Edgar Filing: STERLING BANCORP

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, 2009

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	13-2565216

(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, 2009 there were 18,106,491 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		29
		Income Statement Analysis		30
		Balance Sheet Analysis		36
		Capital		43
		Recently Issued Accounting Pronouncements		44
		Cautionary Statement Regarding Forward-Looking Statements		44
		Average Balance Sheets		45
		Rate/Volume Analysis		47
		Regulatory Capital and Ratios		49

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk

		Asset/Liability Management		50
		Interest Rate Sensitivity		54

	Item 4.	Controls and Procedures		55

PART II OTHER INFORMATION

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		56

	Item 6.	Exhibits		56

SIGNATURES				57

EXHIBIT INDEX

	Exhibit 11		Statement Re: Computation of Per Share Earnings	59

	Exhibit 31.1		Certification of the CEO pursuant to Exchange Act Rule 13a-14(a)	60

	Exhibit 31.2		Certification of the CFO pursuant to Exchange Act Rule 13a-14(a)	61

	Exhibit 32.1		Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	62

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

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


	September 30, 2009			December 31, 2008

ASSETS
Cash and due from banks	$	31,188		$	31,832
Interest-bearing deposits with other banks		21,119			13,949

Securities available for sale (at estimated fair value; pledged: $105,856 in 2009 and $334,048 in 2008)		327,109			492,797
Securities held to maturity (pledged: $264,985 in 2009 and $206,726 in 2008) (estimated fair value: $407,730 in 2009 and $305,628 in 2008)		395,508			301,127

Total investment securities		722,617			793,924


Loans held for sale		25,782			23,403

Loans held in portfolio, net of unearned discounts		1,207,788			1,184,585
Less allowance for loan losses		19,099			16,010

Loans, net		1,188,689			1,168,575


Federal Reserve and Federal Home Loan Bank stock, at cost		9,832			12,705
Customers’ liability under acceptances		0			95
Goodwill		22,901			22,901
Premises and equipment, net		9,666			10,668
Other real estate		1,837			1,544
Accrued interest receivable		8,141			8,917
Cash surrender value of life insurance policies		48,419			45,845
Other assets		46,614			43,382

	$	2,136,805		$	2,177,740


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand deposits	$	470,404		$	464,585
Savings, NOW and money market deposits		545,829			564,205
Time deposits		392,292			329,034

Total deposits		1,408,525			1,357,824

Securities sold under agreements to repurchase - customers		55,628			44,334
Federal funds purchased		25,675			131,000
Commercial paper		14,692			11,732
Short-term borrowings - FHLB		0			75,000
Short-term borrowings - FRB		135,000			100,000
Short-term borrowings - other		3,787			1,338
Long-term borrowings - FHLB		160,000			150,000
Long-term borrowings - subordinated debentures		25,774			25,774

Total borrowings		420,556			539,178

Acceptances outstanding		0			95
Accrued interest payable		1,529			2,046
Accrued expenses and other liabilities		145,657			118,117

Total liabilities		1,976,267			2,017,260


Shareholders’ equity
Preferred stock, Series A, $5 par value; $1,000 liquidation value. Authorized 644,389 shares; issued 42,000 shares, respectively		39,990			39,440
Common stock, $1 par value. Authorized 50,000,000 shares; issued 22,226,425 and 22,202,419 shares, respectively		22,227			22,203
Warrants to purchase common stock		2,615			2,615
Capital surplus		178,701			178,417
Retained earnings		15,467			19,088
Accumulated other comprehensive loss		(13,294	)		(16,259	)
Common shares in treasury at cost, 4,119,934 and 4,107,191 shares, respectively		(85,168	)		(85,024	)

Total shareholders’ equity		160,538			160,480

	$	2,136,805		$	2,177,740

See Notes to Consolidated Financial Statements.

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


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

	2009		2008		2009		2008

INTEREST INCOME
Loans	$	18,024	$	20,387	$	53,840	$	61,208
Investment securities
Available for sale		4,123		5,523		13,751		15,662
Held to maturity		4,357		3,795		11,485		12,054
FRB and FHLB stock		191		257		387		500
Federal funds sold		0		7		0		8
Deposits with other banks		27		11		46		30

Total interest income		26,722		29,980		79,509		89,462


INTEREST EXPENSE
Deposits
Savings, NOW and money market		872		2,011		2,940		4,710
Time		1,933		3,062		6,148		12,434
Securities sold under agreements to repurchase
- customers		79		419		282		1,507
- dealers		0		382		0		1,115
Federal funds purchased		2		197		43		776
Commercial paper		15		99		55		411
Short-term borrowings - FHLB		0		470		11		996
Short-term borrowings - FRB		131		1		356		2
Short-term borrowings - other		0		9		1		28
Long-term borrowings - FHLB		1,197		1,107		3,453		2,906
Long-term borrowings - subordinated debentures		523		523		1,570		1,570

Total interest expense		4,752		8,280		14,859		26,455


Net interest income		21,970		21,700		64,650		63,007

Provision for loan losses		6,950		1,950		19,950		6,100


Net interest income after provision for loan losses		15,020		19,750		44,700		56,907


Total noninterest income		11,735		7,243		33,337		24,487


Total noninterest expenses		23,177		21,677		67,372		62,973


Income before income taxes		3,578		5,316		10,665		18,421

Provision for income taxes		1,180		1,531		3,880		6,464


Net income		2,398		3,785		6,785		11,957
Dividends on preferred shares and accretion		646		0		2,125		0

Net income available to common shareholders	$	1,752	$	3,785	$	4,660	$	11,957


Average number of common shares outstanding
Basic		18,106,491		18,015,871		18,104,057		17,972,517
Diluted		18,120,412		18,226,811		18,192,585		18,219,375

Net income available to common shareholders, per average common share
Basic	$	0.10	$	0.21	$	0.26	$	0.67
Diluted		0.10		0.21		0.26		0.66

Dividends per common share		0.09		0.19		0.47		0.57

See Notes to Consolidated Financial Statements.

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


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

	2009			2008			2009			2008


Net Income	$	2,398		$	3,785		$	6,785		$	11,957


Other comprehensive income (loss), net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) on available for sale securities and other investments arising during the year		2,664			(2,727	)		4,352			(6,531	)
Reclassification adjustment for (gains) losses included in net income		(666	)		645			(2,818	)		923

Reclassification adjustment for amortization of:
Prior service cost		9			9			27			27
Net actuarial losses		532			228			1,404			689


Other comprehensive income (loss)		2,539			(1,845	)		2,965			(4,892	)


Comprehensive income (loss)	$	4,937		$	1,940		$	9,750		$	7,065

See Notes to Consolidated Financial Statements.

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


	Nine Months Ended September 30,

	2009			2008

Preferred Stock
Balance at January 1,	$	39,440		$	0
Discount accretion		550			0

Balance at September 30,	$	39,990		$	0


Common Stock
Balance at January 1,	$	22,203		$	21,278
Common shares issued under stock incentive plan		24			684

Balance at September 30,	$	22,227		$	21,962


Warrants to Purchase Common Stock
Balance at January 1, and September 30,	$	2,615		$	0


Capital Surplus
Balance at January 1,	$	178,417		$	168,869
Common shares issued under stock incentive plan and related tax benefits		185			7,287
Stock option compensation expense		99			0

Balance at September 30,	$	178,701		$	176,156


Retained Earnings
Balance at January 1,	$	19,088		$	17,538
Adjustment upon adoption of EITF 06-4 effective January 1, 2008		0			(726	)

Balance at January 1, as adjusted		19,088			16,812
Net income		6,785			11,957
Cash dividends paid - preferred shares		(1,353	)		0
Cash dividends paid - common shares		(8,503	)		(10,249	)
Discount accretion on series A preferred stock		(550	)		0

Balance at September 30,	$	15,467		$	18,520


Accumulated Other Comprehensive Loss
Balance at January 1,	$	(16,259	)	$	(10,812	)
Other comprehensive income (loss), net of tax		2,965			(4,892	)

Balance at September 30,	$	(13,294	)	$	(15,704	)


Treasury Stock
Balance at January 1,	$	(85,024	)	$	(75,803	)
Surrender of shares issued under stock incentive plan		(144	)		(6,787	)

Balance at September 30,	$	(85,168	)	$	(82,590	)


Total Shareholders’ Equity
Balance at January 1,	$	160,480		$	121,070
Net changes during the period		58			(2,726	)

Balance at September 30,	$	160,538		$	118,344

See Notes to Consolidated Financial Statements.

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


	Nine Months Ended September 30,

	2009			2008

Operating Activities
Net Income	$	6,785		$	11,957

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		19,950			6,100
Depreciation and amortization of premises and equipment		1,679			1,882
Securities (gains) losses		(5,160	)		1,684
Income from life insurance policies, net		(1,094	)		(852	)
Deferred income tax (benefit) provision		(2,076	)		2,680
Proceeds from sale of loans		492,589			346,302
Gains on sales of loans, net		(7,146	)		(6,670	)
Originations of loans held for sale		(487,822	)		(336,247	)
Amortization of premiums on securities		1,386			304
Accretion of discounts on securities		(1,035	)		(529	)
Decrease (Increase) in accrued interest receivable		776			(1,289	)
Decrease in accrued interest payable		(509	)		(1,348	)
Increase in accrued expenses and other liabilities		24,538			6,482
Increase in other assets		(2,041	)		(6,906	)
(Gain) Loss on other real estate owned		(39	)		360
Other, net		0			674

Net cash provided by operating activities		40,781			24,584


Investing Activities
Purchase of premises and equipment		(641	)		(1,363	)
Net increase in interest-bearing deposits with other banks		(7,171	)		(2,793	)
Net decrease (increase) in loans held in portfolio		21,254			(31,914	)
Net increase in short-term factored receivables		(42,870	)		(1,412	)
Decrease in other real estate		1,284			1,447
Proceeds from prepayments, redemptions or maturities of securities - held to maturity		60,172			49,248
Purchases of securities - held to maturity		(183,996	)		0
Proceeds from calls of securities - held to maturity		30,000			0
Proceeds from calls/sales of securities - available for sale		366,526			0
Proceeds from prepayments, redemptions or maturities of securities - available for sale		95,607			180,897
Purchases of securities - available for sale		(285,516	)		(341,837	)
Proceeds from redemptions or maturities of securities - FHLB & FRB stock		3,375			9,581
Purchases of securities - FHLB & FRB Stock		(503	)		(17,820	)
Cash paid in acquisition		(21,333	)		0

Net cash provided by (used in) investing activities		36,188			(155,966	)


Financing Activities
Net increase (decrease) in noninterest-bearing demand deposits		5,819			(48,979	)
Net (decrease) increase in savings, NOW and money market deposits		(18,376	)		132,291
Net increase (decrease) in time deposits		63,258			(160,836	)
Decrease in Federal funds purchased		(105,325	)		(10,000	)
Net increase in securities sold under agreements to repurchase		11,294			4,283
Net (decrease) increase in commercial paper and other short-term borrowings		(34,590	)		79,811
Increase in long-term borrowings		10,000			110,000
Proceeds from exercise of stock options		163			900
Cash dividends paid on preferred stock		(1,353	)		0
Cash dividends paid on common stock		(8,503	)		(10,249	)

Net cash (used in) provided by financing activities		(77,613	)		97,221


Net decrease in cash and due from banks		(644	)		(34,161	)
Cash and due from banks - beginning of period		31,832			66,412


Cash and due from banks - end of period	$	31,188		$	32,251


Supplemental disclosures:
Interest paid	$	15,368		$	27,802
Income taxes paid		5,746			8,809

Loans held for sale transferred to portfolio		0			3,619
Loans transferred to other real estate		1,538			2,128
Due to brokers on purchases of securities - AFS		5,000			0
Due to brokers on purchases of securities - HTM		613			0

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. 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 New York 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 Sterling National Bank and its subsidiaries (the “bank”), after elimination of intercompany transactions. The consolidated financial statements as of and for the interim periods ended September 30, 2009 and 2008 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, 2008 (the “2008 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. Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the current presentation.

Fair Value Measurements. On January 1, 2008, the Company adopted the provisions of FASB Codification Topic 820: Fair Value Measurements which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements (See Note 9. Fair Value Measurements). The Company also adopted FASB Codification Topic 825: Financial Instruments on January 1, 2008 but did not elect the fair value option for any of its financial assets or financial liabilities.

Note 2. Loans

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


	September 30, 2009		December 31, 2008

	(in thousands)
Loans held for sale, net of valuation reserve ($-0- at September 30, 2009 and at December 31, 2008)
Real estate-residential mortgage	$	25,782	$	23,403

Loans held in portfolio
Commercial and industrial	$	544,872	$	533,613
Lease financing receivables		238,425		290,656
Factored receivables		152,279		89,365
Real estate-residential mortgage		134,023		142,135
Real estate-commercial mortgage		103,785		96,883
Real estate-construction and land development		24,112		25,249
Loans to individuals		13,660		18,959
Loans to depository institutions		25,000		25,000


Loans held in portfolio, gross		1,236,156		1,221,860
Less unearned discounts		28,368		37,275

Loans held in portfolio, net of unearned discounts	$	1,207,788	$	1,184,585

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

Note 3. Investment Securities

The following tables present information regarding securities available for sale:


September 30, 2009	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	2,963	$	38	$	0	$	3,001
CMO’s (Federal Home Loan Mortgage Corporation)		5,695		165		0		5,860
CMO’s (Government National Mortgage Association)		4,861		0		83		4,778
Federal National Mortgage Association		20,237		971		0		21,208
Federal Home Loan Mortgage Corporation		11,031		323		0		11,354
Government National Mortgage Association		13,137		394		1		13,530

Total mortgage-backed securities		57,924		1,891		84		59,731

Agency Notes
Federal National Mortgage Association		20,296		0		292		20,004
Federal Home Loan Bank		45,000		133		78		45,055
Federal Farm Credit Bank		24,998		0		243		24,755

Total obligations of U.S. government corporations and government sponsored enterprises		148,218		2,024		697		149,545

Obligations of state and political institutions		22,944		1,660		0		24,604
Single-issuer, trust preferred securities		5,603		103		527		5,179
Corporate debt securities		146,318		1,542		134		147,726
Other securities		44		11		0		55

Total	$	323,127	$	5,340	$	1,358	$	327,109

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


December 31, 2008	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	8,771	$	1	$	72	$	8,700
CMO’s (Federal Home Loan Mortgage Corporation)		22,276		60		223		22,113
CMO’s (Government National Mortgage Association)		6,610		0		45		6,565
Federal National Mortgage Association		100,712		2,116		40		102,788
Federal Home Loan Mortgage Corporation		37,719		832		15		38,536
Government National Mortgage Association		31,463		723		6		32,180

Total mortgage-backed securities		207,551		3,732		401		210,882

Agency Notes
Federal Home Loan Bank		153,977		1,224		526		154,675
Federal Farm Credit Bank		89,918		232		306		89,844

Total obligations of U.S. government corporations and government sponsored enterprises		451,446		5,188		1,233		455,401

Obligations of state and political institutions		23,058		567		219		23,406
Single-issuer, trust preferred securities		5,369		224		1,384		4,209
Corporate debt securities		9,962		0		238		9,724
Other securities		44		13		0		57

Total	$	489,879	$	5,992	$	3,074	$	492,797

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

The following tables present information regarding securities held to maturity:


September 30, 2009	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	11,265	$	348	$	0	$	11,613
CMO’s (Federal Home Loan Mortgage Corporation)		17,645		626		0		18,271
Federal National Mortgage Association		112,433		4,915		1		117,347
Federal Home Loan Mortgage Corporation		72,961		2,459		23		75,397
Government National Mortgage Association		6,343		508		0		6,851

Total mortgage-backed securities		220,647		8,856		24		229,479

Agency Notes
Federal National Mortgage Association		87,143		611		175		87,579
Federal Home Loan Bank		19,846		79		69		19,856
Federal Home Loan Mortgage Corporation		20,000		33		58		19,975
Federal Farm Credit Bank		5,090		0		1		5,089

Total obligations of U.S. government corporations and government sponsored enterprises		352,726		9,579		327		361,978

Obligations of state and political institutions		42,532		2,970		0		45,502
Debt securities issued by foreign governments		250		0		0		250

Total	$	395,508	$	12,549	$	327	$	407,730

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


December 31, 2008	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	12,099	$	11	$	65	$	12,045
CMO’s (Federal Home Loan Mortgage Corporation)		20,181		104		189		20,096
Federal National Mortgage Association		142,312		2,929		94		145,147
Federal Home Loan Mortgage Corporation		98,901		1,299		296		99,904
Government National Mortgage Association		7,384		339		0		7,723

Total mortgage-backed securities		280,877		4,682		644		284,915

Agency Notes
Federal Home Loan Bank		20,000		463		0		20,463

Total obligations of U.S. government corporations and government sponsored enterprises		300,877		5,145		644		305,378
Debt securities issued by foreign governments		250		0		0		250

Total	$	301,127	$	5,145	$	644	$	305,628

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, 2009	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Government National Mortgage Association)	$	0	$	0	$	4,778	$	83	$	4,778	$	83
Government National Mortgage Association		0		0		128		1		128		1

Total mortgage-backed securities		0		0		4,906		84		4,906		84

Agency Notes
Federal National Mortgage Association		20,004		292		0		0		20,004		292
Federal Home Loan Bank		14,978		22		9,944		56		24,922		78
Federal Farm Credit Bank		24,755		243		0		0		24,755		243

Total obligations of U.S. government corporations and government sponsored enterprises		59,737		557		14,850		140		74,587		697

Single-issuer, trust preferred securities		0		0		4,350		527		4,350		527
Corporate debt securities		38,901		134		0		0		38,901		134

Total	$	98,638	$	691	$	19,200	$	667	$	117,838	$	1,358


December 31, 2008


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	0	$	0	$	2,890	$	72	$	2,890	$	72
CMO’s (Federal Home Loan Mortgage Corporation)		5,378		40		9,125		183		14,503		223
CMO’s (Government National Mortgage Association)		0		0		6,565		45		6,565		45
Federal National Mortgage Association		3,161		7		3,906		33		7,067		40
Federal Home Loan Mortgage Corporation		1,676		15		0		0		1,676		15
Government National Mortgage Association		0		0		133		6		133		6

Total mortgage-backed securities		10,215		62		22,619		339		32,834		401

Agency Notes
Federal Home Loan Bank		49,466		526		0		0		49,466		526
Federal Farm Credit Bank		9,694		306		0		0		9,694		306

Total obligations of U.S. government corporations and government sponsored enterprises		69,375		894		22,619		339		91,994		1,233

Obligations of state and political institutions		6,490		181		414		38		6,904		219
Single-issuer, trust preferred securities		2,784		1,115		709		269		3,493		1,384
Corporate debt securities		9,724		238		0		0		9,724		238

Total	$	88,373	$	2,428	$	23,742	$	646	$	112,115	$	3,074

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, 2009	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
Federal National Mortgage Association	$	0	$	0	$	112	$	1	$	112	$	1
Federal Home Loan Mortgage Corporation		0		0		2,818		23		2,818		23

Total mortgage-backed securities		0		0		2,930		24		2,930		24

Agency Notes
Federal National Mortgage Association		27,716		175		0		0		27,716		175
Federal Home Loan Bank		9,931		69		0		0		9,931		69
Federal Home Loan Mortgage Corporation		9,942		58		0		0		9,942		58
Federal Farm Credit Bank		5,090		1		0		0		5,090		1

Total	$	52,679	$	303	$	2,930	$	24	$	55,609	$	327


December 31, 2008


Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	0	$	0	$	8,059	$	65	$	8,059	$	65
CMO’s (Federal Home Loan Mortgage Corporation)		937		5		14,563		184		15,500		189
Federal National Mortgage Association		20,942		88		781		6		21,723		94
Federal Home Loan Mortgage Corporation		15,381		101		19,895		195		35,276		296

Total	$	37,260	$	194	$	43,298	$	450	$	80,558	$	644

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, 2009, approximately $153 million, representing approximately 21.2%, of the Company’s held to maturity and available for sale securities are comprised of securities issued by financial service companies/banks including trust preferred securities (21 issuers), corporate debt (16 issuers) and equity securities (8 issuers). These investments may pose a higher risk of future impairment charges as result of a continued deterioration of the U.S. economy. 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, 2009, the Company held 2 mortgage-backed securities issued by U.S. government sponsored enterprises and 1 agency debt security, in the available for sale portfolio, that were in an unrealized loss position for more than 12 months. Management has concluded that the unrealized losses are due to changes in market interest rates and/or changes in securities markets which resulted from temporary illiquidity and/or uncertainty in those markets. As a result, the unrealized losses are deemed to be temporary.

At September 30, 2009, the Company held 26 debt securities positions issued by commercial and industrial enterprises, in the available for sale portfolio, all of which are paying in accordance with their terms and have no deferrals of interest or principal. All of these debt securities mature within the next 16 months. Management performs an initial credit review prior to purchasing these securities and monitors their performance on a quarterly basis. Based upon management’s review of the issuers, their performance record for paying all principal and interest when due and the relatively short-term maturity of each issue, the unrealized losses are deemed to be temporary.

At September 30, 2009, the Company held 7 securities positions of single-issuer, trust preferred securities and 31 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 the issuers 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, 2009:


Issuer	TARP Recipient	Credit Rating	Amortized Cost		Fair Value		Unrealized Loss

					(in thousands)

Sovereign Capital Trust V, 7.75%,
due 5/15/2036,	No	BBB+	$	1,000	$	971	$	(29	)
owned by Banco Santander Central Hispano	No

Sterling Bancorp Trust I, 8.375%,
due 3/31/2032	Yes	NA		979		903		(76	)

NPB Capital Trust II, 7.85%,
due 9/30/2032	Yes	NA		127		112		(15	)

VNB Capital Trust I, 7.75%,
due 12/15/2031	Yes	BBB-		22		22		0

HSBC Finance, 6.875%,
due 1/30/2033,	No	A		740		720		(20	)
owned by HSBC Group, plc	No

Citigroup Capital VII, 7.125%,
due 7/31/2031	Yes	B+		1,508		1,203		(305	)

Fleet Capital Trust VIII, 7.20%,
due 3/15/2032,	No	B		1,227		1,248		21
owned by Bank of America Corporation	Yes


			$	5,603	$	5,179	$	(424	)

At September 30, 2009, the Company held 3 mortgage-backed debt securities, in the held to maturity portfolio, that were in an unrealized loss position for more than 12 months. All of these securities were obligations of U.S. government corporations or government sponsored enterprises which guarantee principal and interest payments. Management has concluded that the unrealized losses are due to changes in market interest rates and/or changes in securities markets which resulted from temporary illiquidity and/or uncertainty in those markets. Further, management has made an evaluation that it has the intent to hold these securities until their maturity and it is not more likely than not that the Company would be required to sell before anticipated recovery. As a result, the unrealized losses are deemed to be temporary.

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, 2009, 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 penalities.


Available for sale	Amortized Cost		Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	2,963	$	3,001
CMO’s (Federal Home Loan Mortgage Corporation)		5,695		5,860
CMO’s (Government National Mortgage Association)		4,861		4,778
Federal National Mortgage Association		20,237		21,208
Federal Home Loan Mortgage Corporation		11,031		11,354
Government National Mortgage Association		13,137		13,530

Total mortgage-backed securities		57,924		59,731

Agency Notes
Federal National Mortgage Association
Due after 5 years		20,296		20,004
Federal Home Loan Bank
Due within 1 year		5,000		5,015
Due after 5 years		40,000		40,040
Federal Farm Credit Bank
Due after 5 years		24,998		24,755

Total obligations of U.S. government corporations and government sponsored enterprises		148,218		149,545


Obligations of state and political institutions
Due within 1 year		115		116
Due after 1 year but within 5 years		11,689		12,437
Due after 5 years		11,140		12,051

Total obligations of state and political institutions		22,944		24,604


Single-issuer, trust preferred securities
Due after 5 years		5,603		5,179


Corporate debt securities
Due within 6 months		55,953		56,108
Due after 6 months but within 1 year		62,458		63,038
Due after 1 year but within 2 years		21,282		21,640
Due after 2 years but within 5 years		0		0
Due after 5 years		6,625		6,940

Total corporate debt securities		146,318		147,726


Other securities		44		55

Total	$	323,127	$	327,109

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


Held to maturity	Carrying Value		Fair Value

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	11,265	$	11,613
CMO’s (Federal Home Loan Mortgage Corporation)		17,645		18,271
Federal National Mortgage Association		112,433		117,347
Federal Home Loan Mortgage Corporation		72,961		75,397
Government National Mortgage Association		6,343		6,851

Total mortgage-backed securities		220,647		229,479

Agency Notes
Federal National Mortgage Association
Due after 5 years		87,143		87,579
Federal Home Loan Bank
Due after 5 years		19,846		19,856
Federal Home Loan Mortgage Corporation
Due after 5 years		20,000		19,975
Federal Farm Credit Bank
Due after 5 years		5,090		5,089

Total obligations of U.S. government corporations and government sponsored enterprises		352,726		361,978

Obligations of state and political institutions
Due after 5 years		42,532		45,502

Total obligations of state and political institutions		42,532		45,502

Debt securities issued by foreign governments
Due within 1 year		250		250

Total	$	395,508	$	407,730

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

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


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

	2009		2008		2009		2008

	(in thousands)

Proceeds	$	143,682	$	0	$	396,526	$	0
Gross gains		1,221		0		5,160		0
Gross losses		0		0		0		0

There were no sales and/or calls of held to maturity securities in 2009 or 2008.

During the three months ended September 30, 2008, the Company incurred an other-than-temporary impairment charge of approximately $1.2 million on a corporate debt security that was recorded in securities losses. The charge resulted from management’s regular review of the investment portfolio and reduced the carrying amount of the security to approximately $2.6 million. This corporate debt security was sold in October 2008 at a price equal to its reduced carrying amount.

In addition, in the second quarter 2008, the Company incurred an other-than-temporary charge of approximately $507 thousand against a single-issuer, investment grade trust preferred security that was recorded in securities losses. The charge resulted from management’s regular review of the valuation of the investment portfolio and reduced the carrying amount of the security to approximately $493 thousand. This trust preferred security was sold in June 2009 at a price in excess of its reduced carrying amount, resulting in a $233,000 gain.

Investment securities are pledged to secure trust and public deposits, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank of New York, and/or the Federal Reserve Bank of New York, and/or other purposes required or permitted by law.

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,

	2009		2008			2009		2008

	(in thousands)
NONINTEREST INCOME
Accounts receivable management/factoring commissions and other fees	$	4,997	$	4,348		$	13,098	$	11,712
Service charges on deposit accounts		1,553		1,346			4,296		4,029
Trade finance income		569		459			1,411		1,258
Other customer related fees		248		223			725		836
Mortgage banking income		2,505		1,469			7,152		6,670
Trust fees		110		136			366		395
Income from life insurance policies		280		289			828		852
Securities gains (losses)		1,221		(1,177	)		5,160		(1,684	)
Gain (Loss) on other real estate owned		19		(58	)		39		(361	)
Other income		233		208			262		780

Total noninterest income	$	11,735	$	7,243		$	33,337	$	24,487


NONINTEREST EXPENSES
Salaries	$	9,960	$	9,617		$	29,934	$	28,456
Employee benefits		3,206		2,411			9,151		7,499

Total personnel expense		13,166		12,028			39,085		35,955
Occupancy and equipment expenses, net		2,806		2,919			8,381		8,702
Advertising and marketing		916		740			2,596		2,728
Professional fees		1,847		2,644			4,870		5,882
Communications		429		450			1,295		1,311
Deposit insurance		1,195		243			3,059		512
Other expenses		2,818		2,653			8,086		7,883

Total noninterest expenses	$	23,177	$	21,677		$	67,372	$	62,973

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

Note 5. 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,

	2009			2008			2009			2008

	(in thousands)

Service cost	$	620		$	510		$	1,626		$	1,503
Interest cost		959			809			2,467			2,313
Expected return on plan assets		(760	)		(714	)		(1,906	)		(2,009	)
Amortization of prior service cost		17			17			50			50
Recognized actuarial loss		974			415			2,570			1,255

Net periodic benefit cost	$	1,810		$	1,037		$	4,807		$	3,112

The Company has contributed approximately $2.0 million to the defined benefit pension plan in 2009.

Note 6. 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 7. 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 2009 year-to-date average interest-earning assets were 61.2% loans (corporate lending was 67.6% and real estate lending was 27.6% of total loans, respectively) and 36.8% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 75% 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, 2009

Net interest income	$	9,815		$	4,967		$	6,984		$	21,766
Noninterest income		7,059			2,536			1,608			11,203
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			896,507			2,102,686

Three Months Ended September 30, 2008

Net interest income	$	9,707		$	5,223		$	6,567		$	21,497
Noninterest income		5,920			1,542			(834	)		6,628
Depreciation and amortization		165			36			1			202
Segment income before income taxes		7,295			3,148			5,565			16,008
Segment assets		834,640			390,333			831,487			2,056,460

Nine Months Ended September 30, 2009

Net interest income	$	28,493		$	14,884		$	20,701		$	64,078
Noninterest income		18,740			7,274			5,983			31,997
Depreciation and amortization		513			106			2			621
Segment income before income taxes		20,382			13,510			25,876			59,768
Segment assets		822,485			383,694			896,507			2,102,686

Nine Months Ended September 30, 2008

Net interest income	$	27,070		$	15,753		$	19,521		$	62,344
Noninterest income		16,699			6,683			(410	)		22,972
Depreciation and amortization		571			217			2			790
Segment income before income taxes		21,830			9,655			18,420			49,905
Segment assets		834,640			390,333			831,487			2,056,460

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

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

	2009			2008			2009			2008

	(in thousands)
Net interest income:
Total for reportable operating segments	$	21,766		$	21,497		$	64,078		$	62,344
Other [1]		204			203			572			663

Consolidated net interest income	$	21,970		$	21,700		$	64,650		$	63,007


Noninterest income:
Total for reportable operating segments	$	11,203		$	6,628		$	31,997		$	22,972
Other [1]		532			615			1,340			1,515

Consolidated noninterest income	$	11,735		$	7,243		$	33,337		$	24,487


Income before taxes:
Total for reportable operating segments	$	21,392		$	16,008		$	59,768		$	49,905
Other [1]		(17,814	)		(10,692	)		(49,103	)		(31,484	)

Consolidated income before income taxes	$	3,578		$	5,316		$	10,665		$	18,421


Assets:
Total for reportable operating segments	$	2,102,686		$	2,056,460		$	2,102,686		$	2,056,460
Other [1]		34,119			32,430			34,119			32,430

Consolidated assets	$	2,136,805		$	2,088,890		$	2,136,805		$	2,088,890

[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 8. Accumulated Other Comprehensive Income (Loss)

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


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

	2009			2008			2009			2008

	(in thousands)
Other Comprehensive Income (Loss)
Unrealized holding gains (losses) on securities, arising during the period:
Before tax	$	4,878		$	(4,970	)	$	7,968		$	(11,909	)
Tax effect		(2,214	)		2,243			(3,616	)		5,378

Net of tax		2,664			(2,727	)		4,352			(6,531	)


Reclassification adjustment for securities (gains) losses included in net income:
Before tax		(1,221	)		1,177			(5,160	)		1,684
Tax effect		555			(532	)		2,342			(761	)

Net of tax		(666	)		645			(2,818	)		923


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		974			415			2,570			1,255
Tax effect		(442	)		(187	)		(1,166	)		(566	)

Net of tax		532			228			1,404			689



Other comprehensive income (loss)	$	2,539		$	(1,845	)	$	2,965		$	(4,892	)

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

Note 9. 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. 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. 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. 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 2008 Form 10-K.

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

Financial Assets and Financial Liabilities: The following tables summarize financial assets and financial liabilities 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:


September 30, 2009 (in thousands)	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	$	-	$	59,731	$	-	$	59,731
Agency Notes		-		89,814		-	$	89,814

Total obligations of U.S. government corporations and government sponsored enterprises		-		149,545		-		149,545
Obligations of state and political institutions		-		24,604		-		24,604
Single-issuer, trust preferred securities		5,179		-		-		5,179
Corporate debt securities		-		147,726		-		147,726
Equity and other securities		55		-		-		55

Total marketable securities	$	5,234	$	321,875	$	-	$	327,109


Other investments	$	8,660	$	5,393	$	-	$	14,053


December 31, 2008 (in thousands)

Securities available for sale:
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities	$	-	$	210,882	$	-	$	210,882
Agency Notes		-		244,519		-	$	244,519

Total obligations of U.S. government corporations and government sponsored enterprises		-		455,401		-		455,401
Obligations of state and political institutions		-		23,406		-		23,406
Single-issuer, trust preferred securities		4,209		-		-		4,209
Corporate debt securities		-		9,724		-		9,724
Equity and other securities		57		-		-		57

Total marketable securities	$	4,266	$	488,531	$	-	$	492,797


Other investments	$	7,266	$	3,116	$	-	$	10,382

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 2009		December 31, 2008

	(in thousands)
Impaired loans	$	3,741	$	4,203

Non-Financial Assets and Non-Financial Liabilities: Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

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

During the third quarter of 2009, certain foreclosed assets, upon initial recognition, were remeasured 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. Foreclosed assets measured at fair value upon initial recognition totaled $1.3 million (utilizing level 2 valuation inputs) during the three months ended September 30, 2009. 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 $331 thousand. Other than foreclosed assets measured at fair value upon initial recognition, two foreclosed properties were remeasured at fair value during the three months ended September 30, 2009 resulting in a $90 thousand charge to noninterest expense.

FASB Codification Topic 825:Financial Instruments requires disclosures about the fair value of financial instruments for interim reporting periods as well as in annual financial statements. 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.

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

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 2008 Form 10-K.


	September 30, 2009

	Carrying Amount		Fair Value

	(in thousands)
FINANCIAL ASSETS
Cash and due from banks	$	31,188	$	31,188
Interest-bearing deposits with other banks		21,119		21,119
Investment securities		722,617		734,839
Loans held for sale		25,782		25,782
Loans held in portfolio, net		1,188,689		1,169,434
Customers’ liability under acceptances		-		-
Accrued interest receivable		8,141		8,141
FINANCIAL LIABILITIES
Demand, NOW, savings and money market deposits		1,016,233		1,016,233
Time deposits		392,292		394,929
Securities sold under agreements to repurchase		55,628		55,628
Federal funds purchased		25,675		25,675
Commercial paper		14,692		14,692
Short-term borrowings-FRB		135,000		135,000
Other short-term borrowings		3,787		3,787
Acceptances outstanding		-		-
Accrued interest payable		1,529		1,529
Long-term borrowings		185,774		190,413

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

Note 10. New Accounting Standards

On January 1, 2009, the Company adopted amendments to FASB Codification Topic 815: Derivatives and Hedging, which expand the disclosure requirements to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, U.S. GAAP requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The adoption of these amendments did not have a significant impact on the Company’s financial statements.

FASB Codification Topic 855: Subsequent Events establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. U.S. GAAP specifies that (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii)disclosures an entity should make about events or transactions that occurred after the balance sheet date. The Company evaluates subsequent events through the date that the financial statements are issued. Subsequent events guidance under U.S. GAAP became effective for the Company’s financial statements for periods ending after June 15, 2009 and did not have a significant impact on the Company’s financial statements.

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 will be effective January 1, 2010 and are not expected to 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 will be effective January 1, 2010 and are not expected to have a significant impact on the Company’s financial statements.

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

In April 2009, FASB issued the following Staff Positions that amended the FASB Codification:

Effective for the Company’s interim period ended June 30, 2009, FASB Codification Topic 820: Fair Value Measurements and Disclosures was amended to provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have decreased significantly. The amendments also provide guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of these amendments did not have a material impact on the Company’s financial statements.

FASB Codification Topic 825:Financial Instruments now requires enhanced disclosures about the fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of these amendments were effective for the Company’s interim period ending on June 30, 2009. Since the new requirements only enhance disclosure about fair value of financial instruments in interim periods, the adoption of these amendments did not have a material impact on the Company’s financial statements.

FASB Codification Topic 320: Investments-Debt and Equity Securities was amended to make the other-than-temporary impairment guidance more operational and to improve the presentation and disclosure of other-than-temporary impairment on debt and equity securities in the financial statements. Existing U.S. GAAP regarding the recognition and measurement of other-than-temporary impairment of equity securities remains unchanged. The amendments were effective for the Company’s interim period ending on June 30, 2009, and their adoption did not have a material impact on the Company’s financial statements.

FASB Codification Topic 805:Business Combinations was amended to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with FASB Codification Topic 450: Contingencies. Certain guidance on accounting for contingencies in a business combination is no longer provided by U.S. GAAP. Instead, entities are required to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. The amendments eliminate the requirement to disclose and estimate the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures specified in FASB Codification Topic 805. Under these amendments, contingent consideration arrangements of an acquiree that are assumed by the acquirer in a business combination should be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with U.S. GAAP on business combinations. The amendments to FASB Codification Topic 805: Business Combinations are effective for assets or liabilities arising from contingencies the Company acquires in business combinations occurring after January 1, 2009.


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, 2008. Certain reclassifications have been made to prior years’ financial data to conform to current financial statement presentations.

OVERVIEW

The Company provides a broad range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, deposit services, trade financing, equipment leasing, trust and estate administration and investment management services. The Company has operations in 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 metropolitan New York 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, 2009, the bank’s average earning assets represented approximately 97.7% of the Company’s average earning assets. Loans represented 61.1% and investment securities represented 36.8% of the bank’s average earning assets for the first nine months of 2009.

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

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

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

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

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on pages 47 and 48. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on pages 45 and 46.

Comparison of the Three Months Ended September 30, 2009 and 2008

The Company reported net income available to common shareholders for the three months ended September 30, 2009 of $1.8 million, representing $0.10 per share calculated on a diluted basis, compared to $3.8 million, or $0.21 per share calculated on a diluted basis, for the third quarter of 2008. The $2.0 million decrease in net income available to common shareholders was primarily due to a $5.0 million increase in the provision for loans losses, a $1.5 million increase in noninterest expenses and a $0.6 million increase in dividends and accretion related to the preferred shares issued to the U.S. Treasury under the TARP Capital Purchase Program, which more than offset a $4.5 million increase in noninterest income, a $0.3 million increase in net interest income and a lower provision for income taxes.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $22.3 million for the third quarter of 2009 compared to $21.8 million for the 2008 period. Net interest income benefitted from higher average loan balances, lower interest-bearing deposit balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yields on loans and investment securities, lower investment securities outstanding and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.53% for the third quarter of 2009 compared to 4.46% for the 2008 period. The net interest margin was impacted by the lower interest rate environment in 2009, 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 $27.1 million for the third quarter of 2009, down $3.0 million from the 2008 period. The tax-equivalent yield on interest-earning assets was 5.53% for the third quarter of 2009 compared to 6.19% for the 2008 period.

Interest earned on the loan portfolio decreased to $18.0 million for the third quarter of 2009 from $20.4 million in the prior year period. Average loan balances amounted to $1,189.0 million, an increase of $16.3 million from an average of $1,172.7 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $0.2 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 6.25% for the third quarter of 2009 from 6.99% for the 2008 period was primarily attributable to the lower interest rate environment in 2009 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 $8.8 million for the third quarter of 2009 from $9.5 million in the prior year period. Average outstandings decreased to $726.9 million (36.8% of average earning assets) for the third quarter of 2009 from $755.4 million (38.8% of average earning assets) in the prior year period. The decrease 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 4.6 years at September 30, 2009 compared to 7.1 years at September 30, 2008. The average yield in the investment securities portfolio decreased to 4.87% from 5.01% reflecting the impact of the above referenced asset/liability management strategy coupled with calls of higher yielding securities.

Total interest expense decreased by $3.5 million for the third quarter of 2009 from $8.3 million for the 2008 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower interest-bearing deposits.

Interest expense on deposits decreased to $2.8 million for the third quarter of 2009 from $5.1 million for the 2008 period, due to decreases in the cost of those funds and lower balances. The average rate paid on interest-bearing deposits was 1.23%, which was 84 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment during 2009. Average interest-bearing deposits were $903.9 million for the third quarter of 2009 compared to $976.7 million for the prior year period, reflecting the Company’s strategy to reduce reliance on higher-priced deposits.

Interest expense on borrowings decreased to $1.9 million for the third quarter of 2009 from $3.2 million for the 2008 period, primarily due to lower rates paid for borrowed funds coupled with the benefit (reflected in the volume change) derived from the elimination of funding through dealer repurchase agreements and short-term Federal Home Loan Bank borrowings partially offset by increased short-term borrowings from the Federal Reserve Bank (reflected in the volume change). The average rate paid for borrowed funds was 1.58%, which was 107 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2009. Average borrowings increased to $490.8 million for the third quarter of 2009 from $482.4 million in the prior year period, reflecting greater reliance by the Company on wholesale funding.

Provision for Loan Losses

Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 38), the provision for loan losses for the third quarter of 2009 was $7.0 million, compared to $2.0 million for the prior year period. Factors affecting the larger provision for the third quarter of 2009 included further deterioration of economic conditions during the quarter, a $4.3 million increase in net charge-offs, a $13.0 million increase in nonaccrual loans and growth in the loan portfolio.

Noninterest Income

Noninterest income increased to $11.7 million for the third quarter of 2009 from $7.2 million in the 2008 period. The increase principally resulted from the benefit derived from securities gains recognized in the 2009 third quarter compared to securities losses recognized in the 2008 period. Also contributing to the increase were higher income related to accounts receivable management and factoring services, higher mortgage banking income and higher service charges on deposit accounts. In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold in the third quarter approximately $82 million of securities with a weighted average life of approximately 3 years at a gain of $1.2 million. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years. The 2008 amount was reduced by an other-than-temporary impairment charge for a debt security. The charge, which resulted from management’s regular review of the valuation of the investment portfolio, amounted to approximately $1.2 million and reduced the carrying amount of the security to $2.6 million. 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. Partially offsetting that benefit was the impact of reduced volume of billing by clients providing temporary staffing. The increase in mortgage banking income was due to higher volume of loans sold.

Noninterest Expenses

Noninterest expenses for the third quarter of 2009 increased $1.5 million when compared to the 2008 period. The increase was primarily due to the impact of the acquisition of the business of DCD Finance Inc. on April 6, 2009 and higher deposit insurance and pension costs. Partially offsetting those increases was a reduction in professional fees. The increase in deposit insurance cost was primarily due to the significant increase in quarterly FDIC premium rates. On September 29, 2009, the FDIC amended its plan for returning the Deposit Insurance Fund (“DIF”) to its statutorily mandated minimum reserve ratio within eight years by, among other things, increasing assessment rates by a uniform three basis points effective January 1, 2011. In conjunction with the amended plan, the FDIC proposed a rule that would require insured institutions to prepay their estimated quarterly assessments through December 31, 2012 to strengthen the cash position of the DIF. The proposed rule would require the cash prepayment on December 30, 2009. The bank estimates that its prepayment would be approximately $8.0 million.

The increase in pension expense was primarily the result of a weaker return on plan assets during 2008. The Company’s defined benefit retirement plan was closed to new members effective as of January 3, 2007. There have been no new participants in the Company’s Supplemental Executive Retirement Plan (“SERP”). The defined benefit plan was replaced by an enhanced 401(k) contribution for new employees. The Company still has funding obligations related to the defined benefit retirement and SERP plans and will recognize retirement expense related to these plans in future years, which will be dependent on the return earned on plan assets, the level of interest rates, salary increases, employee turnover and other factors. The reduction in professional fees was primarily due to lower audit and examination expenses.

Provision for Income Taxes

The provision for income taxes for the third quarter of 2009 decreased to $1.2 million from $1.5 million for the third quarter of 2008. The decrease was primarily due to the lower level of pre-tax income in the 2009 period.

Comparison of the Nine Months Ended September 30, 2009 and 2008

The Company reported net income available to common shareholders for the nine months ended September 30, 2009 of $4.7 million, representing $0.26 per share calculated on a diluted basis, compared to $12.0 million, or $0.66 per share calculated on a diluted basis, for the first nine months of 2008. The $7.3 million decrease in net income available to common shareholders was primarily due to a $13.9 million increase in the provision for loan losses, a $4.4 million increase in noninterest expenses and a $2.1 million increase in dividends and accretion related to the preferred shares issued to the U.S. Treasury under the TARP Capital Purchase Program, which more than offset a $8.9 million increase in noninterest income, a $1.6 million increase in net interest income and a lower provision for income taxes.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $65.4 million for the first nine months of 2009 compared to $63.4 million for the 2008 period. Net interest income benefitted from higher average loan balances, lower interest-bearing deposit balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yield on loans and investment securities, lower investment securities balances and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.58% for the first nine months of 2009 compared to 4.53% for the 2008 period. The net interest margin was impacted by the lower interest rate environment in 2009, the lower level of noninterest-bearing demand deposits and the effect of higher average loans outstanding.

Total interest income, on a tax-equivalent basis, aggregated $80.2 million for the first nine months of 2009, down $9.6 million from the 2008 period. The tax-equivalent yield on interest-earning assets was 5.64% for the first nine months of 2009 compared to 6.45% for the 2008 period.

Interest earned on the loan portfolio decreased to $53.8 million for the first nine months of 2009 from $61.2 million for the prior year period. Average loan balances amounted to $1,185.0 million, an increase of $54.7 million from an average of $1,130.3 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $2.7 million increase in interest earned on loans. The yield on the loan portfolio decreased to 6.32% for the first nine months of 2009 from 7.46% for the 2008 period, which was primarily attributable to the lower interest rate environment in 2009 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 $25.9 million for the first nine months of 2009 from $28.1 million in the prior year period. Average outstandings decreased to $712.2 million (36.8% of average earning assets) for the first nine months of 2009 from $745.6 million (39.4% of average earning assets) in the prior year period. The decrease 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 4.6 years at September 30, 2009 compared to 7.1 years at September 30, 2008. The average yield on the investment securities portfolio decreased to 4.86% from 5.02%, reflecting the impact of the above referenced asset/liability management strategy coupled with calls of higher yielding securities.

Total interest expense decreased by $11.6 million for the first nine months of 2009 from $26.5 million for the 2008 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower interest-bearing deposit balances.

Interest expense on deposits decreased to $9.1 million for the first nine months of 2009 from $17.1 million for the 2008 period, primarily due to a decrease in the cost of those funds. The average rate paid on interest-bearing deposits was 1.35%, which was 96 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment during 2009. Average interest-bearing deposits were $902.4 million for the first nine months of 2009 compared to $990.8 million for the prior year period, reflecting the Company’s strategy to reduce reliance on higher-priced certificates of deposit.

Interest expense on borrowings decreased to $5.8 million for the first nine months of 2009 from $9.3 million for the 2008 period, primarily due to lower rates paid for borrowed funds coupled with the benefit (reflected in the volume change) derived from the elimination of funding through dealer repurchase agreements partially offset by increased short-term borrowings from the Federal Reserve Bank (reflected in the volume change). The average rate paid for borrowed funds was 1.60%, which was 135 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2009. Average borrowings increased to $482.9 million for the first nine months of 2009 from $421.8 million in the prior year period, reflecting greater reliance by the Company on wholesale funding.

Provision for Loan Losses

Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 38), the provision for loan losses for the first nine months of 2009 was $20.0 million, compared to $6.1 million for the prior year period. Factors affecting the larger provision for the first nine months of 2009 included further deterioration of economic conditions during that period, a $11.8 million increase in net charge-offs, a $13.0 million increase in nonaccrual loans and growth in the loan portfolio.

Noninterest Income

Noninterest income increased to $33.3 million for the first nine months of 2009 from $24.5 million in the 2008 period. The increase principally resulted from securities gains recognized in the 2009 period compared to securities losses recognized in the 2008 period. Also contributing to the increase were higher income related to accounts receivable management and factoring services, higher mortgage banking income, and higher service charges on deposit accounts. In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $206 million of securities with a weighted average life of approximately 3.5 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years. The 2008 amount was reduced by other-than-temporary impairment charges which resulted from management’s regular review of the investment portfolio. One charge, taken in the second quarter of 2008 for a single-issuer, investment grade trust preferred security, amounted to approximately $0.5 million and reduced the carrying amount of the security to $0.5 million. A second charge, taken in the third quarter of 2008 for a debt security, amounted to approximately $1.2 million and reduced the carrying amount of the security to $2.6 million. 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. Partially offsetting that benefit was the impact of reduced volume of billing by clients providing temporary staffing. The increase in mortgage banking income was due to higher volume of loans sold.

Noninterest Expenses

Noninterest expenses for the first nine months of 2009 increased $4.4 million when compared to the 2008 period. The increase was primarily due to the impact of the acquisition of the business of DCD Finance Inc. on April 6, 2009 and higher deposit insurance and pension costs.

The increase in deposit insurance cost was due to a special assessment levied in the 2009 second quarter by the FDIC on all insured depository institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits. The special assessment is part of the FDIC’s effort to rebuild the DIF. Deposit insurance expense during the nine months ended September 30, 2009 included a $1.0 million accrual related to the special assessment. Also contributing to the increase in deposit insurance costs was the significant increase in quarterly FDIC premium rates. On September 29, 2009, the FDIC amended its plan for rebuilding the DIF. Under the amended plan, the FDIC increased assessment rates by a uniform three basis points effective January 1, 2011 and will not impose additional special assessments in 2009. In conjunction with the amended plan, the FDIC proposed a rule that would require insured institutions to prepay the cash position of the DIF. The proposed rule would require the cash prepayment on December 30, 2009. The bank estimates that its prepayment would be approximately $8.0 million.

The increase in pension expense was primarily the result of weaker return on plan assets during 2008. The Company’s defined benefit retirement plan was closed to new members effective as of January 3, 2007. There have been no new participants in the Company’s SERP. The defined benefit plan was replaced by an enhanced 401(k) contribution for new employees. The Company still has funding obligations related to the defined benefit retirement and SERP plans and will recognize retirement expense related to these plans in future years, which will be dependent on the return earned on plan assets, the level of interest rates, salary increases, employee turnover and other factors.

Provision for Income Taxes

The provision for income taxes for the first nine months of 2009 decreased to $3.9 million from $6.5 million for the first nine months of 2008. The decrease was primarily due to the lower level of pre-tax income in the 2009 period.

BALANCE SHEET ANALYSIS

Securities
At September 30, 2009, the Company’s portfolio of securities totaled $722.6 million, of which obligations of U.S. government corporations and government-sponsored enterprises amounted to $502.3 million, (69.5% of total investment securities), corporate debt securities amounted to $147.7 million (20.4% of total investment securities) and obligations of states and political securities amounted to $67.1 million (9.3% of total investment securities). The Company has the intent and ability to hold to maturity securities classified as “held to maturity”. These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on “held to maturity” securities were $12.5 million and $0.3 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment 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 $5.3 million and gross unrealized losses of $1.4 million. After reviewing all investment securities the Company holds in order to determine if the decline in the fair value of any security appears to be other-than-temporary, management expects to realize all of its investment upon the maturity of such instruments and, thus, believes that any fair value impairment is temporary. Management has made an evaluation it is not more likely than not that the Company would be required to sell before anticipated recovery of the full carrying value of its investment.

In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $206 million of securities with a weighted average life of approximately 3.5 years during the first nine months of 2009. The Company expects to reinvest 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:


	Weighted Average Life		Weighted Average Yield

September 30, 2009	AFS	HTM	AFS			HTM

Mortgage-backed securities	3.8 Years	2.8 Years		4.51	%		4.48	%
Agency notes (with original call dates ranging between 3 and 36 months)	10.3 Years	5.8 Years		5.08	%		5.45	%
Corporate debt securities	1.7 Years	-		4.76	%		-
Obligations of state and political subdivisions	5.2 Years	9.3 Years		6.04	%^[1]		6.38	%^[1]

^[1] tax equivalent

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


	September 30, 2009					December 31, 2008

	Balances		% of Total			Balances		% of Total

	(in thousands)
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMO’s (Federal National Mortgage Association)	$	14,266		1.97	%	$	20,799		2.62	%
CMO’s (Federal Home Loan Mortgage Corporation)		23,505		3.25			42,294		5.33
CMO’s (Government National Mortgage Association)		4,778		0.66			6,565		0.83
Federal National Mortgage Association		133,641		18.49			245,100		30.87
Federal Home Loan Mortgage Corporation		84,315		11.67			137,437		17.31
Government National Mortgage Association		19,873		2.75			39,564		4.98

Total mortgage-backed securities		280,378		38.79			491,759		61.94

Agency Notes
Federal National Mortgage Association		107,147		14.83			0		0.00
Federal Home Loan Bank		64,901		8.98			174,675		22.00
Federal Home Loan Mortgage Corporation		20,000		2.77			0		0.00
Federal Farm Credit Bank		29,845		4.13			89,844		11.32

Total obligations of U.S. government corporations and government sponsored enterprises		502,271		69.50			756,278		95.26

Obligations of state and political institutions		67,136		9.29			23,406		2.95
Single-issuer, trust preferred securities		5,179		0.72			4,209		0.53
Corporate debt securities		147,726		20.44			9,724		1.22
Other securities		55		0.01			57		0.01

Total marketable securities		722,367		99.96			793,674		99.97
Debt securities issued by foreign governments		250		0.04			250		0.03

Total	$	722,617		100.00	%	$	793,924		100.00	%

Loan Portfolio

One of Management’s objectives 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 56% of all loans. Loans in this category are typically made to small- and medium-sized businesses and range between $25,000 and $10 million. The Company’s real estate mortgage portfolio, which represents approximately 23% 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 17% 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,

	2009					2008

	(dollars in thousands)
	Balances		% of Total			Balances		% of Total

Domestic
Commercial and industrial	$	543,443		44.05	%	$	510,653		42.59	%
Lease financing receivables		211,697		17.16			256,062		21.36
Factored receivables		152,068		12.33			111,921		9.33
Real estate - residential mortgage		159,805		12.96			160,307		13.37
Real estate - commercial mortgage		103,785		8.41			96,275		8.03
Real estate - construction and land development		24,112		1.95			25,481		2.13
Loans to individuals		13,660		1.11			18,214		1.52
Loans to depository institutions		25,000		2.03			20,000		1.67


Loans, net of unearned discounts	$	1,233,570		100.00	%	$	1,198,913		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 expected economic conditions, the financial condition of borrowers, the realization of collateral and the credit management process.

During the first nine months of 2009, conditions across many segments of the economy continued to deteriorate, adversely affecting the financial condition of our small business borrowers as well as the value of our collateral. As a result of the adverse effects of existing economic conditions, nonaccrual loans increased $13.0 million during the first nine months of 2009 (primarily reflecting a $10.9 million increase in nonaccrual lease financing receivables), and charge-offs for the first nine months of 2009 were $11.8 million higher than for the corresponding period in 2008 (primarily reflecting a $11.2 million increase in charge-offs for lease financing receivables). The Company experienced a disruption in our collection efforts due to resignations, during the first quarter of 2009, of our collection manager and other members of the collection staff, which also resulted in increases in charge-offs and nonaccruals during the first nine months of 2009. We have since upgraded our collection staff, intensified our collection activities, tightened our credit standards and enhanced other credit evaluation criteria. Nevertheless, continuation and/or worsening of existing economic conditions will likely result in levels of charge-offs and nonaccrual loans that will be higher than those in prior periods.

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 days 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,

	2009		2008

	(in thousands)
Gross loans	$	-	$	-

Nonaccrual loans
Commercial and industrial	$	3,809	$	1,287
Lease financing receivables		13,276		2,411
Factored receivables		-		-
Real estate-residential mortgage		2,609		2,983
Real estate-commercial mortgage		-		-
Real estate-construction and land development		-		-
Loans to individuals		100		95


Total nonaccrual loans		19,794		6,776

Other real estate owned		1,837		1,991

Total non-performing assets	$	21,631	$	8,767


Loans past due 90 days or more and still accruing	$	1,523	$	976

At September 30, 2009, commercial and industrial nonaccruals represented 0.70% of commercial and industrial loans. There were 45 loans made to small business borrowers located in 5 states with balances ranging between approximately $9,700 and $254,000.

At September 30, 2009, lease financing nonaccruals represented 6.27% of lease financing receivables. The lessees of the equipment are located in 35 states. There were 281 leases ranging between approximately $400 and $345,100, 259 of which were under $100,000. 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, 2009, residential real estate nonaccruals represented 1.95% of residential real estate loans held in portfolio. There were 15 loans ranging between approximately $10,000 and $332,000 secured by properties located in 10 states.

At September 30, 2009, other real estate owned consisted of 8 properties with values between approximately $42,000 and $499,000 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, including loans identified as impaired as required by FASB Codification Topic 310: Receivables. Thus, an increase in the size of the portfolio or in any of its components could necessitate an increase in the allowance even though there may not be a decline in credit quality or an increase in potential problem loans. A significant change in any of the evaluation factors described above could result in future additions to the allowance. At September 30, 2009, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.58% and the allowance was $19.1 million. At such date, the Company’s nonaccrual loans amounted to $19.8 million. Loans 90 days past due and still accruing amounted to $1.5 million. At September 30, 2009, loans judged to be impaired under U.S. GAAP guidance on receivables, amounted to $3.7 million and had a valuation allowance totaling $601 thousand, which is included within the overall allowance for loan losses. Included in the impaired loans are $3.2 million in accruing impaired restructured loans as defined by U.S. GAAP guidance on receivables, with allowances for loan impairment of $438 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, 2009. 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 2009. 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 $8.2 million and $2.3 million at September 30, 2009 and September 30, 2008, 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,

	2009			2008			2009			2008

	(dollars in thousands)

Average loans held in portfolio, net of unearned discounts, during period	$	1,144,597		$	1,154,487		$	1,141,475		$	1,106,021


Allowance for loan losses:
Balance at beginning of period	$	18,134		$	15,480		$	16,010		$	15,085


Charge-offs:
Commercial and industrial		1,230			675			2,107			1,963
Lease financing receivables		4,517			992			14,144			2,959
Factored receivables		69			54			378			249
Real estate - residential mortgage		41			0			41			15
Real estate - commercial mortgage		0			0			0			0
Real estate - construction and land development		0			0			0			0
Loans to individuals		0			0			0			0

Total charge-offs		5,857			1,721			16,670			5,186


Recoveries:
Commercial and industrial		7			183			23			294
Lease financing receivables		79			110			221			271
Factored receivables		15			6			38			21
Real estate - residential mortgage		102			61			102			61
Real estate - commercial mortgage		0			0			0			0
Real estate - construction and land development		0			0			0			0
Loans to individuals		0			0			0			69

Total recoveries		203			360			384			716


Subtract:
Net charge-offs		5,654			1,361			16,286			4,470


Provision for loan losses		6,950			1,950			19,950			6,100


Less losses on transfers to other real estate owned		331			336			575			982


Balance at end of period	$	19,099		$	15,733		$	19,099		$	15,733


Ratio of annualized net charge-offs to average loans held in portfolio, net of unearned discounts		1.98	%		0.47	%		1.90	%		0.54	%

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, 2009					December 31, 2008

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

	(dollars in thousands)

Domestic

Commercial and industrial	$	5,613		44.99	%	$	5,530		44.87	%
Loans to depository institutions		0		2.07			88		2.11
Lease financing receivables		9,909		17.53			6,130		21.59
Factored receivables		977		12.59			933		7.52
Real estate - residential mortgage		1,580		11.10			2,355		12.00
Real estate - commercial mortgage		614		8.59			674		8.18
Real estate - construction and land development		145		2.00			175		2.13
Loans to individuals		82		1.13			88		1.60
Unallocated		179		0.00			37		0.00

Total	$	19,099		100.00	%	$	16,010		100.00	%

During 2009, the allowance for loan losses increased $3.1 million from $16.0 million at December 31, 2008 primarily due to an increase of $3.8 million in the allowance allocated to lease financing receivables partially offset by a reduction of $0.8 million in the allowance allocated to residential mortgage loans. The allowance allocated to lease financing receivables increased primarily as a result of increased losses and nonaccrual levels experienced in that category in 2009. The reduction in the allowance allocated to residential mortgage loans was primarily the result of lower anticipated losses in the portfolio based on the improved quality of loans in the portfolio.

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,

	2009					2008

	(dollars in thousands)
	Balances		% of Total			Balances		% of Total

Domestic
Demand	$	470,404		33.40	%	$	452,044		31.94	%
NOW		195,372		13.87			248,557		17.56
Savings		18,195		1.29			17,597		1.24
Money market		332,262		23.59			333,583		23.57
Time deposits		391,713		27.81			362,776		25.65


Total domestic deposits		1,407,946		99.96			1,414,557		99.96
Foreign
Time deposits		579		0.04			577		0.04


Total deposits	$	1,408,525		100.00	%	$	1,415,134		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 45 and 46.

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 49. 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”, which 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, 2009, the Company and the bank exceeded the requirements for “well capitalized” institutions.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

For information regarding recently issued accounting pronouncement and its expected impact on the Company’s consolidated financial statements, see Note 10 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 and other statements contained herein regarding matters that are not historical facts, are “forward-looking statements” as defined in the Securities Exchange Act of 1934. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Any forward-looking statements we may make speak only as of the date on which such statements are made. Our actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements.

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; geopolitical developments, including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; 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, 2008; 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)

(dollars in thousands)


	2009								2008

	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate

ASSETS

Interest-bearing deposits with other banks	$	50,385		$	27		0.21	%	$	2,920		$	11		1.51	%
Securities available for sale		320,494			3,903		4.87			409,132			5,308		5.19
Securities held to maturity		345,186			3,975		4.61			323,145			3,795		4.70
Securities tax-exempt [2]		61,254			969		6.33			23,078			351		6.08

Total investment securities		726,934			8,847		4.87			755,355			9,454		5.01
FRB and FHLB stock [2]		9,769			192		7.87			13,640			258		7.58
Federal funds sold		0			0		0.00			1,413			7		1.81
Loans, net of unearned discounts [3]		1,189,030			18,024		6.25			1,172,713			20,387		6.99

TOTAL INTEREST-EARNING ASSETS		1,976,118			27,090		5.53	%		1,946,041			30,117		6.19	%

Cash and due from banks		28,342								50,264
Allowance for loan losses		(20,307	)							(16,367	)
Goodwill		22,901								22,901
Other assets		118,990								105,424

TOTAL ASSETS	$	2,126,044							$	2,108,263


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Domestic
Savings	$	18,022			3		0.07	%	$	17,527			14		0.33	%
NOW		180,753			106		0.23			251,271			633		1.00
Money market		329,485			763		0.92			307,879			1,364		1.76
Time		375,087			1,931		2.04			399,417			3,060		3.05
Foreign
Time		579			2		1.09			577			2		1.09

Total interest-bearing deposits		903,926			2,805		1.23			976,671			5,073		2.07

Borrowings
Securities sold under agreements to repurchase - customers		76,495			79		0.41			89,900			419		1.85
Securities sold under agreements to repurchase - dealers		0			0		0.00			62,977			382		2.41
Federal funds purchased		6,911			2		0.16			37,717			197		2.04
Commercial paper		13,448			15		0.43			18,331			99		2.15
Short-term borrowings - FHLB		0			0		0.00			90,295			470		2.07
Short-term borrowings - FRB		207,554			131		0.25			326			1		1.11
Short-term borrowings - other		1,989			0		0.00			1,162			9		2.88
Long-term borrowings - FHLB		158,592			1,197		2.99			155,870			1,107		2.84
Long-term borrowings - sub debt		25,774			523		8.38			25,774			523		8.37

Total borrowings		490,763			1,947		1.58			482,352			3,207		2.65


TOTAL INTEREST-BEARING LIABILITIES		1,394,689			4,752		1.35	%		1,459,023			8,280		2.26	%


Noninterest-bearing deposits		437,551								432,045
Other liabilities		136,814								101,593

Total liabilities		1,969,054								1,992,661
Shareholders’ equity		156,990								115,602

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,126,044							$	2,108,263

Net interest income/spread					22,338		4.18	%					21,837		3.93	%

Net yield on interest-earning assets (margin)							4.53	%							4.46	%

Less: Tax equivalent adjustment					368								137

Net interest income				$	21,970							$	21,700


[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)

(dollars in thousands)


	2009								2008

	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate

ASSETS

Interest-bearing deposits with other banks	$	29,761		$	46		0.21	%	$	2,952		$	30		1.34	%

Securities available for sale		359,882			13,103		4.85			383,934			15,065		5.23
Securities held to maturity		312,075			10,974		4.69			340,313			12,054		4.72
Securities tax-exempt [2]		40,198			1,865		6.19			21,394			979		6.10

Total investment securities		712,155			25,942		4.86			745,641			28,098		5.02
FRB and FHLB stock [2]		9,700			390		5.37			11,139			503		6.02
Federal funds sold		0			0		0.00			593			8		1.81
Loans, net of unearned discounts [3]		1,185,025			53,840		6.32			1,130,268			61,208		7.46

TOTAL INTEREST-EARNING ASSETS		1,936,641			80,218		5.64	%		1,890,593			89,847		6.45	%

Cash and due from banks		30,115								55,133
Allowance for loan losses		(18,409	)							(15,963	)
Goodwill		22,901								22,901
Other assets		115,237								104,696

TOTAL ASSETS	$	2,086,485							$	2,057,360


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Domestic
Savings	$	18,105			15		0.11	%	$	18,633			48		0.34	%
NOW		201,238			400		0.27			248,112			2,001		1.08
Money market		336,470			2,525		1.00			237,763			2,661		1.50
Time		346,034			6,143		2.37			485,709			12,429		3.42
Foreign
Time		578			5		1.09			576			5		1.09

Total interest-bearing deposits		902,425			9,088		1.35			990,793			17,144		2.31


Borrowings
Securities sold under agreements to repurchase - customers		76,159			282		0.49			87,192			1,507		2.31
Securities sold under agreements to repurchase - dealers		0			0		0.00			55,205			1,115		2.70
Federal funds purchased		25,390			43		0.23			41,976			776		2.43
Commercial paper		12,148			55		0.60			19,672			412		2.79
Short-term borrowings - FHLB		4,560			11		0.31			56,763			995		2.34
Short-term borrowings - FRB		184,249			356		0.26			197			2		1.63
Short-term borrowings - other		1,733			1		0.05			1,489			28		2.45
Long-term borrowings - FHLB		152,896			3,453		3.02			133,577			2,906		2.90
Long-term borrowings - sub debt		25,774			1,570		8.38			25,774			1,570		8.38

Total borrowings		482,909			5,771		1.60			421,845			9,311		2.95

TOTAL INTEREST-BEARING LIABILITIES		1,385,334			14,859		1.43	%		1,412,638			26,455		2.50	%

Noninterest-bearing deposits		423,825								425,912
Other liabilities		119,518								99,947

Total liabilities		1,928,677								1,938,497
Shareholders’ equity		157,808								118,863

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,086,485							$	2,057,360

Net interest income/spread					65,359		4.21	%					63,392		3.95	%

Net yield on interest-earning assets (margin)							4.58	%							4.53	%

Less: Tax equivalent adjustment					709								385

Net interest income				$	64,650							$	63,007


[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)

(in thousands)


	Increase/(Decrease) Three Months Ended September 30, 2009 to September 30, 2008

	Volume			Rate			Net [2]

INTEREST INCOME
Interest-bearing deposits with other banks	$	34		$	(18	)	$	16


Securities available for sale		(1,094	)		(311	)		(1,405	)
Securities held to maturity		255			(75	)		180
Securities tax-exempt		603			15			618

Total investment securities		(236	)		(371	)		(607	)


FRB and FHLB stock		(76	)		10			(66	)


Federal funds sold		(8	)		0			(8	)


Loans, net of unearned discounts [3]		233			(2,596	)		(2,363	)


TOTAL INTEREST INCOME	$	(53	)	$	(2,975	)	$	(3,028	)


INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings	$	0		$	(11	)	$	(11	)
NOW		(141	)		(386	)		(527	)
Money market		90			(691	)		(601	)
Time		(175	)		(954	)		(1,129	)
Foreign
Time		0			0			0

Total interest-bearing deposits		(226	)		(2,042	)		(2,268	)


Borrowings
Securities sold under agreements to repurchase - customers		(55	)		(285	)		(340	)
Securities sold under agreements to repurchase - dealers		(382	)		0			(382	)
Federal funds purchased		(91	)		(104	)		(195	)
Commercial paper		(21	)		(63	)		(84	)
Short-term borrowings - FHLB		(469	)		0			(469	)
Short-term borrowings - FRB		132			(2	)		130
Short-term borrowings - other		3			(12	)		(9	)
Long-term borrowings - FHLB		22			68			90
Long-term borrowings - sub debt		0			0			0

Total borrowings		(861	)		(398	)		(1,259	)


TOTAL INTEREST EXPENSE	$	(1,087	)	$	(2,440	)	$	(3,527	)


NET INTEREST INCOME	$	1,034		$	(535	)	$	499


[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 income for Federal funds sold and in interest expense for securities sold under agreements to repurchase-dealers, short-term borrowings-FRB 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

Rate/Volume Analysis [1]

(Unaudited)

(in thousands)


	Increase/(Decrease) Nine Months Ended September 30, 2009 to September 30, 2008

	Volume			Rate			Net [2]

INTEREST INCOME
Interest-bearing deposits with other banks	$	60		$	(44	)	$	16


Securities available for sale		(937	)		(1,026	)		(1,963	)
Securities held to maturity		(1,007	)		(73	)		(1,080	)
Securities tax-exempt		873			14			887

Total investment securities		(1,071	)		(1,085	)		(2,156	)


FRB and FHLB stock		(63	)		(50	)		(113	)


Federal funds sold		(8	)		0			(8	)


Loans, net of unearned discounts [3]		2,689			(10,057	)		(7,368	)


TOTAL INTEREST INCOME	$	1,607		$	(11,236	)	$	(9,629	)


INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings	$	(1	)	$	(32	)	$	(33	)
NOW		(327	)		(1,274	)		(1,601	)
Money market		905			(1,041	)		(136	)
Time		(3,060	)		(3,226	)		(6,286	)
Foreign
Time		0			0			0

Total interest-bearing deposits		(2,483	)		(5,573	)		(8,056	)


Borrowings
Securities sold under agreements to repurchase - customers		(174	)		(1,051	)		(1,225	)
Securities sold under agreements to repurchase - dealers		(1,115	)		0			(1,115	)
Federal funds purchased		(224	)		(509	)		(733	)
Commercial paper		(118	)		(239	)		(357	)
Short-term borrowings - FHLB		(508	)		(476	)		(984	)
Short-term borrowings - FRB		358			(4	)		354
Short-term borrowings - other		0			(27	)		(27	)
Long-term borrowings - FHLB		423			124			547
Long-term borrowings - sub debt		0			0			0

Total borrowings		(1,358	)		(2,182	)		(3,540	)


TOTAL INTEREST EXPENSE	$	(3,841	)	$	(7,755	)	$	(11,596	)


NET INTEREST INCOME	$	5,448		$	(3,481	)	$	1,967


[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 income for Federal funds sold and in interest expense for securities sold under agreements to repurchase-dealers and short-term borrowings-FRB has been allocated entirely to the volume variance. The effect of the extra day in 2008 has also 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
(dollars in thousands)


	Actual					For Capital Adequacy Minimum					To Be Well Capitalized

As of September 30, 2009	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total Capital (to Risk-Weighted Assets):
The Company	$	193,343		12.52	%	$	123,552		8.00	%	$	154,440		10.00	%
The bank		166,184		10.77			123,409		8.00			154,261		10.00

Tier 1 Capital (to Risk-Weighted Assets):
The Company		174,092		11.27			61,776		4.00			92,664		6.00
The bank		146,933		9.53			61,704		4.00			92,557		6.00

Tier 1 Leverage Capital (to Average Assets):
The Company		174,092		8.28			84,093		4.00			105,116		5.00
The bank		146,933		7.00			83,910		4.00			104,888		5.00

As of December 31, 2008

Total Capital (to Risk-Weighted Assets):
The Company	$	193,991		13.90	%	$	111,614		8.00	%	$	139,518		10.00	%
The bank		154,619		11.05			111,924		8.00			139,905		10.00

Tier 1 Capital (to Risk-Weighted Assets):
The Company		177,825		12.75			55,807		4.00			83,711		6.00
The bank		138,453		9.90			55,962		4.00			83,943		6.00

Tier 1 Leverage Capital (to Average Assets):
The Company		177,825		8.60			82,663		4.00			103,328		5.00
The bank		138,453		6.69			82,779		4.00			103,474		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, 2009, presented on page 54, 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, 2009, 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, 2008, the model indicated the impact of 100 and 200 basis point parallel and pro rata rise in rates over 12 months would approximate a 1.2% ($1.2 million) and a 2.1% ($2.0 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 0.4% ($0.4 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of December 31, 2008 was considered to be remote given then-current interest rate levels. As of September 30, 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 1.8% ($1.9 million ) and a 3.3% ($3.5 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 1.0% ($1.2 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of September 30, 2009 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 also impact the bank’s interest rate sensitivity. In general, a steeper yield curve (i.e., the differences between interest rates for different maturities are relatively greater) is better for the bank than a flatter curve. Accordingly, the bank’s exposure to declining interest rates would be lessened if the yield curve steepened more than anticipated as rates declined. Conversely, the expected benefit to net interest income in a rising rate environment would likely be dampened to the extent that the yield curve flattened more than anticipated as rates increased. To the extent that further Federal Reserve interest rate cuts do not materialize, and to the extent that the current relatively steep yield curve prevails, the bank’s margin will benefit in 2009.

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, 2009, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing current business activities, was approximately $14.7 million. The parent company had cash, interest-bearing deposits with banks and other current assets aggregating $53.1 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, 2009:


	Payments Due by Period

Contractual Obligations (1)	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years

	(in thousands)

Long-Term Debt	$	185,774	$	40,000	$	100,000	$	-	$	45,774
Operating Leases		51,373		7,803		8,915		8,786		25,869


Total Contractual Cash Obligations	$	237,147	$	47,803	$	108,915	$	8,786	$	71,643

(1) Based on contractual maturity dates

The following table sets forth information regarding the Company’s obligations under other commercial commitments as of September 30, 2009:


	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

	(in thousands)

Residential Loans	$	24,640	$	24,640	$	-	$	-	$	-
Commercial Loans		12,051		457		4,660		-		6,934

Total Loans		36,691		25,097		4,660		-		6,934
Standby Letters of Credit		25,585		23,426		2,159		-		-
Other Commercial Commitments		45,313		44,472		-		-		841


Total Commercial Commitments	$	107,589	$	92,995	$	6,819	$	-	$	7,775

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 website 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 decrease during periods of rising interest rates and increase during periods of falling interest rates. Amounts are presented in thousands.


	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	$	21,119		$	0		$	0		$	0	$	0		$	0		$	21,119
Investment securities		101,171			81,482			70,732			91,287		377,945			0			722,617
Commercial and industrial loans		500,443			20,336			18,692			5,401		0			(1,429	)		543,443
Lease financing receivables		2,076			11,163			220,652			4,534		0			(26,728	)		211,697
Factored receivables		152,279			0			0			0		0			(211	)		152,068
Real estate-residential mortgage		34,232			62,280			14,733			23,407		25,153			0			159,805
Real estate-commercial mortgage		53,536			37,267			1,183			11,424		375			0			103,785
Real estate-construction and land development		0			0			24,112			0		0			0			24,112
Loans to individuals		13,660			0			0			0		0			0			13,660
Loans to depository institutions		25,000			0			0			0		0			0			25,000
Noninterest-earning assets & allowance for loan losses		0			0			0			0		0			159,499			159,499

Total Assets		903,516			212,528			350,104			136,053		403,473			131,131			2,136,805


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Savings [1]		0			0			18,195			0		0			0			18,195
NOW [1]		0			0			195,372			0		0			0			195,372
Money market [1]		283,308			0			48,954			0		0			0			332,262
Time - domestic		173,401			177,821			40,491			0		0			0			391,713
- foreign		184			395			0			0		0			0			579
Securities sold under agreement to repurchase - customer		55,628			0			0			0		0			0			55,628
Federal funds purchased		25,675			0			0			0		0			0			25,675
Commercial paper		14,692			0			0			0		0			0			14,692
Short-term borrowings - FHLB		0			0			0			0		0			0			0
Short-term borrowings - FRB		135,000			0			0			0		0			0			135,000
Short-term borrowings - other		3,787			0			0			0		0			0			3,787
Long-term borrowings - FHLB		0			40,000			100,000			20,000		0			0			160,000
Long-term borrowings - subordinated debentures		0			0			0			0		25,774			0			25,774
Noninterest-bearing liabilities & shareholders’ equity		0			0			0			0		0			778,128			778,128


Total Liabilities and Shareholders’ Equity		691,675			218,216			403,012			20,000		25,774			778,128			2,136,805


Net Interest Rate Sensitivity Gap	$	211,841		$	(5,688	)	$	(52,908	)	$	116,053	$	377,699		$	(646,997	)	$	0


Cumulative Gap September 30, 2009	$	211,841		$	206,153		$	153,245		$	269,298	$	646,997		$	0		$	0


Cumulative Gap September 30, 2008 [3]	$	(85,214	)	$	(142,695	)	$	(96,586	)	$	N/A	$	541,729	[2]	$	0		$	0


Cumulative Gap December 31, 2008 [3]	$	(1,506	)	$	(119,864	)	$	(67,838	)	$	121,095	$	620,719		$	0		$	0

[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] Represents amounts due after 5 years.

[3] 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, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

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 2009. At September 30, 2009, 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.


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 5, 2009	/s/	Louis J. Cappelli

			Louis J. Cappelli Chairman and Chief Executive Officer

Date:	November 5, 2009	/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.	59

31.1	Certification of the CEO pursuant to Exchange Act Rule 13a-14 (a).	60

31.2	Certification of the CFO pursuant to Exchange Act Rule 13a-14 (a).	61

32.1	Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code.	62

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