We are pleased to report that 2002 was another outstanding year for Sterling Bancorp—our seventh consecutive year of record results. We are particularly proud of these results in light of the year’s difficult economic conditions, marked by a falling stock market, a stagnant economy, rising unemployment and geopolitical uncertainties. Sterling’s record performance was the result of its ability to remain true to its basic corporate values of hands-on management and providing highly personalized service to its customer base of small and mid-sized businesses, non-profit organizations, professionals, individuals and others.

Also key to the Company’s success was its ongoing focus on diversification. Our extensive range of financial products and services, and our well-diversified portfolio of loans across numerous industries, helped insulate the Company from the cyclical effects of any particular market sector. Our growing geographic spread also enabled us to reach out and take advantage of new opportunities. Through our careful risk and asset/liability practices, we have been able to perform well despite the falling interest rate environment.

Importantly, our investment in technology has continued to play a growing role at Sterling and has improved our efficiencies and helped reduce costs. Perhaps more noteworthy, the technological innovations that we have introduced into our product offerings, in many cases customized to meet specific client needs, have helped increase already high levels of customer satisfaction and loyalty. This year, we have devoted a section of our annual report to feature some of these value-added capabilities.

Financial Highlights

These strong financial results were due to increases in earning assets, continued control of funding costs and growth of noninterest income.

For the year, average loans outstanding rose 6%, principally the result of new relationships. Asset quality remained sound, with nonperforming assets representing only 0.17% of total assets at year-end.

Focused on the community...

Noteworthy Events of 2002

We were gratified that our common stock performed well relative to the key major indices, and our market capitalization exceeded $310 million. We continued to seek ways to reward our shareholders, and in November 2002, the Board of Directors declared a 20% stock dividend -our fourth consecutive annual stock dividend -and increased the cash dividend to $0.76 per common share on an annualized basis. Combined, this resulted in a 27% increase in the effective annual dividend rate. These stock dividends, coupled with cash dividends, have resulted in an increase of approximately 160% in annual cash dividends paid per common share since 1998.

In February 2002, the Board increased our authorization to repurchase our common stock, as an effective way to deliver additional value to shareholders. During the year, the Company repurchased 495,800 shares, which represents approximately five percent of Sterling’s outstanding shares at the beginning of 2002.

In addition, during the first quarter of 2002, the Company completed the public offering of $25 million of trust preferred securities, whose proceeds were used for general corporate purposes. The offering was oversubscribed, and we were pleased at the broad acceptance of our securities in the marketplace. The Company also implemented a Bank Owned Life Insurance program in an effort to offset future increases in benefit costs.

In December 2002, we acquired the assets and business of Capital Mortgage Funding, Inc., a Charlotte, North Carolina-based mortgage broker specializing in retail non-conforming mortgage loans. The acquisition increased our expansion into the higher-yielding segment of the marketplace and broadened our presence beyond the Northeast and mid-Atlantic markets. It will also enhance our cross-selling opportunities for other financial products.

...and beyond

Looking at 2003 and Beyond

As the new year unfolds, the general economic environment remains unsettled, and this will undoubtedly have an impact on business conditions. Nevertheless, we believe that our prospects are bright. The banking and financial services industry continues to consolidate, driving customers to seek out new sources of banking and financing. We believe that many potential new customers, especially among our target market group, will be drawn to the type of high-touch, personalized service that is simply unavailable to them at other institutions, and at which we excel. We have already seen a rise in new account activity, and have added sales and marketing personnel to take advantage of this opportunity.

Finally, we would like to thank all those who contributed to our success during the year: our employees, for their hard work; our customers and clients, for allowing us to serve their banking and financial needs; and our Board of Directors, for their guidance. We were saddened by the loss of the Honorable Maxwell Rabb, who provided us with great wisdom during his long tenure as a director. We welcome our newest Board member, Fernando Ferrer, former Bronx Borough President and currently the president of a non-profit policy organization. Mr. Ferrer has outstanding experience with civic and business communities, and will provide invaluable counsel reflecting his work in these important areas.

Above all, we wish to thank our shareholders, to whose interests we are entirely dedicated, for their confidence and support.

Louis J. Cappelli
Chairman and Chief Executive Officer

John C. Millman
President