Edgar Filing: STERLING BANCORP


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, 2010


or

o 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		12-2565216

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(17 CFR § 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. (Check one):


	Large Accelerated Filer o		Accelerated Filer x
	Non-Accelerated Filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

As of October 31, 2010 there were 26,840,763 shares of common stock,
$1.00 par value, outstanding.

STERLING BANCORP


			Page

PART I FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Financial Statements (Unaudited)	3
		Notes to Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

		Overview	28
		Recent Legislation Impacting The Financial Services Industry	29
		Income Statement Analysis	30
		Balance Sheet Analysis	34
		Capital	41
		Recently Issued Accounting Pronouncements	42
		Cautionary Statement Regarding Forward-Looking Statements	42
		Average Balance Sheets	43
		Rate/Volume Analysis	45
		Regulatory Capital and Ratios	47

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk

		Asset/Liability Management	48
		Interest Rate Sensitivity	52

	Item 4.	Controls and Procedures	53

PART II OTHER INFORMATION

	Item 6.	Exhibits	54

SIGNATURES			55

EXHIBITS INDEX

	Exhibit 11	Statement Re: Computation of Per Share Earnings	57

	Exhibit 31.1	Certification of the CEO pursuant to Exchange Act Rule 13a-14(a)	58

	Exhibit 31.2	Certification of the CFO pursuant to Exchange Act Rule 13a-14(a)	59

	Exhibit 32.1	Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	60

	Exhibit 32.2	Certification of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	61

STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)



	September 30, 2010			December 31, 2009

ASSETS
Cash and due from banks	$	37,193		$	24,911
Interest-bearing deposits with other banks		19,300			36,958

Securities available for sale (at estimated fair value; pledged: $124,405 in 2010 and $150,034 in 2009)		421,984			346,526
Securities held to maturity (pledged: $161,416 in 2010 and $278,598 in 2009) (estimated fair value: $355,462 in 2010 and $396,150 in 2009)		342,477			390,539

Total investment securities		764,461			737,065


Loans held for sale		34,046			33,889

Loans held in portfolio, net of unearned discounts		1,296,166			1,195,415
Less allowance for loan losses		18,152			19,872

Loans, net		1,278,014			1,175,543


Federal Reserve and Federal Home Loan Bank stock, at cost		9,381			8,482
Customers’ liability under acceptances		313			27
Goodwill		22,901			22,901
Premises and equipment, net		15,725			9,658
Other real estate		744			1,385
Accrued interest receivable		9,216			9,001
Cash surrender value of life insurance policies		50,877			49,009
Other assets		61,306			56,780

	$	2,303,477		$	2,165,609

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand deposits	$	539,633		$	546,337
Savings, NOW and money market deposits		555,262			592,015
Time deposits		550,718			442,315

Total deposits		1,645,613			1,580,667

Securities sold under agreements to repurchase - customers		21,084			21,048
Securities sold under agreements to repurchase - dealers		5,000			—
Federal funds purchased		60,000			41,000
Commercial paper		15,245			17,297
Short-term borrowings - FRB		—			50,000
Short-term borrowings - other		2,221			2,509
Long-term borrowings - FHLB		144,528			130,000
Long-term borrowings - subordinated debentures		25,774			25,774

Total borrowings		273,852			287,628

Acceptances outstanding		313			27
Accrued interest payable		1,639			1,291
Due to factored clients		92,854			82,401
Accrued expenses and other liabilities		64,828			51,645

Total liabilities		2,079,099			2,003,659

Shareholders’ equity
Preferred stock, Series A, $5 par value; $1,000 liquidation value. Authorized 644,389 shares; issued 42,000 shares, respectively		40,472			40,113
Common stock, $1 par value. Authorized 50,000,000 shares; issued 31,138,545 and 22,226,425 shares, respectively		31,139			22,227
Warrants to purchase common stock		2,615			2,615
Capital surplus		236,368			178,734
Retained earnings		10,306			15,828
Accumulated other comprehensive loss		(9,966	)		(12,399	)
Common shares in treasury at cost, 4,297,782 and 4,119,934 shares, respectively		(86,556	)		(85,168	)

Total shareholders’ equity		224,378			161,950

	$	2,303,477		$	2,165,609

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

INTEREST INCOME

Loans

18,275

18,024

51,907

53,840

Investment securities

Available for sale

2,985

4,123

9,315

13,751

Held to maturity

3,320

4,357

11,622

11,485

FRB and FHLB stock

112

191

296

387

Deposits with other banks

Total interest income

24,702

26,722

73,193

79,509

INTEREST EXPENSE

Deposits

Savings, NOW and money market

746

872

2,536

2,940

Time

1,545

1,933

4,857

6,148

Securities sold under agreements to repurchase - customers

175

282

Securities sold under agreements to repurchase - dealers

—

Federal funds purchased

Commercial paper

Short-term borrowings - FHLB

—

Short-term borrowings - FRB

—

131

356

Short-term borrowings - other

—

Long-term borrowings - FHLB

871

1,197

2,591

3,453

Long-term borrowings - subordinated debentures

523

1,570

Total interest expense

3,827

4,752

11,885

14,859

Net interest income

20,875

21,970

61,308

64,650

Provision for loan losses

14,000

6,950

25,500

19,950

Net interest income after provision for loan losses

6,875

15,020

35,808

44,700

Total noninterest income

13,058

11,735

35,521

33,337

Total noninterest expenses

23,753

23,177

67,228

67,372

(Loss) Income before income taxes

(3,820

)

3,578

4,101

10,665

(Benefit) Provision for income taxes

(1,146

)

1,180

1,230

3,880

Net (loss) income

(2,674

)

2,398

2,871

6,785

Dividends on preferred shares and accretion

654

646

1,934

2,125

Net (loss) income available to common shareholders

(3,328

)

1,752

937

4,660

Average number of common shares outstanding

Basic

26,840,763

18,106,491

23,787,733

18,104,057

Diluted

26,840,763

18,120,412

23,791,160

18,192,585

Net income (loss) available to common shareholders, per average common share

Basic

(0.12

)

0.10

0.04

0.26

Diluted

(0.12

)

0.10

0.04

0.26

Dividends per common share

0.09

0.27

0.47

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
(dollars in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

Net (loss) income

(2,674

)

2,398

2,871

6,785

Other comprehensive income, net of tax:

Unrealized gains on securities:

Unrealized holding gains on available for sale securities and other investments arising during the year

921

2,664

3,081

4,352

Reclassification adjustment for gains included in net income

(638

)

(666

)

(1,866

)

(2,818

)

Reclassification adjustment for amortization of:

Prior service cost

Net actuarial losses

354

532

1,191

1,404

Other comprehensive income

646

2,539

2,433

2,965

Comprehensive (loss) income

(2,028

)

4,937

5,304

9,750

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(dollars in thousands)


	Nine Months Ended September 30,

	2010			2009

Preferred Stock
Balance at January 1,	$	40,113		$	39,440
Discount accretion		359			550

Balance at September 30,	$	40,472		$	39,990


Common Stock
Balance at January 1,	$	22,227		$	22,203
Common shares issued		8,625			24
Restricted shares issued		84			—
Common shares issued under stock incentive plan		203			—

Balance at September 30,	$	31,139		$	22,227


Warrants to Purchase Common Stock
Balance at January 1, and September 30,	$	2,615		$	2,615


Capital Surplus
Balance at January 1,	$	178,734		$	178,417
Common shares issued		56,256			—
Restricted shares issued		(84	)		—
Common shares issued under stock incentive plan and related tax benefits		1,274			185
Stock option compensation expense		188			99

Balance at September 30,	$	236,368		$	178,701


Retained Earnings
Balance at January 1,	$	15,828		$	19,088
Net income		2,871			6,785
Cash dividends paid - preferred shares		(1,575	)		(1,353	)
Cash dividends paid - common shares		(6,459	)		(8,503	)
Discount accretion on series A preferred stock		(359	)		(550	)

Balance at September 30,	$	10,306		$	15,467


Accumulated Other Comprehensive Loss
Balance at January 1,	$	(12,399	)	$	(16,259	)
Other comprehensive income, net of tax		2,433			2,965

Balance at September 30,	$	(9,966	)	$	(13,294	)


Treasury Stock
Balance at January 1,	$	(85,168	)	$	(85,024	)
Surrender of shares issued under stock incentive plan		(1,388	)		(144	)

Balance at September 30,	$	(86,556	)	$	(85,168	)


Total Shareholders’ Equity
Balance at January 1,	$	161,950		$	160,480
Net changes during the period		62,428			58

Balance at September 30,	$	224,378		$	160,538

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)


	Nine Months Ended September 30,

	2010			2009

Operating Activities
Net Income	$	2,871		$	6,785
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		25,500			19,950
Depreciation and amortization of premises and equipment		1,171			1,679
Securities gains		(3,419	)		(5,160	)
Income from life insurance policies, net		(757	)		(1,094	)
Deferred income tax provision (benefit)		361			(2,076	)
Proceeds from sale of loans		330,050			492,589
Gains on sales of loans, net		(5,645	)		(7,146	)
Originations of loans held for sale		(325,826	)		(487,822	)
Amortization of premiums on securities		4,793			1,386
Accretion of discounts on securities		(446	)		(1,035	)
(Increase) Decrease in accrued interest receivable		(215	)		776
Increase (Decrease) in accrued interest payable		348			(509	)
Increase in due to factored clients		10,453			39,111
Increase in accrued expenses and other liabilities		5,057			(14,742	)
Increase in other assets		(8,517	)		(1,872	)
Loss (Gain) on other real estate owned		17			(39	)

Net cash provided by operating activities		35,796			40,781

Investing Activities
Purchase of premises and equipment		(7,238	)		(641	)
Net decrease (increase) in interest-bearing deposits with other banks		17,658			(7,171	)
Net (increase) decrease in loans held in portfolio		(80,961	)		21,254
Net increase in short-term factored receivables		(46,279	)		(42,870	)
Decrease in other real estate		1,157			1,284
Proceeds from prepayments, redemptions or maturities of securities - held to maturity		48,597			60,172
Purchases of securities - held to maturity		(122,185	)		(183,996	)
Proceeds from calls of securities - held to maturity		132,380			30,000
Proceeds from calls/sales of securities - available for sale		400,719			366,526
Proceeds from prepayments, redemptions or maturities of securities - available for sale		170,701			95,607
Purchases of securities - available for sale		(645,514	)		(285,516	)
Proceeds from redemptions or maturities of securities - FHLB & FRB stock		961			3,375
Purchases of securities - FHLB & FRB stock		(1,860	)		(503	)
Cash paid in acquisition		—			(21,333	)

Net cash (used in) provided by investing activities		(131,864	)		36,188

Financing Activities
Net (decrease) increase in noninterest-bearing demand deposits		(6,704	)		5,819
Net decrease in savings, NOW and money market deposits		(36,753	)		(18,376	)
Net increase in time deposits		108,403			63,258
Net increase (decrease) in Federal funds purchased		19,000			(105,325	)
Net increase in securities sold under agreements to repurchase		5,036			11,294
Net decrease in commercial paper and other short-term borrowings		(52,340	)		(34,590	)
Increase in long-term borrowings		14,528			10,000
Proceeds from exercise of stock options		333			163
Proceeds from issuance of common stock		64,881			—
Cash dividends paid on preferred stock		(1,575	)		(1,353	)
Cash dividends paid on common stock		(6,459	)		(8,503	)

Net cash provided by (used in) financing activities		108,350			(77,613	)


Net increase (decrease) in cash and due from banks		12,282			(644	)
Cash and due from banks - beginning of period		24,911			31,832


Cash and due from banks - end of period	$	37,193		$	31,188


Supplemental disclosures:
Interest paid	$	11,537		$	15,368
Income taxes paid		3,716			5,746
Loans held for sale transferred to portfolio		1,264			—
Loans transferred to other real estate		533			1,538
Due to brokers on purchases of securities - AFS		—			5,000
Due to brokers on purchases of securities - HTM		10,300			613

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Significant Accounting Policies

Nature of Operations. Sterling Bancorp (the “parent company”) is a financial holding company, pursuant to an election made under the Gramm-Leach-Bliley Act of 1999. Throughout the notes, the term the “Company” refers to Sterling Bancorp and its subsidiaries and the term the “bank” refers to Sterling National Bank and its subsidiaries. The Company provides a full range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, trade financing, leasing, deposit services, trust and estate administration and investment management services. The Company has operations principally in the New York metropolitan area and conducts business throughout the United States.

The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) which, effective for all interim and annual periods ending after September 15, 2009, principally consist of the Financial Accounting Standards Board Accounting Standards Codification (“FASB Codification”). FASB Codification Topic 105: Generally Accepted Accounting Principles establishes the FASB codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the FASB Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the FASB Codification is superseded and deemed non-authoritative.

Basis of Presentation. The consolidated financial statements include the accounts of Sterling Bancorp and its subsidiaries, principally the bank, after elimination of intercompany transactions. The consolidated financial statements as of and for the interim periods ended September 30, 2010 and 2009 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 prior year’s 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, 2009 (the “2009 Form 10-K”).

Use of Estimates. The preparation of financial statements in accordance with U.S. GAAP requires management to make assumptions and estimates which impact the amounts reported in those statements and are, by their nature, subject to change in the future as additional information becomes available or as circumstances vary. Actual results could differ from management’s current estimates as a result of changing conditions and future events. The current economic environment has increased the degree of uncertainty inherent in these significant estimates. Several accounting estimates are particularly critical and are susceptible to significant near-term change, including the allowance for loan losses and asset impairment judgments, such as other-than-temporary declines in the value of securities and the accounting for income taxes. The judgments used by management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan losses in future periods, and the inability to collect outstanding principal may result in increased loan losses. The Company evaluates subsequent events through the date that the financial statements are issued. Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the current presentation. Throughout the notes, dollar amounts presented in tables are in thousands, except per share data.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 2. Investment Securities

The following tables present information regarding securities available for sale:


September 30, 2010	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal Home Loan Mortgage Corporation)	$	1,109	$	31	$	—	$	1,140
CMO’s (Government National Mortgage Association)		12,535		311		—		12,846
Federal National Mortgage Association		7,075		339		—		7,414
Federal Home Loan Mortgage Corporation		238		26		1		263
Government National Mortgage Association		2,220		272		—		2,492

Total mortgage-backed securities		23,177		979		1		24,155

Agency Notes
Federal National Mortgage Association		45,087		191		—		45,278
Federal Home Loan Bank		15,000		114		—		15,114
Federal Home Loan Mortgage Corporation		89,962		449		—		90,411
Federal Farm Credit Bank		10,000		50		—		10,050

Total obligations of U.S. government corporations and government sponsored enterprises		183,226		1,783		1		185,008

Obligations of state and political institutions-New York Bank Qualified		22,658		1,415		—		24,073
Single-issuer, trust preferred securities		3,878		76		26		3,928
Corporate debt securities		203,646		470		210		203,906
Other securities		5,044		25		—		5,069

Total	$	418,452	$	3,769	$	237	$	421,984

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)



December 31, 2009	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value



Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	2,882	$	—	$	5	$	2,877
CMO’s (Federal Home Loan Mortgage Corporation)		5,563		171		—		5,734
CMO’s (Government National Mortgage Association)		9,181		—		133		9,048
Federal National Mortgage Association		21,055		868		71		21,852
Federal Home Loan Mortgage Corporation		10,321		299		—		10,620
Government National Mortgage Association		6,807		351		1		7,157

Total mortgage-backed securities		55,809		1,689		210		57,288

Agency Notes
Federal National Mortgage Association		20,291		—		835		19,456
Federal Home Loan Bank		83,983		6		1,039		82,950
Federal Home Loan Mortgage Corporation		4,995		—		96		4,899
Federal Farm Credit Bank		24,999		—		669		24,330

Total obligations of U.S. government corporations and government sponsored enterprises		190,077		1,695		2,849		188,923


Obligations of state and political institutions-New York Bank Qualified		22,820		1,061		17		23,864
Single-issuer, trust preferred securities		4,878		—		395		4,483
Corporate debt securities		127,900		1,382		82		129,200
Other securities		44		12		—		56

Total	$	345,719	$	4,150	$	3,343	$	346,526

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following tables present information regarding securities held to maturity:



September 30, 2010	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	8,846	$	448	$	—	$	9,294
CMO’s (Federal Home Loan Mortgage Corporation)		13,558		667		—		14,225
Federal National Mortgage Association		77,289		4,324		—		81,613
Federal Home Loan Mortgage Corporation		45,564		2,291		—		47,855
Government National Mortgage Association		5,191		590		—		5,781

Total mortgage-backed securities		150,448		8,320		—		158,768

Agency Notes
Federal National Mortgage Association		34,989		36		19		35,006
Federal Home Loan Bank		19,990		7		6		19,991
Federal Home Loan Mortgage Corporation		14,995		50		—		15,045
Federal Farm Credit Bank		5,081		2		—		5,083

Total obligations of U.S. government corporations and government sponsored enterprises		225,503		8,415		25		233,893

Obligations of state and political institutions-New York Bank Qualified		116,974		4,679		84		121,569

Total	$	342,477	$	13,094	$	109		355,462

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)


December 31, 2009	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	10,863	$	339	$	—	$	11,202
CMO’s (Federal Home Loan Mortgage Corporation)		16,964		573		—		17,537
Federal National Mortgage Association		103,821		4,329		2		108,148
Federal Home Loan Mortgage Corporation		61,095		2,005		—		63,100
Government National Mortgage Association		5,989		501		—		6,490

Total mortgage-backed securities		198,732		7,747		2		206,477

Agency Notes
Federal National Mortgage Association		97,147		14		1,742		95,419
Federal Home Loan Bank		19,849		—		474		19,375
Federal Home Loan Mortgage Corporation		10,000		—		218		9,782
Federal Farm Credit Bank		5,088		—		94		4,994

Total obligations of U.S. government corporations and government sponsored enterprises		330,816		7,761		2,530		336,047

Obligations of state and political institutions-New York Bank Qualified		59,473		737		357		59,853
Debt securities issued by foreign governments		250		—		—		250

Total	$	390,539	$	8,498	$	2,887	$	396,150

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following tables present information regarding securities available for sale with temporary unrealized losses for the periods indicated:


	Less Than 12 Months				12 Months or Longer				Total

September 30, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses


Obligations of U.S. government corporations and government sponsored enterprises
Federal Home Loan Mortgage Corporation	$	29	$	1	$	—	$	—	$	29	$	1

Total mortgage-backed securities		29		1		—		—		29		1

Single-issuer, trust preferred securities		—		—		2,110		26		2,110		26
Corporate debt securities		58,625		210		—		—		58,625		210

Total	$	58,654	$	211	$	2,110	$	26	$	60,764	$	237


December 31, 2009


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	2,877	$	5	$	—	$	—	$	2,877	$	5
CMO’s (Government National Mortgage Association)		4,926		91		4,122		42		9,048		133
Federal National Mortgage Association		2,057		71		—		—		2,057		71
Government National Mortgage Association		—		—		123		1		123		1

Total mortgage-backed securities		9,860		167		4,245		43		14,105		210

Agency Notes
Federal National Mortgage Association		19,456		835		—		—		19,456		835
Federal Home Loan Bank		68,231		751		9,713		288		77,944		1,039
Federal Home Loan Mortgage Corporation		4,899		96		—		—		4,899		96
Federal Farm Credit Bank		24,330		669		—		—		24,330		669

Total obligations of U.S. government corporations and government sponsored enterprises		126,776		2,518		13,958		331		140,734		2,849

Obligations of state and political institutions-New York Bank Qualified		872		17		—		—		872		17
Single-issuer, trust preferred securities		—		—		3,540		395		3,540		395
Corporate debt securities		23,575		82		—		—		23,575		82

Total	$	151,223	$	2,617	$	17,498	$	726	$	168,721	$	3,343

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following tables present information regarding securities held to maturity with temporary unrealized losses for the periods indicated:


	Less Than 12 Months				12 Months or Longer				Total

September 30, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses


Obligations of U.S. government corporations and government sponsored enterprises -
Agency Notes
Federal National Mortgage Association	$	14,977	$	19	$	—	$	—	$	14,977	$	19
Federal Home Loan Bank		4,986		6		—		—		4,986		6

Total obligations of U.S. government corporations and government sponsored enterprises		19,963		25		—		—		19,963		25
Obligations of state and political institutions-New York Bank Qualified		5,064		84		—		—		5,064		84


Total	$	25,027	$	109	$	—	$	—	$	25,027	$	109


December 31, 2009


Obligations of U.S. government corporations and government sponsored enterprises -
Mortgage-backed securities
Federal National Mortgage Association	$	—	$	—	$	459	$	2	$	459	$	2

Total mortgage-backed securities		—		—		459		2		459		2

Agency Notes
Federal National Mortgage Association		86,027		1,742		—		—		86,027		1,742
Federal Home Loan Bank		19,375		474		—		—		19,375		474
Federal Home Loan Mortgage Corporation		9,782		218		—		—		9,782		218
Federal Farm Credit Bank		4,994		94		—		—		4,994		94

Total obligations of U.S. government corporations and government sponsored enterprises		120,178		2,528		459		2		120,637		2,530
Obligations of state and political institutions-New York Bank Qualified		16,478		357		—		—		16,478		357


Total	$	136,656	$	2,885	$	459	$	2	$	137,115	$	2,887

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The Company invests principally in obligations of U.S. government corporations and government sponsored enterprises and other investment-grade securities. The fair value of these investments fluctuates based on several factors, including credit quality and general interest rate changes. The Company determined that it is not more likely than not that the Company would be required to sell before anticipated recovery.

At September 30, 2010, approximately $120.7 million, representing approximately 15.8%, of the Company’s held to maturity and available for sale securities are comprised of securities issued by financial service companies/banks including single-issuer trust preferred securities (6 issuers), corporate debt (20 issuers) and equity securities (8 issuers). These investments may pose a higher risk of future impairment charges as a result of a possible further deterioration of the U.S. economy. Some of the single-issuer trust preferred securities held by the Company are financial institutions that are participating in the U.S. Treasury’s TARP Capital Purchase Program (“CPP”). It is possible that these financial institutions may elect to defer future interest payments on such securities based upon recommendations by the U.S. Government and the banking regulators or management decisions driven by potential liquidity needs. Such elections could result in future impairment charges if collection of deferred and accrued interest (or principal upon maturity) is deemed unlikely by management. The Company would be required to recognize impairment charges on these securities if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators or unanticipated changes in the competitive environment could have a negative effect on the Company’s investment portfolio and may result in other-than-temporary impairment on certain investment securities in future periods.

At September 30, 2010, the Company held 6 securities positions of single-issuer, trust preferred securities and 42 security positions of corporate debt securities issued by financial institutions, in the available for sale portfolio, all of which are paying in accordance with their terms and have no deferrals of interest or other deferrals. In addition, management analyzes the performance of the issuers on a periodic basis, including a review of each issuer’s most recent bank regulatory report to assess credit risk and the probability of impairment of the contractual cash flows of the applicable securities. Based upon management’s third quarter review, all of the issuers have maintained performance levels adequate to support the contractual cash flows of the securities.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following table presents information regarding single-issuer, trust preferred securities at September 30, 2010:


Issuer	TARP Recipient			Credit Rating		Amortized Cost		Fair Value		Unrealized Gain/(Loss)


Sterling Bancorp Trust I, 8.375%, due 3/31/2032		Yes			NA	$	980	$	1,036	$	56

NPB Capital Trust II, 7.85%, due 9/30/2032		Yes			NA		126		121		(5	)

VNB Capital Trust I, 7.75%, due 12/15/2031		Yes	*		BBB-		22		22		—

HSBC Finance, 6.875%, due 1/30/2033,		No			A		740		760		20
owned by HSBC Group, PLC		No

Citigroup Capital VII, 7.125%, due 7/31/2031		Yes	*		BB-		1,508		1,488		(20	)

Fleet Capital Trust VIII, 7.20%, due 3/15/2032,		No			BB		502		501		(1	)
owned by Bank of America Corporation		Yes	*



						$	3,878	$	3,928	$	50

* TARP obligation was repaid prior to September 30, 2010.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following tables present information regarding securities available for sale and securities held to maturity at September 30, 2010, based on contractual maturity. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


Available for sale	Amortized Cost		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal Home Loan Mortgage Corporation)	$	1,109	$	1,140
CMO’s (Government National Mortgage Association)		12,535		12,846
Federal National Mortgage Association		7,075		7,414
Federal Home Loan Mortgage Corporation		238		263
Government National Mortgage Association		2,220		2,492

Total mortgage-backed securities		23,177		24,155

Agency Notes
Federal National Mortgage Association
Due after 1 year but within 5 years		29,988		30,117
Due after 5 years but within 10 years		15,099		15,161
Federal Home Loan Bank
Due after 5 years but within 10 years		15,000		15,114
Federal Home Loan Mortgage Corporation
Due after 1 year but within 5 years		29,982		30,130
Due after 5 years but within 10 years		59,980		60,281
Federal Farm Credit Bank
Due after 10 years		10,000		10,050


Total obligations of U.S. government corporations and government sponsored enterprises		183,226		185,008


Obligations of state and political institutions - New York Bank Qualified
Due within 1 year		1,469		1,491
Due after 1 year but within 5 years		11,679		12,424
Due after 5 years but within 10 years		4,928		5,377
Due after 10 years		4,582		4,781


Total obligations of state and political institutions-New York Bank Qualified		22,658		24,073


Single-issuer, trust preferred securities
Due after 10 years		3,878		3,928

Corporate debt securities
Due within 6 months		85,933		86,020
Due after 6 months but within 1 year		84,235		84,464
Due after 1 year but within 2 years		24,478		24,478
Due after 2 years but within 5 years		9,000		8,944

Total corporate debt securities		203,646		203,906


Other securities		5,044		5,069

Total	$	418,452	$	421,984

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)


Held to maturity	Carrying Value		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	8,846	$	9,294
CMO’s (Federal Home Loan Mortgage Corporation)		13,558		14,225
Federal National Mortgage Association		77,289		81,613
Federal Home Loan Mortgage Corporation		45,564		47,855
Government National Mortgage Association		5,191		5,781

Total mortgage-backed securities		150,448		158,768

Agency Notes
Federal National Mortgage Association
Due after 1 year but within 5 years		19,995		19,992
Due after 5 years but within 10 years		9,994		10,000
Due after 10 years		5,000		5,014
Federal Home Loan Bank
Due after 1 year but within 5 years		14,990		14,988
Due after 5 years but within 10 years		5,000		5,003
Federal Home Loan Mortgage Corporation
Due after 1 year but within 5 years		14,995		15,045
Federal Farm Credit Bank
Due after 5 years but within 10 years		5,081		5,083


Total obligations of U.S. government corporations and government sponsored enterprises		225,503		233,893

Obligations of state and political institutions - New York Bank Qualified
Due after 5 years but within 10 years		886		947
Due after 10 years		116,088		120,622


Total obligations of state and political institutions-New York Bank Qualified		116,974		121,569

Total	$	342,477	$	355,462

Information regarding sales and/or calls of available for sale securities is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,

	2010		2009		2010		2009


Proceeds	$	133,919	$	143,682	$	400,719	$	396,526
Gross gains		846		1,221		3,339		5,160
Gross losses		3		—		288		—

Information regarding calls of held to maturity securities is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,

	2010		2009		2010		2009


Proceeds	$	65,500	$	—	$	132,380	$	—
Gross gains		328		—		368		—
Gross losses		—		—		—		—

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 3. Loans

The major components of domestic loans held for sale and loans held in portfolio are as follows:


	September 30, 2010		December 31, 2009

Loans held for sale, net of valuation reserve ($42 at September 30, 2010 and $7 at December 31, 2009)
Real estate - residential mortgage	$	34,046	$	33,889

Loans held in portfolio
Commercial and industrial	$	698,647	$	587,038
Lease financing receivables		168,816		219,198
Factored receivables		186,435		140,265
Real estate - residential mortgage		129,072		124,681
Real estate - commercial mortgage		96,022		92,614
Real estate - construction and land development		25,092		24,277
Loans to individuals		12,401		12,984
Loans to depository institutions		—		20,000


Loans held in portfolio, gross		1,316,485		1,221,057
Less unearned discounts		20,319		25,642


Loans held in portfolio, net of unearned discounts	$	1,296,166	$	1,195,415

Note 4. Noninterest income and expenses

The following tables set forth the significant components of noninterest income and noninterest expenses:


	Three Months Ended September 30,					Nine Months Ended September 30,

	2010			2009		2010		2009


NONINTEREST INCOME
Accounts receivable management/ factoring commissions and other fees	$	6,454		$	4,997	$	17,527	$	13,098
Service charges on deposit accounts		1,606			1,553		4,627		4,296
Trade finance income		657			569		1,650		1,411
Other customer related fees		250			248		576		725
Mortgage banking income		2,458			2,505		5,631		7,152
Trust fees		81			110		247		366
Income from life insurance policies		290			280		850		828
Securities gains		1,171			1,221		3,419		5,160
(Loss) Gain on other real estate owned		(11	)		19		17		39
Other income		102			233		977		262

Total noninterest income	$	13,058		$	11,735	$	35,521	$	33,337


NONINTEREST EXPENSES
Salaries	$	10,689		$	9,960	$	30,809	$	29,934
Employee benefits		2,834			3,206		9,537		9,151

Total personnel expense		13,523			13,166		40,346		39,085
Occupancy and equipment expenses, net		3,375			2,806		8,967		8,381
Advertising and marketing		816			916		2,500		2,596
Professional fees		1,540			1,847		3,913		4,870
Communications		392			429		1,302		1,295
Deposit insurance		1,033			1,195		2,557		3,059
Other expenses		3,074			2,818		7,643		8,086

Total noninterest expenses	$	23,753		$	23,177	$	67,228	$	67,372

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 5. Common Stock and Stock Incentive Plan

On March 19, 2010, the Company completed an underwritten public offering of 8,625,000 common shares at an offering price of $8.00 per share, which resulted in net proceeds of $64.9 million after underwriting discounts and expenses.

On March 25, 2010, the Board of Directors, upon recommendation by the Compensation and Corporate Governance Committees, granted a total of 40,000 shares of restricted stock to the 8 non-management directors (“director restricted shares”) and 43,728 restricted shares to the Chairman, President and 5 Executive Vice Presidents (“officer restricted shares”). The director restricted shares will vest 25% annually over four years beginning on the first anniversary of the grant date. The officer restricted shares vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date and are also limited by the 2008 agreement between the Company and the U.S. Treasury. The director restricted shares and the officer restricted shares were issued at $9.23 per share, the closing price on the date of the grant. The agreements for both the director restricted shares and the officer restricted shares have additional provisions regarding transferability and accelerated vesting of the shares and the continuation of performing substantial services for the Company.

Note 6. Employee Benefit Plans

The following table sets forth the components of net periodic benefit cost for the Company’s noncontributory defined benefit pension plan and unfunded supplemental retirement plan.


	Three Months Ended September 30,						Nine Months Ended September 30,

	2010			2009			2010			2009

Service Cost	$	494		$	620		$	1,632		$	1,626
Interest Cost		914			959			2,811			2,467
Expected return on plan assets		(721	)		(760	)		(2,299	)		(1,906	)
Amortization of prior service cost		17			17			50			50
Recognized actuarial loss		650			974			2,181			2,570

Net periodic benefit cost	$	1,354		$	1,810		$	4,375		$	4,807

The Company contributed $1.7 million to the defined benefit pension plan in the 2010 third quarter.

Note 7. Income Taxes

The Internal Revenue Service (“IRS”) has completed its examination of the Company’s federal tax returns for the years 2002 through 2004 and has issued a report disallowing certain bad debt deductions arising from the worthlessness of loans made to customers. The Company, assisted by outside counsel, has prepared a written protest which vigorously challenges all of the IRS findings and the Company will exercise its right to a conference with the Appeals Office of the IRS to discuss the issues and arguments raised in the Company’s protest. The Company and its outside counsel believe that the bad debt deductions were proper and that the position of the IRS is unsupportable as a matter of fact and law.

Note 8. Segment Reporting

The Company provides a broad range of financial products and services, including commercial loans, asset-based financing, factoring and accounts receivable management services, trade financing, equipment leasing, corporate and consumer deposit services, commercial and residential mortgage lending and brokerage, trust and estate administration and investment management services. The Company’s primary source of 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 2010 year-to-date average interest-earning assets were 60.4% loans (corporate lending was 72.6% and real estate lending was 23.4% of total loans, respectively) and 39.2% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 67% of loans are to borrowers located in the metropolitan New York area. In order to comply with the segment reporting guidance under U.S. GAAP, the Company has determined that it has three reportable operating segments: corporate lending, real estate lending and company-wide treasury.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

The following tables provide certain information regarding the Company’s operating segments:


	Corporate Lending		Real Estate Lending		Company-wide Treasury		Totals

	(in thousands)
Three Months Ended September 30, 2010
Net interest income	$	10,630	$	4,824	$	5,199	$	20,653
Noninterest income		8,971		2,486		1,473		12,930
Depreciation and amortization		178		28		—		206
Segment income before income taxes		7,849		3,284		6,281		17,414
Segment assets		935,960		397,953		919,790		2,253,703

Three Months Ended September 30, 2009
Net interest income	$	9,815	$	4,966	$	6,984	$	21,765
Noninterest income		7,059		2,536		1,609		11,204
Depreciation and amortization		158		29		1		188
Segment income before income taxes		8,273		4,745		8,374		21,392
Segment assets		822,485		383,694		897,699		2,103,878

Nine Months Ended September 30, 2010
Net interest income	$	29,480	$	13,364	$	17,805	$	60,649
Noninterest income		24,625		5,936		4,583		35,144
Depreciation and amortization		532		86		2		620
Segment income before income taxes		21,891		10,303		21,260		53,454
Segment assets		935,960		397,953		919,790		2,253,703

Nine Months Ended September 30, 2009
Net interest income	$	28,493	$	14,884	$	20,701	$	64,078
Noninterest income		18,740		7,274		5,984		31,998
Depreciation and amortization		512		106		2		620
Segment income before income taxes		20,381		13,511		25,876		59,768
Segment assets		822,485		383,694		897,699		2,103,878

The following table sets forth reconciliations of net interest income, noninterest income, income before taxes, and assets of reportable operating segments to the Company’s consolidated total:


	Three Months Ended September 30,						Nine Months Ended September 30,

	2010			2009			2010			2009

	(in thousands)
Net interest income:
Total for reportable operating segments	$	20,653		$	21,765		$	60,649		$	64,078
Other [1]		222			205			659			572

Consolidated net interest income	$	20,875		$	21,970		$	61,308		$	64,650


Noninterest income:
Total for reportable operating segments	$	12,930		$	11,204		$	35,144		$	31,998
Other [1]		128			531			377			1,339

Consolidated noninterest income	$	13,058		$	11,735		$	35,521		$	33,337


Income before taxes:
Total for reportable operating segments	$	17,414		$	21,392		$	53,454		$	59,768
Other [1]		(21,234	)		(17,814	)		(49,353	)		(49,103	)

Consolidated income before income taxes	$	(3,820	)	$	3,578		$	4,101		$	10,665


Assets:
Total for reportable operating segments	$	2,253,703		$	2,103,878		$	2,253,703		$	2,103,878
Other [1]		49,774			34,119			49,774			34,119

Consolidated assets	$	2,303,477		$	2,137,997		$	2,303,477		$	2,137,997

[1] Represents operations not considered to be a reportable segment and/or general operating expenses of the Company.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 9. Other Comprehensive Income

Information related to the components of other comprehensive income included in accumulated other comprehensive loss is as follows with related tax effects:


	Three Months Ended September 30,						Nine Months Ended September 30,

	2010			2009			2010			2009

Other Comprehensive Income
Unrealized holding gains on securities, arising during the period:
Before tax	$	1,686		$	4,878		$	5,640		$	7,968
Tax effect		(765	)		(2,214	)		(2,559	)		(3,616	)

Net of tax		921			2,664			3,081			4,352


Reclassification adjustment for securities gains included in net income:
Before tax		(1,168	)		(1,221	)		(3,416	)		(5,160	)
Tax effect		530			555			1,550			2,342

Net of tax		(638	)		(666	)		(1,866	)		(2,818	)


Reclassification adjustment for amortization of prior service cost:
Before tax		17			17			50			50
Tax effect		(8	)		(8	)		(23	)		(23	)

Net of tax		9			9			27			27


Reclassification adjustment for amortization of net actuarial losses:
Before tax		650			974			2,181			2,570
Tax effect		(296	)		(442	)		(990	)		(1,166	)

Net of tax		354			532			1,191			1,404


Other comprehensive income	$	646		$	2,539		$	2,433		$	2,965

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 10. Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.

FASB Codification Topic 820: Fair Value Measurements and Disclosures establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair values hierarchy is as follows:


	•	Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Examples of financial instruments generally included in this level are U.S. Treasury securities, equity and trust preferred securities that trade in active markets and listed derivative instruments.

	•	Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Examples of financial instruments generally included in this level are corporate debt, mortgage-backed certificates issued by U.S. government corporations and government sponsored enterprises, equity securities that trade in less active markets and certain derivative instruments.

	•	Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own judgments about the assumptions that market participants would use in pricing the assets or liabilities. Examples of financial instruments generally included in this level are private equities, certain loans held for sale and other alternative investments.

In general, fair value of securities is based upon quoted market prices, where available (level 1 inputs). If such quoted market prices are not available, fair value is based upon market prices determined by an outside, independent entity that primarily uses as inputs, observable market-based parameters (level 2 inputs). Fair value of loans held for sale is based upon internally developed models that primarily use as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters (level 3 inputs). Any such valuation adjustments are applied consistently over time. The Company valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth in the 2009 Form 10-K.

Securities available for sale and other investments. Securities classified as available for sale and other investments (included in “Other assets” on the Consolidated Balance Sheet) are generally reported at fair value utilizing Level 1 and Level 2 inputs. Investments in fixed income securities, exclusive of preferred stock and mortgage-backed securities are valued based on evaluations that represent an exit price or their opinion as to what a buyer would pay for a security, typically in an institutional round lot position in a current sale. Interactive Data Corporation (“IDC”)seeks to utilize market data and observations in its evaluation service, and gives priority to observable benchmark yields and reported trades. IDC utilizes evaluated pricing techniques that vary by asset class and incorporate available market information; because many fixed income securities do not trade on a daily basis, IDC applies available information through processes such as benchmark curves, benchmarking of similar securities, sector groupings and matrix pricing. Model processes such as option-adjusted spread models are used to value securities that have prepayment features. Substantially all securities available for sale evaluated in this manner are deemed to be Level 2 valuations. For mortgage-backed government sponsored enterprises, management considers dealer indicative bids in the valuation process. Indicative bids are estimates of value and do not necessarily represent the price at which the dealer would be willing to transact. Such bids are compared to IDC evaluated prices for reasonableness as well as consistency with observable conditions. All mortgage-backed securities are deemed to be valued based on Level 2 inputs.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Publicly traded common and preferred stocks are valued by reference to the market closing price (last trade) on the measurement date (Level 1 inputs). In the unlikely event that no trade occurred on the measurement date, reference would be made to an indicative bid or the last trade most proximate to the measurement date (Level 2 inputs).

The following table summarizes financial assets measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were no financial liabilities measured at fair value.


September 30, 2010	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

Securities available for sale:
Obligations of U.S. government corporations and government sponsored enterprises Mortgage-backed securities	$	—	$	24,155	$	—	$	24,155
Agency Notes		—		160,853		—		160,853

Total obligations of U.S. government corporations and government sponsored enterprises		—		185,008		—		185,008
Obligations of state and political institutions - New York Bank Qualified		—		24,073		—		24,073
Single-issuer, trust preferred securities		3,928		—		—		3,928
Corporate debt securities		—		203,906		—		203,906
Equity and other securities		5,069		—		—		5,069

Total	$	8,997	$	412,987	$	—	$	421,984


Other investments	$	10,987	$	6,108	$	—	$	17,095


December 31, 2009

Securities available for sale:
Obligations of U.S. government corporations and government sponsored enterprises Mortgage-backed securities	$	—	$	57,288	$	—	$	57,288
Agency Notes		—		131,635		—		131,635

Total obligations of U.S. government corporations and government sponsored enterprises		—		188,923		—		188,923
Obligations of state and political institutions - New York Bank Qualified		—		23,864		—		23,864
Single-issuer, trust preferred securities		4,483		—		—		4,483
Corporate debt securities		—		129,200		—		129,200
Equity and other securities		56		—		—		56

Total	$	4,539	$	341,987	$	—	$	346,526


Other investments	$	9,128	$	5,484	$	—	$	14,612

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Certain financial assets and financial liabilities, including impaired loans, are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table summarizes the period end fair value of financial assets, based on significant unobservable (Level 3) inputs, measured on a non-recurring basis:


	September 30, 2010		December 31, 2009

Impaired loans	$	5,961	$	2,329
Other real estate owned		744		1,385

Impaired loans. The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on either recent real estate appraisals or, for loans with modification agreements in place, discounted cash flow analyses. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate owned. Nonrecurring adjustments to certain residential real estate properties classified as other real estate owned (“OREO”) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Other real estate owned (comprised of foreclosed assets), which is measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $744 thousand, which is made up of the outstanding balance of $1,162 thousand, net of a valuation allowance of $418 thousand at September 30, 2010. Certain of these assets, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discount criteria. In connection with the measurement and initial recognition of the foregoing foreclosed assets, the Company recognized charge-offs in the allowance for loan losses totaling $538 thousand.

For those financial instruments that are not recorded at fair value in the Consolidated Balance Sheets, but are measured at fair value for disclosure purposes, management follows the same fair value measurement principles and guidance as for instruments recorded at fair value.

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Much of the information used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise. The subjective factors include, among other things, estimated cash flows, risk characteristics, credit quality and interest rates, all of which are subject to change. With the exception of investment securities and certain long-term debt, the Company’s financial instruments are not readily marketable and market prices do not exist. Since negotiated prices for the instruments that are not readily marketable depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

In particular, fair value estimates are made at a point in time, based on relevant market data as well as the best information available about the financial instrument. Illiquid credit markets have resulted in inactive markets for certain of the Company’s financial instruments. As a result, there is no or limited observable market data for these assets and liabilities. Fair value estimates for financial instruments for which no or limited observable market data is available are based on our judgments regarding current economic conditions, liquidity discounts, currency, credit, and interest rate risks, loss experience and other factors, all of which are Level 3 inputs as discussed above. These estimates involve significant judgments and uncertainties and cannot be substantiated by comparison to quoted prices in active markets and cannot be determined with precision. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument. In addition, there are inherent uncertainties in any fair value measurement technique, and changes in the underlying assumptions used in the fair value measurement technique, including discount rates, liquidity risks, and estimates of future cash flows, could significantly affect these fair value estimates.

A more detailed description of the methods, factors and significant assumptions utilized in estimating the fair values for significant categories of financial instruments is set forth in the 2009 Form 10-K.


	September 30, 2010

	Carrying Amount		Fair Value

FINANCIAL ASSETS
Cash and due from banks	$	37,193	$	37,193
Interest-bearing deposits with other banks		19,300		19,300
Investment securities		764,461		777,446
Loans held for sale		34,046		34,046
Loans held in portfolio, net		1,278,014		1,282,342
Accrued interest receivable		9,216		9,216
FINANCIAL LIABILITIES
Demand, NOW, savings and money market deposits		1,094,895		1,094,895
Time deposits		550,718		552,962
Securities sold under agreements to repurchase		26,084		26,131
Federal funds purchased		60,000		60,000
Commercial paper		15,245		15,245
Other short-term borrowings		2,221		2,221
Accrued interest payable		1,639		1,639
Long-term borrowings		170,302		176,316

STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

Note 11. New Accounting Standards

Financial Accounting Standards Board (“FASB”) Codification Topic 860: Transfers and Servicing includes amendments to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The amendments to U.S. GAAP guidance on transfer and servicing of financial assets eliminate the concept of a “qualifying special-purpose entity”, change the requirements for derecognizing financial assets and requires additional disclosures about all continuing involvements with transferred financial information about gains and losses (resulting from transfers) during the period. These amendments were effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.

Amendments to FASB Codification Topic 810: Consolidation change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design as well as its ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The amendments to U.S. GAAP require additional disclosures about the reporting entity’s involvement with variable-interest entities, as well as any significant changes in risk exposure due to that involvement and its effect on the entity’s financial statements. These amendments were effective January 1, 2010 and did not have a significant impact on the Company’s financial statements.

Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)- Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, which significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchased, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class and liabilities (rather major category), which would generally be a subject of assets or liabilities within a line in statement of financial position and (ii) company’s should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchased, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required for the Company beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Company on January 1, 2010. See Note 10 - Fair Value Measurements.

ASU No. 2010-11, “Derivatives and Hedging (Topic 815) - Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of an embedded credit derivative that is exempt embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 were effective for the Company on July 1, 2010 and did not have a significant impact on the Company’s financial statements.

ASU No. 2010-20, “Receivables (Topic 830) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivables, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 will be effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relates to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after January 1, 2011.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary presents management’s discussion and analysis of the financial condition and results of operations of Sterling Bancorp (the “parent company”), a financial holding company under the Gramm-Leach-Bliley Act of 1999, and its subsidiaries, principally Sterling National Bank. 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 consolidated financial statements and supplemental data contained elsewhere in this quarterly report and the Company’s annual report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”). Certain reclassifications have been made to prior years’ financial data to conform to current financial statement presentations. Throughout management’s discussion and analysis of financial condition and results of operations, dollar amounts in tables are presented in thousands, except per share data.

OVERVIEW

The Company provides a broad range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, deposit services, trade financing, equipment leasing, trust and estate administration and investment management services. The Company has operations principally in New York, New Jersey and Connecticut (“the New York metropolitan area”) and conducts business throughout the United States. The general state of the U.S. economy and, in particular, economic and market conditions in the New York metropolitan area have a significant impact on loan demand, the ability of borrowers to repay these loans and the value of any collateral securing these loans and may also affect deposit levels. Accordingly, future general economic conditions are a key uncertainty that management expects will materially affect the Company’s results of operations.

For the nine months ended September 30, 2010, the bank’s average earning assets represented approximately 98.1% of the Company’s average earning assets. Loans represented 60.8% and investment securities represented 37.5% of the bank’s average earning assets for the first nine months of 2010.

The Company’s primary source of earnings is net interest income, and its principal market risk exposure is interest rate risk. The Company is not able to predict market interest rate fluctuations, and its asset-liability management strategy may not prevent interest rate changes from having a material adverse effect on the Company’s results of operations and financial condition.

Although management endeavors to minimize the credit risk inherent in the Company’s loan portfolio, it must necessarily make various assumptions and judgments about the collectibility of the loan portfolio based on its experience and evaluation of economic conditions. If such assumptions or judgments prove to be incorrect, the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary, which would have a negative impact on net income.

There is intense competition in all areas in which the Company conducts its business. The Company competes with banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions. Many of these competitors have substantially greater resources and lending limits and provide a wider array of banking services. To a limited extent, the Company also competes with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. Competition is based on a number of factors, including prices, interest rates, service, availability of products and geographic location.

The Company regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions, and in some cases negotiations, regularly take place and future acquisitions could occur.

Recent economic conditions during 2010, such as the continuing decrease in real estate values in the principal markets the Company serves and illiquid credit markets, have reduced demands for corporate and real estate lending. If these trends continue, the Company would expect its income from corporate and real estate lending to decrease from the current levels in the near term. In addition, due to the geographic concentration of the Company’s loan portfolio in the New York metropolitan area, representing approximately 67% of total loans at September 30, 2010, an adverse change in market conditions in that geographic area could result in a decrease in our income from corporate and real estate lending. A significant prolonged decrease in income from our lending segments, if realized, may have a severe adverse impact on the operations of the Company.

RECENT LEGISLATION IMPACTING THE FINANCIAL SERVICES INDUSTRY

On July 21, 2010, President Obama signed into law the sweeping financial regulatory reform act entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”). The Dodd-Frank Act will result in sweeping changes in the regulation of financial institutions aimed at strengthening the sound operation of the financial services sector. The Dodd-Frank Act’s provisions that have received the most public attention generally have been those applying to or more likely to affect larger institutions. However, it contains numerous other provisions that will affect all banks and bank holding companies, and will fundamentally change the system of oversight described in Part I, Item 1 of our 2009 Form 10-K under the caption “Supervision and Regulation”. The Dodd-Frank Act includes provisions that, among other things:


	•	Centralize responsibility for consumer financial protection by creating a new agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws.

	•	Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks such as the bank from availing themselves of such preemption.

	•	Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies.

	•	Require the OCC to seek to make its capital requirements for national banks, such as the bank, countercyclical.

	•	Require financial holding companies such as the parent company to be well-capitalized and well-managed as of July 21, 2011. Bank holding companies and banks must also be both well-capitalized and well-managed in order to acquire banks located outside their home state.

	•	Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders that apply to all public companies, not just financial institutions.

	•	Make permanent the $250 thousand limit for federal deposit insurance and increase the cash limit of Securities Investor Corporation protection from $100 thousand to $250 thousand, and provide unlimited federal deposit insurance until January 1, 2013, for noninterest-bearing demand transaction accounts at all depository institutions.

	•	Repeal the federal prohibitions on the payment of interest on business transaction and other accounts.

	•	Increase the authority of the Federal Reserve to examine the Company and its non-bank subsidiaries.

Some of these provisions may have the consequence of increasing our expenses, decreasing our revenues, and changing the activities in which we choose to engage. The environment in which banking organizations will operate after the financial crisis, including legislative and regulatory changes affecting capital, liquidity, supervision, permissible activities, corporate governance and compensation, changes in fiscal policy and steps to eliminate government support for banking organizations, may have long-term effects on the business model and profitability of banking organizations that cannot now be foreseen. The specific impact of the Dodd-Frank Act on our current activities or new financial activities we may consider in the future, our financial performance and the markets in which we operate will depend on the manner in which the relevant agencies develop and implement the required rules and the reaction of market participants to these regulatory developments. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally.

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on pages 45 and 46. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on pages 43 and 44.

Comparison of the Three Months Ended September 30, 2010 and 2009

The Company reported a net loss available to common shareholders for the three months ended September 30, 2010 of $3.3 million, representing $0.12 per share calculated on a diluted basis, compared to net income available to common shareholders of $1.8 million, or $0.10 per share calculated on a diluted basis, for the third quarter of 2009. The decrease in net income available to common shareholders was primarily due to a $7.0 million increase in the provision for loan losses, a $1.1 million decrease in net interest income and a $0.6 million increase in noninterest expenses which more than offset a $1.3 million increase in noninterest income and a $2.3 million decrease in the provision for income taxes.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $21.6 million for the third quarter of 2010 compared to $22.3 million for the 2009 period. Net interest income benefitted from lower cost of funding, lower levels of borrowings and higher levels of loans and investment securities. Those benefits were more than offset by the impact of lower yields on loans and investment securities and higher interest-bearing deposits balances. The net interest margin, on a tax-equivalent basis, was 4.11% for the third quarter of 2010 compared to 4.57% for the 2009 period. The net interest margin was impacted by the mix of earning assets and funding, including the higher level of noninterest-bearing demand deposits.

Total interest income, on a tax-equivalent basis, aggregated $25.4 million for the third quarter of 2010, down $1.6 million from the 2009 period. The tax-equivalent yield on interest-earning assets was 4.86% for the third quarter of 2010 compared to 5.56% for the 2009 period.

Interest earned on the loan portfolio increased to $18.3 million for the third quarter of 2010 from $18.0 million in the prior year period primarily due to increased loans outstanding on average partially offset by a lower yield on loans in the 2010 quarter. Average loan balances amounted to $1,314.8 million, an increase of $125.8 million from an average of $1,189.0 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.9 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 5.71% for the third quarter of 2010 from 6.25% for the 2009 period was primarily attributable to the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, amounted to $7.0 million for the third quarter of 2010 compared to $8.8 million in the prior year period. Average outstandings increased to $783.9 million (36.9% of average earning assets) for the third quarter of 2010 from $726.9 million (36.8% of average earning assets) in the prior year period. The increase reflects the impact of the Company’s asset/liability management strategy designed to shorten the average life of the portfolio. The average life of the securities portfolio was approximately 2.6 years at September 30, 2010 compared to 4.6 years at September 30, 2009. The average yield in the investment securities portfolio decreased to 3.59% from 4.84% reflecting the impact of the above referenced asset/liability management strategy coupled with calls of higher yielding securities.

Total interest expense decreased by $0.9 million for the third quarter of 2010 from $4.7 million for the 2009 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower levels of borrowings partially offset by the impact of higher interest-bearing deposits.

Interest expense on deposits decreased to $2.3 million for the third quarter of 2010 from $2.8 million for the 2009 period, due to decreases in the cost of those funds partially offset by the impact of higher balances. The average rate paid on interest-bearing deposits was 0.81%, which was 42 basis points lower than the prior year period. The decrease in average cost of interest-bearing deposits reflects the impact of deposit pricing strategies and the Company’s purchase of certificates of deposit from the Certificate of Deposit Account Registry Service (“CDARS”) which provided certificate of deposit balances at lower rates than rates paid for traditional certificates of deposit products. Average interest-bearing deposits were $1,125.3 million for the third quarter of 2010 compared to $903.9 million for the prior year period, reflecting the impact of the Company’s business development activities as well the purchase of funds from CDARS.

Interest expense on borrowings decreased to $1.5 million for the third quarter of 2010 from $1.9 million for the 2009 period, primarily due to lower balances partially offset by the impact of the changes in mix. Average borrowings decreased to $316.8 million for the third quarter of 2010 from $490.8 million in the prior year period, reflecting a lesser reliance by the Company on wholesale borrowed funds. The change in mix resulted in an increase in the blended cost of borrowings to 1.93% from 1.58%.

Provision for Loan Losses

In light of recent economic developments and continued economic uncertainty, during the third quarter, the Company decided, after consultation with external professionals and regulators, to implement an accelerated resolution of certain categories of nonaccrual loans. As a result, net charge-offs of loans to small business borrowers (primarily in the lease financing portfolio) increased $10.9 million when compared to the second quarter of 2010. Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 36), the provision for loan losses for the third quarter of 2010 was $14.0 million, compared to $7.0 million for the prior year period.

During 2010, the allowance for loan losses decreased $1.7 million from $19.9 million at December 31, 2009 primarily due to a reduction in the allowance allocated to lease financing receivables ($5.7 million) partially offset by increases in the allowance allocated to commercial and industrial loans ($0.8 million), factored receivables ($0.6 million), real estate residential mortgage ($0.8 million) and real estate commercial mortgage ($1.6 million). The allowance allocated to lease financing receivables decreased primarily as a result of the lower level of lease financing receivables nonaccrual balances following charge-offs during the third quarter of 2010. The increase of the allowance allocated to commercial and industrial loans was primarily the result of the unsteady economic recovery. The allowance allocated to factored receivables increased based on the continued weakening in the consumer sectors. The increase in the allowance allocated to real estate residential mortgage was primarily due to the persistent decline in residential real estate values. As a result of the disruption in the commercial real estate markets, the allowance allocated to real estate commercial mortgage was increased.

Noninterest Income

Noninterest income increased to $13.1 million for the third quarter of 2010 from $11.7 million in the 2009 period. The increase principally resulted from the benefit derived from increased accounts receivable management/factoring commissions and other fees. Commissions and other fees earned from accounts receivable management and factoring services were higher primarily due to increased volumes in our factoring unit and billings by clients providing temporary staffing services.

Noninterest Expenses

Noninterest expenses for the third quarter of 2010 increased $0.6 million when compared to the 2009 period. The increase was primarily due to higher personnel and occupancy expenses. Partially offsetting those increases was the impact of lower professional fees. The increase in personnel expenses was related to our business development activities offset by a reduction in retirement plan expenses. Occupancy expenses were higher due to our leasing additional space to support our business development activities. The reduction in professional fees reflects primarily reduced utilization of various providers.

Provision for Income Taxes

Reflecting a reduction in pre-tax income of $7.4 million, the benefit for income taxes for the third quarter of 2010 was $1.1 million, reflecting an effective tax rate of 30.0%, compared with a provision for income taxes of $1.2 million for the third quarter of 2009 reflecting an effective tax rate of 33.0%. The reduction in the effective tax rate was primarily due to a higher proportion of tax exempt income in the 2010 period compared to 2009 period.

Comparison of the Nine Months Ended September 30, 2010 and 2009

The Company reported net income available to common shareholders for the nine months ended September 30, 2010 of $0.9 million, representing $0.04 per share calculated on a diluted basis, compared to $4.7 million, or $0.26 per share calculated on a diluted basis, for the first nine months of 2009. This decrease reflects lower net interest income and higher provision for loan losses partially offset by an increase in noninterest income and a decrease in provision for income taxes.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $63.1 million for the first nine months of 2010 compared to $65.3 million for the 2009 period. Net interest income benefitted from higher average loan and investment securities balances, and lower cost of funding. Offsetting those benefits was the impact of lower yield on loans and investment securities, lower borrowed funds and higher interest-bearing deposit balances. The net interest margin, on a tax-equivalent basis, was 4.26% for the first nine months of 2010 compared to 4.60% for the 2009 period. The net interest margin was impacted by the lower interest rate environment in 2010, the higher level of noninterest-bearing demand deposits and the effect of higher average loans outstanding.

Total interest income, on a tax-equivalent basis, aggregated $75.0 million for the first nine months of 2010, down $5.1 million from the 2009 period. The tax-equivalent yield on interest-earning assets was 5.07% for the first nine months of 2010 compared to 5.66% for the 2009 period.

Interest earned on the loan portfolio decreased to $51.9 million for the first nine months of 2010 from $53.8 million for the prior year period. Average loan balances amounted to $1,232.0 million, an increase of $47.0 million from an average of $1,185.0 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.8 million increase in interest earned on loans. The yield on the loan portfolio decreased to 5.96% for the first nine months of 2010 from 6.32% for the 2009 period, which was primarily attributable to the lower interest rate environment in 2010 and the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $22.8 million for the first nine months of 2010 from $25.9 million in the prior year period. Average outstandings increased to $772.4 million (37.9% of average earning assets) for the first nine months of 2010 from $712.2 million (36.8% of average earning assets) in the prior year period. The increase reflects the impact of the Company’s asset/liability management strategy designed to shorten the average life of the portfolio. The average life of the securities portfolio was approximately 2.6 years at September 30, 2010 compared to 4.6 years at September 30, 2009. The average yield on the investment securities portfolio decreased to 3.93% from 4.84%, reflecting the impact of the above referenced asset/liability management strategy coupled with calls of higher yielding securities.

Total interest expense decreased by $3.0 million for the first nine months of 2010 from $14.9 million for the 2009 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower balances of borrowed funds partially offset by the impact of higher interest-bearing deposit balances.

Interest expense on deposits decreased to $7.4 million for the first nine months of 2010 from $9.1 million for the 2009 period, primarily due to a decrease in the cost of those funds partially offset by the impact of higher average interest-bearing deposit balances. The average rate paid on interest-bearing deposits was 0.89%, which was 46 basis points lower than the prior year period. The decrease in the average cost of interest-bearing deposits reflects the impact of deposit pricing strategies and the Company’s purchase of certificates of deposit from CDARS which provided deposit balances at lower rates than paid for traditional certificate of deposit products. Average interest-bearing deposits were $1,107.7 million for the first nine months of 2010 compared to $902.4 million for the prior year period, reflecting an increase in certificates of deposit, largely related to the CDARS program which is a lower cost product than traditional certificates of deposit.

Interest expense on borrowings decreased to $4.5 million for the first nine months of 2010 from $5.8 million for the 2009 period, primarily due to lower balances partially offset by the impact of the changes in mix. Average borrowings decreased to $278.3 million for the first nine months of 2010 from $482.9 million in the prior year period, reflecting a lesser reliance by the Company on wholesale borrowed funds. The change in mix resulted in an increase in the blended cost of borrowings to 2.16% from 1.60%.

Provision for Loan Losses

In light of recent economic developments and continued economic uncertainty, during the third quarter the Company decided, after consultation with external professionals and regulators, to implement an accelerated resolution of certain categories of nonaccrual loans. As a result, net charge-offs during the nine months of 2010 of loans to small business borrowers (primarily in the lease financing portfolio) increased $10.4 million when compared to the comparable 2009 period. Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 36), the provision for loan losses for the first nine months of 2010 was $25.5 million, compared to $20.0 million for the prior year period.

Noninterest Income

Noninterest income increased to $35.5 million for the first nine months of 2010 from $33.3 million in the 2009 period. The increase principally resulted from higher income related to accounts receivable management and factoring services offset partly by lower mortgage banking income and securities gains. Commissions and other fees earned from accounts receivable management and factoring services were higher primarily due to the impact of the acquisition of the business of DCD Finance Inc. on April 6, 2009. Increased volumes at our factoring unit and billings by clients providing temporary staffing also contributed to the improved level of fee income. Mortgage banking income declined due to a lower volume of loans closed and a change in the mix of products being sold. Securities gains declined but reflected a continuation of the asset liability management program commenced in 2009 that was designed to reduce the average life of the investment securities portfolio. The Company sold approximately $143.3 million of securities with a weighted average life of approximately 2.3 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years.

Noninterest Expenses

Noninterest expenses for the first nine months of 2010 decreased $0.1 million when compared to the 2009 period. The expense decrease was mainly related to lower expenses related to professional fees and deposit insurance partially offset by higher personnel and occupancy expenses. The decrease in professional fees was primarily due to reduced utilization of various outside service providers. The decrease in deposit insurance was the result of the inclusion in the 2009 period of a special one-time assessment of $1.0 million. The increase in personnel expenses was related to our business development activities, partially offset by a reduction in retirement plan expenses.

Provision for Income Taxes

The provision for income taxes for the first nine months of 2010 decreased to $1.2 million from $3.9 million for the first nine months of 2009. The decrease was primarily due to lower taxable income and a lower effective income tax rate in the 2010 period (30.0%) compared to the 2009 period (36.4%). The decrease in the effective tax rate is primarily related to the higher proportion of tax exempt income achieved in 2010 compared to the 2009 period.

BALANCE SHEET ANALYSIS

Securities

At September 30, 2010, the Company’s portfolio of securities totaled $764.5 million, of which obligations of U.S. government corporations and government sponsored enterprises amounted to $410.5 million which is approximately 53.7% of the total. The Company has the intent and ability to hold to maturity securities classified as held to maturity, at which time it will receive full value for these securities. These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on held to maturity securities were $13.1 million and $0.1 million, respectively. Securities classified as available for sale may be sold in the future, prior to maturity. These securities are carried at fair value. Net aggregate unrealized gains or losses on these securities are included, net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investments upon market recovery or, the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. Available for sale securities included gross unrealized gains of $3.8 million and gross unrealized losses of $0.2 million. As of September 30, 2010, management does not have the intent to sell any of the securities classified as available for sale in the table on page 17 and management believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $143.3 million of securities with a weighted average life of approximately 2.3 years during the first nine months of 2010 and approximately $206.4 million of securities with a weighted average life of approximately 3.5 years in the same period of 2009. The Company reinvested a significant portion of the proceeds in securities with an average life of less than two years.

The following table presents information regarding the average life and yields of certain available for sale (“AFS”) and held to maturity (“HTM”) securities:


September 30, 2010	Weighted Average Life		Weighted Average Yield

	AFS	HTM	AFS		HTM

Mortgage-backed securities	3.2 Years	2.5 Years	3.45	%	4.60	%
Agency notes (with original call dates ranging between 3 and 36 months)	0.4 Years	2.4 Years	2.22	%	1.37	%
Corporate debt securities	0.8 Years	—	2.30	%	—
Obligations of state and political subdivisions—New York Bank Qualified	4.3 Years	8.3 Years	5.35	%^[1]	5.86	%^[1]

^[1]tax equivalent

The following table sets forth the composition of the Company’s investment securities by type, with related values:


	September 30, 2010					December 31, 2009

	Balances		% of Total			Balances		% of Total


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	8,846		1.16	%	$	13,740		1.86	%
CMO’s (Federal Home Loan Mortgage Corporation)		14,698		1.92			22,698		3.08
CMO’s (Government National Mortgage Association)		12,846		1.68			9,048		1.23
Federal National Mortgage Association		84,703		11.08			125,673		17.05
Federal Home Loan Mortgage Corporation		45,827		6.00			71,715		9.73
Government National Mortgage Association		7,683		1.01			13,146		1.78

Total mortgage-backed securities		174,603		22.85			256,020		34.73

Agency Notes
Federal National Mortgage Association		80,267		10.50			116,603		15.82
Federal Home Loan Bank		35,104		4.59			102,799		13.95
Federal Home Loan Mortgage Corporation		105,406		13.79			14,899		2.02
Federal Farm Credit Bank		15,131		1.98			29,418		3.99

Total obligations of U.S. government corporations and government sponsored enterprises		410,511		53.71			519,739		70.51

Obligations of state and political institutions-New York Bank Qualified		141,047		18.45			83,337		11.31
Single-issuer, trust preferred securities		3,928		0.51			4,483		0.61
Corporate debt securities		203,906		26.67			129,200		17.53
Other securities		5,069		0.66			56		0.01

Total marketable securities		764,461		100.00			736,815		99.97
Debt securities issued by foreign governments		—		—			250		0.03

Total	$	764,461		100.00	%	$	737,065		100.00	%

Loan Portfolio

A management objective is to maintain the quality of the loan portfolio. The Company seeks to achieve this objective by maintaining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of, and the designation of lending limits for, each borrower. The portfolio strategies include seeking industry and loan size diversification in order to minimize credit exposure and originating loans in markets with which the Company is familiar.

The Company’s commercial and industrial loan and factored receivables portfolios represent approximately 66% of all loans. Loans in this category are typically made to small- and medium-sized businesses and range between $250,000 and $15 million. The Company’s real estate mortgage portfolio, which represents approximately 21% of all loans, is comprised of mortgages secured by real property located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 11% of all loans. Sources of repayment are the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

The following table sets forth the composition of the Company’s loans held for sale and loans held in portfolio:


	September 30,

	2010					2009

	Balances		% of Gross			Balances		% of Gross

Domestic
Commercial and industrial	$	696,460		52.36	%	$	543,443		44.05	%
Lease financing receivables		150,913		11.34			211,697		17.16
Factored receivables		186,206		14.00			152,068		12.33
Real estate-residential mortgage		163,118		12.26			159,805		12.96
Real estate-commercial mortgage		96,022		7.22			103,785		8.41
Real estate-construction and land development		25,092		1.89			24,112		1.95
Loans to individuals		12,401		0.93			13,660		1.11
Loans to depository institutions		—		—			25,000		2.03


Loans, net of unearned discounts	$	1,330,212		100.00	%	$	1,233,570		100.00	%

Asset Quality

Intrinsic to the lending process is the possibility of loss. In times of economic slowdown, the risk of loss inherent in the Company’s portfolio of loans may 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 depend on current and future economic conditions, the financial condition of borrowers, the realization of collateral and the credit management process.

Nonaccrual loans at September 30, 2010 decreased $11.7 million compared to December 31, 2009. This primarily reflected decreases of $3.1 million, $11.1 million and $0.6 million in commercial and industrial loans, lease financing receivables and residential real estate mortgage loans, respectively. Partially offsetting these items was a $3.1 million increase in commercial real estate loans (related to two borrowers). Net loan charge-offs in the third quarter of 2010 were $10.9 million higher than net loan charge-offs in the second quarter of 2010 (primarily reflecting an increase of $7.3 million in net charge-offs for lease financing receivables, $2.9 million for commercial and industrial loans, and $0.4 million in factored receivables). A worsening of existing economic conditions will likely result in levels of charge-offs and nonaccrual loans that will be higher than historical levels.

The following table sets forth the amount of non-performing assets (nonaccrual loans and other real estate owned). Also shown are loans that are past due more than 90 and are still accruing because they are both well secured or guaranteed by financially responsible third parties and are in the process of collection.


	September 30,

	2010		2009

Gross loans	$	1,350,531	$	1,261,938

Nonaccrual loans
Commercial and industrial	$	1,093	$	3,809
Lease financing receivables		820		13,276
Factored receivables		—		—
Real estate-residential mortgage		1,232		2,609
Real estate-commercial mortgage		3,125		—
Real estate-construction and land development		—		—
Loans to individuals		—		100


Total nonaccrual loans		6,270		19,794

Other real estate owned		744		1,837

Total non-performing assets	$	7,014	$	21,631


Loans past due 90 days or more and still accruing	$	3,162	$	1,523

At September 30, 2010, commercial and industrial nonaccruals represented 0.16% of commercial and industrial loans. There were 4 loans made to small business borrowers located in 3 states with balances ranging between approximately $76.0 thousand and $747.6 thousand.

At September 30, 2010, lease financing nonaccruals represented 0.49% of lease financing receivables. The lessees of equipment are located in 11 states. There were 18 leases ranging between approximately $0.7 thousand and $187.6 thousand, 16 of which were under $100 thousand. The value of the underlying collateral related to lease financing nonaccruals varies depending on the type and condition of equipment. While most leases are written on a recourse basis, with personal guarantees of the principals, the current value of the collateral is often less than the lease financing balance. Collection efforts include repossession and/or sale of leased equipment, payment discussions with the lessee, the principal and/or guarantors, and obtaining judgments against the lessee, the principal and/or guarantors. The balance is charged off when it is determined that collection efforts are no longer productive. Factors considered in determining whether collection efforts are no longer productive include any amounts currently being collected, the status of discussions or negotiations with the lessee, the principal and/or guarantors, the cost of continuing efforts to collect, the status of any foreclosure or other legal actions, the value of the collateral, and any other pertinent factors.

At September 30, 2010, residential real estate nonaccruals represented 0.95% of residential real estate loans held in portfolio. There were 11 loans ranging between approximately $6.4 thousand and $361.0 thousand secured by properties located in 5 states.

At September 30, 2010, commercial real estate nonaccrual represented 3.25% of commercial real estate loans. There were 2 loans of approximately $745.3 thousand and $2,379.1 thousand, respectively, secured by properties located in New York.

At September 30, 2010, other real estate owned consisted of 5 properties with values between approximately $31.7 thousand and $293.2 thousand located in 4 states.

Management views the allowance for loan losses as a critical accounting policy due to its subjectivity. The allowance for loan losses is maintained through the provision for loan losses, which is a charge to operating earnings. The adequacy of the provision and the resulting allowance for loan losses is determined by a management evaluation process of the loan portfolio, including identification and review of individual problem situations that may affect the borrower’s ability to repay, review of overall portfolio quality through an analysis of current charge-offs, delinquency and nonperforming loan data, estimates of the value of any underlying collateral, an assessment of current and expected economic conditions and changes in the size and character of the loan portfolio. Other data utilized by management in determining the adequacy of the allowance for loan losses include, but are not limited to, the results of regulatory reviews; the amount of, trend of and/or borrower characteristics on loans that are identified as requiring special attention as part of the credit review process and peer group comparisons. The impact of this other data might result in an allowance greater than that indicated by the evaluation process previously described. The allowance reflects management’s best estimate of probable losses within the existing loan portfolio and of the risk inherent in various components of the loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risk inherent in the loan portfolio. The Company’s allowance for loan loss methodology is based on guidance provided by the “Interagency Policy Statement on the Allowance for Loan and Lease losses” issued by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, The Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of Thrift Supervision in December 2006 and includes an allowance allocation calculated in accordance with the U.S. GAAP guidance on loans with deteriorated credit quality in FASB Codification Topic 310: Receivables. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors.

The level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, and present economic, political and regulatory conditions. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that in management’s judgment should be charged off. In addition, 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 in the immediately preceding paragraph could also result in future additions to the allowance. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

At September 30, 2010, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.40% and the allowance was $18.2 million. At such date, the Company’s nonaccrual loans amounted to $6.3 million. Loans 90 days past due and still accruing amounted to $3.2 million. At September 30, 2010, loans judged to be impaired under U.S. GAAP guidance on receivables, amounted to $8.4 million and had a valuation allowance totaling $2.5 million, which is included within the overall allowance for loan losses. Included in the impaired loans are $4.3 million in accruing impaired restructured loans as defined by U.S. GAAP guidance on receivables, with allowances for loan impairment of $883 thousand. Based on the foregoing, as well as management’s judgment as to the current risk in loans held in portfolio, the Company’s allowance for loan losses was deemed adequate to absorb all probable losses on specifically known and other credit risks associated with the portfolio as of September 30, 2010. Net losses within loans held in portfolio are not statistically predictable and changes in conditions in the next twelve months could result in future provisions for loan losses varying from the provision recognized in the first nine months of 2010. Potential problem loans, which are loans that are currently performing under present loan repayment terms but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrowers to continue to comply with the present repayment terms, aggregated $0.6 million at September 30, 2010 and $8.2 million at September 30, 2009, respectively.

The following table sets forth certain information with respect to the Company’s loan loss experience:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2010

2009

2010

2009

Average loans held in portfolio, net of unearned discounts, during period

1,271,495

1,144,597

1,199,952

1,141,475

Allowance for loan losses:

Balance at beginning of period

20,512

18,134

19,872

16,010

Charge-offs:

Commercial and industrial

4,065

1,230

5,988

2,107

Lease financing receivables

11,379

4,517

20,427

14,144

Factored receivables

381

620

378

Real estate - residential mortgage

136

234

Real estate - commercial mortgage

—

129

—

Real estate - construction and land development

—

Loans to individuals

155

—

218

—

Total charge-offs

16,116

5,857

27,616

16,670

Recoveries:

Commercial and industrial

287

Lease financing receivables

170

453

221

Factored receivables

194

Real estate - residential mortgage

—

102

—

102

Real estate - commercial mortgage

—

Real estate - construction and land development

—

Loans to individuals

—

Total recoveries

255

203

934

384

Subtract:

Net charge-offs

15,861

5,654

26,682

16,286

Provision for loan losses

14,000

6,950

25,500

19,950

Less losses on transfers to other real estate owned

499

331

538

575

Balance at end of period

18,152

19,099

18,152

19,099

Ratio of annualized net charge-offs to average loans held in portfolio, net of unearned discounts

4.99

1.98

2.96

1.90

The following table presents the Company’s allocation of the allowance for loan losses. This allocation is based on estimates by management and may vary from period to period based on management’s evaluation of the risk characteristics of the loan portfolio. The amount allocated to a particular loan category of the Company’s loans held in portfolio may not necessarily be indicative of actual future charge-offs in that loan category.


	September 30, 2010					December 31, 2009

	Amount		% of loans in each category to total loans held in portfolio			Amount		% of loans in each category to total loans held in portfolio

Domestic

Commercial and industrial	$	6,853		53.73	%	$	6,082		49.01	%
Loans to depository institutions		—		—			—		1.67
Lease financing receivables		4,561		11.64			10,249		16.32
Factored receivables		1,522		14.36			971		11.70
Real estate - residential mortgage		2,449		9.96			1,646		10.43
Real estate - commercial mortgage		2,145		7.41			560		7.75
Real estate - construction and land development		287		1.94			149		2.03
Loans to individuals		142		0.96			80		1.09
Unallocated		193		—			135		—

Total	$	18,152		100.00	%	$	19,872		100.00	%

During 2010, the allowance for loan losses decreased $1.7 million from $19.9 million at December 31, 2009 primarily due to a reduction in the allowance allocated to lease financing receivables ($5.7 million) partially offset by increases in the allowance allocated to commercial and industrial loans ($0.8 million), factored receivables ($0.6 million), real estate residential mortgage ($0.8 million), and real estate commercial mortgage ($1.6 million). The allowance allocated to lease financing receivables decreased primarily as a result of the lower level of lease financing receivables nonaccrual balances following charge-offs during the third quarter of 2010. The increase of the allowance allocated to commercial and industrial loans was primarily the result of the unsteady economic recovery. The allowance allocated to factored receivables increased based on the continued weakening in the consumer sectors. The increase in the allowance allocated to real estate residential mortgage was primarily due to the persistent decline in residential real estate values. As a result of the disruption in the commercial real estate markets, the allowance allocated to real estate commercial mortgage was increased.

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,

	2010					2009

	Balances		% of Total			Balances		% of Total

Domestic
Demand	$	539,633		32.79	%	$	470,404		33.40	%
NOW		193,364		11.75			195,372		13.87
Savings		19,566		1.19			18,195		1.29
Money Market		342,332		20.80			332,262		23.59
Time deposits		550,718		33.47			391,713		27.81

Total domestic deposits		1,645,613		100.00			1,407,946		99.96

Foreign
Time deposits		—		—			579		0.04

Total deposits	$	1,645,613		100.00	%	$	1,408,525		100.00	%

Fluctuations of balances in total or among categories at any date may occur based on the Company’s mix of assets and liabilities as well as on customers’ balance sheet strategies. Historically, however, average balances for deposits have been relatively stable. Information regarding these average balances is presented on pages 43 and 44.

CAPITAL

The Company and the bank are subject to risk-based capital regulations which quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of the Tier 1 and Tier 2 components of total capital and establish minimum ratios of 4% for Tier 1 capital and 8% for total capital for capital adequacy purposes. Supplementing these regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at least 3% or 4%, depending upon an institution’s regulatory status) 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 47. In addition, the bank is subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) which imposes a number of mandatory supervisory measures. Among other matters, FDICIA established five capital categories, ranging from “well capitalized” to “critically under capitalized”. Such classifications are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire other institutions. Under FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier 1 and total capital ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies comparable tests for holding companies such as the Company. At September 30, 2010, the Company and the bank exceeded the requirements for “well capitalized” institutions under the tests pursuant to FDICIA and of the Federal Reserve Board.

The bank regulatory agencies have encouraged banking organizations, including healthy, well-run banking organizations, to operate with capital ratios substantially in excess of the stated ratios required to maintain “well capitalized” status. This has resulted from, among other things, current economic conditions, the global financial crisis, the Dodd Frank Act and the Basel III proposals, as described below, and the likelihood, as described in the 2009 Form 10-K, of increased formal capital requirements for banking organizations.

As noted above, the Dodd-Frank Act enacted in July 2010 requires the federal banking agencies to establish stricter risk-based capital requirements and leverage limits to apply to banks and bank holding companies.

In addition, recent proposals published by the Basel Committee on Banking Supervision (the “Basel Committee”), if adopted, could lead to significantly higher capital requirements, higher capital charges and more restrictive leverage and liquidity ratios. The final package of Basel III reforms will be considered in November 2010 by the leaders of the Group of 20, and then will be

subject to individual adoption by member nations, including the United States. The ultimate impact of the new capital and liquidity standards on the Company cannot be determined at this time and will depend on a number of factors, including the treatment and implementation by the U.S. banking regulators.

During the first quarter 2010, we completed an underwritten public offering of 8,625,000 shares of our common shares at an offering price of $8.00 per share, which resulted in net proceeds of $64.9 million after underwriting discounts and expenses. The proceeds from the issuance of shares are to be used for general corporate purposes which may including the financing of possible acquisitions of complementary businesses or assets, including FDIC-assisted transactions, the extension of credit to, or the funding of investments in our subsidiaries, or the possible repurchase of Series A Preferred Shares, separately or together with the warrant for 516,817 shares of our common shares held by the U.S. Treasury, subject to the receipt of any required regulatory approval.

Under its share repurchase program, the Company buys back common shares from time to time. The Company did not repurchase any of its common shares during the third quarter of 2010. At September 30, 2010, the maximum number of shares that may yet be purchased under the share repurchase program was 870,963.

The Board of Directors initially authorized the repurchase of common shares in 1997 and since then has approved increases in the number of common shares that the Company is authorized to repurchase. The latest increase was announced on August 16, 2007, when the Board of Directors increased the Company’s authority to repurchase common shares by an additional 800,000 shares.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For information regarding recently issued accounting pronouncements and their expected impact on the Company’s consolidated financial statements, see Note 11 of the Company’s unaudited consolidated financial statements in this quarterly report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this quarterly report on Form 10-Q, 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, the economic environment, asset quality and future levels of nonaccrual loans, charge-offs and provisions for loan losses, and the Company’s position for future growth and ability to benefit from an economic recovery, and other statements contained herein regarding matters that are not historical facts, are “forward-looking statements” as defined in the Securities Exchange Act of 1934. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Any forward-looking statements we may make speak only as of the date on which such statements are made. Our actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements and we make no commitment to update or revise forward-looking statements in order to reflect new information, subsequent events or changes in expectations.

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations, geopolitical developments, including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board and laws and regulations concerning taxes, banking and securities with which the Company must comply; 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 risks and uncertainties described in “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2009; and other risks and uncertainties detailed from time to time in press releases and other public filings; and the Company’s performance in managing the risks involved in any of the foregoing. The foregoing list of important factors is not exclusive, and we will not update any forward-looking statement, whether written or oral, that may be made from time to time.

STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended September 30,
(Unaudited)

2010

2009

Average
Balance

Interest

Average
Rate

Average
Balance

Interest

Average
Rate

ASSETS

Interest-bearing deposits with other banks

14,180

0.27

50,385

0.21

Securities available for sale

449,055

2,767

2.46

320,494

3,903

4.87

Securities held to maturity

198,280

2,172

4.38

345,186

3,975

4.61

Securities tax-exempt [2]

136,533

2,102

6.16

61,254

926

6.05

Total investment securities

783,868

7,041

3.59

726,934

8,804

4.84

FRB and FHLB stock [2]

8,810

113

5.16

9,769

192

7.87

Loans, net of unearned discounts [3]

1,314,846

18,275

5.71

1,189,030

18,024

6.25

TOTAL INTEREST-EARNING ASSETS

2,121,704

25,439

4.86

1,976,118

27,047

5.56

Cash and due from banks

34,635

28,342

Allowance for loan losses

(22,735

)

(20,307

)

Goodwill

22,901

Other assets

137,699

120,662

TOTAL ASSETS

2,294,204

2,127,716

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

Domestic

Savings

18,505

0.05

18,022

0.07

NOW

183,780

0.14

180,753

106

0.23

Money market

342,615

677

0.78

329,485

763

0.92

Time

580,328

1,545

1.06

375,087

1,931

2.04

Foreign

Time

117

—

1.10

579

1.09

Total interest-bearing deposits

1,125,345

2,291

0.81

903,926

2,805

1.23

Borrowings

Securities sold under agreements to repurchase - customers

41,880

0.46

76,495

0.41

Securities sold under agreements to repurchase - dealers

13,093

0.68

—

Federal funds purchased

73,533

0.23

6,911

0.16

Commercial paper

14,424

0.30

13,448

0.43

Short-term borrowings - FRB

—

207,554

131

0.25

Short-term borrowings - other

16,239

0.35

1,989

—

Long-term borrowings - FHLB

131,823

871

2.62

158,592

1,197

2.99

Long-term borrowings - sub debt

25,774

523

8.38

25,774

523

8.38

Total borrowings

316,766

1,536

1.93

490,763

1,947

1.58

TOTAL INTEREST-BEARING LIABILITIES

1,442,111

3,827

1.05

1,394,689

4,752

1.35

Noninterest-bearing deposits

478,474

437,551

Other liabilities

144,843

138,486

Total liabilities

2,065,428

1,970,726

Shareholders’ equity

228,776

156,990

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

2,294,204

2,127,716

Net interest income/spread

21,612

3.81

22,295

4.21

Net yield on interest-earning assets (margin)

4.11

4.57

Less: Tax equivalent adjustment

737

325

Net interest income

20,875

21,970


[1]	The average balances of assets, liabilities and shareholders’ equity are computed on the basis of daily averages. Average rates are presented on a tax-equivalent basis. Certain reclassifications have been made to amounts for prior periods to conform to the current presentation.

[2]	Interest on tax-exempt securities is presented on a tax-equivalent basis.

[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Nine Months Ended September 30,
(Unaudited)

2010

2009

Average
Balance

Interest

Average
Rate

Average
Balance

Interest

Average
Rate

ASSETS

Interest-bearing deposits with other banks

27,243

0.26

29,761

0.21

Securities available for sale

405,340

8,670

2.85

359,882

13,103

4.85

Securities held to maturity

253,926

8,874

4.66

312,075

10,974

4.69

Securities tax-exempt [2]

113,168

5,220

6.15

40,198

1,783

5.91

Total investment securities

772,434

22,764

3.93

712,155

25,860

4.84

FRB and FHLB stock [2]

8,363

299

4.77

9,700

390

5.37

Loans, net of unearned discounts [3]

1,231,970

51,907

5.96

1,185,025

53,840

6.32

TOTAL INTEREST-EARNING ASSETS

2,040,010

75,023

5.07

1,936,641

80,136

5.66

Cash and due from banks

35,408

30,115

Allowance for loan losses

(22,334

)

(18,409

)

Goodwill

22,901

Other assets

132,450

116,584

TOTAL ASSETS

2,208,435

2,087,832

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

Domestic

Savings

18,324

0.06

18,105

0.11

NOW

212,012

398

0.25

201,238

400

0.27

Money market

334,819

2,129

0.85

336,470

2,525

1.00

Time

542,156

4,854

1.20

346,034

6,143

2.37

Foreign

Time

423

1.09

578

1.09

Total interest-bearing deposits

1,107,734

7,393

0.89

902,425

9,088

1.35

Borrowings

Securities sold under agreements to repurchase - customers

49,046

175

0.48

76,159

282

0.49

Securities sold under agreements to repurchase - dealers

5,827

0.63

—

Federal funds purchased

40,321

0.22

25,390

0.23

Commercial paper

14,604

0.31

12,148

0.60

Short-term borrowings - FHLB

—

4,560

0.31

Short-term borrowings - FRB

4,945

0.25

184,249

356

0.26

Short-term borrowings - other

9,109

0.27

1,733

0.05

Long-term borrowings - FHLB

128,628

2,591

2.69

152,896

3,453

3.02

Long-term borrowings - sub debt

25,774

1,570

8.38

25,774

1,570

8.38

Total borrowings

278,254

4,492

2.16

482,909

5,771

1.60

TOTAL INTEREST-BEARING LIABILITIES

1,385,988

11,885

1.15

1,385,334

14,859

1.43

Noninterest-bearing deposits

471,081

423,825

Other liabilities

142,113

120,865

Total liabilities

1,999,182

1,930,024

Shareholders’ equity

209,253

157,808

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

2,208,435

2,087,832

Net interest income/spread

63,138

3.92

65,277

4.23

Net yield on interest-earning assets (margin)

4.26

4.60

Less: Tax equivalent adjustment

1,830

627

Net interest income

61,308

64,650


[1]	The average balances of assets, liabilities and shareholders’ equity are computed on the basis of daily averages. Average rates are presented on a tax-equivalent basis. Certain reclassifications have been made to amounts for prior periods to conform to the current presentation.

[2]	Interest on tax-exempt securities is presented on a tax-equivalent basis.

[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(Unaudited)


	Increase/(Decrease) Three Months Ended September 30, 2010 to September 30, 2009


	Volume			Rate			Net [2]

INTEREST INCOME
Interest-bearing deposits with other banks	$	(23	)	$	6		$	(17	)


Securities available for sale		1,235			(2,371	)		(1,136	)
Securities held to maturity		(1,614	)		(189	)		(1,803	)
Securities tax-exempt		1,159			17			1,176

Total investment securities		780			(2,543	)		(1,763	)


FRB and FHLB stock		(17	)		(62	)		(79	)


Loans, net of unearned discounts [3]		1,920			(1,669	)		251


TOTAL INTEREST INCOME	$	2,660		$	(4,268	)	$	(1,608	)


INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings	$	—		$	(1	)	$	(1	)
NOW		2			(41	)		(39	)
Money market		30			(116	)		(86	)
Time		781			(1,167	)		(386	)
Foreign
Time		(2	)		—			(2	)

Total interest-bearing deposits		811			(1,325	)		(514	)


Borrowings
Securities sold under agreements to repurchase - customers		(39	)		9			(30	)
Securities sold under agreements to repurchase - dealers		23			—			23
Federal funds purchased		41			1			42
Commercial paper		1			(4	)		(3	)
Short-term borrowings - FRB		(131	)		—			(131	)
Short-term borrowings - other		—			14			14
Long-term borrowings - FHLB		(188	)		(138	)		(326	)
Long-term borrowings - sub debt		—			—			—

Total borrowings		(293	)		(118	)		(411	)


TOTAL INTEREST EXPENSE	$	518		$	(1,443	)	$	(925	)


NET INTEREST INCOME	$	2,142		$	(2,825	)	$	(683	)


[1]	This table is presented on a tax-equivalent basis.

[2]	Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each. The change in interest expense for securities under agreements to repurchase-dealers and short term borrowings-FRB has been allocated entirely to the volume variance.

[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES
Rate/Volume Analysis [1]
(Unaudited)


	Increase/(Decrease) Nine Months Ended September 30, 2010 to September 30, 2009


	Volume			Rate			Net [2]

INTEREST INCOME
Interest-bearing deposits with other banks	$	(4	)	$	11		$	7


Securities available for sale		1,485			(5,918	)		(4,433	)
Securities held to maturity		(2,030	)		(70	)		(2,100	)
Securities tax-exempt		3,362			75			3,437

Total investment securities		2,817			(5,913	)		(3,096	)


FRB and FHLB stock		(50	)		(41	)		(91	)


Loans, net of unearned discounts [3]		1,825			(3,758	)		(1,933	)


TOTAL INTEREST INCOME	$	4,588		$	(9,701	)	$	(5,113	)


INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings	$	—		$	(6	)	$	(6	)
NOW		25			(27	)		(2	)
Money market		(12	)		(384	)		(396	)
Time		2,548			(3,837	)		(1,289	)
Foreign
Time		(2	)		—			(2	)

Total interest-bearing deposits		2,559			(4,254	)		(1,695	)


Borrowings
Securities sold under agreements to repurchase - customers		(101	)		(6	)		(107	)
Securities sold under agreements to repurchase - dealers		28			—			28
Federal funds purchased		26			(2	)		24
Commercial paper		9			(30	)		(21	)
Short-term borrowings - FHLB		(11	)		—			(11	)
Short-term borrowings - FRB		(334	)		(13	)		(347	)
Short-term borrowings - other		8			9			17
Long-term borrowings - FHLB		(511	)		(351	)		(862	)
Long-term borrowings - sub debt		—			—			—

Total borrowings		(886	)		(393	)		(1,279	)


TOTAL INTEREST EXPENSE	$	1,673		$	(4,647	)	$	(2,974	)


NET INTEREST INCOME	$	2,915		$	(5,054	)	$	(2,139	)


[1]	This table is presented on a tax-equivalent basis.

[2]	Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each. The change in interest expense for securities sold under agreements to repurchase-dealers and short-term borrowings-FHLB has been allocated entirely to the volume variance.

[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios

Ratios and Minimums

Actual

For Capital
Adequacy Minimum

To Be Well
Capitalized

As of September 30, 2010

Amount

Ratio

Amount

Ratio

Amount

Ratio

Total Capital(to Risk-Weighted Assets):

The Company

253,574

14.70

137,995

8.00

172,493

10.00

The bank

198,988

11.78

135,149

8.00

168,936

10.00

Tier 1 Capital(to Risk-Weighted Assets):

The Company

235,155

13.63

68,997

4.00

103,496

6.00

The bank

180,574

10.69

67,574

4.00

101,361

6.00

Tier 1 Leverage Capital(to Average Assets):

The Company

235,155

10.35

90,841

4.00

113,551

5.00

The bank

180,574

8.12

88,952

4.00

111,190

5.00

As of December 31, 2009

Total Capital(to Risk-Weighted Assets):

The Company

193,760

12.75

121,606

8.00

152,007

10.00

The bank

169,353

11.25

120,378

8.00

150,473

10.00

Tier 1 Capital(to Risk-Weighted Assets):

The Company

174,746

11.50

60,803

4.00

91,204

6.00

The bank

150,529

10.00

60,189

4.00

90,284

6.00

Tier 1 Leverage Capital(to Average Assets):

The Company

174,746

8.06

86,757

4.00

108,447

5.00

The bank

150,529

6.97

86,385

4.00

107,981

5.00


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET/LIABILITY MANAGEMENT

The Company’s primary earnings source is its net interest income; therefore, the Company devotes significant time and has invested in resources to assist in the management of interest rate risk and asset quality. The Company’s net interest income is affected by changes in market interest rates, and by the level and composition of interest-earning assets and interest-bearing liabilities. The Company’s objectives in its asset/liability management are to utilize its capital effectively, to provide adequate liquidity and to enhance net interest income, without taking undue risks or subjecting the Company unduly to interest rate fluctuations.

The Company takes a coordinated approach to the management of its liquidity, capital and interest rate risk. This risk management process is governed by policies and limits established by senior management which are reviewed and approved by the Asset/Liability Committee. This committee, which is comprised of members of senior management, meets to review, among other things, economic conditions, interest rates, yield curve, cash flow projections, expected customer actions, liquidity levels, capital ratios and repricing characteristics of assets, liabilities and financial instruments.

Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market indices such as interest rates, foreign exchange rates and equity prices. The Company’s principal market risk exposure is interest rate risk, with no material impact on earnings from changes in foreign exchange rates or equity prices.

Interest rate risk is the exposure to changes in market interest rates. Interest rate sensitivity is the relationship between market interest rates and net interest income due to the repricing characteristics of assets and liabilities. The Company monitors the interest rate sensitivity of its balance sheet positions by examining its near-term sensitivity and its longer-term gap position. In its management of interest rate risk, the Company utilizes several financial and statistical tools, including traditional gap analysis and sophisticated income simulation models.

A traditional gap analysis is prepared based on the maturity and repricing characteristics of interest-earning assets and interest-bearing liabilities for selected time bands. The mismatch between repricings or maturities within a time band is commonly referred to as the “gap” for that period. A positive gap (asset sensitive) where interest rate sensitive assets exceed interest rate sensitive liabilities generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite result on the net interest margin. However, the traditional gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates and other factors that could have an impact on interest rate sensitivity or net interest income. The Company utilizes the gap analysis to complement its income simulations modeling, primarily focusing on the longer-term structure of the balance sheet.

The Company’s balance sheet structure is primarily short-term in nature with a substantial portion of assets and liabilities repricing or maturing within one year. The Company’s gap analysis at September 30, 2010, presented on page 52, indicates that net interest income would increase during periods of rising interest rates and decrease during periods of falling interest rates, but, as mentioned above, gap analysis may not be an accurate predictor of net interest income.

As part of its interest rate risk strategy, the Company may use financial instrument derivatives to hedge the interest rate sensitivity of assets. The Company has written policy guidelines, approved by the Board of Directors, governing the use of financial instruments, including approved counterparties, risk limits and appropriate internal control procedures. The credit risk of derivatives arises principally from the potential for a counterparty to fail to meet its obligation to settle a contract on a timely basis.

As of September 30, 2010, the Company was not a party to any financial instrument derivative agreement.

The Company utilizes income simulation models to complement its traditional gap analysis. While the Asset/Liability Committee routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The income simulation models measure the Company’s net interest income volatility or sensitivity to interest rate changes utilizing statistical techniques that allow the Company to consider various factors which impact net interest income. These factors include actual maturities, estimated cash flows, repricing characteristics, deposits growth/retention and, most importantly, the relative sensitivity of the Company’s assets and liabilities to changes in market interest rates. This relative sensitivity is important to consider as the Company’s core deposit base has not been subject to the same degree of interest rate sensitivity as its assets. The core deposit costs are internally managed and tend to exhibit less sensitivity to changes in interest rates than the Company’s adjustable rate assets whose yields are based on external indices and generally change in concert with market interest rates.

The Company’s interest rate sensitivity is determined by identifying the probable impact of changes in market interest rates on the yields on the Company’s assets and the rates that would be paid on its liabilities. This modeling technique involves a degree of estimation based on certain assumptions that management believes to be reasonable. Utilizing this process, management projects the impact of changes in interest rates on net interest margin. The Company has established certain policy limits for the potential volatility of its net interest margin assuming certain levels of changes in market interest rates with the objective of maintaining a stable net interest margin under various probable rate scenarios. Management generally has maintained a risk position well within the policy limits. As of December 31, 2009, the model indicated the impact of a 100 and 200 basis point parallel and pro rata rise in rates over 12 months would approximate a 2.6% ($2.7 million) and a 4.9% ($5.1 million) increase in net interest income, respectively, while the impact of a 25 basis point decline in rates over the same period would approximate a 1.3% ($1.3 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of December 31, 2009 was considered to be remote given then-current interest rate levels. As of September 30, 2010, the model indicated the impact of a 100 and 200 basis point parallel and pro rata rise in rates over 12 months would approximate a 2.1% ($2.4 million) and a 4.5% ($5.0 million) increase in net interest income, respectively, while the impact of a 25 basis point decline in rates over the same period would approximate a 0.8% ($0.9 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of September 30, 2010 was considered to be remote given then-current interest rate levels.

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customers’ preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to: prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes and other variables. Furthermore, the sensitivity analysis does not reflect actions that the Asset/Liability Committee might take in responding to or anticipating changes in interest rates.

The shape of the yield curve can cause downward pressure on net interest income. In general, if and to the extent that the yield curve is flatter (i.e., the differences between interest rates for different maturities are relatively smaller) than previously anticipated, then the yield on the Company’s interest-earning assets and its cash flows will tend to be lower. Management believes that a relatively flat yield curve could continue to adversely affect the Company’s results in 2010.

Liquidity Risk

Liquidity is the ability to meet cash needs arising from changes in various categories of assets and liabilities. Liquidity is constantly monitored and managed at both the parent company and the bank levels. Liquid assets consist of cash and due from banks, interest-bearing deposits in banks and Federal funds sold and securities available for sale. Primary funding sources include core deposits, capital markets funds and other money market sources. Core deposits include domestic noninterest-bearing and interest-bearing retail deposits, which historically have been relatively stable. The parent company and the bank believe that they have significant unused borrowing capacity. Contingency plans exist which we believe could be implemented on a timely basis to mitigate the impact of any dramatic change in market conditions.

While the parent company generates income from its own operations, it also depends for its cash requirements on funds maintained or generated by its subsidiaries, principally the bank. Such sources have been adequate to meet the parent company’s cash requirements throughout its history.

Various legal restrictions limit the extent to which the bank can supply funds to the parent company and its nonbank subsidiaries. All national banks are limited in the payment of dividends without the approval of the Comptroller of the Currency to an amount not to exceed the net profits as defined, for the year to date combined with its retained net profits for the preceding two calendar years.

At September 30, 2010, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing current business activities, was approximately $16.2 million. The parent company had cash, interest-bearing deposits with banks and other current assets aggregating $79.3 million. The parent company also has back-up credit lines with banks of $19.0 million. Since 1979, the parent company has had no need to use the available back-up lines of credit.

The following table sets forth information regarding the Company’s obligations and commitments to make future payments under contract as of September 30, 2010:


	Payments Due by Period

Contractural obligations (1)	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years


Long-Term Debt	$	170,302	$	30,000	$	92,228	$	2,300	$	45,774
Operating Leases		45,659		4,513		8,313		8,710		24,123

Total Contractural Cash Obligations	$	215,961	$	34,513	$	100,541	$	11,010	$	69,897

(1) Based on contractural maturity dates

The following table sets forth information regarding the Company’s obligations under other commercial commitments as of September 30, 2010:


	Amount of Commitment Expiration per Period

Other Commercial Commitments	Total Amount Committed		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years


Residential Loans	$	59,670	$	59,670	$	—	$	—	$	—
Commercial Loans		24,409		11,512		10,963		—		1,934

Total Loans		84,079		71,182		10,963		—		1,934

Standby Letters of Credit		21,722		18,617		3,105		—		—
Other Commercial Commitments		63,726		62,920		—		—		806

Total Commercial Commitments	$	169,527	$	152,719	$	14,068	$	—	$	2,740

INFORMATION AVAILABLE ON OUR WEB SITE

Our Internet address is www.sterlingbancorp.com and the investor relations section of our web site is located at www.sterlingbancorp.com/ir/investor.cfm. We make available free of charge, on or through the investor relations section of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are the charters for our Board of Directors’ Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee, our Corporate Governance Guidelines, our Method for Interested Persons to Communicate with Non-Management Directors, our Excessive or Luxury Expenditures Policy and a Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the Securities and Exchange Commission and the New York Stock Exchange, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to our senior financial officers, as defined in the Code, or our executive officers or directors. In addition, information concerning purchases and sales of our equity securities by our executive officers and directors is posted on our web site.

The contents of our web site are not incorporated by reference into this quarterly report on Form 10-Q.

STERLING BANCORP AND SUBSIDIARIES

Interest Rate Sensitivity

To mitigate the vulnerability of earnings to changes in interest rates, the Company manages the repricing characteristics of assets and liabilities in an attempt to control net interest rate sensitivity. Management attempts to confine significant rate sensitivity gaps predominantly to repricing intervals of a year or less so that adjustments can be made quickly. Assets and liabilities with predetermined repricing dates are classified based on the earliest repricing period. Based on the interest rate sensitivity analysis shown below, the Company’s net interest income would increase during periods of rising interest rates and decrease during periods of falling interest rates.


	Repricing Date

	3 Months or Less		More than 3 Months to 1 Year		More than 1 Year to 5 Years		More than 5 Years to 10 Years		Over 10 Years		Nonrate Sensitive			Total

ASSETS
Interest-bearing deposits with other banks	$	19,300	$	—	$	—	$	—	$	—	$	—		$	19,300
Investment securities		35,126		206,397		255,627		52,604		214,707		—			764,461
Commercial and industrial loans		543,522		84,485		65,670		4,885		85		(2,187	)		696,460
Lease financing receivables		1,250		10,547		153,538		3,481		—		(17,903	)		150,913
Factored receivables		186,435		—		—		—		—		(229	)		186,206
Real estate-residential mortgage		32,912		42,581		12,345		9,655		65,625		—			163,118
Real estate-commercial mortgage		12,176		30,819		15,476		37,551		—		—			96,022
Real estate-construction and land development		—		—		25,092		—		—		—			25,092
Loans to individuals		2,234		2,192		6,341		1,634		—		—			12,401
Noninterest-earning assets & allowance for loan losses		—		—		—		—		—		189,504			189,504

Total Assets		832,955		377,021		534,089		109,810		280,417		169,185			2,303,477


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Savings [1]		—		—		19,566		—		—		—			19,566
NOW [1]		—		—		193,364		—		—		—			193,364
Money market [1]		267,745		—		74,587		—		—		—			342,332
Time		243,107		260,155		47,456		—		—		—			550,718
Securities sold under agreement to repurchase - customer		21,084		—		—		—		—		—			21,084
Securities sold under agreement to repurchase - dealer		—		—		5,000		—		—		—			5,000
Federal funds purchased		60,000		—		—		—		—		—			60,000
Commercial paper		14,730		515		—		—		—		—			15,245
Short-term borrowings - other		2,221		—		—		—		—		—			2,221
Long-term borrowings - FHLB		—		30,000		94,528		20,000		—		—			144,528
Long-term borrowings - subordinated debentures		—		—		—		—		25,774		—			25,774
Noninterest-bearing liabilities & shareholders’ equity		—		—		—		—		—		923,645			923,645


Total Liabilities and Shareholders’ Equity		608,887		290,670		434,501		20,000		25,774		923,645			2,303,477


Net Interest Rate Sensitivity Gap	$	224,068	$	86,351	$	99,588	$	89,810	$	254,643	$	(754,460	)	$	—


Cumulative Gap September 30, 2010	$	224,068	$	310,419	$	410,007	$	499,817	$	754,460	$	—		$	—


Cumulative Gap September 30, 2009 [2]	$	211,841	$	206,153	$	153,245	$	269,298	$	646,997	$	—		$	—


Cumulative Gap December 31, 2009 [2]	$	215,345	$	223,572	$	238,762	$	348,921	$	707,012	$	—		$	—


[1]	Historically, balances in non-maturity deposit accounts have remained relatively stable despite changes in levels of interest rates. Balances are shown in repricing periods based on management’s historical repricing practices and run-off experience.

[2]	Certain reclassifications have been made to conform to the current presentation.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s principal executive and principal financial officers, evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits

The following exhibits are filed as part of this report:


3.	(i)	Restated Certificate of Incorporation filed with the State of New York Department of State, October 28, 2004 (Filed as Exhibit 3(i) to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).

	(ii)	Certificate of Amendment of Certificate of Incorporation filed with the State of New York Department of State on December 18, 2008 (Filed as Exhibit 3(ii) to the Registrant’s Form 10-K for the year ended December 31, 2008 and incorporated herein by reference).

	(iii)	By-Laws as in effect on November 15, 2007 (Filed as Exhibit 3(ii) (A) to the Registrant’s Form 8-K dated November 15, 2007 and filed on November 19, 2007 and incorporated herein by reference).

11.		Statement Re: Computation of Per Share Earnings.

31.1		Certification of the CEO pursuant to Exchange Act Rule 13a-14(a).

31.2		Certification of the CFO pursuant to Exchange Act Rule 13a-14(a).

32.1		Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code.

32.2		Certification of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code.

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:	November 4, 2010	/s/ Louis J. Cappelli

		Louis J. Cappelli
		Chairman and Chief Executive Officer

Date:	November 4, 2010	/s/ John W. Tietjen

		John W. Tietjen
		Executive Vice President and
		Chief Financial Officer

STERLING BANCORP AND SUBSIDIARIES

EXHIBIT INDEX


Exhibit Number	Description	Sequential Page No.


11	Statement re: Computation of per share earnings	57

31.1	Certification of the CEO pursuant to Exchange Act Rule 13a-14(a).	58

31.2	Certification of the CFO pursuant to Exchange Act Rule 13a-14(a).	59

32.1	Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	60

32.2	Certification of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	61