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, 2008. Certain reclassifications have been made to prior years' financial data to conform to current financial statement presentations.

OVERVIEW

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

For the three months ended March 31, 2009, the bank's average earning assets represented approximately 99.8% of the Company's average earning assets. Loans represented 60.7% and investment securities represented 38.6% of the bank's average earning assets for the first quarter of 2009.

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.

INCOME STATEMENT ANALYSIS

Net interest income, which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities, is the Company's primary source of earnings. Net interest income can be affected by changes in market interest rates as well as the level and composition of assets, liabilities and shareholders' equity. Net interest spread is the difference between the average rate earned, on a tax-equivalent basis, on interest-earning assets and the average rate paid on interest-bearing liabilities. The net yield on interest-earning assets ("net interest margin") is calculated by dividing tax-equivalent net interest income by average interest-earning assets. Generally, the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources, principally noninterest-bearing deposits and shareholders' equity. The increases (decreases) in the components of interest income and interest expense, expressed in terms of fluctuation in average volume and rate, are provided in the Rate/Volume Analysis shown on page
31. Information as to the components of interest income and interest expense and average rates is provided in the Average Balance Sheets shown on page 30.

Comparison of the Three Months Ended March 31, 2009 and 2008

The Company reported net income for the three months ended March 31, 2009 of $3.6 million, representing $0.20 per share calculated on a diluted basis, compared to $4.0 million, or $0.22 per share calculated on a diluted basis, for the first quarter of 2008. This decrease reflects a higher provision for loan losses partially offset by increases in net interest income and noninterest income and lower noninterest expenses and the provision for income taxes. After dividends on preferred shares and accretion, net income available to common shareholders for the first quarter of 2009 was $2.8 million, representing $0.15 per share calculated on a diluted basis.

Net Interest Income

Net interest income, on a tax-equivalent basis, was $21.5 million for the first quarter of 2009 compared to $20.0 million for the 2008 period. Net interest income benefitted from higher average investment securities and loan balances, lower interest-bearing deposit balances and lower cost of funding. Partially offsetting those benefits was the impact of lower yield on loans and investment securities and higher borrowed funds balances. The net interest margin, on a tax-equivalent basis, was 4.50% for the first quarter of 2009 compared to 4.39% for the 2008 period. The net interest margin was impacted by the lower interest rate environment in 2009, the lower level of noninterest-bearing demand deposits and the effect of higher average investment securities and loans outstanding.

Total interest income, on a tax-equivalent basis, aggregated $26.7 million for the first quarter of 2009, down $3.1 million from the 2008 period. The tax-equivalent yield on interest-earning assets was 5.63% for the first quarter of 2009 compared to 6.65% for the 2008 period.

Interest earned on the loan portfolio decreased to $17.6 million for the first quarter of 2009 from $20.8 million the prior year period. Average loan balances amounted to $1,180.2 million, an increase of $75.7 million from an average of $1,104.5 million in the prior year period. The increase in average loans, primarily due to the Company's business development activities, accounted for a $1.2 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 6.19% for the first quarter of 2009 from 7.80% for the 2008 period was primarily attributable to the lower interest rate environment in 2009 and the mix of average outstanding balances among the components of the loan portfolio.

Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $9.2 million for the first quarter of 2009 from $9.1 million in the prior year period. Average outstandings increased to $750.3 million (38.6% of average earning assets) for the first quarter of 2009 from $720.5 million (39.4% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 4.6 years at March 31, 2009 compared to 7.4 years at March 31, 2008.

Total interest expense decreased by $4.7 million for the first quarter of 2009 from $9.9 million for the 2008 period, primarily due to the impact of lower rates paid for interest-bearing deposits and borrowings and lower interest-bearing deposit balance partially offset by the impact of higher borrowed funds balances.

Interest expense on deposits decreased to $3.3 million for the first quarter of 2009 from $6.9 million for the 2008 period, primarily due to a decrease in the cost of those funds. The average rate paid on interest-bearing deposits was 1.46%, which was 129 basis points lower than the prior year period. The decrease in average cost of deposits reflects the lower interest rate environment during 2009. Average interest-bearing deposits were $911.8 million for the first quarter of 2009 compared to $1,016.3 million for the prior year period, reflecting the Company's strategy to reduce reliance on higher-priced certificates of deposit.

Interest expense on borrowings decreased to $1.9 million for the first quarter of 2009 from $3.0 million for the 2008 period, primarily due to lower rates paid for borrowed funds partially offset by an increase in average balances. The average rate paid for borrowed funds was 1.64%, which was 199 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2009. Average borrowings increased to $476.8 million for the first quarter of 2009 from $330.5 million in the prior year period, reflecting greater reliance by the Company on wholesale funding.

Provision for Loan Losses

Based on management's continuing evaluation of the loan portfolio (discussed under "Asset Quality" on page 24), the provision for loan losses for the first quarter of 2009 was $6.2 million, compared to $2.0 million for the prior year period. Factors affecting the larger provision for the first quarter of 2009 included further deterioration of economic conditions during the quarter, a $3.5 million increase in net charge-offs, a $9.7 million increase in nonaccrual loans, and growth in the loan portfolio.

Noninterest Income

Noninterest income increased to $10.8 million for the first quarter of 2009 from $8.7 million in the 2008 period. The increase principally resulted from greater securities gains and lower losses on sales of other real estate owned partially offset by lower income related to accounts receivable management and factoring services and reduced mortgage banking income. In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $93.4 million of securities with a weighted average life of approximately 4 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years. Commissions and other fees earned from accounts receivable management and factoring services were lower due to reduced volume of billing by clients providing temporary staffing. Mortgage banking income was negatively affected by lower yield due to the mix of loans sold, the impact of which was only partially offset by increased volume.

Noninterest Expenses

Noninterest expenses for the first quarter of 2009 decreased $0.1 million when compared to the 2008 period reflecting management expense control efforts. The decrease was primarily due to lower occupancy and equipment expenses, employee benefits and professional fees. These decreases were partially offset by higher salaries primarily due to increased sales personnel and normal salary adjustments and higher deposit insurance costs.

Provision for Income Taxes

The provision for income taxes for the first quarter of 2009 decreased to $2.3 million from $2.4 million for the first quarter of 2008. The decrease was primarily due to the lower level of pre-tax income in the 2009 period.

BALANCE SHEET ANALYSIS

Securities

At March 31, 2009, the Company's portfolio of securities totaled $661.2 million, of which obligations of U.S. government corporations and government-sponsored enterprises amounted to $592.8 million, which is approximately 89.7% of the total. The Company has the intent and ability to hold to maturity securities classified as "held to maturity." These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on "held to maturity" securities were $8.0 million and $0.3 million, respectively. Securities classified as "available for sale" may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders' equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment upon market recovery or the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. "Available for sale" securities included gross unrealized gains of $4.8 million and gross unrealized losses of $4.3 million. After reviewing all investment securities the Company holds in order to determine if the decline in the fair value of any security appears to be other-than-temporary, management expects to realize all of its investment upon the maturity of such instruments and, thus, believes that any fair value impairment is temporary. Management has made an evaluation that the Company has the ability to hold securities with unrealized losses until maturity and, given its current intention to do so, anticipates that it will realize the full carrying value of its investment.

In connection with an asset liability management program designed to reduce the average life of the investment securities portfolio, the Company sold approximately $93.4 million of securities with a weighted average life of approximately 4 years. The Company expects to reinvest a significant portion of the proceeds in securities with an average life of less than two years.

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

                                   Weighted Average Life         Weighted Average Yield
March 31, 2009                      AFS            HTM             AFS             HTM


Mortgage-backed securities      3.5 Years       3.2 Years       4.45 %          4.43 %
Agency notes (with original
call dates ranging between 3
and 36 months)                  8.2 Years       1.3 Years       4.69 %          5.28 %
Obligations of state and
political subdivisions          6.6 Years      14.5 Years       6.07 % [1]      6.17 % [1]

(1) tax equivalent

The following table presents information regarding securities available for sale:

                                                          Gross          Gross         Estimated
                                        Amortized      Unrealized     Unrealized         Fair
March 31, 2009                            Cost            Gains         Losses           Value

Obligations of U.S. government
corporations and government
sponsored enterprises
Mortgage-backed securities
CMO's (Federal National Mortgage
Association)                          $   8,770,177    $   345,098    $         -    $   9,115,275
CMO's (Federal Home Loan Mortgage
Corporation)                             22,275,200        730,814              -       23,006,014
CMO's (Government National
Mortgage Association)                     5,977,794              -        148,779        5,829,015
Federal National Mortgage
Association                              43,342,805      1,398,892              -       44,741,697
Federal Home Loan Mortgage
Corporation                              30,961,196        550,275              -       31,511,471
Government National Mortgage
Association                              20,230,827        558,479          3,054       20,786,252

Total mortgage-backed securities        131,557,999      3,583,558        151,833      134,989,724

Agency Notes
Federal National Mortgage
Association                              20,000,000         40,625              -       20,040,625
Federal Home Loan Bank                  103,187,801        356,366        660,633      102,883,534
Federal Farm Credit Bank                 35,000,000         60,938        168,750       34,892,188

Total obligations of U.S.
government corporations and
government sponsored enterprises        289,745,800      4,041,487        981,216      292,806,071

Obligations of state and political
institutions                             23,048,630        620,754        187,166       23,482,218
Trust preferred securities                5,369,714         56,800      2,069,551        3,356,963
Corporate debt securities                20,877,655         30,560      1,050,547       19,857,668
Other debt securities                     5,994,458              -         11,083        5,983,375
Other securities                             54,442          8,042              -           62,484

Total marketable securities             345,090,699      4,757,643      4,299,563      345,548,779
Federal Reserve Bank stock                1,130,700              -              -        1,130,700
Federal Home Loan Bank stock              8,199,000              -              -        8,199,000
Other securities                            250,000              -              -          250,000

Total                                 $ 354,670,399    $ 4,757,643    $ 4,299,563    $ 355,128,479

The following table presents information regarding securities held to maturity:

                                                          Gross          Gross          Estimated
                                        Carrying       Unrealized      Unrealized         Fair
March 31, 2009                            Value           Gains          Losses           Value

Obligations of U.S. government
corporations and government
sponsored enterprises
Mortgage-backed securities
CMO's (Federal National Mortgage
Association)                          $  12,057,014    $   350,294    $          -    $  12,407,308
CMO's (Federal Home Loan Mortgage
Corporation)                             19,904,630        589,897             299       20,494,228
Federal National Mortgage
Association                             134,070,736      4,281,564           6,698      138,345,602
Federal Home Loan Mortgage
Corporation                              91,865,807      1,977,666         120,231       93,723,242
Government National Mortgage
Association                               7,104,546        430,818               -        7,535,364

Total mortgage-backed securities        265,002,733      7,630,239         127,228      272,505,744

Agency Notes
Federal Home Loan Bank                   20,000,000        275,000               -       20,275,000
Federal Home Loan Mortgage
Corporation                              15,000,000         23,520         199,880       14,823,640

Total obligations of U.S.
government corporations and
government sponsored enterprises        300,002,733      7,928,759         327,108      307,604,384
Obligations of state and political
institutions                              5,852,032         29,105           5,888        5,875,249
Debt securities issued by foreign
governments                                 250,000              -               -          250,000

Total                                 $ 306,104,765    $ 7,957,864    $    332,996    $ 313,729,633

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

Loan Portfolio

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

The Company's commercial and industrial loan and factored receivables portfolios represent approximately 51% of all loans. Loans in this category are typically made to small- and medium-sized businesses and range between $25,000 and $10 million. The Company's real estate mortgage portfolio, which represents approximately 23% of all loans, is comprised of mortgages secured by real property located principally in the states of New York, New Jersey, Virginia and North Carolina. The Company's leasing portfolio, which consists of finance leases for various types of business equipment, represents approximately 20% of all loans. Sources of repayment are 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:

                                                                March 31,

                                                    2009                         2008

                                                              ($ in thousands)
                                                            % of                         % of
                                            Balances       Total         Balances       Total

Domestic
Commercial and industrial                  $   523,603       42.57 %    $   512,376       43.51 %
Lease financing receivables                    246,052       20.00          254,885       21.64
Factored receivables                           104,693        8.51           92,876        7.89
Real estate - residential mortgage             190,267       15.47          152,702       12.97
Real estate - commercial mortgage               95,726        7.78           98,268        8.34
Real estate - construction and land
development                                     25,670        2.09           34,574        2.94
Installment - individuals                       19,043        1.55           11,956        1.01
Loans to depository institutions                25,000        2.03           20,000        1.70

Loans, net of unearned discounts $ 1,230,054 100.00 % $ 1,177,637 100.00 %

Asset Quality

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

During the first quarter of 2009, conditions across many segments of the economy continued to deteriorate, adversely affecting the financial condition of our small business borrowers as well as the value of our collateral. The Company also experienced a disruption in our collection efforts due to resignations of our collection manager and other members of the collection staff which resulted in increases in charge-offs and nonaccruals during the quarter. We have since upgraded our collection staff, intensified our collection activities, tightened our credit standards and enhanced other credit evaluation criteria. A continuation and/or worsening of existing economic conditions will likely result in a level of charge-offs and nonaccrual loans that will be higher than those in prior periods.

The following table sets forth the amount of non-performing assets (nonaccrual loans and other real estate owned). Also shown are loans that are past due more than 90 days and are still accruing because they are both well secured or guaranteed by financially responsible third parties and are in the process of collection.

                                                            March 31,

                                                       2009          2008

                                                        ($ in thousands)
Gross Loans                                         $ 1,265,054   $ 1,215,689

Nonaccrual loans
Commercial and industrial                           $     1,390   $       465
Lease financing                                          11,480         2,835
Factored receivables                                          -             -
Real Estate-residential mortgage                          3,297         3,156
Installment-individuals                                      21            44


Total nonaccrual loans                                   16,188         6,500

Other real estate owned                                   1,423         2,186

Total non-performing assets                         $    17,611   $     8,686


Loans past due 90 days or more and still accruing   $       768   $       526

Lease financing nonaccruals represent 4.12% of lease financing receivables. The lessees of the equipment are located in 39 states. At March 31, 2009, there were 117 leases ranging between approximately $100 and $238,000, 24 of which were over $100,000.

Residential real estate nonaccruals represent 2.27% of residential real estate loans held in portfolio. At March 31, 2009, there were 20 loans ranging between approximately $21,000 and $620,000 on properties located in six states.

At March 31, 2009, other real estate owned consisted of 13 properties with values between approximately $24,000 and $585,000 located in seven states.

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 . . .