|                                                                               
|-------------------------------------------------------------------------------
|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                                                           
|or                                                                                       

|                                                                                            
|--------------------------------------------------------------------------------------------
|o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
|                                                                                            
|For the transition period from_________________to __________________________________________
|                                                                                            

|Commission File Number: | 1-5273-1
|----------------------- | --------

|                                                      
|------------------------------------------------------
|**Sterling Bancorp**                                  
|(Exact name of registrant as specified in its charter)
|                                                      

|New York                                                           |  | 13-2565216                           
|------------------------------------------------------------------ |  | -------------------------------------
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
     Identification)
|                                                                   |  |                                      

|650 Fifth Avenue, New York, N.Y.         |            | 10019-6108
|---------------------------------------- | ---------- | ----------
|(Address of principal executive offices) | (Zip Code)
|                                         |            |           

|212-757-3300                                        
|----------------------------------------------------
|(Registrants telephone number, including area code)
|                                                    

|N/A                                                                               
|----------------------------------------------------------------------------------
|(Former name, former address and former fiscal year, if changed since last report)
|                                                                                  

|Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                                                                                      
|------------------------------------------------------------------------------------------------------
|As of October 31, 2006 there were 18,712,072 shares of common stock,
    $1.00 par value, outstanding.

|
|



|STERLING BANCORP
|----------------

|                            
|----------------------------
|PART I FINANCIAL INFORMATION
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|PART II OTHER INFORMATION   
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|SIGNATURES                  
|                            
|EXHIBIT INDEX               
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            

|2
|-



|STERLING BANCORP AND SUBSIDIARIESConsolidated Balance Sheets
(Unaudited)
|------------------------------------------------------------------------
|                                                                        

|ASSETS                                                                                                                                                           | September 30,
      2006 |               | December 31,
      2005 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------- | ----------------------- | -
|                                                                                                                                                                 |                          |               |                         |  
|Cash and due from banks                                                                                                                                          | $                        | 67,735,817    |                         | $
|Interest-bearing deposits with other banks                                                                                                                       |                          | 1,348,433     |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Securities available for sale (at estimated fair value;
   pledged: $106,852,607 in 2006 and $111,233,053 in 2005)                                               |                          | 155,997,067   |                         |  
|Securities held to maturity (pledged: $263,176,823 in 2006
   and $301,246,338 in 2005) (estimated fair value:
   $439,928,296 in 2006 and $504,514,084 in 2005) |                          | 450,430,433   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total investment securities                                                                                                                                      |                          | 606,427,500   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Loans held for sale                                                                                                                                              |                          | 30,047,566    |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Loans held in portfolio, net of unearned discounts                                                                                                               |                          | 1,122,197,428 |                         |  
|Less allowance for loan losses                                                                                                                                   |                          | 16,583,502    |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Loans, net                                                                                                                                                       |                          | 1,105,613,926 |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Customers liability under acceptances                                                                                                                           |                          | 1,724,916     |                         |  
|Goodwill                                                                                                                                                         |                          | 22,842,416    |                         |  
|Premises and equipment, net                                                                                                                                      |                          | 10,956,076    |                         |  
|Other real estate                                                                                                                                                |                          | 2,053,192     |                         |  
|Accrued interest receivable                                                                                                                                      |                          | 5,504,466     |                         |  
|Bank owned life insurance                                                                                                                                        |                          | 27,677,451    |                         |  
|Other assets                                                                                                                                                     |                          | 52,720,860    |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total assets from continuing operations                                                                                                                          |                          | 1,934,652,619 |                         |  
|Assets - discontinued operations                                                                                                                                 |                          | 6,562,752     |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 | $                        | 1,941,215,371 |                         | $
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                             |                          |               |                         |  
|Deposits                                                                                                                                                         |                          |               |                         |  
|Demand deposits                                                                                                                                                  | $                        | 507,367,362   |                         | $
|Savings, NOW and money market deposits                                                                                                                           |                          | 404,953,872   |                         |  
|Time deposits                                                                                                                                                    |                          | 523,121,890   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total deposits                                                                                                                                                   |                          | 1,435,443,124 |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Securities sold under agreements to repurchase  customers                                                                                                       |                          | 59,092,237    |                         |  
|Securities sold under agreements to repurchase  dealers                                                                                                         |                          | 58,385,000    |                         |  
|Federal funds purchased                                                                                                                                          |                          | 20,000,000    |                         |  
|Commercial paper                                                                                                                                                 |                          | 44,366,148    |                         |  
|Short-term borrowings  FHLB                                                                                                                                     |                          | 30,000,000    |                         |  
|Short-term borrowings  other                                                                                                                                    |                          | 1,110,069     |                         |  
|Long-term borrowings  FHLB                                                                                                                                      |                          | 20,000,000    |                         |  
|Long-term borrowings  subordinated debentures                                                                                                                   |                          | 25,774,000    |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total borrowings                                                                                                                                                 |                          | 258,727,454   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Acceptances outstanding                                                                                                                                          |                          | 1,724,916     |                         |  
|Accrued expenses and other liabilities                                                                                                                           |                          | 103,277,928   |                         |  
|Liabilities  discontinued operations                                                                                                                            |                          | 1,013,570     |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total liabilities                                                                                                                                                |                          | 1,800,186,992 |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Shareholders equity                                                                                                                                             |                          |               |                         |  
|Common stock, $1 par value. Authorized 50,000,000 shares;
    issued 21,177,084 and 21,066,916 shares, respectively                                              |                          | 21,177,084    |                         |  
|Capital surplus                                                                                                                                                  |                          | 167,938,391   |                         |  
|Retained earnings                                                                                                                                                |                          | 16,951,172    |                         |  
|Accumulated other comprehensive loss, net of tax                                                                                                                 |                          | (5,333,723    | )                       |  
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 |                          | 200,732,924   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Less                                                                                                                                                             |                          |               |                         |  
|Common shares in treasury at cost, 2,465,012
     and 2,231,442 shares, respectively                                                                             |                          | 59,704,545    |                         |  
|Unearned compensation                                                                                                                                            |                          |              |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|Total shareholders equity                                                                                                                                       |                          | 141,028,379   |                         |  
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                 | $                        | 1,941,215,371 |                         | $
|                                                                                                                                                                 |                          |               |                         |  
|                                                                                                                                                                

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|3
|-



|STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Operations
      (Unaudited)
|-----------------------------------------------------------------------------------------
|                                                                                         

|                                                                      | Three Months
      Ended
      September 30, |            | Nine Months
      Ended
      September 30, |  
|--------------------------------------------------------------------- | -------------------------------------------- | ---------- | ------------------------------------------- | -
|
|
|INTEREST
      INCOME                                                 |                                              |            |                                             |  
|Loans                                                                 | $                                            | 22,600,005 |                                             | $
|Investment
      securities
          Available for sale              |                                              | 1,900,888  |                                             |  
|Held
      to maturity                                                |                                              | 5,231,002  |                                             |  
|Federal
      funds sold                                              |                                              | 12,865     |                                             |  
|Deposits
      with other banks                                       |                                              | 22,477     |                                             |  
|                                                                      |                                              |            |                                             |  
|Total
      interest income                                           |                                              | 29,767,237 |                                             |  
|                                                                      |                                              |            |                                             |  
|INTEREST
      EXPENSE                                                |                                              |            |                                             |  
|Deposits                                                              |                                              |            |                                             |  
|Savings,
      NOW and money market                                   |                                              | 2,406,401  |                                             |  
|Time                                                                  |                                              | 5,169,986  |                                             |  
|Securities
      sold under agreements
          to repurchase        |                                              |            |                                             |  
|
      customers                                                     |                                              | 974,239    |                                             |  
|
      dealers                                                       |                                              | 1,113,744  |                                             |  
|Federal
      funds purchased                                         |                                              | 305,155    |                                             |  
|Commercial
      paper                                                |                                              | 610,623    |                                             |  
|Short-term
      borrowings  FHLB                                    |                                              | 725,385    |                                             |  
|Short-term
      borrowings  other                                   |                                              | 5,327      |                                             |  
|Long-term
      borrowings  FHLB                                     |                                              | 297,176    |                                             |  
|Long-term
      borrowings 
          subordinated debt              |                                              | 523,438    |                                             |  
|                                                                      |                                              |            |                                             |  
|Total
      interest expense                                          |                                              | 12,131,474 |                                             |  
|Interest
      expense allocated to
          discontinued operations |                                              | (855,869   | )                                           |  
|                                                                      |                                              |            |                                             |  
|Net interest
      income                                             |                                              | 18,491,632 |                                             |  
|Provision
      for loan losses                                       |                                              | 1,510,367  |                                             |  
|                                                                      |                                              |            |                                             |  
|Net interest
      income after provision
         for loan losses    |                                              | 16,981,265 |                                             |  
|                                                                      |                                              |            |                                             |  
|NONINTEREST
      INCOME                                              |                                              |            |                                             |  
|Customer
      related service charges
         and fees              |                                              | 6,339,802  |                                             |  
|Mortgage
      banking income                                         |                                              | 2,331,076  |                                             |  
|Trust
      fees                                                      |                                              | 147,641    |                                             |  
|Bank
      owned life insurance income                                |                                              | 224,511    |                                             |  
|Securities
      gains/(losses)                                       |                                              |           |                                             |  
|Other
      income                                                    |                                              | 209,553    |                                             |  
|                                                                      |                                              |            |                                             |  
|Total
      noninterest income                                        |                                              | 9,252,583  |                                             |  
|                                                                      |                                              |            |                                             |  
|NONINTEREST
      EXPENSES                                            |                                              |            |                                             |  
|Salaries                                                              |                                              | 8,699,039  |                                             |  
|Employee
      benefits                                               |                                              | 2,393,846  |                                             |  
|                                                                      |                                              |            |                                             |  
|Total
      personnel expense                                         |                                              | 11,092,885 |                                             |  
|Occupancy
      and equipment expenses, net                           |                                              | 2,549,552  |                                             |  
|Advertising
      and marketing                                       |                                              | 973,882    |                                             |  
|Professional
      fees                                               |                                              | 1,620,677  |                                             |  
|Communications                                                        |                                              | 485,987    |                                             |  
|Other
      expenses                                                  |                                              | 2,741,007  |                                             |  
|                                                                      |                                              |            |                                             |  
|Total
      noninterest expenses                                      |                                              | 19,463,990 |                                             |  
|                                                                      |                                              |            |                                             |  
|Income from
      continuing operations
        before income taxes   |                                              | 6,769,858  |                                             |  
|Provision
      for income taxes                                      |                                              | 1,766,869  |                                             |  
|                                                                      |                                              |            |                                             |  
|Income from
      continuing operations                               |                                              | 5,002,989  |                                             |  
|Income/(loss)
      from discontinued
        operations, net of tax  |                                              | 183,686    |                                             |  
|Loss on sale
      of discontinued
        operations, net of tax     |                                              | (9,604,166 | )                                           |  
|                                                                      |                                              |            |                                             |  
|Net (loss)/income                                                     | $                                            | (4,417,491 | )                                           | $
|                                                                      |                                              |            |                                             |  

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|4
|-



|STERLING BANCORP AND SUBSIDIARIES
      Consolidated Statements of Operations
      (Unaudited)
|-----------------------------------------------------------------------------------------------
|                                                                                               
|continued                                                                                      

|                                                                  |   |            |      |  
|----------------------------------------------------------------- | - | ---------- | ---- | -
|
|
|
|                                                                  |   |            |      |  
|Average number of common
      shares outstanding                 |   |            |      |  
|Basic                                                             |   | 18,712,072 |      |  
|Diluted                                                           |   | 19,230,823 |      |  
|                                                                  |   |            |      |  
|Income from continuing operations,
      per average common share |   |            |      |  
|Basic                                                             | $ | 0.27       |      | $
|Diluted                                                           |   | 0.27       |      |  
|                                                                  |   |            |      |  
|Net (loss)/income per average 
       common share                |   |            |      |  
|Basic                                                             |   | (0.23      | )    |  
|Diluted                                                           |   | (0.23      | )(1) |  
|                                                                  |   |            |      |  
|Dividends per common share                                        |   | 0.19       |      |  
|                                                                  |   |            |      |  

|                                                                                                                
|----------------------------------------------------------------------------------------------------------------
|(1) Due to a loss for the period, zero incremental shares are included because the effect would be antidilutive.

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|5
|-



|STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) / Income
      (Unaudited)
|------------------------------------------------------------------------------------------------------------
|                                                                                                            

|                                                                          | Three Months Ended
      September 30, |            | Nine Months Ended
      September 30, |  
|------------------------------------------------------------------------- | -------------------------------------- | ---------- | ------------------------------------- | -
|
|
|                                                                          |                                        |            |                                       |  
|Net (Loss)/Income                                                         | $                                      | (4,417,491 | )                                     | $
|                                                                          |                                        |            |                                       |  
|Other comprehensive (loss)/income,
  net of tax:                          |                                        |            |                                       |  
|                                                                          |                                        |            |                                       |  
|Unrealized holding (losses)/gains
    arising during the period           |                                        | 1,871,726  |                                       |  
|                                                                          |                                        |            |                                       |  
|Reclassification adjustment for
    (gains)/losses included in net income |                                        |           |                                       |  
|                                                                          |                                        |            |                                       |  
|
|Comprehensive (loss)/income                                               | $                                      | (2,545,765 | )                                     | $
|
|                                                                          |                                        |            |                                       |  
|                                                                          |                                        |            |                                       |  

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|6
|-



|STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders Equity 
      (Unaudited)
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               

|                                                                              | Nine Months Ended 
      September 30, |            
|----------------------------------------------------------------------------- | -------------------------------------- | -----------
|
|
|Common Stock                                                                  |                                        |            
|Balance at January 1                                                          | $                                      | 21,066,916 
|Common shares issued under stock incentive plan                               |                                        | 110,168    
|
|Balance at September 30                                                       | $                                      | 21,177,084 
|
|
|Capital Surplus                                                               |                                        |            
|Balance at January 1                                                          | $                                      | 166,313,566
|Common shares issued under stock incentive plan
     and related tax benefits |                                        | 1,624,825  
|
|Balance at September 30                                                       | $                                      | 167,938,391
|
|
|Retained Earnings                                                             |                                        |            
|Balance at January 1                                                          | $                                      | 20,739,352 
|Net Income                                                                    |                                        | 6,888,127  
|Cash dividends paidcommon shares                                             |                                        | (10,676,307
|
|Balance at September 30                                                       | $                                      | 16,951,172 
|
|
|Accumulated Other Comprehensive Loss                                          |                                        |            
|Balance at January 1                                                          | $                                      | (5,229,620 
|
|Unrealized holding losses
     arising during the period:                     |                                        |            
|Before tax                                                                    |                                        | (422,066   
|Tax effect                                                                    |                                        | 74,261     
|
|Net of tax                                                                    |                                        | (347,805   
|
|Reclassification adjustment for losses/(gains)
    included in net income:    |                                        |            
|Before tax                                                                    |                                        | 444,631    
|Tax effect                                                                    |                                        | (200,929   
|
|Net of tax                                                                    |                                        | 243,702    
|
|Balance at September 30                                                       | $                                      | (5,333,723 
|
|
|Treasury Stock                                                                |                                        |            
|Balance at January 1                                                          | $                                      | (55,280,647
|Purchase of common shares                                                     |                                        | (3,810,106 
|Surrender of shares issued under stock incentive plan                         |                                        | (613,792   
|
|Balance at September 30                                                       | $                                      | (59,704,545
|
|
|Unearned Compensation                                                         |                                        |            
|Balance at January 1                                                          | $                                      | (22,007    
|Amortization of unearned compensation                                         |                                        | 22,007     
|
|Balance at September 30                                                       | $                                      |           
|
|
|Total Shareholders Equity                                                    |                                        |            
|Balance at January 1                                                          | $                                      | 147,587,560
|Net changes during the period                                                 |                                        | (6,559,181 
|
|Balance at September 30                                                       | $                                      | 141,028,379
|
|                                                                              |                                        |            

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|7
|-



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

|                                                                                                                   | Nine Months Ended
      September 30, |             
|------------------------------------------------------------------------------------------------------------------ | ------------------------------------- | ------------
|
|
|Operating Activities                                                                                               |                                       |             
|Net Income                                                                                                         | $                                     | 6,888,127   
|Loss/(Income) from discontinued operations included below
    in operating cash flows from discontinued operations |                                       | 9,978,187   
|
|Income from continuing operations                                                                                  |                                       | 16,866,314  
|Adjustments to reconcile income from continuing operations
    to net cash provided by operating activities:       |                                       |             
|Provision for loan losses                                                                                          |                                       | 3,252,596   
|Depreciation and amortization of premises and equipment                                                            |                                       | 1,719,800   
|Securities losses (gains)                                                                                          |                                       | 444,631     
|Income from bank owned life insurance                                                                              |                                       | (712,876    
|Deferred income tax provision (benefit)                                                                            |                                       | 2,287,029   
|Proceeds from sale of loans                                                                                        |                                       | 453,049,782 
|Gains on sales of loans, net                                                                                       |                                       | (7,115,048  
|Originations of loans held for sale                                                                                |                                       | (435,004,762
|Amortization of unearned compensation                                                                              |                                       | 22,007      
|Amortization of premiums on securities                                                                             |                                       | 451,606     
|Accretion of discounts on securities                                                                               |                                       | (361,529    
|Increase (Decrease) in accrued interest receivable                                                                 |                                       | 611,641     
|Decrease (Increase) in accrued expenses and
      other liabilities                                                |                                       | 821,064     
|Increase in other assets                                                                                           |                                       | (3,333,608  
|Other, net                                                                                                         |                                       | (609,995    
|
|Net cash provided by operating activities                                                                          |                                       | 32,388,652  
|
|                                                                                                                   |                                       |             
|Investing Activities                                                                                               |                                       |             
|Purchase of premises and equipment                                                                                 |                                       | (1,287,069  
|Net increase in interest-bearing deposits
    with other banks                                                     |                                       | (136,206    
|Net increase in loans held in portfolio                                                                            |                                       | (50,233,910 
|(Increase) Decrease in other real estate                                                                           |                                       | (1,193,651  
|Proceeds from prepayments, redemptions or maturities
    of securities  held to maturity                          |                                       | 63,676,853  
|Purchases of securities  held to maturity                                                                         |                                       | (115,870    
|Proceeds from sales of securities  available for sale                                                             |                                       | 25,369,800  
|Proceeds from prepayments, redemptions or maturities
    of securities  available for sale                        |                                       | 32,406,104  
|Purchases of securities  available for sale                                                                       |                                       | (12,816,790 
|Cash paid in acquisition                                                                                           |                                       | (44,901,402 
|
|Net cash provided by (used in) investing activities                                                                |                                       | 10,767,859  
|
|                                                                                                                   |                                       |             
|Financing Activities                                                                                               |                                       |             
|Net (decrease) increase in deposits                                                                                |                                       | (22,950,481 
|Net (decrease) increase in borrowings                                                                              |                                       | (108,884,881
|Purchase of treasury stock                                                                                         |                                       | (3,810,106  
|Net proceeds from issuance of common stock including
    the exercise of stock options                             |                                       | 1,734,993   
|Cash dividends paid on common stock                                                                                |                                       | (10,676,307 
|
|Net cash (used in) provided by financing activities                                                                |                                       | (144,586,782
|
|                                                                                                                   |                                       |             
|Cash flows from discontinued operations                                                                            |                                       |             
|Operating cash flows                                                                                               |                                       | 9,860,051   
|Investing cash flows                                                                                               |                                       | 90,744,000  
|
|Total                                                                                                              |                                       | 100,604,051 
|
|                                                                                                                   |                                       |             
|Net (decrease) increase in cash and due from banks                                                                 |                                       | (826,220    
|Cash and due from banks  beginning of period                                                                      |                                       | 68,562,037  
|
|Cash and due from banks  end of period                                                                            | $                                     | 67,735,817  
|
|                                                                                                                   |                                       |             
|Supplemental disclosures:                                                                                          |                                       |             
|Interest paid                                                                                                      | $                                     | 32,745,564  
|Income taxes paid                                                                                                  |                                       | 7,467,452   

|                                                 
|-------------------------------------------------
|*See Notes to Consolidated Financial Statements.*

|8
|-



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|1. | The consolidated financial statements include the accounts of Sterling Bancorp (the parent company)
  and its subsidiaries, principally Sterling National Bank and its subsidiaries (the bank),
  after elimination of material intercompany transactions. The term the Company refers
  to Sterling Bancorp and its subsidiaries.  The consolidated financial statements as of and for the interim periods ended September 30, 2006 and 2005 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 2005 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, 2005. The Company effected a 5% stock dividend on December 12, 2005. Fractional shares were cashed-out and payments were made to shareholders in lieu of fractional shares. All capital and share amounts as well as basic and diluted average number of shares
  outstanding and earnings per average common share information for all prior reporting periods have been restated to reflect the effect of the stock dividend.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|2. | As of April 3, 2006, Sterling Resource Funding Corp., a subsidiary of the bank, completed the
  acquisition of the business and certain assets ($64.1 million) and liabilities ($21.0 million) of
  PL Services, L.P., a provider of credit and accounts receivable management services to the staffing
  industry, in an all cash transaction. A general allowance for loan losses in the amount of $1.8 million
  was carried over. Preliminary goodwill recognized in this transaction amounted to $1.7 million and
was assigned to the Corporate Lending segment.This acquisition, when
considered under relevant disclosure guidance, does not require the presentation
of separate pro forma financial information.                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | In September 2006, the Company sold
for cash the business conducted by Sterling Financial Services (Sterling
Financial), which included a loan portfolio of approximately $132 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The results of operations of Sterling
Financial have been reported as a discontinued operation in the consolidated statements of
operations for all periods presented in these consolidated financial statements. The
Company recorded a pre-tax loss on the sale of $15,576,289 and a tax benefit of
$5,972,123. Total revenues generated by the operations of Sterling Financial amounted to
$2,535,775 and $2,950,767 for the quarters ended September 30, 2006 and 2005,
respectively; total revenues amounted to $8,192,645 and $9,027,150 for the nine months
ended September 30, 2006 and 2005, respectively. Income tax expense associated with
discontinued operations was $151,445 and $210,434 for the quarters ended September 30,
2006 and 2005, respectively. For the nine months ended September 30, 2006 and 2005, the
income tax (benefit) and income tax expense associated with discontinued operations, exclusive of loss on
sale, were $(308,375) and $820,008, respectively.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The
assets and liabilities of discontinued operations are presented separately in the consolidated balance sheets for the periods
presented in these consolidated financial statements. The details are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                                         | September 30,
      2006 |           | December 31,
      2005 |  
| | --------------------------------------- | ------------------------ | --------- | ----------------------- | -
|
| | **Assets**                              |                          |           |                         |  
| | Cash and due from banks                 | $                        | 1,430,812 |                         | $
| | Loans, net of allowance for loan losses |                          | 4,647,424 |                         |  
| | Other assets                            |                          | 484,516   |                         |  
|
| | Total Assets                            | $                        | 6,562,752 |                         | $
|
| | **Liabilities**                         |                          |           |                         |  
| | Accrued expenses and other liabilities  | $                        | 1,013,570 |                         | $
|
| | Total Liabilities                       | $                        | 1,013,570 |                         | $
| |                                         |                          |           |                         |  

|9
|-



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|4. | At September 30, 2006, the Company has a stock-based employee compensation plan, which is described
more fully in Note 1 and Note 14 to the consolidated financial statements in the Companys annual
report on Form 10-K for the year ended December 31, 2005. Prior to January 1, 2006, the Company accounted
for this plan under the recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost was reflected in net income,
as all options granted under those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. In accordance with Statement of Financial Accounting Standards (SFAS) No. 148, the following table illustrates the effect on net income and earnings per average common share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to the stock-based employee compensation plans.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| |                                                                                                                                                         | Three Months 
      Ended 
      September 30, 2005 |           | Nine Months
      Ended 
      September 30, 2005 |  
| | ------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ------------------------------------------------- | -
| |                                                                                                                                                         |                                                     |           |                                                   |  
| | Income from continuing operations                                                                                                                       | $                                                   | 6,028,809 |                                                   | $
| | Deduct: Total stock-based employee
    compensation expense determined under
    fair value based method for all awards,
    net of related tax effects |                                                     | (65,577   | )                                                 |  
| |                                                                                                                                                         |                                                     |           |                                                   |  
| | Pro forma, income from continuing operations                                                                                                            |                                                     | 5,963,232 |                                                   |  
| | Income from discontinued operations, net of tax                                                                                                         |                                                     | 245,140   |                                                   |  
| |                                                                                                                                                         |                                                     |           |                                                   |  
| | Pro forma, net income                                                                                                                                   | $                                                   | 6,208,372 |                                                   | $
| |                                                                                                                                                         |                                                     |           |                                                   |  
| | Income from continuing operations per
    average common share:                                                                                         |                                                     |           |                                                   |  
| | Basic- as reported                                                                                                                                      | $                                                   | 0.31      |                                                   | $
| | Basic- pro forma                                                                                                                                        |                                                     | 0.31      |                                                   |  
| | Diluted- as reported                                                                                                                                    |                                                     | 0.30      |                                                   |  
| | Diluted- pro forma                                                                                                                                      |                                                     | 0.30      |                                                   |  
| | Net income per average common share                                                                                                                     |                                                     |           |                                                   |  
| | Basic- as reported                                                                                                                                      | $                                                   | 0.32      |                                                   | $
| | Basic- pro forma                                                                                                                                        |                                                     | 0.32      |                                                   |  
| | Diluted- as reported                                                                                                                                    |                                                     | 0.31      |                                                   |  
| | Diluted- pro forma                                                                                                                                      |                                                     | 0.31      |                                                   |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of January 1, 2006,
the Company adopted SFAS No. 123R, Share-Based Payment, which among other
provisions, eliminated the ability to account for stock-based compensation using
APB 25 and requires that such transactions be recognized as compensation
cost in the income statement for awards expected to be vested based on their
fair values on the measurement date, which is generally the date of the grant.
On June 30, 2006, 4,725 nonqualified stock options were granted to each
nonmanagement member of the Companys Board of Directors; the exercise
price was equal to the closing price of the Companys common shares on that
date. The fair value of each option was calculated to be $4.90 using the Black-Scholes option pricing model.
These options expire five years from the date of grant and become
exercisable in four annual installments starting one year from the date of
grant, or upon the earlier death or disability of the grantee.

|10
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|   | The Company uses the Black-Scholes option pricing model to estimate an options fair value. The
  fair value of options included in the compensation charge recorded in the third quarter and
  nine months ended September 30, 2006 was estimated using the following assumptions: risk-free interest
  rate of 5.10%, dividend yield of 3.897%, expected volatility of 32.55% and weighted average expected
  life of 5 years. The risk-free interest rate is based on the 5-year U.S. Treasury yield in effect
  at the time of grant. The dividend yield reflects the Companys actual dividend yield at the
  date of grant. Expected volatility is based on the historical volatility of the Companys stock
  over the 5-year period prior to the grant date. The weighted average expected life represents the
  weighted average period of time that options granted are expected to be outstanding giving consideration
  to vesting schedules and the Companys historical exercise patterns. All options granted to
  nonmanagement members of the Companys Board of Directors vest evenly over four years commencing
  one year from the date of the grant and expire 5 years from the date of the grant. All options granted
  to employees vest one year from the date of grant and expire ten years from the date of grant. Compensation
  cost is recognized, net of estimated forfeitures, over the vesting period of the options on a straight-line basis.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Under the provisions of SFAS No. 123R, the Company recorded compensation expense of $11,583 during
  the third quarter and nine months ended September 30, 2006. There was no material impact to net income,
  net income per share or cash flows resulting from the adoption of SFAS No. 123R as compared to what
  would have been recorded under APB 25. As of September 30, 2006, the total remaining unrecognized
  compensation cost related to stock options granted under the Companys plan was $173,750, which
  is expected to be recognized over a weighted-average vesting period of 3.75 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | The major components of
  domestic loans held for sale and loans held in portfolio are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                                            | September 30,
      2006 |               | December 31,
      2005 |  
| | ---------------------------------------------------------- | ------------------------ | ------------- | ----------------------- | -
| |                                                            |                          |               |                         |  
|
| | Loans held for sale                                        |                          |               |                         |  
| | Real estate-residential mortgage                           | $                        | 30,047,566    |                         | $
| |                                                            |                          |               |                         |  
| | Loans held in portfolio                                    |                          |               |                         |  
| | Commercial and industrial                                  | $                        | 615,777,692   |                         | $
| | Lease financing                                            |                          | 245,008,614   |                         |  
| | Real estate-residential mortgage                           |                          | 128,345,718   |                         |  
| | Real estate-commercial mortgage                            |                          | 121,050,716   |                         |  
| | Real estate-construction                                   |                          | 3,732,717     |                         |  
| | Installment                                                |                          | 14,156,075    |                         |  
| | Loans to depository institutions                           |                          | 27,000,000    |                         |  
| |                                                            |                          |               |                         |  
|
| | Loans held in portfolio, gross                             |                          | 1,155,071,532 |                         |  
| | Less unearned discounts                                    |                          | 32,874,104    |                         |  
| |                                                            |                          |               |                         |  
| | Loans held in portfolio, net of
        unearned discounts | $                        | 1,122,197,428 |                         | $
| |                                                            |                          |               |                         |  

|11
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|6. | 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.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                         |   |          |   |  
| | --------------------------------------- | - | -------- | - | -
|
|
|
| |                                         |   |          |   |  
|
| | COMPONENTS OF NET PERIODIC BENEFIT COST |   |          |   |  
| | Service cost                            | $ | 445,618  |   | $
| | Interest cost                           |   | 600,700  |   |  
| | Expected return on plan assets          |   | (538,923 | ) |  
| | Amortization of prior service cost      |   | 18,985   |   |  
| | Recognized actuarial loss               |   | 332,861  |   |  
| |                                         |   |          |   |  
| | Net periodic benefit cost               | $ | 859,241  |   | $
| |                                         |   |          |   |  

|   |                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------
|   | The Company contributed $1,000,000 to the defined benefit pension plan as of September 30, 2006.                 
|   |                                                                                                                  
|7. | The following information is provided
in connection with the sales and/or calls of available for sale securities:

| |  |              | Three Months Ended September 30, |   | Nine Months Ended September 30, |  
| |  | ------------ | -------------------------------- | - | ------------------------------- | -
|
|
|
| |  | Proceeds     | $                                |  |                                 | $
| |  |              |                                  |   |                                 |  
| |  | Gross Gains  |                                  |  |                                 |  
| |  |              |                                  |   |                                 |  
| |  | Gross Losses |                                  |  |                                 |  

|   |                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | During the first quarter of 2006 the Company sold lower yielding available for sale securities at a loss to partially fund the acquisition of PL Services, L.P.                                                                                                                  
|   |                                                                                                                                                                                                                                                                                  
|8. | 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 2006 year-to-date average interest-earning assets were 60.3% loans (corporate lending was 66.1% and real estate lending was 29.6% of total loans, respectively) and 39.4% investment securities and
    money market investments. There are no industry concentrations exceeding 10% of loans, gross, in the corporate lending segment. Approximately 69% of loans are to borrowers located in the metropolitan New York area. In order to comply with the provisions of SFAS No. 131, the Company has determined that it has three reportable operating segments: corporate lending, real estate lending and company-wide treasury.

|12
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|The following tables provide certain information regarding the Companys operatingsegments for the three- and nine-month periods ended September 30, 2006 and 2005 (all amounts are from
continuing operations except where designated as discontinued):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                        

|                                                                   | Corporate
      Lending |             | Real Estate
      Lending |   | Company-wide
      Treasury |  | Totals |            
|------------------------------------------------------------------ | ----------------------- | ----------- | ------------------------- | - | --------------------------- |  | ------ | -----------
|
|Three Months Ended September 30, 2006                              |                         |             |                           |   |                             |  |        |            
|Net interest income                                                | $                       | 9,667,017   |                           | $ | 5,420,192                   |  | $      | 3,150,192  
|Noninterest income                                                 |                         | 6,015,711   |                           |   | 2,408,098                   |  |        | 425,911    
|Depreciation and amortization                                      |                         | 168,349     |                           |   | 91,891                      |  |        | 614        
|Segment income from continuing operations
   before income taxes   |                         | 6,908,792   |                           |   | 3,429,499                   |  |        | 2,969,068  
|Segment income from discontinued operations
   before income taxes |                         | 335,131     |                           |   |                            |  |        |           
|Segment assets from continuing operations                          |                         | 778,980,378 |                           |   | 371,995,560                 |  |        | 751,887,140
|Segment assets from discontinued operations                        |                         | 6,562,752   |                           |   |                            |  |        |           
|                                                                   |                         |             |                           |   |                             |  |        |            
|Three Months Ended September 30, 2005                              |                         |             |                           |   |                             |  |        |            
|Net interest income                                                | $                       | 7,885,476   |                           | $ | 5,928,749                   |  | $      | 5,143,317  
|Noninterest income                                                 |                         | 3,429,042   |                           |   | 4,689,523                   |  |        | 537,257    
|Depreciation and amortization                                      |                         | 109,996     |                           |   | 103,254                     |  |        | 620        
|Segment income from continuing operations
   before income taxes   |                         | 4,874,266   |                           |   | 5,636,868                   |  |        | 5,613,007  
|Segment income from discontinued operations
   before income taxes |                         | 455,574     |                           |   |                            |  |        |           
|Segment assets from continuing operations                          |                         | 692,310,205 |                           |   | 367,284,929                 |  |        | 839,492,676
|Segment assets from discontinued operations                        |                         | 109,083,884 |                           |   |                            |  |        |           
|                                                                   |                         |             |                           |   |                             |  |        |            
|Nine Months Ended September 30, 2006                               |                         |             |                           |   |                             |  |        |            
|Net interest income                                                | $                       | 27,240,511  |                           | $ | 16,259,425                  |  | $      | 11,731,459 
|Noninterest income                                                 |                         | 14,634,386  |                           |   | 7,345,291                   |  |        | 612,353    
|Depreciation and amortization                                      |                         | 446,642     |                           |   | 293,893                     |  |        | 1,843      
|Segment income from continuing operations
   before income taxes   |                         | 19,856,222  |                           |   | 9,621,155                   |  |        | 10,650,366 
|Segment loss from discontinued operations
   before income taxes   |                         | 682,396     |                           |   |                            |  |        |           
|Segment assets from continuing operations                          |                         | 778,980,378 |                           |   | 371,995,560                 |  |        | 751,887,140
|Segment assets from discontinued operations                        |                         | 6,562,752   |                           |   |                            |  |        |           
|                                                                   |                         |             |                           |   |                             |  |        |            
|Nine Months Ended September 30, 2005                               |                         |             |                           |   |                             |  |        |            
|Net interest income                                                | $                       | 22,605,189  |                           | $ | 16,141,238                  |  | $      | 16,590,184 
|Noninterest income                                                 |                         | 9,251,274   |                           |   | 13,302,619                  |  |        | 1,741,781  
|Depreciation and amortization                                      |                         | 293,516     |                           |   | 282,824                     |  |        | 1,838      
|Segment income from continuing operations
   before income taxes   |                         | 13,151,722  |                           |   | 16,018,794                  |  |        | 18,074,853 
|Segment income from discontinued operations
   before income taxes |                         | 1,775,256   |                           |   |                            |  |        |           
|Segment assets from continuing operations                          |                         | 692,310,205 |                           |   | 367,284,929                 |  |        | 839,492,676
|Segment assets from discontinued operations                        |                         | 109,083,884 |                           |   |                            |  |        |           

|13
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|The following table sets forth reconciliations of net interest income, noninterest income, profits
and assets of reportable operating segments to the Companys consolidated totals:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    

|                                                                      | Three Months Ended September 30, |               | Nine Months Ended September 30, |  
|--------------------------------------------------------------------- | -------------------------------- | ------------- | ------------------------------- | -
|
|
|
|Net interest income:                                                  |                                  |               |                                 |  
|Total for reportable operating segments                               | $                                | 18,237,401    |                                 | $
|Other [1]                                                             |                                  | 254,231       |                                 |  
|
|                                                                      |                                  |               |                                 |  
|Consolidated net interest income                                      | $                                | 18,491,632    |                                 | $
|
|                                                                      |                                  |               |                                 |  
|Noninterest income:                                                   |                                  |               |                                 |  
|Total for reportable operating segments                               | $                                | 8,849,720     |                                 | $
|Other [1]                                                             |                                  | 402,863       |                                 |  
|
|                                                                      |                                  |               |                                 |  
|Consolidated noninterest income                                       | $                                | 9,252,583     |                                 | $
|
|                                                                      |                                  |               |                                 |  
|Income from continuing operations before 
   income taxes:            |                                  |               |                                 |  
|Total for reportable operating segments                               | $                                | 13,307,359    |                                 | $
|Other [1]                                                             |                                  | (6,537,501    | )                               |  
|
|                                                                      |                                  |               |                                 |  
|Consolidated income from continuing
   operations before income taxes | $                                | 6,769,858     |                                 | $
|
|                                                                      |                                  |               |                                 |  
|Assets:                                                               |                                  |               |                                 |  
|Total for reportable operating segments:                              |                                  |               |                                 |  
|- continuing operations                                               | $                                | 1,902,863,078 |                                 | $
|- discontinued operations                                             |                                  | 6,562,752     |                                 |  
|Other [1]                                                             |                                  | 31,789,541    |                                 |  
|
|                                                                      |                                  |               |                                 |  
|Consolidated assets                                                   | $                                | 1,941,215,371 |                                 | $
|

|                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------
|[1] Represents operations not considered to be a reportable segment and/or general operating expenses of the Company.

|14
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

|9. | In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 158,
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R), (SFAS No. 158), which amends SFAS No. 87 and SFAS No. 106
to require recognition of the overfunded or underfunded status of pension and
other postretirement benefit plans on the balance sheet. The funded status is
measured as the difference between plan assets at fair value and the benefit
obligation (the projected benefit obligation for pension plans or the
accumulated benefit obligation for other postretirement benefit plans). The
Company is also required to measure the funded status of a plan as of the date
of its year-end statement of financial position and to recognize changes in the
funded status through comprehensive income. SFAS No. 158 also requires certain
disclosures regarding the effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of gains or losses, prior
service costs or credits, and the transition asset or obligation remaining from
the initial application of SFAS No. 87 and SFAS No. 106. SFAS No. 158
is effective for publicly-held companies for fiscal years ending after December
15, 2006, except for the measurement date provisions, which are effective for
fiscal years ending after December 15, 2008. The Company is currently analyzing
the effects of SFAS No. 158 but does not expect its implementation will have a
significant impact on the Companys financial condition or results of
operations.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2006, the FASB ratified the consensus reached by the Emerging
Issues Task Force (EITF) on Issue No. 06-5, Accounting for
Purchases of Life Insurance - Determining the Amount that Could Be
Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for
Purchases of Life Insurance (EITF Issue No. 06-5). FASB
Technical Bulletin No. 85-4 requires that the amount that could be realized
under the insurance contract as of the date of the statement of financial
position should be reported as an asset. Since the issuance of FASB Technical
Bulletin No. 85-4, there has been diversity in practice in the calculation of
the amount that could be realized under insurance contracts. EITF Issue No.
06-5, which is effective January 1, 2007, concludes that the Company should consider any additional amounts
(e.g., cash stabilization reserves and deferred acquisition cost taxes) included
in the contractual terms of the insurance policy other than the cash surrender
value in determining the amount that could be realized in
accordance with FASB Technical Bulletin No. 85-4. The adoption of EITF Issue No.
06-5 is not expected to have a material impact on the Companys results of
operations or financial condition.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September 2006,
the EITF reached a consensus on Issue No.06-4, Accounting for Deferred
Corporation and Postretirement Benefit Aspects of Endorsement Split Dollar Life
Insurance Arrangements, (EITF Issue No. 06-4). EITF Issue No.
06-4 is effective for fiscal years beginning after December 31, 2007. Under
the provisions of EITF Issue No. 06-4, an employer should recognize a liability
for future benefits for endorsement split-dollar life insurance agreements that
are within the scope of this EITF Issue. The Company owns life insurance
policies subject to endorsement split-dollar life insurance agreements and is
currently evaluating the effect of adoption on its results of operations and
financial condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|15
|--



|STERLING BANCORP AND SUBSIDIARIESNotes to Consolidated Financial Statements(Unaudited)
|--------------------------------------------------------------------------------------
|                                                                                      

| | considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might
  evaluate the materiality of financial statement misstatements using either the income statement or
  balance sheet approach, with the income statement approach focusing on new misstatements added in
  the current year, and the balance sheet approach focusing on the cumulative amount of misstatement
  present in a companys balance sheet. Misstatements that would be material under one approach
  could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires
  that companies view financial statement misstatements as material if they are material according
  to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined
  that upon adoption it is not expected to have impact on the Companys reported results
  of operations or financial condition.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises
  financial statements in accordance with SFAS No. 109,Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
  recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN
  48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently analyzing the potential effects of FIN 48 on its financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|

| | In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets - an amendment of FASB Statement No.140(SFAS No. 156). This statement amends SFAS No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires companies to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract. The statement permits a company to choose either the amortized cost method or fair value measurement method for each class of separately recognized servicing assets or servicing liabilities. This statement is effective as of the beginning of the Companys first
fiscal year that begins after September 15, 2006. The Company is still analyzing the potential impact of SFAS No. 156 on its financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments- an amendment of FASB Statements No. 133 and 140 (SFAS No. 155). SFAS No. 155 amends SFAS No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), and SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities(SFAS No. 140). SFAS No. 155 (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No.133, (3) establishes a
requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybird financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and (5) amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of the Companys first fiscal year that begins after September 15, 2006, which for the company is January 1, 2007.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 2005. Certain
reclassifications have been made to prior years financial data to conform to current financial
statement presentations as well as to reflect the effect of the 5% stock dividend effected on December
12, 2005.
OVERVIEW
The Company provides a broad range of financial products and services, including business and consumer
loans, commercial and residential mortgage lending and brokerage, asset-based financing, factoring/accounts
receivable management services, deposit services, trade financing, equipment leasing, trust
and estate administration, and investment management services. The Company has operations in the
metropolitan New York area, New Jersey, Virginia and North Carolina and conducts business throughout
the United States. The general state of the U.S. economy and, in particular, economic and market
conditions in the metropolitan New York area have a significant impact on loan demand, the ability
of borrowers to repay these loans and the value of any collateral securing these loans and may also
affect deposit levels. Accordingly, future general economic conditions are a key uncertainty that
management expects will materially affect the Companys results of operations.
In September 2006, the Company sold the business conducted by Sterling Financial Services (Sterling
Financial). In accordance with the terms of the sale, Sterling Financial will provide interim
servicing for a fee for no more than 120 days. All origination activities ceased by September 22,
2006. In accordance with accounting principles generally accepted in the United States, the assets,
liabilities and earnings/loss of the business conducted by Sterling Financial have been shown separately
as discontinued operations in the consolidated balance sheets and consolidated statements of operations
for all periods presented.
For purposes of calculating
the interest expense allocated to discontinued operations for the quarter and nine months ended September
30, 2006 and 2005 (the periods during which the Sterling Financial loans were outstanding), funding was deemed to be provided
proportionally through all interest-bearing liabilities at an average rate equal to the cost of
each applied to its average outstanding balance for the appropriate period.
For purposes of the following discussion, except for the section entitled Discontinued Operations,
average balances, average rate, income and expenses associated with Sterling Financial have been
excluded from continuing operations and reported separately in the Average Balance Sheets for all
periods presented.

|17
|--



|The interest expense allocated to discontinued operations was based on the actual average balances, interest
expense and average rate on each category of interest-bearing liabilities, with
the average rate applied to the aggregate average loan balances to determine the
funding cost. Interest expense allocated to the funding supporting the Sterling Financial net loans
for these periods was assigned based on the average net loan balances
proportionately funded by all interest-bearing liabilities at an average rate
equal to the cost of each applied to its average balance for the period. The
Rate/Volume Analysis was prepared on the same basis as was the
Average Balance Sheets.
For the three months ended September 30, 2006, the banks average earning assets represented approximately
100.0% of the Companys average earning assets. Loans represented 62.4% and investment securities
represented 37.4% of the banks average earning assets for the third quarter of 2006.
For the nine months ended September 30, 2006, the banks average earning assets represented approximately
100.0% of the Companys average earning assets. Loans represented 60.3% and investment securities
represented 39.4% of the banks average earning assets for the nine months ended September 30,
2006.
The Companys primary source of earnings is net interest income, and its principal market risk
exposure is interest rate risk. The Company is not able to predict market interest rate fluctuations,
and its asset-liability management strategy may not prevent interest rate changes from having a material
adverse effect on the Companys results of operations and financial condition.
Although management endeavors to minimize the credit risk inherent in the Companys loan portfolio,
it must necessarily make various assumptions and judgments about the collectibility of the loan portfolio
based on its experience and evaluation of economic conditions. If such assumptions or judgments prove
to be incorrect, the current allowance for loan losses may not be sufficient to cover loan losses
and additions to the allowance may be necessary, which would have a negative impact on net income.
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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
|--



|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-earnings
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 32 and 33. Information as to the
components of interest income and interest expense and average rates is provided in the Average Balance
Sheets shown on pages 30 and 31.
Comparison of the Three Months Ended
September 30, 2006 and 2005
The Company reported income from continuing
operations, after income taxes, for the three months ended
September 30, 2006 of $5.0 million, representing $0.27 per share, calculated on a diluted basis,
compared to $6.0 million, or $0.30 per share calculated on a diluted basis, for the third quarter
of 2005. This decrease reflects higher interest and noninterest expenses which were only partially
offset by an increase in interest income and a decrease in provision for income taxes.
Net Interest Income
Net interest income, on a tax-equivalent basis,
was $18.6 million for the third quarter of 2006 compared
to $19.3 million for the 2005 period, as the higher rates paid on interest-bearing deposits and borrowings
and higher balances for borrowings in the third quarter of 2006 substantially offset the effects
of higher average yield on loans and investment securities for that quarter. The net interest margin,
on a tax-equivalent basis, was 4.49% for the third quarter of 2006 compared to 4.55% for the
2005 period. The net interest margin was impacted by the flattening of the yield curve, the higher
interest rate environment in 2006, the lower level of noninterest-bearing demand deposits and the
effect of higher average loans outstanding. The flattening yield curve and more competitive pricing
practices in the Companys markets have caused the costs of deposits and borrowings to increase
faster than the yield on earning assets.
Total interest income, on a tax-equivalent basis,
aggregated $29.9 million for the third quarter of 2006, up $3.4 million from the 2005 period.
The tax-equivalent yield on interest-earning assets was
7.24% for the third quarter of 2006 compared to 6.30% for the 2005 period.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--



|Interest earned on the loan portfolio amounted to $22.6 million for the third quarter of 2006, up from
$18.4 million the prior year period. Average loan balances amounted to $1,051.5 million, an increase
of $73.4 million from an average of $978.1 million in the prior year period. The increase in average
loans (across many segments of the Companys loan portfolio), primarily due to the acquisition
of Sterling Resource Funding Corp. coupled with the Companys other business development activities
and the ongoing consolidation of banks in the Companys marketing area, accounted for $1.4 million
of the $4.2 million increase in interest earned on loans. The increase in the yield on the loan portfolio
to 8.94% for the third quarter of 2006 from 7.76% for the 2005 period was primarily attributable
to the mix (including the acquisition of Sterling Resource Funding Corp.) of average outstanding
balances among the components of the loan portfolio and the higher interest rate environment in 2006.
Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $7.3 million for
the third quarter of 2006 from $8.1 million in the prior year period. Average outstandings decreased
to $629.3 million (37.4% of average earning assets) for the third quarter of 2006 from $719.8 million
(42.1% of average earning assets) in the prior year period. The average life of the securities portfolio
was approximately 4.6 years at September 30, 2006 compared to 3.8 years at September 30, 2005.
Total interest expense increased by $4.1 million for the third quarter of 2006 from $7.2 million for
the 2005 period, primarily due to higher rates paid for interest-bearing deposits and for borrowed
funds.
Interest expense on deposits increased to $7.6 million for the third quarter of 2006 from $5.0 million
for the 2005 period primarily due to an increase in the cost of those funds. Average rate paid on
interest-bearing deposits was 3.22% which was 116 basis points higher than the prior year period.
The increase in average cost of deposits reflects the higher interest rate environment during 2006.
Interest expense on borrowings increased to $4.6 million for the third quarter of 2006 from $2.9 million
for the 2005 period primarily due to an increase in the cost of those funds. The average rate paid
on borrowings was 5.20% which was 149 basis points higher than the prior year period. The increase
in average cost of borrowings reflects the higher interest rate environment during 2006.
Provision for Loan Losses
Based on managements continuing evaluation of the loan portfolio (discussed under Asset
Quality below), the provision for loan losses for the third quarter of 2006 was $1.5 million,
virtually unchanged from the prior year period. Factors affecting the level of provision included
the growth in the loan portfolios, changes in general economic conditions and the amount of nonaccrual
loans.
Noninterest Income
Noninterest income was $9.3 million for the third quarter of 2006 virtually unchanged from the 2005
period.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|20
|--



|Higher customer related service charges and fees were primarily due to revenues attributable to the
acquisition of Sterling Resource Funding Corp. Partially offsetting that increase was a decrease
in mortgage banking income principally due to lower volume of loans sold and the continued yield
compression in the secondary market for loans which is impacting the entire industry.
Noninterest Expenses
Noninterest expenses increased $2.2 million for the third quarter of 2006 when compared to the 2005
period. The increase was primarily due to higher salaries, equipment and occupancy costs related
to investments in the Sterling franchise, including the new branches and the acquisition of Sterling
Resource Funding Corp. During the third quarter of 2005, professional fees  were reduced by $1.0
million due to the recovery of litigation costs originally charged to noninterest expenses in 2001.
Provision for Income Taxes
The provision for income taxes decreased by $1.8 million to $1.8 million for the third quarter of 2006
from $3.6 million for the 2005 period. The decrease was primarily due to the lower level of pre-tax
income in the 2006 period and to a $0.6 million reversal of state and local taxes, net of federal
tax effect, as a result of the closure of certain years for local tax purposes.
Discontinued Operations
In September 2006, the Company sold the business conducted by Sterling Financial. In accordance with
accounting principles generally accepted in the United States, income after taxes from discontinued
operations and the net loss on disposal of discontinued operations are reported in the Consolidated
Statements of Operations after net income from continuing operations for all periods presented.
Income from discontinued operations was $0.2 million for the third quarter of 2006, representing $0.01
per share, calculated on a diluted basis, compared to $0.2 million, or $0.01 per share calculated
on a diluted basis, for the third quarter of 2005.
The net after-tax loss on the disposal of discontinued operations was $9.6 million, or $0.51 per share,
calculated on a diluted basis.
Income taxes were calculated at the Companys overall marginal tax rate of
45.19%. In addition, state and local taxes included the effect of the elimination of REIT benefits recognized in prior
2006 periods and the impact of required minimum state and local tax liabilities.
Comparisons of the Nine Months Ended September 30, 2006 and 2005
The Company reported income from continuing operations, after income taxes, for the nine months ended
September 30, 2006 of $16.9 million, representing $0.88 per share, calculated on a diluted basis,
compared to $17.1 million, or $0.86 per share calculated on a diluted basis, for the first nine months
of 2005. This decrease reflected higher interest and noninterest expenses and lower noninterest income,
which were partially offset by an increase in interest income coupled with decreases in the provision
for loan losses and the provision for income taxes.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21
|--



|Net Interest Income
Net interest income, on a tax-equivalent basis, was $56.6 million for the first nine months of 2006
virtually unchanged from the 2005 period. Net interest income was positively impacted by higher average
loans outstanding at higher average yields and negatively impacted by lower average investment securities
outstandings and higher rates paid on interest-bearing deposits and borrowed funds coupled with higher
balances for borrowed funds. The net interest margin, on a tax-equivalent basis, was 4.60% for the
first nine months of 2006 compared to 4.69% for the 2005 period. The net interest margin was impacted
by the flattening of the yield curve, the higher interest rate environment in 2006, the level of
noninterest-bearing demand deposits and the effect of higher average loans outstanding. The flattening
yield curve and more competitive pricing practices in the Companys markets have caused the
costs of deposits and borrowings to increase faster than the yield on earning assets.
Total interest income, on a tax-equivalent basis, aggregated $86.9 million for the first nine months
of 2006, up from $75.2 million for the 2005 period. The tax-equivalent yield on interest-earning
assets was 7.10% for the first nine months of 2006 compared to 6.25% for the 2005 period.
Interest earned on the loan portfolio amounted to $63.6 million for the first nine months of 2006,
up $13.1 million from the year ago period. Average loan balances amounted to $1,018.9 million,
an increase of $95.8 million from an average of $923.1 million in the prior year period. The increase
in average loans (across virtually all segments of the Companys loan portfolio), primarily
due to the acquisition of Sterling Resource Funding Corp. coupled with the Companys other business
development activities and the ongoing consolidation of banks in the Companys marketing area,
accounted for $5.6 million of the $13.1 million increase in interest earned on loans. The increase
in the yield on the loan portfolio to 8.84% for the first nine months of 2006 from 7.75% for the
2005 period was primarily attributable to the mix (including the acquisition of Sterling Resource
Funding Corp.) of average outstanding balances among the components of the loan portfolio and the
higher interest rate environment in 2006.
Interest earned on the securities portfolio, on a tax-equivalent basis, decreased to $23.2 million
for the first nine months of 2006 from $24.4 million in the prior year period. Average outstandings
decreased to $666.2 million (39.4% of average earning assets for the first nine months of 2006) from
$715.5 million (43.2% of average earning assets) in the prior year period. The average life of the
securities portfolio was approximately 4.6 years at September 30, 2006 compared to 3.8 years at September
30, 2005.
Total interest expense increased to $30.3 million for the first nine months of 2006 from $18.6 million
for the 2005 period, primarily due to higher rates paid for interest-bearing deposits and for borrowed
funds and higher average balances for borrowed funds.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|22
|--



|Interest expense on deposits increased to $20.2 million for the first nine months of 2006 from
$12.5 million for the 2005 period primarily due to an increase in the cost of those funds. Average rate paid on interest-bearing deposits was 2.87% which was 106 basis points higher than the prior year period. The increase in average cost of deposits reflects the higher
interest rate environment during 2006.
Interest expense on borrowings increased to $12.6 million for the first nine months of 2006 from $7.8 million for the 2005 period primarily due to the higher interest rate environment during 2006. The
average rate paid on borrowed funds was 4.87% which was 145 basis points higher than the prior year
period. The increase in average cost of borrowings reflects the high interest rate environment during
2006. Average borrowing balances increased to $346.5 million for the first nine months of 2006 from
$305.2 million in the 2005 period.
Provision for Loan Losses
Based on managements continuing evaluation of the loan portfolio (discussed under Asset
Quality below), the provision for loan losses for the first nine months of 2006 decreased to
$3.3 million from $4.2 million for the prior year period. Factors affecting the level of provision
included the growth in the loan portfolios, changes in general economic conditions and the amount
of nonaccrual loans.
Noninterest Income
Noninterest income decreased to $24.0 million for the first nine months of 2006 from $26.2 million
in the 2005 period, primarily due to lower revenues from mortgage banking activities and bank owned
life insurance coupled with higher losses from sales of available for sale securities. The decrease
in mortgage banking income was principally due to lower volume of loans sold and the continued yield
compression in the secondary market for loans which is impacting the entire industry. Partially offsetting
these decreases was increased revenues from customer related service charges and fees primarily due
to revenues attributable to the acquisition of Sterling Resource Funding Corp.
Noninterest Expenses
Noninterest expenses increased to $56.8 million for the first nine months of
2006 from $50.6 million in the 2005 period. The increase was primarily due to
higher salaries, employee benefits, equipment and occupancy costs related to
investments in the Sterling franchise, including the new branches
and the acquisition ofSterling Resource Funding Corp. Also contributing to higher employee
benefits expense were increases in pension costs coupled with higher payroll
taxes and life insurance costs. During
the third quarter of 2005, noninterest expenses were reduced by $1.0 million due
to the recovery of litigation costs originally charged to noninterest expenses
in 2001.

Provision for Income Taxes
The provision for income taxes for the first nine months of 2006 decreased by $7.1 million from the
2005 period. The decrease was primarily due to:(1) a $3.7 million reversal (during the first quarter
of 2006) of reserves for state and local taxes, net of federal tax effect, as a result of the resolution
of certain state tax issues, (2) a $0.6 million reversal (during the third quarter of 2006) of state
and local taxes, net of federal tax effect, as a result of the closure of certain tax years for local
tax purposes and (3) the lower level of pre-tax income.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23
|--



|Discontinued Operations
  In September 2006, the Company sold the business
conducted by Sterling Financial. In accordance with accounting principles generally accepted in the
United States, income after taxes from discontinued operations and the loss
on disposal of discontinued operations, net of tax, are reported in the Consolidated
Statements of Operations after net income from continuing operations for all
periods presented.
  The loss from discontinued operations was $0.4 million for the first nine months of 2006, representing
$0.02 per share, calculated on a diluted basis compared to income of $1.0 million, or $0.05 per share,
calculated on a diluted basis, for the 2005 period. The decrease was due to lower net interest income
and a higher provision for loan losses for the first nine months of 2006 compared to the corresponding
2005 period.
The net after-tax loss on the disposal of discontinued operations was $9.6 million, or $0.50 per share,
calculated on a diluted basis.
Income taxes were calculated at the Companys overall marginal tax rate of
45.19%. In addition,
state and local taxes included the effect of the elimination of REIT benefits recognized in prior
2006 periods and the impact of required minimum state and local tax liabilities.
BALANCE SHEET ANALYSIS
Securities
The Companys securities portfolios are comprised principally of mortgage-backed securities of
U.S. government corporations and government sponsored enterprises, and obligations of state and political
institutions, along with other debt and equity securities. At September 30, 2006, the Companys
portfolio of securities totaled $606.4 million, of which mortgage-backed securities and collateralized
mortgage obligations of U.S. government corporations and government sponsored enterprises having
an average life of approximately 4.8 years amounted to $535.4 million. The Company has the intent and ability to hold to maturity securities classified as
held to maturity. These securities are carried at cost, adjusted for amortization
of premiums and accretion of discounts. The gross unrealized gains and losses on held to maturity
securities were $0.6 million and $11.1million, respectively. Securities classified as available for sale may be sold in the future, prior to maturity. These securities are carried at market value. Net aggregate unrealized gains or
losses on these securities are included in a valuation allowance account and are shown net of taxes,
as a component of shareholders equity. Given the generally high credit quality of the portfolio,
management expects to realize all of its investment upon market recovery or the maturity of such
instruments and thus believes that any market value impairment is interest rate related and therefore
temporary. Available for sale securities included gross unrealized gains of $0.4 million
and gross unrealized losses of $4.4 million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24
|--



|The following table presents information regarding securities available for sale:
|---------------------------------------------------------------------------------
|                                                                                 

|September 30, 2006                                      | Gross
      Amortized
      Cost |             | Gross
      Unrealized
      Gains |   | Gross
      Unrealized
      Losses |  | Market
      Value |          
|------------------------------------------------------- | -------------------------------- | ----------- | ---------------------------------- | - | ----------------------------------- |  | ------------------ | ---------
|
|Mortgage-backed securities                              |                                  |             |                                    |   |                                     |  |                    |          
|CMOs (Federal National
           Mortgage Association) | $                                | 8,911,055   |                                    | $ |                                    |  | $                  | 498,140  
|CMOs (Federal Home Loan
           Mortgage Company)    |                                  | 22,852,311  |                                    |   |                                    |  |                    | 1,147,196
|Federal National Mortgage
         Association          |                                  | 48,461,534  |                                    |   | 45,969                              |  |                    | 1,357,267
|Federal Home Loan Mortgage
           Company           |                                  | 44,991,509  |                                    |   | 6,669                               |  |                    | 1,356,154
|Government National Mortgage
           Association     |                                  | 4,398,885   |                                    |   | 111,010                             |  |                    | 4,813    
|                                                        |                                  |             |                                    |   |                                     |  |                    |          
|Total mortgage-backed
              securities          |                                  | 129,615,294 |                                    |   | 163,648                             |  |                    | 4,363,570
|Obligations of state and
        political institutions |                                  | 23,603,754  |                                    |   | 191,066                             |  |                    | 45,355   
|Federal Reserve Bank stock                              |                                  | 1,130,700   |                                    |   |                                    |  |                    |         
|Federal Home Loan Bank stock                            |                                  | 4,069,100   |                                    |   |                                    |  |                    |         
|Other securities                                        |                                  | 1,553,560   |                                    |   | 80,084                              |  |                    | 1,214    
|                                                        |                                  |             |                                    |   |                                     |  |                    |          
|                                                        |                                  |             |                                    |   |                                     |  |                    |          
|Total                                                   | $                                | 159,972,408 |                                    | $ | 434,798                             |  | $                  | 4,410,139
|                                                        |                                  |             |                                    |   |                                     |  |                    |          

|                                                                               
|-------------------------------------------------------------------------------
|The following table presents information regarding securities held to maturity:
|                                                                               

|September 30, 2006                                                                  | Carrying
      Value |             | Gross
      Unrealized
      Gains |   | Gross
      Unrealized
      Losses |  | Estimated
      Market
      Value |           
|----------------------------------------------------------------------------------- | -------------------- | ----------- | ---------------------------------- | - | ----------------------------------- |  | ---------------------------------- | ----------
|
|                                                                                    |                      |             |                                    |   |                                     |  |                                    |           
|Mortgage-backed securities                                                          |                      |             |                                    |   |                                     |  |                                    |           
|CMOs (Federal National
         Mortgage Association)                               | $                    | 12,943,113  |                                    | $ |                                    |  | $                                  | 557,554   
|CMOs (Federal Home Loan
         Mortgage Company)                                  |                      | 23,208,628  |                                    |   |                                    |  |                                    | 1,078,464 
|Federal National Mortgage
         Association                                      |                      | 215,311,432 |                                    |   | 239,202                             |  |                                    | 4,565,520 
|Federal Home Loan Mortgage
         Company                                         |                      | 147,246,445 |                                    |   | 74,937                              |  |                                    | 4,498,093 
|Government National Mortgage
         Association                                   |                      | 11,232,570  |                                    |   | 247,864                             |  |                                    | 714       
|                                                                                    |                      |             |                                    |   |                                     |  |                                    |           
|Total mortgage-backed
          securities                                          |                      | 409,942,188 |                                    |   | 562,003                             |  |                                    | 10,700,345
|Federal Home Loan Bank                                                              |                      | 19,988,245  |                                    |   |                                    |  |                                    | 89,808    
|Federal Farm Credit Bank                                                            |                      | 20,000,000  |                                    |   |                                    |  |                                    | 268,750   
|                                                                                    |                      |             |                                    |   |                                     |  |                                    |           
|Total obligations of U.S.
          government corporations
           and agencies |                      | 449,930,433 |                                    |   | 562,003                             |  |                                    | 11,058,903
|Debt securities issued by
         foreign governments                              |                      | 500,000     |                                    |   |                                    |  |                                    | 5,237     
|                                                                                    |                      |             |                                    |   |                                     |  |                                    |           
|Total                                                                               | $                    | 450,430,433 |                                    | $ | 562,003                             |  | $                                  | 11,064,140
|                                                                                    |                      |             |                                    |   |                                     |  |                                    |           

|25
|--



|Loan Portfolio
      A management objective is to maintain the quality of the loan portfolio. The Company seeks to achieve
        this objective by maintaining rigorous underwriting standards coupled with regular evaluation of
        the creditworthiness of and the designation of lending limits for each borrower. The portfolio strategies
        include seeking industry and loan size diversification in order to minimize credit exposure and originating loans
        in markets with which the Company is familiar.
      The Companys commercial and industrial loan portfolio represents approximately 53% of all loans.
        Loans in this category are typically made to small and medium-sized businesses and range between
        $25,000 and $10 million. The Companys real estate mortgage portfolio, which represents approximately
        24% of all loans, is secured by mortgages on real property located principally in the states of New
        York, New Jersey, Virginia and North Carolina. The Companys leasing portfolio, which consists
        of finance leases for various types of business equipment, represents approximately 18% 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, |          
|---------------------------------- | ------------- | ---------
|
|
|
|
|
|
|Domestic                           |               |          
|Commercial and industrial          | $             | 615,324  
|Equipment lease financing          |               | 212,588  
|Real estate - residential mortgage |               | 158,393  
|Real estate- commercial mortgage   |               | 121,051  
|Real estate - construction         |               | 3,733    
|Installment - individuals          |               | 14,156   
|Loans to depository institutions   |               | 27,000   
|                                   |               |          
|                                   |               |          
|                                   |               |          
|Loans, net of unearned discounts   | $             | 1,152,245
|                                   |               |          

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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
|--



|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 which will be
greater than that indicated by the evaluation process previously described. The allowance reflects
managements evaluation both of loans presenting identified loss potential and of the risk inherent
in various components of the loan portfolio, including loans identified as impaired as required by
SFAS No. 114. Thus, an increase in the size of the portfolio or in any of its components could necessitate
an increase in the allowance even though there may not be a decline in credit quality or an increase
in potential problem loans. A significant change in any of the evaluation factors described above
could result in future additions to the allowance. At September 30, 2006, the ratio of the allowance
to loans held in portfolio, net of unearned discounts, was 1.48% and the allowance was $16.6 million,
including a general allowance of $1.8 million carried over as a result of the acquisition of Sterling
Resource Funding Corp. At such date, the Companys nonaccrual loans amounted to $4.5 million;
$0.4 million of such loans was judged to be impaired within the scope of SFAS No. 114. Loans 90 days
past due and still accruing amounted to $2.0 million. Based on the foregoing, as well as managements
judgment as to the current risks inherent in loans held in portfolio, the Companys allowance
for loan losses was deemed adequate to absorb all reasonably anticipated losses on specifically known
and other potential credit risks associated with the portfolio as of September 30, 2006. Net
losses within loans held in portfolio are not statistically predictable and changes in conditions
in the next twelve months could result in future provisions for loan losses varying from the level
taken in the first nine months of 2006. Potential problem loans, which are loans that are currently
performing under present loan repayment terms but where known information about possible credit problems
of borrowers causes management to have serious doubts as to the ability of the borrowers to continue
to comply with the present repayment terms, aggregated $0.5 million at September 30, 2006.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--



|Deposits
A significant source of funds for the Company continues to be deposits, consisting of demand (noninterest-bearing),
NOW, savings, money market and time deposits (principally certificates of deposit).
The following table provides certain
information with respect to the Companys deposits:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                         

|                        | September 30, |          
|----------------------- | ------------- | ---------
|
|
|
|
|
|
|Domestic                |               |          
|Demand                  | $             | 507,367  
|NOW                     |               | 189,952  
|Savings                 |               | 20,711   
|Money market            |               | 194,291  
|Time deposits           |               | 520,091  
|                        |               |          
|                        |               |          
|Total domestic deposits |               | 1,432,412
|Foreign                 |               |          
|Time deposits           |               | 3,031    
|                        |               |          
|                        |               |          
|Total deposits          | $             | 1,435,443
|                        |               |          

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 30 and 31.
CAPITAL
The Company and the bank are subject to risk-based capital regulations which quantitatively measure
capital against risk-weighted assets, including certain off-balance sheet items. These regulations
define the elements of the Tier 1 and Tier 2 components of Total Capital and establish minimum ratios
of 4% for Tier 1 capital and 8% for Total Capital for capital adequacy purposes. Supplementing these
regulations is a leverage requirement. This requirement establishes a minimum leverage ratio (at
least 3% or 4%, depending upon an institutions regulatory status) which is calculated by dividing
Tier 1 capital by adjusted quarterly average assets (after deducting goodwill). Information regarding
the Companys and the banks risk-based capital is presented on page 34. 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, 2006, the Company and the bank exceeded the requirements for well capitalized institutions.

|28
|--



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

|29
|--



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

|                                                                          | 2006 |           | 2005 |  
|------------------------------------------------------------------------- | ---- | --------- | ---- | -
|                                                                          |      |           |      |  
|
|                                                                          |      |           |      |  
|Interest-bearing deposits
        with other banks                        | $    | 2,346     |      | $
|Securities available for sale                                             |      | 140,167   |      |  
|Securities held to maturity                                               |      | 464,408   |      |  
|Securities tax-exempt [2]                                                 |      | 24,728    |      |  
|                                                                          |      |           |      |  
|Total investment securities                                               |      | 629,303   |      |  
|Federal funds sold                                                        |      | 978       |      |  
|Loans, net of unearned discounts [3]                                      |      | 1,051,501 |      |  
|                                                                          |      |           |      |  
|TOTAL INTEREST-EARNING ASSETS                                             |      | 1,684,128 |      |  
|                                                                          |      |           |      |  
|Cash and due from banks                                                   |      | 59,133    |      |  
|Allowance for loan losses                                                 |      | (18,516   | )    |  
|Goodwill                                                                  |      | 22,958    |      |  
|Other assets                                                              |      | 92,616    |      |  
|                                                                          |      |           |      |  
|Total assets-continuing operations                                        |      | 1,840,319 |      |  
|Assets-discontinued operations                                            |      | 108,481   |      |  
|                                                                          |      |           |      |  
|TOTAL ASSETS                                                              | $    | 1,948,800 |      |  
|                                                                          |      |           |      |  
|                                                                          |     
|LIABILITIES AND SHAREHOLDERS
        EQUITY                              |      |           |      |  
|Interest-bearing deposits                                                 |      |           |      |  
|Domestic                                                                  |      |           |      |  
|Savings                                                                   | $    | 22,559    |      |  
|NOW                                                                       |      | 210,116   |      |  
|Money market                                                              |      | 201,523   |      |  
|Time                                                                      |      | 496,304   |      |  
|Foreign                                                                   |      |           |      |  
|Time                                                                      |      | 3,030     |      |  
|                                                                          |      |           |      |  
|Total interest-bearing deposits                                           |      | 933,532   |      |  
|                                                                          |      |           |      |  
|Borrowings                                                                |      |           |      |  
|Securities sold under agreements
          to repurchase - customers      |      | 89,672    |      |  
|Securities sold under agreements
          to repurchase - dealers        |      | 81,701    |      |  
|Federal funds purchased                                                   |      | 22,568    |      |  
|Commercial paper                                                          |      | 50,076    |      |  
|Short-term borrowings - FHLB                                              |      | 52,953    |      |  
|Short-term borrowings - other                                             |      | 395       |      |  
|Long-term borrowings - FHLB                                               |      | 25,543    |      |  
|Long-term borrowings - sub debt                                           |      | 25,774    |      |  
|                                                                          |      |           |      |  
|Total borrowings                                                          |      | 348,682   |      |  
|                                                                          |      |           |      |  
|Interest-bearing liabilities allocated
        to discontinued operations |      | (99,377   | )    |  
|                                                                          |      |           |      |  
|TOTAL INTEREST-BEARING LIABILITIES                                        |      | 1,182,837 |      |  
|                                                                          |      |           |      |  
|Noninterest-bearing deposits                                              |      | 424,834   |      |  
|Other liabilities                                                         |      | 96,492    |      |  
|Liabilities-discontinued operations                                       |      | 99,377    |      |  
|                                                                          |      |           |      |  
|Total liabilities                                                         |      | 1,803,540 |      |  
|                                                                          |     
|Shareholders equity                                                      |      | 145,260   |      |  
|                                                                          |      |           |      |  
|TOTAL LIABILITIES AND
           SHAREHOLDERS EQUITY                     | $    | 1,948,800 |      |  
|                                                                          |      |           |      |  
|Net interest income/spread                                                |      |           |      |  
|                                                                          |      |           |      |  
|                                                                          |      |           |      |  
|Net yield on interest-earning assets (margin)                             |      |           |      |  
|                                                                          |      |           |      |  
|Less: Tax equivalent adjustment                                           |      |           |      |  
|                                                                          |      |           |      |  
|Net interest income                                                       |      |           |      | $
|                                                                          |      |           |      |  

|   
|---
|[1]
|   
|[2]
|   
|[3]

|30
|--



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

|                                                                          | 2006 |           | 2005 |  
|------------------------------------------------------------------------- | ---- | --------- | ---- | -
|                                                                          |      |           |      |  
|
|                                                                          |      |           |      |  
|Interest-bearing deposits
        with other banks                        | $    | 2,390     |      | $
|Securities available for sale                                             |      | 151,265   |      |  
|Securities held to maturity                                               |      | 486,263   |      |  
|Securities tax-exempt [2]                                                 |      | 28,721    |      |  
|                                                                          |      |           |      |  
|Total investment securities                                               |      | 666,249   |      |  
|Federal funds sold                                                        |      | 2,454     |      |  
|Loans, net of unearned discounts [3]                                      |      | 1,018,876 |      |  
|                                                                          |      |           |      |  
|TOTAL INTEREST-EARNING ASSETS                                             |      | 1,689,969 |      |  
|                                                                          |      |           |      |  
|Cash and due from banks                                                   |      | 62,442    |      |  
|Allowance for loan losses                                                 |      | (17,711   | )    |  
|Goodwill                                                                  |      | 22,671    |      |  
|Other assets                                                              |      | 90,439    |      |  
|                                                                          |      |           |      |  
|Total assets-continuing operations                                        |      | 1,847,810 |      |  
|Assets-discontinued operations                                            |      | 111,676   |      |  
|                                                                          |      |           |      |  
|TOTAL ASSETS                                                              | $    | 1,959,486 |      |  
|                                                                          |      |           |      |  
|                                                                          |      |           |      |  
|LIABILITIES AND SHAREHOLDERS
        EQUITY                              |      |           |      |  
|Interest-bearing deposits                                                 |      |           |      |  
|Domestic                                                                  |      |           |      |  
|Savings                                                                   | $    | 23,956    |      |  
|NOW                                                                       |      | 189,741   |      |  
|Money market                                                              |      | 216,014   |      |  
|Time                                                                      |      | 507,732   |      |  
|Foreign                                                                   |      |           |      |  
|Time                                                                      |      | 3,027     |      |  
|                                                                          |      |           |      |  
|Total interest-bearing deposits                                           |      | 940,470   |      |  
|                                                                          |      |           |      |  
|Borrowings                                                                |      |           |      |  
|Securities sold under agreements
          to repurchase - customers      |      | 83,760    |      |  
|Securities sold under agreements
          to repurchase - dealers        |      | 91,634    |      |  
|Federal funds purchased                                                   |      | 18,291    |      |  
|Commercial paper                                                          |      | 47,225    |      |  
|Short-term borrowings - FHLB                                              |      | 40,264    |      |  
|Short-term borrowings - other                                             |      | 628       |      |  
|Long-term borrowings - FHLB                                               |      | 38,938    |      |  
|Long-term borrowings - sub debt                                           |      | 25,774    |      |  
|                                                                          |      |           |      |  
|Total borrowings                                                          |      | 346,514   |      |  
|                                                                          |      |           |      |  
|Interest-bearing liabilities allocated
        to discontinued operations |      | (101,790  | )    |  
|                                                                          |      |           |      |  
|TOTAL INTEREST-BEARING LIABILITIES                                        |      | 1,185,194 |      |  
|                                                                          |      |           |      |  
|Noninterest-bearing deposits                                              |      | 436,006   |      |  
|Other liabilities                                                         |      | 91,641    |      |  
|Liabilities-discontinued operations                                       |      | 101,790   |      |  
|                                                                          |      |           |      |  
|Total liabilities                                                         |      | 1,814,631 |      |  
|                                                                          |      |           |      |  
|Shareholders equity                                                      |      | 144,855   |      |  
|                                                                          |      |           |      |  
|TOTAL LIABILITIES AND
           SHAREHOLDERS EQUITY                     | $    | 1,959,486 |      |  
|                                                                          |      |           |      |  
|Net interest income/spread                                                |      |           |      |  
|                                                                          |      |           |      |  
|Net yield on interest-earning
        assets (margin)                     |      |           |      |  
|                                                                          |      |           |      |  
|Less: Tax equivalent adjustment                                           |      |           |      |  
|                                                                          |      |           |      |  
|Net interest income                                                       |      |           |      | $
|                                                                          |      |           |      |  

|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[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  SUBSIDIARIESRate/Volume  Analysis  [1]
 (Unaudited)
    (in thousands)
|--------------------------------------------------------------------------------------------
|                                                                                            

|                                                                                     | Increase/ (Decrease)
    Three Months Ended
      September 30, 2006 to September 30, 2005 |       
|------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ------
|
|
|
|INTEREST INCOME                                                                      |                                                                                            |       
|Interest-bearing deposits with other banks                                           | $                                                                                          | (6    
|                                                                                     |                                                                                            |       
|                                                                                    
|Securities available for sale                                                        |                                                                                            | (584  
|Securities held to maturity                                                          |                                                                                            | (458  
|Securities tax-exempt                                                                |                                                                                            |      
|                                                                                     |                                                                                            |       
|Total investment securities                                                          |                                                                                            | (1,042
|                                                                                     |                                                                                            |       
|                                                                                    
|Federal funds sold                                                                   |                                                                                            | (68   
|                                                                                    
|Loans, net of unearned discounts [3]                                                 |                                                                                            | 1,390 
|                                                                                     |                                                                                            |       
|                                                                                    
|TOTAL INTEREST INCOME                                                                | $                                                                                          | 274   
|                                                                                     |                                                                                            |       
|                                                                                    
|INTEREST EXPENSE                                                                     |                                                                                            |       
|Interest-bearing deposits                                                            |                                                                                            |       
|Domestic                                                                             |                                                                                            |       
|Savings                                                                              | $                                                                                          | (6    
|NOW                                                                                  |                                                                                            | 178   
|Money market                                                                         |                                                                                            | (187  
|Time                                                                                 |                                                                                            | (262  
|Foreign                                                                              |                                                                                            |       
|Time                                                                                 |                                                                                            |      
|                                                                                     |                                                                                            |       
|Total interest-bearing deposits                                                      |                                                                                            | (277  
|                                                                                     |                                                                                            |       
|                                                                                    
|Borrowings                                                                           |                                                                                            |       
|Securities sold under agreements
          to repurchase - customers                 |                                                                                            | 18    
|Securities sold under agreements
          to repurchase - dealers                   |                                                                                            | 265   
|Federal funds purchased                                                              |                                                                                            | (8    
|Commercial paper                                                                     |                                                                                            | 139   
|Short-term borrowings - FHLB                                                         |                                                                                            | 642   
|Short-term borrowings - other                                                        |                                                                                            | (4    
|Long-term borrowings - FHLB                                                          |                                                                                            | (625  
|Long-term borrowings - sub debt                                                      |                                                                                            |      
|                                                                                     |                                                                                            |       
|Total borrowings                                                                     |                                                                                            | 427   
|                                                                                     |                                                                                            |       
|                                                                                    
|Less: interest-bearing liabilities allocated
            to  discontinued operations |                                                                                            | (10   
|                                                                                     |                                                                                            |       
|TOTAL INTEREST EXPENSE                                                               | $                                                                                          | 140   
|                                                                                     |                                                                                            |       
|NET INTEREST INCOME                                                                  | $                                                                                          | 134   
|                                                                                     |                                                                                            |       

|    |                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[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.                                                   

|32
|--



|STERLING BANCORP AND  SUBSIDIARIES
  Rate/Volume  Analysis   [1]
  (Unaudited)
  (in thousands)
|-----------------------------------------------------------------------------------------------
|                                                                                               

|                                                                                    | Increase/ (Decrease)
      Nine Months Ended
      September 30, 2006 to September 30, 2005 |       
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------
|
|
|
|INTEREST INCOME                                                                     |                                                                                             |       
|Interest-bearing deposits with other banks                                          | $                                                                                           | (10   
|                                                                                    |                                                                                             |       
|                                                                                   
|Securities available for sale                                                       |                                                                                             | (1,574
|Securities held to maturity                                                         |                                                                                             | (224  
|Securities tax-exempt                                                               |                                                                                             | 76    
|                                                                                    |                                                                                             |       
|Total investment securities                                                         |                                                                                             | (1,722
|                                                                                    |                                                                                             |       
|                                                                                   
|Federal funds sold                                                                  |                                                                                             | (321  
|                                                                                   
|Loans, net of unearned discounts [3]                                                |                                                                                             | 5,559 
|                                                                                    |                                                                                             |       
|                                                                                   
|TOTAL INTEREST INCOME                                                               | $                                                                                           | 3,506 
|                                                                                    |                                                                                             |       
|                                                                                   
|INTEREST EXPENSE                                                                    |                                                                                             |       
|Interest-bearing deposits                                                           |                                                                                             |       
|Domestic                                                                            |                                                                                             |       
|Savings                                                                             | $                                                                                           | (13   
|NOW                                                                                 |                                                                                             | 267   
|Money market                                                                        |                                                                                             | (110  
|Time                                                                                |                                                                                             | (166  
|Foreign                                                                             |                                                                                             |       
|Time                                                                                |                                                                                             |      
|                                                                                    |                                                                                             |       
|Total interest-bearing deposits                                                     |                                                                                             | (22   
|                                                                                    |                                                                                             |       
|                                                                                   
|Borrowings                                                                          |                                                                                             |       
|Securities sold under agreements
          to repurchase - customers                |                                                                                             | (43   
|Securities sold under agreements
          to repurchase - dealers                  |                                                                                             | 1,315 
|Federal funds purchased                                                             |                                                                                             | 71    
|Commercial paper                                                                    |                                                                                             | 247   
|Short-term borrowings  FHLB                                                        |                                                                                             | 1,374 
|Short-term borrowings  other                                                       |                                                                                             | (2    
|Long-term borrowings  FHLB                                                         |                                                                                             | (1,598
|Long-term borrowings  sub debt                                                     |                                                                                             |      
|                                                                                    |                                                                                             |       
|Total borrowings                                                                    |                                                                                             | 1,364 
|                                                                                    |                                                                                             |       
|Less: interest-bearing liabilities allocated
            to discontinued operations |                                                                                             | (35   
|                                                                                    |                                                                                             |       
|TOTAL INTEREST EXPENSE                                                              | $                                                                                           | 1,307 
|                                                                                    |                                                                                             |       
|                                                                                   
|NET INTEREST INCOME                                                                 | $                                                                                           | 2,199 
|                                                                                    |                                                                                             |       

|    |                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[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 SUBSIDIARIES
|---------------------------------
|Regulatory Capital and Ratios    
|                                 

|Ratios and Minimums   
|----------------------
|(dollars in thousands)
|                      

|                                             | Actual |         | For Capital
      Adequacy Minimum |  | To Be Well
      Capitalized |  
|-------------------------------------------- | ------ | ------- | ---------------------------------- |  | ---------------------------- | -
|
|
|
|Total Capital (to Risk Weighted Assets):     |        |         |                                    |  |                              |  
|The Company                                  | $      | 164,841 |                                    |  | 12.63                        | %
|The bank                                     |        | 144,287 |                                    |  | 11.12                        |  
|                                             |        |         |                                    |  |                              |  
|Tier 1 Capital (to Risk Weighted Assets):    |        |         |                                    |  |                              |  
|The Company                                  |        | 148,519 |                                    |  | 11.38                        |  
|The bank                                     |        | 128,061 |                                    |  | 9.87                         |  
|                                             |        |         |                                    |  |                              |  
|Tier 1 Leverage Capital (to Average Assets): |        |         |                                    |  |                              |  
|The Company                                  |        | 148,519 |                                    |  | 7.71                         |  
|The bank                                     |        | 128,061 |                                    |  | 6.90                         |  
|                                             |        |         |                                    |  |                              |  
|                                             |        |         |                                    |  |                              |  
|As of December 31, 2005                      |        |         |                                    |  |                              |  
|                                             |        |         |                                    |  |                              |  
|Total Capital (to Risk Weighted Assets):     |        |         |                                    |  |                              |  
|The Company                                  | $      | 172,946 |                                    |  | 13.28                        | %
|The bank                                     |        | 135,307 |                                    |  | 10.99                        |  
|                                             |        |         |                                    |  |                              |  
|Tier 1 Capital (to Risk Weighted Assets):    |        |         |                                    |  |                              |  
|The Company                                  |        | 156,659 |                                    |  | 12.03                        |  
|The bank                                     |        | 119,910 |                                    |  | 9.74                         |  
|                                             |        |         |                                    |  |                              |  
|Tier 1 Leverage Capital (to Average Assets): |        |         |                                    |  |                              |  
|The Company                                  |        | 156,659 |                                    |  | 7.96                         |  
|The bank                                     |        | 119,910 |                                    |  | 6.33                         |  

|34
|--



|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.

|35
|--



|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, 2006, presented on page 40, 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, 2006, the Company was a party to two interest rate floor agreements with notional
amounts of $50,000,000 each and maturities of September 14, 2007 and September 14, 2008, respectively.
Interest rate floor contracts require the counterparty to pay the Company at specified future dates
the amount, if any, by which the specified interest (prime rate) falls below the fixed floor rates,
applied to the notional amounts. The Company utilizes the financial instruments to adjust its interest
rate risk position without exposing itself to principal risk and funding requirements. These financial
instruments are being used as part of the Companys interest rate risk management and not for
trading purposes. At September 30, 2006, all counterparties have investment grade credit ratings
from the major rating agencies. Each counterparty is specifically approved for applicable credit exposure.
The interest rate floor contracts require the Company to pay a fee for the right to receive a fixed
interest payment. The Company paid up-front premiums of$141,250.  At September 30, 2006, there were no amounts receivable under these contracts. At September
30, 2005, the Company was not a party to any derivative contracts.
The interest rate floor agreements were not designated as hedges for accounting purposes and therefore
changes in the fair values of the instruments are required to be recognized as income or expenses
in the Companys financial statements. At September 30, 2006 the aggregate fair value of the
interest rate floors was $6,091, and $4,309 was credited against Other Expenses for the
three months ended September 30, 2006, and $21,939 was charged to Other Expenses for
the nine months ended September 30, 2006.
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
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|36
|--



|to changes in interest rates than the Companys adjustable rate assets whose yields are based
on external indices and generally change in concert with market interest rates.
The Companys interest rate sensitivity is determined by 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, 2006, the model indicated the impact of a 200 basis point parallel and pro rata
rise in rates over 12 months would approximate a 0.2% ($0.2 million) increase in net interest income,
while the impact of a 200 basis point decline in rates over the same period would approximate a 4.9%
($4.1 million) decline from an unchanged rate environment.
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon
as being indicative of expected operating results. These hypothetical estimates are based upon numerous
assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities,
deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot
provide any assurances as to the predictive nature of these assumptions, including how customers
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 cause downward pressure on net interest income. In general, if and
to the extent that the yield curve is flatter (i.e., the differences between interest rates for different
maturities are relatively smaller) than previously anticipated, then the yield on the Companys
interest-earning assets and its cash flows will tend to be lower. Management believes that a relatively
flat yield curve would continue to adversely affect the Companys results in 2006.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|37
|--



|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, 2006, the parent companys short-term debt, consisting principally of commercial
paper used to finance ongoing current business activities, was approximately $44.4 million. The parent
company had cash, interest-bearing deposits with banks and other current assets aggregating $58.8
million. The parent company also has back-up credit lines with banks of $24.0 million. Since 1979,
the parent company has had no need to use the available back-up lines of credit.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38
|--



|The following table sets forth information regarding the Companys obligations and commitments
to make future payments under contract as of September 30, 2006:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                               

|                                   | Payments Due by Period |       
|---------------------------------- | ---------------------- | ------
|                                   |                        |       
|
|                                   |                       
|
|                                  
|Long-Term Debt                     | $                      | 45,774
|                                   |                        |       
|Operating Leases                   |                        | 27,312
|                                   |                        |       
|                                  
|Total Contractual Cash Obligations | $                      | 73,086
|                                   |                        |       

|                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) Of which $25,774 may be redeemed by the Company on or after March 31, 2007 at a price equal to
principal amount plus accrued interest to the date of redemption.
The following table sets forth information regarding the Companys obligations under other commercial
commitments as of September 30, 2006:
|                                                                                                                                                                                                                                                                                                                

|                                   | Amount
      of Commitment Expiration Per Period |        
|---------------------------------- | ------------------------------------------------ | -------
|                                   |                                                  |        
|
|                                   |                                                 
|
|
|Residential
      loans            | $                                                | 16,840 
|Commercial
      Loans             |                                                  | 52,827 
|                                   |                                                  |        
|Total Loans                        |                                                  | 69,667 
|Standby Letters
      of Credit    |                                                  | 32,928 
|Other Commercial
      Commitments |                                                  | 15,440 
|                                   |                                                  |        
|                                   |                                                  |        
|Total Commercial
      Commitments | $                                                | 118,035
|                                   |                                                  |        

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

|39
|--



|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.  Amounts are presented in thousands. Based on the interest rate sensitivity analysis shown below, the Companys  net interest income would increase during periods of rising interest rates and  decrease during periods of falling interest rates.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                                   | Repricing Date |        
|------------------------------------------------------------------ | -------------- | -------
|
|
|
|ASSETS                                                             |                |        
|Interest-bearing deposits
          with other banks               | $              | 1,348  
|Investment securities                                              |                | 16,738 
|Commercial and industrial loans                                    |                | 574,853
|Equipment lease financing                                          |                | 2,132  
|Real estate-residential mortgage                                   |                | 36,865 
|Real estate-commercial mortgage                                    |                | 26,132 
|Real estate-construction loans                                     |                | 3,733  
|Installment-individuals                                            |                | 14,156 
|Loans to depository institutions                                   |                | 27,000 
|Noninterest-earning assets &
          allowance for loan losses   |                |       
|                                                                   |                |        
|Total Assets                                                       |                | 702,957
|                                                                   |                |        
|                                                                   |                |        
|LIABILITIES AND
      SHAREHOLDERS EQUITY                         |                |        
|Interest-bearing deposits                                          |                |        
|Savings   [1]                                                      |                |       
|NOW   [1]                                                          |                |       
|Money market   [1]                                                 |                | 152,072
|Time - domestic                                                    |                | 227,134
|- foreign                                                          |                | 2,636  
|Securities sold under agreement
          to repurchase - customer |                | 56,342 
|Securities sold under agreement
          to repurchase - dealer   |                | 58,385 
|Federal funds purchased                                            |                | 20,000 
|Commercial paper                                                   |                | 44,366 
|Short-term borrowings  FHLB                                       |                | 30,000 
|Short-term borrowings  other                                      |                | 1,110  
|Long-term borrowings  FHLB                                        |                |       
|Long-term borrowings 
          subordinated debentures           |                |       
|Noninterest-bearing liabilities
        & shareholders equity     |                |       
|                                                                   |                |        
|Total Liabilities and
                       Shareholders Equity  |                | 592,045
|                                                                   |                |        
|                                                                   |                |        
|Net Interest Rate
             Sensitivity Gap                     | $              | 110,912
|                                                                   |                |        
|                                                                   |                |        
|Cumulative Gap
              September 30, 2006                    | $              | 110,912
|                                                                   |                |        
|                                                                   |                |        
|Cumulative Gap
              September 30, 2005                    | $              | 130,636
|                                                                   |                |        
|                                                                   |                |        
|Cumulative Gap
              December 31, 2005                     | $              | 37,715 
|                                                                   |                |        

|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[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.

|40
|--



|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,
2006 that has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.

|41
|--



|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 2006. At September 30, 2006, the maximum number of shares that  may yet be purchased under the share repurchase program was 240,319.
      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 June 16, 2005,  when the Board of Directors increased the Companys authority to repurchase  common shares by an additional 800,000 shares.
      Item 5. Other Information
      On November 7, 2006, the Company  entered
into a Change in Control Severance and Retention Agreement
(Agreement) with Dale C. Fredston (Officer), First Vice
President and Corporate Secretary of the Company. The following summary is
qualified in its entirety by reference to the Agreement, which is included as
Exhibit 10 to this Quarterly Report on Form 10-Q and incorporated herein by
reference. Capitalized terms used but not defined herein have the meanings
provided in the Agreement. The Agreement provides in effect as follows (among
other terms):
    Upon the occurrence of
any of a variety of actions that, if consummated, would constitute a Change in
Control, the Officer will not voluntarily leave the employ of the Company, other
than for Good Reason, until such Change in Control occurs or such action is
terminated or abandoned. If within one year following a Change in Control the
Officers employment is terminated pursuant to a Qualifying Termination,
the company will pay the Officer a cash severance amount equal to her highest
annual base salary during the 12-month period immediately prior to the
Qualifying Termination. On the other hand, if the Officer remains employed for
one year after a Change in Control, the Company will pay her a retention bonus
equal to her highest annual base salary during the period commencing one year
prior to a Change in Control and ending on the date of payment of the retention
bonus.

|42
|--



|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 August 5, 2004 (Filed as Exhibit 3(ii)(A) to the Registrants Form 10-Q
for the quarter ended June 30, 2004 and incorporated herein by reference).                                                                       
| |      |      |                                                                                                                                                                                                                                                  
| | 10.  |      | Change in Control Severance and Retention
Agreement, dated as of November 7, 2006, between the
Company and Dale C. Fredston.                                                                                                                     
| |      |      |                                                                                                                                                                                                                                                  
| | 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.                                                                                                                                                    

|43
|--



|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)
|                     |  |              |                                                                  
|                     |  |              |                                                                  
|DateNovember 9, 2006 |  | /s/          | Louis J. Cappelli                                                
|                     |  |              | Louis J. Cappelli                                                
|                     |  |              | Chairman and                                                     
|                     |  |              | Chief Executive Officer                                          
|                     |  |              |                                                                  
|                     |  |              |                                                                  
|DateNovember 9, 2006 |  | /s/          | John W. Tietjen                                                  
|                     |  |              | John W. Tietjen                                                  
|                     |  |              | Executive Vice President                                         
|                     |  |              | and Chief Financial Officer                                      

|44
|--



|STERLING BANCORP AND SUBSIDIARIES
EXHIBIT INDEX
|-----------------------------------------------
|                                               

|Exhibit |  |                                                                                                                            | Sequential
|------- |  | -------------------------------------------------------------------------------------------------------------------------- | ----------
|Number  |  | Description                                                                                                                | Page No.  
|        |  |                                                                                                                            |           
|10      |  | Change
in Control Severance and Retention Agreement dated as of November 7, 2006, between
the Company and Dale C. Fredston | 46        
|        |  |                                                                                                                            |           
|11      |  | Statement
re: Computation of Per Share Earnings.                                                                           | 58        
|        |  |                                                                                                                            |           
|31.1    |  | Certification
of the CEO pursuant to Exchange Act Rule 13a-14(a).                                                          | 59        
|        |  |                                                                                                                            |           
|31.2    |  | Certification
of the CFO pursuant to Exchange Act Rule 13a-14(a).                                                          | 60        
|        |  |                                                                                                                            |           
|32.1    |  | Certification of the CEO required by Section 1350 of Chapter 63 of Title 18 of the U.S.
Code.                              | 61        
|        |  |                                                                                                                            |           
|32.2    |  | Certification
of the CFO required by Section 1350 of Chapter 63 of Title 18 of the U.S.
Code.                              | 62        

|45
|--