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Sterling Bancorp announces results for the first quarter of 2019; strong operating momentum with diluted earnings per share available to common stockholders of $0.47 (as reported) and $0.50 (as adjusted), and significant progress in balance sheet transition strategy

Key Performance Highlights for the Three Months ended March 31, 2019 vs. March 31, 2018

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  3/31/2018   3/31/2019   Change
% / bps
  3/31/2018   3/31/2019   Change
% / bps
Total revenue2 $ 253,077     $ 255,103     0.8 %   $ 262,568     $ 263,923     0.5 %
Net income available to common 96,873     99,450     2.7     100,880     105,902     5.0  
Diluted EPS available to common 0.43     0.47     9.3     0.45     0.50     11.1  
Net interest margin3 3.54 %   3.48 %   (6 )   3.60 %   3.54 %   (6 )
Return on average tangible common equity 16.55     16.00     (55 )   17.24     17.04     (20 )
Return on average tangible assets 1.39     1.39         1.45     1.48     3  
Operating efficiency ratio4 44.2     45.1     90     40.3     40.5     20  
                                   
  • Net income available to common stockholders of $99.5 million (as reported) and $105.9 million (as adjusted).
  • Total commercial loans of $17.1 billion at March 31, 2019; growth of 16.1% over March 31, 2018.
  • Operating efficiency ratio of 45.1% (as reported) and 40.5% (as adjusted).
  • Repurchased 8,002,595 common shares in the first quarter of  2019.
  • Tangible book value per common share1 of $11.92; growth of 11.6% over March 31, 2018.

Key Performance Highlights for the Three Months ended March 31, 2019 vs. December 31, 2018

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  12/31/2018   3/31/2019   Change
% / bps
  12/31/2018   3/31/2019   Change
% / bps
Total revenue2 $ 265,346     $ 255,103     (3.9 )%   $ 274,247     $ 263,923     (3.8 )%
Net income available to common 112,501     99,450     (11.6 )   116,458     105,902     (9.1 )
Diluted EPS available to common 0.51     0.47     (7.8 )   0.52     0.50     (3.8 )
Net interest margin3 3.48 %   3.48 %       3.53 %   3.54 %   1  
Return on average tangible common equity 17.56     16.00     (156 )   18.17     17.04     (113 )
Return on average tangible assets 1.53     1.39     (14 )   1.58     1.48     (10 )
Operating efficiency ratio4 41.4     45.1     370     38.0     40.5     250  
                                   
  • Growth in commercial loan balances of $864.4 million over linked quarter; 21.6% annualized growth rate.
  • Acquired $497 million (par value) asset-based and equipment finance loan portfolio and origination platform.
  • Completed sale of $1.3 billion of residential mortgage loans; realized a gain of $8.3 million.
  • As adjusted net interest margin remained stable at 3.54%; balance sheet transition and improving deposit environment is anticipated will result in margin expansion in 2019.
  • Adjusted operating expenses were $106.9 million1; continued rationalization of real estate and financial center network is anticipated will reduce expenses in 2019.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 4.
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. The tax equivalent adjustment is assumed at a 21% federal tax rate in all periods presented.
4. Operating efficiency ratio is a non-GAAP measure. See page 4 for an explanation of the operating efficiency ratio.

1

MONTEBELLO, N.Y., April 24, 2019 (GLOBE NEWSWIRE) -- Sterling Bancorp (STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three months ended March 31, 2019. Net income available to common stockholders for the quarter ended March 31, 2019 was $99.4 million, or $0.47 per diluted share, compared to net income available to common stockholders of $112.5 million, or $0.51 per diluted share, for the linked quarter ended December 31, 2018, and net income available to common stockholders of $96.9 million, or $0.43 per diluted share, for the three months ended March 31, 2018.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We started 2019 with strong operating momentum, executing several strategic actions in-line with our objective of creating a diversified commercial bank with superior levels of growth and profitability. In the first quarter of 2019, our adjusted net income available to common stockholders was $105.9 million and our adjusted diluted earnings per share available to common stockholders was $0.50, representing growth of 5.0% and 11.1%, respectively, over the first quarter of 2018. Our profitability metrics remained strong, including adjusted return on average tangible assets of 1.48% and adjusted return on average tangible common equity of 17.04%.

“We made significant progress in our balance sheet transition strategy and generated strong commercial loan growth in the first quarter of 2019. Organically, we grew spot commercial loan balances by $392.5 million since December 31, 2018, which was offset by substantial run-off of residential mortgage loans of $155.9 million. We will remain disciplined on new loan originations and portfolio acquisitions, focusing on diversified commercial asset classes where we can achieve our target risk-adjusted returns. To that end, we completed the following actions during the quarter:

  • We sold $1.3 billion of residential mortgage loans and realized a gain on sale of $8.3 million. We anticipate selling an additional $200 million in loans in the second quarter of 2019.
  • On February 28, 2019, we acquired $497 million (par value) of commercial loans and a national origination platform from Woodforest National Bank. These loans are complementary to our existing asset-based lending and equipment finance businesses and have a weighted average interest rate of approximately 5.5%. Combined with our organic commercial loan volume, total commercial loans increased by $864.4 million relative to the prior quarter end.
  • We reduced our securities portfolio, shifting our proportion of securities to total earning assets closer to our long-term target of 20-22%. In total, we sold $738.8 million of securities with a yield of 2.72% and realized a loss on sale of $13.2 million.

“Our average total deposit balances have increased by $628.0 million since the first quarter of  2018. Total deposits were $21.2 billion and the cost of total deposits was 0.88% in the first quarter of 2019.  Our net interest margin excluding accretion income on acquired loans remained stable at 3.16%. We anticipate that our loan portfolio transition, lower FHLB borrowing balances and improving deposit market competitive dynamics will result in higher tax equivalent net interest margin excluding accretion income on acquired loans in 2019.

“We continue to focus on maintaining discipline and controls over operating expenses.  Our adjusted operating expenses were $106.9 million in the first quarter of 2019, and are anticipated to decrease throughout 2019 as we further consolidate back-office locations, rationalize our financial network and reduce total FTE count.  We are confident that our operating expenses will be lower in 2019 than in 2018.

“Our tangible common equity ratio was 8.87% and our estimated Tier 1 Leverage ratio was 9.21% at March 31, 2019. Our tangible book value per common share was $11.92, which represented an increase of 11.6% from a year ago. Our ample capital position and strong internal capital generation will support our growth strategy and allow us to return capital to stockholders. In the first quarter of 2019, we repurchased 8,002,595 common shares. We anticipate completing our approved stock repurchase program in the second quarter of 2019 and our Board of Directors has authorized an increase to our program of an additional 10 million shares.

“We have created a Company with significant operating flexibility and are confident that our business mix, growth strategy and strong capital position will allow us to continue generating superior returns and earnings per share growth. 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 May 20, 2019 to holders of record as of May 6, 2019.”

2

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $99.4 million, or $0.47 per diluted share, for the first quarter of 2019, included the following items:

  • a pre-tax loss of $13.2 million on the sale of available for sale securities;
  • a pre-tax gain of $8.3 million on the sale of residential mortgage loans held for sale;
  • a pre-tax charge of $3.3 million related to the acquisition of the commercial loan portfolio and origination platform of Woodforest National Bank, which was related to professional fees, severance, retention, systems integration expense and facilities consolidation;
  • a gain of $46 thousand on the early extinguishment of $7.0 million of senior notes assumed in the Astoria Financial Corporation merger ( “Astoria” and the “Astoria Merger”); and
  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $242 thousand.

Excluding the impact of these items, adjusted net income available to common stockholders was $105.9 million, or $0.50 per diluted share, for the three months ended March 31, 2019.

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
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Interest and dividend income $ 281,346     $ 313,197     $ 309,400     10.0 %   (1.2 )%
Interest expense 46,976     70,326     73,894     57.3     5.1  
Net interest income $ 234,370     $ 242,871     $ 235,506     0.5     (3.0 )
                   
Accretion income on acquired loans $ 30,340     $ 27,016     $ 25,580     (15.7 )%   (5.3 )%
Yield on loans 4.85 %   5.07 %   5.17 %   32     10  
Tax equivalent yield on investment securities 2.85     2.92     2.99     14     7  
Tax equivalent yield on interest earning assets 4.31     4.54     4.64     33     10  
Cost of total deposits 0.47     0.77     0.88     41     11  
Cost of interest bearing deposits 0.59     0.97     1.09     50     12  
Cost of borrowings 2.01     2.43     2.53     52     10  
Cost of interest bearing liabilities 0.89     1.28     1.39     50     11  
Tax equivalent net interest margin5 3.60     3.53     3.54     (6 )   1  
                   
Average loans, including loans held for sale $ 19,635,900     $ 20,389,223     $ 20,412,274     4.0 %   0.1 %
Average investment securities 6,602,175     6,685,989     6,334,694     (4.1 )   (5.3 )
Average total interest earning assets 26,833,922     27,710,655     27,414,224     2.2     (1.1 )
Average deposits and mortgage escrow 20,688,147     21,352,428     21,316,126     3.0     (0.2 )

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 21% federal tax rate in all periods presented.

3

First quarter 2019 compared with first quarter 2018
Net interest income was $235.5 million, an increase of $1.1 million compared to the first quarter of 2018.  This was mainly due to an increase in average loans outstanding originated through our commercial banking teams and acquisitions, which was partially offset by an increase in interest expense paid to depositors and on borrowings. Other key components of the changes in net interest income and net interest margin were the following:

  • The yield on loans was 5.17% compared to 4.85% for the three months ended March 31, 2018.  The increase in yield on loans was mainly due to the change in portfolio composition, as we continued to add commercial loans while the proportion of lower yielding residential mortgage and multi-family loans decreased due to run-off and sales. Accretion income on acquired loans was $25.6 million in the first quarter of 2019 compared to $30.3 million in the first quarter of 2018.
  • Average commercial loans, which includes all commercial and industrial loans, commercial real estate loans (including multi-family) and acquisition development and construction loans, were $16.2 billion compared to $14.3 billion in the first quarter of 2018, an increase of $1.9 billion or 13.6%.
  • The tax equivalent yield on investment securities was 2.99% compared to 2.85% for the three months ended March 31, 2018.  Average investment securities were $6.3 billion, or 23.1%, of average total interest earning assets for the first quarter of 2019 compared to $6.6 billion, or 24.6%, of average earning assets for the first quarter of 2018. In the first quarter of 2019 we sold lower yielding securities as part of our balance sheet transition strategy.
  • The tax equivalent yield on interest earning assets increased 33 basis points between the periods to 4.64%.
  • The cost of total deposits was 88 basis points and the cost of borrowings was 2.53%, compared to 47 basis points and 2.01%, respectively, for the same period a year ago. The increase was mainly due to increases in market rates of interest. The cost of total deposits has also been impacted by the competitive environment in the Greater New York metropolitan area, as higher interest rates have been required to attract and retain higher balance commercial and consumer deposits.
  • The total cost of interest bearing liabilities increased 50 basis points to 1.39% for the first quarter of 2019 compared to 0.89% for the first quarter of 2018, which was mainly due to the increase in market interest rates and the competitive factors discussed above.
  • Average interest bearing deposits increased by $351.7 million and average borrowings decreased $131.7 million compared to the first quarter of 2018. Total interest expense increased by $26.9 million compared to the first quarter of 2018.

The tax equivalent net interest margin was 3.54% for the first quarter of 2019 compared to 3.60% for the first quarter of 2018. The decrease in tax equivalent net interest margin was mainly due to the increase in the cost of interest bearing liabilities and the decrease in accretion income on acquired loans.  Excluding accretion income, tax equivalent net interest margin was 3.16% for the first quarter of 2019 compared to 3.15% in the first quarter of 2018.

First quarter 2019 compared with linked quarter ended December 31, 2018

Net interest income declined $7.4 million compared to the linked quarter. The decrease in net interest income was mainly due to the loss of two days between the periods, a decline of $296.4 million in the average balance of interest-earning assets, higher interest expense paid on interest bearing liabilities and lower accretion income on acquired loans. Other key components of the changes in net interest income compared to the linked quarter were the following:

  • The yield on loans was 5.17% compared to 5.07% for the linked quarter. The increase in the yield on loans was mainly driven by the change in composition of the loan portfolio as average residential loans declined by $457.1 million while average commercial loans increased by $496.2 million. The average balance of total portfolio loans increased by $23.1 million. Accretion income on acquired loans was $25.6 million, a decrease of $1.4 million relative to the linked quarter.
  • The tax equivalent yield on investment securities was 2.99% compared to 2.92% for the linked quarter. The increase in yield was related to the decline in average investment securities balances of $351.3 million, as we sold lower yielding securities.
  • The tax equivalent yield on interest earning assets was 4.64% compared to 4.54% in the linked quarter.
  • The cost of total deposits increased 11 basis points to 88 basis points and the total cost of borrowings increased 10 basis points to 2.53%, for the same reasons as discussed above.
  • Average interest bearing deposits increased by $40.6 million and average borrowings decreased by $250.4 million relative to the linked quarter. Total interest expense increased by $3.6 million over the linked quarter.

The tax equivalent net interest margin was 3.54% compared to 3.53% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.16% compared to 3.15% in the liked quarter. We anticipate that our loan portfolio transition, lower FHLB borrowing balances and improving deposit market dynamics will result in higher net interest margin in 2019.

4

Non-interest Income

($ in thousands) For the three months ended   Change %
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Total non-interest income $ 18,707     $ 22,475     $ 19,597     4.8 %   (12.8 )%
Net (loss) on sale of securities (5,421 )   (4,886 )   (13,184 )   143.2     169.8  
Net gain on sale of residential mortgage loans         8,313     NM     NM  
Adjusted non-interest income $ 24,128     $ 27,361     $ 24,468     1.4     (10.6 )

First quarter 2019 compared with first quarter 2018
Excluding net (loss) on sale of securities and net gain on sale of residential mortgage loans, adjusted non-interest income increased $340 thousand in the first quarter of 2019 to $24.5 million, compared to $24.1 million in the same quarter last year.  The change was mainly due to higher loan commissions and fees and higher loan swap fees, which are included in other non-interest income. These increases were partially offset by a decline of $791 thousand in deposit service charges, which was mainly due to a client retention strategy executed for six months following the Astoria deposit systems conversion in August 2018.

In the first quarter of 2019, we sold $738.8 million of available for sale securities and realized a loss of $13.2 million. The securities were sold as we execute our strategy of repositioning our balance sheet and interest earning assets to a more optimal mix.

In the first quarter of 2019, we sold $1.3 billion of residential mortgage loans and realized a gain of $8.3 million.

First quarter 2019 compared with linked quarter ended December 31, 2018
Excluding net (loss) on sale of securities and net gain on sale of residential mortgage loans, adjusted non-interest income decreased approximately $2.9 million from $27.4 million in the linked quarter to $24.5 million in the first quarter of 2019. The decrease was mainly due to a seasonal decline in accounts receivable management / factoring commissions and other related fees of $1.1 million, as these businesses typically have peak volumes in the fourth quarter, and a decrease in loan swap fees, which are included in other non-interest income, of $1.0 million. Loan swap fees are usually connected to new loan originations, which may result in fluctuations in swap fee volume on a linked quarter basis based on loan origination volumes.

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Compensation and benefits $ 54,680     $ 54,677     $ 55,990     2.4 %   2.4 %
Stock-based compensation plans 2,854     3,679     5,123     79.5     39.2  
Occupancy and office operations 17,460     16,579     16,535     (5.3 )   (0.3 )
Information technology 11,718     8,761     8,675     (26.0 )   (1.0 )
Amortization of intangible assets 6,052     5,865     4,826     (20.3 )   (17.7 )
FDIC insurance and regulatory assessments 5,347     3,608     3,338     (37.6 )   (7.5 )
Other real estate owned (“OREO”), net 364     15     217     (40.4 )   1,346.7  
Charge for asset write-downs, systems integration, retention and severance         3,344     NM     NM  
Other expenses 13,274     16,737     16,944     27.6     1.2  
Total non-interest expense $ 111,749     $ 109,921     $ 114,992     2.9     4.6  
Full time equivalent employees (“FTEs”) at period end 2,016     1,907     1,855     (8.0 )   (2.7 )
Financial centers at period end 127     106     99     (22.0 )   (6.6 )
Operating efficiency ratio, as reported 44.2 %   41.4 %   45.1 %   (90 )   (370 )
Operating efficiency ratio, as adjusted 40.3     38.0     40.5     (20 )   (250 )

First quarter 2019 compared with first quarter 2018
Total non-interest expense increased $3.2 million relative to the first quarter of 2018. Key components of the change in non-interest expense between the periods were the following:

5

  • Compensation and benefits increased $1.3 million, as the composition of our employees has shifted to a higher proportion of commercial banking and relationship management personnel. Total FTEs declined to 1,855 from 2,016, which was mainly due to the completion of the Astoria Merger integration and ongoing financial center consolidation strategy, and was partially offset by additions in FTEs from acquisitions, commercial bankers and risk management personnel.
  • Occupancy and office operations decreased $925 thousand mainly due to the consolidation of financial centers and other locations acquired in the Astoria Merger. We have consolidated 28 financial centers and two back office locations over the past twelve months. We anticipate consolidating 10 additional financial centers over the balance of 2019 and are targeting a total count of 80 financial centers by mid-2020.
  • Information technology expense decreased $3.0 million, mainly due to the completion of the conversion of Astoria’s legacy deposit systems in the third quarter of 2018.
  • Amortization of intangible assets decreased $1.2 million. The decrease is mainly due to the accelerated amortization of the core deposit intangible assets that were recorded in the Astoria Merger and other acquisitions.
  • FDIC insurance and regulatory assessments decreased $2.0 million to $3.3 million in the first quarter of 2019, compared to $5.3 million in the first quarter of 2018.  This was mainly due to a decrease in FDIC deposit insurance expense.
  • OREO, net, decreased $147 thousand to $217 thousand, compared to $364 thousand for the first quarter of 2018.  In the first quarter of 2019, OREO, net, included gain on sale of $457 thousand, which was offset by $141 thousand of write-downs and $573 thousand of operating costs.
  • Charge for asset write-downs, systems integration, retention and severance was incurred in the first quarter of 2019 in connection with the commercial loan portfolio and origination platform acquisition from Woodforest National Bank.  As the acquisition included personnel and facilities, we accounted for this transaction as a business combination.
  • Other expenses increased $3.7 million to $16.9 million, mainly due to an increase in defined benefit pension plan expense.  We anticipate terminating the legacy Astoria defined benefit pension plan in late 2019 or 2020, once regulatory approvals are received.

First quarter 2019 compared with linked quarter ended December 31, 2018
Total non-interest expense increased $5.1 million to $115.0 million in the first quarter of 2019. Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $1.3 million and was $56.0 million. The increase was mainly due to an increase in payroll taxes and benefits expense. Total FTEs declined to 1,855 at March 31, 2019 from 1,907 at December 31, 2018.
  • Stock-based compensation plans increased $1.4 million and was $5.1 million. The increase was mainly due to higher expenses associated with the vesting of performance-based awards granted in February 2016, which had a three-year performance measurement period.  The awards vested at 150% of the target amount granted.
  • Amortization of intangible assets decreased $1.0 million for the same reasons as discussed above.

Taxes
For the three months ended March 31, 2018, December 31, 2018 and March 31, 2019, the Company recorded income tax expense at an estimated effective income tax rate of 23.25%, 21.0% and 22.0%, respectively.  Due to stock-based compensation activity in the periods, a discrete income tax item was recorded that reduced income tax expense in the quarters ended March 31, 2018 and 2019 by $380 thousand and $106 thousand, respectively.

6

Key Balance Sheet Highlights as of March 31, 2019

($ in thousands) As of   Change % / bps
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Total assets $ 30,468,780     $ 31,383,307     $ 29,956,607     (1.7 )%   (4.5 )%
Total portfolio loans, gross 19,939,245     19,218,530     19,908,473     (0.2 )   3.6  
Commercial & industrial (“C&I”) loans 5,341,548     6,533,386     7,265,187     36.0     11.2  
Commercial real estate loans (including multi-family) 9,099,606     9,406,541     9,516,013     4.6     1.2  
Acquisition, development and construction loans 262,591     267,754     290,875     10.8     8.6  
Total commercial loans 14,703,745     16,207,681     17,072,075     16.1     5.3  
Residential mortgage loans 4,883,452     2,705,226     2,549,284     (47.8 )   (5.8 )
Total deposits 20,623,233     21,214,148     21,225,639     2.9     0.1  
Core deposits6 19,538,410     19,998,967     20,160,733     3.2     0.8  
Municipal deposits (included in core deposits) 1,775,472     1,751,670     2,027,563     14.2     15.8  
Investment securities 6,635,286     6,667,180     5,915,050     (10.9 )   (11.3 )
Total borrowings 4,927,594     5,214,183     3,633,480     (26.3 )   (30.3 )
Loans to deposits6 96.7 %   90.6 %   93.8 %   (290 )   320  
Core deposits to total deposits 94.7     94.3     95.0     30     70  
Investment securities to total assets 21.8     21.2     19.7     (210 )   (150 )

6 Core deposits include retail, commercial and municipal transaction, money market, savings accounts and certificates of deposits accounts, and reciprocal Certificate of Deposit Account Registry balances and exclude brokered and wholesale deposits.

Highlights in balance sheet items as of March 31, 2019 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 36.5% of total portfolio loans, commercial real estate loans (which include multi-family loans) represented 47.8%, consumer and residential mortgage loans combined represented 14.2%, and acquisition, development and construction loans represented 1.5% of total portfolio loans. At March 31, 2018, C&I loans represented 26.8% of total portfolio loans, commercial real estate loans (which include multi-family loans) represented 45.6%, consumer and residential mortgage loans combined represented 26.2%, and acquisition, development and construction loans represented 1.3% of total portfolio loans. We are making progress towards our goal of a loan mix comprised of 45% for each of C&I and commercial real estate loans and 10% other loans.
  • Total commercial loans, which include all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $864.4 million over the linked quarter and $2.4 billion since March 31, 2018.
  • Residential mortgage loans were $2.5 billion at March 31, 2019, compared to $2.7 billion at December 31, 2018 and $4.9 billion at March 31, 2018.  The decline was mainly due to repayments of loans acquired in the Astoria Merger and the reclassification of $1.6 billion in loans to loans held for sale at December 31, 2018, of which $1.3 billion were sold in the first quarter of 2019.
  • Total deposits at March 31, 2019 increased $11.5 million compared to December 31 and total deposits increased $602.4 million over March 31, 2018.
  • Core deposits at March 31, 2019 were $20.2 billion and increased $161.8 million compared to December 31, 2018 and $622.3 million over March 31, 2018.
  • Municipal deposits at March 31, 2019 were $2.0 billion, and increased $275.9 million relative to December 31, 2018 and $252.1 million relative to March 31, 2018.
  • Investment securities decreased by $720.2 million from March 31, 2018, and represented 19.7% of total assets at March 31, 2019. In connection with the adoption of a new accounting standard, effective January 1, 2019, we transferred held-to-maturity securities with a fair value of $708,627 to available for sale. We sold securities with a book value of $751,935 to fund the commercial loan portfolio acquired from Woodforest National Bank, and to reduce lower yielding securities as a percentage of total assets.
  • Total borrowings at March 31, 2019 were $3.6 billion and declined $1.6 billion relative to December 31, 2018.

7

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Provision for loan losses $ 13,000     $ 10,500     $ 10,200     (21.5 )%   (2.9 )%
Net charge-offs 8,815     6,188     6,917     (21.5 )   11.8  
Allowance for loan losses 82,092     95,677     98,960     20.5     3.4  
Non-performing loans 182,046     168,822     170,415     (6.4 )   0.9  
Loans 30 to 89 days past due 59,818     97,201     64,260     7.4     (33.9 )
Annualized net charge-offs to average loans 0.18 %   0.12 %   0.14 %   (4 )   2  
Special mention loans 101,904     113,180     128,054     25.7     13.1  
Substandard loans 245,910     266,047     288,694     17.4     8.5  
Allowance for loan losses to total loans 0.41     0.50     0.50     9      
Allowance for loan losses to non-performing loans 45.1     56.7     58.1     1,300     140  

Provision for loan losses was $10.2 million and was $3.3 million in excess of net charge-offs of $6.9 million.  Allowance coverage ratios were 0.50% of total loans and 58.1% of non-performing loans at March 31, 2019. Strong organic commercial loan growth increased the total allowance for loan losses requirement.  The commercial loan acquisition from Woodforest National Bank is subject to a purchase accounting fair value adjustment and as a result, did not increase the allowance for loan losses. Note that due to our various acquisitions and mergers, 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 $1.6 million to $170.4 million at March 31, 2019 compared to the linked quarter, and net charge-offs remained stable at 14 basis points of total loans on an annualized basis. Loans 30 to 89 days past due decreased $32.9 million from the linked quarter, which was mainly due to loans that were in the process of renewal.

Special mention loans increased $14.9 million and substandard loans increased $22.6 million in the first quarter of 2019 compared to the linked quarter. At March 31, 2019, in the population of commercial loans acquired from Woodforest National Bank, there were $36.0 million of special mention loans and $6.6 million of substandard loans; as part of the acquisition agreement, certain of these loans include a credit loss share provision between us and Woodforest National Bank. In addition, two loans with an aggregate balance of $18.9 million transitioned from special mention at December 31, 2018 to substandard at March 31, 2019.

Capital

($ in thousands, except share and per share data) As of   Change % / bps
  3/31/2018   12/31/2018   3/31/2019   Y-o-Y   Linked Qtr
Total stockholders’ equity $ 4,273,755     $ 4,428,853     $ 4,419,223     3.4 %   (0.2 )%
Preferred stock 139,025     138,423     138,218     (0.6 )   (0.1 )
Goodwill and other intangible assets 1,727,030     1,742,578     1,782,533     3.2     2.3  
Tangible common stockholders’ equity $ 2,407,700     $ 2,547,852     $ 2,498,472     3.8     (1.9 )
Common shares outstanding 225,466,266     216,227,852     209,560,824     (7.1 )   (3.1 )
Book value per common share $ 18.34     $ 19.84     $ 20.43     11.4     3.0  
Tangible book value per common share 7 10.68     11.78     11.92     11.6     1.2  
Tangible common equity to tangible assets 7 8.38 %   8.60 %   8.87 %   49     27  
Estimated Tier 1 leverage ratio - Company 9.39     9.50     9.21     (18 )   (29 )
Estimated Tier 1 leverage ratio - Bank 10.00     9.94     9.58     (42 )   (36 )
 7See a reconciliation of non-GAAP financial measures beginning on page 17.

Total stockholders’ equity declined $9.6 million to $4.4 billion as of March 31, 2019 compared to December 31, 2018 and increased $145.5 million compared to March 31, 2018. For the first quarter of 2019, net income available to common stockholders of $99.4 million and an increase in the fair value of our available for sale investment securities of $59.3 million was offset by common dividends of $15.1 million, preferred dividends of $2.2 million and common stock repurchases of $154.3 million.

8

Total goodwill and other intangible assets were $1.8 billion at March 31, 2019, an increase of $40.0 million compared to December 31, 2018, which was mainly due to the commercial loan portfolio and origination platform acquisition from Woodforest National Bank as the transaction was recorded as a business combination.

Basic and diluted weighted average common shares outstanding declined relative to the linked quarter by approximately 9.2 million and were 213.2 million and 213.5 million, respectively. Total common shares outstanding at March 31, 2019 were approximately 209.6 million.  In the first quarter of 2019, we repurchased 8,002,595 shares of common stock at a weighted average price of $19.28 per share, for total consideration of $154.3 million. On April 24, 2019, our board of directors approved an increase to the stock repurchase program of 10 million shares.

Tangible book value per common share was $11.92 at March 31, 2019, which represented an increase of 11.6% over a year ago and an increase of 1.2% over December 31, 2018.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, April 25, 2019 at 10:30 AM 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 (888) 220-8451, Conference ID #6223029.  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: 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 months ended March 31, 2019. 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)
           
  3/31/2018   12/31/2018   3/31/2019
Assets:          
Cash and cash equivalents $ 364,331     $ 438,110     $ 314,255  
Investment securities 6,635,286     6,667,180     5,915,050  
Loans held for sale 44,440     1,565,979     248,972  
Portfolio loans:          
Commercial and industrial (“C&I”) 5,341,548     6,533,386     7,265,187  
Commercial real estate (including multi-family) 9,099,606     9,406,541     9,516,013  
Acquisition, development and construction 262,591     267,754     290,875  
Residential mortgage 4,883,452     2,705,226     2,549,284  
Consumer 352,048     305,623     287,114  
Total portfolio loans, gross 19,939,245     19,218,530     19,908,473  
Allowance for loan losses (82,092 )   (95,677 )   (98,960 )
Total portfolio loans, net 19,857,153     19,122,853     19,809,513  
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost 354,832     369,690     298,455  
Accrued interest receivable 102,129     107,111     115,764  
Premises and equipment, net 318,267     264,194     262,744  
Goodwill 1,579,891     1,613,033     1,657,814  
Other intangibles 147,139     129,545     124,719  
Bank owned life insurance 655,278     653,995     657,504  
Other real estate owned 24,493     19,377     16,502  
Other assets 385,541     432,240     535,315  
Total assets $ 30,468,780     $ 31,383,307     $ 29,956,607  
Liabilities:          
Deposits $ 20,623,233     $ 21,214,148     $ 21,225,639  
FHLB borrowings 4,449,829     4,838,772     3,259,507  
Other borrowings 26,850     21,338     27,020  
Senior notes 278,144     181,130     173,952  
Subordinated notes 172,771     172,943     173,001  
Mortgage escrow funds 161,724     72,891     102,036  
Other liabilities 482,474     453,232     576,229  
Total liabilities 26,195,025     26,954,454     25,537,384  
Stockholders’ equity:          
Preferred stock 139,025     138,423     138,218  
Common stock 2,299     2,299     2,299  
Additional paid-in capital 3,766,280     3,776,461     3,751,835  
Treasury stock (51,102 )   (213,935 )   (355,357 )
Retained earnings 496,297     791,550     888,838  
Accumulated other comprehensive (loss) (79,044 )   (65,945 )   (6,610 )
Total stockholders’ equity 4,273,755     4,428,853     4,419,223  
Total liabilities and stockholders’ equity $ 30,468,780     $ 31,383,307     $ 29,956,607  
           
Shares of common stock outstanding at period end 225,466,266     216,227,852     209,560,824  
Book value per common share $ 18.34     $ 19.84     $ 20.43  
Tangible book value per common share1 10.68     11.78     11.92  
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
  3/31/2018   12/31/2018   3/31/2019
Interest and dividend income:                      
Loans and loan fees $ 234,615     $ 260,417     $ 260,295  
Securities taxable 27,061     30,114     27,847  
Securities non-taxable 15,312     15,104     14,857  
Other earning assets 4,358     7,562     6,401  
Total interest and dividend income 281,346     313,197     309,400  
Interest expense:          
Deposits 24,206     41,450     45,995  
Borrowings 22,770     28,876     27,899  
Total interest expense 46,976     70,326     73,894  
Net interest income 234,370     242,871     235,506  
Provision for loan losses 13,000     10,500     10,200  
Net interest income after provision for loan losses 221,370     232,371     225,306  
Non-interest income:          
Deposit fees and service charges 7,003     6,511     6,212  
Accounts receivable management / factoring commissions and other related fees 5,360     6,480     5,423  
Bank owned life insurance 3,614     4,060     3,641  
Loan commissions and fees 3,406     4,066     3,838  
Investment management fees 1,825     1,901     1,900  
Net (loss) on sale of securities (5,421 )   (4,886 )   (13,184 )
Gain on sale of residential mortgage loans         8,313  
Other 2,920     4,343     3,454  
Total non-interest income 18,707     22,475     19,597  
Non-interest expense:          
Compensation and benefits 54,680     54,677     55,990  
Stock-based compensation plans 2,854     3,679     5,123  
Occupancy and office operations 17,460     16,579     16,535  
Information technology 11,718     8,761     8,675  
Amortization of intangible assets 6,052     5,865     4,826  
FDIC insurance and regulatory assessments 5,347     3,608     3,338  
Other real estate owned, net 364     15     217  
Charge for asset write-downs, systems integration, retention and severance         3,344  
Other 13,274     16,737     16,944  
Total non-interest expense 111,749     109,921     114,992  
Income before income tax expense 128,328     144,925     129,911  
Income tax expense 29,456     30,434     28,474  
Net income 98,872     114,491     101,437  
Preferred stock dividend 1,999     1,990     1,989  
Net income available to common stockholders $ 96,873     $ 112,501     $ 99,448  
Weighted average common shares:          
Basic 224,730,686     222,319,682     213,157,090  
Diluted 225,264,147     222,769,369     213,505,842  
Earnings per common share:          
Basic earnings per share $ 0.43     $ 0.51     $ 0.47  
Diluted earnings per share 0.43     0.51     0.47  
Dividends declared per share 0.07     0.07     0.07  

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 3/31/2018   6/30/2018   9/30/2018   12/31/2018   3/31/2019
Total assets $ 30,468,780   $ 31,463,077   $ 31,261,265   $ 31,383,307   $ 29,956,607  
Tangible assets 1 28,741,750   29,708,659   29,516,084   29,640,729   28,174,074  
Securities available for sale 3,760,338   3,929,386   3,843,244   3,870,563   3,847,799  
Securities held to maturity 2,874,948   2,859,860   2,842,728   2,796,617   2,067,251  
Loans held for sale2 44,440   30,626   31,042   1,565,979   248,972  
Portfolio loans 19,939,245   20,674,493   20,533,214   19,218,530   19,908,473  
Goodwill 1,579,891   1,613,144   1,609,772   1,613,033   1,657,814  
Other intangibles 147,139   141,274   135,409   129,545   124,719  
Deposits 20,623,233   20,965,889   21,456,057   21,214,148   21,225,639  
Municipal deposits (included above) 1,775,472   1,652,733   2,019,893   1,751,670   2,027,563  
Borrowings 4,927,594   5,537,537   4,825,855   5,214,183   3,633,480  
Stockholders’ equity 4,273,755   4,352,735   4,438,303   4,428,853   4,419,223  
Tangible common equity 1 2,407,700   2,459,489   2,554,495   2,547,852   2,498,472  
Quarterly Average Balances                  
Total assets 30,018,289   30,994,904   31,036,026   30,925,281   30,742,943  
Tangible assets 1 28,287,337   29,237,608   29,283,093   29,179,942   28,986,437  
Loans, gross:                  
Commercial real estate (includes multi-family) 9,028,849   9,100,098   9,170,117   9,341,579   9,385,420  
Acquisition, development and construction 267,638   247,500   252,710   279,793   284,299  
Commercial and industrial:                  
Traditional commercial and industrial 1,933,323   2,026,313   2,037,195   2,150,644   2,418,027  
Asset-based lending3 781,392   778,708   820,060   812,903   876,218  
Payroll finance3 229,920   219,545   223,636   223,061   197,809  
Warehouse lending3 495,133   731,385   857,280   690,277   710,776  
Factored receivables3 217,865   224,159   220,808   267,986   250,426  
Equipment financing3 689,493   1,140,803   1,158,945   1,147,269   1,245,051  
Public sector finance3 653,344   725,675   784,260   828,153   869,829  
Total commercial and industrial 5,000,470   5,846,588   6,102,184   6,120,293   6,568,136  
Residential mortgage 4,977,191   4,801,595   4,531,922   4,336,083   3,878,991  
Consumer 361,752   344,183   330,061   311,475   295,428  
Loans, total4 19,635,900   20,339,964   20,386,994   20,389,223   20,412,274  
Securities (taxable) 3,997,542   4,130,949   4,193,910   4,133,456   3,833,690  
Securities (non-taxable) 2,604,633   2,620,579   2,580,802   2,552,533   2,501,004  
Other interest earning assets 595,847   665,888   638,227   635,443   667,256  
Total earning assets 26,833,922   27,757,380   27,799,933   27,710,655   27,414,224  
Deposits:                  
Non-interest bearing demand 3,971,079   3,960,683   4,174,908   4,324,247   4,247,389  
Interest bearing demand 3,941,749   4,024,972   4,286,278   4,082,526   4,334,266  
Savings (including mortgage escrow funds) 2,917,624   2,916,755   2,678,662   2,535,098   2,460,247  
Money market 7,393,335   7,337,904   7,404,208   7,880,331   7,776,501  
Certificates of deposit 2,464,360   2,528,355   2,571,298   2,530,226   2,497,723  
Total deposits and mortgage escrow 20,688,147   20,768,669   21,115,354   21,352,428   21,316,126  
Borrowings 4,597,903   5,432,582   5,052,752   4,716,522   4,466,172  
Stockholders’ equity 4,243,897   4,305,928   4,397,823   4,426,118   4,415,449  
Tangible common equity 1 2,373,794   2,409,674   2,506,198   2,542,256   2,520,595  
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 17.
At December 31, 2018 and March 31, 2018 loans held for sale included $1.54 billion and $222 million of residential mortgage loans, balance of loans held for sale are commercial syndication loans.
3 Asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance comprise our commercial finance loan portfolio.
4 Includes loans held for sale, but excludes allowance for loan losses.

12

...
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA AND PERFORMANCE RATIOS
(unaudited, in thousands, except share and per share data)
   
  As of and for the Quarter Ended
Per Common Share Data 3/31/2018   6/30/2018   9/30/2018   12/31/2018   3/31/2019
Basic earnings per share $ 0.43     $ 0.50     $ 0.52     $ 0.51     $ 0.47  
Diluted earnings per share 0.43     0.50     0.52     0.51     0.47  
Adjusted diluted earnings per share, non-GAAP 1 0.45     0.50     0.51     0.52     0.50  
Dividends declared per common share 0.07     0.07     0.07     0.07     0.07  
Book value per common share 18.34     18.69     19.07     19.84     20.43  
Tangible book value per common share1 10.68     10.91     11.33     11.78     11.92  
Shares of common stock o/s 225,466,266     225,470,254     225,446,089     216,227,852     209,560,824  
Basic weighted average common shares o/s 224,730,686     225,084,232     225,088,511     222,319,682     213,157,090  
Diluted weighted average common shares o/s 225,264,147     225,621,856     225,622,895     222,769,369     213,505,842  
Performance Ratios (annualized)                  
Return on average assets 1.31 %   1.45 %   1.50 %   1.44 %   1.31 %
Return on average equity 9.26     10.46     10.61     10.08     9.13  
Return on average tangible assets 1.39     1.54     1.59     1.53     1.39  
Return on average tangible common equity 16.55     18.68     18.63     17.56     16.00  
Return on average tangible assets, adjusted 1 1.45     1.55     1.55     1.58     1.48  
Return on avg. tangible common equity, adjusted 1 17.24     18.79     18.09     18.17     17.04  
Operating efficiency ratio, as adjusted 1 40.3     38.3     38.9     38.0     40.5  
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 30,340     $ 28,010     $ 26,574     $ 27,016     $ 25,580  
Yield on loans 4.85 %   5.01 %   5.01 %   5.07 %   5.17 %
Yield on investment securities - tax equivalent 2 2.85     2.88     2.87     2.92     2.99  
Yield on interest earning assets - tax equivalent 2 4.31     4.47     4.47     4.54     4.64  
Cost of interest bearing deposits 0.59     0.68     0.84     0.97     1.09  
Cost of total deposits 0.47     0.55     0.68     0.77     0.88  
Cost of borrowings 2.01     2.23     2.29     2.43     2.53  
Cost of interest bearing liabilities 0.89     1.06     1.17     1.28     1.39  
Net interest rate spread - tax equivalent basis 2 3.42     3.41     3.30     3.26     3.25  
Net interest margin - GAAP basis 3.54     3.56     3.48     3.48     3.48  
Net interest margin - tax equivalent basis 2 3.60     3.62     3.54     3.53     3.54  
Capital                  
Tier 1 leverage ratio - Company 3 9.39 %   9.32 %   9.68 %   9.50 %   9.21 %
Tier 1 leverage ratio - Bank only 3 10.00     9.84     10.10     9.94     9.58  
Tier 1 risk-based capital ratio - Bank only 3 14.23     13.71     14.23     13.55     13.13  
Total risk-based capital ratio - Bank only 3 15.51