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, 2008

or


 

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

For the transition period from _______________________ to ________________________________________

Commission File Number: 1-5273-1

 

Sterling Bancorp


(Exact name of registrant as specified in its charter)


 

 

          New York

     13-2565216



(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

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 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, 2008 there were 17,988,970 shares of common stock,
$1.00 par value, outstanding.




STERLING BANCORP

 

 

 

 

 

 

 

 

 

Page

 

 

 

 


PART I FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Financial Statements (Unaudited)

3

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

 

 

 

Item 2.

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

 

 

 

 

 

 

 

 

 

Overview

15

 

 

 

Income Statement Analysis

16

 

 

 

Balance Sheet Analysis

19

 

 

 

Capital

24

 

 

 

Recently Issued Accounting Pronouncements

25

 

 

 

Cautionary Statement Regarding Forward-Looking Statements

25

 

 

 

Average Balance Sheets

26

 

 

 

Rate/Volume Analysis

27

 

 

 

Regulatory Capital and Ratios

28

 

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

 

 

 

Asset/Liability Management

29

 

 

 

Interest Rate Sensitivity

34

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

 

 

 

 

 

Item 6.

Exhibits

37

 

 

 

 

 

 

SIGNATURES

38

 

 

 

 

 

 

 

EXHIBIT INDEX

 

 

 

 

 

 

Exhibit 11

Statement Re: Computation of Per Share Earnings

40

 

 

 

 

 

 

 

Exhibit 31.1

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

41

 

 

 

 

 

 

 

 

Exhibit 31.2

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

42

 

 

 

 

 

 

 

 

Exhibit 32.1

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

43

 

 

 

 

 

 

 

 

Exhibit 32.2

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

44

 

2



STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

53,033,454

 

$

66,412,612

 

Interest-bearing deposits with other banks

 

 

678,039

 

 

979,984

 

 

 

 

 

 

 

 

 

Securities available for sale (at estimated fair value; pledged: $218,964,186 in 2008 and $102,326,258 in 2007)

 

 

412,520,757

 

 

263,380,570

 

Securities held to maturity (pledged: $164,834,575 in 2008 and $191,549,044 in 2007) (estimated fair value: $352,860,786 in 2008 and $359,725,008 in 2007)

 

 

348,506,916

 

 

361,860,847

 

 

 



 



 

Total investment securities

 

 

761,027,673

 

 

625,241,417

 

 

 



 



 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

22,234,382

 

 

23,755,906

 

 

 



 



 

Loans held in portfolio, net of unearned discounts

 

 

1,155,402,238

 

 

1,187,123,984

 

Less allowance for loan losses

 

 

15,162,093

 

 

15,084,775

 

 

 



 



 

Loans, net

 

 

1,140,240,145

 

 

1,172,039,209

 

 

 



 



 

Customers’ liability under acceptances

 

 

 

 

200,942

 

Goodwill

 

 

22,900,912

 

 

22,900,912

 

Premises and equipment, net

 

 

10,775,977

 

 

11,178,883

 

Other real estate

 

 

2,185,762

 

 

1,669,993

 

Accrued interest receivable

 

 

8,167,830

 

 

7,081,304

 

Bank owned life insurance

 

 

29,310,362

 

 

29,041,115

 

Other assets

 

 

54,802,410

 

 

52,146,506

 

 

 



 



 

 

 

$

2,105,356,946

 

$

2,012,648,783

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Demand deposits

 

$

494,307,935

 

$

535,350,808

 

Savings, NOW and money market deposits

 

 

466,069,521

 

 

467,446,622

 

Time deposits

 

 

534,657,434

 

 

524,188,749

 

 

 



 



 

Total deposits

 

 

1,495,034,890

 

 

1,526,986,179

 

 

 



 



 

Securities sold under agreements to repurchase - customers

 

 

48,753,208

 

 

60,053,947

 

Securities sold under agreements to repurchase - dealers

 

 

44,514,000

 

 

10,200,000

 

Federal funds purchased

 

 

45,000,000

 

 

65,000,000

 

Commercial paper

 

 

19,990,056

 

 

20,878,494

 

Short-term borrowings - FHLB

 

 

49,000,000

 

 

45,000,000

 

Short-term borrowings - other

 

 

2,011,968

 

 

4,285,198

 

Long-term borrowings - FHLB

 

 

150,000,000

 

 

40,000,000

 

Long-term borrowings - subordinated debentures

 

 

25,774,000

 

 

25,774,000

 

 

 



 



 

Total borrowings

 

 

385,043,232

 

 

271,191,639

 

 

 



 



 

Acceptances outstanding

 

 

 

 

200,942

 

Accrued expenses and other liabilities

 

 

101,700,059

 

 

93,199,746

 

 

 



 



 

Total liabilities

 

 

1,981,778,181

 

 

1,891,578,506

 

 

 



 



 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $1 par value. Authorized 50,000,000 shares; issued 21,813,131 and 21,278,531 shares, respectively

 

 

21,813,131

 

 

21,278,531

 

Capital surplus

 

 

174,599,929

 

 

168,868,895

 

Retained earnings

 

 

17,404,146

 

 

17,537,732

 

Accumulated other comprehensive loss, net of tax

 

 

(9,217,239

)

 

(10,811,811

)

 

 



 



 

 

 

 

204,599,967

 

 

196,873,347

 

Less

 

 

 

 

 

 

 

Common shares in treasury at cost, 3,824,161 and 3,459,302 shares, respectively

 

 

81,021,202

 

 

75,803,070

 

 

 

 

 

 

 

 

 

 

 



 



 

Total shareholders’ equity

 

 

123,578,765

 

 

121,070,277

 

 

 



 



 

 

 

$

2,105,356,946

 

$

2,012,648,783

 

 

 



 



 

See Notes to Consolidated Financial Statements.

3



STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 


 

INTEREST INCOME

 

 

 

 

 

 

 

Loans

 

$

20,820,543

 

$

21,726,998

 

Investment securities

 

 

 

 

 

 

 

Available for sale

 

 

4,711,885

 

 

1,844,714

 

Held to maturity

 

 

4,225,322

 

 

4,869,125

 

Federal funds sold

 

 

 

 

635,308

 

Deposits with other banks

 

 

11,636

 

 

30,684

 

 

 



 



 

Total interest income

 

 

29,769,386

 

 

29,106,829

 

 

 



 



 

INTEREST EXPENSE

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Savings, NOW and money market

 

 

1,609,807

 

 

2,859,406

 

Time

 

 

5,338,231

 

 

6,547,498

 

Securities sold under agreements to repurchase

 

 

 

 

 

 

 

- customers

 

 

646,047

 

 

1,074,994

 

- dealers

 

 

316,891

 

 

 

Federal funds purchased

 

 

361,622

 

 

12,379

 

Commercial paper

 

 

194,551

 

 

349,739

 

Short-term borrowings - FHLB

 

 

214,924

 

 

 

Short-term borrowings - other

 

 

14,142

 

 

11,868

 

Long-term borrowings - FHLB

 

 

714,315

 

 

224,501

 

Long-term borrowings - subordinated debentures

 

 

523,438

 

 

523,438

 

 

 



 



 

Total interest expense

 

 

9,933,968

 

 

11,603,823

 

 

 



 



 

Net interest income

 

 

19,835,418

 

 

17,503,006

 

Provision for loan losses

 

 

1,950,000

 

 

1,250,000

 

 

 



 



 

Net interest income after provision for loan losses

 

 

17,885,418

 

 

16,253,006

 

 

 



 



 

Total noninterest income

 

 

8,671,884

 

 

9,182,841

 

 

 



 



 

Total noninterest expenses

 

 

20,166,546

 

 

19,637,676

 

 

 



 



 

Income from continuing operations before income taxes

 

 

6,390,756

 

 

5,798,171

 

Provision for income taxes

 

 

2,388,865

 

 

2,226,498

 

 

 



 



 

Income from continuing operations

 

 

4,001,891

 

 

3,571,673

 

Discontinued operations:

 

 

 

 

 

 

 

Loss, net of income tax

 

 

 

 

(91,971

)

 

 



 



 

Net income

 

$

4,001,891

 

$

3,479,702

 

 

 



 



 

Average number of common shares outstanding

 

 

 

 

 

 

 

Basic

 

 

17,920,938

 

 

18,645,423

 

Diluted

 

 

18,120,025

 

 

19,128,056

 

 

 

 

 

 

 

 

 

Income from continuing operations, per average common share

 

 

 

 

 

 

 

Basic

 

$

0.22

 

$

0.19

 

Diluted

 

 

0.22

 

 

0.19

 

 

 

 

 

 

 

 

 

Net income, per average common share

 

 

 

 

 

 

 

Basic

 

 

0.22

 

 

0.19

 

Diluted

 

 

0.22

 

 

0.18

 

 

 

 

 

 

 

 

 

Dividends per common share

 

 

0.19

 

 

0.19

 

See Notes to Consolidated Financial Statements.

4



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Net Income

 

$

4,001,891

 

$

3,479,702

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

1,355,072

 

 

336,448

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of:

 

 

 

 

 

 

 

Prior service cost

 

 

9,126

 

 

13,545

 

Net actuarial losses

 

 

230,374

 

 

182,446

 

 

 

 

 

 

 

 

 

 

 



 



 

Comprehensive income

 

$

5,596,463

 

$

4,012,141

 

 

 



 



 

See Notes to Consolidated Financial Statements.

5



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 


 

Common Stock

 

 

 

 

 

 

 

Balance at January 1

 

$

21,278,531

 

$

21,177,084

 

Common shares issued under stock incentive plan

 

 

534,600

 

 

85,086

 

 

 



 



 

Balance at March 31

 

$

21,813,131

 

$

21,262,170

 

 

 



 



 

 

 

 

 

 

 

 

 

Capital Surplus

 

 

 

 

 

 

 

Balance at January 1

 

$

168,868,895

 

$

167,960,063

 

Common shares issued under stock incentive plan and related tax benefits

 

 

5,731,034

 

 

655,734

 

 

 



 



 

Balance at March 31

 

$

174,599,929

 

$

168,615,797

 

 

 



 



 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

Balance at January 1

 

$

17,537,732

 

$

16,693,987

 

Adjustment upon adoption of EITF 06-4 effective January 1, 2008

 

 

(726,008

)

 

 

 

 



 



 

Balance at January 1 as adjusted

 

 

16,811,724

 

 

16,693,987

 

Net income

 

 

4,001,891

 

 

3,479,702

 

Cash dividends paid - common shares

 

 

(3,409,469

)

 

(3,542,319

)

 

 



 



 

Balance at March 31

 

$

17,404,146

 

$

16,631,370

 

 

 



 



 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

Balance at January 1

 

$

(10,811,811

)

$

(11,842,908

)

 

 



 



 

Unrealized holding gains arising during the period:

 

 

 

 

 

 

 

Before tax

 

 

2,471,226

 

 

613,284

 

Tax effect

 

 

(1,116,154

)

 

(276,836

)

 

 



 



 

Net of tax

 

 

1,355,072

 

 

336,448

 

 

 



 



 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of:

 

 

 

 

 

 

 

Prior service cost, net of tax

 

 

9,126

 

 

13,545

 

Net actuarial losses, net of tax

 

 

230,374

 

 

182,446

 

 

 



 



 

Total

 

 

239,500

 

 

195,991

 

 

 



 



 

Balance at March 31

 

$

(9,217,239

)

$

(11,310,469

)

 

 



 



 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

Balance at January 1

 

$

(75,803,070

)

$

(61,725,455

)

Surrender of shares issued under stock incentive plan

 

 

(5,218,132

)

 

(455,955

)

 

 



 



 

Balance at March 31

 

$

(81,021,202

)

$

(62,181,410

)

 

 



 



 

 

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

 

 

 

 

 

Balance at January 1

 

$

121,070,277

 

$

132,262,771

 

Net changes during the period

 

 

2,508,488

 

 

754,687

 

 

 



 



 

Balance at March 31

 

$

123,578,765

 

$

133,017,458

 

 

 



 



 

See Notes to Consolidated Financial Statements.

6



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 


 

Operating Activities

 

 

 

 

 

 

 

Net Income

 

$

4,001,891

 

$

3,479,702

 

Loss from discontinued operations included below in operating cash flows from discontinued operations

 

 

 

 

91,971

 

 

 



 



 

Income from continuing operations

 

 

4,001,891

 

 

3,571,673

 

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

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,950,000

 

 

1,250,000

 

Depreciation and amortization of premises and equipment

 

 

645,536

 

 

639,479

 

Income from bank owned life insurance

 

 

(269,247

)

 

(252,551

)

Deferred income tax provision

 

 

789,173

 

 

1,431,346

 

Proceeds from sale of loans

 

 

108,453,184

 

 

138,527,585

 

Gains on sales of loans, net

 

 

(2,498,588

)

 

(2,832,421

)

Originations of loans held for sale

 

 

(106,844,434

)

 

(141,951,650

)

Amortization of premiums on securities

 

 

88,764

 

 

94,298

 

Accretion of discounts on securities

 

 

(226,179

)

 

(84,699

)

(Increase) Decrease in accrued interest receivable

 

 

(1,086,526

)

 

649,209

 

Increase (Decrease) in accrued expenses and other liabilities

 

 

8,500,313

 

 

(8,002,181

)

Increase in other assets

 

 

(5,308,052

)

 

(552,541

)

Other, net

 

 

304,509

 

 

(456,170

)

 

 



 



 

Net cash provided by (used in) operating activities

 

 

8,500,344

 

 

(7,968,623

)

 

 



 



 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Purchase of premises and equipment

 

 

(242,630

)

 

(955,848

)

Net decrease (increase) in interest-bearing deposits with other banks

 

 

301,945

 

 

(589,695

)

Net decrease in Federal funds sold

 

 

 

 

20,000,000

 

Net decrease in loans held in portfolio

 

 

31,295,820

 

 

30,113,262

 

Decrease (Increase) in other real estate

 

 

448,837

 

 

(3,432

)

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

 

 

13,354,576

 

 

19,516,795

 

Purchases of securities - held to maturity

 

 

 

 

(25,003,500

)

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

 

 

86,639,386

 

 

34,093,334

 

Purchases of securities - available for sale

 

 

(232,434,844

)

 

(29,996,170

)

 

 



 



 

Net cash (used in) provided by investing activities

 

 

(100,636,910

)

 

47,174,746

 

 

 



 



 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Net decrease in noninterest-bearing deposits

 

 

(41,042,873

)

 

(84,709,197

)

Net increase in interest-bearing deposits

 

 

9,091,584

 

 

71,836,670

 

Net decrease in Federal funds purchased

 

 

(20,000,000

)

 

 

Net increase in securities sold under agreement to repurchase

 

 

23,013,261

 

 

8,804,340

 

Net increase (decrease) in commercial paper and other short-term borrowings

 

 

838,332

 

 

(745,068

)

Increase in long-term borrowings

 

 

110,000,000

 

 

 

Net proceeds from exercise of stock options

 

 

266,573

 

 

628,382

 

Cash dividends paid on common stock

 

 

(3,409,469

)

 

(3,542,319

)

 

 



 



 

Net cash provided by (used in) financing activities

 

 

78,757,408

 

 

(7,727,192

)

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from discontinued operations

 

 

 

 

 

 

 

Operating cash flows

 

 

 

 

(10,814

)

Investing cash flows

 

 

 

 

171,925

 

 

 



 



 

Total

 

 

 

 

161,111

 

 

 



 



 

Net (decrease) increase in cash and due from banks

 

 

(13,379,158

)

 

31,640,042

 

Cash and due from banks - beginning of period

 

 

66,412,612

 

 

50,058,593

 

 

 



 



 

Cash and due from banks - end of period

 

$

53,033,454

 

$

81,698,635

 

 

 



 



 

Supplemental disclosures:

 

 

 

 

 

 

 

Interest paid

 

$

9,509,083

 

$

11,445,120

 

Income taxes paid

 

 

4,864,932

 

 

163,976

 

 

 

 

 

 

 

 

 

Loans held for sale transferred to portfolio

 

 

1,646,363

 

 

 

Loans transferred to other real estate

 

 

964,606

 

 

169,367

 

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-Biley Act of 1999. Throughout the notes, the term the “Company” refers to Sterling Bancorp and its subsidiaries. The Company provides a full range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, trade financing, leasing, deposit services, trust and estate administration and investment management services. The Company has operations principally in New York and conducts business throughout the United States.

Basis of Presentation . The consolidated financial statements include the accounts of Sterling Bancorp and its subsidiaries, principally Sterling National Bank and its subsidiaries (the “bank”), after elimination of intercompany transactions. The consolidated financial statements as of and for the interim periods ended March 31, 2008 and 2007 are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of such periods have been made. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation. The interim consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2007.

Use of Estimates. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“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.

Fair Value Measurements. On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements (See Note 7 - Fair Value Measurements). The Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115 (“SFAS No. 159”) on January 1, 2008 but did not elect the fair value option for any of its financial assets or financial liabilities.

Endorsement Split-Dollar Life Insurance Arrangements. On January 1, 2008, the Company recognized a cumulative-effect adjustment to retained earnings totaling $726 thousand related to accounting for certain endorsement split-dollar life insurance arrangements in connection with the adoption of Emerging Issues Task Force (“EITF”) Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements (“EITF 06-4”) (See Note 4-Employee Benefit Plans).

Note 2. Loans

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

 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

 

 


 


 

 

Loans held for sale, net of valuation reserve ($262,801 at March 31, 2008 and $64,958 at December 31, 2007)

 

 

 

 

 

 

 

Real estate-residential mortgage

 

$

22,234,382

 

$

23,755,906

 

 

 



 



 

Loans held in portfolio

 

 

 

 

 

 

 

Commercial and industrial

 

$

512,628,465

 

$

539,969,407

 

Lease financing

 

 

292,458,496

 

 

287,563,583

 

Factored receivables

 

 

93,101,778

 

 

93,016,702

 

Real estate-residential mortgage

 

 

130,468,335

 

 

129,464,803

 

Real estate-commercial mortgage

 

 

98,267,731

 

 

99,093,560

 

Real estate-construction and land development

 

 

34,573,704

 

 

37,161,197

 

Installment

 

 

11,955,595

 

 

12,103,045

 

Loans to depository institutions

 

 

20,000,000

 

 

27,000,000

 

 

 



 



 

Loans held in portfolio, gross

 

 

1,193,454,104

 

 

1,225,372,297

 

Less unearned discounts

 

 

38,051,866

 

 

38,248,313

 

 

 



 



 

Loans held in portfolio, net of unearned discounts

 

$

1,155,402,238

 

$

1,187,123,984

 

 

 



 



 

8



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

Note 3. Investment Securities

There were no sales and/or calls of either available for sale securities or held to maturity securities.

Note 4. Employee Benefit Plans

The following table sets forth 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,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

 

 

 

 

 

 

Service cost

 

$

496,234

 

$

409,271

 

Interest cost

 

 

752,180

 

 

567,201

 

Expected return on plan assets

 

 

(647,686

)

 

(475,457

)

Amortization of prior service cost

 

 

16,643

 

 

24,689

 

Recognized actuarial loss

 

 

420,129

 

 

332,567

 

 

 



 



 

Net periodic benefit cost

 

$

1,037,500

 

$

858,271

 

 

 



 



 

The Company previously disclosed in its financial statements for the year ended December 31, 2007, that it expected to contribute approximately $2,000,000 to the defined benefit pension plan in 2008. No contribution has been made as of March 31, 2008.

EITF 06-4 requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to post-retirement periods. Under EITF 06-4, life insurance policies purchased for the purpose of providing such benefits are considered not to have effectively settled an entity’s obligation to the employee. Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement. If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106, Employer’s Accounting for Postretirement Benefits Other Than Pensions. The Company adopted EITF 06-4 on January 1, 2008 as a change in accounting principle through a cumulative-effect adjustment to retained earnings totaling $726 thousand.

9



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

Note 5. Noninterest income and expenses

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

NONINTEREST INCOME

 

 

 

 

 

 

 

Accounts receivable management/factoring commissions and other fees

 

$

3,564,704

 

$

3,667,619

 

Service charges on deposit accounts

 

 

1,351,598

 

 

1,481,612

 

Other customer related service charges and fees

 

 

675,126

 

 

690,108

 

Mortgage banking income

 

 

2,498,588

 

 

2,832,420

 

Trust fees

 

 

135,280

 

 

141,203

 

Bank owned life insurance income

 

 

269,247

 

 

252,551

 

Losses on sales of other real estate owned, net

 

 

(227,668

)

 

(46,074

)

Other income

 

 

405,009

 

 

163,402

 

 

 



 



 

Total noninterest income

 

$

8,671,884

 

$

9,182,841

 

 

 



 



 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSES

 

 

 

 

 

 

 

Salaries

 

$

9,348,662

 

$

9,209,164

 

Employee benefits

 

 

2,835,722

 

 

2,277,909

 

 

 



 



 

Total personnel expense

 

 

12,184,384

 

 

11,487,073

 

Occupancy and equipment expenses, net

 

 

3,009,642

 

 

2,707,703

 

Advertising and marketing

 

 

634,954

 

 

963,901

 

Professional fees

 

 

1,363,703

 

 

1,339,775

 

Communications

 

 

455,876

 

 

516,270

 

Other expenses

 

 

2,517,987

 

 

2,622,954

 

 

 



 



 

Total noninterest expense

 

$

20,166,546

 

$

19,637,676

 

 

 



 



 

Note 6. Segment Reporting

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, established standards for the way that public business enterprises report and disclose selected information about operating segments in interim financial statements provided to stockholders.

The Company provides a broad range of financial products and services, including commercial loans, asset-based financing, factoring and accounts receivable management services, trade financing, equipment leasing, corporate and consumer deposit services, commercial and residential mortgage lending and brokerage, trust and estate administration and investment management services. The Company’s primary source of earnings is net interest income, which represents the difference between interest earned on interest-earning assets and the interest incurred on interest-bearing liabilities. The Company’s 2008 year-to-date average interest-earning assets were 60.4% loans (corporate lending was 68.2% and real estate lending was 26.9% of total loans, respectively) and 39.4% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 77% of loans are to borrowers located in the metropolitan New York area. In order to comply with the provisions of SFAS No. 131, the Company has determined that it has three reportable operating segments: corporate lending, real estate lending and company-wide treasury.

10



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

The following tables provide certain information regarding the Company’s operating segments for the three month periods ended March 31,2008 and 2007 (all amounts are from continuing operations except where designated as discontinued):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate
Lending

 

Real Estate
Lending

 

Company-wide
Treasury

 

Totals

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

8,064,293

 

$

4,855,441

 

$

6,663,880

 

$

19,583,614

 

Noninterest income

 

 

5,246,676

 

 

2,355,858

 

 

560,333

 

 

8,162,867

 

Depreciation and amortization

 

 

192,394

 

 

90,088

 

 

793

 

 

283,275

 

Segment income before income taxes

 

 

8,179,685

 

 

2,709,249

 

 

6,354,537

 

 

17,243,471

 

Segment assets

 

 

797,212,345

 

 

383,301,919

 

 

893,886,384

 

 

2,074,400,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

6,225,650

 

$

4,974,172

 

$

6,054,048

 

$

17,253,870

 

Noninterest income

 

 

5,582,025

 

 

2,874,925

 

 

335,723

 

 

8,792,673

 

Depreciation and amortization

 

 

180,404

 

 

92,308

 

 

614

 

 

273,326

 

Segment income from continuing operations before income taxes

 

 

4,121,969

 

 

4,247,900

 

 

5,746,217

 

 

14,116,086

 

Segment income from discontinued operations before income taxes

 

 

(167,454

)

 

 

 

 

 

(167,454

)

Segment assets from continuing operations

 

 

727,283,459

 

 

367,001,856

 

 

752,824,906

 

 

1,847,110,221

 

Segment assets from discontinued operations

 

 

1,302,240

 

 

 

 

 

 

1,302,240

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 


 

Net interest income:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

19,583,614

 

$

17,253,870

 

Other [1]

 

 

251,804

 

 

249,136

 

 

 



 



 

Consolidated net interest income

 

$

19,835,418

 

$

17,503,006

 

 

 



 



 

Noninterest income:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

8,162,867

 

$

8,792,673

 

Other [1]

 

 

509,017

 

 

390,168

 

 

 



 



 

Consolidated noninterest income

 

$

8,671,884

 

$

9,182,841

 

 

 



 



 

Income from continuing operations before income taxes:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

17,243,471

 

$

14,116,086

 

Other [1]

 

 

(10,852,715

)

 

(8,317,915

)

 

 



 



 

Consolidated income from continuing operations before income taxes

 

$

6,390,756

 

$

5,798,171

 

 

 



 



 

Assets:

 

 

 

 

 

 

 

Total for reportable operating segments:

 

 

 

 

 

 

 

- continuing operations

 

$

2,074,400,648

 

$

1,847,110,221

 

- discontinued operations

 

 

 

 

1,302,240

 

Other [1]

 

 

30,956,298

 

 

25,765,711

 

 

 






 

Consolidated assets

 

$

2,105,356,946

 

$

1,874,178,172

 

 

 



 



 


 

 

[1]

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

11



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

Note 7. Fair Value Measurements

The Company adopted the provisions of SFAS No. 157 as of January 1, 2008. In accordance with Financial Accounting Standards Board Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157, the Company will delay application of SFAS No. 157 for certain non-financial assets and non-financial liabilities, until January 1, 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires expanded disclosures regarding fair value measurements. The expanded disclosures include a requirement to disclose fair value measurements according to a hierarchy, segregating measurements using (1) quoted prices in active markets for identical assets or liabilities (2) significant other observable inputs and (3) significant unobservable inputs.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a 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.

SFAS No. 157 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, SFAS No. 157 establishes a fair value 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 value 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 I 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 (including Federal Home Loan Bank and Federal Reserve Bank common stock) that trade in inactive (or 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.

12



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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value effective January 1, 2008.

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

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

          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.

          Publicly traded common and preferred stocks are valued by reference to the market closing price (last trade) on the measurement date. 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.

Interest rate floor contract. The value of the interest rate floor derivative contract is determined by reference to quotes from an independent broker.

          The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1
Inputs

 

Level 2
Inputs

 

Level 3
Inputs

 

Total
Fair Value

 

 

 

 








 

 

Securities available for sale

 

$

4,609,521

 

$

407,911,236

 

$

 

$

412,520,757

 

 

Other investments

 

$

7,566,604

 

$

3,234,895

 

$

 

$

10,801,499

 

 

Interest rate floor contract

 

$

 

$

110,973

 

$

 

$

110,973

 

13



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

          Certain financial assets and financial liabilities, including loans held for sale, 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 financial assets measured at fair value on a non-recurring basis as of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period
Ended
3/31/2008

 

Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total
Gains
(Losses)

 

 

 










 

Loans held for sale

 

$

774,693

 

 

 

 

$

774,693

 

$(262,801

)

 

          In accordance with the provisions of SFAS No. 65, “Accounting for Certain Mortgage Banking Activities”, mortgage loans held for sale with a carrying amount $1,037,494 were written down to their fair value of $774,693 resulting in a loss of $262,801, which was included in earnings for the period.

          Reporting units measured at fair value in the first step of a goodwill impairment test and certain non-financial assets measured at fair value on a non-recurring basis (such as those measured at fair value in the second step of a goodwill impairment test) and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment, inculding other real estate owned, will be measured at fair value under SFAS No. 157 beginning January 1, 2009.

          Effective January 1, 2008, the Company adopted the provisions of SFAS No. 159, The Fair value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS No. 159 permits the Company to choose to report eligible items at fair value in the financial statements and on an ongoing basis, after making an election to do so at specified election dates. Unrealized gains and losses on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, thus the Company may record identical financial assets and liabilities at fair value or by another measurement basis permitted under generally accepted accounting principles, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. The Company adopted SFAS No. 159 on January 1, 2008 but did not elect a fair value option for any of its financial assets or financial liabilities.

Note 8. New Accounting Standards

          On January 1, 2008, the Company adopted the guidance contained in the Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (“SAB No. 109”). SAB No. 109 supersedes SAB No. 105, Application of Accounting Principles to Loan Commitments, and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The adoption of SAB No. 109 did not have a material impact on the Company’s financial statements.

          SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133, amends and expands the disclosure requirements of SFAS No. 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No.161 is effective for the Company on January 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.

14



 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following commentary presents management’s discussion and analysis of the financial condition and results of operations of Sterling Bancorp (the “parent company”), a financial holding company under the Gramm-Leach-Bliley Act of 1999, and its subsidiaries, principally Sterling National Bank (the “bank”). Throughout this discussion and analysis, the term the “Company” refers to Sterling Bancorp 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, 2007. Certain reclassifications have been made to prior years’ financial data to conform to current financial statement presentations.

OVERVIEW

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

For the three months ended March 31, 2008, the bank’s average earning assets represented approximately 99.7% of the Company’s average earning assets. Loans represented 60.3% and investment securities represented 39.5% of the bank’s average earning assets for the first quarter of 2008.

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.

15



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

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

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on page 27. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on page 26.

Comparison of the Three Months Ended March 31, 2008 and 2007

The Company reported net income for the three months ended March 31, 2008 of $4.0 million, representing $0.22 per share calculated on a diluted basis, compared to $3.5 million, or $0.18 per share calculated on a diluted basis, for the first quarter of 2007. This increase reflects higher net interest income which was partially offset by increases in the provision for loan losses, noninterest expenses and the provision for income taxes coupled with lower noninterest income.

16



Net Interest Income

Net interest income, on a tax-equivalent basis, was $20.0 million for the first quarter of 2008 compared to $17.6 million for the 2007 period. Net interest income benefitted from higher average investment securities and loan balances, higher yields on investment securities and lower cost of funding. Partially offsetting those benefits was the impact of lower yield on loans and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.39% for the first quarter of 2008 compared to 4.24% for the 2007 period. The net interest margin was impacted by the lower interest rate environment in 2008, the higher level of noninterest-bearing demand deposits and the effect of higher average investment securities and loans outstanding.

Total interest income, on a tax-equivalent basis, aggregated $29.9 million for the first quarter of 2008, up $0.6 million, from the 2007 period. The tax-equivalent yield on interest-earning assets was 6.65% for the first quarter of 2008 compared to 7.15% for the 2007 period.

Interest earned on the loan portfolio decreased to $20.8 million for the first quarter of 2008 from $21.7 million the prior year period. Average loan balances amounted to $1,104.5 million, an increase of $51.2 million from an average of $1,053.3 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.3 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 7.80% for the first quarter of 2008 from 8.66% for the 2007 period was primarily attributable to the lower interest rate environment in 2008 and the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $9.1 million for the first quarter of 2008 from $6.8 million in the prior year period. Average outstandings increased to $720.5 million (39.4% of average earning assets) for the first quarter of 2008 from $579.1 million (34.4% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 7.4 years at March 31, 2008 compared to 4.4 years at March 31, 2007.

Interest earned on federal funds sold and deposits with other banks decreased by $0.7 million for the first quarter of 2008 from $0.7 million for the 2007 period, primarily due to lower funds employed in these assets. Average outstandings for these assets decreased to $3.3 million for the first quarter of 2008 from $50.6 million in the prior year period.

Total interest expense decreased by $1.7 million for the first quarter of 2008 from $11.6 million for the 2007 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings partially offset by the impact of higher borrowed funds balances.

Interest expense on deposits decreased to $6.9 million for the first quarter of 2008 from $9.4 million for the 2007 period, primarily due to a decrease in the cost of those funds. The average rate paid on interest-bearing deposits was 2.75% which was 100 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment during 2008.

17



Interest expense on borrowings increased to $3.0 million for the first quarter of 2008 from $2.2 million for the 2007 period, primarily due to an increase in average balances which was partially offset by lower rates paid for these funds. Average borrowings increased to $330.5 million for the first quarter of 2008 from $170.6 million in the prior year period, reflecting greater reliance by the Company on wholesale funding. The average rate paid for borrowed funds was 3.63% which was 159 basis points lower than the prior year period. The decrease in the average cost of borrowings refle1cts the lower interest rate environment in 2008.

Provision for Loan Losses

Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 21), the provision for loan losses for the first quarter of 2008 was $2.0 million, compared to $1.3 million for the prior year period. Factors affecting the level of provision included the growth in the loan portfolios, changes in general economic conditions and the amount of nonaccrual loans.

Noninterest Income

Noninterest income decreased to $8.7 million for the first quarter of 2008 from $9.2 million in the 2007 period. The decrease principally resulted from lower mortgage banking income and greater losses related to the sale of other real estate owned properties attributable to the disruption of the residential real estate market. Factors contributing to lower mortgage banking income were the recognition of a revaluation charge which reduced the carrying values of residential mortgage loans held for sale to the lower of cost or market and a lower volume of loans sold.

Noninterest Expenses

Noninterest expenses for the first quarter of 2008 increased $0.5 million when compared to the 2007 period. The increase was primarily due to higher salaries, related to normal salary adjustments, employee benefits primarily related to increased healthcare insurance and pension costs and occupancy and equipment costs related to greater rent expense. These increases were partially offset by lower advertising and marketing expenses due to the timing of new advertising campaigns.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2008 increased to $2.4 million from $2.2 million for the first quarter of 2007. The increase was primarily due to the higher level of pre-tax income in the 2008 period.

18



BALANCE SHEET ANALYSIS

Securities

At March 31, 2008, the Company’s portfolio of securities totaled $761.0 million, of which obligations of U.S. government corporations and government sponsored enterprises amounted to $711.2 million which is approximately 93.5% of total. The Company has the intent and ability to hold to maturity securities classified as “held to maturity.” These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on “held to maturity” securities were $5.2 million and $0.8 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment upon market recovery or the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. “Available for sale” securities included gross unrealized gains of $4.2 million and gross unrealized losses of $3.5 million.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Life

 

Weighted Average Yield

 

March 31, 2008

 

AFS

 

HTM

 

AFS

 

HTM

 


 


 


 


 


 

Mortgage-backed securities

 

 

4.5 years

 

 

4.6 years

 

 

4.71

%

 

4.66

%

Agency notes (with original call dates ranging between 3 and 36 months)

 

 

13.4 years

 

 

9.4 years

 

 

5.63

%

 

6.19

%

Agency notes (noncallable)

 

 

—          

 

 

0.4 years

 

 

 

 

4.58

%

Obligations of state and political subdivisions

 

 

5.9 years

 

 

—         

 

 

6.12

% (1)

 

 

(1)       tax equivalent

19



The following table presents information regarding securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 


 


 


 


 


 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s (Federal National Mortgage Association)

 

$

8,805,396

 

$

35,482

 

$

47,165

 

$

8,793,713

 

CMO’s (Federal Home Loan Mortgage Corporation)

 

 

22,397,403

 

 

34,820

 

 

185,308

 

 

22,246,915

 

CMO’s (Government National Mortgage Association)

 

 

8,288,670

 

 

 

 

275,620

 

 

8,013,050

 

Federal National Mortgage Association

 

 

62,002,291

 

 

621,248

 

 

281,415

 

 

62,342,124

 

Federal Home Loan Mortgage Corporation

 

 

35,623,551

 

 

343,744

 

 

62,798

 

 

35,904,497

 

Government National Mortgage Association

 

 

3,236,508

 

 

173,725

 

 

3,237

 

 

3,406,996

 

 

 



 



 



 



 

Total mortgage-backed securities

 

 

140,353,819

 

 

1,209,019

 

 

855,543

 

 

140,707,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

 

139,958,121

 

 

1,574,692

 

 

87,500

 

 

141,445,313

 

Federal Farm Credit Bank

 

 

79,912,119

 

 

884,756

 

 

 

 

80,796,875

 

 

 



 



 



 



 

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

 

 

360,224,059

 

 

3,668,467

 

 

943,043

 

 

362,949,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions

 

 

20,727,850

 

 

488,687

 

 

62,043

 

 

21,154,494

 

Trust preferred securities

 

 

5,377,487

 

 

6,363

 

 

794,051

 

 

4,589,799

 

Corporate securities

 

 

13,613,341

 

 

 

 

1,725,481

 

 

11,887,860

 

Federal Reserve Bank stock

 

 

1,130,700

 

 

 

 

 

 

1,130,700

 

Federal Home Loan Bank stock

 

 

10,489,700

 

 

 

 

 

 

10,489,700

 

Other securities

 

 

304,442

 

 

14,279

 

 

 

 

318,721

 

 

 



 



 



 



 

Total

 

$

411,867,579

 

$

4,177,796

 

$

3,524,618

 

$

412,520,757

 

 

 



 



 



 



 

The following table presents information regarding securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2008

 

Carrying
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 


 


 


 


 


 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s (Federal National Mortgage Association)

 

$

12,316,399

 

$

51,681

 

$

64,564

 

$

12,303,516

 

CMO’s (Federal Home Loan Mortgage Corporation)

 

 

20,991,139

 

 

115,231

 

 

120,010

 

 

20,986,360

 

Federal National Mortgage Association

 

 

164,404,293

 

 

2,712,642

 

 

118,725

 

 

166,998,210

 

Federal Home Loan Mortgage Corporation

 

 

117,141,059

 

 

923,137

 

 

522,834

 

 

117,541,362

 

Government National Mortgage Association

 

 

8,405,510

 

 

412,896

 

 

 

 

8,818,406

 

 

 



 



 



 



 

Total mortgage-backed securities

 

 

323,258,400

 

 

4,215,587

 

 

826,133

 

 

326,647,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank agency notes

 

 

24,998,516

 

 

965,546

 

 

 

 

25,964,062

 

 

 



 



 



 



 

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

 

 

348,256,916

 

 

5,181,133

 

 

826,133

 

 

352,611,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities issued by foreign governments

 

 

250,000

 

 

 

 

1,130

 

 

248,870

 

 

 



 



 



 



 

Total

 

$

348,506,916

 

$

5,181,133

 

$

827,263

 

$

352,860,786

 

 

 



 



 



 



 

20



The Company invests principally in obligations of U.S. government corporations and government sponsored enterprises and A- rated or better investments. The fair value of these investments fluctuates based on several factors, including credit quality and general interest rate changes. The Company determined that it has the ability to hold its investments until maturity and, given its current intention to do so, anticipates that it will realize the full carrying value of its investment.

Loan Portfolio

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

The Company’s commercial and industrial loan and factored receivables portfolios represents approximately 51% of all loans. Loans in this category are typically made to small and medium-sized businesses and range between $25,000 and $10 million. The Company’s real estate mortgage portfolio, which represents approximately 21% of all loans, is comprised of mortgages secured by real property located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 22% of all loans. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory, and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

($ in thousands)

 

 

 

Balances

 

% of
Total

 

Balances

 

% of
Total

 

 

 


 


 


 


 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

512,376

 

 

43.51

%

$

504,270

 

 

45.02

%

Equipment lease financing

 

 

254,885

 

 

21.64

 

 

211,675

 

 

18.90

 

Factored receivables

 

 

92,876

 

 

7.89

 

 

92,312

 

 

8.24

 

Real estate - residential mortgage

 

 

152,702

 

 

12.97

 

 

153,504

 

 

13.70

 

Real estate- commercial mortgage

 

 

98,268

 

 

8.34

 

 

88,451

 

 

7.90

 

Real estate -construction and land development

 

 

34,574

 

 

2.94

 

 

30,280

 

 

2.70

 

Installment - individuals

 

 

11,956

 

 

1.01

 

 

12,672

 

 

1.13

 

Loans to depository institutions

 

 

20,000

 

 

1.70

 

 

27,000

 

 

2.41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned discounts

 

$

1,177,637

 

 

100.00

%

$

1,120,164

 

 

100.00

%

 

 



 



 



 



 

Asset Quality

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

21



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

 

 


 

 

 

($ in thousands)

 

 

 

 

 

 

 

 

 

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

 

$

1,081,085

 

$

1,014,079

 

 

 







 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

Balance at beginning of period

 

$

15,085

 

$

16,288

 

 

 







 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

Commercial and industrial

 

 

834

 

 

439

 

Lease financing

 

 

751

 

 

1,001

 

Factored receivables

 

 

85

 

 

57

 

Installment

 

 

 

 

67

 

 

 







Total charge-offs

 

 

1,670

 

 

1,564

 

 

 







 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

Commercial and industrial

 

 

3

 

 

7

 

Lease financing

 

 

97

 

 

41

 

Factored receivables

 

 

5

 

 

4

 

Installment

 

 

67

 

 

21

 

 

 







Total recoveries

 

 

172

 

 

73

 

 

 







 

 

 

 

 

 

 

 

Subtract:

 

 

 

 

 

 

 

Net charge-offs

 

 

1,498

 

 

1,491

 

 

 







 

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,950

 

 

1,250

 

 

 







 

 

 

 

 

 

 

 

Less losses on transfers to other real estate owned

 

 

375

 

 

241

 

 

 







 

 

 

 

 

 

 

 

Balance at end of period

 

$

15,162

 

$

15,806

 

 

 







 

 

 

 

 

 

 

 

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

 

 

0.55

%

 

0.59

%

 

 







22



Management views the allowance for loan losses as a critical accounting policy due to its subjectivity. The allowance for loan losses is maintained through the provision for loan losses, which is a charge to operating earnings. The adequacy of the provision and the resulting allowance for loan losses is determined by a management evaluation process of the loan portfolio, including identification and review of individual problem situations that may affect the borrower’s ability to repay, review of overall portfolio quality through an analysis of current charge-offs, delinquency and nonperforming loan data, estimates of the value of any underlying collateral, an assessment of current and expected economic conditions and changes in the size and character of the loan portfolio. Other data utilized by management in determining the adequacy of the allowance for loan losses include, but are not limited to, the results of regulatory reviews, the amount of, trend of and/or borrower characteristics on loans that are identified as requiring special attention as part of the credit review process, and peer group comparisons. The impact of this other data might result in an allowance greater than that indicated by the evaluation process previously described. The allowance reflects management’s evaluation both of loans presenting identified loss potential and of the risk inherent in various components of the loan portfolio, including loans identified as impaired as required by SFAS No. 114. Thus, an increase in the size of the portfolio or in any of its components could necessitate an increase in the allowance even though there may not be a decline in credit quality or an increase in potential problem loans. A significant change in any of the evaluation factors described above could result in future additions to the allowance. At March 31, 2008, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.31% and the allowance was $15.2 million. At such date, the Company’s nonaccrual loans amounted to $6.5 million, none of which was judged to be impaired within the scope of SFAS No. 114. Loans 90 days past due and still accruing amounted to $0.5 million. Based on the foregoing, as well as management’s judgment as to the current risks inherent in loans held in portfolio, the Company’s allowance for loan losses was deemed adequate to absorb all probable losses on specifically known and other credit risks associated with the portfolio as of March 31, 2008. Net losses within loans held in portfolio are not statistically predictable and changes in conditions in the next twelve months could result in future provisions for loan losses varying from the provision recognized in the first quarter of 2008. At March 31, 2008, there were no potential problem loans, which are loans that are currently performing under present loan repayment terms but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrowers to continue to comply with the present repayment terms.

23



Deposits

A significant source of funds for the Company continues to be deposits, consisting of demand (noninterest-bearing), NOW, savings, money market and time deposits (principally certificates of deposit).

          The following table provides certain information with respect to the Company’s deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

 

 

($ in thousands)

 

 

 

Balances

 

% of
Total

 

Balances

 

% of
Total

 

 

 


 


 


 


 

Domestic

 

 

 

 

 

 

 

 

 

 

 

Demand

 

$

494,308

 

33.06

%

$

461,734

 

30.60

%

NOW

 

 

237,985

 

15.92

 

 

224,761

 

14.89

 

Savings

 

 

19,251

 

1.29

 

 

21,792

 

1.44

 

Money market

 

 

208,834

 

13.97

 

 

234,521

 

15.54

 

Time deposits

 

 

534,081

 

35.72

 

 

565,776

 

37.49

 

 

 



 


 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

Total domestic deposits

 

 

1,494,459

 

99.96

 

 

1,508,584

 

99.96

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

576

 

0.04

 

 

574

 

0.04

 

 

 



 


 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

$

1,495,035

 

100.00

%

$

1,509,158

 

100.00

%

 

 



 


 



 


 

Fluctuations of balances in total or among categories at any date may occur based on the Company’s mix of assets and liabilities as well as on customers’ balance sheet strategies. Historically, however, average balances for deposits have been relatively stable. Information regarding these average balances is presented on page 26.

CAPITAL

The Company and the bank are subject to risk-based capital regulations which quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of the Tier 1 and Tier 2 components of Total Capital and establish minimum ratios of 4% for Tier 1 capital and 8% for Total Capital for capital adequacy purposes. Supplementing these regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at least 3% or 4%, depending upon an institution’s regulatory status) which is calculated by dividing Tier 1 capital by adjusted quarterly average assets (after deducting goodwill). Information regarding the Company’s and the bank’s risk-based capital is presented on page 28. In addition, the bank is subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) which imposes a number of mandatory supervisory measures. Among other matters, FDICIA established five capital categories, ranging from “well capitalized” to “critically under capitalized”, which are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire other institutions. Under FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier 1 and Total Capital ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies comparable tests for holding companies such as the Company. At March 31, 2008, the Company and the bank exceeded the requirements for “well capitalized” institutions.

24



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

For information regarding recently issued accounting pronouncement and its expected impact on the Company’s consolidated financial statements, see Note 8 of the Company’s unaudited consolidated financial statements in this quarterly report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this quarterly report on Form 10-Q, including but not limited to, statements concerning future results of operations or financial position, borrowing capacity and future liquidity, future investment results, future credit exposure, future loan losses and plans and objectives for future operations, and other statements contained herein regarding matters that are not historical facts, are “forward-looking statements” as defined in the Securities Exchange Act of 1934. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. Any forward-looking statements we may make speak only as of the date on which such statements are made. Our actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements.

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; geopolitical developments, including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes, particularly declines, in general economic conditions and in the local economies in which the Company operates; the financial condition of the Company’s borrowers; competitive pressures on loan and deposit pricing and demand; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); changes in accounting principles, policies and guidelines; the risks and uncertainties described in “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2007; and other risks and uncertainties detailed from time to time in press releases and other public filings; and the Company’s performance in managing the risks involved in any of the foregoing. The foregoing list of important factors is not exclusive, and we will not update any forward-looking statement, whether written or oral, that may be made from time to time.

25



STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended March 31,
(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

2007

 

 

 


 


 

 

 

Average
Balance

 

Interest

 

Average
Rate

 

Average
Balance

 

Interest

 

Average
Rate

 

 

 


 


 


 


 


 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

3,331

 

$

12

 

1.40

%

$

2,830

 

$

31

 

4.40

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

345,034

 

 

4,533

 

5.26

 

 

134,632

 

 

1,640

 

4.87

 

Securities held to maturity

 

 

356,320

 

 

4,225

 

4.74

 

 

423,120

 

 

4,869

 

4.60

 

Securities tax-exempt [2]

 

 

19,132

 

 

294

 

6.18

 

 

21,353

 

 

338

 

6.43

 

 

 



 



 

 

 



 



 

 

 

Total investment securities

 

 

720,486

 

 

9,052

 

5.03

 

 

579,105

 

 

6,847

 

4.73

 

Federal funds sold

 

 

 

 

 

 

 

47,722

 

 

635

 

5.33

 

Loans, net of unearned discounts [3]

 

 

1,104,473

 

 

20,820

 

7.80

 

 

1,053,306

 

 

21,727

 

8.66

 

 

 



 



 

 

 



 



 

 

 

TOTAL INTEREST-EARNING ASSETS

 

 

1,828,290

 

 

29,884

 

6.65

%

 

1,682,963

 

 

29,240

 

7.15

%

 

 

 

 

 



 


 

 

 

 



 


 

Cash and due from banks

 

 

67,626

 

 

 

 

 

 

 

67,499

 

 

 

 

 

 

Allowance for loan losses

 

 

(15,570

)

 

 

 

 

 

 

(16,876

)

 

 

 

 

 

Goodwill

 

 

22,901

 

 

 

 

 

 

 

22,862

 

 

 

 

 

 

Other assets

 

 

102,793

 

 

 

 

 

 

 

87,077

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

Total assets-continuing operations

 

 

2,006,040

 

 

 

 

 

 

 

1,843,525

 

 

 

 

 

 

Assets-discontinued operations

 

 

 

 

 

 

 

 

 

1,158

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

TOTAL ASSETS

 

$

2,006,040

 

 

 

 

 

 

$

1,844,683

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

$

18,649

 

 

16

 

0.34

%

$

20,902

 

 

25

 

0.48

%

NOW

 

 

236,714

 

 

825

 

1.40

 

 

222,019

 

 

1,398

 

2.55

 

Money market

 

 

209,511

 

 

769

 

1.48

 

 

207,063

 

 

1,436

 

2.81

 

Time

 

 

550,819

 

 

5,336

 

3.90

 

 

566,176

 

 

6,546

 

4.69

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

 

 

576

 

 

2

 

1.09

 

 

574

 

 

2

 

1.09

 

 

 



 



 

 

 



 



 

 

 

Total interest-bearing deposits

 

 

1,016,269

 

 

6,948

 

2.75

 

 

1,016,734

 

 

9,407

 

3.75

 

 

 



 



 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

82,460

 

 

646

 

3.15

 

 

95,047

 

 

1,075

 

4.59

 

Securities sold under agreements to repurchase - dealers

 

 

36,026

 

 

317

 

3.54

 

 

 

 

 

 

Federal funds purchased

 

 

48,956

 

 

362

 

2.92

 

 

945

 

 

12

 

5.24

 

Commercial paper

 

 

21,150

 

 

195

 

3.70

 

 

27,902

 

 

350

 

5.08

 

Short-term borrowings - FHLB

 

 

25,868

 

 

215

 

3.34

 

 

 

 

 

 

Short-term borrowings - other

 

 

1,838

 

 

14

 

3.09

 

 

900

 

 

12

 

5.35

 

Long-term borrowings - FHLB

 

 

88,462

 

 

714

 

3.23

 

 

20,000

 

 

225

 

4.49

 

Long-term borrowings - sub debt

 

 

25,774

 

 

523

 

8.38

 

 

25,774

 

 

523

 

8.38

 

 

 



 



 

 

 



 



 

 

 

Total borrowings

 

 

330,534

 

 

2,986

 

3.63

 

 

170,568

 

 

2,197

 

5.22

 

 

 



 



 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST-BEARING LIABILITIES

 

 

1,346,803

 

 

9,934

 

2.96

%

 

1,187,302

 

 

11,604

 

3.96

%

 

 

 

 

 



 


 

 

 

 



 


 

Noninterest-bearing deposits

 

 

440,860

 

 

 

 

 

 

 

434,798

 

 

 

 

 

 

Other liabilities

 

 

98,098

 

 

 

 

 

 

 

91,701

 

 

 

 

 

 

Liabilities-discontinued operations

 

 

 

 

 

 

 

 

 

436

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

Total liabilities

 

 

1,885,761

 

 

 

 

 

 

 

1,714,237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

120,279

 

 

 

 

 

 

 

130,446

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

2,006,040

 

 

 

 

 

 

$

1,844,683

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income/spread

 

 

 

 

 

19,950

 

3.69

%

 

 

 

 

17,636

 

3.19

%

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 


 

Net yield on interest-earning assets (margin)

 

 

 

 

 

 

 

4.39

%

 

 

 

 

 

 

4.24

%

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 


 

Less: Tax equivalent adjustment

 

 

 

 

 

115

 

 

 

 

 

 

 

133

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

Net interest income

 

 

 

 

$

19,835

 

 

 

 

 

 

$

17,503

 

 

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 


 

 

[1]

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

 

 

[2]

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

 

 

[3]

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

26



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

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/(Decrease)
Three Months Ended
March 31, 2008 to March 31, 2007

 

 

 


 

 

 

Volume

 

Rate

 

Net [2]

 

 

 


 


 


 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

4

 

$

(23

)

$

(19

)

 

 



 



 



 

 

 

Securities available for sale

 

 

2,753

 

 

140

 

 

2,893

 

Securities held to maturity

 

 

(780

)

 

136

 

 

(644

)

Securities tax-exempt

 

 

(31

)

 

(13

)

 

(44

)

 

 



 



 



 

Total investment securities

 

 

1,942

 

 

263

 

 

2,205

 

 

 



 



 



 

 

 

Federal funds sold

 

 

(635

)

 

 

 

(635

)

 

 

Loans, net of unearned discounts [3]

 

 

1,348

 

 

(2,255

)

 

(907

)

 

 



 



 



 

 

 

TOTAL INTEREST INCOME

 

$

2,659

 

$

(2,015

)

$

644

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

Savings

 

$

(3

)

$

(6

)

$

(9

)

NOW

 

 

102

 

 

(675

)

 

(573

)

Money market

 

 

32

 

 

(699

)

 

(667

)

Time

 

 

(105

)

 

(1,105

)

 

(1,210

)

Foreign

 

 

 

 

 

 

 

 

 

 

Time

 

 

 

 

 

 

 

 

 



 



 



 

Total interest-bearing deposits

 

 

26

 

 

(2,485

)

 

(2,459

)

 

 



 



 



 

Borrowings

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

(118

)

 

(311

)

 

(429

)

Securities sold under agreements to repurchase - dealers

 

 

317

 

 

 

 

317

 

Federal funds purchased

 

 

357

 

 

(7

)

 

350

 

Commercial paper

 

 

(71

)

 

(84

)

 

(155

)

Short-term borrowings - FHLB

 

 

215

 

 

0

 

 

215

 

Short-term borrowings - other

 

 

9

 

 

(7

)

 

2

 

Long-term borrowings - FHLB

 

 

568

 

 

(79

)

 

489

 

Long-term borrowings - sub debt

 

 

 

 

 

 

 

 

 



 



 



 

Total borrowings

 

 

1,277

 

 

(488

)

 

789

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST EXPENSE

 

$

1,303

 

$

(2,973

)

$

(1,670

)

 

 



 



 



 

 

 

NET INTEREST INCOME

 

$

1,356

 

$

958

 

$

2,314

 

 

 



 



 



 


 

 

[1]

This table is presented on a tax-equivalent basis.

 

 

[2]

Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each.

 

 

[3]

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

27



STERLING BANCORP AND SUBSIDIARIES
Regulatory Capital and Ratios

Ratios and Minimums
(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

For Capital
Adequacy Minimum

 

To Be Well
Capitalized

 

 

 


 


 


 

As of March 31, 2008

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 


 


 


 


 


 


 


 

Total Capital (to Risk Weighted Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

$

149,706

 

 

10.86

%

$

110,317

 

 

8.00

%

$

137,897

 

 

10.00

%

The bank

 

 

151,154

 

 

11.01

 

 

109,826

 

 

8.00

 

 

137,283

 

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

 

134,412

 

 

9.75

 

 

55,159

 

 

4.00

 

 

82,738

 

 

6.00

 

The bank

 

 

135,860

 

 

9.90

 

 

54,913

 

 

4.00

 

 

82,370

 

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Capital (to Average Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

 

134,412

 

 

6.78

 

 

79,326

 

 

4.00

 

 

99,157

 

 

5.00

 

The bank

 

 

135,860

 

 

6.87

 

 

79,135

 

 

4.00

 

 

98,919

 

 

5.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

$

149,014

 

 

10.87

%

$

109,706

 

 

8.00

%

$

137,133

 

 

10.00

%

The bank

 

 

147,442

 

 

10.77

 

 

109,507

 

 

8.00

 

 

136,884

 

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

 

133,785

 

 

9.76

 

 

54,853

 

 

4.00

 

 

82,280

 

 

6.00

 

The bank

 

 

132,213

 

 

9.66

 

 

54,753

 

 

4.00

 

 

82,130

 

 

6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Leverage Capital (to Average Assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company

 

 

133,785

 

 

6.88

 

 

77,835

 

 

4.00

 

 

97,294

 

 

5.00

 

The bank

 

 

132,213

 

 

6.79

 

 

77,943

 

 

4.00

 

 

97,429

 

 

5.00

 

28



 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET/LIABILITY MANAGEMENT

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

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

Market Risk

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

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

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

29



The Company’s balance sheet structure is primarily short-term in nature with a substantial portion of assets and liabilities repricing or maturing within one year. The Company’s gap analysis at March 31, 2008, presented on page 34, indicates that net interest income would increase during periods of rising interest rates and decrease during periods of falling interest rates, but, as mentioned above, gap analysis may not be an accurate predictor of net interest income.

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

As of March 31, 2008, the Company was a party to an interest rate floor agreement with a notional amount of $50,000,000 and a maturity of September 14, 2008. The interest rate floor contract requires the counterparty to pay the Company at specified future dates the amount, if any, by which the specified interest (prime rate) falls below the fixed floor rates, applied to the notional amounts. The Company utilizes the financial instruments to adjust its interest rate risk position without exposing itself to principal risk and funding requirements. The financial instrument is being used as part of the Company’s interest rate risk management and not for trading purposes. At March 31, 2008, the counterparty had an investment grade credit rating from the major rating agencies. The counterparty is specifically approved for applicable credit exposure.

The interest rate floor contract requires the Company to pay a fee for the right to receive a fixed interest payment. The Company paid an up-front premium of $80,000. At March 31, 2008, there were no amounts receivable under these contracts.

The interest rate floor agreement was not designated as a hedge for accounting purposes and therefore changes in the fair value of this instrument are required to be recognized as income or expenses in the Company’s financial statements. At March 31, 2008 and 2007, the aggregate fair value of the interest rate floor was $110,973 and $2,290, respectively. For the three months ended March 31, 2008 and 2007, $100,365 was credited to “Other income” and $379 was charged against “Other income”, respectively.

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

30



The Company’s interest rate sensitivity is determined by identifying the probable impact of changes in market interest rates on the yields on the Company’s assets and the rates that would be paid on its liabilities. This modeling technique involves a degree of estimation based on certain assumptions that management believes to be reasonable. Utilizing this process, management projects the impact of changes in interest rates on net interest margin. The Company has established certain policy limits for the potential volatility of its net interest margin assuming certain levels of changes in market interest rates with the objective of maintaining a stable net interest margin under various probable rate scenarios. Management generally has maintained a risk position well within the policy limits. As of March 31, 2008, the model indicated the impact of a 200 basis point parallel and pro rata rise in rates over 12 months would approximate a 2.2% ($2.0 million) increase in net interest income, while the impact of a 200 basis point decline in rates over the same period would approximate a 2.2% ($2.0 million) decline from an unchanged rate environment.

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

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

The shape of the yield curve can also impact the Bank’s interest rate sensitivity. In general, a steeper yield curve (i.e., the differences between interest rates for different maturities are relatively greater) is better for the Bank than a flatter curve. Accordingly, the Bank’s exposure to declining interest rates would be lessened if the yield curve steepened more than anticipated as rates declined. Conversely, the expected benefit to net interest income in a rising rate environment would likely be dampened to the extent that the yield curve flattened more than anticipated as rates increased. To the extent that further Federal Reserve interest rate cuts do not materialize, and to the extent that the current relatively steep yield curve prevails, the Bank’s margin will benefit in 2008.

31



Liquidity Risk

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

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

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

At March 31, 2008, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing current business activities, was approximately $20.0 million. The parent company had cash, interest-bearing deposits with banks and other current assets aggregating $11.9 million. The parent company also has back-up credit lines with banks of $24.0 million. Since 1979, the parent company has had no need to use the available back-up lines of credit.

32



The following table sets forth information regarding the Company’s obligations and commitments to make future payments under contract as of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

 


 

Contractual Obligations (1)

 

Total

 

Less than
1 Year

 

1-3
Years

 

4-5
Years

 

After 5
Years

 












 

 

 

(in thousands)

 

 

 

 

 

Long-Term Debt

 

$

175,774

 

$

 

$

80,000

 

$

70,000

 

$

25,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Leases

 

 

22,200

 

 

4,124

 

 

6,493

 

 

4,407

 

 

7,176

 

 

 



 



 



 



 



 

Total Contractual Cash Obligations

 

$

197,974

 

$

4,124

 

$

86,493

 

$

74,407

 

$

32,950

 

 

 



 



 



 



 



 


 

 

(1)

Based on contractual maturity dates

The following table sets forth information regarding the Company’s obligations under other commercial commitments as of March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Commitment Expiration Per Period

 

 

 


 

Other Commercial Commitments

 

Total Amount
Committed

 

Less than
1 Year

 

1-3
Years

 

4-5
Years

 

After 5
Years

 












 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Loans

 

$

9,839

 

$

9,839

 

$

 

$

 

$

 

Commercial Loans

 

 

50,676

 

 

35,432

 

 

15,106

 

 

138

 

 

 

 

 



 



 



 



 



 

Total Loans

 

 

60,515

 

 

45,271

 

 

15,106

 

 

138

 

 

 

Standby Letters of Credit

 

 

41,314

 

 

37,971

 

 

3,343

 

 

 

 

 

Other Commercial Commitments

 

 

10,728

 

 

10,437

 

 

 

 

 

 

291

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Commercial Commitments

 

$

112,557

 

$

93,679

 

$

18,449

 

$

138

 

$

291

 

 

 



 



 



 



 



 

INFORMATION AVAILABLE ON OUR WEB SITE

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

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

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

33



STERLING BANCORP AND SUBSIDIARIES
Interest Rate Sensitivity

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repricing Date

 

 

 


 

 

 

3 Months or Less

 

More than
3 Months
to 1 Year

 

More than
1 Year to
5 Years

 

Over
5 Years

 

Nonrate
Sensitive

 

Total

 

 

 


 


 


 


 


 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

678

 

$

 

$

 

$

 

$

 

$

678

 

Investment securities

 

 

572

 

 

9,108

 

 

84,197

 

 

654,728

 

 

12,423

 

 

761,028

 

Commercial and industrial loans

 

 

437,088

 

 

22,223

 

 

43,830

 

 

9,488

 

 

(253

)

 

512,376

 

Equipment lease financing

 

 

3,894

 

 

9,619

 

 

266,843

 

 

12,102

 

 

(37,573

)

 

254,885

 

Factored receivables

 

 

93,102

 

 

 

 

 

 

 

 

(226

)

 

92,876

 

Real estate-residential mortgage

 

 

24,839

 

 

15,900

 

 

61,813

 

 

50,150

 

 

 

 

152,702

 

Real estate-commercial mortgage

 

 

16,501

 

 

7,147

 

 

43,098

 

 

31,522

 

 

 

 

98,268

 

Real estate-construction loans

 

 

 

 

 

 

34,574

 

 

 

 

 

 

34,574

 

Installment-individuals

 

 

11,956

 

 

 

 

 

 

 

 

 

 

11,956

 

Loans to depository institutions

 

 

20,000

 

 

 

 

 

 

 

 

 

 

20,000

 

Noninterest-earning assets & allowance for loan losses

 

 

 

 

 

 

 

 

 

 

166,014

 

 

166,014

 

 

 



 



 



 



 



 



 

Total Assets

 

 

608,630

 

 

63,997

 

 

534,355

 

 

757,990

 

 

140,385

 

 

2,105,357

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND
SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings [1]

 

 

 

 

 

 

19,251

 

 

 

 

 

 

19,251

 

NOW [1]

 

 

 

 

 

 

237,985

 

 

 

 

 

 

237,985

 

Money market [1]

 

 

169,322

 

 

 

 

39,512

 

 

 

 

 

 

208,834

 

Time - domestic

 

 

281,758

 

 

219,504

 

 

32,819

 

 

 

 

 

 

534,081

 

- foreign

 

 

181

 

 

395

 

 

 

 

 

 

 

 

576

 

Securities sold under agreement to repurchase - customer

 

 

48,753

 

 

 

 

 

 

 

 

 

 

48,753

 

Securities sold under agreement to repurchase - dealer

 

 

44,514

 

 

 

 

 

 

 

 

 

 

44,514

 

Federal funds purchased

 

 

45,000

 

 

 

 

 

 

 

 

 

 

45,000

 

Commercial paper

 

 

19,990

 

 

 

 

 

 

 

 

 

 

19,990

 

Short-term borrowings - FHLB

 

 

49,000

 

 

 

 

 

 

 

 

 

 

49,000

 

Short-term borrowings - other

 

 

2,012

 

 

 

 

 

 

 

 

 

 

2,012

 

Long-term borrowings - FHLB

 

 

 

 

 

 

150,000

 

 

 

 

 

 

150,000

 

Long-term borrowings - subordinated debentures

 

 

 

 

 

 

 

 

25,774

 

 

 

 

25,774

 

Noninterest-bearing liabilities & shareholders’ equity

 

 

 

 

 

 

 

 

 

 

719,587

 

 

719,587

 

 

 



 



 



 



 



 



 

Total Liabilities and Shareholders’ Equity

 

 

660,530

 

 

219,899

 

 

479,567

 

 

25,774

 

 

719,587

 

 

2,105,357

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Rate Sensitivity Gap

 

$

(51,900

)

$

(155,902

)

$

54,788

 

$

732,216

 

$

(579,202

)

$

 

 

 



 



 



 



 



 



 

Cumulative Gap March 31, 2008

 

$

(51,900

)

$

(207,802

)

$

(153,014

)

$

579,202

 

$

 

$

 

 

 



 



 



 



 



 



 

Cumulative Gap March 31, 2007

 

$

34,147

 

$

(197,214

)

$

78,322

 

$

562,481

 

$

 

$

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative Gap December 31, 2007

 

$

46,483

 

$

(143,365

)

$

27,278

 

$

605,524

 

$

 

$

 

 

 



 



 



 



 



 



 


 

 

[1]

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

34



ITEM 4. CONTROLS AND PROCEDURES

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

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

35



PART II - OTHER INFORMATION

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

Under its share repurchase program, the Company buys back common shares from time to time. The Company did not repurchase any of its common shares during the first quarter of 2008. At March 31, 2008, the maximum number of shares that may yet be purchased under the share repurchase program was 870,963.

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

36



Item 6. Exhibits

The following exhibits are filed as part of this report:

 

 

 

 

 

3.

(i)

Restated Certificate of Incorporation filed with the State of New York Department of State, October 28, 2004 (Filed as Exhibit 3(i) to the Registrant’s Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference).

 

 

 

 

 

 

(ii)

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

 

 

 

 

 

11.

 

Statement Re: Computation of Per Share Earnings.

 

 

 

 

 

31.1

 

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

 

 

 

 

 

31.2

 

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

 

 

 

 

 

32.1

 

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

 

 

 

 

 

32.2

 

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

37



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

STERLING BANCORP

 

 

 

 

 

 

 

 


 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

Date: May 9, 2008

/s/

Louis J. Cappelli

 

 


 

 

Louis J. Cappelli

 

 

Chairman and

 

 

Chief Executive Officer

 

 

 

Date: May 9, 2008

/s/

John W. Tietjen

 

 


 

 

John W. Tietjen

 

 

Executive Vice President

 

 

and Chief Financial Officer

38



STERLING BANCORP AND SUBSIDIARIES

EXHIBIT INDEX

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit
Number

 

Description

 

Sequential
Page No.


 


 


 

 

 

 

 

 

 

11

 

Statement re: Computation of Per Share Earnings.

 

40

 

 

 

 

 

 

 

31.1

 

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

 

41

 

 

 

 

 

 

 

31.2

 

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

 

42

 

 

 

 

 

 

 

32.1

 

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

 

43

 

 

 

 

 

 

 

32.2

 

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

 

44

39