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, 2009

 

 

 

 

or

 

 

 

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

 

For the transition period from ______________________ to ______________________________________

 

Commission File Number:                                             1-5273-1

 

 

 

 


 

 

Sterling Bancorp

 

(Exact name of registrant as specified in its charter)

 

 

                New York

13-2565216    

   

(State or other jurisdiction of

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(17 CFR § 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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

 

 

 

 

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer o

Smaller Reporting Company o

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of April 30, 2009 there were 18,106,491 shares of common stock,
$1.00 par value, outstanding.



STERLING BANCORP

 

 

 

 

 

 

 

Page

 

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

 

Consolidated Financial Statements (Unaudited)

3

 

 

Notes to Consolidated Financial Statements

8

 

 

 

 

 

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

 

 

 

 

 

 

Overview

17

 

 

Income Statement Analysis

18

 

 

Balance Sheet Analysis

21

 

 

Capital

28

 

 

Recently Issued Accounting Pronouncements

29

 

 

Cautionary Statement Regarding Forward-Looking Statements

29

 

 

Average Balance Sheets

30

 

 

Rate/Volume Analysis

31

 

 

Regulatory Capital and Ratios

32

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

Asset/Liability Management

33

 

 

Interest Rate Sensitivity

37

 

 

 

 

 

Item 4. Controls and Procedures

38

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

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

39

 

 

 

 

 

Item 6. Exhibits

39


 

 

 

 

SIGNATURES

40

 

 

 

 

EXHIBIT INDEX

 

 

 

 

 

 

Exhibit 11

Statement Re: Computation of Per Share Earnings

42

 

 

 

 

 

Exhibit 31.1

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

43

 

 

 

 

 

Exhibit 31.2

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

44

 

 

 

 

 

Exhibit 32.1

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

45

 

 

 

 

 

Exhibit 32.2

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

46

2



STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

 

 

 

 

 

 

 

 

 

March 31,
2009

 

December 31,
2008

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

30,634,599

 

$

31,832,283

 

Interest-bearing deposits with other banks

 

 

15,613,603

 

 

13,948,585

 

 

Securities available for sale (at estimated fair value; pledged: $221,652,343 in 2009 and $334,047,579 in 2008)

 

 

355,128,479

 

 

505,761,599

 

Securities held to maturity (pledged: $205,654,815 in 2009 and $206,725,910 in 2008) (estimated fair value: $313,729,633 in 2009 and $305,628,293 in 2008)

 

 

306,104,765

 

 

301,127,010

 

 

 

   

 

   

 

Total investment securities

 

 

661,233,244

 

 

806,888,609

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

44,830,006

 

 

23,403,122

 

 

 

   

 

   

 

Loans held in portfolio, net of unearned discounts

 

 

1,185,223,591

 

 

1,221,542,912

 

Less allowance for loan losses

 

 

17,157,632

 

 

16,009,938

 

 

 

   

 

   

 

Loans, net

 

 

1,168,065,959

 

 

1,205,532,974

 

 

 

   

 

   

 

Customers’ liability under acceptances

 

 

229,746

 

 

95,076

 

Goodwill

 

 

22,900,912

 

 

22,900,912

 

Premises and equipment, net

 

 

10,327,416

 

 

10,668,024

 

Other real estate

 

 

1,422,598

 

 

1,543,913

 

Accrued interest receivable

 

 

7,037,524

 

 

8,916,863

 

Cash surrender value of life insurance policies

 

 

46,926,090

 

 

45,845,062

 

Other assets

 

 

117,949,488

 

 

43,122,146

 

 

 

   

 

   

 

 

 

$

2,127,171,185

 

$

2,214,697,569

 

 

 

   

 

   

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Demand deposits

 

$

484,199,703

 

$

501,542,802

 

Savings, NOW and money market deposits

 

 

565,843,092

 

 

564,205,277

 

Time deposits

 

 

322,363,561

 

 

329,034,026

 

 

 

   

 

   

 

Total deposits

 

 

1,372,406,356

 

 

1,394,782,105

 

 

 

   

 

   

 

Securities sold under agreements to repurchase - customers

 

 

43,584,489

 

 

44,334,121

 

Federal funds purchased

 

 

45,000,000

 

 

131,000,000

 

Commercial paper

 

 

11,381,644

 

 

11,731,534

 

Short-term borrowings - FHLB

 

 

 

 

75,000,000

 

Short-term borrowings - FRB

 

 

210,000,000

 

 

100,000,000

 

Short-term borrowings - other

 

 

3,353,719

 

 

1,337,749

 

Long-term borrowings - FHLB

 

 

150,000,000

 

 

150,000,000

 

Long-term borrowings - subordinated debentures

 

 

25,774,000

 

 

25,774,000

 

 

 

   

 

   

 

Total borrowings

 

 

489,093,852

 

 

539,177,404

 

 

 

   

 

   

 

Acceptances outstanding

 

 

229,746

 

 

95,076

 

Accrued interest payable

 

 

1,956,126

 

 

2,046,386

 

Accrued expenses and other liabilities

 

 

104,325,576

 

 

118,116,921

 

 

 

   

 

   

 

Total liabilities

 

 

1,968,011,656

 

 

2,054,217,892

 

 

 

   

 

   

 

Shareholders’ equity

 

 

 

 

 

 

 

Preferred stock, Series A, $5 par value; $1,000 liquidation value.
Authorized 644,389 shares; issued 42,000 shares,
respectively

 

 

39,757,516

 

 

39,440,122

 

Common stock, $1 par value. Authorized 50,000,000 shares; issued 22,226,425 and 22,202,419 shares, respectively

 

 

22,226,425

 

 

22,202,419

 

Warrants to purchase common stock

 

 

2,615,392

 

 

2,615,392

 

Capital surplus

 

 

178,634,411

 

 

178,416,847

 

Retained earnings

 

 

18,642,547

 

 

19,087,896

 

Accumulated other comprehensive loss

 

 

(17,548,863

)

 

(16,259,035

)

Common shares in treasury at cost, 4,119,934 and 4,107,191 shares, respectively

 

 

(85,167,899

)

 

(85,023,964

)

 

 

   

 

   

 

Total shareholders’ equity

 

 

159,159,529

 

 

160,479,677

 

 

 

   

 

   

 

 

 

$

2,127,171,185

 

$

2,214,697,569

 

 

 

   

 

   

 

See Notes to Consolidated Financial Statements.

3



STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

INTEREST INCOME

 

 

 

 

 

 

 

Loans

 

$

17,552,200

 

$

20,820,543

 

Investment securities Available for sale

 

 

5,494,924

 

 

4,711,885

 

Held to maturity

 

 

3,533,968

 

 

4,225,322

 

Deposits with other banks

 

 

10,314

 

 

11,636

 

 

 

   

 

   

 

Total interest income

 

 

26,591,406

 

 

29,769,386

 

 

 

   

 

   

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Savings, NOW and money market

 

 

1,125,444

 

 

1,609,807

 

Time

 

 

2,165,962

 

 

5,338,231

 

Securities sold under agreements to repurchase

 

 

 

 

 

 

 

- customers

 

 

115,525

 

 

646,047

 

- dealers

 

 

 

 

316,891

 

Federal funds purchased

 

 

33,647

 

 

361,622

 

Commercial paper

 

 

22,893

 

 

194,551

 

Short-term borrowings - FHLB

 

 

10,556

 

 

214,924

 

Short-term borrowings - FRB

 

 

99,027

 

 

 

Short-term borrowings - other

 

 

592

 

 

14,142

 

Long-term borrowings - FHLB

 

 

1,122,502

 

 

714,315

 

Long-term borrowings - subordinated debentures

 

 

523,438

 

 

523,438

 

 

 

   

 

   

 

Total interest expense

 

 

5,219,586

 

 

9,933,968

 

 

 

   

 

   

 

Net interest income

 

 

21,371,820

 

 

19,835,418

 

Provision for loan losses

 

 

6,200,000

 

 

1,950,000

 

 

 

   

 

   

 

Net interest income after provision for loan losses

 

 

15,171,820

 

 

17,885,418

 

 

 

   

 

   

 

Total noninterest income

 

 

10,798,239

 

 

8,671,884

 

 

 

   

 

   

 

Total noninterest expenses

 

 

20,051,706

 

 

20,166,546

 

 

 

   

 

   

 

Income from continuing operations before income taxes

 

 

5,918,353

 

 

6,390,756

 

Provision for income taxes

 

 

2,305,790

 

 

2,388,865

 

 

 

   

 

   

 

Net income

 

 

3,612,563

 

 

4,001,891

 

 

 

 

 

 

 

 

 

Dividends on preferred shares and accretion

 

 

842,394

 

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

2,770,169

 

$

4,001,891

 

 

 

   

 

   

 

 

Average number of common shares outstanding

 

 

 

 

 

 

 

Basic

 

 

18,098,521

 

 

17,870,084

 

Diluted

 

 

18,275,310

 

 

18,069,171

 

 

Net income, per average common share

 

 

 

 

 

 

 

Basic

 

$

0.20

 

$

0.22

 

Diluted

 

 

0.20

 

 

0.22

 

 

Net income available to common shareholders, per average common share

 

 

 

 

 

 

 

Basic

 

 

0.15

 

 

0.22

 

Diluted

 

 

0.15

 

 

0.22

 

 

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,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

Net Income

 

$

3,612,563

 

$

4,001,891

 

 

 

   

 

   

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Unrealized gains on securities:

 

 

 

 

 

 

 

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

 

 

21,209

 

 

1,355,072

 

 

Reclassification adjustment for gains included in net income

 

 

(1,674,246

)

 

 

Reclassification adjustment for amortization of:

 

 

 

 

 

 

 

Prior service cost

 

 

9,090

 

 

9,126

 

Net actuarial losses

 

 

354,119

 

 

230,374

 

 

 

   

 

   

 

Other comprehensive (loss) income

 

 

(1,289,828

)

 

1,594,572

 

 

 

   

 

   

 

Comprehensive income

 

$

2,322,735

 

$

5,596,463

 

 

 

   

 

   

 

See Notes to Consolidated Financial Statements.

5



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Preferred Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

39,440,122

 

$

 

Discount accretion

 

 

317,394

 

 

 

 

 

   

 

   

 

Balance at March 31,

 

$

39,757,516

 

$

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

22,202,419

 

$

21,278,531

 

Common shares issued under stock incentive plan

 

 

24,006

 

 

534,600

 

 

 

   

 

   

 

Balance at March 31,

 

$

22,226,425

 

$

21,813,131

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

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

 

$

2,615,392

 

$

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Capital Surplus

 

 

 

 

 

 

 

Balance at January 1,

 

$

178,416,847

 

$

168,868,895

 

Common shares issued under stock incentive plan and related tax benefits

 

 

184,606

 

 

5,731,034

 

Stock option compensation expense

 

 

32,958

 

 

 

 

 

   

 

   

 

Balance at March 31,

 

$

178,634,411

 

$

174,599,929

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

Balance at January 1,

 

$

19,087,896

 

$

17,537,732

 

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

 

 

 

 

(726,008

)

 

 

   

 

   

 

Balance at January 1, as adjusted

 

 

19,087,896

 

 

16,811,724

 

Net income

 

 

3,612,563

 

 

4,001,891

 

Cash dividends paid - preferred shares

 

 

(303,333

)

 

 

Cash dividends paid - common shares

 

 

(3,437,185

)

 

(3,409,469

)

Discount accretion on series A preferred stock

 

 

(317,394

)

 

 

 

 

   

 

   

 

Balance at March 31,

 

$

18,642,547

 

$

17,404,146

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

Balance at January 1,

 

$

(16,259,035

)

$

(10,811,811

)

Other comprehensive (loss) income, net of tax

 

 

(1,289,828

)

 

1,594,572

 

 

 

   

 

   

 

Balance at March 31,

 

$

(17,548,863

)

$

(9,217,239

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

Balance at January 1,

 

$

(85,023,964

)

$

(75,803,070

)

Surrender of shares issued under stock incentive plan

 

 

(143,935

)

 

(5,218,132

)

 

 

   

 

   

 

Balance at March 31,

 

$

(85,167,899

)

$

(81,021,202

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

 

 

 

 

 

Balance at January 1,

 

$

160,479,677

 

$

121,070,277

 

Net changes during the period

 

 

(1,320,148

)

 

2,508,488

 

 

 

   

 

   

 

Balance at March 31,

 

$

159,159,529

 

$

123,578,765

 

 

 

   

 

   

 

See Notes to Consolidated Financial Statements.

6



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

 

Net Income

 

$

3,612,563

 

$

4,001,891

 

 

 

   

 

   

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

6,200,000

 

 

1,950,000

 

Depreciation and amortization of premises and equipment

 

 

589,705

 

 

645,536

 

Securities gains

 

 

(3,065,262

)

 

 

Income from life insurance policies, net

 

 

(323,299

)

 

(52,568

)

Deferred income tax (benefit) provision

 

 

(1,126,773

)

 

789,173

 

Proceeds from sale of loans

 

 

139,641,868

 

 

108,453,184

 

Gains on sales of loans, net

 

 

(2,104,605

)

 

(2,498,588

)

Originations of loans held for sale

 

 

(158,964,147

)

 

(106,844,434

)

Amortization of premiums on securities

 

 

316,799

 

 

88,764

 

Accretion of discounts on securities

 

 

(159,102

)

 

(226,179

)

Decrease (Increase) in accrued interest receivable

 

 

1,879,339

 

 

(1,086,526

)

(Decrease) Increase in accrued interest payable

 

 

(82,888

)

 

424,885

 

(Decrease) Increase in accrued expenses and other liabilities

 

 

(13,133,742

)

 

8,075,428

 

Increase in other assets

 

 

(593,335

)

 

(5,524,731

)

Loss on other real estate owned

 

 

2,327

 

 

227,668

 

Other, net

 

 

 

 

304,509

 

 

 

   

 

   

 

Net cash (used in) provided by operating activities

 

 

(30,923,115

)

 

4,726,121

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Purchase of premises and equipment

 

 

(249,097

)

 

(242,630

)

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

 

 

(1,665,018

)

 

301,945

 

Net decrease in loans held in portfolio

 

 

31,147,489

 

 

31,295,820

 

Decrease in other real estate

 

 

238,514

 

 

221,169

 

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

 

 

15,859,645

 

 

13,354,576

 

Purchases of securities - held to maturity

 

 

(20,852,059

)

 

 

Proceeds from calls/sale of securities - available for sale

 

 

130,612,511

 

 

 

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

 

 

13,843,414

 

 

86,639,386

 

Purchases of securities - available for sale

 

 

(66,720,347

)

 

(232,434,844

)

 

 

   

 

   

 

Net cash provided by (used in) investing activities

 

 

102,215,052

 

 

(100,864,578

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Net decrease in noninterest-bearing demand deposits

 

 

(17,343,099

)

 

(41,042,873

)

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

 

 

1,637,815

 

 

(1,377,101

)

Net (decrease) increase in time deposits

 

 

(6,670,465

)

 

10,468,685

 

Decrease in Federal funds purchased

 

 

(86,000,000

)

 

(20,000,000

)

Net (decrease) increase in securities sold under agreement to repurchase

 

 

(749,632

)

 

23,013,261

 

Net increase in commercial paper and other short-term borrowings

 

 

36,666,080

 

 

838,332

 

Increase in long-term borrowings

 

 

 

 

110,000,000

 

Proceeds from exercise of stock options

 

 

97,635

 

 

266,573

 

Cash dividends paid on preferred stock

 

 

(303,333

)

 

 

Cash dividends paid on common stock

 

 

(3,437,185

)

 

(3,409,469

)

 

 

   

 

   

 

Net cash (used in) provided by financing activities

 

 

(76,102,184

)

 

78,757,408

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net decrease in cash and due from banks

 

 

(1,197,684

)

 

(13,379,158

)

Cash and due from banks - beginning of period

 

 

31,832,283

 

 

66,412,612

 

 

 

   

 

   

 

Cash and due from banks - end of period

 

$

30,634,599

 

$

53,033,454

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Interest paid

 

$

5,302,474

 

$

9,509,083

 

Income taxes paid

 

 

3,161,255

 

 

4,864,932

 

Loans held for sale transferred to portfolio

 

 

 

 

1,646,363

 

Loans transferred to other real estate

 

 

119,526

 

 

964,606

 

Due from brokers on sale of securities - AFS

 

 

73,360,575

 

 

 

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, 2009 and 2008 are unaudited; however, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of such periods have been made. Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current presentation. The interim consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2008.

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 8 - 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.

Note 2. Loans

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

 

 

 

 

 

 

 

 

 

 

March 31,
2009

 

December 31,
2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale, net of valuation reserve ($-0- at March 31, 2009 and at December 31, 2008)

 

 

 

 

 

 

 

Real estate-residential mortgage

 

$

44,830,006

 

$

23,403,122

 

 

 

   

 

   

 

Loans held in portfolio

 

 

 

 

 

 

 

Commercial and industrial

 

$

525,519,015

 

$

544,134,205

 

Lease financing

 

 

278,943,995

 

 

290,656,147

 

Factored receivables

 

 

104,885,457

 

 

115,801,317

 

Real estate-residential mortgage

 

 

145,436,632

 

 

142,134,955

 

Real estate-commercial mortgage

 

 

95,725,505

 

 

96,883,251

 

Real estate-construction and land development

 

 

25,669,705

 

 

25,249,385

 

Installment

 

 

19,042,940

 

 

18,958,613

 

Loans to depository institutions

 

 

25,000,000

 

 

25,000,000

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Loans held in portfolio, gross

 

 

1,220,223,249

 

 

1,258,817,873

 

Less unearned discounts

 

 

34,999,658

 

 

37,274,961

 

 

 

   

 

   

 

Loans held in portfolio, net of unearned discounts

 

$

1,185,223,591

 

$

1,221,542,912

 

 

 

   

 

   

 

8



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

Note 3. Investment Securities

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Proceeds

 

$

203,973,086

 

$

 

Gross gains

 

 

3,065,262

 

 

 

Gross losses

 

 

 

 

 

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

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

Note 4. Noninterest income and expenses

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

 

 

Accounts receivable management/factoring commissions and other fees

 

$

3,242,631

 

$

3,564,704

 

Service charges on deposit accounts

 

 

1,382,870

 

 

1,351,598

 

Other customer related service charges and fees

 

 

679,506

 

 

675,126

 

Mortgage banking income

 

 

2,105,974

 

 

2,498,588

 

Trust fees

 

 

139,080

 

 

135,280

 

Income from life insurance policies

 

 

259,144

 

 

269,247

 

Securities gains

 

 

3,065,262

 

 

 

Losses on sales of other real estate owned, net

 

 

(2,327

)

 

(227,668

)

Other income

 

 

(73,901

)

 

405,009

 

 

 

   

 

   

 

Total noninterest income

 

$

10,798,239

 

$

8,671,884

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Noninterest Expenses

 

 

 

 

 

 

 

Salaries

 

$

9,988,901

 

$

9,348,662

 

Employee benefits

 

 

2,677,439

 

 

2,835,722

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total personnel expense

 

 

12,666,340

 

 

12,184,384

 

Occupancy and equipment expenses, net

 

 

2,671,901

 

 

3,009,642

 

Advertising and marketing

 

 

653,852

 

 

634,954

 

Professional fees

 

 

1,123,110

 

 

1,363,703

 

Communications

 

 

431,242

 

 

455,876

 

Deposit insurance

 

 

351,245

 

 

84,067

 

Other expenses

 

 

2,154,016

 

 

2,433,920

 

 

 

   

 

   

 

Total noninterest expense

 

$

20,051,706

 

$

20,166,546

 

 

 

   

 

   

 



9



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

Note 5. Employee Benefit Plans

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

390,963

 

$

496,234

 

Interest cost

 

 

580,017

 

 

752,180

 

Expected return on plan assets

 

 

(446,284

)

 

(647,686

)

Amortization of prior service cost

 

 

16,643

 

 

16,643

 

Recognized actuarial loss

 

 

648,332

 

 

420,129

 

 

 

   

 

   

 

Net periodic benefit cost

 

$

1,189,671

 

$

1,037,500

 

 

 

   

 

   

 



The Company previously disclosed in its financial statements for the year ended December 31, 2008, that it expected to contribute approximately $2,000,000 to the defined benefit pension plan in 2009. No contribution has been made as of March 31, 2009.

Note 6. Income Taxes

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

Note 7. Segment Reporting

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 2009 year-to-date average interest-earning assets were 60.8% loans (corporate lending was 67.9% and real estate lending was 27.1% of total loans, respectively) and 39.2% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 73% 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, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate
Lending

 

Real Estate
Lending

 

Company-wide
Treasury

 

Totals

 

 

 

 

 

 

 

     

 

Three Months Ended March 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

8,469,680

 

$

4,847,677

 

$

7,880,255

 

$

21,197,612

 

Noninterest income

 

 

5,093,502

 

 

2,124,800

 

 

3,180,067

 

 

10,398,369

 

Depreciation and amortization

 

 

175,884

 

 

38,254

 

 

793

 

 

214,931

 

Segment income before income taxes

 

 

5,544,255

 

 

4,153,111

 

 

10,246,478

 

 

19,943,844

 

Segment assets

 

 

799,842,220

 

 

418,430,722

 

 

879,795,116

 

 

2,098,068,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

8,064,293

 

$

5,346,708

 

$

6,172,613

 

$

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

 

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,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Net interest income:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

21,197,612

 

$

19,583,614

 

Other [1]

 

 

174,208

 

 

251,804

 

 

 

   

 

   

 

Consolidated net interest income

 

$

21,371,820

 

$

19,835,418

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

10,398,369

 

$

8,162,867

 

Other [1]

 

 

399,870

 

 

509,017

 

 

 

   

 

   

 

Consolidated noninterest income

 

$

10,798,239

 

$

8,671,884

 

 

 

         

 

 

 

 

 

 

 

 

 

Income before taxes:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

19,943,844

 

$

17,243,471

 

Other [1]

 

 

(14,025,491

)

 

(10,852,715

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Consolidated income before income taxes

 

$

5,918,353

 

$

6,390,756

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

2,098,068,058

 

$

2,074,400,648

 

Other [1]

 

 

29,103,127

 

 

30,956,298

 

 

 

   

 

   

 

Consolidated assets

 

$

2,127,171,185

 

$

2,105,356,946

 

 

 

   

 

   

 


 

 

[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 8 - Accumlated Other Comprehensive Income

Information related to the components of accumlated other comprehensive income is as follows with related tax effects:

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Other Comprehensive (Loss)/Income Unrealized holding gains/(losses)on securities, arising during the period:

 

 

 

 

 

 

 

Before tax

 

$

39,003

 

$

2,471,226

 

Tax effect

 

 

(17,794

)

 

(1,116,154

)

 

 

   

 

   

 

Net of tax

 

 

21,209

 

 

1,355,072

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Reclassification adjustment for securities gains included in net income:

 

 

 

 

 

 

 

Before tax

 

 

(3,065,262

)

 

 

Tax effect

 

 

1,391,016

 

 

 

 

 

   

 

   

 

Net of tax

 

 

(1,674,246

)

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of prior service cost:

 

 

 

 

 

 

 

Before tax

 

 

16,643

 

 

16,643

 

Tax effect

 

 

(7,553

)

 

(7,517

)

 

 

   

 

   

 

Net of tax

 

 

9,090

 

 

9,126

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Reclassification adjustment for amortization of net actuarial losses:

 

 

 

 

 

 

 

Before tax

 

 

648,332

 

 

420,130

 

Tax effect

 

 

(294,213

)

 

(189,756

)

 

 

   

 

   

 

Net of tax

 

 

354,119

 

 

230,374

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

Other comprehensive (loss) income

 

$

(1,289,828

)

$

1,594,572

 

 

 

   

 

   

 

12



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

Note 9. 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 delayed 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 that trade in less active markets and certain derivative instruments.

13



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

 

 

 

 

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.

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 was determined by reference to quotes from an independent broker.

14



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

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

Level 1
Inputs

 

Level 2
Inputs

 

Level 3
Inputs

 

Total
Fair Value

 

                   

Securities available for sale

 

$

3,419,447

 

$

342,129,332

 

$

 

$

345,548,779

 

Other investments

 

 

6,280,056

 

 

3,381,664

 

 

 

 

9,661,720

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008

 

 

 

 

 

 

 

 

 

                   

Securities available for sale

 

$

4,266,403

 

$

488,540,496

 

$

 

$

492,806,899

 

Other investments

 

 

7,265,882

 

 

3,116,085

 

 

 

 

10,381,967

 

Certain financial assets and financial liabilities, including impaired, 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:

 

 

 

 

 

 

 

 

 

 

 

 

  March 31,    December 31,

 

 

2009

 

2008

 

 

 

 

 

 

 

Impaired loans 
Period end based on
significant unobservable
(Level 3) inputs

$

2,007,677

$

3,918,144

 

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.

Note 10. New Accounting Standards

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 was adopted by the Company on January 1, 2009 and did not have a significant impact on the Company’s financial statements.

15



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

In April 2009, the Financial Accounting Standards Board (“FASB”) issued the following Staff Positions:

FSP SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have decreased significantly. FSP SFAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009. Management is currently evaluating the effect that the provisions of this FSP may have on the Company’s financial statements.

FSP SFAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009. As this FSP amends only the disclosure requirements about fair value of financial instruments in interim periods, the adoption of this FSP is not expected to affect the Company’s financial statements.

FSP SFAS 115-2 and SFAS 124-2, Recognition and presentation of Other-than-Temporary Impairments, amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of this FSP are effective for the Company’s interim period ending on June 30, 2009. Management is currently evaluating the effect that the provisions of this FSP may have on the Company’s financial statements.

FSP SFAS 141R-1, Accounting for Assets acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, amends the guidance in SFAS No. 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies, and FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of Loss. FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose and estimate the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS No. 5. FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS No. 141R. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Company acquires in business combinations occurring after January 1, 2009.

16



 

 

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

OVERVIEW

The Company provides a broad range of financial products and services, including business and consumer loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, deposit services, trade financing, equipment leasing, trust and estate administration and investment management services. The Company has operations in the 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, 2009, the bank’s average earning assets represented approximately 99.8% of the Company’s average earning assets. Loans represented 60.7% and investment securities represented 38.6% of the bank’s average earning assets for the first quarter of 2009.

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

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

17



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 31. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on page 30.

Comparison of the Three Months Ended March 31, 2009 and 2008

The Company reported net income for the three months ended March 31, 2009 of $3.6 million, representing $0.20 per share calculated on a diluted basis, compared to $4.0 million, or $0.22 per share calculated on a diluted basis, for the first quarter of 2008. This decrease reflects a higher provision for loan losses partially offset by increases in net interest income and noninterest income and lower noninterest expenses and the provision for income taxes. After dividends on preferred shares and accretion, net income available to common shareholders for the first quarter of 2009 was $2.8 million, representing $0.15 per share calculated on a diluted basis.

18



Net Interest Income

Net interest income, on a tax-equivalent basis, was $21.5 million for the first quarter of 2009 compared to $20.0 million for the 2008 period. Net interest income benefitted from higher average investment securities and loan balances, lower interest-bearing deposit balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yield on loans and investment securities and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.50% for the first quarter of 2009 compared to 4.39% for the 2008 period. The net interest margin was impacted by the lower interest rate environment in 2009, the lower level of noninterest-bearing demand deposits and the effect of higher average investment securities and loans outstanding.

Total interest income, on a tax-equivalent basis, aggregated $26.7 million for the first quarter of 2009, down $3.1 million from the 2008 period. The tax-equivalent yield on interest-earning assets was 5.63% for the first quarter of 2009 compared to 6.65% for the 2008 period.

Interest earned on the loan portfolio decreased to $17.6 million for the first quarter of 2009 from $20.8 million the prior year period. Average loan balances amounted to $1,180.2 million, an increase of $75.7 million from an average of $1,104.5 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.2 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 6.19% for the first quarter of 2009 from 7.80% for the 2008 period was primarily attributable to the lower interest rate environment in 2009 and the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $9.2 million for the first quarter of 2009 from $9.1 million in the prior year period. Average outstandings increased to $750.3 million (38.6% of average earning assets) for the first quarter of 2009 from $720.5 million (39.4% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 4.6 years at March 31, 2009 compared to 7.4 years at March 31, 2008.

Total interest expense decreased by $4.7 million for the first quarter of 2009 from $9.9 million for the 2008 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower interest-bearing deposit balance partially offset by the impact of higher borrowed funds balances.

Interest expense on deposits decreased to $3.3 million for the first quarter of 2009 from $6.9 million for the 2008 period, primarily due to a decrease in the cost of those funds. The average rate paid on interest-bearing deposits was 1.46%, which was 129 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment during 2009. Average interest-bearing deposits were $911.8 million for the first quarter of 2009 compared to $1,016.3 million for the prior year period, reflecting the Company’s strategy to reduce reliance on higher-priced certificates of deposit.

19



Interest expense on borrowings decreased to $1.9 million for the first quarter of 2009 from $3.0 million for the 2008 period, primarily due to lower rates paid for borrowed funds partially offset by an increase in average balances. The average rate paid for borrowed funds was 1.64%, which was 199 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2009. Average borrowings increased to $476.8 million for the first quarter of 2009 from $330.5 million in the prior year period, reflecting greater reliance by the Company on wholesale funding.

Provision for Loan Losses

Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 24), the provision for loan losses for the first quarter of 2009 was $6.2 million, compared to $2.0 million for the prior year period. Factors affecting the larger provision for the first quarter of 2009 included further deterioration of economic conditions during the quarter, a $3.5 million increase in net charge-offs, a $9.7 million increase in nonaccrual loans, and growth in the loan portfolio.

Noninterest Income

Noninterest income increased to $10.8 million for the first quarter of 2009 from $8.7 million in the 2008 period. The increase principally resulted from greater securities gains and lower losses on sales of other real estate owned partially offset by lower income related to accounts receivable management and factoring services and reduced mortgage banking income. In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $93.4 million of securities with a weighted average life of approximately 4 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years. Commissions and other fees earned from accounts receivable management and factoring services were lower due to reduced volume of billing by clients providing temporary staffing. Mortgage banking income was negatively affected by lower yield due to the mix of loans sold, the impact of which was only partially offset by increased volume.

Noninterest Expenses

Noninterest expenses for the first quarter of 2009 decreased $0.1 million when compared to the 2008 period reflecting management expense control efforts. The decrease was primarily due to lower occupancy and equipment expenses, employee benefits and professional fees. These decreases were partially offset by higher salaries primarily due to increased sales personnel and normal salary adjustments and higher deposit insurance costs.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2009 decreased to $2.3 million from $2.4 million for the first quarter of 2008. The decrease was primarily due to the lower level of pre-tax income in the 2009 period.

20



BALANCE SHEET ANALYSIS

Securities

At March 31, 2009, the Company’s portfolio of securities totaled $661.2 million, of which obligations of U.S. government corporations and government-sponsored enterprises amounted to $592.8 million, which is approximately 89.7% of the 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 $8.0 million and $0.3 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment upon market recovery or the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. “Available for sale” securities included gross unrealized gains of $4.8 million and gross unrealized losses of $4.3 million. After reviewing all investment securities the Company holds in order to determine if the decline in the fair value of any security appears to be other-than-temporary, management expects to realize all of its investment upon the maturity of such instruments and, thus, believes that any fair value impairment is temporary. Management has made an evaluation that the Company has the ability to hold securities with unrealized losses until maturity and, given its current intention to do so, anticipates that it will realize the full carrying value of its investment.

In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $93.4 million of securities with a weighted average life of approximately 4 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Life

 

Weighted Average Yield

 

March 31, 2009

 

AFS

 

HTM

 

AFS

 

HTM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

3.5 Years

 

 

3.2 Years

 

 

4.45

%

 

4.43

%

 

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

 

8.2 Years

 

 

1.3 Years

 

 

4.69

%

 

5.28

%

 

Obligations of state and political subdivisions

 

6.6 Years

 

 

14.5 Years

 

 

6.07

[1]

 

6.17

[1]

 

(1) tax equivalent

21



The following table presents information regarding securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s (Federal National Mortgage Association)

 

$

8,770,177

 

$

345,098

 

$

 

$

9,115,275

 

CMO’s (Federal Home Loan Mortgage Corporation)

 

 

22,275,200

 

 

730,814

 

 

 

 

23,006,014

 

CMO’s (Government National Mortgage Association)

 

 

5,977,794

 

 

 

 

148,779

 

 

5,829,015

 

Federal National Mortgage Association

 

 

43,342,805

 

 

1,398,892

 

 

 

 

44,741,697

 

Federal Home Loan Mortgage Corporation

 

 

30,961,196

 

 

550,275

 

 

 

 

31,511,471

 

Government National Mortgage Association

 

 

20,230,827

 

 

558,479

 

 

3,054

 

 

20,786,252

 

 

 

   

 

   

 

   

 

   

 

Total mortgage-backed securities

 

 

131,557,999

 

 

3,583,558

 

 

151,833

 

 

134,989,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

20,000,000

 

 

40,625

 

 

 

 

20,040,625

 

Federal Home Loan Bank

 

 

103,187,801

 

 

356,366

 

 

660,633

 

 

102,883,534

 

Federal Farm Credit Bank

 

 

35,000,000

 

 

60,938

 

 

168,750

 

 

34,892,188

 

 

 

   

 

   

 

   

 

   

 

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

 

 

289,745,800

 

 

4,041,487

 

 

981,216

 

 

292,806,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of state and political institutions

 

 

23,048,630

 

 

620,754

 

 

187,166

 

 

23,482,218

 

Trust preferred securities

 

 

5,369,714

 

 

56,800

 

 

2,069,551

 

 

3,356,963

 

Corporate debt securities

 

 

20,877,655

 

 

30,560

 

 

1,050,547

 

 

19,857,668

 

Other debt securities

 

 

5,994,458

 

 

 

 

11,083

 

 

5,983,375

 

Other securities

 

 

54,442

 

 

8,042

 

 

 

 

62,484

 

 

 

   

 

   

 

   

 

   

 

Total marketable securities

 

 

345,090,699

 

 

4,757,643

 

 

4,299,563

 

 

345,548,779

 

Federal Reserve Bank stock

 

 

1,130,700

 

 

 

 

 

 

1,130,700

 

Federal Home Loan Bank stock

 

 

8,199,000

 

 

 

 

 

 

8,199,000

 

Other securities

 

 

250,000

 

 

 

 

 

 

250,000

 

 

 

   

 

   

 

   

 

   

 

Total

 

$

354,670,399

 

$

4,757,643

 

$

4,299,563

 

$

355,128,479

 

 

 

   

 

   

 

   

 

   

 

22



The following table presents information regarding securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2009

 

Carrying
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO’s (Federal National Mortgage Association)

 

$

12,057,014

 

$

350,294

 

$

 

$

12,407,308

 

CMO’s (Federal Home Loan Mortgage Corporation)

 

 

19,904,630

 

 

589,897

 

 

299

 

 

20,494,228

 

Federal National Mortgage Association

 

 

134,070,736

 

 

4,281,564

 

 

6,698

 

 

138,345,602

 

Federal Home Loan Mortgage Corporation

 

 

91,865,807

 

 

1,977,666

 

 

120,231

 

 

93,723,242

 

Government National Mortgage Association

 

 

7,104,546

 

 

430,818

 

 

 

 

7,535,364

 

 

 

   

 

   

 

   

 

   

 

Total mortgage-backed securities

 

 

265,002,733

 

 

7,630,239

 

 

127,228

 

 

272,505,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

 

20,000,000

 

 

275,000

 

 

 

 

20,275,000

 

Federal Home Loan Mortgage Corporation

 

 

15,000,000

 

 

23,520

 

 

199,880

 

 

14,823,640

 

 

 

   

 

   

 

   

 

   

 

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

 

 

300,002,733

 

 

7,928,759

 

 

327,108

 

 

307,604,384

 

Obligations of state and political institutions

 

 

5,852,032

 

 

29,105

 

 

5,888

 

 

5,875,249

 

Debt securities issued by foreign governments

 

 

250,000

 

 

 

 

 

 

250,000

 

 

 

   

 

   

 

   

 

   

 

Total

 

$

306,104,765

 

$

7,957,864

 

$

332,996

 

$

313,729,633

 

 

 

   

 

   

 

   

 

   

 

23



The Company invests principally in obligations of U.S. government corporations and government sponsored enterprises and other investment-grade securities. The fair value of these investments fluctuates based on several factors, including credit quality and general interest rate changes. The Company determined that it 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 represent 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 23% of all loans, is comprised of mortgages secured by real property located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 20% of all loans. Sources of repayment are the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

 

 

 

 

 

Balances

 

% of
Total

 

Balances

 

% of
Total

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

523,603

 

 

42.57

%

$

512,376

 

 

43.51

%

Lease financing receivables

 

 

246,052

 

 

20.00

 

 

254,885

 

 

21.64

 

Factored receivables

 

 

104,693

 

 

8.51

 

 

92,876

 

 

7.89

 

Real estate – residential mortgage

 

 

190,267

 

 

15.47

 

 

152,702

 

 

12.97

 

Real estate – commercial mortgage

 

 

95,726

 

 

7.78

 

 

98,268

 

 

8.34

 

Real estate – construction and land development

 

 

25,670

 

 

2.09

 

 

34,574

 

 

2.94

 

Installment – individuals

 

 

19,043

 

 

1.55

 

 

11,956

 

 

1.01

 

Loans to depository institutions

 

 

25,000

 

 

2.03

 

 

20,000

 

 

1.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned discounts

 

$

1,230,054

 

 

100.00

%

$

1,177,637

 

 

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.

24



During the first quarter of 2009, conditions across many segments of the economy continued to deteriorate, adversely affecting the financial condition of our small business borrowers as well as the value of our collateral. The Company also experienced a disruption in our collection efforts due to resignations of our collection manager and other members of the collection staff which resulted in increases in charge-offs and nonaccruals during the quarter. We have since upgraded our collection staff, intensified our collection activities, tightened our credit standards and enhanced other credit evaluation criteria. A continuation and/or worsening of existing economic conditions will likely result in a level of charge-offs and nonaccrual loans that will be higher than those in prior periods.

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

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

     

 

 

 

($ in thousands)

 

Gross Loans

 

$

1,265,054

 

$

1,215,689

 

 

 

   

 

   

 

Nonaccrual loans

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,390

 

$

465

 

Lease financing

 

 

11,480

 

 

2,835

 

Factored receivables

 

 

 

 

 

Real Estate-residential mortgage

 

 

3,297

 

 

3,156

 

Installment-individuals

 

 

21

 

 

44

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total nonaccrual loans

 

 

16,188

 

 

6,500

 

 

 

 

 

 

 

 

 

Other real estate owned

 

 

1,423

 

 

2,186

 

 

 

   

 

   

 

Total non-performing assets

 

$

17,611

 

$

8,686

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Loans past due 90 days or more and still accruing

 

$

768

 

$

526

 

 

 

   

 

   

 

Lease financing nonaccruals represent 4.12% of lease financing receivables. The lessees of the equipment are located in 39 states. At March 31, 2009, there were 117 leases ranging between approximately $100 and $238,000, 24 of which were over $100,000.

Residential real estate nonaccruals represent 2.27% of residential real estate loans held in portfolio. At March 31, 2009, there were 20 loans ranging between approximately $21,000 and $620,000 on properties located in six states.

At March 31, 2009, other real estate owned consisted of 13 properties with values between approximately $24,000 and $585,000 located in seven states.

25



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, 2009, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.45% and the allowance was $17.2 million. At such date, the Company’s nonaccrual loans amounted to $16.2 million. Loans 90 days past due and still accruing amounted to $0.8 million. At March 31, 2009, loans judged to be impaired within the scope of SFAS No. 114, amounted to $2.4 million and had a valuation allowance totaling $379,000, which is included within the overall allowance for loan losses. Included in the impaired loans are $2.3 million in accruing impaired restructured loans as defined by SFAS No. 114, with allowances for loan impairment of $321,000. Based on the foregoing, as well as management’s judgment as to the current risk  in loans held in portfolio, the Company’s allowance for loan losses was deemed adequate to absorb all probable losses on specifically known and other credit risks associated with the portfolio as of March 31, 2009. Net losses within loans held in portfolio are not statistically predictable and changes in conditions in the next twelve months could result in future provisions for loan losses varying from the provision recognized in the first quarter of 2009. Potential problem loans, which are loans that are currently performing under present loan repayment terms but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrowers to continue to comply with the present repayment terms, aggregated $2.4 million and $-0- million at March 31, 2009 and March 31, 2008, respectively.

26



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

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2009

 

2008

 

 

 

       

 

 

($ in thousands)

 

 

 

 

 

 

 

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

 

$

1,146,790

 

$

1,081,085

 

 

 

           

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

Balance at beginning of period

 

$

16,010

 

$

15,085

 

 

 

           

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

Commercial and industrial

 

 

359

 

 

834

 

Lease financing

 

 

4,544

 

 

751

 

Factored receivables

 

 

167

 

 

85

 

Real estate - residential mortgage

 

 

 

 

 

Installment

 

 

 

 

 

 

 

           

Total charge-offs

 

 

5,070

 

 

1,670

 

 

 

           

 

 

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

 

 

Commercial and industrial

 

 

11

 

 

3

 

Lease financing

 

 

44

 

 

97

 

Factored receivables

 

 

18

 

 

5

 

Real estate - residential mortgage

 

 

 

 

 

Installment

 

 

 

 

67

 

 

 

           

Total recoveries

 

 

73

 

 

172

 

 

 

           

 

 

 

 

 

 

 

 

Subtract:

 

 

 

 

 

 

 

Net charge-offs

 

 

4,997

 

 

1,498

 

 

 

           

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

6,200

 

 

1,950

 

 

 

           

 

 

 

 

 

 

 

 

Less losses on transfers to other real estate owned

 

 

55

 

 

375

 

 

 

           

 

 

 

 

 

 

 

 

Balance at end of period

 

$

17,158

 

$

15,162

 

 

 

           

 

 

 

 

 

 

 

 

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

 

 

1.74

%

 

0.55

%

 

 

           

27



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,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

($ in thousands)

 

 

 

Balances

 

% of
Total

 

Balances

 

% of
Total

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand

 

$

484,200

 

 

35.28

%

$

494,308

 

 

33.06

%

NOW

 

 

201,509

 

 

14.68

 

 

237,985

 

 

15.92

 

Savings

 

 

18,837

 

 

1.37

 

 

19,251

 

 

1.29

 

Money market

 

 

345,497

 

 

25.18

 

 

208,834

 

 

13.97

 

Time deposits

 

 

321,785

 

 

23.45

 

 

534,081

 

 

35.72

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total domestic deposits

 

 

1,371,828

 

 

99.96

 

 

1,494,459

 

 

99.96

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

578

 

 

0.04

 

 

576

 

 

0.04

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

$

1,372,406

 

 

100.00

%

$

1,495,035

 

 

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 30.

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 32. 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, 2009, the Company and the bank exceeded the requirements for “well capitalized” institutions.

28



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

For information regarding recently issued accounting pronouncement and its expected impact on the Company’s consolidated financial statements, see Note 9 of the Company’s unaudited consolidated financial statements in this quarterly report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; geopolitical developments, including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes, particularly declines, in general economic conditions and in the local economies in which the Company operates; the financial condition of the Company’s borrowers; competitive pressures on loan and deposit pricing and demand; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); changes in accounting principles, policies and guidelines; the risks and uncertainties described in “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2008; and other risks and uncertainties detailed from time to time in press releases and other public filings; and the Company’s performance in managing the risks involved in any of the foregoing. The foregoing list of important factors is not exclusive, and we will not update any forward-looking statement, whether written or oral, that may be made from time to time.

29



STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]

Three Months Ended March 31,

(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

Average
Balance

 

Interest

 

Average
Rate

 

Average
Balance

 

Interest

 

Average
Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

11,980

 

$

10

 

 

0.35

%

$

3,331

 

$

12

 

 

1.40

%

Securities available for sale

 

 

428,478

 

 

5,279

 

 

4.93

 

 

345,034

 

 

4,533

 

 

5.26

 

Securities held to maturity

 

 

297,558

 

 

3,523

 

 

4.74

 

 

356,320

 

 

4,225

 

 

4.74

 

Securities tax-exempt [2]

 

 

24,275

 

 

371

 

 

6.12

 

 

19,132

 

 

294

 

 

6.18

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

Total investment securities

 

 

750,311

 

 

9,173

 

 

4.89

 

 

720,486

 

 

9,052

 

 

5.03

 

Loans, net of unearned discounts [3]

 

 

1,180,233

 

 

17,552

 

 

6.19

 

 

1,104,473

 

 

20,820

 

 

7.80

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

TOTAL INTEREST-EARNING ASSETS

 

 

1,942,524

 

 

26,735

 

 

5.63

%

 

1,828,290

 

 

29,884

 

 

6.65

%

 

 

 

 

 

   

 

   

 

 

 

 

   

 

   

 

Cash and due from banks

 

 

32,423

 

 

 

 

 

 

 

 

67,626

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(16,890

)

 

 

 

 

 

 

 

(15,570

)

 

 

 

 

 

 

Goodwill

 

 

22,901

 

 

 

 

 

 

 

 

22,901

 

 

 

 

 

 

 

Other assets

 

 

112,014

 

 

 

 

 

 

 

 

102,793

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

2,092,972

 

 

 

 

 

 

 

$

2,006,040

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

$

18,217

 

 

6

 

 

0.14

%

$

18,649

 

 

16

 

 

0.34

%

NOW

 

 

227,027

 

 

168

 

 

0.30

 

 

236,714

 

 

825

 

 

1.40

 

Money market

 

 

338,134

 

 

951

 

 

1.14

 

 

209,511

 

 

769

 

 

1.48

 

Time

 

 

327,815

 

 

2,164

 

 

2.68

 

 

550,819

 

 

5,336

 

 

3.90

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

 

 

578

 

 

2

 

 

1.09

 

 

576

 

 

2

 

 

1.09

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

Total interest-bearing deposits

 

 

911,771

 

 

3,291

 

 

1.46

 

 

1,016,269

 

 

6,948

 

 

2.75

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

74,700

 

 

115

 

 

0.63

 

 

82,460

 

 

646

 

 

3.15

 

Securities sold under agreements to repurchase - dealers

 

 

 

 

 

 

 

 

36,026

 

 

317

 

 

3.54

 

Federal funds purchased

 

 

57,507

 

 

34

 

 

0.23

 

 

48,956

 

 

362

 

 

2.92

 

Commercial paper

 

 

11,877

 

 

23

 

 

0.78

 

 

21,150

 

 

195

 

 

3.70

 

Short-term borrowings - FHLB

 

 

13,833

 

 

11

 

 

0.31

 

 

25,868

 

 

215

 

 

3.34

 

Short-term borrowings - FRB

 

 

141,611

 

 

99

 

 

0.28

 

 

 

 

 

 

 

Short-term borrowings - other

 

 

1,454

 

 

1

 

 

0.17

 

 

1,838

 

 

14

 

 

3.09

 

Long-term borrowings - FHLB

 

 

150,000

 

 

1,122

 

 

3.03

 

 

88,462

 

 

714

 

 

3.23

 

Long-term borrowings - sub debt

 

 

25,774

 

 

523

 

 

8.38

 

 

25,774

 

 

523

 

 

8.38

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

Total borrowings

 

 

476,756

 

 

1,928

 

 

1.64

 

 

330,534

 

 

2,986

 

 

3.63

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

TOTAL INTEREST-BEARING LIABILITIES

 

 

1,388,527

 

 

5,219

 

 

1.52

%

 

1,346,803

 

 

9,934

 

 

2.96

%

 

 

 

 

 

   

 

   

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

435,242

 

 

 

 

 

 

 

 

440,860