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Sterling Bancorp announces results for the full year and fourth quarter of 2018 with record annual earnings per share available to common stockholders of $1.95 (as reported) and $2.00 (as adjusted), representing growth of 236.2% and 42.9%, respectively, over 2017

Key Performance Highlights for the Twelve Months ended December 31, 2018 vs. December 31, 2017

       
($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  12/31/2017   12/31/2018   Change 
% / bps
  12/31/2017   12/31/2018   Change
% / bps
Total revenue2 $ 640,345     $ 1,070,600     67.2 %   $ 660,744     $ 1,085,819     64.3 %
Net income available to common 91,029     439,276     382.6     222,039     449,645     102.5  
Diluted EPS available to common 0.58     1.95     236.2     1.40     2.00     42.9  
Net interest margin3 3.44 %   3.51 %   7     3.55 %   3.57 %   2  
Return on average tangible common equity 6.22     17.87     1,165     15.17     18.29     312  
Return on average tangible assets 0.52     1.51     99     1.27     1.55     28  
Operating efficiency ratio4 67.7     42.8     (2,490 )   41.8     38.8     (300 )
                                   
  • Net income available to common stockholders of $439.3 million (as reported) and $449.6 million (as adjusted).
  • Total commercial loans of $16.2 billion at December 31, 2018; growth of 11.1% from December 31, 2017.
  • Operating efficiency ratio of 42.8% (as reported) and 38.8% (as adjusted).
  • Operating leverage ratio of 2.9x relative to full year 2017.
  • Tangible book value per common share1 of $11.78; growth of 11.9% over December 31, 2017.

Key Performance Highlights for the Three Months ended December 31, 2018 vs. December 31, 2017

       
($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  12/31/2017   12/31/2018   Change 
% / bps
  12/31/2017   12/31/2018   Change
% / bps
Total revenue2 $ 257,786     $ 265,346     2.9 %   $ 265,014     $ 274,247     3.5 %
Net (loss) income available to common (35,281 )   112,501     NM     87,171     116,458     33.6  
Diluted EPS available to common (0.16 )   0.51     NM     0.39     0.52     34.4  
Net interest margin3 3.57 %   3.48 %   (9 )   3.67 %   3.53 %   (14 )
Return on average tangible common equity (5.87 )   17.56     NM     14.49     18.17     368  
Return on average tangible assets (0.51 )   1.53     NM     1.25     1.58     33  
Operating efficiency ratio4 97.3     41.4     (5,590 )   41.4     38.0     (340 )
                                   
  • Growth in commercial loan balances of $413.3 million over linked quarter; 10.4% annualized growth rate.
  • Entered into agreement to sell $1.6 billion of residential mortgage loans; anticipated to close in February 2019.
  • Announced pending acquisition of $504 million commercial loan portfolio; anticipated to close in February 2019.
  • Adjusted operating expenses in the fourth quarter of 2018 were $104.2 million1; represents an annualized run-rate of $413.5 million.
  • Average total deposit growth of $868.6 million; cost of total deposits increased 34 basis points to 0.77%.
  • Repurchased 9,114,771 common shares at a weighted average cost of $17.54 per share in the fourth quarter of 2018.

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 20 for an explanation of the operating efficiency ratio.

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MONTEBELLO, N.Y., Jan. 23, 2019 (GLOBE NEWSWIRE) -- Sterling Bancorp (STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and twelve months ended December 31, 2018. Net income available to common stockholders for the quarter ended December 31, 2018 was $112.5 million, or $0.51 per diluted share, compared to net income available to common stockholders of $117.7 million, or $0.52 per diluted share, for the linked quarter ended September 30, 2018, and net loss available to common stockholders of $35.3 million, or $0.16 per diluted share, for the three months ended December 31, 2017.

Net income available to common stockholders for the year ended December 31, 2018 was $439.3 million, or $1.95 per diluted share, compared to net income available to common stockholders of $91.0 million, or $0.58 per diluted share, for the same period in 2017.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We maintained our strong operating momentum in 2018, focusing on the consistent execution of our commercial banking strategy and generating record adjusted net income available to common stockholders and adjusted earnings per share available to common stockholders in the full year and fourth quarter of 2018. Comparing full year results, our adjusted net income available to common stockholders was $449.6 million and our adjusted diluted earnings per share available to common stockholders was $2.00, representing growth of 102.5% and 42.9%, respectively, over 2017. Our profitability metrics continued to strengthen, including adjusted returns on average tangible assets of 1.55% and average tangible common equity of 18.29% in 2018. We ended the year as a larger, more diversified and more profitable company, with total assets of $31.4 billion, gross portfolio loans of $19.2 billion and total deposits of $21.2 billion.

“We achieved every milestone we outlined in the integration of Astoria Financial Corporation (“Astoria” and the “Astoria Merger”), significantly improving our operating efficiency and operating leverage in 2018. Our adjusted operating expenses were $421.8 million for the full year 2018 and were $104.2 million in the fourth quarter, which represented an annualized run-rate of $413.5 million and a decrease of $6.7 million relative to the annualized run-rate in the third quarter.  During the year we consolidated a total of 22 financial center locations and two back-office locations; we completed the sale of Astoria’s Lake Success headquarters; and, most importantly, we completed the full conversion of Astoria’s deposit systems and now operate on a single, fully integrated technology platform. Our focus on expense management resulted in an adjusted operating efficiency ratio of below 40% in the full year and fourth quarter of 2018. Since the fourth quarter of 2017, our quarterly adjusted operating revenues have increased by $9.2 million while our adjusted operating expenses have decreased by $5.4 million. We expect to continue generating significant operating leverage as we further grow revenues and reduce expenses in 2019.

“We generated strong commercial loan growth in 2018, with spot balances increasing by $1.6 billion since December 2017. This was offset by run-off of residential mortgage loans, which decreased by $808.6 million relative to the beginning of the year. 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 are taking the following actions to accelerate our balance sheet transition to a more optimal mix:

  • We transferred $1.6 billion of residential mortgage loans held in portfolio to loans held for sale and entered into an agreement to sell these loans, which we anticipate will be completed in February 2019. These loans were acquired in the Astoria Merger.
  • On January 22, 2019, we entered into a definitive agreement with Woodforest National Bank to acquire $504 million of commercial loans. These loan portfolios are complementary to our existing asset-based lending and equipment finance businesses and have a weighted average interest rate of 5.5%. We expect this transaction to close on February 28, 2019. 
  • We anticipate these balance sheet actions will be accretive to our net interest margin excluding the impact of accretion income by approximately 20 basis points in 2019.

“Our average total deposit balances increased by $237.1 million relative to the linked quarter and grew $868.6 million since the fourth quarter of 2017. We faced a challenging deposit pricing and interest rate environment in 2018, as our cost of total deposits was 0.77% in the fourth quarter of 2018, an increase of nine basis points relative to the linked quarter, and 34 basis points relative to the fourth quarter 2017. The increase in the cost of deposits has been mainly driven by increases in market interest rates and the competitive environment for attracting and retaining higher balance deposits in our commercial, municipal and brokered deposit segments.

“Our tangible common equity ratio was 8.60% and our estimated Tier 1 Leverage ratio was 9.50% at December 31, 2018. Our tangible book value per common share was $11.78, which represented an increase of 11.9% 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 through share repurchases. In the fourth quarter of 2018, we repurchased 9,114,771 common shares, and we anticipate completing our approved stock repurchase program in the first half of 2019.

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“We have provided the Company with greater 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 February 19, 2019 to holders of record as of February 4, 2019.”

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $112.5 million, or $0.51 per diluted share, for the fourth quarter of 2018, included the following items which are excluded from our adjusted results: a pre-tax loss of $4.9 million on the sale of available for sale securities, a gain of $0.2 million on the early extinguishment of $19.6 million of senior notes assumed in the Astoria Merger, and the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $295 thousand.

Excluding the impact of these items, adjusted net income available to common stockholders was $116.5 million, or $0.52 per diluted share, for the three months ended December 31, 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
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Linked Qtr
Interest and dividend income $ 276,495     $ 309,025     $ 313,197     13.3 %   1.4 %
Interest expense 42,471     65,076     70,326     65.6     8.1  
Net interest income $ 234,024     $ 243,949     $ 242,871     3.8     (0.4 )
                   
Accretion income on acquired loans $ 33,726     $ 26,574     $ 27,016     (19.9 )%   1.7 %
Yield on loans 4.77 %   5.01 %   5.07 %   30     6  
Tax equivalent yield on investment securities 3.03     2.87     2.92     (11 )   5  
Tax equivalent yield on interest earning assets 4.32     4.47     4.54     22     7  
Cost of total deposits 0.43     0.68     0.77     34     9  
Cost of interest bearing deposits 0.54     0.84     0.97     43     13  
Cost of borrowings 1.94     2.29     2.43     49     14  
Cost of interest bearing liabilities 0.82     1.17     1.28     46     11  
Tax equivalent net interest margin5 3.67     3.54     3.53     (14 )   (1 )
                   
Average loans, including loans held for sale $ 19,518,485     $ 20,386,994     $ 20,389,223     4.5 %   %
Average investment securities 5,926,824     6,774,712     6,685,989     12.8     (1.3 )
Average total interest earning assets 26,043,748     27,799,933     27,710,655     6.4     (0.3 )
Average deposits and mortgage escrow 20,483,857     21,115,354     21,352,428     4.2     1.1  
 
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.
 

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Fourth quarter 2018 compared with fourth quarter 2017
Net interest income was $242.9 million, an increase of $8.8 million compared to the fourth quarter of 2017.  This was mainly due to an increase in average loans outstanding due to loans originated through our commercial banking teams and the acquisition of Advantage Funding Management Co., Inc, 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 5.07% compared to 4.77% for the three months ended December 31, 2017.  The increase in yield on loans was mainly due to the change in portfolio composition as commercial loans represented a greater proportion of our loan portfolio compared to a year ago, and to increases in market rates of interest.  Accretion income on acquired loans was $27.0 million in the fourth quarter of 2018 compared to $33.7 million in the fourth quarter of 2017.
  • Average commercial loans, which includes all commercial and industrial loans, commercial real estate loans (including multi-family) and acquisition development and construction loans, were $15.7 billion compared to $14.0 billion in the fourth quarter of 2017, an increase of $1.8 billion or 12.6%.
  • The tax equivalent yield on investment securities was 2.92% compared to 3.03% for the three months ended December 31, 2017.  The tax equivalent adjustment assumed a 35% federal tax rate in 2017 compared to 21% in 2018, which caused the decline in yield between the periods. Average tax exempt securities balances grew to $2.6 billion for the quarter ended December 31, 2018, compared to $2.1 billion in the fourth quarter of 2017. Average investment securities were $6.7 billion, or 24.1%, of average total interest earning assets for the fourth quarter of 2018 compared to $5.9 billion, or 22.8%, of average earning assets for the fourth quarter of 2017.
  • The tax equivalent yield on interest earning assets increased 22 basis points between the periods to 4.54%.
  • The cost of total deposits was 77 basis points and the cost of borrowings was 2.43%, compared to 43 basis points and 1.94%, 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 are required to attract and retain higher balance commercial and consumer deposits. Since the fourth quarter of 2017, the change in the cost of total deposits relative to the change in the Federal Funds rate has been 27.2%.
  • The total cost of interest bearing liabilities increased 46 basis points to 1.28% for the fourth quarter of 2018 compared to 0.82% for the fourth quarter of 2017.  The increase was mainly due to an increase in market interest rates, and competitive factors as discussed above.

The tax equivalent net interest margin was 3.53% for the fourth quarter of 2018 compared to 3.67% for the fourth quarter of 2017. 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 3.15% for the fourth quarter of 2018 compared to 3.16% in the fourth quarter of 2017, as the increase in yield on interest earning assets was offset by the change in tax equivalent adjustment rate and the increase in the cost of interest bearing liabilities.

Fourth quarter 2018 compared with linked quarter ended September 30, 2018
Net interest income declined $1.1 million compared to the linked quarter. The decrease in net interest income was mainly due to higher interest expense paid on interest bearing liabilities and lower average balances of interest earning assets. Other key components of the changes in net interest income compared to the linked quarter were the following:

  • The yield on loans was 5.07% compared to 5.01% for the linked quarter.  Accretion income on acquired loans was $27.0 million, an increase of $442 thousand relative to the linked quarter.  Interest income and yield on loans were also impacted by a decrease of $1.2 million in loan prepayment penalties.
  • The average balance of total portfolio loans increased $2.2 million.  This included an increase of $216.7 million in the balance of commercial loans, which was offset by decreases of $195.8 million in the balance of residential mortgage loans and $18.6 million in consumer loans. Commercial loan growth was due to originations generated by our commercial banking teams.
  • The tax equivalent yield on investment securities increased five basis points to 2.92% in the fourth quarter of 2018, as the average balance of taxable securities decreased by $60.5 million and the average balance of tax exempt securities decreased by $28.3 million.
  • The tax equivalent yield on interest earning assets increased seven basis points and was 4.54% compared to 4.47% in the linked quarter. The increase was mainly due to increases in market rates of interest and a change in the mix of interest earning assets.

4

  • The cost of total deposits increased 9 basis points to 77 basis points and the total cost of borrowings increased to 2.43% compared to 2.29% in the linked quarter, mainly due to the factors discussed above.
  • Average interest bearing deposits increased by $87.7 million and average borrowings decreased $336.2 million relative to the linked quarter. Total interest expense increased by $5.3 million over the linked quarter.

The tax equivalent net interest margin was 3.53% compared to 3.54% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.16% in the linked quarter compared to 3.15% in the fourth quarter of 2018. The decrease in tax equivalent net interest margin excluding accretion income was mainly due to lower commercial loan prepayment activity and higher rates paid on deposits and other interest bearing liabilities.

Non-interest Income

       
($ in thousands) For the three months ended   Change %
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Linked Qtr
Total non-interest income $ 23,762     $ 24,145     $ 22,475     (5.4 )%   (6.9 )%
Net (loss) on sale of securities (70 )   (56 )   (4,886 )   NM     NM  
Adjusted non-interest income $ 23,832     $ 24,201     $ 27,361     14.8     13.1  
                                   

Fourth quarter 2018 compared with fourth quarter 2017
Excluding net (loss) on sale of securities, adjusted non-interest income increased $3.5 million in the fourth quarter of 2018 to $27.4 million, compared to $23.8 million in the same quarter last year.  The change was mainly due to other loan fees, including letters of credit and loan swaps, which are included in other non-interest income and increased $2.6 million; bank owned life insurance income increased by $586 thousand; and payroll finance fee income increased $430 thousand (which are included in accounts receivable management / factoring commissions and other related fees).  These increases were partially offset by a decline of $725 thousand in deposit service charges and a $202 thousand decline in wealth management revenue.

In the fourth quarter of 2018, we sold approximately $65 million of available for sale securities and realized a loss of $4.9 million. The securities were sold as we continue our strategy of repositioning our balance sheet and interest earning assets to a more optimal mix.

Fourth quarter 2018 compared with linked quarter ended September 30, 2018
Excluding net (loss) on sale of securities and adjusted non-interest income increased approximately $3.2 million from $24.2 million in the linked quarter to $27.4 million in the fourth quarter of 2018. The increase was mainly due to an increase in loan swap fees, (which are included in other non-interest income) and were $2.9 million compared to $862 thousand in the linked quarter. Loan swap fees are usually generated by new loan originations, which will result in fluctuations in swap fee volume on a linked quarter basis.

5

Non-interest Expense

       
($ in thousands) For the three months ended   Change % / bps
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Linked Qtr
Compensation and benefits $ 56,086     $ 54,823     $ 54,677     (2.5 )%   (0.3 )%
Stock-based compensation plans 2,508     3,115     3,679     46.7     18.1  
Occupancy and office operations 18,100     16,558     16,579     (8.4 )   0.1  
Information technology 11,984     10,699     8,761     (26.9 )   (18.1 )
Amortization of intangible assets 6,426     5,865     5,865     (8.7 )    
FDIC insurance and regulatory assessments 5,737     6,043     3,608     (37.1 )   (40.3 )
Other real estate owned, (“OREO”) net 742     1,497     15     (98.0 )   (99.0 )
Merger-related expenses 30,230             NM      
Charge for asset write-downs, systems integration, retention and severance 104,506             NM      
Other expenses 14,427     13,173     16,737     16.0     27.1  
Total non-interest expense $ 250,746     $ 111,773     $ 109,921     (56.2 )   (1.7 )
Full time equivalent employees (“FTEs”) at period end 2,076     1,959     1,907     (8.1 )   (2.7 )
Financial centers at period end 128     113     106     (17.2 )   (6.2 )
Operating efficiency ratio, as reported6 97.3 %   41.7 %   41.4 %   5,590     30  
Operating efficiency ratio, as adjusted6 41.4     38.9     38.0     340     90  
 
6 See a reconciliation of non-GAAP financial measures beginning on page 17.
 

Fourth quarter 2018 compared with fourth quarter 2017
Total non-interest expense decreased $140.8 million relative to the fourth quarter of 2017. Key components of the change in non-interest expense were the following:

  • Compensation and benefits decreased $1.4 million between the periods.  Total FTEs declined to 1,907 from 2,076, which was mainly due to completion of the Astoria Merger integration, including the deposit systems conversion and ongoing financial center consolidation strategy.
  • Occupancy and office operations decreased $1.5 million mainly due to the consolidation of financial centers and other locations acquired in the Astoria Merger. In the fourth quarter of 2018, we consolidated seven financial centers and in 2018, we consolidated 22 financial centers, closed two back-office locations and sold the Astoria Lake Success headquarters location.
  • Information technology expense decreased $3.2 million as we completed the conversion of Astoria’s deposit systems in the third quarter of 2018.
  • Amortization of intangible assets decreased $561 thousand. 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 $2.1 million to $3.6 million in the fourth quarter of 2018, compared to $5.7 million in the fourth quarter of 2017.  This was mainly due to a decrease in FDIC deposit insurance expense.
  • OREO, net decreased $727 thousand to $15 thousand, compared to $742 thousand for the fourth quarter of 2017.  In the fourth quarter of 2018, OREO, net included gain on sale of $331 thousand, which was mainly offset by $126 thousand of write-downs and $255 of operating costs.
  • Merger-related expenses and charges for asset write-downs, systems integration, retention and severance were incurred in the fourth quarter of 2017 in connection with the Astoria Merger.  These charges did not recur in the fourth quarter of 2018.
  • Other expenses increased $2.3 million to $16.7 million, compared to $14.4 million in the fourth quarter of 2017.  The increase is mainly due to higher professional fees, marketing expense and higher loan processing expense.

Fourth quarter 2018 compared with linked quarter ended September 30, 2018
Total non-interest expense decreased $1.9 million to $109.9 million in the fourth quarter of 2018. Key components of the change in non-interest expense were the following:

  • Compensation and benefits declined $146 thousand and was $54.7 million compared to $54.8 million in the linked quarter.  Total FTEs declined to 1,907 at December 31, 2018 from 1,959 at September 30, 2018, as we continue to integrate Astoria’s personnel and operations.

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  • Information technology expense decreased $1.9 million compared to the linked quarter as cost savings from the Astoria deposit systems conversion were realized.
  • OREO, net was $15 thousand compared to $1.5 million in the linked quarter; as the linked quarter included $617 thousand of property tax, $790 thousand of other OREO operating expense, $190 thousand of property write-downs.

Taxes
For the three months and twelve months ended December 31, 2018, the Company recorded income tax expense at an estimated effective income tax rate of 21.0%.

Key Balance Sheet Highlights as of December 31, 2018

       
($ in thousands) As of   Change % / bps
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Linked Qtr
Total assets $ 30,359,541     $ 31,261,265     $ 31,383,307     3.4 %   0.4 %
Total portfolio loans, gross 20,008,983     20,533,214     19,218,530     (4.0 )   (6.4 )
Commercial & industrial (“C&I”) loans 5,306,821     6,244,030     6,533,386     23.1     4.6  
Commercial real estate loans (including multi-family) 8,998,419     9,284,657     9,406,541     4.5     1.3  
Acquisition, development and construction loans 282,792     265,676     267,754     (5.3 )   0.8  
Total commercial loans 14,588,032     15,794,363     16,207,681     11.1     2.6  
Residential mortgage loans 5,054,732     4,421,520     2,705,226     (46.5 )   (38.8 )
Total deposits 20,538,204     21,456,057     21,214,148     3.3     (1.1 )
Core deposits 8 19,388,254     20,448,343     19,998,967     3.1     (2.2 )
Investment securities 6,474,561     6,685,972     6,667,180     3.0     (0.3 )
Total borrowings 4,991,210     4,825,855     5,214,183     4.5     8.0  
Loans to deposits 97.4 %   95.7 %   90.6 %   (680 )   (510 )
Core deposits to total deposits 94.4     95.3     94.3     (10 )   (100 )
Investment securities to total assets 21.3     21.4     21.2     (10 )   (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 December 31, 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 34.0% of total portfolio loans, commercial real estate loans (which include multi-family loans) represented 49.0%, consumer and residential mortgage loans combined represented 15.7%, and acquisition, development and construction loans represented 1.4% of total portfolio loans. In comparison, consumer and residential mortgage loans were 23.1% of total portfolio loans at September 30, 2018. The pending sale of $1.6 billion of residential mortgage loans resulted in the reclassification of these loans from portfolio loans to held for sale.  Upon closure, this sale will have a significant impact on our loan portfolio composition.
  • Total commercial loans, which include all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $413.3 million in the linked quarter and $1.6 billion since December 31, 2017.
  • Residential mortgage loans were $2.7 billion at December 31, 2018, compared to $4.4 billion at September 30, 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 due to the pending sale.
  • Total deposits at December 31, 2018 decreased $241.9 million compared to September 30, 2018, as municipal deposits reach their peak at the end of the third quarter. Total deposits increased $675.9 million over December 31, 2017.
  • Core deposits at December 31, 2018 were $20.0 billion and increased $610.7 million over December 31, 2017.
  • Municipal deposits at December 31, 2018 were $1.7 billion, and increased $190.8 million relative to December 31, 2017.
  • Investment securities increased by $192.6 million over December 31, 2017, and represented 21.2% of total assets at December 31, 2018.

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Credit Quality

       
($ in thousands) For the three months ended   Change % / bps
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Linked Qtr
Provision for loan losses $ 12,000     $ 9,500     $ 10,500     (12.5 )%   10.5 %
Net charge-offs 6,221     4,161     6,188     (0.5 )   48.7  
Allowance for loan losses 77,907     91,365     95,677     22.8     4.7  
Non-performing loans 187,213     185,222     168,823     (9.8 )   (8.9 )
Loans 30 to 89 days past due 53,533     50,084     97,201     81.6     94.1  
Annualized net charge-offs to average loans 0.13 %   0.08 %   0.12 %   (1 )   4  
Allowance for loan losses to total loans 0.39     0.44     0.50     11     6  
Allowance for loan losses to non-performing loans 41.6     49.3     56.7     1,510     740  
                             

Provision for loan losses was $10.5 million, compared to $9.5 million in the linked quarter and $12.0 million in the same period a year ago. In the fourth quarter of 2018, provision for loan losses was $4.3 million in excess of net charge-offs of $6.2 million.  Allowance coverage ratios were 0.50% of total loans and 56.7% of non-performing loans at December 31, 2018. The increase from September 30, 2018 was due to the increase in the allowance for loan losses and the reclassification of $1.6 billion of residential mortgage loans from portfolio loans to loans held for sale. 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 decreased by $16.4 million to $168.8 million at December 31, 2018 compared to the linked quarter.  The decrease in non-performing loans was mainly due to net charge-offs and the return to performing status of certain loans that were previously categorized as non-performing. Loans 30 to 89 days past due increased $47.1 million from the linked quarter, which was mainly due to loans that have matured and are in the process of refinancing or repayment.

Capital

       
($ in thousands, except share and per share data) As of   Change % / bps
  12/31/2017   9/30/2018   12/31/2018   Y-o-Y   Three
months
Total stockholders’ equity $ 4,240,178     $ 4,438,303     $ 4,428,853     4.4 %   (0.2 )%
Preferred stock 139,220     138,627     138,423     (0.6 )   (0.1 )
Goodwill and other intangible assets 1,733,082     1,745,181     1,742,578     0.5     (0.1 )
Tangible common stockholders’ equity $ 2,367,876     $ 2,554,495     $ 2,547,852     7.6     (0.3 )
Common shares outstanding 224,782,694     225,446,089     216,227,852     (3.8 )   (4.1 )
Book value per common share $ 18.24     $ 19.07     $ 19.84     8.8     4.0  
Tangible book value per common share 9 10.53     11.33     11.78     11.9     4.0  
Tangible common equity to tangible assets 9 8.27 %   8.65 %   8.60 %   33     (5 )
Estimated Tier 1 leverage ratio - Company 9.39     9.68     9.50     11     (18 )
Estimated Tier 1 leverage ratio - Bank 10.10     10.10     9.94     (16 )   (16 )
 
 9 See a reconciliation of non-GAAP financial measures beginning on page 17.
 

Total stockholders’ equity declined $9.4 million to $4.4 billion as of December 31, 2018 compared to September 30, 2018 and increased $188.7 million compared to December 31, 2017.

For 2018, net income available to common stockholders of $439.3 million was partially offset by common dividends of $63.1 million, preferred dividends of $8.8 million, a decline in the fair value of our available for sale investment securities of $34.6 million and common stock repurchases of $159.9 million.

Total goodwill and other intangible assets were $1.7 billion at December 31, 2018, a decrease of $2.6 million compared to September 30, 2018, which was mainly due to amortization of intangibles.

8

Basic and diluted weighted average common shares outstanding declined relative to the linked quarter by approximately 2.8 million and were 222.3 million and 222.8 million, respectively. Total common shares outstanding at December 31, 2018 were approximately 216.2 million.  In the fourth quarter of 2018, we repurchased 9,114,771 shares of common stock in the open market at a weighted average price of $17.54 per share, for total consideration of $159.9 million. We anticipate repurchasing approximately 5,000,000 common shares in the first quarter of 2019, depending on market conditions.

Tangible book value per common share was $11.78 at December 31, 2018, which represented an increase of 11.9% over a year ago and an increase of 4.0% over September 30, 2018.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, January 24, 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) 394-8218, Conference ID #8905659.  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 Annual Report on Form 10-K for the twelve months ended December 31, 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 Annual Report on Form 10-K 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)        

           
  12/31/2017   9/30/2018   12/31/2018
Assets:          
Cash and cash equivalents $ 479,906     $ 533,984     $ 438,110  
Investment securities 6,474,561     6,685,972     6,667,180  
Loans held for sale 5,246     31,042     1,565,979  
Portfolio loans:          
Commercial and industrial (“C&I”) 5,306,821     6,244,030     6,533,386  
Commercial real estate (including multi-family) 8,998,419     9,284,657     9,406,541  
Acquisition, development and construction 282,792     265,676     267,754  
Residential mortgage 5,054,732     4,421,520     2,705,226  
Consumer 366,219     317,331     305,623  
Total portfolio loans, gross 20,008,983     20,533,214     19,218,530  
Allowance for loan losses (77,907 )   (91,365 )   (95,677 )
Total portfolio loans, net 19,931,076     20,441,849     19,122,853  
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost 284,112     351,455     369,690  
Accrued interest receivable 94,098     109,377     107,111  
Premises and equipment, net 321,722     289,794     264,194  
Goodwill 1,579,891     1,609,772     1,613,033  
Other intangibles 153,191     135,409     129,545  
Bank owned life insurance 651,638     660,279     653,995  
Other real estate owned 27,095     22,735     19,377  
Other assets 357,005     389,597     432,240  
Total assets $ 30,359,541     $ 31,261,265     $ 31,383,307  
Liabilities:          
Deposits $ 20,538,204     21,456,057     $ 21,214,148  
FHLB borrowings 4,510,123     4,429,110     4,838,772  
Other borrowings 30,162     22,888     21,338  
Senior notes 278,209     200,972     181,130  
Subordinated notes 172,716     172,885     172,943  
Mortgage escrow funds 122,641     96,952     72,891  
Other liabilities 467,308     444,098     453,232  
Total liabilities 26,119,363     26,822,962     26,954,454  
Stockholders’ equity:          
Preferred stock 139,220     138,627     138,423  
Common stock 2,299     2,299     2,299  
Additional paid-in capital 3,780,908     3,773,164     3,776,461  
Treasury stock (58,039 )   (51,973 )   (213,935 )
Retained earnings 401,956     694,861     791,550  
Accumulated other comprehensive (loss) (26,166 )   (118,675 )   (65,945 )
Total stockholders’ equity 4,240,178     4,438,303     4,428,853  
Total liabilities and stockholders’ equity $ 30,359,541     $ 31,261,265     $ 31,383,307  
           
Shares of common stock outstanding at period end 224,782,694     225,446,089     216,227,852  
Book value per common share $ 18.24     $ 19.07     $ 19.84  
Tangible book value per common share1 10.53     11.33     11.78  
 
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 Year Ended
  12/31/2017   9/30/2018   12/31/2018   12/31/2017   12/31/2018
Interest and dividend income:                  
Loans and loan fees $ 234,452     $ 257,211     $ 260,417     $ 570,761     $ 1,006,496  
Securities taxable 24,743     29,765     30,114     65,278     115,971  
Securities non-taxable 13,295     15,244     15,104     37,245     61,062  
Other earning assets 4,005     6,805     7,562     9,165     24,944  
Total interest and dividend income 276,495     309,025     313,197     682,449     1,208,473  
Interest expense:                  
Deposits 22,305     35,974     41,450     56,110     130,096  
Borrowings 20,166     29,102     28,876     50,196     110,974  
Total interest expense 42,471     65,076     70,326     106,306     241,070  
Net interest income 234,024     243,949     242,871     576,143     967,403  
Provision for loan losses 12,000     9,500     10,500     26,000     46,000  
Net interest income after provision for loan losses 222,024     234,449     232,371     550,143     921,403  
Non-interest income:                  
Deposit fees and service charges 7,236     6,333     6,511     17,128     26,830  
Accounts receivable management / factoring commissions and other related fees 5,133     5,595     6,480     17,803     22,772  
Bank owned life insurance 3,474     3,733     4,060     7,816     15,651  
Loan commissions and fees 2,995     4,142     4,066     11,637     16,181  
Investment management fees 2,103     1,943     1,901     2,928     7,790  
Net (loss) on sale of securities (70 )   (56 )   (4,886 )   (344 )   (10,788 )
(Loss) gain on sale of fixed assets (1 )           (1 )   11,800  
Other 2,892     2,455     4,343     7,235     12,961  
Total non-interest income 23,762     24,145     22,475     64,202     103,197  
Non-interest expense:                  
Compensation and benefits 56,086     54,823     54,677     150,254     220,340  
Stock-based compensation plans 2,508     3,115     3,679     8,111     12,984  
Occupancy and office operations 18,100     16,558     16,579     43,649     68,536  
Information technology 11,984     10,699     8,761     19,387     41,174  
Amortization of intangible assets 6,426     5,865     5,865     13,008     23,646  
FDIC insurance and regulatory assessments 5,737     6,043     3,608     11,969     20,493  
Other real estate owned, net 742     1,497     15     3,423     1,650  
Merger-related expenses 30,230             39,232      
Charge for asset write-downs, systems integration, retention and severance 104,506             105,110     13,132  
Other 14,427     13,173     16,737     39,232     56,415  
Total non-interest expense 250,746     111,773     109,921     433,375     458,370  
(Loss) income before income tax expense (4,960 )   146,821     144,925     180,970     566,230  
Income tax expense 28,319     27,171     30,434     87,939     118,976  
Net (loss) income (33,279 )   119,650     114,491     93,031     447,254  
Preferred stock dividend 2,002     1,993     1,990     2,002     7,978  
Net (loss) income available to common stockholders $ (35,281 )   $ 117,657     $ 112,501     $ 91,029     $ 439,276  
Weighted average common shares:                  
Basic 223,501,073     225,088,511     222,319,682     157,513,639     224,299,488  
Diluted 224,055,991     225,622,895     222,769,369     158,124,270     224,816,996  
Earnings per common share:                  
Basic earnings per share $ (0.16 )   $ 0.52     $ 0.51     $ 0.58     $ 1.96  
Diluted earnings per share (0.16 )   0.52     0.51     0.58     1.95  
Dividends declared per share 0.07     0.07     0.07     0.28     0.28  
                             

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 12/31/2017   3/31/2018   6/30/2018   9/30/2018   12/31/2018
Total assets $ 30,359,541     $ 30,468,780     $ 31,463,077     $ 31,261,265     $ 31,383,307  
Tangible assets 1 28,626,459     28,741,750     29,708,659     29,516,084     29,640,729  
Securities available for sale 3,612,072     3,760,338     3,929,386     3,843,244     3,870,563  
Securities held to maturity 2,862,489     2,874,948     2,859,860     2,842,728     2,796,617  
Loans held for sale2 5,246     44,440     30,626     31,042     1,565,979  
Portfolio loans 20,008,983     19,939,245     20,674,493     20,533,214     19,218,530  
Goodwill 1,579,891     1,579,891     1,613,144     1,609,772     1,613,033  
Other intangibles 153,191     147,139     141,274     135,409     129,545  
Deposits 20,538,204     20,623,233     20,965,889     21,456,057     21,214,148  
Municipal deposits (included above) 1,585,076     1,775,472     1,652,733     2,019,893     1,751,670  
Borrowings 4,991,210     4,927,594     5,537,537     4,825,855     5,214,183  
Stockholders’ equity 4,240,178     4,273,755     4,352,735     4,438,303     4,428,853  
Tangible common equity 1 2,367,876     2,407,700     2,459,489     2,554,495     2,547,852  
Quarterly Average Balances                  
Total assets 29,277,502     30,018,289     30,994,904     31,036,026     30,925,281  
Tangible assets 1 27,567,351     28,287,337     29,237,608     29,283,093     29,179,942  
Loans, gross:                  
  Commercial real estate (includes multi-family) 8,839,256     9,028,849     9,100,098     9,170,117     9,341,579  
  Acquisition, development and construction 246,141     267,638     247,500     252,710     279,793  
Commercial and industrial:                  
  Traditional commercial and industrial 1,911,450     1,933,323     2,026,313     2,037,195     2,150,644  
  Asset-based lending3 781,732     781,392     778,708     820,060     812,903  
  Payroll finance3 250,673     229,920     219,545     223,636     223,061  
  Warehouse lending3 564,593     495,133     731,385     857,280     690,277  
  Factored receivables3 224,966     217,865     224,159     220,808     267,986  
  Equipment financing3 677,271     689,493     1,140,803     1,158,945     1,147,269  
Public sector finance3 480,800     653,344     725,675     784,260     828,153  
  Total commercial and industrial 4,891,485     5,000,470     5,846,588     6,102,184     6,120,293  
  Residential mortgage 5,168,622     4,977,191     4,801,595     4,531,922     4,336,083  
  Consumer 372,981     361,752     344,183     330,061     311,475  
Loans, total4 19,518,485     19,635,900     20,339,964     20,386,994     20,389,223  
Securities (taxable) 3,840,147     3,997,542     4,130,949     4,193,910     4,133,456  
Securities (non-taxable) 2,086,677     2,604,633     2,620,579     2,580,802     2,552,533  
Other interest earning assets 598,439     595,847     665,888     638,227     635,443  
Total earning assets 26,043,748     26,833,922     27,757,380     27,799,933     27,710,655  
Deposits:                  
  Non-interest bearing demand 4,043,213     3,971,079     3,960,683     4,174,908     4,324,247  
  Interest bearing demand 3,862,461     3,941,749     4,024,972     4,286,278     4,082,526  
  Savings (including mortgage escrow funds) 2,871,885     2,917,624     2,916,755     2,678,662     2,535,098  
  Money market 7,324,196     7,393,335     7,337,904     7,404,208     7,880,331  
  Certificates of deposit 2,382,102     2,464,360     2,528,355     2,571,298     2,530,226  
Total deposits and mortgage escrow 20,483,857     20,688,147     20,768,669     21,115,354     21,352,428  
Borrowings 4,121,605     4,597,903     5,432,582     5,052,752     4,716,522  
Stockholders’ equity 4,235,739     4,243,897     4,305,928     4,397,823     4,426,118  
Tangible common equity 1 2,386,245     2,373,794     2,409,674     2,506,198     2,542,256  
                   
 
1 See a reconciliation of non-GAAP financial measures beginning on page 17.
2At December 31, 2018 loans held for sale includes $1.6 billion of residential mortgage loans, net of purchase accounting discount.
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 12/31/2017   3/31/2018   6/30/2018   9/30/2018   12/31/2018
Basic earnings (loss) per share $ (0.16 )   $ 0.43     $ 0.50     $ 0.52     $ 0.51  
Diluted earnings (loss) per share (0.16 )   0.43     0.50     0.52     0.51  
Adjusted diluted earnings per share, non-GAAP 1 0.39     0.45     0.50     0.51     0.52  
Dividends declared per common share 0.07     0.07     0.07     0.07     0.07  
Book value per common share 18.24     18.34     18.69     19.07     19.84  
Tangible book value per common share1 10.53     10.68     10.91     11.33     11.78  
Shares of common stock o/s 224,782,694     225,466,266     225,470,254     225,446,089     216,227,852  
Basic weighted average common shares o/s 223,501,073     224,730,686     225,084,232     225,088,511     222,319,682  
Diluted weighted average common shares o/s 224,055,991     225,264,147     225,621,856     225,622,895     222,769,369  
Performance Ratios (annualized)                  
Return on average assets (0.48 )%   1.31 %   1.45 %   1.50 %   1.44 %
Return on average equity (3.30 )   9.26     10.46     10.61     10.08  
Return on average tangible assets (0.51 )   1.39     1.54     1.59     1.53  
Return on average tangible common equity (5.87 )   16.55     18.68     18.63     17.56  
Return on average tangible assets, adjusted 1 1.25     1.45     1.55     1.55     1.58  
Return on avg. tangible common equity, adjusted 1 14.49     17.24     18.79     18.09     18.17  
Operating efficiency ratio, as adjusted 1 41.4     40.3     38.3     38.9     38.0  
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 33,726     $ 30,340     $ 28,010     $ 26,574     $ 27,016  
Yield on loans 4.77 %   4.85 %   5.01 %   5.01 %   5.07 %
Yield on investment securities - tax equivalent 2 3.03     2.85     2.88     2.87     2.92  
Yield on interest earning assets - tax equivalent 2 4.32     4.31     4.47     4.47     4.54  
Cost of interest bearing deposits 0.54     0.59     0.68     0.84     0.97  
Cost of total deposits 0.43     0.47     0.55     0.68     0.77  
Cost of borrowings 1.94     2.01     2.23     2.29     2.43  
Cost of interest bearing liabilities 0.82     0.89     1.06     1.17     1.28  
Net interest rate spread - tax equivalent basis 2 3.50     3.42     3.41     3.30     3.26  
Net interest margin - GAAP basis 3.57     3.54     3.56     3.48     3.48  
Net interest margin - tax equivalent basis 2 3.67     3.60     3.62     3.54     3.53  
Capital                  
Tier 1 leverage ratio - Company 3 9.39 %   9.39 %   9.32 %   9.68 %   9.50 %
Tier 1 leverage ratio - Bank only 3 10.10     10.00     9.84     10.10     9.94  
Tier 1 risk-based capital ratio - Bank only 3 12.10