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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File Number: 1-5273-1
Sterling Bancorp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-2565216
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
650 Fifth Avenue, New York, N.Y. 10019-6108
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
212-757-3300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [] No
As of October 31, 2002 there were 9,887,996 shares of common stock,
$1.00 par value, outstanding.
STERLING BANCORP
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business 13
Results for Three Months 13
Results for Nine Months 15
Balance Sheet Analysis 17
Capital 21
Average Balance Sheets 22
Rate/Volume Analysis 24
Regulatory Capital and Ratios 26
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Asset/Liability Management 27
Interest Rate Sensitivity 30
Item 4. Controls and Procedures 31
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 31
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings 33
Exhibit 99.1 Certifications of Chief Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 34
Exhibit 99.2 Certifications of Chief Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 35
2
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
ASSETS 2002 2001
-------------- --------------
Cash and due from banks $ 49,427,001 $ 50,362,016
Interest-bearing deposits with other banks 1,905,755 2,487,178
Federal funds sold -- 10,000,000
Securities available for sale 190,866,033 177,810,042
Securities available for sale - pledged 81,055,633 91,752,370
Securities held to maturity 138,013,251 101,077,406
Securities held to maturity - pledged 182,457,720 205,387,986
-------------- --------------
Total investment securities 592,392,637 576,027,804
-------------- --------------
Loans held for sale 33,093,148 48,602,841
Loans held in portfolio, net of unearned discounts 795,197,068 760,084,033
Less allowance for loan losses 12,822,381 14,038,322
-------------- --------------
Loans, net 815,467,835 794,648,552
-------------- --------------
Customers' liability under acceptances 1,524,201 608,660
Excess cost over equity in net assets of the
banking subsidiary 21,158,440 21,158,440
Premises and equipment, net 8,562,325 7,852,362
Other real estate 998,668 809,184
Accrued interest receivable 5,746,802 5,867,121
Bank owned life insurance 20,814,366 --
Other assets 11,779,426 13,049,654
-------------- --------------
$1,529,777,456 $1,482,870,971
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 326,243,038 $ 356,303,308
Interest-bearing deposits 707,781,772 628,620,646
-------------- --------------
Total deposits 1,034,024,810 984,923,954
Federal funds purchased and securities
sold under agreements to repurchase 78,073,794 147,095,635
Commercial paper 29,712,600 42,103,200
Other short-term borrowings 24,917,302 8,687,671
Acceptances outstanding 1,524,201 608,660
Accrued expenses and other liabilities 83,038,063 75,624,435
Long-term debt - FHLB 125,000,000 95,350,000
-------------- --------------
Total liabilities 1,376,290,770 1,354,393,555
-------------- --------------
Corporation Obligated Mandatorily Redeemable
Capital Securities of Subsidiary Trust 25,000,000 --
-------------- --------------
Shareholders' equity
Preferred stock, $5 par value. Authorized
644,389 shares Series D; issued 232,305
and 234,606 shares, respectively 2,323,050 2,346,060
Common stock, $1 par value. Authorized
20,000,000 shares; issued 11,148,692
and 10,834,853 shares, respectively 11,148,692 10,834,853
Capital surplus 102,745,307 98,487,765
Retained earnings 43,033,863 32,419,767
Accumulated other comprehensive income, net of tax 3,984,283 1,119,223
-------------- --------------
163,235,195 145,207,668
Less
Common shares in treasury at cost, 1,262,516
and 745,023 shares, respectively 32,435,473 15,542,454
Unearned compensation 2,313,036 1,187,798
-------------- --------------
Total shareholders' equity 128,486,686 128,477,416
-------------- --------------
$1,529,777,456 $1,482,870,971
============== ==============
See Notes to Consolidated Financial Statements.
3
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
INTEREST INCOME
Loans $14,547,213 $16,327,504 $42,959,229 $50,342,902
Investment securities
Available for sale 4,174,794 3,232,726 12,764,113 8,843,426
Held to maturity 4,942,536 4,033,164 14,742,343 13,107,623
Federal funds sold 44,352 54,933 225,341 79,494
Deposits with other banks 6,708 28,296 26,314 86,224
----------- ----------- ----------- -----------
Total interest income 23,715,603 23,676,623 70,717,340 72,459,669
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,110,679 4,831,922 9,743,232 15,071,425
Federal funds purchased and
securities sold under agreements
to repurchase 296,377 547,627 1,099,966 3,680,591
Commercial paper 156,643 357,027 515,699 1,225,377
Other short-term borrowings 135,132 38,698 372,880 124,114
Long-term debt 1,148,669 466,803 3,334,251 1,228,443
----------- ----------- ----------- -----------
Total interest expense 4,847,500 6,242,077 15,066,028 21,329,950
----------- ----------- ----------- -----------
Net interest income 18,868,103 17,434,546 55,651,312 51,129,719
Provision for loan losses 2,153,100 2,017,800 8,432,400 5,231,400
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 16,715,003 15,416,746 47,218,912 45,898,319
----------- ----------- ----------- -----------
NONINTEREST INCOME
Factoring income 1,807,632 1,371,780 4,736,535 4,086,996
Mortgage banking income 2,381,723 2,216,606 7,594,777 5,639,722
Service charges on deposit accounts 1,300,524 1,478,183 3,688,455 4,242,980
Trade finance income 797,794 646,189 1,875,722 1,943,501
Trust fees 124,334 171,178 475,994 556,797
Other service charges and fees 416,389 475,376 1,459,326 1,208,797
Bank owned life insurance income 298,185 -- 814,366 --
Securities gains 24,947 -- 869,290 --
Other income 141,854 158,297 426,155 307,653
----------- ----------- ----------- -----------
Total noninterest income 7,293,382 6,517,609 21,940,620 17,986,446
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 8,253,632 7,072,561 24,334,467 20,944,900
Occupancy expenses, net 1,294,747 1,346,724 3,793,331 3,545,329
Equipment expenses 602,868 698,595 1,964,564 1,851,252
Advertising and marketing 895,641 670,824 2,522,137 2,425,167
Professional fees 848,642 1,351,293 2,337,445 3,956,745
Data processing fees 259,246 328,329 987,161 1,001,480
Stationery and printing 296,386 213,615 838,699 611,745
Communications 403,992 456,092 1,196,668 1,159,947
Capital securities costs 534,449 -- 1,268,114 --
Other expenses 1,517,477 1,383,725 5,132,621 4,561,068
----------- ----------- ----------- -----------
Total noninterest expenses 14,907,080 13,521,758 44,375,207 40,057,633
----------- ----------- ----------- -----------
Income before income taxes 9,101,305 8,412,597 24,784,325 23,827,132
Provision for income taxes 3,556,613 3,419,876 8,742,723 9,592,899
----------- ----------- ----------- -----------
Net income $ 5,544,692 $ 4,992,721 $16,041,602 $14,234,233
=========== =========== =========== ===========
Average number of common
shares outstanding
Basic 9,922,478 10,250,508 10,021,703 10,129,812
Diluted 10,526,878 10,933,626 10,686,925 10,686,655
Per average common share
Basic $ 0.56 $ 0.49 $ 1.59 $ 1.40
Diluted 0.52 0.46 1.49 1.33
Dividends per common share 0.18 0.16 0.54 0.48
See Notes to Consolidated Financial Statements.
4
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net income $ 5,544,692 $ 4,992,721 $ 16,041,602 $ 14,234,233
Other comprehensive income,
net of tax:
Unrealized holding gains
arising during the period 1,664,427 2,280,244 3,335,346 3,021,501
Reclassification adjustment for
gains included in net income (13,496) -- (470,286) --
------------ ------------ ------------ ------------
Comprehensive income $ 7,195,623 $ 7,272,965 $ 18,906,662 $ 17,255,734
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
5
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Nine Months Ended
September 30,
---------------------------------------
2002 2001
------------- -------------
Preferred Stock
Balance at January 1 $ 2,346,060 $ 2,402,760
Conversions of Series B shares -- (2,460)
Redemption of Series B shares -- (21,520)
Conversions of Series D shares (23,010) (26,990)
------------- -------------
Balance at September 30 $ 2,323,050 $ 2,351,790
============= =============
Common Stock
Balance at January 1 $ 10,834,853 $ 9,563,329
Conversions of preferred shares into common shares 2,919 3,390
Options exercised 310,920 310,155
------------- -------------
Balance at September 30 $ 11,148,692 $ 9,876,874
============= =============
Capital Surplus
Balance at January 1 $ 98,487,765 $ 67,450,110
Conversions of preferred shares into common shares 20,091 26,064
Redemption of Series B shares -- (8,612)
Issuance of shares under incentive compensation plan 386,400 --
Options exercised 3,851,051 3,512,043
------------- -------------
Balance at September 30 $ 102,745,307 $ 70,979,605
============= =============
Retained Earnings
Balance at January 1 $ 32,419,767 $ 47,466,602
Net Income 16,041,602 14,234,233
Cash dividends paid - common shares (5,342,879) (4,401,484)
- preferred shares (84,627) (73,731)
------------- -------------
Balance at September 30 $ 43,033,863 $ 57,225,620
============= =============
Accumulated Other Comprehensive Income
Balance at January 1 $ 1,119,223 $ (22,652)
------------- -------------
Unrealized holding gains arising during the period:
Before tax 6,165,148 5,585,026
Tax effect (2,829,802) (2,563,525)
------------- -------------
Net of tax 3,335,346 3,021,501
------------- -------------
Reclassification adjustment for gains included in net income:
Before tax (869,290) --
Tax effect 399,004 --
------------- -------------
Net of tax (470,286) --
------------- -------------
Balance at September 30 $ 3,984,283 $ 2,998,849
============= =============
Treasury Stock
Balance at January 1 $ (15,542,454) $ (7,986,763)
Issuance of shares under incentive compensation plan 1,267,200 --
Surrender of shares issued under incentive
compensation plan (3,034,547) (1,459,673)
Purchase of common shares (15,125,672) (955,167)
------------- -------------
Balance at September 30 $ (32,435,473) $ (10,401,603)
============= =============
Unearned Compensation
Balance at January 1 $ (1,187,798) $ (1,857,292)
Issuance of shares under incentive compensation plan (1,653,600) --
Amortization of unearned compensation 528,362 299,178
------------- -------------
Balance at September 30 $ (2,313,036) $ (1,558,114)
============= =============
Total Shareholders' Equity
Balance at January 1 $ 128,477,416 $ 117,016,094
Net changes during the period 9,270 14,456,927
------------- -------------
Balance at September 30 $ 128,486,686 $ 131,473,021
============= =============
See Notes to Consolidated Financial Statements.
6
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------------
2002 2001
------------- -------------
Operating Activities
Net Income $ 16,041,602 $ 14,234,233
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 8,432,400 5,231,400
Depreciation and amortization of premises and equipment 1,263,032 1,272,689
Securities gains (869,290) --
Income from bank owned life insurance (814,366) --
Deferred income tax provision (benefit) 435,151 (716,738)
Net decrease (increase) in loans held for sale 15,509,693 (11,945,324)
Amortization of unearned compensation 528,362 299,178
Amortization of premiums of securities 1,042,469 950,159
Accretion of discounts on securities (666,212) (518,548)
Decrease (Increase) in accrued interest receivable 120,319 (871,433)
Increase in accrued expenses and
other liabilities 7,413,628 14,405,230
Increase in other assets (289,623) (3,562,160)
Issuance cost for preferred securities,
net of amortization (916,667) --
Other, net (2,486,501) (1,459,669)
------------- -------------
Net cash provided by operating activities 44,743,997 17,319,017
------------- -------------
Investing Activities
Purchase of premises and equipment (1,972,995) (3,035,413)
Decrease (Increase) in interest-bearing deposits 581,423 (1,554,336)
Decrease (Increase) in Federal funds sold 10,000,000 (5,000,000)
Increase in other real estate (189,484) (25,062)
Net increase in loans (44,761,376) (25,119,433)
Purchase of investment in bank owned life insurance (20,000,000) --
Proceeds from prepayments, redemptions or maturities
of securities - held to maturity 69,589,504 58,972,243
Purchases of securities - held to maturity (83,926,203) (20,133,093)
Purchases of securities - available for sale (163,152,563) (122,725,448)
Proceeds from sales of securities - available for sale 39,923,352 --
Proceeds from prepayments, redemptions or maturities
of securities - available for sale 126,989,991 36,799,427
------------- -------------
Net cash used in investing activities (66,918,351) (81,821,115)
------------- -------------
Financing Activities
Decrease in noninterest-bearing deposits (30,060,270) (17,428,710)
Increase in interest-bearing deposits 79,161,126 151,959,555
Net proceeds from issuance of Corporation Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust 24,062,500 --
Decrease in Federal funds purchased
and securities sold under agreements to repurchase (69,021,841) (101,336,218)
Increase in commercial paper and
other short-term borrowings 3,839,031 927,493
Purchase of treasury stock (15,125,672) (955,167)
Redemption of preferred stock -- (30,132)
Increase in other long-term debt 29,650,000 29,650,000
Proceeds from exercise of stock options 4,161,971 3,822,198
Cash dividends paid on common and preferred stock (5,427,506) (4,475,215)
------------- -------------
Net cash provided by financing activities 21,239,339 62,133,804
------------- -------------
Net decrease in cash and due from banks (935,015) (2,368,294)
Cash and due from banks - beginning of period 50,362,016 50,212,689
------------- -------------
Cash and due from banks - end of period $ 49,427,001 $ 47,844,395
============= =============
Supplemental disclosures:
Interest paid $ 15,707,793 $ 21,400,448
Income taxes paid 9,678,303 8,839,390
See Notes to Consolidated Financial Statements.
7
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include the accounts of Sterling
Bancorp ("the parent company") and its subsidiaries, principally
Sterling National Bank and its subsidiaries ("the bank"), after
elimination of material intercompany transactions. The term "the
Company" refers to Sterling Bancorp and its subsidiaries. The Company
follows accounting principles generally accepted in the United States
of America and prevailing practices within the banking industry. The
consolidated financial statements as of and for the interim periods
ended September 30, 2002 and 2001 are unaudited; however, in the
opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of such periods have been
made. Certain reclassifications have been made to the 2001 consolidated
financial statements to conform to the current presentation. The
interim consolidated financial statements should be read in conjunction
with the Company's annual report on Form 10-K for the year ended
December 31, 2001. The Company paid stock dividends as follows: a 10%
stock dividend on December 10, 2001; a 10% stock dividend on December
11, 2000; and a 5% stock dividend on December 14, 1999. Fractional
shares were cashed-out and payments were made to shareholders in lieu
of fractional shares. The basic and diluted average number of shares
outstanding and earnings per share information for all prior reporting
periods have been restated to reflect the effect of the stock dividend.
2. For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks.
3. The Company's outstanding Preferred Shares comprise 232,305 Series D
shares (300,000 Series D shares authorized). Each Series D share (all
of such shares are owned by the Company's Employee Stock Ownership
Trust) is entitled to dividends at the rate of $0.6125 per year, is
convertible into 1.2723 Common Shares, and is entitled to a liquidation
preference of $10 (together with accrued dividends). All preferred
shares are entitled to one vote per share (voting with the Common
Shares except as otherwise required by law).
4. The Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," established standards for the
way that public business enterprises report and disclose selected
information about operating segments in interim financial statements
issued to stockholders.
8
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company provides a full range of financial products and services,
including commercial loans, asset-based financing, accounts receivable
management services, trade financing, equipment leasing, business and consumer
deposit services, commercial and residential mortgage lending and brokerage,
trust and estate administration and investment management services. The
Company's primary source of earnings is net interest income, which represents
the difference between interest earned on interest-earning assets and the
interest incurred on interest- bearing liabilities. The Company's 2002
year-to-date average interest-earning assets were 54.1% loans (business lending
was 75.6% and real estate lending was 21.3% of total loans, respectively) and
45.9% investment securities and money market investments. There are no industry
concentrations exceeding 10% of loans, gross, in the business loan portfolio.
Approximately 67% of loans are to borrowers located in the metropolitan New York
area. The Company has determined that it has three reportable operating
segments: business lending, real estate lending and company-wide treasury.
The following tables provide certain information regarding the
Company's operating segments for the three and nine month periods ended
September 30, 2002 and 2001:
Business Real Estate Company-wide
Lending Lending Treasury Totals
-------------- -------------- -------------- --------------
Three Months Ended September 30, 2002
Net interest income $ 7,530,877 $ 3,436,493 $ 7,487,737 $ 18,455,107
Noninterest income 3,720,570 2,403,740 349,942 6,474,252
Depreciation and amortization 48,060 52,189 -- 100,249
Segment profit 4,625,923 2,571,043 7,873,208 15,070,174
Segment assets 620,991,983 165,103,648 696,465,329 1,482,560,960
Three Months Ended September 30, 2001
Net interest income $ 7,386,074 $ 3,606,566 $ 5,978,522 $ 16,971,162
Noninterest income 3,283,578 2,240,090 20,820 5,544,488
Depreciation and amortization 54,234 64,783 86 119,103
Segment profit 4,206,830 3,166,087 6,653,391 14,026,308
Segment assets 598,165,252 148,412,334 572,071,246 1,318,648,832
Nine Months Ended September 30, 2002
Net interest income $ 21,805,357 $ 10,068,686 $ 22,594,118 $ 54,468,161
Noninterest income 9,729,831 7,578,130 1,750,153 19,058,114
Depreciation and amortization 141,559 146,332 -- 287,891
Segment profit 12,439,592 8,342,383 24,618,085 45,400,060
Segment assets 620,991,983 165,103,648 696,465,329 1,482,560,960
Nine Months Ended September 30, 2001
Net interest income $ 23,098,725 $ 10,553,734 $ 15,976,248 $ 49,628,707
Noninterest income 9,665,583 5,807,984 93,108 15,566,675
Depreciation and amortization 140,721 163,366 256 304,343
Segment profit 13,720,942 8,720,781 18,446,963 40,888,686
Segment assets 598,165,252 148,412,334 572,071,246 1,318,648,832
9
STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table sets forth reconciliations of net interest income,
noninterest income, profits and assets of reportable operating segments to the
Company's consolidated totals:
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- -------------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net interest income:
Total for reportable operating segments $ 18,455,107 $ 16,971,162 $ 54,468,161 $ 49,628,707
Other [1] 412,996 463,384 1,183,151 1,501,012
--------------- --------------- --------------- ---------------
Consolidated net interest income $ 18,868,103 $ 17,434,546 $ 55,651,312 $ 51,129,719
=============== =============== =============== ===============
Noninterest income:
Total for reportable operating segments $ 6,474,252 $ 5,544,488 $ 19,058,114 $ 15,566,675
Other [1] 819,130 973,121 2,882,506 2,419,771
--------------- --------------- --------------- ---------------
Consolidated noninterest income $ 7,293,382 $ 6,517,609 $ 21,940,620 $ 17,986,446
=============== =============== =============== ===============
Profit:
Total for reportable operating segments $ 15,070,174 $ 14,026,308 $ 45,400,060 $ 40,888,686
Other [1] (5,968,869) (5,613,711) (20,615,735) (17,061,554)
--------------- --------------- --------------- ---------------
Consolidated income before income taxes $ 9,101,305 $ 8,412,597 $ 24,784,325 $ 23,827,132
=============== =============== =============== ===============
Assets:
Total for reportable operating segments $ 1,482,560,960 $ 1,318,648,832 $ 1,482,560,960 $ 1,318,648,832
Other [1] 47,216,496 45,080,431 47,216,496 45,080,431
--------------- --------------- --------------- ---------------
Consolidated assets $ 1,529,777,456 $ 1,363,729,263 $ 1,529,777,456 $ 1,363,729,263
=============== =============== =============== ===============
[1] Represents operations not considered to be a reportable segment and/or
general operating expenses of the Company.
5. In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the
accounting for goodwill, including goodwill recorded in past business
combinations. The previous accounting principles governing goodwill
generated from a business combination ceased upon adoption of SFAS No.
142 on January 1, 2002. The adoption of SFAS No. 142 had no impact on
the Company's balance sheet and statement of income
10
STERLING BANCORP AND SUBSIDIARIES
Notes on Consolidated Financial Statements
(Unaudited)
6. The following information is provided in connection with the sales of
available for sale securities:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- --------------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Proceeds $ 354,838 $ -- $39,923,352 $ --
Gross gains 24,947 -- 869,290 --
Gross losses -- -- -- --
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following commentary presents management's discussion and analysis of the
consolidated results of operations and financial condition of Sterling Bancorp
(the "parent company"), a bank holding company and a financial holding company
as defined by the Bank Holding Company Act of 1956, as amended, and its wholly-
owned subsidiaries Sterling Financial Services Company, Inc., Sterling Banking
Corporation and Sterling National Bank. Sterling National Bank, which is the
principal subsidiary, owns all of the outstanding shares of Sterling Factors
Corporation, Sterling National Mortgage Company, Inc., Sterling National
Servicing, Inc., Sterling Trade Services, Inc. and Sterling Holding Company of
Virginia, Inc. Sterling Trade Services, Inc. owns all of the outstanding Common
Shares of Sterling National Asia Limited, Hong Kong. Sterling Holding Company of
Virginia, Inc. owns all of the outstanding shares of Sterling Real Estate
Holding Company, Inc. Throughout this discussion and analysis, the term "the
Company" refers to Sterling Bancorp and its subsidiaries and the term "the bank"
refers to Sterling National Bank and its subsidiaries. This discussion and
analysis should be read in conjunction with the Company's annual report on Form
10-K for the year ended December 31, 2001.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein, 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" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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. It is possible that our actual results and financial position may differ,
possibly materially, from the anticipated results and financial condition
indicated in or implied by these forward-looking statements.
Factors that could cause our actual results to differ, possibly
materially, from those in the forward-looking statements include, but are not
limited to, the following: inflation, interest rates, market and monetary
fluctuations; 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; 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 forwarding-looking statement, whether
written or oral, that may be made from time to time.
12
BUSINESS
The Company provides a wide range of financial products and services, including
business and consumer loans, commercial and residential mortgage lending and
brokerage, asset-based financing, accounts receivable management services, trade
financing, equipment leasing, corporate and consumer deposits services, trust
and estate administration, and investment management services. The Company has
operations in metropolitan New York area, as well as Virginia and other mid-
Atlantic states and conducts business throughout the United States.
There is intense competition in all areas in which the Company conducts
its business. In addition to competing with other banks, the Company competes in
most areas of its business with other financial institutions. At September 30,
2002, the bank's year-to-date average earning assets (of which loans were 52%
and investment securities were 46%) represented approximately 96% of the
Company's year-to-date average earning assets.
The Company regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases negotiations, regularly take place
and future acquisitions could occur.
Results for the Three Months Ended September 30, 2002 and 2001
OVERVIEW
The Company reported net income for the three months ended September 30, 2002 of
$5.5 million, representing $0.52 per share, calculated on a diluted basis,
compared to $5.0 million, or $0.46 per share, calculated on a diluted basis, for
the like period in 2001. This increase reflects higher net interest income and
continued growth in noninterest income, which together more than offset
increases in noninterest expenses.
Net interest income, on a tax equivalent basis, increased to $19.1
million for the third quarter of 2002 compared with $17.7 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 5.79% for the third quarter of 2002 compared to 6.16% for the like
2001 period. The decrease in the net interest margin was the result of a higher
proportion of earning assets funded with interest-bearing liabilities and the
decrease of 109 basis points in the average yield on earning assets partially
offset by a decrease of 119 basis points in the average cost of funds.
Noninterest income rose to $7.3 million for the three months ended
September 30, 2002 compared to $6.5 million for the like 2001 period principally
due to growth in income from factoring, mortgage banking and trade finance
activities, and from a bank-owned life insurance program implemented in January
2002.
INCOME STATEMENT ANALYSIS
Net Interest Income
Net interest income, which represents the difference between interest earned on
interest-earning assets and interest incurred on interest-bearing liabilities,
is the Company's primary source of earnings. Net interest income can be affected
by changes in market interest rates as well as the level and composition of
assets, liabilities and shareholders' equity. Net interest spread is the
13
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 24. Information
as to the components of interest income and interest expense and average rates
is provided in the Average Balance Sheets shown on page 22.
Net interest income, on a tax equivalent basis, for the three months
ended September 30, 2002 increased to $19,117,000, from $17,699,000 for the
comparable period in 2001.
Total interest income, on a tax equivalent basis, aggregated
$23,964,000 for the third quarter of 2002, substantially unchanged from
$23,941,000 for the same period of 2001. The tax equivalent yield on interest
earning assets was 7.29% for the three months ended September 30, 2002 compared
with 8.38% for the same period in 2001.
Interest earned on the loan portfolio amounted to $14,547,000 for the
third quarter of 2002 was down $1,781,000 from a year ago. Average loan balances
amounted to $745,821,000 which were up $34,835,000 from the prior year period.
The increase in the average loans was primarily in the commercial and
industrial, leasing and real estate loan segments. The decrease in the yield on
the domestic loan portfolio to 8.25% for the three months ended September 30,
2002 from 9.63% for the comparable 2001 period was primarily attributable to a
lower interest rate environment on average in the 2002 period.
Interest earned on the securities portfolio, on a tax equivalent basis,
increased to $9,367,000 for the three months ended September 30, 2002 from
$7,530,000 in the prior year period. Average outstandings increased to
$593,295,000 which were up $143,049,000 from $450,246,000 in the prior year
period. 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 quarter of 2002, was primarily in mortgage-backed
securities and collateralized mortgage obligations of U.S. government
corporations and agencies.
Interest expense on deposits decreased $1,720,000 for the three months
ended September 30, 2002 to $3,111,000 from $4,831,000 for the comparable 2001
period due to lower rates paid. Average savings, NOW, and money market deposits,
which historically have represented a stable funding source, decreased to
$310,923,000 for the quarter ended September 30, 2002 from $326,825,000 in the
prior year period. Average domestic time deposits increased $83,748,000 to
$374,160,000 for the three months ended September 30, 2002. The growth in
deposit balances was due to the current 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 1.79% which was 130 basis
points lower than the prior year period. The decrease in average cost of
deposits reflects the lower interest rate environment during the 2002 period.
14
Interest expense associated with borrowed funds increased to $1,736,000 for the
third quarter of 2002 from $1,411,000 in the comparable 2001 period principally
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
$84,650,000 to $125,000,000 from $40,350,000 in the prior year period. These
borrowings were advances from the Federal Home Loan Bank of New York utilized in
connection with the asset/liability management strategies discussed above. The
average cost of borrowings was 2.88% for the three months ended September 30,
2002 compared with 4.07% in the comparable prior year period.
Noninterest Income
Noninterest income increased $775,000 for the third quarter of 2002 when
compared with the like 2001 period primarily as a result of increased income
from factoring, mortgage banking and trade finance activities, from fees for
various other services, and from a bank-owned life insurance program implemented
in January, 2002.
Noninterest Expenses
Noninterest expenses increased $1,385,000 for the third quarter of 2002 when
compared with the like 2001 period primarily due to increased salary expenses,
pension costs, advertising and marketing expenses, expenses related to the trust
preferred securities placement of which was completed in February, 2002, losses
on sales of assets, 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.
Results for the Nine Months Ended September 30, 2002 and 2001
OVERVIEW
The Company reported net income for the nine months ended September 30,2002 of
$16.0 million, representing $1.49 per share, calculated on a diluted basis,
compared to $14.2 million, or $1.33 per share calculated on a diluted basis, for
the like period in 2001. This increase reflects 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, on a tax equivalent basis, increased to $56.4
million for the first nine months of 2002 compared with $51.9 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 5.81% for the first nine months of 2002 compared to 6.27% for the
like 2001 period. The decrease in the net interest margin was the result of a
higher proportion of earning assets funded with interest-bearing liabilities and
the decrease of 151 basis points in the average yield on earning assets
partially offset by a decrease of 164 basis points in the average cost of funds.
Noninterest income rose to $21.9 million for the nine months ended
September 30,2002 compared to $18.0 million for the like 2001 period principally
due to growth in fees from mortgage banking, factoring and other services, from
gains on sales of available for sale securities and from a bank-owned life
insurance program implemented in January 2002.
INCOME STATEMENT ANALYSIS
Net Interest Income
Net interest income, which represents the difference between interest earned on
interest-earning assets and interest incurred on interest-bearing liabilities,
is the Company's primary source of earnings. Net interest income can be affected
by changes in market interest rates as well as the level and composition of
15
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 for the first nine months, expressed in terms of
fluctuation in average volume and rate are provided in the Rate/Volume Analysis
shown on page 25. Information as to the components of interest income and
interest expense and average rates for the first nine months is provided in the
Average Balance Sheets shown on page 23.
Net interest income, on a tax equivalent basis, for the nine months
ended September 30,2002 increased $4,524,000 to $56,425,000 from $51,901,000 for
the comparable period in 2001.
Total interest income, on a tax equivalent basis, aggregated
$71,491,000 for the first nine months of 2002, down $1,740,000 from $73,231,000
for the same period of 2001. The tax equivalent yield on interest-earning assets
was 7.38% for the first nine months of 2002 compared with 8.89% for the same
period in 2001.
Interest earned on the loan portfolio amounted to $42,959,000 for the
first nine months of 2002, down $7,384,000 from a year ago. Average loan
balances amounted to $728,405,000 up $30,534,000 from an average of $697,871,000
in the prior year period. The increase in the average loans, primarily in the
leasing and real estate loan portfolios, accounted for the increase in interest
earned on loans. The decrease in the yield on the domestic loan portfolio to
8.51% for the nine months ended September 30,2002 from 10.41% for the comparable
2001 period was primarily attributable to the lower interest rate environment in
the 2002 period.
Interest earned on the securities portfolio, on a tax equivalent basis,
increased to $28,281,000 for the nine months ended September 30, 2002 from
$22,722,000 in the prior year period. Average outstandings increased to
$596,204,000 which were up $149,461,000 from $446,743,000 in the prior year
period. 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 quarter of 2002, was primarily in mortgage-backed
securities and collateralized mortgage obligations of U.S. government
corporations and agencies. The decrease in yields on most of the securities
portfolio reflects the impact of the lower rate environment on average in the
2002 period.
Total interest expense decreased $6,264,000 to $15,066,000 for the
first nine months of 2002 from $21,330,000 for the comparable period in 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 $5,328,000 for the nine months
ended September 30,2002 to $9,743,000 from $15,071,000 for the comparable 2001
period 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
$301,972,000 for the nine months ended September 30, 2002, compared to
$299,320,000 in the prior year period. Average time deposits increased
$100,391,000 to $372,000,000 for the nine months ended September 30, 2002. The
growth in deposit balances was due to the current economic and interest rate
environment, the branch opening
16
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 1.93% which was 160 basis points lower
than the prior year period. The decrease in average cost of deposits reflects
the lower interest rate environment during the 2002 period.
Interest expense associated with borrowed funds decreased to $5,323,000
for the first nine months of 2002 from $6,259,000 in the comparable 2001 period
as a result of lower rates paid partially offset by higher average long-term
debt outstandings. The average cost of borrowings was 2.85% for the first nine
months ended September 30, 2002 compared with 4.74% in the comparable prior year
period. Average amounts of long-term debt outstanding were up $84,102,000 to
$119,552,000 from $35,450,000 in the prior year period. These borrowings were
advances from the Federal Home Loan Bank of New York utilized in connection with
the asset/liability management strategies discussed above.
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 for the first nine months of 2002 increased to $8,432,000 from $5,231,000
for the comparable prior year period. 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 $3,955,000 for the first nine months of 2002 when
compared with the like 2001 period 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 $4,317,000 for the first nine months of 2002 when
compared with the like 2001 period primarily due to increased salary expenses,
pension costs, occupancy, equipment, stationery and printing expenses, expenses
related to the trust preferred securities placement completed in February, 2002,
losses on sales of assets, 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 $850,000 for the first nine months of
2002 when compared with the like 2001 period. During the second quarter of 2002,
New York State completed an examination of Sterling's tax returns through 1998
and issued a no charge 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.
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 September 30, 2002, the
Company's portfolio of securities totalled $592,393,000 of which U.S. Treasury
and U.S. Government corporations and agencies guaranteed mortgage-backed and
collateralized mortgage obligations securities having an average life of
approximately 3.0 years amounted to $541,150,000.
17
Securities classified as "available for sale" may be sold in the
future, prior to maturity. These securities are carried at market value. Net
aggregate unrealized gains or losses on these securities are included in a
valuation allowance account and are shown net of taxes, as a component of
shareholders' equity. The following table presents information regarding
securities available for sale:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
September 30, 2002 Cost Gains Losses Value
- ------------------ ------------ ------------ ------------ ------------
U.S. Treasury securities $ 2,496,430 $ 602 $ -- $ 2,497,032
Obligations of U.S. govern-
ment corporations and
agencies--mortgage-backed
securities 91,122,034 3,064,911 1,600 94,185,345
Obligations of U.S. govern-
ment corporations and
agencies-collateralized
mortgage obligations 126,448,770 1,545,125 -- 127,993,895
Obligations of state and
political institutions 32,564,497 2,496,570 -- 35,061,067
Trust preferred securities 3,222,628 241,527 -- 3,464,155
Federal Reserve Bank and
other equity securities 8,702,642 17,957 427 8,720,172
------------ ------------ ------------ ------------
Total $264,557,001 $ 7,366,692 $ 2,027 $271,921,666
============ ============ ============ ============
Given the generally high credit quality of the portfolio, management expects to
realize all of its investment upon the maturity of such instruments, and thus
believes that any market value impairment is temporary in nature.
The Company has the intent and ability to hold to maturity securities
classified as "held to maturity." These securities are carried at cost, adjusted
for amortization of premiums and accretion of discounts. The following table
presents information regarding securities held to maturity:
Gross Gross Estimated
Carrying Unrealized Unrealized Market
September 30, 2002 Value Gains Losses Value
- ------------------ ------------ ------------ ------------ ------------
Obligations of U.S. govern-
ment corporations and
agencies--mortgage-backed
securities $284,064,419 $ 11,480,320 $ 70,852 $295,473,887
Obligations of U.S. govern-
ment corporations and
agencies-collateralized
mortgage obligations 34,906,552 125,301 14,636 35,017,217
Debt securities issued by
foreign governments 1,500,000 -- -- 1,500,000
------------ ------------ ------------ ------------
Total $320,470,971 $ 11,605,621 $ 85,488 $331,991,104
============ ============ ============ ============
18
Loans Held In Portfolio
A key management objective is to maintain the quality of the loan portfolio. The
Company seeks to achieve this objective by maintaining rigorous underwriting
standards coupled with regular evaluation of the creditworthiness and the
designation of lending limits for each borrower. The portfolio strategies seek
to avoid concentrations by industry or loan size in order to minimize credit
exposure and to originate loans in markets with which the Company is familiar.
The Company's commercial and industrial loan portfolio represents
approximately 61% of gross loans. Loans in this category are typically made to
small and medium sized businesses and range between $250,000 and $10 million.
The primary source of repayment is from the borrower's operating profits and
cash flows. Based on underwriting standards, loans may be secured in whole or in
part by collateral such as liquid assets, accounts receivable, equipment,
inventory or real property. The Company's real estate loan portfolio, which
represents approximately 19% of gross loans, is secured by mortgages on real
property located principally in the State of New York and the Commonwealth of
Virginia. Included in the Company's real estate loan portfolio are $33,093,000
of loans held for sale. These loans are collateralized by mortgages on 1-4
family residential properties and are carried at the lower of cost or market.
The Company's leasing portfolio, which consists of finance leases for various
types of business equipment, represents approximately 16% of gross loans. The
collateral securing any loan may vary in value based on market conditions.
The following table sets forth the composition of the Company's loan
portfolio:
September 30,
-------------------------------------------------------------------------
2002 2001
------------------------------ -----------------------------
($ in thousands)
% of % of
Balances Gross Balances Gross
-------- ----- -------- --------
Domestic
Commercial and industrial $512,010 60.6% 512,068 64.1%
Equipment lease financing 138,260 16.4 108,125 13.5
Real estate 157,772 18.7 144,219 18.1
Installment - individuals 9,016 1.1 8,488 1.1
Loans to depository institutions 27,000 3.2 25,000 3.1
Foreign
Government and official institutions -- -- 777 0.1
-------- ----- -------- --------
Gross loan 844,058 100.0% 798,677 100.0%
===== =====
Unearned discounts 15,768 15,162
-------- --------
Loans, net of unearned discounts $828,290 $783,515
======== ========
Asset Quality
Intrinsic to the lending process is the possibility of loss. In times of
economic slowdown, the risk inherent in the Company's portfolio of loans may
increase. While management endeavors to minimize this risk, it recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio which in turn
depends on current and expected economic conditions, the financial condition of
borrowers and the credit management process.
The allowance for 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
19
portfolio. The allowance reflects management's evaluation of both loans
presenting identified loss potential and of the risk inherent in various
components of the portfolio, including loans identified as impaired as required
by SFAS No. 114. Thus, an increase in the size of the portfolio or in any of its
components could necessitate an increase in the allowance even though there may
not be a decline in credit quality or an increase in potential problem loans. A
significant change in any of the evaluation factors described above could result
in future additions to the allowance. At September 30, 2002 the ratio of the
allowance to loans, net of unearned discounts, was 1.55% and the allowance was
$12,822,000. At such date, the Company's non-accrual loans amounted to
$1,824,000; $556,000 of such loans were judged to be impaired within the scope
of SFAS No. 114 and required valuation allowances of $340,000. Based on the
foregoing, as well as management's judgment as to the current risks inherent in
the loan portfolio, the Company's allowance for loan losses was deemed adequate
to absorb all estimable losses on specifically known and other possible credit
risks associated with the portfolio as of September 30, 2002. Potential problem
loans, which are loans that are currently performing under present loan
repayment terms but where known information about possible credit problems of
borrowers cause management to have serious doubts as to the ability of the
borrowers to continue to comply with the present repayment terms, aggregated
$737,000 at September 30, 2002.
Deposits
A significant source of funds for the Company continues to be deposits,
consisting of demand (noninterest-bearing), NOW, savings, money market and time
deposits (principally certificates of deposit).
The following table provides certain information with respect to the
Company's deposits:
September 30,
-----------------------------------------------------------------------------
2002 2001
------------------------------ -------------------------------
($ in thousands)
% of % of
Balances Total Balances Total
---------- ----- ---------- ------
Domestic
Demand $ 326,243 31.6% $ 323,611 32.3%
NOW 114,107 11.0 99,363 9.9
Savings 24,997 2.4 31,397 3.1
Money market 175,990 17.0 221,644 22.2
Time deposits 389,688 37.7 321,823 32.2
---------- ----- ---------- -----
Total domestic deposits 1,031,025 99.7 997,838 99.7
Foreign
Time deposits 3,000 0.3 2,975 0.3
---------- ----- ---------- -----
Total deposits $1,034,025 100.0% $1,000,813 100.0%
========== ===== ========== =====
Fluctuations of balances in total or among categories at any date may occur
based on the Company's mix of assets and liabilities as well as on customer's
balance sheet strategies. Historically, however, average balances for deposits
have been relatively stable. Information regarding these average balances is
presented on pages 22 and 23.
20
CAPITAL
The Company and the bank are subject to risk-based capital regulations. The
purpose of these regulations is to quantitatively measure capital against risk-
weighted assets, including off-balance sheet items. These regulations define the
elements of total capital into Tier 1 and Tier 2 components and establish
minimum ratios of 4% for Tier 1 capital and 8% for Total Capital for capital
adequacy purposes. Supplementing these regulations is a leverage requirement.
This requirement establishes a minimum leverage ratio (at least 3% to 5%) which
is calculated by dividing Tier 1 capital by adjusted quarterly average assets
(after deducting goodwill). Information regarding the Company's and the bank's
risk-based capital is presented on page 26. In addition, the Company and the
bank are subject to the provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1981 ("FDICIA") which imposes a number of mandatory
supervisory measures. Among other matters, FDICIA established five capital
categories ranging from "well capitalized" to "critically under capitalized."
Such classifications are used by regulatory agencies to determine a bank's
deposit insurance premium, approval of applications authorizing institutions to
increase their asset size or otherwise expand business activities or acquire
other institutions and for other supervisory and regulatory purposes. Under the
provisions of FDICIA a "well capitalized" institution must maintain minimum
leverage, Tier 1 and Total Capital ratios of 5%, 6% and 10%, respectively. At
September 30, 2002, the Company and the bank exceeded the requirements for "well
capitalized" institutions. Under the provisions of the Gramm-Leach-Bliley Act of
1999, in order for the parent company to maintain its status as a financial
holding company, the bank must remain "well capitalized."
21
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended September 30,
(dollars in thousands)
2002 2001
---------------------------------- -----------------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
----------- --------- ---------- ----------- -------- --------
Interest-bearing deposits
with other banks $ 3,067 $ 6 0.87 % $ 4,039 $ 28 2.78 %
Investment securities:
Available for sale 246,248 3,817 6.20 176,281 2,855 6.48
Held to maturity 314,303 4,943 6.29 239,305 4,034 6.74
Tax-exempt [2] 32,744 607 7.35 34,660 641 7.34
Federal funds sold 10,185 44 1.70 6,130 55 3.51
Loans, net of unearned discounts
Domestic [3] 745,821 14,547 8.25 710,209 16,318 9.63
Foreign - - - 777 10 5.20
---------- ------ ----------- --------
TOTAL INTEREST-EARNING ASSETS 1,352,368 23,964 7.29 % 1,171,401 23,941 8.38 %
------ ===== -------- =====
Cash and due from banks 52,606 38,776
Allowance for loan losses (12,961) (13,691)
Goodwill 21,158 21,158
Other assets 55,046 29,689
---------- -----------
TOTAL ASSETS $1,468,217 $ 1,247,333
========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 24,380 39 0.63 % $ 30,267 165 2.17 %
NOW 120,370 230 0.76 94,777 407 1.70
Money market 166,173 295 0.70 201,781 1,080 2.12
Time 374,160 2,533 2.69 290,412 3,147 4.30
Foreign
Time 3,000 14 1.80 2,975 32 4.22
---------- ------ ----------- --------
Total interest-bearing deposits 688,083 3,111 1.79 620,212 4,831 3.09
---------- ------ ----------- --------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 63,438 296 1.85 56,529 548 3.84
Commercial paper 29,297 157 2.12 36,552 357 3.88
Other short-term debt 22,400 135 2.39 4,335 39 3.54
Long-term debt 125,000 1,148 3.67 40,350 467 4.63
---------- ------ ----------- --------
Total borrowings 240,135 1,736 2.88 137,766 1,411 4.07
---------- ------ ----------- --------
TOTAL INTEREST-BEARING LIABILITIES 928,218 4,847 2.08 % 757,978 6,242 3.27 %
------ ===== -------- ======
Noninterest-bearing deposits 314,739 288,279
Other liabilities 76,096 73,743
---------- ----------
Total liabilities 1,319,053 1,120,000
---------- ----------
Corporation Obligated Mandatorily
Redeemable Preferred Securities 25,000 -
---------- ----------
Shareholders' equity 124,164 127,333
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,468,217 $ 1,247,333
========== ==========
Net interest income/spread 19,117 5.21 % 17,699 5.11 %
====== =====
Net yield on interest-earning
assets (margin) 5.79 % 6.16 %
====== =====
Less: Tax equivalent adjustment 249 264
--------- --------
Net interest income $ 18,868 $ 17,435
========= ========
[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 2001
amounts to conform to the current presentation.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Nonaccrual loans are included in amounts outstanding and income has been
included to the extent collected.
22
STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Nine Months Ended September 30,
(dollars in thousands)
2002 2001
---------------------------------- ---------------------------------
Average Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate
-------- --------- --------- --------- --------- --------
Interest-bearing deposits
with other banks $ 3,405 $ 26 1.03 % $ 3,371 $ 86 3.42 %
Investment securities:
Available for sale 252,417 11,655 6.16 155,740 7,740 6.63
Held to maturity 309,903 14,743 6.34 257,193 13,108 6.80
Tax-exempt [2] 33,884 1,883 7.43 33,810 1,874 7.41
Federal funds sold 17,791 225 1.67 2,681 80 3.91
Loans, net of unearned discounts
Domestic [3] 728,405 42,959 8.51 697,094 50,306 10.41
Foreign - - - 777 37 6.32
--------- ------- ---------- -------
TOTAL INTEREST-EARNING ASSETS 1,345,805 71,491 7.38 % 1,150,666 73,231 8.89 %
------- ===== ------- ======
Cash and due from banks 49,899 42,510
Allowance for loan losses (14,119) (13,443)
Goodwill 21,158 21,158
Other assets 52,200 27,536
--------- ----------
TOTAL ASSETS $1,454,943 $1,228,427
========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits
Domestic
Savings $ 26,072 123 0.63 % $ 27,492 476 2.31 %
NOW 110,514 694 0.84 80,928 1,242 2.05
Money market 165,386 1,086 0.88 190,900 3,499 2.45
Time 369,001 7,795 2.82 268,634 9,750 4.85
Foreign
Time 2,999 45 2.00 2,975 104 4.68
--------- ------- -------- ------
Total interest-bearing
deposits 673,972 9,743 1.93 570,929 15,071 3.53
--------- ------- -------- ------
Borrowings
Federal funds purchased and
securities sold under
agreements to repurchase 76,578 1,100 1.92 101,195 3,681 4.86
Commercial paper 31,982 516 2.16 35,999 1,225 4.55
Other short-term debt 21,014 373 2.37 3,588 124 4.62
Long-term debt 119,552 3,334 3.72 35,450 1,229 4.62
--------- ------- -------- ------
Total borrowings 249,126 5,323 2.85 176,232 6,259 4.74
--------- ------- -------- ------
TOTAL INTEREST-BEARING LIABILITIES 923,098 15,066 2.18 % 747,161 21,330 3.82 %
------- ===== ------ ======
Noninterest-bearing deposits 309,486 287,785
Other liabilities 76,760 71,520
--------- ----------
Total liabilities 1,309,344 1,106,466
--------- ----------
Corporation Obligated Mandatorily
Redeemable Preferred Securities 19,780 -
--------- ----------
Shareholders' equity 125,819 121,961
--------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,454,943 $1,228,427
========= ==========
Net interest income/spread 56,425 5.20 % 51,901 5.07 %
===== ======
Net yield on interest-earning
assets (margin) 5.81 % 6.27 %
===== ======
Less: Tax equivalent adjustment 774 771
------- -------
Net interest income $ 55,651 $51,130
======= =======
[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 2001
amounts to conform to current presentation.
[2] Interest on tax-exempt securities is presented on a tax equivalent basis.
[3] Nonaccrual loans are included in amounts outstanding and income has been
included to the extent collected.
23
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(in thousands)
Increase/(Decrease)
Three Months Ended
September 30, 2002 to September 30, 2001
-----------------------------------------
Volume Rate Net [2]
------ -------- ---------
INTEREST INCOME
Interest-bearing deposits with other banks $ (6) $ (16) $ (22)
------ ------- --------
Investment securities
Available for sale 1,533 (571) 962
Held to maturity 2,077 (1,168) 909
Tax-exempt (39) 5 (34)
------ ------- --------
Total investment securities 3,571 (1,734) 1,837
------ ------- --------
Federal funds sold 87 (98) (11)
------ ------- --------
Loans, net of unearned discounts
Domestic [3] 3,341 (5,112) (1,771)
Foreign (5) (5) (10)
------ ------- --------
Total loans, net of unearned discount 3,336 (5,117) (1,781)
------ ------- --------
TOTAL INTEREST INCOME $ 6,988 $(6,965) $ 23
====== ======= =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ (27) $ (99) $ (126)
NOW 379 (556) (177)
Money market (164) (621) (785)
Time 2,776 (3,390) (614)
Foreign
Time 2 (20) (18)
------ ------- -------
Total interest-bearing deposits 2,966 (4,686) (1,720)
------ ------- -------
Borrowings
Federal funds purchased and securities sold
under agreements to repurchase 273 (525) (252)
Commercial paper (61) (139) (200)
Other short-term debt 158 (62) 96
Long-term debt 1,147 (466) 681
------ ------- -------
Total borrowings 1,517 (1,192) 325
------ ------- -------
TOTAL INTEREST EXPENSE $ 4,483 $(5,878) $(1,395)
====== ======= =======
NET INTEREST INCOME $ 2,505 $(1,087) $ 1,418
====== ======= =======
[1] The above table is presented on a tax equivalent basis.
[2] Changes in interest income and interest expense due to a combination of both
volume and rate have been allocated to the change due to volume and the
change due to rate in proportion to the relationship of the change due
solely to each.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent collected.
24
STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(in thousands)
Increase/(Decrease)
Nine Months Ended
September 30, 2002 to September 30, 2001
-----------------------------------------
Volume Rate Net [2]
------ ------ ------
Interest-bearing deposits with other banks $ 1 $ (61) $ (60)
-------- -------- -------
Investment securities
Available for sale 4,828 (913) 3,915
Held to maturity 3,008 (1,373) 1,635
Tax-exempt 4 5 9
-------- -------- -------
Total investment securities 7,840 (2,281) 5,559
-------- -------- -------
Federal funds sold 241 (96) 145
-------- -------- -------
Loans, net of unearned discounts
Domestic [3] 3,780 (11,127) (7,347)
Foreign (18) (19) (37)
-------- -------- -------
Total loans, net of unearned discount 3,762 (11,146) (7,384)
-------- -------- -------
TOTAL INTEREST INCOME $ 11,844 $ (13,584) $ (1,740)
======== ======== =======
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings $ (24) $ (329) $ (353)
NOW 540 (1,088) (548)
Money market (416) (1,997) (2,413)
Time 4,222 (6,177) (1,955)
Foreign
Time 1 (60) (59)
-------- ------- --------
Total interest-bearing deposits 4,323 (9,651) (5,328)
-------- ------- --------
Borrowings
Federal funds purchased and securities sold
under agreements to repurchase (740) (1,841) (2,581)
Commercial paper (124) (585) (709)
Other short-term debt 373 (124) 249
Long-term debt 2,535 (430) 2,105
-------- ------- --------
Total borrowings 2,044 (2,980) (936)
-------- ------- --------
TOTAL INTEREST EXPENSE $ 6,367 $(12,631) $ (6,264)
======== ======== ========
NET INTEREST INCOME $ 5,477 $ (953) $ 4,524
======== ======== ========
[1] The above table is presented on a tax equivalent basis.
[2] Changes in interest income and interest expense due to a combination of both
volume and rate have been allocated to the change due to volume and the
change due to rate in proportion to the relationship of the change due
solely to each.
[3] Nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent collected.
25
STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios
Ratios and Minimums
(dollars in thousands)
For Capital To Be Well
Actual Adequacy Minimum Capitalized
------------------------- --------------------- -------------------------
As of September 30, 2002 Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------- ------------------------- --------------------- --------------------------
Total Capital (to Risk Weighted Assets):
The Company $139,684 15.42 % $72,451 8.00 % $90,564 10.00 %
The bank 97,722 11.36 68,829 8.00 86,037 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 128,345 14.17 36,226 4.00 54,338 6.00
The bank 86,953 10.11 34,415 4.00 51,622 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 128,345 8.87 57,882 4.00 72,353 5.00
The bank 86,953 6.21 56,029 4.00 70,036 5.00
As of December 31, 2001
- -------------------------------------------
Total Capital (to Risk Weighted Assets):
The Company $116,912 13.70 % $68,290 8.00 % $85,362 10.00 %
The bank 96,158 11.97 64,240 8.00 80,300 10.00
Tier 1 Capital (to Risk Weighted Assets):
The Company 106,200 12.44 34,145 4.00 51,217 6.00
The bank 86,093 10.72 32,120 4.00 48,180 6.00
Tier 1 Leverage Capital (to Average Assets):
The Company 106,200 7.79 54,553 4.00 68,191 5.00
The bank 86,093 6.54 52,681 4.00 65,852 5.00
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is net interest income; therefore, the
Company devotes significant time and has invested in resources to assist in the
management of market risk, liquidity risk, capital and asset quality. The
Company's net interest income is affected by changes in market interest rates
and by the level and composition of interest-earning assets and interest-bearing
liabilities. The Company's objectives in its asset/liability management are to
utilize its capital effectively, to provide adequate liquidity and to enhance
net interest income, without taking undue risks or subjecting the Company unduly
to interest rate fluctuations.
The Company takes a coordinated approach to the management of market risk,
liquidity and capital. This risk management process is governed by policies and
limits established by senior management which are reviewed and approved by the
Asset/Liability Committee. This committee, which is comprised of members of
senior management and the Board, meets to review, among other things, economic
conditions, interest rates, yield curve, cash flow projections, expected
customer actions, liquidity levels, capital ratios and repricing characteristics
of assets, liabilities and off-balance sheet financial instruments.
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market indices such as interest rates, foreign exchange rates and
equity prices. The Company's principal market risk exposure is interest rate
risk, with no material impact on earnings from changes in foreign exchange rates
or equity prices.
Interest rate risk is the exposure to changes in market interest rates.
Interest rate sensitivity is the relationship between market interest rates and
net interest income due to the repricing characteristics of assets and
liabilities. The Company monitors the interest rate sensitivity of its on- and
off-balance sheet positions by examining its near-term sensitivity and its
longer term gap position. In its management of interest rate risk, the Company
utilizes several tools including traditional gap analysis and sophisticated
income simulation models.
A traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest-earning assets and interest-bearing liabilities for
selected time bands. The mismatch between repricings or maturities within a time
band is commonly referred to as the "gap" for that period. A positive gap (asset
sensitive) where interest-rate sensitive assets exceed interest-rate sensitive
liabilities generally will result in an institution's net interest margin
increasing in a rising rate environment and decreasing in a falling rate
environment. A negative gap (liability sensitive) will generally have the
opposite result on an institution's net interest margin. However, the
traditional gap analysis does not assess the relative sensitivity of assets and
liabilities to changes in interest rates. The Company utilizes the gap analysis
to complement its income simulations modeling.
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 September 30, 2002, is presented
on page 30. The results of both the income simulation analysis and the gap
analysis, reveal that net interest income would tend to increase during periods
of rising interest rates and tend to decrease during periods of falling interest
rates.
27
As part of its interest rate risk strategy, the Company uses certain
financial instruments (derivatives) to hedge the interest rate sensitivity of
assets with the corresponding amortization reflected in the yield of the related
on-balance sheet assets being hedged. The Company has written policy guidelines,
which have been approved by the Board of Directors based on recommendations of
the Asset/Liability Committee, governing the use of certain financial
instruments (derivatives), 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 purchased interest rate floor contracts to reduce the impact
of falling rates on its floating rate commercial loans. Interest rate floor
contracts require the counterparty to pay the Company at specified future dates
the amount, if any, by which the specified interest rate (3 month LIBOR) falls
below the fixed floor rates, applied to the notional amounts. The Company
utilizes these financial instruments to adjust its interest rate risk position
without exposing itself to principal risk and funding requirements.
At September 30, 2002, the Company utilized four interest rate floor
contracts having a notional amount totalling $100 million consisting of two
contracts with a notional amount of $25 million each and a final maturity of
November 15, 2002 and two contracts with a notional amount of $25 million each
and a final maturity of August 14, 2003. These financial instruments are being
used as part of the Company's interest rate risk management and not for trading
purposes. At September 30, 2002, all counterparties have investment grade credit
ratings from the major rating agencies. Each counterparty is specifically
approved for applicable credit exposure.
The Company utilizes income simulation models to complement its
traditional gap analysis. While the Asset/Liability Committee routinely monitors
simulated net interest income sensitivity over a rolling two-year horizon, it
also utilizes additional tools to monitor potential longer-term interest rate
risk. The income simulation models measure the Company's net interest income
sensitivity or volatility to interest rate changes utilizing statistical
techniques that allow the Company to consider various factors which impact net
interest income. These factors include actual maturities, estimated cash flows,
repricing characteristics, deposits growth/retention and, most importantly, the
relative sensitivity of the Company's assets and liabilities to changes in
market interest rates. This relative sensitivity is important to consider as the
Company's core deposit base is not subject to the same degree of interest rate
sensitivity as its assets. The core deposit costs are internally managed and
tend to exhibit less sensitivity to changes in interest rates than the Company's
adjustable rate assets whose yields are based on external indices and change in
concert with market interest rates.
The Company's interest rate sensitivity is determined by identifying the
probable impact of changes in market interest rates on the yields on the
Company's assets and the rates which would be paid on its liabilities. This
modeling technique involves a degree of estimation based on certain assumptions
that management believes to be reasonable. Utilizing this process, management
can project the impact of changes in interest rates on net interest margin. The
estimated effects of the Company's interest rate floors are included in the
results of the sensitivity analysis. The Company has established certain limits
for the potential volatility of its net interest margin assuming certain levels
of changes in market interest rates with the objective of maintaining a stable
net interest margin under various probable rate scenarios. Management generally
28
has maintained a risk position well within the policy limits. As of September
30, 2002, the model indicated the impact of a 200 basis point parallel and pro
rata rise in rates over twelve months would approximate a 2.19% ($1,628,000)
increase in net interest income, while the impact of a 200 basis point decline
in rates over the same period would approximate a 4.95% ($3,677,000) 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 make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to: prepayment/refinancing levels
likely deviating from those assumed, the varying impact of interest rate change
"caps" or "floors" on adjustable rate assets, the potential effect of changing
debt service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes, and other internal and external
variables. Furthermore, the sensitivity analysis does not reflect actions that
the Asset/Liability Committee might take in responding to or anticipating
changes in interest rates.
Liquidity Risk
Liquidity is the ability to meet cash needs arising from changes in various
categories of assets and liabilities. Liquidity is constantly monitored and
managed throughout the Company. Liquid assets consist of cash and due from
banks, interest-bearing deposits in banks and Federal funds sold and securities
available for sale. Primary funding sources include core deposits, capital
markets funds and other money market sources. Core deposits include domestic
noninterest-bearing and interest-bearing retail deposits, which historically
have been relatively stable. The parent company and the bank have significant
unused borrowing capacity. Contingency plans exist and could be implemented on a
timely basis to minimize the impact of any dramatic change in market conditions.
The parent company generates income from its own operations. Its cash
requirements are supplemented from funds maintained or generated by its
subsidiaries, principally the bank. Such sources have been adequate to meet the
parent company's cash requirements.
The bank can supply funds to the parent company and its nonbank
subsidiaries subject to various legal restrictions. All national banks are
limited in the payment of dividends without the approval of the Comptroller of
the Currency to an amount not to exceed the net profits as defined, for that
year to date combined with its retained net profits for the preceding two
calendar years.
At September 30, 2002, the parent company's short-term debt, consisting
principally of commercial paper used to finance ongoing current business
activities, was approximately $30,063,000. The parent company had cash,
interest-bearing deposits with banks and other current assets aggregating
$52,845,000 and back-up credit lines with banks of $19,000,000. Since 1979, the
parent company has had no need to use available back-up lines of credit.
While the Company's past performance is no guarantee of the future,
management believes that the Company's funding sources (including dividends from
all its subsidiaries) and the bank's funding sources will be adequate to meet
their liquidity and capital requirements in the future.
29
STERLING BANCORP AND SUBSIDIARIES
Interest Rate Sensitivity
To mitigate the vulnerability of earnings to changes in interest rates, the
Company manages the repricing characteristics of assets and liabilities in an
attempt to control net interest rate sensitivity. Management attempts to
confine significant rate sensitivity gaps predominantly to repricing intervals
of a year or less so that adjustments can be made quickly. Assets and
liabilities with predetermined repricing dates are placed in a time of the
earliest repricing period. Amounts are presented in thousands.
Repricing Date
---------------------------------------------------------------------------
More than More than
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 $ 1,906 $ - $ - $ - $ - $ 1,906
Investment securities 2,497 1,104 41,085 538,987 8,720 592,393
Loans, net of unearned
discounts
Commercial and industrial 500,476 2,003 9,502 29 (723) 511,287
Loans to depository
institutions 27,000 - - - - 27,000
Lease financing 67,628 3,373 64,750 2,509 (15,004) 123,256
Real estate 36,933 27,875 51,247 41,717 (20) 157,752
Installment 7,416 421 726 453 (21) 8,995
Noninterest-earning
assets and allowance
for loan losses - - - - 107,188 107,188
-------- --------- --------- -------- --------- -----------
Total Assets 643,856 34,776 167,310 583,695 100,140 1,529,777
-------- --------- --------- -------- --------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing deposits
Savings [1] - - 24,997 - - 24,997
NOW [1] - - 114,107 - - 114,107
Money market [1] 139,920 - 36,070 - - 175,990
Time - domestic 233,729 77,417 78,542 - - 389,688
- foreign 1,180 1,820 - - - 3,000
Federal funds purchased &
securities sold u/a/r 78,074 - - - - 78,074
Commercial paper 29,713 - - - - 29,713
Other short-term borrowings 4,567 20,350 - - - 24,917
Long-term borrowings - FHLB - 10,000 15,000 100,000 - 125,000
Noninterest-bearing
liabilities and shareholders'
equity - - - - 564,291 564,291
-------- --------- --------- -------- --------- -----------
Total Liabilities and
Shareholders' Equity 487,183 109,587 268,716 100,000 564,291 1,529,777
-------- --------- --------- -------- --------- -----------
Net Interest Rate
Sensitivity Gap $156,673 $ (74,811) $ (101,406) $ 483,695 $(464,151) $ -
======== ========= ========= ======== ========= ===========
Cumulative Gap
September 30, 2002 $156,673 $ 81,862 $ (19,544) $ 464,151 $ - $ -
======== ========= ========= ======== ========= ===========
Cumulative Gap
September 30, 2001 $155,428 $ 87,832 $ 7,300 $ 464,924 $ - $ -
======== ========= ========= ======== ========= ===========
Cumulative Gap
December 31, 2001 $129,150 $ 64,668 $ (47,649) $ 483,188 $ - $ -
======== ========= =========== ======== ========== ===========
[1] Historically, balances in non-maturity deposit accounts have remained
relatively stable despite changes in levels of interest rates. Balances are
shown in repricing periods based on management's historical repricing
practices and runoff experience.
30
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective.
No significant changes were made in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of their evaluation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
(11) Statement Re: Computation of Per Share Earnings
(99.1) Certifications of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
(99.2) Certifications of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
(b) In a report on Form 8-K dated August 14, 2002 and filed on August
15, 2002, the Company reported, under Item 9. "Regulation FD
Disclosure", (a) the filing by the Company's Chief Executive
Officer and Chief Financial Officer of certifications relating to
the Company's Form 10-Q for the quarter ended June 30, 2002
required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and (b) the Company's declaration of a quarterly dividend payable
September 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING BANCORP
.............................
(Registrant)
Date 11/12/02 /s/ Louis J. Cappelli
---------------------- ------------------------------
Louis J. Cappelli
Chairman and Chief Executive
Officer
Date 11/12/02 /s/ John W. Tietjen
---------------------- -----------------------------
John W. Tietjen
Executive Vice President,
Treasurer and Chief Financial
Officer
31
STERLING BANCORP AND SUBSIDIARIES
EXHIBIT INDEX
Sequential Incorporated
Exhibit Herein By Filed Page
Number Description Reference To Herewith No.
------- ----------- ------------ -------- ---
11 Computation of X 33
Per Share Earnings
99.1 Certification of
Chief Executive
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002 X 34
99.2 Certification of
Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002 X 35
32