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Sterling Bancorp announces record results for the second quarter of 2018 with earnings per share available to common stockholders of $0.50 (as reported) and $0.50 (as adjusted), representing growth of 61.3% and 51.5% over the same quarter a year ago

Key Performance Highlights for the Three Months ended June 30, 2018 vs. June 30, 2017

       
($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  6/30/2017   6/30/2018   Change 
% / bps
  6/30/2017   6/30/2018   Change 
% / bps
Total revenue2 $ 126,876     $ 284,084     123.9 %   $ 131,301     $ 276,806     110.8 %
Net income available to common 42,400     112,245     164.7     44,393     112,868     154.2  
Diluted EPS available to common 0.31     0.50     61.3     0.33     0.50     51.5  
Net interest margin3 3.35 %   3.56 %   21     3.47 %   3.62 %   15  
Return on average tangible common equity 14.74     18.68     394     15.43     18.79     336  
Return on average tangible assets 1.22     1.54     32     1.28     1.55     27  
Operating efficiency ratio4 47.0     44.0     (300 )   42.0     38.3     (370 )
                                   
  • Record net income available to common stockholders of $112.2 million (as reported) and $112.9 million (as adjusted).
  • Total portfolio loans, gross were $20.7 billion and total deposits were $21.0 billion at June 30, 2018.
  • Completed acquisition of Advantage Funding Management Co., Inc., including $457.6 million loan portfolio.
  • Record low operating efficiency ratios of 44.0% (reported) and 38.3% (as adjusted).
  • Operating leverage ratio of 2.9x relative to the same quarter a year ago.
  • Tangible book value per common share1 of $10.91 at June 30, 2018; growth of 26.1% over the prior year.

Key Performance Highlights for the Three Months ended June 30, 2018 vs. March 31, 2018

       
($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  3/31/2018   6/30/2018   Change  % / bps   3/31/2018   6/30/2018   Change 
% / bps
Total revenue2 $ 253,077     $ 284,084     12.3 %   $ 262,568     $ 276,806     5.4 %
Net income available to common 96,873     112,245     15.9     100,880     112,868     11.9  
Diluted EPS available to common 0.43     0.50     16.3     0.45     0.50     11.1  
Net interest margin3 3.54 %   3.56 %   2     3.60 %   3.62 %   2  
Return on average tangible common equity 16.55     18.68     213     17.24     18.79     155  
Return on average tangible assets 1.39     1.54     15     1.45     1.55     10  
Operating efficiency ratio4 44.2     44.0     (20 )   40.3     38.3     (200 )
                                   
  • Growth in adjusted diluted earnings per share available to common stockholders of 11.1% over the linked quarter.
  • Loan portfolio continues to transition; growth in average commercial loan balances of $897.2 million over linked quarter.
  • Merger integration is on-track; annualized run-rate operating expenses of $424.9 million1 in the second quarter.
  • Total deposit growth of $342.7 million; cost of total deposits increased eight basis points to 0.55%.
  • Consolidated six financial centers, one back-office location and completed sale of Lake Success headquarters.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 17.
2. Total revenue is equal to net interest income plus non-interest income. Total revenue as adjusted is equal to tax equivalent net interest income
plus non-interest income excluding securities gains and losses.
3. Net interest margin is equal to net interest income divided by average interest earning assets. Net interest margin as adjusted, or tax equivalent
net interest margin, is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average interest
earning assets.
4. Operating efficiency ratio is a non-GAAP measure. See page 21 for an explanation of the operating efficiency ratio.

1

MONTEBELLO, N.Y., July 24, 2018 (GLOBE NEWSWIRE) -- Sterling Bancorp (STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and six months ended June 30, 2018. Net income available to common stockholders for the quarter ended June 30, 2018 was $112.2 million, or $0.50 per diluted share, compared to net income available to common stockholders of $96.9 million, or $0.43 per diluted share, for the linked quarter ended March 31, 2018, and net income available to common stockholders of $42.4 million, or $0.31 per diluted share, for the three months ended June 30, 2017.

Net income available to common stockholders for the six months ended June 30, 2018 was $209.1 million, or $0.93 per diluted share, compared to net income available to common stockholders of $81.5 million, or $0.60 per diluted share, for the same period in 2017.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We continued our strong operating performance in the second quarter of 2018 across all metrics with record adjusted net income available to common stockholders of $112.2 million and adjusted diluted earnings per share available to common stockholders of $0.50, which represents growth of 154.2% and 51.5%, respectively, over the second quarter of 2017. Our adjusted return on average tangible assets was 1.55% and our adjusted return on average tangible common equity was 18.79%. As of June 30, 2018, our total assets were $31.5 billion, gross portfolio loans were $20.7 billion and total deposits were $21.0 billion.

“We continued to execute our strategy of transitioning our earning assets and balance sheet to a more optimal mix. The average balance of commercial loans increased by $897.2 million in the second quarter, while the average balance of residential mortgage loans decreased by $175.6 million. We will continue to replace lower yielding assets that we acquired in the merger with Astoria Financial Corporation (“Astoria” and the “Astoria Merger”) with higher yielding, more diversified commercial loans that we originate through our teams or acquire in opportunistic situations, such as the acquisition of Advantage Funding Management Co., Inc. (“Advantage Funding”), which we completed in April 2018. We anticipate this strategy will benefit our tax equivalent net interest margin, which was 3.21% in the second quarter of 2018 (excluding the impact of accretion income on acquired loans), and represented an increase of six basis points over the linked quarter.

“We are ahead of plan on our integration of Astoria, and to date we have made significant progress merging the personnel, systems, facilities and all other areas of Astoria’s operations with our own. Excluding the amortization of intangibles, operating expenses were $105.9 million in the second quarter, which represented an annual run-rate of $424.9 million. Our adjusted operating efficiency ratio reached a record low of 38.3%. Comparing this quarter’s performance to the same quarter a year ago, our operating leverage ratio, which we define as growth in operating revenues divided by growth in operating expenses, was 2.9x. We still have much work to do to fully capture the benefits of our acquisition of Astoria, but we are confident in our ability to continue building a larger, more diversified and more profitable company.

“Our tangible common equity ratio was 8.28% and our estimated Tier 1 Leverage ratio was 9.32% at June 30, 2018; we have ample capital to support our strategy. Our tangible book value per common share was $10.91, which represented an increase of 26.1% over a year ago.

“We would like to thank our clients, colleagues and shareholders for your support and look forward to working with all of our partners as we continue to build a great company.

“Lastly, we have declared a dividend on our common stock of $0.07 per share payable on August 20, 2018 to holders of record as of August 6, 2018.”

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $112.2 million, or $0.50 per diluted share, for the second quarter of 2018, included the following items:

  • a pre-tax gain of $11.8 million from the sale of Astoria’s Lake Success headquarters;
  • a pre-tax charge of $8.7 million to vacate a back-office location which included a data operations center and was consolidated as a result of the Astoria Merger.  This is the final anticipated charge associated with the Astoria Merger;
  • a pre-tax charge of $4.4 million related to the acquisition of Advantage Funding for professional fees, severance, retention, systems integration expense and facilities consolidation;
  • a pre-tax loss of $425.0 thousand on sale of available for sale securities; and
  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $295 thousand.

2

Excluding the impact of these items, adjusted net income available to common stockholders was $112.9 million, or $0.50 per diluted share, for the three months ended June 30, 2018.

Non-GAAP financial measures include references to the terms “adjusted” or “excluding”. See the reconciliation of the Company’s non-GAAP financial measures beginning on page 17.

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Linked Qtr
Interest and dividend income $ 134,263     $ 281,346     $ 304,906     127.1 %   8.4 %
Interest expense 21,005     46,976     58,690     179.4     24.9  
Net interest income $ 113,258     $ 234,370     $ 246,216     117.4     5.1  
                   
Accretion income on acquired loans $ 2,888     $ 30,340     $ 28,010     869.9 %   (7.7 )%
Yield on loans 4.58 %   4.85 %   5.01 %   43     16  
Tax equivalent yield on investment securities 2.93     2.85     2.88     (5 )   3  
Tax equivalent yield on interest earning assets 4.09     4.31     4.47     38     16  
Cost of total deposits 0.43     0.47     0.55     12     8  
Cost of interest bearing deposits 0.62     0.59     0.68     6     9  
Cost of borrowings 1.75     2.01     2.23     48     22  
Cost of interest bearing liabilities 0.89     0.89     1.06     17     17  
Tax equivalent net interest margin5 3.47     3.60     3.62     15     2  
                   
Average loans, including loans held for sale $ 9,786,423     $ 19,635,900     $ 20,339,964     107.8 %   3.6 %
Average investment securities 3,434,535     6,602,175     6,751,528     96.6     2.3  
Average total interest earning assets 13,562,853     26,833,922     27,757,380     104.7     3.4  
Average deposits and mortgage escrow 10,285,349     20,688,147     20,768,669     101.9     0.4  
                             

5 Tax equivalent net interest margin is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average interest earning assets. The tax equivalent adjustment is assumed at a 35% federal tax rate in 2017 and 21% in 2018.

Second quarter 2018 compared with second quarter 2017
Net interest income was $246.2 million, an increase of $133.0 million compared to the second quarter of 2017.  This was mainly due to an increase in average loans outstanding between the periods as a result of the Astoria Merger, loans originated through our commercial banking teams and the Advantage Funding acquisition. Other key components of the changes in net interest income and net interest margin were the following:

  • The yield on loans was 5.01% compared to 4.58% for the three months ended June 30, 2017.  The increase in yield on loans was mainly due to an increase in accretion income on acquired loans, which was $28.0 million in the second quarter of 2018 compared to $2.9 million in the second quarter of 2017.
  • Average commercial loans6 were $15.2 billion compared to $8.8 billion in the second quarter of 2017, an increase of $6.4 billion or 72.3%.
  • The tax equivalent yield on investment securities decreased five basis points to 2.88%.  This was mainly due to the change in the federal income tax rate resulting from the Tax Cuts and Jobs Act of 2017 as the tax equivalent adjustment assumed a 35% federal tax rate in 2017 compared to 21% in 2018. Average tax exempt securities balances grew to $2.6 billion for the quarter ended June 30, 2018, compared to $1.3 billion in the second quarter of 2017. Average investment securities were $6.8 billion, or 24.3%, of average earning assets for the second quarter of 2018 compared to $3.4 billion, or 25.3%, of average earning assets for the second quarter of 2017.
  • The tax equivalent yield on interest earning assets increased 38 basis points between the periods to 4.47%, mainly due to higher accretion income on acquired loans, as described above.

6 Commercial loans include all C&I loans, commercial real estate (including multi-family) and acquisition development and construction loans.

3

  • The cost of total deposits was 55 basis points and the cost of borrowings was 2.23%, compared to 43 basis points and 1.75%, respectively, for the same period a year ago.
  • The total cost of interest bearing liabilities increased 17 basis points to 1.06% for the second quarter of 2018 compared to 0.89% for the second quarter of 2017.  The increase was mainly due to an increase in market interest rates, which increased the cost of wholesale, brokered and certificates of deposit between the periods.

The tax equivalent net interest margin was 3.62% for the second quarter of 2018 compared to 3.47% for the second quarter of 2017. The increase in tax equivalent net interest margin was mainly due to the increase in accretion income on acquired loans.  Excluding accretion income, tax equivalent net interest margin was 3.21% for the second quarter of 2018 compared to 3.39% in the second quarter of 2017. The decline in tax equivalent net interest margin excluding accretion income is mainly due to multi-family and residential mortgage loans acquired in the Astoria Merger, which generally have lower yields than the Company’s other loan assets, the change in tax equivalent adjustment rate due to the decrease in the federal income tax rate, and the increase in the cost of interest bearing liabilities.

Second quarter 2018 compared with linked quarter ended March 31, 2018

Net interest income increased $11.8 million compared to the linked quarter. The increase in net interest income was mainly due to higher average balances of commercial loans and investment securities and higher prepayment penalties, which was partially offset by a $2.3 million decline in accretion income on acquired loans.  Key components of the changes in net interest income compared to the linked quarter were the following:

  • The yield on loans was 5.01% compared to 4.85% for the linked quarter, an increase of 16 basis points.  This was mainly due to the Advantage Funding acquisition; loan prepayment activity, which increased interest income on commercial loans by $2.5 million; and repricing of floating rate loans given increases in interest rates. Accretion income on acquired loans was $28.0 million in the second quarter of 2018 compared to $30.3 million in the linked quarter.
  • The average balance of portfolio loans increased $704.1 million and the average balance of commercial loans increased $897.2 million compared to the linked quarter. The average balance of residential mortgage loans declined $175.6 million compared to the linked quarter, mainly due to repayments.  The increase in the average balance of commercial loans was due to organic growth and the Advantage Funding acquisition, which represented $457.8 million of the increase in the average balance.
  • The tax equivalent yield on investment securities increased three basis points to 2.88% in the second quarter of 2018, mainly due to higher market interest rates on the acquisition of securities. The average balance of investment securities increased $149.4 million compared to the linked quarter.
  • The tax equivalent yield on interest earning assets increased 16 basis points in the second quarter of 2018 to 4.47% compared to 4.31% in the linked quarter.
  • The cost of total deposits increased eight basis points to 55 basis points in the quarter. The total cost of borrowings increased to 2.23% compared to 2.01% in the linked quarter, mainly due to higher rates paid on borrowings from the Federal Home Loan Bank of New York given increases in interest rates.
  • Average interest bearing deposits increased by $90.9 million and average borrowings increased $834.7 million relative to the linked quarter. Total interest expense increased by $11.7 million over the linked quarter.

The tax equivalent net interest margin was 3.62% compared to 3.60% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.15% in the linked quarter compared to 3.21% in the second quarter of 2018. The increase in tax equivalent net interest margin excluding accretion income was mainly due to the acquisition of Advantage Funding and the increase in loan prepayment activity. The composition of the Company’s earning assets continued to shift in the second quarter of 2018, as the average balance of residential mortgage loans decreased by $175.6 million and represented 22.5% of total portfolio loans compared to 24.5% at March 31, 2018. We anticipate that over time we will continue to replace the run-off of residential mortgages and other loans acquired in the Astoria Merger with higher yielding commercial loans.

4

Non-interest Income

($ in thousands) For the three months ended   Change %
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Linked Qtr
Total non-interest income $ 13,618     $ 18,707     $ 37,868     178.1 %   102.4 %
Net (loss) on sale of securities (230 )   (5,421 )   (425 )   84.8     (92.2 )
Net gain on sale of Lake Success facility         11,797     NM     NM  
Adjusted non-interest income $ 13,848     $ 24,128     $ 26,496     91.3     9.8  
                                   

Second quarter 2018 compared with second quarter 2017
Excluding net (loss) on sale of securities and net gain on sale of the Lake Success facility, adjusted non-interest income increased $12.6 million in the second quarter of 2018 to $26.5 million, compared to $13.8 million in the same quarter last year.  The change was mainly due to the Astoria Merger as deposit fees and service charges increased by $3.7 million; bank owned life insurance income increased by $2.6 million; investment management fees increased by $1.8 million; and safe deposit box rental income increased by $615 thousand, which is included in other non-interest income. In addition, fee income generated on payroll finance loans increased $1.0 million (which represents the majority of the increase in accounts receivable management / factoring commissions and other related fees) and other loan fees, including letters of credit and loan swaps, increased $2.2 million over the year ago period.

The sale of the Lake Success facility was completed in April 2018. In connection with the sale, we leased back the facility for 12 months and realized a pre-tax gain of $11.8 million.

Second quarter 2018 compared with linked quarter ended March 31, 2018
Excluding net (loss) on sale of securities and net gain on sale of Lake Success facility, adjusted non-interest income increased approximately $2.4 million from $24.1 million in the linked quarter to $26.5 million in the second quarter of 2018. Increases in other loan fees, including letters of credit and loan swap fees, was the main contributor to the increase between the linked periods.

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Linked Qtr
Compensation and benefits $ 31,394     $ 54,680     $ 56,159     78.9 %   2.7 %
Stock-based compensation plans 1,897     2,854     3,336     75.9     16.9  
Occupancy and office operations 8,833     17,460     17,939     103.1     2.7  
Information technology 2,421     11,718     9,997     312.9     (14.7 )
Amortization of intangible assets 2,187     6,052     5,865     168.2     (3.1 )
FDIC insurance and regulatory assessments 2,034     5,347     5,495     170.2     2.8  
Other real estate owned, net (“OREO”) 112     364     (226 )   (301.8 )   (162.1 )
Merger-related expenses 1,766             NM     NM  
Charge for asset write-downs, systems integration, retention and severance 603         13,132     NM     NM  
Other expenses 8,410     13,274     13,231     57.3     (0.3 )
Total non-interest expense $ 59,657     $ 111,749     $ 124,928     109.4     11.8  
Full time equivalent employees (“FTEs”) at period end 997     2,016     2,037     104.3     1.0  
Financial centers at period end 40     127     121     202.5     (4.7 )
Operating efficiency ratio, as reported 47.0 %   44.2 %   44.0 %   300     20  
Operating efficiency ratio, as adjusted6 42.0     40.3     38.3     370     200  

6 See a reconciliation of this non-GAAP financial measure beginning on page 17.

Second quarter 2018 compared with second quarter 2017
Total non-interest expense increased $65.3 million relative to the second quarter of 2017. Key components of the change in non-interest expense were the following:

5

  • Compensation and benefits increased $24.8 million between the periods.  Total FTEs increased to 2,037 from 997, which was mainly due to the Astoria Merger and the continued hiring of commercial bankers and risk management personnel.
  • Occupancy and office operations increased $9.1 million mainly due to the financial centers and other locations acquired in the Astoria Merger.
  • Information technology expense increased $7.6 million between the periods.  The increase is mainly due to the Astoria Merger.  We anticipate this expense will decrease upon completion of our full systems conversion, which is scheduled for the third quarter of 2018.
  • Amortization of intangible assets increased $3.7 million. The increase is mainly due to the amortization of the core deposit intangible asset that was recorded in the Astoria Merger.
  • FDIC insurance and regulatory assessments increased $3.5 million to $5.5 million in the second quarter of 2018, compared to $2.0 million for the second quarter of 2017.  This was mainly due to growth in our total assets.
  • OREO expense, net declined $338 thousand to $226 thousand of income in the second quarter of 2018, compared to $112 thousand of expense for the second quarter of 2017.  In the second quarter of 2018, gain on sale of OREO was $811 thousand, which substantially offset OREO write-downs and maintenance expense.
  • Charge for asset write-downs, systems integration, retention and severance was $13.1 million compared to $603 thousand in the second quarter of 2017.  The charge in the second quarter of 2018 included an $8.7 million charge related to the Astoria Merger. This impairment charge had been identified at the time of the closing of the Astoria Merger; however, our consolidation strategy had not met the cease use requirements to record the impairment charge until this period. This charge is the final anticipated Astoria Merger-related item.  Since the announcement of the Astoria Merger, total merger-related expense has been an aggregate of $152.5 million, which is below the Company’s initial merger announcement date estimate of $165.0 million. The balance of the charge which was recorded in the second quarter of 2018 of $4.4 million was related to the Advantage Funding acquisition.  The charge included, professional fees, retention and severance, systems integration costs, and an impairment of a real estate lease assumed in the transaction.
  • Other expenses increased $4.8 million, mainly due to the Astoria Merger, and included communications expense, professional fees, operational losses, advertising and other.

Second quarter 2018 compared with linked quarter ended March 31, 2018
Total non-interest expense increased $13.2 million from $111.7 million in the linked quarter to $124.9 million in the second quarter of 2018. Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $1.5 million and was $56.2 million in the second quarter of 2018 compared to $54.7 million in the linked quarter.  This was mainly due to the addition of Advantage Funding personnel.
  • Occupancy and office operations increased $479 thousand mainly due to real estate taxes paid during the second quarter of 2018.
  • Information technology expense declined $1.7 million in the second quarter of 2018 compared to the linked quarter, mainly as a result of consolidation and termination of duplicative systems.
  • OREO expense declined $590 thousand in the second quarter of 2018 compared to the linked quarter and resulted in a gain, as described above.

Taxes
For the three months ended June 30, 2018, the Company earned pre-tax income of $146.2 million. We recorded income tax expense at 21.8% for the three months ended June 30, 2018, which resulted in an estimated effective tax rate of 22.50% for the six months ended June 30, 2018. In addition, we recorded a tax benefit as a discrete item related to stock-based compensation that vested in the six months ended June 30, 2018 of $1.5 million.  For the three months ended June 30, 2017, we recorded income tax expense at 32.50% and had an effective tax rate of 31.8% for the six months ended June 30, 2017.  We recorded a tax benefit of $806 thousand as a discrete item related to stock-based compensation that vested in the six months ended June 30, 2017.

The Company’s effective tax rate for full year 2018 is currently estimated at 22.50%, which is also the effective tax rate used for purposes of calculating adjusted earnings per share available to common stockholders for the three months and six months ended June 30, 2018.

6

Key Balance Sheet Highlights as of June 30, 2018

($ in thousands) As of   Change % / bps
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Linked Qtr
Total assets $ 15,376,676     $ 30,468,780     $ 31,463,077     104.6 %   3.3 %
Total portfolio loans, gross 10,232,317     19,939,245     20,674,493     102.1     3.7  
Commercial & industrial (“C&I”) loans 4,619,789     5,341,548     6,288,683     36.1     17.7  
Commercial real estate loans 4,430,985     9,099,606     9,160,760     106.7     0.7  
Acquisition, development and construction loans 223,713     262,591     236,915     5.9     (9.8 )
Total commercial loans 9,274,487     14,703,745     15,686,358     69.1     6.7  
Residential mortgage loans 692,562     4,883,452     4,652,501     571.8     (4.7 )
Total deposits 10,502,710     20,623,233     20,965,889     99.6     1.7  
Core deposits 8 9,593,150     19,538,410     19,870,947     107.1     1.7  
Investment securities 3,552,176     6,635,286     6,789,246     91.1     2.3  
Total borrowings 2,661,838     4,927,594     5,537,537     108.0     12.4  
Loans to deposits 97.4 %   96.7 %   98.6 %   120     190  
Core deposits to total deposits 87.9     94.7     94.8     690     10  
Investment securities to total assets 23.1     21.8     21.6     (150 )   (20 )

8 Given the Company’s greater proportion of certificates of deposit after completion of the Astoria Merger, the Company modified its definition of core deposits to also include certificates of deposit beginning in the first quarter of 2018. Core deposits include retail, commercial and municipal transaction, money market and savings accounts and certificates of deposit accounts and exclude brokered and wholesale deposits, except for reciprocal Certificate of Deposit Account Registry balances.

Highlights in balance sheet items as of June 30, 2018 were the following:

  • C&I loans (which include traditional C&I, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance loans) represented 30.4%, commercial real estate loans (which include multi-family loans) represented 44.3%, consumer and residential mortgage loans combined represented 24.1%, and acquisition, development and construction loans represented 1.2% of the total loan portfolio.  Loan growth in the year-over-year period was mainly a result of the Astoria Merger, originations by our commercial banking teams and the Advantage Funding acquisition.  Linked quarter comparisons are discussed below.
  • C&I loans grew $947.1 million in the second quarter of 2018 compared to the linked quarter, which included $457.6 million of loans acquired in the Advantage Funding transaction.
  • Total commercial loans, which include all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $982.6 million in the linked quarter.  Excluding loans acquired in the Astoria Merger, commercial loans increased by $1.9 billion in the past twelve months.
  • Residential mortgage loans were $4.7 billion at June 30, 2018, compared to $4.9 billion at March 31, 2018.  The decline was mainly due to repayments of loans acquired in the Astoria Merger.
  • Total deposits at June 30, 2018 increased $342.7 million compared to March 31, 2018, and increased $10.5 billion over June 30, 2017.  We assumed $9.0 billion of deposits in the Astoria Merger.  The remaining increase in deposits was mainly due to growth in commercial deposits and certificates of deposit.
  • Core deposits at June 30, 2018 increased $332.5 million compared to March 31, 2018. Core deposits increased $10.3 billion over June 30, 2017.
  • Municipal deposits at June 30, 2018 were $1.6 billion and experienced a seasonal decline of $122.7 million relative to March 31, 2018.
  • Investment securities increased by $154.0 million relative to March 31, 2018, and represented 21.6% of total assets at June 30, 2018.

7

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Linked Qtr
Provision for loan losses $ 4,500     $ 13,000     $ 13,000     188.9 %   %
Net charge-offs 1,288     8,815     9,066     603.9     2.8  
Allowance for loan losses 70,151     82,092     86,026     22.6     4.8  
Non-performing loans 71,351     182,046     190,975     167.7     4.9  
Loans 30 to 89 days past due 15,070     59,818     73,441     387.3     22.8  
Annualized net charge-offs to average loans 0.05 %   0.18 %   0.18 %   13      
Allowance for loan losses to total loans 0.69     0.41     0.42     (27 )   1  
Allowance for loan losses to non-performing loans 98.3     45.1     45.0     (5,330 )   (10 )
                             

Provision for loan losses was $13.0 million for the second quarter of 2018, unchanged from the linked quarter, and was $4.5 million in the same period a year ago. In the second quarter of 2018, provision for loan losses was $3.9 million in excess of net charge-offs of $9.1 million.  Allowance coverage ratios were 0.42% of total loans and 45.0% of non-performing loans at June 30, 2018.  Due to the Astoria Merger, a significant portion of the Company’s loan portfolio does not carry an allowance for loan losses, as the acquired loans are recorded at their estimated fair value on the acquisition date. Non-performing loans increased by $8.9 million to $191.0 million at June 30, 2018 compared to the linked quarter.  The increase in non-performing loans was mainly due to the Advantage Funding acquisition and traditional C&I loans and commercial real estate loans that have matured and were over 90 days past due at June 30, 2018, which are in the process of being renewed and are expected to return to performing status.  Loans 30 to 89 days past due increased $13.6 million in the linked quarter; loans acquired from Advantage Funding represented $11.3 million of this increase.

Capital

($ in thousands, except share and per share data) As of   Change % / bps
  6/30/2017   3/31/2018   6/30/2018   Y-o-Y   Three
months
Total stockholders’ equity $ 1,931,383     $ 4,273,755     $ 4,352,735     125.4 %   1.8 %
Preferred stock     139,025     138,828     NM     (0.1 )
Goodwill and intangible assets 758,484     1,727,030     1,754,418     131.3     1.6  
Tangible common stockholders’ equity $ 1,172,899     $ 2,407,700     $ 2,459,489     109.7     2.2  
Common shares outstanding 135,658,226     225,466,266     225,470,254     66.2      
Book value per common share $ 14.24     $ 18.34     $ 18.69     31.3     1.9  
Tangible book value per common share 9 8.65     10.68     10.91     26.1     2.2  
Tangible common equity to tangible assets 9 8.02 %   8.38 %   8.28 %   26     (10 )
Estimated Tier 1 leverage ratio - Company 8.72     9.39     9.32     60     (7 )
Estimated Tier 1 leverage ratio - Bank 8.89     10.00     9.84     95     (16 )

 9 See a reconciliation of non-GAAP financial measures beginning on page 17.

The increase in total stockholders’ equity of $79.0 million to $4.4 billion as of June 30, 2018 compared to March 31, 2018 was mainly due to earnings. The increase from net income available to common stockholders of $112.2 million was partially offset by common dividends of $15.7 million, preferred dividends of $2.2 million and a decrease in the fair value of our available for sale investment securities of $20.5 million.

Total goodwill and other intangible assets were $1.8 billion at June 30, 2018, an increase of $27.4 million compared to March 31, 2018, which was due to the Advantage Funding acquisition partially offset by amortization of intangibles for the period.

For the quarter ended June 30, 2018, basic and diluted weighted average common shares outstanding increased to 225.1 million and 225.6 million, respectively, compared to 224.7 million and 225.3 million, respectively, for the quarter ended March 31, 2018.  The increase in the diluted weighted average shares was mainly due to stock-based compensation granted to new hires and the effect of grants issued during the first quarter of 2018. Total common shares outstanding at June 30, 2018 were approximately 225.5 million.

8

Tangible book value per share was $10.91 at June 30, 2018, which represented an increase of 26.1% over a year ago and an increase of 2.2% over March 31, 2018.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, July 25, 2018 at 1:00 PM Eastern Time to discuss the Company’s results. Analysts, investors and interested parties are invited to listen to the webcast and view accompanying slides on the Company’s website at www.sterlingbancorp.com or by dialing (866) 548-4713, Conference ID #1433450.  A replay of the teleconference can be accessed through the Company’s website.

About Sterling Bancorp
Sterling Bancorp, whose principal subsidiary is Sterling National Bank, specializes in the delivery of services and solutions to business owners, their families and consumers within the communities it serves through teams of dedicated and experienced relationship managers. Sterling National Bank offers a complete line of commercial, business, and consumer banking products and services. For more information, visit the Sterling Bancorp website at www.sterlingbancorp.com.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This release may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may concern Sterling Bancorp’s current expectations about its future results, plans, operations and prospects and involve certain risks, including the following: difficulties and delays in integrating Astoria’s business, Advantage Funding’s business, or fully realizing cost savings and other benefits; business disruption; a failure to grow revenues faster than we grow expenses, a deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in the real estate market and constrained financial markets; inflation; the effects of, and changes in, trade; changes in asset quality and credit risk; introduction, withdrawal, success and timing of business initiatives; capital management activities; customer disintermediation; and the success of Sterling Bancorp in managing those risks.  Other factors that could cause Sterling Bancorp’s actual results to differ from those indicated in forward-looking statements are included in the “Risk Factors” section of Sterling Bancorp’s filings with the Securities and Exchange Commission.  The forward-looking statements speak only as of the date they are made and we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Financial information contained in this release should be considered to be an estimate pending the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2018. While the Company is not aware of any need to revise the results disclosed in this release, accounting literature may require information received by management between the date of this release and the filing of the Quarterly Report on Form 10-Q to be reflected in the results of the fiscal period, even though the new information was received by management subsequent to the date of this release.

9

 
 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(unaudited, in thousands, except share and per share data)
 
  6/30/2017   12/31/2017   6/30/2018
Assets:                      
Cash and cash equivalents $ 282,167     $ 479,906     $ 445,189  
Investment securities 3,552,176     6,474,561     6,789,246  
Loans held for sale     5,246     30,626  
Portfolio loans:          
Commercial and industrial (“C&I”) 4,619,789     5,306,821     6,288,683  
Commercial real estate (including multi-family) 4,430,985     8,998,419     9,160,760  
Acquisition, development and construction 223,713     282,792     236,915  
Residential mortgage 692,562     5,054,732     4,652,501  
Consumer 265,268     366,219     335,634  
Total portfolio loans, gross 10,232,317     20,008,983     20,674,493  
Allowance for loan losses (70,151 )   (77,907 )   (86,026 )
Total portfolio loans, net 10,162,166     19,931,076     20,588,467  
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost 160,241     284,112     380,404  
Accrued interest receivable 47,548     94,098     103,095  
Premises and equipment, net 57,794     321,722     290,762  
Goodwill 696,600     1,579,891     1,613,144  
Other intangibles 61,884     153,191     141,274  
Bank owned life insurance 202,911     651,638     657,637  
Other real estate owned 10,198     27,095     20,264  
Other assets 142,991     357,005     402,969  
Total assets $ 15,376,676     $ 30,359,541     $ 31,463,077  
Liabilities:          
Deposits $ 10,502,710     $ 20,538,204     $ 20,965,889  
FHLB borrowings 2,290,000     4,510,123     5,067,492  
Other borrowings 122,596     30,162     19,114  
Senior notes 76,635     278,209     278,103  
Subordinated notes 172,607     172,716     172,828  
Mortgage escrow funds 16,431     122,641     130,629  
Other liabilities 264,314     467,308     476,287  
Total liabilities 13,445,293     26,119,363     27,110,342  
Stockholders’ equity:          
Preferred stock     139,220     138,828  
Common stock 1,411     2,299     2,299  
Additional paid-in capital 1,592,299     3,780,908     3,769,505  
Treasury stock (61,576 )   (58,039 )   (51,269 )
Retained earnings 415,617     401,956     592,953  
Accumulated other comprehensive (loss) (16,368 )   (26,166 )   (99,581 )
Total stockholders’ equity 1,931,383     4,240,178     4,352,735  
Total liabilities and stockholders’ equity $ 15,376,676     $ 30,359,541     $ 31,463,077  
           
Shares of common stock outstanding at period end 135,658,226     224,782,694     225,470,254  
Book value per common share $ 14.24     $ 18.24     $ 18.69  
Tangible book value per common share1 8.65     10.53     10.91  
1 See reconciliation of non-GAAP financial measures beginning on page 17.

10

 
 
Sterling Bancorp and Subsidiaries 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 
(unaudited, in thousands, except share and per share data)
 
  For the Quarter Ended
  For the Six Months Ended
  6/30/2017   3/31/2018   6/30/2018   6/30/2017   6/30/2018
Interest and dividend income:                                      
Loans and loan fees $ 111,840     $ 234,615     $ 254,253     $ 216,410     $ 488,868  
Securities taxable 13,113     27,061     29,031     25,395     56,092  
Securities non-taxable 7,791     15,312     15,403     15,409     30,715  
Other earning assets 1,519     4,358     6,219     3,049     10,576  
Total interest and dividend income 134,263     281,346     304,906     260,263     586,251  
Interest expense:                  
Deposits 10,905     24,206     28,464     20,413     52,671  
Borrowings 10,100     22,770     30,226     17,802     52,996  
Total interest expense 21,005     46,976     58,690     38,215     105,667  
Net interest income 113,258     234,370     246,216     222,048     480,584  
Provision for loan losses 4,500     13,000     13,000     9,000     26,000  
Net interest income after provision for loan losses 108,758     221,370     233,216     213,048     454,584  
Non-interest income:                  
Deposit fees and service charges 3,249     7,003     6,985     6,584     13,988  
Accounts receivable management / factoring
 commissions and other related fees
4,137     5,360     5,337     7,906     10,696  
Bank owned life insurance 1,652     3,614     4,243     3,022     7,857  
Loan commissions and fees 2,836     3,406     4,566     5,823     7,973  
Investment management fees 323     1,825     2,121     554     3,946  
Net (loss) on sale of securities (230 )   (5,421 )   (425 )   (253 )   (5,846 )
Gain on sale of fixed assets     4     11,797         11,800  
Other 1,651     2,916     3,244     2,818     6,161  
Total non-interest income 13,618     18,707     37,868     26,454     56,575  
Non-interest expense:                  
Compensation and benefits 31,394     54,680     56,159     62,785     110,840  
Stock-based compensation plans 1,897     2,854     3,336     3,633     6,190  
Occupancy and office operations 8,833     17,460     17,939     16,967     35,399  
Information technology 2,421     11,718     9,997     4,890     21,713  
Amortization of intangible assets 2,187     6,052     5,865     4,416     11,917  
FDIC insurance and regulatory assessments 2,034     5,347     5,495     3,922     10,841  
Other real estate owned, net 112     364     (226 )   1,788     138  
Merger-related expenses 1,766             4,893      
Charge for asset write-downs, systems
 integration, retention and severance
603         13,132     603     13,132  
Other 8,410     13,274     13,231     16,110     26,505  
Total non-interest expense 59,657     111,749     124,928     120,007     236,675  
Income before income tax expense 62,719     128,328     146,156     119,495     274,484  
Income tax expense 20,319     29,456     31,915     38,028     61,371  
Net income 42,400     98,872     114,241     81,467     213,113  
Preferred stock dividend     1,999     1,996         3,995  
Net income available to common stockholders $ 42,400     $ 96,873     $ 112,245     $ 81,467     $ 209,118  
Weighted average common shares:                  
Basic 135,317,866     224,730,686     225,084,232     135,241,034     224,908,436  
Diluted 135,922,897     225,264,147     225,621,856     135,867,861     225,444,579  
Earnings per common share:                  
Basic earnings per share $ 0.31     $ 0.43     $ 0.50     $ 0.60     $ 0.93  
Diluted earnings per share 0.31     0.43     0.50     0.60     0.93  
Dividends declared per share 0.07     0.07     0.07     0.14     0.14  
                             
                             

11

Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
End of Period 6/30/2017   9/30/2017   12/31/2017   3/31/2018   6/30/2018
Total assets $ 15,376,676     $ 16,780,097     $ 30,359,541     $ 30,468,780     $ 31,463,077  
Tangible assets 1 14,618,192     16,023,807     28,626,459     28,741,750     29,708,659  
Securities available for sale 2,095,872     2,579,076     3,612,072     3,760,338     3,929,386  
Securities held to maturity 1,456,304     1,936,574     2,862,489     2,874,948     2,859,860  
Portfolio loans 10,232,317     10,493,535     20,008,983     19,939,245     20,674,493  
Goodwill 696,600     696,600     1,579,891     1,579,891     1,613,144  
Other intangibles 61,884     59,690     153,191     147,139     141,274  
Deposits 10,502,710     11,043,438     20,538,204     20,623,233     20,965,889  
Municipal deposits (included above) 1,297,244     1,751,012     1,585,076     1,775,472     1,652,733  
Borrowings 2,661,838     3,453,783     4,991,210     4,927,594     5,537,537  
Stockholders’ equity 1,931,383     1,971,480     4,240,178     4,273,755     4,352,735  
Tangible common equity 1 1,172,899     1,215,190     2,367,876     2,407,700     2,459,489  
Quarterly Average Balances                  
Total assets 14,704,793     15,661,514     29,277,502     30,018,289     30,994,904  
Tangible assets 1 13,944,946     14,904,016     27,567,351     28,287,337     29,237,608  
Loans, gross:                  
Commercial real estate (includes multi-family) 4,396,281     4,443,142     8,839,256     9,028,849     9,100,098  
Acquisition, development and construction 251,404     229,242     246,141     267,638     247,500  
Commercial and industrial:                  
Traditional commercial and industrial 1,497,005     1,631,436     1,911,450     1,933,323     2,026,313  
Asset-based lending2 737,039     740,037     781,732     781,392     778,708  
Payroll finance2 225,080     229,522     250,673     229,920     219,545  
Warehouse lending2 430,312     607,994     564,593     495,133     731,385  
Factored receivables2 181,499     191,749     224,966     217,865     224,159  
Equipment financing2 660,404     687,254     677,271     689,493     1,140,803  
Public sector finance2 441,456     476,525     480,800     653,344     725,675  
  Total commercial and industrial 4,172,795     4,564,517     4,891,485     5,000,470     5,846,588  
Residential mortgage 697,441     686,820     5,168,622     4,977,191     4,801,595  
Consumer 268,502     262,693     372,981     361,752     344,183  
Loans, total3 9,786,423     10,186,414     19,518,485     19,635,900     20,339,964  
Securities (taxable) 2,142,168     2,483,718     3,840,147     3,997,542     4,130,949  
Securities (non-taxable) 1,292,367     1,432,358     2,086,677     2,604,633     2,620,579  
Other interest earning assets 341,895     368,630     598,439     595,847     665,888  
Total earning assets 13,562,853     14,471,120     26,043,748     26,833,922     27,757,380  
Deposits:                  
Non-interest bearing demand 3,185,506     3,042,392     4,043,213     3,971,079     3,960,683  
Interest bearing demand 1,973,498     2,298,645     3,862,461     3,941,749     4,024,972  
Savings (including mortgage escrow funds) 816,092     825,620     2,871,885     2,917,624     2,916,755  
Money market 3,725,257     3,889,780     7,324,196     7,393,335     7,337,904  
Certificates of deposit 584,996     634,569     2,382,102     2,464,360     2,528,355  
Total deposits and mortgage escrow 10,285,349     10,691,006     20,483,857     20,688,147     20,768,669  
Borrowings 2,313,992     2,779,143     4,121,605     4,597,903     5,432,582  
Stockholders’ equity 1,913,933     1,955,252     4,235,739     4,243,897     4,305,928  
Tangible common equity 1 1,154,086     1,197,754     2,386,245     2,373,794     2,409,674  
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 17.
2 Asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance comprise our commercial finance loan portfolio.
3 Includes loans held for sale, but excludes allowance for loan losses.

12

Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATAAND PERFORMANCE RATIOS
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
Per Common Share Data 6/30/2017   9/30/2017    12/31/2017    3/31/2018    6/30/2018 
Basic earnings (loss) per share $ 0.31     $ 0.33     $ (0.16 )   $ 0.43     $ 0.50  
Diluted earnings (loss) per share 0.31     0.33     (0.16 )   0.43     0.50  
Adjusted diluted earnings per share, non-GAAP 1 0.33     0.35     0.39     0.45     0.50  
Dividends declared per common share 0.07     0.07     0.07     0.07     0.07  
Book value per share 14.24     14.52     18.24     18.34     18.69  
Tangible book value per share1 8.65     8.95     10.53     10.68     10.91  
Shares of common stock o/s 135,658,226     135,807,544     224,782,694     225,466,266     225,470,254  
Basic weighted average common shares o/s 135,317,866     135,346,791     223,501,073     224,730,686     225,084,232  
Diluted weighted average common shares o/s 135,922,897     135,950,160     224,055,991     225,264,147     225,621,856  
Performance Ratios (annualized)                  
Return on average assets 1.16 %   1.14 %   (0.48 )%   1.31 %   1.45 %
Return on average equity 8.89     9.10     (3.30 )   9.26     10.46  
Return on average tangible assets 1.22     1.19     (0.51 )   1.39     1.54  
Return on avg tangible common equity 14.74     14.86     (5.87 )   16.55     18.68  
Return on average tangible assets, adjusted 1 1.28     1.27     1.25     1.45     1.55  
Return on avg tangible common equity, adjusted 1 15.43     15.85     14.49     17.24     18.79  
Operating efficiency ratio, as adjusted 1 42.0     40.6     41.4     40.3     38.3  
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 2,888     $ 3,397     $ 33,726     $ 30,340     $ 28,010  
Yield on loans 4.58 %   4.67 %   4.77 %   4.85 %   5.01 %
Yield on investment securities - tax equivalent 2 2.93     2.87     3.03     2.85     2.88  
Yield on interest earning assets - tax equivalent 2 4.09     4.12     4.32     4.31     4.47  
Cost of interest bearing deposits 0.62     0.69     0.54     0.59     0.68  
Cost of total deposits 0.43     0.50     0.43     0.47     0.55  
Cost of borrowings 1.75     1.75     1.94     2.01     2.23  
Cost of interest bearing liabilities 0.89     0.97     0.82     0.89     1.06  
Net interest rate spread - tax equivalent basis 2 3.20     3.15     3.50     3.42     3.41  
Net interest margin - GAAP basis 3.35     3.29     3.57     3.54     3.56  
Net interest margin - tax equivalent basis 2 3.47     3.42     3.67     3.60  ...