STERLING BANCORP - FORM 10-Q

Attached files

file	filename
EX-11 - STERLING BANCORP	i00217_ex11.htm
EX-31.2 - STERLING BANCORP	i00217_ex31-2.htm
EX-32.2 - STERLING BANCORP	i00217_ex32-2.htm
EX-32.1 - STERLING BANCORP	i00217_ex32-1.htm
EX-31.1 - STERLING BANCORP	i00217_ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________________________ to __________________________________

Commission File Number: 1-5273-1

Sterling Bancorp

(Exact name of registrant as specified in its charter)


New York	12-2565216

(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification)

650 Fifth Avenue, New York, N.Y.	10019-6108

(Address of principal executive offices)	(Zip Code)

212-757-3300
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

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

o Yes o No

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


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

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

o Yes x No

As of April 30, 2011 there were 30,927,328 shares of common stock,
$1.00 par value, outstanding.

STERLING BANCORP


PART I FINANCIAL INFORMATION			Page

	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	39
		Income Statement Analysis	40
		Balance Sheet Analysis	42
		Capital	49
		Recently Issued Accounting Pronouncements	50
		Cautionary Statement Regarding Forward-Looking Statements	50
		Average Balance Sheets	51
		Rate/Volume Analysis	52
		Regulatory Capital and Ratios	53

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk

		Asset/Liability Management	54
		Information Available on Our Website	56
		Interest Rate Sensitivity	57

	Item 4.	Controls and Procedures	58

PART II OTHER INFORMATION

	Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	59

	Item 6.	Exhibits	59

SIGNATURES			60

EXHIBITS INDEX

	Exhibit 11	Statement Re: Computation of Per Share Earnings	62

	Exhibit 31.1	Certification of the CEO pursuant to Exchange Act Rule 13a-14(a)	63

	Exhibit 31.2	Certification of the CFO pursuant to Exchange Act Rule 13a-14(a)	64

	Exhibit 32.1	Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	65

	Exhibit 32.2	Certification of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	66

STERLING BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(dollars in thousands)


	March 31, 2011			December 31, 2010

ASSETS
Cash and due from banks	$	35,981		$	26,824
Interest-bearing deposits with other banks		7,932			40,503

Securities available for sale (at estimated fair value; pledged: $75,188 in 2011 and $95,311 in 2010)		414,164			390,080
Securities held to maturity (pledged: $295,549 in 2011 and $212,606 in 2010) (estimated fair value: $462,298 in 2011 and $400,453 in 2010)		458,281			399,235

Total investment securities		872,445			789,315

Loans held for sale		24,102			32,049

Loans held in portfolio, net of unearned discounts		1,288,649			1,314,234
Less allowance for loan losses		18,040			18,238

Loans, net		1,270,609			1,295,996

Federal Reserve and Federal Home Loan Bank stock, at cost		8,674			9,365
Customers’ liability under acceptances		228			—
Goodwill		22,901			22,901
Premises and equipment, net		18,000			15,909
Other real estate		132			182
Accrued interest receivable		9,296			8,280
Cash surrender value of life insurance policies		51,998			51,512
Other assets		70,247			67,621

	$	2,392,545		$	2,360,457

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest-bearing demand deposits	$	561,524		$	570,290
Savings, NOW and money market deposits		549,392			562,207
Time deposits		617,169			615,267

Total deposits		1,728,085			1,747,764

Securities sold under agreements to repurchase - customers		21,107			23,016
Securities sold under agreements to repurchase - dealers		5,000			5,000
Federal funds purchased		60,000			15,000
Commercial paper		15,391			14,388
Short-term borrowings - other		4,525			3,490
Advances - FHLB		128,815			144,173
Long-term borrowings - subordinated debentures		25,774			25,774

Total borrowings		260,612			230,841

Acceptances outstanding		228			—
Accrued interest payable		1,145			1,314
Due to factored clients		70,117			91,543
Accrued expenses and other liabilities		72,068			66,253

Total liabilities		2,132,255			2,137,715

Shareholders’ equity
Preferred stock, Series A, $5 par value; $1,000 liquidation value. Authorized 644,389 shares; issued 42,000 shares, respectively		40,721			40,602
Common stock, $1 par value. Authorized 50,000,000 shares; issued 35,225,110 and 31,138,545 shares, respectively		35,225			31,139
Warrants to purchase common stock		2,615			2,615
Capital surplus		268,878			236,437
Retained earnings		11,915			11,392
Accumulated other comprehensive loss		(12,508	)		(12,887	)
Common shares in treasury at cost, 4,297,782 and 4,297,782 shares, respectively		(86,556	)		(86,556	)

Total shareholders’ equity		260,290			222,742

	$	2,392,545		$	2,360,457

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended March 31,

	2011		2010

INTEREST INCOME
Loans	$	16,876	$	16,511
Investment securities
Available for sale		2,423		2,953
Held to maturity		3,397		4,412
FRB and FHLB stock		23		121
Deposits with other banks		35		19

Total interest income		22,754		24,016

INTEREST EXPENSE
Deposits
Savings, NOW and money market		700		965
Time		1,360		1,675
Short-term borrowings		78		87
Advances - FHLB		664		871
Long-term borrowings - subordinated debentures		523		523

Total interest expense		3,325		4,121

Net interest income		19,429		19,895

Provision for loan losses		3,000		6,000

Net interest income after provision for loan losses		16,429		13,895


NONINTEREST INCOME
Accounts receivable management/factoring commissions and other fees		5,368		5,127
Mortgage banking income		2,175		1,677
Service charges on deposit accounts		1,371		1,473
Securities gains		729		1,502
Other income		1,799		1,323

Total noninterest income		11,442		11,102


NONINTEREST EXPENSE
Salaries and employee benefits		14,260		13,162
Occupancy and equipment expenses, net		3,273		2,540
Deposit insurance		933		754
Professional fees		818		1,353
Other expenses		3,169		3,527

Total noninterest expenses		22,453		21,336


Income before income taxes		5,418		3,661

Provision for income taxes		1,475		1,098

Net income		3,943		2,563
Dividends on preferred shares and accretion		644		636

Net income available to common shareholders	$	3,299	$	1,927


Average number of common shares outstanding
Basic		27,351,584		19,208,189
Diluted		27,351,584		19,212,768

Net income available to common shareholders, per average common share
Basic	$	0.12	$	0.10
Diluted		0.12		0.10

Dividends per common share		0.09		0.09

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,

	2011			2010


Net income	$	3,943		$	2,563


Other comprehensive income, net of tax:
Unrealized gains on securities available for sale and other investments arising during the year		379			1,214

Reclassification adjustment for gains included in net income		(398	)		(820	)

Reclassification adjustment for amortization of:
Prior service cost		9			9
Net actuarial losses		389			413

Other comprehensive income		379			816

Comprehensive income	$	4,322		$	3,379

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,

	2011			2010

Preferred Stock
Balance at January 1,	$	40,602		$	40,113
Discount accretion		119			111

Balance at March 31,	$	40,721		$	40,224


Common Stock
Balance at January 1,	$	31,139		$	22,227
Common shares issued		4,025			8,625
Restricted shares issued		61			84
Common shares issued under stock incentive plan		—			203

Balance at March 31,	$	35,225		$	31,139


Warrants to Purchase Common Stock
Balance at January 1, and March 31,	$	2,615		$	2,615


Capital Surplus
Balance at January 1,	$	236,437		$	178,734
Common shares issued		32,429			56,240
Restricted shares issued		(61	)		(84	)
Common shares issued under stock incentive plan and related tax benefits		—			1,274
Stock option compensation and restricted stock expense		73			36

Balance at March 31,	$	268,878		$	236,200


Retained Earnings
Balance at January 1,	$	11,392		$	15,828
Net income		3,943			2,563
Cash dividends paid - preferred shares		(525	)		(525	)
Cash dividends paid - common shares		(2,776	)		(1,630	)
Discount accretion on series A preferred stock		(119	)		(111	)

Balance at March 31,	$	11,915		$	16,125


Accumulated Other Comprehensive Loss
Balance at January 1,	$	(12,887	)	$	(12,399	)
Other comprehensive income, net of tax		379			816

Balance at March 31,	$	(12,508	)	$	(11,583	)


Treasury Stock
Balance at January 1,	$	(86,556	)	$	(85,168	)
Surrender of shares issued under stock incentive plan		—			(1,388	)

Balance at March 31,	$	(86,556	)	$	(86,556	)


Total Shareholders’ Equity
Balance at January 1,	$	222,742		$	161,950
Net changes during the period		37,548			66,214

Balance at March 31,	$	260,290		$	228,164

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,

	2011			2010

Operating Activities
Net Income	$	3,943		$	2,563
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		3,000			6,000
Depreciation and amortization of premises and equipment		698			551
Securities gains		(729	)		(1,502	)
Income (Loss) from life insurance policies, net		22			(54	)
Deferred income tax provision (benefit)		446			(512	)
Proceeds from sale of loans		106,720			104,778
Gains on sales of loans, net		(2,184	)		(1,685	)
Originations of loans held for sale		(96,928	)		(90,089	)
Amortization of premiums on securities		2,065			657
Accretion of discounts on securities		(123	)		(198	)
(Increase) decrease in accrued interest receivable		(1,016	)		1,425
(Decrease) increase in accrued interest payable		(169	)		265
(Decrease) increase in due to factored clients		(21,426	)		6,070
(Decrease) increase in accrued expenses and other liabilities		(3,950	)		2,349
Increase in other assets		(2,806	)		(1,728	)
Gain on other real estate owned		—			(14	)

Net cash (used in) provided by operating activities		(12,437	)		28,876


Investing Activities
Purchase of premises and equipment		(2,789	)		(2,449	)
Net decrease (increase) in interest-bearing deposits with other banks		32,571			(9,699	)
Net decrease in loans held in portfolio		15,707			5,513
Net decrease (increase) in short-term factored receivables		7,018			(11,127	)
Decrease in other real estate		50			604
Proceeds from prepayments, redemptions or maturities of securities - held to maturity		15,298			14,414
Purchases of securities - held to maturity		(79,383	)		(14,508	)
Proceeds from calls of securities - held to maturity		5,000			54,380
Proceeds from calls/sales of securities - available for sale		88,587			123,285
Proceeds from prepayments, redemptions or maturities of securities - available for sale		59,532			28,286
Purchases of securities - available for sale		(163,934	)		(208,128	)
Proceeds from redemptions or maturities of securities - FHLB & FRB stock		691			450

Net cash used in investing activities		(21,652	)		(18,979	)


Financing Activities
Net decrease in noninterest-bearing demand deposits		(8,766	)		(36,884	)
Net decrease in savings, NOW and money market deposits		(12,815	)		(29,327	)
Net increase in time deposits		1,902			99,586
Net increase(decrease) in Federal funds purchased		45,000			(41,000	)
Net (decrease) increase in securities sold under agreements to repurchase		(1,909	)		12
Net increase(decrease) in commercial paper and other short-term borrowings		2,038			(50,669	)
Decrease in long-term borrowings		(15,358	)		(10,000	)
Proceeds from exercise of stock options		—			79
Proceeds from issuance of common stock		36,455			64,865
Cash dividends paid on preferred stock		(525	)		(525	)
Cash dividends paid on common stock		(2,776	)		(1,630	)

Net cash provided by (used in) financing activities		43,246			(5,493	)


Net increase in cash and due from banks		9,157			4,404
Cash and due from banks - beginning of period		26,824			24,911


Cash and due from banks - end of period	$	35,981		$	29,315


Supplemental disclosures:
Interest paid	$	3,494		$	3,856
Income taxes paid		877			904
Loans held for sale transferred to portfolio		338			—
Loans transferred to other real estate		—			79
Due to brokers on purchases of securities - AFS		10,493			20,830
Due to brokers on purchases of securities - HTM		—			1,074

See Notes to Consolidated Financial Statements.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Significant Accounting Policies

Nature of Operations. Sterling Bancorp (the “parent company”) is a financial holding company, pursuant to an election made under the Gramm-Leach-Bliley Act of 1999. Throughout the notes, the term the “Company” refers to Sterling Bancorp and its subsidiaries and the term the “bank” refers to Sterling National Bank and its subsidiaries. The Company provides a full range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, mortgage warehouse lending, asset-based financing, factoring/accounts receivable management services, trade financing, equipment financing and deposit 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 principally consist of the Financial Accounting Standards Board Accounting Standards Codification (“FASB Codification”). FASB Codification Topic 105: Generally Accepted Accounting Principles establishes the FASB codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the FASB Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the FASB Codification is superseded and deemed non-authoritative.

Basis of Presentation. The consolidated financial statements include the accounts of Sterling Bancorp and its subsidiaries, principally the bank, after elimination of intercompany transactions. The consolidated financial statements as of and for the interim periods ended March 31, 2011 and 2010 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. Throughout the notes, dollar amounts presented in tables are in thousands, except per share data. 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, 2010 (the “2010 Form 10-K”).

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

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 2. Investment Securities

The following tables present information regarding securities available for sale:


March 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)	$	55,910	$	103	$	559	$	55,454
CMOs (Government National Mortgage Association)		6,837		5		12		6,830
Federal National Mortgage Association		11,186		10		51		11,145
Federal Home Loan Mortgage Corporation		42		2		1		43
Government National Mortgage Association		107		—		—		107

Total residential mortgage-backed securities		74,082		120		623		73,579

Agency notes
Federal National Mortgage Association		20,088		12		34		20,066
Federal Home Loan Bank		10,000		—		129		9,871
Federal Home Loan Mortgage Corporation		19,981		—		267		19,714
Federal Farm Credit Bank		10,000		11		—		10,011

Total obligations of U.S. government corporations and government sponsored enterprises		134,151		143		1,053		133,241

Obligations of state and political institutions-New York Bank Qualified		28,461		348		137		28,672
Single-issuer, trust preferred securities		8,633		98		65		8,666
Corporate debt securities		239,026		184		551		238,659
Other securities		5,039		1		114		4,926

Total	$	415,310	$	774	$	1,920	$	414,164

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


December 31, 2010	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)	$	36,026	$	64	$	372	$	35,718
CMOs (Government National Mortgage Association)		7,218		72		—		7,290
Federal National Mortgage Association		8,750		84		13		8,821
Federal Home Loan Mortgage Corporation		44		2		1		45
Government National Mortgage Association		110		—		1		109

Total residential mortgage-backed securities		52,148		222		387		51,983

Agency notes
Federal National Mortgage Association		30,087		77		—		30,164
Federal Home Loan Bank		10,000		—		59		9,941
Federal Home Loan Mortgage Corporation		49,964		132		110		49,986
Federal Farm Credit Bank		10,000		31		—		10,031

Total obligations of U.S. government corporations and government sponsored enterprises		152,199		462		556		152,105

Obligations of state and political institutions-New York Bank Qualified		39,967		780		703		40,044
Single-issuer, trust preferred securities		3,879		79		25		3,933
Corporate debt securities		189,091		278		311		189,058
Other securities		5,039		1		100		4,940

Total	$	390,175	$	1,600	$	1,695	$	390,080

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables present information regarding securities held to maturity:


March 31, 2011	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal National Mortgage Association)	$	6,182	$	265	$	—	$	6,447
CMOs (Federal Home Loan Mortgage Corporation)		9,838		423		—		10,261
Federal National Mortgage Association		63,976		4,060		—		68,036
Federal Home Loan Mortgage Corporation		34,756		1,851		—		36,607
Government National Mortgage Association		4,726		569		—		5,295

Total residential mortgage-backed securities		119,478		7,168		—		126,646

Agency notes
Federal National Mortgage Association		109,948		62		1,634		108,376
Federal Home Loan Bank		49,979		4		229		49,754
Federal Home Loan Mortgage Corporation		57,483		13		652		56,844

Total obligations of U.S. government corporations and government sponsored enterprises		336,888		7,247		2,515		341,620

Obligations of state and political institutions-New York Bank Qualified		121,393		738		1,453		120,678

Total	$	458,281	$	7,985	$	3,968	$	462,298

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


December 31, 2010	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal National Mortgage Association)	$	7,504	$	349	$	—	$	7,853
CMOs (Federal Home Loan Mortgage Corporation)		11,704		572		—		12,276
Federal National Mortgage Association		70,001		4,292		—		74,293
Federal Home Loan Mortgage Corporation		40,583		1,931		—		42,514
Government National Mortgage Association		4,943		605		—		5,548

Total residential mortgage-backed securities		134,735		7,749		—		142,484

Agency notes
Federal National Mortgage Association		84,969		5		1,405		83,569
Federal Home Loan Bank		14,991		—		222		14,769
Federal Home Loan Mortgage Corporation		42,493		4		608		41,889
Federal Farm Credit Bank		5,078		—		42		5,036

Total obligations of U.S. government corporations and government sponsored enterprises		282,266		7,758		2,277		287,747

Obligations of state and political institutions-New York Bank Qualified		116,969		118		4,381		112,706

Total	$	399,235	$	7,876	$	6,658	$	400,453

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

March 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)	$	40,039	$	559	$	—	$	—	$	40,039	$	559
CMOs (Government National Mortgage Association)		2,587		12		—		—		2,587		12
Federal National Mortgage Association		11,045		51		—		—		11,045		51
Federal Home Loan Mortgage Corporation		26		1		—		—		26		1

Total residential mortgage-backed securities		53,697		623		—		—		53,697		623

Agency notes
Federal National Mortgage Association		15,056		34		—		—		15,056		34
Federal Home Loan Bank		9,871		129		—		—		9,871		129
Federal Home Loan Mortgage Corporation		19,714		267		—		—		19,714		267

Total obligations of U.S. government corporations and government sponsored enterprises		98,338		1,053		—		—		98,338		1,053

Obligations of state and political institutions-New York Bank Qualified		8,002		137		—		—		8,002		137
Single-issuer, trust preferred securities		2,979		53		2,124		12		5,103		65
Corporate debt securities		166,168		551		—		—		166,168		551
Other securities		4,886		114		—		—		4,886		114

Total	$	280,373	$	1,908	$	2,124	$	12	$	282,497	$	1,920


December 31, 2010

Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)	$	30,494	$	372	$	—	$	—	$	30,494	$	372
Federal National Mortgage Association		7,269		13		—		—		7,269		13
Federal Home Loan Mortgage Corporation		28		1		—		—		28		1
Government National Mortgage Association		110		1		—		—		110		1

Total residential mortgage-backed securities		37,901		387		—		—		37,901		387

Agency notes
Federal Home Loan Bank		9,941		59		—		—		9,941		59
Federal Home Loan Mortgage Corporation		9,875		110		—		—		9,875		110

Total obligations of U.S. government corporations and government sponsored enterprises		57,717		556		—		—		57,717		556

Obligations of state and political institutions-New York Bank Qualified		18,716		703		—		—		18,716		703
Single-issuer, trust preferred securities		—		—		2,111		25		2,111		25
Corporate debt securities		92,392		311		—		—		92,392		311
Other securities		4,900		100		—		—		4,900		100

Total	$	173,725	$	1,670	$	2,111	$	25	$	175,836	$	1,695

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

March 31, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses


Obligations of U.S. government corporations and government sponsored enterprises -
Agency notes
Federal National Mortgage Association	$	78,337	$	1,634	$	—	$	—	$	78,337	$	1,634
Federal Home Loan Bank		39,757		229		—		—		39,757		229
Federal Home Loan Mortgage Corporation		51,836		652		—		—		51,836		652


Total obligations of U.S. government corporations and government sponsored enterprises		169,930		2,515		—		—		169,930		2,515
Obligations of state and political institutions-New York Bank Qualified		64,624		1,227		2,825		226		67,449		1,453

Total	$	234,554	$	3,742	$	2,825	$	226	$	237,379	$	3,968


December 31, 2010


Obligations of U.S. government corporations and government sponsored enterprises -
Agency notes
Federal National Mortgage Association	$	78,564	$	1,405	$	—	$	—	$	78,564	$	1,405
Federal Home Loan Bank		14,769		222		—		—		14,769		222
Federal Home Loan Mortgage Corporation		36,890		608		—		—		36,890		608
Federal Farm Credit Bank		5,036		42		—		—		5,036		42


Total obligations of U.S. government corporations and government sponsored enterprises		135,259		2,277		—		—		135,259		2,277
Obligations of state and political institutions-New York Bank Qualified		94,309		4,103		2,277		278		96,586		4,381

Total	$	229,568	$	6,380	$	2,277	$	278	$	231,845	$	6,658

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

The following table presents information regarding single-issuer, trust preferred securities at March 31, 2011:


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

Sterling Bancorp Trust I, 8.375%, due 3/31/2032		Yes			NA	$	981	$	1,031	$	50

NPB Capital Trust II, 7.85%, due 9/30/2032		Yes	*		NA		126		125		(1	)

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

HSBC Finance, 6.875%, due 1/30/2033,		No			A		740		772		32
owned by HSBC Group, PLC		No

Citigroup Capital VII, 7.125%, due 7/31/2031		Yes	*		BB+		1,508		1,499		(9	)

Fleet Capital Trust VIII, 7.20%, due 3/15/2032,		No			BB+		502		500		(2	)
owned by Bank of America Corporation		Yes	*

BAC Capital Trust II, 7.00%, due 2/01/2032,		Yes	*		BB+		300		301		1

JP MorganChase Capital XI, 5.875%, due 6/15/2033,		Yes	*		BBB+		525		520		(5	)

Citigroup Capital VIII, 6.95%, due 9/15/2031		Yes	*		BB+		245		247		2

Goldman Sachs Capital I, 6.345%, due 2/15/2034,		Yes	*		BBB-		995		961		(34	)

Morgan Stanley Capital Trust III, 6.25%, due 3/01/2033,		Yes	*		BB+		939		950		11

Keycorp Capital V, 5.875%, due 7/30/2033,		Yes	*		BB		238		240		2

BB&T Capital Trust I, 5.85%, due 8/18/2035,		Yes	*		BBB		960		952		(8	)

JP MorganChase XVII, 5.85%, due 8/01/2035,		Yes	*		BBB+		460		458		(2	)

Keycorp Capital II, 6.875%, due 3/17/2029,		Yes	*		BB		92		88		(4	)

						$	8,633	$	8,666	$	33

* TARP obligation was repaid prior to March 31, 2011.

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 March 31, 2011, approximately $118.5 million, representing approximately 13.6%, of the Company’s held to maturity and available for sale securities are comprised of securities issued by financial service companies/banks including single-issuer trust preferred securities (11 issuers), corporate debt (18 issuers) and equity securities (8 issuers). These investments may pose a higher risk of future impairment charges as result of a possible further 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 March 31, 2011, the Company held 3 securities positions of single-issuer, trust preferred securities issued by financial institutions, in the available for sale portfolio, that were in an unrealized loss position for more than 12 months 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 and other public regulatory disclosures, to assess credit risk and the probability of impairment of the contractual cash flows of the applicable securities. Based upon management’s first quarter review, all of the issuers have maintained performance levels adequate to support the contractual cash flows of the securities.

At March 31, 2011, the Company held 11 issues of obligations of state and political institutions, in the held to maturity portfolio, that were in an unrealized loss position for more than 12 months. All of these securities were rated A at issuance and carry private insurance which guarantees 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 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 March 31, 2011, based on contractual maturity. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


Available for sale	Amortized Cost		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)	$	55,910	$	55,454
CMOs (Government National Mortgage Association)		6,837		6,830
Federal National Mortgage Association		11,186		11,145
Federal Home Loan Mortgage Corporation		42		43
Government National Mortgage Association		107		107

Total residential mortgage-backed securities		74,082		73,579

Agency notes
Federal National Mortgage Association
Due after 1 year but within 5 years		9,989		9,985
Due after 5 years but within 10 years		10,099		10,081
Federal Home Loan Bank
Due after 5 years but within 10 years		10,000		9,871
Federal Home Loan Mortgage Corporation
Due after 5 years but within 10 years		19,981		19,714
Federal Farm Credit Bank
Due after 1 year but within 5 years		10,000		10,011


Total obligations of U.S. government corporations and government sponsored enterprises		134,151		133,241


Obligations of state and political institutions - New York Bank Qualified
Due within 1 year		1,417		1,428
Due after 1 year but within 5 years		2,859		2,949
Due after 5 years but within 10 years		2,977		3,039
Due after 10 years		21,208		21,256

Total obligations of state and political institutions-New York Bank Qualified		28,461		28,672


Single-issuer, trust preferred securities
Due after 10 years		8,633		8,666


Corporate debt securities
Due within 6 months		103,161		103,207
Due after 6 months but within 1 year		66,148		66,097
Due after 1 year but within 2 years		48,399		48,160
Due after 2 years but within 5 years		21,318		21,195

Total corporate debt securities		239,026		238,659


Other securities		5,039		4,926

Total	$	415,310	$	414,164

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


Held to maturity	Carrying Value		Fair Value


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal National Mortgage Association)	$	6,182	$	6,447
CMOs (Federal Home Loan Mortgage Corporation)		9,838		10,261
Federal National Mortgage Association		63,976		68,036
Federal Home Loan Mortgage Corporation		34,756		36,607
Government National Mortgage Association		4,726		5,295

Total residential mortgage-backed securities		119,478		126,646

Agency notes
Federal National Mortgage Association
Due after 1 year but within 5 years		39,994		39,666
Due after 5 years but within 10 years		39,960		38,997
Due after 10 years		29,994		29,713
Federal Home Loan Bank
Due after 1 year but within 5 years		19,991		19,861
Due after 5 years but within 10 years		29,988		29,893
Federal Home Loan Mortgage Corporation
Due within 1 year		5,000		4,993
Due after 1 year but within 5 years		29,995		29,851
Due after 5 years but within 10 years		22,488		22,000


Total obligations of U.S. government corporations and government sponsored enterprises		336,888		341,620

Obligations of state and political institutions - New York Bank Qualified
Due after 5 years but within 10 years		1,077		1,112
Due after 10 years		120,316		119,566

Total obligations of state and political institutions-New York Bank Qualified		121,393		120,678

Total	$	458,281	$	462,298

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


	Three Months Ended March 31,

	2011		2010


Sales
Proceeds	$	55,898	$	58,260
Gross gains		757		1,499
Gross losses		—		—

Calls
Proceeds		32,689		65,025
Gross gains		48		1
Gross losses		—		1

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

	Three Months Ended March 31,

	2011		2010

Calls
Proceeds	$	5,000	$	54,380
Gross gains		—		3
Gross losses		76		—

There were no sales or transfers of held to maturity securities during the three-month periods ended March 31, 2011 or March 31, 2010.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 3. Loans and allowance for loan losses

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


	March 31, 2011		December 31, 2010

Loans held for sale, net of valuation reserve ($-0- at March 31, 2011 and $113 at December 31, 2010)
Real estate—residential mortgage	$	24,102	$	32,049

Loans held in portfolio, net of unearned discounts
Commercial and industrial		592,566		620,136
Equipment financing receivables		156,473		161,054
Factored receivables		154,948		162,070
Real estate—residential mortgage		132,659		127,695
Real estate—commercial mortgage		98,216		96,991
Real estate—construction and land development		23,975		25,624
Loans to individuals		11,699		11,370
Loans to depository institutions		25,505		15,425
Loans to nondepository financial institutions		110,590		112,882

Loans held in portfolio, gross		1,306,631		1,333,247
Less unearned discounts		17,982		19,013

Loans held in portfolio, net of unearned discounts		1,288,649		1,314,234

	$	1,312,751	$	1,346,283

At March 31, 2011, the bank had qualified loans, at carrying value of approximately $432.1 million, available to secure borrowings from the FHLB and the FRB. There were no loans pledged at March 31, 2011.

Loan Origination/Risk Management

The Company has lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company maintains an independent loan review process that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders.

Commercial and Loans to Nondepository Financial Institutions

Sterling provides a full range of loans to small and medium-sized businesses with the objective of establishing longer-term relationships. Loans generally range in size up to $20 million, tailored to meet customers’ long- and short-term needs, and include secured and unsecured lines of credit and business installment loans.

Loans generally are collateralized by accounts receivable, inventory and other assets. Sterling also provides back-office services, i.e., processing payroll, generating customer invoices, credit collection assistance and related payroll services. The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers and guarantors, which may be negatively impacted by adverse economic conditions. While these loans are secured, collateral type, marketability, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

Factoring

Factoring provides a finance service that combines working capital financing, credit risk protection, and accounts receivable management for companies in a variety of industries. This business may be conducted on a recourse or non-recourse basis, depending upon the needs of the client.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In general, Sterling records a receivable for the amount of accounts receivable due from customers of its clients and records a liability for the funds due to the client. Under advance factoring arrangements, clients can draw an advance as accounts receivable are sold/assigned to Sterling. With advance factoring, Sterling normally has recourse against the client if the customer fails to pay. Under collection factoring arrangements, clients sell Sterling their accounts receivable and Sterling provides credit protection to the client guaranteeing the collection of the amount due and back-office support. Collection factoring is generally under a nonrecourse basis where the principal source of payment for Sterling is through the collection of the receivable from our clients’s customers whose credit has been approved by Sterling following a rigorous review process. Also, with collection factoring, Sterling has credit default insurance with a nationally recognized insurance company to provide it with protection against customer default.

Commercial Real Estate

Sterling offers a range of commercial real estate lending including financing on commercial buildings, retail properties and mixed use properties. Loans are predicated on the cash flow of the property, the value of the property determined by an independent appraisal and the strength of personal guarantees, if any. Loans are made at fixed or floating rates. Floating rate loans are based on the prime rate. Fixed rate loans are tied to Treasury or FHLB benchmarks and other indices.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geographic and risk grade criteria.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with funds, with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to the timely completion of the project, interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing.

Equipment Financing

Sterling engages in direct and indirect lease financing. Direct lease financing is when requests for financing originate with an end user seeking to finance equipment for up to 60 months. Indirect lease financing arises through relationships with equipment financing brokers. In both cases, credit approval is based upon a full underwriting process that involves the submission of financial and other information, including the applicant’s historical performance, cash flow projections and value of equipment, and for customers who are not public entities, Sterling generally obtains the personal guarantees of the principals of the entities.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Residential Mortgage

Residential mortgage loans, principally on single-family residences, are made primarily for re-sale into the secondary market. Offering both fixed and adjustable rate residential mortgage loan products, mortgages are focused on conforming credit, government insured FHA and other high-quality loan products. Jumbo loans are also originated for sale into the secondary market, or brokered to third party providers.

The ability of borrowers to service debt in the residential mortgage loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominantly collateralized by first and second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

Concentrations of Credit

There are no industry concentrations (exceeding 10% of loans, gross) of loans held in portfolio. Approximately 68.5% of loans are to borrowers located in the New York metropolitan area. A further deterioration in economic conditions within the region including a decline in real estate values, higher unemployment and other factors which could adversely impact small and mid-sized businesses, could have a significant adverse impact on the quality of the Company’s loan portfolio. In addition, a decline in real estate values and higher unemployment within the mid-Atlantic region and North Carolina could adversely impact the Company’s residential real estate loan portfolio.

Approximately 22.6% or $6.9 million and 24.3% or $5.9 million of the Company’s net interest income and noninterest income are related to real estate lending for the three months ended March 31, 2011 and 2010, respectively. Real estate prices in the U.S. market decreased during 2010 and have continued to decrease in 2011. Continuing declines in real estate values could necessitate charge-offs in our mortgage loan portfolio that may impact our operating results. In addition, a sustained period of declining real estate values combined with the continued turbulence in the financial and credit markets would continue to limit our mortgage-related revenues.

As of March 31, 2011, approximately 67.3% of the Company’s loan portfolio consisted of commercial and industrial, factored receivables, construction and commercial real estate loans. Because the Company’s loan portfolio contains a number of commercial and industrial, construction and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans.

Related Party Loans

Loans are made to officers or directors (including their immediate families) of the Company or for the benefit of corporations in which they have a beneficial interest subject to applicable regulations. There were no outstanding balances on such loans in excess of $60 thousand to any individual or entity at March 31, 2011 or 2010.

Nonperforming Loans

Nonaccrual loans are those on which the accrual of interest has ceased. Loans, including loans that are individually identified as being impaired under FASB Codification Topic 310: Receivables, are generally placed on nonaccrual status immediately if, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the loan agreement, or when principal or interest is past due 90 days or more and collateral, if any, is insufficient to cover principal and interest.

Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Interest income is recognized on nonaccrual loans only to the extent received in cash. Where there is doubt regarding the ultimate collectibility of the loan principal, cash receipts, whether designated as principal or interest, are thereafter applied to reduce the carrying value of the loan. Loans are restored to accrual status when interest and principal payments are brought current and future payments are reasonably assured.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the amount of nonaccrual loans of the Company as of the dates indicated:


	March 31, 2011		December 31, 2010

Commercial & industrial	$	1,242	$	1,014
Equipment financing receivables		972		892
Factored receivables		—		—
Real estate—residential mortgage		1,675		1,614
Real estate-commercial mortgage		3,124		3,124
Real estate—construction and land development		—		—
Loans to individuals		3		—

Total nonaccrual loans	$	7,016	$	6,644

The following table provides information regarding the past due status of loans at March 31, 2011 and December 31, 2010:


March 31, 2011	30–59 Days Past Due		60–89 Days Past Due		90 & Over Past Due		Total Past Due		Current		Total Loans		MEMO 90 & Over and Still Accruing

Commercial and industrial	$	17,138	$	4,702	$	1,243	$	23,083	$	567,821	$	590,904	$	1
Equipment financing receivables		1,417		820		972		3,209		137,121		140,330		—
Factored receivables		1,180		307		295		1,782		152,989		154,771		295
Real estate—residential mortgage—portfolio		1,916		2,068		1,675		5,659		127,000		132,659		—
Real estate—commercial mortgage		6,812		—		3,124		9,936		88,280		98,216		—
Real estate—construction and land development		—		—		—		—		23,975		23,975		—
Loans to individuals		—		—		3		3		11,696		11,699		—
Loans to depository institutions		—		—		—		—		25,505		25,505		—
Loans to nondepository financial institutions		—		—		—		—		110,590		110,590		—

Total loans, net of unearned discount	$	28,463	$	7,897	$	7,312	$	43,672	$	1,244,977	$	1,288,649	$	296


December 31, 2010

Commercial and industrial	$	16,899	$	4,693	$	1,015	$	22,607	$	595,616	$	618,223	$	1
Equipment financing receivables		1,399		579		958		2,936		141,299		144,235		66
Factored receivables		3,321		662		247		4,230		157,559		161,789		247
Real estate—residential mortgage—portfolio		3,297		2,515		1,614		7,426		152,318		159,744		—
Real estate—commercial mortgage		9,626		—		3,124		12,750		84,241		96,991		—
Real estate—construction and land development		—		—		—		—		25,624		25,624		—
Loans to individuals		52		—		—		52		11,318		11,370		—
Loans to depository institutions		—		—		—		—		15,425		15,425		—
Loans to nondepository financial institutions		—		—		—		—		112,882		112,882		—

Total loans, net of unearned discount	$	34,594	$	8,449	$	6,958	$	50,001	$	1,296,282	$	1,346,283	$	314

Impaired Loans

Management considers a loan to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans on a loan-by-loan basis. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment of the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The following tables include the recorded investment and unpaid principal balances for impaired financing receivables with the associated allowance amount, if applicable.


March 31, 2011	Recorded Investment in Impaired Loans		Principal Balance With No Allowance		Unpaid Principal Balance With Allowance		Related Allowance		Average Recorded Investment in Impaired Loans		Interest Income Recognized in Impaired Loans

Commercial and industrial	$	2,192	$	—	$	4,242	$	518	$	2,214	$	27
Equipment financing receivables		192		—		192		17		303		20
Factored receivables		—		—		—		—		—		—
Real estate—residential mortgage		4,731		—		4,817		1,208		4,818		47
Real estate—commercial mortgage		3,124		—		3,124		1,113		3,124		26
Real estate—construction and land development		—		—		—		—		—		—
Loans to individuals		—		—		—		—		—		—
Loans to depository institutions		—		—		—		—		—		—
Loans to nondepository financial institutions		—		—		—		—		—		—

Total	$	10,239	$	—	$	12,375	$	2,856	$	10,459	$	120


December 31, 2010

Commercial and industrial	$	2,236	$	584	$	4,243	$	605	$	1,598
Equipment financing receivables		414		—		414		33		1,095
Factored receivables		—		—		—		—		—
Real estate—residential mortgage		4,904		—		4,990		1,104		3,681
Real estate—commercial mortgage		3,124		—		3,124		1,100		1,725
Real estate—construction and land development		—		—		—		—		—
Loans to individuals		—		—		—		—		—
Loans to depository institutions		—		—		—		—		—
Loans to nondepository financial institutions		—		—		—		—		—

Total	$	10,678	$	584	$	12,771	$	2,842	$	8,099

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of loans, (ii) the level of classified loans, (iii) charge-offs, (iv) nonperforming loans and (v) the general economic conditions in the New York metropolitan area.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company has a process for analyzing non-homogeneous loans, such as commercial and industrial and commercial real estate loans, individually by grading the loans based on credit risk. This analysis occurs at varying times based on the type of loan as well as the loan balance and occurs at least once every 18 months for those loans greater than $500,000.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

For homogeneous loan pools, such as residential mortgages, leases and consumer loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Company’s personnel and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools at March 31, 2011 is included in the aging of the recorded investment of past due loans table above. In addition, the total nonperforming portion of these homogeneous loan pools at March 31, 2011 is presented in the recorded investment in nonaccrual loans table above.

The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. Loans under $100,000 are not risk rated. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades is as follows:

•

Risk Rating 1 & 2/High Quality/Minimal Risk—These loans are well secured by liquid or high quality, diversified, and readily marketable securities within the bank’s defined margin requirements including cash surrender value of life insurance, or loans to strong privately held obligors secured by real estate with satisfactory loan to value, and support guarantors. They could include loans to publicly traded entities with strong credit ratings (A-1 or better) with Moody’s or Standard & Poor’s.

•

Risk Rating 3 & 4/Very Good/Good Quality—These loans can be either unsecured or secured (with monthly monitoring of Accounts Receivable and/or Inventory) to adequately or moderately capitalized privately held obligors with satisfactory sales, revenue, earnings trends, cash flow, and leverage. These secured loans may be monitored in the Asset Based Lending or the Factoring Department to include control of cash receipts and defined formula advances. These categories could include loans to publicly traded entities with credit ratings of A-3 or lower by Moody’s or Standard & Poor’s.

•

Risk Rating 5/Watch List—These loans are to companies with uneven financial performance containing exceptions to loan policy without mitigating factors. These loans may exist when the obligors experience temporary credit and/or structural deficiencies. Such credits have not been criticized by Loan Review. Close supervision is warranted to avoid further deterioration.

•

Risk Rating 6/Special Mention (OCC Definition)—Other Assets Especially Mentioned (OAEM) are loans that are currently protected but are potentially weak. Special Mention ratings have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the bank’s credit position at some future date. Such assets constitute an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset.

•

Risk Rating 7/Substandard (OCC Definition)—These loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.

•

Risk Rating 8/Doubtful (OCC Definition)—These loans have all the weakness inherent in one classified as substandard with the added characteristics that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidating procedures, capital injection, perfecting liens or additional collateral and refinancing plans.

•

Risk Rating 9/Loss (OCC Definition)—These loans are classified as Loss and charged off because they are determined to be uncollectible and unbankable assets. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The bank should not be allowed to attempt long-term recoveries while the asset remains booked. Losses should be taken in the period in which they are determined to be uncollectible.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents weighted average risk grades and classified loans by class of commercial loan. Classified loans include loans in Risk Grades 6, 7 and 8.


	March 31, 2011			December 31, 2010

	Weighted Average Risk Grade	Classified Loans		Weighted Average Risk Grade	Classified Loans

Commercial and industrial	3.31	$	5,848	3.32	$	3,450
Factored receivables	2.76		—	2.76		—
Real estate—commercial mortgage	3.38		3,124	3.36		3,124
Real estate—construction and land development	4.49		—	4.55		5,249
Loans to depository institutions	1.82		—	3.00		—
Loans to nondepository financial institutions	3.13		—	3.06		—

Total	3.23	$	8,972	3.24	$	11,823

Allowance for Loan Losses

The allowance reflects management’s best estimate of probable losses within the existing loan portfolio and of the risk inherent in various components of the loan portfolio. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risk inherent in the loan portfolio. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to the allowance for loan losses.

The Company’s allowance for loan loss methodology is based on guidance provided by the “Interagency Policy Statement on the Allowance for Loan and Lease Losses” issued by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve system, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of Thrift Supervision in December 2006 and includes an allowance allocation calculated in accordance with U.S. GAAP guidance in FASB Codification Topic 310: Receivables and allowance allocations calculated in accordance with FASB Codification Topic 450: Contingencies. Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions.

The level of the allowance for loan losses relies on a consistent process that requires multiple layers of management review and judgment and of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated to specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses includes (1) specific valuation allowances for impaired loans evaluated in accordance with FASB Codification Topic 310: Receivables; (2) formulaic allowances based on historical loss experience by loan category, adjusted, as necessary, to reflect the impact of current conditions; and (3) unallocated general valuation allowances determined in accordance with FASB Codification Topic 450: Contingencies based on general economic conditions and other qualitative risk factors both internal and external to the Company.

The allowance established for losses on specific loans is based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all loans. When a loan has a calculated grade of 6 or higher, an analysis is performed to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans and the internal risk grade of such loans at the time they were charged-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the portion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool. During 2010 the Company revised its historical loss ratio calculation to reflect a five year history from a ten year history to reflect the current loss experience.

The Company’s pool of similar loans include similarly risk-graded groups of commercial and industrial loans, commercial real estate loans, residential real estate loans and consumer and other loans.

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Company. In general, such valuation allowances are determined by evaluating, among other things:

•

Estimated future losses in all significant loans

•

Existence and effect of any concentrations of credit

•

Existence and effect of any geographic concentration

•

Other external factors such as competition, legal matters or regulation that may affect risk

•

Effect of criticized and classified loans

•

Effects from risk arising with international lending

•

Effectiveness of internal problem loan identification and risk ratings

•

Trends in portfolio volume, maturity and compositions of loans within segments

•

Volumes and trends in delinquencies and nonaccrual loans

•

Changes in the quality of lending policies and procedures

•

Changes in local and national economic conditions

•

Experience, ability and depth of lending staff

•

Changes in value of underlying collateral

Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined based on degree of risk. The results are then input into a “general allocation matrix” to determine an appropriate general valuation allowance.

Included in the general valuation allowances are allocations for groups of similar loans with risk characteristics that exceed certain concentration limits established by management. Concentration risk limits have been established, among other things, for certain industry concentrations, large and highly leveraged credit relationships that exceed specified risk grades, and loans originated with policy exceptions that exceed specified risk grades.

Loans are generally charged-off at the earlier of when it is determined that collection efforts are no longer productive or when they have been identified as losses by management, internal loan review and/or bank examiners. Furthermore, equipment financing receivables and revolving credit lines to small businesses are charged-off at the earlier of when payments are 120 days past due or 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/borrower, 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.

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2011:


	Balance, December 31, 2010		Charge- Offs		(Recoveries)			Net Charge-Offs		Provision for Loan Losses			Balance, March 31, 2011


Commercial and industrial	$	7,454	$	169	$	(20	)	$	149	$	174		$	7,479
Equipment financing receivables		3,423		3,776		(923	)		2,853		2,485			3,055
Factored receivables		1,424		132		(21	)		111		27			1,340
Real estate – residential mortgage (portfolio)		2,497		248		(163	)		85		184			2,596
Real estate – commercial mortgage		2,275		—		—			—		10			2,285
Real estate – construction and land development		310		—		—			—		(24	)		286
Loans to individuals		119		—		—			—		(3	)		116
Loans to depository institutions		46		—		—			—		31			77
Loans to nondepository finanical institutions		564		—		—			—		100			664
Unallocated		126		—		—			—		16			142

Total	$	18,238	$	4,325	$	(1,127	)	$	3,198	$	3,000		$	18,040

The following table presents the activity in the allowance for loan losses for the three months ended March 31, 2010:


Three Months Ended March 31,	2010

Allowance for loan losses:
Balance at beginning of year	$	19,872

Charge-offs:
Commercial and industrial		850
Equipment financing receivables		4,983
Factored receivables		151
Real estate—residential mortgage		65
Real estate—commercial mortgage		129
Real estate—construction and land development		—
Loans to individuals		21

Total charge-offs		6,199

Recoveries:
Commercial and industrial		215
Equipment financing receivables		105
Factored receivables		9
Real estate—residential mortgage		—
Real estate—commercial mortgage		—
Real estate—construction and land development		—
Loans to individuals		—

Total recoveries		329

Subtract:
Net charge-offs		5,870

Provision for loan losses		6,000

Less loss on transfers to other real estate owned		39

Balance at end of year	$	19,963

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2011:


	Ending Allowance Balance Attributable to Loans Evaluated for Impairment						Loan Balances Evaluated for Impairment

	Individually		Collectively		Total		Individually		Collectively		Total

Commercial and industrial	$	518	$	6,961	$	7,479	$	2,192	$	588,712	$	590,904
Equipment financing receivables		17		3,038		3,055		192		140,138		140,330
Factored receivables		—		1,340		1,340		—		154,771		154,771
Real estate—residential mortgage (portfolio)		1,208		1,388		2,596		4,731		127,928		132,659
Real estate—commercial mortgage		1,113		1,172		2,285		3,124		95,092		98,216
Real estate—construction and land development		—		286		286		—		23,975		23,975
Loans to individuals		—		116		116		—		11,699		11,699
Loans to depository institutions		—		77		77		—		25,505		25,505
Loans to nondepository financial institutions		—		664		664		—		110,590		110,590
Unallocated		—		—		142		—		—		—

Total	$	2,856	$	15,042	$	18,040	$	10,239	$	1,278,410	$	1,288,649

Note 4. Federal Home Loan Bank Advances

During the 2011 first quarter, the bank restructured a portion of its Federal Home Loan Bank fixed rate advances by repaying $100 million of existing borrowings and replacing them with $100 million of lower cost, floating rate advances. This transaction resulted in $4.2 million in prepayment penalties that were deferred and will be recognized in interest expense as an adjustment to the cost of these borrowings in future periods. The existing borrowings were a combination of fixed rate and amortizing advances with an average cost of 2.58% and an average duration of 3.2 years. The new borrowings are all floating-rate advances with an average cost of 1.58%, including the deferred adjustment, with an average duration of three months. The relevant accounting treatment for this transaction was an interpretation of the guidance provided in ASC 470-50. This transaction was executed as an earnings and interest rate risk strategy, resulting in lower FHLB advance costs and a reduction of average duration.

Note 5. Other noninterest income and expenses

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


	Three Months Ended March 31,

	2011		2010

OTHER NONINTEREST INCOME
Trade finance income	$	588	$	492
Other customer related fees		180		174
Trust fees		53		84
Income from life insurance policies		275		264
Gain on other real estate owned		—		13
Other income		703		296

Total other noninterest income	$	1,799	$	1,323


OTHER NONINTEREST EXPENSES
Advertising and marketing	$	425	$	1,006
Communications		410		348
Other expenses		2,334		2,173

Total other noninterest expenses	$	3,169	$	3,527

STERLING BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 6. Common Shares and Stock Incentive Plan

On March 9, 2011, the Company completed an underwritten public offering of 4.025 million common shares at an offering price of $9.60 per share, which resulted in net proceeds of $36.5 million after underwriting discounts and expenses.

On March 24, 2011, the Board of Directors, upon recommendation by the Compensation and Corporate Governance Committees, granted a total of 20,000 shares of restricted stock to the eight non-management directors (“director restricted shares”) and 41,565 restricted shares to the Chairman, President and five Executive Vice Presidents (“officer restricted shares”). The director restricted shares will vest 25% annually over four years beginning on the first anniversary of the grant date. The officer restricted shares vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date and were also limited by the 2008 agreement between the Company and the U.S. Treasury. The director restricted shares and the officer restricted shares were issued at $9.71 per share, the closing price on the date of the grant. The agreements for both the director restricted shares and the officer restricted shares have additional provisions regarding transferability and accelerated vesting of the shares and the continuation of performing substantial services for the Company.

Note 7. 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 March 31,

	2011			2010

Service Cost	$	544		$	565
Interest Cost		895			938
Expected return on plan assets		(771	)		(789	)
Amortization of prior service cost		16			17
Recognized actuarial loss		700			756

Net periodic benefit cost	$	1,384		$	1,487

The Company expects to contribute approximately $2.0 million to the defined benefit pension plan in 2011.

Note 8. 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 9. Segment Reporting

The Company provides a broad range of financial products and services, including commercial loans, asset-based financing, mortgage warehouse lending, factoring and accounts receivable management services, trade financing, equipment leasing, commercial and residential mortgage lending and brokerage, and corporate and consumer deposit 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 2011 year-to-date average interest-earning assets were 58.6% loans (corporate lending was 74.0% and real estate lending was 22.6% of total loans, respectively) and 41.0% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 68.5% of loans are to borrowers located in the New York metropolitan 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

Three Months Ended March 31, 2011
Net interest income	$	9,625	$	4,687	$	4,895	$	19,207
Noninterest income		7,633		2,183		1,530		11,346
Depreciation and amortization		199		24		1		224
Segment income before income taxes		5,521		3,974		6,169		15,664
Segment assets		877,720		402,877		1,053,759		2,334,356

Three Months Ended March 31, 2010
Net interest income	$	8,195	$	4,218	$	7,264	$	19,677
Noninterest income		6,939		1,702		2,338		10,979
Depreciation and amortization		174		28		1		203
Segment income before income taxes		6,327		3,421		8,033		17,781
Segment assets		829,351		355,521		966,572		2,151,444

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 March 31,
	2011			2010

Net interest income:
Total for reportable operating segments	$	19,207		$	19,677
Other [1]		222			218

Consolidated net interest income	$	19,429		$	19,895


Noninterest income:
Total for reportable operating segments	$	11,346		$	10,979
Other [1]		96			123

Consolidated noninterest income	$	11,442		$	11,102


Income before taxes:
Total for reportable operating segments	$	15,664		$	17,781
Other [1]		(10,246	)		(14,120	)


Consolidated income before income taxes	$	5,418		$	3,661


Assets:
Total for reportable operating segments	$	2,334,356		$	2,151,444
Other [1]		58,189			42,870

Consolidated assets	$	2,392,545		$	2,194,314

[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 10. Other Comprehensive Income

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


	Three Months Ended March 31,

	2011			2010

Other Comprehensive Income
Unrealized holding gains on securities, arising during the period:
Before tax	$	693		$	2,223
Tax effect		(314	)		(1,009	)

Net of tax		379			1,214


Reclassification adjustment for securities gains included in net income:
Before tax		(729	)		(1,502	)
Tax effect		331			682

Net of tax		(398	)		(820	)


Reclassification adjustment for amortization of prior service cost:
Before tax		16			17
Tax effect		(7	)		(8	)

Net of tax		9			9


Reclassification adjustment for amortization of net actuarial losses:
Before tax		712			756
Tax effect		(323	)		(343	)

Net of tax		389			413


Other comprehensive income	$	379		$	816

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

Note 11. 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.

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

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

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

For mortgage-backed securities issued by U.S. government corporations and government sponsored enterprises, management considers dealer indicative bids in the valuation process. Indicative bids are estimates of value and do not necessarily represent the price at which the dealer would be willing to transact. Such bids are compared to IDC evaluated prices for reasonableness as well as consistency with observable market conditions. All mortgage-backed securities are deemed to be valued based on Level 2 inputs.

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

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


March 31, 2011	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	$	—	$	73,579	$	—	$	73,579
Agency notes		—		59,662		—		59,662

Total obligations of U.S. government corporations and government sponsored enterprises		—		133,241		—		133,241
Obligations of state and political institutions - New York Bank Qualified		—		28,672		—		28,672
Single-issuer, trust preferred securities		8,666		—		—		8,666
Corporate debt securities		—		238,659		—		238,659
Equity and other securities		4,926		—		—		4,926

Total marketable securities	$	13,592	$	400,572	$	—	$	414,164


Other investments	$	11,445	$	8,686	$	—	$	20,131


December 31, 2010

Securities available for sale:
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities	$	—	$	51,983	$	—	$	51,983
Agency notes		—		100,122		—		100,122

Total obligations of U.S. government corporations and government sponsored enterprises		—		152,105		—		152,105
Obligations of state and political institutions - New York Bank Qualified		—		40,044		—		40,044
Single-issuer, trust preferred securities		3,933		—		—		3,933
Corporate debt securities		—		189,058		—		189,058
Equity and other securities		4,940		—		—		4,940

Total marketable securities	$	8,873	$	381,207	$	—	$	390,080


Other investments	$	11,838	$	6,760	$	—	$	18,598

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

Certain financial assets, such as loans held for sale and collateral-dependent 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:


	March 31, 2011		December 31, 2010

Impaired loans	$	3,336	$	3,368
Other real estate owned, net		132		182
Loans held for sale		24,102		32,049

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

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

Loans held for sale. Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third-party investors.

Impaired loans at fair value had a recorded investment of $4.5 million, net of a specific allocation of the allowance for loan losses of $1.2 million, at March 31, 2011. Two of the impaired loans are commercial real estate loans and one is a commercial and indutrial loan. The fair value of these loans is estimated using Level 3 inputs. For the first three months of 2011, the Company recognized charge-offs in the allowance for loan losses totaling $0.4 million.

Other real estate owned (comprised of foreclosed assets),which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $132 thousand, net of a valuation allowance of $-0- million at March 31, 2011. Certain of these assets, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discount criteria. For the three months ended March 31, 2011, the Company did not recognize any charge-offs in connection with the measurement and initial recognition of foreclosed assets; for the year ended December 31, 2010, the Company recognized $538 thousand. Other than foreclosed assets measured at fair value upon initial recognition, two properties were re-measured at fair value during the year ended December 31, 2010, resulting in a $233 thousand charge to noninterest expense.

Loans held for sale, are carried at $24.1 million, which is made up of the outstanding balance of $24.1 million, net of a valuation allowance of $-0- million at March 31, 2011.

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

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 certain long-term debt, the Company’s financial instruments are not readily marketable and market prices do not exist. Since negotiated prices for the instruments that are not readily marketable depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

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

A description of the methods, factors and significant assumptions utilized in estimating the fair values for significant categories of financial instruments follows:

Financial Instruments with Carrying Amounts Equal to Fair Value
The carrying amounts for cash and due from banks, interest-bearing deposits with other banks, customers’ liability under acceptances, accrued interest receivable, Federal funds purchased, securities sold under agreements to repurchase, commercial paper, other short-term borrowings, acceptances outstanding, and accrued interest payable, as a result of their short-term nature, are considered to approximate fair value.

Investment Securities
The methods, factors and significant assumptions used to estimate fair values of all securities are described more fully beginning on page 32.

Loans Held in Portfolio
The fair value of loans held in portfolio which reprice within 90 days reflecting changes in the base rate approximate their carrying amount. For other loans held in portfolio, the fair value is calculated based on discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and for similar maturities. These calculations have been adjusted for credit risk based on the Company’s historical credit loss experience.

The fair value for secured nonaccrual loans is the value of the underlying collateral which is sufficient to repay each loan. For other nonaccrual loans, the fair value represents book value less a credit risk adjustment based on the Company’s historical credit loss experience.

Deposits
FASB Codification Topic 825: Financial Instruments requires that the fair value of demand, savings, NOW (negotiable order of withdrawal) and certain money market deposits be equal to their carrying amount. The Company believes that the fair value of these deposits, including the value of deposit relationships, is greater than that prescribed by FASB Codification Topic 825. For other types of deposits with fixed maturities, fair value has been estimated based upon interest rates currently being offered on deposits with similar characteristics and maturities.

Advances—FHLB and Long-Term Borrowings
For advances—FHLB and long-term borrowings, the fair value is calculated based on discounted cash flow analyses, using interest rates currently being quoted for debt with similar characteristics and maturities.

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

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
The fees received for the issuance of commitments to extend credit, standby letters of credit, and financial guarantees, are considered to approximate fair value. Due to the uncertainty involved in attempting to assess the likelihood and timing of a commitment being drawn upon, coupled with lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the amount of consideration received.

The following is a summary of the carrying amounts and fair values of the Company’s financial assets and liabilities:


	March 31, 2011				December 31, 2010

	Carrying Amount		Fair Value		Carrying Amount		Fair Value

FINANCIAL ASSETS
Cash and due from banks	$	35,981	$	35,981	$	26,824	$	26,824
Interest-bearing deposits with other banks		7,932		7,932		40,503		40,503
Investment securities		872,445		876,462		789,315		790,533
Loans held for sale		24,102		24,102		32,049		32,049
Loans held in portfolio, net		1,270,609		1,278,829		1,295,996		1,300,624
Customers’ liability under acceptances		228		228		—		—
Accrued interest receivable		9,296		9,296		8,280		8,280
FINANCIAL LIABILITIES
Demand, NOW, savings and money market deposits		1,110,916		1,110,916		1,132,497		1,132,497
Time deposits		617,169		618,976		615,267		617,096
Securities sold under agreements to repurchase		26,107		26,107		28,016		28,016
Federal funds purchased		60,000		60,000		15,000		15,000
Commercial paper		15,391		15,391		14,388		14,388
Other short-term borrowings		4,525		4,525		3,490		3,490
Acceptances outstanding		228		228		—		—
Accrued interest payable		1,145		1,145		1,314		1,314
Advances-FHLB and long-term borrowings		154,589		146,944		169,947		173,110

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

Note 12. New Accounting Standards

Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820)- Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchased, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class and liabilities (rather major category), which would generally be a subject of assets or liabilities within a line in statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchased, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy were required for the Company beginning January 1, 2011. The effect of adopting this new guidance did not have a material impact on the Company’s financial statements.

ASU No. 2010-20,“Receivables (Topic 310)-Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivables, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a roll-forward of the allowance for credit losses as well as information about modified, impaired, nonaccrual and past due loans and credit quality indicators. This guidance became effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period were required for the Company’s financial statements that include periods beginning on or after January 1, 2011. The effect of adopting this new guidance did not have a material impact on the Company’s financial statements.

ASU No. 2010-28,“Intangibles-Goodwill and Other (Topic 350)- When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force).” ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The provisions of this guidance were effective for the Company beginning January 1, 2011. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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

ASU No. 2010-29 “Business Combinations (Topic 805)- Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force).” ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This guidance also expands the pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributed to the business combination included in the reported pro forma revenue and earnings. The provisions of this guidance will be effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial statements.

ASU No. 2011-02 “Receivables (Topic 310)- A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective for the Corporation on July, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. Given the recency of this pronouncement, the Company is continuing to evaluate the impact of adoption of this ASU.

Note 13. Subsequent Event

On April 27, 2011, the parent company paid $42.4 million to the U.S. Treasury for the repurchase of the Treasury’s investment in 42,000 shares of the parent company’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, liquidation preference of $1,000 per share (the “Preferred Shares”), issued under the provisions of the TARP Capital Purchase Program. As a result of this action, the Preferred Shares were redeemed in full, eliminating an annual dividend of $2.1 million. In this connection, the Company will recognize in the second quarter a non-cash deemed dividend in determining net income available to common shareholders of $1.3 million which represents the difference between the carrying value of $40.7 million and the liquidation value of $42.0 million for the repurchased Preferred Shares.

On May 5, 2011, the parent company gave a notice to the U.S. Treasury of its intention to repurchase in full the warrant to purchase 516,817 of the parent company’s common shares (the “Warrant”), originally issued to the U.S. Treasury in connection with the U.S. Treasury’s investment in the Preferred Shares. Under the terms of the agreements that govern the rights and obligations of the parent company and the U.S. Treasury regarding the Warrant, whether the parent company will repurchase the Warrant or, if so, the price at which the parent company will repurchase the Warrant is not known as of the date of this report.


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 Bank Holding Company Act of 1956, as amended by 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, 2010 (the “2010 Form 10-K”). Certain reclassifications have been made to prior years’ financial data to conform to current financial statement presentations. Throughout management’s discussion and analysis of financial condition and results of operations, dollar amounts in tables are presented in thousands, except per share data.

OVERVIEW

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

For the three months ended March 31, 2011, the bank’s average earning assets represented approximately 99.0% of the Company’s average earning assets. Loans represented 58.6% and investment securities represented 38.5% of the bank’s average earning assets for the first three months of 2011.

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

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

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

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

Recent economic conditions during 2011, such as the continuing decrease in real estate values in the principal markets the Company serves and illiquid credit markets, have reduced demands for corporate and real estate lending. If these trends continue, the Company would expect its income from corporate and real estate lending to decrease from the current levels in the near term. In addition, due to the geographic concentration of the Company’s loan portfolio in the New York metropolitan area, representing approximately 68.5% of total loans at March 31, 2011, an adverse change in market conditions in that geographic area could result in a decrease in our income from corporate and real estate lending. A significant prolonged decrease in income from our lending segments, if realized, may have a severe adverse impact on the operations of the Company.

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on page 52. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on page 51.

Comparison of the Three Months Ended March 31, 2011 and 2010

The Company reported net income available to common shareholders for the three months ended March 31, 2011 of $3.3 million, representing $0.12 per share calculated on a diluted basis, compared to $1.9 million, or $0.10 per share calculated on a diluted basis, for the first quarter of 2010. The increase in net income available to common shareholders was primarily due to a $3.0 million decrease in the provision for loan losses and a $0.3 increase in noninterest income, partially offset by a $0.4 million decrease in net interest income, a $1.1 million increase in noninterest expenses and a $0.4 million increase in the provision for income taxes.

Net Interest Income
Net interest income, on a tax-equivalent basis, was $20.3 million for the first quarter of 2011 compared to $20.4 million for the 2010 period. Net interest income benefitted from higher average loan and investment securities balances and lower cost of funding. Those benefits were more than offset by the impact of lower yields on loans and investment securities and higher interest-bearing deposits balances. The net interest margin, on a tax-equivalent basis, was 3.84% for the first quarter of 2011 compared to 4.37% for the 2010 period. The net interest margin was impacted by the mix of earning assets and funding, including the higher level of noninterest-bearing demand deposits.

Total interest income, on a tax-equivalent basis, aggregated $23.6 million for the first quarter of 2011, down $0.9 million from the 2010 period. The tax-equivalent yield on interest-earning assets was 4.50% for the first quarter of 2011 compared to 5.28% for the 2010 period.

Interest earned on the loan portfolio increased to $16.9 million for the first quarter of 2011 from $16.5 million in the prior year period. Average loan balances amounted to $1,254.3 million for the first quarter of 2011, an increase of $95.2 million from an average of $1,159.1 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.4 million increase in interest earned on loans. The yield on the loan portfolio decreased to 5.59% for the first quarter of 2011 from 5.98% for the 2010 period, which was primarily attributed to the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $6.7 million for the first quarter of 2011 from $7.9 million in the 2010 period. Average outstandings increased to $823.7 million (38.5% of average earning assets) for the first quarter of 2011 from $696.2 million (36.5% of average earning assets) in the first quarter of 2010. The average yield on investment securities decreased to 3.24% for the first quarter of 2011 from 4.52% in the 2010 period. The increase in balances and the decrease in yields reflect the impact of the Company’s asset/liability management strategy designed to shorten the average life of the portfolio to position the Company for rising interest rates in future periods while taking advantage of the current uptick in long-term rates. The short-term part of the strategy was implemented through the sale of available for sale securities, principally mortgage-backed securities, with longer term average lives offset by the purchase of short-term corporate debt and obligations of U.S. government corporations and government sponsored enterprises. The long-term part of the strategy was implemented through the purchase of obligations of state and political subdivisions with maturities of approximately 15 years.

Total interest expense decreased by $0.8 million for the first quarter of 2011 from $4.1 million for the 2010 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings partially offset by the impact of higher interest-bearing deposits.

Interest expense on deposits decreased to $2.1 million for the first quarter of 2011 from $2.6 million for the 2010 period, due to decreases in the cost of those funds partially offset by the impact of higher balances. The average rate paid on interest-bearing deposits was 0.71%, which was 31 basis points lower than the prior year period. The decrease in average cost of deposits reflects the impact of deposit pricing strategies and the Company’s purchase of certificates of deposit from the Certificate of Deposit Account Registry Service (“CDARS”) which provided certificate of deposit balances at lower rates. Average interest-bearing deposits were $1,181.5 million for the first quarter of 2011 compared to $1,045.2 million for the prior year period, reflecting the impact of the Company’s business development activities as well as the purchase of funds from CDARS.

Interest expense on borrowings decreased to $1.3 million for the first quarter of 2011 from $1.5 million for the 2010 period, primarily due to lower cost of those funds partially offset by the impact of the changes in mix. Average borrowings decreased to $234.3 million for the first quarter of 2011 from $250.8 million in the prior year period, reflecting a lesser reliance by the Company on wholesale borrowed funds. The rates paid on all categories of borrowings, except on advances from the FHLB, were flat in the first quarter of 2011 compared with those in the 2010 period. During the 2011 first quarter, the bank restructured a portion of its Federal Home Loan Bank fixed rate advances by repaying $100 million of existing borrowings and replacing them with $100 million of lower cost, floating rate advances. This transaction resulted in $4.2 million in prepayment penalties that were deferred and will be recognized in interest expense as an adjustment to the cost of these borrowings in future periods. The existing borrowings were a combination of fixed rate and amortizing advances with an average cost of 2.58% and an average duration of 3.2 years. The new borrowings are all floating-rate advances with an average cost of 1.58%, including the deferred adjustment, with an average duration of three months. The relevant accounting treatment for this transaction was an interpretation of the guidance provided in ASC 470-50. This transaction was executed as an earnings and interest rate risk strategy, resulting in lower FHLB advance costs and a reduction of average duration. The blended cost of borrowings decreased by 21 bps to 2.18% from 2.39%.

Provision for Loan Losses
Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 44), the provision for loan losses for the first quarter of 2011 was $3.0 million, compared to $6.0 million for the prior year period. Factors affecting the lower provision for the first quarter of 2011 included stable economic conditions during the quarter and a lower level of net charge-offs.

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

During 2011, the allowance for loan losses decreased $0.2 million from $18.2 million at December 31, 2010 primarily due to decreases in the allowance allocated to equipment financing receivables ($0.4 million) and factored receivables ($0.1 million) partially offset by increases in the allowance allocated real estate-residential ($0.1 million) and loans to nondepository institutions ($0.1 million). The allowance allocated to lease financing receivables decreased primarily as a result of the lower level of nonaccrual loans.

Noninterest Income
Noninterest income increased to $11.4 million for the first quarter of 2011 from $11.1 million in the 2010 period. The increase principally resulted from the benefit derived from increased mortgage banking income and accounts receivable management/factoring commissions and other fees which was partially offset by lower securities gains. Commissions and other fees earned from accounts receivable management and factoring services were higher primarily due to the impact of increased volumes at our factoring unit and billings by clients providing temporary staffing also contributed to the improved level of fee income. Mortgage banking increased due to slightly greater volume of loans sold at higher yields and a change in the mix of products being sold. Securities gains declined and reflected a modification of the asset liability management program commenced in 2009 that was designed to reduce the average life of the investment securities portfolio which was replaced by the strategy that was described under Net Interest Income on page 40. The Company sold approximately $55 million of securities with a weighted average life of about 2.1 years. Reinvestment of the proceeds will be in obligations of state and political subdivisions and U.S. government agencies with maturities of approximately 15 years and in short-term corporate securities.

Noninterest Expenses
Noninterest expenses for the first quarter of 2011 increased $1.1 million when compared to the 2010 period, primarily reflecting higher compensation and occupancy expense related to the growth of the business and increased business development activities.

Provision for Income Taxes
The provision for income taxes for the first quarter of 2011 increased to $1.5 million, reflecting an effective tax rate of 27.2%, compared with $1.1 million for the first quarter of 2010 reflecting an effective tax rate of 30.0%. The increase was primarily due to the higher level of pre-tax income in the 2011 period. The decrease in the effective tax rate was primarily related to the higher proportions of tax-exempt income achieved in 2011 compared to 2010 partially offset by the impact of a higher level of pre-tax income.

BALANCE SHEET ANALYSIS

Securities
At March 31, 2011, the Company’s portfolio of securities totaled $872.4 million, of which obligations of U.S. government corporations and government sponsored enterprises amounted to $470.1 million which is approximately 53.9% of the total. The Company has the intent and ability to hold to maturity securities classified as held to maturity, at which time it will receive full value for these securities. These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on held to maturity securities were $8.0 million and $4.0 million, respectively. Securities classified as available for sale may be sold in the future, prior to maturity. These securities are carried at fair value. Net aggregate unrealized gains or losses on these securities are included, net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investments upon market recovery or, the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. Available for sale securities included gross unrealized gains of $0.8 million and gross unrealized losses of $1.9 million. As of March 31, 2011, management does not have the intent to sell any of the securities classified as available for sale in the table on page 9 and management believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

In connection with an asset-liability management program described under Net Interest Income on page 40, the Company sold approximately $55 million of securities with a weighted average life of about 2.1 years. Reinvestment of the proceeds will be in obligations of state and political subdivisions and U.S. government agencies with maturities of approximately 15 years and in short-term corporate securities.

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


March 31, 2011	Weighted Average Life				Weighted Average Yield

	AFS		HTM		AFS			HTM

Residential mortgage-backed securities		5.3 Years		3.0 Years		2.93	%		4.53	%
Agency notes (with original call dates ranging between 3 and 36 months)		5.5 Years		5.7 Years		1.84	%		1.51	%
Corporate debt securities		0.9 Years		—		2.14	%		—
Obligations of state and political subdivisions – New York Bank Qualified		8.5 Years		11.1 Years		5.67	%^[1]		5.86	%^[1]

^[1]tax equivalent

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


	March 31, 2011					December 31, 2010

	Balances		% of Total			Balances		% of Total


Obligations of U.S. government corporations and government sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal National Mortgage Association)	$	6,182		0.71	%	$	7,504		0.95	%
CMOs (Federal Home Loan Mortgage Corporation)		65,292		7.48			47,422		6.01
CMOs (Government National Mortgage Association)		6,830		0.78			7,290		0.92
Federal National Mortgage Association		75,121		8.61			78,822		9.98
Federal Home Loan Mortgage Corporation		34,799		3.99			40,628		5.15
Government National Mortgage Association		4,833		0.55			5,052		0.64

Total residential mortgage-backed securities		193,057		22.12			186,718		23.65

Agency notes
Federal National Mortgage Association		130,014		14.90			115,133		14.59
Federal Home Loan Bank		59,850		6.86			24,932		3.16
Federal Home Loan Mortgage Corporation		77,197		8.85			92,479		11.72
Federal Farm Credit Bank		10,011		1.15			15,109		1.91

Total obligations of U.S. government corporations and government sponsored enterprises		470,129		53.88			434,371		55.03

Obligations of state and political institutions-New York Bank Qualified		150,065		17.20			157,013		19.89
Single-issuer, trust preferred securities		8,666		0.99			3,933		0.50
Corporate debt securities		238,659		27.36			189,058		23.95
Other securities		4,926		0.57			4,940		0.63

Total	$	872,445		100.00	%	$	789,315		100.00	%

Loan Portfolio

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

The Company’s commercial and industrial loan and factored receivables portfolios represent approximately 57% of all loans. Loans in this category are typically made to small- and medium-sized businesses and range between $250 thousand and $15 million. The Company’s real estate mortgage portfolio, which represents approximately 21% of all loans, is comprised of mortgages secured by real property located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 11% of all loans. Sources of repayment are the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

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


	March 31,

	2011					2010

	Balances		% of Total			Balances		% of Total

Domestic
Commercial and industrial	$	590,904		45.01	%	$	571,200		46.98	%
Lease financing receivables		140,330		10.69			179,407		14.76
Factored receivables		154,771		11.79			151,054		12.42
Real estate-residential mortgage
Portfolio		132,659		10.11			127,453		10.48
Held for sale		24,102		1.84			20,885		1.72
Real estate-commercial mortgage		98,216		7.48			96,670		7.95
Real estate-construction and land development		23,975		1.83			22,386		1.84
Loans to individuals		11,699		0.89			13,043		1.07
Loans to depository institutions		25,505		1.94			—		—
Loans to nondepository financial institutions		110,590		8.42			33,829		2.78


Loans, net of unearned discounts	$	1,312,751		100.00	%	$	1,215,927		100.00	%

Asset Quality

Intrinsic to the lending process is the possibility of loss. In times of economic slowdown, the risk of loss inherent in the Company’s portfolio of loans may increase. While management endeavors to minimize this risk, it recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio which in turn depend on current and future economic conditions, the financial condition of borrowers, the realization of collateral and the credit management process.

During the first three months of 2011, conditions across many segments of the economy began to stabilize. Nonaccrual loans increased by $0.4 million at the end of the first three months of 2011 compared to December 31, 2010 (primarily reflecting a $0.2 million increase in nonaccrual commercial and industrial loans and a $0.1 million increase in equipment financing receivables), and net charge-offs for the first three months of 2011 were $3.2 million, compared to $2.9 million for the fourth quarter of 2010. Nevertheless, a 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 and are still accruing because they are both well secured or guaranteed by financially responsible third parties and are in the process of collection.


	March 31,

	2011		2010

Gross loans	$	1,330,733	$	1,239,037

Nonaccrual loans
Commercial and industrial	$	1,242	$	4,052
Lease financing receivables		972		11,298
Factored receivables		—		—
Real estate-residential mortgage		1,675		1,889
Real estate-commercial mortgage		3,124		—
Real estate-construction and land development		—		—
Loans to individuals		3		—


Total nonaccrual loans		7,016		17,239

Other real estate owned		132		874

Total non-performing assets	$	7,148	$	18,113


Loans past due 90 days or more and still accruing	$	296	$	3,668

At March 31, 2011, commercial and industrial nonaccruals represented 0.21% of commercial and industrial loans. There were seven loans made to small business borrowers located in two states with balances ranging between approximately $20.6 thousand and $497.6 thousand.

At March 31, 2011, lease financing nonaccruals represented 0.69% of lease financing receivables. The lessees of the equipment are located in twelve states. There were fourteen leases ranging between approximately $0.2 thousand and $254.2 thousand, twelve of which were under $100 thousand. The value of the underlying collateral related to lease financing nonaccruals varies depending on the type and condition of equipment. While most leases are written on a recourse basis, with personal guarantees of the principals, the current value of the collateral is often less than the lease financing balance. Collection efforts include repossession and/or sale of leased equipment, payment discussions with the lessee, the principal and/or guarantors, and obtaining judgments against the lessee, the principal and/or guarantors. The balance is charged off when it is determined that collection efforts are no longer productive. Factors considered in determining whether collection efforts are no longer productive include any amounts currently being collected, the status of discussions or negotiations with the lessee, the principal and/or guarantors, the cost of continuing efforts to collect, the status of any foreclosure or other legal actions, the value of the collateral, and any other pertinent factors.

At March 31, 2011, residential real estate nonaccruals represented 1.26% of residential real estate loans held in portfolio. There were eleven loans ranging between approximately $10.1 thousand and $302.6 thousand secured by properties located in six states.

At March 31, 2011, other real estate owned consisted of two properties with values between approximately $31.7 thousand and $100.0 thousand located in two states.

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgement of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan losses methodology includes allowance allocations calculated in accordance with FASB Codification Topic 310, Receivables and allowance allocations calculated in accordance with FASB Codification Topic 450, Contingencies. Accordingly, the methodology is based on historical experience by type of credit and internal risk grade, specific homogenous pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of trends related to non-accrual loans, past due loans, potential problem loans, classified and criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowance for specific loans or loan pools. See Note 3-Loans and Allowance for Loan Losses in the accompanying notes to consolidated financial statements included elsewhere in this report for further details regarding the methodology for estimating the appropriate level of the allowance for loan losses.

At March 31, 2011, the ratio of the allowance to loans held in portfolio, net unearned discounts, was 1.40% and the allowance was $18.0 million. Loans 90 days past due and still accruing amounted to $296 thousand. At such date, the Company’s nonaccrual loans amounted to $7.0 million; $4.3 million of such loans were judged to be impaired within the scope of FASB Codification Topic 310, Receivables, and had a valuation allowance totalling $1.4 million, which is included within the overall allowance for loan losses. Based on the foregoing, as well as management’s judgement as to the current risks inherent 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 March 31, 2011. 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 different from the provision taken in the first quarter of 2011. Potential problem loans, which are loans that are currently performing under present loan repayment terms but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrowers to continue to comply with the present repayment terms, aggregated $-0- and $2.4 million at March 31, 2011 and 2010, respectively.

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


	Three Months Ended March 31,

	2011			2010


Average loans held in portfolio, net of unearned discounts, during period	$	1,228,301		$	1,132,255


Allowance for loan losses:
Balance at beginning of period	$	18,238		$	19,872


Charge-offs:
Commercial and industrial		169			850
Lease financing receivables		3,776			4,983
Factored receivables		132			151
Real estate - residential mortgage		248			65
Real estate - commercial mortgage		—			129
Real estate - construction and land development		—			—
Loans to individuals		—			21

Total charge-offs		4,325			6,199


Recoveries:
Commercial and industrial		20			215
Lease financing receivables		923			105
Factored receivables		21			9
Real estate - residential mortgage		163			—
Real estate - commercial mortgage		—			—
Real estate - construction and land development		—			—
Loans to individuals		—			—

Total recoveries		1,127			329


Subtract:
Net charge-offs		3,198			5,870


Provision for loan losses		3,000			6,000


Less losses on transfers to other real estate owned		—			39


Balance at end of period	$	18,040		$	19,963


Ratio of annualized net charge-offs to average loans held in portfolio, net of unearned discounts		1.04	%		2.07	%

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.


	March 31, 2011					December 31, 2010

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


Domestic

Commercial and industrial	$	7,479		45.86	%	$	7,454		47.04	%
Loans to depository institutions		77		1.98			46		1.17
Loans to nondepository financial institutions		664		8.58			564		8.59
Equipment financing receivables		3,055		10.89			3,423		10.97
Factored receivables		1,340		12.01			1,424		12.31
Real estate - residential mortgage		2,596		10.29			2,497		9.72
Real estate - commercial mortgage		2,285		7.62			2,275		7.38
Real estate - construction and land development		286		1.86			310		1.95
Loans to individuals		116		0.91			119		0.87
Unallocated		142		0.00			126		0.00

Total	$	18,040		100.00	%	$	18,238		100.00	%

As of March 31, 2011, the allowance for loan losses decreased by $0.2 million from $18.2 million at December 31, 2010 primarily due to a reduction in the allowance allocated to equipment financing receivables ($0.4 million) and factored receivables ($0.1 million) partially offset by increases in the allowance allocated to real estate residential mortgage ($0.1 million) and loans to nondepository institutions ($0.1 million). The allowance allocated to equipment financing receivables decreased primarily as a result of the lower level of equipment financing receivables nonaccrual balances.

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:


	March 31,

	2011					2010

	Balances		% of Total			Balances		% of Total

Domestic
Demand	$	561,524		32.49	%	$	509,453		31.56	%
NOW		178,243		10.32			221,797		13.74
Savings		18,853		1.09			18,832		1.17
Money Market		352,296		20.39			322,059		19.95
Time deposits		617,169		35.71			541,321		33.54

Total domestic deposits		1,728,085		100.00			1,613,462		99.96

Foreign
Time deposits		—		—			580		0.04

Total deposits	$	1,728,085		100.00	%	$	1,614,042		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 page 51.

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 53. In addition, the bank is subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) which imposes a number of mandatory supervisory measures. Among other matters, FDICIA established five capital categories, ranging from “well capitalized” to “critically under capitalized.” Such classifications are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire other institutions. Under FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier 1 and total capital ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies comparable tests for holding companies such as the Company. At March 31, 2011, the Company and the bank exceeded the requirements for “well capitalized” institutions under the tests pursuant to FDICIA and of the Federal Reserve Board.

The bank regulatory agencies have encouraged banking organizations, including healthy, well-run banking organizations, to operate with capital ratios substantially in excess of the stated ratios required to maintain “well capitalized” status. This has resulted from, among other things, current economic conditions, the global financial crisis and the likelihood, as described in the 2010 Form 10-K, of increased formal capital requirements for banking organizations. In light of the foregoing, the Company and the bank expect that they will maintain capital ratios substantially in excess of these ratios.

During the first quarter 2011, we completed an underwritten public offering of 4,025,000 shares of our common shares at an offering price of $9.60 per share, which resulted in net proceeds of $36.5 million after underwriting discounts and expenses. The proceeds from the issuance of shares were intended to be used for general corporate purposes which could include the financing of possible acquisitions of complementary business or assets, including FDIC-assisted transactions, the extension of credit to, or the funding of the investments in, our subsidiaries, or the possible repurchase of Series A Preferred Shares, separately or together with the warrant for 516,817 common shares held by the U.S. Treasury, subject to the receipt of any required regulatory approval.

On April 27, 2011, after obtaining regulatory approvals, the parent company repurchased from the U.S. Treasury all of the issued and outstanding Fixed Rate Cumulative Perpetual Preferred Shares, Series A, for an aggregate purchase price of $42,420,000, which includes accrued and unpaid dividends. The repurchase was funded with a combination of the proceeds from the March 2011 and March 2010 offerings of common shares.

On May 5, 2011, the parent company gave a notice to the U.S. Treasury of its intention to repurchase in full the warrant to purchase 516,817 of the parent company’s common shares, originally issued to the U.S. Treasury in connection with the U.S. Treasury’s investment in the Series A preferred shares. Under the terms of the agreements that govern the rights and obligations of the parent company and the U.S. Treasury regarding the warrant, whether the parent company will repurchase the warrant or, if so, the price at which the parent company will repurchase the warrant is not known as of the date of this report.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For information regarding recently issued accounting pronouncements and their expected impact on the Company’s consolidated financial statements, see Note 12 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, economic environment and other statements contained herein regarding matters that are not historical facts, are “forward-looking statements” as defined in the Securities Exchange Act of 1934. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Any forward-looking statements we may make speak only as of the date on which such statements are made. Our actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements and we make no commitment to update or revise forward-looking statements in order to reflect new information, subsequent events or changes in expectations.

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; geopolitical developments, including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board and laws and regulations concerning taxes, banking and securities with which the Company must comply; changes, particularly declines, in general economic conditions and in the local economies in which the Company operates; the financial condition of the Company’s borrowers; competitive pressures on loan and deposit pricing and demand; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); changes in accounting principles, policies and guidelines; the risks and uncertainties described in “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2010; 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 March 31,

(Unaudited)


	2011								2010

	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate

ASSETS
Interest-bearing deposits with other banks	$	52,589		$	35		0.27	%	$	43,365		$	19		0.17	%
Investment Securities
Available for sale - taxable		350,728			2,057		2.35			292,343			2,734		3.74
Held to maturity - taxable		316,118			2,187		2.77			312,199			3,716		4.76
Tax-exempt [2]		156,867			2,425		6.18			91,655			1,408		6.15

Total investment securities		823,713			6,669		3.24			696,197			7,858		4.52
FRB and FHLB stock [2]		9,142			23		1.02			8,467			122		5.74
Loans, net of unearned discounts [3]		1,254,344			16,876		5.59			1,159,100			16,511		5.98

TOTAL INTEREST-EARNING ASSETS		2,139,788			23,603		4.50	%		1,907,129			24,510		5.28	%

Cash and due from banks		36,937								35,588
Allowance for loan losses		(19,817	)							(22,158	)
Goodwill		22,901								22,901
Other assets		144,199								126,988

TOTAL ASSETS	$	2,324,008							$	2,070,448

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Domestic
Savings	$	19,964			2		0.05	%	$	18,454			3		0.07	%
NOW		205,789			71		0.14			249,671			225		0.37
Money market		342,173			627		0.74			324,458			737		0.92
Time		613,586			1,360		0.90			452,065			1,673		1.50
Foreign
Time		—			—		—			580			2		1.09

Total interest-bearing deposits		1,181,512			2,060		0.71			1,045,228			2,640		1.02

Borrowings
Securities sold under agreements to repurchase - customers		41,269			48		0.47			50,525			61		0.49
Securities sold under agreements to repurchase - dealers		5,000			16		1.29			—			—		—
Federal funds purchased		4,833			2		0.15			11,200			4		0.14
Commercial paper		15,656			12		0.30			16,404			13		0.31
Short-term borrowings - FRB		—			—		—			15,000			9		0.25
Short-term borrowings - other		2,590			—		—			2,233			—		—
Advances - FHLB		139,215			664		1.93			129,681			871		2.72
Long-term borrowings - sub debt		25,774			523		8.38			25,774			523		8.38

Total borrowings		234,337			1,265		2.18			250,817			1,481		2.39

TOTAL INTEREST-BEARING LIABILITIES		1,415,849			3,325		0.95	%		1,296,045			4,121		1.29	%

Noninterest-bearing deposits		538,136			—					468,676			—

Total including noninterest-bearing demand deposits		1,953,985			3,325		0.69	%		1,764,721			4,121		0.95	%

Other liabilities		138,610								134,478

Total liabilities		2,092,595								1,899,199
Shareholders’ equity		231,413								171,249

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,324,008							$	2,070,448

Net interest income/spread					20,278		3.55	%					20,389		3.99	%

Net yield on interest-earning assets (margin)							3.84	%							4.37	%

Less: Tax equivalent adjustment					849								494

Net interest income				$	19,429							$	19,895


[1]	The average balances of assets, liabilities and shareholders’ equity are computed on the basis of daily averages. Average rates are presented on a tax-equivalent basis. Certain reclassifications have been made to amounts for prior periods to conform to the current presentation.
[2]	Interest on tax-exempt securities is presented on a tax-equivalent basis.
[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES

Rate/Volume Analysis [1]

(Unaudited)


	Increase/(Decrease) Three Months Ended March 31, 2011 to March 31, 2010


	Volume			Rate			Net [2]

INTEREST INCOME
Interest-bearing deposits with other banks	$	4		$	12		$	16


Investment Securities
Available for sale - taxable		464			(1,141	)		(677	)
Held to maturity - taxable		45			(1,574	)		(1,529	)
Tax-exempt [2]		1,010			7			1,017

Total investment securities		1,519			(2,708	)		(1,189	)


FRB and FHLB stock		9			(108	)		(99	)


Loans, net of unearned discounts [3]		1,446			(1,081	)		365


TOTAL INTEREST INCOME	$	2,978		$	(3,885	)	$	(907	)


INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings	$	—		$	(1	)	$	(1	)
NOW		(34	)		(120	)		(154	)
Money market		39			(149	)		(110	)
Time		483			(796	)		(313	)
Foreign
Time		(2	)		—			(2	)

Total interest-bearing deposits		486			(1,066	)		(580	)


Borrowings
Securities sold under agreements to repurchase - customers		(11	)		(2	)		(13	)
Securities sold under agreements to repurchase - dealers		16			—			16
Federal funds purchased		(2	)		—			(2	)
Commercial paper		(1	)		—			(1	)
Short-term borrowings - FRB		(9	)		—			(9	)
Short-term borrowings - other		—			—			—
Advances - FHLB		60			(267	)		(207	)
Long-term borrowings - sub debt		—			—			—

Total borrowings		53			(269	)		(216	)


TOTAL INTEREST EXPENSE	$	539		$	(1,335	)	$	(796	)


NET INTEREST INCOME	$	2,439		$	(2,550	)	$	(111	)


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

[2]	Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each. The change in interest expense for securities under agreements to repurchase-dealers and short term borrowings-FRB has been allocated entirely to the volume variance.
[3]	Includes loans held for sale and loans held in portfolio; all loans are domestic. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.

STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios

Ratios and Minimums


	Actual					For Capital Adequacy Minimum					To Be Well Capitalized

As of March 31, 2011	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total Capital(to Risk-Weighted Assets):
The Company	$	292,071		16.53	%	$	141,328		8.00	%	$	176,660		10.00	%
The bank		215,593		12.36			139,555		8.00			174,443		10.00

Tier 1 Capital(to Risk-Weighted Assets):
The Company		273,770		15.50			70,664		4.00			105,996		6.00
The bank		197,292		11.31			69,777		4.00			104,666		6.00

Tier 1 Leverage Capital(to Average Assets):
The Company		273,770		11.90			92,044		4.00			115,055		5.00
The bank		197,292		8.65			91,191		4.00			113,989		5.00


As of December 31, 2010

Total Capital(to Risk-Weighted Assets):
The Company	$	255,022	14.68	%	$	138,982	8.00	%	$	173,728	10.00	%
The bank		211,737	12.32			137,516	8.00			171,895	10.00

Tier 1 Capital(to Risk-Weighted Assets):
The Company		236,477	13.61			69,491	4.00			104,237	6.00
The bank		193,192	11.24			68,758	4.00			103,137	6.00

Tier 1 Leverage Capital(to Average Assets):
The Company		236,477	10.15			93,152	4.00			116,440	5.00
The bank		193,192	8.39			92,070	4.00			115,087	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 March 31, 2011, presented on page 57, 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 March 31, 2011, 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, 2010, the model indicated the impact of a 100 and 200 basis point parallel and pro rata rise in rates over 12 months would approximate a 3.4% ($3.7 million) and a 6.8% ($7.2 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 0.9% ($1.0 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of December 31, 2010 was considered to be remote given then-current interest rate levels. As of March 31, 2011, 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 1.5% ($1.7 million) and a 3.5% ($3.9 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 0.5% ($0.6 million) decline from an unchanged rate environment. The likelihood of a decrease in interest rates beyond 25 basis points as of March 31, 2011 was considered to be remote given then-current interest rate levels.

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

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

The shape of the yield curve can cause downward pressure on net interest income. In general, if and to the extent that the yield curve is flatter (i.e., the differences between interest rates for different maturities are relatively smaller) than previously anticipated, then the yield on the Company’s interest-earning assets and its cash flows will tend to be lower. Management believes that a relatively flat yield curve could continue to adversely affect the Company’s results in 2011.

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.

The parent company 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 March 31, 2011, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing current business activities, was approximately $16.4 million. The parent company had cash, interest-bearing deposits with banks and other current assets aggregating $100.1 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 March 31, 2011:


	Payments Due by Period

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


Long-Term Debt	$	154,589	$	15,000	$	11,818	$	101,997	$	25,774
Operating Leases		48,540		4,806		8,969		9,211		25,554

Total Contractual Cash Obligations	$	203,129	$	19,806	$	20,787	$	111,208	$	51,328

(1) Based on contractual maturity dates

The following table sets forth information regarding the Company’s obligations under other commercial commitments as of March 31, 2011:


	Amount of Commitment Expiration per Period

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


Residential Loans	$	35,676	$	35,676	$	—	$	—	$	—
Commercial Loans		27,777		19,589		6,254		—		1,934

Total Loans		63,453		55,265		6,254		—		1,934
Standby Letters of Credit		24,627		23,852		775		—		—
Other Commercial Commitments		68,913		68,749		—		—		164


Total Commercial Commitments	$	156,993	$	147,866	$	7,029	$	—	$	2,098

INFORMATION AVAILABLE ON OUR WEB SITE

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

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

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

STERLING BANCORP AND SUBSIDIARIES
Interest Rate Sensitivity

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


	Repricing Date

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

ASSETS
Interest-bearing deposits with other banks	$	7,932	$	—	$	—	$	—	$	—	$	—		$	7,932
Investment securities		62,527		238,858		201,790		68,860		300,410		—			872,445
Commercial and industrial loans		445,498		62,184		81,646		3,238		—		(1,662	)		590,904
Lease financing receivables		671		10,313		77,246		64,011		4,233		(16,144	)		140,330
Factored receivables		154,948		—		—		—		—		(177	)		154,771
Real estate-residential mortgage		22,664		31,698		16,196		28,156		58,047		—			156,761
Real estate-commercial mortgage		27,990		17,863		35,125		17,238		—		—			98,216
Real estate-construction and land development		10,286		—		8,989		4,700		—		—			23,975
Loans to individuals		8,541		2,126		1,032		—		—		—			11,699
Loans to nondepository financial institutions		88,292		21,122		1,110		—		66		—			110,590
Loans to depository institutions		25,505		—		—		—		—		—			25,505
Noninterest-earning assets & allowance for loan losses		—		—		—		—		—		199,417			199,417

Total Assets		854,854		384,164		423,134		186,203		362,756		181,434			2,392,545


LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Savings [1]		—		—		18,853		—		—		—			18,853
NOW [1]		—		—		178,243		—		—		—			178,243
Money market [1]		267,745		—		84,551		—		—		—			352,296
Time		262,916		306,132		48,121		—		—		—			617,169
Securities sold under agreement to repurchase - customers		21,107		—		—		—		—		—			21,107
Securities sold under agreement to repurchase - dealers		—		—		5,000		—		—		—			5,000
Federal funds purchased		60,000		—		—		—		—		—			60,000
Commercial paper		15,341		50		—		—		—		—			15,391
Short-term borrowings - other		4,525		—		—		—		—		—			4,525
Advances - FHLB		100,000		15,000		13,815		—		—		—			128,815
Long-term borrowings - subordinated debentures		—		—		—		—		25,774		—			25,774
Noninterest-bearing liabilities & shareholders’ equity		—		—		—		—		—		965,372			965,372


Total Liabilities and Shareholders’ Equity		731,634		321,182		348,583		—		25,774		965,372			2,392,545


Net Interest Rate Sensitivity Gap	$	123,220	$	62,982	$	74,551	$	186,203	$	336,982	$	(783,938	)	$	—


Cumulative Gap March 31, 2011	$	123,220	$	186,202	$	260,753	$	446,956	$	783,938	$	—		$	—


Cumulative Gap March 31, 2010 [2]	$	160,652	$	137,818	$	191,021	$	408,750	$	757,828	$	—		$	—


Cumulative Gap December 31, 2010 [2]	$	377,384	$	308,139	$	289,256	$	468,057	$	786,799	$	—		$	—

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

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

ITEM 4. CONTROLS AND PROCEDURES

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

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter ended March 31, 2011 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 first quarter of 2011. At March 31, 2011, 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: May 10, 2011		/s/ Louis J. Cappelli

		Louis J. Cappelli
		Chairman and Chief Executive Officer

Date: May 10, 2011		/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	62

31.1	Certification of the CEO pursuant to Exchange Act Rule 13a-14(a).	63

31.2	Certification of the CFO pursuant to Exchange Act Rule 13a-14(a).	64

32.1	Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	65

32.2	Certification of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code	66

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