---------- ------
Total Capital (to Risk-Weighted Assets):
The Company $ 144,054 15.34% $ 75,134 8.00% $ 93,917 10.00%
The bank 105,265 11.76 71,632 8.00 89,540 10.00
Tier 1 Capital (to Risk-Weighted Assets):
The Company 132,292 14.09 37,567 4.00 56,350 6.00
The bank 94,059 10.50 35,816 4.00 53,724 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 132,292 8.95 59,153 4.00 73,942 5.00
The bank 94,059 6.55 57,437 4.00 71,796 5.00
NOTE 22.
SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way information about operating
segments is reported in annual financial statements and establishes standards
for related disclosures about an enterprise's products and services, geographic
areas, and major customers.
The Company provides a broad range of financial products and services, including
commercial loans, commercial and residential mortgage lending and brokerage,
asset-based financing, factoring/accounts receivable management services, trade
financing, equipment leasing, corporate and consumer deposit services, trust and
estate administration and investment management services. The Company's primary
source of earnings is net interest income, which represents the difference
between interest earned on interest-earning assets and the interest incurred on
interest-bearing liabilities. The Company's 2003 average interest-earning assets
were 58.7% loans (corporate lending was 71.7% and real estate lending was 25.5%
of total loans, respectively) and 40.6% investment securities and money market
investments. There were no industry concentrations (exceeding 10% of loans,
gross, in the corporate loan portfolio). Approximately 71% 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.
STERLING BANCORP . 44
Exhibit 13
The following table provides certain information regarding the Company's
operating segments:
Corporate Real Estate Company-wide
Lending Lending Treasury Totals
------------- ------------- ------------- ----------------
Year Ended December 31, 2003
- ----------------------------
Net interest income $ 34,506,033 $ 16,365,324 $ 21,408,591 $ 72,279,948
Noninterest income 12,468,121 14,944,227 1,684,023 29,096,371
Depreciation and amortization 232,527 317,086 -- 549,613
Segment profit 17,665,754 15,718,397 25,371,959 58,756,110
Segment assets 723,570,456 209,425,056 790,196,318 1,723,191,830
Year Ended December 31, 2002
- ----------------------------
Net interest income 30,021,774 13,621,274 27,761,630 71,404,678
Noninterest income 12,787,107 10,298,873 2,382,211 25,468,191
Depreciation and amortization 196,049 205,109 -- 401,158
Segment profit 16,071,240 10,951,445 31,974,728 58,997,413
Segment assets 639,918,714 193,458,081 701,023,924 1,534,400,719
Year Ended December 31, 2001
- ----------------------------
Net interest income 30,221,675 13,951,769 22,957,894 67,131,338
Noninterest income 12,895,216 7,738,035 111,864 20,745,115
Depreciation and amortization 194,534 214,834 342 409,710
Segment profit 18,090,982 11,211,097 25,918,865 55,220,944
Segment assets 620,904,495 164,138,675 673,851,376 1,458,894,548
The following table sets forth reconciliations of net interest income,
noninterest income, profits and assets for reportable operating segments to the
Company's consolidated totals:
Years Ended December 31, 2003 2002 2001
- ------------------------ --------------- --------------- ---------------
Net interest income:
Total for reportable operating segments $ 72,279,948 $ 71,404,678 $ 67,131,338
Other[1] 1,711,689 1,582,637 1,918,218
--------------- --------------- ---------------
Consolidated net interest income $ 73,991,637 $ 72,987,315 $ 69,049,556
=============== =============== ===============
Noninterest income:
Total for reportable operating segments $ 29,096,371 $ 25,468,191 $ 20,745,115
Other[1] 3,459,593 3,787,571 3,378,346
--------------- --------------- ---------------
Consolidated noninterest income $ 32,555,964 $ 29,255,762 $ 24,123,461
=============== =============== ===============
Profit:
Total for reportable operating segments $ 58,756,110 $ 58,997,413 $ 55,220,944
Other[1] (19,859,017) (24,919,839) (23,144,476)
--------------- --------------- ---------------
Consolidated income before income taxes $ 38,897,093 $ 34,077,574 $ 32,076,468
=============== =============== ===============
Assets:
Total for reportable operating segments $ 1,723,191,830 $ 1,534,400,719 $ 1,458,894,546
Other[1] 35,553,750 27,549,222 23,976,425
--------------- --------------- ---------------
Consolidated assets $ 1,758,745,580 $ 1,561,949,941 $ 1,482,870,971
=============== =============== ===============
[1] Represents operations not considered to be a reportable segment and/or
general operating expenses of the Company.
STERLING BANCORP . 45
Exhibit 13
NOTE 23.
PARENT COMPANY
CONDENSED BALANCE SHEETS
December 31, 2003 2002
- ------------ ------------- -------------
ASSETS
Cash and due from banks
Banking subsidiary $ 21,417,062 $ 2,867,568
Other banks 25,000 25,000
Interest-bearing deposits--banking subsidiary 7,531,623 24,666,727
Investment in subsidiaries
Banking subsidiary 133,309,725 118,809,258
Other subsidiaries 6,105,046 5,647,580
Due from subsidiaries
Banking subsidiary -- 1,239,158
Other subsidiaries 38,348,178 40,717,492
Other assets 5,481,057 2,404,768
------------- -------------
$ 212,217,691 $ 196,377,551
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper $ 28,799,055 $ 29,318,920
Other short-term borrowings -- 350,000
Due to subsidiaries
Banking subsidiary -- 660,570
Other subsidiaries 992,254 1,008,673
Accrued expenses and other liabilities 13,467,300 9,485,064
Junior subordinated debt (see Note 10) 25,774,000 25,774,000
Shareholders' equity 143,185,082 129,780,324
------------- -------------
$ 212,217,691 $ 196,377,551
============= =============
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------- ------------- -------------
INCOME
Dividends and interest from:
Banking subsidiary $ 10,063,062 $ 15,114,920 $ 10,326,789
Other subsidiaries 630,686 1,363,501 1,951,446
Other income 71,879 54,810 10,888
------------- ------------- -------------
Total income 10,765,627 16,533,231 12,289,123
------------- ------------- -------------
EXPENSE
Interest expense 2,409,339 2,415,805 1,563,539
Other expenses 2,313,581 2,677,101 3,249,473
------------- ------------- -------------
Total expense 4,722,920 5,092,906 4,813,012
------------- ------------- -------------
Income before income taxes and equity in
undistributed net income of subsidiaries 6,042,707 11,440,325 7,476,111
Benefit for income taxes (1,790,670) (1,639,592) (1,229,005)
------------- ------------- -------------
7,833,377 13,079,917 8,705,116
Equity in undistributed net income of:
Banking subsidiary 16,027,632 7,965,427 8,726,396
Other subsidiaries 342,645 732,382 1,956,036
------------- ------------- -------------
Net income $ 24,203,654 $ 21,777,726 $ 19,387,548
============= ============= =============
STERLING BANCORP . 46
Exhibit 13
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003 2002 2001
- ------------------------ ------------- ------------- -------------
OPERATING ACTIVITIES
Net income $ 24,203,654 $ 21,777,726 $ 19,387,548
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of unearned compensation 978,950 967,472 669,494
Increase in accrued expenses and other liabilities 3,982,236 1,867,332 286,915
(Decrease) Increase in due to subsidiaries, net (676,989) 16,206 (3,828)
Decrease (Increase) in due from subsidiaries, net 3,608,472 8,093,314 (16,498,746)
Equity in undistributed net income of subsidiaries (16,370,277) (8,697,809) (10,682,432)
Increase in other assets (3,072,433) (1,751,893) (33,722)
Other, net (1,769,421) (5,734,091) (1,489,461)
------------- ------------- -------------
Net cash provided by (used in) operating activities 10,884,192 16,538,257 (8,364,232)
------------- ------------- -------------
INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing
deposits--banking subsidiary 17,135,104 (23,230,889) 15,279,446
Capital contributed to subsidiaries (50,000) -- (1,000,000)
------------- ------------- -------------
Net cash provided by (used in) investing activities 17,085,104 (23,230,889) 14,279,446
------------- ------------- -------------
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper (519,865) (12,784,280) 16,448,180
Cash dividends paid on preferred and common shares (10,235,334) (7,684,367) (6,307,953)
Proceeds from exercise of stock options 1,973,762 4,198,859 4,179,512
Purchase of treasury shares (256,007) (15,501,195) (6,063,976)
Increase in junior subordinated debt -- 25,774,000 --
Decrease in other short-term borrowings (350,000) (350,000) (350,000)
Redemption of preferred stock -- -- (30,132)
Cash paid in lieu of fractional shares in connection
with stock dividend (32,358) (32,048) (23,335)
------------- ------------- -------------
Net cash (used in) provided by financing activities (9,419,802) (6,379,031) 7,852,296
------------- ------------- -------------
Net increase (decrease) in cash and due from banks 18,549,494 (13,071,663) 13,767,510
Cash and due from banks--beginning of year 2,892,568 15,964,231 2,196,721
------------- ------------- -------------
Cash and due from banks--end of year $ 21,442,062 $ 2,892,568 $ 15,964,231
============= ============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 2,415,336 $ 2,505,255 $ 1,565,418
Income taxes paid 12,006,594 12,805,357 11,955,000
The parent company was required to maintain a deposit with the bank in an amount
equal to the unpaid principal balance on the bank's loan to the trustee of the
Employee Stock Ownership Plan. There was no required deposit at December 31,
2003.
STERLING BANCORP . 47
Exhibit 13
NOTE 24.
COMMITMENTS AND CONTINGENT LIABILITIES
Total rental expenses under cancelable and noncancelable leases for premises and
equipment were $3,642,155, $3,647,916 and $3,406,021 for the years ended
December 31, 2003, 2002 and 2001, respectively.
The future minimum rental commitments as of December 31, 2003 under
noncancelable leases follow:
Rental
Year(s) Commitments
- ------- ------------
2004 $ 3,336,720
2005 3,175,184
2006 3,045,918
2007 3,085,635
2008 and thereafter 16,051,844
------------
Total $ 28,695,301
============
Certain leases included above have escalation clauses and/or provide that the
Company pay maintenance, electric, taxes and other operating expenses applicable
to the leased property.
In the normal course of business, there are various commitments and contingent
liabilities outstanding which are properly not recorded on the balance sheet.
Management does not anticipate that losses, if any, as a result of these
transactions would materially affect the financial position of the Company.
Loan commitments, substantially all of which have an original maturity of
one year or less, were approximately $86,876,000 as of December 31, 2003. These
commitments are agreements to lend to a customer as long as the conditions
established in the contract are met. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The total
commitment amounts do not necessarily represent future cash requirements because
some of the commitments are expected to expire without being drawn upon. The
bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary, by the bank upon extension
of credit is based on management's credit evaluation of the borrower. Collateral
held varies but may include cash, U.S. Treasury and other marketable securities,
accounts receivable, inventory and property, plant and equipment.
Standby letters of credit and financial guarantees, substantially all of which
are within the scope of FIN No. 45, are written conditional commitments issued
by the bank to guarantee the performance of a customer to a third party. At
December 31, 2003 these commitments totaled $31,373,253 of which $14,174,044
expire within one year, $17,173,049 within two years and $26,160 within three
years. Approximately 75% of the commitments are automatically renewable for a
period of one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The bank holds cash or cash equivalents and marketable securities as collateral
supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments at December 31, 2003 ranged from
0% to 100%; the average amount collateralized was approximately 97%.
In the normal course of business there are various legal proceedings pending
against the Company. Management, after consulting with counsel, is of the
opinion that there should be no material liability with respect to such
proceedings, and accordingly no provision has been made in the accompanying
consolidated financial statements.
STERLING BANCORP . 48
Exhibit 13
NOTE 25.
QUARTERLY DATA (UNAUDITED)
2003 Quarter Mar 31 Jun 30 Sept 30 Dec 31
- ------------ ------------ ------------ ------------ ------------
Total interest income $ 22,633,218 $ 23,095,455 $ 22,352,544 $ 23,501,259
Total interest expense 4,376,789 4,518,557 4,285,572 4,409,921
Net interest income 18,256,429 18,576,898 18,066,972 19,091,338
Provision for loan losses 1,791,300 2,172,500 2,172,500 2,604,100
Net securities gains 95,992 100,366 101,225 252,922
Noninterest income, excluding securities gains 7,358,305 8,014,934 8,634,048 7,998,172
Noninterest expenses 14,392,218 15,020,711 14,820,466 14,676,713
Income before income taxes 9,527,208 9,498,987 9,809,279 10,061,619
Net income 5,846,423 5,860,002 6,114,713 6,382,516
Earnings per average common share:
Basic .39 .39 .41 .43
Diluted .37 .37 .39 .40
Common stock closing price:
High 21.912 23.84 27.30 31.36
Low 19.376 19.528 22.112 27.53
Quarter--end 19.712 22.312 26.91 28.50
2002 Quarter Mar 31 Jun 30 Sept 30 Dec 31
- ------------ ------------ ------------ ------------ ------------
Total interest income $ 23,443,006 $ 23,558,731 $ 23,715,603 $ 23,479,627
Total interest expense 5,332,640 5,601,253 5,370,937 4,904,822
Net interest income 18,110,366 17,957,478 18,344,666 18,574,805
Provision for loan losses 1,679,300 4,600,000 2,153,100 2,338,500
Net securities gains -- 844,343 24,947 126,751
Noninterest income, excluding net securities gains 6,406,141 7,396,754 7,268,435 7,188,391
Noninterest expenses 14,043,916 14,708,846 14,383,643 14,258,198
Income before income taxes 8,793,291 6,889,729 9,101,305 9,293,249
Net income 5,266,301 5,230,609 5,544,692 5,736,124
Earnings per average common share:
Basic .35 .35 .37 .38
Diluted .33 .32 .36 .36
Common stock closing price:
High 21.3267 23.80 23.4467 21.60
Low 17.7733 20.4533 17.0333 17.3333
Quarter--end 21.267 23.80 17.687 21.056
STERLING BANCORP . 49
Exhibit 13
INDEPENDENT AUDITORS' REPORT
[LOGO OF KPMG]
The Shareholders and Board of Directors
Sterling Bancorp:
We have audited the accompanying consolidated balance sheets of Sterling
Bancorp as of December 31, 2003 and 2002, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2003 and the consolidated statements of condition of Sterling National Bank as
of December 31, 2003 and 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sterling Bancorp as
of December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2003 and the financial position of Sterling National Bank as of December 31,
2003 and 2002 in conformity with accounting principles generally accepted in the
United States of America.
[IMAGE APPEARS HERE]
New York, New York
February 25, 2004
STERLING BANCORP . 50
Exhibit 13
Sterling Bancorp
SELECTED FINANCIAL DATA
(dollars in thousands except per share data) 2003 2002 2001 2000 1999 1998
- -------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
SUMMARY OF OPERATIONS
Total interest income $ 91,583 $ 94,197 $ 95,866 $ 97,125 $ 79,245 $ 73,779
Total interest expense 17,591 21,210 26,816 34,242 25,783 24,341
Net interest income 73,992 72,987 69,050 62,883 53,462 49,438
Provision for loan losses 8,740 10,771 7,401 6,563 5,584 5,389
Net securities gains 551 996 -- -- -- 86
Noninterest income, excluding
net securities gains 32,005 28,260 24,123 22,373 17,944 16,362
Noninterest expenses 58,910 57,395 53,695 50,280 41,582 38,297
Income before taxes 38,897 34,078 32,077 28,413 24,240 22,200
Provision for income taxes 14,693 12,300 12,689 11,854 9,676 9,403
Net income 24,204 21,778 19,388 16,559 14,564 12,797
Per common share--basic 1.62 1.45 1.28 1.10 0.95 0.83
--diluted 1.53 1.37 1.22 1.07 0.93 0.80
Dividends per common share 0.68 0.56 0.50 0.43 0.37 0.32
YEAR END BALANCE SHEETS
Investment securities 683,118 588,774 576,028 433,797 457,402 329,806
Loans held for sale 40,557 54,685 48,603 12,516 13,231 22,210
Loans held in portfolio, net
of unearned discounts 900,556 791,315 760,084 738,372 675,865 617,996
Total assets 1,758,746 1,561,950 1,482,871 1,270,749 1,218,887 1,044,445
Noninterest-bearing deposits 474,092 401,568 356,303 341,039 291,808 329,020
Interest-bearing deposits 737,649 645,540 628,621 525,243 570,712 373,782
Long-term debt 135,774 140,774 95,350 10,700 21,050 41,400
Shareholders' equity 143,185 129,780 128,477 117,016 105,240 102,151
AVERAGE BALANCE SHEETS
Investment securities 593,005 589,390 468,861 453,237 379,872 336,690
Loans held for sale 71,779 37,459 30,906 19,830 20,989 22,769
Loans held in portfolio, net
of unearned discounts 785,575 708,656 674,310 615,150 535,641 489,942
Total assets 1,587,623 1,466,269 1,267,856 1,165,707 1,022,698 935,964
Noninterest-bearing deposits 370,554 315,757 292,918 258,347 237,324 224,780
Interest-bearing deposits 683,748 676,296 594,303 536,523 452,734 409,027
Long-term debt 139,870 140,153 47,055 12,046 37,275 35,240
Shareholders' equity 134,150 126,274 123,935 107,584 102,361 96,644
RATIOS
Return on average total assets 1.52% 1.49% 1.53% 1.42% 1.42% 1.37%
Return on average tangible
shareholders' equity 21.42 20.72 18.86 19.16 17.94 16.95
Return on average shareholders' equity 18.04 17.25 15.64 15.39 14.23 13.24
Dividend payout ratio 41.77 34.77 32.03 29.57 27.98 27.47
Average shareholders' equity to
average total assets 8.45 8.61 9.78 9.23 10.01 10.33
Net interest margin (tax-equivalent
basis) 5.33 5.74 6.23 6.13 5.97 6.12
Loans/assets, year end[1] 53.51 54.19 54.54 59.09 56.53 61.30
Net charge-offs/loans, year end[2] 0.85 1.39 0.79 0.68 0.68 0.63
Nonperforming loans/loans, year end[1] 0.36 0.21 0.22 0.27 0.21 0.19
Allowance/loans, year end[2] 1.61 1.71 1.85 1.72 1.64 1.64
[1] The term "loans" includes loans held for sale and loans held in portfolio.
[2] The term "loans" includes loans held in portfolio.
STERLING BANCORP . 51
Exhibit 13
Sterling Bancorp
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 selected
financial data contained elsewhere in this annual report. 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,
deposit services, trust and estate administration, and investment management
services. The Company has operations in the metropolitan New York area, as well
as North Carolina and other mid-Atlantic states, 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.
In 2003, the bank's average earning assets represented approximately 97% of the
Company's average earning assets. Loans represented 57% and investment
securities represented 42% of the bank's average earning assets in 2003.
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 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-earning 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 page
64. Information as to the components of interest income and interest expense and
average rates is provided in the Average Balance Sheets shown on page 63.
STERLING BANCORP . 52
Exhibit 13
COMPARISON OF YEARS 2003 AND 2002
The Company reported net income for the year ended December 31, 2003 of $24.2
million, representing $1.53 per share, calculated on a diluted basis, compared
to $21.8 million, or $1.37 per share, calculated on a diluted basis, for 2002.
This increase reflects continued growth in both net interest income and
noninterest income, which together with a lower provision for loan losses, more
than offset increases in noninterest expenses and the provision for income
taxes.
Net Interest Income
Net interest income, on a tax equivalent basis, increased $1.0 million to $75.0
million for 2003 from $74.0 million for 2002, due to higher average earning
assets outstanding coupled with lower average cost of funding partially offset
by a lower yield on earning assets. The net interest margin, on a tax-equivalent
basis, was 5.33% for 2003 compared to 5.74% for 2002. The decrease in the net
interest margin was primarily the result of the impact of the lower interest
rate environment in 2003, partially offset by the impact of an increase in
average loan outstandings.
Total interest income, on a tax equivalent basis, aggregated $92.5 million for
2003, down $2.7 million from $95.2 million for 2002. The tax-equivalent yield on
interest-earning assets was 6.58% in 2003 compared to 7.39% for 2002.
Interest earned on the loan portfolio amounted to $61.6 million for 2003, up
$3.7 million from a year ago. Average loan balances amounted to $857.3 million,
up $111.2 million from an average of $746.1 million in the prior year. 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 domestic loan portfolio to 7.68% for 2003 from 8.52% for 2002 was
primarily attributable to the mix of outstanding balances on average among the
components of the loan portfolio and lower interest rate environment in 2003.
Interest earned on the securities portfolio, on a tax-equivalent basis,
decreased to $30.8 million for 2003 from $37.0 million in the prior year.
Average outstandings increased to $593.0 million from $589.4 million in the
prior year. The average life of the securities portfolio was approximately 3.8
years at December 31, 2003 compared to 2.75 years at December 31, 2002,
reflecting the impact of purchases made in 2003 and of greater principal
prepayments, which increased to $383.1 million for 2003 from $232.9 million in
2002. The decrease in yields on most of the securities portfolio reflects the
impact of purchases made during the lower rate environment on average in 2003
and of greater principal prepayments during 2003.
Total interest expense decreased $3.6 million to $17.6 million for 2003 from
$21.2 million for 2002, primarily due to lower average rates paid partially
offset by higher average balances principally for customer and dealer repurchase
agreements and other short-term debt.
Interest expense on deposits decreased $3.6 million for 2003 to $8.8 million
from $12.4 million for 2002 due to the decrease in the cost of funds. Average
rate paid on interest-bearing deposits was 1.30% which was 54 basis points lower
than the prior year. The decrease in average cost of deposits reflects the lower
interest rate environment during 2003.
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 2003 decreased
to $8.7 million from $10.8 million for the prior year. The provision for 2002
was impacted by the charge-off of a $5.4 million loan to a corporate borrower
which had become the subject of an involuntary bankruptcy. Other factors
affecting the level of provision included the growth in the loan portfolios,
changes in general economic conditions and the amount of nonaccrual loans.
Noninterest Income
Noninterest income increased $3.3 million for 2003 when compared to 2002,
primarily due to increased income from mortgage banking, as a result of an
increase in residential loans sold to $709.6 million for 2003 from $490.6
million for 2002. Partially offsetting that increase were lower revenues from
factoring activities, from fees for various other services, from gains on sales
of available for sale securities, and from a bank owned life insurance program.
Noninterest Expenses
Noninterest expenses increased $1.5 million for 2003 when compared to 2002,
primarily due to increased salary expenses, pension costs, equipment, mortgage
tax, and various other expenses incurred to support growing levels of business
activity and continued investment in the business franchise. Partially
offsetting these increases were reductions in fees for professional services,
occupancy, advertising and marketing, stationery and printing and various other
expenses.
STERLING BANCORP . 53
Exhibit 13
Provision for Income Taxes
The provision for income taxes increased $2.4 million for 2003 when compared to
2002, principally as the result of higher pre-tax income in 2003. In addition,
during the second quarter of 2002, New York State completed an examination of
Sterling's tax returns through 1998 and issued a no change finding. As a result,
based on management's review of required tax reserves with outside
professionals, approximately $1.0 million in excess reserves was adjusted
through the provision that quarter.
COMPARISON OF YEARS 2002 AND 2001
The Company reported net income for the year ended December 31, 2002 of $21.8
million, representing $1.37 per share, calculated on a diluted basis, compared
to $19.4 million, or $1.22 per share, calculated on a diluted basis, for 2001.
This increase reflected continued growth in both net interest income and
noninterest income, which together with a lower provision for income taxes, more
than offset increases in noninterest expenses and the provision for loan losses.
Net Interest Income
Net interest income, on a tax-equivalent basis, increased $3.9 million to $74.0
million for 2002 compared with $70.1 million for the same period in 2001, due to
higher average earning assets outstanding coupled with lower average cost of
funding. The net interest margin, on a tax-equivalent basis, was 5.74% for 2002
compared to 6.23% for 2001. The decrease in the net interest margin was the
result of a higher proportion of earning assets funded with interest-bearing
liabilities and a decrease of 123 basis points in the average yield on earning
assets partially offset by a decrease of 122 basis points in the average cost of
funds.
Total interest income, on a tax-equivalent basis, aggregated $95.2 million for
2002, down $1.7 million from $96.9 million for 2001. The tax-equivalent yield on
interest-earning assets was 7.39% in 2002 compared to 8.62% in 2001.
Interest earned on the loan portfolio amounted to $57.9 million for 2002, down
$7.4 million from 2001. Average loan balances amounted to $746.1 million, up
$40.9 million from an average of $705.2 million in the prior year. The increase
in average loans was primarily in the leasing and real estate loan portfolios.
The decrease in the yield on the domestic loan portfolio to 8.52% for 2002 from
10.15% for 2001 was primarily attributable to the lower interest rate
environment in 2002.
Interest earned on the securities portfolio, on a tax-equivalent basis,
increased to $37.0 million for 2002 from $31.3 million in the prior year.
Average outstandings increased to $589.4 million which were up $120.5 million
from $468.9 million in the prior year. The increase in average securities
balances, the result of the implementation of asset/liability management
strategies designed to take advantage of the steepness of the yield curve
principally in the fourth quarter of 2001 and the first, second, and fourth
quarters of 2002, was primarily in mortgage-backed securities and collateralized
mortgage obligations of U.S. government corporations and agencies. The average
life of the securities portfolio was approximately 2.75 years at December 31,
2002, compared to 4.5 years at December 31, 2001 reflecting the impact of
purchases made and greater principal prepayments, principally during the last
four months of 2002. The decrease in yields on most of the securities portfolio
reflected the impact of the lower rate environment on average in 2002.
Total interest expense decreased $5.6 million to $21.2 million for 2002 from
$26.8 million for 2001. The decrease in interest expense was primarily due to
lower average rates paid partially offset by higher average balances principally
for domestic time deposits and long-term debt.
Interest expense on deposits decreased to $12.5 million for 2002 from $19.0
million for 2001 due to the decrease in the cost of funds partially offset by
higher average domestic time deposit balances. Average savings, NOW, and money
market deposits, which historically have represented a stable funding source,
were $302.8 million for 2002, compared to $311.1 million in the prior year.
Average time deposits increased $90.4 million to $373.5 million in 2002. The
growth in deposit balances was due to the economic and interest rate
environment, the branch opening in Great Neck, Long Island, and ongoing business
development activities, including cross-selling of these products to existing
customers. Average rate paid on interest-bearing deposits was 1.84% which was
136 basis points lower
STERLING BANCORP . 54
Exhibit 13
than the prior year. The decrease in average cost of deposits reflected the
lower interest rate environment during 2002.
Interest expense associated with borrowed funds increased $1.0 million for 2002
from $7.8 million in 2001 as a result of higher average long-term debt
outstandings partially offset by lower rates paid. Average amounts of long-term
debt outstanding were up $93.1 million to $140.2 million from $47.1 million in
the prior year. These borrowings were advances from the Federal Home Loan Bank
of New York, utilized in connection with the asset/liability management
strategies discussed above, and junior subordinated debentures issued by the
parent company (see Note 10 on page 32). The average cost of borrowings was
3.25% for 2002 compared to 4.31% in the prior year.
Provision for Loan Losses
Based on management's continuing evaluation of the loan portfolio (discussed
under "Asset Quality" below), and principally as the result of the charge-off of
one loan as well as the growth in the loan portfolios, the provision for loan
losses increased to $10.8 million for 2002 from $7.4 million for 2001. During
the second quarter of 2002, a $5.4 million loan to a corporate borrower which
had become the subject of an involuntary bankruptcy was charged off.
Noninterest Income
Noninterest income increased $5.1 million for 2002 when compared to 2001,
primarily as a result of increased income from mortgage banking and factoring
activities, from fees for various other services, from gains on sales of
available for sale securities, and from a bank owned life insurance program
implemented in January 2002.
Noninterest Expenses
Noninterest expenses increased $3.7 million for 2002 when compared to 2001,
primarily due to increased salary expenses, pension costs, occupancy, equipment,
advertising and marketing expenses, stationery and printing expenses, and
various other expenses incurred to support growing levels of business activity
and continued investment in the business franchise. Partially offsetting these
increases were reductions in fees for various professional services.
Provision for Income Taxes
The provision for income taxes decreased $0.4 million for 2002 when compared to
2001. During the second quarter of 2002, New York State completed an examination
of Sterling's tax returns through 1998 and issued a no change finding. As a
result, based on management's review of required tax reserves with outside
professionals, these reserves were reduced through the provision that quarter by
approximately $1.0 million.
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 December 31, 2003, the Company's
portfolio of securities totaled $683.1 million, of which U.S. government
corporation and agency guaranteed mortgage-backed securities and collateralized
mortgage obligations having an average life of approximately 3.7 years amounted
to $629.2 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 $6.1
million and $1.5 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 $5.2 million and gross unrealized losses of $1.4
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.
Information regarding book values and range of maturities by type of security
and weighted average yields for totals of each category is presented in Note 5
beginning on page 26.
STERLING BANCORP . 55
Exhibit 13
The following table sets forth the composition of the Company's investment
securities by type, with related carrying values at the end of each of the three
most recent fiscal years:
December 31, 2003 2002 2001
- ------------ ------------------ ------------------ ------------------
% of % of % of
Balances Total Balances Total Balances Total
--------- ------ --------- ------ --------- ------
(dollars in thousands)
U.S. Treasury securities $ 2,496 0.37% $ 2,495 0.42% $ 2,493 0.43%
Obligations of U.S. government corporations
and agencies
--mortgage-backed securities 513,321 75.14 387,173 65.76 440,135 76.41
--collateralized mortgage obligations 115,874 16.97 133,494 22.67 72,706 12.62
Obligations of states and political subdivisions 32,816 4.80 34,948 5.94 35,477 6.16
Trust preferred securities 3,654 0.53 3,445 0.59 -- --
Debt securities issued by foreign governments 1,250 0.18 1,500 0.25 1,500 0.26
Other debt securities 4,001 0.59 15,000 2.55 17,480 3.04
Federal Reserve Bank and other equity securities 9,706 1.42 10,719 1.82 6,237 1.08
--------- ------ --------- ------ --------- ------
Total $ 683,118 100.00% $ 588,774 100.00% $ 576,028 100.00%
========= ====== ========= ====== ========= ======
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
60% of all loans. Loans in this category are typically made to small and
medium-sized businesses and range between $250,000 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 21% 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 16% 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, net of unearned discounts, at the end of each
of the five most recent fiscal years:
December 31, 2003 2002 2001 2000 1999
- ------------ ----------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of
Balances Total Balances Total Balances Total Balances Total Balances Total
--------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(dollars in thousands)
Domestic
Commercial and industrial $ 563,799 59.91% $500,311 59.14% $519,557 64.25% $499,984 66.59% $462,400 67.10%
Lease financing 148,737 15.80 128,749 15.22 90,614 11.20 98,349 13.10 81,398 11.81
Real estate--mortgage 201,911 21.46 185,412 21.92 161,012 19.91 122,272 16.28 96,376 13.99
Real estate--construction 2,368 0.25 2,400 0.28 -- -- -- -- 4,958 0.72
Installment--individuals 14,298 1.52 9,128 1.08 8,504 1.05 9,506 1.27 13,181 1.91
Loans to depository
institutions 10,000 1.06 20,000 2.36 29,000 3.59 20,000 2.66 30,000 4.35
Foreign government and
official
institutions -- -- -- -- -- -- 777 0.10 783 0.12
--------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total $ 941,113 100.00% $846,000 100.00% $808,687 100.00% $750,888 100.00% $689,096 100.00%
========= ====== ======== ====== ======== ====== ======== ====== ======== ======
STERLING BANCORP . 56
Exhibit 13
The following table sets forth the maturities of the Company's commercial and
industrial loans, as of December 31, 2003:
Due One Due One Due After Total
Year to Five Five Gross
or Less Years Years Loans
--------- ------- --------- ---------
(in thousands)
Commercial and industrial $ 558,335 $ 6,035 $ 9 $ 564,379
========= ======= ========= =========
All loans due after one year have predetermined interest rates.
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.
The following table sets forth the amount of domestic nonaccrual and past due
loans of the Company at the end of each of the five most recent fiscal years;
there were no foreign loans accounted for on a nonaccrual basis and there were
no troubled debt restructurings for any types of loans. Loans contractually past
due 90 days or more as to principal or interest and still accruing are loans
that are both well-secured or guaranteed by financially responsible third
parties and are in the process of collection.
December 31, 2003 2002 2001 2000 1999
- ------------ ------- ------- ------- ------- -------
(dollars in thousands)
Nonaccrual loans
Commercial and industrial $ 2,022 $ 405 $ -- $ 470 $ 315
Lease financing 783 275 311 495 223
Real estate--mortgage 489 949 1,392 938 875
Installment--individuals 49 155 45 92 4
------- ------- ------- ------- -------
Total nonaccrual loans 3,343 1,784 1,748 1,995 1,417
Past due 90 days or more (other than the above) 127 286 200 162 59
------- ------- ------- ------- -------
Total $ 3,470 $ 2,070 $ 1,948 $ 2,157 $ 1,476
======= ======= ======= ======= =======
Interest income that would have been earned on
nonaccrual loans outstanding $ 196 $ 136 $ 153 $ 168 $ 119
======= ======= ======= ======= =======
Applicable interest income actually realized on
nonaccrual loans outstanding $ 141 $ 83 $ 92 $ 110 $ 80
======= ======= ======= ======= =======
Nonaccrual and past due loans as a
percentage of total gross loans 0.37% 0.25% 0.24% 0.28% 0.21%
======= ======= ======= ======= =======
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
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 portfolio, including loans identified as impaired as
required by SFAS No. 114.
STERLING BANCORP . 57
Exhibit 13
Thus, an increase in the size of the portfolio or in any of its components could
necessitate an increase in the allowance even though there may not be a decline
in credit quality or an increase in potential problem loans. A significant
change in any of the evaluation factors described above could result in future
additions to the allowance. At December 31, 2003, the ratio of the allowance to
loans held in portfolio, net of unearned discounts, was 1.61% and the allowance
was $14.5 million. At such date, the Company's nonaccrual loans amounted to $3.3
million; $2.0 million of such loans was judged to be impaired within the scope
of SFAS No. 114. Nonaccrual and impaired loans at December 31, 2003 include one
commercial loan in the amount of $1.3 million. 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 December 31, 2003. 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 2003. 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 $1.3 million and $0.6 million at
December 31, 2003 and 2002, respectively.
The following table sets forth certain information with respect to the Company's
loan loss experience for each of the five most recent fiscal years:
December 31, 2003 2002 2001 2000 1999
- ------------ --------- --------- --------- --------- ---------
(dollars in thousands)
Average loans held in portfolio, net of
unearned discounts, during year $ 785,575 $ 708,656 $ 674,310 $ 615,150 $ 535,641
========= ========= ========= ========= =========
Allowance for loan losses:
Balance at beginning of year $ 13,549 $ 14,038 $ 12,675 $ 11,117 $ 10,156
--------- --------- --------- --------- ---------
Charge-offs:
Commercial and industrial 6,571 10,205 4,899 4,010 4,149
Lease financing 1,155 930 1,528 1,075 612
Real estate 547 856 269 313 177
Installment 38 58 103 92 84
--------- --------- --------- --------- ---------
Total charge-offs 8,311 12,049 6,799 5,490 5,022
--------- --------- --------- --------- ---------
Recoveries:
Commercial and industrial 552 871 589 220 169
Lease financing 25 69 84 228 178
Real estate -- 16 -- -- 1
Installment 61 69 88 37 51
--------- --------- --------- --------- ---------
Total recoveries 638 1,025 761 485 399
--------- --------- --------- --------- ---------
Subtract:
Net charge-offs 7,673 11,024 6,038 5,005 4,623
--------- --------- --------- --------- ---------
Provision for loan losses 8,741 10,771 7,401 6,563 5,584
--------- --------- --------- --------- ---------
Loss on loans transferred to held for sale 158 236 -- -- --
--------- --------- --------- --------- ---------
Balance at end of year $ 14,459 $ 13,549 $ 14,038 $ 12,675 $ 11,117
========= ========= ========= ========= =========
Ratio of net charge-offs to average
loans held in portfolio, net of
unearned discounts, during year 0.98% 1.56% 0.90% 0.81% 0.86%
========= ========= ========= ========= =========
STERLING BANCORP . 58
Exhibit 13
To comply with a regulatory requirement to provide an allocation of the
allowance for loan losses, the following table presents the Company's allocation
of the allowance. This allocation is based on estimates by management and may
vary from year to year based on management's evaluation of the risk
characteristics of the loan portfolio. The amount allocated to a particular loan
category of the Company's loans held in portfolio may not necessarily be
indicative of actual future charge-offs in a loan category.
December 31, 2003 2002 2001 2000 1999
- ------------ --------------- --------------- --------------- --------------- ---------------
% of % of % of % of % of
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(dollars in thousands)
Domestic
Commercial and industrial $ 8,637 1.53% $ 7,977 1.59% $ 9,438 1.82% $ 8,968 1.79% $ 8,262 1.79%
Loans to depository institutions 80 0.80 150 0.75 230 0.79 160 0.80 240 0.80
Lease financing 2,686 1.80 1,961 1.52 1,736 1.92 1,637 1.66 1,036 1.27
Real estate--mortgage 2,310 1.43 2,000 1.37 1,613 1.28 1,423 1.22 1,085 1.15
Real estate--construction 24 1.01 23 0.96 -- -- -- -- 30 0.61
Installment--individuals 14 0.10 10 0.11 10 0.12 10 0.11 75 0.56
Unallocated 708 -- 1,428 -- 1,011 -- 477 -- 389 --
------- ------- ------- ------- -------
Total $14,459 1.61% $13,549 1.71% $14,038 1.85% $12,675 1.72% $11,117 1.64%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Deposits
A significant source of funds 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 at the end of each of the three most recent fiscal years:
December 31, 2003 2002 2001
- ------------ ------------------ ------------------- -----------------
% of % of % of
Balances Total Balances Total Balances Total
---------- ----- ---------- ----- -------- -----
(dollars in thousands)
Domestic
Demand $ 474,092 39.1% $ 401,568 38.4% $ 356,303 36.2%
NOW 134,122 11.1 111,869 10.7 110,309 11.2
Savings 30,105 2.5 27,307 2.6 32,194 3.3
Money Market 177,187 14.6 148,157 14.2 166,597 16.9
Time deposits by remaining maturity
Within 3 months 168,687 13.9 200,754 19.2 179,854 18.3
After 3 months but within 1 year 148,565 12.3 87,509 8.3 73,386 7.4
After 1 year but within 5 years 75,975 6.3 66,858 6.3 63,235 6.4
After 5 years 8 -- 86 -- 71 --
---------- ----- ---------- ----- --------- -----
Total domestic deposits 1,208,741 99.8 1,044,108 99.7 981,949 99.7
---------- ----- ---------- ----- --------- -----
Foreign
Time deposits by remaining maturity
Within 3 months 1,645 0.1 1,820 0.2 1,795 0.2
After 3 months but within 1 year 1,355 0.1 1,180 0.1 1,180 0.1
---------- ----- ---------- ----- --------- -----
Total foreign deposits 3,000 0.2 3,000 0.3 2,975 0.3
---------- ----- ---------- ----- --------- -----
Total deposits $1,211,741 100.0% $1,047,108 100.0% $ 984,924 100.0%
========== ===== ========== ===== ========= =====
STERLING BANCORP . 59
Exhibit 13
Fluctuations of balances in total or among categories at any date can 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 for
the three most recent fiscal years is presented on page 63.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is its net interest income; therefore the
Company devotes significant time and has invested in resources to assist in the
management of interest rate risk and asset quality. The Company's net interest
income is affected by changes in market interest rates, and by the level and
composition of interest-earning assets and interest-bearing liabilities. The
Company's objectives in its asset/ liability management are to utilize its
capital effectively, to provide adequate liquidity and to enhance net interest
income, without taking undue risks or subjecting the Company unduly to interest
rate fluctuations.
The Company takes a coordinated approach to the management of its liquidity,
capital and interest rate risk. This risk management process is governed by
policies and limits established by senior management which are reviewed and
approved by 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 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.
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 December 31, 2003, presented on page 65,
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.
STERLING BANCORP . 60
Exhibit 13
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 December 31, 2003, the model
indicated the impact of a 200 basis point parallel and pro rata rise in rates
over 12 months would approximate a 2.78% ($2.1 million) increase in net interest
income, while the impact of a 200 basis point decline in rates over the same
period would approximate a 5.60% ($4.2 million) decline from an unchanged rate
environment.
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cash flows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot provide any assurances as to the
predictive nature of these assumptions, including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes, and other 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 markets funds and other money market sources. Core deposits
include domestic noninterest-bearing and interest-bearing retail deposits, which
historically have been relatively stable. The parent company and the bank
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 December 31, 2003, the parent company's short-term debt, consisting
principally of commercial paper used to finance ongoing current business
activities, was approximately $28.8 million. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating $53.0
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 available back-up
lines of credit.
STERLING BANCORP . 61
Exhibit 13
The following table sets forth information regarding the Company's obligations
and commitments to make future payments under contracts as of December 31, 2003:
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 $ 135,774 $ -- $ -- $ 35,774 $ 100,000
Operating Leases 28,696 3,337 6,221 6,180 12,958
--------- --------- ------- -------- ---------
Total Contractual Cash Obligations $ 164,470 $ 3,337 $ 6,221 $ 41,954 $ 112,958
========= ========= ======= ======== =========
The following table sets forth information regarding the Company's obligations
under other commercial commitments as of December 31, 2003:
Amount of Commitment Expiration Per Period
-------------------------------------------------------
Total
Other Commercial Amounts Less than 1-3 4-5 Over 5
Commitments Committed 1 Year Years Years Years
- ---------------- --------- --------- ------- -------- ---------
(in thousands)
Residential loan $ 64,151 $ 64,151 $ -- $ -- $ --
Standby Letters of Credit 31,373 14,174 17,199 -- --
Other Commercial Commitments 34,431 16,913 17,518 -- --
--------- --------- ------- -------- ---------
Total Commercial Commitments $ 129,955 $ 95,238 $34,717 $ -- $ --
========= ========= ======= ======== =========
While the past performance is no guarantee of the future, management believes
that the Company's funding sources (including dividends from all its
subsidiaries) and the bank's funding sources will be adequate to meet their
liquidity requirements in the future.
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 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 at
December 31, 2003 and December 31, 2002, is presented in Note 21 beginning on
page 43. In addition, the bank is subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") which imposes a
number of mandatory supervisory measures. Among other matters, FDICIA
established five capital categories ranging from "well capitalized" to
"critically under capitalized." Such classifications are used by regulatory
agencies to determine a bank's deposit insurance premium, approval of
applications authorizing institutions to increase their asset size or otherwise
expand business activities or acquire other institutions. Under 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 December 31,
2003, the Company and the bank exceeded the requirements for "well capitalized"
institutions.
Market for the Company's Common Stock and Related Security Holder Matters
The parent company's common stock is traded on the New York Stock Exchange under
the symbol STL. Information regarding the quarterly prices of the common stock
is presented in Note 25 on page 49. Information regarding the average common
shares outstanding and dividends per common share is presented in the
Consolidated Statements of Income on page 17. Information regarding legal
restrictions on the ability of the bank to pay dividends is presented in Note 14
on page 34. Although such restrictions do not apply to the payment of dividends
by the parent company to its shareholders, such dividends may be limited by
other factors, such as the requirement to maintain adequate capital under the
risk-based capital regulations described in Note 21 on page 43. Information
related to the parent company's preferred stock is presented in Note 11 on page
33.
STERLING BANCORP . 62
Exhibit 13
Sterling Bancorp
CONSOLIDATED AVERAGE BALANCE SHEETS AND
ANALYSIS OF NET INTEREST EARNINGS[1]
Years Ended December 31, 2003 2002 2001
- ------------------------ ----------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------- -------- ------- ---------- -------- ------- ---------- -------- -------
(dollars in thousands)
ASSETS
Interest-bearing deposits with
other banks $ 3,473 $ 25 0.73% $ 3,494 $ 33 1.20% $ 3,216 $ 97 3.01%
Investment securities
Available for sale 188,876 9,206 4.86 238,947 14,748 6.17 174,756 11,235 6.43
Held to maturity 372,213 19,269 5.18 316,864 19,759 6.24 260,085 17,555 6.75
Tax-exempt[2] 31,916 2,370 7.43 33,579 2,489 7.41 34,020 2,515 7.39
Federal funds sold 5,759 64 1.12 16,704 277 1.66 8,638 216 2.50
Loans, net of unearned discounts[3]
Domestic 857,354 61,622 7.68 746,115 57,914 8.52 704,565 65,242 10.15
Foreign -- -- -- -- -- -- 651 40 6.17
----------- -------- ---------- -------- ---------- --------
TOTAL INTEREST-EARNING ASSETS 1,459,591 92,556 6.58% 1,355,703 95,220 7.39% 1,185,931 96,900 8.62%
-------- ======= -------- ======= -------- =======
Cash and due from banks 58,350 49,994 45,483
Allowance for loan losses (14,720) (13,986) (13,588)
Excess cost over equity in net
assets of the bank 21,158 21,158 21,158
Other 63,244 54,053 28,872
----------- ---------- ----------
TOTAL ASSETS $ 1,587,623 $1,466,922 $1,267,856
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS'EQUITY
Interest-bearing deposits
Domestic
Savings $ 27,554 98 0.35% $ 25,882 154 0.60% $ 28,555 557 1.95%
NOW 119,730 586 0.49 112,301 880 0.78 86,737 1,550 1.79
Money market 165,666 792 0.48 164,578 1,321 0.80 195,833 4,223 2.16
Time 367,798 7,370 2.00 370,536 10,053 2.71 280,203 12,571 4.49
Foreign
Time 3,000 41 1.38 2,999 58 1.94 2,975 129 4.33
----------- -------- ---------- -------- ---------- --------
Total interest-bearing deposits 683,748 8,887 1.30 676,296 12,466 1.84 594,303 19,030 3.20
----------- -------- ---------- -------- ---------- --------
Borrowings
Securities sold under agreements to
repurchase--customers 71,648 877 1.22 63,540 1,163 1.83 45,624 1,738 3.81
Securities sold under agreements to
repurchase--dealers 46,219 566 1.22 6,960 129 1.85 43,453 2,166 4.98
Federal funds purchased 5,463 65 1.20 2,613 45 1.72 3,935 186 4.73
Commercial paper 23,819 264 1.11 31,885 655 2.06 36,498 1,489 4.08
Other short-term debt 31,853 545 1.71 23,885 573 2.40 3,892 151 3.89
Long-term borrowings 139,870 6,387 4.57 140,153 6,178 4.41 47,055 2,056 4.37
----------- -------- ---------- -------- ---------- --------
Total borrowings 318,872 8,704 2.73 269,036 8,743 3.25 180,457 7,786 4.31
----------- -------- ---------- -------- ---------- --------
Total Interest-Bearing Liabilities 1,002,620 17,591 1.76% 945,332 21,209 2.24% 774,760 26,816 3.46%
======= ======= =======
Noninterest-bearing demand deposits 370,554 -- 315,757 -- 292,918 --
----------- -------- ---------- -------- ---------- --------
Total including noninterest-bearing
demand deposits 1,373,174 17,591 1.28% 1,261,089 21,209 1.68% 1,067,678 26,816 2.51%
-------- ======= -------- ======= -------- =======
Other liabilities 80,299 79,559 76,243
----------- ---------- ----------
Total Liabilities 1,453,473 1,340,648 1,143,921
Shareholders' equity 134,150 126,274 123,935
----------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,587,623 $1,466,922 $1,267,856
=========== ========== ==========
Net interest income/spread 74,965 4.82% 74,011 5.15% 70,084 5.16%
======= ======= =======
Net yield on interest-earning assets 5.33% 5.74% 6.23%
======= ======= =======
Less: Tax-equivalent adjustment 973 1,023 1,034
-------- -------- --------
Net interest income $ 73,992 $ 72,988 $ 69,050
======== ======== ========
[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 prior
period amounts to conform to current presentation.
[2] Interest on tax-exempt securities included herein is presented on a tax-
equivalent basis.
[3] Includes loans held for sale and loans held in portfolio. Nonaccrual loans
are included in amounts outstanding and income has been included to the
extent earned.
STERLING BANCORP . 63
Exhibit 13
Sterling Bancorp
CONSOLIDATED RATE/VOLUME ANALYSIS[1]
December 31, 2002 to December 31, 2001 to
Increase (Decrease) from Years Ended, December 31, 2003 December 31, 2002
- ------------------------------------- -------------------------------- ----------------------------------
Volume Rate Total[2] Volume Rate Total[2]
--------- -------- ------- --------- --------- --------
(in thousands)
INTEREST INCOME
Interest-bearing deposits with other banks $ -- $ (8) $ (8) $ 6 $ (70) $ (64)
--------- -------- ------- --------- --------- --------
Investment securities
Available for sale (2,753) (2,789) (5,542) 3,983 (470) 3,513
Held to maturity 3,157 (3,647) (490) 3,608 (1,404) 2,204
Tax-exempt (119) -- (119) (33) 7 (26)
--------- -------- ------- --------- --------- --------
Total 285 (6,436) (6,151) 7,558 (1,867) 5,691
--------- -------- ------- --------- --------- --------
Federal funds sold (143) (70) (213) 152 (91) 61
--------- -------- ------- --------- --------- --------
Loans, net of unearned discounts[3]
Domestic 9,777 (6,069) 3,708 4,201 (11,529) (7,328)
Foreign -- -- -- (20) (20) (40)
--------- -------- ------- --------- --------- --------
Total 9,777 (6,069) 3,708 4,181 (11,549) (7,368)
--------- -------- ------- --------- --------- --------
TOTAL INTEREST INCOME $ 9,919 $(12,583) $(2,664) $ 11,897 $ (13,577) $ (1,680)
========= ======== ======= ========= ========= ========
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ 10 $ (66) $ (56) $ (48) $ (355) $ (403)
NOW 54 (348) (294) 371 (1,041) (670)
Money market 9 (538) (529) (587) (2,315) (2,902)
Time (73) (2,610) (2,683) 3,345 (5,863) (2,518)
Foreign
Time -- (17) (17) 1 (72) (71)
--------- -------- ------- --------- --------- --------
Total interest-bearing deposits -- (3,579) (3,579) 3,082 (9,646) (6,564)
--------- -------- ------- --------- --------- --------
Borrowings
Securities sold under agreements to
repurchase--customers 135 (421) (286) 530 (1,105) (575)
Securities sold under agreements to
repurchase--dealers 495 (58) 437 (1,165) (872) (2,037)
Federal funds purchased 37 (17) 20 (49) (92) (141)
Commercial paper (138) (253) (391) (170) (664) (834)
Other short-term debt 162 (190) (28) 501 (79) 422
Long-term borrowings (12) 221 209 4,103 19 4,122
--------- -------- ------- --------- --------- --------
Total borrowings 679 (718) (39) 3,750 (2,793) 957
--------- -------- ------- --------- --------- --------
TOTAL INTEREST EXPENSE $ 679 $ (4,297) $(3,618) $ 6,832 $ (12,439) $ (5,607)
========= ======== ======= ========= ========= ========
NET INTEREST INCOME $ 9,240 $ (8,286) $ 954 $ 5,065 $ (1,138) $ 3,927
========= ======== ======= ========= ========= ========
[1] Amounts are presented on a tax-equivalent basis.
[2] The change in interest income and interest expense due to both rate and
volume has been allocated to change due to rate and the change due to
volume in proportion to the relationship of the absolute dollar amounts of
the changes in each.
[3] Nonaccrual loans have been included in the amounts outstanding and
income has been included to the extent earned.
STERLING BANCORP . 64
Exhibit 13
Sterling Bancorp
CONSOLIDATED 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. Based on the interest rate sensitivity analysis shown below, the
Company's net interest income would increase during periods of rising interest
rates and decrease during periods of falling interest rates. Amounts are
presented in thousands.
Repricing Date
-----------------------------------------------------------------------
More than
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 $ 1,656 $ -- $ -- $ -- $ -- $ 1,656
Investment securities 1,291 3,059 47,165 617,896 13,707 683,118
Loans, net of unearned discounts
Commercial and industrial 557,971 364 6,035 9 (580) 563,799
Loans to depository institutions 10,000 -- -- -- -- 10,000
Lease financing 3,336 9,553 148,306 7,360 (19,818) 148,737
Real estate 121,474 9,661 49,434 23,714 (4) 204,279
Installment 12,974 77 1,171 82 (6) 14,298
Noninterest-earning assets and
allowance for loan losses -- -- -- -- 132,859 132,859
-------- --------- --------- -------- --------- ----------
Total Assets 708,702 22,714 252,111 649,061 126,158 1,758,746
-------- --------- --------- -------- --------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits
Savings[1] -- -- 30,105 -- -- 30,105
NOW[1] -- -- 134,122 -- -- 134,122
Money market[1] 143,919 -- 33,268 -- -- 177,187
Time--domestic 168,687 148,565 75,975 8 -- 393,235
--foreign 1,645 1,355 -- -- -- 3,000
Securities sold under agreements
to repurchase--customers 31,791 10,700 -- -- -- 42,491
Securities sold under agreements
to repurchase--dealers 51,328 -- -- -- -- 51,328
Federal funds purchased 10,000 -- -- -- -- 10,000
Commercial paper 28,799 -- -- -- -- 28,799
Other short-term borrowings 41,871 15,000 -- -- -- 56,871
Long-term borrowings -- -- 10,000 100,000 25,774 135,774
Noninterest-bearing liabilities and
shareholders' equity -- -- -- -- 695,834 695,834
-------- --------- --------- -------- --------- ----------
Total Liabilities and
Shareholders' Equity 478,040 175,620 283,470 100,008 721,608 1,758,746
-------- --------- --------- -------- --------- ----------
Net Interest Rate Sensitivity Gap $230,662 $(152,906) $ (31,359) $549,053 $(595,450) $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at December 31, 2003 $230,662 $ 77,756 $ 46,397 $595,450 $ -- $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at December 31, 2002 $260,814 $ 167,170 $ 98,271 $522,344 $ -- $ --
======== ========= ========= ======== ========= ==========
Cumulative Gap at December 31, 2001 $129,150 $ 64,668 $ (47,649) $483,188 $ -- $ --
======== ========= ========= ======== ========= ==========
[1] Historically, balances on non-maturity deposit accounts have remained
relatively stable despite changes in levels of interest rates. Balances
are shown in repricing periods based on management's historical repricing
practices and runoff experience.
STERLING BANCORP . 65
Exhibit 13
Sterling Bancorp
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this annual 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
developments 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 products and
services; the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance); changes in
accounting principles, policies and guidelines; the success of the Company at
managing the risks involved in the foregoing as well as other risks and
uncertainties detailed from time to time in 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.
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.
STERLING BANCORP . 66