Why Sterling?
STERLING BANCORP
STERLING NATIONAL BANK
A N N U A L R E P O R T 2 0 0 7
C O R P O R A T E P R O F I L E
Sterling Bancorp (NYSE: STL) is a New York-based banking and financial services company
that serves the needs of businesses, professionals and individuals. With assets exceeding
$2.0 billion, Sterling offers a broad array of products and services, combined with a unique
high-touch approach to customer service. The Company’s principal banking subsidiary,
Sterling National Bank, with offices in New York City and Queens, Nassau and Westchester
counties, was founded in 1929.
Known for its focus on business customers, Sterling offers such services as working capital
lines, asset-based financing, factoring and accounts receivable management, payroll funding
and processing, equipment leasing and financing, commercial and residential mortgages,
international trade financing, cash management, a wide array of deposit products, trust and
estate administration, and investment management services.
Why Sterling?
Focus on the NY-Metro Market and Beyond
Commitment to Business Customers
Diverse, Value-Added Products and Services
Talented and Accessible People at All Levels
Track Record of Strength and Stability
Serving business customers in one of the world’s most attractive markets, Sterling offers an
extensive product portfolio that rivals the services of the largest financial institutions. At the
same time, Sterling provides customers with the attentive, personalized service typical of
community banks. Our highly talented, dedicated and accessible professionals are skilled in
creating individualized solutions for customers to serve a wide range of financial needs.
Sterling’s exceptional mix of top-notch products, services and people, together with a track
record of financial strength, has delivered a consistent outcome for decades—helping
customers grow, succeed and achieve their financial goals. Our commitment to this
seemingly simple business strategy has been the source of Sterling’s unique marketplace
advantage for nearly 80 years.
Sterlingleadership
In 2007, Sterling continued to focus on providing unsurpassed
service to our customers, and on our commitment to building
value for our shareholders. As a result, we continued to meet
the needs of our marketplace and grow our business during a
challenging period for the financial markets.
John C. Millman
President
Louis J. Cappelli
Chairman and Chief Executive Officer
A M E S S A G E F R O M O U R C H A I R M A N A N D P R E S I D E N T
Sterling’s 2007 financial results were highlighted by a
challenges faced by many institutions over the past year.
41% rise in earnings per share. Net income increased to
Underwriting discipline and the avoidance of higher-risk
$14.6 million or $0.79 per diluted share, up from $10.8
asset classes are the keys to our strong credit quality. There
million or $0.56 per diluted share for 2006. At a time of
is also no substitute for experience: we know our custom-
earnings volatility for many financial companies, we can
ers and our markets, and that knowledge is reflected in
point with pride to our track record of sequential growth in
the high quality of our lending and investment portfolios.
EPS from continuing operations throughout the past year:
$0.19 in the first quarter, $0.20 in the second quarter,
$0.21 in the third quarter, and $0.23 in the fourth quarter.
To be specific, Sterling has minimal exposure to sub-prime
mortgages, consumer debt and home equity loans, credit
card receivables, auto loans, or other asset types that
Our strong performance in 2007 reflected Sterling’s long-
have posed problems in the current market. Our mort-
term focus on providing unsurpassed service to custom-
gage company is focused on FHA-insured and conform-
ers, maintaining the quality of our loans and investments,
ing loans and other high quality products. And our
and enhancing shareholder value.
balance sheet has none of the exotic instruments such
Overall, we experienced sustained demand for our
services in the New York-Metropolitan area marketplace
and beyond. Loans held in portfolio, net of unearned
discount, set a record, averaging $1.07 billion for 2007—a
6.7% growth rate. Total deposits averaged $1.50 billion—
up 7.9%. Noninterest-bearing deposits were 35% of total
deposits at the end of 2007, one of the highest ratios of
demand to total deposits in our industry.
Strong Credit Quality in the Spotlight.
Sterling’s longstanding commitment to sound risk man-
agement enabled us to avoid the severe credit quality
as collateralized debt obligations (CDOs) or structured
investment vehicles (SIVs) that have caused deep losses
for others.
Commitment to Shareholder Value.
During 2007, Sterling paid four quarterly cash dividends
of $0.19 per share each. Our history of uninterrupted
dividends now spans 248 consecutive quarters—one of
the longest dividend track records among publicly listed
companies. The Board of Directors further demonstrated
its confidence in the Company’s prospects and commit-
ment to shareholder value by repurchasing 862,000
2
common shares, or 4.6% of our total common shares out-
Sterling is ready, willing and able to provide outstanding
standing, during the year.
service to our customers—and to deliver value to our
Looking ahead, it appears that the turmoil in the financial
markets will extend into 2008. While we should not under-
estimate the challenges ahead for the economy, we also
believe this environment may offer opportunities for a
strong, service-oriented institution such as Sterling. The
realities of the marketplace may lead to more rational
risk-adjusted pricing, and therefore more balanced com-
petitive conditions. As other institutions in our markets
feel the adverse impact of credit risk, capital constraints
and disruptions due to industry consolidation, we will
continue to be a strong financial partner for businesses
and individuals.
shareholders—as we have done through a range of eco-
nomic cycles over nearly 80 years. As always, we appre-
ciate the support of our shareholders, the confidence
placed in us by our customers and clients, the guidance
of our Board of Directors, and the dedicated efforts of our
employees. We look forward to continued performance
and progress in the years ahead.
Louis J. Cappelli
Chairman and Chief Executive Officer
John C. Millman
President
2007 Highlights:
(cid:78)(cid:0)(cid:0)Total assets top the $2.0 billion milestone, up
6.7% for the year.
(cid:78)(cid:0)(cid:0)Sequential growth in earnings per share from
continuing operations throughout 2007.
(cid:78)(cid:0)Strong, sustained asset quality.
(cid:78)(cid:0)(cid:0)Full-year net interest margin of 4.49%
among the highest in our peer group.
(cid:78)(cid:0)(cid:0)62nd year of continuous quarterly cash
dividends for shareholders.
LOAN GROWTH
(dollars in millions)
DEPOSIT GROWTH (1)
(dollars in millions)
$1,300
1,200
1,100
1,000
900
800
700
$1,700
1,600
1,500
1,400
1,300
1,200
1,100
’03
’04
’05
’06
’07
December 31,
’03
’04
’05
’06
’07
December 31,
(1) Includes customer repurchase agreements.
3
Sterlingsolutions
Creating solutions that are individually-tailored
to the needs of each customer’s business is the
hallmark of Sterling’s approach to service.
P A R T N E R I N G W I T H O U R C U S T O M E R S
From our full array of products and services, to the tal-
system. And staffing companies use our payroll funding
ented people who “make it happen”, Sterling provides a
and processing system to generate payroll checks
unique advantage to our customers and clients. A distin-
directly from their offices that can be automatically funded
guishing feature of our commitment to all is the ability
by Sterling.
to draw on our extensive portfolio of financial services
to create solutions that are individually tailored to fit the
needs of specific types of businesses.
The long-term nature of many of our customer relation-
ships is a reflection of the effective financial solutions and
superior service that Sterling offers. In the case of a waste
Innovative Products, Individual Solutions
management contractor, a customer for three generations
Reflecting our commitment to service, Sterling has devel-
over 75 years, we provide asset-based financing, lease
oped proprietary products to meet the specialized needs
finance services and payroll deposit accounts. For a
of our clients. For professional service firms and similar
healthcare staffing company that has had a 12-year
businesses, we created the convenient Remote Deposit
relationship with Sterling, we developed a package of
Service, which lets them scan checks from their office
services including accounts receivable financing and an
and transmit the images to Sterling for deposit. Real
array of deposit and business operating accounts. An
estate attorneys praise Sterling EZ-Cert ®, which stream-
importer of cameras and electronics, a customer for 10
lines closings by allowing them to order and print certi-
years, relies on Sterling for revolving credit, trade financ-
fied checks in their offices using secure technology.
ing and receivables management.
Long-term care providers, such as assisted living and
nursing care facilities, use our Fa$tLink cash manage-
ment services to administer Medicaid, Social Security
and tenant security deposits for their residents. Inter-
national trade customers can conduct business more
easily with our Sterlinks II web-based letter of credit
4
Our culture of service, breadth of innovative products
and services, and readiness to develop customized solu-
tions have made Sterling the ideal partner for growing
businesses.
Every Sterling customer knows, “Our doors are open
all the way to the top.” We go the extra mile to enable
our customers’ businesses to grow.
Company Name: Home Essentials & Beyond, Inc.
Headquarters: New York, NY
President: Isidore Godinger
Member of Sterling Family Since: 1999
Sterling Solution: Sterling brings superior customer
service to the table for Home Essentials, a leading
houseware importer and distributor, which takes
advantage of our cash management, depository
and internet banking services.
(cid:84)
Company Name: Deleet Merchandising Corp.
Company Name: Atlas Media Corp.
(cid:84)
Headquarters: Newark, NJ
Chairman: Richard Liroff
Member of Sterling Family Since: 1991
Sterling Solution: For Deleet, a nationwide printing
services company, Sterling’s accounts receivable
and commercial real estate financing, as well
as depository and remote banking services, have
made a lasting impression.
(cid:84)
Headquarters: New York, NY
President: Bruce Klein
Member of Sterling Family Since: 1994
Sterling Solution: Atlas Media is an educational film
studio whose programs have been shown on
television and HBO. Sterling treats this customer
like a “big production” with a credit facility,
depository, cash management and
internet banking services.
Sterlingservice
We are proud of our broad array of products, but it is our
A prime example of our dedication and willingness to
commitment to high-touch service that truly marks the
“go the extra mile” in customer service was our response
“Sterling Difference”. Our extensive portfolio of products
to the steam pipe explosion that impacted thousands of
and services is delivered by a team of talented, experi-
businesses in New York’s Grand Central Station area in
enced and dedicated professionals who build close
the summer of 2007. Sterling’s Grand Central Station
working relationships with their clients.
branch is located one block from the actual explosion
Accessible Professionals, Exceptional Service
Delivering superior service is Sterling’s primary mission.
At all levels, our people take the concept of “partnering
with customers” very seriously. Every one of our personal
bankers is highly trained and motivated to understand
each client’s business goals and challenges, and craft
specialized solutions. Most importantly, we offer unparal-
site, and employees witnessed first hand the financial
impact the explosion had on their neighbors. Sterling
quickly assembled a special program coupling door-to-
door outreach with simplified access to loans for those
most in need. Our team customized a financial solution to
the specific requirements of each customer to help them
get back to business.
leled access to our senior decision makers. At Sterling,
At Sterling, the personal involvement and accessibility of
service has a human voice—during business hours our
our people are second nature—and second to none.
phones are answered by people, not voice mail, to ensure
These values are shared by all of our executives, including
that every call receives personal attention and a prompt
our Chairman and President. As every Sterling customer
response.
knows, “Our doors are open all the way to the top.”
7
Sterlingstrength
At Sterling, our core strength is serving the needs of
rely on—to deliver on our commitments today and to
growing businesses—which can often find themselves
make strategic investments in the future.
overlooked and underserved by larger financial institu-
tions. As a result, we continually attract and retain a loyal
customer base representing a diverse cross-section of
the economy: manufacturers, distributors and wholesal-
ers; financial and real estate companies; professional
service firms; educational, healthcare, public and non-
profit organizations; as well as numerous other businesses
and individuals. Our service philosophy has resulted in
customer relationships that have spanned decades and
Sterling has consistently invested in new products, ser-
vices, technologies and locations to better serve our
marketplace. We have expanded our banking locations in
recent years, and now operate thirteen bank offices: ten
in New York City and Queens, two in Nassau County, and
one in Westchester County. We also offer a wide array of
online financial services, putting our resources at the
customer’s fingertips with a few keystrokes.
even generations.
Since our founding in 1929, we have grown our business
Resources You Can Rely On
As a well-capitalized financial institution with high liquid-
ity, Sterling has the financial strength customers can
by helping our customers to grow their businesses. In the
process, Sterling has become a significant resource that
businesses, professionals and individuals can depend on.
Sterling has the financial strength
customers can rely on—to deliver
on our commitments today and
to make strategic investments in
the future.
8
(cid:84)
Company Name: Greenville Colorants
Headquarters: Jersey City, NJ
Co-Chairmen: Robert Weiss and Ronald Weiss
Member of Sterling Family Since: 2005
Sterling Solution: Greenville Colorants is a producer
of chemical dyes and color technology used in a
variety of industries. They appreciate the full
spectrum of services available from Sterling,
including accounts receivable financing and
management, cash management, internet
banking and letters of credit.
Why Sterling?
Our unique combination of people, products,
and commitment to partnering with customers
continues to make Sterling the preferred financial
services choice for generations of businesses,
professionals and individuals since 1929.
We offer a Sterling opportunity.
STERLING BANCORP
STERLING NATIONAL BANK
BOARD OF DIRECTORS
Hon. Robert Abrams
Member, Stroock & Stroock & Lavan LLP;
former Attorney General of the State of New
York; former Bronx Borough President
Joseph M. Adamko
Former Managing Director,
Manufacturers Hanover Trust Company
(now J.P. Morgan Chase & Co.)
Louis J. Cappelli
Chairman and Chief Executive Officer
of the Company; Chairman of
Sterling National Bank
Walter Feldesman
Senior Counsel, Thelen Reid
Brown Raysman & Steiner LLP
Hon. Fernando Ferrer
Co-Chairman, Fleischman-Hillard
Government Relations and FH Hispania;
Chairman, Poden Insurance Agency LLC,
former Bronx Borough President
Dr. Allan F. Hershfield
President, Resources for the 21st Century;
former President of Fashion Institute
of Technology
Henry J. Humphreys
Counselor–Permanent Observer, Mission
of the Sovereign Military Order of Malta
to the United Nations; former Chancellor
and Chief Operating Officer, American
Association of the Sovereign Military
Order of Malta
Robert W. Lazar
Senior Advisor, Independent Bankers
Association of New York State;
former President and Chief Executive
Officer of New York Business Development
Corporation
John C. Millman
President of the Company;
President and Chief Executive Officer
of Sterling National Bank
Hon. Eugene T. Rossides
Retired Senior Partner, Rogers & Wells LLP
(now Clifford Chance US LLP);
former Assistant Secretary, United States
Treasury Department
SHAREHOLDER INFORMATION
A N NUAL M EETI N G
TR ANSFER AGENT/R EGI STR AR
The Annual Meeting of Shareholders of Sterling Bancorp
will be held at 10:45 a.m., Thursday, May 1, 2008 at The Fox
Hollow, 7725 Jericho Turnpike, Woodbury, NY 11797.
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310-1900
I N D EPEN D ENT R EGI STER ED PUBLI C ACCOUNTING FI R M
KPMG LLP
C OUNSEL
Sullivan & Cromwell LLP
C OMMON STOC K L I ST I N G
New York Stock Exchange Symbol: STL
FO R M 10-K AN D O TH ER
SHAR EHOLDER I NFORMATION
Copies of Sterling Bancorp’s Annual Report to the Securities
and Exchange Commission, Form 10-K, and other shareholder
information may be obtained by contacting John W. Tietjen or
Dale C. Fredston at the Company’s executive office located at
650 Fifth Avenue, New York, NY 10019-6108.
10
STERLING BANCORP OFFICERS
Louis J. Cappelli
Chairman and Chief Executive Officer
Howard M. Applebaum
Senior Vice President
John C. Millman
President
John W. Tietjen
Executive Vice President and
Chief Financial Officer
Dale C. Fredston
Senior Vice President and
Corporate Secretary
Seth H. Ugelow
Senior Vice President and
Controller
Joel M. Schprechman
Vice President and Treasurer
STERLING NATIONAL BANK OFFICERS
Louis J. Cappelli
Chairman
John C. Millman
President and
Chief Executive Officer
EXECUTIVE VI C E PR ESI D ENTS
Howard M. Applebaum
Michael Bizenov
Dale C. Fredston
Eliot S. Robinson
John W. Tietjen
S EN IOR VI C E PR ESI D ENTS
Dixiana M. Berrios
Joseph L. Campbell
Kenneth E. Cohen
Andrew Corsi
Joseph Costanza
Jeffrey S. Fliegel
John C. Gallo
Allen J. Gershlak
Patricia E. Hrotko
Irving Kahn
Robert L. Krause
Neal B. Krumper
John P. LaLota
Monica S. Lercher
John B. McCormack
Thomas P. McGevna
Anthony V. Migliorino
Wayne G. Miller
Robert Nisi
Steven A. Orenstein
Gayle A. Riecks
Leonard Rudolph
Michael J. Scheller
Joel M. Schprechman
Mindy F. Stern
Seth H. Ugelow
FI RST VI C E PR ESI DENTS
Richard F. Assaf
Thomas M. Braunstein
William H. Breitman
Salvatore F. Costa
Elizabeth R. Forgione
Robert J. Formica
Thomas M. Frankel
Marie T. Giunto
Anthony M. Grosso
Steven W. Hebert
Leonard M. Imperiale
Benjamin S. Katz
Kenneth A. Lee
Mary Anne E. Lindenbaum
Murray R. Markowitz
Kenneth J. Marte
David Minder
Samuel T. Nicoletti
Edward Nugent
Robert A. Schnitzer
Vivian Tarnowski
Carol H. Treventi
VI C E PR ESI DENTS
Sadia Affrin
Leszek K. Borysiak
Anthony Cantone
Anthony J. Colao
Paul A. Colontino
Andres Correa
Francis L. DeFranco
Dawn E. DeLuca
Norka Del Rios
Charles I. Derr
Andrea Diaz
Daniel J. Doody
Patrick G. Duffy
Alex A. Eshmoili
Luz M. Figueroa
Richard L. Friedman
Helen Galpin
Peter E. Gardner
Steven Georgeson
Sonia A. Gordon
Julia Haxhitasi
Rosemarie Henry
John J. Howe
Paulette K. Johnson
Robert F. Knox
Kevin E. Kress
Richard J. Kruse
Mary Jane G. Lerias
Carol R. Lieber
Michael J. Madeo
George W. Moraitis
Patricia O. Mungo
Robert E. Nuytkens
Maureen O’Leary
Cynthia M. Paret
Ron A. Prezelmayer
Barbara A. Riordan
Anna Roina
John R. Rosado
Albert Salas
Robert S. Schepis
Yvonne V. Shand
Anthony M. Spataro
Aimee R. Spennato
Joan B. Stark
Ajay J. Timothy
Amy E. Travetti
Alexander Van Den Essen
Ericka G. Varela
Debra Washington
11
STERLING NATIONAL BANK OFFICES
650 Fifth Avenue
New York, NY 10019-6108
(212) 757-3300
500 Seventh Avenue
New York, NY 10018-4502
(212) 575-4410
108-01 Queens Boulevard
Forest Hills, NY 11375-4840
(718) 275-6500
89-04 Sutphin Boulevard
Jamaica, NY 11435-3720
(718) 725-0325
425 Park Avenue
New York, NY 10022-3506
(212) 935-1440
512 Seventh Avenue
New York, NY 10018-4603
(212) 354-2265
138-21 Queens Boulevard
Briarwood, NY 11435-2694
(718) 657-2660
98 Cuttermill Road
Great Neck, NY 11021-3006
(516) 466-4554
622 Third Avenue
New York, NY 10017-6722
(212) 490-9800
42 Broadway
New York, NY 10004-1617
(212) 356-6501
30-00 47th Avenue
Long Island City, NY 11101-3450
(718) 383-6012
177 Crossways Park Drive
Woodbury, NY 11797-2016
(516) 682-8410
1 Executive Boulevard
Yonkers, NY 10701-6822
(914) 964-5252
STERLING NATIONAL BANK BUSINESS ADVISORY BOARD
Andrew W. Albstein, Esq.
Managing Partner
Goldberg Weprin & Ustin LLP
Bernard Friedman
President
Penmark Realty Co.
Kenneth S. Lazar
President
Lazar Corporate Advisors, Inc.
Robert Tucker
Chairman and CEO
T&M Protection Resources
Neil J. Bressler, CPA
Managing Partner
Skwiersky, Alpert & Bressler LLP
Neil B. Garfinkel, Esq.
Partner
Abrams Garfinkel Margolis
Bergson, LLP
Lyle C. Mahler, Esq.
Partner
Farrell Fritz, P.C.
Michael Weinstein
CEO
Access Staffing
Timothy M. Bryan
Chairman and CEO
Galaxy Systems, Inc.
Jeffrey A. Getzel
Partner
Getzel, Schiff & Ross, LLP
Mark L. Meinberg, CPA
Managing Partner
Feldman, Meinberg & Co., LLP
Steven Weinstein
President
Access Staffing
Louis C. Ciliberti
President
Louis C. Ciliberti & Associates Ltd.
Joel J. Greenwald, Esq.
Partner
Greenwald Doherty, LLP
Dana F. Schnipper
President and C.E.O.
J.C. Ryan EBCO/H&G LLC
Bruce Weksler
President
Bruce Supply Corp.
Robert O. DiNozzi, Jr.
C.E.O.
S.E.B. Services of New York, Inc.
John H. Jankoff, Esq.
Managing Partner
Jankoff & Gabe, P.C.
Fred Ferrara
President
AccuLease
Dennis R. Klein, CPA
Partner
Berg Klein Salomon LLP
Paul Seid
Vice President and
General Manager
DS Healthcare
Alvin Singer
President
Singer Nelson Charlmers
Jeffrey A. Wurst, Esq.
Partner
Ruskin Moscou Faltischek P.C.
Michael G. Zapson, Esq.
Managing Partner
Davidoff Malito and Hutcher LLP
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2007
Commission File No. 1-5273-1
STERLING BANCORP
(Exact name of Registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
650 Fifth Avenue, New York, N.Y.
(Address of principal executive offices)
13-2565216
(I.R.S. Employer Identification No.)
10019-6108
(Zip Code)
(212) 757-3300
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS
Common Shares, $1 par value per share,
and attached Preferred Stock Purchase Rights
Cumulative Trust Preferred
Securities 8.375% (Liquidation Amount
$10 per Preferred Security) of Sterling
Bancorp Trust I and Guarantee of Sterling
Bancorp with respect thereto
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
New York Stock Exchange
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [
] No [✓]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [
] No [✓]
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. Yes [✓] No [
]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [✓]
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 [
] Accelerated Filer [✓] Non-Accelerated Filer [
] Smaller Reporting Company [
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [
On June 30, 2007, the aggregate market value of the common equity held by non-affiliates of the Registrant was
$261,866,176.
The Registrant has one class of common stock, of which 17,960,620 shares were outstanding at March 5, 2008.
(1) Portions of Sterling Bancorp’s definitive 2008 Proxy Statement to be filed pursuant to Regulation 14A are incorporated by
reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
]
] No [✓]
T A B L E O F C O N T E N T S
PART I
Item 1.
BUSINESS
Item 1A. RISK FACTORS
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
PROPERTIES
Item 3.
LEGAL PROCEEDINGS
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
PART II
AND ISSUER PURCHASES OF EQUITY SECURITIES
Item 6.
SELECTED FINANCIAL DATA
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11. EXECUTIVE COMPENSATION
PART III
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
SIGNATURES
Exhibits Submitted in a Separate Volume.
Page
1
10
16
16
16
17
17
18
18
18
38
83
83
86
87
87
87
87
87
88
90
P A R T I
ITEM 1. BUSINESS
The disclosures set forth in this item are qualified by Item 1A.
Risk Factors on pages 10 –15 and the section captioned
“FORWARD-LOOKING STATEMENTS AND FACTORS
THAT COULD AFFECT FUTURE RESULTS” on page
20 and other cautionary statements set forth elsewhere in
this report.
Sterling Bancorp (the “parent company” or the “Registrant”)
is a bank holding company and a financial holding company
as defined by the Bank Holding Company Act of 1956, as
amended (the “BHCA”), which was organized in 1966.
Sterling Bancorp and its subsidiaries derive substantially all
of their revenue and income from providing banking and
related financial services and products to customers primarily
in New York, New Jersey and Connecticut (“the New York
metropolitan area”). Throughout this report, the terms the
“Company” or “Sterling” refer to Sterling Bancorp and its
subsidiaries. The Company has operations in New York, New
Jersey and North Carolina and conducts business throughout
the United States.
The parent company owns, directly or indirectly, all of the
outstanding shares of Sterling National Bank (the “bank”), its
principal subsidiary, and all of the outstanding shares of
Sterling Banking Corporation and Sterling Real Estate
Abstract Holding Company, Inc. (the “finance subsidiaries”)
and Sterling Bancorp Trust I (the “trust”). Sterling National
Mortgage Company, Inc. (“SNMC”), Sterling Factors
Corporation (“Factors”), Sterling Trade Services, Inc. (“Trade
Services”), Sterling Resource Funding Corp. (“Resource
Funding”) and Sterling Real Estate Holding Company, Inc.
are wholly-owned subsidiaries of the bank. Trade Services
owns all of the outstanding common shares of Sterling
National Asia Limited, Hong Kong. Sterling Real Estate
Abstract Holding Company, Inc. owns 51% of the outstand-
ing common shares of SBC Abstract Company, LLC.
In September 2006, the business conducted by Sterling
Financial Services Company, Inc. (“Sterling Financial”) was
sold (see Note 2 beginning on page 51). The results of opera-
tions of Sterling Financial have been reported as a discontin-
ued operation and all prior period amounts have been restated
as appropriate.
Segment information appears in Note 22 of the Company’s
consolidated financial statements.
GOVERNMENT MONETARY POLICY
The Company is affected by the credit policies of monetary
authorities, including the Board of Governors of the Federal
Reserve System (the “Federal Reserve Board”). An important
objective of the Federal Reserve System is to regulate the
national supply of bank credit. Among the instruments of
monetary policy used by the Federal Reserve Board are open
market operations in U.S. Government securities, changes in
the discount rate, reserve requirements on member bank
deposits, and funds availability regulations. The monetary
policies of the Federal Reserve Board have in the past had a
significant effect on operations of financial institutions,
including the bank, and will continue to do so in the future.
Changing conditions in the national economy and in the
money markets make it difficult to predict future changes in
interest rates, deposit levels, loan demand or their effects on
the business and earnings of the Company. Foreign activities
of the Company are not considered to be material.
BUSINESS OPERATIONS
The Bank
Sterling National Bank was organized in 1929 under the
National Bank Act and commenced operations in New York
City. The bank maintains twelve offices in New York: nine
offices in New York City (six branches and an international
banking facility in Manhattan and three branches in Queens);
two branches in Nassau County, one in Great Neck and
another in Woodbury, New York; and one branch in Yonkers,
New York. The executive office is located at 650 Fifth Avenue,
New York, New York.
The bank provides a broad range of banking and financial
products and services, including business and consumer lending,
asset-based financing, factoring/accounts receivable manage-
ment services, equipment leasing, commercial and residential
mortgage lending and brokerage, deposit services, interna-
tional trade financing, trust and estate administration, invest-
ment management and investment services. Business lending,
depository and related financial services are furnished to a
wide range of customers in diverse industries, including
commercial, industrial and financial companies, and govern-
ment and non-profit entities.
For the year ended December 31, 2007, the bank’s average
earning assets represented approximately 99.7% of the
Company’s average earning assets. Loans represented 64.4%
and investment securities represented 34.1% of the bank’s
average earning assets in 2007.
P A G E 1
Commercial Lending, Asset-Based Financing and Factoring/
Accounts Receivable Management. The bank provides loans
to small and medium-sized businesses. The businesses are
diversified across industries, and the loans generally range
in size from $250,000 to $15 million. Business loans can be
tailored to meet customers’ specific long- and short-term needs,
and include secured and unsecured lines of credit, business
installment loans, business lines of credit, and debtor-in-
possession financing. Loans are often collateralized by assets,
such as accounts receivable,
inventory, marketable
securities, other liquid collateral, equipment and other assets.
Through its factoring subsidiary (“Factors”), the bank provides
accounts receivable management services. The purchase of a
client’s accounts receivable is traditionally known as “factor-
ing” and results in payment by the client of a nonrefundable
factoring fee, which is generally a percentage of the factored
receivables or sales volume and is designed to compensate for
the bookkeeping and collection services provided by Factors
and, if applicable, its credit review of the client’s customer
and assumption of customer credit risk. When Factors “fac-
tors” (i.e., purchases) an account receivable from a client, it
records the receivable as an asset (included in “Loans held in
portfolio, net of unearned discounts”), records a liability for the
funds due to the client (included in “Accrued expenses and other
liabilities”) and credits to noninterest income the nonrefund-
able factoring fee (included in “Factoring income”). Factors also
may advance funds to its client prior to the collection of receiv-
ables, charging interest on such advances (in addition to any
factoring fees) and normally satisfying such advances by the col-
lection of receivables. The accounts receivable factored are pri-
marily for clients engaged in the apparel and textile industries.
Through a subsidiary, Sterling Resource Funding Corp., which
was acquired on April 1, 2006, the bank provides financing
and human resource business process outsourcing support
services, exclusively for the temporary staffing industry. For
over 25 years and throughout the United States, Resource
Funding has provided full back-office, computer, tax and
accounting services, as well as financing, to independently-
owned staffing companies. The average contract term is 18
months for approximately 225 owners of staffing companies.
As of December 31, 2007, the outstanding loan balance (net
of unearned discounts) for commercial and industrial lending
and factored receivables was $632.6 million, representing
approximately 52.2% of the bank’s total loan portfolio.
Equipment Leasing. The bank offers equipment leasing ser-
vices in the New York metropolitan area and across the
United States through direct leasing programs, third party
sources and vendor programs. The bank finances small and
medium-sized equipment leases with an average term of 24
to 30 months. At December 31, 2007, the outstanding loan
balance (net of unearned discounts) for equipment leases was
$249.7 million, and equipment leases comprised approxi-
mately 20.6% of the bank’s total loan portfolio.
Residential and Commercial Mortgages. The bank’s real
estate loan portfolio consists of real estate loans on one-to-
four family residential properties and commercial properties.
The residential mortgage banking and brokerage business
is conducted through offices located principally in New York
and North Carolina. Residential mortgage loans—focused on
conforming credit, government insured FHA and other high
quality loan products—are originated primarily in the New
York metropolitan area, Virginia and other mid-Atlantic
states, almost all of these for resale. Com mercial real estate
financing is offered on income-producing investor properties
and owner-occupied properties, professional co-ops and con-
dos. At December 31, 2007, the outstanding loan balance for
real estate mortgage loans was $252.3 million, representing
approximately 20.8% of the bank’s total loans outstanding.
Deposit Services. The bank attracts deposits from customers
located primarily in the New York metropolitan area, offering
a broad array of deposit products, including checking
accounts, money market accounts, NOW accounts, savings
accounts, rent security accounts, retirement accounts, and
certificates of deposit. The bank’s deposit services include
account management and information, disbursement, recon-
ciliation, collection and concentration, ACH and others
designed for specific business purposes. The deposits of the
bank are insured to the extent permitted by law pursuant to
the Federal Deposit Insurance Act, as amended.
International Trade Finance. Through its international division,
international banking facility and Hong Kong trade services
subsidiary, the bank offers financial services to its customers
and correspondents in the world’s major financial centers.
These services consist of financing import and export trans-
actions, issuing of letters of credit, processing documentary
collections and creating banker’s acceptances. In addition,
active bank account relationships are maintained with lead-
ing foreign banking institutions in major financial centers.
There are no industry concentrations in the commercial and
industrial loan portfolio that exceed 10% of gross loans.
Approximately 72% of the bank’s loans are to borrowers
located in the New York metropolitan area. The bank has no
foreign loans.
Trust Services. The bank’s trust department provides a variety
of fiduciary, investment management, custody and advisory
and corporate agency services to individuals and corpora-
tions. The bank acts as trustee for pension, profit-sharing,
401(k) and other employee benefit plans and personal trusts
P A G E 2
and estates. For corporations, the bank acts as trustee, trans-
fer agent, registrar and in other corporate agency capacities.
The composition of total revenues (interest income and non-
interest income) of the bank and its subsidiaries for the three
most recent fiscal years was as follows:
Years Ended December 31,
Interest and fees on loans
Interest and dividends on investment
securities
Other
2007
2006
2005
59%
58%
51%
18
23
20
22
23
26
100% 100% 100%
At December 31, 2007, the bank and its subsidiaries had 586
full-time equivalent employees, consisting of 207 officers and
379 supervisory and clerical employees. The bank considers
its relations with its employees to be satisfactory.
COMPETITION
There is intense competition in all areas in which the
Company conducts its business. As a result of the deregulation
of the financial services industry under the Gramm-Leach-
Bliley Act of 1999, the Company competes with banks and
other financial institutions, including savings and loan asso-
ciations, 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 com-
petes 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, ser-
vices, availability of products, and geographic location.
SUPERVISION AND REGULATION
General
The banking industry is highly regulated. Statutory and regu-
latory controls are designed primarily for the protection of
depositors and the banking system, and not for the purpose
of protecting the shareholders of the parent company. The
following discussion is not intended to be a complete list of
all the activities regulated by the banking laws or of the
impact of such laws and regulations on the bank. It is
intended only to briefly summarize some material provisions.
Sterling Bancorp is a bank holding company and a financial
holding company under the BHCA and is subject to supervi-
sion, examination and reporting requirements of the Federal
Reserve Board. Sterling Bancorp is also under the jurisdiction
of the Securities and Exchange Commission and is subject to
the disclosure and regulatory requirements of the Securities
Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, as administered by the SEC. Sterling
Bancorp is listed on the New York Stock Exchange (“NYSE”)
under the trading symbol “STL” and is subject to the rules of
the NYSE for listed companies.
As a national bank, the bank is principally subject to the super-
vision, examination and reporting requirements of the Office
of the Comptroller of the Currency (the “OCC”), as well as the
Federal Deposit Insurance Corporation (the “FDIC”). Insured
banks, including the bank, are subject to extensive regulation
of many aspects of their business. These regulations relate to,
among other things: (a) the nature and amount of loans that
may be made by the bank and the rates of interest that may
be charged; (b) types and amounts of other investments; (c)
branching; (d) permissible activities; (e) reserve requirements;
and (f) dealings with officers, directors and affiliates.
Sterling Banking Corporation is subject to supervision and reg-
ulation by the Banking Department of the State of New York.
Bank Holding Company Regulation
The BHCA requires the prior approval of the Federal
Reserve Board for the acquisition by a bank holding com-
pany of more than 5% of the voting stock or substantially all
of the assets of any bank or bank holding company. Also,
under the BHCA, bank holding companies are prohibited, with
certain exceptions, from engaging in, or from acquiring more
than 5% of the voting stock of any company engaging in,
activities other than (1) banking or managing or controlling
banks, (2) furnishing services to or performing services for their
subsidiaries, or (3) activities that the Federal Reserve Board
has determined to be so closely related to banking or manag-
ing or controlling banks as to be a proper incident thereto.
As discussed below under “Financial Holding Company Regu-
lation,” the Gramm-Leach-Bliley Act of 1999 amended the
BHCA to permit a broader range of activities for bank holding
companies that qualify as “financial holding companies.”
Financial Holding Company Regulation
The Gramm-Leach-Bliley Act:
• allows bank holding companies, the depository institu-
tion subsidiaries of which meet management, capital and
the Community Reinvestment Act (the “CRA”) standards,
to engage in a substantially broader range of non-banking
financial activities than was previously permissible, includ-
ing (a) insurance underwriting and agency, (b) making
merchant banking investments in commercial companies,
(c) securities underwriting, dealing and market making,
and (d) sponsoring mutual funds and investment companies;
• allows insurers and other financial services companies to
acquire banks; and
• establishes the overall regulatory structure applicable to
bank holding companies that also engage in insurance and
securities operations.
P A G E 3
In order for a bank holding company to engage in the broader
range of activities that are permitted by the Gramm-Leach-
Bliley Act, (1) all of its depository subsidiaries must be and
remain “well capitalized” and “well managed” and have
received at least a satisfactory CRA rating, and (2) it must file
a declaration with the Federal Reserve Board that it elects to
be a “financial holding company.”
Requirements and standards to remain “well capitalized” are
discussed below. To maintain financial holding company
status, the bank must have at least a “satisfactory” rating
under the CRA. Under the CRA, during examinations of the
bank, the OCC is required to assess the bank’s record of
meeting the credit needs of the communities serviced by the
bank, including low- and moderate-income communities.
Banks are given one of four ratings under the CRA: “outstand-
ing,” “satisfactory,” “needs to improve” or “substantial non-
compliance.” The bank received a rating of “outstanding” on
the most recent exam completed by the OCC.
Pursuant to an election made under the Gramm-Leach-Bliley
Act, the parent company has been designated as a financial
holding company. As a financial holding company, Sterling
Bancorp may conduct, or acquire a company (other than a
U.S. depository institution or foreign bank) engaged in,
activities that are “financial in nature,” as well as additional
activi ties that the Federal Reserve Board determines (in the
case of incidental activities, in conjunction with the
Department of the Treasury) are incidental or complemen-
tary to financial activities, without the prior approval of the
Federal Reserve Board. Under the Gramm-Leach-Bliley Act,
activities that are financial in nature include insurance, secu-
rities underwriting and dealing, merchant banking, and spon-
soring mutual funds and investment companies. Under the
merchant banking authority added by the Gramm-Leach-
Bliley Act, financial holding companies may invest in compa-
nies that engage in activities that are not otherwise permissible
“financial” activities, subject to certain limitations, including
that the financial holding company makes the investment
with the intention of limiting the investment duration and
does not manage the company on a day-to-day basis.
Generally, financial holding companies must continue to meet
all the requirements for financial holding company status in
order to maintain the ability to undertake new activities or
acquisitions that are financial in nature and the ability to con-
tinue those activities that are not generally permissible for
bank holding companies. If the parent company ceases to so
qualify, it would be required to obtain the prior approval of
the Federal Reserve Board to engage in non-banking activities
or to acquire more than 5% of the voting stock of any com-
pany that is engaged in non-banking activities. With certain
exceptions, the Federal Reserve Board can only provide prior
approval to applications involving activities that it had previ-
ously determined, by regulation or order, are so closely related
to banking as to be properly incident thereto. Such activities
are more limited than the range of activities that are deemed
“financial in nature.”
Payment of Dividends and Transactions with Affiliates
The parent company depends for its cash requirements on
funds maintained or generated by its subsidiaries, principally
the bank. Such sources have been adequate to meet the parent
company’s cash requirements throughout its history.
Various legal restrictions limit the extent to which the bank
can fund the parent company and its nonbank subsidiaries. All
national banks are limited in the payment of dividends with-
out the approval of the OCC to an amount not to exceed the
net profits (as defined) for that year-to-date combined with its
retained net profits for the preceding two calendar years, less
any required transfers to surplus. Federal law also prohibits
national banks from paying dividends that would be greater
than the bank’s undivided profits after deducting statutory bad
debt in excess of the bank’s allowance for loan losses. Under the
foregoing restrictions, and without adversely affecting its
“well capitalized” status, as of December 31, 2007, the bank
could pay dividends of approximately $20 million to the
parent company, without obtaining regulatory approval. This
is not necessarily indicative of amounts that may be paid or
are available to be paid in future periods.
Under the Federal Deposit Insurance Corporation Improve-
ment Act of 1991 (“FDICIA”), a depository institution, such
as the bank, may not pay dividends if payment would cause it
to become undercapitalized or if it is already undercapitalized.
The payment of dividends by the parent company and the
bank may also be affected or limited by other factors, such as
the requirement to maintain adequate capital.
Federal laws strictly limit the ability of banks to engage in
transactions with their affiliates, including their bank holding
companies. Such transactions between a subsidiary bank and
its parent company or the nonbank subsidiaries of the bank
holding company are limited to 10% of a bank subsidiary’s
capital and surplus and, with respect to such parent company
and all such nonbank subsidiaries, to an aggregate of 20% of
the bank subsidiary’s capital and surplus. Further, loans and
extensions of credit generally are required to be secured by
eligible collateral in specified amounts. Federal law also
requires that all transactions between a bank and its affiliates
be on terms only as favorable to the bank as transactions
with non-affiliates.
Federal law also limits a bank’s authority to extend credit to
its directors, executive officers and 10% shareholders, as well
as to entities controlled by such persons. Among other things,
P A G E 4
extensions of credit to insiders are required to be made on
terms that are substantially the same as, and follow credit
underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated per-
sons. Also, the terms of such extensions of credit may not
involve more than the normal risk of repayment or present
other unfavorable features and may not exceed certain limita-
tions on the amount of credit extended to such persons, indi-
vidually and in the aggregate, which limits are based, in part,
on the amount of the bank’s capital.
Banks are subject to prohibitions on certain tying arrange-
ments. A depository institution is prohibited, subject to some
exceptions, from extending credit to or offering any other
service, or fixing or varying the consideration for such extension
of credit or service, on the condition that the customer obtain
some additional service from the institution or its affiliates or
not obtain services of a competitor of the institution.
Capital Adequacy and Prompt Corrective Action
Banks and bank holding companies are subject to various
regulatory capital requirements administered by state and
federal banking agencies. Capital adequacy guidelines and,
additionally for banks, prompt corrective action regulations,
involve quantitative measures of assets, liabilities, and certain
off-balance sheet items calculated under regulatory account-
ing practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators about compo-
nents, risk weighting and other factors.
The Federal Reserve Board, the OCC and the FDIC have sub-
stantially similar risk-based capital ratio and leverage ratio
guidelines for banking organizations. The guidelines are
intended to ensure that banking organizations have adequate
capital given the risk levels of assets and off-balance sheet
financial instruments. Under the guidelines, banking organi-
zations are required to maintain minimum ratios for Tier 1
capital and total capital to risk-weighted assets (including
certain off-balance sheet items, such as letters of credit). For
purposes of calculating the ratios, a banking organization’s
assets and some of its specified off-balance sheet commit-
ments and obligations are assigned to various risk categories.
A depository institution’s or holding company’s capital, in
turn, is classified in tiers, depending on type:
• Core Capital (Tier 1). Tier 1 capital includes common
equity, retained earnings, qualifying non-cumulative per-
petual preferred stock, a limited amount of qualifying
cumulative perpetual stock at the holding company level,
minority interests in equity accounts of consolidated
subsidiaries, less goodwill, most intangible assets and cer-
tain other assets.
• Supplementary Capital (Tier 2). Tier 2 capital includes,
among other things, perpetual preferred stock not meeting
the Tier 1 definition, qualifying mandatory convertible debt
securities, qualifying subordinated debt, and allowances
for loan and lease losses, subject to limitations.
Sterling Bancorp, like other bank holding companies, cur-
rently is required to maintain Tier 1 capital and “total capi-
tal” (the sum of Tier 1 and Tier 2 capital) equal to at least
4.0% and 8.0%, respectively, of its total risk-weighted assets
(including various off-balance-sheet items, such as standby
letters of credit). Sterling National Bank, like other deposi-
tory institutions, is required to maintain similar capital levels
under capital adequacy guidelines. For a depository institu-
tion to be considered “well capitalized” under the regulatory
framework for prompt corrective action, its Tier 1 and total
capital ratios must be at least 6.0% and 10.0% on a risk-
adjusted basis, respectively.
Bank holding companies and banks are also required to comply
with minimum leverage ratio requirements. The leverage ratio is
the ratio of a banking organization’s Tier 1 capital to its total
adjusted quarterly average assets (as defined for regulatory
purposes). The requirements necessitate a minimum leverage
ratio of 3.0% for financial holding companies and national
banks that have the highest supervisory rating. All other
financial holding companies and national banks are required
to maintain a minimum leverage ratio of 4.0%, unless a dif-
ferent minimum is specified by an appropriate regulatory
authority. For a depository institution to be considered “well
capitalized” under the regulatory framework for prompt cor-
rective action, its leverage ratio must be at least 5.0%. The
Federal Reserve Board has not advised Sterling Bancorp, and
the OCC has not advised Sterling National Bank, of any spe-
cific minimum leverage ratio applicable to it.
The Federal Deposit Insurance Act, as amended (“FDIA”),
requires, among other things, the federal banking agencies to
take “prompt corrective action” in respect of depository
institutions that do not meet minimum capital requirements.
The FDIA sets forth the following five capital tiers: “well
capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapital-
ized.” A depository institution’s capital tier will depend upon
how its capital levels compare with various relevant capital
measures and certain other factors, as established by regula-
tion. The relevant capital measures are the total capital ratio,
the Tier 1 capital ratio and the leverage ratio.
Under the regulations adopted by the federal regulatory author-
ities, a bank will be: (i) “well capitalized” if the insti tution has
a total risk-based capital ratio of 10.0% or greater, a Tier 1
risk-based capital ratio of 6.0% or greater, and a leverage ratio
of 5.0% or greater, and is not subject to any order or written
directive by any such regulatory authority to meet and main-
tain a specific capital level for any capital measure; (ii) “ade-
quately capitalized” if the institution has a total risk-based
P A G E 5
capital ratio of 8.0% or greater, a Tier 1 risk-based capital
ratio of 4.0% or greater, and a leverage ratio of 4.0% or
greater and is not “well capitalized”; (iii) “undercapitalized”
if the institution has a total risk-based ratio that is less than
8.0%, a Tier 1 risk-based capital ratio of less than 4.0% or a
leverage ratio of less than 4.0%; (iv) “significantly undercapi-
talized” if the institution has a total risk-based capital ratio
of less than 6.0%, a Tier 1 risk-based capital ratio of less than
3.0% or a leverage ratio of less than 3.0%; and (v) “critically
undercapitalized” if the institution’s tangible equity is equal
to or less than 2.0% of average quarterly tangible assets. An
institution may be downgraded to, or deemed to be in, a capi-
tal category that is lower than that indicated by its capital
ratios if it is determined to be in an unsafe or unsound condi-
tion or if it receives an unsatisfactory examination rating
with respect to certain matters. As of December 31, 2007, the
Company and the bank were “well capitalized,” based on the
ratios and guidelines described above. A bank’s capital cate-
gory is determined solely for the purpose of applying prompt
cor rective action regulations, and the capital category may
not constitute an accurate representation of the bank’s over all
financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from
making any capital distributions (including payment of a div-
idend) or paying any management fee to its parent holding
company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to
growth limitations and are required to submit a capital resto-
ration plan. The agencies may not accept such a plan without
determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the
depository institution’s capital. In addition, for a capital res-
toration plan to be acceptable, the depository institution’s
parent holding company must guarantee that the institution
will comply with such a capital restoration plan. The aggre-
gate liability of the parent holding company is limited to the
lesser of (i) an amount equal to 5.0% of the depository insti-
tution’s total assets at the time it became undercapitalized
and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all
capital standards applicable with respect to such institution
as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if
it is “significantly undercapitalized.”
“Significantly undercapitalized” depository institutions may
be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become
“adequately capitalized,” requirements to reduce total assets,
and cessation of receipt of deposits from correspondent
banks. “Critically undercapitalized” institutions are subject
to the appointment of a receiver or conservator.
The federal regulatory authorities’ risk-based capital guide-
lines are based upon the 1988 capital accord of the Basel
Committee on Banking Supervision (the “BIS”). The BIS is a
committee of central banks and bank supervisors/regulators
from the major industrialized countries that develops broad
policy guidelines for use by each country’s supervisors in
determining the supervisory policies that apply. In 2004, the
BIS published a new capital accord to replace its 1988 capital
accord, with an update in November 2005 (“BIS II”). BIS II
provides two approaches for setting capital standards for
credit-risk—an internal ratings-based approach tailored to
individual institutions’ circumstances (which for many asset
classes is itself broken into a “foundation” approach and an
“advances or A-IRB” approach, the availability of which is
subject to additional restrictions) and a standardized approach
that bases risk weightings on external credit assessments to a
much greater extent than permitted in existing risk-based
capital guidelines. BIS II also would set capital requirements
for operational risk and refine the existing requirements for
market risk exposures.
The U.S. banking and thrift agencies are developing proposed
revisions to their existing capital adequacy regulations and
standards based on BIS II. In November 2007, the agencies
adopted a definitive final rule for implementing BIS II in the
United States that would apply only to internationally active
banking organizations, or “core banks”—defined as those
with consolidated total assets of $250 billion or more or con-
solidated on-balance-sheet foreign exposures of $10 billion or
more. The final rule will be effective as of April 1, 2008.
Other U.S. banking organizations may elect to adopt the
requirements of this rule (if they meet applicable qualification
requirements), but they will not be required to apply them.
The rule also allows a banking organization’s primary federal
supervisor to determine that the application of the rule would
not be appropriate in light of the bank’s asset size, level of
complexity, risk profile, or scope of operations. This new
proposal, which is intended to be finalized before the core
banks may start their first transition period year under BIS II,
will replace the agencies’ earlier proposed amendments to
existing risk-based capital guidelines to make them more risk
sensitive (formerly referred to as the “BIS I-A” approach).
The Company is not required to comply with BIS II. The
Company has not made a determination as to whether it
will elect to apply the BIS II requirements when they
become effective.
P A G E 6
Support of the Bank
The Federal Reserve Board has stated that a bank holding
company should serve as a source of financial and managerial
strength to its subsidiary banks. As a result, the Federal Reserve
Board may require the parent company to stand ready to use
its resources to provide adequate capital funds to its banking
subsidiaries during periods of financial stress or adversity. This
support may be required at times by the Federal Reserve Board
even though not expressly required by regulation and even
though the parent company may not be in a financial position
to provide such support. In addition, any capital loans by a
bank holding company to any of its subsidiary banks are sub-
ordinate in right of payment to deposits to certain other
indebtedness of such subsidiary banks. The BHCA provides
that, in the event of a bank holding company’s bankruptcy,
any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsid-
iary bank will be assumed by the bankruptcy trustee and
entitled to priority of payment. Further more, under the
National Bank Act, if the capital stock of the bank is impaired
by losses or otherwise, the OCC is authorized to require pay-
ment of the deficiency by assessment upon the parent com-
pany. If the assessment is not paid within three months, the
OCC could order a sale of the capital stock of the bank held
by the parent company to make good the deficiency.
FDIC Insurance
The FDIC utilizes a risk-based assessment system that imposes
insurance premiums based upon a risk matrix that takes into
account a bank’s capital level and supervisory rating. As of
January 1, 2007, the previous nine risk categories utilized
in the risk matrix were condensed into four risk categories
which continue to be distinguished by capital levels and
supervisory ratings.
The three capital categories are “well capitalized,” “ade-
quately capitalized,” and “undercapitalized.” These three cat-
egories are substantially the same as the prompt corrective
action cate gories previously described, with the “undercapi-
talized” category including institutions that are “undercapi-
talized,” “significantly undercapitalized,” and “critically
undercapitalized” for prompt corrective action purposes.
The bank was not required to pay any deposit insurance pre-
mium in 2007 as the entire premium assessed was offset by
the assessment credit described below. Under the final regula-
tions, assessment rates for 2008 will range from 5 to 7 basis
points per $100 of deposits for banks in Risk Category I, to
43 basis points for banks assigned to Risk Category IV.
However, under the Federal Deposit Insurance Reform Act of
2005, which became law in 2006, the bank received a one-
time assessment credit that can be applied against future
premiums through 2010, subject to certain limitations. Any
increase in insurance assessments could have an adverse
impact on the earnings of insured institutions, including the
bank. As of December 31, 2007, approximately $110,000 of
the credit remained available to offset deposit insurance
assessments through the second quarter of 2008.
In addition, the bank is required to make payments for the
servicing of obligations of the Financing Corporation (“FICO”)
issued in connection with the resolution of savings and loan
associations, so long as such obligations remain outstanding.
The FICO annual assessment rate for the first quarter of
2008 is 1.14 cents per $100 of deposits. The bank’s assess-
ment credit is not available to offset FICO assessments.
Under the FDIA, insurance of deposits may be terminated by
the FDIC upon a finding that the institution has engaged in
unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any appli-
cable law, regulation, rule, order, or condition imposed by
the FDIC.
In its resolution of the problems of an insured depository insti-
tution in default or in danger of default, the FDIC is generally
required to satisfy its obligations to insured depositors at the
least possible cost to the deposit insurance fund. In addition,
the FDIC may not take any action that would have the effect of
increasing the losses to the deposit insurance fund by protect-
ing depositors for more than the insured portion of deposits
(generally $100,000) or creditors other than depositors.
Depositor Preference
The FDIA provides that, in the event of the “liquidation or
other resolution” of an insured depository institution, the
claims of depositors of the institution, including the claims of
the FDIC as subrogee of insured depositors, and certain
claims for administrative expenses of the FDIC as a receiver,
will have priority over other general unsecured claims against
the institution. If an insured depository institution fails,
insured and uninsured depositors, along with the FDIC, will
have priority in payment ahead of unsecured, non-deposit
creditors, including the parent bank holding company, with
respect to any extensions of credit they have made to such
insured depository institution.
Liability of Commonly Controlled Institutions
The FDIA provides that a depository institution insured by
the FDIC can be held liable by the FDIC for any loss incurred,
or reasonably expected to be incurred, in connection with the
default of a commonly controlled FDIC-insured depository
institution or in connection with any assistance provided by
the FDIC to a commonly controlled institution “in danger of
default” (as defined in the FDIA).
P A G E 7
Community Reinvestment Act
The CRA requires depository institutions to assist in meeting
the credit needs of their market areas consistent with safe and
sound banking practice. Under the CRA, each depository
institution is required to help meet the credit needs of its mar-
ket areas by, among other things, providing credit to low-
and moderate-income individuals and communities.
Depository institutions are periodically examined for compli-
ance with the CRA and are assigned ratings. In order for a
financial holding company to commence any new activity
permitted by the BHCA, or to acquire any company engaged
in any new activity permitted by the BHCA, each insured
depository institution subsidiary of the financial holding
company must have received a rating of at least “satisfactory”
in its most recent examination under the CRA. Furthermore,
banking regulators take into account CRA ratings when con-
sidering approval of a proposed transaction.
Financial Privacy
In accordance with the Gramm-Leach-Bliley Act, federal bank-
ing regulators adopted rules that limit the ability of banks
and other financial institutions to disclose non-public infor-
mation about consumers to nonaffiliated third parties. These
limitations require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent dis-
closure of certain personal information to a nonaffiliated third
party. The privacy provisions of the Gramm-Leach-Bliley Act
affect how consumer information is transmitted through diver-
sified financial companies and conveyed to outside vendors.
Anti-Money Laundering Initiatives and the USA Patriot Act
A major focus of governmental policy on financial institu-
tions in recent years has been aimed at combating money
laundering and terrorist financing. The USA Patriot Act of
2001 (the “USA Patriot Act”) substantially broadened the
scope of United States anti-money laundering laws and regu-
lations by imposing significant new compliance and due dili-
gence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the United
States. The United States Treasury Department has issued a
number of implementing regulations which apply to various
requirements of the USA Patriot Act to financial institutions
such as the Company. These regulations impose obligations on
financial institutions to maintain appropriate policies, proce-
dures and controls to detect, prevent and report money laun-
dering and terrorist financing and to verify the identity of their
customers. Failure of a financial institution to maintain and
implement adequate programs to combat money laundering
and terrorist financing, or to comply with all of the relevant
laws or regulations, could have serious legal and reputational
consequences for the institution, including the imposition of
enforcement actions and civil monetary penalties.
Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect
transactions with designated foreign countries, nationals and
others. These sanctions, which are administered by the U.S.
Treasury Department Office of Foreign Assets Control
(“OFAC”), take many different forms. Generally, however,
they contain one or more of the following elements: (i) restric-
tions on trade with or investment in a sanctioned country,
including prohibitions against direct or indirect imports from
and exports to a sanctioned country and prohibitions on
“U.S. persons” engaging in financial transactions relating to
making investments in, or providing investment-related advice
or assistance to, a sanctioned country; and (ii) a blocking
of assets in which the government or specially designated
nationals of the sanctioned country have an interest, by pro-
hibiting transfers of property subject to U.S. jurisdiction
(including property in the possession or control of U.S. per-
sons). Blocked assets (for example, property and bank depos-
its) cannot be paid out, withdrawn, set off or transferred in
any manner without a license from OFAC. Failure to comply
with these sanctions could have serious legal and reputational
consequences.
Legislative Initiatives
From time to time, various legislative and regulatory initiatives
are introduced in Congress and state legislatures, as well as by
regulatory agencies. Such initiatives may include proposals to
expand or contract the powers of bank holding companies and
depository institutions or proposals to substantially change
the financial institution regulatory system. Such legislation
could change banking statutes and the operating environment
of the Company in substantial and unpredictable ways. If
enacted, such legislation could increase or decrease the cost of
doing business, limit or expand permissible activities or affect
the competitive balance among banks, savings associations,
credit unions and other financial institutions. The Company
cannot predict whether any such legislation will be enacted,
and, if enacted, the effect that it, or any implementing regula-
tions, would have on the financial condition or results of oper-
ations of the Company. A change in statutes, regulations or
regulatory policies applicable to the Company could have a
material effect on the business of the Company.
Safety and Soundness Standards
Federal banking agencies promulgate safety and soundness
standards relating to, among other things, internal controls,
information systems and internal audit systems, loan documen-
tation, credit underwriting, interest rate exposure, asset growth,
compensation, fees, and benefits. With respect to internal con-
trols, information systems and internal audit systems, the stand-
ards describe the functions that adequate internal controls and
information systems must be able to perform, including:
P A G E 8
(i) monitoring adherence to prescribed policies; (ii) effective
risk management; (iii) timely and accurate financial, operations,
and regulatory reporting; (iv) safeguarding and managing assets;
and (v) compliance with applicable laws and regulations. The
standards also include requirements that: (i) those performing
internal audits be qualified and independent; (ii) internal controls
and information systems be tested and reviewed; (iii) corrective
actions be adequately documented; and (iv) results of an audit
be made available for review of management actions.
SELECTED CONSOLIDATED STATISTICAL INFORMATION
I.
Distribution of Assets, Liabilities and Shareholders’
Equity; Interest Rates and Interest Differential
The information appears on pages 31 and 32 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
Investment Portfolio
II.
A summary of the Company’s investment securities by type
with related carrying values at the end of each of the three
most recent fiscal years appears on page 25 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations. Information regarding book values and range
of maturities by type of security and weighted average yields
for totals of each category is presented in Note 5 beginning on
page 53 of the Company’s consolidated financial statements.
III. Loan Portfolio
A table setting forth the composition of the Company’s loan
portfolio, net of unearned discounts, at the end of each of
the five most recent fiscal years appears on page 26 in Man-
agement’s Discussion and Analysis of Financial Condition
and Results of Operations.
A table setting forth the maturities and sensitivity to changes
in interest rates of the Company’s commercial and industrial
loans at December 31, 2007 appears on page 26 in Manage-
ment’s Discussion and Analysis of Financial Condition and
Results of Operations.
It is the policy of the Company to consider all customer
requests for extensions of original maturity dates (rollovers),
whether in whole or in part, as though each was an applica-
tion for a new loan subject to standard approval criteria,
including credit evaluation. Additional information appears
under “Loan Portfolio” on page 26 in Management’s Discus-
sion and Analysis of Financial Condition and Results of
Operations, under “Loans” in Note 1 and in Note 6 of the
Company’s consolidated financial statements.
A table setting forth the aggregate amount of domestic non-
accrual, past due and restructured loans of the Company at
the end of each of the five most recent fiscal years appears
on page 27 in Management’s Discussion and Analysis of
Financial Condition and Results of Operations; there were no
foreign loans accounted for on a nonaccrual basis, and there
were no troubled debt restructurings for any types of loans.
Loans contractually past due 90 days or more as to principal
or interest and still accruing are loans that are both well-
secured or guaranteed by financially responsible third parties
and are in the process of collection.
IV. Summary of Loan Loss Experience
The information appears in Note 7 of the Company’s con-
solidated financial statements and beginning on page 27
under “Asset Quality” in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
A table setting forth certain information with respect to the
Company’s loan loss experience for each of the five most
recent fiscal years appears on page 28 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
The Company considers its allowance for loan losses to be
adequate based upon the size and risk characteristics of the
outstanding loan portfolio at December 31, 2007. Net losses
within the loan portfolio are not, however, statistically pre-
dictable and are subject to various external factors that are
beyond the control of the Company. Consequently, changes
in conditions in the next twelve months could result in future
provisions for loan losses varying from the provision recorded
in 2007.
A table presenting the Company’s allocation of the allowance
at the end of each of the five most recent fiscal years appears
on page 29 in Management’s Discussion and Analysis of
Financial Condition and Results of Operations. This alloca-
tion is based on estimates by management that may vary
based on management’s evaluation of the risk characteristics
of the loan portfolio. The amount allocated to a particular
loan category may not necessarily be indicative of actual
future charge-offs in that loan category.
V. Deposits
Average deposits and average rates paid for each of the three
most recent years are presented on page 31 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
Outstanding time certificates of deposit issued from domestic
and foreign offices and interest expense on domestic and foreign
deposits are presented in Note 9 of the Company’s consolidated
financial statements.
The table providing selected information with respect to the
Company’s deposits for each of the three most recent fiscal
years appears on page 30 in Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
P A G E 9
Interest expense for the three most recent fiscal years is
presented in Note 9 of the Company’s consolidated finan-
cial statements.
VI. Return on Assets and Equity
The Company’s returns on average total assets and average
shareholders’ equity, dividend payout ratio and average share-
holders’ equity to average total assets for each of the five
most recent years is presented in “Selected Financial Data”
on page 19.
VII. Short-Term Borrowings
Balance and rate data for significant categories of the
Company’s Short-Term Borrowings for each of the three most
recent years is presented in Note 10 of the Company’s con-
solidated financial statements.
and uncertainties that management believes affect the
Company are described below. Before making an investment
decision, you should carefully consider the risks and uncer-
tainties described below together with all of the other infor-
mation included or incorporated by reference in this report.
The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties
that management is not aware of or focused on, or that man-
agement currently deems immaterial, may also impair the
Company’s business operations. This report is qualified in its
entirety by these risk factors.
If any of the following risks adversely affect the Company’s
business, financial condition or results of operations, the
value of the Company’s common stock could decline signifi-
cantly and you could lose all or part of your investment.
INFORMATION AVAILABLE ON OUR WEB SITE
RISKS RELATED TO THE COMPANY’S BUSINESS
Our Internet address is www.sterlingbancorp.com and the
investor relations section of our web site is located at
www.sterlingbancorp.com/ir/investor.cfm. We make avail-
able free of charge, on or through the investor relations sec-
tion of our web site, annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and
Exchange Commission.
Also posted on our web site, and available in print upon
request of any shareholder to our Investor Relations
Department, are the Charters for our Board of Directors’
Audit Committee, Compensation Committee and Corporate
Governance and Nominating Committee, our Corporate
Governance Guidelines, our Method for Interested Persons to
Communicate with Non-Management Directors and a Code
of Business Conduct and Ethics governing our directors, offi-
cers and employees. Within the time period required by the
Securities and Exchange Commission and the New York
Stock Exchange, we will post on our web site any amendment
to the Code of Business Conduct and Ethics and any waiver
applicable to our senior financial officers, as defined in the
Code, or our executive officers or directors. In addition,
information concerning purchases and sales of our equity
securities by our executive officers and directors is posted on
our web site.
ITEM 1A. RISK FACTORS
An investment in the Company’s common stock is subject to
risks inherent to the Company’s business. The material risks
The Company Is Subject to Interest Rate Risk
The Company’s earnings and cash flows are largely depen-
dent upon its net interest income. Net interest income is the
difference between interest income earned on interest-earning
assets such as loans and securities and interest expense paid
on interest-bearing liabilities such as deposits and borrowed
funds. Interest rates are highly sensitive to many factors that
are beyond the Company’s control, including general eco-
nomic conditions and policies of various governmental and
regulatory agencies and, in particular, the Board of Governors
of the Federal Reserve System. Changes in monetary policy,
including changes in interest rates, could influence not only
the interest the Company receives on loans and securities and
the amount of interest it pays on deposits and borrowings,
but such changes could also affect (i) the Company’s ability
to originate loans and obtain deposits, (ii) the fair value of
the Company’s financial assets and liabilities, and (iii) the
average duration of the Company’s mortgage-backed securi-
ties portfolio. If the interest rates paid on deposits and other
borrowings increase at a faster rate than the interest rates
received on loans and other investments, the Company’s net
interest income, and therefore earnings, could be adversely
affected. Earnings could also be adversely affected if the
interest rates received on loans and other investments fall
more quickly than the interest rates paid on deposits and
other borrowings.
Although management believes it has implemented effective
asset and liability management strategies to reduce the poten-
tial effects of changes in interest rates on the Company’s
results of operations, any substantial, unexpected, prolonged
change in market interest rates could have a material adverse
effect on the Company’s financial condition and results of
operations. For further discussion related to the Company’s
P A G E 1 0
management of interest rate risk, see “ASSET/LIABILITY
MANAGEMENT” beginning on page 33 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
The Company Is Subject to Lending Risk
There are inherent risks associated with the Company’s lend-
ing activities. These risks include, among other things, the
impact of changes in interest rates and changes in the eco-
nomic conditions in the markets where the Company oper-
ates as well as those throughout the United States. Increases
in interest rates and/or weakening economic conditions could
adversely impact the ability of borrowers to repay outstanding
loans or the value of the collateral securing these loans. The
Company is also subject to various laws and regulations that
affect its lending activities. Failure to comply with applicable
laws and regulations could subject the Company to regula-
tory enforcement action that could result in the assessment of
significant civil money penalties against the Company.
As of December 31, 2007, approximately 63.5% of the
Company’s loan portfolio consisted of commercial and
industrial, factored receivables, construction and commercial
real estate loans. These types of loans are generally viewed as
having more risk of default than residential real estate loans
or consumer loans. These types of loans are also typically
larger than residential real estate loans and consumer loans.
Because the Company’s loan portfolio contains a significant
number of commercial and industrial, construction and com-
mercial real estate loans with relatively large balances, the
deterioration of one or a few of these loans could cause a
significant increase in non-performing loans. An increase in
non-performing loans could result in a net loss of earnings
from these loans, an increase in the provision for loan losses
and an increase in loan charge-offs, all of which could have a
material adverse effect on the Company’s financial condition
and results of operations. For further discussion related to
commercial and industrial, construction and commercial real
estate loans, see “Loan Portfolio” on page 26 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
The Company’s Allowance for Loan Losses
May Be Insufficient
The Company maintains an allowance for loan losses, which
is a reserve established through a provision for loan losses
charged to expense, that represents management’s best estimate
of probable losses that have been incurred within the existing
portfolio of loans. The allowance, in the judgment of man-
agement, is necessary to reserve for estimated loan losses and
risks inherent in the loan portfolio. The level of the allowance
reflects management’s continuing evaluation of industry con-
centrations; specific credit risks; loan loss experience; current
loan portfolio quality; present economic, political and regu-
latory conditions and unidentified losses inherent in the cur-
rent loan portfolio. The determination of the appropriate
level of the allowance for loan losses inherently involves a
high degree of subjectivity and requires the Company to make
significant estimates of current credit risks and future trends,
all of which may undergo material changes. Changes in eco-
nomic conditions affecting borrowers, new information
regarding existing loans, identification of additional problem
loans and other factors, both within and outside the
Company’s control, may require an increase in the allowance
for loan losses. In addition, bank regulatory agencies periodi-
cally review the Company’s allowance for loan losses and
may require an increase in the provision for loan losses or the
recognition of further loan charge-offs, based on judgments
different than those of management. In addition, if charge-
offs in future periods exceed the allowance for loan losses,
the Company will need additional provisions to increase the
allowance for loan losses. Any increases in the allowance for
loan losses will result in a decrease in net income and, possi-
bly, capital, and may have a material adverse effect on the
Company’s financial condition and results of operations. For
further discussion related to the Company’s process for deter-
mining the appropriate level of the allowance for loan losses,
see “Asset Quality” beginning on page 27 in Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.
The Company May Not Be Able to Meet the Cash Flow
Requirements of Its Depositors and Borrowers or Meet Its
Operating Cash Needs to Fund Corporate Expansion and
Other Activities
Liquidity is the ability to meet cash flow needs on a timely
basis at a reasonable cost. The liquidity of the bank is used to
make loans and leases and to repay deposit liabilities as they
become due or are demanded by customers. Liquidity policies
and limits are established by the board of directors. The over-
all liquidity position of the bank and the parent company are
regularly monitored to ensure that various alternative strate-
gies exist to cover unanticipated events that could affect
liquidity. Funding sources include Federal funds purchased,
securities sold under repurchase agreements and non-core
deposits. The bank is a member of the Federal Home Loan
Bank of New York, which provides funding through advances
to members that are collateralized with mortgage-related
assets. We maintain a portfolio of securities that can be used
as a secondary source of liquidity. The bank also can borrow
through the Federal Reserve Bank’s discount window.
If we were unable to access any of these funding sources when
needed, we might be unable to meet customers’ needs, which
could adversely impact our financial condition, results of
operations, cash flows, and level of regulatory-qualifying
P A G E 1 1
capital. For further discussion, see “Liquidity Risk” begin-
ning on page 34 in Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Sterling Bancorp Relies on Dividends from Its Subsidiaries
Sterling Bancorp is a separate and distinct legal entity from
its subsidiaries. It receives dividends from its subsidiaries.
These dividends are the principal source of funds to pay divi-
dends on the parent company’s common stock and interest
and principal on its debt. Various federal and/or state laws
and regulations limit the amount of dividends that Sterling
National Bank and certain non-bank subsidiaries may pay to
the parent company. Also, Sterling Bancorp’s right to partici-
pate in a distribution of assets upon a subsidiary’s liquidation
or reorganization is subject to the prior claims of the subsid-
iary’s creditors. In the event Sterling National Bank is unable
to pay dividends to Sterling Bancorp, Sterling Bancorp may
not be able to service debt, pay obligations or pay dividends
on the Company’s common stock. The inability to receive
dividends from Sterling National Bank could have a material
adverse effect on the Company’s business, financial condition
and results of operations. See “Supervision and Regulation”
on pages 3–9 and Note 15 of the Company’s consolidated
financial statements.
The Company Is Subject to Environmental Liability Risk
Associated with Lending Activities
A portion of the Company’s loan portfolio is secured by real
property. During the ordinary course of business, the
Company may foreclose on and take title to properties secur-
ing certain loans. In doing so, there is a risk that hazardous
or toxic substances could be found on these properties. If
hazardous or toxic substances are found, the Company may
be liable for remediation costs, as well as for personal injury
and property damage. Environmental laws may require the
Company to incur substantial expense and may materially
reduce the affected property’s value or limit the Company’s
ability to use or sell the affected property. Future laws or
more stringent interpretations or enforcement policies with
respect to existing laws may increase the Company’s expo-
sure to environmental liability. Although the Company has
policies and procedures to perform an environmental review
before initiating any foreclosure action on real property, these
reviews may not be sufficient to detect all potential environ-
mental hazards. The remediation costs and any other finan-
cial liabilities associated with an environmental hazard could
have a material adverse effect on the Company’s financial
condition and results of operations.
The Company’s Profitability Depends Significantly on
Local and Overall Economic Conditions
The Company’s success depends significantly on the eco-
nomic conditions of the communities it serves and the general
economic conditions of the United States. The Company has
operations in New York City and the New York metropolitan
area, as well as Virginia and other mid-Atlantic territories,
and conducts business throughout the United States. The eco-
nomic conditions in these areas and throughout the United
States have a significant impact on the demand for the
Company’s products and services as well as the ability of the
Company’s customers to repay loans, the value of the collat-
eral securing loans and the stability of the Company’s deposit
funding sources. A significant decline in general economic
conditions, caused by inflation, recession, acts of terrorism,
outbreak of hostilities or other international or domestic
occurrences, unemployment, changes in securities markets,
acts of God or other factors could impact these local economic
conditions and, in turn, have a material adverse effect on the
Company’s financial condition and results of operations.
Severe Weather, Natural Disasters or Other Acts of God,
Acts of War or Terrorism and Other External Events Could
Significantly Impact the Company’s Business
Severe weather, natural disasters or other acts of God, acts of
war or terrorism and other adverse external events could have
a significant impact on the Company’s ability to conduct
business. Such events could affect the stability of the
Company’s deposit base, impair the ability of borrowers to
repay outstanding loans, impair the value of collateral secur-
ing loans, cause significant property damage, result in loss of
revenue and/or cause the Company to incur additional
expenses. Although management has established disaster
recovery policies and procedures, the occurrence of any such
event could have a material adverse effect on the Company’s
business, which, in turn, could have a material adverse effect on
the Company’s financial condition and results of operations.
The Company Operates in a Highly Competitive Industry
and Market Area
The Company faces substantial competition in all areas of its
operations from a variety of different competitors, many of
which are larger and may have more financial resources. Such
competitors primarily include national, regional, and commu-
nity banks within the various markets the Company operates.
Additionally, various out-of-state banks have entered the mar-
ket areas in which the Company currently operates. The
Company also faces competition from many other types of
financial institutions, including, without limitation, savings
and loan associations, credit unions, finance companies, bro-
kerage firms, insurance companies, factoring companies and
other financial intermediaries. The financial services industry
could become even more competitive as a result of legislative,
regulatory and technological changes and continued consoli-
dation. Banks, securities firms and insurance companies
can merge under the umbrella of a financial holding com-
pany, which can offer virtually any type of financial service,
including banking, securities underwriting, insurance (both
P A G E 1 2
agency and underwriting) and merchant banking. Also, tech-
nology has lowered barriers to entry and made it possible for
non-banks to offer products and services traditionally pro-
vided by banks, such as automatic transfer and automatic
payment systems. Many of the Company’s competitors have
fewer regulatory constraints and may have lower cost struc-
tures. Additionally, due to their size, many competitors
may be able to achieve economies of scale and, as a result,
may offer a broader range of products and services as well as
better pricing for those products and services than the
Company does.
The Company’s ability to compete successfully depends on a
number of factors, including, among other things:
• The ability to develop, maintain and build upon customer
relationships based on top quality service, high ethical
standards and safe, sound assets.
• The ability to expand the Company’s market position.
• The scope, relevance and pricing of products and services
offered to meet customer needs and demands.
• The rate at which the Company introduces new products
and services relative to its competitors.
• Customer satisfaction with the Company’s level of service.
• Industry and general economic trends.
Failure to perform in any of these areas could significantly
weaken the Company’s competitive position, which could
adversely affect the Company’s growth and profitability,
which, in turn, could have a material adverse effect on the
Company’s financial condition and results of operations.
The Company Is Subject to Extensive Government
Regulation and Supervision
The Company, primarily through the parent company and
the bank and certain non-bank subsidiaries, is subject to
extensive federal and state regulation and supervision.
Banking regulations are primarily intended to protect deposi-
tors’ funds, federal deposit insurance funds and the banking
system as a whole, not shareholders. These regulations affect
the Company’s lending practices, capital structure, invest-
ment practices, dividend policy and growth, among other
things. Congress and federal regulatory agencies continually
review banking laws, regulations and policies for possible
changes. Changes to statutes, regulations or regulatory poli-
cies, including changes in interpretation or implementation of
statutes, regulations or policies, could affect the Company in
substantial and unpredictable ways. Such changes could sub-
ject the Company to additional costs, limit the types of finan-
cial services and products the Company may offer and/or
increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to comply
with laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties and/or reputation
damage, which could have a material adverse effect on the
Company’s business, financial condition and results of opera-
tions. While the Company has policies and procedures
designed to prevent any such violations, there can be no
assurance that such violations will not occur. See “Supervision
and Regulation” on pages 3–9.
The Company’s Controls and Procedures May Fail or
Be Circumvented
The Company’s internal controls, disclosure controls and
procedures, and corporate governance policies and procedures
can provide only reasonable, not absolute, assurances that the
objectives of the system are met. Any failure or circumven-
tion of the Company’s controls and procedures or failure to
comply with regulations related to controls and procedures
could have a material adverse effect on the Company’s busi-
ness, results of operations and financial condition.
The Company May Be Subject to a Higher Effective Tax
Rate if Sterling Real Estate Holding Company, Inc. Fails to
Qualify as a Real Estate Investment Trust (“REIT”)
Sterling Real Estate Holding Company Inc. (“SREHC”) oper-
ates as a REIT for federal income tax purposes. SREHC was
established to acquire, hold and manage mortgage assets and
other authorized investments to generate net income for dis-
tribution to its shareholders.
For an entity to qualify as a REIT, it must satisfy the following
six asset tests under the Internal Revenue Code each quarter:
(1) 75% of the value of the REIT’s total assets must consist of
real estate assets, cash and cash items, and government
securities; (2) not more than 25% of the value of the REIT’s
total assets may consist of securities, other than those includ-
ible under the 75% test; (3) not more than 5% of the value of
its total assets may consist of securities of any one issuer,
other than those securities includible under the 75% test or
securities of taxable REIT subsidiaries; (4) not more than
10% of the outstanding voting power of any one issuer may
be held, other than those securities includible under the 75%
test or securities of taxable REIT subsidiaries; (5) not more
than 10% of the total value of the outstanding securities of
any one issuer may be held, other than those securities includ-
ible under the 75% test or securities of taxable REIT subsid-
iaries; and (6) a REIT cannot own securities in one or more
taxable REIT subsidiaries which comprise more than 20% of
its total assets. At December 31, 2007, SREHC met all six
quarterly asset tests.
Also, a REIT must satisfy the following two gross income
tests each year: (1) 75% of its gross income must be from
qualifying income closely connected with real estate activi-
ties; and (2) 95% of its gross income must be derived from
sources qualifying for the 75% test plus dividends, interest,
and gains from the sale of securities. In addition, a REIT
P A G E 1 3
must distribute at least 90% of its taxable income for the tax-
able year, excluding any net capital gains, to maintain its
non-taxable status for federal income tax purposes. For
2007, SREHC had met the two annual income tests and the
distribution test.
If SREHC fails to meet any of the required provisions
and, therefore, does not qualify to be a REIT, the Company’s
effective tax rate would increase.
The Current New York State Executive Budget Proposals
Would, If Enacted, Increase New York State Tax on the
Company’s REIT.
Provisions in the 2008–09 New York State Executive Budget
Proposal would, if enacted, increase the taxes imposed by
New York State on the Company’s REIT. The Company can-
not predict whether or in what form any such proposal would
be enacted.
New Lines of Business or New Products and Services May
Subject the Company to Additional Risks
The Company may implement new lines of business or offer
new products and services within existing lines of business.
There are substantial risks and uncertainties associated with
these efforts, particularly in instances where the markets are
not fully developed. In developing and marketing new lines of
business and/or new products and services, the Company
may invest significant time and resources. Initial timetables
for the introduction and development of new lines of business
and/or new products or services may not be achieved and
price and profitability targets may not prove feasible. External
factors, such as compliance with regulations, competitive
alternatives, and shifting market preferences, may also impact
the successful implementation of a new line of business or a
new product or service. Furthermore, any new line of busi-
ness and/or new product or service could have a significant
impact on the effectiveness of the Company’s system of inter-
nal controls. Failure to manage these risks successfully in the
development and implementation of new lines of business or
new products or services could have a material adverse effect
on the Company’s business, results of operations and finan-
cial condition.
Potential Acquisitions May Disrupt the Company’s
Business and Dilute Shareholder Value
The Company seeks merger or acquisition partners that are
compatible and have experienced management and possess
either significant market presence or have potential for
improved profitability through financial management, econo-
mies of scale or expanded services. Acquiring other banks,
businesses, or branches involves various risks commonly
associated with acquisitions, including, among other things:
• Potential exposure to unknown or contingent liabilities of
the target company.
• Exposure to potential asset quality issues of the target
company.
• Difficulty and expense of integrating the operations and
personnel of the target company.
• Potential disruption to the Company’s business.
• Potential diversion of the Company’s management time
and attention.
• The possible loss of key employees and customers of the
target company.
• Difficulty in estimating the value of the target company.
• Potential changes in banking or tax laws or regulations
that may affect the target company.
The Company regularly evaluates merger and acquisition
opportunities and conducts due diligence activities related to
possible transactions with other financial institutions and
financial services companies. As a result, merger or acquisi-
tion discussions and, in some cases, negotiations may take
place and future mergers or acquisitions involving cash, debt
or equity securities may occur at any time. Acquisitions typi-
cally involve the payment of a premium over book and mar-
ket values, and, therefore, some dilution of the Company’s
tangible book value and net income per common share may
occur in connection with any future transaction. Furthermore,
failure to realize the expected revenue increases, cost savings,
increases in geographic or product presence, and/or other
projected benefits from an acquisition could have a material
adverse effect on the Company’s financial condition and
results of operations.
The Company May Not Be Able to Attract and Retain
Skilled People
The Company’s success depends, in large part, on its ability
to attract and retain key people. Competition for the best
people in most activities engaged in by the Company can be
intense, and the Company may not be able to hire people or
to retain them. The unexpected loss of services of one or
more of the Company’s key personnel could have a material
adverse impact on the Company’s business because of their
skills, knowledge of the Company’s market, years of industry
experience and the difficulty of promptly finding qualified
replacement personnel. The Company has employment agree-
ments with two of its senior officers.
The Company’s Information Systems May Experience an
Interruption or Breach in Security
The Company relies heavily on communications and infor-
mation systems to conduct its business. Any failure, inter-
ruption or breach in security of these systems could result
in failures or disruptions in the Company’s customer rela-
tionship management, general ledger, deposit, loan and
other systems. While the Company has policies and proce-
dures designed to prevent or limit the effect of the failure,
interruption or security breach of its information systems,
there can be no assurance that any such failures, interruptions
or security breaches will not occur or, if they do occur,
that they will be adequately addressed. The occurrence of
any failures, interruptions or security breaches of the
Company’s information systems could damage the Company’s
P A G E 1 4
reputation, result in a loss of customer business, subject the
Company to additional regulatory scrutiny, or expose the
Company to civil litigation and possible financial liability, any
of which could have a material adverse effect on the Company’s
reputation, financial condition and results of operations.
• Operating and stock price performance of other companies
that investors deem comparable to the Company.
• News reports relating to trends, concerns and other issues
in the financial services industry.
• Perceptions in the marketplace regarding the Company
The Company Continually Encounters Technological Change
The financial services industry is continually undergoing
rapid technological change with frequent introductions of
new technology-driven products and services. The Company’s
future success depends, in part, upon its ability to address
the needs of the customers by using technology to provide
products and services that will satisfy customer demands, as
well as to create additional efficiencies in the Company’s
operations. Many of the Company’s competitors have sub-
stantially greater resources to invest in technological improve-
ments. The Company may not be able to implement effectively
new technology-driven products and services or be successful
in marketing these products and services to its customers.
Failure to keep pace successfully with technological change
affecting the financial services industry could have a material
adverse impact on the Company’s business and, in turn, the
Company’s financial condition and results of operations.
The Company Is Subject to Claims and Litigation Pertaining
to Fiduciary Responsibility
From time to time, customers make claims and take legal
action pertaining to the Company’s performance of its fidu-
ciary responsibilities. Whether customer claims and legal
action related to the Company’s performance of its fiduciary
responsibilities are founded or unfounded, if such claims and
legal actions are not resolved in a manner favorable to the
Company they may result in significant financial liability
and/or adversely affect the market perception of the Company
and its products and services as well as impact customer
demand for those products and services. Any fiduciary liabil-
ity or reputation damage could have a material adverse effect
on the Company’s business, which, in turn, could have a
material adverse effect on the Company’s financial condition
and results of operations.
RISKS ASSOCIATED WITH THE COMPANY’S
COMMON STOCK
The Company’s Stock Price Can Be Volatile
Stock price volatility may make it more difficult to resell the
Company’s common stock when desired and at an attractive
price. The Company’s stock price can fluctuate significantly
in response to a variety of factors, including, among other
factors:
• Actual or anticipated variations in quarterly results of
operations.
• Recommendations by securities analysts.
and/or its competitors.
• New technology used, or services offered, by competitors.
• Significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving the Company or its competitors.
• Failure to integrate acquisitions or realize anticipated bene-
fits from acquisitions.
• Changes in government regulation.
• Geopolitical conditions such as acts or threats of terrorism
or military conflicts.
General market fluctuations, industry factors and general
economic and political conditions and events, such as eco-
nomic slowdowns or recessions, interest rate changes or credit
loss trends, could also cause the Company’s stock price to
decrease regardless of operating results.
The Trading Volume in the Company’s Common
Stock Is Less Than That of Other Larger Financial
Services Companies
Although the Company’s common stock is listed for trading
on the New York Stock Exchange, the trading volume in its
common stock is less than that of other larger financial ser-
vices companies. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends on
the presence in the marketplace of willing buyers and sellers
of the Company’s common stock at any given time. This pres-
ence depends on the individual decisions of investors and gen-
eral economic and market conditions over which the Company
has no control. Given the trading volume of the Company’s
common stock, significant sales of the Company’s common
stock, or the expectation of these sales, could cause the
Company’s stock price to fall.
An Investment in the Company’s Common Stock Is Not an
Insured Deposit
The Company’s common stock is not a bank deposit and,
therefore, is not insured against loss by the Federal Deposit
Insurance Corporation, any other deposit insurance fund or
by any other public or private entity. Investment in the
Company’s common stock is inherently risky for the reasons
described in this “Risk Factors” section and elsewhere in this
report and is subject to the same market forces that affect the
price of common stock in any company. As a result, if you
acquire the Company’s common stock, you may lose some or
all of your investment.
P A G E 1 5
The Company’s Certificate of Incorporation, By-Laws and
Shareholders Rights Plan as Well as Certain Banking Laws
May Have an Anti-Takeover Effect
Provisions of the Company’s certificate of incorporation and
by-laws, federal banking laws, including regulatory approval
requirements, and the Company’s stock purchase rights plan
could make it more difficult for a third party to acquire the
Company, even if doing so would be perceived to be benefi-
cial to the Company’s shareholders. The combination of these
provisions effectively inhibits a non-negotiated merger or
other business combination, which, in turn, could adversely
affect the market price of the Company’s common stock.
RISKS ASSOCIATED WITH THE COMPANY’S INDUSTRY
The Earnings of Financial Services Companies Are
Significantly Affected by General Business and
Economic Conditions
The Company’s operations and profitability are impacted by
general business and economic conditions in the United States
and abroad. These conditions include short-term and long-
term interest rates, inflation, money supply, political issues,
legislative and regulatory changes, fluctuations in both debt
and equity capital markets, broad trends in industry and
finance, and the strength of the U.S. economy and the local
economies in which the Company operates, all of which are
beyond the Company’s control. A deterioration in economic
conditions could result in an increase in loan delinquencies
and non-performing assets, decreases in loan collateral values
and a decrease in demand for the Company’s products and
services, among other things, any of which could have a
material adverse impact on the Company’s financial condi-
tion and results of operations.
Financial Services Companies Depend on the Accuracy
and Completeness of Information About Customers and
Counterparties
In deciding whether to extend credit or enter into other trans-
actions, the Company may rely on information furnished by
or on behalf of customers and counterparties, including
financial statements, credit reports and other financial infor-
mation. The Company may also rely on representations of
those customers, counterparties or other third parties, such
as independent auditors, as to the accuracy and completeness
of that information. Reliance on inaccurate or misleading
financial statements, credit reports or other financial infor-
mation could have a material adverse impact on the Company’s
business and, in turn, the Company’s financial condition and
results of operations.
Consumers May Decide Not to Use Banks to Complete
Their Financial Transactions
Technology and other changes are allowing parties to com-
plete financial transactions that historically have involved
banks through alternative methods. For example, consumers
can now maintain funds that would have historically been
held as bank deposits in brokerage accounts or mutual funds.
Consumers can also complete transactions such as paying
bills and/or transferring funds directly without the assistance
of banks. The process of eliminating banks as intermediaries,
known as “disintermediation,” could result in the loss of fee
income, as well as the loss of customer deposits and related
income generated from those deposits. The loss of these revenue
streams and these lower-cost deposits as a source of funds
could have a material adverse effect on the Company’s finan-
cial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The principal offices of the Company occupy one floor at
650 Fifth Avenue, New York, N.Y., consisting of approximately
14,400 square feet. The lease for these premises expires
April 30, 2016. Rental commitments to the expiration date
approximate $7,379,000.
The bank also maintains operating leases for nine branch
offices, the International Banking Facility, an Operations
Center, and additional office space in New York City, Nassau,
Suffolk and Westchester counties (New York) and in Charlotte
(North Carolina) with an aggregate of approximately 143,000
square feet. The aggregate office rental commitments for
these premises approximates $14,590,000. The leases have
expiration dates ranging from 2008 through 2018 with
varying renewal options. The bank owns free and clear (not
subject to a mortgage) a building in which it maintains a
branch located in Forest Hills, Queens.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business there are various legal pro-
ceedings pending against the Company. Management, after
consulting with counsel, is of the opinion that there should
be no material liability with respect to such proceedings, and
accordingly no provision has been made in the Company’s
consolidated financial statements.
P A G E 1 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
This information is included pursuant to Instruction 3 to Item 401(b) of SEC Regulation S-K:
Name of Executive
Title
Louis J. Cappelli
John C. Millman
John W. Tietjen
Howard M. Applebaum
Eliot S. Robinson
Chairman of the Board and Chief Executive Officer, Director
President, Director
Executive Vice President and Chief Financial Officer
Senior Vice President
Executive Vice President of Sterling National Bank
Age
77
65
63
49
65
Held Executive
Office Since
1967
1986
1989
2002
1998
All executive officers who are employees of the parent company are elected annually by the Board of Directors and serve at the
pleasure of the Board. The executive officer who is not an employee of the parent company is elected annually by, and serves at
the pleasure of, the board of directors of the bank. There are no arrangements or understandings between any of the foregoing
executive officers and any other person or persons pursuant to which he was selected as an executive officer.
On March 10, 2008, the Compensation Committee of the Board of Directors extended the terms of the Company’s Employment
Agreements with Mr. Cappelli and Mr. Millman to December 31, 2012 and December 31, 2010, respectively.
The Company’s 2007 Domestic Company Section 303A Annual CEO Certification was filed (without qualifications) with the
New York Stock Exchange. The certifications under Section 302 of the Sarbanes-Oxley Act are filed as exhibits to this annual
report of Form 10-K.
P A R T I I
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The parent company’s common stock is traded on the New York Stock Exchange under the symbol STL. Information regarding
the quarterly prices of the common stock is presented in Note 25 on page 80. Information regarding the average common
shares outstanding and dividends per common share is presented in the Consolidated Statements of Income on page 40.
Information regarding legal restrictions on the ability of the bank to pay dividends is presented in Note 15 on page 64. Although
such restrictions do not apply to the payment of dividends by the parent company to its shareholders, such dividends may be
limited by other factors, such as the requirement to maintain adequate capital under the risk-based capital regulations described
in Note 21 beginning on page 74. As of March 5, 2008, there were 1,466 shareholders of record of our common shares.
During the fiscal years ended December 31, 2006 and 2007, the following dividends were declared on our common shares on
the dates indicated: February 23, 2006: $.19; May 2, 2006: $.19; August 17, 2006: $.19; November 16, 2006: $.19; February
15, 2007: $.19; May 3, 2007: $.19; August 16, 2007: $.19; and November 15, 2007: $.19.
The Board of Directors initially authorized the repurchase of common shares in 1997 and since then has approved increases in
the number of common shares that the Company is authorized to repurchase. The latest increase was announced on February 15,
2007, when the Board of Directors increased the Company’s authority to repurchase common shares by an additional 800,000
shares. This increased the Company’s authority to repurchase shares to approximately 933,000 common shares.
Under its share repurchase program, the Company buys back common shares from time to time. The Company did not repur-
chase any of its common shares during the fourth quarter of 2007. At December 31, 2007, the maximum number of shares that
may yet be repurchased under the share repurchase program was 870,963.
P A G E 1 7
For information regarding securities authorized for issuance under the Company’s equity compensation plan, see Item 12 on
page 87.
The following performance graph compares for the fiscal years ended December 31, 2003, 2004, 2005, 2006 and 2007 (a) the
yearly cumulative total shareholder return (i.e., the change in share price plus the cumulative amount of dividends, assuming
dividend reinvestment, divided by the initial share price, expressed as a percentage) on Sterling’s common shares, with (b) the
cumulative total return of the Standard & Poor’s 500 Stock Index, and with (c) the cumulative total return on the KBW 50 Index
(a market-capitalization weighted bank-stock index):
Sterling Bancorp
S&P 500
KBW 50
ITEM 6. SELECTED FINANCIAL DATA
12/02
100.00
100.00
100.00
12/03
139.27
128.68
134.03
12/04
170.29
142.69
147.50
12/05
129.33
149.70
149.23
12/06
134.34
173.34
178.18
12/07
97.81
182.87
137.16
The information appears on page 19. All such information should be read in conjunction with the consolidated financial state-
ments and notes thereto.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information appears on pages 20–37 and supplementary quarterly data appears in Note 25 of the Company’s consolidated
financial statements. All such information should be read in conjunction with the consolidated financial statements and the
notes thereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appears on pages 33–35 under the caption “ASSET/LIABILITY MANAGEMENT.” All such information
should be read in conjunction with the consolidated financial statements and notes thereto.
P A G E 1 8
S E L E C T E D F I N A N C I A L D A T A [ 1 ]
Sterling Bancorp
(dollars in thousands except per share data)
2007
2006
2005
2004
2003
SUMMARY OF OPERATIONS
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net securities gains/(losses)
Noninterest income, excluding net securities gains/(losses)
Noninterest expenses
Income before taxes
Provision for income taxes
Income from continuing operations
(Loss)/income from discontinued operations, net of tax
Loss on sale of discontinued operations, net of tax
Net income
Income from continuing operations
Per average common share—basic
—diluted
Net income
Per average common share—basic
—diluted
Dividends per common share
YEAR END BALANCE SHEETS
Investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Other assets—discontinued operations
Total assets, including discontinued operations
Noninterest-bearing deposits
Interest-bearing deposits
Short-term borrowings
Long-term debt
Shareholders’ equity
AVERAGE BALANCE SHEETS
Investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Total assets, including discontinued operations
Noninterest-bearing deposits
Interest-bearing deposits
Short-term borrowings
Long-term debt
Shareholders’ equity
RATIOS
Return on average total assets
Return on average tangible shareholders’ equity[2]
Return on average shareholders’ equity
Dividend payout ratio
Average shareholders’ equity to average total assets
Net interest margin (tax-equivalent basis)
Loans/assets, year end[3]
Net charge-offs/loans, year end[4]
Nonperforming loans/loans, year end[3]
Allowance/loans, year end[4]
$
$ 121,452
47,560
73,892
5,853
188
35,536
79,809
23,954
8,560
15,394
(795)
—
14,599
$ 116,586
42,021
74,565
4,503
(443)
34,101
77,355
26,365
5,367
20,998
(603)
(9,635)
10,760
$ 101,888
26,463
75,425
5,214
337
33,679
67,654
36,573
13,110
23,463
564
—
24,027
0.85
0.83
0.80
0.79
0.76
625,241
23,756
1,187,124
—
2,012,649
535,351
991,635
205,418
65,774
121,070
586,463
43,919
1,069,453
1,892,751
444,672
1,055,696
131,573
44,130
124,140
1.12
1.09
0.57
0.56
0.76
569,324
33,320
1,112,602
1,663
1,885,957
546,443
975,587
83,776
45,774
132,263
647,602
40,992
1,002,688
1,944,776
439,064
951,333
255,204
59,938
143,178
1.22
1.19
1.25
1.22
0.73
715,299
40,977
1,012,057
116,250
2,056,042
510,884
937,442
281,838
85,774
147,587
713,629
53,948
890,085
1,931,101
452,632
936,665
198,879
106,514
149,836
86,228
18,351
67,877
6,139
1,256
32,683
61,929
33,748
11,074
22,674
1,930
—
24,604
1.19
1.13
1.29
1.23
0.63
680,220
37,059
906,762
114,596
1,871,112
511,307
832,544
150,825
135,774
148,704
689,569
46,395
778,272
1,777,720
415,664
830,950
166,804
135,774
142,536
$
80,251
16,115
64,136
5,412
551
30,946
56,182
34,039
12,605
21,434
2,469
—
23,903
1.13
1.08
1.26
1.20
0.54
683,118
40,556
772,919
127,053
1,759,824
474,092
737,649
189,489
135,774
143,262
593,005
71,779
673,412
1,587,623
370,554
683,748
179,002
139,870
134,150
0.81%
1.13%
1.29%
1.36%
1.45%
15.20
12.40
89.35
6.56
4.49
60.16
0.49
0.53
1.27
17.43
14.67
67.70
7.70
4.64
60.81
0.43
0.51
1.46
18.23
15.66
59.82
8.23
4.76
54.29
0.41
0.37
1.52
18.68
15.91
53.39
8.56
4.63
53.73
0.43
0.23
1.59
18.97
15.98
47.17
9.09
4.83
49.82
0.41
0.37
1.65
[1] All data presented is from continuing operations unless indicated otherwise.
[2] Average tangible shareholders’ equity is average shareholders’ equity less average goodwill.
[3] In this calculation, the term “loans” means loans held for sale and loans held in portfolio.
[4] In this calculation, the term “loans” means loans held in portfolio.
P A G E 1 9
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
Sterling Bancorp
The following commentary presents management’s discus sion
and analysis of the financial condition and results of opera-
tions of Sterling Bancorp (the “parent company”), a financial
holding company under the Bank Holding Company Act of
1956, as amended by the Gramm-Leach-Bliley Act of 1999,
and its subsidiaries, principally Sterling National Bank (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 selected finan-
cial data contained elsewhere in this annual report. Certain
reclassifications have been made to prior years’ financial data
to conform to current financial statement presentations.
FORWARD -LOOKING STATEMENTS AND FACTORS THAT
COULD AFFECT FUTURE RESULTS
Certain statements contained or incorporated by reference in
this annual report on Form 10-K, including but not limited to,
statements concerning future results of operations or financial
position, borrowing capacity and future liquidity, future invest-
ment results, future credit exposure, future loan losses and
plans and objectives for future operations, and other statements
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 materi-
ally from the anticipated results and financial condition indi-
cated 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 condi-
tions; 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 eco-
nomic 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 Item 1A. Risk Factors on
pages 10–16; other risks and uncertainties described 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting and reporting policies followed by the Company
conform, in all material respects, to U.S. generally accepted
accounting principles. In preparing the consolidated financial
statements, management has made estimates, assumptions
and judgments based on information available as of the date
of the financial statements; accordingly, as this information
changes, the financial statements may reflect different esti-
mates, assumptions and judgments. Certain policies inher-
ently have greater reliance on the use of estimates, assumptions
and judgments and as such have a greater possibility of pro-
ducing results that could be materially different than origi-
nally reported. Estimates, assumptions and judgments are
necessary when assets and liabilities are required to be
recorded at fair value, when a decline in the value of an asset
not carried on the financial statements at fair value warrants
an impairment write-down or valuation allowance to be
established, or when an asset or liability must be recorded
contingent upon a future event. Carrying assets and liabilities
at fair value inherently results in more financial statement
volatility. The fair values and the information used to record
valuation adjustments for certain assets and liabilities are
based either on quoted market prices or are provided by other
third-party sources, when readily available. Actual results
could differ significantly from those estimates.
The Company’s accounting policies are fundamental to under-
standing management’s discussion and analysis of financial con-
dition and results of operations. The most significant accounting
policies followed by the Company are presented in Note 1 begin-
ning on page 45. The accounting for factoring transactions
also is discussed under “Business Operations—The Bank—
Commercial Lending, Asset-Based Financing and Factoring/
Accounts Receivable Management” on pages 1 and 2.
The Company has identified its policies on the allowance for
loan losses and income tax liabilities to be critical because
management has to make subjective and/or complex judg-
ments about matters that are inherently uncertain and could
be subject to revision as new information becomes available.
Additional information on these policies can be found in
Note 1 to the consolidated financial statements.
P A G E 2 0
The allowance for loan losses represents management’s esti-
mate of probable credit losses inherent in the loan portfolio.
Determining the amount of the allowance for loan losses is
considered a critical accounting estimate because it requires sig-
nificant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans,
estimated losses on pools of homogeneous loans based on his-
torical loss experience, and consideration of current economic
trends and conditions, all of which may be susceptible to signifi-
cant change. The methodology used to determine the allowance
for loan losses is outlined in Note 1 to the consolidated finan-
cial statements and a discussion of the factors driving changes
in the amount of the allowance for loan losses is included
under the caption “Asset Quality” beginning on page 27.
The objectives of accounting for income taxes are to recog-
nize the amount of taxes payable or refundable for the cur-
rent year and deferred tax liabilities and assets for the future
tax consequences of events that have been recognized in an
entity’s financial statements or tax returns. Judgment is
required in assessing the future tax consequences of events
that have been recognized in the Company’s consolidated
financial statements or tax returns. Fluctuations in the actual
outcome of these future tax consequences could impact the
Company’s consolidated financial condition or results of oper-
ations. In connection with determining its income tax provi-
sion under statement of Financial Accounting Standard No.
109 and Financial Accounting Standards Board Interpretation
No. 48, the Company maintains a reserve related to certain
tax positions and strategies that management believes contain
an element of uncertainty. The Company evaluates each of its
tax positions and strategies periodically to determine whether
the reserve continues to be appropriate. Additional discussion
on the accounting for income taxes is presented in Notes 1
and 18 of the Company’s consolidated financial statements.
OVERVIEW
The Company provides a broad range of financial products
and services, including business and consumer loans, com-
mercial and residential mortgage lending and brokerage,
asset-based financing, factoring/accounts receivable manage-
ment services, trade financing, equipment leasing, deposit
services, 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 gen-
eral state of the U.S. economy and, in par ticular, economic
and market conditions in the metropolitan New York area
have a significant impact on loan demand, the ability of bor-
rowers 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.
As of April 3, 2006, Sterling Resource Funding Corp., a sub-
sidiary of the bank, completed the acquisition of the business
and certain assets of PL Services, L.P.
In September 2006, the Company sold the business conducted
by Sterling Financial Services (“Sterling Financial”). In accor-
dance with U.S. generally accepted accounting principles, the
assets, liabilities and earnings/loss of the business con-
ducted by Sterling Financial have been shown separately as
discontinued operations in the consolidated balance sheets and
consolidated statements of income for all periods presented.
For purposes of the following discussion, except for the sec-
tion entitled “Discontinued Operations,” average balances,
average rates, income and expenses associated with Sterling
Financial have been excluded from continuing operations and
reported separately for all periods presented.
The interest expense allocated to discontinued operations was
based on the actual average balances, interest expenses and
average rate on each category of interest-bearing liabilities, with
the average rate applied to the aggregate average loan balances
to determine the funding cost. Interest expense allocated to
the funding supporting the Sterling Financial net loans for these
periods was assigned based on the average net loan balances
proportionately funded by all interest-bearing liabilities at an
average rate equal to the cost of each applied to its average bal-
ance for the period. The “Rate/Volume Analysis” was pre-
pared on the same basis, as was the “Average Balance Sheets.”
In 2007, the bank’s average earning assets represented approx-
imately 99.7% of the Company’s average earning assets.
Loans represented 64.4% and investment securities repre-
sented 34.1% of the bank’s average earning assets in 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.
P A G E 2 1
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 ser vices. 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,
services, availability of products and geographic location.
The Company regularly evaluates acquisition opportunities
and conducts due diligence activities in connection with pos-
sible 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 compo-
sition of assets, liabilities and shareholders’ equity. Net inter-
est spread is the difference between the average rate earned, on
a tax-equivalent basis, on interest-earning assets and the aver-
age 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, prin-
cipally 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 32. Information as to the compo-
nents of interest income and interest expense and average rates
is provided in the Average Balance Sheets shown on page 31.
COMPARISON OF THE YEARS 2007 AND 2006
The Company reported income from continuing operations,
after income taxes, for the year ended December 31, 2007 of
$15.4 million, representing $0.83 per share, calculated on a
diluted basis, compared to $ 21.0 million, or $1.09 per share,
calculated on a diluted basis, for the year 2006. This decrease
reflected higher interest and noninterest expenses, a higher
provision for loan losses and a higher provision for income
taxes, which were partially offset by increases in interest and
noninterest income.
Net Interest Income
Net interest income, on a tax-equivalent basis, was $74.4
million for 2007 compared to $75.3 million for 2006. Net
interest income was positively impacted by higher average loan
and federal funds sold balances, a higher yield on investment
securities and lower balances for borrowed funds and nega-
tively impacted by lower average investment securities outstand-
ings, lower yield on loans and higher average balances coupled
with higher rates paid for interest-bearing deposits. The net
interest margin, on a tax-equivalent basis, was 4.49% for 2007
compared to 4.64% for 2006. The net interest margin was
impacted by the higher interest rate environment during most of
2007 and by the earning asset and the funding mix. Additionally,
the more competitive pricing practices in the Company’s mar-
kets caused the cost of interest-bearing deposits to increase
more rapidly than the yield on interest-earning assets.
Total interest income, on a tax-equivalent basis, aggregated
$121.9 million for 2007, up from $117.3 million for 2006.
The tax equivalent yield on interest-earning assets was 7.36%
for 2007 compared to 7.23% for 2006.
Interest earned on the loan portfolio amounted to $92.3 mil-
lion for 2007, up $5.4 million from the year ago period.
Average loan balances amounted to $1,113.4 million, an
increase of $69.7 million from an average of $1,043.7 million
in the prior year. The increase in average loans (across many
segments of the Company’s loan portfolio), primarily due to
the acquisition of Sterling Resource Funding Corp. coupled
with the Company’s other business development activities
and the ongoing consolidation of banks in the Company’s
marketing area, accounted for a $6.7 million increase in inter-
est earned on loans. The decrease in the yield on the loan port-
folio to 8.83% for 2007 from 8.97% for 2006 was primarily
attributable to the mix of average outstanding balances among
the components of the loan portfolio partially offset by the
higher interest rate environment during most of 2007 and the
competitive pricing practice in the Company’s markets.
Interest earned on the securities portfolio, on a tax-equivalent
basis, decreased to $28.3 million for 2007 from $30.1 million
in the prior year. Average outstandings decreased to $586.5
million (34.0% of average earning assets) for 2007 from
$647.6 million (38.1% of average earning assets) in the prior
year. The average yield increased to 4.83% for 2007 com-
pared to 4.65% for 2006. The average life of the securities
portfolio was approximately 6.2 years at December 31, 2007
compared to 4.7 years at December 31, 2006.
Total interest expense increased to $47.6 million for 2007
from $42.0 million for 2006, primarily due to higher rates
paid and higher average balances for interest-bearing depos-
its. Partially offsetting those increases was the impact of
lower borrowed funds balances.
P A G E 2 2
Interest expense on deposits increased to $38.8 million for 2007
from $29.0 million for 2006 due to an increase in the cost of
those funds coupled with higher average balances. The average
rate paid on interest-bearing deposits was 3.67% in 2007
which was 62 basis points higher than the prior year. The
increase in average costs of deposits reflects the higher interest
rate environment during most of 2007 coupled with the more
competitive pricing practices in the Company’s market. Average
interest-bearing deposit balances increased to $1,055.7 million
for 2007 from $951.3 million for 2006 reflecting the benefit
derived from the Company’s business development activities.
Interest expense on borrowings decreased to $8.8 million
for 2007 from $15.5 million for 2006 primarily due to the
lower average balances for borrowed funds. Average bor-
rowed funds balances decreased to $175.7 million for 2007
from $315.1 million in 2006 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 pro-
vision for loan losses for 2007 increased to $5.9 million from
$4.5 million for the prior year. Factors affecting the level
of provision included the growth in the loan portfolios,
changes in general economic conditions, levels of charge-offs
and the amount of nonaccrual loans.
Noninterest Income
Noninterest income increased to $35.7 million for 2007 from
$33.7 million in 2006, primarily due to higher accounts
receivable management/factoring commissions and other
fees principally due to revenues attributable to the acquisition
of Sterling Resource Funding Corp. Also contributing to
the increase were net gains on securities sales/calls in 2007
compared with net losses for 2006. Partially offsetting
these increases was a decrease in mortgage banking income
primarily due to revaluation charges which reduced the
carrying values of residential mortgage loans held for sale
to the lower of cost or market and a charge for settlement
of potential repurchase obligations as part of our loss mitiga-
tion efforts.
Noninterest Expenses
Noninterest expenses increased to $79.8 million for 2007
from $77.4 million in 2006. The increase was primarily due
to higher salaries, employee benefits, equipment and occu-
pancy costs related to investments in the Sterling franchise,
including the new branches and the acquisition of Sterling
Resource Funding Corp. Also contributing to higher employee
benefits expense were increases in pension costs.
Provision for Income Taxes
The provision for income taxes for 2007 increased by $3.2
million from 2006. The provision for 2006 was reduced as
the result of reversals aggregating $4.4 million (during the
first and third quarters of 2006) of reserves for state and local
taxes, net of federal tax effect, as a result of the resolution of
certain state and local tax issues and the closure of certain
tax years for local tax purposes. The year-over-year change
in the provision was also impacted by the lower level of pre-
tax income in 2007.
Discontinued Operations
In September 2006, the Company sold the business conducted
by Sterling Financial. In accordance with U.S. generally
accepted accounting principles, income after taxes from dis-
continued operations and the loss on disposal of discontinued
operations, net of tax, are reported in the Consolidated
Statements of Income after net income from continuing oper-
ations for all periods presented.
The loss from discontinued operations was $0.8 million for
2007, representing $0.04 per share, compared to a loss of
$0.6 million, or $.03 per share, for 2006.
Income taxes were calculated using a “with and without”
methodology that resulted in an overall tax rate of 39.16% in
2007 and 38.54% in 2006.
COMPARISON OF THE YEARS 2006 AND 2005
The Company reported income from continuing operations,
after income taxes, for the year ended December 31, 2006 of
$21.0 million, representing $1.09 per share, calculated on a
diluted basis, compared to $23.5 million, or $1.19 per share,
calculated on a diluted basis, for the year 2005. This decrease
reflected higher interest and noninterest expenses and lower
noninterest income, which were partially offset by an increase
in interest income coupled with decreases in the provision for
loan losses and the provision for income taxes.
Net Interest Income
Net interest income, on a tax-equivalent basis, was $75.3
million for 2006 compared to $76.1 million for 2005. Net
interest income was positively impacted by higher average
loan balances at higher average yields and negatively impacted
by lower average investment securities outstandings and
higher rates paid on interest-bearing deposits and borrowed
funds coupled with higher balances for interest-bearing
deposits and borrowed funds. The net interest margin, on a
tax-equivalent basis, was 4.64% for 2006 compared to 4.76%
for 2005. The net interest margin was impacted by the flat-
tening of the yield curve, the higher interest rate environment
in 2006, the lower level of noninterest-bearing demand depos-
its and the effect of higher average loan balances. The flatten-
ing yield curve and more competitive pricing practices in the
Company’s markets caused the costs of deposits and borrow-
ings to increase faster than the yield on earning assets.
P A G E 2 3
Total interest income, on a tax-equivalent basis, aggregated
$117.3 million for 2006, up from $102.6 million for 2005.
The tax-equivalent yield on interest-earning assets was 7.23%
for 2006 compared to 6.41% for 2005.
Interest earned on the loan portfolio amounted to $86.9 mil-
lion for 2006, up $17.1 million from 2005. Average loan bal-
ances amounted to $1,043.7 million, an increase of $99.7
million from an average of $944.0 million in 2005. The
increase in average loans (across virtually all segments of the
Company’s loan portfolio), primarily due to the acquisition
of Sterling Resource Funding Corp. coupled with the
Company’s other business development activities and the
ongoing consolidation of banks in the Company’s marketing
area, accounted for $7.9 million of the $17.1 million increase
in interest earned on loans. The increase in the yield on the
loan portfolio to 8.97% for 2006 from 7.99% for 2005 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 2006.
Interest earned on the securities portfolio, on a tax-equivalent
basis, decreased to $30.1 million for 2006 from $32.4 mil-
lion in the prior year. Average outstandings decreased to
$647.6 million (38.1% of average earning assets) for 2006
from $713.6 million (42.7% of average earning assets) in the
prior year. The average life of the securities portfolio was
approximately 4.7 years at December 31, 2006 compared to
4.4 years at December 31, 2005.
Total interest expense increased to $42.0 million for 2006
from $26.5 million for 2005, primarily due to higher rates
paid for interest-bearing deposits and for borrowed funds
and higher average balances for interest-bearing deposits and
borrowed funds.
Interest expense on deposits increased to $29.0 million for
2006 from $18.1 million for 2005 primarily due to an increase
in the cost of those funds. The average rate paid on interest-
bearing deposits was 3.05% in 2006, which was 111 basis
points higher than the prior year. The increase in average cost
of deposits reflects the higher interest rate environment dur-
ing 2006. Average interest-bearing deposit balances increased
to $951.3 million for 2006 from $936.7 million for 2005.
Interest expense on borrowings increased to $15.5 million
for 2006 from $11.0 million for 2005 primarily due to the
higher interest rate environment during 2006. The average
rate paid on borrowed funds was 4.94% which was 135 basis
points higher than the prior year. The increase in average cost
of borrowings reflects the higher interest rate environment
during 2006. Average borrowed funds balances increased to
$315.1 million for 2006 from $305.4 million in 2005.
Provision for Loan Losses
Based on management’s continuing evaluation of the loan port-
folio (discussed under “Asset Quality” below), the provision
for loan losses for 2006 decreased to $4.5 million from $5.2
million for the prior year. Factors affecting the level of provision
included the growth in the loan portfolios, changes in general
economic conditions and the amount of nonaccrual loans.
Noninterest Income
Noninterest income decreased to $33.7 million for 2006 from
$34.0 million in 2005, primarily due to lower revenues from
mortgage banking activities and bank owned life insurance
coupled with higher losses from sales of available for sale
securities. The decrease in mortgage banking income was
principally due to lower volume of loans sold and the contin-
ued yield compression in the secondary market for loans that
impacted the entire industry. Partially offsetting these decreases
were increased revenues from customer related service charges
and fees primarily due to revenues attributable to the acquisi-
tion of Sterling Resource Funding Corp.
Noninterest Expenses
Noninterest expenses increased to $77.4 million for 2006
from $67.7 million in 2005. The increase was primarily due
to higher salaries, employee benefits, equipment and occu-
pancy costs related to investments in the Sterling franchise,
including the new branches and the acquisition of Sterling
Resource Funding Corp. Also contributing to higher employee
benefits expense were increases in pension costs. During the
third quarter of 2005, noninterest expenses were reduced by
$1.0 million due to the reversal of litigation costs originally
charged to noninterest expenses in 2001.
Provision for Income Taxes
The provision for income taxes for 2006 decreased by $7.7
million from 2005. The decrease was primarily due to: (1) a
$3.7 million reversal (during the first quarter of 2006) of
reserves for state and local taxes, net of federal tax effect, as
a result of the resolution of certain state tax issues, (2) a $0.6
million reversal (during the third quarter of 2006) of reserves
for state and local taxes, net of federal tax effect, as a result
of the closure of certain tax years for local tax purposes and
(3) the lower level of pre-tax income.
Discontinued Operations
In September 2006, the Company sold the business conducted
by Sterling Financial. In accordance with U.S. generally
accepted accounting prin ciples, income after taxes from dis-
continued operations and the loss on disposal of discontinued
operations, net of tax, are reported in the Consolidated
Statements of Income after net income from continuing oper-
ations for all periods presented.
P A G E 2 4
The loss from discontinued operations was $0.6 million for 2006, representing $0.03 per share, compared to income of $0.6
million, or $.03 per share, for 2005. The decrease was due to lower net interest income and a higher provision for loan losses
for 2006 compared to 2005.
The net after-tax loss on the disposal of discontinued operations was $9.6 million, or $0.50 per share, for 2006.
Income taxes were calculated using a “with and without” methodology that resulted in an overall tax rate of 38.54% in 2006
and 45.80% in 2005.
BALANCE SHEET ANALYSIS
Securities
The Company’s securities portfolios are composed principally of obligations of U.S. government corporations and government
sponsored enterprises along with other debt and equity securities. At December 31, 2007, the Company’s portfolio of securities
totaled $625.2 million, of which obligations of U.S. government corporations and government sponsored enterprises amounted
to $469.2 million which is approximately 93.1% of the total. The Company has the intent and ability to hold to maturity securi-
ties 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 $2.2 million and $4.3 million, respec-
tively. 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. “Avail able for sale” securities included gross unrealized gains of
$1.5 million and gross unrealized losses of $4.0 million. Given the generally high credit quality of the portfolio, management
expects to realize all of its investment upon the maturity of such instruments and, thus, believes that any market value impair-
ment is temporary. Management has no current intention to sell any available for sale securities at a loss.
Information regarding book values and range of maturities by type of security and weighted average yields for totals of each
category is presented in Note 5 beginning on page 53.
The following table sets forth the composition of the Com pany’s investment securities by type, with related carrying values at
the end of each of the three most recent fiscal years:
December 31,
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
CMOs (Government National Mortgage Association)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Federal Farm Credit Bank agency notes
Total obligations of U.S. government corporations and government
sponsored enterprises
Obligations of state and political subdivisions
Trust preferred securities
Corporate securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Other securities
Debt securities issued by foreign governments
2007
2006
2005
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
(dollars in thousands)
$ 21,159
44,444
—
251,615
184,667
14,922
516,807
9,992
15,000
541,799
21,601
1,248
—
1,131
2,719
326
500
3.72%
7.81
—
44.19
32.44
2.62
90.78
1.76
2.63
95.17
3.79
0.22
—
0.19
0.48
0.06
0.09
$ 20,789
42,634
9,094
225,736
158,705
12,247
469,205
85,502
27,218
581,925
19,142
4,303
12,810
1,131
5,360
320
250
3.33%
6.82
1.45
36.10
25.38
1.96
75.04
13.68
4.35
93.07
3.06
0.69
2.05
0.18
0.86
0.05
0.04
$ 22,871
48,687
—
299,372
215,528
19,645
606,103
39,689
29,795
675,587
31,307
—
—
1,131
5,950
324
1,000
3.20%
6.80
—
41.85
30.13
2.74
84.72
5.55
4.17
94.44
4.38
—
—
0.16
0.83
0.05
0.14
Total
$ 625,241
100.00%
$ 569,324
100.00%
$ 715,299
100.00%
P A G E 2 5
The following table presents information regarding the average life and yields of certain available for sale (“AFS”) and held to
maturity (“HTM”) securities:
December 31, 2007
Mortgage-backed securities
Agency notes (with original call dates ranging between 3 and 36 months)
Agency notes (noncallable)
Obligations of state and political subdivisions
[1] tax equivalent
Weighted Average Life Weighted Average Yield
AFS
HTM
AFS
HTM
4.7 years
13.5 years
4.6 years
9.7 years
— 0.6 years
5.7 years —
4.69%
6.01%
—
6.24%(1)
4.64%
5.00%
4.50%
—
Loan Portfolio
A management objective is to maintain the quality of the loan portfolio. The Company seeks to achieve this objective by main-
taining rigorous underwriting standards coupled with regular evaluation of the creditworthiness of and the designation of lend-
ing limits for each borrower. The portfolio strategies include seeking industry and loan size diversification in order to minimize
credit exposure and originating loans in markets with which the Company is familiar.
The Company’s commercial and industrial loan and factored receivables portfolios represents approximately 52% of all loans.
Loans in this category are typically made to individuals, small and medium-sized businesses and range between $250,000 and
$15 million. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, repre-
sents approximately 21% of all loans. The leasing and commercial and industrial loan portfolios are included in corporate lend-
ing for segment reporting purposes as presented in Note 22 beginning on page 75. The Company’s real estate loan portfolios,
which represent approximately 24% of all loans, are secured by mortgages on real property located principally in the states of
New York, New Jersey, Virginia and North Carolina. Sources of repayment are from the borrower’s operating profits, cash
flows and liquidation of pledged collateral. Based on underwriting standards, loans and leases may be secured 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 and may vary in value based on market conditions.
The following table, restated to reflect the disposition of Sterling Financial (see Note 2 beginning on page 51), sets forth the
composition of the Company’s loans held for sale and loans held in portfolio, net of unearned discounts, at the end of each of
the five most recent fiscal years:
December 31,
2007
2006
2005
2004
2003
Domestic
Commercial and industrial
Lease financing
Factored receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and
land development
Installment—individuals
Loans to depository institutions
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
(dollars in thousands)
$ 539,969
249,702
92,631
153,221
99,093
44.59% $ 521,992
207,771
20.62
100,156
7.65
153,376
12.66
93,215
8.18
45.55% $ 414,952
190,391
18.13
100,663
8.74
188,723
13.39
110,871
8.13
39.40% $ 386,557
162,961
18.08
93,186
9.56
149,387
17.92
113,933
10.53
40.96% $ 334,547
148,737
17.27
101,653
9.87
107,766
15.83
94,145
12.07
41.12%
18.29
12.50
13.25
11.57
37,161
12,103
27,000
3.07
1.00
2.23
30,031
12,381
27,000
2.62
1.08
2.36
2,309
13,125
32,000
0.22
1.25
3.04
2,320
15,477
20,000
0.24
1.64
2.12
2,368
14,259
10,000
0.29
1.75
1.23
Total
$ 1,210,880 100.00% $ 1,145,922 100.00% $ 1,053,034 100.00% $ 943,821 100.00% $ 813,475 100.00%
The following table sets forth the maturities of the Company’s commercial and industrial, factored receivables and construction
and land development loans, as of December 31, 2007:
Commercial and industrial
Factored receivables
Real estate—construction and land development
Due One
Year
or Less
Due One
to Five
Years
Due
After Five
Years
Total
Gross
Loans
(in thousands)
$468,285
93,017
—
$59,638
—
37,161
$12,046
—
—
$539,969
93,017
37,161
All commercial and industrial loans due after one year have predetermined interest rates.
All real estate—construction and land development loans due after one year have floating or adjustable interest rates.
P A G E 2 6
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.
The following table, restated to reflect the disposition of Sterling Financial (see Note 2 beginning on page 51), sets forth the
amount of domestic nonaccrual and past due loans of the Company at the end of each of the five most recent fiscal years; there
were no foreign loans accounted for on a nonaccrual basis and there were no troubled debt restructurings for any types of loans.
Loans contractually past due 90 days or more as to principal or interest and still accruing are loans that are both well-secured
or guaranteed by financially responsible third parties and are in the process of collection.
December 31,
2007
2006
2005
2004
2003
Gross loans
Nonaccrual loans
$ 1,249,128
$ 1,177,705
$ 1,081,701
$967,184
$833,675
(dollars in thousands)
Commercial and industrial
$
Lease financing
Factored receivables
Real estate—residential mortgage
Installment—individuals
Total nonaccrual loans
Past due 90 days or more (other than
the above)
Total
610
2,571
—
2,786
416
6,383
1,329
$
1,490
2,933
—
1,011
427
5,861
989
$
611
2,109
—
740
397
3,857
821
$
67
1,304
—
704
72
2,147
1,672
$ 1,695
783
—
489
49
3,016
127
$
7,712
$
6,850
$
4,678
$ 3,819
$ 3,143
Interest income that would have been
earned on nonaccrual loans outstanding
$
655
Applicable interest income actually realized
on nonaccrual loans outstanding
$
222
Nonaccrual and past due loans as a
$
$
545
335
$
$
294
$
185
$
146
95
$
92
$
93
percentage of total gross loans
0.62%
0.58%
0.43%
0.39%
0.38%
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 port-
folio 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 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 December 31, 2007, the ratio of the
P A G E 2 7
allowance to loans held in portfolio, net of unearned discounts, was 1.27% and the allowance was $15.1 million. At such date,
the Company’s nonaccrual loans amounted to $6.4 million; $0.6 million of such loans was judged to be impaired within the
scope of SFAS No. 114. Based on the foregoing, as well as management’s judgment as to the current risks inherent in loans held
in port folio, the Company’s allowance for loan losses was deemed adequate as of December 31, 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 provision taken in 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 $-0- million at both December 31, 2007 and 2006.
The following table, restated to reflect the disposition of Sterling Financial (see Note 2 beginning on page 51), sets forth certain
information with respect to the Company’s loan loss experience for each of the five most recent fiscal years:
Years Ended December 31,
2007
2006
2005
2004
2003
Average loans held in portfolio, net of
unearned discounts, during year
$ 1,069,453
$ 1,002,688
$ 890,085
$ 778,272
$ 673,412
(dollars in thousands)
Allowance for loan losses:
Balance at beginning of year
$
16,288
$
15,369
$ 14,437
$ 12,730
$ 10,644
Charge-offs:
Commercial and industrial
Lease financing
Factored receivables
Real estate—residential mortgage
Installment
Total charge-offs
Recoveries:
Commercial and industrial
Lease financing
Factored receivables
Real estate—residential mortgage
Installment
Total recoveries
Subtract:
Net charge-offs
Provision for loan losses
Add allowance from acquisition
Less loss on transfers to other real
estate owned
2,620
3,345
243
215
67
6,490
219
316
31
30
110
706
5,784
5,853
—
1,272
1,075
4,618
223
24
—
5,940
786
310
32
—
38
1,166
4,774
4,503
1,845
655
446
3,732
369
13
—
4,560
219
76
39
—
39
373
4,187
5,214
—
95
1,784
2,446
552
8
9
4,799
737
44
63
—
43
887
3,912
6,139
—
520
1,588
1,155
478
547
38
3,806
480
25
72
—
61
638
3,168
5,412
—
158
Balance at end of year
$
15,085
$
16,288
$ 15,369
$ 14,437
$ 12,730
Ratio of net charge-offs to average
loans held in portfolio, net of
unearned discounts, during year
0.54%
0.48%
0.47%
0.50%
0.47%
P A G E 2 8
The following table, restated to reflect the disposition of Sterling Financial (see Note 2 beginning on page 51), presents the
Company’s allocation of the allowance for loan losses. This allocation is based on estimates by management and may vary
from year to year based on management’s evaluation of the risk characteristics of the loan portfolio. The amount allocated to a
particular loan category of the Company’s loans held in portfolio may not necessarily be indicative of actual future charge-offs
in that loan category.
December 31,
2007
2006
2005
2004
2003
% of
Loans
in each
category
to total
loans
held in
portfolio Amount
% of
Loans
in each
category
to total
loans
held in
portfolio Amount
% of
Loans
in each
category
to total
loans
held in
portfolio Amount
% of
Loans
in each
category
to total
loans
held in
portfolio Amount
% of
Loans
in each
category
to total
loans
held in
portfolio
Amount
(dollars in thousands)
$ 5,655
54
5,398
1,083
1,988
613
45.49% $ 6,488
135
6,356
1,127
1,468
501
2.27
21.03
7.80
10.91
8.35
46.92% $ 7,017
112
4,636
1,260
1,437
509
2.43
18.67
9.00
10.79
8.38
41.00% $ 6,674
120
4,073
1,071
1,412
772
3.16
18.81
9.95
14.60
10.95
42.63% $ 5,316
80
2,686
1,592
1,228
1,082
2.20
17.97
10.28
12.39
12.56
43.28%
1.29
19.24
13.15
8.70
12.18
183
15
96
3.13
1.02
—
150
2.70
— 1.11
—
63
10
110
278
0.23
1.30
—
15
100
200
0.26
1.71
—
24
14
708
0.31
1.85
—
Domestic
Commercial and industrial
Loans to depository institutions
Lease financing
Factored receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and
land development
Installment—individuals
Unallocated
Total
$ 15,085 100.00% $ 16,288 100.00% $ 15,369 100.00% $ 14,437 100.00% $ 12,730 100.00%
During 2007 the allowance for loan losses decreased primarily because decreases in the allowance allocated to commercial and
industrial loans and lease financing more than offset an increase in the allowance allocated to real estate—residential mortgage
loans. During 2007 the allowance allocated to commercial and industrial loans decreased primarily as a result of another year
of low loss experience in Sterling Resource Funding Corp. compared to its loss experience before the Company acquired it as of
April 1, 2006. The allowance allocated to lease financing decreased primarily as a result of improved loss experience in that
category in 2007 compared to 2006. The allowance allocated to real estate—residential mortgage loans increased primarily due
to increased risks in the real estate market in 2007 compared to 2006 and an increase in the specific valuation allowance for
impaired loans.
P A G E 2 9
Deposits
A significant source of funds are customer 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 at the end of each of the three most
recent fiscal years:
December 31,
2007
2006
2005
Domestic
Demand
NOW
Savings
Money Market
Time deposits by remaining maturity
Within 3 months
After 3 months but within 1 year
After 1 year but within 2 years
After 2 years but within 3 years
After 3 years but within 4 years
After 4 years but within 5 years
After 5 years
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
(dollars in thousands)
$ 535,351
241,333
17,690
208,423
35.06% $ 546,443
233,990
15.80
19,007
1.16
194,604
13.65
35.90% $ 510,884
208,217
15.37
25,296
1.25
202,660
12.79
35.27%
14.38
1.75
13.99
216,024
256,686
48,138
1,270
472
1,022
1
14.15
16.81
3.15
0.08
0.03
0.07
—
203,038
243,806
78,808
1,035
337
353
35
13.34
16.02
5.18
0.07
0.02
0.02
—
252,383
173,301
67,897
4,269
144
233
20
17.43
11.96
4.69
0.29
0.01
0.02
—
Total domestic deposits
1,526,410
99.96
1,521,456
99.96
1,445,304
99.79
Foreign
Time deposits by remaining maturity
Within 3 months
After 3 months but within 1 year
Total foreign deposits
Total deposits
395
181
576
0.03
0.01
0.04
395
179
574
0.03
0.01
0.04
1,645
1,377
3,022
0.11
0.10
0.21
$ 1,526,986
100.00% $ 1,522,030
100.00% $ 1,448,326
100.00%
Fluctuations of balances in total or among categories at any date can 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 for the three most recent fiscal years is presented on page 31.
P A G E 3 0
C O N S O L I D A T E D A V E R A G E B A L A N C E S H E E T S A N D
A N A L Y S I S O F N E T I N T E R E S T E A R N I N G S [ 1 ]
Sterling Bancorp
Years Ended December 31,
2007
2006
2005
ASSETS
Interest-bearing deposits with other banks
Investment securities
Available for sale
Held to maturity
Tax-exempt[2]
Federal funds sold
Loans, net of unearned discounts[3]
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
(dollars in thousands)
$
3,033
$
117
3.86% $
2,624
$
103
4.48% $
3,040
$
65
1.96%
165,289
401,212
19,962
23,219
8,379
18,705
1,250
1,236
5.07
4.66
6.26
5.32
146,820
473,608
27,174
4,041
6,841
21,496
1,760
195
4.66
4.54
6.47
4.84
192,354
495,187
26,088
10,986
8,438
22,181
1,816
309
4.39
4.48
6.96
2.81
Domestic
1,113,372
92,255
8.83
1,043,680
86,882
8.97
944,033
69,787
7.99
TOTAL INTEREST-EARNING ASSETS
1,726,087
121,942
7.36%
1,697,947
117,277
7.23%
1,671,688
102,596
6.41%
Cash and due from banks
Allowance for loan losses
Goodwill
Other
66,384
(16,233)
22,885
93,628
Total assets—continuing operations
1,892,751
Assets—discontinued operations
TOTAL ASSETS
—
$ 1,892,751
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
64,598
(16,741)
22,714
90,812
1,859,330
85,446
$1,944,776
62,162
(15,730)
21,158
81,126
1,820,404
110,697
1,931,101
Domestic
Savings
NOW
Money market
Time
Foreign
Time
$
19,618
237,731
241,478
556,295
101
5,903
7,079
25,674
0.51% $
2.48
2.93
4.62
23,050
197,587
213,530
514,452
101
3,787
4,696
20,399
0.44% $
1.92
2.20
3.97
28,150
160,944
227,520
517,038
113
1,576
2,456
13,957
0.40%
0.98
1.08
2.70
1.09
1.94
Total interest-bearing deposits
1,055,696
38,763
574
6
1.09
3.67
2,714
28
951,333
29,011
1.03
3.05
3,013
33
936,665
18,135
Borrowings
Securities sold under agreements to
repurchase—customers
Securities sold under agreements to
repurchase—dealers
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Long-term borrowings—subordinated
debentures
Total borrowings
Interest-bearing liabilities allocated to
discontinued operations
80,649
3,392
4.21
86,418
3,501
4.05
85,365
1,907
2.23
6,470
9,281
26,731
7,082
1,360
18,356
25,774
175,703
309
430
1,350
336
66
820
2,094
8,797
4.78
4.63
5.05
4.74
4.87
4.47
8.38
5.03
74,057
15,133
44,539
34,444
613
34,164
3,739
769
2,020
1,796
30
1,569
25,774
315,142
2,094
15,518
5.05
5.08
4.53
5.21
4.96
4.59
8.38
4.94
52,199
17,992
37,302
5,277
744
80,740
1,794
647
973
203
25
3,331
25,774
305,393
2,094
10,974
3.44
3.60
2.61
3.84
3.35
4.13
8.38
3.59
—
—
(78,054)
(2,508)
3.17
(99,317)
(2,646)
2.63
Total Interest-Bearing Liabilities
1,231,399
47,560
3.86%
1,188,421
42,021
3.54%
1,142,741
26,463
2.32%
Noninterest-bearing demand deposits
444,672
—
439,064
—
452,632
—
Total including noninterest-bearing
demand deposits
Other liabilities
Liabilities—discontinued operations
Total Liabilities
Shareholders’ equity
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
Net interest income/spread
Net yield on interest-earning assets
Less: Tax-equivalent adjustment
Net interest income
1,676,071
47,560
2.84%
1,627,485
42,021
2.74%
1,595,373
26,463
1.83%
92,540
—
1,768,611
124,140
95,302
78,811
1,801,598
143,178
$ 1,892,751
$ 1,944,776
85,994
99,898
1,781,265
149,836
$ 1,931,101
74,382
3.50%
75,256
3.69%
76,133
4.09%
4.49%
4.64%
4.76%
490
$ 73,892
691
$ 74,565
708
$ 75,425
[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 prior period amounts to conform to current presentation.
[2] Interest on tax-exempt securities included herein is presented on a tax-equivalent basis.
[3] Includes loans held for sale and loans held in portfolio. Nonaccrual loans are included in amounts outstanding and income has been included to the extent earned.
P A G E 3 1
C O N S O L I D A T E D R A T E / V O L U M E A N A L Y S I S [ 1 ]
Sterling Bancorp
Increase (Decrease) from Years Ended,
December 31, 2006 to
December 31, 2007
December 31, 2005 to
December 31, 2006
INTEREST INCOME
Interest-bearing deposits with other banks
$
24
$
(10)
$
14
$
(11)
$
49
$
38
Volume
Rate
Total[2]
Volume
Rate
Total[2]
(in thousands)
Investment securities
Available for sale
Held to maturity
Tax-exempt
Total
Federal funds sold
Loans, net of unearned discounts[3]
905
(3,348)
(456)
(2,899)
1,020
633
557
(54)
1,136
21
1,538
(2,791)
(510)
(1,763)
1,041
(2,092)
(978)
3
(3,067)
(261)
495
293
(59)
729
147
(1,597)
(685)
(56)
(2,338)
(114)
Domestic
6,724
(1,351)
5,373
7,907
9,188
17,095
TOTAL INTEREST INCOME
$ 4,869
$
(204)
$ 4,665
$ 4,568
$ 10,113
$ 14,681
INTEREST EXPENSE
Interest-bearing deposits
Domestic
Savings
NOW
Money market
Time
Foreign
Time
Total interest-bearing deposits
Borrowings
Securities sold under agreements to
repurchase—customers
Securities sold under agreements to
repurchase—dealers
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Total borrowings
Interest-bearing liabilities allocated
$
(15)
$
15
$ —
$
(22)
$
10
$
(12)
869
674
1,751
(24)
3,255
(242)
(3,240)
(276)
(881)
(1,311)
37
(709)
(6,622)
1,247
1,709
3,524
2
6,497
133
(190)
(63)
211
(149)
(1)
(40)
(99)
2,116
2,383
5,275
(22)
9,752
424
(160)
(71)
(3)
168
1,787
2,400
6,513
2,211
2,240
6,442
(2)
(5)
10,708
10,876
(109)
23
1,571
1,594
(3,430)
(339)
(670)
(1,460)
36
(749)
(6,721)
919
(114)
219
1,497
(5)
(2,099)
440
618
1,026
236
828
96
10
337
4,104
1,945
122
1,047
1,593
5
(1,762)
4,544
(480)
138
$ 1,226
$ 3,342
$ 14,332
$ 15,558
$ (4,219)
$
(877)
to discontinued operations
2,508
—
2,508
TOTAL INTEREST EXPENSE
$ (859)
$ 6,398
$ 5,539
NET INTEREST INCOME
$ 5,728
$ (6,602)
$
(874)
[1] Amounts are presented on a tax-equivalent basis.
[2] The change in interest income and interest expense due to both rate and volume has been allocated to change due to rate and the change due to volume in
proportion to the relationship of the absolute dollar amounts of the changes in each.
[3] Nonaccrual loans have been included in the amounts outstanding and income has been included to the extent earned.
P A G E 3 2
ASSET/ LIABILITY MANAGEMENT
The Company’s primary earnings source is its net interest
income; therefore, the Company devotes significant time and
has invested in resources to assist in the management of inter-
est rate risk and asset quality. The Company’s net interest
income is affected by changes in market interest rates, and by
the level and composition of interest-earning assets and interest-
bearing liabilities. The Company’s objectives in its asset/
liability management are to utilize its capital effectively, to
provide adequate liquidity and to enhance net interest income,
without taking undue risks or subjecting the Company unduly
to interest rate fluctuations.
The Company takes a coordinated approach to the manage-
ment of its liquidity, capital and interest rate risk. This risk
management process is governed by policies and limits estab-
lished by senior management which are reviewed and approved
by the Asset/Liability Committee. This committee, which is
comprised of members of senior management, meets to review,
among other things, economic conditions, interest rates, yield
curve, cash flow projections, expected customer actions, liq-
uidity levels, capital ratios and repricing characteristics of
assets, liabilities and financial instruments.
Market Risk
Market risk is the risk of loss in a financial instrument arising
from adverse changes in market indices such as interest rates,
foreign exchange rates and equity prices. The Company’s prin-
cipal market risk exposure is interest rate risk, with no material
impact on earnings from changes in foreign exchange rates or
equity prices.
Interest rate risk is the exposure to changes in market interest
rates. Interest rate sensitivity is the relationship between market
interest rates and net interest income due to the repricing char-
acteristics of assets and liabilities. The Company monitors the
interest rate sensitivity of its balance sheet positions by examin-
ing its near-term sensitivity and its longer-term gap position. In
its management of interest rate risk, the Company utilizes
several financial and statistical tools including traditional
gap analysis and sophisticated income simulation models.
A traditional gap analysis is prepared based on the maturity
and repricing characteristics of interest-earning assets and
interest-bearing liabilities for selected time bands. The mis-
match between repricings or maturities within a time band is
commonly referred to as the “gap” for that period. A positive
gap (asset sensitive) where interest rate sensitive assets exceed
interest rate sensitive liabilities generally will result in the
net interest margin increasing in a rising rate environment
and decreasing in a falling rate environment. A negative gap
(liability sensitive) will generally have the opposite result on
the net interest margin. However, the traditional gap analysis
does not assess the relative sensitivity of assets and liabilities
to changes in interest rates and other factors that could have
an impact on interest rate sensitivity or net interest income.
The Company utilizes the gap analysis to complement its
income simulations modeling, primarily focusing on the
longer-term structure of the balance sheet.
The Company’s balance sheet structure is primarily short-term
in nature with a substantial portion of assets and liabilities
repricing or maturing within one year. The Company’s gap
analysis at December 31, 2007, presented on page 37, indi-
cates that net interest income would decrease during periods
of rising interest rates and increase during periods of falling
interest rates, but, as mentioned above, gap analysis may not
be an accurate predictor of net interest income.
As part of its interest rate risk strategy, the Company may use
financial instrument derivatives to hedge the interest rate sen-
sitivity of assets. The Company has written policy guidelines,
approved by the Board of Directors, governing the use of
financial instruments, including approved counterparties, risk
limits and appropriate internal control procedures. The credit
risk of derivatives arises principally from the potential for a
counterparty to fail to meet its obligation to settle a contract
on a timely basis.
As of December 31, 2007 the Company was a party to an
interest rate floor agreement with a notional amount of
$50,000,000 and a maturity of September 14, 2008. The
interest rate floor contract requires the counterparty to pay
the Company at specified future dates the amount, if any, by
which the specified interest (prime rate) falls below the fixed
floor rate, applied to the notional amount. The Company uti-
lizes the financial instrument to adjust its interest rate risk
position without exposing itself to principal risk and funding
requirements. This financial instrument is being used as part
of the Company’s interest rate risk management and not for
trading purposes. At December 31, 2007, the counterparty
has an investment grade credit rating from the major rating
agencies. The counterparty is specifically approved for appli-
cable credit exposure.
The interest rate floor contract requires the Company to pay
a fee for the right to receive a fixed interest payment. The
Company paid an up-front premium of $80,000. At December
31, 2007, there were no amounts receivable under this contract.
The interest rate floor agreement was not designated as a
hedge for accounting purposes and therefore changes in the
fair value of the instrument are required to be recognized as
current income or expense in the Company’s consolidated
financial statements. At December 31, 2007 and 2006, the
fair value of the interest rate floor was $10,609 and $2,666,
respectively. For the years ended December 31, 2007 and
P A G E 3 3
2006, $7,943 was credited to interest income from loans and
$18,344 was charged against interest income from loans,
respectively.
The Company utilizes income simulation models to comple-
ment its traditional gap analysis. While the Asset/Liability
Committee routinely monitors simulated net interest income
sensitivity over a rolling two-year horizon, it also utilizes addi-
tional tools to monitor potential longer-term interest rate risk.
The income simulation models measure the Company’s net
interest income volatility or sensitivity to interest rate changes
utilizing statistical techniques that allow the Company to con-
sider various factors which impact net interest income. These
factors include actual maturities, estimated cash flows, repricing
characteristics, deposits growth/retention and, most impor-
tantly, the relative sensitivity of the Company’s assets and lia-
bilities to changes in market interest rates. This relative
sensitivity is important to consider as the Company’s core
deposit base has not been subject to the same degree of interest
rate sensitivity as its assets. The core deposit costs are inter-
nally managed and tend to exhibit less sensitivity to changes in
interest rates than the Company’s adjustable rate assets whose
yields are based on external indices and generally change in
concert with market interest rates.
The Company’s interest rate sensitivity is determined by iden-
tifying the probable impact of changes in market interest rates
on the yields on the Company’s assets and the rates that would
be paid on its liabilities. This modeling technique involves a
degree of estimation based on certain assumptions that man-
agement believes to be reasonable. Utilizing this process,
management projects the impact of changes in interest rates on
net interest margin. The Company has established certain policy
limits for the potential volatility of its net interest margin
assuming certain levels of changes in market interest rates with
the objective of maintaining a stable net interest margin under
various probable rate scenarios. Man agement generally has
maintained a risk position well within the policy limits. As of
December 31, 2007, the model indicated the impact of a 200
basis point parallel and pro rata rise in rates over 12 months
would approximate a 3.1% ($2.6 million) increase in net
interest income, while the impact of a 200 basis point decline
in rates over the same period would approximate a 2.5%
($2.1 million) decline from an unchanged rate environment.
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of
expected operating results. These hypothetical estimates are
based upon numerous assumptions including: the nature and
timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates,
pricing decisions on loans and deposits, reinvestment/
replacement of asset and liability cash flows, and others.
While assumptions are developed based upon current economic
and local market conditions, the Company cannot provide
any assurances as to the predictive nature of these assump-
tions, including how customer preferences or competitor
influences might change.
Also, as market conditions vary from those assumed in the
sensitivity analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those
assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of chang-
ing debt service levels on customers with adjustable rate loans,
depositor early withdrawals and product preference changes,
and other variables. Furthermore, the sensitivity analysis does
not reflect actions that the Asset/Liability Committee might
take in responding to or anticipating changes in interest rates.
The shape of the yield curve can cause downward pressure on
net interest income. In general, if and to the extent that the
yield curve is flatter (i.e., the differences between interest rates
for different maturities are relatively smaller) than previously
anticipated, then the yield on the Company’s interest-earning
assets and its cash flows will tend to be lower. Management
believes that a relatively flat yield curve could continue to
adversely affect the Company’s results in 2008.
Liquidity Risk
Liquidity is the ability to meet cash needs arising from changes
in various categories of assets and liabilities. Liquidity is con-
stantly monitored and managed at both the parent company
and the bank levels. Liquid assets consist of cash and due from
banks, interest-bearing deposits in banks and Federal funds
sold and securities available for sale. Primary funding sources
include core deposits, capital markets funds and other money
market sources. Core deposits include domestic noninterest-
bearing and interest-bearing retail deposits, which historically
have been relatively stable. The parent company and the bank
believe that they have significant unused borrowing capacity.
Contingency plans exist which we believe could be implemented
on a timely basis to mitigate the impact of any dramatic change
in market conditions.
The parent company depends for its cash requirements on
funds maintained or generated by its subsidiaries, principally
the bank. Such sources have been adequate to meet the parent
company’s cash requirements throughout its history.
Various legal restrictions limit the extent to which the bank
can supply funds to the parent company and its non-bank
subsidiaries. All national banks are limited in the payment of
dividends without the approval of the Comptroller of the
Currency to an amount not to exceed the net profits (as
defined) for the year to date combined with its retained net
profits for the preceding two calendar years.
P A G E 3 4
At December 31, 2007, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing
current business activities, was approximately $20.9 million. The parent company had cash, interest-bearing deposits with
banks and other current assets aggregating $35.8 million. The parent company also has back-up credit lines with banks of
$24.0 million. Since 1979, the parent company has had no need to use available back-up lines of credit.
The following table sets forth information regarding the Company’s contractual cash obligations as of December 31, 2007:
Contractual
Obligations
Long-Term Debt[1]
Operating Leases
Total Contractual Cash Obligations
[1] Based on contractual maturity date.
Payments Due by Period
Total
$65,774
21,969
$87,743
Less than
1 Year
1–3
Years
4–5
Years
After 5
Years
$ —
4,018
(in thousands)
$30,000
6,541
$10,000
4,218
$25,774
7,192
$4,018
$36,541
$14,218
$32,966
The following table sets forth information regarding the Company’s obligations under other commercial commitments as of
December 31, 2007:
Other Commercial
Commitments
Residential Loans
Commercial Loans
Total Loan Commitments
Standby Letters of Credit
Other Commercial Commitments
Total Commercial Commitments
Amount of Commitment Expiration Per Period
Less than
1 Year
1–3
Years
4–5
Years
After 5
Years
Total
$11,504
39,047
50,551
40,216
14,440
$11,504
24,102
35,606
33,806
14,383
(in thousands)
$ —
14,820
14,820
6,410
—
$ —
125
$ —
—
125
—
—
—
—
57
57
$105,207
$83,795
$21,230
$
125
$
While past performance is no guarantee of the future, management believes that the parent company’s funding sources (includ-
ing div idends from all its subsidiaries) and the bank’s funding sources will be adequate to meet their liquidity requirements in
the future.
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 com-
ponents of Total Capital and establish minimum ratios of 4% for Tier 1 capital and 8% for Total Capital for capital adequacy
purposes. Sup plementing 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 at
December 31, 2007 and December 31, 2006 is presented in Note 21 beginning on page 74. In addition, the bank is subject to
the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) which imposes a number of
mandatory supervisory measures. Among other matters, FDICIA established five cap ital categories ranging from “well capital-
ized” to “critically undercapitalized.” Such classifications are used by regulatory agencies to determine a bank’s deposit insurance
premium, approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or
acquire other institutions. Under FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier 1 and Total Capital
ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies comparable tests for holding companies such as the
Company. At December 31, 2007, the Company and the bank exceeded the requirements for “well capitalized” institutions.
P A G E 3 5
IMPACT OF INFLATION AND CHANGING PRICES
The Company’s financial statements included herein have been prepared in accordance with U.S. generally accepted accounting
principles, which require the Company to measure financial position and operating results primarily in terms of historical dol-
lars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of
inflation on the operations of the Company is reflected in increased operating costs. In management’s opinion, changes in inter-
est rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While
interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the
same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the
Company, including changes in the expected rate of inflation, the influence of general and local economic conditions and the
monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authori-
ties, among other things, as further discussed under the caption “RISKS RELATED TO THE COMPANY’S BUSINESS”
beginning on page 10 and under the caption “ASSET/LIABILITY MANAGEMENT” beginning on page 33.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See “New Accounting Standards and Interpretations” in Note 1 of the Company’s consolidated financial statements for
information regarding recently issued accounting pronouncements and their expected impact on the Company’s consolidated
financial statements.
P A G E 3 6
C O N S O L I D A T E D I N T E R E S T R A T E S E N S I T I V I T Y
Sterling Bancorp
To mitigate the vulnerability of earnings to changes in interest rates, the Company manages the repricing characteristics of
assets and liabilities in an attempt to control net interest rate sensitivity. Management attempts to confine significant rate
sensitivity gaps predominantly to repricing intervals of a year or less, so that adjustments can be made quickly. Assets and
liabilities with prede termined repricing dates are classified based on the earliest repricing period. Based on the interest rate
sensitivity analysis shown below, the Company’s net interest income would decrease during periods of rising interest rates and
increase during periods of falling interest rates. Amounts are presented in thousands.
ASSETS
Interest-bearing deposits with
other banks
Investment securities
Commercial and industrial loans
Equipment lease financing
Factored receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction loans
Installment—individuals
Loans to depository institutions
Noninterest-earning assets and
allowance for loan losses
Repricing Date
3 Months
or Less
More than
3 Months
to 1 Year
1 Year to
5 Years
Over
5 Years
Nonrate
Sensitive
Total
$ 980
$ —
$ —
419
440,068
1,307
93,017
44,080
15,433
—
12,103
27,000
—
9,684
28,217
9,606
—
12,536
8,976
—
—
—
—
88,172
59,638
262,262
—
70,677
42,994
37,161
—
—
—
$
—
519,968
12,046
14,389
—
25,928
31,690
—
—
—
—
$
—
$
980
6,998
—
(37,862)
(386)
—
—
—
—
—
625,241
539,969
249,702
92,631
153,221
99,093
37,161
12,103
27,000
175,548
175,548
Total Assets
634,407
69,019
560,904
604,021
144,298
2,012,649
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Savings
NOW
Money market
Time—domestic
—foreign
—
—
168,087
216,024
395
—
—
—
256,686
181
Securities sold under agreements
to repurchase—customers
58,054
2,000
Securities sold under agreements
to repurchase—dealers
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Long-term borrowings—subordinated
debentures
Noninterest-bearing liabilities and
shareholders’ equity
Total Liabilities and
Shareholders’ Equity
10,200
65,000
20,879
45,000
4,285
—
—
—
—
—
—
—
—
—
—
—
17,690
241,333
40,336
50,902
—
—
—
—
—
—
—
40,000
—
—
—
—
—
1
—
—
—
—
—
—
—
—
25,774
—
—
—
—
—
—
—
—
—
—
—
—
—
17,690
241,333
208,423
523,613
576
60,054
10,200
65,000
20,879
45,000
4,285
40,000
25,774
—
749,822
749,822
587,924
258,867
390,261
25,775
749,822
2,012,649
Net Interest Rate Sensitivity Gap
$ 46,483
$(189,848)
$170,643
$578,246
$(605,524)
Cumulative Gap at December 31, 2007
$ 46,483
$(143,365)
$ 27,278
$605,524
Cumulative Gap at December 31, 2006
$130,609
$ (31,621)
$ 170,278
$684,751
Cumulative Gap at December 31, 2005
$ 37,715
$ (51,516)
$ 82,734
$628,269
$
$
$
—
—
—
$
$
$
$
—
—
—
—
P A G E 3 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company’s consolidated financial statements as of December 31, 2007 and 2006 and for each of the years in the three-year
period ended December 31, 2007, and the statements of condition of Sterling National Bank as of December 31, 2007 and 2006,
notes thereto and the Report of Independent Registered Public Accounting Firm thereon appear on pages 39–82.
P A G E 3 8
C O N S O L I D A T E D B A L A N C E S H E E T S
Sterling Bancorp
December 31,
ASSETS
Cash and due from banks
Interest-bearing deposits with other banks
Federal funds sold
Securities available for sale (at estimated fair value;
2007
2006
$
66,412,612
979,984
—
$
50,058,593
1,261,187
20,000,000
pledged: $102,326,258 in 2007 and $90,583,854 in 2006)
263,380,570
148,420,887
Securities held to maturity (pledged: $191,549,044 in 2007 and $199,997,912 in
2006) (estimated fair value: $359,725,008 in 2007 and $411,650,690 in 2006)
Total investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Less allowance for loan losses
Loans, net
Customers’ liability under acceptances
Goodwill
Premises and equipment, net
Other real estate
Accrued interest receivable
Bank owned life insurance
Other assets
Total assets from continuing operations
Assets—discontinued operations
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Securities sold under agreements to repurchase—customers
Securities sold under agreements to repurchase—dealers
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Long-term borrowings—subordinated debentures
Total borrowings
Acceptances outstanding
Accrued expenses and other liabilities
Liabilities—discontinued operations
Total liabilities
Shareholders’ Equity
Common stock, $1 par value. Authorized 50,000,000 shares;
issued 21,278,531 and 21,177,084 shares, respectively
Capital surplus
Retained earnings
Accumulated other comprehensive loss
Common stock in treasury at cost, 3,459,302 and 2,572,368 shares, respectively
Total shareholders’ equity
See Notes to Consolidated Financial Statements.
P A G E 3 9
361,860,847
625,241,417
23,755,906
1,187,123,984
15,084,775
420,903,430
569,324,317
33,319,789
1,112,601,620
16,287,974
1,172,039,209
1,096,313,646
200,942
22,900,912
11,178,883
1,669,993
7,081,304
29,041,115
52,146,506
98,399
22,862,051
11,323,649
2,242,419
5,844,868
27,949,160
43,696,511
2,012,648,783
—
1,884,294,589
1,662,697
$ 2,012,648,783
$ 1,885,957,286
$ 535,350,808
991,635,371
$ 546,442,704
975,587,719
1,526,986,179
1,522,030,423
60,053,947
10,200,000
65,000,000
20,878,494
45,000,000
4,285,198
40,000,000
25,774,000
271,191,639
200,942
93,199,746
—
52,802,796
—
—
27,561,567
—
3,411,630
20,000,000
25,774,000
129,549,993
98,399
101,679,342
336,358
1,891,578,506
1,753,694,515
21,278,531
168,868,895
17,537,732
(10,811,811)
196,873,347
(75,803,070)
121,070,277
21,177,084
167,960,063
16,693,987
(11,842,908)
193,988,226
(61,725,455)
132,262,771
$ 2,012,648,783
$ 1,885,957,286
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Sterling Bancorp
Years Ended December 31,
INTEREST INCOME
Loans
Investment securities
Available for sale
Held to maturity
Federal funds sold
Deposits with other banks
Total interest income
INTEREST EXPENSE
2007
2006
2005
$ 92,255,225
$ 86,881,731
$ 69,787,586
9,138,487
18,704,721
1,236,394
117,134
7,909,605
21,496,064
195,656
103,064
9,546,211
22,180,396
308,766
65,109
121,451,961
116,586,120
101,888,068
Deposits
Securities sold under agreements to repurchase—customers
Securities sold under agreements to repurchase—dealers
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Long-term borrowings—subordinated debentures
Total interest expense
Interest expense allocated to discontinued operations
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Accounts receivable management/factoring commissions and
other fees
Service charges on deposit accounts
Other customer related service charges and fees
Mortgage banking income
Trust fees
Bank owned life insurance income
Securities gains/(losses)
Other income
Total noninterest income
NONINTEREST EXPENSES
Salaries
Employee benefits
Total personnel expense
Occupancy and equipment expenses, net
Advertising and marketing
Professional fees
Communications
Other expenses
Total noninterest expenses
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
(Loss)/income from discontinued operations, net of tax
Loss on sale of discontinued operations, net of tax
38,762,936
3,392,542
309,044
430,087
1,349,516
335,591
66,200
820,303
2,093,750
47,559,969
—
73,891,992
5,853,330
68,038,662
15,536,359
5,587,486
3,043,941
8,893,226
550,581
1,091,955
188,366
831,943
35,723,857
36,796,778
9,506,172
46,302,950
10,353,989
3,896,921
6,665,616
1,940,972
10,648,060
79,808,508
23,954,011
8,560,105
15,393,906
(795,034)
—
29,011,428
3,501,526
3,739,286
768,751
2,019,638
1,796,247
30,391
1,568,529
2,093,750
44,529,546
(2,508,092)
74,564,666
4,502,596
70,062,070
13,282,411
5,404,053
3,661,332
9,695,762
591,422
984,585
(443,117)
481,881
33,658,329
35,700,312
9,424,120
45,124,432
9,898,630
3,855,415
6,453,717
1,823,257
10,199,415
77,354,866
26,365,533
5,366,808
20,998,725
(603,753)
(9,634,911)
18,134,850
1,907,335
1,793,838
647,027
973,200
202,837
24,887
3,331,619
2,093,750
29,109,343
(2,646,062)
75,424,787
5,214,000
70,210,787
6,003,920
5,385,532
3,259,812
16,433,355
642,906
1,401,588
337,457
551,828
34,016,398
30,775,794
8,471,744
39,247,538
8,633,292
3,769,435
5,643,944
1,472,756
8,887,564
67,654,529
36,572,656
13,109,947
23,462,709
564,116
—
Net income
$ 14,598,872
$ 10,760,061
$ 24,026,825
Average number of common shares outstanding
Basic
Diluted
Income from continuing operations, per average common share
Basic
Diluted
Net income, per average common share
Basic
Diluted
Dividends per common share
$
See Notes to Consolidated Financial Statements.
P A G E 4 0
18,209,704
18,531,546
18,734,610
19,265,093
19,164,498
19,763,352
0.85
0.83
0.80
0.79
0.76
$
1.12
1.09
0.57
0.56
0.76
$
1.22
1.19
1.25
1.22
0.73
Sterling Bancorp
C O N S O L I D A T E D S T A T E M E N T S O F
C O M P R E H E N S I V E I N C O M E
Years Ended December 31,
Net income
2007
2006
2005
$ 14,598,872
$ 10,760,061
$ 24,026,825
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the year
Reclassification adjustment for gains (losses) included in
net income
Pension liability adjustment—net actuarial losses
Amortization of:
Prior service cost
Net actuarial losses
835,018
(56,219)
(2,645,319)
(105,726)
(595,708)
54,171
843,342
243,094
(5,467,424)
(181,582)
(481,659)
—
—
—
—
Other comprehensive income (loss)
1,031,097
(5,280,549)
(3,308,560)
Comprehensive income
$ 15,629,969
$ 5,479,512
$ 20,718,265
See Notes to Consolidated Financial Statements.
P A G E 4 1
C O N S O L I D A T E D S T A T E M E N T S O F
C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y
Sterling Bancorp
Years Ended December 31,
COMMON STOCK
Balance at beginning of year
Common shares issued under stock incentive plan
Balance at end of year
CAPITAL SURPLUS
2007
2006
2005
$ 21,177,084
101,447
$ 21,066,916
110,168
$ 20,785,515
281,401
$ 21,278,531
$ 21,177,084
$ 21,066,916
Balance at beginning of year
Common shares issued under stock incentive plan and related tax benefits
Stock option compensation expense
Common shares issued in connection with stock dividend
$ 167,960,063
794,811
114,021
—
$ 166,313,566
1,623,330
23,167
—
$ 144,405,751
4,016,084
—
17,891,731
Balance at end of year
RETAINED EARNINGS
Balance at beginning of year as originally reported
SAB 108 cumulative effect adjustment, net of tax
Balance at beginning of year as adjusted
Net income
Cash dividends paid—common shares
Common shares issued in connection with stock dividend
Stock dividend—cash in lieu
Balance at end of year
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year
Unrealized holding gains/(losses) arising during the period:
Before tax
Tax effect
Net of tax
Reclass adjustment for (gains)/losses included in net income:
Before tax
Tax effect
Net of tax
Pension liability adjustment—net actuarial losses
Before tax
Tax effect
Net of tax
Adjustment to initially apply SFAS No. 158:
Before tax
Tax effect
Net of tax
Amortization of prior service cost and net actuarial losses:
Before tax
Tax effect
Net of tax
Balance at end of year
TREASURY STOCK
Balance at beginning of year
Purchase of common shares
Surrender of shares issued under incentive compensation plan
Balance at end of year
UNEARNED COMPENSATION
Balance at beginning of year
Amortization of unearned compensation
Balance at end of year
TOTAL SHAREHOLDERS’ EQUITY
Balance at beginning of year as adjusted
Net changes during the year
Balance at end of year
See Notes to Consolidated Financial Statements.
P A G E 4 2
$ 168,868,895
$ 167,960,063
$ 166,313,566
$ 16,693,987
—
$ 20,739,352
(589,329)
$ 28,664,568
—
16,693,987
14,598,872
(13,755,127)
—
—
20,150,023
10,760,061
(14,216,097)
—
—
28,664,568
24,026,825
(14,035,197)
(17,891,731)
(25,113)
$ 17,537,732
$ 16,693,987
$ 20,739,352
$ (11,842,908)
$ (5,229,620)
$ (1,921,060)
1,522,811
(687,793)
835,018
(192,811)
87,085
(105,726)
(102,477)
46,258
(5,038,117)
2,392,798
(56,219)
(2,645,319)
443,117
(200,023)
243,094
(1,097,832)
502,124
(9,966,140)
4,498,716
(595,708)
(5,467,424)
—
—
—
(2,429,345)
1,096,606
(1,332,739)
1,636,215
(738,702)
897,513
—
—
—
(337,457)
155,875
(181,582)
(827,867)
346,208
(481,659)
—
—
—
—
—
—
$ (10,811,811)
$ (11,842,908)
$ (5,229,620)
$ (61,725,455)
(13,621,660)
(455,955)
$ (55,280,647)
(5,831,017)
(613,791)
$ (42,939,969)
(10,507,293)
(1,833,385)
$ (75,803,070)
$ (61,725,455)
$ (55,280,647)
$
$
— $
—
— $
(22,007)
22,007
$
(291,212)
269,205
— $
(22,007)
$ 132,262,771
(11,192,494)
$ 146,998,231
(14,735,460)
$ 148,703,593
(1,116,033)
$ 121,070,277
$ 132,262,771
$ 147,587,560
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Sterling Bancorp
Years Ended December 31,
OPERATING ACTIVITIES
Net income
Loss/(income) from discontinued operations included below in
operating cash flows from discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Provision for loan losses
Depreciation and amortization of premises and equipment
Securities (gains) losses
Income from bank owned life insurance
Deferred income tax (benefit) expense
Proceeds from sale of loans
Gains on sales of loans, net
Originations of loans held for sale
Amortization of unearned compensation
Amortization of premiums on investment securities
Accretion of discounts on investment securities
(Increase) Decrease in accrued interest receivable
(Decrease) Increase in accrued expenses and other liabilities
(Increase) Decrease in other assets
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Purchase of premises and equipment
Net decrease (increase) in interest-bearing deposits with other banks
Decrease (Increase) in Federal funds sold
Net increase in loans held in portfolio
Decrease (Increase) in other real estate
Proceeds from calls/sales of securities—available for sale
Proceeds from calls/sales of securities—held to maturity
Proceeds from prepayments, redemptions or
maturities of securities—held to maturity
Purchases of securities—held to maturity
Proceeds from prepayments, redemptions or
maturities—available for sale
Purchases of securities—available for sale
Cash paid in acquisition
2007
2006
2005
$ 14,598,872
$ 10,760,061
$ 24,026,825
795,034
15,393,906
10,238,664
20,998,725
(564,116)
23,462,709
5,853,330
2,549,617
(188,366)
(1,091,955)
(996,882)
534,677,127
(8,893,226)
(529,004,960)
—
414,895
(444,198)
(1,236,436)
(8,479,596)
(8,003,774)
84,384
633,866
(2,404,851)
281,203
20,000,000
(70,066,191)
1,844,666
30,423,093
34,110,000
78,985,550
(54,116,345)
4,502,596
2,338,288
443,117
(984,585)
4,941,556
598,245,030
(9,695,762)
(580,891,519)
22,007
557,943
(450,087)
271,239
(1,764,144)
3,698,564
(6,828,742)
35,404,226
(2,244,447)
(48,960)
(20,000,000)
(42,838,360)
(728,148)
25,371,314
—
5,214,000
1,993,079
(337,457)
(1,401,588)
(2,563,819)
699,784,956
(16,433,355)
(687,270,466)
269,205
969,000
(613,712)
(511,326)
1,120,618
(10,755,005)
(3,218,157)
9,708,682
(2,203,597)
116,876
—
(109,577,373)
1,880
3,213,055
5,452,162
93,192,390
(115,870)
106,710,878
(179,939,152)
156,208,460
(300,095,469)
—
43,352,904
(15,992,356)
(44,901,402)
68,110,833
(43,026,829)
—
Net cash (used in) provided by investing activities
(104,829,884)
35,047,065
(151,141,267)
FINANCING ACTIVITIES
Net (decrease) increase in noninterest-bearing deposits
Net increase in interest-bearing deposits
Increase (Decrease) in Federal funds purchased
Net increase (decrease) in securities sold under agreements to repurchase
Net increase (decrease) in commercial paper and other
short-term borrowings
Increase (Decrease) in long-term borrowings
Purchase of treasury shares
Proceeds from exercise of stock options
Cash dividends paid on common shares
Cash paid in lieu of fractional shares in connection with
stock dividend/split
Net cash provided by (used in) financing activities
CASH FLOW FROM DISCONTINUED OPERATIONS
Operating cash flows
Investing cash flows
Financing cash flows
Total
Net increase (decrease) in cash and due from banks
Cash and due from banks—beginning of year
Cash and due from banks—end of year
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
Loans held for sale transferred to portfolio
Loans in portfolio transferred to other real estate
See Notes to Consolidated Financial Statements.
P A G E 4 3
(11,091,896)
16,047,652
65,000,000
17,451,151
39,190,495
20,000,000
(13,621,660)
798,117
(13,755,127)
25,491,272
38,145,544
(55,000,000)
(96,993,277)
(46,069,065)
(40,000,000)
(5,831,017)
1,338,013
(14,216,097)
(423,052)
104,898,077
22,500,000
59,979,903
48,533,849
(50,000,000)
(10,507,293)
2,701,565
(14,035,197)
—
120,018,732
—
(193,134,627)
(25,113)
163,622,739
531,305
—
—
531,305
16,354,019
50,058,593
$ 66,412,612
(10,013,867)
114,193,759
—
104,179,892
(18,503,444)
68,562,037
$ 50,058,593
4,558,869
(6,172,078)
—
(1,613,209)
20,576,945
47,985,092
$ 68,562,037
$ 47,298,932
2,286,087
12,784,942
1,272,240
$ 41,822,000
8,267,452
—
654,730
$ 27,904,950
15,600,100
—
94,801
C O N S O L I D A T E D S T A T E M E N T S O F C O N D I T I O N
Sterling National Bank
December 31,
ASSETS
Cash and due from banks
Interest-bearing deposits with other banks
Federal funds sold
Securities available for sale (at estimated fair value;
pledged: $102,326,258 in 2007 and $90,583,854 in 2006)
Securities held to maturity (pledged: $191,549,044 in 2007 and
$199,997,912 in 2006) (estimated fair value: $359,725,008 in 2007
and $411,650,690 in 2006)
Total investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Less allowance for loan losses
Loans, net
Customers’ liability under acceptances
Goodwill
Premises and equipment, net
Other real estate
Accrued interest receivable
Bank owned life insurance
Other assets
Total assets from continuing operations
Assets—discontinued operations
LIABILITIES AND SHAREHOLDER’S EQUITY
Noninterest-bearing deposits
Interest-bearing deposits
Total deposits
Securities sold under agreements to repurchase—customers
Securities sold under agreements to repurchase—dealers
Federal funds purchased
Short-term borrowings—FHLB
Short-term borrowings—other
Long-term borrowings—FHLB
Acceptances outstanding
Accrued expenses and other liabilities
Liabilities—discontinued operations
Total liabilities
Shareholder’s Equity
Common stock, $50 par value
Authorized and issued, 358,526 shares
Capital surplus
Undivided profits
Accumulated other comprehensive loss:
Net unrealized loss on securities available for sale, net of tax
Pension liability adjustment
Adjustment to initially apply SFAS No. 158
Amortization of prior service cost and net actuarial losses
Total shareholder’s equity
See Notes to Consolidated Financial Statements.
P A G E 4 4
2007
2006
$
66,358,882
979,983
—
$
50,007,363
1,261,187
20,000,000
263,132,510
148,354,838
361,860,847
624,993,357
23,755,906
1,182,323,734
15,084,775
1,167,238,959
200,942
1,742,472
11,154,794
1,669,993
6,864,011
29,041,115
40,610,161
420,903,430
569,258,268
33,319,789
1,107,801,370
16,287,974
1,091,513,396
98,399
1,703,611
11,289,534
2,242,419
5,843,461
27,949,160
36,928,928
1,974,610,575
—
1,851,415,515
—
$ 1,974,610,575
$ 1,851,415,515
$ 542,013,134
1,007,299,053
$ 569,431,020
1,006,178,406
1,549,312,187
60,053,947
10,200,000
65,000,000
45,000,000
4,285,198
40,000,000
200,942
74,016,121
—
1,848,068,395
17,926,300
19,762,560
96,266,910
(1,061,142)
(7,249,961)
—
897,513
1,575,609,426
52,802,796
—
—
—
3,411,630
20,000,000
98,399
83,168,726
251,460
1,735,342,437
17,926,300
19,762,560
86,834,185
(1,795,713)
(5,321,515)
(1,332,739)
—
126,542,180
116,073,078
$ 1,974,610,575
$ 1,851,415,515
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Sterling Bancorp
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sterling Bancorp (the “parent company”) is a financial holding
company, pursuant to an election made under the Gramm-
Leach-Bliley Act of 1999. Throughout the notes, the term the
“Company” refers to Sterling Bancorp and its subsidiaries.
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 ser-
vices, 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.
The following summarizes the significant accounting policies
of the Company.
Basis of Presentation
The consolidated financial statements include the accounts of
the parent company and its subsidiaries, principally Sterling
National Bank (the “bank”), after elimination of intercom-
pany transactions.
The Company determines whether it has a controlling finan-
cial interest in an entity by first evaluating whether the entity
is a voting interest entity or a variable interest entity under
U.S. generally accepted accounting principles (“U.S. GAAP”).
Voting interest entities are entities in which the total equity
investment at risk is sufficient to enable the entity to finance
itself independently and provides the equity holders with the
obligation to absorb losses, the right to receive residual returns
and the right to make decisions about the entity’s activities.
As defined in applicable accounting standards, variable inter-
est entities (“VIEs”) are entities that lack one or more of the
characteristics of a voting interest entity. A controlling finan-
cial interest in an entity is present when an enterprise has a
variable interest, or a combination of variable interests, that
will absorb a majority of the entity’s expected losses, receive
a majority of the entity’s expected residual returns, or both.
The enterprise with a controlling financial interest, known as
the primary beneficiary, consolidates the VIE. The Company’s
wholly-owned subsidiary, Sterling Bancorp Trust I, is a VIE
for which the Company is not the primary beneficiary.
Accordingly, the accounts of this entity are not included in
the Company’s consolidated financial statements.
General Accounting Policies
The preparation of financial statements in accordance with
U.S. GAAP requires management to make assumptions and
estimates which impact the amounts reported in those
statements and are, by their nature, subject to change in the
future as additional information becomes available or as cir-
cumstances vary. Certain reclassifications have been made to
the prior years’ consolidated financial statements to conform
to the current presentation.
New Accounting Standards and Interpretations Not Yet
Adopted
In December 2007, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 141(R), Business Combinations (revised 2007),
(“SFAS No. 141(R)”), which replaces SFAS No. 141, Business
Combinations. SFAS No. 141(R) applies to all transactions and
other events in which one entity obtains control over one or
more other businesses and requires an acquirer, upon initially
obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquiree at
fair value as of the acquisition date. Contingent consideration
is required to be recognized and measured at fair value on the
date of acquisition rather than at a later date when the amount
of that consideration may be determinable beyond a reason-
able doubt. This fair value approach replaces the cost-alloca-
tion process required under SFAS No. 141 whereby the cost
of an acquisition was allocated to the individual assets
acquired and liabilities assumed based on their estimated fair
value. SFAS No. 141(R) requires acquirers to expense acquisi-
tion-related costs as incurred rather than allocating such costs
to the assets acquired and liabilities assumed, as was previ-
ously the case under SFAS No. 141. Under SFAS No. 141(R),
the requirements of SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, must be met in
order to accrue for a restructuring plan in purchase account-
ing. Pre-acquisition contingencies are to be recognized at fair
value, unless it is a non-contractual contingency that is not
likely to materialize, in which case, that contingency would
be subject to the probable and estimable recognition criteria
of SFAS No. 5, Accounting for Contingencies. SFAS No.
141(R) is effective on a prospective basis for all business com-
binations for which the acquisition date is on or after the
beginning of the first annual period subsequent to December
15, 2008. Early adoption is not permitted.
In December 2007, the FASB issued SFAS No. 160, Non-
controlling Interests in Consolidated Financial State ments—an
amendment of ARB No. 51 (“SFAS No. 160”). SFAS No. 160
is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008, with
earlier adoption prohibited. SFAS No. 160 amends Accounting
Research Bulletin No. 51, to establish accounting and report-
ing standards for the non-controlling interest in a subsidiary,
P A G E 4 5
and for the deconsolidation of a subsidiary. SFAS No. 160
clarifies that a non-controlling interest in a subsidiary, which
is sometimes referred to as minority interest, is an ownership
interest in the consolidated entity that should be reported as a
component of equity in the consolidated financial statements.
Among other requirements, SFAS No. 160 requires consoli-
dated net income to be reported at amounts that include the
amounts attributable to both the parent and the non-control-
ling interest. It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consoli-
dated net income attributable to the parent and to the non-
controlling interest. We are currently evaluating this new
statement and anticipate that the statement will not have a sig-
nificant impact on the reporting of our results of operations.
In December 2007, the Emerging Issues Task Force (“EITF”)
issued Issue No. 07-01, Accounting for Collaborative
Arrangements (“EITF Issue No. 07-01”). EITF Issue No. 07-01
is effective for financial statements issued for fiscal years begin-
ning after December 15, 2008, and interim periods within
those fiscal years, and shall be applied retrospectively to all
prior periods presented for all collaborative arrangements
existing as of the effective date. EITF Issue No. 07-01 requires
that transactions with third parties (i.e., revenue generated
and costs incurred by the partners) should be reported in the
appropriate line item in each company’s financial statement
pursuant to the guidance in EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal Versus Net as an Agent. This
Issue also includes enhanced disclosure requirements regard-
ing the nature and purpose of the arrangement, rights and
obligations under the arrangement, accounting policy, and
statement classification of collaboration transactions between
the parties. We are currently evaluating this new statement
and anticipate that the statement will not have a significant
impact on the reporting of our results of operations.
In November 2007, the Securities and Exchange Commission
(“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 109,
Written Loan Commitments Recorded at Fair Value Through
Earn ings (“SAB No. 109”). SAB No. 109 supersedes SAB No.
105, Application of Accounting Principles to Loan
Commitments, and indicates that the expected net future
cash flows related to the associated servicing of the loan
should be included in the measurement of all written loan
commitments that are accounted for at fair value through
earnings. The guidance in SAB No. 109 is applied on a pro-
spective basis to derivative loan commitments issued or modi-
fied in fiscal quarters beginning after December 15, 2007.
SAB No. 109 is not expected to have a material impact on the
Company’s financial statements.
In February 2007, 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 elec-
tive; 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 per-
mits an entity to measure eligible items at fair value as of
specified election dates. The fair value option (a) may gener-
ally be applied instrument by instru ment, (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 on
January 1, 2008. The Company does not expect that the
adoption of SFAS No. 159 will have a material impact on
its financial statements.
In September 2006, FASB issued SFAS No. 157, Fair Value
Measurements (“SFAS No. 157”). 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 and liabilities, (2) significant other observable
inputs and (3) significant unobservable inputs. SFAS No. 157
is effective for the Company on January 1, 2008 and will
affect certain of the Company’s fair value disclosures, but is
not expected to have a material impact on the Company’s
financial condition or results of operations. The portion of
the Company’s assets and liabilities with fair values based on
unobservable inputs is not expected to be significant.
In September 2006, the EITF reached a consensus on Issue
No. 06-4, Accounting for Deferred Compensation and Post-
retirement Benefit Aspects of Endorsement Split Dollar Life
Insurance Arrangements (“EITF Issue No. 06-4”). EITF
Issue No. 06-4 is effective for fiscal years beginning after
December 31, 2007. Under the provisions of EITF Issue No.
06-4, an employer should recognize a liability for future ben-
efits for endorsement split-dollar life insurance agreements
that are within the scope of this EITF Issue. The Company
expects to adopt EITF Issue No. 06-4 as of January 1, 2008
as a change of accounting principle through a cumulative
adjustment to retained earnings. The amount of the adjust-
ment is not expected to be significant.
P A G E 4 6
Investment Securities
Securities are designated at the time of acquisition as avail-
able for sale or held to maturity. Securities that the Company
will hold for indefinite periods of time and that might be sold
in the future as part of efforts to manage interest rate risk or in
response to changes in interest rates, changes in prepayment
risk, changes in market conditions or changes in economic
factors are classified as available for sale and carried at esti-
mated market values. Net aggregate unrealized gains or losses
are included in a valuation allowance account and are reported,
net of taxes, as a component of shareholders’ equity through
other comprehensive income. Securities that the Company
has the positive intent and ability to hold to maturity are des-
ignated as held to maturity and are carried at amortized cost,
adjusted for amortization of premiums and accretion of dis-
counts over the period to maturity. Interest income includes
the amortization of purchase premiums and accretion of pur-
chase discounts. Gains and losses realized on sales of securi-
ties are determined on the specific identification method and
are reported in noninterest income as net securities gains.
Included in investment securities available for sale is the
bank’s investment in Federal Home Loan Bank of New York
(“FHLB”) stock and is carried at par value, which reasonably
approximates its fair value. The bank is required to maintain
a minimum level of investment in FHLB stock based on spe-
cific percentages of its outstanding mortgages, total assets or
FHLB advances. Stock redemptions are at the discretion of
the FHLB.
Securities pledged as collateral are reported separately in the
consolidated balance sheets if the secured party has the right
by contract or custom to sell or repledge the collateral.
Securities are pledged by the Company to secure trust and
public deposits, securities sold under agreements to repur-
chase, advances from the FHLB and for other purposes
required or permitted by law.
A periodic review is conducted by management to determine
if the decline in the fair value of any security appears to be
other-than-temporary. Factors considered in determining
whether the decline is other-than-temporary include, but are
not limited to: the length of time and the extent to which
fair value has been below cost; the financial condition and
near-term prospects of the issuer; and the Company’s ability
and intent to hold the investment for a period of time suffi-
cient to allow for any anticipated recovery. If the decline is
deemed to be other-than-temporary, the security is written
down to a new cost basis and the resulting loss is reported in
noninterest income.
Loans
Loans (including factored accounts receivable), other than
those held for sale, are reported at their principal amount
outstanding, net of unearned discounts and unamortized
nonrefundable fees and direct costs associated with their
origination or acquisition. Interest earned on loans without
discounts is credited to income based on loan principal
amounts outstanding at appropriate interest rates. Material
origination and other nonrefundable fees net of direct costs and
discounts on loans (excluding factored accounts receivable) are
credited to income over the terms of the loans using a method
that results in an approximately constant effective yield.
Nonrefundable fees on the purchase of accounts receivable
are credited to “Factoring income” at the time of purchase,
which, based on our analysis, does not produce results that
are materially different from the results under the amortiza-
tion method specified in SFAS No. 91.
Mortgage loans held for sale, including deferred fees and costs,
are reported at the lower of cost or fair value as determined
by outstanding commitments from investors or current inves-
tor yield requirements calculated on the aggregate loan basis,
and are included under the caption “Loans held for sale” in
the Consolidated Balance Sheets. Net unrealized losses, if any,
are recognized in a valuation allowance by a charge to income.
Mortgage loans are sold, including servicing rights, without
recourse. Gains or losses resulting from sales of mortgage loans,
net of unamortized deferred fees and costs, are recognized when
the proceeds are received from investors and are included under
the caption “Mortgage banking income” in the Consolidated
Statements of Income. In connection with its mortgage banking
activities, the Company had commitments to fund loans held
for sale and commitments to sell loans which are considered
derivative instruments under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The fair
values of these free-standing derivative instruments were
immaterial at December 31, 2007 and 2006.
Nonaccrual loans are those on which the accrual of interest has
ceased. Loans, including loans that are individually identified
as being impaired under SFAS No. 114, are generally placed on
nonaccrual status immediately if, in the opinion of manage-
ment, principal or interest is not likely to be paid in accordance
with the terms of the loan agreement, or when principal or
interest is past due 90 days or more and collateral, if any, is
P A G E 4 7
insufficient to cover principal and interest. Interest accrued but
not collected at the date a loan is placed on nonaccrual status is
reversed against interest income. Interest income is recognized
on nonaccrual loans only to the extent received in cash. How-
ever, where there is doubt regarding the ultimate collectibility
of the loan principal, cash receipts, whether designated as prin-
cipal or interest, are thereafter applied to reduce the carrying
value of the loan. Loans are restored to accrual status only when
interest and principal payments are brought current and future
payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses, which is available for losses
incurred in the loan portfolio, is increased by a provision charged
to expense and decreased by charge-offs, net of recoveries.
The Company’s allowance for loan losses includes (1) specific
valuation allowances for impaired loans evaluated in accor-
dance with SFAS No. 114, as amended by SFAS No. 118, and
(2) formulaic allowances based on historical loss experience
by loan category, as adjusted for various evaluation factors,
including those described below.
Under the provisions of SFAS No. 114 and SFAS No. 118, indi-
vidually identified impaired loans are measured based on the
present value of payments expected to be received, using the
historical effective loan rate as the discount rate. Alternatively,
measurement may also be based on observable market prices;
or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the
collateral. Loans that are to be foreclosed are measured based
on the fair value of the collateral. If the recorded investment in
the impaired loan exceeds fair value, a valuation allowance is
required as a component of the allowance for loan losses.
Changes to the valuation allowance are recorded as a compo-
nent of the provision for loan losses.
The adequacy of the allowance for loan losses is reviewed
regularly by management. The allowance for loan losses is
maintained through the provision for loan losses, which is a
charge to expense. The adequacy of the provision and the
resulting allowance for loan losses is determined by manage-
ment’s continuing review 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, review of regulatory examinations,
an assessment of current and expected economic conditions and
changes in the size and character of the loan portfolio. The
allowance reflects management’s evaluation both of loans
presenting identified loss potential and of the risk inherent in
various components of the 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 poten-
tial problem loans. A significant change in any of the evalua-
tion factors described above could result in future additions
to the allowance.
Goodwill
Goodwill reflected in the consolidated balance sheets arose
from the parent company’s acquisition of the bank (in 1968)
and the acquisition of Sterling Resource Funding Corp (in
2006), under the purchase method of accounting. Goodwill
is assigned to the Corporate lending unit for segment report-
ing purposes. Effective January 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS No. 142”). Under the provisions of SFAS No.
142, goodwill is deemed to have an indefinite useful life and
the Company is required to complete an annual assessment
by segment for any impairment of goodwill, which would be
treated as an expense in the income statement. There was no
impairment expense recorded in 2007, 2006 or 2005.
Goodwill is tested for impairment using a two-step approach
that involves the identification of “reporting units” and the
estimation of their respective fair values. An impairment loss
would be recognized as a charge to expense for any excess of
the goodwill carrying amount over implied fair value.
Premises and Equipment
Premises and equipment, excluding land, are stated at cost
less accumulated depreciation or amortization as applicable.
Land is reported at cost. Depreciation is computed on a
straight-line basis and is charged to noninterest expense over
the estimated useful lives of the related assets. Useful lives are
7 years for furniture fixtures and equipment, between 3 and
7 years for ATMs, computer hardware and software, and 10
years for building improvements. Amortization of leasehold
improvements is charged to noninterest expense over the
terms of the respective leases or the estimated useful lives of
the improvements, whichever is shorter. Maintenance, repairs
and minor improvements are charged to noninterest expenses
as incurred.
Foreclosed Assets
Assets acquired through or instead of loan foreclosure are
held for sale and are initially recorded at fair value less esti-
mated selling costs when acquired, establishing a new cost
basis. Costs after acquisition are generally expenses. If the
P A G E 4 8
fair value of the asset declines, a write-down is recorded
through expense. The valuation of foreclosed assets is subjec-
tive in nature and may be adjusted in the future because of
changes in economic conditions.
Bank Owned Life Insurance
The bank invested in Bank Owned Life Insurance (“BOLI”)
policies to fund certain future employee benefit costs. The
cash surrender value, net of surrender charges, of the BOLI
policies is recorded in the consolidated balance sheets
under the caption “Bank owned life insurance.” Changes in
the cash surrender value, net of surrender charges, are
recorded in the Consolidated Statements of Income under the
caption “Bank owned life insurance income.”
Repurchase Agreements
The Company sells certain securities under agreements to
repurchase and receives cash as collateral. The agreements
are treated as collateralized financing transactions and the
obligations to repurchase securities sold are reflected as a
liability in the accompanying consolidated balance sheets.
The carrying value of the securities underlying the agreements
remains reflected as an asset.
Derivative Financial Instruments
The Company’s hedging policies permit the use of various
derivative financial instruments to manage interest rate risk or
to hedge specified assets and liabilities. All derivatives are
recorded at fair value on the Company’s balance sheet. To
qualify for hedge accounting, derivatives must be highly effec-
tive at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of
the derivative contract. The Company considers a hedge to be
highly effective if the change in fair value of the derivative hedg-
ing instrument is within 80% to 120% of the opposite change
in the fair value of the derivative and the hedged item attrib-
utable to the hedged risk. If derivative instruments are desig-
nated as hedges of fair values, and such hedges are highly
effective, both the change in the fair value of the hedge and
the hedged item are included in current earnings. Fair value
adjustments related to cash flow hedges are recorded in other
comprehensive income and are reclassified to earnings when
the hedged transaction is reflected in earnings. Ineffective
portions of hedges are reflected in earnings as they occur.
Actual cash receipts and/or payments and related accruals on
derivatives related to hedges are recorded as adjustments to
the interest income or interest expense associated with the
hedged item. During the life of the hedge, the Company for-
mally assesses whether derivatives designated as hedging
instruments continue to be highly effective in offsetting
changes in the fair value or cash flows of hedged items. If it is
determined that a hedge has ceased to be highly effective, the
Company will discontinue hedge accounting prospectively.
At such time, previous adjustments to the carrying value of
the hedged item are reversed into current earnings and the
derivative instrument is reclassified to a trading position
recorded at fair value. Changes in the fair value of derivative
financial instruments not designated as hedges for accounting
purposes are reflected in income or expense at measurement
dates. At December 31, 2007 and 2006, the Company was a
party to interest rate floor contracts, which are being used as
part of the Company’s interest rate risk program and not for
hedge purposes, with a notional amount of $50,000,000 and
$100,000,000, respectively, and a fair value of $10,609 and
$2,668, respectively.
The Company may be required to recognize certain contracts
and commitments as derivatives when the characteristics of
those contracts and commitments meet the definition of a
derivative.
Income Taxes
The Company utilizes the asset and liability method of
accounting for income taxes. Deferred income tax expense
(benefit) is determined by recognizing deferred tax assets and
liabilities for the future tax consequences attributable to dif-
ferences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The realization of deferred tax assets is assessed and a valua-
tion allowance provided for that portion of the assets for
which it is more likely than not that it will not be realized.
Deferred tax assets and liabilities are measured using enacted
tax rates and will be adjusted for the effects of future changes
in tax laws or rates, if any.
For income tax purposes, the parent company files: a con-
solidated Federal income tax return; combined New York
City and New York State income tax returns; and separate
state income tax returns for its out-of-state subsidiaries. The
parent company, under tax sharing agreements, either pays
or collects on account of current income taxes to or from its
subsidiaries.
Effective January 1, 2007, the Company adopted the provi-
sions of Financial Accounting Standards Interpretation
(“FIN”), Accounting for Uncertainty in Income Taxes—An
Interpretation of FASB Statement No. 109 (“FIN 48”). FIN
48 clarifies the accounting for uncertainty in income taxes
recognized in an entity’s financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN 48
also prescribes a specified recognition threshold and mea-
surement attribute for the financial statement recognition and
P A G E 4 9
measurement of a tax position taken or expected to be taken
in a tax return. The new interpretation also provides guid-
ance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. See
Note 18 for further analysis of the Company’s adoption of
this standard as of January 1, 2007.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equiva-
lents include cash and due from banks.
Stock Incentive Plan
At December 31, 2007, the Company had a stock-based
employee compensation plan, which is described more fully
in Note 16. Prior to January 1, 2006, the Company accounted
for this plan under the recognition and measurement princi-
ples of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (“APB 25”) and
related interpretations. All options granted under the plan
had an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant
and, therefore, no option related stock-based employee com-
pensation cost was reflected in net income for the year ended
December 31, 2005. Stock-based employee compensation cost
related to restricted stock is included in compensation expense
as discussed more fully in Note 16.
In accordance with SFAS No. 123, Account ing for Stock-Based Compensation (“SFAS No. 123”), the following table illus-
trates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS
No. 123, to the stock-based employee compensation plans.
Year Ended December 31,
Income from continuing operations
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of
related tax effects
Pro forma, income from continuing operations
Income from discontinued operations, net of tax
Pro forma, net income
Income from continuing operations per average common share:
Basic—as reported
Basic—pro forma
Diluted—as reported
Diluted—pro forma
Net income per average common share:
Basic—as reported
Basic—pro forma
Diluted—as reported
Diluted—pro forma
2005
$ 23,462,709
(1,134,612)
22,328,097
564,116
$ 22,892,213
$
1.22
1.17
1.19
1.13
1.25
1.19
1.22
1.16
P A G E 5 0
Employee stock options generally expire ten years from the
date of grant and become non-forfeitable one year from date of
grant, although if necessary to qualify to the maximum extent
possible as incentive stock options, these options become exer-
cisable in annual installments. Director nonqualified stock
options generally expire five years from the date of grant and
become non-forfeitable and become exercisable in four annual
installments starting one year from date of grant. Subsequent
to the adoption of SFAS No. 123R, stock-based compensa-
tion is recognized over the period from date of grant to the
date on which the options become non-forfeitable.
As of January 1, 2006, the Company adopted SFAS No. 123R
which eliminated the ability to account for stock-based com-
pensation using APB 25 and requires that such transactions
be recognized as compensation cost in the income statement
for awards expected to be vested based on their fair values on
the measurement date, which is generally the date of the
grant. The Company transitioned to fair value based account-
ing for stock-based compensation using a modified version of
prospective application (“modified prospective application”).
Under modified prospective application, as it is applicable to
the Company, SFAS No. 123R applies to new awards and to
awards modified, repurchased, or cancelled after January 1,
2006. SFAS No. 123R requires pro forma disclosures which
are presented above, of net income and earnings per share for
all periods prior to the adoption of the fair value accounting
method for stock-based employee compensation.
Earnings Per Average Common Share
Basic earnings per share are computed by dividing income
available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted
earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earn-
ings of the Company.
NOTE 2.
ACQUISITION AND DISPOSITION
As of April 1, 2006, Sterling Resource Funding Corp., a sub-
sidiary of the bank, completed the acquisition of the business
and certain assets ($64.1 million) and liabilities ($21.0 mil-
lion) of PL Services, L.P., a provider of credit and accounts
receivable management services to the staffing industry, in an
all cash transaction. A general allowance for loan losses in
the amount of $1.8 million was carried over. Goodwill recog-
nized in this transaction amounted to $1.7 million and was
assigned to the Corporate Lending unit for segment reporting
purposes. This acquisition, when considered under relevant
disclosure guidance, does not require the presentation of sep-
arate pro forma financial information.
The Company’s goodwill was $22,900,912 and $22,862,051
as of December 31, 2007 and 2006, respectively. The increase
of $38,861 during 2007 was the result of a purchase price
adjustment in connection with the Sterling Resource Funding
acquisition discussed above.
In September 2006, the Company sold for cash the busi-
ness conducted by Sterling Financial Services (“Sterling
Financial”), which included a loan portfolio of approximately
$132 million.
The interest expense allocated to discontinued operations was
based on the actual average balances, interest expenses and
average rate on each category of interest-bearing liabilities,
with the average rate applied to the aggregate average loan
balances to determine the funding cost. Interest expense allo-
cated to the funding supporting the Sterling Financial net
loans for those periods was assigned based on the average net
loan balances proportionately funded by all interest-bearing
liabilities at an average rate equal to the cost of each applied
to its average balance for the period.
The results of operations of Sterling Financial have been
reported as a discontinued operation in the consolidated
statements of income for all periods presented. For the year
ended December 31, 2006, the Company recorded a pre-tax
loss on the sale of $15,677,360 and a tax benefit of
$6,042,449. Total revenues generated by the operations of
Sterling Financial amounted to $404,438, $8,340,544 and
$11,692,798 for the years ended December 31, 2007, 2006
and 2005, respectively. For the years ended December 31,
2007, 2006 and 2005, the income tax (benefit) and income tax
expense associated with discontinued operations, exclusive of
loss on sale, were $(511,831), $(378,639) and $476,766,
respectively. Income taxes were calculated using a “with and
without” methodology that resulted in an overall tax rate of
39.16% in 2007, 38.54% in 2006 and 45.80% in 2005.
P A G E 5 1
The assets and liabilities of discontinued operations are presented separately in the accompanying consolidated balance sheets.
The details are as follows:
December 31, 2006
Assets
Cash and due from banks
Loans, net of allowance for loan losses
Other assets
Total assets
Liabilities
Accrued expenses and other liabilities
Total liabilities
NOTE 3.
CASH AND DUE FROM BANKS
$
171,925
947,217
543,555
$ 1,662,697
$
$
336,358
336,358
The bank is required to maintain average reserves, net of vault cash, on deposit with the Federal Reserve Bank of New York
against outstanding domestic deposits and certain other liabilities. The required reserves, which are reported in cash and due
from banks, were $38,085,000 and $24,753,000 at December 31, 2007 and 2006, respectively. Average required reserves
during 2007 and 2006 were $32,299,000 and $30,349,000, respectively.
NOTE 4.
MONEY MARKET INVESTMENTS
The Company’s money market investments include interest-bearing deposits with other banks and Federal funds sold. The
following table presents information regarding money market investments.
Years Ended December 31,
Interest-bearing deposits with other banks
At December 31 —Balance
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate earned
—Range of interest rates earned
Federal funds sold
At December 31 —Balance
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate earned
—Range of interest rates earned
2007
2006
2005
$
979,984
$ 1,261,187
$ 1,212,227
3.16%
115 Days
4,449,090
3,033,000
3.86%
1.50–5.36%
3.80%
115 Days
5,183,338
2,624,000
4.48%
1.50–5.36%
$
—
—
—
120,000,000
23,219,000
5.32%
4.50–5.375%
$ 20,000,000
$
5.19%
1 Day
20,000,000
4,041,000
4.84%
4.42–5.28%
3.11%
66 Days
5,209,048
3,040,000
1.96%
1.00–4.06%
—
—
—
40,000,000
10,986,000
2.81%
2.19–3.94%
P A G E 5 2
NOTE 5.
INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available for sale are as follows:
December 31, 2007
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
CMOs (Government National Mortgage Association)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Federal Farm Credit Bank agency notes
Total obligations of U.S. government corporations and
government sponsored enterprises
Obligations of state and political institutions
Trust preferred securities
Corporate securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Other securities
Total
December 31, 2006
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$ 8,805,428
22,397,938
9,141,893
53,760,132
37,093,929
3,375,244
134,574,564
59,967,566
26,978,129
221,520,259
18,946,036
5,090,175
13,584,038
1,130,700
5,359,700
304,442
$
—
—
—
241,290
41,086
149,782
432,158
562,121
239,997
1,234,276
201,241
127
—
—
—
15,378
$ 365,936
959,349
47,250
627,824
410,283
3,925
2,414,567
25,000
—
2,439,567
4,972
787,192
774,071
—
—
—
$ 8,439,492
21,438,589
9,094,643
53,373,598
36,724,732
3,521,101
132,592,155
60,504,687
27,218,126
220,314,968
19,142,305
4,303,110
12,809,967
1,130,700
5,359,700
319,820
$ 265,935,350
$ 1,451,022
$ 4,005,802
$ 263,380,570
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
$ 8,878,785
$
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total obligations of U.S. government corporations and
government sponsored enterprises—mortgage-backed
securities
Obligations of state and political subdivisions
Trust preferred securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Other securities
Total
22,763,787
46,162,388
43,338,106
4,166,482
125,309,548
21,551,135
1,179,936
1,130,700
2,719,100
304,442
—
—
54,871
6,563
104,737
166,171
116,099
70,059
—
—
21,607
$ 506,631
$ 8,372,154
1,180,057
1,175,367
1,214,411
3,676
4,080,142
66,392
1,376
—
—
—
21,583,730
45,041,892
42,130,258
4,267,543
121,395,577
21,600,842
1,248,619
1,130,700
2,719,100
326,049
$ 152,194,861
$ 373,936
$ 4,147,910
$ 148,420,887
P A G E 5 3
The carrying value and estimated fair value of securities held to maturity are as follows:
December 31, 2007
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Total obligations of U.S. government corporations and
government sponsored enterprises
Debt securities issued by foreign governments
Total
December 31, 2006
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$ 12,349,723
21,195,565
172,362,300
121,980,069
8,725,725
336,613,382
24,997,465
$
—
4,887
969,657
197,532
336,882
1,508,958
657,223
$ 629,469
767,806
975,657
1,927,790
—
4,300,722
—
$ 11,720,254
20,432,646
172,356,300
120,249,811
9,062,607
333,821,618
25,654,688
361,610,847
250,000
2,166,181
—
4,300,722
1,298
359,476,306
248,702
$ 361,860,847
$ 2,166,181
$4,302,020
$ 359,725,008
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
$ 12,787,247
$
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Federal Farm Credit Bank agency notes
Total obligations of U.S. government corporations and
22,859,880
206,573,458
142,536,442
10,654,868
395,411,895
9,991,535
15,000,000
—
—
289,056
70,046
245,945
$ 538,181
$ 12,249,066
1,118,171
4,022,690
3,936,637
361
21,741,709
202,839,824
138,669,851
10,900,452
605,047
9,616,040
386,400,902
—
—
52,472
184,375
9,939,063
14,815,625
government sponsored enterprises
420,403,430
605,047
9,852,887
411,155,590
Debt securities issued by foreign governments
500,000
—
4,900
495,100
Total
$ 420,903,430
$ 605,047
$9,857,787
$ 411,650,690
P A G E 5 4
The following table presents information regarding securities available for sale with temporary unrealized losses for the
periods indicated:
December 31, 2007
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
CMOs (Government National Mortgage Association)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total obligations of U.S. government corporations and
government sponsored enterprises—mortgage-backed securities
Federal Home Loan Bank agency notes
Total obligations of U.S. government corporations and
government sponsored enterprises
Obligations of state and political institutions
Trust preferred securities
Corporate securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
— $
—
9,094,643
9,971,965
—
—
— $ 8,439,492
21,438,588
—
47,250
—
26,422,330
93,946
30,752,781
—
157,674
—
$ 365,936
959,349
—
533,878
410,283
3,925
$ 8,439,492
21,438,588
9,094,643
36,394,295
30,752,781
157,674
$ 365,936
959,349
47,250
627,824
410,283
3,925
19,066,608
4,975,000
24,041,608
450,293
3,400,710
12,809,967
141,196
25,000
166,196
1,737
627,192
774,071
87,210,865
—
2,273,371
—
106,277,473
4,975,000
2,414,567
25,000
87,210,865
1,088,106
840,000
—
2,273,371
3,235
160,000
—
111,252,473
1,538,399
4,240,710
12,809,967
2,439,567
4,972
787,192
774,071
Total
$ 40,702,578
$ 1,569,196
$ 89,138,971
$ 2,436,606
$ 129,841,549
$ 4,005,802
December 31, 2006
U.S. Treasury securities
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
$
— $
— $ 8,372,154
$ 506,631
$ 8,372,154
$ 506,631
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total obligations of U.S. government corporations and
—
6,036,667
6,310,222
—
—
36,404
74,863
—
21,583,730
34,945,463
35,451,592
200,575
1,180,057
1,138,963
1,139,548
3,676
21,583,730
40,982,130
41,761,814
200,575
1,180,057
1,175,367
1,214,411
3,676
government sponsored enterprises—mortgage-backed securities
12,346,889
111,267
100,553,514
3,968,875
112,900,403
4,080,142
Obligations of state and political subdivisions
Trust preferred securities
5,411,216
160,916
19,676
1,376
2,953,533
—
46,716
—
8,364,749
160,916
66,392
1,376
Total
$ 17,919,021
$ 132,319
$ 103,507,047
$ 4,015,591
$ 121,426,068
$ 4,147,910
P A G E 5 5
The following table presents information regarding securities held to maturity with temporary unrealized losses for the periods
indicated:
December 31, 2007
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Total obligations of U.S. government corporations
and agencies—mortgage-backed securities
Debt securities issued by foreign governments
Total
December 31, 2006
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Federal Farm Credit Bank agency notes
Total obligations of U.S. government corporations and
government sponsored enterprises
Debt securities issued by foreign governments
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$
$
$
—
—
—
—
—
—
—
—
—
8,378,552
509,958
5,211
$ —
—
—
—
$ 11,720,254
16,307,337
90,955,257
100,916,760
$ 629,469
767,806
975,657
1,927,790
$ 11,720,254
16,307,337
90,955,257
100,916,760
$ 629,469
767,806
975,657
1,927,790
—
—
219,899,608
248,702
4,300,722
1,298
219,899,608
248,702
4,300,722
1,298
$ —
$ 220,148,310
$ 4,302,020
$ 220,148,310
$ 4,302,020
$ —
$ 12,249,066
$ 538,181
$ 12,249,066
$ 538,181
—
39,411
2,089
24
21,741,709
84,062,278
135,026,445
15,160
1,118,171
3,983,279
3,934,548
337
21,741,709
92,440,830
135,536,403
20,371
1,118,171
4,022,690
3,936,637
361
8,893,721
41,524
253,094,658
9,574,516
261,988,379
9,616,040
—
—
—
—
9,939,063
14,815,625
52,472
184,375
9,939,063
14,815,625
52,472
184,375
8,893,721
41,524
277,849,346
9,811,363
286,743,067
9,852,887
—
—
245,100
4,900
245,100
4,900
Total
$ 8,893,721
$41,524
$ 278,094,446
$ 9,816,263
$ 286,988,167
$ 9,857,787
The Company invests principally in U.S. government corporation and agency obligations and A-rated or better investments. The
fair value of these investments fluctuates based on several factors, including credit quality and general interest rate changes.
The Company has made an evaluation 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.
P A G E 5 6
The following tables present information regarding securities available for sale and securities held to maturity at December 31,
2007, based on contractual maturity. Expected maturities will differ from contractual maturities because issuers may have
the right to call or prepay obligations with or without call or prepayment penalties. The average yield on obligations of state and
political subdivisions and Federal Reserve Bank securities is stated on a tax-equivalent basis.
Available for sale
Obligations of U.S. government corporations and government sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
CMOs (Government National Mortgage Association)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Amortized
Cost
Estimated
Fair Value
Weighted
Average
Yield
$ 8,805,428
22,397,938
9,141,893
53,760,132
37,093,929
3,375,244
$ 8,439,492
21,438,589
9,094,643
53,373,598
36,724,732
3,521,101
4.52%
4.52
5.05
4.72
4.60
5.97
Total obligations of U.S. government corporations and government sponsored
enterprises—mortgage-backed securities
134,574,564
132,592,155
4.70
Federal Home Loan Bank agency notes
Due after 5 years
Federal Farm Credit Bank agency notes
Due after 5 years
Total obligations of U.S. government corporations and government
sponsored enterprises
Obligations of state and political institutions
Due within 1 year
Due after 1 year but within 5 years
Due after 5 years
Total obligations of state and political institutions
Trust preferred securities
Due after 5 years
Corporate securities
Federal Reserve Bank stock
Federal Home Loan Bank stock
Other securities
Total available for sale
59,967,566
60,504,687
5.89
26,978,129
27,218,126
5.77
86,945,695
87,722,813
5.86
1,226,660
5,342,284
12,377,092
1,235,742
5,412,773
12,493,790
18,946,036
19,142,305
5,090,175
13,584,038
1,130,700
5,359,700
304,442
4,303,110
12,809,967
1,130,700
5,359,700
319,820
$ 265,935,350
$ 263,380,570
5.89
5.29
5.63
5.55
8.50
7.47
6.00
3.58
3.52
5.18
P A G E 5 7
Held to maturity
Obligations of U.S. government corporations and government
sponsored enterprises
Mortgage-backed securities
CMOs (Federal National Mortgage Association)
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total mortgage-backed securities
Federal Home Loan Bank agency notes
Due within 1 year
Due after 1 year but within 5 years
Carrying
Value
Estimated
Fair Value
Weighted
Average
Yield
$ 12,349,723
21,195,565
172,362,300
121,980,069
8,725,725
$ 11,720,254
20,432,646
172,356,300
120,249,811
9,062,607
336,613,382
333,821,618
4,997,465
20,000,000
5,004,688
20,650,000
4.57%
4.48
4.82
4.39
6.47
4.68
4.59
6.17
Total obligations of U.S. government corporations and government
sponsored enterprises
361,610,847
359,476,306
4.76
Debt securities issued by foreign governments
Due after 1 year but within 5 years
Total
Information regarding calls of held to maturity securities is as follows:
Years Ended December 31,
Proceeds
Gross gains
Gross losses
250,000
248,702
$ 361,860,847
$ 359,725,008
4.70
4.76
2007
2006
2005
$ 34,110,000
$
—
4,445
—
—
—
$
—
—
—
During 2005, as permitted under the provisions of SFAS No. 115, the Company sold approximately $5,303,000 (par amount)
of held to maturity securities because over 85% of the original principal on these securities had been paid by the sale date. The
proceeds from the sale were $5,452,162 and the gain was $127,804. There were no sales of held to maturity securities in 2007
or 2006.
Information regarding securities sales and/or calls of the available for sale portfolio is as follows:
Years Ended December 31,
Proceeds
Gross gains
Gross losses
2007
2006
2005
$ 30,423,093
$25,371,314
$3,213,055
193,397
586
18,016
461,133
209,653
—
The proceeds from available for sale securities sold during 2006 were utilized to partially fund the acquisition of Sterling
Resource Funding Corp.
Investment securities are pledged to secure trust and public deposits, securities sold under agreements to repurchase, advances
from the Federal Home Loan Bank of New York and for other purposes required or permitted by law.
P A G E 5 8
NOTE 6.
LOANS
The major components of domestic loans held for sale and loans held in portfolio are as follows:
December 31,
2007
2006
Loans held for sale, net of valuation reserve ($64,958 at December 31, 2007
and $-0- at December 31, 2006)
Real estate—residential mortgage
Loans held in portfolio
Commercial and industrial
Lease financing
Factored receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Installment
Loans to depository institutions
Loans held in portfolio, gross
Less unearned discounts
$
23,755,906
$
33,319,789
$ 539,969,407
287,563,583
93,016,702
129,464,803
99,093,560
37,161,197
12,103,045
27,000,000
1,225,372,297
38,248,313
$ 522,009,835
239,225,533
100,467,090
120,056,900
93,214,668
30,030,684
12,380,848
27,000,000
1,144,385,558
31,783,938
Loans held in portfolio, net of unearned discounts
$ 1,187,123,984
$ 1,112,601,620
There are no industry concentrations (exceeding 10% of loans, gross) in the commercial and industrial loan portfolio.
Approximately 72% of loans are to borrowers located in the New York metropolitan area.
Nonaccrual loans at December 31, 2007 and 2006 totaled $6,383,000 and $5,861,000, respectively. There were no reduced
rate loans at December 31, 2007 or 2006. The interest income that would have been earned on nonaccrual loans outstanding at
December 31, 2007, 2006 and 2005 in accordance with their original terms is estimated to be $655,000, $545,000 and $294,000,
respectively, for the years then ended. Applicable interest income actually realized was $222,000, $335,000 and $95,000,
respectively, for the aforementioned years, and there were no commitments to lend additional funds on nonaccrual loans.
Loans are made at normal lending limits and credit terms to officers or directors (including their immediate families) of the
Company or for the benefit of corporations in which they have a beneficial interest. There were no outstanding balances on
such loans in excess of $60,000 to any individual or entity at December 31, 2007 or 2006.
NOTE 7.
ALLOWANCE FOR LOAN LOSSES
Years Ended December 31,
Balance at beginning of year
Provision for loan losses
Less charge-offs, net of recoveries:
Charge-offs
Recoveries
Net charge-offs
Add allowance from acquisition
Less losses on transfers to other real estate owned
2007
2006
2005
$ 16,287,974
5,853,330
$ 15,369,096
4,502,596
$ 14,437,268
5,214,000
22,141,304
19,871,692
19,651,268
6,489,902
705,614
5,784,288
—
1,272,241
5,940,340
1,165,852
4,774,488
1,845,500
654,730
4,560,562
373,191
4,187,371
—
94,801
Balance at end of year
$ 15,084,775
$ 16,287,974
$ 15,369,096
P A G E 5 9
The Company follows SFAS No. 114, which establishes standards for measuring certain components of the allowance for loan
losses. As of December 31, 2007, 2006 and 2005, $610,000, $592,000 and $276,000, respectively, of loans were judged to be
impaired within the scope of SFAS No. 114, with interest income recognized on a cash basis. The average recorded investment
in impaired loans during the years ended December 31, 2007, 2006 and 2005, was approximately $495,000, $388,000 and
$325,000, respectively. The application of SFAS No. 114 indicated that these loans required valuation allowances totaling
$185,000, $255,000 and $90,000 at December 31, 2007, 2006 and 2005, respectively, which are included within the overall
allowance for loan losses. The interest income that would have been earned on impaired loans outstanding at December 31,
2007, 2006 and 2005 in accordance with their original terms is estimated to be $10,000, $5,000 and $21,000, respectively,
for the years then ended. Applicable interest income actually realized was $-0-, $1,000 and $14,000, respectively, for the
aforementioned years, and there were no commitments to lend additional funds on impaired loans.
NOTE 8.
PREMISES AND EQUIPMENT
The following table presents information on premises and equipment:
December 31,
Land and building
Furniture and equipment
Leasehold improvements
Accumulated amortization and depreciation
Premises and equipment, net
Amortization and depreciation expense
NOTE 9.
INTEREST-BEARING DEPOSITS
2007
2006
$
254,451
13,573,446
10,716,832
24,544,729
13,365,846
$
254,451
11,825,084
10,625,541
22,705,076
11,381,427
$ 11,178,883
$ 11,323,649
$ 2,549,617
$ 2,348,025
The following table presents certain information for interest expense on deposits:
Years Ended December 31,
Interest expense
Interest-bearing deposits in domestic offices
Savings
NOW
Money Market
Time
Three months or less
More than three months through twelve months
More than twelve months through twenty-three months
More than twenty-four months through thirty-five months
More than thirty-six months through forty-seven months
More than forty-eight months through sixty months
More than sixty months
Interest-bearing deposits in foreign offices
Time
Three months or less
More than three months through twelve months
Total
2007
2006
2005
$
100,770
5,903,410
7,078,921
$
100,961
3,787,228
4,695,873
$
113,351
1,576,286
2,455,378
11,217,497
12,266,010
964,545
1,065,138
97,275
21,703
41,395
8,509,506
8,752,571
2,508,594
161,758
11,305
453,986
1,662
6,304,214
5,268,657
1,844,937
117,490
31,160
389,585
929
38,756,664
28,983,444
18,101,987
4,302
1,970
19,262
8,722
17,889
14,974
$ 38,762,936
$ 29,011,428
$ 18,134,850
P A G E 6 0
Foreign deposits totaled $575,817 and $573,857 at December 31, 2007 and 2006, respectively.
The aggregate of time certificates of deposit and other time deposits in denominations of $100,000 or more was $411,019,063
and $394,447,813 at December 31, 2007 and 2006, respectively.
The aggregate of time certificates of deposit and other time deposits by remaining maturity range is presented below:
December 31,
Domestic
Three months or less
More than three months through six months
More than six months through twelve months
More than twelve months through twenty-three months
More than twenty-four months through thirty-five months
More than thirty-six months through forty-seven months
More than forty-eight months through sixty months
More than sixty months
Foreign
Three months or less
More than three months through six months
2007
2006
2005
$216,023,376
155,009,636
101,676,791
48,137,470
1,269,779
472,308
1,022,353
1,220
$ 203,038,151
97,977,566
145,828,880
78,808,380
1,035,380
336,812
353,232
34,563
$ 252,383,369
80,472,379
92,828,189
67,897,087
4,268,663
143,925
233,220
19,797
523,612,933
527,412,964
498,246,629
395,000
180,817
575,817
395,000
178,857
573,857
1,645,037
1,376,991
3,022,028
Total
$524,188,750
$ 527,986,821
$ 501,268,657
Interest expense related to the aggregate of time certificates of deposit and other time deposits is presented below:
Years Ended December 31,
2007
2006
2005
Interest expense
Domestic
Foreign
Total
$25,673,563
$ 20,399,382
$ 13,956,972
6,272
27,984
32,863
$25,679,835
$ 20,427,366
$ 13,989,835
P A G E 6 1
NOTE 10.
SHORT-TERM BORROWINGS
The following table presents information regarding Federal funds purchased, securities sold under agreements to repurchase—
customers and dealers, and commercial paper:
Years Ended December 31,
2007
2006
2005
Securities sold under agreements to repurchase—customers
At December 31 —Balance
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate paid
—Range of interest rates paid
$ 60,053,947
$ 52,802,796
$ 61,067,073
3.42%
4.92%
2.81%
37 Days
97,404,318
80,649,000
55 Days
94,132,979
86,418,000
14 Days
88,845,220
85,365,000
4.21%
4.05%
2.23%
2.50–5.85%
2.00–5.70%
1.50–4.25%
Securities sold under agreements to repurchase—dealers
At December 31 —Balance
$ 10,200,000
$
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate paid
—Range of interest rates paid
Federal funds purchased
At December 31 —Balance
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate paid
—Range of interest rates paid
Commercial paper
At December 31 —Balance
—Average interest rate
—Average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Average interest rate paid
—Range of interest rates paid
5.02%
7 Days
30,000,000
6,470,000
—
—
—
123,200,000
74,057,000
$ 88,729,000
4.40%
23 Days
88,729,000
52,199,000
4.78%
5.05%
3.44%
4.48–5.02%
4.33–5.40%
2.40–4.45%
$ 65,000,000
$
4.17%
1 Day
65,000,000
9,281,000
—
—
—
$ 55,000,000
4.20%
1 Day
20,000,000
15,133,000
55,300,000
17,992,000
4.63%
5.08%
3.60%
3.50–5.31%
4.25–5.44%
2.25–4.50%
$ 20,878,494
$ 27,561,567
$ 38,191,016
4.51%
4.91%
3.22%
61 Days
28,750,718
26,731,000
50 Days
52,714,141
44,539,000
41 Days
42,323,187
37,302,000
5.05%
4.53%
2.61%
3.50–5.62%
2.00–5.70%
1.25–4.15%
The parent company has agreements with its line banks for back-up lines of credit for which it pays a fee at the annual rate of
¼ of 1% times the line of credit extended. At December 31, 2007, these back-up bank lines of credit totaled $24,000,000; no lines
were used at any time during 2007, 2006 or 2005.
Other short-term borrowings include advances from the Federal Home Loan Bank of New York (“FHLB”) due within one year
and treasury tax and loan funds. At December 31, 2007, FHLB borrowings included an advance of $45,000,000 payable on
January 2, 2008 at a rate of 4.11%. At December 31, 2006, there were no short-term borrowings from the FHLB. At December
31, 2005, FHLB borrowings included an advance of $35,000,000 payable on January 3, 2006 at a rate of 4.32%.
P A G E 6 2
NOTE 11.
LONG-TERM BORROWINGS
These borrowings represent advances from the FHLB and junior subordinated debt securities issued by the parent company.
The following table presents information regarding fixed rate FHLB advances:
Advance
Type
Callable
Callable
Callable
Callable
Total
Weighted-average interest rate
Interest
Rate
4.106%
4.013
4.70
4.28
Maturity
Date
10/23/09
11/2/09
2/22/11
10/17/11
Initial
Call Date
1/23/09
5/2/08
2/20/03
10/15/06
December 31,
2007
2006
$ 20,000,000
10,000,000
10,000,000
—
$
—
—
10,000,000
10,000,000
$ 40,000,000
$ 20,000,000
4.23%
4.49%
Under the terms of a collateral agreement with the FHLB, advances are secured by stock in the FHLB and by certain qualifying
assets (primarily mortgage-backed securities) having market values at least equal to 110% of the advances outstanding. After
the initial call date, each callable advance is callable by the FHLB quarterly from the initial call date, at par.
In February 2002, the parent company completed its issuance of trust capital securities (“capital securities”) that raised
$25,000,000 ($24,062,500 net proceeds after issuance costs). The 8.375% capital securities, due March 31, 2032, were issued
by Sterling Bancorp Trust I (the “trust”), a wholly-owned non-consolidated statutory business trust. The trust was formed with
initial capitalization of common stock and for the exclusive purpose of issuing the capital securities. The trust used the proceeds
from the issuance of the capital securities to acquire $25,774,000 junior subordinated debt securities that pay interest at
8.375% (“debt securities”) issued by the parent company. The debt securities are due concurrently with the capital securities
which may not be redeemed, except under limited circumstances, until March 31, 2007, and thereafter at a price equal to
their principal amount plus interest accrued to the date of redemption. The Company may also reduce outstanding capital
securities through open market purchases. During 2007, the parent company purchased in the open market $196,000 par
amount of the capital securities at an average price of $9.78; these securities are included in the Company’s securities available
for sale. These securities are considered to be outstanding for the payment of dividends but are considered to be redeemed for
the calculation of the regulatory capital ratios. There were no purchases prior to 2007. As a result of these repurchases, the
amounts of capital securities held by third parties at December 31, 2007 and 2006 were $24,804,000 and $25,000,000 respec-
tively. Dividends and interest are paid quarterly.
The parent company has the right to defer payments of interest on the debt securities at any time or from time to time for a
period of up to 20 consecutive quarterly periods with respect to each deferral period. Under the terms of the debt securities, in
the event that under certain circumstances there is an event of default under the debt securities or the parent company has
elected to defer interest on the debt securities, the parent company may not, with certain exceptions, declare or pay any divi-
dends or distributions on its capital stock or purchase or acquire any of its capital stock.
Payments of distributions on the capital securities and payments on redemption of the capital securities are guaranteed by the
parent company on a limited basis. The parent company also entered into an agreement as to expenses and liabilities pursuant
to which it agreed, on a subordinated basis, to pay any costs, expenses or liabilities of the trust other than those arising under
the capital securities. The obligations of the parent company under the debt securities, the related indenture, the trust agree-
ment establishing the trust, the guarantee and the agreement as to expenses and liabilities, in the aggregate, constitute a full and
unconditional guarantee by the parent company of the trust’s obligations under the capital securities.
Notwithstanding that the accounts of the trust are not included in the Company’s consolidated financial statements, the amount
of capital securities issued by the trust and held by third parties is included in the Tier 1 capital of the parent company for regu-
latory capital purposes as allowed by the Federal Reserve Board. In March 2005, the Federal Reserve Board adopted a rule that
would continue to allow the inclusion of capital securities issued by unconsolidated subsidiary trusts in Tier 1 capital, but with
stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of capital securities
and certain other capital elements would be limited to 25% of Tier 1 capital, net of goodwill less any associated deferred tax
liability. Based on the final rule, the parent company expects to continue to include the amount of capital securities held by
third parties in Tier 1 capital.
P A G E 6 3
NOTE 12.
COMMON STOCK
The following tables provide information regarding the number of common shares issued and the number of shareholders:
Years Ended December 31,
Issued at beginning of year
Shares issued under stock incentive plan
Issued at end of year
December 31,
Number of shareholders
NOTE 13.
TREASURY STOCK
The following table provides information regarding the number of shares held by the Company:
Years Ended December 31,
Held at beginning of year
Purchases
Surrender of shares issued under incentive compensation plan
Held at end of year
NOTE 14.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Number of
Shares Issued
2007
2006
21,177,084
101,447
21,066,916
110,168
21,278,531
21,177,084
2007
2006
1,481
1,558
Number of
Shares Held
2007
2006
2,572,368
862,000
24,934
2,231,442
308,556
32,370
3,459,302
2,572,368
The following table presents the components of accumulated other comprehensive loss as of December 31, 2007 and 2006
included in shareholders’ equity:
December 31, 2007
Net unrealized (loss) on securities
Adjustment for underfunded pension obligations
Total
December 31, 2006
Net unrealized (loss) on securities
Adjustment for underfunded pension obligations
Total
NOTE 15.
RESTRICTIONS ON THE BANK
Pre-tax
Amount
Tax
Effect
After-tax
Amount
$ (1,921,833)
(17,818,033)
$ 867,253
8,060,802
$ (1,054,580)
(9,757,231)
$ (19,739,866)
$ 8,928,055
$ (10,811,811)
$ (3,251,833)
(18,356,837)
$1,467,962
8,297,800
$ (1,783,871)
(10,059,037)
$(21,608,670)
$9,765,762
$(11,842,908)
Various legal restrictions limit the extent to which the bank can supply funds to the parent company and its nonbank subsidiaries.
All national banks are limited in the payment of dividends in any year without the approval of the Comptroller of the Currency
to an amount not to exceed the net profits (as defined) for that year to date combined with its retained net profits for the pre-
ceding two calendar years. In addition, from time to time dividends are paid to the parent company by the finance subsidiaries
from their retained earnings without regulatory restrictions. As of December 31, 2007, the bank could pay dividends of
approximately $20,000,000 to the parent company, without regulatory approval and without adversely affecting the bank’s
“well capitalized” status.
P A G E 6 4
NOTE 16.
STOCK INCENTIVE PLAN
In April 1992, shareholders approved a Stock Incentive Plan (“the plan”) covering up to 100,000 common shares of the parent
company. Under the plan, key employees of the parent company and its subsidiaries could be granted awards in the form of
incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock
or a combination of these. The plan is administered by a committee of the Board of Directors. Since the inception of the plan,
shareholders have approved amendments increasing the number of shares covered under the plan; the total number of shares
authorized by shareholders through December 31, 2007 was 2,650,000. The plan provides for proportional adjustment to the
number of shares covered by the plan and by outstanding awards, and in the exercise price of outstanding stock options, to
reflect, among other things, stock splits and stock dividends. After giving effect to stock option and restricted stock awards
granted and the effect of the 5% stock dividend effected December 12, 2005, the six-for-five stock split in the form of a stock
dividend effected in December 2004, the five-for-four stock split in the form of a stock dividend effected September 10, 2003,
the 20% stock dividend paid in December 2002, the 10% stock dividends paid in December 2001 and December 2000, and the
5% stock dividend paid in December 1999, shares available for grant were 458,533, 469,427 and 504,287 at December 31,
2007, 2006 and 2005, respectively. The Company issues new shares to satisfy stock option exercises.
Stock Options
The following tables present information on the qualified and non-qualified stock options outstanding (after the effect of the
stock dividends/splits discussed above) as of December 31, 2007, 2006 and 2005 and changes during the years then ended:
2007
2006
2005
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
Qualified Stock Options
Outstanding at beginning of year
Exercised
Reclassified[1]
Forfeited
$10.45
8.17
528,916
(83,359)
—
—
Outstanding at end of year
445,557
10.87
Options exercisable at end of year
349,105
570,094
(39,288)
—
(1,890)
528,916
401,762
$10.26
7.97
14.60
10.45
750,808
(68,693)
(112,021)
—
570,094
388,165
$10.07
9.32
9.59
10.26
Non-Qualified Stock Options
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
2007
2006
2005
Outstanding at beginning of year
1,326,327
Granted
Exercised
Reclassified[1]
Forfeited
112,500
(18,088)
—
(101,606)
Outstanding at end of year
1,319,133
Options exercisable at end of year
1,183,281
Weighted-average fair value of
$12.79
17.99
6.48
18.94
12.85
1,360,457
37,800
(70,880)
—
(1,050)
1,326,327
1,288,527
$12.69
19.50
14.41
26.94
12.79
1,363,272
137,025
(226,813)
112,021
(25,048)
1,360,457
1,355,920
$11.30
25.35
9.10
9.59
24.99
12.69
options granted during the year
$3.80
$4.90
$3.50
[1] As a result of retirements and terminations. Since these provisions were included in the original terms of the awards, these reclassifications are not consid-
ered modifications.
P A G E 6 5
On December 15, 2005, the Compensation Committee of the Board of Directors approved the accelerated vesting and
exercisability of all unvested and unexercisable stock options to purchase common shares of the Company held by directors or
officers on December 19, 2005. Management proposed the acceleration of vesting to eliminate the impact of adopting SFAS
No. 123R, Share-Based Payment (“SFAS No. 123R”), on the consolidated financial statements insofar as existing options are
concerned. As a result, options to purchase 223,913 common shares, which would otherwise have vested and become exercis-
able from time to time over the next four years, became fully vested and immediately exercisable as of December 19, 2005. The
number of shares and exercise prices of the options subject to acceleration were unchanged. The accelerated options had exer-
cise prices between $15.82 and $26.94 per share, with a total weighted average exercise price per share of $22.70. The acceler-
ated options included 170,093 out-of-the money options and 53,820 in-the-money options. The Company estimates that
accelerating the vesting and exercisability of the 223,913 options discussed above eliminated approximately $0.7 million of
non-cash com pensation expense that would otherwise have been recorded in the Company’s income statements for future peri-
ods upon its adoption, as of January 1, 2006, of SFAS No. 123R.
In order to limit unintended personal benefits to officers and directors, the Compensation Committee imposed transfer restric-
tions on any shares received by an optionee upon exercise of an accelerated option before the earliest date on which, without
giving effect to such acceleration, such option would nonetheless have been vested and exercisable in respect of such shares
(assuming the optionee remained an employee or member of the Board of Directors, as applicable). Such transfer restrictions
will expire on the earlier of such earliest date or the date of the optionee’s death.
The following table presents information regarding qualified and non-qualified stock options outstanding at December 31, 2007:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
Number
Outstanding
at 12/31/07
Weighted-Average
Remaining
Contractual Life
Weighted-Average
Exercise
Price
Number
Exercisable
at 12/31/07
Weighted-Average
Exercise
Price
Qualified
Non-Qualified
$6.94–14.60
445,557
6.94–26.94
1,319,133
2.28 years
2.25 years
$10.87
12.85
349,105
1,183,281
$11.09
12.22
Director NQSOs expire five years from the date of the grant and become exercisable in four annual installments, starting one year
from the date of the grant, or upon the earlier death or disability of the grantee. Employee stock options generally expire ten years
from the date of the grant and vest one year from the date of grant. Although, if necessary to qualify to the maximum extent pos-
sible as ISOs, these options become exercisable in annual installments. Employee stock options which become exercisable over a
period of more than one year are generally subject to earlier exercisability upon the termination of the grantee’s employment for
any reason more than one year following grant. Amounts received upon exercise of options are recorded as common stock and
capital surplus. The tax benefit received by the Company upon exercise of a NQSO is credited to capital surplus.
The fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model with the follow-
ing assumptions:
Years Ended December 31,
Dividend yield
Volatility
Expected term
Non-Qualified (Directors)
Non-Qualified (Officers)
Risk-free interest rate
2007
4.22%
29%
—
5 years
4.46%
2006
3.90%
33%
5 years
N/A
5.10%
2005
3.31%
25%
5 years
5 years
4.59%
P A G E 6 6
The risk-free interest rate is based on the 5-year U.S. Treasury yield in effect at the time of grant. The dividend yield reflects the
Company’s actual dividend yield at the date of grant. Expected volatility is based on the historical volatility of the Company’s
stock over the 5-year period prior to the grant date. The weighted average expected life represents the weighted average period
of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s
historical exercise patterns. Compensation cost is recognized, net of estimated forfeitures, over the vesting period of the options
on a straight-line basis.
Under the provisions of SFAS No. 123R, the Company recorded compensation expense of $114,021 and $23,157 during the
years ended December 31, 2007 and 2006, respectively. As of December 31, 2007, the total remaining unrecognized compensa-
tion cost related to stock options granted under the Company’s plan was $475,646, which is expected to be recognized over a
weighted-average vesting period of 3.8 years.
Restricted Stock
On February 6, 2002, 60,000 shares of restricted stock were awarded from Treasury shares. The fair value was $27.56 per share.
These awards vested over a four-year period at the rate of 25% per year.
The plan calls for the forfeiture of non-vested shares which are restored to the Treasury and become available for future awards.
During 2007, 2006 and 2005, there were no shares forfeited. Unearned compensation resulting from these awards was amor-
tized as a charge to compensation expense over a four-year period; such charges were $-0-, $22,007 and $269,205 in 2007,
2006 and 2005, respectively. For income tax purposes, the Company is entitled to a deduction in an amount equal to the aver-
age market value of the shares on vesting date and dividends paid on shares for which restrictions have not lapsed.
NOTE 17.
EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company has a noncontributory, tax-qualified defined benefit pension plan that covers the majority of employees with one
or more years of service of at least 1,000 hours, who are at least 21 years of age. The benefits are based upon years of credited
service, primary social security benefits and a participant’s highest average compensation as defined. The funding requirements
for the plan are determined annually based upon the amount needed to satisfy the Employee Retirement Income Security Act of
1974 funding standards. The Company also has a noncontributory, supplemental non-qualified, non-funded retirement plan
which is designed to supplement the pension plan for key officers.
In November 2006, the Company amended its tax-qualified defined benefit plan to limit eligibility for participation to employ-
ees initially hired prior to January 2, 2006. All other provisions of the plan remain unchanged.
P A G E 6 7
The following tables, using a December 31 measurement date for each period presented, set forth the disclosures required for
pension benefits:
At or For the Years Ended December 31,
CHANGE IN BENEFIT OBLIGATION
2007
2006
Benefit obligation at beginning of year (Projected Benefit Obligation)
$ 46,489,890
$ 40,950,221
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
CHANGE IN PLAN ASSETS
Fair value of assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of assets at end of year
Funded status
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:
Pension liability
Accumulated other comprehensive loss (pre-tax)
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE THE BENEFIT OBLIGATION:
1,953,454
2,684,867
—
(319,290)
(1,187,647)
1,793,388
2,402,580
(4,847)
2,378,548
(1,030,000)
$ 49,621,274
$ 46,489,890
$ 27,301,789
$ 25,916,574
951,985
3,000,000
(1,187,647)
1,415,215
1,000,000
(1,030,000)
$ 30,066,127
$ 27,301,789
$ (19,555,147)
$ (19,188,101)
$ (19,555,147)
$ (19,188,101)
17,818,033
18,356,412
Discount Rate
Rate of Compen-
sation Increase
2007
2006
2007
2006
6.00% 5.75%
6.00
5.75
3.00% 3.00%
3.00
3.00
Defined benefit pension plan
Supplemental retirement plan
Years Ended December 31,
COMPONENTS OF NET PERIODIC COST
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Total
WEIGHTED-AVERAGE ASSUMPTIONS USED TO
DETERMINE NET PERIODIC COST:
Defined benefit pension plan
Supplemental retirement plan
2007
2006
2005
$ 1,953,454
$ 1,793,388
$ 1,639,935
2,684,867
(2,369,111)
98,757
1,537,458
2,402,580
(2,187,694)
75,665
1,327,997
2,208,395
(1,885,206)
77,322
1,022,125
$ 3,905,425
$ 3,411,936
$ 3,062,571
Discount Rate
Expected Return
on Plan Assets
Rate of Compensation
Increase
2007
2006
2005
2007
2006
2005
2007
2006
2005
5.75% 5.75% 6.00% 8.50% 8.50% 8.50% 3.00% 3.00% 3.00%
5.75
3.00
3.00
6.00
3.00
5.75
N/A
N/A
N/A
P A G E 6 8
To determine the expected return on plan assets, we consider historical return information on plan assets, the mix of investments
that comprise plan assets and the actual income derived from plan assets.
The accumulated benefit obligation for the defined benefit pension plan at December 31, 2007 and 2006 was $29,319,162 and
$27,826,055, respectively.
The tables presented on the previous page and above include the supplemental retirement plan which is an unfunded plan. The
following information is presented regarding the supplemental retirement plan:
December 31,
Projected benefit obligation
Accumulated benefit obligation
2007
2006
$ 17,377,920
17,322,531
$15,888,561
15,804,760
The following table sets forth information regarding the assets of the defined benefit pension plan:
December 31,
U.S. government corporation and agency debt obligations
Corporate debt obligation
Common equity securities
Other
Total
2007
16%
20
58
6
100%
2006
18%
16
52
14
100%
The defined benefit pension plan owns common stock of Sterling Bancorp which is included in common equity securities
above. At December 31, 2007, the value of Sterling Bancorp common stock was $942,278 and represented approximately
5% of plan assets. At December 31, 2006, the value of Sterling Bancorp common stock was $1,360,915 and represented
approximately 5% of plan assets.
The overall strategy of the Pension Plan Investment Policy is to have a diverse portfolio that reasonably spans established risk/
return levels and preserves liquidity. The strategy allows for a moderate risk approach in order to achieve greater long-term asset
growth. The asset mix can vary but is targeted at 50% equity securities, inclusive of up to 10% in Sterling Bancorp common stock,
25% in corporate obligations and 25% in federal and agency obligations. The money market position will vary but will generally
be held under 5%. The Plan’s allocation to common stock, excluding shares of Sterling Bancorp, will represent investment in those
companies from time to time comprising the growth and value Model Portfolio as advised by the trustee’s investment advisor.
The Company expects to contribute approximately $2,000,000 to the defined benefit pension plan in 2008.
The following table presents benefit payments expected to be paid, based on the assumption described below, including the
effect of expected future service for the years indicated.
Year(s)
2008
2009
2010
2011
2012
Years 2013–2017
Defined
Benefit Plan
$ 1,419,555
1,491,944
1,679,425
1,875,726
2,035,923
12,810,826
Supplemental
Retirement Plan
Total
Benefit Payments
$ 22,259
17,315,038
21,963
21,790
21,599
198,860
$ 1,141,814
18,806,982
1,701,388
1,897,516
2,057,522
13,009,686
The cash flows shown above are based on the assumptions used in the annual actuarial valuations of the Defined Benefit Plan.
The Supplemental Retirement Plan column is computed assuming that any executive who has reached the age upon which full
retirement is assumed for actuarial purposes, actually retires in the current year. However, if such an executive does not
actually retire in the current year, the obligation will be deferred until a later year. We are not aware of any senior executives
who have near-term plans to retire.
P A G E 6 9
Amounts recognized in accumulated other comprehensive loss, pre-tax, as of December 31, 2007 and 2006 follow:
Qualified Pension Plan
Supplemental
Retirement Plan
Total
2007
2006
2007
2006
2007
2006
Net actuarial loss
Prior service cost
Total
$11,476,482
232,114
$11,584,700
304,521
$6,036,569
72,868
$6,367,973
99,218
$17,513,051
304,982
$17,952,673
403,739
$11,708,596
$11,889,221
$6,109,437
$6,467,191
$17,818,033
$18,356,412
The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic cost over the next
fiscal year are as follows:
Net actuarial loss
Prior service cost
Total
Qualified Pension Plan
2007
$916,905
48,919
$965,824
2006
$852,357
72,407
$924,764
Supplemental
Retirement Plan
Total
2007
$477,642
17,650
$495,292
2006
$477,912
26,348
$504,260
2007
2006
$1,394,547
66,569
$1,330,269
98,755
$1,461,116
$1,429,024
Savings Plans
As of January 1, 2008, the Company merged its two 401(k) plans into one plan (“new plan”). Eligible employees must complete
1,000 hours of service in order to be eligible for the Company matching contributions. Participants in the new plan eligible for
Company matching contributions include any employee hired after January 1, 2006 and employees of two subsidiaries of the
bank. Eligible employees may enroll in the new plan on the first day of the month after hire. The Company matches 25% of the
eligible employee’s contribution to the plan based on the amount of each participant’s contributions, up to the Internal Revenue
Service maximum contribution limit. All participants may immediately invest their individual contributions, as well as any
Company matching contribution, in any of a variety of investment alternatives offered under the new plan. Expenses for
employer match related to the new plan totaled $238,508 in 2007.
Prior to 2008, the Company maintained two 401(k) plans. One was maintained for the employees of Sterling National Bank
and certain affiliates (“the bank 401(k) Plan”) and the other for the employees of two subsidiaries of the bank (“the subsidiary
401(k) Plan”).
The bank 401(k) Plan—The Company maintained a 401(k) plan that permitted each participant to make before-tax contribu-
tions up to 20% of eligible compensation and subject to dollar limits from Internal Revenue Service regulations. Eligible
employees were able to enroll in the 401(k) plan on the first day of the month after hire. Employees hired after January 1, 2006
were required to complete 1,000 hours of service in order to be eligible for the Company’s matching contributions. Employees
who were hired prior to January 1, 2006 were included in the Company’s pension plan and were not eligible for the Company
match, however they were able to make before-tax contributions as outlined above. Prior to January 2007, the Company did not
match any employee contributions. Employees were able to immediately invest their individual contribution in any of a variety
of investment alternatives offered under the bank 401(k) Plan.
The subsidiary 401(k) Plan—Prior to January 1, 2008, the Company maintained a 401(k) plan that permitted each participant
to make before-tax contributions up to 20% of eligible compensation and subject to dollar limits from Internal Revenue Service
regulations. Eligible employees were able to enroll in the 401(k) plan during the open enrollment twice a year after completing
1,000 hours of service and were eligible for the Company’s matching contributions at that time. Employees who were included
in the Company’s pension plan were not eligible for the Company match, however they were able to make before-tax contribu-
tions as outlined above. The Company matched 25% of the employee’s contribution to the plan based on the amount of each
participant’s contributions, up to a maximum of 20% eligible compensation. Employees were able to immediately invest their
individual contribution, as well as the Company’s matching portion, in any of a variety of investment alternatives offered under
the subsidiary 401(k) Plan. Expense for employer match related to the plan totaled $130,692 in 2006 and $142,645 in 2005.
Postretirement Life Insurance Benefits
The Company currently provides life insurance benefits to certain officers. The coverage provided depends upon years of service
with the Company and the employee’s date of retirement. The Company’s plan for its postretirement benefit obligation is
unfunded. The Company’s postretirement obligations are not material. Net postretirement benefit cost was $61,230, $92,445
and $90,000 for 2007, 2006 and 2005, respectively.
P A G E 7 0
NOTE 18.
INCOME TAXES
The current and deferred tax provisions (benefits) applicable to income from continuing operations for each of the last three
fiscal years are as follows:
Years Ended December 31,
FEDERAL
Current
Deferred
Total
STATE AND LOCAL
Current
Deferred
Total
TOTAL
Current
Deferred
Total
2007
2006
2005
$ 8,285,967
(535,747)
$ 5,796,596
4,683,135
$ 14,778,873
(3,455,130)
$ 7,750,220
$10,479,731
$ 11,323,743
$ 1,271,020
(461,135)
$ (5,371,344)
258,421
$
894,893
891,311
$ 809,885
$ (5,112,923)
$ 1,786,204
$ 9,556,987
(996,882)
$
425,252
4,941,556
$ 15,673,766
(2,563,819)
$ 8,560,105
$ 5,366,808
$ 13,109,947
Reconciliations of income tax provisions with taxes computed at Federal statutory rates are as follows:
Years Ended December 31,
Federal statutory rate
Computed tax based on income from continuing operations
Increase (Decrease) in tax resulting from:
State and local taxes, net of Federal income tax benefit
Tax-exempt income
Other permanent items
Total
2007
2006
2005
35%
35%
35%
$ 8,383,904
$ 9,227,937
$ 12,800,430
526,426
(645,994)
295,769
(3,323,400)
(718,718)
180,989
1,161,032
(878,404)
26,889
$ 8,560,105
$ 5,366,808
$ 13,109,947
The components of the net deferred tax asset, included in other assets, are as follows:
December 31,
Deferred tax assets
Difference between financial statement provision for loan losses and tax bad debt deduction
Pension and benefit plans
SFAS No. 115 deferred tax asset
Other
Total deferred tax assets
Deferred tax liabilities
Difference between tax and net book values of fixed assets
Other
Total deferred tax liabilities
Net deferred tax asset
2007
2006
$ 6,813,638
8,060,802
867,253
2,597,022
$ 7,353,129
8,297,800
1,467,962
2,535,421
18,338,715
19,654,312
703,768
744,987
361,012
2,562,933
1,448,755
2,923,945
$ 16,889,960
$16,730,367
Based on management’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the
items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred assets was not considered necessary
at December 31, 2007 and 2006 since it is more likely than not that these assets will be realized.
The current tax payable as of December 31, 2007 was approximately $2,119,000. The current tax receivable as of December 31,
2006 was approximately $4,872,000.
The adoption of FIN 48 did not affect the Company’s financial position.
P A G E 7 1
A reconciliation of unrecognized tax benefits for the year
ended December 31, 2007 follows:
Year Ended December 31,
Balance at January 1
Reductions for tax positions of prior years
Balance at December 31
2007
$ 1,075,426
(577,570)
$ 497,856
The balance of unrecognized tax benefits at December 31,
2007, before the impact of federal and state taxes, relates to
the taxation of certain income items, all of which would
affect the Company’s effective tax rate if recognized and are
expected to be realized in 2008.
The Company recognizes interest accrued related to unrecog-
nized tax benefits and penalties in noninterest operating
expenses. At December 31, 2007, the consolidated balance
sheet included accrued interest related to unrecognized tax
benefits of $148,391 and the consolidated statement of
income included a credit for interest expense of $86,253.
The Company and its subsidiaries are subject to U.S. federal
income tax as well as income tax of multiple state jurisdic-
tions. The Company’s federal income tax returns for 2002
through 2006 are currently either under examination or sub-
ject 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.
NOTE 19.
EARNINGS PER SHARE
Basic EPS has been computed using the weighted-average common shares outstanding during the year.
Diluted EPS reflect the dilutive effect of unexercised stock options using the treasury stock method. When applying the treasury
stock method, the average price of the Company’s common stock is utilized.
Earnings per common share have been computed based on the following:
Years Ended December 31,
Net income from continuing operations available to common shareholders
(Loss) income from discontinued operations
Loss on sale of discontinued operations
Net income available to common shareholders
Weighted average number of common shares used to calculate basic earnings per common share
Dilutive effect of stock options
Weighted average number of common shares used to calculate
diluted earnings per common share
2007
2006
2005
$15,393,906
(795,034)
—
$20,998,725
(603,753)
(9,634,911)
$23,462,709
564,116
—
$14,598,872
$10,760,061
$24,026,825
18,209,740
321,806
18,734,610
530,483
19,164,498
598,854
18,531,546
19,265,093
19,763,352
Options issued with exercise prices greater than the average
market price of the common shares for each of the years
ended December 31, 2007, 2006 and 2005 have not been
included in computation of diluted EPS for those respective
years. As of December 31, 2007, 384,147 options to purchase
shares between $17.73 and $26.94 were not included; as of
December 31, 2006, 223,111 options to purchase shares
at prices between $19.50 and $26.94 were not included; as of
December 31, 2005, 121,275 options to purchase shares at
prices between $21.93 and $26.94 were not included.
NOTE 20.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial
Instru ments, requires the Company to disclose the “fair
value” of certain financial instruments for which it is practi-
cal to estimate “fair value.”
Much of the information used to arrive at “fair value” is
highly subjective and judgmental in nature and therefore the
results may not be precise. The subjective factors include,
among other things, estimated cash flows, risk characteris-
tics, credit quality and interest rates, all of which are subject
to change. With the exception of investment securities and
long-term debt, the Company’s financial instruments are not
readily marketable and market prices do not exist. Since
negotiated prices for the instruments that are not readily
marketable depend greatly on the motivation of the buyer
and seller, the amounts that will actually be realized or paid
per settlement or maturity of these instruments could be sig-
nificantly different.
P A G E 7 2
The following disclosures represent the Company’s best esti-
mate of the “fair value” of financial instruments.
Financial Instruments with Carrying Amount Equal
to Fair Value
The carrying amount of cash and due from banks, interest-
bearing deposits with other banks, Federal funds sold, cus-
tomers’ liabilities under acceptances, accrued interest
receivable, Federal funds purchased, securities sold under
agreements to repurchase, commercial paper, other short-
term borrowings, acceptances outstanding, and accrued inter-
est payable, as a result of their short-term nature, is considered
to approximate fair value.
Investment Securities
For investment securities, fair value has been based upon cur-
rent market quotations, where available. If quoted market
prices are not available, fair value has been estimated based
upon the quoted price of similar instruments.
Loans Held in Portfolio
The fair value of loans held in portfolio which reprice within 90
days reflecting changes in the base rate approximate their car-
rying amount. For other loans held in portfolio, the estimated
fair value is calculated based on discounted cash flow analyses,
using interest rates currently being offered for loans with sim-
ilar terms to borrowers of similar credit quality and for similar
maturities. These calculations have been adjusted for credit
risk based on the Company’s historical credit loss experience.
The estimated fair value for secured nonaccrual loans is the
value of the underlying collateral which is sufficient to repay
each loan. For other nonaccrual loans, the estimated fair
value represents book value less a credit risk adjustment based
on the Company’s historical credit loss experience.
Deposits
SFAS No. 107 requires that the fair value of demand, sav-
ings, NOW (negotiable order of withdrawal) and certain
money mar ket deposits be equal to their carrying amount.
The Company believes that the fair value of these deposits,
including the value of deposit relationships, is greater than
that prescribed by SFAS No. 107.
For other types of deposits with fixed maturities, fair value has
been estimated based upon interest rates currently being offered
on deposits with similar characteristics and maturities.
Long-Term Debt
For long-term borrowings, the estimated fair value is calcu-
lated based on discounted cash flow analyses, using interest
rates currently being quoted for debt with similar characteris-
tics and maturities.
Commitments to Extend Credit, Standby Letters of Credit
and Financial Guarantees
The fees received for the issuance of commitments to extend
credit, standby letters of credit, and financial guarantees, are
considered to approximate fair value. Due to the uncertainty
involved in attempting to assess the likelihood and timing of
a commitment being drawn upon, coupled with lack of an
established market and the wide diversity of fee structures,
the Company does not believe it is meaningful to provide an
estimate of fair value that differs from the notional value of
consideration received.
The following is a summary of the carrying amounts and estimated fair values of the Company’s financial assets and liabilities:
December 31,
2007
2006
Carrying
Amount
Estimated Fair
Value
Carrying
Amount
Estimated Fair
Value
FINANCIAL ASSETS
Cash and due from banks
Interest-bearing deposits with other banks
Federal funds sold
Investment securities
Loans held for sale
Loans held in portfolio, net
Customers’ liability under acceptances
Accrued interest receivable
FINANCIAL LIABILITIES
Demand, NOW, savings and money market deposits
Time deposits
Securities sold under agreements to repurchase
Federal funds purchased
Commercial paper
Short-term borrowings—FHLB
Other short-term borrowings
Acceptances outstanding
Accrued interest payable
Long-term borrowings
$
66,412,612
979,984
—
625,241,417
23,755,906
1,172,039,209
200,942
7,081,304
1,013,959,470
513,026,709
70,253,947
65,000,000
20,878,494
45,000,000
4,285,198
200,942
3,570,858
65,774,000
P A G E 7 3
$
66,412,612
979,984
—
623,105,578
23,755,906
1,189,562,000
200,942
7,081,304
1,013,959,470
513,179,408
70,253,947
65,000,000
20,878,494
45,000,000
4,285,198
200,942
3,570,858
65,438,035
$
50,058,593
1,261,187
20,000,000
569,324,317
33,319,789
1,096,313,646
98,399
5,844,868
1,004,881,046
517,149,377
52,802,796
—
27,561,567
—
3,411,630
98,399
3,309,821
45,774,000
$
50,058,593
1,261,187
20,000,000
560,071,577
33,319,789
1,092,574,791
98,399
5,844,868
1,004,881,046
516,920,978
52,802,796
—
27,561,567
—
3,411,630
98,399
3,309,821
44,080,523
NOTE 21.
CAPITAL MATTERS
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. Sup ple-
menting 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). In addition, the bank is subject to the provisions of 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.” Such classifications
are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of applications authorizing institu-
tions 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 December 31, 2007, the
Company and the bank exceeded the requirements for “well capitalized” institutions.
The following tables present information regarding the Company’s and the bank’s regulatory capital ratios:
As of December 31, 2007
Amount
Ratio
Amount
Ratio
Amount
Ratio
Actual
For Capital Adequacy Minimum
To Be Well Capitalized
Total Capital (to Risk-Weighted Assets):
The Company
The bank
Tier 1 Capital (to Risk-Weighted Assets):
The Company
The bank
Tier 1 Leverage Capital (to Average Assets):
The Company
The bank
As of December 31, 2006
Total Capital (to Risk-Weighted Assets):
The Company
The bank
Tier 1 Capital (to Risk-Weighted Assets):
The Company
The bank
Tier 1 Leverage Capital (to Average Assets):
The Company
The bank
(dollars in thousands)
$ 149,014
147,442
10.87%
10.77
$ 109,706
109,507
8.00%
8.00
$ 137,133
136,884
10.00%
10.00
133,785
132,213
133,785
132,213
9.76
9.66
6.88
6.79
54,853
54,753
77,835
77,943
4.00
4.00
4.00
4.00
82,280
82,130
97,294
97,429
6.00
6.00
5.00
5.00
$ 162,232
138,651
12.74%
11.00
$ 102,299
101,288
8.00%
8.00
$ 127,874
126,610
10.00%
10.00
146,244
122,819
11.49
9.75
146,244
122,819
7.82
6.60
51,150
50,644
75,131
74,788
4.00
4.00
4.00
4.00
76,725
75,966
93,913
93,485
6.00
6.00
5.00
5.00
P A G E 7 4
NOTE 22.
SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way infor-
mation about operating segments is reported in annual financial statements and establishes standards for related disclosures
about an enterprise’s products and services, geographic areas, and major customers.
The Company provides a broad range of financial products and services, including commercial loans, commercial and residential
mortgage lending and brokerage, asset-based financing, factoring/accounts receivable management services, trade financing,
equipment leasing, corporate and consumer deposit services, 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 2007 average interest-earning
assets were 64.5% loans (corporate lending was 68.6% and real estate lending was 26.8% of total loans, respectively) and
35.3% investment securities and money market investments. There were no industry concentrations (exceeding 10% of loans,
gross) in the corporate loan portfolio. Approximately 72% of loans are to borrowers located in the New York metropolitan
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 table provides certain information regarding the Company’s operating segments:
Year Ended December 31, 2007
Net interest income
Noninterest income
Depreciation and amortization
Segment income from continuing operations
before income taxes
Segment loss from discontinued operations
before income taxes
Segment assets from continuing operations
Year Ended December 31, 2006
Net interest income
Noninterest income
Depreciation and amortization
Segment income from continuing operations
before income taxes
Segment loss from discontinued operations
before income taxes
Segment assets from continuing operations
Segment assets from discontinued operations
Year Ended December 31, 2005
Net interest income
Noninterest income
Depreciation and amortization
Segment income from continuing operations
Corporate
Lending
Real Estate
Lending
Company-wide
Treasury
Totals
$ 27,504,459
22,954,539
702,221
$ 21,088,858
9,207,095
364,330
$ 24,261,323
1,615,878
2,577
$
72,854,640
33,777,512
1,069,128
19,150,368
14,861,571
23,315,069
57,327,008
(1,306,865)
827,389,487
—
382,561,159
—
770,885,839
(1,306,865)
1,980,836,485
$ 35,262,677
20,339,968
628,535
$ 21,470,915
10,031,131
393,063
$ 16,791,484
965,738
2,458
$
73,525,076
31,336,837
1,024,056
25,227,358
13,517,899
15,492,347
54,237,604
(982,392)
750,698,220
1,662,697
—
371,762,040
—
—
738,348,258
—
(982,392)
1,860,808,518
1,662,697
$ 31,299,679
12,428,528
390,450
$ 21,740,851
16,809,178
403,086
$ 21,461,800
2,195,149
2,454
$
74,502,330
31,432,855
795,990
before income taxes
19,351,879
20,031,035
22,929,744
62,312,658
Segment income from discontinued operations
before income taxes
Segment assets from continuing operations
Segment assets from discontinued operations
1,040,882
694,617,210
116,250,231
—
351,195,939
—
—
864,164,967
—
1,040,882
1,909,978,116
116,250,231
P A G E 7 5
The following table sets forth reconciliations of net interest income, noninterest income, pre-tax income from continuing opera-
tions and total assets for reportable operating segments to the Company’s consolidated totals:
Years Ended December 31,
Net interest income:
Total for reportable operating segments
Other[1]
2007
2006
2005
$
72,854,640
1,037,352
$
73,525,076
1,039,590
$
74,502,330
922,457
Consolidated net interest income
$
73,891,992
$
74,564,666
$
75,424,787
Noninterest income:
Total for reportable operating segments
Other[1]
Consolidated noninterest income
Income from continuing operations before income taxes:
Total for reportable operating segments
Other[1]
Consolidated income/loss from continuing operations
before income taxes
Assets:
Total for reportable operating segments—continuing operations
—discontinued operations
Other[1]
Consolidated assets
$
33,777,512
1,946,345
$
31,336,837
2,321,492
$
31,432,855
2,583,543
$
35,723,857
$
33,658,329
$
34,016,398
$
57,327,008
(33,372,997)
$
54,237,604
(27,872,071)
$
62,312,658
(25,740,002)
$
23,954,011
$
26,365,533
$
36,572,656
$ 1,980,836,485
—
31,812,298
$ 1,860,808,518
1,662,697
23,486,071
$ 1,909,978,116
116,250,231
29,814,139
$ 2,012,648,783
$ 1,885,957,286
$ 2,056,042,486
[1] Represents operations not considered to be a reportable segment and/or general operating expenses of the Company.
NOTE 23.
PARENT COMPANY
CONDENSED BALANCE SHEETS
December 31,
ASSETS
Cash and due from banks
Banking subsidiary
Other banks
Interest-bearing deposits—banking subsidiary
Securities available for sale (at estimated fair value)
Loans, net of unearned discount
Investment in subsidiaries
2007
2006
$ 4,336,453
$ 15,963,288
3,730
15,391,821
248,060
4,800,250
1,230
30,367,015
66,049
4,800,250
Banking subsidiary (including goodwill of $22,900,912 and $22,862,051, respectively)
147,700,620
137,231,518
Other subsidiaries
Other assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Commercial paper
Due to subsidiaries
Other subsidiaries
Accrued expenses and other liabilities
Junior subordinated debt (see Note 11)
Shareholders’ equity
11,530,711
10,987,721
11,981,127
11,326,937
$ 194,999,366
$ 211,737,414
$ 20,878,494
$ 27,561,567
1,045,327
26,231,268
25,774,000
121,070,277
995,870
25,143,206
25,774,000
132,262,771
$ 194,999,366
$ 211,737,414
P A G E 7 6
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
INCOME
Dividends and interest from
Banking subsidiary
Other subsidiaries
Loans
Securities available for sale
Other income
Total income
EXPENSE
Interest expense
Other expenses
Total expense
Income before income taxes and equity in undistributed net income (loss)
of subsidiaries
Benefit for income taxes
2007
2006
2005
$ 10,063,533
$ 20,088,150
$ 22,588,819
—
251,868
2,068
20,359
1,327,891
1,270,190
—
5,129
1,396
—
2,863
21,187
10,337,828
21,422,566
23,883,059
3,535,667
3,707,035
4,203,131
5,187,090
3,138,978
4,865,828
7,242,702
9,390,221
8,004,806
3,095,126
(2,521,438)
12,032,345
(3,424,488)
15,878,253
(2,982,742)
5,616,564
15,456,833
18,860,995
Equity in undistributed net income (loss) of
Banking subsidiary (net of (loss)/income on discontinued operations of $(126,242),
$(242,803) and $123,939, respectively)
9,432,725
5,202,425
4,648,066
Other subsidiaries (net of (loss)/income on discontinued operations of $(668,792),
$(9,995,861) and $440,177, respectively)
(450,417)
(9,899,197)
517,764
Net income
$ 14,598,872
$ 10,760,061
$ 24,026,825
P A G E 7 7
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of unearned compensation
Increase in accrued expenses and other liabilities
Equity in undistributed net loss (income) of subsidiaries
Decrease (Increase) in other assets
Other, net
2007
2006
2005
$ 14,598,872
$ 10,760,061
$ 24,026,825
—
1,088,062
(8,982,308)
348,840
(249,074)
22,007
10,006,962
4,696,772
(5,192,190)
(339,605)
269,205
2,637,645
(5,165,830)
(568,292)
(719,643)
Net cash provided by operating activities
6,804,392
19,954,007
20,479,910
INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing deposits—banking subsidiary
14,975,194
(29,725,025)
(251,681)
Purchase of securities available for sale
Increase in loans
Increase in due to subsidiaries, net
Decrease (Increase) in due from subsidiaries, net
Capital contributed to subsidiaries
(191,635)
—
49,457
—
(4,800,250)
933
—
—
1,709
—
—
66,318,091
(12,315,414)
(15,181,649)
—
Net cash provided by (used in) investing activities
14,833,016
16,612,100
(12,565,386)
FINANCING ACTIVITIES
Net (decrease) increase in commercial paper
Cash dividends paid on common shares
Proceeds from exercise of stock options
Purchase of treasury shares
(6,683,073)
(10,629,449)
12,199,978
(13,755,127)
(14,216,097)
(14,035,197)
798,117
1,338,013
2,701,565
(13,621,660)
(5,831,017)
(10,507,293)
Cash paid in lieu of fractional shares in connection with stock dividend/split
—
—
(25,113)
Net cash used in financing activities
(33,261,743)
(29,338,550)
(9,666,060)
Net (decrease) increase in cash and due from banks
Cash and due from banks—beginning of year
(11,624,335)
15,964,518
7,227,557
8,736,961
(1,751,536)
10,488,497
Cash and due from banks—end of year
$ 4,340,183
$ 15,964,518
$ 8,736,961
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
$ 3,493,180
$ 4,233,098
$ 3,057,648
2,082,983
3,175,881
15,305,000
P A G E 7 8
NOTE 24.
COMMITMENTS AND CONTINGENT LIABILITIES
Total rental expenses under cancelable and noncancelable leases for premises and equipment were $4,783,441, $4,833,664 and
$4,104,536 for the years ended December 31, 2007, 2006 and 2005, respectively, which are net of rental income for a sublease
of $192,777, $190,702 and $177,303 for the years ended December 31, 2007, 2006 and 2005, respectively.
The future minimum rental commitments as of December 31, 2007 under noncancelable leases follow:
Year(s)
2008
2009
2010
2011
2012
2013 and thereafter
Total
Rental
Commitments
$ 4,018,454
3,710,651
2,829,911
2,179,157
2,038,575
7,191,862
$21,968,610
Certain leases included above have escalation clauses and/or provide that the Company pay maintenance, electric, taxes and
other operating expenses applicable to the leased property.
In the normal course of business, there are various commitments and contingent liabilities outstanding which are properly
not recorded on the balance sheet. Management does not anticipate that losses, if any, as a result of these transactions would
materially affect the financial position of the Company.
Loan commitments, approximately 70% of which have an original maturity of one year or less, were approximately $50,551,000
as of December 31, 2007. These commitments are agreements to lend to a customer as long as the conditions established in the
contract are met. Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee. The total commitment amounts do not necessarily represent future cash requirements because some of the commitments
are expected to expire without being drawn upon. The bank evaluates each customer’s creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary, by the bank upon extension of credit is based on management’s credit
evaluation of the borrower. Collateral held varies but may include cash, U.S. Treasury and other marketable securities, accounts
receivable, inventory and property, plant and equipment.
Standby letters of credit and financial guarantees, substantially all of which are within the scope of FIN No. 45, are written
conditional commitments issued by the bank to guarantee the performance of a customer to a third party. At December 31, 2007,
these commitments totaled $40,215,687 of which $33,806,307 expire within one year and $6,409,380 within two years.
Approximately 84% of the commitments are automatically renewable for a period of one year. The credit risk involved in issu-
ing letters of credit is essentially the same as that involved in extending loan facilities to customers. The bank holds cash or cash
equivalents and marketable securities as collateral supporting those commitments for which collateral is deemed necessary. The
extent of collateral held for those commitments at December 31, 2007 ranged from 0% to 100%; the average amount collateral-
ized was approximately 91%.
In the normal course of business there are various legal proceedings pending against the Company. Management, after consulting
with counsel, is of the opinion that there should be no material liability with respect to such proceedings, and accordingly no
provision has been made in the accompanying consolidated financial statements.
P A G E 7 9
NOTE 25.
QUARTERLY DATA (UNAUDITED)
2007 Quarter
Mar 31
Jun 30
Sept 30
Dec 31
Total interest income[1]
Total interest expense[1]
Net interest income[1]
Provision for loan losses[1]
Net securities (losses)/gains[1]
Noninterest income, excluding securities gains[1]
Noninterest expenses[1]
Income from continuing operations, net of tax
(Loss)/income from discontinued operations, net of tax
Net income
Income from continuing operations, net of tax,
per average common share:
Basic
Diluted
Net income per average common share:
Basic
Diluted
Common stock closing price:
High
Low
Quarter-end
$ 29,106,448
$ 29,925,842
$ 31,242,792
$ 31,176,879
11,603,823
17,502,625
1,250,000
—
9,229,296
19,683,750
3,571,673
(91,971)
3,479,702
11,720,140
18,205,702
1,078,332
(2,001)
9,053,512
20,228,031
3,791,438
71,252
3,862,690
12,142,153
19,100,639
2,125,000
(1,075)
7,813,099
19,421,788
3,841,057
(774,315)
3,066,742
0.19
0.19
0.19
0.18
19.75
17.55
18.10
0.21
0.20
0.21
0.20
18.15
15.24
16.03
0.21
0.21
0.17
0.17
16.12
13.65
14.00
12,093,853
19,083,026
1,399,998
191,442
9,439,584
20,474,939
4,189,738
—
4,189,738
0.24
0.23
0.24
0.23
15.15
11.81
13.64
2006 Quarter
Mar 31
Jun 30
Sept 30
Dec 31
$ 27,395,380
$ 29,174,078
$ 29,767,237
$ 30,249,425
Total interest income[1]
Total interest expense[1]
Net interest income[1]
Provision for loan losses[1]
Net securities (losses)/gains[1]
Noninterest income, excluding securities gains[1]
Noninterest expenses[1]
Income from continuing operations, net of tax
(Loss)/income from discontinued operations, net of tax
(Loss)/income on sale of discontinued operations, net of tax
9,001,723
18,393,657
1,365,000
(459,497)
6,244,350
18,522,352
6,484,892
(44,759)
—
10,043,086
19,130,992
377,229
14,866
8,990,840
18,805,582
5,382,291
(516,806)
—
Net income/(loss)
6,440,133
4,865,485
Income from continuing operations, net of tax,
per average common share:
Basic
Diluted
Net income (loss) per average common share:
Basic
Diluted
Common stock closing price:
High
Low
Quarter-end
[1] Continuing operations.
0.29
0.28
0.26
0.25
21.09
17.48
19.50
0.34
0.33
0.34
0.33
23.15
18.74
20.60
P A G E 8 0
11,275,605
18,491,632
1,510,367
—
9,250,995
19,455,237
5,021,566
150,752
(9,604,166)
(4,431,848)
0.27
0.27
(0.23)
(0.23)
21.14
18.14
19.66
11,701,040
18,548,385
1,250,000
1,514
9,615,261
20,571,695
4,109,976
(192,940)
(30,745)
3,886,291
0.22
0.21
0.20
0.20
19.82
18.55
19.70
NOTE 26.
ADOPTION OF SAB 108
The Company adopted SEC SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements
in Current Year Financial Statements, effective during the year ended December 31, 2006. Under SAB No. 108, the cumulative
effect of immaterial misstatements originating in prior years that, if adjusted in the current year, would be immaterial to the
current year financial statements should be reported in the carrying amounts of assets and liabilities as of the beginning of the
current year, and the offsetting adjustment should be made to the opening balance of retained earnings for the current year.
Accordingly, in the fourth quarter of 2006, the Company recorded a cumulative effect adjustment, relating to operating leases,
of $(589,329) to the beginning balance of retained earnings for 2006. Management considered the prior year misstatements,
which have been corrected through the cumulative effect adjustment, as immaterial based on management’s historical practice
of evaluating such misstatements.
The Company’s previous accounting treatment for recognizing occupancy expense related to operating leases arose at the incep-
tion of these leases in 1997. Previously, the Company recorded occupancy expense based on contractual amounts and the tim-
ing of actual payments. The Company revised its accounting for operating leases to recognize occupancy expense on a
straight-line basis over the lease term, which included certain periods during which facilities were under construction. This
accounting treatment is in accordance with SFAS No. 13, Accounting for Leases, and related interpretations. The cumulative
effect adjustment resulted in increases at January 1, 2006 of $1,074,241 to deferred rent liability (in other liabilities) and
$484,912 to deferred tax assets (in other assets).
P A G E 8 1
R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M
The Shareholders and Board of Directors
Sterling Bancorp:
We have audited the accompanying consolidated balance sheets of Sterling Bancorp and subsidiaries as of December 31, 2007 and
2006, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2007, and the consolidated statements of condition of Sterling
National Bank and subsidiaries as of December 31, 2007 and 2006. These consolidated financial statements are the responsibil-
ity of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Sterling Bancorp and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2007, and the financial position of Sterling National Bank and
subsidiaries as of December 31, 2007 and 2006, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 26 to the consolidated financial statements, in 2006 the Company adopted SEC Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Sterling Bancorp and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria estab-
lished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 14, 2008, expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
New York, New York
March 14, 2008
P A G E 8 2
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
As required under the Securities Exchange Act of 1934, the
Company’s management, with the participation of the Com-
pany’s principal executive and principal financial officers,
evaluated the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this
annual report on Form 10-K. Based on this evaluation the
Company’s management, including the Chief Executive
Officer and Chief Financial Officer, concluded that, as of
December 31, 2007, the Company’s disclosure controls and
procedures were effective to ensure that information required
to be disclosed by the Company in reports that it files or sub-
mits under the Exchange Act is recorded, processed, summa-
rized and reported within the time periods specified in SEC
rules and forms.
(b) Management’s annual report on internal control over
financial reporting
The management of the Company is responsible for establish-
ing and maintaining adequate internal control over financial
reporting. The Company’s internal control system was
designed to provide reasonable assurance to the Company’s
management and Board of Directors regarding the prepara-
tion and fair presentation of published financial statements.
Any system of internal control, no matter how well designed,
has inherent limitations, including the possibility that a con-
trol can be circumvented or overridden and misstatements
due to error or fraud may occur and not be detected. Also,
because of changes in conditions, internal control effective-
ness may vary over time. Accordingly, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changed
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
The management of the Company assessed the effectiveness
of the Company’s internal control over financial reporting as
of December 31, 2007. In making its assessment of internal
control over financial reporting, management used the crite-
ria issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control—
Integrated Framework. Based on this assessment, the
Company’s management concluded that, as of December 31,
2007, the Company’s internal control over financial report-
ing is effective.
P A G E 8 3
(c) Report of independent registered public accounting firm
The Shareholders and Board of Directors
Sterling Bancorp:
We have audited Sterling Bancorp and subsidiaries’ (the “Company”) internal control over financial reporting as of December
31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying management’s annual report over financial reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other proce-
dures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reli-
ability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispo-
sitions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expendi-
tures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
P A G E 8 4
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
consolidated balance sheets of Sterling Bancorp and subsidiaries as of December 31, 2007 and 2006, and the related consoli-
dated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2007, and the consolidated statements of condition of Sterling National Bank and sub-
sidiaries as of December 31, 2007 and 2006, and our report dated March 14, 2008 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
New York, New York
March 14, 2008
P A G E 8 5
(d) Changes in internal control over financial reporting
No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934) occurred during the fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
P A G E 8 6
P A R T I I I
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure on page
17 at the end of Part I of this report. The other information required by Item 10 will be in the parent company’s definitive proxy
statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after December 31,
2007 and is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be in the parent company’s definitive proxy statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 within 120 days after December 31, 2007 and is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See the information appearing in Note 16 of the Company’s consolidated financial statements beginning on page 65.
The following table provides information as of December 31, 2007, regarding securities issued to all of the Company’s
employees under equity compensation plans that were in effect during the fiscal year ended December 31, 2007, and other
equity compensation plan information.
EQUITY COMPENSATION PLAN INFORMATION
Plan Category
Number of Securities
to be Issued
upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available
for Future Issuance under
Equity Compensation
Plans (excluding
securities reflected
in column (a))
(c)
Equity Compensation Plans approved by security holders
1,764,690
Equity Compensation Plans not approved by security holders
—
TOTAL
1,764,690
$12.35
—
$12.35
458,533
—
458,533
The other information required by Item 12 will be in the parent company’s definitive proxy statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 within 120 days after December 31, 2007 and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 will be in the parent company’s definitive proxy statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 within 120 days after December 31, 2007 and is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 will be in the parent company’s definitive proxy statement to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934 within 120 days after December 31, 2007 and is incorporated by reference.
P A G E 8 7
P A R T I V
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
10.
SCHEDULES
(a) The documents filed as a part of this report are listed
below:
1. Financial Statements
Sterling Bancorp
Consolidated Balance Sheets as of December 31, 2007
and 2006
Consolidated Statements of Income for the Years Ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Comprehensive Income for
the Years Ended December 31, 2007, 2006 and 2005
Consolidated Statements of Changes in Shareholders’
Equity for the Years Ended December 31, 2007, 2006
and 2005
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2007, 2006 and 2005
Sterling National Bank
Consolidated Statements of Condition as of December 31,
2007 and 2006
2. Financial Statement Schedules
None
3. Exhibits
3.
(i) Restated Certificate of Incorporation filed
with the State of New York Department of
State, October 28, 2004 (Filed as Exhibit 3(i)
to the Registrant’s Form 10-Q for the quarter
ended September 30, 2004 and incorporated
herein by reference).
4.
(ii) By-Laws as in effect on November 15, 2007
(Filed as Exhibit 3(ii) to the Registrant’s
Form 8-K dated November 15, 2007 and
filed on November 19, 2007 and incorpo-
rated herein by reference).
(a) Pursuant to Regulation S-K, Item 601(b)(4)
(iii)(A), no instrument which defines the
rights of holders of long-term debt of the
Registrant or any of its consolidated sub-
sidiaries is filed herewith. Pursuant to this
regulation, the Registrant hereby agrees to
furnish a copy of any such instrument to the
SEC upon request.
(b) Shareholder Protection Rights Agreement,
dated as of May 21, 1998, between the
Registrant and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent (Filed as
Exhibit 4.1 to the Registrant’s Form 8-A
dated June 15, 1998 and incorporated herein
by reference).
P A G E 8 8
(i)(A) Sterling Bancorp Stock Incentive Plan
(Amended and Restated as of May 20, 2004)
(Filed as Exhibit 10 to the Registrant’s Form
10-Q for the quarter ended September 30,
2004 and incorporated herein by reference).
(i)(B) Form of Award Letter for Non-Employee
Directors (Filed as Exhibit 10 to the Reg-
istrant’s Form 10-Q for the quarter ended
September 30, 2004 and incorporated herein
by reference).
(i)(C) Form of Award Letter for Officers (Filed as
Exhibit 10 to the Registrant’s Form 10-Q for
the quarter ended September 30, 2004 and
incorporated herein by reference).
(i)(D) Form of Nonqualified Stock Option Award
(Filed as Exhibit 10(A) to the Registrant’s
Form 8-K dated March 18, 2005 and filed on
March 24, 2005 and incorporated herein by
reference).
(i)(E) Form of Award Letter for Officers.
(ii)(A) Sterling Bancorp Key Executive Incentive
Bonus Plan (Filed as Exhibit C to the Reg-
is trant’s definitive Proxy Statement, dated
March 13, 2001, filed on March 16, 2001
and incorporated herein by reference).
(iii)(A) A mended and Restated Employment
Agreements dated March 22, 2002 for Louis
J. Cappelli and John C. Millman (Filed as
Exhibits 10(i)(a) and 10(i)(b), respectively, to
the Reg istrant’s Form 10-Q for the quarter
ended March 31, 2002 and incorporated by
reference herein).
(iii)(B) Amendments to Employment Agreements
dated February 26, 2003 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
3.10(xiv)(a) and 3.10(xiv)(b), respectively, to
the Registrant’s Form 10-K for the fiscal year
ended December 31, 2002 and incorporated
herein by reference).
(iii)(C) Amendments to Employment Agreements
dated February 24, 2004 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(xv)(a) and 10(xv)(b), respectively, to the
Registrant’s Form 10-K dated December 31,
2003 and filed on March 12, 2004 and
incorporated herein by reference).
(iv)(C) Form of Change of Control Severance Agree-
ment dated April 3, 2002 entered into between
the Registrant and one executive (Filed as
Exhibit 10(i) to the Registrant’s Form 10-Q
for the quarter ended June 30, 2002 and
incorporated herein by reference).
(iv)(D) Form of Change of Control Severance Agree-
ment dated June 8, 2004 entered into between
the Registrant and one executive (Filed as
Exhibit 10(i) to the Registrant’s Form 10-Q
for the quarter ended June 30, 2004 and
incorporated herein by reference).
(iv)(E) Form of Change of Control Severance and
Retention Agreement, dated as of November 7,
2006, entered into between the Registrant
and one officer (filed as Exhibit 10 to the
Registrant’s Form 10-Q for the quarter ended
September 30, 2006 and incorporated herein
by reference).
(iv)(F) Form of Change of Control Severance and
Retention Agreement, dated as of September 7,
2006, entered into between the Registrant
and one officer.
Statement re: Computation of Per Share
Earnings.
Statement re: Computation of Ratios.
Subsidiaries of the Registrant.
Consent of KPMG LLP Independent Regis-
tered Public Accounting Firm.
Rule 13a-14(a) Certifications.
Section 1350 Certifications.
11.
12.
21.
23.
31.
32.
(iii)(D) Amendments to Employment Agreements
dated March 18, 2005 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits 10(B)
and 10(C), respectively, to the Registrant’s
Form 8-K dated March 18, 2005 and filed on
March 24, 2005 and incorporated herein by
reference).
(iii)(E) Amendments to Employment Agreements
dated March 18, 2006 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(iii)(E)(a) and 10(iii)(E)(b), respectively, to
the Registrant’s Form 10-K for the fiscal year
ended December 31, 2005 and incorporated
herein by reference).
(iii)(F) Amendments to Employment Agreements
dated March 15, 2007 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(iii)(F)(a) and 10(iii)(F)(b), respectively, to
the Registrant’s Form 10-K for the fiscal
year ended December 31, 2006 and incorpo-
rated herein by reference).
(iii)(G) Amendments to Employment Agreements
dated March 13, 2008:
(a) For Louis J. Cappelli
(b) For John C. Millman
(iv)(A) Form of Change of Control Severance Agree-
ment entered into May 21, 1999 between the
Registrant and each of six executives (Filed as
Exhibit 10(ii) to the Registrant’s Form 10-Q
for the quarter ended June 30, 1999 and
incorporated herein by reference).
(iv)(B) Amendment to Form of Change of Control
Severance Agreement dated February 6, 2002
entered into between the Registrant and each
of four executives (Filed as Exhibit 10(ii) to
the Registrant’s Form 10-Q for the quarter
ended March 31, 2002 and incorporated
herein by reference).
P A G E 8 9
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STERLING BANCORP
/s/ Louis J. Cappelli
Louis J. Cappelli, Chairman and Chief Executive Officer
(Principal Executive Officer)
March 14, 2008
Date
/s/ John W. Tietjen
John W. Tietjen, Executive Vice President
(Principal Financial and Accounting Officer)
March 14, 2008
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated:
March 14, 2008
(Date)
March 14, 2008
(Date)
March 14, 2008
(Date)
March 14, 2008
(Date)
March 14, 2008
(Date)
March 14, 2008
(Date)
March 14, 2008
(Date)
/s/ Louis J. Cappelli
Louis J. Cappelli
Director, Chairman and
Chief Executive Officer
(Principal Executive Officer)
/s/ John W. Tietjen
John W. Tietjen
Executive Vice President
(Principal Financial and Accounting Officer)
/s/ John C. Millman
John C. Millman
Director
/s/ Joseph M. Adamko
Joseph M. Adamko
Director
/s/ Walter Feldesman
Walter Feldesman
Director
/s/ Henry J. Humphreys
Henry J. Humphreys
Director
/s/ Eugene T. Rossides
Eugene T. Rossides
Director
P A G E 9 0
STERLING BANCORP
STERLING NATIONAL BANK
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www.sterlingbancorp.com
STERLING BANCORP
STERLING NATIONAL BANK
650 Fifth Avenue
New York, NY 10019-6108