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 June 30, 2007
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to ______________________________________

Commission File Number: 1-5273-1

 

Sterling Bancorp


(Exact name of registrant as specified in its charter)


 

 

 

      New York

 

13-2565216   




(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification)  

 

 

 

650 Fifth Avenue, New York, N.Y.

 

10019-6108   




(Address of principal executive offices)

 

(Zip Code)

 

 

 


 

212-757-3300


(Registrant’s telephone number, including area code)

 

N/A


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

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

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer 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 July 31, 2007 there were 18,017,668 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

13

 

 

 

Income Statement Analysis

14

 

 

 

Balance Sheet Analysis

19

 

 

 

Capital

23

 

 

 

Recently Issued Accounting Pronouncements

24

 

 

 

Cautionary Statement Regarding Forward-Looking Statements

24

 

 

 

Average Balance Sheets

25

 

 

 

Rate/Volume Analysis

27

 

 

 

Regulatory Capital and Ratios

29

 

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

 

 

 

Asset/Liability Management

30

 

 

 

Interest Rate Sensitivity

35

 

 

 

 

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

 

PART II OTHER INFORMATION

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

38

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

June 30,
2007

 

December 31,
2006

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Cash and due from banks

 

$

70,030,220

 

$

50,058,593

 

Interest-bearing deposits with other banks

 

 

1,177,462

 

 

1,261,187

 

Federal funds sold

 

 

10,000,000

 

 

20,000,000

 

 

 

 

 

 

 

 

 

Securities available for sale (at estimated fair value; pledged: $71,349,693 in 2007 and $90,583,854 in 2006)

 

 

145,899,741

 

 

148,420,887

 

Securities held to maturity (pledged: $193,736,735 in 2007 and $199,997,912 in 2006) (estimated fair value: $375,158,283 in 2007 and $411,650,690 in 2006)

 

 

386,406,886

 

 

420,903,430

 

 

 



 



 

Total investment securities

 

 

532,306,627

 

 

569,324,317

 

 

 



 



 

 

Loans held for sale

 

 

46,356,968

 

 

33,319,789

 

 

 



 



 

Loans held in portfolio, net of unearned discounts

 

 

1,121,943,872

 

 

1,112,601,620

 

Less allowance for loan losses

 

 

15,582,026

 

 

16,287,974

 

 

 



 



 

Loans, net

 

 

1,106,361,846

 

 

1,096,313,646

 

 

 



 



 

Customers’ liability under acceptances

 

 

33,787

 

 

98,399

 

Goodwill

 

 

22,900,912

 

 

22,862,051

 

Premises and equipment, net

 

 

11,510,098

 

 

11,323,649

 

Other real estate

 

 

2,057,365

 

 

2,242,419

 

Accrued interest receivable

 

 

4,893,910

 

 

5,844,868

 

Bank owned life insurance

 

 

28,487,841

 

 

27,949,160

 

Other assets

 

 

49,635,004

 

 

43,696,511

 

 

 



 



 

Total assets from continuing operations

 

 

1,885,752,040

 

 

1,884,294,589

 

Assets - discontinued operations

 

 

1,226,062

 

 

1,662,697

 

 

 



 



 

 

 

$

1,886,978,102

 

$

1,885,957,286

 

 

 



 



 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Demand deposits

 

$

520,432,739

 

$

546,442,704

 

Savings, NOW and money market deposits

 

 

476,878,619

 

 

447,600,898

 

Time deposits

 

 

536,516,305

 

 

527,986,821

 

 

 



 



 

Total deposits

 

 

1,533,827,663

 

 

1,522,030,423

 

 

 



 



 

Securities sold under agreements to repurchase - customers

 

 

76,530,242

 

 

52,802,796

 

Commercial paper

 

 

27,444,077

 

 

27,561,567

 

Short-term borrowings - other

 

 

1,718,389

 

 

3,411,630

 

Long-term borrowings - FHLB

 

 

10,000,000

 

 

20,000,000

 

Long-term borrowings - subordinated debentures

 

 

25,774,000

 

 

25,774,000

 

 

 



 



 

Total borrowings

 

 

141,466,708

 

 

129,549,993

 

 

 



 



 

Acceptances outstanding

 

 

33,787

 

 

98,399

 

Accrued expenses and other liabilities

 

 

89,608,141

 

 

101,679,342

 

Liabilities - discontinued operations

 

 

129,255

 

 

336,358

 

 

 



 



 

Total liabilities

 

 

1,765,065,554

 

 

1,753,694,515

 

 

 



 



 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $1 par value. Authorized 50,000,000 shares; issued 21,262,170 and 21,177,084 shares, respectively

 

 

21,262,170

 

 

21,177,084

 

Capital surplus

 

 

168,651,246

 

 

167,960,063

 

Retained earnings

 

 

17,043,353

 

 

16,693,987

 

Accumulated other comprehensive loss, net of tax

 

 

(12,347,079

)

 

(11,842,908

)

 

 



 



 

 

 

 

194,609,690

 

 

193,988,226

 

Less

 

 

 

 

 

 

 

Common shares in treasury at cost, 3,244,502 and 2,572,368 shares, respectively

 

 

72,697,142

 

 

61,725,455

 

 

 

 



 



 

Total shareholders’ equity

 

 

121,912,548

 

 

132,262,771

 

 

 



 



 

 

 

$

1,886,978,102

 

$

1,885,957,286

 

 

 



 



 

See Notes to Consolidated Financial Statements.

3



STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 


 


 


 


 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

23,121,500

 

$

21,588,986

 

$

44,848,117

 

$

40,969,040

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale

 

 

1,701,584

 

 

1,978,003

 

 

3,546,298

 

 

4,179,789

 

Held to maturity

 

 

4,698,726

 

 

5,551,640

 

 

9,567,851

 

 

11,295,114

 

Federal funds sold

 

 

367,338

 

 

34,886

 

 

1,002,646

 

 

74,871

 

Deposits with other banks

 

 

36,694

 

 

20,563

 

 

67,378

 

 

50,644

 

 

 



 



 



 



 

Total interest income

 

 

29,925,842

 

 

29,174,078

 

 

59,032,290

 

 

56,569,458

 

 

 



 



 



 



 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW and money market

 

 

3,279,559

 

 

1,672,459

 

 

6,138,965

 

 

3,455,379

 

Time

 

 

6,581,415

 

 

4,714,822

 

 

13,128,913

 

 

9,175,673

 

Securities sold under agreements to repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

- customers

 

 

804,625

 

 

767,373

 

 

1,879,619

 

 

1,462,221

 

- dealers

 

 

 

 

1,344,154

 

 

 

 

2,328,142

 

Federal funds purchased

 

 

23,369

 

 

251,081

 

 

35,748

 

 

386,221

 

Commercial paper

 

 

355,519

 

 

537,923

 

 

705,258

 

 

942,524

 

Short-term borrowings - FHLB

 

 

 

 

642,197

 

 

 

 

835,365

 

Short-term borrowings - other

 

 

15,694

 

 

7,369

 

 

27,562

 

 

17,781

 

Long-term borrowings - FHLB

 

 

136,522

 

 

460,501

 

 

361,023

 

 

1,046,852

 

Long-term borrowings - subordinated debt

 

 

523,437

 

 

523,437

 

 

1,046,875

 

 

1,046,875

 

 

 



 



 



 



 

Total interest expense

 

 

11,720,140

 

 

10,921,316

 

 

23,323,963

 

 

20,697,033

 

Interest expense allocated to discontinued operations

 

 

 

 

(878,229

)

 

 

 

(1,652,223

)

 

 



 



 



 



 

Net interest income

 

 

18,205,702

 

 

19,130,991

 

 

35,708,327

 

 

37,524,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

1,078,332

 

 

377,229

 

 

2,328,332

 

 

1,742,229

 

 

 



 



 



 



 

Net interest income after provision for loan losses

 

 

17,127,370

 

 

18,753,762

 

 

33,379,995

 

 

35,782,419

 

 

 



 



 



 



 

Total noninterest income

 

 

9,051,511

 

 

9,005,707

 

 

18,280,807

 

 

14,790,560

 

 

 



 



 



 



 

Total noninterest expenses

 

 

20,228,031

 

 

18,805,582

 

 

39,911,781

 

 

37,327,934

 

 

 



 



 



 



 

Income from continuing operations before income taxes

 

 

5,950,850

 

 

8,953,887

 

 

11,749,021

 

 

13,245,045

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

2,159,412

 

 

3,571,596

 

 

4,385,910

 

 

1,377,862

 

 

 



 



 



 



 

Income from continuing operations

 

 

3,791,438

 

 

5,382,291

 

 

7,363,111

 

 

11,867,183

 

Income/(Loss) from discontinued operations, net of tax

 

 

71,252

 

 

(516,806

)

 

(20,719

)

 

(561,565

)

 

 



 



 



 



 

Net income

 

$

3,862,690

 

$

4,865,485

 

$

7,342,392

 

$

11,305,618

 

 

 



 



 



 



 

Average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,439,318

 

 

18,754,271

 

 

18,524,871

 

 

18,769,265

 

Diluted

 

 

18,856,903

 

 

19,286,286

 

 

18,994,625

 

 

19,310,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, per average common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

$

0.29

 

$

0.40

 

$

0.63

 

Diluted

 

 

0.20

 

 

0.28

 

 

0.39

 

 

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income, per average common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.21

 

 

0.26

 

 

0.40

 

 

0.60

 

Diluted

 

 

0.20

 

 

0.25

 

 

0.39

 

 

0.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

 

0.19

 

 

0.19

 

 

0.38

 

 

0.38

 


See Notes to Consolidated Financial Statements.

4



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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 


 


 


 


 

 

Net Income

 

$

3,862,690

 

$

4,865,485

 

$

7,342,392

 

$

11,305,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)/income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

(1,233,699

)

 

(985,184

)

 

(897,251

)

 

(2,219,531

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for losses/(gains) included in net income

 

 

1,098

 

 

(8,148

)

 

1,098

 

 

243,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

 

13,544

 

 

 

 

27,089

 

 

 

Net actuarial losses

 

 

182,447

 

 

 

 

364,893

 

 

 

 

 

 



 



 



 



 

Comprehensive income

 

$

2,826,080

 

$

3,872,153

 

$

6,838,221

 

$

9,329,789

 

 

 



 



 



 



 

See Notes to Consolidated Financial Statements.

5



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

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

 

 


 


 

Common Stock

 

 

 

 

 

 

 

Balance at January 1

 

$

21,177,084

 

$

21,066,916

 

Common shares issued under stock incentive plan

 

 

85,086

 

 

110,168

 

 

 



 



 

Balance at June 30

 

$

21,262,170

 

$

21,177,084

 

 

 



 



 

Capital Surplus

 

 

 

 

 

 

 

Balance at January 1

 

$

167,960,063

 

$

166,313,566

 

Common shares issued under stock incentive plan and related tax benefits

 

 

691,183

 

 

1,613,243

 

 

 



 



 

Balance at June 30

 

$

168,651,246

 

$

167,926,809

 

 

 



 



 

Retained Earnings

 

 

 

 

 

 

 

Balance at January 1

 

$

16,693,987

 

$

20,739,352

 

Net Income

 

 

7,342,392

 

 

11,305,618

 

Cash dividends paid - common shares

 

 

(6,993,026

)

 

(7,124,063

)

 

 



 



 

Balance at June 30

 

$

17,043,353

 

$

24,920,907

 

 

 



 



 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

Balance at January 1

 

$

(11,842,908

)

$

(5,229,620

)

 

 



 



 

Unrealized holding losses arising during the period:

 

 

 

 

 

 

 

Before tax

 

 

(1,635,526

)

 

(3,837,020

)

Tax effect

 

 

738,275

 

 

1,617,489

 

 

 



 



 

Net of tax

 

 

(897,251

)

 

(2,219,531

)

 

 



 



 

Reclassification adjustment for losses included in net income:

 

 

 

 

 

 

 

Before tax

 

 

2,001

 

 

444,631

 

Tax effect

 

 

(903

)

 

(200,929

)

 

 



 



 

Net of tax

 

 

1,098

 

 

243,702

 

 

 



 



 

Amortization of prior service cost and net actuarial losses:

 

 

 

 

 

 

 

Before tax

 

 

714,512

 

 

 

Tax effect

 

 

(322,530

)

 

 

 

 



 



 

Net of tax

 

 

391,982

 

 

 

 

 



 



 

Balance at June 30

 

$

(12,347,079

)

$

(7,205,449

)

 

 



 



 

Treasury Stock

 

 

 

 

 

 

 

Balance at January 1

 

$

(61,725,455

)

$

(55,280,647

)

Purchase of common shares

 

 

(10,515,732

)

 

(3,809,856

)

Surrender of shares issued under stock incentive plan

 

 

(455,955

)

 

(613,792

)

 

 



 



 

Balance at June 30

 

$

(72,697,142

)

$

(59,704,295

)

 

 



 



 

Unearned Compensation

 

 

 

 

 

 

 

Balance at January 1

 

$

 

$

(22,007

)

Amortization of unearned compensation

 

 

 

 

22,007

 

 

 



 



 

Balance at June 30

 

$

 

$

 

 

 



 



 

Total Shareholders’ Equity

 

 

 

 

 

 

 

Balance at January 1

 

$

132,262,771

 

$

147,587,560

 

Net changes during the period

 

 

(10,350,223

)

 

(472,504

)

 

 



 



 

Balance at June 30

 

$

121,912,548

 

$

147,115,056

 

 

 



 



 


See Notes to Consolidated Financial Statements.

6



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

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

 

 


 


 

Operating Activities

 

 

 

 

 

 

 

Net Income

 

$

7,342,392

 

$

11,305,618

 

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

 

 

20,719

 

 

561,565

 

 

 



 



 

Income from continuing operations

 

 

7,363,111

 

 

11,867,183

 

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

 

 

 

 

 

 

 

Provision for loan losses

 

 

2,328,332

 

 

1,742,229

 

Depreciation and amortization of premises and equipment

 

 

1,297,663

 

 

1,118,244

 

Securities losses

 

 

2,001

 

 

444,631

 

Income from bank owned life insurance

 

 

(538,681

)

 

(488,365

)

Deferred income tax provision

 

 

207,295

 

 

1,282,520

 

Proceeds from sale of loans

 

 

272,674,045

 

 

312,440,005

 

Gains on sales of loans, net

 

 

(5,376,076

)

 

(4,783,972

)

Originations of loans held for sale

 

 

(280,335,148

)

 

(296,310,746

)

Amortization of unearned compensation

 

 

 

 

22,007

 

Amortization of premiums on securities

 

 

231,135

 

 

318,295

 

Accretion of discounts on securities

 

 

(180,222

)

 

(262,433

)

Decrease in accrued interest receivable

 

 

950,958

 

 

1,047,191

 

Decrease in accrued expenses and other liabilities

 

 

(12,071,201

)

 

(15,900,429

)

Increase in other assets

 

 

(5,338,491

)

 

(759,477

)

Other, net

 

 

(17,854

)

 

(762,003

)

 

 



 



 

Net cash (used in) provided by operating activities

 

 

(18,803,133

)

 

11,014,880

 

 

 



 



 

Investing Activities

 

 

 

 

 

 

 

Purchase of premises and equipment

 

 

(1,484,112

)

 

(770,429

)

Net decrease in interest-bearing deposits with other banks

 

 

83,725

 

 

56,613

 

Net decrease in federal funds sold

 

 

10,000,000

 

 

 

Net (increase) decrease in loans held in portfolio

 

 

(12,376,532

)

 

43,541,960

 

Decrease (Increase) in other real estate

 

 

185,054

 

 

(605,280

)

Proceeds from calls of securities - held to maturity

 

 

18,125,000

 

 

 

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

 

 

41,344,375

 

 

40,563,283

 

Purchases of securities - held to maturity

 

 

(25,003,500

)

 

(115,870

)

Proceeds from sales of securities - available for sale

 

 

2,750

 

 

25,369,800

 

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

 

 

31,703,892

 

 

21,208,122

 

Purchases of securities - available for sale

 

 

(30,996,171

)

 

(10,045,571

)

Cash paid in acquisition

 

 

 

 

(44,901,402

)

 

 



 



 

Net cash provided by investing activities

 

 

31,584,481

 

 

74,301,226

 

 

 



 



 

Financing Activities

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

11,797,240

 

 

(42,951,065

)

Long-term borrowings called

 

 

10,000,000

 

 

Net increase (decrease) in borrowings

 

 

21,916,715

 

 

(22,394,330

)

Purchase of treasury stock

 

 

(10,515,732

)

 

(3,809,856

)

Net proceeds from issuance of common stock including the exercise of stock options and related tax benefits

 

 

776,269

 

 

1,723,411

 

Cash dividends paid on common stock

 

 

(6,993,026

)

 

(7,124,063

)

 

 



 



 

Net cash used in financing activities

 

 

6,981,466

 

 

(74,555,903

)

 

 



 



 

Cash flows from discontinued operations

 

 

 

 

 

 

 

Operating cash flows

 

 

208,813

 

 

2,819,401

 

Investing cash flows

 

 

 

 

(171,907

)

 

 



 



 

Total

 

 

208,813

 

 

2,647,494

 

 

 



 



 

Net (decrease) increase in cash and due from banks

 

 

19,971,627

 

 

13,407,697

 

Cash and due from banks - beginning of period

 

 

50,058,593

 

 

68,562,037

 

 

 



 



 

Cash and due from banks - end of period

 

$

70,030,220

 

$

81,969,734

 

 

 



 



 

Supplemental disclosures:

 

 

 

 

 

 

 

Interest paid

 

$

23,508,403

 

$

20,833,908

 

Income taxes paid

 

 

949,459

 

 

4,216,362

 

See Notes to Consolidated Financial Statements.

7



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

 

 

1.

The consolidated financial statements include the accounts of Sterling Bancorp (the “parent company”) and its subsidiaries, principally Sterling National Bank and its subsidiaries (the “bank”), after elimination of material intercompany transactions. The term the “Company” refers to Sterling Bancorp and its subsidiaries. The consolidated financial statements as of and for the interim periods ended June 30, 2007 and 2006 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 2006 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, 2006.

 

 

2.

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


 

 

 

 

 

 

 

 

 

 

June 30,
2007

 

December 31,
2006

 

 

 


 


 

Loans held for sale

 

 

 

 

 

 

 

Real estate-residential mortgage

 

$

46,356,968

 

$

33,319,789

 

 

 



 



 

Loans held in portfolio

 

 

 

 

 

 

 

Commercial and industrial

 

$

596,781,663

 

$

622,476,925

 

Lease financing

 

 

262,631,023

 

 

239,225,533

 

Real estate-residential mortgage

 

 

131,462,145

 

 

120,056,900

 

Real estate-commercial mortgage

 

 

92,718,380

 

 

93,214,668

 

Real estate-construction

 

 

38,146,578

 

 

30,030,684

 

Installment

 

 

10,333,376

 

 

12,380,848

 

Loans to depository institutions

 

 

25,000,000

 

 

27,000,000

 

 

 



 



 

 

 

 

 

 

 

 

 

Loans held in portfolio, gross

 

 

1,157,073,165

 

 

1,144,385,558

 

Less unearned discounts

 

 

35,129,293

 

 

31,783,938

 

 

 



 



 

Loans held in portfolio, net of unearned discounts

 

$

1,121,943,872

 

$

1,112,601,620

 

 

 



 



 


3.

The following information is provided in connection with the sales and/or calls of available for sale securities:


Three Months Ended
June 30,

Six Months Ended
June 30,

2007
2006
2007
2006
Proceeds     $ 2,750   $ 831,300       $ 2,750   $ 25,369,800  
Gross Gains        14,866           14,866  
Gross Losses    22           22    459,497  

 

During the first quarter of 2006 the Company sold lower yielding available for sale securities at a loss to partially fund the acquisition of Sterling Resource Funding Corp.


 

The following information is provided in connection with the calls of held to maturity securities:


Three Months Ended
June 30,

Six Months Ended
June 30,

2007
2006
2007
2006
Proceeds     $ 18,125,000   $       $ 18,125,000   $  
Gross Gains                     
Gross Losses    1,979           1,979      

8



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

 

 

4.

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


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 


 


 

 

 

2007

 

2006

 

2007

 

2006

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPONENTS OF NET PERIODIC BENEFIT
COST

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

409,271

 

$

446,747

 

$

818,542

 

$

914,246

 

Interest cost

 

 

567,201

 

 

583,642

 

 

1,134,402

 

 

1,200,542

 

Expected return on plan assets

 

 

(475,457

)

 

(565,806

)

 

(950,914

)

 

(1,108,782

)

Amortization of prior service cost

 

 

24,689

 

 

18,115

 

 

49,378

 

 

37,806

 

Recognized actuarial loss

 

 

332,567

 

 

319,270

 

 

665,134

 

 

656,188

 

 

 



 



 



 



 

Net periodic benefit cost

 

$

858,271

 

$

801,968

 

$

1,716,542

 

$

1,700,000

 

 

 



 



 



 



 


 

 

 

The Company currently expects to contribute approximately $3,000,000 to the defined benefit pension plan in 2007. No contribution has been made as of June 30, 2007.


 

 

5.

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


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 


 


 

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 


 


 


 


 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable management/factoring commissions and other fees

 

$

3,820,957

 

$

3,880,218

 

$

7,488,576

 

$

5,224,980

 

 

Service charges on deposit accounts

 

 

1,424,778

 

 

1,282,000

 

 

2,906,390

 

 

2,686,004

 

 

Other customer related service charges and fees

 

 

743,002

 

 

812,854

 

 

1,433,110

 

 

1,620,922

 

 

Mortgage banking income

 

 

2,543,656

 

 

2,567,420

 

 

5,376,076

 

 

4,783,972

 

 

Trust fees

 

 

125,180

 

 

137,798

 

 

266,383

 

 

289,520

 

 

Bank owned life insurance income

 

 

286,130

 

 

268,305

 

 

538,681

 

 

488,365

 

 

Securities (losses)/gains

 

 

(2,001

)

 

14,866

 

 

(2,001

)

 

(444,631

)

 

Other income

 

 

109,809

 

 

42,246

 

 

273,592

 

 

141,428

 

 

 

 



 



 



 



 

 

Total noninterest income

 

$

9,051,511

 

$

9,005,707

 

$

18,280,807

 

$

14,790,560

 

 

 

 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 


 


 

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 


 


 


 


 

 

NONINTEREST EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

 

$

8,450,719

 

$

9,110,770

 

$

17,448,231

 

$

16,873,588

 

 

Employee benefits

 

 

2,734,833

 

 

2,770,949

 

 

5,224,394

 

 

5,672,272

 

 

 

 



 



 



 



 

 

Total personnel expense

 

 

11,185,552

 

 

11,881,719

 

 

22,672,625

 

 

22,545,860

 

 

Occupancy and equipment expenses, net

 

 

2,638,634

 

 

2,480,026

 

 

5,346,337

 

 

4,782,975

 

 

Advertising and marketing

 

 

1,121,979

 

 

806,572

 

 

2,085,880

 

 

1,805,598

 

 

Professional fees

 

 

1,950,928

 

 

692,443

 

 

3,290,703

 

 

2,515,606

 

 

Communications

 

 

453,841

 

 

451,143

 

 

970,111

 

 

845,715

 

 

Other expenses

 

 

2,877,097

 

 

2,493,679

 

 

5,546,125

 

 

4,832,180

 

 

 

 



 



 



 



 

 

Total noninterest expense

 

$

20,228,031

 

$

18,805,582

 

$

39,911,781

 

$

37,327,934

 

 

 

 



 



 



 



 


 

 

6.

Statement of Financial Accounting Standards (“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 interest incurred on interest-bearing liabilities. The Company’s 2007 year-to-date average interest-earning assets were

9



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

 

 

 

64.0% loans (corporate lending was 68.1% and real estate lending was 27.2% of total loans, respectively) and 33.6% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 72% 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.

The following tables provide certain information regarding the Company’s operating segments for the three and six month periods ended June 30, 2007 and 2006 (all amounts are from continuing operations except where designated as discontinued):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate
Lending

 

Real Estate
Lending

 

Company-wide
Treasury

 

Totals

 

 

 


 


 


 


 

Three Months Ended June 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

6,591,874

 

$

5,394,533

 

$

5,967,782

 

$

17,954,189

 

Noninterest income

 

 

5,651,376

 

 

2,572,330

 

 

376,751

 

 

8,600,457

 

Depreciation and amortization

 

 

190,536

 

 

94,181

 

 

615

 

 

285,332

 

Segment income from continuing operations before income taxes

 

 

4,175,336

 

 

3,856,976

 

 

5,702,458

 

 

13,734,770

 

Segment income from discontinued operations before income taxes

 

 

129,732

 

 

 

 

 

 

129,732

 

Segment assets from continuing operations

 

 

744,023,452

 

 

399,817,522

 

715,189,386

 

1,859,030,360

 

Segment assets from discontinued operations

 

 

1,226,062

 

 

 

 

 

 

1,226,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

9,462,733

 

$

5,414,600

 

$

3,994,866

 

$

18,872,199

 

Noninterest income

 

 

5,467,205

 

 

2,621,722

 

 

348,091

 

 

8,437,018

 

Depreciation and amortization

 

 

174,891

 

 

101,271

 

 

615

 

 

276,777

 

Segment income from continuing operations before income taxes

 

 

8,119,492

 

 

3,268,018

 

 

3,387,009

 

 

14,774,519

 

Segment loss from discontinued operations before income taxes

 

 

(940,908

)

 

 

 

 

 

(940,908

)

Segment assets from continuing operations

 

 

763,475,411

 

 

337,932,342

 

 

750,566,462

 

 

1,851,974,215

 

Segment assets from discontinued operations

 

 

114,265,781

 

 

 

 

 

 

114,265,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

12,817,524

 

$

10,368,705

 

$

12,021,830

 

$

35,208,059

 

Noninterest income

 

 

11,233,401

 

 

5,493,329

 

 

712,474

 

 

17,439,204

 

Depreciation and amortization

 

 

370,940

 

 

186,489

 

 

1,229

 

 

558,658

 

Segment income from continuing operations before income taxes

 

 

8,297,305

 

 

8,104,876

 

 

11,448,675

 

 

27,850,856

 

Segment loss from discontinued operations before income taxes

 

 

(37,722

)

 

 

 

 

 

(37,722

)

Segment assets from continuing operations

 

 

744,023,452

 

 

399,817,522

 

 

715,189,386

 

 

1,859,030,360

 

Segment assets from discontinued operations

 

 

1,226,062

 

 

 

 

 

 

1,226,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

17,573,494

 

$

10,839,233

 

$

8,581,267

 

$

36,993,994

 

Noninterest income

 

 

8,618,674

 

 

4,937,193

 

 

186,442

 

 

13,742,309

 

Depreciation and amortization

 

 

278,293

 

 

202,002

 

 

1,229

 

 

481,524

 

Segment income from continuing operations before income taxes

 

 

12,947,430

 

 

6,191,656

 

 

7,681,298

 

 

26,820,384

 

Segment loss from discontinued operations before income taxes

 

 

(1,017,526

)

 

 

 

 

 

(1,017,526

)

Segment assets from continuing operations

 

 

763,475,411

 

 

337,932,342

 

 

750,566,462

 

 

1,851,974,215

 

Segment assets from discontinued operations

 

 

114,265,781

 

 

 

 

 

 

114,265,781

 

10



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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 


 


 

 

 

2007

 

2006

 

2007

 

2006

 

 

 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

17,954,189

 

$

18,872,199

 

$

35,208,059

 

$

36,993,994

 

Other [1]

 

 

251,513

 

 

258,792

 

 

500,268

 

 

530,654

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net interest income

 

$

18,205,702

 

$

19,130,991

 

$

35,708,327

 

$

37,524,648

 

 

 



 



 



 



 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

8,600,457

 

$

8,437,018

 

$

17,439,204

 

$

13,742,309

 

Other [1]

 

 

451,054

 

 

568,689

 

 

841,603

 

 

1,048,251

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated noninterest income

 

$

9,051,511

 

$

9,005,707

 

$

18,280,807

 

$

14,790,560

 

 

 



 



 



 



 

Income from continuing operations before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for reportable operating segments

 

$

13,734,770

 

$

14,774,519

 

$

27,850,856

 

$

26,820,384

 

Other [1]

 

 

(7,783,920

)

 

(5,820,632

)

 

(16,101,835

)

 

(13,575,339

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated income from continuing operations before income taxes

 

$

5,950,850

 

$

8,953,887

 

$

11,749,021

 

$

13,245,045

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total for reportable operating segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

  - continuing operations

 

$

1,859,030,360

 

$

1,851,974,215

 

$

1,859,030,360

 

$

1,851,974,215

 

  - discontinued operations

 

 

1,226,062

 

 

114,265,781

 

 

1,226,062

 

 

114,265,781

 

Other [1]

 

 

26,721,680

 

 

28,693,686

 

 

26,721,680

 

 

28,693,686

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated assets

 

$

1,886,978,102

 

$

1,994,933,682

 

$

1,886,978,102

 

$

1,994,933,682

 

 

 



 



 



 



 

[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)

 

 

7.

The Company adopted Emerging Issues Task Force Issue No. 06-5, Accounting for Purchases of Life Insurance-Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance, and Statement of Financial Accounting Standards (“SFAS”) No. 156, Accounting for Servicing of Financial Assets-An Amendment of FASB Statement No. 140, as of January 1, 2007. There was no material impact on the Company’s results of operations or financial condition upon adoption.

 

 

 

The Company also adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) as of January 1, 2007. The implementation of FIN 48 did not have an impact on our financial position or results of operations. At the adoption date of January 1, 2007 and at June 30, 2007, we had approximately $644,000 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. Approximately 50% of the unrecognized tax benefits are expected to be recognized during the second half of 2007 due to the expiration of the statute of limitations related to the taxation of certain income items. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in noninterest operating expenses. Such accrued interest payable was approximately $235,000 at January 1, 2007. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company’s federal income tax returns for 2002 through 2005 are currently either under examination or subject to examination. The Company’s New York State and New York City tax returns for years prior to 2003 are no longer subject to examination.

 

 

 

SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – An Amendment of FASB Statements No. 133 and 140, which became effective for certain hybrid financial instruments acquired or issued by the Company on or after January 1, 2007, has had no impact on the Company’s consolidated financial statements because the Company has not acquired or issued the type of instruments covered by SFAS No. 155.

 

 

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities– Including An Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at estimated fair value. Most of the provisions of SFAS No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities that own trading and available for sale securities. The fair value option created by SFAS No. 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS No. 159 is effective for the Company as of January 1, 2008. The Company is currently analyzing the potential effects of SFAS No. 159 on its financial statements.

 

 

 

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires expanded disclosures regarding fair value measurements. SFAS No. 157 is effective for the Company on January 1, 2008 and is not expected to have a significant impact on the Company’s financial statements.

12



 

 

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, 2006. 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, New Jersey and North Carolina 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 June 30, 2007, the bank’s average earning assets represented approximately 99.9% of the Company’s average earning assets. Loans represented 65.3% and investment securities represented 32.9% of the bank’s average earning assets for the second quarter of 2007.

For the six months ended June 30, 2007, the bank’s average earning assets represented approximately 99.7% of the Company’s average earning assets. Loans represented 63.9% and investment securities represented 33.7% of the bank’s average earning assets for the six months ended June 30, 2007.

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.

13



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

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

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on pages 27 and 28. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on pages 25 and 26.

Comparison of the Three Months Ended June 30, 2007 and 2006

The Company reported income from continuing operations, after income taxes, for the three months ended June 30, 2007 of $3.8 million, representing $0.20 per share, calculated on a diluted basis, compared to $5.4 million, or $0.28 per share calculated on a diluted basis, for the second quarter of 2006. This decrease reflects higher interest and noninterest expenses and an increase in provision for loan losses which were only partially offset by increases in both interest and noninterest income and a decrease in provision for income taxes.

14



Net Interest Income

Net interest income, on a tax-equivalent basis, was $18.3 million for the second quarter of 2007 compared to $19.3 million for the 2006 period, as the higher rates paid on interest-bearing deposits and borrowings in the second quarter of 2007 more than offset the effects of higher balances for loans and lower balances for borrowings and investment securities for that quarter. The net interest margin, on a tax-equivalent basis, was 4.35% for the second quarter of 2007 compared to 4.58% for the 2006 period. The net interest margin was impacted by the flat yield curve, the higher interest rate environment in 2007, the higher level of noninterest-bearing demand deposits and the effect of higher average loans outstanding. The flat yield curve and more competitive pricing practices in the Company’s markets have caused the costs of deposits and borrowings to increase faster than the yield on earning assets.

Total interest income, on a tax-equivalent basis, aggregated $30.0 million for the second quarter of 2007 compared to $29.4 million for the 2006 period. The tax-equivalent yield on interest-earning assets was 7.24% for the second quarter of 2007 compared to 7.06% for the 2006 period.

Interest earned on the loan portfolio amounted to $23.1 million for the second quarter of 2007, up from $21.6 million the prior year period. Average loan balances amounted to $1,104.7 million, an increase of $76.4 million from an average of $1,028.3 million in the prior year period. The increase in average loans (across many segments of the Company’s loan portfolio), primarily due to the Company’s business development activities, accounted for $1.7 million of the $1.5 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 8.66% for the second quarter of 2007 from 8.72% for the 2006 period was primarily attributable to the mix of average outstanding balances among the components of the loan portfolio and the competitive pricing practices in the Company’s markets.

Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $6.5 million for the second quarter of 2007 from $7.7 million in the prior year period. Average outstandings decreased to $554.6 million (32.8% of average earning assets) for the second quarter of 2007 from $661.6 million (39.0% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 4.4 years at June 30, 2007 compared to 4.5 years at June 30, 2006.

Total interest expense increased by $1.7 million for the second quarter of 2007 from $10.0 million for the 2006 period, primarily due to the impact of higher rates paid for interest-bearing deposits partially offset by the impact of lower borrowed funds balances.

Interest expense on deposits increased to $9.9 million for the second quarter of 2007 from $6.4 million for the 2006 period, primarily due to an increase in the cost of those funds. The average rate paid on interest-bearing deposits was 3.77% which was 96 basis points higher than the prior year period. The increase in average cost of deposits reflects the higher interest rate environment during 2007.

15



Interest expense on borrowings decreased to $1.9 million for the second quarter of 2007 from $4.5 million for the 2006 period, primarily due to a decrease in average balances. Average borrowings decreased to $144.4 million for the second quarter of 2007 from $373.7 million in the prior year period, reflecting less 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” below), the provision for loan losses for the second quarter of 2007 was $1.1 million, compared to $0.4 million for the prior year period. Factors affecting the level of provision included the growth in the loan portfolios, changes in general economic conditions and the amount of nonaccrual loans.

Noninterest Income

Noninterest income increased to $9.1 million for the second quarter of 2007 from $9.0 million in the 2006 period, primarily due to an increase in service charges on deposit accounts.

Noninterest Expenses

Noninterest expenses for the second quarter of 2007 increased $1.4 million when compared to the 2006 period primarily due to an increase in professional fees; during the second quarter of 2006, professional fee expense benefitted from a recovery of $1.1 million.

Provision for Income Taxes

The provision for income taxes decreased by $1.4 million to $2.2 million for the second quarter of 2007. The decrease was primarily due to the lower level of pre-tax income in the 2007 period.

Discontinued Operations

In September 2006, the Company sold the business conducted by Sterling Financial Services. In accordance with U.S. generally accepted accounting principles, the after-tax loss from discontinued operations is reported in the Consolidated Statements of Income after income from continuing operations.

Income from discontinued operations, net of tax, was $71 thousand for the second quarter of 2007, compared to a loss of $517 thousand for the second quarter of 2006.

Income taxes applicable to discontinued operations were calculated at the Company’s overall marginal tax rate of 45.14%.

16



Comparison of the Six Months Ended June 30, 2007 and 2006

The Company reported income from continuing operations, after income taxes, for the six months ended June 30, 2007 of $7.4 million, representing $0.39 per share, calculated on a diluted basis, compared to $11.9 million, or $0.61 per share, calculated on a diluted basis, for the first six months of 2006. This decrease reflects higher interest and noninterest expenses and increases in provision for loan losses and provision for income taxes which were only partially offset by increases in both interest and noninterest income.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $36.0 million for the first six months of 2007 compared to $37.9 million for the 2006 period, as the higher rates paid on interest-bearing deposits and borrowings in the first six months of 2007 more than offset the effects of higher average yield on loans, higher balances for loans, lower balances for borrowings and investment securities compared to the 2006 period. The net interest margin, on a tax-equivalent basis, was 4.34% for the first six months of 2007 compared to 4.58% for the 2006 period. The net interest margin was impacted by the flat yield curve, the higher interest rate environment in 2007, the lower level of noninterest-bearing demand deposits and the effect of higher average loans outstanding. The flat yield curve and more competitive pricing practices in the Company’s markets have caused the costs of deposits and borrowings to increase faster than the yield on earning assets.

Total interest income, on a tax-equivalent basis, aggregated $59.3 million for the first six months of 2007, up $2.3 million from the 2006 period. The tax-equivalent yield on interest-earning assets was 7.24% for the first six months of 2007 compared to 6.94% for the 2006 period.

Interest earned on the loan portfolio amounted to $44.8 million for the first six months of 2007, up from $41.0 million the prior year period. Average loan balances amounted to $1,079.1 million, an increase of $76.9 million from an average of $1,002.3 million in the prior year period. The increase in average loans (across many segments of the Company’s loan portfolio), primarily due to the acquisition of Sterling Resource Funding Corp. (completed April 1, 2006) coupled with the Company’s other business development activities, accounted for $3.3 million of the $3.9 million increase in interest earned on loans. The increase in the yield on the loan portfolio to 8.74% for the first six months of 2007 from 8.62% for the 2006 period was primarily attributable to the mix (including the acquisition of Sterling Resource Funding Corp.) of average outstanding balances among the components of the loan portfolio and the higher interest rate environment in 2007.

Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $13.4 million for the first six months of 2007 from $15.9 million in the prior year period. Average outstandings decreased to $566.8 million (33.6% of average earning assets) for the first six months of 2007 from $685.0 million (40.5% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 4.4 years at June 30, 2007 compared to 4.5 years at June 30, 2006.

Total interest expense increased by $4.3 million for the first six months of 2007 from $19.0 million for the 2006 period, primarily due to the impact of higher interest-bearing deposit balances coupled with higher rates paid for those deposits partially offset by the impact of lower borrowed funds balances.

Interest expense on deposits increased to $19.3 million for the first six months of 2007 from $12.6 million for the 2006 period, primarily due to an increase in the cost of those funds. Average interest-bearing deposit balances increased to $1,033.7 million for the first six months of 2007 from $944.0 million in the 2006

17



period primarily the result of the Company’s branching initiatives and other business development activities. The average rate paid on interest-bearing deposits was 3.76% which was 106 basis points higher than the prior year period. The increase in average cost of deposits reflects the higher interest rate environment during 2007.

Interest expense on borrowings decreased to $4.1 million for the first six months of 2007 from $8.1 million for the 2006 period, primarily due to a decrease in average balances. Average borrowings decreased to $157.4 million for the first six months of 2007 from $345.4 million in the prior year period, reflecting less 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” below), the provision for loan losses for the first six months of 2007 was $2.3 million, compared to $1.7 million for the prior year period. Factors affecting the level of provision included the growth in the loan portfolios, changes in general economic conditions and the amount of nonaccrual loans.

Noninterest Income

Noninterest income increased to $18.3 million for the first six months of 2007 from $14.8 million in the 2006 period. Higher accounts receivable management/ factoring commissions and other fees were primarily due to revenues attributable to the acquisition of Sterling Resource Funding Corp. Mortgage banking income increased due to a change in product mix towards more profitable market segments and away from the less profitable, higher risk wholesale business. Also contributing to the increase were higher revenue from service charges on deposit accounts and a $0.4 million decrease in losses on sales of securities.

Noninterest Expenses

Noninterest expenses for the first six months of 2007 increased $2.6 million when compared to the 2006 period. The increase was primarily due to higher salaries and occupancy costs related to investments in the Sterling franchise, including two new branches and the acquisition of Sterling Resource Funding Corp. Also contributing to the increase was higher professional fees; during the second quarter of 2006, professional fee expenses benefitted from a recovery of $1.1 million. These increases were partially offset by expense reductions achieved from the reengineering of the mortgage banking activities and lower expenses for employee benefits.

Provision for Income Taxes

The provision for income taxes increased by $3.0 million to $4.4 million for the first six months of 2007. The increase was primarily due to a $3.7 million reversal of state and local taxes, net of federal tax effect, in the first quarter of 2006 as a result of the closure of certain years for local tax purposes.

Discontinued Operations

In September 2006, the Company sold the business conducted by Sterling Financial Services. In accordance with U.S. generally accepted accounting principles, the after-tax loss from discontinued operations is reported in the Consolidated Statements of Income after income from continuing operations.

Loss from discontinued operations, net of tax, was $21 thousand for the first six months of 2007, compared to $562 thousand for the first six months of 2006.

Income taxes applicable to discontinued operations were calculated at the Company’s overall marginal tax rate of 45.14%.

18



BALANCE SHEET ANALYSIS

Securities

The Company’s securities portfolios are comprised principally of mortgage-backed securities and agency notes of U.S. government corporations and government sponsored enterprises, and obligations of state and political institutions. At June 30, 2007, the Company’s portfolio of securities totaled $532.3 million, of which mortgage-backed securities and collateralized mortgage obligations of U.S. government corporations and government sponsored enterprises having an average life of approximately 4.5 years amounted to $476.6 million. 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 $0.4 million and $11.7 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at market 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 market value impairment is interest rate related and therefore temporary. “Available for sale” securities included gross unrealized gains of $0.2 million and gross unrealized losses of $5.8 million.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Life

 

Weighted Average Yield

 

 

 

 


 


June 30, 2007

 

 

AFS

 

HTM

 

AFS

 

HTM

 


 

 

Mortgage-backed securities

 

 

5.3 years

 

4.3 years

 

4.66

%

4.63

%

Agency notes

 

 

— 

 

1.2 years

 

 

4.31

%

Obligations of state and political institutions

 

 

5.2 years

 

— 

 

6.35

% (1)

— 

 

(1)     tax equivalent

19



The following table presents information regarding securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2007

 

Gross
Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Market
Value

 


 


 


 


 


 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMOs (Federal National Mortgage Association)

 

$

8,872,390

 

$

 

$

661,270

 

$

8,211,120

 

CMOs (Federal Home Loan Mortgage Corporation)

 

 

22,532,866

 

 

 

 

1,555,532

 

 

20,977,334

 

Federal National Mortgage Association

 

 

42,618,870

 

 

36,698

 

 

1,722,419

 

 

40,933,149

 

Federal Home Loan Mortgage Corporation

 

 

40,261,333

 

 

7,085

 

 

1,583,558

 

 

38,684,860

 

Government National Mortgage Association

 

 

3,701,983

 

 

101,022

 

 

3,738

 

 

3,799,267

 

 

 



 



 



 



 

Total mortgage-backed securities

 

 

117,987,442

 

 

144,805

 

 

5,526,517

 

 

112,605,730

 

Obligations of state and political institutions

 

 

17,877,746

 

 

38,547

 

 

270,662

 

 

17,645,631

 

Trust and money market preferred securities

 

 

12,177,116

 

 

39,600

 

 

7,114

 

 

12,209,602

 

Federal Reserve Bank stock

 

 

1,130,700

 

 

 

 

 

 

1,130,700

 

Federal Home Loan Bank stock

 

 

1,984,700

 

 

 

 

 

 

1,984,700

 

Other securities

 

 

304,442

 

 

18,936

 

 

 

 

323,378

 

 

 



 



 



 



 

 

Total

 

$

151,462,146

 

$

241,888

 

$

5,804,293

 

$

145,899,741

 

 

 



 



 



 



 

The following table presents information regarding securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2007

 

Carrying
Value

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Market
Value

 


 


 


 


 


 

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

CMOs (Federal National Mortgage Association)

 

$

12,521,964

 

$

 

$

728,280

 

$

11,793,684

 

CMOs (Federal Home Loan Mortgage Corporation)

 

 

21,889,193

 

 

 

 

1,270,179

 

 

20,619,014

 

Federal National Mortgage Association

 

 

188,084,592

 

 

183,552

 

 

5,105,195

 

 

183,162,949

 

Federal Home Loan Mortgage Corporation

 

 

132,012,336

 

 

55,031

 

 

4,444,398

 

 

127,622,969

 

Government National Mortgage Association

 

 

9,527,285

 

 

189,829

 

 

23,111

 

 

9,694,003

 

 

 



 



 



 



 

Total mortgage-backed securities

 

 

364,035,370

 

 

428,412

 

 

11,571,163

 

 

352,892,619

 

Agency Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank

 

 

11,871,516

 

 

 

 

44,954

 

 

11,826,562

 

Federal Farm Credit Bank

 

 

10,000,000

 

 

 

 

59,375

 

 

9,940,625

 

 

 



 



 



 



 

Total obligations of U.S. government corporations and agencies

 

 

385,906,886

 

 

428,412

 

 

11,675,492

 

 

374,659,806

 

Debt securities issued by foreign governments

 

 

500,000

 

 

 

 

1,523

 

 

498,477

 

 

 



 



 



 



 

Total

 

$

386,406,886

 

$

428,412

 

$

11,677,015

 

$

375,158,283

 

 

 



 



 



 



 

20



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 portfolio represents approximately 51% of all loans. Loans in this category are typically made to small and medium-sized businesses and range between $25,000 and $10 million. The Company’s real estate mortgage portfolio, which represents approximately 26% of all loans, is secured by mortgages on 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 from the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equipment, inventory, and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 


 

 

 

2007

 

2006

 

 

 


 


 

 

 

($ in thousands)

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

Balances

 

Total

 

Balances

 

Total

 

 

 


 


 


 


 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

596,624

 

 

51.1

%

$

542,606

 

 

51.2

%

Equipment lease financing

 

 

227,660

 

 

19.5

 

 

212,893

 

 

20.1

 

Real estate - residential mortgage

 

 

177,819

 

 

15.2

 

 

166,745

 

 

15.8

 

Real estate- commercial mortgage

 

 

92,718

 

 

7.9

 

 

118,891

 

 

11.2

 

Real estate - construction

 

 

38,147

 

 

3.3

 

 

3,746

 

 

0.4

 

Installment - individuals

 

 

10,333

 

 

0.9

 

 

14,213

 

 

1.3

 

Loans to depository institutions

 

 

25,000

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned discounts

 

$

1,168,301

 

 

100.0

%

$

1,059,094

 

 

100.0

%

 

 



 



 



 



 

Asset Quality

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

21



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 future 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 which will be 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 June 30, 2007, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.39% and the allowance was $15.6 million. At such date, the Company’s nonaccrual loans amounted to $5.9 million; $0.3 million of such loans was judged to be impaired within the scope of SFAS No. 114. There were no loans 90 days past due and still accruing. Based on the foregoing, as well as management’s judgment as to the current risks inherent in loans held in portfolio, the Company’s allowance for loan losses was deemed adequate to absorb all reasonably anticipated losses on specifically known and other potential credit risks associated with the portfolio as of June 30, 2007. 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 level taken in the first six months of 2007. 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 $1.3 million at June 30, 2007.

22



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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 


 

 

 

2007

 

2006

 

 

 


 


 

 

 

($ in thousands)

 

 

 

 

 

 

% of

 

 

 

 

% of

 

 

 

Balances

 

Total

 

Balances

 

Total

 

 

 


 


 


 


 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand

 

$

520,433

 

 

33.9

%

$

495,257

 

 

35.0

%

NOW

 

 

231,391

 

 

15.1

 

 

213,823

 

 

15.1

 

Savings

 

 

19,679

 

 

1.3

 

 

22,579

 

 

1.6

 

Money market

 

 

225,809

 

 

14.7

 

 

200,528

 

 

14.2

 

Time deposits

 

 

535,941

 

 

34.9

 

 

480,228

 

 

33.9

 

 

 



 



 



 



 

Total domestic deposits

 

 

1,533,253

 

 

99.9

 

 

1,412,415

 

 

99.8

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

 

575

 

 

0.1

 

 

3,028

 

 

0.2

 

 

 



 



 



 



 

Total deposits

 

$

1,533,828

 

 

100.0

%

$

1,415,443

 

 

100.0

%

 

 



 



 



 



 

Fluctuations of balances in total or among categories at any date may occur based on the Company’s mix of assets and liabilities as well as on customers’ balance sheet strategies. Historically, however, average balances for deposits have been relatively stable. Information regarding these average balances is presented on pages 25 and 26.

CAPITAL

The Company and the bank are subject to risk-based capital regulations which quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of the Tier 1 and Tier 2 components of Total Capital and establish minimum ratios of 4% for Tier 1 capital and 8% for Total Capital for capital adequacy purposes. Supplementing these regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at least 3% or 4%, depending upon an institution’s regulatory status) which is calculated by dividing Tier 1 capital by adjusted quarterly average assets (after deducting goodwill). Information regarding the Company’s and the bank’s risk-based capital is presented on page 29. 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 undercapitalized”, 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 June 30, 2007, the Company and the bank exceeded the requirements for “well capitalized” institutions.

23



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For information regarding recently issued accounting pronouncements and their impact or expected impact on the Company’s consolidated financial statements, see Note 7 of the Company’s unaudited consolidated financial statements in this quarterly report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: inflation, interest rates, market and monetary fluctuations; geopolitical developments including acts of war and terrorism and their impact on economic conditions; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; changes, particularly declines, in general economic conditions and in the local economies in which the Company operates; the financial condition of the Company’s borrowers; competitive pressures on loan and deposit pricing and demand; changes in technology and their impact on the marketing of new products and services and the acceptance of these products and services by new and existing customers; the willingness of customers to substitute competitors’ products and services for the Company’s products and services; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities and insurance); changes in accounting principles, policies and guidelines; the success of the Company at managing the risks involved in the foregoing, as well as the risks and uncertainties described in “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2006, and other risks and uncertainties detailed from time to time in press releases and other public filings. 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.

24



STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Three Months Ended June 30,
(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

 

 


 



 

 

Average
Balance

 

Interest

 

Average
Rate

 

Average
Balance

 

Interest

 

Average
Rate

 

 

 


 


 


 


 


 



ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

2,881

 

 

$

36

 

 

 

5.11

%

$

1,788

 

 

$

20

 

 

 

4.61

%

Securities available for sale

 

 

127,616

 

 

 

1,510

 

 

 

4.73

 

 

143,428

 

 

 

1,684

 

 

 

4.70

 

Securities held to maturity

 

 

407,034

 

 

 

4,699

 

 

 

4.62

 

 

488,398

 

 

 

5,551

 

 

 

4.55

 

Securities tax-exempt [2]

 

 

19,993

 

 

 

314

 

 

 

6.30

 

 

29,793

 

 

 

485

 

 

 

6.53

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

Total investment securities

 

 

554,643

 

 

 

6,523

 

 

 

4.71

 

 

661,619

 

 

 

7,720

 

 

 

4.67

 

Federal funds sold

 

 

27,967

 

 

 

368

 

 

 

5.20

 

 

2,802

 

 

 

35

 

 

 

4.93

 

Loans, net of unearned discounts [3]

 

 

1,104,708

 

 

 

23,121

 

 

 

8.66

 

 

1,028,304

 

 

 

21,589

 

 

 

8.72

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

TOTAL INTEREST-EARNING ASSETS

 

 

1,690,199

 

 

 

30,048

 

 

 

7.24

%

 

1,694,513

 

 

 

29,364

 

 

 

7.06

%

 

 

 

 

 

 



 

 



 

 

 

 

 



 

 



 

Cash and due from banks

 

 

63,451

 

 

 

 

 

 

 

 

 

 

60,953

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(16,320

)

 

 

 

 

 

 

 

 

 

(16,248

)

 

 

 

 

 

 

 

 

Goodwill

 

 

22,875

 

 

 

 

 

 

 

 

 

 

23,886

 

 

 

 

 

 

 

 

 

Other assets

 

 

92,000

 

 

 

 

 

 

 

 

 

 

89,855

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Total assets-continuing operations

 

 

1,852,205

 

 

 

 

 

 

 

 

 

 

1,852,959

 

 

 

 

 

 

 

 

 

Assets-discontinued operations

 

 

1,328

 

 

 

 

 

 

 

 

 

 

114,065

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,853,533

 

 

 

 

 

 

 

 

 

$

1,967,024

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

$

21,149

 

 

 

27

 

 

 

0.51

%

$

23,646

 

 

 

24

 

 

 

0.41

%

NOW

 

 

245,682

 

 

 

1,572

 

 

 

2.57

 

 

176,292

 

 

 

691

 

 

 

1.57

 

Money market

 

 

221,135

 

 

 

1,681

 

 

 

3.05

 

 

205,165

 

 

 

957

 

 

 

1.87

 

Time

 

 

561,843

 

 

 

6,579

 

 

 

4.70

 

 

504,428

 

 

 

4,707

 

 

 

3.74

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

 

 

574

 

 

 

2

 

 

 

1.09

 

 

3,027

 

 

 

8

 

 

 

1.02

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

Total interest-bearing deposits

 

 

1,050,383

 

 

 

9,861

 

 

 

3.77

 

 

912,558

 

 

 

6,387

 

 

 

2.81

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

76,091

 

 

 

805

 

 

 

4.24

 

 

81,439

 

 

 

767

 

 

 

3.78

 

Securities sold under agreements to repurchase - dealers

 

 

 

 

 

 

 

 

 

 

106,438

 

 

 

1,344

 

 

 

5.07

 

Federal funds purchased

 

 

1,758

 

 

 

24

 

 

 

5.26

 

 

19,912

 

 

 

251

 

 

 

4.99

 

Commercial paper

 

 

27,906

 

 

 

355

 

 

 

5.11

 

 

49,371

 

 

 

538

 

 

 

4.37

 

Short-term borrowings - FHLB

 

 

 

 

 

 

 

 

 

 

50,498

 

 

 

642

 

 

 

5.10

 

Short-term borrowings - other

 

 

1,179

 

 

 

15

 

 

 

5.34

 

 

581

 

 

 

7

 

 

 

5.09

 

Long-term borrowings - FHLB

 

 

11,648

 

 

 

136

 

 

 

4.69

 

 

39,670

 

 

 

461

 

 

 

4.64

 

Long-term borrowings - sub debt

 

 

25,774

 

 

 

524

 

 

 

8.38

 

 

25,774

 

 

 

524

 

 

 

8.37

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

Total borrowings

 

 

144,356

 

 

 

1,859

 

 

 

5.19

 

 

373,683

 

 

 

4,534

 

 

 

4.87

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

Interest-bearing liabilities allocated to discontinued operations

 

 

 

 

 

 

 

 

 

 

(103,508

)

 

 

(878

)

 

 

3.36

 

 

 



 

 



 

 

 

 

 



 

 



 

 

 

 

 

TOTAL INTEREST-BEARING LIABILITIES

 

 

1,194,739

 

 

 

11,720

 

 

 

3.94

%

 

1,182,733

 

 

 

10,043

 

 

 

3.41

%

 

 

 

 

 

 



 

 



 

 

 

 

 



 

 



 

Noninterest-bearing deposits

 

 

444,369

 

 

 

 

 

 

 

 

 

 

441,630

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

86,095

 

 

 

 

 

 

 

 

 

 

93,675

 

 

 

 

 

 

 

 

 

Liabilities-discontinued operations

 

 

180

 

 

 

 

 

 

 

 

 

 

103,661

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,725,383

 

 

 

 

 

 

 

 

 

 

1,821,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

128,150

 

 

 

 

 

 

 

 

 

 

145,325

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,853,533

 

 

 

 

 

 

 

 

 

$

1,967,024

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Net interest income/spread

 

 

 

 

 

 

18,328

 

 

 

3.30

%

 

 

 

 

 

19,321

 

 

 

3.65

%

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Net yield on interest-earning assets (margin)

 

 

 

 

 

 

 

 

 

 

4.35

%

 

 

 

 

 

 

 

 

 

4.58

%

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Less: Tax equivalent adjustment

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

 

191

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

Net interest income

 

 

 

 

 

$

18,205

 

 

 

 

 

 

 

 

 

$

19,130

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 


 

 

[1]

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

 

 

[2]

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

 

 

[3]

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

25



STERLING BANCORP AND SUBSIDIARIES
Average Balance Sheets [1]
Six Months Ended June 30,
(Unaudited)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

 

 


 


 

 

 

Average
Balance

 

Interest

 

Average
Rate

 

Average
Balance

 

Interest

 

Average
Rate

 

 

 


 


 


 


 


 


 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with other banks

 

$

2,856

 

$

67

 

 

5.24

%

$

2,413

 

$

50

 

 

4.47

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

 

 

131,105

 

 

3,149

 

 

4.80

 

 

156,907

 

 

3,571

 

 

4.55

 

Securities held to maturity

 

 

415,032

 

 

9,568

 

 

4.61

 

 

497,371

 

 

11,295

 

 

4.54

 

Securities tax-exempt [2]

 

 

20,669

 

 

653

 

 

6.37

 

 

30,752

 

 

1,004

 

 

6.59

 

 

 



 



 

 

 

 



 



 

 

 

 

Total investment securities

 

 

566,806

 

 

13,370

 

 

4.72

 

 

685,030

 

 

15,870

 

 

4.64

 

Federal funds sold

 

 

37,790

 

 

1,003

 

 

5.28

 

 

3,204

 

 

75

 

 

4.65

 

Loans, net of unearned discounts [3]

 

 

1,079,149

 

 

44,848

 

 

8.74

 

 

1,002,291

 

 

40,969

 

 

8.62

 

 

 



 



 

 

 

 



 



 

 

 

 

TOTAL INTEREST-EARNING ASSETS

 

 

1,686,601

 

 

59,288

 

 

7.24

%

 

1,692,938

 

 

56,964

 

 

6.94

%

 

 

 

 

 



 



 

 

 

 



 



 

Cash and due from banks

 

 

65,493

 

 

 

 

 

 

 

 

62,198

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(16,596

)

 

 

 

 

 

 

 

(16,124

)

 

 

 

 

 

 

Goodwill

 

 

22,868

 

 

 

 

 

 

 

 

22,530

 

 

 

 

 

 

 

Other assets

 

 

89,551

 

 

 

 

 

 

 

 

89,263

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total assets-continuing operations

 

 

1,847,917

 

 

 

 

 

 

 

 

1,850,805

 

 

 

 

 

 

 

Assets-discontinued operations

 

 

1,215

 

 

 

 

 

 

 

 

114,115

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,849,132

 

 

 

 

 

 

 

$

1,964,920

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings

 

$

21,026

 

 

52

 

 

0.50

%

$

24,666

 

 

50

 

 

0.41

%

NOW

 

 

233,916

 

 

2,970

 

 

2.56

 

 

179,385

 

 

1,426

 

 

1.60

 

Money market

 

 

214,138

 

 

3,117

 

 

2.94

 

 

223,379

 

 

1,979

 

 

1.79

 

Time

 

 

563,998

 

 

13,126

 

 

4.69

 

 

513,542

 

 

9,160

 

 

3.60

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

 

 

574

 

 

3

 

 

1.09

 

 

3,025

 

 

16

 

 

1.06

 

 

 



 



 

 

 

 



 



 

 

 

 

Total interest-bearing deposits

 

 

1,033,652

 

 

19,268

 

 

3.76

 

 

943,997

 

 

12,631

 

 

2.70

 

 

 



 



 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase - customers

 

 

85,517

 

 

1,880

 

 

4.43

 

 

80,756

 

 

1,462

 

 

3.65

 

Securities sold under agreements to repurchase - dealers

 

 

 

 

 

 

 

 

96,683

 

 

2,328

 

 

4.86

 

Federal funds purchased

 

 

1,354

 

 

36

 

 

5.25

 

 

16,117

 

 

386

 

 

4.77

 

Commercial paper

 

 

27,904

 

 

705

 

 

5.10

 

 

45,776

 

 

943

 

 

4.15

 

Short-term borrowings - FHLB

 

 

 

 

 

 

 

 

33,814

 

 

835

 

 

4.98

 

Short-term borrowings - other

 

 

1,040

 

 

27

 

 

5.34

 

 

746

 

 

18

 

 

4.81

 

Long-term borrowings - FHLB

 

 

15,801

 

 

361

 

 

4.57

 

 

45,746

 

 

1,047

 

 

4.58

 

Long-term borrowings - sub debt

 

 

25,774

 

 

1,047

 

 

8.38

 

 

25,774

 

 

1,047

 

 

8.38

 

 

 



 



 

 

 

 



 



 

 

 

 

Total borrowings

 

 

157,390

 

 

4,056

 

 

5.21

 

 

345,412

 

 

8,066

 

 

4.71

 

 

 



 



 

 

 

 



 



 

 

 

 

Interest-bearing liabilities allocated to discontinued operations

 

 

 

 

 

 

 

 

(103,015

)

 

(1,652

)

 

3.19

 

 

 



 



 

 

 

 



 



 

 

 

 

TOTAL INTEREST-BEARING LIABILITIES

 

 

1,191,042

 

 

23,324

 

 

3.95

%

 

1,186,394

 

 

19,045

 

 

3.24

%

 

 

 

 

 



 



 

 

 

 



 



 

Noninterest-bearing deposits

 

 

439,609

 

 

 

 

 

 

 

 

441,683

 

 

 

 

 

 

 

Other liabilities

 

 

88,880

 

 

 

 

 

 

 

 

89,006

 

 

 

 

 

 

 

Liabilities-discontinued operations

 

 

308

 

 

 

 

 

 

 

 

103,188

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total liabilities

 

 

1,719,839

 

 

 

 

 

 

 

 

1,820,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

129,293

 

 

 

 

 

 

 

 

144,649

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,849,132

 

 

 

 

 

 

 

$

1,964,920

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Net interest income/spread

 

 

 

 

 

35,964

 

 

3.29

%

 

 

 

 

37,919

 

 

3.70

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Net yield on interest-earning assets (margin)

 

 

 

 

 

 

 

 

4.34

%

 

 

 

 

 

 

 

4.58

%

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Less: Tax equivalent adjustment

 

 

 

 

 

256

 

 

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

Net interest income

 

 

 

 

$

35,708

 

 

 

 

 

 

 

$

37,524

 

 

 

 

 

 

 

</