Sterling Bancorp
Sterling national Bank
2011 ANNuAl RepoRt
St r e ngt h. P er for m a nc e. oPP ort u nit y.
Sterling National Bank branch located at 622 third Avenue, New York, New York.
Co R p o R At e p Ro F I l e
Sterling Bancorp (NYSE: STL) is a New York City-based financial corporation with assets of $2.5 billion.
Since 1929, Sterling National Bank, the Company’s principal banking subsidiary, has successfully
served the needs of businesses, professionals and individuals in the NY metropolitan area and beyond.
Sterling is well-known for its high-touch, hands-on approach to customer service and a special focus on
serving the business community.
Sterling provides clients with a full range of depository and cash management services and a broad
portfolio of financing solutions—including working capital lines, accounts receivable and inventory
financing, factoring, trade financing, payroll funding and processing, equipment financing, commercial
and residential mortgages and mortgage warehouse lines of credit.
A M E SS AG E FRO M O U R CH A I R M A N A N D P R E SI D EN T
Strength, performance and opportunity are the key factors that powered Sterling’s
progress in 2011—and are driving our prospects for the future. During the past year,
we demonstrated strength by significantly increasing profits and expanding our capital
foundation. Our results were distinguished by solid performance, reflected in growth
Sterling has grown and prospered through volatile market
cycles due to strategic plans that have positioned the Company well for the
challenges and opportunities of a changing financial landscape.
across virtually every area of the business and sound asset quality. We continued to build
on the opportunity presented by our focused business strategy and reputation for provid-
ing exceptional service in a dynamic market: the New York metropolitan area and beyond.
billion
Business Growth and Capital Strength
Sterling experienced robust growth in 2011, as our longtime commitment to meeting the
financial needs of our clients and customers led to expanding relationships and market
share gains. Loans in portfolio rose 12% from the prior year to nearly $1.5 billion. Our loan
volume benefitted from solid demand for our range of financial products and services,
including our traditional offerings as well as our more recently introduced mortgage
warehouse finance product. Deposits grew 14% to about $2.0 billion, largely reflecting
million
million
the growth in our business relationships. Noninterest-bearing demand deposits, a cost-
effective funding source, increased significantly and represented 39% of total deposits
at year-end. Total assets increased 6% and approached $2.5 billion.
To further fortify our capital base to support continued growth, we completed a success-
ful common stock offering in March 2011, bringing the total gross proceeds raised during
the past two years to approximately $108 million. As a result of these common stock
offerings and our retention of earnings, we fully redeemed the TARP preferred shares and
warrants while maintaining capital in excess of the regulatory “well capitalized” standards.
Financial Performance
Our growing volume of business with existing and new clients, balanced and diversified
income sources and improved asset quality contributed to a strong increase in earnings
for 2011. Net income available to common shareholders more than tripled as compared
to the prior year, to $15.5 million. Net income available to common shareholders per
diluted share increased to $0.51 from $0.18, with the 2011 per share amount reflecting
a higher share count due to the common stock offerings.
1
Sterling’s 2011 results reflected several positive factors. Our double-digit loan growth
drove an increase in net interest income and higher fee income from accounts receivable
management and other related activities. Funding costs were well managed, also contrib-
uting to the higher net interest income. We continued to manage expenses effectively,
resulting in only a 3% increase in noninterest expense compared to the previous year,
while at the same time growing our business. Also, the provision for loan losses decreased,
reflecting improved credit metrics.
Positioned for Opportunity
Sterling has grown and prospered through volatile market cycles due to strategic
plans that have positioned the Company well for the challenges and opportunities of
a changing financial landscape. Our business banking model, breadth of products, and
commitment to client satisfaction are vital elements of our market positioning.
Sterling’s rock-solid commitment to our market has led
directly to new customer relationships and expanded business with existing clients.
2
A future of opportunity.
From our founding in 1929, we have been focused on serving the New York metropolitan
market and beyond. This is an exceptionally attractive, dynamic and resilient market.
Simply stated, we believe it is the best banking market in the country. The region is home
to hundreds of thousands of small to midsized businesses, creating strong demand for
our financial products and services.
Another advantage we enjoy in capturing growth opportunities is our business banking
strategy, designed to serve small to midsized businesses and their owners and employees,
among others. Our products and services, and particularly our corporate culture, are
closely aligned with the needs of this market. We continue to expand our capacity to
serve our market by augmenting our business development teams. Sterling’s rock-solid
commitment to our market has led directly to new customer relationships and expanded
business with existing clients.
Our unparalleled commitment to attentive, hands-on service—delivered by a talented and
dedicated team of professionals—is another factor in our ability to capitalize on opportu-
nities. Clients and prospects in our target segment often report they feel commoditized
and underserviced by other financial institutions and have found Sterling’s individualized
solutions and exceptional service a distinguishing strength and real competitive advantage.
Something as simple and courteous as personally answering telephone calls is emblematic
of Sterling’s dedication to delivering “high-touch” service and unfettered access to senior
decision-makers. Our customers readily refer prospects to Sterling, possibly the greatest
testament to their own level of satisfaction.
3
Pictured (forward-facing) left to right: Eliot S. Robinson, Executive Vice President; John C. Millman, President; Howard M.
Applebaum, Executive Vice President; Louis J. Cappelli, Chairman; Michael Bizenov, Executive Vice President; John W.
Tietjen, Executive Vice President; Dale C. Fredston, Executive Vice President.
Continuing Momentum
Sterling’s greatest opportunities still lie ahead of us. We are building our future on an
exceptionally strong base: an experienced and motivated team with a deep commitment
to exceptional service, a broad portfolio of financial solutions, the know-how that comes
from meeting the needs of our marketplace for decades, and the capital and liquidity to
support our growth.
We thank our clients and shareholders for their confidence, our Board of Directors for
their sound judgment, and our team of banking professionals for their talent and energy.
We are translating our strength, performance and opportunity into continued profitable
growth and increasing shareholder value.
Sincerely,
Louis J. Cappelli
Chairman and
Chief Executive Officer
John C. Millman
President
4
B o ard of D ire c to r s
Hon. Robert Abrams
Member, Stroock & Stroock & Lavan LLP;
former Attorney General of the
State of New York
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
Hon. Fernando Ferrer
Partner, Mercury Public Affairs, LLC;
Co-Chairman, IGR Group;
former Bronx Borough President
Sterling Banco r p O f ficer s
Dr. Allan F. Hershfield
President, Resources for the 21st Century;
former President of
Fashion Institute of Technology
Henry J. Humphreys
Sovereign Military Order of Malta:
Counselor-Permanent Observer
(Mission to the United Nations);
former Chancellor and Chief Operating Officer
(American Association)
Robert W. Lazar
Senior Advisor, Teal, Becker & Chiaramonte,
CPA’s, PC; and Chair, University at Albany
School of Business Advisory Board, former
Senior Advisor, Independent Bankers
Association of New York State, and former
President/Chief Executive Officer of New York
Business Development Corporation
Carolyn Joy Lee
Partner at Jones Day; former Chair of the
Tax Section of the New York State Bar
Association; former Chair of the State and
Local Tax Committee of the New York City Bar
John C. Millman
President of the Company;
President and Chief Executive Officer
of Sterling National Bank
Hon. Eugene T. Rossides
Former Assistant Secretary,
United States Treasury Department;
Retired Senior Partner, Rogers & Wells LLP
(now Clifford Chance US LLP)
Honorary Director
Walter Feldesman
Louis J. Cappelli
Chairman of the Board and
Chief Executive Officer
John W. Tietjen
Executive Vice President and
Chief Financial Officer
Dale C. Fredston
Senior Vice President and
General Counsel
Debra A. Ashton
Corporate Secretary
John C. Millman
President
Howard M. Applebaum
Senior Vice President
Seth H. Ugelow
Senior Vice President and
Controller
Sterling N ati o nal Bank O f fice s
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) 490-9813
42 Broadway, 4th Floor
New York, NY 10004-1617
(212) 356-6501
30-30 47th Avenue
Long Island City, NY 11101-3450
(718) 383-6012
310 Crossways Park Drive
Woodbury, NY 11797-2016
(516) 682-8410
31 West 27th Street, 7th Floor
New York, NY 10004-1617
(212) 935-5790
1 Executive Boulevard
Yonkers, NY 10701-6822
(914) 964-5252
5
Sterling N ati o nal Bank O f ficer s
Louis J. Cappelli
Chairman
John C. Millman
President and Chief Executive Officer
Executive Vice Presidents
Howard M. Applebaum
Michael Bizenov
Dale C. Fredston
Eliot S. Robinson
John W. Tietjen
Senior Vice Presidents
Kenneth E. Cohen
Joseph Costanza
John Fitzpatrick
Jeffrey S. Fliegel
John C. Gallo
Jesse D. Honigberg
Patricia E. Hrotko
Leonard M. Imperiale
Benjamin S. Katz
Neal B. Krumper
John P. La Lota
Stephen M. Leavenworth
Monica S. Lercher
Anthony V. Migliorino
Wayne G. Miller
David Minder
Samuel T. Nicoletti
Robert Nisi
Steven A. Orenstein
Patricia Robins
Leonard Rudolph
Michael J. Scheller
Keith Smith
Mindy F. Stern
Gayle A. Surak
Seth H. Ugelow
Michael Vasami
Divisional Officers and First Vice Presidents
Jennifer N. DeModna
Harry S. Feder
Thomas M. Frankel
Marie Giunto
Anthony M. Grosso
Mary Guitard
Qasim Hanafi*
Steven Hebert
Richard W. Karras*
Gregory S. Keramis^
Kim Kuhlman*
Connie M. Leardi
Kenneth A. Lee
Charles I. Derr
Joseph DeVito
Daniel J. Doody
Dawn Eastman
Marilena Eatman
Bruce D. Ferguson
Ronald Ferraro
Richard L. Friedman
Craig B. Galletto
Helen Galpin
Peter E. Gardner
James H. Garnets
Steven A. Georgeson
David M. Hammond
Michael E. Hawkins
Gail Heldke
Rosemarie Henry
John J. Howe
David C. Johnson
Kevin Johnson
Paulette F. Johnson
Sheila Kashkin
Jeffrey A. Kelly
Mary Jane Lerias
Mary Anne E. Lindenbaum
Michael J. Madeo
Murray R. Markowitz
Riki I. McBride
Francisco A. Merced-Cancel
Deborah Montemarano*
Michael D. Moran*
Edward Nugent
Richard K. Orr^
Eddie Othman
John R. O’Toole
Angel Quinones
Edward Robinson
John R. Rosado
Charles Ross
Robert A. Schnitzer
Karen Schoenfeld*
Norman Scott
Paul Seidenwar
Yvonne V. Shand
Gene Sica*
Lloyd J. Streisand*
Vivian Tarnowski
^Division EVP
*Division SVP
Richard J. Kruse
Jorge LaCourt
Peter J. La Monica
Janie Leung
Carol R. Lieber
Winter Ma
Joseph Mallozzi
Thomas Martingale
Kathleen L. McEntee
Ryan P. McGinnis
John G. McGraw
Joann Medeiros
Mireya E. Mera
Michelle D. Mishaw
Robert J. Mocerino
Patricia O. Mungo
Janet Neman
Robert E. Nuytkens
Gregory V. Pellitteri
Diana M. Principe
Frank R. Reda
Barbara A. Riordan
Anna M. Roina
Rocco J. Russo
Michael Samuels
Idalia Sanchez
John A. Saraniti
Eric Schachter
Christopher J. Scola
Peter Sforzo
Jacqueline Shirian
Maribel Simancas
Wing K. Siu
Albert C. Snyder
Aimee R. Spennato
Andrew M. Spitz
Barrett S. Stokes
Michelle Tawdeen
Carol A. Taylor
Frank Tumbarello
Petros Vlitas
Debra Washington
Mary S. Winfield
Joanne L. Wong
Martin K. Zalewski
Edward Zekraus
Sadia Affrin
Denice Aloi-McConnell
Ronald J. Bongiovanni
Leszek K. Borysiak
Thomas M. Braunstein
William H. Breitman
Paula Cappello
Patricia Cavallaro
Louis Cenname
Anthony J. Colao*
Salvatore F. Costa
Francis L. DeFranco*
Adam E. Dejak
Dawn E. DeLuca
Vice Presidents
Michael Aglialoro
Lidia L. Alarcon
Cristian Anghel
Gennaro Anzalone
Debra A. Ashton
Fabian A. Atocha
Darlene S. Barzilay
Michelle Bascetta
Shepherd Baum
Christine M. Bentley
Todd P. Brown
Robert Capalbo
Jack Chan
Joseph L. Civitella
Paul A. Colontino
Lisa Conner
Andrea P. Contreras
Ildiko A. Csuma
Anthony Daddezio
Renu Dalessandro
Norka Del Rios
Jordana M. DelVecchio
Barbara DeMarco
6
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, 2011
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
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). 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 [
]
] No [✓]
On June 30, 2011, the aggregate market value of the common equity held by non-affiliates of the Registrant was $279,253,917.
The Registrant has one class of common shares, of which 30,924,832 shares were outstanding at February 23, 2012.
(1) Portions of Sterling Bancorp’s definitive Proxy Statement to be filed pursuant to Regulation 14A are incorporated by reference
in Part III.
documentS incorPorated bY reference
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. MINE SAFETY DISCLOSURES
Item 4A. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER 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 ACCOUNTANT FEES AND SERVICES
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
SIGNATURES
Exhibits Submitted in a Separate Volume.
Page
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P A R T I
item 1. bu SineSS
The disclosures set forth in this item are qualified by ITem
1A. RIsk FAcToRs on pages 15–26 and the section cap-
tioned “FoRwARd-LookIng sTAT emenTs A nd
FAcToRs ThAT couLd AFFecT FuTuRe ResuLTs”
on page 30 and other cautionary statements set forth else-
where 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
consolidated subsidiaries, while the terms the “parent com-
pany” or the “Registrant” refer to Sterling Bancorp but not
its subsidiaries. The Company has operations in the New
York metropolitan area 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 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. The operations of SNMC, Factors and Resource
Funding were merged into the bank as of July 1, 2011,
October 1, 2011 and January 1, 2012, respectively. These
actions were taken to simplify marketing and business devel-
opment efforts, present a unified service offering to custom-
ers and streamline organizational structure. Also, as of
January 26, 2012, business activities of Trade Services ceased
and the subsidiary was liquidated and its activities were con-
solidated into the bank.
Although Sterling Bancorp is a corporate entity, legally sepa-
rate and distinct from its affiliates, bank holding companies
such as Sterling Bancorp are generally required to act as a source
of financial strength for their subsidiary banks. The principal
source of Sterling Bancorp’s income is dividends from its subsid-
iaries. There are certain regulatory restrictions on the extent
to which these subsidiaries can pay dividends or otherwise
supply funds to Sterling Bancorp. See the section captioned
“SUPERVISION AND REGULATION” for further discus-
sion of these matters.
On April 3, 2009, Factors, a subsidiary of the bank, acquired
substantially all of the assets and customer lists of DCD
Capital, LLC and DCD Trade Services, LLC. The acquired
assets and customer lists are now operating as a division of
Factors under the name Sterling Trade Capital.
In September 2006, the Company sold the business conducted
by Sterling Financial Services (“Sterling Financial”). In accord-
ance with U.S. GAAP, the assets, liabilities and earnings/loss of
the business conducted by Sterling Financial have been shown
separately as discontinued operations.
For purposes of the following discussion, average balances,
averages rates, income and expenses associated with Sterling
Financial have been excluded from continuing operations and
reported separately for all periods presented.
During the latter half of 2011, the Company combined its
operating segments into one reportable segment, “Community
Banking.” All of the Company’s activities are interrelated,
and each activity is dependent and assessed based on the
manner in which it supports the other activities of the
Company. For example, lending is dependent upon the ability
of the bank to fund itself with retail deposits and other bor-
rowings and to manage interest rate and credit risk.
Accordingly, all significant operating decisions are based
upon analysis of the Company as one operating segment or
unit. The Company derives a substantial portion of its reve-
nue and income from providing banking and related financial
services and products to customers located primarily in the
New York metropolitan area. The financial information in
this report reflects the single segment through which the
Company conducts its business.
buSineSS o PerationS
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 the
other 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, residential mortgage warehouse fund-
ing, factoring/accounts receivable management services,
equipment financing, commercial and resi dential mortgage
lending and brokerage, deposit services, and trade financing.
p a g e 1
For the year ended December 31, 2011, the bank’s average
earning assets represented approximately 98.9% of the
Company’s average earning assets. Loans represented 59.8%
and investment securities represented 35.7% of the bank’s
average earning assets in 2011.
commercial Lending, Asset-Based Financing, Residential
mortgage warehouse Funding, and Factoring/Accounts
Receivable management. The bank provides loans to small
and medium-sized businesses. The businesses are diversified
across industries, including commercial, industrial and finan-
cial companies, and government and non-profit entities.
Loans generally range in size up to $20 million and 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.
The bank provides financing and human resource business
process outsourcing support services, exclusively for the tem-
porary staffing industry. The bank provides full back-office,
computer, tax and accounting services, as well as financing,
to independently-owned staffing companies located through-
out the United States. The average contract term is 18 months
for approximately 200 staffing companies.
The bank offers residential mortgage warehouse funding
services to mortgage bankers. Such funding consists of a line
of credit (a “warehouse line”) used by the mortgage banker as
a form of temporary financing during the period between
the closing of a mortgage loan until its sale into the second-
ary market, which period typically lasts from 15 to 30 days.
The bank provides warehouse lines in amounts ranging from
$5 million to $20 million to an approved client base, which
as of December 31, 2011, consisted of approximately 15
mortgage bankers operating nationally. The warehouse lines
are secured by high quality first mortgage loans, which
include conventional FannieMae and FreddieMac, jumbo and
FHA loans.
The bank provides accounts receivable management services.
The purchase of a client’s accounts receivable is traditionally
known as “factoring” 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 pro-
vided and, if applicable, its credit review of the client’s cus-
tomer and assumption of customer credit risk. When the
bank “factors” (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 lia-
bility for the funds due to the client (included in “noninterest-
bearing demand deposits”) and credits to noninterest income
the nonrefundable factoring fee (included in “Accounts
receivable management/factoring commissions and other
fees”). The bank also may advance funds to its client prior to
the collection of receivables, charging interest on such
advances (in addition to any factoring fees) and normally sat-
isfying such advances by the collection of receivables. The
accounts receivable factored are primarily for clients engaged
in the apparel and textile industries.
As of December 31, 2011, the outstanding loan balance (net of
unearned discounts) for commercial and industrial lending,
asset-based financing, residential mortgage warehouse fund-
ing and factored receivables was $1,042.5 million, represent-
ing approximately 68.5% of the bank’s total loan portfolio.
There are no industry concentrations in the commercial and
industrial loan portfolio that exceed 10% of gross loans.
Approximately 68% of the bank’s loans are to borrowers
located in the New York metropolitan area. The bank has no
foreign loans.
equipment Financing. The bank offers equipment financing
services in the New York metropolitan area and across the
United States through direct leasing programs, third-party
sources and vendor programs. The bank finances full payout
leases for various types of business equipment, written on a
recourse basis—with personal guarantees of the principals,
with terms generally ranging from 24 to 60 months. At
December 31, 2011, the outstanding balance (net of unearned
discounts) for equipment financing receivables was $150.8
million, with a remaining average term of 35 months, repre-
senting approximately 9.9% 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, multi-family residential
properties and nonresidential commercial properties. The
residential mortgage banking and brokerage business is con-
ducted through offices located principally in New York.
Residential mortgage loans, substantially all of which are for
single-family residences, are focused on conforming credit,
government insured FHA and other high-quality loan products
and are originated primarily in the New York metropolitan
area, Virginia and other mid-Atlantic states, almost all of these
for resale. In addition, the Company retains in portfolio fixed
and floating rate residential mortgage loans, primarily on
properties located in the New York metropolitan area, which
were originated by its mortgage banking subsidiary. Commercial
real estate lending, including financing on multi-family
p a g e 2
residential properties and nonresidential commercial proper-
ties, is offered on income-producing investor properties and
owner-occupied properties, professional co-ops and condos.
At December 31, 2011, the outstanding loan balance for real
estate mortgage loans was $299.4 million, representing
approximately 19.7% 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, negotiable order of with-
drawal (“NOW”) accounts, savings accounts, rent security
accounts, retirement accounts, and certificates of deposit.
The bank’s deposit services include account management and
information, disbursement, reconciliation, 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.
Trade Finance. Through its international division and inter-
national banking facility, 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 transactions, issuing letters of credit, processing
documentary collections and creating banker’s acceptances.
In addition, active bank account relationships are main-
tained with leading foreign banking institutions in major
financial centers.
Foreign activities of the Company are not considered to be
material with predominantly all revenues and assets attribut-
able to customers located in the United States. As of December
31, 2011, there were no loans to or deposits from customers
located outside the United States.
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
Noninterest income
Other
2011
2010
2009
52%
49%
48%
16
31
1
18
33
—
22
29
1
100% 100% 100%
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
associations, savings banks, finance companies, and credit
unions. Many of these competitors have substantially greater
resources and may have higher lending limits and provide a
wider array of banking services than the Company does. To a
limited extent, the Company also competes with other provid-
ers of financial services, such as money market mutual funds,
brokerage firms, consumer finance companies and insurance
companies. The Company generally competes on the basis of
level of customer service, responsiveness to customer needs,
availability and pricing of products, and geographic location.
SuP erViSion 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 and the Company.
It is intended only to briefly summarize some material provi-
sions. Changes in applicable law or regulation, and in their
interpretation and application by regulatory agencies, cannot
be predicted, but they may have a material effect on the busi-
ness and results of the Company.
The parent company is a bank holding company and a finan-
cial holding company under the BHCA and is subject to
supervision, examination and reporting requirements of the
Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”). Sterling is also subject to the dis-
closure and regulatory requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as administered by the
Securities and Exchange Commission (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.
At December 31, 2011, the Company had 515 full-time
equivalent employees, consisting of 240 officers and 275
supervisory and clerical employees. The bank considers its
relations with its employees to be satisfactory.
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
p a g e 3
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 require-
ments; and (f) dealings with officers, directors and affiliates.
Sterling Banking Corporation is subject to supervision and regu-
lation by the New York State Department of Financial Services
(formerly 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 5% or more 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 cer-
tain exceptions, from engaging in, or from acquiring 5% or
more of the voting stock of any company engaging in, activi-
ties other than (1) banking or managing or controlling banks,
(2) furnishing services to or performing services for their sub-
sidiaries, or (3) activities that the Federal Reserve Board has
determined to be so closely related to banking or managing
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.
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) the bank holding company and all of its deposi-
tory institution 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 “finan-
cial 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
may conduct, or acquire a company (other than a U.S. depos-
itory 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 United States Department
of the Treasury (the “U.S. Treasury”)), are incidental or comple-
men 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,
securities 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 company
that is engaged in non-banking activities. With certain excep-
tions, the Federal Reserve Board can only provide prior approval
to applications involving activities that it had previously deter-
mined, 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.”
p a g e 4
Dodd-Frank Act
On July 21, 2010, President Obama signed into law the
Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”). The Dodd-Frank Act has
resulted, and will continue to result, in sweeping changes in
the regulation of financial institutions aimed at strengthening
the sound operation of the financial services sector. The
Dodd-Frank Act’s provisions that have received the most pub-
lic attention generally have been those applying to or more
likely to affect larger institutions. However, it contains
numerous other provisions that affect all banks and bank
holding companies, identified below. The Dodd-Frank Act
includes provisions that, among other things:
• Centralize responsibility for consumer financial protec-
tion by creating a new agency, the Consumer Financial
Protection Bureau, responsible for implementing, examin-
ing and enforcing compliance with federal consumer pro-
tection laws.
• Restrict the preemption of state law by federal law and dis-
allow subsidiaries and affiliates of national banks, such as
the bank, from availing themselves of such preemption.
• Apply the same leverage and risk-based capital require-
ments that apply to insured depository institutions to most
bank holding companies.
• Require the OCC to seek to make its capital requirements
for national banks, such as Sterling National Bank, counter-
cyclical so that capital requirements increase in times of
economic expansion and decrease in times of economic
contraction.
• Require financial holding companies, such as the parent
company, to be well capitalized and well managed. Bank
holding companies and banks must also be both well capi-
talized and well managed in order to acquire banks located
outside their home state.
• Implement corporate governance revisions, including with
regard to executive compensation and proxy access by
shareholders, that apply to all public companies, not just
financial institutions.
• Make permanent the $250 thousand limit for federal deposit
insurance and increase the cash limit of Securities Investor
Protection Corporation protection from $100 thousand to
$250 thousand and provide unlimited federal deposit insur-
ance until December 31, 2012 for non-interest bearing
demand transaction accounts at all insured depository
institutions.
• Repeal the federal prohibitions on the payment of interest on
demand deposits, thereby permitting depository institutions
to pay interest on business transaction and other accounts.
• Prohibit banking entities from engaging in proprietary
trading or acquiring or retaining an interest in a private
equity or hedge fund (the “Volcker Rule”).
• Change the assessment base for federal deposit insurance
from the amount of insured deposits to consolidated assets
less tangible capital, eliminate the ceiling and the size of
the Deposit Insurance Fund (the “DIF”), and increase the
floor applicable to the size of the DIF.
• Increase the authority of the Federal Reserve to examine
the Company and its non-bank subsidiaries.
In October 2011, federal regulators proposed rules to imple-
ment the Volcker Rule that included an extensive request for
comments on the proposal, with a due date of February 13,
2012. The proposed rules are highly complex, and many
aspects of the Volcker Rule remain unclear. We are analyzing
how the proposed rules would affect us and, as proposed, do
not anticipate that the Volcker Rule will have a material effect
on the operations of the Company, as the Company does not
engage in the businesses prohibited by the Volcker Rule. The
Company may incur costs if it is required to adopt additional
policies and systems to ensure compliance with the Volcker
Rule, but any such costs are not expected to be material.
However, the full impact on us will not be known with cer-
tainty until the rules are finalized and we have designed and
implemented our compliance and related programs. The
Volcker Rule provisions are scheduled to take effect no later
than July 2012, and companies will be required to come into
compliance within two years after the effective date (subject to
possible extensions).
Some of these provisions may have the consequence of
increasing our expenses, decreasing our revenues, and changing
the activities in which we choose to engage. The environment
in which banking organizations will operate after the finan-
cial crisis, including legislative and regulatory changes affect-
ing capital, liquidity, supervision, permissible activities,
corporate governance and compensation, changes in fiscal
policy and steps to eliminate government support for banking
organizations, may have long-term effects on the business
model and profitability of banking organizations that cannot
now be foreseen. The specific impact of the Dodd-Frank Act
on our current activities or new financial activities we may con-
sider in the future, our financial performance and the markets
in which we operate will depend on the manner in which the
relevant agencies develop and implement the required rules and
the reaction of market participants to these regulatory develop-
ments. Many aspects of the Dodd-Frank Act are subject to rule-
making and will take effect over several years, making it difficult
to anticipate the overall financial impact on the Company, its
customers or the financial industry more generally. We will
continue to assess our business, risk management, and compli-
ance practices to conform to developments in the regulatory
environment.
p a g e 5
Payment of Dividends
The parent company depends for its cash requirements on
funds maintained or generated by its subsidiaries, principally
the bank.
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 while maintaining its
“well capitalized” status, as of December 31, 2011, the bank
could pay dividends of approximately $47.1 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 undercapital-
ized. 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. The
appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the
financial condition of a bank holding company or a bank that
the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The appropriate
federal regulatory authorities have indicated that paying divi-
dends that deplete a bank’s capital base to an inadequate level
would be an unsafe and unsound banking practice and that
banking organizations should generally pay dividends only
out of current operating earnings. In addition, in the current
financial and economic environment, the Federal Reserve
Board has indicated that bank holding companies should
carefully review their dividend policy and has discouraged
payment ratios that are at maximum allowable levels unless
both asset quality and capital are very strong.
those transactions to be on an arm’s-length basis. In general,
these regulations require that any “covered transactions”
between a subsidiary bank and its parent company or the non-
bank 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 sur-
plus. Further, loans and extensions of credit generally are
required to be secured by eligible collateral in specified
amounts. The Dodd-Frank Act significantly expanded the
coverage and scope of the limitations on affiliate transactions
within a banking organization including, for example, the
requirement that the 10% of capital limit on these transac-
tions apply to financial subsidiaries as well. “Covered trans-
actions” are defined by statute to include a loan or extension
of credit, as well as a purchase of securities issued by an affil-
iate, a purchase of assets (unless otherwise exempted by the
Federal Reserve Board) from the affiliate, certain derivative
transactions that create a credit exposure to an affiliate, the
acceptance of securities issued by the affiliate as collateral for
a loan, and the issuance of a guarantee, acceptance or letter
of credit on behalf of an affiliate.
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,
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.
Transactions with Affiliates
Federal laws strictly limit the ability of banks to engage in
transactions with their affiliates, including their bank holding
companies. Regulations promulgated by the Federal Reserve
Board limit the types and amounts of these transactions
(including loans due and extensions of credit from their U.S.
bank subsidiaries) that may take place and generally require
Capital Adequacy
As a bank holding company, the parent company is subject to
consolidated regulatory capital requirements administered by
the Federal Reserve Board. The bank is subject to similar
capital requirements administered by the OCC. The federal
regulatory authorities’ risk-based capital guidelines are based
upon the 1988 capital accord (“Basel I”) of the Basel
p a g e 6
Committee. The Basel Committee is a committee of central
banks and bank supervisors/regulators from the major indus-
trialized countries that develops broad policy guidelines for
use by each country’s supervisors in determining the supervi-
sory policies they apply. The requirements are intended to
ensure that banking organizations have adequate capital
given the risk levels of assets and off-balance sheet financial
instruments. Under the requirements, banking organizations
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 pur-
poses 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). Currently, Tier 1 capital includes
common equity, retained earnings, qualifying non-cumula-
tive perpetual preferred stock, minority interests in equity
accounts of consolidated subsidiaries, and, under existing
standards, a limited amount of qualifying trust preferred
securities, and qualifying cumulative perpetual preferred
stock at the holding company level, less goodwill, most
intangible assets and certain other assets.
• supplementary capital (Tier 2). Currently, Tier 2 capital
includes, among other things, perpetual preferred stock not
meeting the Tier 1 definition, qualifying mandatory con-
vertible debt securities, qualifying subordinated debt, and
allowances for loan and lease losses, subject to limitations.
The Dodd-Frank Act applies the same leverage and risk-based
capital requirements that apply to insured depository institu-
tions to bank holding companies such as the Company,
which, among other things as applied to the Company, going
forward will preclude the Company from including in Tier 1
capital trust preferred securities or cumulative preferred
stock, if any, issued on or after May 19, 2010 and to deduct,
over three years beginning January 1, 2013, all trust pre-
ferred securities (including trust preferred securities issued by
Sterling Bancorp Trust I) from the Company’s Tier 1 capital.
As of the date of this report the Company did not have any
trust preferred securities issued on or after May 19, 2010 or
any cumulative preferred stock outstanding.
As a bank holding company, the parent company is currently
required to maintain Tier 1 capital and “total capital” (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). National banks are required to maintain similar capi-
tal levels under capital adequacy guidelines. For a depository
institution 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. The elements currently com-
prising Tier 1 capital and Tier 2 capital and the minimum
Tier 1 capital and total capital ratios may in the future be
subject to change, as discussed in greater detail below.
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
bank regulatory agencies have encouraged banking organiza-
tions, including healthy, well-run banking organizations, to
operate with capital ratios substantially in excess of the stated
ratios required to maintain “well capitalized” status. This
has resulted from, among other things, current economic
conditions, the global financial crisis and the likelihood, as
described below, of increased formal capital requirements for
banking organizations. In light of the foregoing, the Company
and the bank expect that they will maintain capital ratios
substantially in excess of these ratios.
In 2004, the Basel Committee published a new capital accord
(“Basel II”) to replace Basel I. Basel II provides two approaches
for setting capital standards for credit risk—an internal rat-
ings-based approach tailored to individual institutions’ cir-
cumstances and a standardized approach that bases risk
weightings on external credit assessments to a much greater
extent than permitted in existing risk-based capital guide-
lines. Basel II also sets capital requirements for operational
risk and refines the existing capital requirements for market
risk exposures.
In the United States, regulators have required the advanced
approaches of Basel II to be implemented only by certain
large or internationally active banking organizations, or
“core banks”—defined as those with consolidated total assets
of $250 billion or more or consolidated on-balance sheet for-
eign exposures of $10 billion or more. Other U.S. banking
organizations can elect to adopt the requirements of this rule
(if they meet applicable qualification requirements), but they
are not required to apply them. The rule also allows a bank-
ing organization’s primary federal supervisor to determine
p a g e 7
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. The Company is not required to com-
ply with the advanced approaches of Basel II.
The Dodd-Frank Act requires the Federal Reserve Board, the
OCC and the FDIC to adopt regulations imposing a continuing
“floor” of the Basel I-based capital requirements in cases where
the Basel II-based capital requirements and any changes in capi-
tal regulations resulting from Basel III (see below) otherwise
would permit lower requirements. In December 2010, the
Federal Reserve Board, the OCC and the FDIC issued a joint
notice of proposed rulemaking that would implement this
requirement.
In December 2010, the Basel Committee released its final
framework for strengthening international capital and liquidity
regulation, now officially identified by the Basel Committee
as “Basel III.” Basel III, when implemented by the U.S. bank-
ing agencies and fully phased-in, will require bank holding
companies and their bank subsidiaries to maintain substan-
tially more capital, with a greater emphasis on common equity.
The Basel III final capital framework, among other things,
(i) introduces as a new capital measure “Common Equity
Tier 1” (“CET1”), (ii) specifies that Tier 1 capital consists of
CET1 and “Additional Tier 1 capital” instruments meeting
specified requirements, (iii) defines CET1 narrowly by requir-
ing that most adjustments to regulatory capital measures be
made to CET1 and not to the other components of capital
and (iv) expands the scope of the adjustments as compared to
existing regulations.
When fully phased-in on January 1, 2019, Basel III will
require banks to maintain (i) as a newly adopted international
stand ard, a minimum ratio of CET1 to risk-weighted assets
of at least 4.5%, plus a 2.5% “capital conservation buffer”
(which is added to the 4.5% CET1 ratio as that buffer is
phased-in, effectively resulting in a minimum ratio of CET1 to
risk-weighted assets of at least 7% upon full implementation),
(ii) a minimum ratio of Tier 1 capital to risk-weighted assets
of at least 6.0%, plus the capital conservation buffer (which
is added to the 6.0% Tier 1 capital ratio as that buffer is
phased-in, effectively resulting in a minimum Tier 1 capital
ratio of 8.5% upon full implementation), (iii) a minimum
ratio of Total Capital (that is, Tier 1 plus Tier 2) to risk-
weighted assets of at least 8.0%, plus the capital conservation
buffer (which is added to the 8.0% total capital ratio as that
buffer is phased-in, effectively resulting in a minimum total
capital ratio of 10.5% upon full implementation) and (iv) as a
newly adopted international standard, a minimum leverage
ratio of 3%, calculated as the ratio of Tier 1 capital to bal-
ance sheet exposures plus certain off-balance sheet exposures
(as the average for each quarter of the month-end ratios for
the quarter).
Basel III also provides for a “countercyclical capital buffer,”
generally to be imposed when bank regulatory agencies deter-
mine that excess aggregate credit growth has become associ-
ated with a build-up of systemic risk, that would be a CET1
add-on to the capital conservation buffer in the range of 0%
to 2.5% when fully implemented (potentially resulting in
total buffers of between 2.5% and 5%).
The aforementioned capital conservation buffer is designed to
absorb losses during periods of economic stress. Banking
institutions with a ratio of CET1 to risk-weighted assets
above the minimum but below the conservation buffer (or
below the combined capital conservation buffer and counter-
cyclical capital buffer, when the latter is applied) will face
constraints on dividends, equity repurchases and compensa-
tion based on the amount of the short fall.
The implementation of the Basel III capital framework will com-
mence on January 1, 2013. On that date, banking institutions
will be required to meet the following minimum capital ratios:
• 3.5% CET1 to risk-weighted assets.
• 4.5% Tier 1 capital to risk-weighted assets.
• 8.0% Total capital to risk-weighted assets.
Management believes, as of December 31, 2011, that the par-
ent company and the bank would meet all capital adequacy
requirements under the Basel III capital framework on a fully
phased-in basis if such requirements were currently effective.
The Basel III final framework provides for a number of
deductions from and adjustments to CET1. These include, for
example, the requirement that mortgage servicing rights,
deferred tax assets dependent upon future taxable income
and significant investments in non-consolidated financial
entities be deducted from CET1 to the extent that any one
such category exceeds 10% of CET1 or all such categories in
the aggregate exceed 15% of CET1. Under current capital
standards, the effects of accumulated other comprehensive
income items included in capital are excluded for the pur-
poses of determining regulatory capital ratios. Under the
Basel III capital framework, the effects of accumulated other
comprehensive items are not excluded, which could result in
significant variations in level of capital depending upon the
impact of interest rate fluctuations on the fair value of the
Company’s investment securities portfolio.
Implementation of the deductions and other adjustments to
CET1 will begin on January 1, 2014 and will be phased-in
over a five-year period (20% per year). The implementation
of the capital conservation buffer will begin on January 1,
2016 at the 0.625% level and be phased-in over a four-year
p a g e 8
period (increasing by that amount on each subsequent
January 1, until it reaches 2.5% on January 1, 2019).
Although the U.S. banking agencies have not yet published a
notice of proposed rulemaking to implement Basel III in the
United States, they have indicated informally that rules imple-
menting the Basel III capital framework will be published for
comment during the first half of 2012. As of the date of this
report, the application of the Basel III liquidity framework to
bank holding companies with less than $50 billion of total
consolidated assets is less certain. Accordingly, the regulations
ultimately adopted and made applicable to the Company may be
different from the Basel III final framework as published in
December 2010. Requirements to maintain higher levels of capi-
tal or to maintain higher levels of liquid assets could adversely
impact the Company’s net income and return on equity.
Liquidity Requirements
Historically, regulation and monitoring of bank and bank
holding company liquidity has been addressed as a supervi-
sory matter, without required formulaic measures. The Basel
III liquidity framework requires banks and bank holding
companies to measure their liquidity against specific liquidity
tests that, although similar in some respects to liquidity mea-
sures historically applied by banks and regulators for man-
agement and supervisory purposes, going forward would be
required by regulation. One test, referred to as the liquidity
coverage ratio (“LCR”), is designed to ensure that the bank-
ing entity maintains an adequate level of unencumbered high-
quality liquid assets equal to the entity’s expected net cash
outflow for a 30-day time horizon (or, if greater, 25% of its
expected total cash outflow) under an acute liquidity stress
scenario. The other test, referred to as the net stable funding
ratio (“NSFR”), is designed to promote more medium- and
long-term funding of the assets and activities of banking enti-
ties over a one-year time horizon. These requirements will
incent banking entities to increase their holdings of U.S.
Treasury securities and other sovereign debt as a component
of assets and increase the use of long-term debt as a funding
source. The Basel III liquidity framework contemplates that
the LCR will be subject to an observation period continuing
through mid-2013 and, subject to any revisions resulting
from the analyses conducted and data collected during the
observation period, implemented as a minimum standard on
January 1, 2015. Similarly, it contemplates that the NSFR
will be subject to an observation period through mid-2016
and, subject to any revisions resulting from the analyses con-
ducted and data collected during the observation period,
implemented as a minimum standard by January 1, 2018.
These new standards are subject to further rulemaking and
their terms may well change before implementation.
Prompt Corrective Action
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 includes the following five capital tiers: “well capi-
talized,” “adequately capitalized,” “undercapitalized,” “sig-
nificantly undercapitalized” and “critically undercapitalized.”
A depository institution’s capital tier will depend upon how
its capital levels compare with various relevant capital mea-
sures and certain other factors, as established by regulation.
The relevant capital measures are the total capital ratio, the
Tier 1 capital ratio and the leverage ratio.
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 maintain
a specific capital level for any capital measure; (ii) “adequately
capitalized” if the institution has a total risk-based 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 insti-
tution 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 undercapitalized”
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 under-
capitalized” if the institution’s tangible equity is equal to or
less than 2.0% of average quarterly tangible assets. An insti-
tution may be downgraded to, or deemed to be in, a capital
category that is lower than that indicated by its capital ratios
if it is determined to be in an unsafe or unsound condition or
if it receives an unsatisfactory examination rating with
respect to certain matters. As of December 31, 2011, 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
p a g e 9
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.
Support of the Bank
Federal Reserve Board policy historically required a bank
holding company to serve as a source of financial and mana-
gerial strength to its subsidiary banks. The Dodd-Frank Act
codified this policy as a statutory requirement. 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 addi-
tion, any capital loans by a bank holding company to any of
its subsidiary banks are subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary
banks. The BHCA provides that, in the event of a bank hold-
ing company’s bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary 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 payment of the deficiency by assess-
ment upon the parent company. If the assessment is not paid
within three months, the OCC could order a sale of the capi-
tal 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, as described
below, takes into account, among other things, a bank’s capi-
tal level and supervisory rating (its “CAMELS rating”).
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 premi-
ums 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. The
bank paid a deposit insurance premium in 2011 amounting
to $2.1 million.
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 bank paid a FICO assessment in 2011 amounting to
$183 thousand. The FICO annualized assessment rate for the
first quarter of 2012 is 0.66 cents per $100 of deposits.
On November 17, 2009, the FDIC implemented a final rule
requiring insured institutions to prepay their estimated quar-
terly risk-based assessments for the fourth quarter of 2009,
and for all of 2010, 2011 and 2012. Such prepaid assessments
were collected by the FDIC on December 30, 2009, along
with each institution’s quarterly risk-based deposit insurance
assessment for the third quarter of 2009. As of December 31,
2011, $2.9 million in pre-paid deposit insurance is included in
“Other assets” in the accompanying consolidated balance sheet.
In October 2010, the FDIC adopted a new DIF restoration
plan to ensure that the fund reserve ratio reaches 1.35% by
September 30, 2020, as required by the Dodd-Frank Act. At
least semi-annually, the FDIC will update its loss and income
projections for the fund and, if needed, will increase or
decrease assessment rates, following notice-and-comment
rulemaking if required.
In November 2010, the FDIC issued a final rule to implement
provisions of the Dodd-Frank Act that provide for temporary
unlimited coverage for non-interest-bearing transaction
accounts. The separate coverage for non-interest-bearing trans-
action accounts became effective on December 31, 2010 and
terminates on December 31, 2012.
On April 1, 2011, assessment base changed from total domestic
deposits to average total assets minus average tangible equity,
pursuant to a rule issued by the FDIC as required by the Dodd-
Frank Act. Additionally, the initial base assessment rate schedule
was revised effective April 1, 2011 to range from 5 to 35 basis
points on an annualized basis (basis points representing cents
p a g e 1 0
per $100). After the effect of potential base-rate adjustments,
the total base assessment rate could range from 2.5 to 45
basis points on an annualized basis. The potential adjustments
to an institution’s initial base assessment rate include (i) a
potential decrease of up to 5 basis points for certain long-term
unsecured debt (“unsecured debt adjustment”) and, except
for well-capitalized institutions with a CAMELS rating of 1 or
2, (ii) (except for well-capitalized institutions with a CAMELS
rating of 1 or 2) a potential increase of up to 10 basis points for
brokered deposits in excess of 10% of domestic deposits (“bro-
kered deposit adjustment”). As the DIF reserve ratio grows,
the rate schedule will be adjusted downward. Additionally, a
new adjustment for depository institution debt was instituted
whereby an institution will pay an additional premium equal
to 50 basis points on every dollar (above 3% of an insti-
tution’s Tier 1 capital) of long-term, unsecured debt held
that was issued by another insured depository institution
(excluding debt guaranteed under the Temporary Liquidity
Guarantee Program). Either an increase in the risk category
of the bank or adjustments to the base assessment rates could
have a material adverse effect on our earnings.
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 DIF. In addition, the FDIC may not
take any action that would have the effect of increasing the
losses to the deposit insurance fund by protecting depositors
for more than the insured portion of deposits or creditors
other than depositors.
Incentive Compensation
The Dodd-Frank Act requires U.S. financial regulators, includ-
ing the Federal Reserve Board, to establish joint regulations or
guidelines prohibiting incentive-based payment arrangements
at certain regulated entities, including bank holding compa-
nies and national banks, having at least $1 billion in total
assets, that encourage inappropriate risks by providing an
executive officer, employee, director or principal shareholder
with excessive compensation, fees or benefits or that could
lead to material financial loss to the entity. In addition, these
regulators must establish regulations or guidelines requiring
enhanced disclosure to regulators of incentive-based compen-
sation arrangements. The initial version of these regulations
was proposed by the U.S. financial regulators in February
2011 and the regulations may become effective in 2012. If the
regulations are adopted in the form initially proposed, they
will impose limitations on the manner in which we may
structure compensation for our executives and directors, and
require us to adopt additional policies and procedures.
In June 2010, the Federal Reserve, OCC and FDIC issued
comprehensive final guidance on incentive compensation pol-
icies intended to ensure that the incentive compensation policies
of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive
risk-taking. The incentive compensation guidelines, which
cover all employees that have the ability to materially affect
the risk profile of an organization, either individually or as
part of a group, are based upon the key principles that a
banking organization’s incentive compensation arrangements
should (i) provide incentives that do not encourage risk-taking
beyond the organization’s ability to effectively identify and
manage risks, (ii) be compatible with effective internal controls
and risk management, and (iii) be supported by strong corpo-
rate governance, including active and effective oversight by
the organization’s board of directors. These three principles
are incorporated into the proposed joint compensation regu-
lations under the Dodd-Frank Act, discussed above.
The Federal Reserve will review, as part of the regular, risk-
focused examination process, the incentive compensation
arrangements of banking organizations, such as the Company,
that are not “large, complex banking organizations.” These
reviews will be tailored to each organization based on the scope
and complexity of the organization’s activities and the prevalence
of incentive compensation arrangements. The findings of the
supervisory initiatives will be included in reports of examination.
Deficiencies will be incorporated into the organization’s super-
visory ratings, which can affect the organization’s ability to
make acquisitions and take other actions. Enforcement actions
may be taken against a banking organization if its incentive
compensation arrangements, or related risk-management
control or governance processes, pose a risk to the organiza-
tion’s safety and soundness and the organization is not taking
prompt and effective measures to correct the deficiencies.
In addition, in the first half of 2011, the SEC adopted rules con-
cerning say-on-pay votes and golden parachute compensation
arrangements. These rules require us to make enhanced dis-
closures to the SEC, and require us to provide our shareholders
with a nonbinding say-on-pay vote to approve the compensation
of the named executive officers, a non-binding vote to determine
how often the say-on-pay vote will occur and, in certain circum-
stances, a non-binding vote to approve, and proxy disclosure
of, golden parachute compensation arrangements.
p a g e 1 1
The scope and content of the U.S. banking regulators’ policies
on executive compensation are continuing to develop and are
likely to continue evolving in the near future. It cannot be
determined at this time whether compliance with such policies
will adversely affect the ability of Sterling and its subsidiaries
to hire, retain and motivate its and their key employees.
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 diversified financial companies and conveyed to
outside vendors.
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 pri-
ority 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 pay-
ment 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).
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 market
areas by, among other things, providing credit to low- and
moderate-income individuals and communities. Depository
institutions are periodically examined for compliance 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 considering
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
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 U.S. Treasury has issued a number of implement-
ing 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, procedures and controls to
detect, prevent and report money laundering 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 financ-
ing, 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 assis-
tance to, a sanctioned country; and (ii) a blocking of assets in
which the government or specially designated nation als of the
sanctioned country have an interest, by prohibiting transfers
of property subject to U.S. jurisdiction (including property in
the possession or control of U.S. persons). Blocked assets (for
example, property and bank deposits) cannot be paid out, with-
drawn, set off or transferred in any manner without a license
from OFAC. Failure to comply with these sanctions could
have serious legal, financial and reputational consequences.
p a g e 1 2
Legislative Initiatives and Regulatory Reform
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.
As a result of the continued volatility and instability in the
financial system, the Congress, the bank regulatory authorities
and other government agencies have called for or proposed
additional regulation and restrictions on the activities, prac-
tices and operations of banks and their holding companies.
The Congress and the federal banking agencies have broad
authority to require all banks and holding companies to adhere
to more rigorous or costly operating procedures, corporate
governance procedures, or to engage in activities or practices
which they would not otherwise elect.
We cannot predict whether or in what form further legislation
and/or regulations may be adopted or the extent to which
Sterling’s business may be affected thereby.
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 docu-
mentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees, and benefits. With respect to
internal controls, information systems and internal audit sys-
tems, the stand ards describe the functions that adequate
internal controls and information systems must be able to
perform, including: (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 informa-
tion 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. In addition, fed-
eral banking agencies adopted regulations that authorize, but
do not require, an agency to order an institution that has
been given notice by an agency that it is not satisfying any of
such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit
an acceptable compliance plan or fails in any material
respect to implement an acceptable compliance plan, the
agency must issue an order directing action to correct the
deficiency and may issue an order directing other actions of
the types to which an undercapitalized institution is subject
under the “prompt corrective action” provisions of the
FDIA. See “Prompt corrective Action” above. If an institu-
tion fails to comply with such an order, the agency may seek
to enforce such order in judicial proceedings and to impose
civil money penalties.
Consequences of Non-compliance with Supervision
or Regulation
Federal banking law grants substantial enforcement powers
to federal banking regulators. This enforcement authority
includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders
and to initiate injunctive actions against banking organiza-
tions and institution-affiliated parties. In general, these
enforcement actions may be initiated for violations of laws
and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with
regulatory authorities.
The bank and its “institution-affiliated parties,” including its
directors, management, employees, agents, independent contrac-
tors, consultants such as attorneys and accountants and others
who participate in the conduct of the financial institution’s
affairs, are subject to potential civil and criminal penalties for
violations of law, regulations or written orders of a govern-
ment agency. In addition, regulators are provided with greater
flexibility to commence enforcement actions against institutions
and institution-affiliated parties. Possible enforcement actions
include the termination of deposit insurance and cease-and-
desist orders. Such orders may, among other things, require
affirmative action to correct any harm resulting from a viola-
tion or practice, including restitution, reimbursement, indem-
nifications or guarantees against loss. A financial institution
may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, or take other actions
as determined by the ordering agency to be appropriate.
Under provisions of the federal securities laws, a determination
by a court or regulatory agency that certain violations have
p a g e 1 3
occurred at a company or its affiliates can result in fines, res-
titution, a limitation of permitted activities, disqualification
to continue to conduct certain activities and an inability to
rely on certain favorable exemptions. Certain types of infrac-
tions and violations can also affect a public company in its
timing and ability to expeditiously issue new securities into
the capital markets.
Selected con Solidated Stati Stical information
I.
Distribution of Assets, Liabilities and Shareholders’
Equity; Interest Rates and Interest Differential
The information appears on pages 48 and 49 in “MAN-
AGEMENT’S DISCUSSION AND ANALYSIS OF FINAN-
CIAL 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 beginning on page 39 in
“MANAGEMENT’S DISCUSSION AND A NALYSIS OF
F I NA NC I A L C ON DI T ION A N D R E S U LT S OF
OPERATIONS.” Information regarding book values and
range of maturities by type of security and weighted average
yields for totals of each category appears on pages 40 and 42
in “MANAGEMENT’S DISCUSSION AND A NALYSIS
OF F INANCIAL C ONDITION AND R ESULTS OF
OPERATIONS.”
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 beginning on page 42
in “MAN AGEMENT’S DISCUSSION AND A NALYSIS
OF F INANCIAL C ONDITION AND R ESULTS 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, 2011 appears on page 42 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 application for a
new loan subject to standard approval criteria, including
credit evaluation. Additional information appears under
“Loan Portfolio” beginning on page 41 in “MANAGE-
MENT’S DISCUS SION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS” and
under “Loans” in Note 1 and in Note 5 of the Company’s
consolidated financial statements.
A table setting forth the aggregate amount of domestic
nonaccrual, past due and restructured loans of the Company
at the end of each of the five most recent fiscal years appears
on page 43 in “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS”; there were no foreign loans accounted
for on a nonaccrual basis. Information regarding loans that
have undergone a troubled debt restructuring and impaired
loans is presented under “Loans and Allowance for Loan
Losses” in Note 5 of the Company’s consolidated financial
statements. Loan concentration information is presented in
Note 5 of the Company’s consolidated financial statements.
Information regarding Federal Reserve and Federal Home
Loan Bank stock is presented in Note 1 of the Company’s
consolidated financial statements.
IV. Summary of Loan Loss Experience
A summary of loan loss experience appears in Note 5 of the
Company’s con solidated financial statements and beginning
on page 42 under “Asset Quality” in “MANAGEMENT’S
DISCUSSION AND A NALYSIS OF F INANCIAL CON-
DITION AND RESULTS OF OPERATIONS.” A table set-
ting forth certain information with respect to the Company’s
loan loss experience for each of the five most recent fiscal
years appears on page 45 in “MANAGEMENT’S DISCUS-
SION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.”
The Company considers its allowance for loan losses to be ade-
quate based upon the size and risk characteristics of the out-
standing loan portfolio at December 31, 2011. Net losses
within the loan portfolio are not, however, statistically predict-
able and are subject to various external factors that are beyond
the control of the Company. Consequently, changes in condi-
tions in the next twelve months could result in future provisions
for loan losses varying from the provision recorded in 2011.
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 47 in “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.” This allocation is based on estimates by
management that may vary based on management’s evalua-
tion 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 48 in “MAN AGEMENT’S
DISCUSSION AND A NALYSIS OF F INANCIAL CON-
DITION AND RESULTS OF OPERATIONS.”
p a g e 1 4
Outstanding time certificates of deposit issued from domestic
and foreign offices and interest expense on domestic and foreign
deposits are presented in Note 7 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 47 in “MANAGEMENT’S DISCUS-
SION AND A NALYSIS OF F INANCIAL CONDITION
AND RESULTS OF OPERATIONS.”
Interest expense for the three most recent fiscal years is
presented in Note 7 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 29.
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 8 and in Note 9 of the
Company’s consolidated financial statements.
information a Vailable on our web S ite
The Company’s Internet address is www.sterlingbancorp.com
and the investor relations section of our web site is located at
www.sterlingbancorp.com/ir/investor.cfm. The Company
makes available free of charge, on or through the investor
relations section of the Company’s 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
Exchange Act as soon as reasonably practicable after the
Company electronically files such material with, or furnishes
it to, the SEC.
Also posted on the Company’s 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, our policy
on excessive or luxury expenditures and a Code of Business
Conduct and Ethics governing our directors, officers and
employees. Within the time period required by the SEC and
the NYSE, the Company will post on our web site any amend-
ment 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 secu-
rities by our executive officers and directors is posted on our
web site. The contents of the Company’s web site are not incor-
porated by reference into this annual report on Form 10-K.
item 1a. r iSk factorS
An investment in the parent company’s common shares is
subject to risks inherent to the Company’s business. The most
significant risks and uncertainties that management believes
affect the Company are described below. Before making an
investment decision, you should carefully consider the risks and
uncertainties described below together with all of the other
information 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 less significant, may also impair the
Company’s business, financial condition or results of 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 parent company’s common shares could decline signifi-
cantly and you could lose all or part of your investment.
riSkS r elated t o t he c omPanY’S b uSineSS
The Company’s Business May Be Adversely Affected by
Conditions in the Financial Markets and Economic
Conditions Generally
From December 2007 through June 2009, the United States
experienced a recession and a slowing of economic activity.
Business activity across a wide range of industries and regions
was greatly reduced. The real estate sector, and the related
segments of the construction business sector, were particu-
larly severely affected. Local governments and many busi-
nesses were in serious difficulty, due to the lack of consumer
spending and the lack of liquidity in the credit markets.
Unemployment had increased significantly.
Since mid-2007, and particularly during the second half of
2008 and the first half of 2009, the financial services indus-
try and the securities markets generally were materially and
adversely affected by significant declines in the values of
nearly all asset classes and by a serious lack of liquidity. This
was initially triggered by declines in home prices and the val-
ues of subprime mortgages, but spread to all mortgage and
real estate asset classes, to leveraged bank loans and to nearly
all asset classes, including equities.
p a g e 1 5
The U.S. financial system has stabilized, but internationally, the
weakness of certain foreign banks and the increasing danger of
sovereign defaults has led to continuing high levels of uncer-
tainty and volatility in the international financial markets. In
particular, concerns about the European Union’s sovereign
debt crisis have also caused uncertainty for financial markets
globally. Such risks could indirectly affect the Company by
affecting its hedging or other counterparties, as well as the
Company’s customers with European businesses or assets
denominated in the euro or companies in the Company’s
market with European businesses or affiliates.
Although economic conditions have improved, certain sectors,
such as real estate and manufacturing, remain weak and
unemployment remains high. Despite the actions of the U.S.
Government and the Federal Reserve Board, both with
respect to monetary policy, fiscal policy and increased regula-
tions meant to restore investor confidence, the overall busi-
ness environment in 2011 was adverse for many households
and businesses in the United States and worldwide.
The Company’s financial performance generally, and in par-
ticular the ability of borrowers to pay interest on and repay
the principal of outstanding loans and the value of collateral
securing those loans, is highly dependent upon the business
environment in the markets where the Company operates, in
the New York metropolitan area and in the United States as a
whole. A favorable business environment is generally charac-
terized by, among other factors, economic growth, efficient capi-
tal markets, low inflation, high business and investor confidence
and strong business earnings. Unfavorable or uncertain eco-
nomic and market conditions can be caused by: declines in
economic growth, business activity or investor or business
confidence; limitations on the availability or increases in the
cost of credit and capital; increases in inflation or interest
rates; natural disasters; or a combination of these or other
factors. The business environment in the New York metro-
politan area, the United States and worldwide has improved
since the recession, but there can be no assurance that these
conditions will continue to improve in the near term. A slowing
of improvement or a return to deteriorating economic condi-
tions could adversely affect the credit quality of the Company’s
loans, business results of operations and financial condition.
Continued Market Volatility May Adversely Impact Our
Business, Financial Condition and Results of Operations
and Our Ability to Manage Risk
The capital and credit markets experienced unprecedented
volatility and disruption during the 2008 financial crisis.
Under these extreme conditions, our hedging and other risk
management strategies may not be as effective at mitigating
securities trading losses as they would be under less volatile
market conditions. Further market volatility could produce
downward pressure on our stock price and credit availability
without regard to our underlying financial strength. The
broad decline in stock prices throughout the financial ser-
vices industry, which has also affected our common shares,
could require a goodwill impairment test. A substantial good-
will impairment charge could have an adverse impact on our
results of operations. Severe market events have historically
been difficult to predict, however, and we could realize sig-
nificant losses if unprecedented extreme market events were
to reoccur. For a discussion of risk, see “ASSET/LIABILITY
MANAGEMENT” beginning on page 50 in “MANAGE-
MENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.” If mar-
kets experience further upheavals, there can be no assurance
that we will not experience an adverse effect, which may be
material, on our ability to manage risk and on our business,
financial condition and results of operations.
We May Experience Write-downs of Investment Securities
that We Own and Other Losses Related to Volatile and
Illiquid Market Conditions, Reducing Our Earnings
We maintain an investment securities portfolio of various
holdings, types and maturities. These securities are generally
classified as available for sale and, consequently, are recorded
on our balance sheet at fair value with unrealized gains or
losses reported as a component of accumulated other compre-
hensive income, net of tax. Our portfolio includes residential
mortgage-backed securities, agency notes, municipal obliga-
tions and corporate debt securities, the values of which are
subject to market price volatility to the extent unhedged. This
volatility affects the amount of our capital. In addition, if
such investments suffer credit losses, we may recognize the
credit losses as an other-than-temporary impairment which
could impact our revenue in the quarter in which we recog-
nize the losses. If we experience losses related to our invest-
ment securities portfolio in the future, it could ultimately
adversely affect our results of operations and capital levels.
For information regarding our investment securities portfo-
lio, see “BALANCE SHEET ANALYSIS—Securities” begin-
ning on page 38 and for information regarding the sensitivity
of and risks asso ciated with the market value of portfolio
investments and interest rates, refer to “ASSET/LIABILITY
MANAGEMENT—Market Risk” beginning on page 50,
both of which are in “MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.”
Improvements in Economic Indicators Disproportionately
Affecting the Financial Services Industry May Lag
Improvements in the General Economy
The improvement of certain economic indicators, such as
unemployment and real estate asset values and rents, may
p a g e 1 6
nevertheless continue to lag behind the overall economy.
These economic indicators typically affect certain industries,
such as real estate and financial services, more significantly.
For example, improvements in commercial real estate funda-
mentals typically lag broad economic recovery by 12 to 18
months. The Company’s clients include entities active in these
industries. Furthermore, financial services companies with a
substantial lending business are dependent upon the ability of
their borrowers to make debt service payments on loans.
Should unemployment or real estate asset values fail to
recover for an extended period of time, the Company could
be adversely affected.
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 reg-
ulatory agencies and, in particular, the Federal Open Market
Committee. 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 securities 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
management of interest rate risk, see “ASSET/LIABILITY
MANAGEMENT” beginning on page 50 in “MANAGE-
MENT’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 economic
conditions in the markets where the Company operates as
well as those throughout the United States. Increases in interest
rates and/or a return to weakening economic conditions could
adversely impact the ability of borrowers to repay outstand-
ing 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 applica-
ble laws and regulations could subject the Company to regu-
latory enforcement action that could result in the assessment of
significant civil money penalties against the Company. In addi-
tion, under various laws and regulations relating to mortgage
lending and terms of various agreements the Company is a party
to, the Company may be required to repurchase loans or indem-
nify loan purchasers as a result of breaches of representations
and warranties, borrower fraud, or certain borrower defaults.
As of December 31, 2011, approximately 60.8% 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. Further, if repurchase and indem-
nity demands with respect to the Company’s loan portfolio
increase, its liquidity, results of operations and financial con-
dition will be adversely affected. For further discussion
related to commercial and industrial, construction and com-
mercial real estate loans, see “Loan Portfolio” beginning on
page 41 in “MANAGEMENT’S D ISCUSSION 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
p a g e 1 7
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 trends, all of
which may undergo material changes. Continuing deteriora-
tion of economic conditions affecting borrowers, new infor-
mation 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 determining the appropriate level of the allowance for
loan losses, see “Asset Quality” beginning on page 42 in
“M ANAGEMEN T’S D ISCUSSION AN D A NALYSIS
OF F INANCIAL C ONDITION AND R ESULTS 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
overall liquidity position of the bank and the parent company
are regularly monitored to ensure that various alternative
strategies 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. The Company maintains 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 the Company is 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 capital. For further discussion, see “Liquidity Risk”
beginning on page 52 in “MANAGEMENT’S DISCUSSION
AND A NALYSIS OF F INANCIAL CONDITION AND
RESULTS OF OPERATIONS.”
The Parent Company Relies on Dividends from Its Subsidiaries
The parent company 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 dividends on
the parent company’s common shares and principal of and
interest on its debt. Various federal and/or state laws and reg-
ulations limit the amount of dividends that the bank and cer-
tain non-bank subsidiaries may pay to the parent company.
Also, the parent company’s right to participate in a distribu-
tion of assets upon a subsidiary’s liquidation or reorganiza-
tion is subject to the prior claims of the subsidiary’s creditors.
In the event the bank is unable to pay dividends to the parent
company, the parent company may not be able to service
debt, pay obligations or pay dividends on the parent compa-
ny’s common shares. The inability of the parent company to
receive dividends from the bank could have a material adverse
effect on the Company’s business, financial condition and
results of operations. See “SUPERVISION AND REGULA-
TION” on pages 3–14 and Note 16 of the Company’s con-
solidated financial statements.
The Company May Need to Raise Additional Capital in the
Future and Such Capital May Not Be Available When
Needed or at All
The Company may need to raise additional capital in the
future to provide it with sufficient capital resources and liquid-
ity to meet its commitments and business needs, particularly if
its asset quality or earnings were to deteriorate significantly.
The Company’s ability to raise additional capital, if needed,
will depend on, among other things, conditions in the capital
markets at that time, which are outside of the Company’s
control, and the Company’s financial performance. Economic
conditions and the loss of confidence in financial institutions
may increase the Company’s cost of funding and limit access
to certain customary sources of capital, including inter-bank
borrowings, repurchase agreements and borrowings from the
Federal Reserve Bank’s discount window.
p a g e 1 8
The Company cannot assure that such capital will be avail-
able on acceptable terms or at all. Any occurrence that may
limit the Company’s access to the capital markets, such as a
decline in the confidence of debt purchasers, depositors of the
bank or counterparties participating in the capital markets,
or a downgrade of the parent company or the bank’s ratings,
may adversely affect the Company’s capital costs and its abil-
ity to raise capital and, in turn, its liquidity. Moreover, if the
Company needs to raise capital in the future, it may have to
do so when many other financial institutions are also seeking
to raise capital and would have to compete with those institu-
tions for investors. An inability to raise additional capital on
acceptable terms when needed could have a materially adverse
effect on the Company’s liquidity business, financial condi-
tion and results of operations.
The Company Is Subject to a Variety of Operational Risks,
Including Reputational Risk, Legal and Compliance Risk,
the Risk of Fraud or Theft by Employees or Outsiders
The Company is exposed to many types of operational risks,
including reputational risk, legal and compliance risk, the
risk of fraud or theft by employees or outsiders, unauthorized
transactions by employees or operational errors, including
clerical or record-keeping errors or those resulting from
faulty or disabled computer or telecommunications systems.
Negative public opinion can result from its actual or alleged
conduct in any number of activities, including lending prac-
tices, corporate governance and acquisitions and from actions
taken by government regulators and community organiza-
tions in response to those activities. The 2008 financial crisis
and current political and public sentiment regarding financial
institutions have resulted in a significant amount of adverse
media coverage of financial institutions. Harm to our reputa-
tion can result from numerous sources, including adverse
publicity arising from events in the financial markets, our
perceived failure to comply with legal and regulatory require-
ments, the purported actions of our employees or alleged
financial reporting irregularities involving ourselves or our
competitors. Additionally, a failure to deliver appropriate
standards of service and quality or a failure to appropriately
describe our products and services can result in customer dis-
satisfaction, lost revenue, higher operating costs and litiga-
tion. Actions by the financial services industry generally or
by other members of or individuals in the financial services
industry can also negatively impact our reputation. For
example, public perception that some consumers may have
been treated unfairly by financial institutions has damaged
the reputation of the financial services industry as a whole.
Negative public opinion can adversely affect its ability to
attract and keep customers and can expose the Company to
litigation and regulatory action. Actual or alleged conduct by
the Company can result in negative public opinion about its
other business. Negative public opinion could also affect its
credit ratings, which are important to its access to unsecured
wholesale borrowings.
Because the nature of the financial services business involves
a high volume of transactions, certain errors may be repeated
or compounded before they are discovered and successfully
rectified. The Company’s necessary dependence upon auto-
mated systems to record and process its transaction volume
may further increase the risk that technical flaws or employee
tampering or manipulation of those systems will result in
losses that are difficult to detect. The Company also may be
subject to disruptions of its operating systems arising from
events that are wholly or partially beyond its control (for
example, computer viruses or electrical or telecommunica-
tions outages), which may give rise to disruption of service to
customers and to financial loss or liability. While the
Company has policies and procedures 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 Company is further exposed to the risk that
its external vendors may be unable to fulfill their contractual
obligations (or will be subject to the same risk of fraud or
operational errors by their respective employees as the
Company is) and to the risk that its (or its vendors’) business
continuity and data security systems prove to be inadequate.
The occurrence of any of these risks could result in a dimin-
ished ability of the Company to operate its business, potential
liability to clients, reputational damage and regulatory inter-
vention, which could adversely affect its business, financial
condition and results of operations, perhaps materially.
The Company Relies on Other Companies to Provide Key
Components of Its Business Infrastructure
Third parties provide key components of the Company’s busi-
ness infrastructure, for example, system support, Internet
connections and network access. While the Company has
selected these third-party vendors carefully, it does not con-
trol their actions. Any problems caused by these third parties,
including those resulting from their failure to provide services
for any reason or their poor performance of services, could
adversely affect its ability to deliver products and services to
its customers and otherwise conduct its business. Replacing
these third-party vendors could also entail significant delay
and expense.
p a g e 1 9
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 securing certain
loans. In doing so, there is a risk that hazardous or toxic sub-
stances 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 exposure to environmental
liability. Although the Company has policies and procedures to
perform an environmental review before initiating any foreclo-
sure action on real property, these reviews may not be sufficient
to detect all potential environmental hazards. The remediation
costs and any other financial 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, and conducts business in Virginia and other mid-Atlantic
states and throughout the United States. The economic condi-
tions in these areas and throughout the United States have a
significant impact on the demand for the Company’s prod-
ucts and services as well as the ability of the Company’s cus-
tomers to repay loans, the value of the collateral securing
loans and the stability of the Company’s deposit funding
sources. Poor economic conditions, whether caused by reces-
sion, inflation, unemployment, changes in securities markets,
acts of terrorism, outbreak of hostilities or other interna-
tional or domestic occurrences, 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.
The Company May Be Adversely Affected by the Soundness
of Other Financial Institutions
Financial services institutions are interrelated as a result of
trading, clearing, counterparty or other relationships. The
Company has exposure to many different industries and
counterparties, and routinely executes transactions with
counterparties in the financial services industry, including
commercial banks, brokers and dealers, investment banks,
and other institutional clients. Many of these transactions
expose the Company to credit risk in the event of a default by
a counterparty or client. In addition, the Company’s credit
risk may be exacerbated when the collateral held by the
Company cannot be realized upon or is liquidated at prices
not sufficient to recover the full amount of the credit, or
derivative, if any, exposure due to the Company. Any such
losses could 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 busi-
ness. Such events could affect the stability of the Company’s
deposit base, impair the ability of borrowers to repay outstand-
ing loans, impair the value of collateral securing 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. Also, technology and other changes have lowered
barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks. For
example, consumers can maintain funds that would have his-
torically been held as bank deposits in brokerage accounts or
p a g e 2 0
mutual funds. Consumers can also complete transactions
such as paying bills and/or transferring funds directly with-
out 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 the related income generated from those deposits. Many of
the Company’s competitors have fewer regulatory constraints
and may have lower cost structures. 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. The Dodd-Frank Act, enacted in July 2010, insti-
tuted major changes to the banking and financial institutions’
regulatory regimes, currently and in the near future, in light
of the recent performance of and government intervention in
the financial services sector. U.S. regulatory agencies—bank-
ing, securities and commodities—are steadily publishing
notices of proposed regulations required by the Dodd-Frank
Act, and new bodies created by the Dodd-Frank Act (includ-
ing the Financial Stability Oversight Council and the
Consumer Financial Protection Bureau) are commencing
operations. The related findings of various regulatory and
commission studies, the interpretations issued as part of the
rulemaking process and the final regulations that are issued
with respect to various elements of the new law may cause
changes that impact the profitability of our business activities
and require that we change certain of our business practices
and plans. Other changes to statutes, regulations or regula-
tory policies, including changes in interpretation or imple-
mentation of statutes, regulations or policies, could affect the
Company in substantial and unpredictable ways. Such
changes could subject the Company to additional costs, limit
the types of financial 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 operations. 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 3–14.
Increases in FDIC Insurance Premiums May Adversely
Affect the Company’s Earnings
Since 2008, higher levels of bank failures have dramatically
increased resolution costs of the FDIC and depleted the
Deposit Insurance Fund. In addition, the permanent increase
of insured amount of deposit accounts up to $250,000
from $100,000 per each customer and the temporary unlim-
ited insurance of noninterest-bearing demand transaction
accounts have placed additional stress on the Deposit
Insurance Fund.
In order to maintain a strong funding position and restore
reserve ratios of the Deposit Insurance Fund, the FDIC has
increased assessment rates of insured institutions. In addition,
on November 12, 2009, the FDIC adopted a rule requiring
banks to prepay three years’ worth of premiums to replenish
the depleted fund.
The Company is generally unable to control the amount of
premiums that it is required to pay for FDIC insurance. If
there are additional bank or financial institution failures
the Company may be required to pay even higher FDIC pre-
miums than the recently increased levels. Additionally, the
failure by the parent company or the bank to maintain its
“well capitalized” status could also lead to higher FDIC
p a g e 2 1
assessments. Such increases and any future increases or
required prepayments of FDIC insurance premiums may
adversely impact its earnings.
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 25% of
its total assets. At December 31, 2011, 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 activities; and (2)
95% of its gross income must be derived from sources quali-
fying for the 75% test plus dividends, interest, and gains from
the sale of securities. In addition, a REIT must distribute at
least 90% of its taxable income for the taxable year, exclud-
ing any net capital gains, to maintain its non-taxable status
for federal income tax purposes. For 2011, 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 Company Would Be Subject to a Higher Effective Tax
Rate if Sterling Real Estate Holding Company, Inc. Is
Required to Be Included in a New York Combined Return
New York State tax law generally requires a REIT that is
majority-owned by a New York State bank to be included in
the bank’s combined New York State tax return. The Company
believes that it qualifies for the small-bank exception to this
rule. If, contrary to this belief, Sterling Real Estate Holding
Company, Inc. were required to be included in the Company’s
New York State combined tax return, the Company’s effec-
tive tax rate would increase.
Under the small-bank exception, dividends received by the
bank from SREHC, a real estate investment trust, are subject
to a 60% dividends-received deduction, which results in only
40% of the dividends being subject to New York State tax.
Currently, the New York City banking corporation tax operates
in the same manner in this respect. The possible reform of the
New York State franchise and banking corporation tax laws
mentioned below could require SREHC to file a combined New
York State return with the Company and substantially eliminate
the benefit of the 60% dividends-received deduction by caus-
ing generally all of SREHC’s income to be subject to New
York State tax as part of the Company’s combined return.
Possible New York State Legislative Changes May Negatively
Affect the Amount of Taxes We Pay in Future Years
The New York State Department of Taxation and Finance
developed, and released to the public in 2010 and 2011, a
detailed proposal to reform the New York State corporate
franchise and banking laws. If that released proposal were
enacted, it would substantially alter how the Company and the
bank are taxed in New York State, including substantially elimi-
nating the benefit of the 60% dividends-received deduction.
In December 2011, New York State Governor Cuomo created
the New York State Tax Reform and Fairness Commission,
with a mandate to conduct a comprehensive and objective
review of the State’s taxation policy and consider ways to
eliminate tax loopholes, promote administration efficiency
and enhance tax collection and enforcement. The Commission
members have not yet been appointed and it is not possible
to predict what the results of the Commission’s work will
be, and what impact, if any, the Commission’s results will
have. Nor is it possible to predict whether any tax legislation
that would impact the Company and the bank’s effective
p a g e 2 2
New York State (and New York City) tax rates will be pro-
posed or enacted.
The Recent Repeal of Federal Prohibitions on Payment of
Interest on Demand Deposits Could Increase the Company’s
Interest Expense
All federal prohibitions on the ability of financial institutions
to pay interest on demand deposit accounts were repealed as
part of the Dodd-Frank Act beginning on July 21, 2011. As a
result, some financial institutions commenced offering inter-
est on demand deposits to compete for customers. The
Company does not yet know what interest rates other institu-
tions may offer as the market rates begin to increase. The
Company’s interest expense will increase and its net interest
margin will decrease if it begins offering interest on demand
deposits to attract additional customers or maintain current
customers, which could have a material adverse effect on the
Company’s business, financial condition and results of
operations.
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 but it may take time
for revenues to develop. Initial timetables for the introduction
and development of new lines of business and/or new prod-
ucts or services may not be achieved and price and profitabil-
ity 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 business and/or new
product or service could have a significant impact on the
effectiveness of the Company’s system of internal 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 financial
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 asso-
ciated 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. To the extent we
enter into an agreement to acquire an entity, there can be no
guarantee that the transaction will close when anticipated, or
at all. In particular, at times we must seek federal regulatory
approvals before we can acquire another organization, which
can delay or disrupt such acquisitions. Acquisitions typically
involve the payment of a premium over book and market val-
ues, 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 pro-
jected 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.
p a g e 2 3
Our ability to attract and retain key executives and other
employees may be hindered as a result of regulations applica-
ble to incentive compensation and other aspects of our com-
pensation programs promulgated by the Federal Reserve and
other regulators in the United States, regulations on incentive
compensation to be promulgated by various U.S. regulators
pursuant to the Dodd-Frank Act and other existing and
potential regulations. These regulations, which include and
are expected to include mandatory deferral and clawback
requirements, do not and will not apply to some of our com-
petitors and to other institutions with which we compete for
talent. Our ability to recruit and retain key talent may be
adversely affected by these regulations.
If the Company’s Information Systems Experience an
Interruption or Breach in Security that Results in a Loss of
Confidential Client Information or Impacts Our Ability to
Provide Services to Our Clients, Our Business and Results
of Operations May Be Adversely Affected
The Company relies heavily on communications and infor-
mation systems to conduct its business. The security of our
computer systems, software and networks, and those func-
tions that we may outsource, may be vulnerable to breaches,
hacker attacks, unauthorized access and misuse, computer
viruses and other cyber security risks and events that could
result in failures or disruptions in our business, customer
relationship management, general ledger, deposit and loan
systems. Our businesses that rely heavily on technology are
particularly vulnerable to security breaches and technology
disruptions. Breaches of security may occur through inten-
tional or unintentional acts by those having authorized or
unauthorized access to our or our clients’ or counterparties’
confidential information, including employees and custom-
ers, as well as hackers. A breach of security that results in the
loss of confidential client information may require us to reim-
burse clients for data and credit monitoring efforts and would
be costly and time-consuming, and may negatively impact
our results of operations and reputation. Additionally, secu-
rity breaches or disruptions of our information system could
impact our ability to provide services to our clients, which
could expose us to liability for damages, result in the loss of
customer business, damage our reputation, subject us to reg-
ulatory scrutiny or expose us to civil litigation, any of which
could have a material adverse effect on our financial condi-
tion and results of operations. Certain security breaches or
other cyber incidents may remain undetected for an extended
period of time, which may amplify the damages to our clients
and/or us arising from such breaches or incidents. In addi-
tion, the failure to upgrade or maintain our computer sys-
tems, software and networks, as necessary, could also make
us susceptible to breaches and unauthorized access and mis-
use. There can be no assurance that any such failures, inter-
ruptions or security breaches will not occur or, if they do
occur, that they will be adequately addressed. We may be
required to expend significant additional resources to mod-
ify, investigate or remediate vulnerabilities or other exposures
arising from information systems security risks.
The Company Depends 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.
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 customers by using technology to provide prod-
ucts and services that will satisfy customer demands, as well
as to create additional efficiencies in the Company’s opera-
tions. Many of the Company’s competitors have substantially
greater resources to invest in technological improvements.
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 and Lender Liability
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
p a g e 2 4
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.
In addition, in recent years, a number of judicial decisions
have upheld the right of borrowers to sue lending institutions
on the basis of various evolving legal theories, collectively
termed “lender liability.” Generally, lender liability is founded
on the premise that a lender has either violated a duty,
whether implied or contractual, of good faith and fair dealing
owed to the borrower or has assumed a degree of control over
the borrower resulting in the creation of a fiduciary duty
owed to the borrower or its other creditors or shareholders.
Substantial legal liability or significant regulatory action
against the Company or its subsidiaries could materially
adversely affect its business, financial condition or results of
operations and/or cause significant harm to its reputation.
The Company’s Reported Financial Results Depend on
Management’s Selection of Accounting Methods and
Certain Assumptions and Estimates
The Company’s accounting policies and methods are funda-
mental to the methods by which the Company records and
reports its financial condition and results of operations. Its
management must exercise judgment in selecting and applying
many of these accounting policies and methods so they comply
with generally accepted accounting principles and reflect
management’s judgment of the most appropriate manner to
report its financial condition and results. In some cases, man-
agement must select the accounting policy or method to apply
from two or more alternatives, any of which may be reason-
able under the circumstances, yet may result in its reporting
materially different results than would have been reported
under a different alternative.
Certain accounting policies are critical to presenting its finan-
cial condition and results. They require management to make
difficult, subjective or complex judgments about matters that
are uncertain. Materially different amounts could be reported
under different conditions or using different assumptions or
estimates. These critical accounting policies include: the
allowance for credit losses; the determination of fair value for
financial instruments; the valuation of goodwill and other intan-
gible assets; the accounting for pension and post-retirement
benefits and the accounting for income taxes. Because of the
uncertainty of estimates involved in these matters, the
Company may be required to do one or more of the following:
significantly increase the allowance for credit losses and/or
sustain credit losses that are significantly higher than the
reserve provided; recognize significant impairment on its good-
will and other intangible asset balances; or significantly
increase its accrued tax liability.
Changes in the Company’s Accounting Policies or in
Accounting Standards Could Materially Affect How the
Company Reports Its Financial Results and Condition
From time to time, the Financial Accounting Standards Board
(“FASB”) and SEC change the financial accounting and
reporting standards that govern the preparation of the
Company’s financial statements. These changes can be hard
to predict and can materially impact how the Company
records and reports its financial condition and results of
operations. In some cases, the Company could be required to
apply a new or revised standard retroactively, resulting in the
Company restating prior period financial statements.
riSkS aSS ociated w ith t he Parent c omPanY’S
common S hareS
The Parent Company’s Share Price Can Be Volatile
Share price volatility may make it more difficult to resell the
parent company’s common shares when desired and at an
attractive price. The parent company’s share price can fluctu-
ate 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.
• Expectation of or actual equity dilution.
• Operating and share 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
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 parent company’s share price
to decrease regardless of operating results.
p a g e 2 5
The Trading Volume in the Parent Company’s Common
Shares Is Less Than That of Other Larger Financial
Services Companies
Although the parent company’s common shares are listed for
trading on the NYSE, the trading volume in its common
shares is less than that of other larger financial services com-
panies. A public trading market having the desired character-
istics of depth, liquidity and orderliness depends on the
presence in the marketplace of willing buyers and sellers of
the parent company’s common shares at any given time. This
presence depends on the individual decisions of investors and
general economic and market conditions over which the
Company has no control. Given the trading volume of the
parent company’s common shares, significant sales of the
parent company’s common shares, or the expectation of these
sales, could cause the parent company’s share price to fall.
An Investment in the Parent Company’s Common Shares Is
Not an Insured Deposit
The parent company’s common shares are not bank deposits
and, therefore, are 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 parent company’s common shares are inherently risky for
the reasons described in this “Risk Factors” section and else-
where in this report and is subject to the same market forces
that affect the price of common shares in any company. As a
result, if you acquire the parent company’s common shares,
you may lose some or all of your investment.
The Parent Company’s Certificate of Incorporation and
By-Laws as Well as Certain Banking Laws May Have an
Anti-Takeover Effect
Provisions of the parent company’s certificate of incorpora-
tion and by-laws, and federal banking laws, including regula-
tory approval requirements, could make it more difficult for a
third party to acquire the parent company, even if doing so
would be perceived to be beneficial to the parent company’s
shareholders. The combination of these provisions effectively
inhibits a non-negotiated merger or other business combina-
tion, which, in turn, could adversely affect the market price
of the parent company’s common shares.
The Parent Company May Not Pay Dividends on Its
Common Shares
Holders of shares of the parent company’s common shares
are only entitled to receive such dividends as its board of
directors may declare out of funds legally available for such
payments. Although the parent company has historically
declared cash dividends on its common shares, it is not
required to do so and may reduce or eliminate its common
share dividend in the future. This could adversely affect the
market price of its common shares.
Future Issuances of Additional Common Shares or Other
Equity Securities Could Result in Dilution of Ownership of
the Parent Company’s Existing Shareholders
The parent company may from time to time explore capital
raising opportunities and may determine to issue additional
common shares or other equity securities to increase its capi-
tal, support growth, or to make acquisitions. We intend to
take advantage of favorable market conditions to increase our
capital. Further, the parent company may issue stock options
or other stock grants to retain and motivate its employees.
These issuances of equity securities could dilute the voting
and economic interests of its existing shareholders.
item 1b. unre SolVed S taff comment S
None.
item 2. P roPertieS
The principal office of the Company occupies one floor at
650 Fifth Avenue, New York, N.Y., consisting of approximately
14,400 square feet. The lease for this office expires April 30,
2016. Rental commitments to the expiration date approxi-
mate $3.8 million.
At December 31, 2011, the bank also maintains operating
leases for ten branch offices, the international banking facil-
ity, and additional space in New York City, Nassau, Suffolk
and Westchester counties (New York) with an aggregate of
approximately 135 thousand square feet. Effective in 2011,
certain lease agreements terminated and the bank has entered
into new agreements for additional space, bringing the
amount of space committed to an aggregate of approximately
135 thousand square feet. The aggregate office rental com-
mitments for these premises, including the new space under
lease in 2011, approximates $44.0 million. These leases have
expiration dates ranging from 2012 through 2025 with vary-
ing renewal options. The bank owns free and clear (not sub-
ject to a mortgage) a building in which it maintains a branch
located in Forest Hills, Queens, N.Y.
item 3. legal P roceedingS
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. During the 2011 fourth
quarter, the Company recorded a charge related to the settle-
ment of certain litigation.
p a g e 2 6
item 4. mine S afetY di ScloSureS
Not applicable.
item 4 a. SubmiSSion of matter S to a V ote of S ecuritY holder S
No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report.
executiVe officer S of the regi Strant
This table sets forth information regarding the parent company’s executive officers:
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
81
69
67
53
69
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.
The Company’s 2011 Domestic Company Section 303A Annual CEO Certification was filed (without qualifications) with the NYSE.
P A R T I I
item 5. market for the regi Strant ’S common e QuitY, related Shareholder matter S and iSSuer
PurchaSeS of e QuitY S ecuritieS
The parent company’s common shares are traded on the NYSE under the symbol “STL.” Information regarding the quarterly
prices of the common shares is presented in Note 25 on page 114. Information regarding the average common shares outstanding
and dividends per common share is presented in the Consolidated Statements of Income on page 59. Information regarding the
Company’s stock incentive plans is presented in Note 17 on page 96. Information regarding legal restrictions on the ability of
the bank to pay dividends is presented in Note 16 on page 96. Although such restrictions do not apply to the payment of divi-
dends 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 22 beginning on page 110. As of February
23, 2012, there were 1,218 shareholders of record of our common shares.
During the fiscal years ended December 31, 2011 and 2010, the following dividends were declared on our common shares:
Cash Dividends Per Share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
2011
$ 0.09
0.09
0.09
0.09
$ 0.36
2010
$ 0.09
0.09
0.09
0.09
$ 0.36
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 parent 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 addi-
tional 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 2011. At December 31, 2011, the maximum number of shares that
may yet be repurchased under the share repurchase program was 870,963.
p a g e 2 7
For information regarding securities authorized for issuance under the Company’s equity compensation plan, see Item 12 on page 119.
The following performance graph compares for the fiscal years ended December 31, 2007, 2008, 2009, 2010 and 2011 (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 Regional
Banks Index (a market-capitalization weighted bank-stock index):
Sterling Bancorp
S&P 500
KBW Regional Bank Index
item 6. Selected financial data
12/06
100.00
100.00
100.00
12/07
72.81
105.49
78.03
12/08
79.20
66.46
63.55
12/09
43.17
84.05
49.48
12/10
65.77
96.71
59.58
12/11
56.63
98.75
56.51
The information appears on page 29. All such information should be read in conjunction with the consolidated financial state-
ments and notes thereto and discussions of factors that may materially affect the comparability of information and material
uncertainties in “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS—FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD AFFECT FUTURE RESULTS”
on page 30.
item 7. management ’S di ScuSS ion and analYSiS of financial condition and re SultS of o PerationS
The information appears on pages 30–56 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 Q ualitatiVe di ScloSureS about market ri Sk
The information appears on pages 50–54 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 2 8
Sterling Bancorp
S E L E C T E D F I N A N C I A L D A T A [ 1 ]
(dollars in thousands except per share data)
2011
2010
2009
2008
2007
SummarY of oPerationS
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net securities gains
Other-than-temporary losses
Noninterest income, excluding net securities gains and
$
$ 97,064
12,987
84,077
12,000
1,726
—
other-than-temporary losses
Noninterest expenses
Income before taxes
Provision for income taxes
Income from continuing operations
Loss from discontinued operations, net of tax
Net income
Dividends on preferred shares and accretion
Net income available to common shareholders
Income from continuing operations available to
common shareholders
Per average common share—basic
—diluted
Net income available to common shareholders
Per average common share—basic
—diluted
Dividends per common share
Year end balance SheetS
Interest-bearing deposits with other banks
Investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Total assets
Noninterest-bearing demand deposits
Savings NOW and money market deposits
Time deposits
Short-term borrowings
Advances—FHLB and long-term debt
Shareholders’ equity
aVerage balance SheetS
Interest-bearing deposits with other banks
Investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Total assets
Noninterest-bearing demand deposits
Savings NOW and money market deposits
Time deposits
Short-term borrowings
Advances—FHLB and long-term debt
Shareholders’ equity
ratioS
Return on average total assets
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[2]
Net charge-offs/loans, year end[3]
Nonperforming loans/loans, year end[2]
Allowance/loans, year end[3]
Allowance/nonaccrual loans
97,190
15,583
81,607
28,500
3,928
—
43,705
91,556
9,184
2,158
7,026
—
7,026
2,589
4,437
0.18
0.18
0.18
0.18
0.36
40,503
789,315
32,049
1,314,234
2,360,457
570,290
562,207
615,267
60,894
169,947
222,742
31,960
768,184
35,354
1,227,049
2,244,569
489,184
564,061
559,203
112,207
158,351
213,153
$ 105,920
19,295
86,625
27,900
5,561
—
$ 118,071
33,388
84,683
8,325
—
(1,684)
$ 121,433
47,560
73,873
5,853
188
—
38,589
88,545
14,330
4,908
9,422
—
9,422
2,773
6,649
0.37
0.37
0.37
0.37
0.56
36,958
737,065
33,889
1,195,415
2,165,609
546,337
592,015
442,315
131,854
155,774
161,950
36,804
719,485
41,225
1,154,041
2,114,221
441,087
562,780
375,742
271,075
174,981
158,225
34,984
84,476
25,182
9,176
16,006
—
16,006
102
15,904
0.89
0.88
0.89
0.88
0.76
13,949
793,924
23,403
1,184,585
2,179,101
464,585
564,205
329,034
363,404
175,774
160,480
5,727
744,169
23,286
1,120,362
2,066,628
427,105
522,807
451,031
279,840
163,479
119,791
35,224
79,478
23,954
8,560
15,394
(795)
14,599
—
14,599
0.84
0.82
0.79
0.78
0.76
980
618,490
23,756
1,152,796
1,979,650
501,023
467,446
524,189
205,418
65,774
121,071
3,033
582,327
43,919
1,049,206
1,875,615
424,425
498,827
556,869
131,573
44,130
124,140
42,334
94,345
21,792
4,196
17,596
—
17,596
2,074
15,522
0.51
0.51
0.51
0.51
0.36
126,448
677,871
43,372
1,473,309
2,493,297
765,800
565,423
657,848
65,798
148,507
220,821
93,561
830,968
27,954
1,351,407
2,508,184
596,608
596,007
729,053
77,143
155,332
224,820
0.70%
7.83
63.21
8.96
3.92
60.83
0.69
0.42
1.36
315.02
0.31%
3.30
126.29
9.50
4.25
57.03
2.25
0.49
1.39
274.50
0.45%
5.95
107.52
7.48
4.63
56.77
1.95
1.46
1.66
110.54
0.77%
0.82%
13.36
85.43
5.80
4.60
55.44
0.54
0.61
1.35
218.00
12.40
89.35
6.62
4.48
59.43
0.50
0.54
1.31
236.33
[1] All data presented is from continuing operations unless indicated otherwise. certain reclassifications have been made to prior years’ financial data to con-
form to current financial statement presentations.
[2] In this calculation, the term “loans” means loans held for sale and loans held in portfolio.
[3] In this calculation, the term “loans” means loans held in portfolio.
p a g e 2 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, 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, princi-
pally Sterling National Bank. Throughout this discussion and
analysis, the term the “Company” refers to Sterling Bancorp
and its consolidated subsidiaries and the term the “bank”
refers to Sterling National Bank and its consolidated subsid-
iaries, while the term the “parent company” refers to Sterling
Bancorp but not its subsidiaries. This discussion and analysis
should be read in conjunction with the consolidated financial
statements and selected financial data contained elsewhere in
this annual report. Certain reclassifications have been made
to prior years’ financial data to conform to current financial
statement presentations. Throughout management’s discus-
sion and analysis of financial condition and results of opera-
tions, dollar amounts in tables are presented in thousands,
except per share data.
forward -looking Statement S and factorS that
could a ffect f uture r eSultS
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 investment results, future credit exposure, future loan
losses and plans and objectives for future operations, change
in laws and regulations applicable to the Company, adequacy
of funding sources, actuarial expected benefit payment, valu-
ation of foreclosed assets, our ability to hold to maturity
securities designated as held to maturity, regulatory and eco-
nomic environment and other statements contained herein
regarding matters that are not historical facts, are “forward-
looking statements” as defined in the Securities Exchange Act
of 1934. These statements are not historical facts but instead
are subject to numerous assumptions, risks and uncertainties,
and represent only our belief regarding future events, many
of which, by their nature, are inherently uncertain and out-
side our control. Any forward-looking statements the Company
may make speak only as of the date on which such statements
are made. Our actual results and financial position may differ
materially from the anticipated results and financial condi-
tion indicated in or implied by these forward-looking state-
ments, and the Company makes no commitment to update or
revise forward-looking statements in order to reflect new
information or subsequent events or changes in expectations.
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 15–26; 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 the Company will not update any forward-looking
statement, whether written or oral, that may be made from
time to time.
recent m arket d eV eloPmentS
In response to the financial crises affecting the banking sys-
tem and financial markets and going concern threats to
investment banks and other financial institutions, on October
3, 2008, the Emergency Economic Stabilization Act of 2008
(the “EESA”) was signed into law. Pursuant to EESA, the
United States Department of the Treasury (the “U.S. Treasury”)
was given the authority to, among other things, purchase up
to $700 billion of mortgages, mortgage-backed securities and
certain other financial instruments from financial institutions
for the purpose of stabilizing and providing liquidity to the
U.S. financial markets.
On October 14, 2008, the Secretary of the Department of the
Treasury announced that the U.S. Treasury will purchase
equity stakes in a wide variety of banks and thrifts. Under
the program, known as the Troubled Asset Relief Program
(“TARP”) Capital Purchase Program, from the $700 billion
authorized by EESA, the U.S. Treasury made $250 billion of
capital available to U.S. financial institutions in the form of
preferred shares. In conjunction with the purchase of preferred
shares, the U.S. Treasury received, from participating finan-
cial institutions, warrants to purchase common shares with
an aggregate market price equal to 15% of the preferred
investment. Participating financial institutions were required
to adopt the U.S. Treasury’s standards for executive
p a g e 3 0
compensation and corporate governance for the period dur-
ing which the U.S. Treasury holds equity issued under the
TARP Capital Purchase Program. On December 23, 2008,
the Company elected to participate in the TARP Capital
Purchase Program, under which the Company issued pre-
ferred shares and a warrant to purchase common shares to
the U.S. Treasury. In the second quarter of 2011, the
Company repurchased in full the preferred shares and the
warrant to purchase common shares.
On November 21, 2008, the Board of Directors of the FDIC
adopted a final rule relating to the Temporary Liquidity
Guarantee Program (“TLG Program”). The TLG Program
was announced by the FDIC on October 14, 2008, preceded
by the determination of systemic risk by the Secretary of the
Department of Treasury (after consultation with the President),
as an initiative to counter the system-wide crisis in the
nation’s financial sector. Under the TLG Program (as
amended from time to time thereafter) the FDIC would (i)
guarantee, through the earlier of maturity or June 30, 2012,
certain newly issued senior unsecured debt issued by partici-
pating institutions and (ii) provide full FDIC deposit insurance
coverage for non-interest bearing transaction deposit accounts,
Negotiable Order of Withdrawal (“NOW”) accounts paying
less than 0.5% interest per annum and Interest on Lawyers
Trust Accounts (“IOLA”) accounts held at participating
FDIC-insured institutions. The transaction account guaran-
tee program described in clause (ii) expired on June 30, 2010.
Coverage under the TLG Program was available for the first
30 days without charge. The fee assessment for coverage of
senior unsecured debt ranged from 50 basis points to 100
basis points per annum, depending on the initial maturity of
the debt. The fee assessment for deposit insurance coverage
was 10 basis points per quarter on amounts in covered
accounts exceeding $250,000. The Company elected to opt
out of the debt guarantee program under the TLG Program.
On February 10, 2009, the Treasury Secretary announced a
new comprehensive financial stability plan which included: (i)
a capital assistance program that has invested in convertible
preferred stock of certain qualifying institutions, (ii) a con-
sumer and business lending initiative to fund new consumer
loans, small business loans and commercial mortgage asset-
backed securities issuances, (iii) a public-private investment
fund intended to leverage public and private capital with pub-
lic financing to purchase legacy “toxic assets” from financial
institutions, and (iv) assistance for homeowners to reduce
mortgage payments and interest rates and establishing loan
modification guidelines for government and private programs.
In order to restore the depleted Deposit Insurance Fund and
maintain a sound reserve ratio, the FDIC imposed higher
base assessment rates and special one-time assessments and
required prepayment of deposit insurance premium. The FDIC
stated that, after its semi-annual reviews, it may further
increase assessment rates or take other actions to bring the
Deposit Insurance Fund’s reserve ratio back to a desirable level.
In June of 2009, the Obama administration proposed a wide
range of regulatory reforms that included, among other
things, proposals (i) that federal bank regulators require loan
originators or sponsors to retain part of the credit risk of
securitized exposures, (ii) for the creation of a federal con-
sumer financial protection agency that would, among other
things, be charged with applying consistent regulations to
similar products (such as imposing certain notice and consent
requirements on consumer overdraft lines of credit), (iii) that
there be comprehensive regulation of OTC derivatives, (iv)
that the controls on the ability of banking institutions to
engage in transactions with affiliates be tightened, and (v)
that financial holding companies be required to be “well cap-
italized” and “well managed” on a consolidated basis.
On October 22, 2009, the Federal Reserve Board issued a
comprehensive proposal on incentive compensation policies
intended to ensure that the incentive compensation policies of
banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive
risk-taking. The proposal covers all employees that have the
ability to materially affect the risk profile of an organization,
either individually or as part of a group.
In November 2009, the FDIC implemented a final rule requir-
ing insured institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009, and for
all of 2010, 2011 and 2012.
On July 21, 2010, President Obama signed into law Dodd-
Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”). The Dodd-Frank Act has resulted, and
will continue to result, in sweeping changes in the regulation
of financial institutions aimed at strengthening the sound
operation of the financial services sector. Certain provisions
of the Dodd-Frank Act that affect all banks and bank hold-
ing companies include: (i) creation of the Consumer Financial
Protection Bureau, responsible for implementing, examining
and enforcing compliance with federal consumer protection
laws; (ii) limitation on the preemption of state banking law
by federal law; (iii) application of the same leverage and risk-
based capital requirements that apply to insured depository
institutions to most bank holding companies; (iv) making
capital requirements for national banks counter-cyclical; (v)
imposition of “well capitalized” and “well managed” require-
ments to bank holding companies and restricting out-of-state
acquisition by bank holding companies and banks that do not
p a g e 3 1
meet such standards; (vi) implementation of corporate gover-
nance revisions, (vii) making permanent the federal deposit
insurance limit per customer and implementing certain mea-
sures to strengthen the Deposit Insurance Fund (the “DIF”),
(viii) repeal of the federal prohibition on the payment of inter-
est on demand deposits, (ix) prohibition on banking entities
from engaging in proprietary trading or acquiring or retain-
ing an interest in a private equity or hedge fund (the “Volcker
Rule”), and (x) increase of the Federal Reserve’s supervisory
authority, among others.
In October 2010, the FDIC adopted a new DIF restoration
plan to ensure that the fund reserve ratio reaches 1.35% by
September 30, 2020, as required by the Dodd-Frank Act.
In November 2010, the FDIC issued a final rule to implement
provisions of the Dodd-Frank Act that provide for temporary
unlimited coverage for noninterest-bearing transaction accounts.
In December 2010, the Basel Committee released its final
framework for strengthening international capital and liquidity
regulation, now officially identified by the Basel Committee
as “Basel III.” Basel III, when implemented by the U.S. bank-
ing agencies and fully phased-in, will require bank holding
companies and their bank subsidiaries to maintain substan-
tially more capital, with a greater emphasis on common
equity. Also in December 2010, the Federal Reserve Board,
the OCC and the FDIC issued a joint notice of proposed rule-
making that would impose a continuing “floor” of the Basel
I-based capital requirements in cases where the Basel II-based
capital requirements and any changes in capital regulations
resulting from Basel III (see below) otherwise would permit
lower requirements.
Pursuant to the Dodd-Frank Act, the initial version of regula-
tions prohibiting incentive-based payment arrangements at
certain regulated entities that encourage inappropriate risks
by providing an executive officer, employee, director or prin-
cipal shareholder with excessive compensation, fees or bene-
fits or that could lead to material financial loss to the entity
and requiring enhanced disclosure to regulators of incentive-
based compensation arrangements was proposed by the U.S.
financial regulators in February 2011, and the regulations
may become effective in 2012.
In the first half of 2011, the SEC adopted rules concerning say-
on-pay votes and golden parachute compensation arrange-
ments. These rules require us to make enhanced disclosures
to the SEC, and require us to provide our shareholders with a
nonbinding say-on-pay vote to approve the compensation of
the named executive officers, a non-binding vote to deter-
mine how often the say-on-pay vote will occur and, in certain
circumstances, a non-binding vote to approve, and proxy dis-
closure of, golden parachute compensation arrangements.
In October 2011, federal regulators proposed rules to imple-
ment the Volcker Rule. The proposed rules are highly com-
plex, and many aspects of the Volcker Rule remain unclear.
The Volcker Rule provisions are scheduled to take effect no
later than July 2012.
For more detailed discussion on recent legislative and regula-
tory developments, see “SUPERVISION AND REGULATION”
on pages 3–14.
critical a ccounting PolicieS and eS timateS
The accounting and reporting policies followed by the Company
conform, in all material respects, to U.S. generally accepted
accounting principles (“U.S. GAAP”). 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; accord-
ingly, as this information changes, the financial statements
may reflect different estimates, assumptions and judgments.
Certain policies inherently have greater reliance on the use of
estimates, assumptions and judgments and, as such, have a
greater possibility of producing results that could be materi-
ally different than originally reported. Estimates, assump-
tions 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 infor-
mation 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 avail-
able. Management evaluates its estimates and assumptions
on an ongoing basis using historical experience and other
factors, including the current economic environment, which
management believes to be reasonable under the circum-
stances. The Company adjusts such estimates and assump-
tions when the Company believes facts and circumstances
dictate. Illiquid credit markets, volatile equity, foreign cur-
rency and energy markets and declines in consumer spending
have combined to increase the uncertainty inherent in such
estimates and assumptions. As future events and their effects
cannot be determined with precision, actual results could dif-
fer significantly from these estimates. Changes in those esti-
mates resulting from continuing changes in the economic
environment will be reflected in the financial statements in
the future periods.
p a g e 3 2
The Company’s accounting policies are fundamental to
understanding management’s discussion and analysis of
financial condition and results of operations. The most sig-
nificant accounting policies followed by the Company are
presented in Note 1 begin ning on page 64. The accounting
for factoring transactions also is discussed under “BUSINESS
OPERA TIONS —The Bank—Commercial Lending, Asset-
Based Financing, Residential Mortgage Warehouse Lending
and Factoring/Accounts Receivable Management” on pages
1 and 2.
The Company has identified its policies on the valuation of
securities, the allowance for loan losses and income tax liabili-
ties to be critical because management has to make subjective
and/or complex judgments 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.
Management utilizes various inputs to determine the fair
value of its securities portfolio. Fair value of securities is
based upon market prices, where available (Level 1 inputs). If
such quoted market prices are not available, fair value is
based upon market prices determined by an outside, indepen-
dent entity that primarily uses, as inputs, observable market-
based parameters (Level 2 inputs). Valuation adjustments may
be made to ensure that financial instruments are recorded at
fair value. These adjustments may include amounts to reflect
counterparty credit quality and the Company’s creditworthi-
ness, among other things, as well as unobservable parameters
(Level 3 inputs). Any such valuation adjustments are applied
consistently over time. The Company’s valuation methodolo-
gies may produce a fair value calculation that may not be
indicative of net realized value or reflective of future fair val-
ues. While management believes the Company’s valuation
methodologies are appropriate and consistent with other
market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value
at the reporting date. Additional discussion of valuation
methodologies is presented in Note 21 of the Company’s con-
solidated financial statements.
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 intent to sell.
If the decline is deemed to be other-than-temporary, and the
Company does not have the intent to sell, and will not likely
be required to sell, the security is written down to new cost
basis and the resulting credit component of the loss is
reported in noninterest income and the remainder of the loss
is recorded in shareholders’ equity. If the Company intends to
sell or will be required to sell, the full amount of the other-
than-temporary impairment is recorded in noninterest
income. Additional discussion of management’s evaluation
process and other-than-temporary-impairment charges is pre-
sented in Note 1 and in Note 4.
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
significant 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 historical loss experience, and consideration of current
economic trends and conditions, all of which may be suscep-
tible to significant change. The methodology used to deter-
mine the allowance for loan losses is outlined in Note 1 to the
consolidated financial statements and a discussion of the fac-
tors driving changes in the amount of the allowance for loan
losses is included under the caption “Asset Quality” begin-
ning on page 42.
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 Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“Codification”) Topic
740: Income Taxes, 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 Note 1 and in Note 19 of the Company’s con-
solidated financial statements.
p a g e 3 3
oV erView
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 financing and
deposit services. The Company has operations in the New
York metropolitan area and conducts business throughout
the United States. The general state of the U.S. economy and,
in particular, economic and market conditions in the New
York metropolitan area have a significant impact on loan
demand, the ability of borrowers to repay these loans and the
value of any collateral securing these loans and may also
affect deposit levels. Accordingly, future general economic
conditions are a key uncertainty that management expects
will materially affect the Company’s results of operations.
On April 3, 2009, Sterling Factors Corporation, a subsidiary of
the bank, acquired substantially all of the assets and customer
lists of DCD Capital, LLC and DCD Trade Services, LLC.
The acquired assets and customer lists are now operating as a
division under the name Sterling Trade Capital.
In 2011, the bank’s average earning assets represented approx-
imately 98.9% of the Company’s average earning assets.
Loans represented 59.8% and investment securities repre-
sented 35.7% of the bank’s average earning assets in 2011.
The Company’s primary source of earnings is net interest
income, and its principal market risk exposure is interest rate
risk. The Federal Reserve Board influences the general mar-
ket rates of interest, including the deposit and loan rates
offered by many financial institutions. The Company’s loan
portfolio is significantly affected by changes in the prime
interest rate. The prime interest rate, which is the rate offered
on loans to borrowers with strong credit, remained at 3.25%
during 2011, 2010 and 2009. The intended federal funds rate,
which is the cost of immediately available overnight funds,
remained at zero to 0.25% during 2011, 2010 and 2009. The
Company’s balance sheet has historically been asset sensitive,
meaning that earning assets generally reprice more quickly
than interest-bearing liabilities. Therefore, the Company’s net
interest margin is likely to increase in sustained periods of
rising interest rates and decrease in sustained periods of
declining interest rates. The Company is not able to predict
market interest rate fluctuations and its asset/liability man-
agement 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 collect-
ibility of the loan portfolio based on its experience and
evaluation of economic conditions. If such assumptions or
judgments prove to be incorrect, the current allowance for
loan losses may not be sufficient to cover loan losses and
additions to the allowance may be necessary, which would
have a negative impact on net income.
There is intense competition in all areas in which the
Company conducts its business. The Company competes with
banks and other financial institutions, including savings and
loan associations, savings banks, finance companies and
credit unions. Many of these competitors have substantially
greater resources and lending limits and provide a wider array
of banking 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.
Taxable-equivalent adjustments are the result of increasing
income from tax-free loans and investments by an amount
equal to the taxes that would be paid if the income were fully
taxable-based on a 35% federal tax rate, thus making tax-
exempt yields comparable to taxable asset yields.
income Statement a nalYSiS
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
p a g e 3 4
assets are funded by various noninterest-bearing sources,
principally noninterest-bearing deposits and shareholders’
equity. The increases (decreases) in the components of
interest income and interest expense, expressed in terms of
fluctuation in average volume and rate, are provided in the
RATE/VOLUME ANALYSIS shown on page 49. Information
as to the components of interest income and interest expense
and average rates is provided in the AVERAGE BALANCE
SHEETS shown on page 48.
comPariSon of the YearS 2011 and 2010
The Company reported net income available to common
shareholders for 2011 of $15.5 million, representing $0.51
per share calculated on a diluted basis, compared to $4.4 mil-
lion, or $0.18 per share calculated on a diluted basis, for
2010. The $11.1 million increase in net income available to
common shareholders was primarily due to a $2.5 million
increase in net interest income, a $16.5 million decrease in
the provision for loan losses and a $0.5 million decrease in
dividends and accretion related to the preferred shares issued
to the U.S. Treasury under the TARP Capital Purchase
Program, which more than offset a $3.6 million decrease in
noninterest income, a $2.8 million increase in noninterest
expenses and a $2.0 million higher provision for income taxes.
Net Interest Income
Net interest income, on a tax-equivalent basis, was $87.5 mil-
lion for 2011 compared to $84.2 million for 2010. Net interest
income benefited from higher average loan and investment
securities balances and lower cost of funding. Partially offset-
ting those benefits was the impact of lower yield on loans and
investment securities and higher interest-bearing deposit bal-
ances. The net interest margin, on a tax-equivalent basis, was
3.92% for 2011 compared to 4.25% for 2010. The net inter-
est margin was impacted by the lower interest rate environ-
ment in 2011, the higher level of noninterest-bearing demand
deposits and the effect of higher average loans outstanding.
Total interest income, on a tax-equivalent basis, aggregated
$100.5 million for 2011, compared to $99.8 million from
2010. The tax-equivalent yield on interest-earning assets was
4.51% for 2011 compared to 5.04% for 2010.
Interest earned on the loan portfolio increased to $73.2 mil-
lion for 2011 from $70.1 million for the prior year period.
Average loan balances amounted to $1,379.4 million, an
increase of $117.0 million from an average of $1,262.4 mil-
lion in the prior year period. The increase in average loans,
primarily due to the Company’s business development activi-
ties, accounted for a $7.2 million increase in interest earned
on loans. The yield on the loan portfolio decreased to 5.65%
for 2011 from 5.98% for 2010 period, which was primarily
attributable to the lower interest rate environment in 2011
and the mix of average outstanding balances among the com-
ponents of the loan portfolio.
Interest earned on the securities portfolio, on a tax-equivalent
basis, decreased to $26.7 million for 2011 from $29.2 million
in 2010. Average outstandings increased to $831.0 million
(35.9% of average earning assets) for 2011 from $768.2 mil-
lion (37.1% of average earning assets) in 2010. The average
yield on investment securities decreased to 3.21% for 2011
from 3.80% in 2010. The change in both balances and yield
reflect the impact of the Company’s asset/liability manage-
ment strategy designed to shorten the average life of the port-
folio to position itself for rising interest rates in the future as
well as maintain liquidity to grow the loan portfolio. The
short-term part of the strategy was implemented by the sale
of available for sale securities, principally mortgage backed
securities with longer term average lives offset by the pur-
chase of short-term corporate debt. The long-term part of the
strategy was implemented through the purchase of obliga-
tions of U.S. government corporations and government spon-
sored enterprises and obligations of state and political
subdivisions with maturities up to 15 years.
Total interest expense decreased by $2.6 million for 2011
from $15.6 million for the 2010 period, primarily due to the
impact of lower rates paid, coupled with lower balances for
borrowings partially offset by the impact of higher interest-
bearing deposit balances.
Interest expense on deposits decreased to $8.4 million for
2011 from $9.6 million for the 2010 period, due to a decrease
in the cost of those funds partially offset by the impact of
higher interest-bearing deposit balances. The average rate
paid on interest-bearing deposits was 0.64%, which was 21
basis points lower than the prior year period. The decrease in
average cost of deposits reflects the impact of deposit pricing
strategies and the Company’s purchase of certificates of
deposit from the Certificate of Deposit Account Registry
Service (“CDARS”) and various listing services which pro-
vided certificate of deposit balances at lower rates. Average
interest-bearing deposits were $1,325.1 million for 2011 com-
pared to $1,123.3 million for 2010, reflecting the impact of
the Company’s business development activities as well as
funds received from CDARS and various listing services.
Interest expense on borrowings decreased to $4.5 million for
2011 from $6.0 million for 2010 period, primarily due to
lower cost of those funds, partially offset by the impact of the
changes in mix. The average rate paid for borrowed funds
was 1.96%, which was 26 basis points lower than the prior-
year period. The decrease in the average cost of borrowings
reflects the lower interest rate envi ronment in 2011. During
p a g e 3 5
the 2011 first quarter, the bank restructured a portion of its
Federal Home Loan Bank fixed rate advances by repaying
$100 million of existing borrowings and replacing them with
$100 million of lower cost, floating rate advances. This trans-
action resulted in $4.2 million in prepayment penalties that
were deferred and will be recognized in interest expense as an
adjustment to the cost of these borrowings in future periods.
The existing borrowings were a combination of fixed rate
and amortizing advances with an average cost of 2.58% and
an average duration of 3.2 years. The new borrowings are all
floating-rate advances with a current average cost of 1.5%,
including the deferred adjustment, with an average duration
of three months. The relevant accounting treatment for this
transaction was provided by ASC 470-50. This transaction
was executed as an earnings and interest rate risk strategy,
resulting in lower FHLB advance costs and a reduction of
average duration. Average borrowings decreased to $232.5 mil-
lion for 2011 from $270.6 million in the prior-year period, reflect-
ing lesser 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” beginning on
page 42), the provision for loan losses for 2011 was $12.0
million, compared to $28.5 million for 2010. Factors affect-
ing the lower provision for the year of 2011 included current
economic conditions and a lower level of net charge-offs and
lower nonaccrual loan balances.
The level of the allowance reflects changes in the size of the
portfolio or in any of its components as well as management’s
continuing evaluation of industry concentrations, specific
credit risks, loan loss experience, current loan portfolio qual-
ity, present economic, and political and regulatory condi-
tions. Portions of the allowance may be allocated for specific
credits; however, the entire allowance is available for any
credit that, in management’s judgment, should be charged
off. While management utilizes its best judgment and infor-
mation available, the ultimate adequacy of the allowance is
dependent upon a variety of factors beyond the Company’s
control, including the performance of the Company’s loan
portfolio, the economy, changes in interest rates and the view
of the regulatory authorities toward loan classifications.
financial institutions was primarily due to a single borrower
who provides financing to real estate projects that was down-
graded during 2011 to substandard.
Noninterest Income
Noninterest income decreased to $44.1 million for 2011 from
$47.6 million in the 2010 period. The decrease principally
resulted from securities gains recognized in the 2011 period
compared to securities gains recognized in the 2010 period.
Also contributing to the decrease was lower mortgage bank-
ing and deposit service charge income partially offset by
higher income related to accounts receivable management
and factoring services. Securities gains declined and reflected
a modification of the asset/liability management program
commenced in 2009 that was designed to reduce the average
life of the investment securities portfolio which was replaced
by the strategy that was described under Net Interest Income
on page 35. The Company sold approximately $170.9 million
of securities with a weighted average life of about 2.9 years.
The proceeds were used to fund loan growth or were rein-
vested in obligations of state and political subdivisions and
U.S. government agencies with maturities of approximately
18 years and 5 years, respectively, and in short-term corpo-
rate securities. The decrease in mortgage banking income was
primarily due to lower volume of loans sold as well as a
charge taken in the fourth quarter for incurred and probable
repurchase obligations. Deposit service charges were lower
primarily due to higher balances maintained in customer
accounts. Commissions and other fees earned from accounts
receivable management and factoring services were higher
primarily due to the impact of increased volumes at our fac-
toring unit and billings by clients providing temporary
staffing.
Noninterest Expenses
Noninterest expenses for 2011 increased $2.8 million when
compared to 2010. The increase was primarily due to the
impact of higher personnel and occupancy expenses reflect-
ing the Company’s continued investment in the franchise.
Additionally, in the fourth quarter, the Company recorded
a charge related to the settlement of certain litigation and
recognized an expense related to the write-down of certain
assets to realizable value.
During 2011, the allowance for loan losses increased $1.8
million from $18.2 million at December 31, 2010, principally
due to increases in the allowance allocated to residential real
estate mortgages ($1.0 million) and loans to nondepository
financial institutions ($0.8 million). The increase in the
allowance allocated to residential real estate mortgages was
primarily due to higher levels of nonaccrual loans. The
increase in the allowance allocated to loans to nondepository
Provision for Income Taxes
The provision for income taxes for 2011 increased to $4.2 mil-
lion, reflecting an effective tax rate of 19.3%, compared with
$2.2 million for 2010, reflecting an effective tax rate of 23.5%.
The higher provision was due to the higher level of taxable
income, the impact of which was partially offset by the net ben-
efit recognized, in the fourth quarter as the result of the comple-
tion of federal tax audits for the periods 2002 through 2009.
p a g e 3 6
comPariSon of the YearS 2010 and 2009
The Company reported net income available to common
shareholders for 2010 of $4.4 million, representing $0.18 per
share calculated on a diluted basis, compared to $6.6 million,
or $0.37 per share calculated on a diluted basis, for 2009.
The $2.2 million decrease in net income available to common
shareholders was primarily due to a $8.7 million decrease
in interest income, a $3.0 million increase in noninterest
expenses and a $0.6 million increase in the provision for loan
losses, which more than offset a $3.5 million increase in non-
interest income, a $3.7 million decrease in interest expense, a
$2.8 lower provision for income taxes and a reduction of
$0.2 million decrease in dividends and accretion related to
the preferred shares issued to the U.S. Treasury under the
TARP Capital Purchase Program.
Net Interest Income
Net interest income, on a tax-equivalent basis, was $84.2
million for 2010 compared to $87.6 million for 2009. Net
interest income benefited from higher average loan and
investment securities balances, lower borrowings and lower
cost of funding. Partially offsetting those benefits was the
impact of lower yields on loans and investment securities,
coupled with higher interest-bearing deposit balances. The
net interest margin, on a tax-equivalent basis, was 4.25% for
2010 compared to 4.63% for 2009. The net interest margin
was impacted by the lower interest rate environment in 2010,
the higher level of noninterest-bearing demand deposits and
the effect of higher average loans and investment securities
outstanding.
Total interest income, on a tax-equivalent basis, aggregated
$99.8 million for 2010, down $7.2 million from 2009. The
tax-equivalent yield on interest-earning assets was 5.04% for
2010 compared to 5.65% for 2009.
Interest earned on the loan portfolio decreased to $70.1 mil-
lion for 2010 from $71.8 million for the prior year period.
Average loan balances amounted to $1,262.4 million, an
increase of $67.1 million from an average of $1,195.3 million
in the prior year period. The increase in average loans, pri-
marily due to the Company’s business development activities,
accounted for a $3.7 million increase in interest earned on
loans. The yield on the loan portfolio decreased to 5.98% for
2010 from 6.38% for 2009 period, which was primarily
attributed to the mix of average outstanding balances among
the components of the loan portfolio.
Interest earned on the securities portfolio, on a tax-equiva-
lent basis, decreased to $29.2 million for 2010 from $34.6
million in 2009. Average outstandings increased to $768.2
million (37.1% of average earning assets) for 2010 from
$719.5 million (36.7% of average earning assets) in 2009.
The average yield on investment securities decreased to
3.80% for 2010 from 4.80% in 2009. The decrease in both
balances and yield reflect the impact of the Company’s asset/
liability management strategy designed to shorten the average
life of the portfolio to position the Company for rising interest
rates in future periods while taking advantage of the current
uptick in long-term rates. The short-term part of the strategy
was implemented through the sale of available for sale securi-
ties, principally mortgage-backed securities, with longer-term
average lives offset by the purchase of short-term corporate
debt and obligations of U.S. government corporations and
government-sponsored enterprises. The long-term part of the
strategy was implemented through the purchase of obliga-
tions of state and political subdivisions with maturities of
approximately 10 years.
Total interest expense decreased by $3.7 million for 2010
from $19.3 million for 2009 period, primarily due to the
impact of lower rates paid, coupled with lower balances for
borrowings, partially offset by the impact of higher interest-
bearing deposit balances.
Interest expense on deposits decreased to $9.6 million for
2010 from $11.9 million for the 2009 period, primarily due
to a decrease in the cost of those funds. The average rate paid
on interest-bearing deposits was 0.85%, which was 42 basis
points lower than the prior-year period. The decrease in
average cost of interest-bearing deposits reflects the impact of
deposit pricing strategies and the Company’s purchase of
certificates of deposit from CDARS which provided deposit
balances at lower rates than paid for traditional certificate of
deposit products. Average interest-bearing deposits were
$1,123.3 million for 2010 compared to $938.5 million for
2009, reflecting an increase in certificates of deposit, largely
to the CDARS program which is a lower cost product than
traditional certificates of deposit.
Interest expense on borrowings decreased to $6.0 million for
2010 from $7.4 million for 2009 primarily due to lower bal-
ances partially offset by the impact of changes in mix.
Average borrowings decreased to $270.6 million for 2010
from $446.1 million in the prior-year period, reflecting a
lesser reliance by the Company on wholesale borrowed funds.
The change in mix resulted in an increase in the blended cost
of borrowing to 2.22% from 1.66%.
Provision for Loan Losses
In light of recent economic developments and continued eco-
nomic uncertainty, during the third quarter of 2010 the
Company decided, after consultation with external profes-
sionals and regulators, to implement an accelerated resolution
of certain categories of nonaccrual loans. As a result, net
p a g e 3 7
charge-offs during 2010 of loans to small business borrowers
(primarily in the lease financing portfolio) increased $6.3
million when compared to the comparable 2009 period.
Based on management’s continuing evaluation of the loan
portfolio (discussed under “Asset Quality” beginning on
page 42), the provision for loan losses for 2010 was $28.5
million, compared to $27.9 million for the prior-year period.
The level of the allowance reflects changes in the size of the
portfolio or in any of its components as well as management’s
continuing evaluation of industry concentrations, specific
credit risks, loan loss experience, current loan portfolio qual-
ity, present economic, and political and regulatory condi-
tions. Portions of the allowance may be allocated for specific
credits; however, the entire allowance is available for any
credit that, in management’s judgment, should be charged
off. While management utilizes its best judgment and infor-
mation available, the ultimate adequacy of the allowance
is dependent upon a variety of factors beyond the Com pany’s
control, including the performance of the Company’s loan
portfolio, the economy, changes in interest rates and the view
of the regulatory authorities toward loan classifications.
During 2010, the allowance for loan losses decreased primar-
ily due to a reduction in the allowance allocated to lease
financing receivables, partially offset by increases in the
allowance allocated to commercial and industrial loans, fac-
tored receivables, real estate residential mortgage, and real
estate commercial mortgage and real estate construction and
land development. The allowance allocated to lease financing
receivables decreased primarily as a result of the lower level
of lease financing receivables nonaccrual balances. The
increase of the allowance allocated to commercial and indus-
trial loans was primarily the result of the unsteady economic
recovery resulting in higher charge-offs in 2010 compared to
2009 partially offset by lower nonaccrual levels at December
31, 2010 compared to December 31, 2009. The allowance
allocated to factored receivables increased based on the con-
tinued weakening in the consumer sectors resulting in higher
charge-offs in 2010 compared to 2009. The increase in the
allowance allocated to real estate residential mortgage loans
was primarily due to the persistent decline in residential real
estate values coupled with an increase in the specific valua-
tion allowance for impaired residential mortgage loans. As a
result of the disruption in the commercial real estate markets,
resulting in an increase in nonaccrual levels and higher spe-
cific reserves for classified loans at December 31, 2010 when
compared to December 31, 2009, the allowance allocated to
real estate commercial mortgage and to real estate construc-
tion and land development was increased.
Noninterest Income
Noninterest income increased to $47.6 million for 2010 from
$44.2 million in 2009. The increase principally resulted from
higher income related to accounts receivable management
and factoring services offset partly by lower mortgage bank-
ing income and securities gains. Commissions and other
fees earned from accounts receivable management and factor-
ing services were higher primarily due to the impact of
increased volumes at our factoring unit and billings by clients
providing temporary staffing also contributed to the improved
level of fee income. Mortgage banking declined due to a lower
volume of loans closed and a change in the mix of products
being sold. Securities gains declined and reflected a modifica-
tion of the asset liability management program commenced
in 2009 that was designed to reduce the average life of the
investment securities portfolio which was replaced by the
strategy that was described under Net Interest Income on
page 35. The Company sold approximately $165.8 million
of securities with a weighted average life of approximately
2.4 years.
Noninterest Expenses
Noninterest expenses were $91.6 million for 2010, compared
to $88.5 million in 2009, primarily reflecting higher compen-
sation and occupancy expenses related to the growth of the
business and increased business development activities.
Provision for Income Taxes
The provision for income taxes for 2010 decreased to $2.2
million from $4.9 million for 2009. The decrease was pri-
marily due to lower taxable income and a lower effective
income tax rate in the 2010 period (23.5%) compared to the
2009 period (34.2%). The decrease in the effective tax rate
was primarily related to the higher proportion of tax-exempt
income achieved in 2010 compared to 2009 coupled with a
lower level of pre-tax income.
balance Sheet a nalYSiS
Securities
At December 31, 2011, the Company’s portfolio of securities
totaled $677.9 million, of which obligations of U.S. govern-
ment corporations and government-sponsored enterprises
amounted to $301.1 million which is approximately 44.4%
of the total. The Company has the intent and ability to hold
to maturity securities classified as held to maturity, at which
time it will receive full value for these securities. These secu-
rities are carried at cost, adjusted for amortization of premi-
ums and accretion of discounts. The gross unrealized gains
and losses on held to maturity securities were $17.9 million
p a g e 3 8
and $-0-, respectively. Securities classified as available for sale may be sold in the future, prior to maturity. These securities are
carried at fair value. Net aggregate unrealized gains or losses on these securities are included, net of taxes, as a component of
shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment
upon market recovery or the maturity of such instruments and thus believes that any impairment in value is interest-rate-related
and therefore temporary. Avail able for sale securities included gross unrealized gains of $3.2 million and gross unrealized losses
of $5.0 million. As of December 31, 2011, management does not have the intent to sell any of the securities classified as avail-
able for sale in the table on page 40 and management believes that it is more likely than not that the Company will not have to
sell any such securities before a recovery of cost.
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,
2011
2010
2009
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential 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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal Farm Credit Bank
Total obligations of U.S. government corporations and government-
sponsored enterprises
Obligations of state and political subdivisions—New York bank qualified
Single issuer, trust preferred securities
Corporate debt securities
Equity and other securities
Total marketable securities
Debt securities issued by foreign governments
$ 3,942
28,213
5,667
49,148
23,719
4,230
0.58%
4.16
0.84
7.25
3.50
0.62
$ 7,504
47,422
7,290
78,822
40,628
5,052
0.95%
6.01
0.92
9.98
5.15
0.64
$ 13,740
22,698
9,048
125,673
71,715
13,146
1.86%
3.08
1.23
17.05
9.73
1.78
114,919
16.95
186,718
23.65
256,020
34.73
105,482
45,094
35,374
251
301,120
160,503
27,059
173,307
15,882
677,871
—
15.56
6.65
5.22
0.04
44.42
23.68
3.99
25.57
2.34
100.00
—
115,133
24,932
92,479
15,109
434,371
157,013
3,933
189,058
4,940
789,315
—
14.59
3.16
11.72
1.91
55.03
19.89
0.50
23.95
0.63
100.00
—
116,603
102,799
29,418
14,899
519,739
83,337
4,483
129,200
56
736,815
250
15.82
13.95
3.99
2.02
70.51
11.31
0.61
17.53
0.01
99.97
0.03
Total
$ 677,871
100.00%
$ 789,315
100.00%
$ 737,065
100.00%
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, 2011
Residential mortgage-backed securities
Agency notes (with original call dates ranging between 3 and 36 months)
Corporate debt securities
Obligations of state and political subdivisions
[1] Tax equivalent
Weighted Average Life
Weighted Average Yield
AFS
HTM
2.1 years
1.0 years
1.5 years
5.4 years
3.2 years
1.0 years
—
6.9 years
AFS
1.83%
0.62
2.52
5.68[1]
HTM
4.61%
1.49
—
5.82[1]
p a g e 3 9
The following tables present information regarding securities available for sale and securities held to maturity at December 31,
2011, 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 securities is presented on a tax-equivalent basis.
Amortized
Cost
Fair
Value
Weighted
Average
Yield
$ 21,642
$ 21,739
1.86%
5,666
2,137
38
98
5,667
2,211
37
98
29,581
29,752
501
101
376
251
501
102
383
251
1.08
3.30
6.18
0.96
1.82
0.50
0.30
1.00
1.10
30,810
30,989
1.78
1,623
1,230
3,895
14,423
21,171
1,639
1,278
4,297
15,563
22,777
5.28
4.98
5.49
5.84
5.69
28,506
27,059
6.17
36,945
34,650
54,772
45,929
3,255
369
36,845
34,371
54,306
44,248
3,169
368
175,920
173,307
15,322
15,882
$ 271,729
$270,014
1.54
2.26
2.87
2.97
4.13
4.36
2.52
2.43
2.89
Available for sale
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential mortgage-backed securities
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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Due after 1 year but within 5 years
Federal Home Loan Bank
Due within 1 year
Federal Home Loan Mortgage Corporation
Due after 1 year but within 5 years
Federal Farm Credit Bank
Due after 1 year but within 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 but within 10 years
Due after 10 years
Total obligations of state and political institutions
Single-issuer trust preferred securities
Due after 10 years
Corporate debt securities
Due within 6 months
Due after 6 months but within 1 year
Due after 1 year but within 2 years
Due after 2 years but within 5 years
Due after 5 years but within 10 years
Due after 10 years
Total corporate debt securities
Equity and other securities
Total available for sale
p a g e 4 0
Held to maturity
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential 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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Due after 10 years
Federal Home Loan Bank
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Federal Home Loan Mortgage Corporation
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Total obligations of U.S. government corporations and government-
sponsored enterprises
Obligations of state and political institutions
Due within 5 years but within 10 years
Due after 10 years
Total obligations of state and political institutions
Total held to maturity
Carrying
Value
Fair
Value
Weighted
Average
Yield
$ 3,942
$ 4,134
5.78%
6,474
46,937
23,682
4,132
85,167
15,000
19,995
69,986
5,000
39,992
10,000
24,991
6,779
50,714
25,351
4,735
91,713
15,077
20,024
70,083
5,003
40,023
10,006
25,025
4.71
4.44
4.37
6.48
4.60
1.83
1.93
1.41
1.00
1.18
1.00
1.92
270,131
276,954
2.47
2,203
2,437
135,523
146,384
137,726
148,821
$ 407,857
$ 425,775
5.18
5.83
5.82
3.60
Loan Portfolio
A management objective is to maintain the quality of the loan portfolio. The Company seeks to achieve this objective by maintain-
ing rigorous underwriting standards coupled with regular evaluation of the creditworthiness of and the designation of lending
limits for each borrower. The portfolio strategies include seeking industry and loan size diversification in order to minimize
credit exposure and originating loans in markets with which the Company is familiar.
The Company’s commercial and industrial loan and factored receivables portfolios represent approximately 52% of all loans.
Loans in this category are typically made to individuals and small and medium-sized businesses in amounts generally up to $20
million. Loans to nondepository financial institutions, which include the Company’s residential mortgage warehouse funding
product and loans to finance companies, represent approximately 16% of all loans. The Company’s equipment financing port-
folio, which consists of finance leases for various types of business equipment, represents approximately 10% of all loans. The
Company’s real estate loan portfolios, which represent approximately 21% of all loans, are secured by mortgages on real prop-
erty located principally in the states of New York, New Jersey, Connecticut, Virginia and North Carolina. Sources of repay-
ment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting
standards, loans and leases may be secured in whole or in part by collateral such as liquid assets, accounts receivable, equip-
ment, 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. Loans to borrowers located in the states of New York and New Jersey represent approxi-
mately 51% and 14%, respectively, of all loans. Loans to borrowers located in any other state do not exceed 10% of all loans.
p a g e 4 1
The following table 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; there were no foreign loans outstanding at the end of each of
the five most recent fiscal years.
December 31,
2011
2010
2009
2008
2007
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
Domestic
Commercial and industrial
Loans to nondepository
institutions
Factored receivables
Equipment financing receivables
Real estate
Residential mortgage—
portfolio
Residential mortgage—
held for sale
Commercial mortgage
Construction and
land development
Loans to individuals
Loans to depository institutions
$ 624,124
41.15% $ 618,223
45.92% $ 550,285
44.76% $ 531,471
44.00% $ 518,265
44.05%
246,587
171,831
150,782
16.26
11.33
9.94
112,882
161,789
144,235
8.38
12.02
10.72
35,591
139,927
195,056
2.90
11.38
15.87
N/A
89,145
255,743
—
7.38
21.17
N/A
80,007
249,702
—
6.80
21.22
170,153
11.22
127,695
9.49
124,681
10.14
142,135
11.76
129,465
11.00
43,372
85,825
13,621
10,376
10
2.86
5.66
0.90
0.68
—
32,049
96,991
25,624
11,370
15,425
2.38
7.20
1.90
0.84
1.15
33,889
92,614
24,277
12,984
20,000
2.76
7.53
1.97
1.06
1.63
23,403
96,883
25,249
18,959
25,000
1.94
8.02
2.09
1.57
2.07
23,756
99,093
37,161
12,103
27,000
2.02
8.42
3.16
1.03
2.30
Total
$ 1,516,681 100.00% $ 1,346,283 100.00% $ 1,229,304 100.00% $ 1,207,988 100.00% $ 1,176,552 100.00%
Based on contractual maturity date, the following table sets forth information regarding the Company’s commercial and indus-
trial, factored receivables and construction and land development loans, as of December 31, 2011:
Commercial and industrial
Factored receivables
Real estate—construction and land development
Due One
Year
or Less
$516,214
172,082
13,030
Due One
to Five
Years
$87,992
—
591
Due
After Five
Years
$21,857
—
—
Total
Gross
Loans
$626,063
172,082
13,621
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.
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.
Nonaccrual loans at December 31, 2011 decreased $286 thousand compared to December 31, 2010. This primarily reflected
decreases of $180 thousand and $522 thousand in commercial and industrial loans and lease financing receivables, respectively,
partially offset by an increase of $377 thousand in residential real estate mortgage loans. Net loan charge-offs in 2011 were
$19.4 million lower than those in 2010 (primarily reflecting decreases in net charge-offs of $15.6 million for lease financing
receivables and $4.1 million for commercial and industrial loans partially offset by a $0.8 million increase for residential real
estate mortgage loans). A worsening of existing economic conditions will likely result in levels of charge-offs and nonaccrual
loans that will be higher than those in the historical levels.
p a g e 4 2
The following table 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. At December 31, 2011,
approximately $6.4 million of equipment financing receivables and residential real estate loans were troubled debt restructurings.
See Note 5 beginning on page 77 for additional discussion. 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,
Gross loans
Nonaccrual loans
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land
development
Loans to individuals
Total nonaccrual loans
Past due 90 days or more (other than the above)
Restructured loans (other than the above)
2011
2010
2009
2008
2007
$ 1,534,779
$ 1,365,296
$ 1,254,946
$ 1,245,263
$ 1,249,128
$
834
—
370
1,991
3,124
—
39
6,358
165
5,851
$
1,014
$
4,231
$
—
892
1,614
3,124
—
—
6,644
314
5,829
—
11,960
1,786
—
—
—
17,977
1,194
5,176
816
—
3,387
3,078
—
—
63
7,344
821
70
$
610
—
2,571
2,786
—
—
416
6,383
1,329
—
Total
$
12,374
$
12,787
$
24,347
$
8,235
$
7,712
Interest income that would have been
earned on nonaccrual loans outstanding
Applicable interest income actually realized on
nonaccrual loans outstanding
Nonaccrual and past due loans as a percentage
$
$
780
200
$
$
902
$
1,463
204
$
743
$
$
731
321
$
$
655
222
of total gross loans
0.43%
0.51%
1.53%
0.66%
0.62%
Interest income that would have been earned in 2011 on restructured loans amounted to $582 thousand. Interest income actu-
ally realized in 2011 on restructured loans was $335 thousand.
At December 31, 2011, commercial and industrial nonaccruals represented 0.13% of commercial and industrial loans. There were
2 loans made to borrowers located in 1 state with balances ranging between approximately $39.0 thousand and $794.9 thousand.
At December 31, 2011, equipment financing nonaccruals represented 0.25% of lease financing receivables. The lessees of the
equipment are located in 6 states. There were 11 leases ranging between approximately $0.3 thousand and $110.0 thousand.
The value of the underlying collateral related to lease financing nonaccruals varies depending on the type and condition of
equipment. While most leases are written on a recourse basis, with personal guarantees of the principals, the current value of
the collateral is often less than the lease financing balance. Collection efforts include repossession and/or sale of leased equip-
ment, payment discussions with the lessee, the principals and/or guarantors, and obtaining judgments against the lessee, the
principals and/or guarantors. The balance is charged off at the earlier of the date when the lease is past due 120 days or the date
when it is determined that collection efforts are no longer productive. Factors considered in determining whether collection
efforts are no longer productive include any amounts currently being collected, the status of discussions or negotiations with the
lessee, the principal and/or guarantors, the cost of continuing efforts to collect, the status of any foreclosure or other legal
actions, the value of the collateral, and any other pertinent factors.
At December 31, 2011, residential real estate nonaccruals represented 1.17% of residential real estate loans held in portfolio.
There were 12 loans ranging between approximately $0.3 thousand and $658.0 thousand secured by properties located in
4 states.
p a g e 4 3
At December 31, 2011, commercial real estate nonaccruals represented 3.64% of commercial real estate loans. There was one
loan for $745.3 thousand and another for $2.4 million secured by property located in 1 state.
At December 31, 2011, other real estate owned consisted of 6 properties valued between $100.0 thousand and $554.6 thousand
located in 3 states.
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents
management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in
the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The
Company’s allowance for loan losses methodology includes allowance allocations calculated in accordance with FASB
Codification Topic 310, Receivables and allowance allocations calculated in accordance with FASB Codification Topic 450,
contingencies. Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade,
specific homogenous pools and specific loss allocations, with adjustments for current events and conditions. The Company’s
process for the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The
provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due
loans, potential problem loans, classified and criticized loans and net charge-offs or recoveries, among other factors. The provi-
sion for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of
the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized
loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases
in required allowances for specific loans or loan pools. See Note 5—Loans and Allowance for Loan Losses in the accompanying
notes to consolidated financial statements included elsewhere in this report for further details regarding the methodology for
estimating the appropriate level of the allowance for loan losses.
At December 31, 2011, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.36% and the
allowance was $20.0 million. Loans 90 days past due and still accruing amounted to $165 thousand. At such date, the Company’s
nonaccrual loans amounted to $6.4 million; $3.7 million of such loans were judged to be impaired within the scope of FASB
Codification Topic 310, Receivables, and had a valuation allowance totaling $1.1 million, which is included within the overall
allowance for loan losses. 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 to absorb all probable losses on specifically
known and other credit risks associated with the portfolio as of December 31, 2011. 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 2011. We did not have any 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.
p a g e 4 4
The following table 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,
2011
2010
2009
2008
2007
Average loans held in portfolio, net of unearned
discounts, during year
$ 1,351,407
$ 1,227,049
$ 1,154,041
$ 1,120,362
$ 1,049,206
Allowance for loan losses:
Balance at beginning of year
Charge-offs:
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land
development
Loans to individuals
Total charge-offs
Recoveries:
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land
development
Loans to individuals
Total recoveries
Subtract:
Net charge-offs
Provision for loan losses
Less loss on transfers to other real estate owned
$
18,238
$
19,872
$
16,010
$
15,085
$
16,288
2,909
358
8,266
1,266
—
—
30
7,212
665
22,509
351
129
—
231
4,945
514
19,115
312
—
—
—
2,610
581
3,886
58
—
—
—
2,620
243
3,345
215
—
—
67
12,829
31,097
24,886
7,135
6,490
146
79
2,255
165
—
—
—
312
239
902
—
—
—
48
1,042
63
345
102
—
—
—
2,645
1,501
1,552
10,184
12,000
25
29,596
28,500
538
23,334
27,900
704
297
26
294
61
—
—
69
747
6,388
8,325
1,012
219
31
316
30
—
—
110
706
5,784
5,853
1,272
Balance at end of year
$
20,029
$
18,238
$
19,872
$
16,010
$
15,085
Ratio of net charge-offs to average loans held
in portfolio, net of unearned discounts,
during year
0.75%
2.41%
2.02%
0.57%
0.55%
p a g e 4 5
The following table 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,
2011
2010
2009
2008
2007
% 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
Domestic
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
(portfolio)
Real estate—commercial mortgage
Real estate—construction and
land development
Loans to individuals
Loans to depository institutions
Unallocated
$ 7,647
1,369
1,450
3,515
42.36% $ 7,454
564
16.74
1,424
11.66
3,423
10.24
3,490
2,151
11.55
5.83
2,497
2,275
165
104
—
138
0.92
0.70
—
—
310
119
46
126
8.59
12.31
10.97
9.72
7.38
1.95
0.87
1.17
—
47.04% $ 6,082
46.03% $ 5,530
—
933
6,130
— 2.98
11.70
16.32
971
10,249
44.87% $ 5,655
—
1,083
5,398
—
7.52
21.59
44.96%
—
6.94
21.66
1,646
560
10.43
7.75
2,355
674
12.00
8.18
1,988
613
11.23
8.60
149
2.03
1.09
80
— 1.67
—
135
175
88
88
37
2.13
1.60
2.11
—
183
15
54
96
3.22
1.05
2.34
—
Total
$ 20,029 100.00% $ 18,238 100.00% $19,872 100.00% $ 16,010 100.00% $ 15,085 100.00%
During 2011, the allowance for loan losses increased $1.8 million from $18.2 million at December 31, 2010 principally due to
increases in the allowance allocated to real estate residential mortgages ($1.0 million) and loans to nondepository financial institu-
tions ($0.8 million). The increase in the allowance allocated to residential real estate mortgages was primarily due to higher
levels of nonaccrual loans. The increase in the allowance allocated to loans to nondepository financial institutions was primar-
ily due to higher loan balances in this category.
During 2010, the allowance for loan losses decreased $1.6 million from $19.9 million at December 31, 2009 primarily due to a
reduction in the allowance allocated to lease financing receivables ($6.8 million) partially offset by increases in the allowance
allocated to commercial and industrial loans ($1.4 million), factored receivables ($0.5 million), real estate residential mortgage
loans ($0.9 million), and real estate commercial mortgage loans ($1.7 million) and real estate construction and land develop-
ment loans ($0.2 million). The allowance allocated to lease financing receivables decreased primarily as a result of the lower
level of lease financing receivables nonaccrual balances. The increase of the allowance allocated to commercial and industrial
loans was primarily the result of the unsteady economic recovery. The allowance to factored receivables increased based on the
continued weakening in the consumer sectors. The increase in the allowance allocated to real estate residential mortgage loans
was primarily due to the persistent decline in residential real estate values. As a result of the disruption in the commercial real
estate markets, the allowance allocated to real estate commercial mortgage loans and to real estate construction and land devel-
opment loans was increased.
During 2009, the allowance for loan losses increased because of increases in the allowance allocated to lease financing receivables
and in the allowance allocated to commercial and industrial loans, partially offset by a reduction in the allowance allocated to
real estate-residential mortgage loans. The allowance allocated to lease financing receivables increased primarily as a result of
increased losses experienced in that category in 2009 compared to 2008 partially offset by a decrease in the specific valuation
allowance for impaired loans. The impact of the increase in nonaccrual lease financing receivables at December 31, 2009 com-
pared to December 31, 2008 was mitigated by decreasing levels of nonaccruals in that category in the third and fourth quarters
of 2009 compared to the second quarter of 2009. The allowance allocated to commercial and industrial loans increased due to
increased losses experienced in that category in 2009 compared to 2008 and higher nonaccrual levels in that category at December
31, 2009 compared to December 31, 2008 partially offset by a decrease in the specific valuation allowance for impaired loans.
p a g e 4 6
The allowance allocated to real estate-residential mortgage loans decreased primarily due to lower nonaccrual loan balances at
December 31, 2009 compared to December 31, 2008 coupled with a decrease in the specific valuation allowance for impaired
loans. During the fourth quarter of 2009 the level of the allowance for loan losses benefited from a recovery of $0.9 million on
a loan charged off in a prior period.
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,
2011
2010
2009
Domestic
Demand
NOW
Savings
Money Market
Time deposits less than $100 thousand
Time deposits greater than $100 thousand
Balances
% of
Total
Balances
% of
Total
Balances
% of
Total
$ 765,800
38.50%
$ 570,290
32.63%
$ 546,332
34.56%
177,495
18,566
369,362
116,049
541,799
8.93
0.93
18.57
5.83
27.24
200,521
18,931
342,755
126,834
488,433
11.47
1.08
19.61
7.26
27.95
266,343
17,497
308,175
140,678
301,057
16.85
1.11
19.50
8.90
19.04
Total domestic deposits
1,989,071
100.00
1,747,764
100.00
1,580,082
99.96
Foreign
Demand
Time deposits greater than $100 thousand
Total foreign deposits
Total deposits
—
—
—
—
—
—
—
—
—
—
—
—
5
580
585
—
0.04
0.04
$ 1,989,071
100.0%
$ 1,747,764
100.0%
$ 1,580,667
100.00%
The Company began participating in the Certificate of Deposit Account Registry Service (“CDARS”) on January 22, 2009.
CDARS deposits totaled approximately $164.5 million at December 31, 2011 and averaged approximately $224.6 million for
the year ended December 31, 2011. CDARS deposits totaled approximately $180.7 million at December 31, 2010 and averaged
approximately $184.2 million for the year ended December 31, 2010.
Scheduled maturities of time deposits at December 31, 2011 were as follows:
2012
2013 and later
Scheduled maturities of time deposits in amounts of $100,000 or more at December 31, 2011 were as follows:
Due within 3 months or less
Due after 3 months and within 6 months
Due after 6 months and within 12 months
Due after 12 months
$ 608,442
49,406
$ 657,848
$ 220,594
197,561
95,593
28,051
$ 541,799
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 48.
p a g e 4 7
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,
2011
2010
2009
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
aSSetS
Interest-bearing deposits with other banks
Investment securities
Available for sale—taxable
Held to maturity—taxable
Tax-exempt[2]
Federal Reserve and Federal
Home Loan Bank stock
Loans, net of unearned discounts[3]
$
93,561 $
227
0.24% $
31,960 $
75
0.23% $
36,804 $
85
0.23%
351,348
322,312
157,308
8,788
8,078
9,784
8,770
1,379,361
374
73,241
2.50
2.51
6.22
4.27
5.65
394,635
252,915
120,634
8,617
1,262,403
10,863
10,879
7,422
448
70,104
2.75
4.30
6.15
5.20
5.98
350,069
320,655
48,761
9,487
1,195,266
16,575
15,070
2,907
516
71,788
4.73
4.70
5.96
5.45
6.38
total intereSt-earning aSSetS
2,312,660
100,492
4.51% 2,071,164
99,791
5.04% 1,961,042
106,941
5.65%
Cash and due from banks
Allowance for loan losses
Goodwill
Other
total aSSetS
liabilitieS and ShareholderS’ eQuitY
Interest-bearing deposits
39,734
(19,951)
22,901
152,840
$ 2,508,184
36,810
(21,668)
22,901
135,362
$ 2,244,569
31,118
(19,107)
22,901
118,267
$ 2,114,221
Domestic
Savings
NOW
Money market
Time
Foreign
Time
$
18,474
210,443
367,090
729,053
8
372
2,475
5,583
0.04% $
0.18
0.67
0.77
18,631
209,197
336,233
558,886
11
472
2,805
6,297
0.06% $
0.23
0.83
1.13
18,012
211,121
333,647
375,164
18
620
3,252
7,993
0.10%
0.29
0.97
2.13
1.09
1.27
Total interest-bearing deposits
1,325,060
8,438
0.64
1,123,264
9,588
—
—
—
317
3
1.09
0.85
578
6
938,522
11,889
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—FRB
Short-term borrowings—other
Advances—FHLB
Long-term borrowings—subordinated
debentures
Total borrowings
42,911
5,186
10,926
14,454
3,666
129,558
25,774
232,475
186
0.43
47,674
229
0.48
72,892
353
0.48
66
14
43
2
2,144
2,094
4,549
1.27
0.13
0.30
0.07
1.66
8.38
1.96
5,618
33,192
14,718
—
3,699
7,306
132,577
25,774
270,558
44
74
45
—
9
18
3,482
2,094
5,995
0.79
0.22
0.30
—
0.25
0.25
2.63
8.38
2.22
—
25,075
13,107
3,411
154,726
1,864
149,207
25,774
446,056
—
51
67
11
398
—
4,432
2,094
7,406
—
0.21
0.51
0.31
0.26
—
2.97
8.38
1.66
Total interest-bearing liabilities
1,557,535
12,987
0.83% 1,393,822
15,583
1.12% 1,384,578
19,295
1.39%
Noninterest-bearing demand deposits
596,608
—
489,184
—
441,087
—
Total including noninterest-bearing
demand deposits
Other liabilities
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
2,154,143
12,987
0.61% 1,883,006
15,583
0.83% 1,825,665
19,295
1.06%
129,221
2,283,364
224,820
148,410
2,031,416
213,153
$ 2,508,184
$ 2,244,569
130,331
1,955,996
158,225
$2,114,221
87,505
3.68%
84,208
3.92%
87,646
4.26%
3.92%
4.25%
4.63%
3,428
$ 84,077
2,601
$ 81,607
1,021
$ 86,625
[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; all loans are domestic. nonaccrual loans are included in amounts outstanding and income has been included
to the extent earned.
p a g e 4 8
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,
intereSt income
December 31, 2010 to
December 31, 2011
December 31, 2009 to
December 31, 2010
Volume
Rate
Total[2]
Volume
Rate
Total[2]
(in thousands)
Interest-bearing deposits with other banks
$
149
$
3
$
152
$
(10)
$
—
$
(10)
Investment securities
Available for sale—taxable
Held to maturity—taxable
Tax-exempt
Total
Federal Reserve and Federal Home Loan
Bank stock
(1,134)
2,484
2,277
3,627
(941)
(5,285)
85
(6,141)
(2,075)
(2,801)
2,362
1,901
(2,987)
4,419
(7,613)
(1,204)
96
(5,712)
(4,191)
4,515
(2,514)
3,333
(8,721)
(5,388)
8
(82)
(74)
(45)
(23)
(68)
Loans, net of unearned discounts[3]
7,188
(4,051)
3,137
3,723
(5,407)
(1,684)
total intereSt income
$ 10,972
$ (10,271)
$
701
$ 7,001
$ (14,151)
$ (7,150)
intereSt exPenSe
Interest-bearing deposits
Domestic
Savings
NOW
Money market
Time
Foreign
Time
$ —
$
(3)
$
3
241
1,618
(103)
(571)
(2,332)
(3)
(100)
(330)
(714)
$
1
(7)
25
$
(8)
$
(7)
(141)
(472)
(148)
(447)
2,965
(4,661)
(1,696)
(3)
—
(3)
(3)
—
(3)
Total interest-bearing deposits
1,859
(3,009)
(1,150)
2,981
(5,282)
(2,301)
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—FRB
Short-term borrowings—other
Advances—FHLB
Total borrowings
(21)
(3)
(37)
(2)
—
(9)
(7)
(77)
(156)
(22)
25
(23)
—
—
—
(9)
(43)
22
(60)
(2)
—
(9)
(16)
(1,261)
(1,290)
(1,338)
(1,446)
(124)
44
20
8
(11)
(375)
—
(469)
(907)
—
—
3
(30)
—
(14)
18
(481)
(504)
(124)
44
23
(22)
(11)
(389)
18
(950)
(1,411)
total intereSt exPenSe
$ 1,703
$ (4,299)
$ (2,596)
$ 2,074
$ (5,786)
$ (3,712)
net intereSt income
$ 9,269
$ (5,972)
$ 3,297
$ 4,927
$ (8,365)
$ (3,438)
[1] Amounts are presented on a tax-equivalent basis.
[2] The change in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the
change due to rate in proportion to the relationship of the change due solely to each. The change in interest expense for foreign time deposits and short-term
borrowings—FRB has been allocated entirely to the volume variance.
[3] Includes loans held for sale and loans held in portfolio; all loans are domestic. nonaccrual loans have been included in the amounts outstanding and income
has been included to the extent earned.
p a g e 4 9
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, 2011, presented on page 56, indi-
cates that net interest income would increase during periods
of rising interest rates and decrease during periods of falling
interest rates, but, as mentioned above, gap analysis may not
be an accurate predictor of net interest income.
p a g e 5 0
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, 2011, the Company was not a party to
any financial instrument derivative agreement.
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
consider various factors which impact net interest income.
These factors include actual maturities, estimated cash flows,
repricing characteristics, deposits growth/retention and, most
importantly, the relative sensitivity of the Company’s assets
and liabilities to changes in market interest rates. This rela-
tive 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 management believes to be reasonable. Utilizing this
process, management projects the impact of changes in inter-
est rates on net interest margin. The Company has estab-
lished 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 sce-
narios. Man agement generally has maintained a risk position
well within the policy limits. As of December 31, 2011, the
model indicated the impact of a 100 and 200 basis point
parallel and pro rata rise in rates over 12 months would
approximate a 2.4% ($2.8 million) and a 5.0% ($6.0 million)
increase in net interest income, respectively, while the impact
of a 25 basis point decline in rates over the same period
would approximate a 0.8% ($0.9 million) decline from an
unchanged rate environment. The likelihood of a decrease in
interest rates beyond 25 basis points as of December 31, 2011
was considered to be remote given then-current interest rate
levels. As of December 31, 2010, the model indicated the
impact of a 100 and 200 basis point parallel and pro rata rise
in rates over 12 months would approximate a 3.4% ($3.7
million) and a 6.8% ($7.2 million) increase in net interest
income, respectively, while the impact of a 25 basis point
decline in rates over the same period would approximate a
0.9% ($1.0 million) decline from an unchanged rate environ-
ment. The likelihood of a decrease in interest rates beyond
25 basis points as of December 31, 2010 was considered to be
remote given then-current interest rate levels.
p a g e 5 1
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
affect adversely the Company’s results in 2012.
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 histori-
cally 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 (see Note 16 on
page 96).
p a g e 5 2
In December 2008, under the U.S. Treasury’s TARP Capital Purchase Program, we issued to the U.S. Treasury 42,000 of the
parent company’s Fixed Rate Cumulative Perpetual Preferred Shares, Series A, liquidation preference of $1,000 per share
(“Series A Preferred Shares”) and a 10-year warrant to purchase up to 516,817 of the parent company’s common shares. On
April 27, 2011, the parent company paid $42.4 million to the U.S. Treasury for the repurchase in full of the Series A Preferred
Shares. As a result of this action, the Series A Preferred Shares were redeemed in full, eliminating an annual dividend of $2.1
million. In this connection, in determining net income available to common shareholders, the Company recognized in the sec-
ond quarter of 2011 a $1.2 million charge for accelerated accretion which represents the difference between the carrying value
and the liquidation value for the repurchased Series A Preferred Shares. On May 18, 2011, the parent company paid approxi-
mately $0.95 million to the U.S. Treasury to repurchase the 10-year warrant in full. The parent company’s repurchase of the
warrant concluded its participation in the TARP Capital Purchase Program.
At December 31, 2011, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongo-
ing current business activities, was approximately $14.5 million. The parent company had cash, interest-bearing deposits with
banks and other current assets aggregating $45.6 million. The parent company also has back-up credit lines with banks of
$19.0 million. Since 1979, the parent company has had no need to use available back-up lines of credit.
off balance Sheet arrangementS, commitmentS, guaranteeS, and contractual obligationS
The following table summarizes the Company’s contractual obligations and other commitments to make future payments as of
December 31, 2011. Payments for borrowings do not include interest. Payments related to leases are based on actual payments
specified in the underlying contracts. Loan commitments and standby letters of credit are presented at contractual amounts;
however, since many of these commitments are expected to expire unused or only partially used, the total amounts of these
commitments do not necessarily reflect future cash requirements.
Contractual
Obligations
Long-Term Debt[1]
Operating Leases
Payments Due by Period
Less than
Total
1 Year
1–2
Years
2–3
Years
3–4
Years
4–5
Years
After 5
Years
$ 148,507
$ 21,468
$
994
$
271
$ —
$ 100,000
$ 25,774
44,923
4,518
4,482
4,747
4,550
3,789
22,837
Total Contractual Cash Obligations
$ 193,430
$ 25,986
$ 5,476
$ 5,018
$ 4,550
$ 103,789
$ 48,611
[1] Based on contractual maturity date.
Other Commercial
Commitments
Residential Loans
Commercial Loans
Total Loan Commitments
Standby Letters of Credit
Other Commercial Commitments
Amount of Commitment Expiration Per Period
Total
Less than
1 Year
1–2
Years
2–3
Years
3–4
Years
4–5
Years
$ 55,164
$ 55,164
$ —
$ —
$ —
$
20,316
75,480
27,770
61,780
12,223
67,387
21,709
61,550
8,093
8,093
6,061
—
—
—
—
—
—
—
—
—
After 5
Years
$ —
—
—
—
230
$
230
—
—
—
—
—
—
Total Commercial Commitments
$ 165,030
$ 150,646
$14,154
$ —
$ —
$
p a g e 5 3
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business the Company enters into various transactions, which in accordance with accounting principles
generally accepted in the United States, are not included in its consolidated balance sheets. The Company enters into these
transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby
letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recog-
nized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting
them to credit approval and monitoring procedures. The Company also holds certain assets which are not included in its con-
solidated balance sheets including assets held in fiduciary or custodial capacity on behalf of its trust customers and certain col-
lateral funds resulting from acting as an agent in its securities lending program.
Commitments to Extend Credit
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination
clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are con-
tingent upon customers maintaining specific credit standards at the time of loan funding. Commitments to extend credit out-
standing at December 31, 2011 are included in the table above.
Standby Letters of Credit
Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a cus-
tomer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third
party, the Company would be required to fund the commitment. The maximum potential amount of future payments the
Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded,
the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby let-
ter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. Standby letters of
credit outstanding at December 31, 2011 are included in the table above. The Company holds primarily cash or cash equivalents
as collateral supporting these commitments.
The Company is obligated under certain unfunded benefit plans to make payments to individuals upon their retirement. While
the Company is not aware of any near term plans for retirement of executive officers at this time, actuarial expected benefit
payments are disclosed in Note 18 beginning on page 98 based on eligibility.
While past performance is not a guarantee of future performance, management believes that the parent company’s funding
sources (including div idends from all its subsidiaries) and the bank’s funding sources will be adequate to meet their liquidity
requirements in the future.
The liquidity position of the parent company and the bank is regularly monitored and adjustments are made to the balance between
sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a
material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any
regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on the Company.
p a g e 5 4
caP ital
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, 2011 and December 31, 2010 is presented in Note 22 beginning on page 110. 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, 2011, the Company and the bank exceeded the requirements for “well capitalized” institutions
under the tests pursuant to FDICIA and of the Federal Reserve Board.
The bank regulatory agencies have encouraged banking organizations, including healthy, well-run banking organizations, to oper-
ate with capital ratios substantially in excess of the stated ratios required to maintain “well capitalized” status. This has resulted
from, among other things, current economic conditions, the global financial crisis and the likelihood, as described below, of
increased formal capital requirements for banking organizations. In light of the foregoing, the Company and the bank expect that
they will maintain capital ratios substantially in excess of these ratios.
The elements currently comprising Tier 1 capital and Tier 2 capital, the minimum Tier 1 capital and total capital ratios and the
minimum leverage ratio may in the future be subject to change, as discussed in greater detail under the caption “SUPERVISION
AND REGULATION” beginning on page 3.
imPact of i nflation and c hanging PriceS
The Company’s financial statements included herein have been prepared in accordance with U.S. GAAP, which require the
Company to measure financial position and operating results primarily in terms of historical dollars. 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 interest rates affect the financial
condition of a financial institution to a far greater degree than do 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 authorities, among other things, as fur-
ther discussed under the caption “RISKS RELATED TO THE COMPANY’S BUSINESS” beginning on page 15 and under the
caption “ASSET/LIABILITY MANAGEMENT” beginning on page 50.
recentlY iSSued a ccounting PronouncementS
See “Adoption of new Accounting standards” and “newly Issued not Yet effective standards” 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 5 5
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 increase during periods of rising interest rates and
decrease during periods of falling interest rates.
aSSetS
Interest-bearing deposits with
other banks
Investment securities
Commercial and industrial loans
Equipment financing receivables
Factored receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction loans
Loans to individuals
Loans to nondepository institutions
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
More than
1 Year to
5 Years
More than
5 Years to
10 Years
Over
10 Years
Nonrate
Sensitive
Total
$ 126,448
69,443
482,449
328
172,082
26,711
17,596
—
8,950
199,899
10
$ — $ — $ — $
— $
183,965
65,196
7,721
—
49,737
15,428
13,030
532
23,328
—
145,612
77,629
104,030
—
35,615
39,854
591
894
23,306
—
25,159
789
52,058
—
33,359
12,947
—
—
—
—
253,692
—
2,553
—
68,103
—
—
—
54
—
— $ 126,448
677,871
—
624,124
(1,939)
150,782
(15,908)
171,831
(251)
213,525
—
85,825
—
13,621
—
10,376
—
246,587
—
10
—
—
—
—
—
—
172,297
172,297
Total Assets
1,103,916
358,937
427,531
124,312
324,402
154,199
2,493,297
liabilitieS and ShareholderS’ eQuitY
Interest-bearing deposits
Savings
NOW
Money market
Time—domestic
Securities sold under agreements
to repurchase—customers
Securities sold under agreements
to repurchase—dealers
Commercial paper
Advances—FHLB
Long-term borrowings—subordinated
debentures
Noninterest-bearing liabilities and
shareholders’ equity
Total Liabilities and
Shareholders’ Equity
—
—
267,745
249,245
—
—
—
359,197
18,566
177,495
101,617
49,406
47,313
—
—
—
13,485
100,000
5,000
—
20,000
—
—
—
—
—
—
2,733
—
—
677,788
384,197
349,817
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25,774
—
—
—
—
—
—
—
—
—
18,566
177,495
369,362
657,848
47,313
5,000
13,485
122,733
25,774
— 1,055,721
1,055,721
25,774
1,055,721
2,493,297
Net Interest Rate Sensitivity Gap
$ 426,128
$ (25,260)
$ 77,714
$124,312
$ 298,628
$ (901,522)
$
Cumulative Gap at December 31, 2011
$ 426,128
$490,868
$478,582
$602,894
$ 901,522
Cumulative Gap at December 31, 2010
$ 377,384
$308,139
$289,256
$468,057
$ 786,799
Cumulative Gap at December 31, 2009
$ 215,345
$223,572
$238,762
$348,921
$ 707,012
$
$
$
— $
— $
— $
—
—
—
—
p a g e 5 6
item 8. financial Statement S and SuPP lementarY data
The Company’s consolidated financial statements as of December 31, 2011 and 2010 and for each of the years in the three-year
period ended December 31, 2011, and the statements of condition of Sterling National Bank as of December 31, 2011 and 2010,
notes thereto and the Reports of Independent Registered Public Accounting Firms thereon appear on pages 58–115.
p a g e 5 7
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
Securities available for sale (at estimated fair value; pledged: $146,429 in 2011
and $95,311 in 2010)
Securities held to maturity (pledged: $206,282 in 2011 and $212,606 in 2010)
(estimated fair value: $425,775 in 2011 and $400,453 in 2010)
Total investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Less allowance for loan losses
Loans, net
Federal Reserve and Federal Home Loan Bank stock, at cost
Customers’ liability under acceptances
Goodwill
Premises and equipment, net
Other real estate
Accrued interest receivable
Cash surrender value of life insurance policies
Other assets
Total assets
liabilitieS and ShareholderS’ eQ uitY
Noninterest-bearing demand deposits
Savings, NOW and money market deposits
Time 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—other
Advances—FHLB
Long-term borrowings—subordinated debentures
Total borrowings
Acceptances outstanding
Accrued interest payable
Due to factored clients
Accrued expenses and other liabilities
Total liabilities
Commitments and contingent liabilities
Shareholders’ Equity
Preferred shares, Series A, $5 par value per share; $1,000 liquidation value. Authorized
644,389 shares; issued -0- and 42,000 shares, respectively
Common shares, $1 par value per share. Authorized 50,000,000 shares; issued
35,225,110 and 31,138,545 shares, respectively
Warrant to purchase common shares
Capital surplus
Retained earnings
Accumulated other comprehensive loss
Common shares in treasury at cost, 4,300,278 and 4,297,782 shares, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
see notes to consolidated Financial statements.
p a g e 5 8
2011
2010
(dollars in thousands,
except per share data)
$
31,046
126,448
$
26,824
40,503
270,014
390,080
407,857
677,871
43,372
1,473,309
20,029
1,453,280
8,486
4
22,901
23,625
1,929
6,838
53,446
44,051
399,235
789,315
32,049
1,314,234
18,238
1,295,996
9,365
—
22,901
15,909
182
8,280
51,512
67,621
$ 2,493,297
$ 2,360,457
$ 765,800
565,423
657,848
$ 570,290
562,207
615,267
1,989,071
1,747,764
47,313
5,000
—
13,485
—
122,733
25,774
214,305
4
1,064
—
68,032
23,016
5,000
15,000
14,388
3,490
144,173
25,774
230,841
—
1,314
91,543
66,253
2,272,476
2,137,715
—
40,602
35,225
—
270,869
15,523
(14,216)
(86,580)
220,821
31,139
2,615
236,437
11,392
(12,887)
(86,556)
222,742
$ 2,493,297
$ 2,360,457
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 i ncome
Loans
Investment securities
Available for sale—taxable
Held to maturity—taxable
Tax exempt
Federal Reserve and Federal Home Loan Bank stock
Deposits with other banks
Total interest income
intereSt e xP enSe
Deposits
Savings, NOW and Money Market
Time
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—FRB
Short-term borrowings—other
Advances—FHLB
Long-term borrowings—subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
nonintere St i ncome
Accounts receivable management/factoring commissions and other fees
Service charges on deposit accounts
Trade finance income
Other customer related service charges and fees
Mortgage banking income
Trust fees
Income from life insurance policies
Securities gains
Loss on other real estate owned
Other income
Total noninterest income
nonintereSt e xP enSeS
Salaries
Employee benefits
Total personnel expense
Occupancy and equipment expenses, net
Advertising and marketing
Professional fees
Communications
Deposit insurance
Other expenses
Total noninterest expenses
Income before income taxes
Provision for income taxes
Net income
Dividends on preferred shares and accretion
Net income available to common shareholders
Average number of common shares outstanding
Basic
Diluted
Net income available to common shareholders, per average common share
Basic
Diluted
Dividends per common share
see notes to consolidated Financial statements.
p a g e 5 9
2011
2010
2009
(dollars in thousands, except per share data)
$73,241
$70,104
$ 71,788
8,788
8,079
6,358
371
227
97,064
2,855
5,583
186
66
14
43
—
—
2
2,144
2,094
12,987
84,077
12,000
72,077
24,381
5,654
2,222
943
6,315
53
1,140
1,726
—
1,626
44,060
43,748
13,898
57,646
13,248
2,792
5,219
1,756
2,747
10,937
94,345
21,792
4,196
17,596
2,074
10,863
10,879
4,824
445
75
97,190
3,288
6,300
229
44
74
45
—
9
18
3,482
2,094
15,583
81,607
28,500
53,107
23,572
6,250
2,264
777
8,164
329
1,138
3,928
(64)
1,275
47,633
41,586
12,220
53,806
12,296
3,381
5,464
1,691
3,809
11,109
91,556
9,184
2,158
7,026
2,589
16,575
15,070
1,889
513
85
105,920
3,890
7,999
353
—
51
67
11
398
—
4,432
2,094
19,295
86,625
27,900
58,725
18,320
5,943
1,891
929
9,476
450
1,098
5,561
(32)
514
44,150
39,875
12,293
52,168
11,278
3,167
5,147
1,665
4,153
10,967
88,545
14,330
4,908
9,422
2,773
$15,522
$ 4,437
$ 6,649
30,038,047
30,038,047
24,492,279
24,495,044
18,104,619
18,126,333
$ 0.51
0.51
0.36
$ 0.18
0.18
0.36
$ 0.37
0.37
0.56
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
Other comprehensive (loss) income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding (losses) gains on available for sale securities and
other investments, arising during the year
Reclassification adjustment for gains included in net income
Pension liability adjustment—net actuarial (losses) gains
Reclassification adjustment for amortization of:
Prior service cost
Net actuarial losses
Other comprehensive (loss) income
Comprehensive income
see notes to consolidated Financial statements.
2011
2010
2009
$ 17,596
(dollars in thousands)
$ 7,026
$ 9,422
(180)
(958)
(2,006)
35
1,780
(1,329)
2,101
(2,145)
(1,940)
36
1,460
(488)
3,039
(3,037)
1,935
36
1,887
3,860
$ 16,267
$ 6,538
$ 13,282
p a g e 6 0
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
2011
2010
2009
(dollars in thousands)
$ 40,602
(42,000)
1,398
$ 40,113
—
489
$ 39, 440
—
673
$
— $ 40,602
$ 40,113
$ 31,139
4,025
61
$ 22,227
8,625
287
$ 22,203
—
24
$ 35,225
$ 31,139
$ 22,227
$ 2,615
(2,615)
$ 2,615
—
$ 2,615
—
$
— $ 2,615
$ 2,615
$ 236,437
32,429
(61)
—
394
1,670
$ 178,734
56,256
—
1,190
257
—
$ 178,417
—
—
185
132
—
$ 270,869
$ 236,437
$ 178,734
$ 11,392
17,596
(11,122)
(945)
(1,398)
$ 15,828
7,026
(8,873)
(2,100)
(489)
$ 19,088
9,422
(10,131)
(1,878)
(673)
$ 15,523
$ 11,392
$ 15,828
$ (12,887) $ (12,399) $ (16,259)
3,860
(1,329)
(488)
$ (14,216) $ (12,887) $ (12,399)
$ (86,556) $ (85,168) $ (85,024)
(144)
(1,388)
(24)
$ (86,580) $ (86,556) $ (85,168)
$ 222,742
(1,921)
$ 161,950
60,792
$ 160,480
1,470
$ 220,821
$ 222,742
$ 161,950
Years Ended December 31,
Preferred S hareS
Balance at beginning of year
Redemption
Discount accretion
Balance at end of year
common S hareS
Balance at beginning of year
Common shares issued—public offering
Common shares issued under stock incentive plan
Balance at end of year
warrant to PurchaSe common S hareS
Balance at beginning of year
Repurchase
Balance at end of year
caP ital SurPluS
Balance at beginning of year
Common shares issued—public offering
Restricted shares issued
Common shares issued under stock incentive plan and related tax benefits
Stock option compensation expense
Repurchase of warrants
Balance at end of year
retained earningS
Balance at beginning of year
Net income
Cash dividends paid—common shares
Cash dividends paid—preferred shares
Discount accretion on Series A preferred shares
Balance at end of year
accumulated other c omPrehenSiVe lo SS
Balance at beginning of year
Other comprehensive (loss)/income, net of tax
Balance at end of year
trea SurY S hareS
Balance at beginning of year
Surrender of shares issued under stock incentive plan
Balance at end of year
total ShareholderS ’ eQ uitY
Balance at beginning of year
Net changes during the year
Balance at end of year
see notes to consolidated Financial statements.
p a g e 6 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 A S H F L O W S
Sterling Bancorp
Years Ended December 31,
oPerating actiVitieS
Net income
Adjustments to reconcile income from continuing operations
to net cash (used in) provided by operating activities:
Provision for loan losses
Depreciation and amortization of premises and equipment
Securities gains
Income from life insurance policies, net
Deferred income tax provision (benefit)
Proceeds from sale of loans
Gains on sales of loans, net
Originations of loans held for sale
Amortization of premiums on investment securities
Accretion of discounts on investment securities
Decrease (Increase) in accrued interest receivable
(Decrease) Increase in accrued interest payable
(Decrease) Increase in due to factored clients
Increase (Decrease) in accrued expenses and other liabilities
Increase in other assets
Loss on OREO
Net cash (used in) provided by operating activities
inVeSting actiVitieS
Purchase of premises and equipment
Net increase in interest-bearing deposits with other banks
Net (increase) decrease in loans held in portfolio
Net decrease (increase) in short-term factored receivables
Proceeds from sale of other real estate
Proceeds from calls/sales of securities—available for sale
Proceeds from calls of securities—held to maturity
Proceed from sales of securities—held to maturity
Proceeds from prepayments, redemptions or maturities of securities—held to maturity
Proceeds from redemptions of Federal Home Loan Bank Stock
Purchases of securities—held to maturity
Proceeds from prepayments, redemptions or maturities—available for sale
Purchases of securities—available for sale
Purchases of Federal Home Loan Bank stock
Cash paid in acquisition
Net cash (used in) provided by investing activities
financing actiVitieS
Net increase in noninterest-bearing demand deposits
Net increase (decrease) in savings, NOW, money market deposits
Net increase in time deposits
Net decrease in Federal funds purchased
Net increase (decrease) in securities sold under agreements to repurchase
Net (decrease) increase in commercial paper and other short-term borrowings
(Decrease) Increase in long-term borrowings
Proceeds from exercise of stock options
Proceeds from issuance of common shares
Cash dividends paid on common shares
Cash dividends paid on preferred shares
Net redemption of preferred shares and common share warrants
Net cash provided by (used in) financing activities
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
Due to brokers on purchases of securities held to maturity
see notes to consolidated Financial statements.
p a g e 6 2
2011
2010
2009
(dollars in thousands)
$ 17,596
$ 7,026
$ 9,422
12,000
3,256
(1,726)
(625)
2,079
370,681
(6,335)
(376,674)
8,914
(467)
1,442
(250)
(91,543)
623
(1,219)
—
(62,248)
(10,972)
(85,945)
(181,334)
11,007
193
275,428
322,500
2,141
47,567
1,089
(379,731)
335,663
(477,139)
(210)
—
(139,743)
28,500
2,436
(3,928)
(1,135)
(2,430)
493,147
(8,176)
(484,395)
6,993
(559)
721
23
9,142
8,742
(8,139)
64
48,032
(8,687)
(3,545)
(126,361)
(21,862)
1,259
486,191
142,380
—
64,327
977
(209,964)
210,749
(744,344)
(1,860)
—
(210,740)
27,900
2,195
(5,561)
(1,388)
(6,344)
618,857
(9,480)
(619,863)
2,269
(1,350)
(85)
(755)
31,780
(10,150)
(6,707)
32
30,772
(1,149)
(23,009)
13,778
(30,729)
1,654
395,632
40,000
—
82,059
4,725
(211,552)
132,043
(378,790)
(503)
(21,333)
2,826
195,510
3,216
42,581
(15,000)
24,297
(4,393)
(21,440)
—
36,454
(11,122)
(945)
(42,945)
206,213
4,222
26,824
$ 31,046
23,953
(29,808)
172,952
(26,000)
6,968
(51,928)
14,173
403
64,881
(8,873)
(2,100)
—
164,621
1,913
24,911
$ 26,824
81,752
27,810
113,281
(90,000)
(23,286)
(118,264)
(20,000)
197
—
(10,131)
(1,878)
—
(40,519)
(6,921)
31,832
$ 24,911
$ 13,237
5,748
1,004
2,048
943
$ 15,559
4,011
1,264
533
4,998
$ 20,051
5,759
—
2,069
—
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
Securities available for sale (at estimated fair value; pledged: $146,429 in 2011 and
$95,311 in 2010)
Securities held to maturity (pledged: $206,282 in 2011 and $212,606 in 2010)
(estimated fair value: $425,775 in 2011 and $400,453 in 2010)
Total investment securities
Loans held for sale
Loans held in portfolio, net of unearned discounts
Less allowance for loan losses
Loans, net
Federal Reserve and Federal Home Loan bank stock, at cost
Customers’ liability under acceptances
Goodwill
Premises and equipment, net
Other real estate
Accrued interest receivable
Cash surrender value of life insurance policies
Other assets
Total assets
liabilitieS and Shareholder’S eQ uitY
Noninterest-bearing demand deposits
Savings, NOW and money market deposits
Time deposits
Total deposits
Securities sold under agreements to repurchase—customers
Securities sold under agreements to repurchase—dealers
Federal funds purchased
Short-term borrowings—other
Advances—FHLB
Acceptances outstanding
Accrued interest payable
Due to factored clients
Accrued expenses and other liabilities
Total liabilities
Commitments and contingent liabilities
Shareholder’s Equity
Common shares, $50 par value per share;
Authorized and issued, 358,526 shares
Capital surplus
Undivided profits
Accumulated other comprehensive loss
Total shareholder’s equity
Total liabilities and shareholder’s equity
see notes to consolidated Financial statements.
p a g e 6 3
2011
2010
(dollars in thousands,
except per share data)
$
31,034
126,448
$
26,792
40,503
261,442
383,994
407,857
669,299
43,372
399,235
783,229
32,049
1,463,182
20,029
1,298,864
18,238
1,443,153
1,280,626
8,486
4
1,742
23,622
1,929
6,642
48,838
53,136
9,365
—
1,742
15,902
182
8,109
47,408
73,133
$ 2,457,705
$ 2,319,040
$ 786,673
567,021
657,848
$ 607,914
565,653
615,267
2,011,542
47,313
5,000
—
—
122,733
4
1,062
—
64,807
1,788,834
23,016
5,000
15,000
3,490
144,173
—
1,306
91,543
61,018
2,252,461
2,133,380
17,926
51,263
146,888
(10,833)
205,244
17,926
51,263
125,983
(9,512)
185,660
$ 2,457,705
$ 2,319,040
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 a ccounting PolicieS
Sterling Bancorp 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 consolidated subsidiaries and the
term the “bank” refers to Sterling National Bank and its con-
solidated subsidiaries, while the term the “parent company”
refers to Sterling Bancorp but not its subsidiaries. The
Company provides a full range of financial products and ser-
vices, including business and consumer loans, commercial
and residential mortgage lending and brokerage, asset-based
financing, factoring/accounts receivable management ser-
vices, trade financing, equipment financing, and deposit ser-
vices. The Company has operations principally in New York
and conducts business throughout the United States.
The Company’s financial statements are prepared in accord-
ance with U.S. generally accepted accounting principles
(“U.S. GAAP”), which, effective for all interim and annual
periods ending after September 15, 2009, principally consist
of the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“Codification”). FASB
Codification Topic 105: generally Accepted Accounting
Principles establishes the FASB Codification as the source of
authoritative accounting principles recognized by FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted
accounting principles. Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”), under author-
ity of federal securities laws, are also sources of authoritative
guidance for SEC registrants. All guidance contained in the
FASB Codification carries an equal level of authority. All
non-grandfathered, non-SEC accounting literature not
included in the FASB Codification is superseded and deemed
non-authoritative.
The following summarizes the significant accounting policies
of the Company with specific references to the FASB
Codification.
(a) Basis of Presentation
The consolidated financial statements include the accounts
of the parent company and its subsidiaries, principally the
bank, after elimination of intercompany transactions.
Generally, U.S. GAAP requires that all entities in which a
company has a controlling financial interest be consolidated.
The Company determines whether it has a controlling finan-
cial interest in an entity by first evaluating whether it holds
ownership of a majority voting interest. However, certain
entities may not have voting interests or decision-making
abilities because the controlling financial interest is achieved
through other arrangements. These variable interest entities
(“VIEs”) may still require consolidation even though equity
investors do not have the typical characteristics of a control-
ling financial interest or do not have sufficient equity at risk
for the legal entity to finance its activities without additional
subordinated financial support. A controlling financial interest
in a VIE is present when an enterprise has the power to direct
the activities that most significantly impact the entity’s finan-
cial performance and an obligation to absorb a majority
of the entity’s expected losses or receive a majority of the
entity’s expected return. The enterprise with a controlling
financial interest, known as the primary beneficiary, consoli-
dates the VIE. The parent company’s wholly-owned subsid-
iary, 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.
(b) 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 state-
ments and are, by their nature, subject to change in the future
as additional information becomes available or as circumstances
vary. Actual results could differ from management’s current
estimates, as a result of changing conditions and future events.
The current economic environment has increased the degree of
uncertainty inherent in these significant estimates. Several
accounting estimates are particularly critical and are suscepti-
ble to significant near-term change, including the allowance
for loan losses and asset impairment judgments, such as
other-than-temporary declines in the value of securities and
the accounting for income taxes. The judgments used by man-
agement in applying these critical accounting policies may be
affected by a further and prolonged deterioration or lack of
significant improvement in the economic environment, which
may result in changes to future financial results. For example,
subsequent evaluations of the loan portfolio, in light of the fac-
tors then prevailing, may result in significant changes in the
allowance for loan losses in future periods, and the inability to
collect outstanding principal may result in increased loan losses.
The Company evaluates subsequent events through the date
that the financial statements are issued.
Certain reclassifications have been made to the prior years’
consolidated financial statements to conform to the current
presentation. Throughout the notes, dollar amounts presented
in tables are in thousands, except per share data.
p a g e 6 4
(c) Adoption of New Accounting Standards
Accounting Standards Update
(“ASU”) No. 2010-20,
“Receivables (Topic 310)—Disclosures about the Credit
Quality of Financing Receivables and the Allowance for
Credit Losses.” ASU 2010-20 requires entities to provide dis-
closures designed to facilitate financial statement users’ eval-
uation of (i) the nature of credit risk inherent in the entity’s
portfolio of financing receivables, (ii) how that risk is ana-
lyzed and assessed in arriving at the allowance for credit
losses and (iii) the changes and reasons for those changes in
the allowance for credit losses. Disclosures must be disaggre-
gated by portfolio segment, the level at which an entity devel-
ops and documents a systematic method for determining its
allowance for credit losses, and class of financing receivables,
which is generally a disaggregation of portfolio segment. The
required disclosures include, among other things, a roll-for-
ward of the allowance for credit losses as well as information
about modified, impaired, nonaccrual and past due loans and
credit quality indicators. This guidance became effective for
the Company’s financial statements as of December 31, 2010,
as it relates to disclosures required as of the end of a report-
ing period. Disclosures that relate to activity during a report-
ing period were required for the Company’s financial
statements that include periods beginning on or after January
1, 2011. The effect of adopting this new guidance did not
have a material impact on the Company’s financial statements.
ASU No. 2010-28, “Intangibles-Goodwill and Other (Topic
350 )—When to Perform Step 2 of the Goodwill Impairment
Test for Reporting Units with Zero or Negative Carrying
Amounts (a consensus of the FASB Emerging Issues Task
Force).” ASU 2010-28 modifies Step 1 of the goodwill impair-
ment test for reporting units with zero or negative carrying
amounts. For those reporting units, an entity is required to
perform Step 2 of the goodwill impairment test if it is more
likely than not that a goodwill impairment exists. In deter-
mining whether it is more likely than not that goodwill
impairment exists, an entity should consider whether there
are any adverse qualitative factors indicating that an impair-
ment may exist. The qualitative factors are consistent with
the existing guidance which requires that goodwill of a
reporting unit be tested for impairment between annual tests
if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. The provisions of this guidance were
effective for the Company beginning January 1, 2011. The
adoption of this guidance did not have a material impact on
the Company’s financial statements.
ASU No. 2011-02, “Receivables (Topic 310)—A Creditor’s
Determination of Whether a Restructuring Is a Troubled
Debt Restructuring.” ASU 2011-02 clarifies which loan
modifications constitute troubled debt restructurings and is
intended to assist creditors in determining whether a modifi-
cation of the terms of a receivable meets the criteria to be
considered a troubled debt restructuring, both for purposes
of recording an impairment loss and for disclosure of trou-
bled debt restructurings. In evaluating whether a restructur-
ing constitutes a troubled debt restructuring, a creditor must
separately conclude, under the guidance clarified by ASU
2011-02, that both of the following exist: (a) the restructur-
ing constitutes a concession; and (b) the debtor is experienc-
ing financial difficulties. ASU 2011-02 was effective for the
Company on July 1, 2011, and applies retrospectively to
restructurings occurring on or after January 1, 2011. The
adoption of this guidance did not have a material impact on
the Company’s financial statements.
d) Newly Issued Not Yet Effective Standards
ASU No. 2011-03, “Transfers and Servicing (Topic 860)—
Reconsideration of Effective Control for Repurchase Agreements.”
ASU 2011-03 is intended to improve financial reporting of
repurchase agreements and other agreements that both entitle
and obligate a transferor to repurchase or redeem financial
assets before their maturity. ASU 2011-03 removes from the
assessment of effective control (i) the criterion requiring the
transferor to have the ability to repurchase or redeem the
financial assets on substantially the agreed terms, even in the
event of default by the transferee, and (ii) the collateral main-
tenance guidance related to that criterion. ASU 2011-03 will
be effective for the Company on January 1, 2012 and is not
expected to have a significant impact on the Company’s
financial statements.
ASU No. 2011-04, “Fair Value Measurement (Topic 820)—
Amendments to Achieve Common Fair Value Measurements
and Disclosure Requirements in U.S. GAAP and IFRSs.”
ASU 2011-04 amends Topic 820, “Fair Value Measurements
and Disclosures,” to converge the fair value measurement
guidance in U.S. generally accepted accounting principles and
International Financial Reporting Standards. ASU 2011-04
clarifies the application of existing fair value measurement
requirements, changes certain principles in Topic 820 and
requires additional fair value disclosures. ASU 2011-04 is
effective for annual periods beginning after December 15,
2011, and is not expected to have a significant impact on the
Company’s financial statements.
ASU No. 2011-05, “Comprehensive Income (Topic 220)—
Presentation of Comprehensive Income.” ASU 2011-05
amends Topic 220, “Comprehensive Income,” to require that
all nonowner changes in stockholders’ equity be presented in
either a single continuous statement of comprehensive income
or in two separate but consecutive statements. Additionally,
p a g e 6 5
ASU 2011-05 requires entities to present, on the face of the
financial statements, reclassification adjustments for items
that are reclassified from other comprehensive income to net
income in the statement or statements where the components
of other comprehensive income are presented. The option to
present components of other comprehensive income as part of
the statement of changes in stockholders’ equity was elimi-
nated. ASU 2011-05 is effective for annual periods beginning
after December 15, 2011, and is not expected to have a sig-
nificant impact on the Company’s financial statements.
ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic
350)—Testing Goodwill for Impairment.” ASU 2011-08
amends Topic 350, “Intangibles-Goodwill and Other,” so
that entities testing goodwill for impairment have the option
of performing a qualitative assessment before calculating the
fair value of the reporting unit (i.e., Step 1 of the goodwill
impairment test). If an entity determines, on the basis of
qualitative factors, that the fair value of the reporting unit is
more likely than not less than the carrying amount, the two-
step impairment test would be required. The ASU does not
change how goodwill is calculated or assigned to reporting
units, nor does it revise the requirement to test goodwill
annually for impairment. ASU 2011-08 is effective for annual
and interim goodwill impairment tests performed beginning
after December 15, 2011, with early adoption permitted. The
Company will adopt ASU 2011-08 effective with its annual
period ending December 31, 2011 and such adoption is not
expected to have a material impact on the Company’s finan-
cial statements.
ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosures
about Offsetting Assets and Liabilities.” ASU 2011-11
amends Topic 210, “Balance Sheet”, to require an entity to
disclose both gross and net information about financial
instruments, such as sales and repurchase agreements and
reverse sale and repurchase agreements and securities bor-
rowing/lending arrangements, and derivative instruments
that are eligible for offset in the statement of financial posi-
tion and/or subject to master netting arrangement or similar
agreement. ASU 2011-11 is effective for annual and interim
periods beginning on January 1, 2013, and is not expected to
have significant impact on the Company’s financial statements.
ASU 2011-12 “Comprehensive Income (Topic 220)—Deferral
of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No.
2011-05.” ASU 2011-12 defers changes in ASU No. 2011-05
that relate to the presentation of reclassification adjustments
to allow the FASB time to redeliberate whether to require pre-
sentation of such adjustments on the face of the financial
statements to show the effects of reclassifications out of accu-
mulated other comprehensive income on the components of
net income and other comprehensive income. ASU 2011-12
allows entities to continue to report reclassifications out of
accumulated other comprehensive income consistent with the
presentation requirements in effect before ASU No. 2011-05.
All other requirements in ASU No. 2011-05 are not affected
by ASU No. 2011-12. ASU 2011-12 is effective for annual
and interim periods beginning after December 15, 2011 and
is not expected to have a significant impact on the Company’s
financial statements.
(e) 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 fair values. Net aggregate unrealized gains or losses
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 designated as held to maturity and are carried at
amortized cost, adjusted for amortization of premiums and
accretion of discounts over the period to maturity. Interest
income includes the amortization of purchase premiums and
accretion of purchase discounts. Gains and losses realized on
sales of securities are determined on the specific identifica-
tion method and are reported in noninterest income.
Securities pledged as collateral are disclosed parenthetically
in the Consolidated Balance Sheets if the secured party has
the right by contract or custom to sell or repledge the collat-
eral. Securities are pledged by the Company to secure trust
and public deposits, securities sold under agreements to
repurchase, 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 pros-
pects of the issuer; and the Company’s intent to sell. If the
decline is deemed to be other-than-temporary, and the
Company does not have the intent to sell and will not likely
be required to sell, the security is written down to a new cost
basis and the resulting credit component of the loss is reported
in noninterest income and the remainder of the loss is
p a g e 6 6
recorded in shareholders’ equity. If the Company intends to
sell or will be required to sell, the full amount of the other-than-
temporary impairment is recorded in noninterest income.
(f) 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 is credited
to income based on loan principal amounts outstanding at
appropriate interest rates. Origination and other nonrefund-
able 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 approxi-
mately constant effective yield. Nonrefundable fees on the
purchase of accounts receivable are credited to “Accounts
receivable management/factoring commissions and other
fees” at the time of purchase, which, based on our analysis,
does not produce results that are materially different from the
results under the amortization method specified in FASB
Codification Topic 310: Receivables.
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, including servicing rights, are sold 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 has commitments to fund loans held
for sale and commitments to sell loans which are considered
derivative instruments under FASB Codification Topic 815:
derivatives and hedging. The fair values of these free-standing
derivative instruments were immaterial at December 31, 2011
and 2010.
A loan is impaired when, based on current information and
events, it is probable that the Company will be unable to
collect all amounts due according to the original contractual
terms of the loan agreement. Loans for which the borrower
has been given a concession through a modification of terms
and for which the borrower is experiencing financial difficul-
ties are considered troubled debt restructurings and classified
o n
t h e
va lu e
b a s e d
p r e s e nt
as impaired. Under the provisions of FASB Codification Topic
310: Receivables, individually identified impaired loans are
m e a s u r e d
of
payments expected to be received, using the historical effec-
tive 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.
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. Interest payments on impaired
loans are typically applied to principal unless collectibility of
the principal amount is reasonably assured, in which case
interest is recognized on a cash basis. Impaired loans, or por-
tions thereof, are charged off when deemed uncollectible.
Nonaccrual loans are those on which the accrual of interest has
ceased. Loans, including loans that are individually identified
as being impaired under FASB Codification Topic 310:
Receivables, are generally placed on nonaccrual status imme-
diately if, in the opinion of management, principal or interest
is not likely to be paid in accordance with the terms of the
loan agreement, or when principal or interest is past due 90
days or more and collateral, if any, is insufficient to cover
principal and interest. Interest accrued but not collected at
the date a loan is placed on nonaccrual status is reversed
against interest income. Interest income is recognized on non-
accrual 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.
(g) Allowance for Loan Losses
The allowance for loan losses is a reserve established through
a provision for loan losses charged to expense, which
represents management’s best estimate of losses that have
been incurred within the existing portfolio of loans. The
allowance, in the judgment of management, is necessary to
reserve for estimated loan losses and risks inherent in
the loan portfolio. The allowance for loan losses includes
allowance allocations calculated in accordance with
FASB Codification Topic 310: Receivables and allowance
allocations calculated in accordance with FASB Codification
Topic 450: contingencies. Further information regarding the
Company’s policies and methodology used to estimate the
allowance for loan losses is presented in Note 5—Loans and
Allowance for Loan Losses.
p a g e 6 7
(h) Federal Reserve and Federal Home Loan Bank Stock
The bank is required to maintain a minimum level of invest-
ment in Federal Home Loan Bank of New York (“FHLB”)
stock based on specific percentages of its outstanding mort-
gages, total assets or FHLB advances. FHLB and Federal
Reserve Bank (“FRB”) stocks are restricted because they may
only be sold to another member institution of the FHLB or
FRB at their par values. Due to restrictive terms, and the lack
of a readily determinable market value, FHLB and FRB
stocks are shown separately in the Consolidated Balance
Sheets, carried at cost and evaluated for ultimate recovery of
par value.
(i) Goodwill and Other Intangible Assets
Goodwill, representing the excess of the purchase price over
the fair value of net assets of businesses acquired, reflected in
the Consolidated Balance Sheets arose from the parent com-
pany’s acquisition of the bank (in 1968) and the acquisition
of Sterling Resource Funding Corp (in 2006). Effective
January 1, 2002, the Company adopted the provisions of
FASB Codification Topic 350: Intangibles— goodwill and
other, under which goodwill is deemed to have an indefinite
useful life and therefore is not amortized, and the Company
is required to complete an annual assessment for any impair-
ment of goodwill. Impairment exists when a reporting unit’s
carrying value of goodwill exceeds its fair value. The
Company has selected December 31 as the date to perform
the annual impairment testing. The impairment would be
treated as an expense in the income statement. There was no
impairment expense recorded in 2011, 2010 or 2009.
Goodwill is the only intangible asset with an indefinite life on
our balance sheet and is tested for impairment using either a
qualitative method or a two-step approach under ASU 2011-08
that initially involves the estimation of its respective fair
value. If the fair value of a reporting unit is less than the car-
rying value of the reporting unit, a goodwill impairment loss
would be recognized as a charge to expense for any excess of
the goodwill carrying amount over its implied fair value.
Other intangible assets consist of acquired customer con-
tracts and assets arising from a purchase of assets as of April
6, 2009. They were initially measured at fair value and then
amortized on a straight-line method over their estimated use-
ful life of 2 years.
(j) 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.
(k) 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 expensed. If the
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.
(l) Cash Surrender Value of Life Insurance Policies
The bank invested in Bank Owned Life Insurance (“BOLI”)
policies to fund certain future employee benefit costs. In
addition, the parent company and the bank own endorse ment
split-dollar life insurance policies on certain key executives.
The cash surrender value, net of surrender charges, of these
insurance policies is recorded in the Consolidated Balance
Sheets under the caption “Cash surrender value of bank
owned and other life insurance policies.” Changes in the cash
surrender value, net of surrender charges, of BOLI policies
are recorded in the Consolidated Statements of Income under
the caption “Income from bank owned life insurance poli-
cies.” Changes in the cash surrender value, net of surrender
charges, of the endorsement split-dollar life insurance policies
are netted against premium expense in the Consolidated
Statements of Income under the caption “Employee Benefits.”
(m) 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 agree-
ments remains reflected as an asset.
(n) Derivative Financial Instruments
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.
p a g e 6 8
(o) Impact of Current Economic Conditions
Current economic conditions, including illiquid credit mar-
kets, volatile equity, foreign currency and energy markets,
and reduced consumer spending, have combined to increase
risk and uncertainty across industries. The Company consid-
ers the current economic conditions and their impact on the
financial results and operations of the Company discussed
above, including the determination of fair value of investment
securities or derivative financial instruments the Company
holds, the establishment of allowance for loan losses, the
impairment of any asset and any other amounts reported in
the financial statements of the Company that may be affected
in the near term.
(p) 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
differences 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 par-
ent company, under tax sharing agreements, either pays or col-
lects current income taxes due to or due from its subsidiaries.
Starting in 2009, New York State Tax law generally requires a
REIT that is majority owned by a New York State bank to be
included in the bank’s combined New York State tax return.
The Company believes that it qualifies for the small-bank ex-
ception to this rule. If, contrary to this belief, Sterling Real
Estate Holding Company, Inc. were required to be included
in the Company’s New York State combined tax return, the
Company’s effective tax rate would increase.
Under the small-bank exception, dividends received by the
bank from SREHC, a real estate investment trust, are subject
to a 60% dividends-received deduction, which results in only
40% of the dividends being subject to New York State tax.
Currently, the New York City banking corporation tax oper-
ates in the same manner in this respect. The possible reform
of the New York State franchise and banking corporation tax
laws mentioned under “ITEM 1A. RISK FACTORS—RISKS
RELATED TO THE COMPANY’S BUSINESS—Possible
New York State Legislative Changes May Negatively Affect
the Amount of Taxes We Pay in Future Years” could eliminate
the benefit of the 60% dividends-received deduction or other-
wise increase the Company and the bank’s effective New York
State (and New York City) tax rates.
(q) Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equiva-
lents include cash and amounts due from banks. Net cash
flows are reported for customer loan and deposit transac-
tions, interest-bearing deposits in other financial institutions,
federal funds purchased and repurchase agreements.
(r) Stock Incentive Plan
At December 31, 2011, the Company had a share-based
employee compensation plan, which is described more fully
in Note 17.
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 exercisable in annual installments. Director non-
qualified stock options generally expire five years from the
date of grant and become non-forfeitable and become exer-
cisable in four annual installments starting one year from
the date of grant. Share-based compensation is recognized in
compensation expense as described more fully in Note 17
over the period from the date of grant to the date on which
the options become non-forfeitable.
(s) Earnings Per Common Share
Earnings per common share is computed using the two-class
method. Basic earnings per common share is computed by
dividing net earnings allocated to common shareholders by
the weighted-average number of common shares outstanding
during the applicable period, excluding participating securi-
ties. Participating securities include non-vested share awards
such as awards of restricted shares of common shares. Non-
vested share awards are considered participating securities
because holders of these securities receive non-forfeitable
dividends at the same rate as holders of the Company’s com-
mon shares. Diluted earnings per common share is computed
using the weighted-average number of shares determined
for the basic earnings per common share computation plus
the dilutive effect of stock option compensation using the
treasury stock method.
p a g e 6 9
(t) Disclosures About Segments of an Enterprise and Related Information
“Segment Reporting” topic of the FASB Accounting Standards Codification establishes standards for the way business enter-
prises report information about operating segments and establishes standards for related disclosure about
products and services, geographic areas and major customers. The statement requires that a business enterprise report financial
and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and assess performance.
During the latter half of 2011, the Company combined its operating segments into one reportable segment, “Community
Banking.” All of the Company’s activities are interrelated and each activity is dependent and assessed based on the manner in
which it supports the other activities of the Company. For example, lending is dependent upon the ability of the bank to fund
itself with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operat-
ing decisions are based upon analysis of the Company as one operating segment or unit. The Company derives a substantial
portion of its revenue and income from providing banking and related financial services and products to customers located
primarily in the New York metropolitan area. The financial information in this report reflects the single segment through
which the Company conducts its business.
note 2.
caSh and d ue from bankS
The Company maintains deposits with other financial institutions in amounts that exceed federal deposit insurance
coverage. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes
that the Company is not exposed to any significant credit risks.
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 reserves maintained, which are reported in cash and due
from banks, were $124.6 million and $34.6 million at December 31, 2011 and 2010, respectively. Average required reserves
during 2011 and 2010 were $4.6 million and $5.2 million, respectively.
Beginning on October 9, 2008, the Federal Reserve started to pay interest on required reserve balances and excess balances. For
the years ended December 31, 2011, 2010 and 2009, the Company received interest from the Federal Reserve amounting to
$228 thousand, $76 thousand and $87 thousand, respectively.
note 3.
mone Y m arket i nVeStmentS
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
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate earned
—Range of interest rates earned
2011
2010
2009
$126,448
$40,503
$36,958
0.25%
0.25%
0.24%
3 Days
262,940
93,561
7 Days
66,858
31,960
5 Days
78,603
36,804
0.24%
0.23%
0.23%
0.03–0.90%
0.06–1.50%
0.06–0.25%
p a g e 7 0
note 4.
inVeStment SecuritieS
The amortized cost and fair value of securities available for sale are as follows:
December 31, 2011
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential mortgage-backed securities
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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal Farm Credit Bank
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Single-issuer trust preferred securities
Corporate debt securities
Equity and other securities
Total
December 31, 2010
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential mortgage-backed securities
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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal Farm Credit Bank
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Single-issuer trust preferred securities
Corporate debt securities
Equity and other securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 21,642
5,666
2,137
38
98
29,581
501
101
376
251
30,810
21,171
28,506
175,920
15,322
$ 103
12
74
—
—
189
—
1
7
—
197
1,606
214
263
958
$
6
11
—
1
—
18
—
—
—
—
18
—
1,661
2,876
398
$ 21,739
5,667
2,211
37
98
29,752
501
102
383
251
30,989
22,777
27,059
173,307
15,882
$ 271,729
$ 3,238
$ 4,953
$ 270,014
$ 36,026
7,218
8,750
44
110
52,148
30,087
10,000
49,964
10,000
152,199
39,967
3,879
189,091
5,039
$
64
72
84
2
—
222
77
—
132
31
462
780
79
278
1
$ 372
—
13
1
1
387
—
59
110
—
556
703
25
311
100
$ 35,718
7,290
8,821
45
109
51,983
30,164
9,941
49,986
10,031
152,105
40,044
3,933
189,058
4,940
Total
$ 390,175
$ 1,600
$ 1,695
$ 390,080
p a g e 7 1
The carrying value and fair value of securities held to maturity are as follows:
December 31, 2011
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential 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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Total obligations of U.S. government corporations and government-
sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Total
December 31, 2010
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential 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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal Farm Credit Bank
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 3,942
6,474
46,937
23,682
4,132
85,167
104,981
44,992
34,991
270,131
137,726
$ 192
305
3,777
1,669
603
6,546
203
34
49
6,832
11,105
$ —
—
—
—
—
—
—
—
9
9
10
$ 4,134
6,779
50,714
25,351
4,735
91,713
105,184
45,026
35,031
276,954
148,821
$ 407,857
$17,937
$ 19
$ 425,775
$ 7,504
11,704
70,001
40,583
4,943
134,735
84,969
14,991
42,493
5,078
$ 349
572
4,292
1,931
605
7,749
5
—
4
—
$ —
—
—
—
—
—
1,405
222
608
42
2,277
4,381
$ 7,853
12,276
74,293
42,514
5,548
142,484
83,569
14,769
41,889
5,036
287,747
112,706
Total obligations of U.S. government corporations and government-
sponsored enterprises
Obligations of state and political institutions—New York bank qualified
282,266
116,969
7,758
118
Total
$ 399,235
$ 7,876
$6,658
$ 400,453
The Company invests principally in obligations of U.S. government corporations and government sponsored enterprises and
other investment-grade securities. The fair value of these investments fluctuates based on several factors, including credit qual-
ity and general interest rate changes. The Company determined that it is not more likely than not that the Company would be
required to sell any investments before anticipated recovery.
At December 31, 2011, approximately $95.8 million, representing approximately 14.13%, of the Company’s held to maturity
and available for sale securities are comprised of securities issued by financial service companies/banks including single-issuer
trust preferred securities (26 issuers), corporate debt (32 issuers) and equity securities (8 issuers). These investments may pose a
higher risk of future impairment charges as a result of a lack of significant improvement of the U.S. economy and/or a further
deterioration in stock prices of the companies in the financial services industry. The Company would be required to recognize
impairment charges on these securities if they suffer a decline in value that is considered other than temporary. Numerous fac-
tors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for
p a g e 7 2
investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the com-
petitive environment could have a negative effect on the Company’s investment portfolio and may result in other-than-temporary
impairment on certain investment securities in future periods.
The following table presents information regarding securities available for sale with temporary unrealized losses for the
periods indicated:
December 31, 2011
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)
CMOs (Government National Mortgage Association)
Federal Home Loan Mortgage Corporation
Total obligations of U.S. government corporations and government-
sponsored enterprises
Single-issuer trust preferred securities
Corporate debt securities
Equity and other securities
Total
December 31, 2010
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential mortgage-backed securities
CMOs (Federal Home Loan Mortgage Corporation)
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Total residential mortgage-backed securities
Agency notes
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Total obligations of U.S. government corporations and government-
sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Single-issuer trust preferred securities
Corporate debt securities
Equity and other securities
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
$ 4,276
3,448
—
$
6
11
—
$ —
—
22
$ —
—
1
$ 4,276
3,448
22
$
6
11
1
7,724
11,721
139,972
2,974
17
1,574
1,937
398
22
415
10,607
—
1
87
939
—
7,746
12,136
150,579
2,974
18
1,661
2,876
398
$ 162,391
$ 3,926
$ 11,044
$1,027
$ 173,435
$ 4,953
$ 30,494
7,269
28
110
37,901
9,941
9,875
57,717
18,716
—
92,392
4,900
$ 372
13
1
1
$ —
—
—
—
$ —
—
—
—
387
59
110
556
703
—
311
100
—
—
—
—
—
2,111
—
—
—
—
—
—
—
25
—
—
$ 30,494
7,269
28
110
37,901
9,941
9,875
57,717
18,716
2,111
92,392
4,900
$ 372
13
1
1
387
59
110
556
703
25
311
100
Total
$ 173,725
$1,670
$ 2,111
$ 25
$ 175,836
$1,695
At December 31, 2011, the Company held one position in residential mortgage-backed securities issued by the Federal Home
Loan Mortgage Corporation in the available for sale portfolio that was in an unrealized loss position for more than 12 months.
The amount of the unrealized loss ($1 thousand) was insignificant to the Company’s results of operations for the year ended
December 31, 2011.
p a g e 7 3
The following table presents information regarding available for sale single-issuer, trust preferred securities at December 31, 2011:
Issuer
Sterling Bancorp Trust I, 8.375%, due 3/31/2032
NPB Capital Trust II, 7.85%, due 9/30/2032
BAC Capital Trust II, 7.00%, due 2/01/2032
BAC Capital Trust IV, 5.875%, due 5/03/2033
BNY Capital Trust V, 5.95%, due 5/01/2033
Citigroup Capital VII, 7.125%, due 7/31/2031
Citigroup Capital VIII, 6.95%, due 9/15/2031
Citigroup Capital IX, 6.00%, due 2/14/2033
Citigroup Capital X, 6.10%, due 9/30/2033
Citigroup Capital XVII, 6.35%, due 3/15/2067
First Tennessee Capital II, 6.30%, due 4/15/2034
Fleet Capital Trust VIII, 7.20%, due 3/15/2032,
owned by Bank of America Corporation
Goldman Sachs Capital I, 6.345%, due 2/15/2034
JP Morgan Chase Capital XI, 5.875%, due 6/15/2033
JP Morgan Chase Capital XV, 5.875%, due 3/15/2035
JP Morgan Chase Capital XVII, 5.85%, due 8/01/2035
Morgan Stanley Capital Trust III, 6.25%, due 3/01/2033
Keycorp Capital II, 6.875%, due 3/17/2029
Keycorp Capital VII, 5.70%, due 6/15/2035
PNC Capital Trust D, 6.125%, due 12/15/2033
USB Capital Trust XI, 6.60%, due 9/15/2066
VNB Capital Trust I, 7.75%, due 12/15/2031
Wachovia Capital Trust IV, 6.375%, due 3/01/2067
owned by Wells Fargo
Wells Fargo Capital Trust VII, 5.85%, due 5/01/2033
Wells Fargo Capital Trust VIII, 5.625%, due 8/01/2033
Wells Fargo Capital IX, 5.625%, due 4/08/2034
*TARP obligation was repaid prior to december 31, 2011.
Tarp
Recipient
Credit
Rating
Amortized
Cost
Fair
Value
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
Yes *
NA
NA
BB+
BB+
BBB
BB
BB
BB
BB
BB
BB+
BB+
BB+
BBB
BBB
BBB
BB+
BBB-
BBB-
BBB
BBB+
BBB-
BBB+
BBB+
BBB+
BBB+
$
989
126
300
50
50
1,507
246
2,881
293
46
988
502
5,937
1,623
2,195
2,245
1,043
93
955
1,390
100
22
50
424
367
4,084
$ 1,036
130
251
38
51
1,452
233
2,569
254
55
875
415
5,078
1,626
2,203
2,292
923
94
967
1,408
106
22
56
428
380
4,117
Unreal-
ized
Gains/
(Losses)
$
47
4
(49)
(12)
1
(55)
(13)
(312)
(39)
9
(113)
(87)
(859)
3
8
47
(120)
1
12
18
6
—
6
4
13
33
$ 28,506
$ 27,059
$ (1,447)
p a g e 7 4
At December 31, 2011, the Company held 26 security positions of single-issuer bank trust preferred securities and 32 security
positions of corporate debt securities issued by financial institutions all of which are paying in accordance with their terms and
have no deferrals of interest or other deferrals. In addition, management analyzes the performance of the issuers on a quarterly
basis, including a review of the issuer’s most recent bank regulatory report to assess credit risk and the probability of impair-
ment of the contractual cash flows of the applicable securities. Based upon management’s fourth quarter review, all of the
issuers have maintained performance levels adequate to support the contractual cash flows of the securities.
As of December 31, 2011, management does not have the intent to sell any of the securities classified as available for sale in the
tables above and believes that it is more likely than not that the Company will not have to sell any such securities before recovery
of cost.
The following table presents information regarding securities held to maturity with temporary unrealized losses for the periods
indicated:
December 31, 2011
Obligations of U.S. government corporations and government-
sponsored enterprises
Agency Notes
Less Than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Federal Home Loan Mortgage Corporation
$ 14,991
$ 9
$ —
$ —
$ 14,991
$ 9
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Total
December 31, 2010
Obligations of U.S. government corporations and government-
sponsored enterprises
Agency Notes
Federal National Mortgage Association
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Federal Farm Credit Bank
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
14,991
736
9
9
—
289
—
1
14,991
1,025
9
10
$ 15,727
$
18
$ 289
$ 1
$ 16,016
$ 19
$ 78,564
$1,405
$ —
$ —
$ 78,564
$1,405
14,769
36,890
5,036
222
608
42
135,259
94,309
2,277
4,103
—
—
—
—
2,277
—
—
—
—
278
14,769
36,890
5,036
222
608
42
135,259
96,586
2,277
4,381
Total
$ 229,568
$6,380
$2,277
$278
$ 231,845
$6,658
At December 31, 2011, the Company held no security position in obligations of U.S. government corporations and government-
sponsored enterprises in the held to maturity portfolio that were in an unrealized loss position for more then 12 months.
At December 31, 2011, the Company held one position in obligations of state and political institutions in the held to maturity
portfolio that was in an unrealized loss position for more than 12 months. The amount of the unrealized loss ($1 thousand) was
insignificant to the Company’s results of operations for the year ended December 31, 2011.
p a g e 7 5
The following tables present information regarding securities available for sale and securities held to maturity at December 31,
2011, 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.
Obligations of U.S. government corporations and government-
sponsored enterprises
Residential 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 residential mortgage-backed securities
Agency notes
Federal National Mortgage Association
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Due after 10 years
Federal Home Loan Bank
Due within 1 year
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Federal Home Loan Mortgage Corporation
Due after 1 year but within 5 years
Due after 5 years but within 10 years
Federal Farm Credit Bank
Due after 1 year but within 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 but within 10 years
Due after 10 years
Total obligations of state and political institutions
Single-issuer trust preferred securities
Due after 10 years
Corporate debt securities
Due within 6 months
Due after 6 months but within 1 year
Due after 1 year but within 2 years
Due after 2 years but within 5 years
Due after 5 years but within 10 years
Due after 10 years
Total corporate debt securities
Equity and other securities
Total
p a g e 7 6
Available for sale
Held to maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$21,642
5,666
2,137
38
98
$ 21,739
5,667
2,211
37
98
$ 3,942
6,474
46,937
23,682
4,132
$ 4,134
6,779
50,714
25,351
4,735
29,581
29,752
85,167
91,713
501
—
—
101
—
—
376
—
251
501
—
—
102
—
—
383
—
251
15,000
19,995
69,986
—
5,000
39,992
10,000
24,991
15,077
20,024
70,083
—
5,003
40,023
10,006
25,025
—
—
30,810
30,989
270,131
276,954
1,623
1,230
3,895
14,423
21,171
1,639
1,278
4,297
15,563
—
—
2,203
135,523
—
—
2,437
146,384
22,777
137,726
148,821
28,506
27,059
37,445
34,150
54,772
45,929
3,255
369
37,323
33,893
54,306
44,248
3,169
368
175,920
173,307
15,322
15,882
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 271,729
$270,014
$407,857
$425,775
Information regarding sales and/or calls of held to maturity securities is as follows:
Years Ended December 31,
2011
2010
2009
Sales:
Proceeds
Gross gains
Gross losses
Calls:
Proceeds
Gross gains
Gross losses
$ 2,141
$
62
—
—
—
—
$ —
—
—
322,500
142,380
40,000
104
76
368
—
—
—
During 2011, $2.1 million of mortgage-backed securities issued by the Federal National Mortgage Association were sold out of
the held to maturity portfolio. Each of the securities sold had been paid down by more than 85% of its original cost. There were
no sales of held to maturity securities in 2010 or 2009.
Information regarding sales and/or calls of the available for sale securities is as follows:
Years Ended December 31,
2011
2010
2009
Sales:
Proceeds
Gross gains
Gross losses
Calls:
Proceeds
Gross gains
Gross losses
$ 170,268
$ 169,517
$233,026
1,493
—
3,703
—
5,445
—
105,160
316,674
162,606
143
—
145
288
116
—
Investment securities are pledged to secure trust and public deposits, securities sold under agreements to repurchase, borrow-
ings from the Federal Home Loan Bank of New York and/or the Federal Reserve Bank of New York, and for other purposes
required or permitted by law.
note 5.
loanS and allowance for loan lo SSeS
The major components of domestic loans held for sale and loans held in portfolio are as follows:
December 31,
Loans held for sale, net of valuation reserve ($-0- at December 31, 2011 and $113 at December 31, 2010)
Real estate—residential mortgage
Loans held in portfolio, net of unearned discounts
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Loans held in portfolio, gross
Less unearned discounts
Loans held in portfolio, net of unearned discounts
p a g e 7 7
2011
2010
$
43,372
$
32,049
626,063
246,587
172,082
166,690
170,153
85,825
13,621
10,376
10
620,136
112,882
162,070
161,054
127,695
96,991
25,624
11,370
15,425
1,491,407
1,333,247
18,098
19,013
1,473,309
1,314,234
$ 1,516,681
$ 1,346,283
At December 31, 2011, the bank had qualified loans, with a
carrying value of approximately $478.9 million, available to
secure borrowings from the FHLB and the FRB; no loans were
pledged at December 31, 2011. At December 31, 2010, $65.7
million of loans were pledged to secure FHLB borrowings.
Loan Origination/Risk Management
The Company has lending policies and procedures in place that
are designed to maximize loan income within an acceptable
level of risk. Management reviews and approves these policies
and procedures on a regular basis. A reporting system supple-
ments the review process by providing management with fre-
quent reports related to loan production, loan quality,
concentrations of credit, loan delinquencies and non-perform-
ing and potential problem loans. Diversification in the loan
portfolio is a means of managing risk associated with fluctua-
tions in economic conditions.
The Company maintains an independent loan review process
that reviews and validates the credit risk program on a periodic
basis. Results of these reviews are presented to management. The
loan review process complements and reinforces the risk identifi-
cation and assessment decisions made by lenders.
commercial and Loans to nondepository Institutions
Sterling provides a full range of loans to small and medium-
sized businesses with the objective of establishing longer-term
relationships. Loans generally range in size up to $20 million,
tailored to meet customers’ long- and short-term needs, and
include secured and unsecured lines of credit and business
installment loans.
Loans generally are collateralized by accounts receivable,
inventory, mortgages on residential real estate and other
assets. Sterling also provides back-office services, i.e., pro-
cessing payroll, generating customer invoices, credit collec-
tion assistance and related payroll services. The repayment of
commercial loans is generally dependent on the creditworthi-
ness and cash flow of borrowers and guarantors, which may
be negatively impacted by adverse economic conditions.
While these loans are secured, collateral type, marketability,
coverage, valuation and monitoring is not as uniform as in
other portfolio classes and recovery from liquidation of such
collateral may be subject to greater variability.
Factoring
Factoring provides a financing service that combines working
capital financing, credit risk protection, and accounts receiv-
able management for companies in a variety of industries.
This business may be conducted on a recourse or non-recourse
basis, depending upon the needs of the client.
In general, Sterling records a receivable for the amount of
accounts receivables due from customers of its clients and
records a liability for the funds due to the client. Under
advance factoring arrangements, clients can draw an advance
as accounts receivables are sold/assigned to Sterling. With
advance factoring, Sterling normally has recourse against the
client if the customer fails to pay. Under collection factoring
arrangements, clients sell Sterling their accounts receivables
and Sterling provides credit protection to the client guaran-
teeing the collection of the amount due and back office sup-
port. Collection factoring is generally under a nonrecourse
basis where the principal source of payment for Sterling is
through the collection of the receivable from our client’s cus-
tomer whose credit has been approved by Sterling following a
rigorous review process. Also, with collection factoring,
Sterling has credit default insurance with a nationally recog-
nized insurance company to provide it with protection against
customer default.
commercial Real estate
Sterling offers a range of commercial real estate lending
including financing on commercial buildings, retail properties
and mixed use properties. Loans are predicated on cash flow
of the property, the value of the property determined by an
independent appraisal and the strength of personal guaran-
tees, if any. Loans are made at fixed or floating rates. Floating
rate loans are based on the prime rate. Fixed rate loans are
tied to Treasury or FHLB benchmarks and other indices.
Commercial real estate loans are subject to underwriting
standards and processes similar to commercial and industrial
loans, in addition to those of real estate loans. These loans
are viewed primarily as cash flow loans and secondarily as
loans secured by real estate. Commercial real estate lending
typically involves higher loan principal amounts and the
repayment of these loans is generally dependent on the suc-
cessful operation of the property securing the loan or the
business conducted on the property securing the loan.
Commercial real estate loans may be more adversely affected
by conditions in the real estate markets or in the general
economy. The properties securing the Company’s real estate
portfolio are diverse in terms of type and geographic loca-
tion. This diversity helps reduce the Company’s exposure to
adverse economic events that affect and single market or
industry. Management monitors and evaluates commercial
real estate loans based on collateral, geographic and risk
grade criteria.
With respect to loans to developers and builders that are
secured by non-owner occupied properties that the Company
may originate from time to time, the Company generally
requires the borrower to have had an existing relationship
with the Company and have a record of success. Construction
p a g e 7 8
loans are underwritten utilizing feasibility studies, indepen-
dent appraisal reviews, sensitivity analysis of absorption and
lease rates and financial analysis of the developers and prop-
erty owners. Construction loans are generally based upon
estimates of costs and value associated with funds, with
repayment substantially dependent on the success of the
ultimate project. Sources of repayment for these types of
loans may be pre-committed permanent loans from approved
long-term lenders, sales of developed property or an interim
loan commitment from the Company until permanent financ-
ing is obtained. These loans are closely monitored by on-site
inspections and are considered to have higher risks than other
real estate loans due to their ultimate repayment being sensi-
tive to timely completion of the project, interest rate changes,
government regulation of real property, general conditions
and the availability of long-term financing.
Loans are made at fixed or floating rates. Fixed rate loans are
tied to U.S. Treasury or FHLB benchmarks or other indices.
Floating rate loans are based on the prime rate or other index.
equipment Financing
Sterling engages in direct lending and indirect lending. Direct
lending is when requests for financing originate with an end user
seeking to finance equipment up to 60 months. Indirect lending
arises through relationships with equipment financing brokers.
In both cases, credit approval is based upon a full underwriting
process that involves the submission of financial and other
information, including the applicant’s historical performance,
cash flow projections and value of equipment, and for cus-
tomers who are not public entities, Sterling generally obtains
the personal guarantees of the principals of the entities.
Residential mortgage
Residential mortgage loans, principally on single-family resi-
dences, are made primarily for re-sale into the secondary
market. Offering both fixed and adjustable rate residential
mortgage loan products, mortgages are focused on conform-
ing credit, government insured FHA and other high quality
loan products. Jumbo loans are also originated for sale into
the secondary market, or brokered to third-party providers.
The ability of borrowers to service debt in the residential
mortgage loan portfolios is generally subject to personal
income which may be impacted by general economic condi-
tions, such as increased unemployment levels. These loans are
predominantly collateralized by first and second liens on sin-
gle family properties. If a borrower cannot maintain the loan,
the Company’s ability to recover against the collateral in suf-
ficient amount and in a timely manner may be significantly
influenced by market, legal and regulatory conditions.
Concentrations of Credit
There are no industry concentrations, other than loans to
nondepository financial institutions (exceeding 10% of loans,
gross) of loans held in portfolio. Loans to nondepository
financial institutions, which includes the Company’s residen-
tial mortgage warehouse funding product and loans to
finance companies, represent approximately 16% of all loans.
Approximately 68% of loans are to borrowers located in the
New York metropolitan area. A further deterioration in eco-
nomic conditions within the region, including a decline in
real estate values, higher unemployment and other factors
which could adversely impact small and mid-sized businesses,
could have a significant adverse impact on the quality of the
Company’s loan portfolio. In addition, a decline in real estate
values and higher unemployment within the mid-Atlantic
region and North Carolina could adversely impact the
Company’s residential real estate loan portfolio.
Approximately 21.0% or $26.9 million and 20.7% or $26.8
million of the Company’s net interest income and noninterest
income are related to real estate lending in 2011 and 2010,
respectively. Real estate prices in the U.S. market decreased
significantly during 2009 and have continued to decrease in
2011. Continuing declines in real estate values could necessi-
tate charge-offs in our mortgage loan portfolio that may
impact our operating results. In addition, a sustained period
of declining real estate values combined with the continued
turbulence in the financial and credit markets would continue
to limit our mortgage related revenues.
As of December 31, 2011, approximately 59.0% of the
Company’s loan portfolio consisted of commercial and indus-
trial, factored receivables, construction and commercial real
estate loans. Because the Company’s loan portfolio contains
a number of commercial and industrial, construction and
commercial real estate loans with relatively large balances,
the deterioration of one or a few of these loans could cause a
significant increase in non-performing loans.
Related Party Loans
Loans are made to officers or directors (including their imme-
diate families) of the Company or for the benefit of corpora-
tions in which they have a beneficial interest subject to
applicable regulations. There were no outstanding balances
on such loans in excess of $60 thousand to any individual or
entity at December 31, 2011 or 2010.
p a g e 7 9
Nonperforming Loans
Nonaccrual loans are those on which the accrual of interest has ceased. Loans, including loans that are individually identified
as being impaired under FASB Codification Topic 310: Receivables, are generally placed on nonaccrual status immediately if, in
the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the loan agreement, or
when principal or interest is past due 90 days or more and collateral, if any, is insufficient to cover principal and interest.
Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against interest income. Interest
income is recognized on nonaccrual loans only to the extent received in cash. Where there is doubt regarding the ultimate col-
lectibility of the loan principal, cash receipts, whether designated as principal or interest, are thereafter applied to reduce the
carrying value of the loan. Loans are restored to accrual status when interest and principal payments are brought current and
future payments are reasonably assured.
Nonaccrual loans at December 31, 2011 and 2010 totaled $6.4 million and $6.6 million, respectively. The interest income that
would have been earned on nonaccrual loans outstanding at December 31, 2011, 2010 and 2009, in accordance with their
original terms, is estimated to be $780 thousand, $902 thousand and $1.5 million, respectively, for the years then ended.
Applicable interest income actually realized was $200 thousand, $204 thousand and $743 thousand, respectively, for the afore-
mentioned years, and there were no commitments to lend additional funds on nonaccrual loans.
The following table sets forth the amount of nonaccrual loans of the Company at the end of each of the two most recent fiscal years:
December 31,
Nonaccrual loans
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Total nonaccrual loans
2011
2010
$ 834
$ 1,014
—
370
1,991
3,124
—
39
—
892
1,614
3,124
—
—
$ 6,358
$6,644
The following tables provide information regarding the past due status of loans for the periods indicated:
December 31, 2011
30–59
Days Past
Due
60–89
Days
Past
Due
90 &
Over
Past
Due
Total
Past
Due
Current
Total
Loans
MEMO
90 & Over
and Still
Accruing
Commercial and industrial
$ 23,665
$ 5,344
$ 837
$ 29,846
$ 594,278
$ 624,124
$165
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
—
3,266
546
1,570
—
—
41
—
—
665
386
633
—
—
7
—
—
162
370
1,991
3,124
—
39
—
—
4,093
1,302
4,194
3,124
—
87
—
246,587
167,738
149,480
165,959
82,701
13,621
10,289
10
246,587
171,831
150,782
170,153
85,825
13,621
10,376
10
—
—
—
—
—
—
—
—
Total loans, net of unearned discount
$ 29,088
$ 7,035
$ 6,523
$ 42,646
$ 1,430,663
$ 1,473,309
$165
p a g e 8 0
December 31, 2010
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
30–59
Days Past
Due
60–89
Days
Past
Due
90 &
Over
Past
Due
Total
Past
Due
Current
Total
Loans
MEMO
90 & Over
and Still
Accruing
$ 16,899
$ 4,693
$ 1,015
$ 22,607
$ 595,616
$ 618,223
—
3,321
1,399
3,297
9,626
—
52
—
—
662
579
2,515
—
—
—
—
—
247
958
1,614
3,124
—
—
—
—
4,230
2,936
7,426
12,750
—
52
—
112,882
157,559
141,299
120,269
84,241
25,624
11,318
15,425
112,882
161,789
144,235
127,695
96,991
25,624
11,370
15,425
$ 1
—
247
66
—
—
—
—
—
Total loans, net of unearned discount
$ 34,594
$ 8,449
$ 6,958
$ 50,001
$ 1,264,233
$ 1,314,234
$314
Impaired Loans
Management considers a loan to be impaired when, based on current information and events, it is determined that the Company
will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination
of impairment is treated the same across all classes of loans on a loan-by-loan basis. When management identifies a loan as
impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effec-
tive interest rate, except when the sole remaining source of repayment of the loan is the operation or liquidation of the collat-
eral. In these cases management uses the current fair value of the collateral, less selling costs when foreclosure is probable,
instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded invest-
ment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is
recognized through an allowance estimate or a charge-off to the allowance.
When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all
payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an
impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when
received, under the cash basis method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The following tables include the recorded investment and unpaid principal balances for impaired financing receivables with the
associated allowance amount, if applicable. Management determined the specific allowance based on the present value of the
expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for
the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs
was used to determine the specific allowance recorded.
December 31, 2011
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Total
Recorded
Investment
in Impaired
Loans
Principal
Balance
With No
Allowance
Principal
Balance
With
Allowance
Related
Allowance
$2,954
—
—
151
5,275
3,124
—
—
—
$11,504
$1,395
—
—
—
825
—
—
—
—
$2,220
$ 2,159
—
—
151
4,966
3,124
—
—
—
$10,400
$ 287
—
—
17
1,234
1,113
—
—
—
$2,651
Average
Recorded
Investment
in Impaired
Loans
$ 2,596
—
—
230
4,886
3,124
—
—
—
$10,836
p a g e 8 1
December 31, 2010
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Total
Recorded
Investment
in Impaired
Loans
Principal
Balance
With No
Allowance
Principal
Balance
With
Allowance
Related
Allowance
$ 2,236
—
—
414
4,904
3,124
—
—
—
$10,678
$ 584
—
—
—
—
—
—
—
—
$ 584
$ 4,243
—
—
414
4,990
3,124
—
—
—
$12,771
$ 605
—
—
33
1,104
1,100
—
—
—
$2,842
Average
Recorded
Investment
in Impaired
Loans
$1,598
—
—
1,095
3,681
1,725
—
—
—
$8,099
The average recorded investment in accruing impaired restructured loans was approximately $6.7 million (commercial and
industrial $1.9 million, equipment financing receivables $0.2 million and real estate—residential mortgage $4.7 million), $4.5
million and $3.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. The recognition of interest
income on these accruing impaired loans is based upon an individual assessment of each loan; however, interest income is not
accrued on a loan that is more than 90 days past due. Interest income recognized on these loans during impairment was approx-
imately $430 thousand (commercial and industrial $95 thousand, equipment financing receivables $8 thousand and real estate–
residential mortgage $327 thousand), $60 thousand and $270 thousand for 2011, 2010 and 2009, respectively.
The Company had troubled debt restructured loans (“TDRs”) totaling $6.4 million as of December 31, 2011 and $6.2 million
as of December 31, 2010. The Company has allocated $1.3 million and $1.1 million of specific reserves to customers with
equipment financing receivables and residential real estate loans whose loan terms have been modified in TDRs as of December
31, 2011 and December 31, 2010. The Company has no commitments to lend additional amounts to customers with outstand-
ing loans that are classified as TDRs.
During the year ended December 31, 2011, the terms of $1.7 million of residential real estate loans were modified as TDRs. The
modification of terms of such loans included one or a combination of the following: a reduction of the stated interest rate; an
extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a
permanent reduction of the recorded investment in the loan. No lease financing receivables were modified during the twelve
months ended December 31, 2011.
Modifications of residential real estate loans involving a reduction of the stated interest rate or an extension of the maturity date
were for periods ranging up to 40 years.
The troubled debt restructurings described above increased the allowance for loan losses by $392 thousand for the twelve months
ended December 31, 2011 and resulted in charge-offs of $82 thousand during the twelve months ended December 31, 2011.
During the twelve months ended December 31, 2011, 12 residential real estate loans with a recorded investment of $1.7 million
had a payment default, while two lease financing receivables with a recorded investment of $105.1 thousand had a payment
default. A loan is considered to be in payment default once it is 60 days contractually past due under the modified terms.
p a g e 8 2
Credit Quality Indicators
As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit
quality indicators including trends related to (i) the risk grade of loans, (ii) the level of classified loans, (iii) charge-offs,
(iv) nonperforming loans and (v) the general economic conditions in the New York metropolitan area.
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their
debt, such as: current financial information, historical payment experience, credit documentation, public information and
current economic trends, among other factors. The Company has a process for analyzing non-homogeneous loans, such as
commercial and commercial real estate loans, individually by grading the loans based on credit risk. This analysis occurs at
varying times based on the type of loan as well as the loan balance and occurs at least once every 18 months for those loans
greater than $500,000.
For homogeneous loan pools, such as residential mortgages, leases and consumer loans, the Company uses payment status to
identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Company’s personnel and
on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these
homogeneous pools at December 31, 2011 is included in the aging of the recorded investment of past due loans table above.
In addition, the total nonperforming portion of these homogeneous loan pools at December 31, 2011 is presented in the
recorded investment in nonaccrual loans table above.
The Company utilizes a risk grading matrix to assign a risk grade to each of its commercial loans. Loans under $100,000
are not risk rated. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades is
as follows:
• Risk Rating 1 & 2/high Quality/minimal Risk—These loans are well secured by liquid or high-quality, diversified, and
readily marketable securities within the bank’s defined margin requirements including cash surrender value of life insurance, or
loans to strong privately held obligors secured by real estate with satisfactory loan to value, and support guarantors. They could
include loans to publicly traded entities with strong credit ratings (A-1 or better) by Moody’s or Standard & Poor’s.
• Risk Rating 3 & 4/Very good/good Quality—These loans can be either unsecured or secured (with monthly monitoring of
Accounts Receivable and/or Inventory) to adequately or moderately capitalized privately held obligors with satisfactory sales,
revenue, earnings trends, cash flow, and leverage. These secured loans may be monitored in the Asset Based Lending or the
Factoring Department to include control of cash receipts and defined formula advances. These categories could include loans to
publicly traded entities with credit ratings of A-3 or lower by Moody’s or Standard & Poor’s.
• Risk Rating 5/watch List—These loans are to companies with uneven financial performance containing exceptions to loan
policy without mitigating factors. Loans may receive this rating when the obligors experience temporary credit and/or structural
deficiencies. Such credits have not been criticized by Loan Review. Close supervision is warranted to avoid further deterioration.
• Risk Rating 6/special mention (occ definition)—Other Assets Especially Mentioned (OAEM) are loans that are currently
protected but are potentially weak. Loans with special mention ratings have potential weaknesses which may, if not checked or
corrected, weaken the asset or inadequately protect the bank’s credit position at some future date. Such assets constitute an
undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be rela-
tively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset.
• Risk Rating 7/substandard (occ definition)—These loans are inadequately protected by the current sound worth and
paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness that
jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if
the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have
to exist in individual assets classified as substandard.
• Risk Rating 8/doubtful (occ definition)—These loans have all the weakness inherent in one classified as substandard
with the added characteristics that the weakness makes collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain
important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classifi-
cation as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger,
acquisition, or liquidating procedures, capital injection, perfecting liens or additional collateral and refinancing plans.
p a g e 8 3
• Risk Rating 9/Loss (occ definition)—These loans are classified as Loss and charged-off because they are determined to be
uncollectible and unbankable assets. This classification does not mean that the asset has absolutely no recovery or salvage value,
but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be
effected in the future. The bank should not be allowed to attempt long-term recoveries while the asset remains booked. Losses
should be taken in the period in which they are determined to be uncollectible.
The following table presents weighted average risk grades and classified loans by type of loans as of December 31, 2011 and
2010. Classified loans include loans in Risk Grades 6, 7 and 8.
Commercial and industrial
Risk grades 1–4
Risk grade 5
Risk grade 6
Risk grade 7
Risk grade 8
Risk grade 9
Total
Loans to nondepository financial institutions
Risk grades 1–4
Risk grade 5
Risk grade 6
Risk grade 7
Risk grade 8
Risk grade 9
Total
Factored receivables
Risk grades 1–4
Risk grade 5
Risk grade 6
Risk grade 7
Risk grade 8
Risk grade 9
Total
Equipment financing receivables
Risk grades 1–4
Risk grade 5
Risk grade 6
Risk grade 7
Risk grade 8
Risk grade 9
Total
2011
2010
Weighted
Average Risk
Weighted
Average Risk
Grade
Loans
Grade
Loans
3.41
5.00
6.00
7.00
—
—
3.50
3.14
—
—
7.00
—
—
3.24
2.84
5.00
—
—
—
—
$ 603,375
5,006
11,872
3,871
—
—
$624,124
3.29
5.00
—
7.00
—
—
3.32
$ 609,991
4,782
—
3,450
—
—
$ 618,223
$ 240,154
3.06
$ 112,882
—
—
6,433
—
—
—
—
—
—
—
—
—
—
—
—
$ 246,587
3.06
$ 112,882
$ 170,256
1,575
—
—
—
—
2.76
$ 161,789
—
—
—
—
—
—
—
—
—
—
2.86
$ 171,831
2.76
$ 161,789
3.89
—
—
7.00
—
—
3.90
$ 150,412
—
—
370
—
—
$ 150,782
3.98
—
—
7.00
—
—
4.00
$ 143,335
—
—
900
—
—
$ 144,235
p a g e 8 4
Allowance for Loan Losses
The allowance reflects management’s best estimate of probable losses within the existing loan portfolio and of the risk inherent
in various components of the loan portfolio. The allowance, in the judgment of management, is necessary to reserve for esti-
mated loan losses and risk inherent in the loan portfolio. Additions to the allowance for loan losses are made by charges to the
provision for loan losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan losses.
Recoveries of previously charged off amounts are credited to the allowance for loan losses.
The Company’s allowance for loan loss methodology is based on guidance provided by the “Interagency Policy Statement on the
Allowance for Loan and Lease Losses” issued by the Office of the Comptroller of the Currency, Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office
of Thrift Supervision in December 2006 and includes an allowance allocation calculated in accordance with U.S. GAAP guid-
ance in FASB Codification Topic 310: Receivables and allowance allocations calculated in accordance with FASB Codification
Topic 450: contingencies. Accordingly, the methodology is based on historical loss experience by type of credit and internal
risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions.
The level of the allowance for loan losses relies on a consistent process that requires multiple layers of management review
and judgment and of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present
economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the
allowance may be allocated to specific credits; however, the entire allowance is available for any credit that, in management’s
judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy
of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the
performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities
toward loan classifications.
The Company’s allowance for loan losses includes (1) specific valuation allowances for impaired loans evaluated in accordance
with FASB Codification Topic 310: Receivables; (2) formulaic allowances based on historical loss experience by loan category,
adjusted, as necessary, to reflect the impact of current conditions; and (3) unallocated general valuation allowances determined
in accordance with FASB Codification Topic 450: contingencies based on general economic conditions and other qualitative
risk factors both internal and external to the Company.
The allowance established for losses on specific loans is based on a regular analysis and evaluation of problem loans. Loans are
classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay;
(ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This
analysis is performed at the relationship manager level for all loans. When a loan has a calculated grade of 6 or higher, an
analysis is performed to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of
the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to
repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s
industry, among other things.
p a g e 8 5
Historical valuation allowances are calculated based on the historical loss experience of specific types of loans and the internal
risk grade of such loans at the time they were charged-off. The Company calculates historical loss ratios for pools of similar
loans with similar characteristics based on the portion of actual charge-offs experienced to the total population of loans in the
pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance
is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of
the loans in the pool. During 2010 the Company revised its historical loss ratio calculation to reflect a five year history from a
ten year history to reflect the recent loss experience.
The Company’s pool of similar loans includes similarly risk-graded groups of commercial and industrial loans, com mercial real
estate loans, residential real estate loans and consumer and other loans.
General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and
external to the Company. In general, such valuation allowances are determined by evaluating, among other things:
• Estimated losses in all significant loans
• Existence and effect of any concentrations of credit
• Existence and effect of any geographic concentration
• Other external factors such as competition, legal matters or regulation that may affect risk
• Effect of criticized and classified loans
• Effects from risk arising with international lending
• Effectiveness of internal problem loan identification and risk ratings
• Trends in portfolio volume, maturity and compositions of loans within segments
• Volumes and trends in delinquencies and nonaccrual loans
• Changes in the quality of lending policies and procedures
• Changes in local and national economic conditions
• Experience, ability and depth of lending staff
• Changes in value of underlying collateral
Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a
quarterly basis. Each component is determined based on degree of risk. The results are then input into a “general allocation
matrix” to determine an appropriate general valuation allowance.
Included in the general valuation allowances are allocations for groups of similar loans with risk characteristics that exceed
certain concentration limits established by management. Concentration risk limits have been established, among other things,
for certain industry concentrations, large and highly leveraged credit relationships that exceed specified risk grades, and loans
originated with policy exceptions that exceed specified risk grades.
Loans are generally charged-off at the earlier of the date when it is determined that collection efforts are no longer productive
or the date when they have been identified as losses by management, internal loan review and/or bank examiners. Furthermore,
equipment financing receivables and revolving credit lines to small businesses are charged-off at the earlier of the date when
payments are 120 days past due or when it is determined that collection efforts are no longer productive.
Factors considered in determining whether collection efforts are no longer productive include any amounts currently being
collected, the status of discussions or negotiations with the lessee/borrower, the principal and/or guarantors, the cost of
continuing efforts to collect, the status of any foreclosure or other legal actions, the value of the collateral, and any other
pertinent factors.
p a g e 8 6
The following table presents the activity in the allowance for loan losses by portfolio segment:
Year Ended December 31, 2011
Commercial and industrial
Loans to nondepository financial institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Unallocated
Total
[1] Includes losses on transfers to oReo
Balance,
Beginning
of Period
Charge-
Offs[1]
Recoveries
Net
Provision
Balance,
Charge-
Offs[1]
for Loan
Losses
End of
Period
$ 7,454
$ 2,909
$ 146
$ 2,763
$ 2,956
$ 7,647
564
1,424
3,423
2,497
2,275
310
119
46
126
—
358
8,266
1,291
—
—
30
—
—
—
79
2,255
165
—
—
—
—
—
—
279
6,011
1,126
—
—
30
—
—
805
305
6,103
2,119
(124)
(145)
15
(46)
12
1,369
1,450
3,515
3,490
2,151
165
104
—
138
$18,238
$12,854
$2,645
$ 10,209
$12,000
$20,029
The following table presents the activity in the allowance for the periods shown:
Years Ended December 31,
Allowance for loan losses:
Balance at beginning of year
Charge-offs:
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Total charge-offs
Recoveries:
Commercial and industrial
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Total recoveries
Subtract:
Net charge-offs
Provision for loan losses
Less loss on transfers to other real estate owned
Balance at end of year
2010
2009
$ 19,872
$ 16,010
7,212
665
22,509
351
129
—
231
4,945
514
19,115
312
—
—
—
31,097
24,886
312
239
902
—
—
—
48
1,501
29,596
28,500
538
1,042
63
345
102
—
—
—
1,552
23,334
27,900
704
$ 18,238
$ 19,872
p a g e 8 7
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio
segment and based on impairment method for the periods indicated:
Year Ended December 31, 2011
Individually
Collectively
Total
Individually
Collectively
Total
Ending Allowance Balance
Loan Balances
Attributable to Loans
Evaluated for Impairment
Evaluated for Impairment
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Unallocated
Total
Year Ended December 31, 2010
Commercial and industrial
Loans to nondepository institutions
Factored receivables
Equipment financing receivables
Real estate—residential mortgage
Real estate—commercial mortgage
Real estate—construction and land development
Loans to individuals
Loans to depository institutions
Unallocated
Total
note 6.
$ 287
—
—
17
1,234
1,113
—
—
—
—
$ 2,651
$ 605
—
—
33
1,104
1,100
—
—
—
—
$ 2,842
$ 7,360
1,369
1,450
3,498
2,256
1,038
165
104
—
—
$ 7,647
1,369
1,450
3,515
3,490
2,151
165
104
—
138
$ 2,954
—
—
151
5,275
3,124
—
—
—
—
$ 621,170
246,587
171,831
150,631
164,878
82,701
13,621
10,376
10
—
$ 624,124
246,587
171,831
150,782
170,153
85,825
13,621
10,376
10
—
$ 17,240
$ 20,029
$ 11,504
$ 1,461,805
$ 1,473,309
$ 6,849
564
1,424
3,390
1,393
1,175
310
119
46
—
$ 7,454
564
1,424
3,423
2,497
2,275
310
119
46
126
$ 2,236
—
—
414
4,904
3,124
—
—
—
—
$ 615,987
112,882
161,789
143,821
122,791
93,867
25,624
11,370
15,425
—
$ 618,223
112,882
161,789
144,235
127,695
96,991
25,624
11,370
15,425
—
$ 15,270
$ 18,238
$ 10,678
$ 1,303,556
$ 1,314,234
PremiSeS and eQui Pment
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
2011
2010
$
344
15,221
24,139
39,704
16,079
$
344
14,526
16,085
30,955
15,046
$ 23,625
$ 15,909
p a g e 8 8
note 7.
intereSt-bearing d ePoS itS
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-four months
More than twenty-four months through thirty-six months
More than thirty-six months through forty-eight 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
2011
2010
2009
$
8
372
2,475
$
11
472
2,805
$
18
620
3,252
2,185
1,776
1,215
235
142
29
1
8,438
—
—
2,665
3,086
270
212
23
41
—
9,585
3
—
3,493
3,807
295
345
8
45
—
11,883
4
2
Total
$ 8,438
$ 9,588
$ 11,889
The aggregate of time certificates of deposit and other time deposits in denominations of $100 thousand or more was $541.8
million and $488.4 million at December 31, 2011 and 2010, respectively.
The following table provides certain information with respect to the Company’s deposits at the end of the two most recent fiscal
years; there were no foreign deposits at either date:
December 31,
Domestic
Demand
NOW
Savings
Money Market
Time deposits by remaining maturity:
Three months or less
More than three months through six months
More than six months through twelve months
More than twelve months through twenty-four months
More than twenty-four months through thirty-six months
More than thirty-six months through forty-eight months
More than forty-eight months through sixty months
More than sixty months
2011
2010
$ 765,800
177,495
18,566
369,362
$ 570,290
200,521
18,931
342,755
249,245
228,209
130,988
23,307
25,054
1,045
—
—
176,070
228,635
158,559
32,645
13,624
5,177
466
91
Total
$1,989,071
$ 1,747,764
The Company began participating in the Certificate of Deposit Account Registry Service (“CDARS”) on January 22, 2009.
CDARS deposits totaled approximately $164.5 million and $180.7 million at December 31, 2011 and December 31, 2010,
respectively.
p a g e 8 9
note 8.
Short-term b orrowingS
The following table presents information regarding short-term borrowings:
Years Ended December 31,
Federal funds purchased
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
Commercial paper
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
Short-term borrowings—FHLB
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
Short-term borrowings—FRB
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
Short-term borrowings—treasury tax and loan and term Federal funds purchased
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
2011
2010
2009
$
—
—
—
60,000
10,926
$ 15,000
0.15%
1 Day
105,000
33,192
$41,000
0.16%
1 Day
87,000
25,075
0.13%
0.07–0.25%
0.22%
0.10–0.35%
0.21%
0.06–0.50%
$ 13,485
$ 14,388
$ 17,297
0.29%
0.29%
0.31%
44 Days
16,573
14,454
45 Days
16,927
14,718
34 Days
17,297
13,107
0.30%
0.20–0.60%
0.30%
0.20–0.65%
0.51%
0.15–2.25%
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
$
—
—
—
25,000
3,699
$
—
—
—
—
3,411
0.31%
0.45–0.63%
$ 50,000
0.25%
70 Days
235,000
154,726
0.25%
0.25%
0.26%
0.25–0.50%
$
—
—
—
23,864
3,666
$ 3,490
—
1 Day
46,779
7,306
0.07%
0.00–0.31%
0.25%
0.00–0.40%
$ 2,509
—
1 Day
4,262
1,864
—
—
Commercial paper is issued by the parent company and is not guaranteed by any subsidiary. The parent company has agree-
ments with 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, 2011, these back-up bank lines of credit totaled $19 million; no lines were used at any time during
2011, 2010 or 2009.
p a g e 9 0
note 9.
SecuritieS Sold under agreement S to re PurchaSe
Securities sold under agreements to repurchase are secured by obligations of U.S. government corporations and government-
sponsored enterprises and corporate debt obligations with a carrying amount of $68.3 million and $31.6 million at December
31, 2011 and 2010, respectively.
Securities sold under agreements to repurchase are financing arrangements that mature within two years. At maturity, the securities
underlying the agreements are returned to the Company. Information concerning securities sold under agreements to repurchase is
summarized as follows:
Years Ended December 31,
2011
2010
2009
Securities sold under agreements to repurchase—customers
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
Securities sold under agreements to repurchase—dealers
At December 31 —Balance
—Weighted average interest rate
—Weighted average original maturity
During the year —Maximum month-end balance
—Daily average balance
—Weighted average interest rate paid
—Range of interest rates paid
note 10.
adVanceS — fhlb and l ong-term b orrowingS
$ 47,313
$ 23,016
$ 21,048
0.34%
0.45%
0.46%
21 Days
51,991
42,911
35 Days
55,998
47,674
36 Days
80,960
72,892
0.43%
0.25–0.65%
0.48%
0.35–0.65%
0.48%
0.25–2.00%
$ 5,000
$ 5,000
$
1.30%
1.30%
731 Days
5,000
5,186
1.27%
0.13–1.30%
731 Days
39,893
5,618
0.79%
0.25–1.30%
—
—
—
—
—
—
—
These borrowings represent advances from the FHLB and junior subordinated debt securities issued by the parent company.
The following table presents information regarding fixed and floating rate FHLB advances:
Advance
Type
Fixed Rate
Callable
Callable
Callable
Callable
Callable
Callable
Callable
Callable
Callable
Callable
Term
Term
Term
Term
Term
Term
Term
Floating Rate
Term
Term
Total
Weighted-average interest rate
Maturity
Date
Initial
Call Date
December 31,
2011
2010
2/22/11
1/16/13
2/28/13
3/19/13
3/19/13
5/6/13
7/2/18
8/8/18
9/5/13
9/12/13
8/6/12
7/16/12
4/12/13
4/14/14
8/4/11
3/23/11
9/23/11
2/10/16
2/10/16
2/20/03
1/16/09
3/2/09
3/19/09
3/19/09
2/6/09
1/2/09
2/9/09
3/5/09
3/12/09
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
10,000
10,000
1,197
1,536
—
—
—
50,000
50,000
$ 10,000
20,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
—
10,000
2,024
2,149
10,000
5,000
5,000
—
—
$ 122,733
$ 144,173
0.97%
2.42%
Interest
Rate
4.70 %
3.19
1.96
1.834
2.318
2.53
2.57
2.505
2.94
2.783
0.53
2.26
1.73
2.13
0.70
0.55
0.61
0.864
0.864
p a g e 9 1
During the 2011 first quarter, the bank restructured a portion of its FHLB fixed rate callable and term advances by repaying
$100 million of existing borrowings and replacing them with $100 million of lower cost, floating rate advances. This transac-
tion resulted in $4.2 million in prepayment penalties that were deferred and will be recognized in interest expense as an adjust-
ment to the cost of these borrowings in future periods. The existing borrowings had an average cost of 2.58% and an average
duration of 3.2 years. The new borrowings had an initial average cost of 1.58%, including the deferred adjustment, with an
average duration of three months. The relevant accounting treatment for this transaction was provided in ASC 470-50. This
transaction was executed as an earnings and interest rate risk strategy, resulting in lower FHLB advance costs and a reduction
of average duration.
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 Company completed its issuance of trust capital securities (“capital securities”) that raised $25 million
($24.1 million 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 $25.8 million junior subordinated debt securities that pay interest at 8.375%
(“debt securities”) issued by the parent company. The Company is not considered the primary beneficiary of the trust (which is
a VIE); therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are
shown as a liability. 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 2011, 2010 and 2009, the parent company did not purchase any capital securities. Securities purchased are
included in the Company’s securities available for sale and are considered to be outstanding for the payment of dividends but
are considered to be redeemed for the calculation of the regulatory capital ratios. During 2011 and 2010, the Company’s
tax-qualified defined benefit pension plan (the “Plan”) did not purchase any capital securities. During 2009, the Plan purchased
in the open market $652 thousand par amount of the capital securities at an aggregate cost of $495 thousand. As a result of
these repurchases, the amounts of capital securities held by third parties at December 31, 2011, 2010 and 2009 were $22.8
million, $22.8 million and $22.8 million, respectively. 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.
The ability of the parent company to obtain funds from its subsidiaries is limited (see Note 16).
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 regulatory 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 March 31, 2011, the aggregate amount of capital securities and
certain other capital elements is limited to 25% of Tier 1 capital, net of goodwill less any associated deferred tax liability. Based
on the final rule, the parent company continues to include the amount of capital securities held by third parties in Tier 1 capital.
p a g e 9 2
note 11.
due to factored client S
Due to factored clients represents amounts due on accounts
receivable purchased in excess of the amounts advanced.
Beginning October 1, 2011 the assets and liabilities of Sterling
Factors Corporation were transferred to Sterling National
Bank which then continued to offer all factoring services. As
a result, these amounts are now included in “Noninterest-
bearing demand deposits.”
note 12.
Preferred ShareS
The parent company is authorized to issue up to 644,389
preferred shares, $5 par value per share, in one or more
series. The following table presents information regarding the
parent company’s preferred shares issued and outstanding:
December 31,
2011
2010
Series A preferred shares. Issued and
outstanding— -0- and 42,000
shares, at liquidation value
$-0-
$ 42,000
Under the provisions of the TARP Capital Purchase Program
enacted under EESA, on December 23, 2008, the parent com-
pany sold to the U.S. Treasury 42,000 shares of the parent
company’s Fixed Rate Cumulative Perpetual Preferred Shares,
Series A, par value $5.00 per share, having a liquidation pref-
erence of $1 thousand per share (the “Series A Preferred
Shares”), together with a warrant to purchase 516,817 shares
of its common shares, for an aggregate price of $42 million.
Under the standardized terms of the TARP Capital Purchase
Program, cumulative dividends on the Series A Preferred
Shares accrue on the liquidation preference at a rate of 5%
per annum for the first five years, and at a rate of 9% per
annum thereafter, but are required to be paid only if, as and
when declared by the parent company’s Board of Directors.
The Series A Preferred Shares have no maturity date and rank
senior to the parent company’s common shares with respect
to the payment of dividends and distributions and amounts
payable upon liquidation, dissolution and winding up of the
parent company. The Series A Preferred Shares qualify as Tier
1 capital for regulatory capital purposes.
The warrant has a 10-year term with 50% vesting immedi-
ately upon issuance and the remaining 50% vesting on
January 1, 2010 if certain qualified equity offerings have not
been conducted. As the Company did not conduct any quali-
fied equity offering after the issuance of the Series A Preferred
Shares, 100% of the warrant has been vested. The warrant
has an exercise price, subject to anti-dilution adjustments,
equal to $12.19 per common share.
The parent company may redeem the Series A Preferred
Shares three years after the date of the U.S. Treasury’s invest-
ment, or earlier if it raises in an equity offering net proceeds
equal to the amount of the Series A Preferred Shares to be
redeemed. It must raise proceeds equal to at least 25% of the
issue price of the Series A Preferred Shares to redeem any
Series A Preferred Shares prior to the end of the third year.
The redemption price is equal to the sum of the liquidation
amount per share and any unpaid dividends on the Series A
Preferred Shares up to, but excluding, the date fixed for
redemption. Notwithstanding the foregoing limitations,
under the American Recovery and Reinvestment Act of 2009
the U.S. Treasury may, after consultation with the parent
company’s federal regulator, permit the parent company at
any time to redeem the Series A Preferred Shares at liquida-
tion value. Upon such redemption, the common share pur-
chase warrant may also be repurchased at its then current
fair value.
The Series A Preferred Shares and the warrant issued under the
TARP program qualify and are accounted for as permanent
equity on the Company’s Consolidated Balance Sheet. Of the
$42 million in total issuance proceeds, $39.4 million and
$2.6 million were allocated to the Series A Preferred Shares
and the warrant, respectively, based upon their estimated fair
values as of December 23, 2008. The resulting discount of
$2.6 million recorded for the Series A Preferred Shares was
being accreted by a charge to retained earnings over a five-
year estimated life of the preferred shares based on the likeli-
hood of their redemption by the parent company within that
timeframe. Accretion of discount amounted to $1.4 million in
2011, $489 thousand in 2010 and $673 thousand in 2009.
The proceeds from the issuance to the U.S. Treasury were
allocated based on the relative fair value of the warrants as
compared with the fair value of the preferred shares. The fair
value of the warrants was determined using a valuation model
which incorporates assumptions regarding our common share
price, dividend yield, expected life of the warrants, share
price volatility and the risk-free interest rate. The fair value of
the preferred shares was determined based on assumptions
regarding the discount rate (market rate) on the preferred
shares, which was estimated to be approximately 13% at the
date of issuance. The discount on the preferred shares was
accreted to liquidation value using a constant effective yield
of 6.431% over a five-year term, which is the expected life of
the preferred shares.
On April 27, 2011, the parent company paid $42.4 million to
the U.S. Treasury for the repurchase in full of the Series A
Preferred Shares. As a result of this action, the Series A
Preferred Shares were redeemed in full, eliminating an annual
p a g e 9 3
dividend of $2.1 million. In this connection, in determining net income available to common shareholders, the Company recog-
nized in the second quarter a $1.2 million charge for accelerated accretion which represents the difference between the carrying
value and the liquidation value for the repurchased Series A Preferred Shares. On May 18, 2011, the parent company paid
approximately $0.95 million to the U.S. Treasury to repurchase the warrant. The parent company’s repurchase of the warrant
concluded its participation in the TARP Capital Purchase Program.
note 13.
common S hareS
On March 9, 2011, the Company completed an underwritten public offering of 4.025 million common shares at an offering
price of $9.60 per share, which resulted in net proceeds of $36.5 million after underwriting discounts and expenses. On March
19, 2010, the Company completed an underwritten public offering of 8.625 million common shares at an offering price of
$8.00 per share, which resulted in net proceeds of $64.9 million after underwriting discounts and expenses.
The following table provides information regarding the number of common shares issued:
Years Ended December 31,
Issued at beginning of year
Shares issued—public offering
Shares issued under stock incentive plan
Issued at end of year
note 14.
treaSurY ShareS
Number of
Shares Issued
2011
2010
31,138,545
4,025,000
61,565
22,226,425
8,625,000
287,120
35,225,110
31,138,545
The following table provides information regarding the number of common shares held by the Company:
Years Ended December 31,
Held at beginning of year
Surrender of shares issued under incentive compensation plan
Held at end of year
Number of
Shares Held
2011
2010
4,297,782
2,496
4,119,934
177,848
4,300,278
4,297,782
p a g e 9 4
note 15.
accumulated other comPrehenSiVe lo SS
Information related to the components of accumulated other comprehensive (loss) income is as follows with related tax effect:
Other Comprehensive (Loss) Income
Unrealized holding (losses) gains on available for sale securities and other
investments, arising during the period:
Before tax
Tax effect
Net of tax
Reclassification adjustment for securities gains included in net income:
Before tax
Tax effect
Net of tax
Pension liability adjustment—net actuarial (losses) gains:
Before tax
Tax effect
Net of tax
Reclassification adjustment for amortization of prior service cost:
Before tax
Tax effect
Net of tax
Reclassification adjustment for amortization of net actuarial losses:
Before tax
Tax effect
Net of tax
2011
2010
2009
$
(337)
157
(180)
$ 3,846
(1,745)
$ 5,564
(2,525)
2,101
3,039
(1,726)
768
(958)
(3,315)
1,309
(2,006)
63
(28)
35
3,208
(1,428)
1,780
(3,928)
1,783
(2,145)
(3,551)
1,611
(1,940)
67
(31)
36
2,673
(1,213)
1,460
(5,561)
2,524
(3,037)
3,544
(1,609)
1,935
67
(31)
36
3,454
(1,567)
1,887
Other comprehensive (loss) income
$ (1,329)
$
(488)
$ 3,860
The following table presents the components of accumulated other comprehensive loss as of December 31, 2011 and 2010
included in shareholders’ equity:
December 31, 2011
Net unrealized loss on securities
Adjustment for underfunded pension and postretirement life insurance obligations
Total
December 31, 2010
Pre-tax
Amount
Tax
Effect
After-tax
Amount
$ (1,720)
(23,925)
$
763
10,666
$
(957)
(13,259)
$ (25,645)
$ 11,429
$ (14,216)
Net unrealized gain on securities
Adjustment for underfunded pension and postretirement life insurance obligations
$
343
(23,881)
$
(161)
10,812
$
182
(13,069)
Total
$ (23,538)
$ 10,651
$ (12,887)
p a g e 9 5
note 16.
note 17.
reStrictionS on the b ank
Stock i ncentiVe Plan
The parent company depends for its cash requirements on
funds maintained or generated by its subsidiaries, principally
the bank. Approval by the Comptroller of the Currency is
required if the effect of dividends declared would cause the
regulatory capital of the bank to fall below specified mini-
mum levels. Additionally, 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 preceding two calendar
years. Under the foregoing restrictions, as of December 31,
2011 the bank could pay dividends of approximately $47.1
million to the parent company, without regulatory approval.
Federal law also prohibits national banks from paying divi-
dends 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 Federal Deposit
Insurance Corporation Improvement Act of 1991 (“FDICIA”),
a depository institution, such as the bank, may not pay divi-
dends if payment would cause it to become undercapitalized
or 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.
In April 1992, shareholders approved a Stock Incentive Plan
(the “SIP”) covering up to 100,000 common shares of the
parent company. Under the SIP, 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 SIP is admin-
istered by a committee of the Board of Directors. Since the
inception of the SIP, shareholders have approved amend-
ments increasing the number of shares covered under the
SIP; the total number of shares authorized by shareholders
through December 31, 2011 was 2,650,000. The SIP pro-
vides for proportional adjustment to the number of shares
covered by the SIP 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 616,184 at December 31,
2011. The Company issues new shares to satisfy stock option
exercises. The total intrinsic value of stock options exercised
for the years ended December 31, 2011, 2010 and 2009 was
$-0- thousand, $171 thousand and $61 thousand, respectively.
p a g e 9 6
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, 2011, 2010 and 2009 and changes during the years then ended:
Qualified Stock Options
Outstanding at beginning of year
Exercised
Forfeited/Lapsed
Outstanding at end of year
Options exercisable at end of year
2011
2010
2009
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
150,358
—
(6,237)
144,121
144,121
$14.43
—
10.61
14.60
204,112
(53,754)
—
150,358
143,502
$12.46
6.94
—
14.43
231,898
(24,006)
(3,780)
204,112
190,401
$12.11
8.69
14.60
12.46
Non-Qualified Stock Options
Outstanding at beginning of year
Exercised
Forfeited/Lapsed
Outstanding at end of year
Options exercisable at end of year
2011
2010
2009
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
Number of
Options
Weighted-Average
Exercise Price
272,389
—
(106,050)
166,339
71,339
$19.55
—
24.29
16.54
460,102
(149,638)
(38,075)
272,389
177,389
$15.49
6.94
20.03
19.55
533,338
—
(73,236)
460,102
350,646
$16.34
—
21.65
15.49
At December 31, 2011, no qualified or NQSO stock options were outstanding, exercisable and in-the-money. The Company
believes that all unvested stock options will ultimately vest.
The following table presents information regarding qualified and non-qualified stock options outstanding at December 31, 2011:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
Number
Outstanding
at 12/31/11
Weighted-Average
Remaining
Contractual Life
Weighted-Average
Exercise
Price
Number
Exercisable
at 12/31/11
Weighted-Average
Exercise
Price
Qualified
Non-Qualified
$14.60
144,121
14.60–17.99
166,339
0.10 years
3.02 years
$14.60
16.54
144,121
71,339
$14.60
14.60
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 of 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 possible as ISOs, these options become exercisable in annual installments. Employee stock options which become exercis-
able 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 from the first anniversary of the grant date. Amounts received upon exercise of options are recorded
as common shares and capital surplus. The additional tax benefit received by the Company upon exercise of a NQSO is credited
to capital surplus.
p a g e 9 7
There were no options granted during 2011, 2010 or 2009.
Under the provisions of FASB Codification Topic 718:
compensation—stock compensation, the Company recorded
compensation expense of $85 thousand, $109 thousand and
$132 thousand during the years ended December 31, 2011,
2010 and 2009, respectively, for option awards in 2006 and
2007. As of December 31, 2011, the total remaining unrecog-
nized compensation cost related to option awards was $18
thousand, which is expected to be recognized over a weighted-
average vesting period of 0.2 years.
The tax benefit recognized as a credit to capital surplus upon
the exercise of NQSOs amounted to approximately $-0-
thousand at December 31, 2011, $66 thousand at December
31, 2010 and $-0- at December 31, 2009.
Restricted Stock
On March 25, 2010, the Board of Directors, upon recom-
mendation by the Compensation and Corporate Governance
Committees, granted a total of 40,000 shares of restricted
stock to the eight non-management directors (“2010 director
restricted shares”) and 43,728 restricted shares to the
Chairman, President, and five Executive Vice Presidents (“2010
officer restricted shares”). The 2010 director restricted shares
will vest 25% annually over four years beginning on the first
anniversary of the grant date. The 2010 officer restricted
shares vest 50% on the second anniversary of the grant date
and 25% on each of the third and fourth anniversaries of the
grant date and are also limited by the 2008 agreement
between the Company and the U.S. Treasury. The 2010 direc-
tor restricted shares and the 2010 officer restricted shares
were issued at $9.23 per share, the closing price on the date
of the grant. The agreements for both the 2010 director
restricted shares and the 2010 officer restricted shares have
additional provisions regarding transferability and acceler-
ated vesting of the shares and the continuation of performing
substantial services for the Company. As of December 31,
2011, all 83,728 shares were still issued and 10,000 of the
2010 director restricted shares were vested.
On March 24, 2011, the Board of Directors, upon recom-
mendation by the Compensation and Corporate Governance
Committees, granted a total of 20,000 shares of restricted
stock to the eight non-management directors (“2011 director
restricted shares”) and 41,565 restricted shares to the
Chairman, President and five Executive Vice Presidents
(“2011 officer restricted shares”). The 2011 director restricted
shares will vest 25% annually over four years beginning on
the first anniversary of the grant date. The 2011 officer
restricted shares vest 50% on the second anniversary of the
grant date and 25% on each of the third and fourth anniver-
saries of the grant date and had been limited by the 2008
agreement between the Company and the U.S. Treasury until
the Preferred Shares were redeemed on April 27, 2011. The
2011 director restricted shares and the 2011 officer restricted
shares were issued at $9.71 per share, the closing price on the
date of the grant. The agreements for both the 2011 director
restricted shares and the 2011 officer restricted shares have
additional provisions regarding transferability and acceler-
ated vesting of the shares and the continuation of performing
substantial services for the Company. As of December 31,
2011, all 61,565 shares were still issued and none were vested.
Under the provisions of FASB Codification Topic 718:
compensation—stock compensation, the Company recorded
compensation expense of $309 thousand during the year ended
December 31, 2011 and a related tax benefit of $138 thousand.
As of December 31, 2011, the total remaining unrecognized
compensation cost related to restricted stock awards was $913
thousand, which is expected to be recognized over a weighted-
average vesting period of 2.8 years.
note 18.
emPloYee b enefit 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 par-
ticipant’s highest average compensation as defined. The fund-
ing requirements for the plan are determined annually based
upon the amount needed to satisfy the Employee Retirement
Income Security Act of 1974 funding standards. No employ-
ees initially hired after January 2, 2006 were eligible to enter
the plan.
The Company also has a noncontributory, supplemental non-
qualified, non-funded retirement plan which is designed to
supplement the pension plan for key officers.
p a g e 9 8
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
Benefit obligation at beginning of year (Projected Benefit Obligation)
Service cost
Interest cost
Actuarial 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)
2011
2010
$ 70,970
$ 63,054
2,147
3,933
1,890
2,050
3,766
4,607
(1,929)
(2,507)
$ 77,011
$ 70,970
$ 41,521
$ 38,010
1,672
2,035
(1,929)
4,284
1,735
(2,507)
$ 43,299
$ 41,522
$ (33,712)
$ (29,448)
$ (33,712)
$ (29,448)
23,889
23,588
Rate of
Compen sation
weighted-aVerage aSSumPtionS uSed to determine the benefit obligation:
Defined benefit pension plan
Supplemental retirement plan
Discount Rate
Increase
2011
2010
2011
2010
5.10% 5.50%
3.00% 3.00%
5.10
5.50
3.00
3.00
Components of the net periodic benefit expense and other amounts recognized in other comprehensive loss (income) are
as follows:
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
Net periodic benefit expense
Other changes in plan assets and benefit obligations recognized in other
comprehensive loss (income):
Net actuarial loss (income), after tax
Prior service credit, after tax
Total recognized in other comprehensive loss (income)
2011
2010
2009
$ 2,147
$ 2,050
$ 2,160
3,933
(3,305)
63
3,159
5,997
226
(35)
191
3,766
(3,020)
67
2,672
5,535
480
(36)
444
3,355
(2,618)
67
3,454
6,418
(3,822)
(36)
(3,858)
Total recognized in net periodic benefit expense and other comprehensive income or loss
$ 6,188
$ 5,979
$ 2,560
p a g e 9 9
Discount Rate
on Plan Assets
Increase
Expected Return
Rate of Compensation
2011
2010
2009
2011
2010
2009
2011
2010
2009
weighted-aVerage aSSumPtionS uSed to
determine net Periodic coSt:
Defined benefit pension plan
Supplemental retirement plan
5.50% 6.00% 5.75% 8.00% 8.00% 8.50% 3.00% 3.00% 3.00%
5.50
6.00
5.75
N/A
N/A
N/A
3.00
3.00
3.00
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, 2011 and 2010 was $45.5 million and
$42.9 million, 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
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
2011
2010
$ 28,581
28,521
$ 25,165
25,165
2011
2010
3%
4%
32
59
6
28
61
7
100%
100%
The overall investment strategy of the Plan is to have a diversified portfolio of investments that balance risk and return with the
goal of meeting or exceeding the plan’s actuarial return assumptions and shorter term liquidity needs. The asset mix can vary
but, to achieve these objectives, it is targeted at 60% equity securities, including up to 10% in the parent company common
shares, 25% in corporate obligations and 10% in federal and agency obligations with the balance in other investments including
trust preferred securities. The allocation of Plan assets as of December 31, 2011 is shown in the table above. The money market
investment positions will vary but, will generally be under 5%. The Plan’s asset allocation and investments are recommended
and managed by an independent advisor.
The weighted average expected long-term rate of return is estimated based on current trends in the plan assets as well as pro-
jected future rates of returns on those assets. The long-term rate of return considers historical returns, with adjustments to reflect
expectations of future returns as determined by the trustee’s investment advisor after consultation with the trustee. These
adjustments include consideration of projected future economic conditions, interest rates, industry trends and other factors.
The defined benefit pension plan owns common shares of the parent company which is included in common equity securities
above. At December 31, 2011, the fair value of the parent company common shares was $597 thousand and represented approx-
imately 1% of plan assets. At December 31, 2010, the fair value of the parent company common shares was $723 thousand and
represented approximately 2% of plan assets.
p a g e 1 0 0
The defined benefit pension plan also owns capital securities (see Note 12 for definition) issued by Sterling Bancorp Trust I, a
wholly-owned non-consolidated statutory business trust (which is a VIE). At December 31, 2011 and December 31, 2010, the
fair value of the capital securities was $1.2 million and represented approximately 3% of plan assets.
The Company expects to contribute approximately $2.0 million to the defined benefit pension plan in 2012.
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)
2012
2013
2014
2015
2016
Years 2017–2021
Defined
Supplemental
Total
Benefit Plan
Retirement Plan
Benefit Payments
$ 2,128
2,336
2,494
2,644
2,800
17,146
$27,462
36
37
563
37
196
$29,590
2,372
2,531
3,207
2,837
17,342
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.
Amounts recognized in accumulated other comprehensive loss, pre-tax, as of December 31, 2011 and 2010 follow:
Net actuarial loss
Prior service cost
Total
Qualified Pension Plan
2011
$ 17,517
38
$ 17,555
2010
$ 17,131
85
$ 17,216
Supplemental
Retirement Plan
2011
$ 6,330
4
$ 6,334
2010
$ 6,352
20
$ 6,372
Total
2011
$ 23,847
42
$ 23,889
2010
$ 23,483
105
$ 23,588
The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic cost in 2012 are as follows:
Net actuarial loss
Prior service cost
Total
Qualified Pension Plan
Supplemental
Retirement Plan
$1,892
23
$1,915
$734
4
$738
Total
$2,626
27
$2,653
Fair Value of Plan Assets: Fair value is the exchange price that would be received for an asset in the principal or most advantageous
market for the asset in an orderly transaction between market participants on the measurement date.
p a g e 1 0 1
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
equity, debt, Investment Funds and other securities. The fair values for investment securities are determined by quoted market
prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices
of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair val-
ues are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using
spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During
times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry
research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.
The fair value of the plan assets at December 31, 2011, by asset category, is as follows:
Plan Assets
Equity securities
U.S. government agency obligations
Corporate debt securities
Money market funds and other
Total Plan Assets
Fair Value Measurements at December 31, 2011 Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$28,306
1,273
13,493
—
$43,072
$ —
—
—
227
$227
$—
—
—
—
$—
Carrying
Value
$28,306
1,273
13,493
227
$43,299
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. Expense for employer
match related to the new plan totaled $480 thousand in 2011, $323 thousand in 2010 and $289 thousand in 2009.
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 with a liability of $1.2 million at December 31, 2011 and $1.4 million at December 31, 2010. Net postretirement
benefit cost was $125 thousand, $65 thousand and $65 thousand for 2011, 2010 and 2009, respectively. Amounts related to the
postretirement life insurance plan included in other comprehensive income were $143 thousand at December 31, 2011 and $-0-
thousand at December 31, 2010.
p a g e 1 0 2
note 19.
income taxeS
The current and deferred tax provisions (benefits) applicable to income before taxes 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
2011
2010
2009
$
(71)
$ 3,615
$ 9,187
2,046
(1,734)
(5,226)
$ 1,975
$ 1,881
$ 3,961
$ 2,188
$
973
$ 2,065
33
(696)
(1,118)
$ 2,221
$
277
$
947
$ 2,117
2,079
$ 4,588
$ 11,252
(2,430)
(6,344)
$ 4,196
$ 2,158
$ 4,908
Reconciliations of income tax provisions with taxes computed at Federal statutory rates are as follows:
Years Ended December 31,
Federal statutory rate
2011
2010
2009
35%
34%
35%
Computed tax based on income from continuing operations
$ 7,627
$ 3,123
$ 5,015
Increase (Decrease) in tax resulting from:
State and local taxes, net of Federal income tax benefit
Tax-exempt income
Tax benefit related to closed Federal tax audits
Other permanent items
Total
1,500
(2,578)
(2,523)
170
218
(1,640)
—
457
673
(648)
—
(132)
$ 4,196
$ 2,158
$ 4,908
p a g e 1 0 3
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
Available for sale securities
Compensation and other benefits
Deferred rent
Other
Total deferred tax assets
Deferred tax liabilities
Difference between tax and net book values of fixed assets
Available for sale securities and other investments deferred tax liability
Other
Total deferred tax liabilities
Net deferred tax asset
Based on management’s consideration of historical and antic-
ipated future pre-tax income, as well as the reversal period
for the items giving rise to the deferred tax assets and liabili-
ties, a valuation allowance for deferred assets was not consid-
ered necessary at December 31, 2011 and 2010 since it is
more likely than not that these assets will be realized.
The current tax net receivable as of December 31, 2011 was
approximately $1.7 million. The current tax net payable at
December 31, 2010 was approximately $1.6 million.
The Company has accrued $750 thousand in 2011 for state
income taxes due to changes in the economic nexus rules gov-
erning taxation of business conducted within that state. The
Company anticipates filing tax returns under the voluntary
disclosure regulations of that state which will limit the
Company’s tax exposure to business conducted within that
state during the past three years. The Company recognizes
interest accrued related to unrecognized tax expense and
penalties as income tax expense. At December 31, 2011 and
2010, the Consolidated Balance Sheet included accrued inter-
est related to unrecognized tax expense of $313 thousand
and $297 thousand, respectively. The Consolidated Statement
of Income included interest expense for 2011, 2010 and 2009 of
$16 thousand, $47 thousand and $250 thousand, respectively.
2011
2010
$ 7,909
10,649
763
1,934
1,324
1,127
$ 8,275
10,796
—
2,853
1,182
1,227
23,706
24,333
2,029
—
79
2,108
738
156
534
1,428
$ 21,598
$ 22,905
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 have been
examined through 2009, with 2010 subject to examination.
The Company’s New York State tax returns for years 2005
through 2007 are currently under examination and 2008
through 2010 are subject to examination. The Company’s
New York City tax returns for 2006 through 2010 are sub-
ject to examination.
note 20.
earningS Per common Share
Earnings per common share is computed using the two-class
method. Basic earnings per common share is computed by
dividing net earnings allocated to common shares by the
weighted-average number of common shares outstanding
during the applicable period, excluding participating secu-
rities. Participating securities include non-vested share awards
such as awards of restricted common shares. Non-vested share
awards are considered participating securities because holders
of these securities receive non-forfeitable dividends at the same
rate as holders of the Company’s common shares. Diluted
earnings per common share is computed using the weighted-
average number of shares determined for the basic earnings
per common share computation plus the dilutive effect of
stock option compensation using the treasury stock method.
p a g e 1 0 4
The following table presents the calculation of net earnings allocated to common shares and a reconciliation of the number of
shares used in the calculation of basic and diluted earnings per common share:
Distributed earnings allocated to common shares
Undistributed earnings allocated to common shares
Net earnings allocated to common shares
Weighted average common shares outstanding
Add dilutive effect of:
Stock options
Adjusted for assumed diluted computation
2011
$11,080
4,374
$15,454
2010
$ 8,851
(4,429)
$ 4,422
2009
$10,131
(3,482)
$ 6,649
30,038,047
24,492,279
18,104,619
—
2,765
21,714
30,038,047
24,495,044
18,126,333
Options issued with exercise prices greater than the average market price of the common shares for each of the years ended
December 31, 2011, 2010 and 2009 have not been included in computation of diluted earnings per share for those respective
years. As of December 31, 2011, 310,460 options to purchase shares between $14.60 and $17.99 were not included; as of
December 31, 2010, 422,747 options to purchase shares between $10.61 and $26.94 were not included; as of December 31,
2009, 460,822 options to purchase shares between $10.61 and $26.94 were not included.
note 21.
fair Value m eaSurementS
The fair value of an asset or liability is the price that would be receivable from selling that asset or payable to transfer that liabil-
ity in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the
asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure
the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that
assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and
customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers
and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.
FASB Codification Topic 820: Fair Value measurements and disclosures establishes a hierarchy for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The fair values hierarchy is as follows:
• Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date. Examples of financial instruments generally included in this level are U.S. Treasury
securities, equity and trust preferred securities that trade in active markets and listed derivative instruments.
• Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for
the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived princi-
pally from or corroborated by market data by correlation or other means. Examples of financial instruments generally
included in this level are corporate debt, mortgage-backed certificates issued by U.S. government corporations and government-
sponsored enterprises, equity securities that trade in less active markets and certain derivative instruments.
• Level 3 Inputs—Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own judg-
ments about the assumptions that market participants would use in pricing the assets or liabilities. Examples of financial
instruments generally included in this level are private equities, certain loans held for sale and other alternative investments.
In general, fair value of securities is based upon quoted market prices, where available (Level 1 inputs). If such quoted market prices
are not available, fair value is based upon market prices determined by an outside, independent entity that primarily uses as inputs
observable market-based parameters (Level 2 inputs). Fair value of loans held for sale is based upon internally developed models that
primarily use as inputs observable market-based parameters. Valuation adjustments may be made to ensure that financial instru-
ments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s
creditworthiness, among other things, as well as unobservable parameters (Level 3 inputs). Any such valuation adjustments are
applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be
p a g e 1 0 5
indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodolo-
gies are appropriate and consistent with those of other mar ket participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
securities available for sale and other investments. Securities classified as available for sale and other investments (included in
“Other assets” on the Consolidated Balance Sheet) are generally reported at fair value utilizing Level 1 and Level 2 inputs.
Investments in fixed income securities, exclusive of preferred stock and mortgage-backed securities, are valued based on evalu-
ations provided by Interactive Data Corporation (“IDC”), a leading global provider of market data information. IDC evalua-
tions represent an exit price or their opinion as to what a buyer would pay for a security, typically in an institutional round lot
position in a current sale. IDC seeks to utilize market data and observations in its evaluation service, and gives priority to
observable benchmark yields and reported trades. IDC utilizes evaluated pricing techniques that vary by asset class and incor-
porate available market information; because many fixed income securities do not trade on a daily basis, IDC applies available
information through processes such as benchmark curves, benchmarking of similar securities, sector groupings and matrix
pricing. Model processes such as option-adjusted spread models are used to value securities that have prepayment features.
Substantially all securities available for sale evaluated in this manner are deemed to be Level 2 valuations.
For mortgage-backed securities issued by U.S. government corporations and government-sponsored enterprises, management
considers dealer indicative bids in the valuation process. Indicative bids are estimates of value and do not necessarily
represent the price at which the dealer would be willing to transact. Such bids are compared to IDC-evaluated prices for reason-
ableness as well as consistency with observable market conditions. All mortgage-backed securities are deemed to be valued
based on Level 2 inputs.
Publicly traded common and preferred stocks are valued by reference to the market closing price (last trade) on the measurement
date (Level 1 inputs). In the unlikely event that no trade occurred on the measurement date, reference would be made to an
indicative bid or the last trade most proximate to the measurement date (Level 2 inputs).
The following table summarizes financial assets measured at fair value on a recurring basis, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair value. There were no financial liabilities measured at fair value.
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
December 31, 2011
Securities available for sale:
Obligations of U.S. government corporations and government-sponsored enterprises
Mortgage-backed securities
Agency notes
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Single-issuer, trust preferred securities
Corporate debt securities
Equity and other securities
Total marketable securities
$ — $ 29,752
1,237
—
$ —
—
$ 29,752
1,237
—
—
27,059
—
15,882
30,989
22,777
—
173,307
—
—
—
—
—
—
30,989
22,777
27,059
173,307
15,882
$ 42,941
$ 227,073
$ —
$270,014
December 31, 2010
Securities available for sale:
Obligations of U.S. government corporations and government-sponsored enterprises
Mortgage-backed securities
Agency notes
Total obligations of U.S. government corporations and
government-sponsored enterprises
Obligations of state and political institutions—New York bank qualified
Single-issuer, trust preferred securities
Corporate debt securities
Equity and other securities
Total marketable securities
Other investments
$ — $ 51,983
100,122
—
—
—
3,933
—
4,940
152,105
40,044
—
189,058
—
$ 8,873
$ 381,207
$ 11,838
$ 6,760
$ —
—
—
—
—
—
—
$ —
$ —
$ 51,983
100,122
152,105
40,044
3,933
189,058
4,940
$390,080
$ 18,598
p a g e 1 0 6
Certain financial assets, such as loans held for sale and
collateral-dependent impaired loans are measured at fair value
on a non-recurring basis; that is, the instruments are not mea-
sured at fair value on an ongoing basis but are subject to fair
value adjustments in certain circumstances (for example,
when there is evidence of impairment). The following table
summarizes the period end fair value of financial assets,
based on significant unobservable (Level 3) inputs, measured
on a non-recurring basis:
December 31,
December 31,
2011
2010
Impaired loans
Commercial and industrial
$ 1,298
Commercial real estate
Other real estate owned, net
2,011
1,929
$ 1,344
2,024
182
Impaired loans. The fair value of impaired loans with specific
allocations of the allowance for loan losses is generally based
on either recent real estate appraisals or, for loans with
modification agreements in place, discounted cash flow anal-
yses. These appraisals may utilize a single valuation approach
or a combination of approaches including comparable sales
and the income approach. Adjustments are routinely made in
the appraisal process by the appraisers to adjust for differ-
ences between the comparable sales and income data avail-
able. Such adjustments are usually significant and typically
result in a Level 3 classification of the inputs for determining
fair value.
other real estate owned. The fair value of real estate owned
(“OREO”) is generally based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and
the income approach. Adjustments are routinely made in the
appraisal process by the independent appraisers to adjust for
differences between the comparable sales and income data
available. Such adjustments are usually significant and typically
result in a Level 3 classification of the inputs for determining
fair value. In cases where the carrying amount exceeds the
fair value, less costs to sell, an impairment loss is recognized.
Impaired loans that are measured for impairment using the
fair value of the collateral for collateral dependent loans, had
a principal balance of $4.5 million, with a valuation allow-
ance of $1.2 million at December 31, 2011, resulting in an
additional provision for loan losses of $31 thousand for the
year ended December 31, 2011. At December 31, 2010,
impaired loans had a principal balance of $4.5 million, with
a valuation allowance of $1.1 million, resulting in an addi-
tional provision for loan losses of $1.1 million for the year
ended December 31, 2010.
Other real estate owned measured at fair value less costs to
sell had a net carrying amount of $1.9 million, which is made
up of the outstanding balance of $1.9 million, net of a valua-
tion allowance of $-0- million. For the year ended December
31, 2011, $-0- million of other real estate owned was written
down through a charge to noninterest expense. At December
31, 2010, other real estate owned had a net carrying amount
of $182 thousand, made up of the outstanding balance of
$182 thousand, net of a valuation allowance of $-0- thou-
sand. For the year ended December 31, 2010, $233 thousand
of other real estate owned was written down through a
charge to noninterest expense.
For those financial instruments that are not recorded at fair
value in the Consolidated Balance Sheets, but are measured at
fair value for disclosure purposes, management follows the
same fair value measurement principles and guidance as for
instruments recorded at fair value.
Much of the information used to arrive at “fair value” is
highly subjective and judgmental in nature and therefore the
results may not be precise. The subjective factors include,
among other things, estimated cash flows, risk characteris-
tics, credit quality and interest rates, all of which are subject
to change. With the exception of investment securities and
certain long-term debt, the Company’s financial instruments
are not readily marketable and market prices do not exist.
Since negotiated prices for the instruments that are not read-
ily 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 1 0 7
In particular, fair value estimates are made at a point in time,
based on relevant market data as well as the best information
available about the financial instrument. Illiquid credit mar-
kets have resulted in inactive markets for certain of the
Company’s financial instruments. As a result, there is no or
limited observable market data for these assets and liabilities.
Fair value estimates for financial instruments for which no or
limited observable market data is available are based on our
judgments regarding current economic conditions, liquidity
discounts, currency, credit, and interest rate risks, loss expe-
rience and other factors, all of which are Level 3 inputs as
discussed above. These estimates involve significant judg-
ments and uncertainties and cannot be substantiated by com-
parison to quoted prices in active markets and cannot be
determined with precision. As a result, such calculated fair
value estimates may not be realizable in a current sale or
immediate settlement of the instrument. In addition, there
are inherent uncertainties in any fair value measurement tech-
nique, and changes in the underlying assumptions used in the
fair value measurement technique, including discount rates,
liquidity risks, and estimates of future cash flows, could
significantly affect these fair value estimates.
A description of the methods, factors and significant assump-
tions utilized in estimating the fair values for significant cat-
egories of financial instruments follows:
Financial Instruments with Carrying Amounts Equal
to Fair Value
The carrying amounts for cash and due from banks, interest-
bearing deposits with other banks, customers’ liabilities under
acceptances, accrued interest receivable, Federal funds pur-
chased, securities sold under agreements to repurchase, com-
mercial paper, other short-term borrowings, acceptances
outstanding, and accrued interest payable, as a result of their
short-term nature, are considered to approximate fair value.
Investment Securities
The methods, factors and significant assumptions used to
estimate fair values of all securities are described more fully
beginning on page 105.
Loans, Net
The fair value of loans held in portfolio which reprice within
90 days reflecting changes in the base rate approximate their
carrying amount. For other loans held in portfolio, the fair
value is calculated based on discounted cash flow analyses,
using interest rates currently being offered for loans with 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 fair value for secured nonaccrual loans is the value of the
underlying collateral which is sufficient to repay each loan.
For other nonaccrual loans, the fair value represents book
value less a credit risk adjustment based on the Company’s
historical credit loss experience.
Deposits
FASB Codification Topic 825: Financial Instruments requires
that the fair value of demand, savings, NOW (Negotiable
Order of Withdrawal) and certain money market deposits be
equal to their carrying amount. The Company believes that
the fair value of these deposits, including the value of deposit
relationships, is greater than that prescribed by FASB
Codification Topic 825.
For other types of deposits with fixed maturities, fair value has
been estimated based upon interest rates currently being
offered on deposits with similar characteristics and maturities.
Advances—FHLB and Long-Term Borrowings
For advances—FHLB and long-term borrowings, the fair value
is calculated based on discounted cash flow analyses, using
interest rates currently being quoted for debt with similar char-
acteristics 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 amount of consid-
eration received.
p a g e 1 0 8
The following is a summary of the carrying amounts and fair values of the Company’s financial assets and liabilities:
December 31,
financial aSSetS
Cash and due from banks
Interest-bearing deposits with other banks
Investment securities
Loans, 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
Other short-term borrowings
Acceptances outstanding
Accrued interest payable
Advances—FHLB and long-term borrowings
2011
2010
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
31,046
126,448
677,871
1,496,652
4
6,838
$
31,046
126,448
695,789
1,505,005
4
6,838
$
26,824
40,503
789,315
1,328,045
—
8,280
$
26,824
40,503
790,533
1,332,673
—
8,280
1,331,223
657,848
52,313
—
13,485
—
4
1,064
148,507
1,331,223
659,439
52,313
—
13,485
—
4
1,064
149,056
1,132,497
615,267
28,016
15,000
14,388
3,490
—
1,314
169,947
1,132,497
617,096
28,016
15,000
14,388
3,490
—
1,314
173,110
p a g e 1 0 9
note 22.
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, 2011, manage-
ment believes that the Company and the bank exceeded the requirements for “well capitalized” institutions under the tests
pursuant to FDICIA and of the Federal Reserve Board.
The following tables present information regarding the Company’s and the bank’s regulatory capital ratios:
Actual
Minimum For Capital Adequacy
To Be Well Capitalized
As of December 31, 2011
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital (to Risk-Weighted Assets):
The Company
The bank
$ 256,526
13.71%
234,737
12.63
$ 149,738
148,732
8.00%
8.00
$ 187,173
185,915
10.00%
10.00
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, 2010
Total Capital (to Risk-Weighted Assets):
235,947
214,159
12.61
11.52
235,947
214,159
9.02
8.30
74,869
77,366
104,593
103,148
4.00
4.00
4.00
4.00
112,304
111,549
130,741
128,935
6.00
6.00
5.00
5.00
The Company
The bank
$255,022
14.68%
211,737
12.32
$ 138,982
137,516
8.00%
8.00
$ 173,728
171,895
10.00%
10.00
Tier 1 Capital (to Risk-Weighted Assets):
The Company
The bank
Tier 1 Leverage Capital (to Average Assets):
The Company
The bank
236,477
193,192
236,477
193,192
13.61
11.24
10.15
8.39
69,491
68,758
93,152
92,070
4.00
4.00
4.00
4.00
104,237
103,137
116,440
115,087
6.00
6.00
5.00
5.00
p a g e 1 1 0
note 23.
Parent comPanY
condenSed b alance SheetS
December 31,
aSSetS
Cash and due from banks—
Banking subsidiary
Other banks
Interest-bearing deposits—banking subsidiary
Securities available for sale (at fair value)
Loans, net of unearned discount
Investment in subsidiaries—
Banking subsidiary (including goodwill of $22,901 in 2011 and 2010)
Other subsidiaries
Cash surrender value of life insurance policies
Other assets
liabilitieS and ShareholderS’ eQuitY
Commercial paper (see Note 10)
Due to subsidiaries—
Other subsidiaries
Accrued expenses and other liabilities
Junior subordinated debt (see Note 12)
Shareholders’ equity
condenSed StatementS of i ncome
Years Ended December 31,
income
Dividends and interest from—
Banking subsidiary
Loans
Securities available for sale
Other income
Total income
exPenSe
Interest expense
Other expenses
Total expense
Loss before income taxes and equity in undistributed net income
of subsidiaries
Benefit for income taxes
Loss before equity in undistributed net income of subsidiaries
Equity in undistributed net income of—
Banking subsidiary
Other subsidiaries
Net income
p a g e 1 1 1
2011
2010
$ 20,870
$ 37,285
13
1,244
8,571
10,127
32
3,443
6,086
15,370
226,403
206,818
2,179
4,609
16,728
2,160
4,104
15,856
$ 290,744
$ 291,154
$ 13,485
$ 14,388
992
29,672
25,774
992
27,258
25,774
220,821
222,742
$ 290,744
$ 291,154
2011
2010
2009
$
1
92
249
140
482
2,186
2,937
5,123
(4,641)
(1,313)
(3,328)
20,905
19
$
2
208
342
155
707
2,189
3,373
5,562
(4,855)
(1,147)
(3,708)
10,713
21
$
39
95
88
172
394
2,211
3,301
5,512
(5,118)
(1,755)
(3,363)
12,764
21
$ 17,596
$ 7,026
$ 9,422
condenSed StatementS of c aSh f lowS
Years Ended December 31,
oPerating actiVitieS
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Increase (Decrease) in accrued expenses and other liabilities
Equity in undistributed net income of subsidiaries
Security gains
Increase in other assets
Other, net
Net cash used in operating activities
inVeSting actiVitieS
Net decrease (increase) in interest-bearing deposits—banking subsidiary
Purchase of securities available for sale
Decrease (Increase) in loans
Proceeds from sales of securities available for sale
Proceeds from maturities and redemptions of securities available for sale
Investment in subsidiaries—banking subsidiary
2011
2010
2009
$ 17,596
$ 7,026
$ 9,422
2,414
(20,924)
—
(1,377)
(1,383)
(3,674)
2,199
(109,991)
5,243
—
109,250
—
3,246
(10,734)
(15)
(4,415)
1,028
(3,864)
24,498
(62,495)
(209)
2,054
54,318
(31,500)
(512)
(12,785)
—
(2,028)
(97)
(6,000)
(17,039)
—
(15,111)
—
—
—
Net cash provided by (used in) investing activities
6,701
(13,334)
(32,150)
financing actiVitieS
Net (decrease) increase in commercial paper
Cash dividends paid on common shares
Cash dividends paid on preferred shares
Proceeds from exercise of stock options
Net proceeds from issuance of common shares
Net redemption of preferred stock and common stock warrants
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and due from banks
Cash and due from banks—beginning of year
(903)
(11,122)
(945)
—
36,454
(42,945)
(19,461)
(16,434)
37,317
(2,909)
(8,873)
(2,100)
403
64,881
—
51,402
34,204
3,113
5,565
(10,131)
(1,878)
197
—
—
(6,247)
(44,397)
47,510
Cash and due from banks—end of year
$ 20,883
$ 37,317
$ 3,113
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid
$ 2,187
$ 2,174
$ 2,214
5,744
3,994
5,757
p a g e 1 1 2
note 24.
commitmentS and c ontingent l iabilitieS
Total rental expenses under cancelable and noncancelable leases for premises and equipment were $6.2 million, $5.8 million
and $5.2 million for the years ended December 31, 2011, 2010 and 2009, respectively, which are net of rental income for a sub-
lease of $213 thousand, $218 thousand and $194 thousand for the years ended December 31, 2011, 2010 and 2009, respectively.
The future minimum rental commitments as of December 31, 2011 under noncancelable leases follow:
Year(s)
2012
2013
2014
2015
2016
2017 and thereafter
Total
Rental
Commitments
$ 3,833
4,324
4,747
4,518
3,789
22,837
$44,048
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 89% of which have an original maturity of one year or less, were approximately $75.5 mil-
lion as of December 31, 2011. 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 commit-
ments 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 FASB Codification Topic
460: guarantees, are written conditional commitments issued by the bank to guarantee the performance of a customer to a
third party. At December 31, 2011, these commitments totaled $27.8 million of which $21.7 million expire within one year and
$6.1 million within two years. Approximately 78% of the commitments are automatically renewable for a period of one year.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to custom-
ers. 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, 2011 ranged from 0% to
100%; the average amount collateralized was approximately 94%.
Other commercial commitments principally consist of commercial letters of credit issued to our trade finance customers to
finance the import of various merchandise. At December 31, 2011, these commitments totaled $61.8 million, of which $61.6
million expire within one year. The commercial documents are secured by the underlying merchandise. The majority of these
letters of credit require cash payment before the release of documents.
In the normal course of business there are various legal proceedings pending against the Company. Management, after consult-
ing 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 1 1 3
note 25.
QuarterlY d ata (unaudited)
2011 Quarter
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net securities gains
Noninterest income, excluding securities gains
Noninterest expenses
Income before income taxes
Provision (Benefit) for income taxes
Net income
Dividends on preferred shares and accretion
Net income available to common shareholders
Net income available to common shareholders, per average common share:
Basic
Diluted
Common share closing price:
High
Low
Quarter-end
2010 Quarter
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net securities gains
Noninterest income, excluding securities gains
Noninterest expenses
Income (Loss) before income taxes
Provision (Benefit) for income taxes
Net income (loss)
Dividends on preferred shares and accretion
Net income (loss) available to common shareholders
Net income (loss) available to common shareholders, per average common share:
Basic
Diluted
Common share closing price:
High
Low
Quarter-end
Mar 31
Jun 30
Sept 30
Dec 31
$ 22,754
$ 24,110
$ 25,179
$ 25,021
3,325
19,429
3,000
729
10,713
22,453
5,418
1,475
3,943
644
3,299
0.12
0.12
10.73
9.48
10.01
3,193
20,917
3,000
380
10,488
23,446
5,339
1,394
3,945
1,430
2,515
0.08
0.08
10.55
8.78
9.49
3,307
21,872
3,000
420
11,039
23,770
6,561
2,191
4,370
—
4,370
0.14
0.14
9.92
7.05
7.26
3,162
21,859
3,000
197
10,094
24,676
4,474
(864)
5,338
—
5,338
0.17
0.17
8.92
6.67
8.64
Mar 31
Jun 30
Sept 30
Dec 31
$ 24,016
$ 24,475
$ 24,702
$ 23,997
4,121
19,895
6,000
1,502
9,600
21,336
3,661
1,098
2,563
636
1,927
0.10
0.10
10.05
7.27
10.05
3,937
20,538
5,500
746
10,615
22,139
4,260
1,278
2,982
644
2,338
0.09
0.09
10.93
8.99
9.00
3,827
20,875
14,000
1,171
11,887
23,753
(3,820)
(1,146)
(2,674)
654
(3,328)
(0.12)
(0.12)
10.28
8.39
8.69
3,698
20,299
3,000
509
11,603
24,328
5,083
928
4,155
655
3,500
0.13
0.13
10.59
8.71
10.47
p a g e 1 1 4
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
We have audited the accompanying consolidated balance sheet of Sterling Bancorp (the “Company”) as of December 31, 2011
and 2010, 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, 2011 and the consolidated statement of condition of
Sterling National Bank as of December 31, 2011 and 2010. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these 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 the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of
America and the financial position of Sterling National Bank as of December 31, 2011 and 2010 in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Sterling Bancorp’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal
control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 9, 2012 expressed an unqualified opinion thereon.
/s/ Crowe Horwath LLP
Livingston, New Jersey
March 9, 2012
p a g e 1 1 5
item 9. change S in and di SagreementS with
accountantS on accounting and financial
diScloSure
None.
item 9a. control S and ProcedureS
(a) Evaluation of Disclosure Controls and Procedures
As required under the Exchange Act, the Company’s manage-
ment, with the participation of the Com pany’s principal exec-
utive 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, includ-
ing the Chief Executive Officer and Chief Financial Officer,
concluded that, as of December 31, 2011, the Company’s dis-
closure controls and procedures were effective to ensure that
information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is
recorded, processed, summarized 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 is designed
to provide reasonable assurance to the Company’s manage-
ment and Board of Directors regarding the preparation 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, 2011. 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,
2011, the Company’s internal control over financial reporting
is effective.
Crowe Horwath LLP, the independent registered public
accounting firm that audited the consolidated financial state-
ments of the Company included in this Annual Report on Form
10-K, has issued an attestation report on the effectiveness of the
Corporation’s internal control over financial reporting as of
December 31, 2011. The report, which expresses an unquali-
fied opinion on the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2011, is
included in this Item under the heading “Report of Independent
Registered Public Accounting Firm” below.
p a g e 1 1 6
(c) Report of Independent Registered Public Accounting Firm
We have audited Sterling Bancorp’s (the “Company”) internal control over financial reporting as of December 31, 2011, based
on criteria established in Internal control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Sterling Bancorp’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 on Internal Control 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, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures 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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, pro-
jections 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, Sterling Bancorp maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2011, 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), the
consolidated balance sheet as of December 31, 2011 and 2010 and the related consolidated statements of income, comprehen-
sive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended of Sterling
Bancorp and the consolidated statement of condition of Sterling National Bank as of December 31, 2011 and 2010 and our
report dated March 9, 2012 expressed an unqualified opinion on those consolidated financial statements.
/s/ Crowe Horwath LLP
Livingston, New Jersey
Match 9, 2012
p a g e 1 1 7
(e) 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 Exchange Act)
occurred during the fiscal quarter ended December 31, 2011 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 1 1 8
P A R T I I I
item 10. director S, executi Ve officer S and corPorate goVernance
Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure beginning
on page 27 at the end of Part I of this report. The other information required by Item 10 will be in the parent company’s defini-
tive proxy statement to be filed pursuant to Regulation 14A under the Exchange Act within 120 days after December 31, 2011
and is incorporated herein by reference.
item 11. executiV e com PenSation
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 Exchange Act within 120 days after December 31, 2011 and is incorporated herein by reference.
item 12. S ecuritY owner ShiP of certain beneficial owner S and management and related
Stock holder matterS
See the information appearing in Note 17 of the Company’s consolidated financial statements beginning on page 96.
The following table provides information as of December 31, 2011, 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, 2011, and other
equity compensation plan information.
eQuitY c omP enSation Plan i nformation
Plan Category
Equity Compensation Plans approved by security holders
Equity Compensation Plans not approved by security holders
Total
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)
310,460
—
310,460
$15.64
—
$15.64
616,184
—
616,184
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 Exchange Act within 120 days after December 31, 2011 and is incorporated herein by reference.
item 13. certain relationS hiPS and related tranS actionS, and director inde Pendence
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 Exchange Act within 120 days after December 31, 2011 and is incorporated herein by reference.
item 14. P rinciPal accountant fee S and S erViceS
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 Exchange Act within 120 days after December 31, 2011 and is incorporated herein by reference.
p a g e 1 1 9
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.
10. (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 (Filed as
Exhibit 10(i)(E) to the Registrant’s Form
10-K for the fiscal year ended December 31,
2006 and incorporated herein by reference).
(i)(F)* Amendment to Sterling Bancorp Stock
Incentive Plan (Filed as Exhibit 10(i)(F) to
the Registrant’s Form 8-K dated December
29, 2008 and filed on January 5, 2009 and
incorporated herein by reference).
(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).
P A R T I V
item 15. exhibit S and financial Statement
4.
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, 2011
and 2010
Consolidated Statements of Income for the Years Ended
December 31, 2011, 2010 and 2009
Consolidated Statements of Comprehensive Income for
the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Changes in Shareholders’
Equity for the Years Ended December 31, 2011, 2010
and 2009
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2011, 2010 and 2009
Sterling National Bank
Consolidated Statements of Condition as of December 31,
2011 and 2010
2. Financial Statement Schedules
None
3. Exhibits
3.
(i) Restated Certificate of Incorporation filed
with the State of New York Department of
State on October 28, 2004 (Filed as Exhibit
3(i) to the Registrant’s Form 10-K for the
fiscal year ended December 31, 2008 and
incorporated herein by reference).
(ii) Certificate of Amendment of Certificate
of Incorporation filed with the New York
Department of State on December 18, 2008.
(Filed as Exhibit 3(ii) to the Registrant’s
Form 10 -K for the fiscal year ended
December 31, 2008 and incorporated herein
by reference).
(iii) By-Laws as amended through 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).
* constitutes a management contract or compensatory Plan or Arrangement
p a g e 1 2 0
(ii)(B)* Amendment to Sterling Bancorp Key Executive
Incentive Bonus Plan (Filed as Exhibit 10(ii)
(B) to the Registrant’s Form 8-K dated
December 29, 2008 and filed on January 5,
2009 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
herein by reference).
(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 for the fiscal year
ended December 31, 2003 and incorporated
herein by reference).
(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 15, 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 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(iii)(G)(a) and 10(iii)(G)(b), respectively, to
the Registrant’s Form 10-K for the fiscal
year ended December 31, 2007 and incorpo-
rated herein by reference).
(iii)(H)* Amendments dated December 29, 2008 to
Employment Agreements (a) For Louis J.
Cappelli and (b) For John C. Millman (Filed
as Exhibit 10(iii)(H) to the Registrant’s Form
8-K dated December 29, 2008 and filed
on January 5, 2009 and incorporated herein
by reference).
(iii)(I)* Amendments to Employment Agreements
dated March 12, 2009 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(iii)(I)(a) and 10(iii)(I)(b), respectively, to
the Registrant’s Form 10-K for the fiscal
year ended December 31, 2008 and incorpo-
rated herein by reference).
(iii)(J)* Amendments to Employment Agreements
dated March 25, 2010 for Louis J. Cappelli
and John C. Millman (Filed as Exhibits
10(ii)(J)(a) and 10(iii)(J)(b), respectively, to
the Registrant’s Form 10-K for the fiscal
year ended December 31, 2010 and incorpo-
rated herein by reference).
(iii)(K)* Amendments to Employment Agreements
dated March 8, 2011
(a) For Louis J. Cappelli
(b) For John C. Millman
(iii)(L)* Amendments to Employment Agreements
dated March 2, 2012
(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).
*constitutes a management contract or compensatory Plan or Arrangement
p a g e 1 2 1
(v)(B)* Form of Letter Agreement, executed by each
of Louis J. Cappelli, John C. Millman, John
W. Tietjen, Howard M. Applebaum and
Eliot Robinson (Filed as Exhibit 10.3 to the
Registrant’s Form 8-K dated December 23,
2008 and filed on December 30, 2008 and
incorporated herein by reference).
11.
12.
21.
23.
Statement re: Computation of Per Share Earnings.
Statement re: Computation of Ratios.
Subsidiaries of the Registrant.
Consent of Crowe Horwath LLP Independent
Regis tered Public Accounting Firm.
31.1
Certification of the CEO pursuant to
Exchange Act Rule 13a-14(a).
31.2
Certification of the CFO pursuant to
32.1
32.2
Exchange Act Rule 13a-14(a).
Certification of the CEO required by Section
1350 of Chapter 63 of Title 18 of the U.S.
Code. (Pursuant to Item 601(b)(32)(ii) of
Regulation S-K under the Exchange Act, the
certification filed under this Exhibit shall
be deemed “furnished” and not “filed” for
purposes of Section 18 of the Exchange Act
and shall not be otherwise subject to the
liability of that section).
Certification of the CFO required by Section
1350 of Chapter 63 of Title 18 of the U.S.
Code. (Pursuant to Item 601(b)(32)(ii) of
Regulation S-K under the Exchange Act, the
certification filed under this Exhibit shall
be deemed “furnished” and not “filed” for
purposes of Section 18 of the Exchange Act
and shall not be otherwise subject to the
liability of that section).
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema
101.CAL** XBRL Taxonomy Extension Calculation
Label Linkbase
101.LAB** XBRL Taxonomy Extension Label Linkbase
101.PRE** XBRL Taxonomy Presentation Linkbase
101DEF** XBRL Taxonomy Definition Linkbase
(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 (Filed as Exhibit 10(iv)(F) to
the Registrant’s Form 10-K for the fiscal
year ended December 31, 2006 and incorpo-
rated herein by reference).
(iv)(G)* Form of Amendment dated December 29,
2008 to Form of Change in Control
Severance Agreement between the Registrant
and each of three executives (Filed as Exhibit
10(iv)(G) to the Registrant’s Form 8-K dated
December 29, 2008 and filed on January 5,
2009 and incorporated herein by reference).
(iv)(H)* Form of Amendment dated December 29,
2008 to Form of Change in Control
Severance and Retention Agreement between
the Registrant and each of six executives
(Filed as Exhibit 10(iv)(H) to the Registrant’s
Form 8-K dated December 29, 2008 and
filed on January 5, 2009 and incorporated
herein by reference).
(v)(A)* Form of Waiver, executed by each of Louis J.
Cappelli, John C. Millman, John W. Tietjen,
Howard M. Applebaum and Eliot Robinson
(Filed as Exhibit 10.2 to the Registrant’s
Form 8-K dated December 23, 2008 and
filed on December 30, 2008 and incorpo-
rated herein by reference).
*constitutes a management contract or compensatory Plan or Arrangement
** As provided in Rule 406T of Regulation s-T, this information is furnished and not filed for purposes of sections 11 and 12 of the securities Act of 1993 and
section 18 of the securities exchange Act of 1934.
p a g e 1 2 2
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 9, 2012
Date
/s/ John W. Tietjen
John W. Tietjen, Executive Vice President
(Principal Financial and Accounting Officer)
March 9, 2012
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 9, 2012
(Date)
March 9, 2012
(Date)
March 9, 2012
(Date)
March 9, 2012
(Date)
March 9, 2012
(Date)
March 9, 2012
(Date)
March 9, 2012
(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/ Henry J. Humphreys
Henry J. Humphreys
Director
/s/ Joseph M. Adamko
Joseph M. Adamko
Director
/s/ Robert W. Lazar
Robert W. Lazar
Director
/s/ Eugene T. Rossides
Eugene T. Rossides
Director
p a g e 1 2 3
Sterling N ati o nal B ank Busin e s s Ad v is o r y B o ard
Andrew W. Albstein, esq.
Managing partner
Goldberg Weprin Finkel
Goldstein llp
ellen H. Aschendorf
president
egg electric, Inc.
Neil J. Bressler, CpA
Managing partner
Skwiersky, Alpert &
Bressler llp
timothy M. Bryan
Chairman and Ceo
Galaxy Systems, Inc.
Andrew Buchbinder
president
Bill levkoff, Inc.
Daniel A. Castellano, CpA
Castellano, Korenberg & Co.,
CpA’s, p.C.
Howard Hoff, CpA
partner
Marks paneth & Shron llp
David B. Schwartz, CpA
partner
WeiserMazars llp
louis C. Ciliberti
president
louis C. Ciliberti
& Associates, ltd.
Bernard Friedman
president
penmark Realty Corp.
Neil B. Garfinkel, esq.
partner
Abrams Garfinkel
Margolis Bergson, llp
Jeffrey A. Getzel, CpA
Managing partner
Getzel Schiff Ross & pesce, llp
John H. Jankoff, esq.
Managing partner
Jankoff & Gabe, p.C.
Brian Shatz
Managing principal
Madison Realty Capital
Dennis R. Klein, CpA
Senior Assurance partner
Nussbaum Yates Berg Klein
& Wolpow, llp
lyle C. Mahler, esq.
partner
Farrell Fritz, p.C.
Mark l. Meinberg, CpA
Managing partner
MayerMeinberg llp
Steven Weinstein
president
Access Staffing, llC
Bruce Weksler
president
Bruce Supply Corp.
Michael G. Zapson, esq.
Managing Attorney
Davidoff Malito & Hutcher llp
Shareho ld er I nfo r mati o n
Annual Meeting
transfer Agent/Registrar
the Annual Meeting of Shareholders of Sterling Bancorp will be
held at 10:00 a.m., thursday, May 3, 2012 at the university Club,
one West 54th Street, New York, NY 10019.
Independent Registered public Accounting Firm
Crowe Horwath llp
Counsel
Sullivan & Cromwell llp
Common Share listing
New York Stock exchange Symbol: Stl
Computershare Shareowner Services llC
p.o. Box 358015, pittsburgh, pA 15252-8015 or
480 Washington Boulevard, Jersey City, NJ 07310-1900
(800) 359-8248
tDD for Hearing Impaired: (800) 231-5469
Foreign Shareholders: (201) 680-6578
tDD Foreign Shareholders: (201) 680-6610
Web Site Address: www.computershare.com
Form 10-K and other Shareholder Information
Sterling Bancorp’s Annual Report to the Securities and
exchange Commission, Form 10-K, and other shareholder
information can be viewed at the company’s Investor
Relations website, www.sterlingbancorp.com; shareholders
may also elect email notification of press releases, document
filings and other related information.
printed materials may be obtained by contacting
John W. tietjen or Debra A. Ashton at 650 Fifth Avenue,
New York, NY 10019-6108, or by calling (212) 757-3300.
.
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Sterling Bancorp
Sterling national Bank
650 Fifth Avenue, New York, NY 10019-6108
212-757-3300
sterlingbancorp.com