UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                Washington, D.C. 20549 FORM 10-Q (Mark One)
 x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended

                            September 30, 2008or
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ________________________________________ Commission File Number:

                            1-5273-1
 
 Sterling Bancorp(Exact name of registrant as specified in its charter)
 
 New York

                            13-2565216(State or other jurisdiction of

                            (I.R.S. Employerincorporation or organization)

                            Identification)650 Fifth Avenue, New York, N.Y.

                            10019-6108(Address of principal executive offices)

                            (Zip Code)
 
 212-757-3300(Registrant’s telephone number, including area code)N/A(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
                x Yes   o No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes     x No As of October 31, 2008 there were 18,042,271 shares of common stock,
                $1.00 par value, outstanding. 
 
  STERLING BANCORP

                PagePART I FINANCIAL INFORMATIONItem 1.

                            Financial StatementsConsolidated Financial Statements (Unaudited)

                            

                            3Notes to Consolidated Financial Statements

                            

                            8Item 2.

                            Management’s Discussion and Analysis of Financial Condition and Results of OperationsRecent Market Developments

                            

                            17Overview

                            

                            18Income Statement Analysis

                            

                            19Balance Sheet Analysis

                            

                            24Capital

                            

                            29Recently Issued Accounting Pronouncements

                            

                            30Cautionary Statement Regarding Forward-Looking Statements

                            

                            30Average Balance Sheets

                            

                            31Rate/Volume Analysis

                            

                            33Regulatory Capital and Ratios

                            

                            35Item 3.

                            Quantitative and Qualitative Disclosures About Market RiskAsset/Liability Management

                            

                            36Interest Rate Sensitivity

                            

                            41Item 4.

                            Controls and Procedures

                            

                            42PART II OTHER INFORMATIONItem 2.

                            Unregistered Sales of Equity Securities and Use of Proceeds

                            

                            43Item 6.

                            Exhibits

                            

                            44SIGNATURES

                            

                            45EXHIBIT INDEX

                            

                            46Exhibit 11

                            Statement Re: Computation of Per Share Earnings

                            

                            47Exhibit 31.1

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

                            

                            48Exhibit 31.2

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

                            

                            49Exhibit 32.1

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

                            

                            50Exhibit 32.2

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

                            

                            51

                2

                

                
                STERLING BANCORP AND SUBSIDIARIESConsolidated Balance Sheets
                (Unaudited)

                September 30,
                                2008

                            

                            December 31,
                                2007ASSETSCash and due from banks

                            

                            $

                            32,250,892

                            

                            $

                            66,412,612Interest-bearing deposits with other banks

                            

                            

                            3,773,594

                            

                            

                            979,984Securities available for sale (at estimated fair value; pledged: $330,050,687 in 2008 and $102,326,258 in 2007)

                            

                            

                            421,835,503

                            

                            

                            263,380,570Securities held to maturity (pledged: $225,912,948 in 2008 and $191,549,044 in 2007) (estimated fair value: $311,888,427 in 2008 and $359,725,008 in 2007)

                            

                            

                            312,574,609

                            

                            

                            361,860,847Total investment securities

                            

                            

                            734,410,112

                            

                            

                            625,241,417Loans held for sale

                            

                            

                            15,986,454

                            

                            

                            23,755,906Loans held in portfolio, net of unearned discounts

                            

                            

                            1,211,125,047

                            

                            

                            1,187,123,984Less allowance for loan losses

                            

                            

                            15,732,753

                            

                            

                            15,084,775Loans, net

                            

                            

                            1,195,392,294

                            

                            

                            1,172,039,209Customers’ liability under acceptances

                            

                            

                            885,533

                            

                            

                            200,942Goodwill

                            

                            

                            22,900,912

                            

                            

                            22,900,912Premises and equipment, net

                            

                            

                            10,659,450

                            

                            

                            11,178,883Other real estate

                            

                            

                            1,991,215

                            

                            

                            1,669,993Accrued interest receivable

                            

                            

                            8,370,737

                            

                            

                            7,081,304Bank owned life insurance

                            

                            

                            29,893,460

                            

                            

                            29,041,115Other assets

                            

                            

                            60,574,425

                            

                            

                            52,146,506$

                            2,117,089,078

                            

                            $

                            2,012,648,783LIABILITIES AND SHAREHOLDERS’ EQUITYDepositsDemand deposits

                            

                            $

                            480,243,207

                            

                            $

                            535,350,808Savings, NOW and money market deposits

                            

                            

                            599,737,332

                            

                            

                            467,446,622Time deposits

                            

                            

                            363,352,639

                            

                            

                            524,188,749Total deposits

                            

                            

                            1,443,333,178

                            

                            

                            1,526,986,179Securities sold under agreements to repurchase - customers

                            

                            

                            55,022,355

                            

                            

                            60,053,947Securities sold under agreements to repurchase - dealers

                            

                            

                            19,514,563

                            

                            

                            10,200,000Federal funds purchased

                            

                            

                            55,000,000

                            

                            

                            65,000,000Commercial paper

                            

                            

                            12,943,773

                            

                            

                            20,878,494Short-term borrowings - FHLB

                            

                            

                            120,000,000

                            

                            

                            45,000,000Short-term borrowings - other

                            

                            

                            17,031,187

                            

                            

                            4,285,198Long-term borrowings - FHLB

                            

                            

                            150,000,000

                            

                            

                            40,000,000Long-term borrowings - subordinated debentures

                            

                            

                            25,774,000

                            

                            

                            25,774,000Total borrowings

                            

                            

                            455,285,878

                            

                            

                            271,191,639Acceptances outstanding

                            

                            

                            885,533

                            

                            

                            200,942Accrued expenses and other liabilities

                            

                            

                            99,240,147

                            

                            

                            93,199,746Total liabilities

                            

                            

                            1,998,744,736

                            

                            

                            1,891,578,506Shareholders’ equityCommon stock, $1 par value. Authorized 50,000,000 shares; issued 21,962,295 and 21,278,531 shares, respectively

                            

                            

                            21,962,295

                            

                            

                            21,278,531Capital surplus

                            

                            

                            176,155,951

                            

                            

                            168,868,895Retained earnings

                            

                            

                            18,519,783

                            

                            

                            17,537,732Accumulated other comprehensive loss, net of tax

                            

                            

                            (15,703,764

                            )

                            

                            (10,811,811

                            )200,934,265

                            

                            

                            196,873,347LessCommon shares in treasury at cost, 3,919,524 and 3,459,302 shares, respectively

                            

                            

                            82,589,923

                            

                            

                            75,803,070Total shareholders’ equity

                            

                            

                            118,344,342

                            

                            

                            121,070,277$

                            2,117,089,078

                            

                            $

                            2,012,648,783

                See Notes to Consolidated Financial Statements.

                3

                

                
                STERLING BANCORP AND SUBSIDIARIESConsolidated Statements of Income(Unaudited)

                

                Three Months Ended
                                September 30,

                            

                            Nine Months Ended
                                September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007INTEREST INCOMELoans

                            

                            $

                            20,387,114

                            

                            $

                            24,142,282

                            

                            $

                            61,208,181

                            

                            $

                            68,992,902Investment securitiesAvailable for sale

                            

                            

                            5,780,099

                            

                            

                            2,112,770

                            

                            

                            16,161,735

                            

                            

                            5,659,068Held to maturity

                            

                            

                            3,795,135

                            

                            

                            4,730,546

                            

                            

                            12,054,102

                            

                            

                            14,298,397Federal funds sold

                            

                            

                            6,540

                            

                            

                            227,637

                            

                            

                            8,155

                            

                            

                            1,230,283Deposits with other banks

                            

                            

                            11,074

                            

                            

                            23,798

                            

                            

                            29,714

                            

                            

                            91,176Total interest income

                            

                            

                            29,979,962

                            

                            

                            31,237,033

                            

                            

                            89,461,887

                            

                            

                            90,271,826INTEREST EXPENSEDepositsSavings, NOW and money market

                            

                            

                            2,011,200

                            

                            

                            3,829,336

                            

                            

                            4,710,420

                            

                            

                            9,968,301Time

                            

                            

                            3,061,968

                            

                            

                            6,458,001

                            

                            

                            12,433,560

                            

                            

                            19,586,914Securities sold under agreements to repurchase- customers

                            

                            

                            419,101

                            

                            

                            701,653

                            

                            

                            1,507,288

                            

                            

                            2,581,272- dealers

                            

                            

                            381,839

                            

                            

                            —

                            

                            

                            1,114,930

                            

                            

                            —Federal funds purchased

                            

                            

                            196,756

                            

                            

                            71,555

                            

                            

                            775,724

                            

                            

                            107,303Commercial paper

                            

                            

                            99,043

                            

                            

                            367,650

                            

                            

                            411,431

                            

                            

                            1,072,908Short-term borrowings - FHLB

                            

                            

                            469,826

                            

                            

                            53,071

                            

                            

                            995,385

                            

                            

                            53,071Short-term borrowings - other

                            

                            

                            9,335

                            

                            

                            19,949

                            

                            

                            29,723

                            

                            

                            47,511Long-term borrowings - FHLB

                            

                            

                            1,106,581

                            

                            

                            117,500

                            

                            

                            2,905,727

                            

                            

                            478,523Long-term borrowings - subordinated debentures

                            

                            

                            523,437

                            

                            

                            523,438

                            

                            

                            1,570,312

                            

                            

                            1,570,313Total interest expense

                            

                            

                            8,279,086

                            

                            

                            12,142,153

                            

                            

                            26,454,500

                            

                            

                            35,466,116Net interest income

                            

                            

                            21,700,876

                            

                            

                            19,094,880

                            

                            

                            63,007,387

                            

                            

                            54,805,710Provision for loan losses

                            

                            

                            1,950,000

                            

                            

                            2,125,000

                            

                            

                            6,100,000

                            

                            

                            4,453,332Net interest income after provision for loan losses

                            

                            

                            19,750,876

                            

                            

                            16,969,880

                            

                            

                            56,907,387

                            

                            

                            50,352,378Total noninterest income

                            

                            

                            7,242,640

                            

                            

                            7,767,486

                            

                            

                            24,486,817

                            

                            

                            25,865,240Total noninterest expenses

                            

                            

                            21,676,841

                            

                            

                            19,371,491

                            

                            

                            62,973,042

                            

                            

                            59,102,722Income from continuing operations before income taxes

                            

                            

                            5,316,675

                            

                            

                            5,365,875

                            

                            

                            18,421,162

                            

                            

                            17,114,896Provision for income taxes

                            

                            

                            1,531,172

                            

                            

                            1,524,818

                            

                            

                            6,463,701

                            

                            

                            5,910,728Income from continuing operations

                            

                            

                            3,785,503

                            

                            

                            3,841,057

                            

                            

                            11,957,461

                            

                            

                            11,204,168Discontinued operations:Loss, net of income tax

                            

                            

                            —

                            

                            

                            (774,315

                            )

                            

                            —

                            

                            

                            (795,034

                            )Net income

                            

                            $

                            3,785,503

                            

                            $

                            3,066,742

                            

                            $

                            11,957,461

                            

                            $

                            10,409,134Average number of common shares outstandingBasic

                            

                            

                            18,015,871

                            

                            

                            17,910,268

                            

                            

                            17,972,517

                            

                            

                            18,329,750Diluted

                            

                            

                            18,226,811

                            

                            

                            18,221,555

                            

                            

                            18,219,375

                            

                            

                            18,749,866Income from continuing operations, per average common shareBasic

                            

                            $

                            0.21

                            

                            $

                            0.21

                            

                            $

                            0.67

                            

                            $

                            0.61Diluted

                            

                            

                            0.21

                            

                            

                            0.21

                            

                            

                            0.66

                            

                            

                            0.60Net income, per average common shareBasic

                            

                            

                            0.21

                            

                            

                            0.17

                            

                            

                            0.67

                            

                            

                            0.57Diluted

                            

                            

                            0.21

                            

                            

                            0.17

                            

                            

                            0.66

                            

                            

                            0.56Dividends per common share

                            

                            

                            0.19

                            

                            

                            0.19

                            

                            

                            0.57

                            

                            

                            0.57

                See Notes to Consolidated Financial Statements.

                4

                

                
                STERLING BANCORP AND SUBSIDIARIESConsolidated Statements of Comprehensive Income(Unaudited)

                

                Three Months Ended
                                September 30,

                            

                            Nine Months Ended
                                September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007Net Income

                            

                            $

                            3,785,503

                            

                            $

                            3,066,742

                            

                            $

                            11,957,461

                            

                            $

                            10,409,134Other comprehensive income, net of tax:Unrealized holding (losses)/gains on securities, arising during the period

                            

                            

                            (2,726,673

                            )

                            

                            1,150,300

                            

                            

                            (6,530,989

                            )

                            

                            254,135Reclassification adjustment for securities losses included in net income

                            

                            

                            645,299

                            

                            

                            —

                            

                            

                            923,198

                            

                            

                            12Amortization of:Prior service cost

                            

                            

                            9,126

                            

                            

                            15,917

                            

                            

                            27,378

                            

                            

                            43,006Net actuarial losses

                            

                            

                            227,712

                            

                            

                            243,256

                            

                            

                            688,460

                            

                            

                            608,149Comprehensive income

                            

                            $

                            1,940,967

                            

                            $

                            4,476,215

                            

                            $

                            7,065,508

                            

                            $

                            11,314,436

                See Notes to Consolidated Financial Statements.

                5

                

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

                

                Nine Months Ended
                                September 30,2008

                            

                            2007Common StockBalance at January 1

                            

                            $

                            21,278,531

                            

                            $

                            21,177,084Common shares issued under stock incentive plan

                            

                            

                            683,764

                            

                            

                            85,086Balance at September 30

                            

                            $

                            21,962,295

                            

                            $

                            21,262,170Capital SurplusBalance at January 1

                            

                            $

                            168,868,895

                            

                            $

                            167,960,063Common shares issued under stock incentive plan and related tax benefits

                            

                            

                            7,287,056

                            

                            

                            722,501Balance at September 30

                            

                            $

                            176,155,951

                            

                            $

                            168,682,564Retained EarningsBalance at January 1

                            

                            $

                            17,537,732

                            

                            $

                            16,693,987Adjustment upon adoption of EITF 06-4 effective January 1, 2008

                            

                            

                            (726,008

                            )

                            

                            —Balance at January 1 as adjusted

                            

                            

                            16,811,724

                            

                            

                            16,693,987Net income

                            

                            

                            11,957,461

                            

                            

                            10,409,134Cash dividends paid - common shares

                            

                            

                            (10,249,402

                            )

                            

                            (10,372,522

                            )Balance at September 30

                            

                            $

                            18,519,783

                            

                            $

                            16,730,599Accumulated other comprehensive loss 
                                    Balance at January 1

                            

                            $

                            (10,811,811

                            )

                            $

                            (11,842,908

                            )Unrealized holding (losses)/gains on securities, arising during the period:Before tax

                            

                            

                            (11,909,101

                            )

                            

                            461,392Tax effect

                            

                            

                            5,378,112

                            

                            

                            (207,257

                            )Net of tax

                            

                            

                            (6,530,989

                            )

                            

                            254,135Reclassification adjustment for securities losses included in net income:Before tax

                            

                            

                            1,683,624

                            

                            

                            22Tax effect

                            

                            

                            (760,426

                            )

                            

                            (10

                            )Net of tax

                            

                            

                            923,198

                            

                            

                            12Reclassification adjustment for amortization of:Prior service cost, net of tax

                            

                            

                            27,378

                            

                            

                            43,006Net actuarial losses, net of tax

                            

                            

                            688,460

                            

                            

                            608,149Total

                            

                            

                            715,838

                            

                            

                            651,155Balance at September 30

                            

                            $

                            (15,703,764

                            )

                            $

                            (10,937,606

                            )Treasury StockBalance at January 1

                            

                            $

                            (75,803,070

                            )

                            $

                            (61,725,455

                            )Purchase of common shares

                            

                            

                            —

                            

                            

                            (13,621,660

                            )Surrender of shares issued under stock incentive plan

                            

                            

                            (6,786,853

                            )

                            

                            (455,955

                            )Balance at September 30

                            

                            $

                            (82,589,923

                            )

                            $

                            (75,803,070

                            )Total Shareholders’ EquityBalance at January 1

                            

                            $

                            121,070,277

                            

                            $

                            132,262,771Net changes during the period

                            

                            

                            (2,725,935

                            )

                            

                            (12,328,114

                            )Balance at September 30

                            

                            $

                            118,344,342

                            

                            $

                            119,934,657

                See Notes to Consolidated Financial Statements.

                6

                

                
                STERLING BANCORP AND SUBSIDIARIESConsolidated Statements of Cash Flows(Unaudited)

                

                Nine Months Ended
                                September 30,2008

                            

                            2007Operating ActivitiesNet Income

                            

                            $

                            11,957,461

                            

                            $

                            10,409,134Loss from discontinued operations included below in operating cash flows from discontinued operations

                            

                            

                            —

                            

                            

                            795,034Income from continuing operations

                            

                            

                            11,957,461

                            

                            

                            11,204,168Adjustments to reconcile income from continuing operations to net cash provided by operating activities:Provision for loan losses

                            

                            

                            6,100,000

                            

                            

                            4,453,332Depreciation and amortization of premises and equipment

                            

                            

                            1,882,047

                            

                            

                            1,925,057Securities losses

                            

                            

                            1,683,624

                            

                            

                            3,076Income from bank owned life insurance

                            

                            

                            (852,346

                            )

                            

                            (817,640

                            )Deferred income tax provision

                            

                            

                            2,679,944

                            

                            

                            1,946,436Proceeds from sale of loans

                            

                            

                            346,301,672

                            

                            

                            410,707,486Gains on sales of loans, net

                            

                            

                            (6,669,945

                            )

                            

                            (5,463,453

                            )Originations of loans held for sale

                            

                            

                            (336,246,577

                            )

                            

                            (406,657,417

                            )Amortization of premiums on securities

                            

                            

                            303,934

                            

                            

                            320,227Accretion of discounts on securities

                            

                            

                            (528,907

                            )

                            

                            (307,776

                            )Increase in accrued interest receivable

                            

                            

                            (1,289,433

                            )

                            

                            (1,129,957

                            )Increase (Decrease) in accrued expenses and other liabilities

                            

                            

                            5,134,392

                            

                            

                            (4,252,664

                            )Increase in other assets

                            

                            

                            (6,906,425

                            )

                            

                            (9,623,043

                            )Other, net

                            

                            

                            674,487

                            

                            

                            233,974Net cash provided by operating activities

                            

                            

                            24,223,928

                            

                            

                            2,541,806Investing ActivitiesPurchase of premises and equipment

                            

                            

                            (1,362,614

                            )

                            

                            (2,036,345

                            )Net increase in interest-bearing deposits with other banks

                            

                            

                            (2,793,610

                            )

                            

                            (1,753,288

                            )Net decrease in Federal funds sold

                            

                            

                            —

                            

                            

                            20,000,000Net increase in loans held in portfolio

                            

                            

                            (27,197,069

                            )

                            

                            (71,182,670

                            )Decrease in other real estate

                            

                            

                            1,807,064

                            

                            

                            2,137,878Proceeds from calls of securities - held to maturity

                            

                            

                            —

                            

                            

                            25,003,054Proceeds from prepayments, redemptions or maturities of securities - held to maturity

                            

                            

                            49,248,406

                            

                            

                            51,478,298Purchases of securities - held to maturity

                            

                            

                            —

                            

                            

                            (49,114,923

                            )Proceeds from calls of securities - available for sale

                            

                            

                            —

                            

                            

                            2,750Proceeds from prepayments, redemptions or maturities of securities - available for sale

                            

                            

                            190,477,648

                            

                            

                            71,831,485Purchases of securities - available for sale

                            

                            

                            (359,657,565

                            )

                            

                            (138,351,993

                            )Net cash used in investing activities

                            

                            

                            (149,477,740

                            )

                            

                            (91,985,754

                            )Financing ActivitiesNet decrease in noninterest-bearing deposits

                            

                            

                            (55,107,601

                            )

                            

                            (56,247,888

                            )Net (decrease) increase in interest-bearing deposits

                            

                            

                            (28,545,400

                            )

                            

                            101,054,718Net (decrease) increase in Federal funds purchased

                            

                            

                            (10,000,000

                            )

                            

                            44,200,000Net increase in securities sold under agreement to repurchase

                            

                            

                            4,282,971

                            

                            

                            9,760,889Net increase in commercial paper and other short-term borrowings

                            

                            

                            79,811,268

                            

                            

                            22,900,998Increase (Decrease) in long-term borrowings

                            

                            

                            110,000,000

                            

                            

                            (10,000,000

                            )Purchase of treasury stock

                            

                            

                            —

                            

                            

                            (13,621,660

                            )Net proceeds from exercise of stock options

                            

                            

                            900,256

                            

                            

                            726,524Cash dividends paid on common stock

                            

                            

                            (10,249,402

                            )

                            

                            (10,372,522

                            )Net cash provided by financing activities

                            

                            

                            91,092,092

                            

                            

                            88,401,059Cash flows from discontinued operations
                                 Operating cash flows

                            

                            

                            —

                            

                            

                            531,305Total

                            

                            

                            —

                            

                            

                            531,305Net decrease in cash and due from banks

                            

                            

                            (34,161,720

                            )

                            

                            (511,584

                            )Cash and due from banks - beginning of period

                            

                            

                            66,412,612

                            

                            

                            50,058,593Cash and due from banks - end of period

                            

                            $

                            32,250,892

                            

                            $

                            49,547,009Supplemental disclosures:Interest paid

                            

                            $

                            27,802,132

                            

                            $

                            35,724,085Income taxes paid

                            

                            

                            8,809,498

                            

                            

                            953,887Loans held for sale transferred to portfolio

                            

                            

                            3,619,303

                            

                            

                            —Loans transferred to other real estate

                            

                            

                            2,128,286

                            

                            

                            1,721,494

                See Notes to Consolidated Financial Statements.

                7

                

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

                Note 1.

                            Significant Accounting Policies

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

                Basis of Presentation. The consolidated financial statements include the accounts of Sterling Bancorp and its subsidiaries, principally Sterling National Bank and its subsidiaries (the “bank”), after elimination of intercompany transactions. The consolidated financial statements as of and for the interim periods ended September 30, 2008 and 2007 are unaudited; however, in the opinion of
                management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of such periods have been made. Certain reclassifications have been made to the prior periods’ consolidated financial statements to conform to the current presentation. The interim consolidated financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2007.

                Use of Estimates. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make assumptions and estimates which impact the amounts reported in those statements and are, by their nature, subject to change in the future as additional information becomes available or as circumstances vary.

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

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

                Note 2.

                            Loans

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

                September 30,
                                2008

                            

                            December 31,
                                2007Loans held for sale, net of valuation reserve ($-0-at September 30, 2008 and $64,958 at December 31, 2007)Real estate-residential mortgage

                            

                            $

                            15,986,454

                            

                            $

                            23,755,906Loans held in portfolio
                                Commercial and industrial

                            

                            $

                            535,932,629

                            

                            $

                            539,969,407Lease financing

                            

                            

                            291,501,182

                            

                            

                            287,563,583Factored receivables

                            

                            

                            117,398,769

                            

                            

                            93,016,702Real estate-residential mortgage

                            

                            

                            144,320,787

                            

                            

                            129,464,803Real estate-commercial mortgage

                            

                            

                            96,274,523

                            

                            

                            99,093,560Real estate-construction and land development

                            

                            

                            25,480,888

                            

                            

                            37,161,197Installment

                            

                            

                            18,214,446

                            

                            

                            12,103,045Loans to depository institutions

                            

                            

                            20,000,000

                            

                            

                            27,000,000Loans held in portfolio, gross

                            

                            

                            1,249,123,224

                            

                            

                            1,225,372,297Less unearned discounts

                            

                            

                            37,998,177

                            

                            

                            38,248,313Loans held in portfolio, net of unearned discounts

                            

                            $

                            1,211,125,047

                            

                            $

                            1,187,123,984

                8

                

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

                Note 3.

                            Investment Securities

                The following information is provided in connection with the calls of available for sale (“AFS”) and held to maturity (“HTM”)securities:

                Three Months Ended September 30,

                            

                            Nine Months Ended September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007Proceeds-AFS

                            

                            

                            $

                            —

                            

                            

                            

                            $

                            —

                            

                            

                            

                            $

                            —

                            

                            

                            

                            $

                            2,750Proceeds-HTM

                            

                            

                            $

                            —

                            

                            

                            

                            $

                            6,875,000

                            

                            

                            

                            $

                            —

                            

                            

                            

                            $

                            25,000,000Gross Gains-AFS

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            —Gross Gains-HTM

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            —Gross Losses-AFS

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            22Gross Losses-HTM

                            

                            

                            

                            —

                            

                            

                            

                            

                            1,075

                            

                            

                            

                            

                            —

                            

                            

                            

                            

                            3,054

                During the three months ended September 30, 2008, the Company incurred an other-than-temporary impairment charge of $1,176,824 on a debt security that was recorded in securities losses. The charge resulted from management’s regular review of the valuation of the investment portfolio and reduced the carrying amount of the security to $2,555,000.

                In addition, in the second quarter of 2008, the Company incurred an other-than-temporary impairment charge of $506,800 on a single-issuer, investment grade trust preferred security that was recorded in securities losses. The charge resulted from management’s regular review of the valuation of the investment portfolio and reduced the carrying amount of the security to $493,200.

                Note 4.

                            Employee Benefit Plans

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

                Three Months Ended September 30,

                            

                            Nine Months Ended September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007Service cost

                            

                            

                            $

                            510,529

                            

                            

                            

                            $

                            577,851

                            

                            

                            

                            $

                            1,502,997

                            

                            

                            

                            $

                            1,396,393Interest cost

                            

                            

                            

                            808,503

                            

                            

                            

                            

                            769,360

                            

                            

                            

                            

                            2,312,863

                            

                            

                            

                            

                            1,903,762Expected return on plan assets

                            

                            

                            

                            (713,451

                            )

                            

                            

                            

                            (720,456

                            )

                            

                            

                            

                            (2,008,823

                            )

                            

                            

                            

                            (1,671,370

                            )Amortization of prior service cost

                            

                            

                            

                            16,643

                            

                            

                            

                            

                            28,702

                            

                            

                            

                            

                            49,929

                            

                            

                            

                            

                            78,080Recognized actuarial loss

                            

                            

                            

                            415,276

                            

                            

                            

                            

                            438,985

                            

                            

                            

                            

                            1,255,534

                            

                            

                            

                            

                            1,104,119Net periodic benefit cost

                            

                            

                            $

                            1,037,500

                            

                            

                            

                            $

                            1,094,442

                            

                            

                            

                            $

                            3,112,500

                            

                            

                            

                            $

                            2,810,984

                The Company has contributed approximately $3,000,000 to the defined benefit pension plan in 2008.

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

                9

                

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

                Note 5.

                            Noninterest income and expenses

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

                Three Months Ended September 30,

                            

                            Nine Months Ended September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007NONINTEREST INCOMEAccounts receivable management/ factoring commissions and other fees

                            

                            

                            $

                            4,348,040

                            

                            

                            

                            $

                            4,048,691

                            

                            

                            

                            $

                            11,712,173

                            

                            

                            

                            $

                            11,537,267Service charges on deposit accounts

                            

                            

                            

                            1,345,818

                            

                            

                            

                            

                            1,407,530

                            

                            

                            

                            

                            4,029,087

                            

                            

                            

                            

                            4,313,920Other customer related service charges and fees

                            

                            

                            

                            680,965

                            

                            

                            

                            

                            830,485

                            

                            

                            

                            

                            2,092,949

                            

                            

                            

                            

                            2,263,595Mortgage banking income

                            

                            

                            

                            1,468,971

                            

                            

                            

                            

                            887,025

                            

                            

                            

                            

                            6,669,945

                            

                            

                            

                            

                            6,263,101Trust fees

                            

                            

                            

                            135,619

                            

                            

                            

                            

                            131,896

                            

                            

                            

                            

                            394,938

                            

                            

                            

                            

                            398,279Bank owned life insurance income

                            

                            

                            

                            289,848

                            

                            

                            

                            

                            278,959

                            

                            

                            

                            

                            852,346

                            

                            

                            

                            

                            817,640Securities losses

                            

                            

                            

                            (1,176,824

                            )

                            

                            

                            

                            (1,075

                            )

                            

                            

                            

                            (1,683,624

                            )

                            

                            

                            

                            (3,076

                            )Losses on sales of other real estate owned, net

                            

                            

                            

                            (57,185

                            )

                            

                            

                            

                            (50,295

                            )

                            

                            

                            

                            (360,543

                            )

                            

                            

                            

                            (230,845

                            )Other income

                            

                            

                            

                            207,388

                            

                            

                            

                            

                            234,270

                            

                            

                            

                            

                            779,546

                            

                            

                            

                            

                            505,359Total noninterest income

                            

                            

                            $

                            7,242,640

                            

                            

                            

                            $

                            7,767,486

                            

                            

                            

                            $

                            24,486,817

                            

                            

                            

                            $

                            25,865,240Three Months Ended September 30,

                            

                            Nine Months Ended September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007NONINTEREST EXPENSESSalaries

                            

                            

                            $

                            9,617,675

                            

                            

                            

                            $

                            8,829,428

                            

                            

                            

                            $

                            28,456,068

                            

                            

                            

                            $

                            26,749,091Employee benefits

                            

                            

                            

                            2,410,146

                            

                            

                            

                            

                            2,395,808

                            

                            

                            

                            

                            7,498,460

                            

                            

                            

                            

                            7,148,768Total personnel expense

                            

                            

                            

                            12,027,821

                            

                            

                            

                            

                            11,225,236

                            

                            

                            

                            

                            35,954,528

                            

                            

                            

                            

                            33,897,859Occupancy and equipment expenses, net

                            

                            

                            

                            2,918,471

                            

                            

                            

                            

                            2,606,269

                            

                            

                            

                            

                            8,701,661

                            

                            

                            

                            

                            7,952,606Advertising and marketing

                            

                            

                            

                            740,695

                            

                            

                            

                            

                            888,460

                            

                            

                            

                            

                            2,728,406

                            

                            

                            

                            

                            2,974,340Professional fees

                            

                            

                            

                            2,643,779

                            

                            

                            

                            

                            1,543,628

                            

                            

                            

                            

                            5,882,375

                            

                            

                            

                            

                            4,834,331Communications

                            

                            

                            

                            449,776

                            

                            

                            

                            

                            484,929

                            

                            

                            

                            

                            1,311,360

                            

                            

                            

                            

                            1,455,040Other expenses

                            

                            

                            

                            2,896,299

                            

                            

                            

                            

                            2,622,969

                            

                            

                            

                            

                            8,394,712

                            

                            

                            

                            

                            7,988,546Total noninterest expenses

                            

                            

                            $

                            21,676,841

                            

                            

                            

                            $

                            19,371,491

                            

                            

                            

                            $

                            62,973,042

                            

                            

                            

                            $

                            59,102,722

                

                Note 6.

                            Segment Reporting

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

                The Company provides a broad range of financial products and services, including commercial loans, asset-based financing, factoring and accounts receivable management services, trade financing, equipment leasing, corporate and consumer deposit services, commercial and residential mortgage lending and brokerage, trust and estate administration and investment management services. The Company’s primary source
                of earnings is net interest income, which represents the difference between interest earned on interest-earning assets and the interest incurred on interest-bearing liabilities. The Company’s 2008 year-to-date average interest-earning assets were 60.2% loans (corporate lending was 68.3% and real estate lending was 26.5% of total loans, respectively) and 39.8% investment securities and money market investments. There are no industry concentrations exceeding 10% of loans,
                gross, in the corporate lending segment. Approximately 80% of loans are to borrowers located in the metropolitan New York area. In order to comply with SFAS No. 131, the Company has determined that it has three reportable operating segments: corporate lending, real estate lending and company-wide treasury.

                10

                

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

                The following tables provide certain information regarding the Company’s operating segments (all amounts are from continuing operations except where designated as discontinued):

                Corporate
                                Lending

                            

                            Real Estate
                                Lending

                            

                            Company-wide
                                Treasury

                            

                            TotalsThree Months Ended September 30,2008Net interest income

                            

                            $

                            9,706,949

                            

                            $

                            4,837,283

                            

                            $

                            6,953,178

                            

                            $

                            21,497,410Noninterest income

                            

                            

                            5,919,780

                            

                            

                            1,542,030

                            

                            

                            (833,957

                            )

                            

                            6,627,853Depreciation and amortization

                            

                            

                            165,289

                            

                            

                            35,977

                            

                            

                            793

                            

                            

                            202,059Segment income before income taxes

                            

                            

                            7,294,583

                            

                            

                            3,148,026

                            

                            

                            5,565,197

                            

                            

                            16,007,806Segment assets

                            

                            

                            862,839,267

                            

                            

                            390,332,421

                            

                            

                            831,486,832

                            

                            

                            2,084,658,520Three Months Ended September 30,2007Net interest income

                            

                            $

                            6,998,194

                            

                            $

                            5,498,701

                            

                            $

                            6,339,623

                            

                            $

                            18,836,518Noninterest income

                            

                            

                            5,992,283

                            

                            

                            899,678

                            

                            

                            353,452

                            

                            

                            7,245,413Depreciation and amortization

                            

                            

                            165,464

                            

                            

                            88,343

                            

                            

                            614

                            

                            

                            254,421Segment income from continuing operations before income taxes

                            

                            

                            5,295,787

                            

                            

                            2,610,963

                            

                            

                            6,056,388

                            

                            

                            13,963,138Segment income from discontinued operations before income taxes

                            

                            

                            (1,269,143

                            )

                            

                            —

                            

                            

                            —

                            

                            

                            (1,269,143

                            )Segment assets from continuing operations

                            

                            

                            808,342,295

                            

                            

                            376,312,543

                            

                            

                            765,055,742

                            

                            

                            1,949,710,580Nine Months Ended September 30,2008Net interest income

                            

                            $

                            27,069,684

                            

                            $

                            14,455,617

                            

                            $

                            20,818,385

                            

                            $

                            62,343,686Noninterest income

                            

                            

                            16,698,775

                            

                            

                            6,683,558

                            

                            

                            (410,259

                            )

                            

                            22,972,074Depreciation and amortization

                            

                            

                            570,813

                            

                            

                            217,079

                            

                            

                            2,379

                            

                            

                            790,271Segment income before income taxes

                            

                            

                            21,829,773

                            

                            

                            9,654,899

                            

                            

                            18,419,763

                            

                            

                            49,904,435Segment assets

                            

                            

                            862,839,267

                            

                            

                            390,332,421

                            

                            

                            831,486,832

                            

                            

                            2,084,658,520Nine Months Ended September 30,2007Net interest income

                            

                            $

                            19,815,718

                            

                            $

                            15,867,406

                            

                            $

                            18,361,453

                            

                            $

                            54,044,577Noninterest income

                            

                            

                            17,225,684

                            

                            

                            6,212,457

                            

                            

                            1,065,926

                            

                            

                            24,504,067Depreciation and amortization

                            

                            

                            536,404

                            

                            

                            274,832

                            

                            

                            1,843

                            

                            

                            813,079Segment income from continuing operations before income taxes

                            

                            

                            13,593,092

                            

                            

                            10,715,839

                            

                            

                            17,505,063

                            

                            

                            41,813,994Segment income from discontinued operations before income taxes

                            

                            

                            (1,306,865

                            )

                            

                            —

                            

                            

                            —

                            

                            

                            (1,306,865

                            )Segment assets from continuing operations

                            

                            

                            808,342,295

                            

                            

                            376,312,543

                            

                            

                            765,055,742

                            

                            

                            1,949,710,580

                11

                

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

                The following table sets forth reconcilations of net interest income, noninterest income, income before taxes and total assets for the reportable operating segments to the Company’s consolidated totals:

                Three Months Ended
                                September 30,

                            

                            Nine Months Ended
                                September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007Net interest income:Total for reportable operating segments

                            

                            $

                            21,497,410

                            

                            $

                            18,836,518

                            

                            $

                            62,343,686

                            

                            $

                            54,044,577Other [1]

                            

                            

                            203,466

                            

                            

                            258,362

                            

                            

                            663,701

                            

                            

                            761,133Consolidated net interest income

                            

                            $

                            21,700,876

                            

                            $

                            19,094,880

                            

                            $

                            63,007,387

                            

                            $

                            54,805,710Noninterest income:Total for reportable operating segments

                            

                            $

                            6,627,853

                            

                            $

                            7,245,413

                            

                            $

                            22,972,074

                            

                            $

                            24,504,067Other [1]

                            

                            

                            614,787

                            

                            

                            522,073

                            

                            

                            1,514,743

                            

                            

                            1,361,173Consolidated noninterest income

                            

                            $

                            7,242,640

                            

                            $

                            7,767,486

                            

                            $

                            24,486,817

                            

                            $

                            25,865,240Income before taxes:Total for reportable operating segment

                            

                            $

                            16,007,806

                            

                            $

                            13,963,138

                            

                            $

                            49,904,435

                            

                            $

                            41,813,994Other [1]

                            

                            

                            (10,691,131

                            )

                            

                            (8,597,263

                            )

                            

                            (31,483,273

                            )

                            

                            (24,699,098

                            )Consolidated income from continuing operations before income taxes

                            

                            $

                            5,316,675

                            

                            $

                            5,365,875

                            

                            $

                            18,421,162

                            

                            $

                            17,114,896Assets:Total for reportable operating segments

                            

                            $

                            2,084,658,520

                            

                            $

                            1,949,710,580

                            

                            $

                            2,084,658,520

                            

                            $

                            1,949,710,580Other [1]

                            

                            

                            32,430,558

                            

                            

                            31,028,739

                            

                            

                            32,430,558

                            

                            

                            31,028,739Consolidated assets

                            

                            $

                            2,117,089,078

                            

                            $

                            1,980,739,319

                            

                            $

                            2,117,089,078

                            

                            $

                            1,980,739,319

                

                [1]

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

                12

                

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

                Note 7.

                            Fair Value Measurements

                The Company adopted SFAS No. 157 as of January 1, 2008. In accordance with Financial Accounting Standards Board Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157, the Company will delay application of SFAS No. 157 for certain non-financial assets and non-financial liabilities, including goodwill and other real estate, until January 1, 2009. SFAS No. 157 defines fair
                value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires expanded disclosures regarding fair value measurements. The expanded disclosures include a requirement to disclose fair value measurements according to a hierarchy, segregating measurements using (1) quoted prices in active markets for identical assets or liabilities (2) significant other observable inputs and (3) significant unobservable inputs. FSP No. 157-3,
                *Determining the Fair Value of Financial Asset When the Market for That Asset Is Not Active*, issued in October 2008, clarified the application of SFAS No. 157 in situations when the market for a financial asset is not active. FSP No. 157-3 became effective for the Company's interim financial statements as of September 30, 2008 and did not significantly impact the methods by which the Company determines the fair value of its financial assets.

                SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset
                or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and
                sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.

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

                •

                            Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Examples of financial instruments generally included in this level are U.S. Treasury securities, equity and trust preferred securities that trade in active markets and listed derivative instruments.•

                            Level 2 Inputs - Inputs other than quoted prices included in Level I that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the
                                asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Examples of financial instruments generally included in this level are corporate debt, mortgage-backed certificates issued by U.S. government corporations and government sponsored enterprises, equity securities (including Federal Home Loan Bank and Federal Reserve
                                Bank common stock) that trade in inactive (or less active) markets, and certain derivative instruments.

                13

                



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


                •

                                Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own judgments about the assumptions that market participants would use in pricing the assets or liabilities. Examples of financial instruments generally included in this level are private equities, certain loans held for sale and other alternative
                                    investments.

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

                In general, fair value of securities is based upon quoted market prices, where available (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 use, 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, 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 indicative of net realizable value or reflective of future fair values. While management believes the Company’s
                valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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

                14

                

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

                    The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

                    Level 1
                                    Inputs

                                

                                Level 2
                                    Inputs

                                

                                Level 3
                                    Inputs

                                

                                Total
                                    Fair ValueSecurities available for sale

                                

                                $

                                3,505,234

                                

                                $

                                418,330,269

                                

                                $

                                —

                                

                                $

                                421,835,503Other investments

                                

                                $

                                8,996,884

                                

                                $

                                3,645,645

                                

                                $

                                —

                                

                                $

                                12,642,529

                Certain financial assets and financial liabilities, such as loans held for sale and collateral-dependent  impaired loans (if any) are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). There were no financial
                assets or financial liabilities measured at fair value on a non-recurring basis as of September 30, 2008.

                In accordance with SFAS No.65, Accounting for Certain Mortgage Banking Activities, mortgage loans held for sale with a carrying amount of $1,037,494 were written down to their fair value of $774,693 during the three month period ended March 31, 2008 resulting in a loss of $262,801, which was included in earnings for the nine month period ended September 30, 2008. No mortgage loans held for sale were
                written down to their fair value during the three month periods ended June 30, 2008 or September 30, 2008.

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

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

                Note 8.

                            New Accounting Standards

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

                15

                

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

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

                SFAS No.162, The Hierarchy of Generally Accepted Accounting Principles, identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States “the GAAP hierarchy”.
                SFAS No. 162 will be effective 60 days following the approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The guidance provided by SFAS No. 162 is not expected to have a significant impact on the Company’s financial statements.

                FASB Staff Position (“FSP”) EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share
                pursuant to the two-class method. This FSP will be effective on January 1, 2009. All previously reported earnings per share data will be retrospectively adjusted to conform with the provisions of FSP EITF 03-6-1. FSP EITF 03-6-1 is not expected to have a significant impact on the Company’s computation of earnings per share.

                16

                

                
                ITEM 2.

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

The following
commentary presents
management’s discussion and analysis of the financial condition and
results of operations of Sterling Bancorp (the “parent company”), a
financial holding company under the Gramm-Leach-Bliley Act of 1999, and its
subsidiaries, principally Sterling National Bank (the “bank”).
Throughout this discussion and analysis, the term the “Company”
refers to Sterling Bancorp and its subsidiaries.

 This discussion and
analysis should be read in conjunction with the consolidated financial
statements and supplemental data contained elsewhere in this quarterly report
and the Company’s annual report on Form 10-K for the year ended December
31, 2007. Certain reclassifications have been made to prior periods’
financial data to conform to current financial statement
presentations.

                RECENT MARKET DEVELOPMENTS

                The U.S. economy is experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system during the past year. Substantial declines in the housing market during the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including
                government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.

                Reflecting concern about the stability of the financial markets and the strength of counterparties, many lenders and institutional investors have reduced, and in some cases ceased to provide, funding to borrowers, including other financial institutions. The availability of credit, confidence in the financial sector, and level of volatility in the financial markets have been significantly adversely affected as
                a result. In recent weeks, volatility and disruption of the capital and credit markets has reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength.

                In response to the financial crises affecting the banking system 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 the EESA, the U.S. Department of the Treasury has the authority to, among other things, purchase up to $700 billion in
                mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity of the U.S. financial markets.

                On October 14, 2008, the Department of the Treasury announced that it will purchase equity stakes in a wide variety of banks and thrifts. Under this program known as the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program” or “Program”), from the $700 billion authorized by the EESA, the Treasury will make $250 billion of capital available to U.S.
                financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Until the earlier of three years after the Treasury’s investment in the preferred stock of a participating financial institution or the date on which the preferred stock has

                17

                

                
                been redeemed in full or the Treasury has transferred all the preferred stock to third parties, the financial institution may not repurchase shares of its common stock or increase the per share dividend on its common stock without the consent of the Treasury. Participating financial institutions will be required to adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity
                    issued under the TARP Capital Purchase Program. The Treasury has announced that nine large financial institutions have received an aggregate amount of $125 billion pursuant to the TARP Capital Purchase Program, and the Treasury has approved the applications of other financial institutions to participate in the Program.

                On October 14, 2008, the Federal Deposit Insurance Corporation (the “FDIC”) announced its Temporary Liquidity Guarantee Program, which consists of two components: a temporary guarantee of newly-issued senior unsecured debt of FDIC-insured institutions and their holding companies (the “FDIC Debt Guarantee Program”) and a temporary unlimited guarantee of funds in noninterest-bearing
                transaction accounts at FDIC-insured institutions (the “FDIC Transaction Account Guarantee Program”). Coverage under the Temporary Liquidity Guarantee Program is available for 30 days without charge and thereafter at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for noninterest-bearing transaction deposits.
                               At the present time, the Company expects to participate in the TARP Capital Purchase Program and the bank intends to participate in the FDIC Transaction Account Guarantee Program. The Company is assessing whether to participate in the FDIC Debt Guarantee Program.

                It is not clear what impact the EESA, the TARP Capital Purchase Program, the Temporary Liquidity Guarantee Program, other liquidity and funding initiatives of the Federal Reserve and other agencies that have been previously announced, and any additional programs that may be initiated in the future will have on the financial markets and the other difficulties described above, including the extreme levels of
                volatility and limited credit availability currently being experienced, or on the U.S. banking and financial industries and the broader U.S. and global economies. Further adverse developments could have a material adverse affect on the Company and its business.

                Current economic conditions have a resulted in an increased number of bank failures, which has increased use of the FDIC’s Deposit Insurance Fund (the “DIF”), The FDIC’s proposed plan to restore the DIF will increase the premium assessment rates paid by FDIC-insured institutions. If the plan is adopted as proposed, the bank’s deposit insurance expense will be substantially higher in 2009 compared to 2008, which will
                have an adverse impact on the Company’s results of operations.

                OVERVIEW

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

                For the three months ended September 30, 2008, the bank’s average earning assets represented approximately 99.7% of the Company’s average earning assets. Loans represented 60.6% and investment securities represented 39.2% of the bank’s average earning assets for the third quarter of 2008.

                For the nine months ended September 30, 2008, the bank’s average earning assets represented approximately 99.7% of the Company’s average earning assets. Loans represented 60.1% and investment securities represented 39.7% of the bank’s average earning assets for the first nine months of 2008.

                18

                

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

                The Federal Open Market Committee of the Federal Reserve Bank (“FOMC”) decreased the overnight lending rate by 225 basis points during the first nine months of 2008 to 2.00%. This followed a 50 basis point reduction in the fourth quarter of 2007. In addition, the FOMC reduced the overnight lending rate in October 2008 by an additional 100 basis points to 1.00%. The large decrease in the overnight
                lending rate was in response to the continued liquidity crisis in the credit markets and recessionary concerns. As a result, short-term market interest rates decreased during the first nine months of 2008, but as a slower pace than the short-term intererst rates and, as a result, the yield curve continued to steepen. Notwithstanding the decrease in long-term market interest rates noted above, mortgage rates have maintained a wider credit spread resulting in higher yields on
                mortgage loans relative to U.S. Treasury securities.

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

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

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

                INCOME STATEMENT ANALYSIS

                Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company’s primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders’ equity. Net interest spread is the difference
                between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets (“net interest margin”) is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing
                sources, principally noninterest-bearing deposits and shareholders’ equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on pages 33 and 34. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on pages 31 and 32.

                19

                

                
                Comparison of the Three Months Ended September 30, 2008 and 2007

                The Company reported net income for the three months ended September 30, 2008 of $3.8 million, representing $0.21 per share calculated on a diluted basis, compared to $3.1 million, or $0.17 per share calculated on a diluted basis, for the third quarter of 2007. This increase reflects higher net interest income coupled with a lower provision for loan losses, which were partially offset by increases in
                noninterest expenses and the provision for income taxes and a decrease in noninterest income. The third quarter 2007 results were adversely impacted by an after tax loss from discontinued operations of $0.8 million.

                Net Interest Income

                Net interest income, on a tax-equivalent basis, was $21.8 million for the third quarter of 2008 compared to $19.2 million for the 2007 period. Net interest income benefitted from higher average investment securities and loan balances, higher yields on investment securities, lower interest-bearing deposits balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yield on
                loans and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.46% for the third quarter of 2008 compared to 4.41% for the 2007 period. The net interest margin was impacted by the lower interest rate environment in 2008, and the effect of higher average investment securities and loans outstanding.

                Total interest income, on a tax-equivalent basis, decreased to $30.1 million for the third quarter of 2008, from $31.4 million in the prior year period. The tax-equivalent yield on interest-earning assets was 6.19% for the third quarter of 2008 compared to 7.31% for the 2007 period.

                Interest earned on the loan portfolio decreased to $20.4 million for the third quarter of 2008 from $24.1 million in the prior year period. Average loan balances amounted to $1,193.8 million, an increase of $60.7 million from an average of $1,133.0 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.3 million
                increase in interest earned on loans, which was more than offset by the impact of a decrease in yield. The decrease in the yield on the loan portfolio to 6.99% for the third quarter of 2008 from 8.68% for the 2007 period was primarily attributable to the lower interest rate environment in 2008 and the mix of average outstanding balances among the components of the loan portfolio.

                Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $9.7 million for the third quarter of 2008 from $7.0 million in the prior year period. Average outstandings increased to $769.3 million (39.1% of average earning assets) for the third quarter of 2008 from $575.3 million (33.3% of average earning assets) in the prior year period. The average life of the securities portfolio
                was approximately 7.1 years at September 30, 2008 compared to 5.6 years at September 30, 2007.

                Interest earned on Federal funds sold and deposits with other banks decreased by $0.2 million for the third-quarter of 2008 from $0.2 million for the 2007 period, primarily due to lower funds employed in these assets. Average outstandings for these assets decreased to $1.4 million for the third quarter of 2008 from $17.2 million in the prior year period.

                Total interest expense decreased by $3.9 million for the third quarter of 2008 from $12.1 million for the 2007 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings coupled with lower interest-bearing deposits balances. Partially offsetting those benefits was the impact of higher borrowed funds balances which was the result of the Company’s strategy to
                employ cost effective wholesale funding in lieu of higher priced certificates of deposit.

                20

                

                
                Interest expense on deposits decreased to $5.1 million for the third quarter of 2008 from $10.3 million for the 2007 period, due to a decrease in the cost of those funds coupled with lower balances. The average rate paid on interest-bearing deposits was 2.07% which was 166 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment
                during 2008. Average interest-bearing deposits balances decreased to $976.7 million for the third quarter of 2008 from $1,093.3 million for the 2007 period reflecting the Company’s strategy to reduce reliance on high priced certificates of deposit.

                Interest expense on borrowings increased to $3.2 million for the third quarter of 2008 from $1.9 million for the 2007 period, primarily due to an increase in average balances which was partially offset by lower rates paid for these funds. Average borrowings increased to $482.4 million for the third quarter of 2008 from $144.3 million in the prior year period, reflecting greater reliance by the Company on
                wholesale funding. The average rate paid for borrowed funds was 2.65% which was 249 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2008.

                Provision for Loan Losses

                Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” beginning on page 26), the provision for loan losses for the third quarter of 2008 was $2.0 million, compared to $2.1 million for the prior year period. Factors affecting the level of the allowance and, therefore, the provision included the growth in the loan portfolio, changes in general
                economic conditions and the amount and trend of nonaccrual loans.

                Noninterest Income

                Noninterest income decreased to $7.2 million for the third quarter of 2008 from $7.8 million in the 2007 period. The decrease was principally due to an other-than-temporary impairment charge for a debt security. The charge, which resulted from management’s regular review of the valuation of the investment portfolio, amounted to approximately $1.2 million and reduced the carrying amount of the security
                to $2.6 million. Mortgage banking income was $1.5 million for the third quarter of 2008 compared to $0.9 million in the 2007 period. The 2007 amount was decreased by a revaluation charge of approximately $1.6 million recorded to reduce the carrying value of residential mortgage loans held for sale to the lower of cost or fair value and a charge for settlement of potential repurchase obligations as part of our loss mitigation efforts. Mortgage banking income in the 2008 period
                was adversely impacted by lower origination volume.

                Noninterest Expenses

                Noninterest expenses for the third quarter of 2008 increased $2.3 million when compared to the 2007 period. The increase was primarily due to higher salary expenses due to normal salary increases and investments in the growth of the Sterling franchise as well as increased professional fees associated with revenue enhancement projects and the settlement of certain litigation.

                Comparison of the Nine Months Ended September 30, 2008 and 2007

                The Company reported net income for the nine months ended September 30, 2008 of $12.0 million, representing $0.66 per share calculated on a diluted basis, compared to $10.4 million, or $0.56 per share calculated on a diluted basis, for the first nine months of 2007. This increase reflects higher net interest income which was partially offset by increases in the provision for loan losses, noninterest expenses
                and the provision for income taxes coupled with lower noninterest income. The results for the 2007 period were adversely impacted by an after tax loss from discontinued operations of $0.8 million.

                21

                

                
                Net Interest Income

                Net interest income, on a tax-equivalent basis, was $63.4 million for the first nine months of 2008 compared to $55.2 million for the 2007 period. Net interest income benefitted from higher average investment securities and loan balances, higher yields on investment securities, lower interest-bearing deposits balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yield
                on loans and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.53% for the first nine months of 2008 compared to 4.44% for the 2007 period. The net interest margin was impacted by the lower interest rate environment in 2008, and the effect of higher average investment securities, borrowed funds, loans outstanding and noninterest-bearing demand deposits and lower average interest-bearing deposits balances.

                Total interest income, on a tax-equivalent basis, decreased to $89.8 million for the first nine months of 2008 from $90.6 million in the prior year period. The tax-equivalent yield on interest-earning assets was 6.45% for the first nine months of 2008 compared to 7.34% for the 2007 period.

                Interest earned on the loan portfolio decreased to $61.2 million for the first nine months of 2008 from $69.0 million for the prior year period. Average loan balances amounted to $1,150.6 million, an increase of $53.3 million from an average of $1,097.3 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $3.7
                million increase in interest earned on loans, which was more than offset by the impact of a decrease in yield. The decrease in the yield on the loan portfolio to 7.46% for the first nine months of 2008 from 8.83% for the 2007 period was primarily attributable to the lower interest rate environment in 2008 and the mix of average outstanding balances among the components of the loan portfolio.

                Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $28.6 million for the first nine months of 2008 from $20.3 million in the prior year period. Average outstandings increased to $757.0 million (39.6% of average earning assets) for the first nine months of 2008 from $569.9 million (33.5% of average earning assets) in the prior year period. The average life of the securities
                portfolio was approximately 7.1 years at September 30, 2008 compared to 5.6  years at September 30, 2007.

                Interest earned on Federal funds sold and deposits with other banks decreased by $1.2 million for the first nine months of 2008 from $1.2 million for the 2007 period, primarily due to lower funds employed in these assets. Average outstandings for these assets decreased to $0.6 million for the first nine months of 2008 from $30.9 million in the prior year period.

                Total interest expense decreased by $9.0 million for the first nine months of 2008 from $35.5 million for the 2007 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings coupled with lower interest-bearing deposits balances. Partially offsetting the benefit of the lower cost of funds was the impact of higher borrowed funds balances which was the result of the
                Company’s strategy to employ cost effective wholesale funding in lieu of higher priced certificates of deposit.

                Interest expense on deposits decreased to $17.1 million for the first nine months of 2008 from $29.6 million for the 2007 period, primarily due to a decrease in the cost of those funds coupled with lower balances. The average rate paid on interest-bearing deposits was 2.31% which was 144 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate
                environment during 2008. Average interest-bearing deposits balances decreased to $990.8 million for the first nine months of 2008 from $1,053.8 million for the 2007 period reflecting the Company’s strategy to reduce reliance on high priced certificates of deposit.

                22

                

                
                Interest expense on borrowings increased to $9.3 million for the first nine months of 2008 from $5.9 million for the 2007 period, primarily due to an increase in average balances which was partially offset by lower rates paid for these funds. Average borrowings increased to $421.8 million for the first nine months of 2008 from $153.0 million in the prior year period, reflecting greater reliance by the Company
                on wholesale funding. The average rate paid for borrowed funds was 2.95% which was 224 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2008.

                Provision for Loan Losses

                Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” beginning on page 26), the provision for loan losses for the first nine months of 2008 was $6.1 million, compared to $4.5 million for the prior year period. Factors affecting the level of the allowance and, therefore, the provision included the growth in the loan portfolio, changes in general
                economic conditions and the amount and trend of nonaccrual loans.

                Noninterest Income

                Noninterest income decreased to $24.5 million for the first nine months of 2008 from $25.9 million in the 2007 period. The decrease was principally due to other-than-temporary impairment charges which resulted from management’s regular review of the investment portfolio. One charge, taken in the second quarter of 2008, for a single-issuer, investment grade trust preferred security, amounted to
                approximately $0.5 million and reduced the carrying amount of the security to $0.5 million. A second charge, taken in the third quarter, for a debt security, amounted to approximately $1.2 million and reduced the carrying amount of the security to $2.6 million. Mortgage banking income was $6.7 million for the first nine months of 2008 compared to $6.3 million in the 2007 period. The 2007 amount was decreased by a revaluation charge of approximately $1.6 million recorded in
                the third quarter to reduce the carrying value of residential mortgage loans held for sale to the lower of cost or fair value and a charge for settlement of potential repurchase obligations as part of our loss mitigation efforts. Mortgage banking income in the 2008 period was adversely impacted by lower origination volume.

                Noninterest Expenses

                Noninterest expenses for the first nine months of 2008 increased $3.8 million when compared to the 2007 period. The increase was primarily due to higher personnel costs due to normal salary increases and investments in the Sterling franchise, increased occupancy costs due to higher rents and professional fees associated with revenue enhancement projects and the settlement of certain litigation.

                Provision for Income Taxes

                The provision for income taxes for the first nine months of 2008 increased to $6.5 million from $5.9 million in the 2007 period. The increase was primarily due to the higher level of pre-tax income in the 2008 period.

                23

                

                
                BALANCE SHEET ANALYSIS

                Securities

                At September 30, 2008, the Company’s portfolio of securities totaled $734.4 million, of which obligations of U.S. government corporations and government sponsored enterprises amounted to $682.2 million which is approximately 92.9% of total. The Company has the intent and ability to hold to maturity securities classified as “held to maturity.” These securities are carried at cost, adjusted
                for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on “held to maturity” securities were $2.2 million and $2.9 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes,
                as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its recorded investment upon market recovery or the maturity of such instruments and thus believes that the impairment in value is primarily interest rate related and therefore temporary. “Available for sale” securities included gross unrealized gains of $0.7 million and gross unrealized losses of $12.0 million. Management has
                the intent and ability to hold available for sale and held to maturity securities with unrealized losses until there is a market recovery, which may be maturity.

                Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term
                prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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

                Weighted Average Life

                            

                            Weighted Average YieldSeptember 30, 2008

                            

                            AFS

                            

                            HTM

                            

                            AFS

                            

                            HTMMortgage-backed securities

                            

                            5.2 Years

                            

                            4.3 Years

                            

                            4.83

                            %

                            

                            4.63

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

                            

                            11.9 Years

                            

                            0.8 Years

                            

                            5.38

                            

                            

                            6.08Obligations of state and political subdivisions

                            

                            7.2 Years

                            

                            —

                            

                            6.10

                            (1)

                            

                            —

                

                (1)

                            tax equivalent

                24

                

                
                The following table presents information regarding securities available for sale:

                September 30, 2008

                            

                            Amortized
                                Cost

                            

                            Gross
                                Unrealized
                                Gains

                            

                            Gross
                                Unrealized
                                Losses

                            

                            Estimated
                                Fair
                                ValueMortgage-backed securitiesCMO’s (Federal National Mortgage Association)

                            

                            $

                            8,770,244

                            

                            $

                            —

                            

                            $

                            285,742

                            

                            $

                            8,484,502CMO’s (Federal Home Loan Mortgage Corporation)

                            

                            

                            22,276,314

                            

                            

                            —

                            

                            

                            764,975

                            

                            

                            21,511,339CMO’s (Government National Mortgage Association)

                            

                            

                            7,157,394

                            

                            

                            —

                            

                            

                            142,061

                            

                            

                            7,015,333Federal National Mortgage Association

                            

                            

                            60,148,843

                            

                            

                            258,897

                            

                            

                            724,970

                            

                            

                            59,682,770Federal Home Loan Mortgage Corporation

                            

                            

                            32,508,270

                            

                            

                            46,630

                            

                            

                            348,612

                            

                            

                            32,206,288Government National Mortgage Association

                            

                            

                            2,971,529

                            

                            

                            109,161

                            

                            

                            2,495

                            

                            

                            3,078,195Total mortgage-backed securities

                            

                            

                            133,832,594

                            

                            

                            414,688

                            

                            

                            2,268,855

                            

                            

                            131,978,427Agency NotesFederal Home Loan Bank

                            

                            

                            153,975,789

                            

                            

                            152,445

                            

                            

                            3,921,101

                            

                            

                            150,207,133Federal Farm Credit Bank

                            

                            

                            89,916,245

                            

                            

                            —

                            

                            

                            2,222,495

                            

                            

                            87,693,750Total obligations of U.S. Government corporations and government sponsored enterprises

                            

                            

                            377,724,628

                            

                            

                            567,133

                            

                            

                            8,412,451

                            

                            

                            369,879,310Obligations of state and political institutions

                            

                            

                            23,071,548

                            

                            

                            75,676

                            

                            

                            740,965

                            

                            

                            22,406,259Trust preferred securities

                            

                            

                            5,369,006

                            

                            

                            —

                            

                            

                            1,924,846

                            

                            

                            3,444,160Corporate securities

                            

                            

                            12,495,124

                            

                            

                            —

                            

                            

                            1,440,124

                            

                            

                            11,055,000Federal Reserve Bank stock

                            

                            

                            1,130,700

                            

                            

                            —

                            

                            

                            —

                            

                            

                            1,130,700Federal Home Loan Bank stock

                            

                            

                            13,599,000

                            

                            

                            —

                            

                            

                            —

                            

                            

                            13,599,000Other securities

                            

                            

                            304,442

                            

                            

                            16,632

                            

                            

                            —

                            

                            

                            321,074Total

                            

                            $

                            433,694,448

                            

                            $

                            659,441

                            

                            $

                            12,518,386

                            

                            $

                            421,835,503

                The following table presents information regarding securities held to maturity:

                September 30, 2008

                            

                            Carrying
                                Value

                            

                            Gross
                                Unrealized
                                Gains

                            

                            Gross
                                Unrealized
                                Losses

                            

                            Estimated
                                Fair
                                ValueMortgage-backed securitiesCMO’s (Federal National Mortgage Association)

                            

                            $

                            12,118,922

                            

                            $

                            —

                            

                            $

                            367,923

                            

                            $

                            11,750,999CMO’s (Federal Home Loan Mortgage Corporation)

                            

                            

                            20,343,597

                            

                            

                            13,356

                            

                            

                            491,342

                            

                            

                            19,865,611Federal National Mortgage Association

                            

                            

                            149,130,074

                            

                            

                            1,181,281

                            

                            

                            792,183

                            

                            

                            149,519,172Federal Home Loan Mortgage Corporation

                            

                            

                            103,078,506

                            

                            

                            419,642

                            

                            

                            1,226,340

                            

                            

                            102,271,808Government National Mortgage Association

                            

                            

                            7,653,510

                            

                            

                            256,374

                            

                            

                            —

                            

                            

                            7,909,884Total mortgage-backed securities

                            

                            

                            292,324,609

                            

                            

                            1,870,653

                            

                            

                            2,877,788

                            

                            

                            291,317,474Federal Home Loan Bank agency notes

                            

                            

                            20,000,000

                            

                            

                            321,875

                            

                            

                            —

                            

                            

                            20,321,875Total obligations of U.S. Government corporations and government sponsored enterprises

                            

                            

                            312,324,609

                            

                            

                            2,192,528

                            

                            

                            2,877,788

                            

                            

                            311,639,349Debt securities issued by foreign governments

                            

                            

                            250,000

                            

                            

                            —

                            

                            

                            922

                            

                            

                            249,078Total

                            

                            $

                            312,574,609

                            

                            $

                            2,192,528

                            

                            $

                            2,878,710

                            

                            $

                            311,888,427

                25

                

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

                Loan Portfolio

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

                The Company’s commercial and industrial loan and factored receivables portfolios represent approximately 53% of all loans. Loans in these categories are typically made to small and medium-sized businesses and range between $25,000 and $10 million. The Company’s real estate mortgage portfolio, which represents approximately 21% of all loans, is comprised of mortgages secured by real property
                located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company’s leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 21% of all loans. Sources of repayment are from the borrower’s operating profits, cash flows and liquidation of pledged collateral. Based on underwriting standards, loans may be secured in whole or in part by collateral such as liquid assets, accounts
                receivable, equipment, inventory, and real property. The collateral securing any loan or lease may depend on the type of loan or lease and may vary in value based on market conditions.

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

                September 30,2008

                            

                            2007($ in thousands)Balances

                            

                            % of
                                Total

                            

                            Balances

                            

                            % of
                                TotalDomesticCommercial and industrial

                            

                            $

                            533,803

                            

                            43.50

                            %

                            $

                            537,358

                            

                            44.37

                            %Equipment lease financing

                            

                            

                            256,062

                            

                            20.87

                            

                            

                            241,828

                            

                            19.97Factored receivables

                            

                            

                            116,970

                            

                            9.53

                            

                            

                            113,261

                            

                            9.35Real estate - residential mortgage

                            

                            

                            160,307

                            

                            13.06

                            

                            

                            150,571

                            

                            12.43Real estate- commercial mortgage

                            

                            

                            96,275

                            

                            7.85

                            

                            

                            97,575

                            

                            8.06Real estate -construction and land development

                            

                            

                            25,481

                            

                            2.08

                            

                            

                            33,522

                            

                            2.77Installment - individuals

                            

                            

                            18,214

                            

                            1.48

                            

                            

                            9,979

                            

                            0.82Loans to depository institutions

                            

                            

                            20,000

                            

                            1.63

                            

                            

                            27,000

                            

                            2.23Loans, net of unearned discounts

                            

                            $

                            1,227,112

                            

                            100.00

                            %

                            $

                            1,211,094

                            

                            100.00

                            %

                Asset Quality

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

                26

                

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

                Three Months Ended
                                September 30,

                            

                            Nine Months Ended
                                September 30,2008

                            

                            2007

                            

                            2008

                            

                            2007($ in thousands)Average loans held in portfolio, net of unearned discounts, during period

                            

                            $

                            1,175,540

                            

                            $

                            1,081,629

                            

                            $

                            1,126,365

                            

                            $

                            1,049,625Allowance for loan losses:Balance at beginning of period

                            

                            $

                            15,480

                            

                            $

                            15,582

                            

                            $

                            15,085

                            

                            $

                            16,288Charge-offs:Commercial and industrial

                            

                            

                            867

                            

                            

                            1,304

                            

                            

                            1,963

                            

                            

                            1,994Lease financing

                            

                            

                            800

                            

                            

                            802

                            

                            

                            2,959

                            

                            

                            2,559Factored receivables

                            

                            

                            54

                            

                            

                            27

                            

                            

                            249

                            

                            

                            204Real estate - residential mortgage

                            

                            

                            —

                            

                            

                            115

                            

                            

                            15

                            

                            

                            215Installment

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            67Total charge-offs

                            

                            

                            1,721

                            

                            

                            2,248

                            

                            

                            5,186

                            

                            

                            5,039Recoveries:Commercial and industrial

                            

                            

                            183

                            

                            

                            8

                            

                            

                            294

                            

                            

                            37Lease financing

                            

                            

                            110

                            

                            

                            76

                            

                            

                            271

                            

                            

                            260Factored receivables

                            

                            

                            6

                            

                            

                            3

                            

                            

                            21

                            

                            

                            17Real estate - residential mortgage

                            

                            

                            61

                            

                            

                            30

                            

                            

                            61

                            

                            

                            30Installment

                            

                            

                            —

                            

                            

                            6

                            

                            

                            69

                            

                            

                            89Total recoveries

                            

                            

                            360

                            

                            

                            123

                            

                            

                            716

                            

                            

                            433Subtract:Net charge-offs

                            

                            

                            1,361

                            

                            

                            2,125

                            

                            

                            4,470

                            

                            

                            4,606Provision for loan losses

                            

                            

                            1,950

                            

                            

                            2,125

                            

                            

                            6,100

                            

                            

                            4,453Less losses on transfers to other real estate owned

                            

                            

                            336

                            

                            

                            543

                            

                            

                            982

                            

                            

                            1,096Balance at end of period

                            

                            $

                            15,733

                            

                            $

                            15,039

                            

                            $

                            15,733

                            

                            $

                            15,039Ratio of annualized net charge-offs to average loans held in portfolio, net of unearned discounts

                            

                            

                            0.46

                            %

                            

                            0.79

                            %

                            

                            0.53

                            %

                            

                            0.59

                            %

                27

                

                
                Management views the allowance for loan losses as a critical accounting policy due to its subjectivity. The allowance for loan losses is maintained through the provision for loan losses, which is a charge to operating earnings. The adequacy of the provision and the resulting allowance for loan losses is determined by a management evaluation process of the loan portfolio, including identification and review of
                individual problem situations that may affect the borrower’s ability to repay, review of overall portfolio quality through an analysis of current charge-offs, delinquency and nonperforming loan data, estimates of the value of any underlying collateral, an assessment of current and expected economic conditions and changes in the size and character of the loan portfolio. Other data utilized by management in determining the adequacy of the allowance for loan losses include,
                but are not limited to, the results of regulatory reviews, the amount of, trend of and/or borrower characteristics on loans that are identified as requiring special attention as part of the credit review process, and peer group comparisons. The impact of this other data might result in an allowance greater than that indicated by the evaluation process previously described. The allowance reflects management’s evaluation both of loans presenting identified loss potential and
                of the risk inherent in various components of the loan portfolio, including loans identified as impaired as required by SFAS No. 114. Thus, an increase in the size of the portfolio or in any of its components could necessitate an increase in the allowance even though there may not be a decline in credit quality or an increase in potential problem loans. A significant change in any of the evaluation factors described above could result in future additions to the allowance.
                At September 30, 2008, the ratio of the allowance to loans held in portfolio, net of unearned discounts, was 1.30% and the allowance was $15.7 million. At such date, the Company’s nonaccrual loans amounted to $6.8 million; $0.3 million of such loans were judged to be impaired within the scope of SFAS No. 114. At September 30, 2008 loans 90 days past due and still accruing and restructured loans amounted to $1.0 million and $0.1 million, respectively. Based on the
                foregoing, as well as management’s judgment as to the current risks inherent in loans held in portfolio, the Company’s allowance for loan losses was deemed adequate to absorb all probable losses on specifically known and other credit risks associated with the portfolio as of September 30, 2008. Net losses within loans held in portfolio are not statistically predictable and changes in conditions in the next twelve months could result in future provisions for loan
                losses varying from the provision recognized in the first nine months of 2008. Potential problem loans, which are loans that are currently performing under present loan repayment terms but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of the borrowers to continue to comply with the present repayment terms, aggregated $2.3 million at September 30, 2008.

                28

                

                
                Deposits

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

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

                September 30,2008

                            

                            2007($ in thousands)Balances

                            

                            % of
                                Total

                            

                            Balances

                            

                            % of
                                TotalDomesticDemand

                            

                            $

                            480,243

                            

                            

                            33.27

                            %

                            $

                            490,195

                            

                            

                            31.29

                            %NOW

                            

                            

                            248,557

                            

                            

                            17.22

                            

                            

                            233,616

                            

                            

                            14.91Savings

                            

                            

                            17,597

                            

                            

                            1.22

                            

                            

                            19,150

                            

                            

                            1.22Money market

                            

                            

                            333,583

                            

                            

                            23.11

                            

                            

                            289,700

                            

                            

                            18.49Time deposits

                            

                            

                            362,776

                            

                            

                            25.14

                            

                            

                            533,601

                            

                            

                            34.05Total domestic deposits

                            

                            

                            1,442,756

                            

                            

                            99.96

                            

                            

                            1,566,262

                            

                            

                            99.96ForeignTime deposits

                            

                            

                            577

                            

                            

                            0.04

                            

                            

                            575

                            

                            

                            0.04Total deposits

                            

                            $

                            1,443,333

                            

                            

                            100.00

                            %

                            $

                            1,566,837

                            

                            

                            100.00

                            %

                Fluctuations of balances in total or among categories at any date may occur based on the Company’s mix of assets and liabilities as well as on customers’ balance sheet strategies. Historically, however, average balances for deposits have been relatively stable. Information regarding these average balances is presented on pages 31 and 32.

                CAPITAL

                The Company and the bank are subject to risk-based capital regulations which quantitatively measure capital against risk-weighted assets, including certain off-balance sheet items. These regulations define the elements of the Tier 1 and Tier 2 components of Total Capital and establish minimum ratios of 4% for Tier 1 capital and 8% for Total Capital for capital adequacy purposes. Supplementing these
                regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at least 3% or 4%, depending upon an institution’s regulatory status) which is calculated by dividing Tier 1 capital by adjusted quarterly average assets (after deducting goodwill). In addition, the bank is subject to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) which imposes a number of mandatory supervisory measures. Among other
                matters, FDICIA established five capital categories, ranging from “well capitalized” to “critically under capitalized”, which are used by regulatory agencies to determine a bank’s deposit insurance premium, approval of applications authorizing institutions to increase their asset size or otherwise expand business activities or acquire other institutions. Under FDICIA, a “well capitalized” bank must maintain minimum leverage, Tier 1 and
                Total Capital ratios of 5%, 6% and 10%, respectively. The Federal Reserve Board applies comparable tests for holding companies such as the Company. At September 30, 2008, the Company and the bank exceeded the requirements for “well capitalized” institutions. Information regarding the Company’s and the bank’s risk-based capital is presented on page 35.

                29

                

                
                RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

                CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

                30

                

                
                STERLING BANCORP AND SUBSIDIARIESAverage Balance Sheets [1]Three Months Ended September 30,(Unaudited)(dollars in thousands)

                

                2008

                            

                            2007Average
                                Balance

                            

                            Interest

                            

                            Average
                                Rate

                            

                            Average
                                Balance

                            

                            Interest

                            

                            Average
                                RateASSETSInterest-bearing deposits with other banks

                            

                            $

                            2,920

                            

                            $

                            11

                            

                            

                            1.51

                            %

                            $

                            2,486

                            

                            $

                            24

                            

                            

                            3.80

                            %Securities available for sale

                            

                            

                            422,919

                            

                            

                            5,564

                            

                            

                            5.26

                            

                            

                            154,518

                            

                            

                            1,932

                            

                            

                            5.00Securities held to maturity

                            

                            

                            323,145

                            

                            

                            3,795

                            

                            

                            4.70

                            

                            

                            401,664

                            

                            

                            4,731

                            

                            

                            4.71Securities tax-exempt [2]

                            

                            

                            23,191

                            

                            

                            353

                            

                            

                            6.09

                            

                            

                            19,127

                            

                            

                            298

                            

                            

                            6.18Total investment securities

                            

                            

                            769,255

                            

                            

                            9,712

                            

                            

                            5.05

                            

                            

                            575,309

                            

                            

                            6,961

                            

                            

                            4.84Federal funds sold

                            

                            

                            1,413

                            

                            

                            7

                            

                            

                            1.81

                            

                            

                            17,228

                            

                            

                            227

                            

                            

                            5.17Loans, net of unearned discounts [3]

                            

                            

                            1,193,766

                            

                            

                            20,387

                            

                            

                            6.99

                            

                            

                            1,133,034

                            

                            

                            24,142

                            

                            

                            8.68TOTAL INTEREST-EARNING ASSETS

                            

                            

                            1,967,354

                            

                            

                            30,117

                            

                            

                            6.19

                            %

                            

                            1,728,057

                            

                            

                            31,354

                            

                            

                            7.31

                            %Cash and due from banks

                            

                            

                            50,264

                            

                            

                            

                            

                            

                            

                            

                            

                            72,253Allowance for loan losses

                            

                            

                            (16,367

                            )

                            

                            

                            

                            

                            

                            

                            

                            (16,146

                            )Goodwill

                            

                            

                            22,901

                            

                            

                            

                            

                            

                            

                            

                            

                            22,901Other assets

                            

                            

                            105,164

                            

                            

                            

                            

                            

                            

                            

                            

                            94,296Total assets-continuing operations

                            

                            

                            2,129,316

                            

                            

                            

                            

                            

                            

                            

                            

                            1,901,361Assets-discontinued operations

                            

                            

                            —

                            

                            

                            

                            

                            

                            

                            

                            

                            1,203TOTAL ASSETS

                            

                            $

                            2,129,316

                            

                            

                            

                            

                            

                            

                            

                            $

                            1,902,564LIABILITIES AND SHAREHOLDERS’ EQUITYInterest-bearing depositsDomesticSavings

                            

                            $

                            17,527

                            

                            

                            14

                            

                            

                            0.33

                            %

                            $

                            18,705

                            

                            

                            26

                            

                            

                            0.55

                            %NOW

                            

                            

                            251,271

                            

                            

                            633

                            

                            

                            1.00

                            

                            

                            241,789

                            

                            

                            1,519

                            

                            

                            2.49Money market

                            

                            

                            307,879

                            

                            

                            1,364

                            

                            

                            1.76

                            

                            

                            282,436

                            

                            

                            2,284

                            

                            

                            3.21Time

                            

                            

                            399,417

                            

                            

                            3,060

                            

                            

                            3.05

                            

                            

                            549,832

                            

                            

                            6,456

                            

                            

                            4.66ForeignTime

                            

                            

                            577

                            

                            

                            2

                            

                            

                            1.09

                            

                            

                            575

                            

                            

                            2

                            

                            

                            1.09Total interest-bearing deposits

                            

                            

                            976,671

                            

                            

                            5,073

                            

                            

                            2.07

                            

                            

                            1,093,337

                            

                            

                            10,287

                            

                            

                            3.73BorrowingsSecurities sold under agreements to repurchase - customers

                            

                            

                            89,900

                            

                            

                            419

                            

                            

                            1.85

                            

                            

                            68,396

                            

                            

                            701

                            

                            

                            4.07Securities sold under agreements to repurchase - dealers

                            

                            

                            62,977

                            

                            

                            382

                            

                            

                            2.41

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —Federal funds purchased

                            

                            

                            37,717

                            

                            

                            197

                            

                            

                            2.04

                            

                            

                            6,006

                            

                            

                            71

                            

                            

                            4.66Commercial paper

                            

                            

                            18,331

                            

                            

                            100

                            

                            

                            2.15

                            

                            

                            28,397

                            

                            

                            368

                            

                            

                            5.14Short-term borrowings - FHLB

                            

                            

                            90,295

                            

                            

                            469

                            

                            

                            2.07

                            

                            

                            4,185

                            

                            

                            53

                            

                            

                            5.03Short-term borrowings - other

                            

                            

                            1,488

                            

                            

                            10

                            

                            

                            3.99

                            

                            

                            1,553

                            

                            

                            21

                            

                            

                            5.10Long-term borrowings - FHLB

                            

                            

                            155,870

                            

                            

                            1,107

                            

                            

                            2.84

                            

                            

                            10,000

                            

                            

                            118

                            

                            

                            4.70Long-term borrowings - sub debt

                            

                            

                            25,774

                            

                            

                            523

                            

                            

                            8.37

                            

                            

                            25,774

                            

                            

                            523

                            

                            

                            8.37Total borrowings

                            

                            

                            482,352

                            

                            

                            3,207

                            

                            

                            2.65

                            

                            

                            144,311

                            

                            

                            1,855

                            

                            

                            5.14TOTAL INTEREST-BEARING LIABILITIES

                            

                            

                            1,459,023

                            

                            

                            8,280

                            

                            

                            2.26

                            %

                            

                            1,237,648

                            

                            

                            12,142

                            

                            

                            3.90

                            %Noninterest-bearing deposits

                            

                            

                            453,098

                            

                            

                            

                            

                            

                            

                            

                            

                            455,093Other liabilities

                            

                            

                            101,593

                            

                            

                            

                            

                            

                            

                            

                            

                            91,267Liabilities-discontinued operations

                            

                            

                            —

                            

                            

                            

                            

                            

                            

                            

                            

                            129Total liabilities

                            

                            

                            2,013,714

                            

                            

                            

                            

                            

                            

                            

                            

                            1,784,137Shareholders’ equity

                            

                            

                            115,602

                            

                            

                            

                            

                            

                            

                            

                            

                            118,427TOTAL LIABILITIES AND
                                SHAREHOLDERS’ EQUITY

                            

                            $

                            2,129,316

                            

                            

                            

                            

                            

                            

                            

                            $

                            1,902,564Net interest income/spread

                            

                            

                            

                            

                            

                            21,837

                            

                            

                            3.93

                            %

                            

                            

                            

                            

                            19,212

                            

                            

                            3.41

                            %Net yield on interest-earning assets (margin)

                            

                            

                            

                            

                            

                            

                            

                            

                            4.46

                            %

                            

                            

                            

                            

                            

                            

                            

                            4.41

                            %Less: Tax equivalent adjustment

                            

                            

                            

                            

                            

                            137

                            

                            

                            

                            

                            

                            

                            

                            

                            117Net interest income

                            

                            

                            

                            

                            $

                            21,700

                            

                            

                            

                            

                            

                            

                            

                            $

                            19,095

                

                [1]

                            The average balances of assets, liabilities and shareholders’ equity are computed on the basis of daily averages. Average rates are presented on a tax-equivalent basis. Certain reclassifications have been made to amounts for prior periods to conform to the current presentation.[2]

                            Interest on tax-exempt securities is presented on a tax-equivalent basis.[3]

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

                31

                

                
                STERLING BANCORP AND SUBSIDIARIESAverage Balance Sheets [1]Nine Months Ended September 30,(Unaudited)(dollars in thousands)

                

                2008

                            

                            2007Average
                                Balance

                            

                            Interest

                            

                            Average
                                Rate

                            

                            Average
                                Balance

                            

                            Interest

                            

                            Average
                                RateASSETSInterest-bearing deposits with other banks

                            

                            $

                            2,952

                            

                            $

                            30

                            

                            

                            1.34

                            %

                            $

                            2,732

                            

                            $

                            91

                            

                            

                            4.46

                            %Securities available for sale

                            

                            

                            395,220

                            

                            

                            15,560

                            

                            

                            5.25

                            

                            

                            138,994

                            

                            

                            5,080

                            

                            

                            4.87Securities held to maturity

                            

                            

                            340,313

                            

                            

                            12,054

                            

                            

                            4.72

                            

                            

                            410,729

                            

                            

                            14,299

                            

                            

                            4.64Securities tax-exempt [2]

                            

                            

                            21,507

                            

                            

                            987

                            

                            

                            6.12

                            

                            

                            20,150

                            

                            

                            951

                            

                            

                            6.31Total investment securities

                            

                            

                            757,040

                            

                            

                            28,601

                            

                            

                            5.04

                            

                            

                            569,873

                            

                            

                            20,330

                            

                            

                            4.76Federal funds sold

                            

                            

                            593

                            

                            

                            8

                            

                            

                            1.81

                            

                            

                            30,861

                            

                            

                            1,230

                            

                            

                            5.26Loans, net of unearned discounts [3]

                            

                            

                            1,150,612

                            

                            

                            61,208

                            

                            

                            7.46

                            

                            

                            1,097,307

                            

                            

                            68,993

                            

                            

                            8.83TOTAL INTEREST-EARNING ASSETS

                            

                            

                            1,911,197

                            

                            

                            89,847

                            

                            

                            6.45

                            %

                            

                            1,700,773

                            

                            

                            90,644

                            

                            

                            7.34

                            %Cash and due from banks

                            

                            

                            55,133

                            

                            

                            

                            

                            

                            

                            

                            

                            67,770Allowance for loan losses

                            

                            

                            (15,963

                            )

                            

                            

                            

                            

                            

                            

                            

                            (16,445

                            )Goodwill

                            

                            

                            22,901

                            

                            

                            

                            

                            

                            

                            

                            

                            22,879Other assets

                            

                            

                            104,436

                            

                            

                            

                            

                            

                            

                            

                            

                            90,950Total assets-continuing operations

                            

                            

                            2,077,704

                            

                            

                            

                            

                            

                            

                            

                            

                            1,865,927Assets-discontinued operations

                            

                            

                            —

                            

                            

                            

                            

                            

                            

                            

                            

                            1,211TOTAL ASSETS

                            

                            $

                            2,077,704

                            

                            

                            

                            

                            

                            

                            

                            $

                            1,867,138LIABILITIES AND SHAREHOLDERS’ EQUITYInterest-bearing depositsDomesticSavings

                            

                            $

                            18,633

                            

                            

                            48

                            

                            

                            0.34

                            %

                            $

                            20,244

                            

                            

                            78

                            

                            

                            0.51

                            %NOW

                            

                            

                            248,112

                            

                            

                            2,001

                            

                            

                            1.08

                            

                            

                            236,569

                            

                            

                            4,489

                            

                            

                            2.54Money market

                            

                            

                            237,763

                            

                            

                            2,661

                            

                            

                            1.50

                            

                            

                            237,154

                            

                            

                            5,401

                            

                            

                            3.05Time

                            

                            

                            485,709

                            

                            

                            12,429

                            

                            

                            3.42

                            

                            

                            559,224

                            

                            

                            19,582

                            

                            

                            4.68ForeignTime

                            

                            

                            576

                            

                            

                            5

                            

                            

                            1.09

                            

                            

                            574

                            

                            

                            5

                            

                            

                            1.09Total interest-bearing deposits

                            

                            

                            990,793

                            

                            

                            17,144

                            

                            

                            2.31

                            

                            

                            1,053,765

                            

                            

                            29,555

                            

                            

                            3.75BorrowingsSecurities sold under agreements to repurchase - customers

                            

                            

                            87,192

                            

                            

                            1,507

                            

                            

                            2.31

                            

                            

                            79,747

                            

                            

                            2,581

                            

                            

                            4.33Securities sold under agreements to repurchase - dealers

                            

                            

                            55,205

                            

                            

                            1,115

                            

                            

                            2.70

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —Federal funds purchased

                            

                            

                            41,976

                            

                            

                            776

                            

                            

                            2.43

                            

                            

                            2,922

                            

                            

                            107

                            

                            

                            4.84Commercial paper

                            

                            

                            19,672

                            

                            

                            412

                            

                            

                            2.79

                            

                            

                            28,070

                            

                            

                            1,073

                            

                            

                            5.11Short-term borrowings - FHLB

                            

                            

                            56,763

                            

                            

                            995

                            

                            

                            2.34

                            

                            

                            1,410

                            

                            

                            53

                            

                            

                            5.03Short-term borrowings - other

                            

                            

                            1,686

                            

                            

                            30

                            

                            

                            4.08

                            

                            

                            1,213

                            

                            

                            48

                            

                            

                            5.24Long-term borrowings - FHLB

                            

                            

                            133,577

                            

                            

                            2,906

                            

                            

                            2.90

                            

                            

                            13,846

                            

                            

                            479

                            

                            

                            4.61Long-term borrowings - sub debt

                            

                            

                            25,774

                            

                            

                            1,570

                            

                            

                            8.37

                            

                            

                            25,774

                            

                            

                            1,570

                            

                            

                            8.38Total borrowings

                            

                            

                            421,845

                            

                            

                            9,311

                            

                            

                            2.95

                            

                            

                            152,982

                            

                            

                            5,911

                            

                            

                            5.19TOTAL INTEREST-BEARING LIABILITIES

                            

                            

                            1,412,638

                            

                            

                            26,455

                            

                            

                            2.50

                            %

                            

                            1,206,747

                            

                            

                            35,466

                            

                            

                            3.93

                            %Noninterest-bearing deposits

                            

                            

                            446,256

                            

                            

                            

                            

                            

                            

                            

                            

                            444,828Other liabilities

                            

                            

                            99,947

                            

                            

                            

                            

                            

                            

                            

                            

                            89,694Liabilities-discontinued operations

                            

                            

                            —

                            

                            

                            

                            

                            

                            

                            

                            

                            238Total liabilities

                            

                            

                            1,958,841

                            

                            

                            

                            

                            

                            

                            

                            

                            1,741,507Shareholders’ equity

                            

                            

                            118,863

                            

                            

                            

                            

                            

                            

                            

                            

                            125,631TOTAL LIABILITIES AND
                                SHAREHOLDERS’ EQUITY

                            

                            $

                            2,077,704

                            

                            

                            

                            

                            

                            

                            

                            $

                            1,867,138Net interest income/spread

                            

                            

                            

                            

                            

                            63,392

                            

                            

                            3.95

                            %

                            

                            

                            

                            

                            55,178

                            

                            

                            3.41

                            %Net yield on interest-earning assets (margin)

                            

                            

                            

                            

                            

                            

                            

                            

                            4.53

                            %

                            

                            

                            

                            

                            

                            

                            

                            4.44

                            %Less: Tax equivalent adjustment

                            

                            

                            

                            

                            

                            385

                            

                            

                            

                            

                            

                            

                            

                            

                            372Net interest income

                            

                            

                            

                            

                            $

                            63,007

                            

                            

                            

                            

                            

                            

                            

                            $

                            54,806

                

                [1]

                            The average balances of assets, liabilities and shareholders’ equity are computed on the basis of daily averages. Average rates are presented on a tax-equivalent basis. Certain reclassifications have been made to amounts for prior periods to conform to the current presentation.[2]

                            Interest on tax-exempt securities is presented on a tax-equivalent basis.[3]

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

                32

                

                
                STERLING BANCORP AND SUBSIDIARIESRate/Volume Analysis [1](Unaudited)(in thousands)

                

                Increase/(Decrease)
                                Three Months Ended
                                September 30, 2008 to September 30, 2007Volume

                            

                            Rate

                            

                            Net [2]INTEREST INCOMEInterest-bearing deposits with other banks

                            

                            $

                            3

                            

                            $

                            (16

                            )

                            $

                            (13

                            )Securities available for sale

                            

                            

                            3,527

                            

                            

                            105

                            

                            

                            3,632Securities held to maturity

                            

                            

                            (926

                            )

                            

                            (10

                            )

                            

                            (936

                            )Securities tax-exempt

                            

                            

                            59

                            

                            

                            (4

                            )

                            

                            55Total investment securities

                            

                            

                            2,660

                            

                            

                            91

                            

                            

                            2,751Federal funds sold

                            

                            

                            (129

                            )

                            

                            (91

                            )

                            

                            (220

                            )Loans, net of unearned discounts [3]

                            

                            

                            1,273

                            

                            

                            (5,028

                            )

                            

                            (3,755

                            )TOTAL INTEREST INCOME

                            

                            $

                            3,807

                            

                            $

                            (5,044

                            )

                            $

                            (1,237

                            )INTEREST EXPENSEInterest-bearing depositsDomesticSavings

                            

                            $

                            (2

                            )

                            $

                            (10

                            )

                            $

                            (12

                            )NOW

                            

                            

                            58

                            

                            

                            (944

                            )

                            

                            (886

                            )Money market

                            

                            

                            190

                            

                            

                            (1,110

                            )

                            

                            (920

                            )Time

                            

                            

                            (1,501

                            )

                            

                            (1,895

                            )

                            

                            (3,396

                            )ForeignTime

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —Total interest-bearing deposits

                            

                            

                            (1,255

                            )

                            

                            (3,959

                            )

                            

                            (5,214

                            )BorrowingsSecurities sold under agreements to repurchase - customers

                            

                            

                            177

                            

                            

                            (459

                            )

                            

                            (282

                            )Securities sold under agreements to repurchase - dealers

                            

                            

                            382

                            

                            

                            —

                            

                            

                            382Federal funds purchased

                            

                            

                            186

                            

                            

                            (60

                            )

                            

                            126Commercial paper

                            

                            

                            (101

                            )

                            

                            (167

                            )

                            

                            (268

                            )Short-term borrowings - FHLB

                            

                            

                            465

                            

                            

                            (49

                            )

                            

                            416Short-term borrowings - other

                            

                            

                            (2

                            )

                            

                            (9

                            )

                            

                            (11

                            )Long-term borrowings - FHLB

                            

                            

                            1,054

                            

                            

                            (65

                            )

                            

                            989Long-term borrowings - sub debt

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —Total borrowings

                            

                            

                            2,161

                            

                            

                            (809

                            )

                            

                            1,352TOTAL INTEREST EXPENSE

                            

                            $

                            906

                            

                            $

                            (4,768

                            )

                            $

                            (3,862

                            )NET INTEREST INCOME

                            

                            $

                            2,901

                            

                            $

                            (276

                            )

                            $

                            2,625

                

                [1]

                            This table is presented on a tax-equivalent basis.[2]

                            Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each.[3]

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

                33

                

                
                STERLING BANCORP AND SUBSIDIARIESRate/Volume Analysis [1](Unaudited)(in thousands)

                

                Increase/(Decrease)
                                Nine Months Ended
                                September 30, 2008 to September 30, 2007Volume

                            

                            Rate

                            

                            Net [2]INTEREST INCOMEInterest-bearing deposits with other banks

                            

                            $

                            7

                            

                            $

                            (68

                            )

                            $

                            (61

                            )Securities available for sale

                            

                            

                            10,056

                            

                            

                            424

                            

                            

                            10,480Securities held to maturity

                            

                            

                            (2,484

                            )

                            

                            239

                            

                            

                            (2,245

                            )Securities tax-exempt

                            

                            

                            40

                            

                            

                            (4

                            )

                            

                            36Total investment securities

                            

                            

                            7,612

                            

                            

                            659

                            

                            

                            8,271Federal funds sold

                            

                            

                            (730

                            )

                            

                            (492

                            )

                            

                            (1,222

                            )Loans, net of unearned discounts [3]

                            

                            

                            3,714

                            

                            

                            (11,499

                            )

                            

                            (7,785

                            )TOTAL INTEREST INCOME

                            

                            $

                            10,603

                            

                            $

                            (11,400

                            )

                            $

                            (797

                            )INTEREST EXPENSEInterest-bearing depositsDomesticSavings

                            

                            $

                            (6

                            )

                            $

                            (24

                            )

                            $

                            (30

                            )NOW

                            

                            

                            225

                            

                            

                            (2,713

                            )

                            

                            (2,488

                            )Money market

                            

                            

                            34

                            

                            

                            (2,774

                            )

                            

                            (2,740

                            )Time

                            

                            

                            (2,295

                            )

                            

                            (4,858

                            )

                            

                            (7,153

                            )ForeignTime

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —Total interest-bearing deposits

                            

                            

                            (2,042

                            )

                            

                            (10,369

                            )

                            

                            (12,411

                            )BorrowingsSecurities sold under agreements to repurchase - customers

                            

                            

                            231

                            

                            

                            (1,305

                            )

                            

                            (1,074

                            )Securities sold under agreements to repurchase - dealers

                            

                            

                            1,115

                            

                            

                            —

                            

                            

                            1,115Federal funds purchased

                            

                            

                            747

                            

                            

                            (78

                            )

                            

                            669Commercial paper

                            

                            

                            (260

                            )

                            

                            (401

                            )

                            

                            (661

                            )Short-term borrowings - FHLB

                            

                            

                            985

                            

                            

                            (43

                            )

                            

                            942Short-term borrowings - other

                            

                            

                            3

                            

                            

                            (21

                            )

                            

                            (18

                            )Long-term borrowings - FHLB

                            

                            

                            2,668

                            

                            

                            (241

                            )

                            

                            2,427Long-term borrowings - sub debt

                            

                            

                            3

                            

                            

                            (3

                            )

                            

                            —Total borrowings

                            

                            

                            5,492

                            

                            

                            (2,092

                            )

                            

                            3,400TOTAL INTEREST EXPENSE

                            

                            $

                            3,450

                            

                            $

                            (12,461

                            )

                            $

                            (9,011

                            )NET INTEREST INCOME

                            

                            $

                            7,153

                            

                            $

                            1,061

                            

                            $

                            8,214

                

                [1]

                            This table is presented on a tax-equivalent basis.[2]

                            Changes in interest income and interest expense due to a combination of both volume and rate have been allocated to the change due to volume and the change due to rate in proportion to the relationship of the change due solely to each. The effect of the extra day in 2008 has been included in the change in volume.[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.

                34

                

                
                STERLING BANCORP AND SUBSIDIARIESRegulatory Capital and Ratios

                

                Ratios and Minimums(dollars in thousands)

                

                Actual

                            

                            For Capital
                                Adequacy Minimum

                            

                            To Be Well
                                CapitalizedAmount

                            

                            Ratio

                            

                            Amount

                            

                            Ratio

                            

                            Amount

                            

                            RatioAs of September 30, 2008Total Capital (to Risk-Weighted Assets):The Company

                            

                            $

                            151,047

                            

                            10.62

                            %

                            

                            $

                            113,751

                            

                            8.00

                            %

                            

                            $

                            142,188

                            

                            10.00

                            %The bank

                            

                            

                            149,397

                            

                            10.48

                            

                            

                            

                            114,042

                            

                            8.00

                            

                            

                            

                            142,553

                            

                            10.00Tier 1 Capital (to Risk-Weighted Assets):The Company

                            

                            

                            135,134

                            

                            9.50

                            

                            

                            

                            56,875

                            

                            4.00

                            

                            

                            

                            85,313

                            

                            6.00The bank

                            

                            

                            133,484

                            

                            9.36

                            

                            

                            

                            57,021

                            

                            4.00

                            

                            

                            

                            85,532

                            

                            6.00Tier 1 Leverage Capital (to Average Assets):The Company

                            

                            

                            135,134

                            

                            6.42

                            

                            

                            

                            84,257

                            

                            4.00

                            

                            

                            

                            105,321

                            

                            5.00The bank

                            

                            

                            133,484

                            

                            6.36

                            

                            

                            

                            83,966

                            

                            4.00

                            

                            

                            

                            104,958

                            

                            5.00As of December 31, 2007Total Capital (to Risk-Weighted Assets):The Company

                            

                            $

                            149,014

                            

                            10.87

                            %

                            

                            $

                            109,706

                            

                            8.00

                            %

                            

                            $

                            137,133

                            

                            10.00

                            %The bank

                            

                            

                            147,442

                            

                            10.77

                            

                            

                            

                            109,507

                            

                            8.00

                            

                            

                            

                            136,884

                            

                            10.00Tier 1 Capital (to Risk-Weighted Assets):The Company

                            

                            

                            133,785

                            

                            9.76

                            

                            

                            

                            54,853

                            

                            4.00

                            

                            

                            

                            82,280

                            

                            6.00The bank

                            

                            

                            132,213

                            

                            9.66

                            

                            

                            

                            54,753

                            

                            4.00

                            

                            

                            

                            82,130

                            

                            6.00Tier 1 Leverage Capital (to Average Assets):The Company

                            

                            

                            133,785

                            

                            6.88

                            

                            

                            

                            77,835

                            

                            4.00

                            

                            

                            

                            97,294

                            

                            5.00The bank

                            

                            

                            132,213

                            

                            6.79

                            

                            

                            

                            77,943

                            

                            4.00

                            

                            

                            

                            97,429

                            

                            5.00

                35

                

                
                ITEM 3.

                            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                ASSET/LIABILITY MANAGEMENT

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

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

                Market Risk

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

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

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

                36

                

                
                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 September 30, 2008, presented on page 41, indicates that net interest income would increase during periods of rising interest rates and decrease during periods of falling interest rates, but, as mentioned
                above, gap analysis may not be an accurate predictor of net interest income.

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

                As of September 30, 2008, the Company was not a party to any derivative contracts to hedge its interest rate risk. On September 14, 2008 an interest rate floor agreement with a notional amount of $50,000,000 matured.

                The interest rate floor agreement was not designated as hedge for accounting purposes and therefore changes in the fair value of this instrument were recognized as income or expenses in the Company’s financial statements. For the three months ended September 30, 2008 and 2007, $54,163 and $5,757 were credited to “Other income”, respectively. For the nine months ended September 30, 2008 and
                2007, $97,378 and $3,256 were credited to “Other income”, respectively.

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

                37

                

                
                The Company’s interest rate sensitivity is determined by identifying the probable impact of changes in market interest rates on the yields on the Company’s assets and the rates that would be paid on its liabilities. This modeling technique involves a degree of estimation based on certain assumptions that management believes to be reasonable. Utilizing this process, management projects the impact
                of changes in interest rates on net interest margin. The Company has established certain policy limits for the potential volatility of its net interest margin assuming certain levels of changes in market interest rates with the objective of maintaining a stable net interest margin under various probable rate scenarios. Management generally has maintained a risk position well within the policy limits. As of September 30, 2008, the model indicated the impact of a 200 basis point
                parallel and pro rata rise in rates over 12 months would approximate a 1.0% ($0.9 million) increase in net interest income, while the impact of a 200 basis point decline in rates over the same period would approximate a 3.3% ($3.0 million) decline from an unchanged rate environment.

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

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

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

                38

                

                
                Liquidity Risk

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

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

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

                At September 30, 2008, the parent company’s short-term debt, consisting principally of commercial paper used to finance ongoing current business activities, was approximately $12.9 million. The parent company had cash, interest-bearing deposits with banks and other current assets aggregating $16.3 million. The parent company also has back-up credit lines with banks of $24.0 million. Since 1979, the
                parent company has had no need to use the available back-up lines of credit.

                39

                

                
                The following table sets forth information regarding the Company’s obligations and commitments to make future payments under contract as of September 30, 2008:

                Payments Due by PeriodContractual
                                Obligations

                            

                            Total

                            

                            Less than
                                1 Year

                            

                            1-3
                                Years

                            

                            4-5
                                Years

                            

                            After 5
                                Years(in thousands)Long-Term Debt

                            $

                            175,774

                            $

                            —

                            $

                            70,000

                            $

                            60,000

                            $

                            45,774Operating Leases

                            

                            20,119

                            

                            3,971

                            

                            5,672

                            

                            4,401

                            

                            6,075Total Contractual Cash Obligations

                            $

                            195,893

                            $

                            3,971

                            $

                            75,672

                            $

                            64,401

                            $

                            51,849

                

                

                The following table sets forth information regarding the Company’s obligations under other commercial commitments as of September 30, 2008:

                Amount of Commitment Expiration Per PeriodOther Commercial
                                Commitments

                            

                            Total Amount
                                Committed

                            

                            Less than
                                   1 Year

                            

                            1-3
                                Years

                            

                            4-5
                                Years

                            

                            After 5
                                    Years(in thousands)Residential Loans

                            $

                            5,010

                            $

                            5,010

                            $

                            —

                            $

                            —

                            $

                            —Commercial Loans

                            

                            29,632

                            

                            24,672

                            

                            4,960

                            

                            —

                            

                            —Total Loans

                            

                            34,642

                            

                            29,682

                            

                            4,960

                            

                            —

                            

                            —Standby Letters of Credit

                            

                            40,266

                            

                            36,692

                            

                            3,574

                            

                            —

                            

                            —Other Commercial Commitments

                            

                            18,306

                            

                            17,470

                            

                            —

                            

                            —

                            

                            836Total Commercial Commitments

                            $

                            93,214

                            $

                            83,844

                            $

                            8,534

                            $

                            —

                            $

                            836

                40

                

                
                STERLING BANCORP AND SUBSIDIARIESInterest Rate Sensitivity

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

                Repricing Date3 Months
                                or Less

                            

                            More than
                                3 Months
                                to 1 Year

                            

                            More than
                                1 Year to
                                5 Years

                            

                            Over
                                5 Years

                            

                            Nonrate
                                Sensitive

                            

                            TotalASSETSInterest-bearing deposits with other banks

                            

                            $

                            3,774

                            

                            $

                            —

                            

                            $

                            —

                            

                            $

                            —

                            

                            $

                            —

                            

                            $

                            3,774Investment securities

                            

                            

                            63,001

                            

                            

                            346

                            

                            

                            81,118

                            

                            

                            547,955

                            

                            

                            14,990

                            

                            

                            734,410Commercial and industrial loans

                            

                            

                            395,215

                            

                            

                            28,834

                            

                            

                            98,916

                            

                            

                            12,310

                            

                            

                            (2,131

                            )

                            

                            553,144Equipment lease financing

                            

                            

                            1,300

                            

                            

                            8,784

                            

                            

                            270,616

                            

                            

                            10,801

                            

                            

                            (35,439

                            )

                            

                            256,062Factored receivables

                            

                            

                            117,399

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            (429

                            )

                            

                            116,970Real estate-residential mortgage

                            

                            

                            36,697

                            

                            

                            24,707

                            

                            

                            45,694

                            

                            

                            53,867

                            

                            

                            —

                            

                            

                            160,965Real estate-commercial mortgage

                            

                            

                            19,639

                            

                            

                            17,400

                            

                            

                            27,070

                            

                            

                            32,166

                            

                            

                            —

                            

                            

                            96,275Real estate-construction and land development

                            

                            

                            —

                            

                            

                            —

                            

                            

                            25,481

                            

                            

                            —

                            

                            

                            —

                            

                            

                            25,481Installment-individuals

                            

                            

                            18,214

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            18,214Loans to depository institutions

                            

                            

                            20,000

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            20,000Noninterest-earning assets & allowance for loan losses

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            151,794

                            

                            

                            151,794Total Assets

                            

                            

                            675,239

                            

                            

                            80,071

                            

                            

                            548,895

                            

                            

                            684,099

                            

                            

                            128,785

                            

                            

                            2,117,089LIABILITIES AND SHAREHOLDERS’ EQUITYInterest-bearing depositsSavings [1]

                            

                            

                            —

                            

                            

                            —

                            

                            

                            17,596

                            

                            

                            —

                            

                            

                            —

                            

                            

                            17,596NOW [1]

                            

                            

                            —

                            

                            

                            —

                            

                            

                            248,558

                            

                            

                            —

                            

                            

                            —

                            

                            

                            248,558Money market [1]

                            

                            

                            273,538

                            

                            

                            —

                            

                            

                            60,045

                            

                            

                            —

                            

                            

                            —

                            

                            

                            333,583Time - domestic

                            

                            

                            179,022

                            

                            

                            137,157

                            

                            

                            46,587

                            

                            

                            10

                            

                            

                            —

                            

                            

                            362,776- foreign

                            

                            

                            182

                            

                            

                            395

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            577Securities sold under agreement to repurchase - customer

                            

                            

                            55,022

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            55,022Securities sold under agreement to repurchase - dealer

                            

                            

                            19,515

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            19,515Federal funds purchased

                            

                            

                            55,000

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            55,000Commercial paper

                            

                            

                            12,944

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            12,944Short-term borrowings - FHLB

                            

                            

                            120,000

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            120,000Short-term borrowings - other

                            

                            

                            17,031

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            17,031Long-term borrowings - FHLB

                            

                            

                            —

                            

                            

                            —

                            

                            

                            130,000

                            

                            

                            20,000

                            

                            

                            —

                            

                            

                            150,000Long-term borrowings - subordinated debentures

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            25,774

                            

                            

                            —

                            

                            

                            25,774Noninterest-bearing liabilities & shareholders’ equity

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            —

                            

                            

                            698,713

                            

                            

                            698,713Total Liabilities and Shareholders’ Equity

                            

                            

                            732,254

                            

                            

                            137,552

                            

                            

                            502,786

                            

                            

                            45,784

                            

                            

                            698,713

                            

                            

                            2,117,089Net Interest Rate Sensitivity Gap

                            

                            $

                            (57,015

                            )

                            $

                            (57,481

                            )

                            $

                            46,109

                            

                            $

                            638,315

                            

                            $

                            (569,928

                            )

                            $

                            —Cumulative Gap September 30, 2008

                            

                            $

                            (57,015

                            )

                            $

                            (114,496

                            )

                            $

                            (68,387

                            )

                            $

                            569,928

                            

                            $

                            —

                            

                            $

                            —Cumulative Gap September 30, 2007

                            

                            $

                            (29,884

                            )

                            $

                            (194,172

                            )

                            $

                            59,622

                            

                            $

                            582,728

                            

                            $

                            —

                            

                            $

                            —Cumulative Gap December 31, 2007

                            

                            $

                            46,483

                            

                            $

                            (143,365

                            )

                            $

                            27,278

                            

                            $

                            605,524

                            

                            $

                            —

                            

                            $

                            —

                

                [1]

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

                41

                

                
                INFORMATION AVAILABLE ON OUR WEB SITE

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

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

                The contents of our website are not incorporated by reference into this quarterly report on Form 10-Q.

                ITEM 4.

                            CONTROLS AND PROCEDURES

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

                No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fiscal quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

                42

                

                
                PART II - OTHER INFORMATION

                Item 2.

                            Unregistered Sales of Equity Securities and Use of Proceeds

                Under its share repurchase program, the Company buys back common shares from time to time. The Company did not repurchase any of its common shares during the third quarter of 2008. At September 30, 2008, the maximum number of shares that may yet be purchased under the share repurchase program was 870,963.

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

                43

                

                
                Item 6.

                            Exhibits

                The following exhibits are filed as part of this report:

                3. (i)

                            

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

                            

                            By-Laws as in effect on November 15, 2007 (Filed as Exhibit 3(ii)(A) to the Registrant’s Form 8-K dated November 15,2007 and filed on November 19,2007 and incorporated herein by reference).11.

                            

                            Statement Re: Computation of Per Share Earnings.31.1

                            

                            Certification of the CEO pursuant to Exchange Act Rule 13a-14(a).31.2

                            

                            Certification of the CFO pursuant to Exchange Act Rule 13a-14(a).32.1

                            

                            Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S. Code.32.2

                            

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

                44

                

                
                SIGNATURES

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

                STERLING BANCORP(Registrant)Date: November 7, 2008

                            

                            /s/

                            

                            Louis J. CappelliLouis J. CappelliChairman andChief Executive OfficerDate: November 7, 2008

                            

                            /s/

                            

                            John W. TietjenJohn W. TietjenExecutive Vice Presidentand Chief Financial Officer

                45

                

                
                STERLING BANCORP AND SUBSIDIARIES

                EXHIBIT INDEX

                

                Exhibit
                                Number

                            

                            Description

                            Sequential
                                Page No.11

                            

                            Statement re: Computation of Per Share Earnings.

                            4731.1

                            

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

                            4831.2

                            

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

                            4932.1

                            

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

                            5032.2

                            

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

                            51

                46