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EXCEL - IDEA: XBRL DOCUMENT - STERLING BANCORPFinancial_Report.xls
EX-11 - STERLING BANCORPi00198_ex11.htm
EX-32.2 - STERLING BANCORPi00198_ex32-2.htm
EX-31.2 - STERLING BANCORPi00198_ex31-2.htm
EX-31.1 - STERLING BANCORPi00198_ex31-1.htm
EX-32.1 - STERLING BANCORPi00198_ex32-1.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, 2012

or

 

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


 

 

 

 

For the transition period from

 

 to 

 

Commission File Number: 1-5273-1

 

Sterling Bancorp

(Exact name of registrant as specified in its charter)


 

 

New York

12-2565216

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification)


 

 

650 Fifth Avenue, New York, N.Y.

10019-6108

(Address of principal executive offices)

(Zip Code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No

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

x 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, 2012 there were 30,917,138 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 (Unaudited)

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

 

 

 

 

Overview

 

40

 

 

Income Statement Analysis

 

41

 

 

Balance Sheet Analysis

 

43

 

 

Capital

 

50

 

 

Recently Issued Accounting Pronouncements

 

51

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

51

 

 

Average Balance Sheets

 

52

 

 

Rate/Volume Analysis

 

53

 

 

Regulatory Capital and Ratios

 

54

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

 

 

Asset/Liability Management

 

55

 

 

Information Available on Our Web Site

 

57

 

 

Interest Rate Sensitivity

 

58

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

59

 

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

59

 

 

 

 

 

 

Item 5.

Submission of Matters to a Vote of Security Holders

 

60

 

 

 

 

 

 

Item 6.

Exhibits

 

61

 

 

 

 

 

SIGNATURES

 

62

 

 

 

EXHIBITS INDEX

 

 

 

 

 

 

 

 

Exhibit 11

Statement Re: Computation of Per Share Earnings

 

64

 

Exhibit 31.1

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

 

65

 

Exhibit 31.2

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

 

66

 

Exhibit 32.1

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

 

67

 

Exhibit 32.2

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

 

68

 

101.INS*

XBRL Instance Document.

 

 

 

101.SCH*

XBRL Taxonomy Extension Schema.

 

 

 

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.LAB*

XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase.

 

 

 

101.DEF*

XBRL Taxonomy Definition Linkbase.

 

 

* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

2



 

STERLING BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(dollars in thousands, except per share data)


 

 

 

 

 

 

 

 

 

 

March 31,
2012

 

December 31,
2011

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

34,731

 

$

31,046

 

Interest-bearing deposits with other banks

 

 

26,938

 

 

126,448

 

 

 

 

 

 

 

 

 

Securities available for sale (at estimated fair value; pledged: $172,491 in 2012 and $146,429 in 2011)

 

 

386,528

 

 

270,014

 

Securities held to maturity (pledged: $187,123 in 2012 and $206,282 in 2011) (estimated fair value:

 

 

 

 

 

 

 

$433,096 in 2012 and $425,775 in 2011)

 

 

415,858

 

 

407,857

 

Total investment securities

 

 

802,386

 

 

677,871

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

27,864

 

 

43,372

 

Loans held in portfolio, net of unearned discounts

 

 

1,452,675

 

 

1,473,309

 

Less allowance for loan losses

 

 

20,105

 

 

20,029

 

Loans, net

 

 

1,432,570

 

 

1,453,280

 

 

 

 

 

 

 

 

 

Federal Reserve and Federal Home Loan Bank stock, at cost

 

 

8,470

 

 

8,486

 

Customers’ liability under acceptances

 

 

3

 

 

4

 

Goodwill

 

 

22,901

 

 

22,901

 

Premises and equipment, net

 

 

23,268

 

 

23,625

 

Other real estate

 

 

1,563

 

 

1,929

 

Accrued interest receivable

 

 

8,835

 

 

6,838

 

Cash surrender value of life insurance policies

 

 

53,920

 

 

53,446

 

Other assets

 

 

55,195

 

 

44,051

 

Total assets

 

$

2,498,644

 

$

2,493,297

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

815,513

 

$

765,800

 

Savings, NOW and money market deposits

 

 

644,392

 

 

565,423

 

Time deposits

 

 

528,382

 

 

657,848

 

Total deposits

 

 

1,988,287

 

 

1,989,071

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

40,602

 

 

47,313

 

Securities sold under agreements to repurchase - dealers

 

 

5,000

 

 

5,000

 

Federal funds purchased

 

 

15,000

 

 

 

Commercial paper

 

 

15,890

 

 

13,485

 

Advances - FHLB

 

 

122,368

 

 

122,733

 

Long-term borrowings - subordinated debentures

 

 

25,774

 

 

25,774

 

Total borrowings

 

 

224,634

 

 

214,305

 

Acceptances outstanding

 

 

3

 

 

4

 

Accrued interest payable

 

 

995

 

 

1,064

 

Accrued expenses and other liabilities

 

 

59,401

 

 

68,032

 

Total liabilities

 

 

2,273,320

 

 

2,272,476

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $1 par value. Authorized 50,000,000 shares; issued 35,225,110 and 35,225,110 shares, respectively

 

 

35,225

 

 

35,225

 

Capital surplus

 

 

270,972

 

 

270,869

 

Retained earnings

 

 

17,343

 

 

15,523

 

Accumulated other comprehensive loss

 

 

(11,561

)

 

(14,216

)

Common shares in treasury at cost, 4,307,972 and 4,300,278 shares, respectively

 

 

(86,655

)

 

(86,580

)

Total shareholders’ equity

 

 

225,324

 

 

220,821

 

Total liabilities and shareholders’ equity

 

$

2,498,644

 

$

2,493,297

 

See Notes to Consolidated Financial Statements.

3



 

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

(dollars in thousands, except per share data)


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

INTEREST INCOME

 

 

 

 

 

 

 

Loans

 

$

19,686

 

$

17,175

 

Investment securities

 

 

 

 

 

 

 

Available for sale

 

 

2,377

 

 

2,554

 

Held to maturity

 

 

3,030

 

 

3,397

 

FRB and FHLB stock

 

 

81

 

 

23

 

Deposits with other banks

 

 

46

 

 

35

 

Total interest income

 

 

25,220

 

 

23,184

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Savings, NOW and money market

 

 

644

 

 

700

 

Time

 

 

1,063

 

 

1,360

 

Short-term borrowings

 

 

64

 

 

78

 

Advances - FHLB

 

 

519

 

 

664

 

Long-term borrowings - subordinated debentures

 

 

523

 

 

523

 

Total interest expense

 

 

2,813

 

 

3,325

 

 

 

 

 

 

 

 

 

Net interest income

 

 

22,407

 

 

19,859

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,000

 

 

3,000

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

19,407

 

 

16,859

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

Accounts receivable management/factoring commissions and other fees

 

 

4,868

 

 

5,069

 

Mortgage banking income

 

 

2,336

 

 

2,175

 

Service charges on deposit accounts

 

 

1,413

 

 

1,371

 

Securities gains

 

 

879

 

 

1,124

 

Other income

 

 

943

 

 

1,273

 

Total noninterest income

 

 

10,439

 

 

11,012

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

14,911

 

 

14,260

 

Occupancy and equipment expenses, net

 

 

3,214

 

 

3,273

 

Deposit insurance

 

 

584

 

 

933

 

Professional fees

 

 

903

 

 

818

 

Other expenses

 

 

3,585

 

 

3,169

 

Total noninterest expenses

 

 

23,197

 

 

22,453

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

6,649

 

 

5,418

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

2,047

 

 

1,475

 

 

 

 

 

 

 

 

 

Net income

 

 

4,602

 

 

3,943

 

Dividends on preferred shares and accretion

 

 

 

 

644

 

Net income available to common shareholders

 

$

4,602

 

$

3,299

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding

 

 

 

 

 

 

 

Basic

 

 

30,659,856

 

 

27,351,584

 

Diluted

 

 

30,659,856

 

 

27,351,584

 

 

 

 

 

 

 

 

 

Net income available to common shareholders, per average common share

 

 

 

 

 

 

 

Basic

 

$

0.15

 

$

0.12

 

Diluted

 

 

0.15

 

 

0.12

 

 

 

 

 

 

 

 

 

Dividends per common share

 

 

0.09

 

 

0.09

 

See Notes to Consolidated Financial Statements.

4



 

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

(dollars in thousands)


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Net income

 

$

4,602

 

$

3,943

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Unrealized gains on securities available for sale arising during the year

 

 

2,685

 

 

595

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities’ gains included in net income

 

 

(488

)

 

(614

)

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of:

 

 

 

 

 

 

 

Prior service cost

 

 

5

 

 

9

 

Net actuarial losses

 

 

453

 

 

389

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

2,655

 

 

379

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

7,257

 

$

4,322

 

See Notes to Consolidated Financial Statements.

5



 

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(dollars in thousands)


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Preferred Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

 

$

40,602

 

Discount accretion

 

 

 

 

119

 

Balance at March 31,

 

$

 

$

40,721

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

35,225

 

$

31,139

 

Common shares issued

 

 

 

 

4,025

 

Restricted shares issued

 

 

 

 

61

 

Balance at March 31,

 

$

35,225

 

$

35,225

 

 

 

 

 

 

 

 

 

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

 

$

 

$

2,615

 

 

 

 

 

 

 

 

 

Capital Surplus

 

 

 

 

 

 

 

Balance at January 1,

 

$

270,869

 

$

236,437

 

Common shares issued

 

 

 

 

32,429

 

Restricted shares issued

 

 

 

 

(61

)

Stock option compensation and restricted stock expense

 

 

103

 

 

73

 

Balance at March 31,

 

$

270,972

 

$

268,878

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

Balance at January 1,

 

$

15,523

 

$

11,392

 

Net income

 

 

4,602

 

 

3,943

 

Cash dividends paid - preferred shares

 

 

 

 

(525

)

Cash dividends paid - common shares

 

 

(2,782

)

 

(2,776

)

Discount accretion on series A preferred stock

 

 

 

 

(119

)

Balance at March 31,

 

$

17,343

 

$

11,915

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

Balance at January 1,

 

$

(14,216

)

$

(12,887

)

Other comprehensive income, net of tax

 

 

2,655

 

 

379

 

Balance at March 31,

 

$

(11,561

)

$

(12,508

)

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

(86,580

)

$

(86,556

)

Surrender of shares issued under stock incentive plan

 

 

(75

)

 

 

Balance at March 31,

 

$

(86,655

)

$

(86,556

)

 

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

 

 

 

 

 

Balance at January 1,

 

$

220,821

 

$

222,742

 

Net changes during the period

 

 

4,503

 

 

37,548

 

Balance at March 31,

 

$

225,324

 

$

260,290

 

See Notes to Consolidated Financial Statements.

6



 

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(dollars in thousands)


 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Operating Activities

 

 

 

 

 

 

 

Net Income

 

$

4,602

 

$

3,943

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,000

 

 

3,000

 

Depreciation and amortization of premises and equipment

 

 

910

 

 

698

 

Securities gains

 

 

(879

)

 

(1,124

)

(Gains) Losses from life insurance policies, net

 

 

(229

)

 

22

 

Deferred income tax provision

 

 

73

 

 

446

 

Proceeds from sale of loans

 

 

120,219

 

 

106,720

 

Gains on sales of loans, net

 

 

(2,352

)

 

(2,184

)

Originations of loans held for sale

 

 

(103,186

)

 

(96,928

)

Amortization of premiums on securities

 

 

1,791

 

 

2,065

 

Accretion of discounts on securities

 

 

(156

)

 

(123

)

Increase in accrued interest receivable

 

 

(1,840

)

 

(1,127

)

Decrease in accrued interest payable

 

 

(70

)

 

(169

)

Decrease in accrued expenses and other liabilities

 

 

(8,394

)

 

(25,376

)

Increase in other assets

 

 

(1,454

)

 

(2,131

)

Loss on other real estate owned

 

 

66

 

 

 

Net cash provided by (used in) operating activities

 

 

12,101

 

 

(12,268

)

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Purchase of premises and equipment

 

 

(553

)

 

(2,789

)

Net decrease in interest-bearing deposits with other banks

 

 

99,510

 

 

32,571

 

Net decrease in loans held in portfolio

 

 

15,237

 

 

15,707

 

Net (increase) decrease in short-term factored receivables

 

 

(6,837

)

 

7,018

 

Proceeds from sale of other real estate

 

 

404

 

 

 

Proceeds from prepayments, redemptions or maturities of securities - held to maturity

 

 

10,491

 

 

15,298

 

Purchases of securities - held to maturity

 

 

(88,479

)

 

(79,383

)

Proceeds from calls of securities - held to maturity

 

 

70,000

 

 

5,000

 

Proceeds from prepayments, redemptions or maturities of securities - available for sale

 

 

105,570

 

 

61,478

 

Purchases of securities - available for sale

 

 

(284,670

)

 

(170,033

)

Proceeds from calls/sales of securities - available for sale

 

 

64,132

 

 

92,621

 

Proceeds from redemptions or maturities of FHLB & FRB stock

 

 

16

 

 

691

 

Net cash used in investing activities

 

 

(15,179

)

 

(21,821

)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Net increase (decrease) in noninterest-bearing demand deposits

 

 

49,713

 

 

(8,766

)

Net increase (decrease) in savings, NOW and money market deposits

 

 

78,969

 

 

(12,815

)

Net (decrease) increase in time deposits

 

 

(129,466

)

 

1,902

 

Net increase in Federal funds purchased

 

 

15,000

 

 

45,000

 

Net decrease in securities sold under agreements to repurchase

 

 

(6,711

)

 

(1,909

)

Net increase in commercial paper and other short-term borrowings

 

 

2,405

 

 

2,038

 

Decrease in long-term borrowings

 

 

(365

)

 

(15,358

)

Proceeds from issuance of common stock

 

 

 

 

36,455

 

Cash dividends paid on preferred stock

 

 

 

 

(525

)

Cash dividends paid on common stock

 

 

(2,782

)

 

(2,776

)

Net cash provided by financing activities

 

 

6,763

 

 

43,246

 

 

 

 

 

 

 

 

 

Net increase in cash and due from banks

 

 

3,685

 

 

9,157

 

Cash and due from banks - beginning of period

 

 

31,046

 

 

26,824

 

 

 

 

 

 

 

 

 

Cash and due from banks - end of period

 

$

34,731

 

$

35,981

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Interest paid

 

$

2,882

 

$

3,494

 

Income taxes paid

 

 

60

 

 

877

 

Loans held for sale transferred to portfolio

 

 

827

 

 

338

 

Loans transferred to other real estate

 

 

138

 

 

 

Due to brokers on purchases of securities - AFS

 

 

513

 

 

10,493

 

See Notes to Consolidated Financial Statements.

7


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, 2012 and 2011 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, 2011 (the “2011 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.

8


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, 2012

 

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)

 

$

30,314

 

$

143

 

$

 

$

30,457

 

CMOs (Government National Mortgage Association)

 

 

5,226

 

 

2

 

 

10

 

 

5,218

 

Federal National Mortgage Association

 

 

2,125

 

 

90

 

 

0

 

 

2,215

 

Federal Home Loan Mortgage Corporation

 

 

37

 

 

 

 

1

 

 

36

 

Government National Mortgage Association

 

 

95

 

 

1

 

 

 

 

96

 

Total residential mortgage-backed securities

 

 

37,797

 

 

236

 

 

11

 

 

38,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

500

 

 

 

 

 

 

500

 

Federal Home Loan Mortgage Corporation

 

 

375

 

 

6

 

 

 

 

381

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

38,672

 

 

242

 

 

11

 

 

38,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions-New York Bank Qualified

 

 

18,119

 

 

1,373

 

 

 

 

19,492

 

Single-issuer, trust preferred securities

 

 

33,869

 

 

368

 

 

455

 

 

33,782

 

Other preferred securities

 

 

8,763

 

 

116

 

 

 

 

8,879

 

Corporate debt securities

 

 

270,024

 

 

518

 

 

1,399

 

 

269,143

 

Equity and other securities

 

 

14,836

 

 

1,807

 

 

314

 

 

16,329

 

Total

 

$

384,283

 

$

4,424

 

$

2,179

 

$

386,528

 

9


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 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)

 

$

21,642

 

$

103

 

$

6

 

$

21,739

 

CMOs (Government National Mortgage Association)

 

 

5,666

 

 

12

 

 

11

 

 

5,667

 

Federal National Mortgage Association

 

 

2,137

 

 

74

 

 

 

 

2,211

 

Federal Home Loan Mortgage Corporation

 

 

38

 

 

 

 

1

 

 

37

 

Government National Mortgage Association

 

 

98

 

 

 

 

 

 

98

 

Total residential mortgage-backed securities

 

 

29,581

 

 

189

 

 

18

 

 

29,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

501

 

 

 

 

 

 

501

 

Federal Home Loan Bank

 

 

101

 

 

1

 

 

 

 

102

 

Federal Home Loan Mortgage Corporation

 

 

376

 

 

7

 

 

 

 

383

 

Federal Farm Credit Bank

 

 

251

 

 

 

 

 

 

251

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

30,810

 

 

197

 

 

18

 

 

30,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions-New York Bank Qualified

 

 

21,171

 

 

1,606

 

 

 

 

22,777

 

Single-issuer, trust preferred securities

 

 

28,506

 

 

214

 

 

1,661

 

 

27,059

 

Corporate debt securities

 

 

175,920

 

 

263

 

 

2,876

 

 

173,307

 

Equity and other securities

 

 

15,322

 

 

958

 

 

398

 

 

15,882

 

Total

 

$

271,729

 

$

3,238

 

$

4,953

 

$

270,014

 

10


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

The following tables present information regarding securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

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)

 

$

3,309

 

$

162

 

$

 

$

3,471

 

CMOs (Federal Home Loan Mortgage Corporation)

 

 

5,487

 

 

285

 

 

 

 

5,772

 

Federal National Mortgage Association

 

 

43,103

 

 

3,681

 

 

 

 

46,784

 

Federal Home Loan Mortgage Corporation

 

 

20,387

 

 

1,566

 

 

 

 

21,953

 

Government National Mortgage Association

 

 

3,941

 

 

588

 

 

 

 

4,529

 

Total residential mortgage-backed securities

 

 

76,227

 

 

6,282

 

 

 

 

82,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

98,479

 

 

51

 

 

136

 

 

98,394

 

Federal Home Loan Bank

 

 

63,440

 

 

9

 

 

282

 

 

63,167

 

Federal Home Loan Mortgage Corporation

 

 

39,991

 

 

28

 

 

324

 

 

39,695

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

278,137

 

 

6,370

 

 

742

 

 

283,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions-New York Bank Qualified

 

 

137,721

 

 

11,610

 

 

 

 

149,331

 

Total

 

$

415,858

 

$

17,980

 

$

742

 

$

433,096

 

11


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 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)

 

$

3,942

 

$

192

 

$

 

$

4,134

 

CMOs (Federal Home Loan Mortgage Corporation)

 

 

6,474

 

 

305

 

 

 

 

6,779

 

Federal National Mortgage Association

 

 

46,937

 

 

3,777

 

 

 

 

50,714

 

Federal Home Loan Mortgage Corporation

 

 

23,682

 

 

1,669

 

 

 

 

25,351

 

Government National Mortgage Association

 

 

4,132

 

 

603

 

 

 

 

4,735

 

Total residential mortgage-backed securities

 

 

85,167

 

 

6,546

 

 

 

 

91,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

104,981

 

 

203

 

 

 

 

105,184

 

Federal Home Loan Bank

 

 

44,992

 

 

34

 

 

 

 

45,026

 

Federal Home Loan Mortgage Corporation

 

 

34,991

 

 

49

 

 

9

 

 

35,031

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

270,131

 

 

6,832

 

 

9

 

 

276,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions-New York Bank Qualified

 

 

137,726

 

 

11,105

 

 

10

 

 

148,821

 

Total

 

$

407,857

 

$

17,937

 

$

19

 

$

425,775

 

12


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, 2012

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and government sponsored enterprises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMOs (Government National Mortgage Association)

 

$

3,144

 

$

10

 

$

 

$

 

$

3,144

 

$

10

 

Federal Home Loan Mortgage Corporation

 

 

 

 

 

 

21

 

 

1

 

 

21

 

 

1

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

3,144

 

 

10

 

 

21

 

 

1

 

 

3,165

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-issuer, trust preferred securities

 

 

13,282

 

 

382

 

 

1,574

 

 

73

 

 

14,856

 

 

455

 

Corporate debt securities

 

 

175,001

 

 

747

 

 

18,991

 

 

652

 

 

193,992

 

 

1,399

 

Equity and other securities

 

 

1,176

 

 

168

 

 

418

 

 

146

 

 

1,594

 

 

314

 

Total

 

$

192,603

 

$

1,307

 

$

21,004

 

$

872

 

$

213,607

 

$

2,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and government sponsored enterprises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities CMOs (Federal Home Loan Mortgage Corporation)

 

$

4,276

 

$

6

 

$

 

$

 

$

4,276

 

$

6

 

CMOs (Government National Mortgage Association)

 

 

3,448

 

 

11

 

 

 

 

 

 

3,448

 

 

11

 

Federal Home Loan Mortgage Corporation

 

 

 

 

 

 

22

 

 

1

 

 

22

 

 

1

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

7,724

 

 

17

 

 

22

 

 

1

 

 

7,746

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single-issuer, trust preferred securities

 

 

11,721

 

 

1,574

 

 

415

 

 

87

 

 

12,136

 

 

1,661

 

Corporate debt securities

 

 

139,972

 

 

1,937

 

 

10,607

 

 

939

 

 

150,579

 

 

2,876

 

Equity and other securities

 

 

2,974

 

 

398

 

 

 

 

 

 

2,974

 

 

398

 

Total

 

$

162,391

 

$

3,926

 

$

11,044

 

$

1,027

 

$

173,435

 

$

4,953

 

13


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, 2012

 

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

 

$

48,348

 

$

136

 

$

 

$

 

$

48,348

 

$

136

 

Federal Home Loan Bank

 

 

53,163

 

 

282

 

 

 

 

 

 

53,163

 

 

282

 

Federal Home Loan Mortgage Corporation

 

 

29,676

 

 

324

 

 

 

 

 

 

29,676

 

 

324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

$

131,187

 

$

742

 

$

 

$

 

$

131,187

 

$

742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and government sponsored enterprises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corporation

 

$

14,991

 

$

9

 

$

 

$

 

$

14,991

 

$

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

14,991

 

 

9

 

 

 

 

 

 

14,991

 

 

9

 

Obligations of state and political institutions-New York Bank Qualified

 

 

736

 

 

9

 

 

289

 

 

1

 

 

1,025

 

 

10

 

 

Total

 

$

15,727

 

$

18

 

$

289

 

$

1

 

$

16,016

 

$

19

 

14


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

The following table presents information regarding single-issuer, trust preferred securities at March 31, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuer

 

TARP
Recipient

 

Credit
Rating

 

Amortized
Cost

 

Fair
Value

 

Unrealized
Gain/(Loss
)

 

Sterling Bancorp Trust I, 8.375%,
due 3/31/2032

 

 

Yes *

 

 

NA

 

$

990

 

$

1,069

 

$

79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPB Capital Trust II, 7.85%,
due 9/30/2032

 

 

Yes *

 

 

NA

 

 

126

 

 

127

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allfirst Pfd Cap Trust, Floating Rate
due 7/15/2029
owned by M&T Bank Corporation

 

 

Yes

 

 

BBB

 

 

376

 

 

375

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BAC Capital Trust II, 7.00%,
due 2/01/2032

 

 

Yes *

 

 

BB+

 

 

300

 

 

299

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BAC Capital Trust IV, 5.875%,
due 5/03/2033

 

 

Yes *

 

 

BB+

 

 

50

 

 

45

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BNY Capital Trust V, 5.95%,
due 5/01/2033

 

 

Yes *

 

 

BBB

 

 

50

 

 

51

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Capital VII, 7.125%,
due 7/31/2031

 

 

Yes *

 

 

BB

 

 

1,507

 

 

1,513

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Capital VIII, 6.95%,
due 9/15/2031

 

 

Yes *

 

 

BB

 

 

246

 

 

250

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Capital IX, 6.00%,
due 2/14/2033

 

 

Yes *

 

 

BB

 

 

2,882

 

 

2,876

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Capital X, 6.10%,
due 9/30/2033

 

 

Yes *

 

 

BB

 

 

293

 

 

290

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Citigroup Capital XVII, 6.35%,
due 3/15/2067

 

 

Yes *

 

 

BB

 

 

46

 

 

61

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Tennessee Capital II, 6.30%,
due 4/15/2034

 

 

Yes *

 

 

BB

 

 

2,908

 

 

2,852

 

 

(56

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fleet Capital Trust VIII, 7.20%,
due 3/15/2032,
owned by Bank of America Corporation

 

 

Yes *

 

 

BB+

 

 

502

 

 

498

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goldman Sachs Capital I, 6.345%,
due 2/15/2034

 

 

Yes *

 

 

BB+

 

 

5,939

 

 

5,599

 

 

(340

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JP Morgan Chase Capital XIII, Floating Rate,
due 9/30/2034

 

 

Yes *

 

 

BBB

 

 

751

 

 

757

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JP Morgan Chase Capital XI, 5.875%,
due 6/15/2033

 

 

Yes *

 

 

BBB

 

 

1,623

 

 

1,637

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JP Morgan Chase Capital XV, 5.875%,
due 3/15/2035

 

 

Yes *

 

 

BBB

 

 

2,195

 

 

2,180

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JP Morgan Chase Capital XVII, 5.85%,
due 8/01/2035

 

 

Yes *

 

 

BBB

 

 

2,245

 

 

2,285

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Morgan Stanley Capital Trust III, 6.25%,
due 3/01/2033

 

 

Yes *

 

 

BB+

 

 

1,042

 

 

1,080

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Keycorp Capital II, 6.875%,
due 3/17/2029

 

 

Yes *

 

 

BBB-

 

 

93

 

 

92

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Keycorp Capital VII, 5.70%,
due 6/15/2035

 

 

Yes *

 

 

BBB-

 

 

1,552

 

 

1,601

 

 

49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PNC Capital Trust D, 6.125%,
due 12/15/2033

 

 

Yes *

 

 

BBB

 

 

1,390

 

 

1,406

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suntrust Capital I, Floating Rate,
due 5/15/2027

 

 

Yes *

 

 

BB+

 

 

717

 

 

711

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USB Capital Trust XI, 6.60%,
due 9/15/2066

 

 

Yes *

 

 

BBB+

 

 

100

 

 

108

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VNB Capital Trust I, 7.75%,
due 12/15/2031

 

 

Yes *

 

 

BBB-

 

 

21

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wachovia Capital Trust IV, 6.375%,
due 3/01/2067
owned by Wells Fargo

 

 

Yes *

 

 

BBB+

 

 

1,049

 

 

1,059

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Capital Trust VII, 5.85%,
due 5/01/2033

 

 

Yes *

 

 

BBB+

 

 

424

 

 

429

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Capital Trust VIII, 5.625%,
due 8/01/2033

 

 

Yes *

 

 

BBB+

 

 

367

 

 

382

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wells Fargo Capital IX, 5.625%,
due 4/08/2034

 

 

Yes *

 

 

BBB+

 

 

4,085

 

 

4,129

 

 

44

 

 

 

 

 

 

 

 

 

$

33,869

 

$

33,782

 

$

(87

)

* TARP obligation was repaid prior to March 31, 2012.

15


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, 2012, approximately $131.3 million, representing approximately 16.4% 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 (29 issuers), corporate debt (49 issuers) and equity securities (11 issuers). These investments may pose a higher risk of future impairment charges as a result of 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, 2012, the Company held 5 security 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 and 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 reports 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, the issuers have maintained performance levels adequate to support the contractual cash flows of the securities.

At March 31, 2012, the Company held 10 security positions of corporate debt securities issued by financial institutions and other corporate issuers, in the available for sale portfolio, that were in an unrealized loss position for more than 12 months. Each of these positions are paying in accordance with their terms and have not deferrals of interest or other deferrals. In addition, management analyzes the performance of each issuer on a periodic basis, including a review of the issuer’s most recent public regulatory disclosures, to assess credit risk and the probability of impairment of the applicable securities. Based upon management’s first quarter review, management has concluded that the unrealized losses are deemed to be temporary.

At March 31, 2012, the Company held two issues of equity securities, in the available for sale portfolio, that were in an unrealized loss position for more than 12 months. Both of these issues are rated as “hold” or better by the analysts who cover them. In addition, management analyzes the performance of each issuer on a periodic basis, including a review of the issuer’s most recent public regulatory disclosures, to assess credit risk and the probability of impairment of the applicable securities. Based upon management’s first quarter review, management has concluded that the unrealized losses are deemed to be temporary.

16


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, 2012, 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)

 

$

30,314

 

$

30,457

 

CMOs (Government National Mortgage Association)

 

 

5,226

 

 

5,218

 

Federal National Mortgage Association

 

 

2,125

 

 

2,215

 

Federal Home Loan Mortgage Corporation

 

 

37

 

 

36

 

Government National Mortgage Association

 

 

95

 

 

96

 

Total residential mortgage-backed securities

 

 

37,797

 

 

38,022

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

 

 

 

 

 

Due after 1 year but within 5 years

 

 

500

 

 

500

 

Federal Home Loan Mortgage Corporation

 

 

 

 

 

 

 

Due after 1 year but within 5 years

 

 

375

 

 

381

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

38,672

 

 

38,903

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions - New York Bank Qualified

 

 

 

 

 

 

 

Due within 1 year

 

 

1,621

 

 

1,631

 

Due after 5 years but within 10 years

 

 

2,940

 

 

3,182

 

Due after 10 years

 

 

13,558

 

 

14,679

 

Total obligations of state and political institutions-New York Bank Qualified

 

 

18,119

 

 

19,492

 

 

 

 

 

 

 

 

 

Single-issuer, trust preferred securities

 

 

 

 

 

 

 

Due within 1 year

 

 

1,001

 

 

1,003

 

Due after 10 years

 

 

32,868

 

 

32,779

 

Total single-issuer, trust preferred securities

 

 

33,869

 

 

33,782

 

 

 

 

 

 

 

 

 

Other preferred securities

 

 

 

 

 

 

 

Due within 1 year

 

 

3,300

 

 

3,351

 

Due after 1 year but within 5 years

 

 

5,361

 

 

5,425

 

Due after 10 years

 

 

102

 

 

103

 

Total other preferred securities

 

 

8,763

 

 

8,879

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

 

 

Due within 6 months

 

 

74,175

 

 

74,060

 

Due after 6 months but within 1 year

 

 

33,586

 

 

33,474

 

Due after 1 year but within 2 years

 

 

94,864

 

 

94,717

 

Due after 2 years but within 5 years

 

 

64,114

 

 

63,583

 

Due after 5 years but within 10 years

 

 

2,922

 

 

2,933

 

Due after 10 years

 

 

363

 

 

376

 

Total corporate debt securities

 

 

270,024

 

 

269,143

 

 

 

 

 

 

 

 

 

Equity and other securities

 

 

14,836

 

 

16,329

 

Total

 

$

384,283

 

$

386,528

 

17


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)

 

$

3,309

 

$

3,471

 

CMOs (Federal Home Loan Mortgage Corporation)

 

 

5,487

 

 

5,772

 

Federal National Mortgage Association

 

 

43,103

 

 

46,784

 

Federal Home Loan Mortgage Corporation

 

 

20,387

 

 

21,953

 

Government National Mortgage Association

 

 

3,941

 

 

4,529

 

Total residential mortgage-backed securities

 

 

76,227

 

 

82,509

 

 

 

 

 

 

 

 

 

Agency notes

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

 

 

 

 

 

Due after 1 year but within 5 years

 

 

10,000

 

 

10,025

 

Due after 5 years but within 10 years

 

 

4,998

 

 

5,005

 

Due after 10 years

 

 

83,481

 

 

83,364

 

Federal Home Loan Bank

 

 

 

 

 

 

 

Due after 5 years but within 10 years

 

 

23,454

 

 

23,410

 

Due after 10 years

 

 

39,986

 

 

39,757

 

Federal Home Loan Mortgage Corporation

 

 

 

 

 

 

 

Due after 5 years but within 10 years

 

 

24,991

 

 

24,864

 

Due after 10 years

 

 

15,000

 

 

14,831

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

278,137

 

 

283,765

 

Obligations of state and political institutions - New York Bank Qualified

 

 

 

 

 

 

 

Due after 1 year but within 5 years

 

 

155

 

 

169

 

Due after 5 years but within 10 years

 

 

2,543

 

 

2,788

 

Due after 10 years

 

 

135,023

 

 

146,374

 

Total obligations of state and political institutions-New York Bank Qualified

 

 

137,721

 

 

149,331

 

Total

 

$

415,858

 

$

433,096

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Sales

 

 

 

 

 

 

 

Proceeds

 

$

48,374

 

$

59,932

 

Gross gains

 

 

742

 

 

1,194

 

Gross losses

 

 

1

 

 

42

 

 

 

 

 

 

 

 

 

Calls

 

 

 

 

 

 

 

Proceeds

 

 

15,758

 

 

32,689

 

Gross gains

 

 

156

 

 

48

 

Gross losses

 

 

22

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

2012

 

2011

 

Calls

 

 

 

 

 

 

 

Proceeds

 

$

70,000

 

$

5,000

 

Gross gains

 

 

4

 

 

 

Gross losses

 

 

 

 

76

 

There were no sales or transfers of held to maturity securities during the three-month periods ended March 31, 2012 or March 31, 2011.

18


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,
2012

 

December 31,
2011

 

Loans held for sale, net of valuation reserve ($-0- at March 31, 2012 and $-0- at December 31, 2011)

 

 

 

 

 

 

 

Real estate—residential mortgage

 

$

27,864

 

$

43,372

 

Loans held in portfolio, net of unearned discounts

 

 

 

 

 

 

 

Commercial and industrial

 

 

595,151

 

 

626,063

 

Loans to nondepository financial institutions

 

 

227,335

 

 

246,587

 

Factored receivables

 

 

178,912

 

 

172,082

 

Equipment financing receivables

 

 

172,175

 

 

166,690

 

Real estate—residential mortgage

 

 

162,642

 

 

170,153

 

Real estate—commercial mortgage

 

 

109,610

 

 

85,825

 

Real estate—construction and land development

 

 

13,671

 

 

13,621

 

Loans to individuals

 

 

11,479

 

 

10,376

 

Loans to depository institutions

 

 

 

 

10

 

Loans held in portfolio, gross

 

 

1,470,975

 

 

1,491,407

 

Less unearned discounts

 

 

18,300

 

 

18,098

 

Loans held in portfolio, net of unearned discounts

 

 

1,452,675

 

 

1,473,309

 

 

 

$

1,480,539

 

$

1,516,681

 

At March 31, 2012, the bank had qualified loans, with a carrying value of approximately $440.3 million, available to secure
borrowings from the FHLB and the FRB. There were no loans pledged at March 31, 2012.

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 Industrial 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 financing 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.

19


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

In general, Sterling records a receivable for the amount of accounts receivables 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 receivables 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 receivables 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 client’s customer 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 commercial 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 timely completion of the project, interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing.

Loans are made at fixed or floating rates. Fixed rate loans are tied to U.S. Treasury or FHLB benchmarks or other indices. Floating rate loans are based on the prime rate or other index.

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 finance arises through relationships with equipment financing brokers.

In both cases, credit approval is based upon on 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.

20


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, Sterling focuses 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), other than loans to nondepository financial institutions, of loans held in portfolio. Loans to nondepository financial institutions, which include the Company’s residential mortgage warehouse funding product and loans to finance companies, represent approximately 15.4% of all loans. Approximately 67.0% 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 25.2% or $8.3 million and 22.3% or $6.9 million of the Company’s net interest income and noninterest income are related to real estate lending for the three months ended March 31, 2012 and 2011, respectively. Real estate prices in the U.S. market decreased during 2011 and have continued to decrease in 2012. 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, 2012 approximately 60.4% 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, 2012 or 2011.

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.

21


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

Nonaccrual loans at March 31, 2012 and December 31, 2011 totaled $6.4 million and $6.4 million, respectively. The interest income that would have been earned on nonaccrual loans outstanding at March 31, 2012 and December 31, 2011, in accordance with their original terms, is estimated to be $119 thousand and $780 thousand, respectively, for the three months and the year then ended. Applicable interest income actually realized was $1 thousand and $200 thousand, respectively, for the aforementioned periods and there were no commitments to lend additional funds on nonaccrual loans.

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

 

 

 

 

 

 

 

 

 

 

March 31,
2012

 

December 31,
2011

 

Commercial and industrial

 

$

634

 

$

834

 

Equipment financing receivables

 

 

266

 

 

370

 

Factored receivables

 

 

 

 

 

Real estate—residential mortgage

 

 

2,388

 

 

1,991

 

Real estate—commercial mortgage

 

 

3,124

 

 

3,124

 

Real estate—construction and land development

 

 

 

 

 

Loans to individuals

 

 

 

 

39

 

Total nonaccrual loans

 

$

6,412

 

$

6,358

 

The following table provides information regarding the past due status of loans held in portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

30–59 Days
Past Due

 

60–89
Days
Past Due

 

90 Days &
Over Past
Due

 

Total Past
Due

 

Current

 

Total Loans

 

MEMO
90 & Over
and Still
Accruing

 

Commercial and industrial

 

$

22,121

 

$

4,523

 

$

818

 

$

27,462

 

$

565,454

 

$

592,916

 

$

184

 

Loans to nondepository financial institutions

 

 

 

 

 

 

 

 

 

 

227,335

 

 

227,335

 

 

 

Factored receivables

 

 

1,625

 

 

1,189

 

 

337

 

 

3,151

 

 

175,517

 

 

178,668

 

 

337

 

Equipment financing receivables

 

 

472

 

 

227

 

 

266

 

 

965

 

 

155,389

 

 

156,354

 

 

 

Real estate—residential mortgage—portfolio

 

 

1,111

 

 

453

 

 

2,388

 

 

3,952

 

 

158,690

 

 

162,642

 

 

 

Real estate—commercial mortgage

 

 

 

 

 

 

3,124

 

 

3,124

 

 

106,486

 

 

109,610

 

 

 

Real estate—construction and land development

 

 

 

 

 

 

 

 

 

 

13,671

 

 

13,671

 

 

 

Loans to individuals

 

 

4

 

 

3

 

 

 

 

7

 

 

11,472

 

 

11,479

 

 

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans, net of unearned discount

 

$

25,333

 

$

6,395

 

$

6,933

 

$

38,661

 

$

1,414,014

 

$

1,452,675

 

$

521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

23,665

 

$

5,344

 

$

837

 

$

29,846

 

$

594,278

 

$

624,124

 

$

165

 

Loans to nondepository institutions

 

 

 

 

 

 

 

 

 

 

246,587

 

 

246,587

 

 

 

Factored receivables

 

 

3,266

 

 

665

 

 

162

 

 

4,093

 

 

167,738

 

 

171,831

 

 

 

Equipment financing receivables

 

 

546

 

 

386

 

 

370

 

 

1,302

 

 

149,480

 

 

150,782

 

 

 

Real estate—residential mortgage

 

 

1,570

 

 

633

 

 

1,991

 

 

4,194

 

 

165,959

 

 

170,153

 

 

 

Real estate—commercial mortgage

 

 

 

 

 

 

3,124

 

 

3,124

 

 

82,701

 

 

85,825

 

 

 

Real estate—construction and land development

 

 

 

 

 

 

 

 

 

 

13,621

 

 

13,621

 

 

 

Loans to individuals

 

 

41

 

 

7

 

 

39

 

 

87

 

 

10,289

 

 

10,376

 

 

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

10

 

 

10

 

 

 

Total loans, net of unearned discount

 

$

29,088

 

$

7,035

 

$

6,523

 

$

42,646

 

$

1,430,663

 

$

1,473,309

 

$

165

 

22


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

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.

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. Management determined the specific allowance based on the present value of the expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

Recorded
Investment in
Impaired
Loans

 

Unpaid
Principal
Balance
With No
Allowance

 

Unpaid
Principal
Balance
With
Allowance

 

Related
Allowance

 

Average [1]
Recorded
Investment
in Impaired
Loans

 

Commercial and industrial

 

$

955

 

$

1,443

 

$

 

$

 

$

1,955

 

Loans to nondepository institutions

 

 

 

 

 

 

 

 

 

 

 

Factored receivables

 

 

 

 

 

 

 

 

 

 

 

Equipment financing receivables

 

 

271

 

 

 

 

271

 

 

13

 

 

211

 

Real estate—residential mortgage

 

 

5,646

 

 

865

 

 

5,312

 

 

1,437

 

 

5,460

 

Real estate—commercial mortgage

 

 

3,124

 

 

 

 

3,124

 

 

1,113

 

 

3,124

 

Real estate—construction and land development

 

 

 

 

 

 

 

 

 

 

 

Loans to individuals

 

 

 

 

 

 

 

 

 

 

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

9,996

 

$

2,308

 

$

8,707

 

$

2,563

 

$

10,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

2,954

 

$

1,395

 

$

2,159

 

$

287

 

$

2,596

 

Loans to nondepository institutions

 

 

 

 

 

 

 

 

 

 

 

Factored receivables

 

 

 

 

 

 

 

 

 

 

 

Equipment financing receivables

 

 

151

 

 

 

 

151

 

 

17

 

 

230

 

Real estate—residential mortgage

 

 

5,275

 

 

825

 

 

4,966

 

 

1,234

 

 

4,886

 

Real estate—commercial mortgage

 

 

3,124

 

 

 

 

3,124

 

 

1,113

 

 

3,124

 

Real estate—construction and land development

 

 

 

 

 

 

 

 

 

 

 

Loans to individuals

 

 

 

 

 

 

 

 

 

 

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

 

   Total

 

$

11,504

 

$

2,220

 

$

10,400

 

$

2,651

 

$

10,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] Year-to-date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23


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

The average recorded investment and interest income recognized in accruing impaired loans for the three months ended March 31, 2012 amounted to $6.2 million (commercial and industrial $1.2 million, equipment financing receivables $0.1 million, real estate-residential mortgage $4.9 million and real estate-commercial mortgage $-0- million) and $91 thousand (commercial and industrial $7 thousand, equipment financing receivables $1 thousand, real estate-residential mortgage $83 thousand and real estate-commercial mortgage $-0- thousand), respectively.

The average recorded investment and interest income recognized in accruing impaired loans for the year ended December 31, 2011 amounted to $6.7 million (commercial and industrial $1.8 million, equipment financing receivables $0.2 million and real estate – residential mortgage $4.7 million) and $430 thousand (commercial and industrial $95 thousand, equipment financing receivables $8 thousand and real estate – residential mortgage $327 thousand).

The Company had troubled debt restructured loans (“TDRs”) totaling $7.0 million as of March 31, 2012 and $6.4 million as of December 31, 2011. The Company has allocated $1.5 million and $1.3 million of specific reserves to customers with equipment financing receivables and residential real estate loans whose loan terms have been modified in troubled debt restructurings as of March 31, 2012 and December 31, 2011. The Company has no commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the three months ended March 31, 2012, the terms of $723 thousand of residential real estate loans were modified as troubled debt restructurings. The modification of terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No lease financing receivables were modified during the three months ended March 31, 2012.

Modifications of residential real estate loans involving a reduction of the stated interest rate or an extension of the maturity date were for periods ranging up to 40 years.

The troubled debt restructurings described above increased the allowance for loan losses by $127 thousand for the three months ended March 31, 2012 and resulted in charge-offs of $-0- thousand during the three months ended March 31, 2012.

During the three months ended March 31, 2012, 12 residential real estate loans (TDRs) with a recorded investment of $1.3 million had a payment default, while no lease financing receivables had a payment default. A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.

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.

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, 2012 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, 2012 is presented in the recorded investment in nonaccrual loans table above.

24


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

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 loans classified as substandard with the added characteristic 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.

25


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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

 

 

Weighted
Average
Risk Grade

 

Loans

 

Weighted
Average
Risk Grade

 

Loans

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk grades 1-4

 

 

3.18

 

$

575,090

 

 

3.41

 

$

603,375

 

Risk grade 5

 

 

5.00

 

 

7,231

 

 

5.00

 

 

5,006

 

Risk grade 6

 

 

6.00

 

 

8,423

 

 

6.00

 

 

11,872

 

Risk grade 7

 

 

7.00

 

 

2,172

 

 

7.00

 

 

3,871

 

Risk grade 8

 

 

 

 

 

 

 

 

 

Risk grade 9

 

 

 

 

 

 

 

 

 

Total

 

 

3.25

 

$

592,916

 

 

3.50

 

$

624,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans to nondepository financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk grade 1-4

 

 

3.15

 

$

220,902

 

 

3.14

 

$

240,154

 

Risk grade 5

 

 

 

 

 

 

 

 

 

Risk grade 6

 

 

 

 

 

 

 

 

 

Risk grade 7

 

 

7.00

 

 

6,433

 

 

7.00

 

 

6,433

 

Risk grade 8

 

 

 

 

 

 

 

 

 

Risk grade 9

 

 

 

 

 

 

 

 

 

Total

 

 

3.26

 

$

227,335

 

 

3.24

 

$

246,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Factored receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk grade 1-4

 

 

3.06

 

$

177,430

 

 

2.84

 

$

170,256

 

Risk grade 5

 

 

5.00

 

 

1,238

 

 

5.00

 

 

1,575

 

Risk grade 6

 

 

 

 

 

 

 

 

 

Risk grade 7

 

 

 

 

 

 

 

 

 

Risk grade 8

 

 

 

 

 

 

 

 

 

Risk grade 9

 

 

 

 

 

 

 

 

 

Total

 

 

3.08

 

$

178,668

 

 

2.86

 

$

171,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment financing receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk grade 1-4

 

 

3.93

 

$

156,088

 

 

3.89

 

$

150,412

 

Risk grade 5

 

 

 

 

 

 

 

 

 

Risk grade 6

 

 

 

 

 

 

 

 

 

Risk grade 7

 

 

7.00

 

 

266

 

 

7.00

 

 

370

 

Risk grade 8

 

 

 

 

 

 

 

 

 

Risk grade 9

 

 

 

 

 

 

 

 

 

Total

 

 

3.93

 

$

156,354

 

 

3.90

 

$

150,782

 

26


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

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.

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.

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

27


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

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 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.

28


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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2012

 

Balance,
Beginning of
Period

 

Charge-
Offs[1]

 

Recoveries

 

Net
Charge-
Offs[1]

 

Provision
for Loan
Losses

 

Balance,
End of
Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

7,647

 

$

1,869

 

$

34

 

$

1,835

 

$

1,703

 

$

7,515

 

Loans to nondepository financial institutions

 

 

1,369

 

 

 

 

 

 

 

 

(104

)

 

1,265

 

Factored receivables

 

 

1,450

 

 

117

 

 

6

 

 

111

 

 

159

 

 

1,498

 

Equipment financing receivables

 

 

3,515

 

 

1,102

 

 

338

 

 

764

 

 

697

 

 

3,448

 

Real estate – residential mortgage

 

 

3,490

 

 

131

[1]

 

1

 

 

130

[1]

 

386

 

 

3,746

 

Real estate – commercial mortgage

 

 

2,151

 

 

 

 

 

 

 

 

77

 

 

2,228

 

Real estate – construction and land development

 

 

165

 

 

 

 

 

 

 

 

(26

)

 

139

 

Loans to individuals

 

 

104

 

 

87

 

 

3

 

 

84

 

 

105

 

 

125

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

138

 

 

 

 

 

 

 

 

3

 

 

141

 

Total

 

$

20,029

 

$

3,306

 

$

382

 

$

2,924

 

$

3,000

 

$

20,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2011

 

Balance,
Beginning of
Period

 

Charge-
Offs[1]

 

Recoveries

 

Net
Charge-
Offs[1]

 

Provision
for Loan
Losses

 

Balance,
End of
Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

7,454

 

$

169

 

$

20

 

$

149

 

$

174

 

$

7,479

 

Loans to nondepository financial institutions

 

 

564

 

 

 

 

 

 

 

 

100

 

 

664

 

Factored receivables

 

 

1,424

 

 

132

 

 

21

 

 

111

 

 

27

 

 

1,340

 

Equipment financing receivables

 

 

3,423

 

 

3,776

 

 

923

 

 

2,853

 

 

2,485

 

 

3,055

 

Real estate – residential mortgage

 

 

2,497

 

 

248

[1]

 

163

 

 

85

[1]

 

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

 

Unallocated

 

 

126

 

 

 

 

 

 

 

 

16

 

 

142

 

Total

 

$

18,238

 

$

4,325

 

$

1,127

 

$

3,198

 

$

3,000

 

$

18,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1] Includes losses on transfers to OREO

29


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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Allowance Balance Attributable to
Loans Evaluated for Impairment

 

Loan Balances
Evaluated for Impairment

 

March 31, 2012

 

Individually

 

Collectively

 

Total

 

Individually

 

Collectively

 

Total

 

Commercial and industrial

 

$

 

$

7,515

 

$

7,515

 

$

955

 

$

591,961

 

$

592,916

 

Loans to nondepository institutions

 

 

 

 

1,265

 

 

1,265

 

 

 

 

227,335

 

 

227,335

 

Factored receivables

 

 

 

 

1,498

 

 

1,498

 

 

 

 

178,668

 

 

178,668

 

Equipment financing receivables

 

 

13

 

 

3,435

 

 

3,448

 

 

271

 

 

156,083

 

 

156,354

 

Real estate—residential mortgage

 

 

1,437

 

 

2,309

 

 

3,746

 

 

5,646

 

 

156,996

 

 

162,642

 

Real estate—commercial mortgage

 

 

1,113

 

 

1,115

 

 

2,228

 

 

3,124

 

 

106,486

 

 

109,610

 

Real estate—construction and land development

 

 

 

 

139

 

 

139

 

 

 

 

13,671

 

 

13,671

 

Loans to individuals

 

 

 

 

125

 

 

125

 

 

 

 

11,479

 

 

11,479

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

 

141

 

 

141

 

 

 

 

 

 

 

Total

 

$

2,563

 

$

17,542

 

$

20,105

 

$

9,996

 

$

1,442,679

 

$

1,452,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Allowance Balance Attributable to
Loans Evaluated for Impairment

 

Loan Balances
Evaluated for Impairment

 

December 31, 2011

 

Individually

 

Collectively

 

Total

 

Individually

 

Collectively

 

Total

 

Commercial and industrial

 

$

287

 

$

7,360

 

$

7,647

 

$

2,954

 

$

621,170

 

$

624,124

 

Loans to nondepository institutions

 

 

 

 

1,369

 

 

1,369

 

 

 

 

246,587

 

 

246,587

 

Factored receivables

 

 

 

 

1,450

 

 

1,450

 

 

 

 

171,831

 

 

171,831

 

Equipment financing receivables

 

 

17

 

 

3,498

 

 

3,515

 

 

151

 

 

150,631

 

 

150,782

 

Real estate—residential mortgage

 

 

1,234

 

 

2,256

 

 

3,490

 

 

5,275

 

 

164,878

 

 

170,153

 

Real estate—commercial mortgage

 

 

1,113

 

 

1,038

 

 

2,151

 

 

3,124

 

 

82,701

 

 

85,825

 

Real estate—construction and land development

 

 

 

 

165

 

 

165

 

 

 

 

13,621

 

 

13,621

 

Loans to individuals

 

 

 

 

104

 

 

104

 

 

 

 

10,376

 

 

10,376

 

Loans to depository institutions

 

 

 

 

 

 

 

 

 

 

10

 

 

10

 

Unallocated

 

 

 

 

138

 

 

138

 

 

 

 

 

 

 

Total

 

$

2,651

 

$

17,378

 

$

20,029

 

$

11,504

 

$

1,461,805

 

$

1,473,309

 

30


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

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 were all floating-rate advances with a current average cost of 1.79%, including the deferred adjustment, with an average duration of three months. The relevant accounting treatment for this transaction was 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. Preferred Stock

On April 27, 2011, the parent company paid $42.4 million to the U.S. Treasury for the repurchase in full 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, in determining net income available to common shareholders, the Company recognized in the second quarter a $1.2 million charge for accelerated accretion which represents the difference between the carrying value and the liquidation value for the repurchased Preferred Shares.

On May 18, 2011, the parent company completed the repurchase of a warrant held by the U.S. Treasury. The ten-year warrant was issued on December 23, 2008 as part of the parent company’s participation in the U.S. Treasury’s TARP Capital Purchase Program, and entitled the U.S. Treasury to purchase 516,817 common shares of the parent company at an exercise price of $12.19 per share. The parent company paid approximately $0.95 million to the U.S. Treasury to repurchase the warrant. The parent company’s repurchase of the warrant concluded its participation in the TARP Capital Purchase Program.

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 had been limited by the 2008 agreement between the Company and the U.S. Treasury until the Preferred Shares were redeemed on April 27, 2011. 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.

31


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

Note 7. 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,

 

 

 

2012

 

2011

 

OTHER NONINTEREST INCOME

 

 

 

 

 

Trade finance income

 

$

500

 

$

588

 

Other customer related fees

 

 

249

 

 

180

 

Trust fees

 

 

 

 

53

 

Income from life insurance policies

 

 

256

 

 

275

 

Loss on other real estate owned

 

 

(66

)

 

 

Other income

 

 

4

 

 

177

 

Total other noninterest income

 

$

943

 

$

1,273

 

 

 

 

 

 

 

 

 

OTHER NONINTEREST EXPENSES

 

 

 

 

 

 

 

Advertising and marketing

 

$

643

 

$

425

 

Communications

 

 

470

 

 

410

 

Other expenses

 

 

2,472

 

 

2,334

 

Total other noninterest expenses

 

$

3,585

 

$

3,169

 

Note 8. 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,

 

 

 

2012

 

2011

 

Service Cost

 

$

620

 

$

554

 

Interest Cost

 

 

1,032

 

 

895

 

Expected return on plan assets

 

 

(994

)

 

(771

)

Amortization of prior service cost

 

 

10

 

 

16

 

Recognized actuarial loss

 

 

831

 

 

700

 

Net periodic benefit cost

 

$

1,499

 

$

1,384

 

The Company contributed $7.0 million to the defined benefit pension plan in January 2012 and expects to contribute an additional $2.0 million to the defined benefit pension plan in 2012.

32


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

Note 9. Other Comprehensive Income

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

Other Comprehensive Income

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale arising during the period:

 

 

 

 

 

 

 

Before tax

 

$

4,839

 

$

1,088

 

Tax effect

 

 

(2,154

)

 

(493

)

Net of tax

 

 

2,685

 

 

595

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities gains included in net income:

 

 

 

 

 

 

 

Before tax

 

 

(879

)

 

(1,124

)

Tax effect

 

 

391

 

 

510

 

Net of tax

 

 

(488

)

 

(614

)

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost:

 

 

 

 

 

 

 

Before tax

 

 

10

 

 

16

 

Tax effect

 

 

(5

)

 

(7

)

Net of tax

 

 

5

 

 

9

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of net actuarial losses:

 

 

 

 

 

 

 

Before tax

 

 

816

 

 

712

 

Tax effect

 

 

(363

)

 

(323

)

Net of tax

 

 

453

 

 

389

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

$

2,655

 

$

379

 

33


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

Note 10. Fair Value Measurements

The fair value of an asset or liability is the price that would be received upon a sale of 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 and 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. Securities classified as available for sale 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.

34


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. There have been no transfers between level 1 and level 2 of the fair value hierarchy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities

 

$

 

$

38,022

 

$

 

$

38,022

 

Agency notes

 

 

 

 

881

 

 

 

 

881

 

Total obligations of U.S. government corporations and government sponsored enterprises

 

 

 

 

38,903

 

 

 

 

38,903

 

Obligations of state and political institutions—New York Bank Qualified

 

 

 

 

19,492

 

 

 

 

19,492

 

Single-issuer, trust preferred securities

 

 

33,782

 

 

 

 

 

 

33,782

 

Other preferred securities

 

 

8,879

 

 

 

 

 

 

8,879

 

Corporate debt securities

 

 

 

 

269,143

 

 

 

 

269,143

 

Equity and other securities

 

 

16,329

 

 

 

 

 

 

16,329

 

Total marketable securities

 

$

58,990

 

$

327,538

 

$

 

$

386,528

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and government-sponsored enterprises

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

 

$

29,752

 

$

 

$

29,752

 

Agency notes

 

 

 

 

1,237

 

 

 

 

1,237

 

Total obligations of U.S. government corporations and government-sponsored enterprises

 

 

 

 

30,989

 

 

 

 

30,989

 

Obligations of state and political institutions institutions—New York Bank Qualified

 

 

 

 

22,777

 

 

 

 

22,777

 

Single-issuer, trust preferred securities

 

 

27,059

 

 

 

 

 

 

27,059

 

Corporate debt securities

 

 

 

 

173,307

 

 

 

 

173,307

 

Equity and other securities

 

 

15,882

 

 

 

 

 

 

15,882

 

Total marketable securities

 

$

42,941

 

$

227,073

 

$

 

$

270,014

 

35


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

Certain financial assets, such as 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,
2012

 

December 31,
2011

 

Impaired loans

 

 

 

 

 

 

 

Commercial and industrial

 

$

 

$

1,298

 

Commercial real estate

 

 

2,011

 

 

2,011

 

Other real estate owned, net

 

 

1,563

 

 

1,929

 

Impaired loans. At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value may receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. 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. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other real estate owned. Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair values are generally based on third-party appraisals of the property utilizing 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. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Impaired loans that are measured for impairment using the fair value of the collateral dependent loans had a principal balance of $3.1 million, with a valuation allowance of $1.1 million at March 31, 2012, resulting in no additional provision for loan losses for the three months ended March 31, 2012. At December 31, 2011, impaired loans had a principal balance of $4.5 million, and a valuation allowance of $1.2 million.

Other real estate owned measured at fair value less costs to sell had a net carrying amount of $1.6 million, which is made up of the outstanding balance of $1.6 million, net of valuation allowance of $-0- million. For the three months ended March 31, 2012, $34 thousand of other real estate owned was written down through a charge to noninterest expense. At December 31, 2011, other real estate owned had net carrying amount of $1.9 million, made up of the outstanding balance of $1.9 million, net of valuation allowance of $-0- million.

36


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, interest rates and other market factors, 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.

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. 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, accrued interest receivable, Federal funds purchased, securities sold under agreements to repurchase, commercial paper, other short-term borrowings, 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 34.

Loans, Net

The fair value of loans, net, 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.

The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

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.

37


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. There were no transfers between Level 1 and Level 2 during 2012 or 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2012

 

 

 

Carrying Value

 

Level 1

 

Level 2

 

Level 3

 

Total

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

34,731

 

$

34,731

 

$

 

$

 

$

34,731

 

Interest-bearing deposits with other banks

 

 

26,938

 

 

26,938

 

 

 

 

 

 

26,938

 

Investment securities

 

 

802,386

 

 

58,990

 

 

760,634

 

 

 

 

819,624

 

Loans, net

 

 

1,460,434

 

 

 

 

 

 

1,466,155

 

 

1,466,155

 

Accrued interest receivable

 

 

8,835

 

 

475

 

 

6,679

 

 

1,681

 

 

8,835

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, savings and money market deposits

 

 

1,459,905

 

 

1,459,905

 

 

 

 

 

 

1,459,905

 

Time deposits

 

 

528,382

 

 

 

 

529,668

 

 

 

 

529,668

 

Securities sold under agreements to repurchase

 

 

45,602

 

 

45,602

 

 

 

 

 

 

45,602

 

Federal funds purchased

 

 

15,000

 

 

15,000

 

 

 

 

 

 

15,000

 

Commercial paper

 

 

15,890

 

 

15,890

 

 

 

 

 

 

15,890

 

Accrued interest payable

 

 

995

 

 

138

 

 

 

 

857

 

 

995

 

Advances-FHLB and long-term borrowings

 

 

148,142

 

 

100,000

 

 

22,463

 

 

26,110

 

 

148,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2011

 

 

 

Carrying Value

 

Level 1

 

Level 2

 

Level 3

 

Total

 

FINANCIAL ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

31,046

 

$

31,046

 

$

 

$

 

$

31,046

 

Interest-bearing deposits with other banks

 

 

126,448

 

 

126,448

 

 

 

 

 

 

126,448

 

Investment securities

 

 

677,871

 

 

42,941

 

 

652,848

 

 

 

 

695,789

 

Loans, net

 

 

1,496,652

 

 

 

 

 

 

1,505,005

 

 

1,505,005

 

Accrued interest receivable

 

 

6,838

 

 

377

 

 

4,732

 

 

1,729

 

 

6,838

 

FINANCIAL LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, NOW, savings and money market deposits

 

 

1,331,223

 

 

1,331,223

 

 

 

 

 

 

1,331,223

 

Time deposits

 

 

657,848

 

 

 

 

659,439

 

 

 

 

659,439

 

Securities sold under agreements to repurchase

 

 

52,313

 

 

52,313

 

 

 

 

 

 

52,313

 

Federal funds purchased

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

13,485

 

 

13,485

 

 

 

 

 

 

13,485

 

Accrued interest payable

 

 

1,064

 

 

135

 

 

 

 

929

 

 

1,064

 

Advances-FHLB and long-term borrowings

 

 

148,507

 

 

100,000

 

 

22,886

 

 

26,170

 

 

149,056

 

38


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

Note 11. New Accounting Standards

ASU No. 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 was effective for the Company on January 1, 2012. The effect of adopting this guidance did not have a significant impact on the Company’s financial statements.

ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 was effective for the Company on January 1, 2012. The effect of adopting this guidance did not have a significant impact on the Company’s financial statements.

ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 was effective for the Company on January 1, 2012. The effect of adopting this guidance did not have a significant impact on the Company’s financial statements.

ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.” ASU 2011-08 amends Topic 350, “Intangibles-Goodwill and Other,” so that entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-08 for its annual period ending December 31, 2011. The effect of adopting this guidance did not have a significant impact on the Company’s financial statements.

ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet”, to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and is not expected to have significant impact on the Company’s financial statements.

ASU 2011-12, “Comprehensive Income (Topic 220)—Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 is effective for annual and interim periods beginning after December 15, 2011 and did not have a significant impact on the Company’s financial statements.

39



 

 

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, 2011 (the “2011 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 and equipment financing. 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, 2012, the bank’s average earning assets represented approximately 99.0% of the Company’s average earning assets. Loans represented 62.7% and investment securities represented 33.5% of the bank’s average earning assets for the first three months of 2012.

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.

While the domestic economy continued to show moderate improvement during the 2012 first quarter, the pace was not consistent month-to-month and the rate of expansion also varied across regions of the country. Recent economic conditions during 2012, such as the continuing decrease in real estate values in the principal markets the Company serves, have reduced overall demand for residential real estate lending. However, the Company believes there are opportunities to prudently expand its loan portfolio, particularly in the corporate and commercial real estate sectors, under current economic conditions. If some of the positive economic trends observed during the first quarter of 2012 were not to continue, the Company would expect its income from corporate and real estate lending to decrease from the current levels in the near term. In addition, due to the geographic concentration of the Company’s loan portfolio in the New York metropolitan area, representing approximately 67.0% of total loans at March 31, 2012, 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.

40


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 beginning on page 53. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown beginning on page 52.

Comparison of the Three Months Ended March 31, 2012 and 2011

The Company reported net income available to common shareholders for the three months ended March 31, 2012 of $4.6 million, representing $0.15 per share calculated on a diluted basis, compared to $3.3 million, or $0.12 per share calculated on a diluted basis, for the first quarter of 2011. The increase in net income available to common shareholders was primarily due to a $2.5 million increase in net interest income and a $0.6 million decrease in dividend and accretion on the preferred shares, resulting from the repurchase in the second quarter of 2011 of all of the preferred shares and the warrant issued under the TARP Capital Purchase Program. Those benefits were partially offset by a $0.6 million decrease in noninterest income, a $0.7 million increase in noninterest expenses and a $0.6 million increase in provision for income taxes.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $23.3 million for the first quarter of 2012 compared to $20.7 million for the corresponding 2011 period. Net interest income benefitted from higher average loan balances, lower borrowing balances and lower cost of funding. Net interest income also benefitted from the reclassification from accounts receivable management/factoring commissions and other fees into interest income from loans of revenues related to one of the Company’s lending products, thereby more appropriately reflecting the characteristics of the product. Those benefits were partially offset by the impact of lower yields on loans, lower average investment securities balances and higher interest-bearing deposits balances. The net interest margin, on a tax-equivalent basis, was 4.07% for the first quarter of 2012 compared to 3.89% for the corresponding 2011 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 $26.1 million for the first quarter of 2012, up $2.1 million from the corresponding 2011 period as the benefit of higher average balances more than offset the impact of lower yields. Total interest earning assets increased to $2.3 billion for the first quarter of 2012 compared to $2.2 billion in the prior year period. The tax-equivalent yield on interest-earning assets was 4.58% for the first quarter of 2012 compared to 4.54% for the corresponding 2011 period.

Interest earned on the loan portfolio increased to $19.7 million for the first quarter of 2012 from $17.2 million in the prior year period. Average loan balances amounted to $1,442.0 million for the first quarter of 2012, an increase of $187.7 million from an average of $1,254.3 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $2.9 million increase in interest earned on loans. The yield on the loan portfolio decreased to 5.56% for the first quarter of 2012 from 5.69% for the corresponding 2011 period, which was primarily attributable to the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $6.3 million for the first quarter of 2012 from $6.8 million in the corresponding 2011 period. Average outstandings decreased to $764.3 million (33.3% of average earning assets) for the first quarter of 2012 from $842.0 million (39.0% of average earning assets) in the first quarter of 2011. The average yield on investment securities increased to 3.28% for the first quarter of 2012 from 3.23% in the corresponding 2011 period. The decrease in balances and increase in yield reflect the Company’s decision to replace a portion of called longer term, lower yielding U.S. Government Agency securities with shorter term, higher yielding corporate securities. Management’s Asset/Liability strategy continues to be designed to shorten the average life of the portfolio to position the Company for rising interest rates in future periods. In addition to the above, the strategy was implemented through the sale of available for sale securities, principally longer dated corporate securities and selected obligations of states and political subdivisions, with longer average lives.

Total interest expense decreased by $0.5 million for the first quarter of 2012 from $3.3 million for the corresponding 2011 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower borrowings balances, partially offset by the impact of higher interest-bearing deposits balances.

41


Interest expense on deposits decreased to $1.7 million for the first quarter of 2012 from $2.1 million for the corresponding 2011 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 0.57%, which was 14 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”) and various listing services which provided certificate of deposit balances at lower rates. Average interest-bearing deposits were $1,210.2 million for the first quarter of 2012 compared to $1,181.5 million for the prior year period, reflecting the impact of the Company’s business development activities as well as funds received from CDARS and various listing services.

Interest expense on borrowings decreased to $1.1 million for the first quarter of 2012 from $1.3 million for the corresponding 2011 period, primarily due to lower cost of those funds, partially offset by the impact of the changes in mix. Average borrowings decreased to $210.1 million for the first quarter of 2012 from $234.3 million in the prior year period, reflecting a lesser reliance by the Company on wholesale borrowed funds.

Provision for Loan Losses

Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 45), the provision for loan losses for the first quarter of 2012 was $3.0 million, unchanged from the prior year period. Factors affecting the provision for the first quarter of 2012 included current economic conditions during the quarter and a lower level of net charge-offs and lower nonaccrual loan balances.

The level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality and 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.

As of March 31, 2012, the allowance for loan losses increased $0.1 million from $20.0 million at December 31, 2011, primarily due to an increase in the level of special mention and substandard loans partially offset by a lower level of nonaccrual loans, primarily in the equipment finance portfolio.

Noninterest Income

Noninterest income decreased to $10.4 million for the first quarter of 2012 from $11.0 million in the corresponding 2011 period. The decrease principally resulted from lower securities gains and accounts receivable management/factoring commissions and other fees partially offset by higher mortgage banking income. Securities gains declined and reflected a continuation of the asset liability management program commenced in 2009 that was designed to reduce the average life of the investment securities portfolio which was described under Net Interest Income on page 41. The Company sold approximately $47.6 million of securities with a weighted average life of about 1.8 years. A significant portion of the proceeds was used to fund loan growth. Noninterest income was negatively impacted by the reclassification from accounts receivable management/factoring commissions and other fees into interest income from loans of revenues related to one of the Company’s lending products, thereby more appropriately reflecting the characteristics of the product. Mortgage banking income increased principally due to higher volume of loans sold.

Noninterest Expense

Noninterest expenses were $23.2 million for the first quarter of 2012, compared to $22.5 million for the prior year period. Higher compensation and advertising and marketing expenses, reflecting the Company’s continued investment in the franchise, were partially offset by reductions in deposit insurance premiums.

Provision for Income Taxes

Reflecting an increase in pre-tax income of $1.2 million, the provision for income taxes for the first quarter of 2012 was $2.0 mill