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Sterling Bancorp announces results for the third quarter of 2018 with record earnings per share available to common stockholders of $0.52 (as reported) and $0.51 (as adjusted), representing growth of 57.6% and 45.7%, respectively, over the same quarter a year ago

MONTEBELLO, N.Y., Oct. 23, 2018 (GLOBE NEWSWIRE) --    

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

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  9/30/2017   9/30/2018   Change 
% / bps
  9/30/2017   9/30/2018   Change 
%/ bps
Total revenue2 $ 134,061     $ 268,094     100.0 %   $ 138,681     $ 272,202     96.3 %
Net income available to common 44,852     117,657     162.3     47,865     114,273     138.7  
Diluted EPS available to common 0.33     0.52     57.6     0.35     0.51     45.7  
Net interest margin3 3.29 %   3.48 %   19     3.42 %   3.54 %   12  
Return on average tangible common equity 14.86     18.63     377     15.85     18.09     224  
Return on average tangible assets 1.19     1.59     40     1.27     1.55     28  
Operating efficiency ratio4 46.7     41.7     (500 )   40.6     38.9     (170 )
  • Net income available to common stockholders of $117.7 million (as reported) and $114.3 million (as adjusted).

  • Total portfolio loans, gross were $20.5 billion and total deposits were $21.5 billion at September 30, 2018.

  • Total commercial loans of $15.8 billion at September 30, 2018; growth of 12.5% since the merger with Astoria Financial Corporation (“Astoria Merger”).

  • Operating efficiency ratio of 41.7% (as reported) and 38.9% (as adjusted).

  • Operating leverage ratio of 2.7x relative to the same quarter a year ago.

  • Tangible book value per common share1 of $11.33 at September 30, 2018; growth of 26.6% over the prior year.

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

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  6/30/2018   9/30/2018   Change 
% / bps
  6/30/2018   9/30/2018   Change 
% / bps
Total revenue2 $ 284,084     $ 268,094     (5.6 )%   $ 276,806     $ 272,202     (1.7 )%
Net income available to common 112,245     117,657     4.8     112,868     114,273     1.2  
Diluted EPS available to common 0.50     0.52     4.0     0.50     0.51     2.0  
Net interest margin3 3.56 %   3.48 %   (8 )   3.62 %   3.54 %   (8 )
Return on average tangible common equity 18.68     18.63     (5 )   18.79     18.09     (70 )
Return on average tangible assets 1.54     1.59     5     1.55     1.55      
Operating efficiency ratio4 44.0     41.7     (230 )   38.3     38.9     60  
  • Loan portfolio continues to transition; growth in average commercial loan balances of $330.8 million over linked quarter.

  • Adjusted operating expenses were $105.9 million1; represents an annualized run-rate of $420.2 million.

  • Total deposit growth of $490.2 million; cost of total deposits increased thirteen basis points to 0.68%.

  • Consolidated eight financial centers and one back-office location in the third quarter.

  • Completed full integration of Astoria’s legacy deposit systems.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 18
2. Total revenue is equal to net interest income plus non-interest income. Total revenue as adjusted is equal to tax equivalent net interest income   plus non-interest income excluding securities gains and losses.
3. Net interest margin is equal to net interest income divided by average interest earning assets. Net interest margin as adjusted, or tax equivalent net interest margin, is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average interest earning assets.
4. Operating efficiency ratio is a non-GAAP measure. See page 21 for an explanation of the operating efficiency ratio.

Sterling Bancorp (STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and nine months ended September 30, 2018. Net income available to common stockholders for the quarter ended September 30, 2018 was $117.7 million, or $0.52 per diluted share, compared to net income available to common stockholders of $112.2 million, or $0.50 per diluted share, for the linked quarter ended June 30, 2018, and net income available to common stockholders of $44.9 million, or $0.33 per diluted share, for the three months ended September 30, 2017.

Net income available to common stockholders for the nine months ended September 30, 2018 was $326.8 million, or $1.45 per diluted share, compared to net income available to common stockholders of $126.3 million, or $0.93 per diluted share, for the same period in 2017.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We continued our strong operating performance in the third quarter of 2018 with record adjusted net income available to common stockholders of $114.3 million and adjusted diluted earnings per share available to common stockholders of $0.51, which represents growth of 138.7% and 45.7%, respectively, over the third quarter of 2017. Our adjusted return on average tangible assets was 1.55% and our adjusted return on average tangible common equity was 18.09%. As of September 30, 2018, our total assets were $31.3 billion, gross portfolio loans were $20.5 billion and total deposits were $21.5 billion.

“We continue to make substantial progress on the integration of Astoria. During the quarter we completed the full conversion of Astoria’s legacy deposit systems, consolidated eight financial centers and one back-office location, and reduced total personnel by 78 to 1,959 full-time equivalent employees. Excluding the amortization of intangibles, operating expenses were $105.9 million in the third quarter, which represented an annualized run-rate of $420.2 million and a decrease of $4.7 million relative to the annualized run-rate in the second quarter of 2018. Our adjusted operating efficiency ratio remained below 40.0%, and comparing our quarterly results to the same period a year ago, our operating leverage ratio, which we define as growth in operating revenues divided by growth in operating expenses, was 2.7x. We are confident in our ability to continue realizing merger cost savings and anticipate we will reduce total operating expenses for the full year 2019, while still growing our balance sheet and revenues. We expect this will result in significant operating leverage.

“Our commercial loan growth has been strong; based on average loan balances, commercial loans increased by $330.8 million relative to the linked quarter, and spot balances have increased $1.8 billion since the completion of the Astoria Merger. Our commercial loan growth is being partially offset by the continued run-off of residential mortgage loans, which based on average loan balances, decreased by $269.7 million relative to the linked quarter and have decreased by $878.7 million since the completion of the Astoria Merger. We will remain disciplined on new loan originations, focusing on diversified commercial asset classes where we can achieve our target risk-adjusted returns.

“Our average total deposit balances increased by $346.7 million relative to the linked quarter; spot balances have grown $1.4 billion since the completion of the Astoria Merger to $21.5 billion, with a balanced mix of commercial, consumer and small business clients. We experienced greater pressure on our cost of deposit funding in the third quarter, as our cost of interest-bearing deposits was 0.84% and our cost of total deposits was 0.68%, an increase of 16 basis points and 13 basis points, respectively, relative to the linked quarter. 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. Relative to the fourth quarter of 2017, the change in our cost of total deposits relative to the change in the Federal Funds rate has been 24%. Excluding the impact of municipal and brokered deposits, the change has been 15%. We will continue to focus on deposit segments that will allow us to grow profitably and efficiently.

“Our tax equivalent net interest margin, excluding the impact of accretion income on acquired loans, was 3.16% in the third quarter, which represented a decrease of five basis points relative to the linked quarter. We are evaluating various alternatives to accelerate the transition of our balance sheet and loan portfolio to a more optimal mix, including potential divestitures of loans acquired in the Astoria Merger and acquisitions of commercial loans. We anticipate this transition will provide a greater balance to our interest rate risk sensitivity, allow us to more effectively offset funding cost pressures and increase our net interest margin over time.

“Our tangible common equity ratio was 8.65% and our estimated Tier 1 Leverage ratio was 9.68% at September 30, 2018; we have ample capital to support our strategy. Our tangible book value per common share was $11.33, which represented an increase of 26.6% over a year ago.

“We have substantial 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 November 19, 2018 to holders of record as of November 5, 2018.”

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $117.7 million, or $0.52 per diluted share, for the third quarter of 2018, included the following items which are excluded from our adjusted results: a pre-tax loss of $56 thousand on the sale of available for sale securities and the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $295 thousand.

For purposes of calculating our adjusted results for the quarter and nine months ended September 30, 2018, we use an estimated effective income tax rate of 21.0%, which is equal to our estimated effective income tax rate for full year 2018.  Refer to the section “Taxes” for additional details.

Excluding the impact of these items, adjusted net income available to common stockholders was $114.3 million, or $0.51 per diluted share, for the three months ended September 30, 2018.

Non-GAAP financial measures include references to the terms “adjusted” or “excluding”. See the reconciliation of the Company’s non-GAAP financial measures beginning on page 18.

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Linked Qtr
Interest and dividend income $ 145,692     $ 304,906     $ 309,025     112.1 %   1.4 %
Interest expense 25,619     58,690     65,076     154.0     10.9  
Net interest income $ 120,073     $ 246,216     $ 243,949     103.2     (0.9 )
                   
Accretion income on acquired loans $ 3,397     $ 28,010     $ 26,574     682.3 %   (5.1 )%
Yield on loans 4.67 %   5.01 %   5.01 %   34      
Tax equivalent yield on investment securities 2.87     2.88     2.87         (1 )
Tax equivalent yield on interest earning assets 4.12     4.47     4.47     35      
Cost of total deposits 0.50     0.55     0.68     18     13  
Cost of interest bearing deposits 0.69     0.68     0.84     15     16  
Cost of borrowings 1.75     2.23     2.29     54     6  
Cost of interest bearing liabilities 0.97     1.06     1.17     20     11  
Tax equivalent net interest margin5 3.42     3.62     3.54     12     (8 )
                   
Average loans, including loans held for sale $ 10,186,414     $ 20,339,964     $ 20,386,994     100.1 %   0.2 %
Average investment securities 3,916,076     6,751,528     6,774,712     73.0     0.3  
Average total interest earning assets 14,471,120     27,757,380     27,799,933     92.1     0.2  
Average deposits and mortgage escrow 10,691,006     20,768,669     21,115,354     97.5     1.7  
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.

Third quarter 2018 compared with third quarter 2017
Net interest income was $243.9 million, an increase of $123.9 million compared to the third quarter of 2017.  This was mainly due to an increase in average loans outstanding between the periods as a result of the Astoria Merger, loans originated through our commercial banking teams and the Advantage Funding acquisition. Other key components of the changes in net interest income and net interest margin were the following:

  • The yield on loans was 5.01% compared to 4.67% for the three months ended September 30, 2017.  The increase in yield on loans was mainly due to an increase in accretion income on acquired loans, which was $26.6 million in the third quarter of 2018 compared to $3.4 million in the third quarter of 2017.

  • Average commercial loans, which includes all commercial and industrial loans, commercial real estate (including multi-family) and acquisition development and construction loans, were $15.5 billion compared to $9.2 billion in the third quarter of 2017, an increase of $6.3 billion or 68.1%.

  • The tax equivalent yield on investment securities was unchanged at 2.87%.  The tax equivalent adjustment assumed a 35% federal tax rate in 2017 compared to 21% in 2018. Average tax exempt securities balances grew to $2.6 billion for the quarter ended September 30, 2018, compared to $1.4 billion in the third quarter of 2017. Average investment securities were $6.8 billion, or 24.4%, of average total interest earning assets for the third quarter of 2018 compared to $3.9 billion, or 27.1%, of average earning assets for the third quarter of 2017.
  • The tax equivalent yield on interest earning assets increased 35 basis points between the periods to 4.47%, mainly due to higher accretion income on acquired loans, as described above.
  • The cost of total deposits was 68 basis points and the cost of borrowings was 2.29%, compared to 50 basis points and 1.75%, 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.
  • The total cost of interest bearing liabilities increased 20 basis points to 1.17% for the third quarter of 2018 compared to 0.97% for the third quarter of 2017.  The increase was mainly due to an increase in market interest rates, which increased the cost of wholesale, brokered and certificates of deposit between the periods. Year-to-date, the change in the total cost of deposits relative to the change in the Federal Funds rate was equal to 24%.  Excluding the impact of brokered deposits and municipal deposits, the change was equal to 15%.

The tax equivalent net interest margin was 3.54% for the third quarter of 2018 compared to 3.42% for the third quarter of 2017. The increase in tax equivalent net interest margin was mainly due to the increase in accretion income on acquired loans.  Excluding accretion income, tax equivalent net interest margin was 3.16% for the third quarter of 2018 compared to 3.32% in the third quarter of 2017. The decline in tax equivalent net interest margin excluding accretion income is mainly due to multi-family and residential mortgage loans acquired in the Astoria Merger, which generally have lower yields than the Company’s other loan assets, the change in tax equivalent adjustment rate due to the decrease in the federal income tax rate, and the increase in the cost of interest bearing liabilities.

Third quarter 2018 compared with linked quarter ended June 30, 2018

Net interest income declined $2.3 million compared to the linked quarter. The decrease in net interest income was mainly due to higher interest expense paid on interest bearing liabilities. Other key components of the changes in net interest income compared to the linked quarter were the following:

  • The yield on loans was 5.01%, unchanged from the linked quarter.  Accretion income on acquired loans was  $26.6 million in the third quarter of 2018, a decrease of $1.4 million relative to the linked quarter.  Yield on loans was also impacted by a decrease of $1.4 million in loan prepayment penalties.
  • The average balance of total portfolio loans increased $47.0 million.  This included an increase of $330.8 million in the balance of commercial loans, which was offset by decreases of $269.7 million in the balance of residential mortgage loans and $14.1 million of consumer loans. Commercial loan growth was mainly due to originations generated by our commercial banking teams.
  • The tax equivalent yield on investment securities decreased one basis points to 2.87% in the third quarter of 2018, mainly due to a change in mix of securities.  In the third quarter, the average balance of taxable securities increased $63.0 million and the average balance of tax exempt securities declined $39.8 million.
  • The tax equivalent yield on interest earning assets was unchanged between the third quarter of 2018 and the linked quarter and was 4.47%.
  • The cost of total deposits increased 13 basis points to 68 basis points in the quarter and the total cost of borrowings increased to 2.29% compared to 2.23% in the linked quarter, mainly due to the factors discussed above.
  • Average interest bearing deposits increased by $132.5 million and average borrowings decreased $379.8 million relative to the linked quarter. Total interest expense increased by $6.4 million over the linked quarter.

The tax equivalent net interest margin was 3.54% compared to 3.62% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.21% in the linked quarter compared to 3.16% in the third 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. The composition of the Company’s earning assets continued to shift in the third quarter of 2018, as the average balance of residential mortgage loans represented 21.5% of total portfolio loans compared to 22.5% at June 30, 2018.

We are evaluating alternatives for accelerating the run-off of residential mortgage loans and other loans acquired in the Astoria Merger.  We anticipate that over time we will replace these loans with higher yielding commercial loans originated through our commercial banking teams and loan portfolio acquisitions.  We expect this strategy will positively impact our net interest margin.

Non-interest Income

($ in thousands) For the three months ended   Change %
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Linked Qtr
Total non-interest income $ 13,988     $ 37,868     $ 24,145     72.6 %   (36.2 )%
Net (loss) on sale of securities (21 )   (425 )   (56 )   166.7     (86.8 )
Net gain on sale of fixed assets     11,797             (100.0 )
Adjusted non-interest income $ 14,009     $ 26,496     $ 24,201     72.8     (8.7 )

Third quarter 2018 compared with third quarter 2017
Excluding net (loss) on sale of securities, adjusted non-interest income increased $10.2 million in the third quarter of 2018 to $24.2 million, compared to $14.0 million in the same quarter last year.  The change was mainly due to the Astoria Merger as deposit fees and service charges increased by $3.0 million; bank owned life insurance income increased by $2.4 million; investment management fees increased by $1.7 million; and safe deposit box rental income increased by $532 thousand, which is included in other non-interest income. In addition, fee income generated on payroll finance loans increased $805 thousand (which represents the majority of the increase in accounts receivable management / factoring commissions and other related fees) and other loan fees, including letters of credit and loan swaps, increased $623 thousand over the year ago period.

Third quarter 2018 compared with linked quarter ended June 30, 2018
Excluding net (loss) on sale of securities and net gain on sale of fixed assets, adjusted non-interest income decreased approximately $2.3 million from $26.5 million in the linked quarter to $24.2 million in the third quarter of 2018. The decrease was mainly due to a reduction of  $1.5 million in other loan fees, which includes letters of credit, loan swaps and loan syndication revenue. These fees are usually connected to new loan originations, which will result in some volatility in fees on a linked quarter basis.

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Linked Qtr
Compensation and benefits $ 31,727     $ 56,159     $ 54,823     72.8 %   (2.4 )%
Stock-based compensation plans 1,969     3,336     3,115     58.2     (6.6 )
Occupancy and office operations 8,583     17,939     16,558     92.9     (7.7 )
Information technology 2,512     9,997     10,699     325.9     7.0  
Amortization of intangible assets 2,166     5,865     5,865     170.8      
FDIC insurance and regulatory assessments 2,310     5,495     6,043     161.6     10.0  
Other real estate owned, (“OREO”) net 894     (226 )   1,497     67.4     (762.4 )
Merger-related expenses 4,109             (100.0 )    
Charge for asset write-downs, systems integration,
retention and severance
    13,132          NM        (100.0 )
Other expenses 8,347     13,231     13,173     57.8     (0.4 )
Total non-interest expense $ 62,617     $ 124,928     $ 111,773     78.5     (10.5 )
Full time equivalent employees (“FTEs”) at period end 992     2,037     1,959     97.5     (3.8 )
Financial centers at period end 40     121     113     182.5     (6.6 )
Operating efficiency ratio, as reported6 46.7 %   44.0 %   41.7 %   500     230  
Operating efficiency ratio, as adjusted6 40.6     38.3     38.9     170     (60 )
6 See a reconciliation of this non-GAAP financial measure beginning on page 18.

Third quarter 2018 compared with third quarter 2017
Total non-interest expense increased $49.2 million relative to the third quarter of 2017. Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $23.1 million between the periods.  Total FTEs increased to 1,959 from 992, which was mainly due to the Astoria Merger and the continued hiring of commercial bankers and risk management personnel.
  • Occupancy and office operations increased $8.0 million mainly due to the financial centers and other locations acquired in the Astoria Merger.
  • Information technology expense increased $8.2 million between the periods.  The increase is mainly due to the Astoria Merger.  We anticipate this expense will decrease in future periods as we completed the full integration of Astoria’s legacy deposit systems in the third quarter of 2018.
  • Amortization of intangible assets increased $3.7 million. The increase is mainly due to the amortization of the core deposit intangible asset that was recorded in the Astoria Merger.
  • FDIC insurance and regulatory assessments increased $3.7 million to $6.0 million in the third quarter of 2018, compared to $2.3 million for the third quarter of 2017.  This was mainly due to growth in our total assets.
  • OREO, net increased $603 thousand to $1.5 million in the third quarter of 2018, compared to $894 thousand for the third quarter of 2017.  In the third quarter of 2018, OREO, net included taxes of $617 thousand and maintenance and operating costs of $791 thousand. In the year earlier period, OREO, net was mainly incurred for taxes and property write-downs.
  • Other expenses increased $4.8 million, mainly due to the Astoria Merger, and included communications expense, professional fees, operational losses, advertising and other.

Third quarter 2018 compared with linked quarter ended June 30, 2018
Total non-interest expense decreased $13.2 million from $124.9 million in the linked quarter to $111.8 million in the third quarter of 2018. Excluding the charge for asset write-downs, systems integration, retention and severance incurred in the linked quarter non-interest expense declined $23 thousand between the periods. Key components of the change in non-interest expense were the following:

  • Compensation and benefits declined $1.3 million and was $54.8 million in the third quarter of 2018 compared to $56.2 million in the linked quarter.  Total FTEs declined to 1,959 at September 30, 2018 from 2,037 at June 30, 2018 as we continue to integrate Astoria’s personnel and operations.
  • Occupancy and office operations decreased $1.4 million mainly due to continued consolidation of financial centers.
  • Information technology expense increased $702 thousand in the third quarter of 2018 compared to the linked quarter. We anticipate a reduction in information technology expense of approximately $1.5 million per quarter as cost savings from the Astoria legacy deposit systems conversion are realized.
  • OREO, net was $1.5 million in the third quarter of 2018 compared to income of $226 thousand in the linked quarter, which included net gain on sale of OREO of $811 thousand.

Taxes
For the six months ended June 30, 2018, the Company recorded income tax expense at an estimated effective income tax rate of 22.5%. Due to the completion of the Astoria short-period tax return for 2017, and the increasing proportion of non-taxable income to total income assets and revenues due to our business mix, our estimated effective income tax rate for 2018 decreased to 21.0%. Therefore, we recorded income tax expense at 18.5% for the three months ended September 30, 2018, which resulted in an estimated effective tax rate of 21.0% for the nine months ended September 30, 2018.

Given the change in the Company’s effective tax rate for full year 2018, adjusted earnings available to common stockholders for the three months and nine months ended September 30, 2018 are calculated using an income tax rate of 21.0%.

Key Balance Sheet Highlights as of September 30, 2018

($ in thousands) As of   Change % / bps
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Linked Qtr
Total assets $ 16,780,097     $ 31,463,077     $ 31,261,265     86.3%     (0.6)%  
Total portfolio loans, gross 10,493,535     20,674,493     20,533,214     95.7     (0.7)  
Commercial & industrial (“C&I”) loans 4,841,664     6,288,683     6,244,030     29.0     (0.7)  
Commercial real estate loans (including multi-family) 4,473,245     9,160,760     9,284,657     107.6     1.4  
Acquisition, development and construction loans 236,456     236,915     265,676     12.4     12.1  
Total commercial loans 9,551,365     15,686,358     15,794,363     65.4     0.7  
Residential mortgage loans 684,093     4,652,501     4,421,520     546.3     (5.0)  
Total deposits 11,043,438     20,965,889     21,456,057     94.3     2.3  
Core deposits 8 9,753,052     19,870,947     20,448,343     109.7     2.9  
Investment securities 4,515,650     6,789,246     6,685,972     48.1     (1.5)  
Total borrowings 3,453,783     5,537,537     4,825,855     39.7     (12.9)  
Loans to deposits 95.0 %   98.6 %   95.7 %   70     (290)  
Core deposits to total deposits 88.3     94.8     95.3     700     50  
Investment securities to total assets 26.9     21.6     21.4     (550)     (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 September 30, 2018 were the following:

  • C&I loans (which include traditional C&I, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance loans) represented 30.4%, commercial real estate loans (which include multi-family loans) represented 45.2%, consumer and residential mortgage loans combined represented 23.1%, and acquisition, development and construction loans represented 1.3% of the total loan portfolio.  Loan growth in the year-over-year period was mainly a result of the Astoria Merger, originations by our commercial banking teams and the Advantage Funding acquisition.  Linked quarter comparisons are discussed below.

  • Total commercial loans, which include all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $108.0 million in the linked quarter.  Excluding loans acquired in the Astoria Merger, commercial loans increased by $1.8 billion in the past twelve months.

  • Residential mortgage loans were $4.4 billion at September 30, 2018, compared to $4.7 billion at June 30, 2018.  The decline was mainly due to repayments of loans acquired in the Astoria Merger.

  • Total deposits at September 30, 2018 increased $490.2 million compared to June 30, 2018, and increased $10.4 billion over September 30, 2017.  We assumed $9.0 billion of deposits in the Astoria Merger.  The remaining increase in deposits was mainly due to growth in commercial deposits, certificates of deposit and municipal deposits, which reach their peak in the third quarter.

  • Core deposits at September 30, 2018 increased $577.4 million compared to June 30, 2018. Core deposits increased $10.7 billion over September 30, 2017.

  • Municipal deposits at September 30, 2018 were $2.0 billion, an increase of $367.2 million relative to June 30, 2018.

  • Investment securities increased by $103.3 million relative to June 30, 2018, and represented 21.4% of total assets at September 30, 2018.

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Linked Qtr
Provision for loan losses $ 5,000     $ 13,000     $ 9,500     90.0%     (26.9)%  
Net charge-offs 3,023     9,066     4,161     37.6     (54.1)  
Allowance for loan losses 72,128     86,026     91,365     26.7     6.2  
Non-performing loans 69,452     190,975     185,222     166.7     (3.0)  
Loans 30 to 89 days past due 21,491     73,441     50,084     133.0     (31.8)  
Annualized net charge-offs to average loans 0.12 %   0.18 %   0.08 %   (4)     (10)  
Allowance for loan losses to total loans 0.69     0.42     0.44     (25)     2  
Allowance for loan losses to non-performing loans 103.9     45.0     49.3     (5,460)     430  

Provision for loan losses was $9.5 million for the third quarter of 2018, compared to $13.0 million in the linked quarter and $5.0 million in the same period a year ago. In the third quarter of 2018, provision for loan losses was $5.3 million in excess of net charge-offs of $4.2 million.  Allowance coverage ratios were 0.44% of total loans and 49.3% of non-performing loans at September 30, 2018.  Due to the Astoria Merger, a significant portion of the Company’s loan portfolio does not carry an allowance for loan losses, as the acquired loans are recorded at their estimated fair value on the acquisition date. Non-performing loans decreased by $5.8 million to $185.2 million at September 30, 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 declined $23.4 million in the linked quarter, mainly due to loans that were in the process of being renewed at June 30, 2018 and which were renewed in the third quarter.

Capital

($ in thousands, except share and per share data) As of   Change % / bps
  9/30/2017   6/30/2018   9/30/2018   Y-o-Y   Three
months
Total stockholders’ equity $ 1,971,480     $ 4,352,735     $ 4,438,303     125.1 %   2.0 %
Preferred stock     138,828     138,627     NM        (0.1 )
Goodwill and intangible assets 756,290     1,754,418     1,745,181     130.8     (0.5 )
Tangible common stockholders’ equity $ 1,215,190     $ 2,459,489     $ 2,554,495     110.2     3.9  
Common shares outstanding 135,807,544     225,470,254     225,446,089     66.0      
Book value per common share $ 14.52     $ 18.69     $ 19.07     31.3     2.0  
Tangible book value per common share 9 8.95     10.91     11.33     26.6     3.8  
Tangible common equity to tangible assets 9 7.58 %   8.28 %   8.65 %   107     37  
Estimated Tier 1 leverage ratio - Company 8.42     9.32     9.68     126     36  
Estimated Tier 1 leverage ratio - Bank 8.54     9.84     10.10     156     26  
 9 See a reconciliation of non-GAAP financial measures beginning on page 18.

The increase in total stockholders’ equity of $85.6 million to $4.4 billion as of September 30, 2018 compared to June 30, 2018 was mainly due to earnings. Net income available to common stockholders of $117.7 million was partially offset by common dividends of $15.7 million, preferred dividends of $2.2 million and a decrease in the fair value of our available for sale investment securities of $19.1 million.

Total goodwill and other intangible assets were $1.7 billion at September 30, 2018, a decrease of $9.2 million compared to June 30, 2018, which was mainly due to amortization of intangibles and a $3.5 million reduction in goodwill associated with final purchase accounting adjustments related to the Astoria Merger and the Advantage Funding acquisition.

For the quarter ended September 30, 2018, basic and diluted weighted average common shares outstanding were unchanged relative to the linked quarter at 225.1 million and 225.6 million, respectively. Total common shares outstanding at September 30, 2018 were approximately 225.4 million.

Tangible book value per share was $11.33 at September 30, 2018, which represented an increase of 26.6% over a year ago and an increase of 3.8% over June 30, 2018.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, October 24, 2018 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 (800) 289-0438, Conference ID #1015557.  A replay of the teleconference can be accessed through the Company’s website.

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

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

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

Sterling Bancorp and Subsidiaries                                                                                                                                   
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION                                                                
(unaudited, in thousands, except share and per share data)      

  9/30/2017   12/31/2017   9/30/2018
Assets:
         
Cash and cash equivalents $ 407,203     $ 479,906     $ 533,984  
Investment securities 4,515,650     6,474,561     6,685,972  
Loans held for sale     5,246     31,042  
Portfolio loans:          
Commercial and industrial (“C&I”) 4,841,664     5,306,821     6,244,030  
Commercial real estate (including multi-family) 4,473,245     8,998,419     9,284,657  
Acquisition, development and construction 236,456     282,792     265,676  
Residential mortgage 684,093     5,054,732     4,421,520  
Consumer 258,077     366,219     317,331  
Total portfolio loans, gross 10,493,535     20,008,983     20,533,214  
Allowance for loan losses (72,128 )   (77,907 )   (91,365 )
Total portfolio loans, net 10,421,407     19,931,076     20,441,849  
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost 191,276     284,112     351,455  
Accrued interest receivable 57,561     94,098     109,377  
Premises and equipment, net 56,378     321,722     289,794  
Goodwill 696,600     1,579,891     1,609,772  
Other intangibles 59,690     153,191     135,409  
Bank owned life insurance 204,281     651,638     660,279  
Other real estate owned 11,697     27,095     22,735  
Other assets 158,354     357,005     389,597  
Total assets $ 16,780,097     $ 30,359,541     $ 31,261,265  
Liabilities:          
Deposits $ 11,043,438     $ 20,538,204     $ 21,456,057  
FHLB borrowings 3,016,000     4,510,123     4,429,110  
Other borrowings 188,403     30,162     22,888  
Senior notes 76,719     278,209     200,972  
Subordinated notes 172,661     172,716     172,885  
Mortgage escrow funds 19,148     122,641     96,952  
Other liabilities 292,248     467,308     444,098  
Total liabilities 14,808,617     26,119,363     26,822,962  
Stockholders’ equity:          
Preferred stock     139,220     138,627  
Common stock 1,411     2,299     2,299  
Additional paid-in capital 1,590,752     3,780,908     3,773,164  
Treasury stock (59,674 )   (58,039 )   (51,973 )
Retained earnings 452,650     401,956     694,861  
Accumulated other comprehensive (loss) (13,659 )   (26,166 )   (118,675 )
Total stockholders’ equity 1,971,480     4,240,178     4,438,303  
Total liabilities and stockholders’ equity $ 16,780,097     $ 30,359,541     $ 31,261,265  
           
Shares of common stock outstanding at period end 135,807,544     224,782,694     225,446,089  
Book value per common share $ 14.52     $ 18.24     $ 19.07  
Tangible book value per common share1 8.95     10.53     11.33  
1 See reconciliation of non-GAAP financial measures beginning on page 18.

 

Sterling Bancorp and Subsidiaries                                                                                                                                   
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)

 
    For the Quarter Ended    For the Nine Months Ended
  9/30/2017     6/30/2018     9/30/2018     9/30/2017     9/30/2018  
Interest and dividend income:                                    
Loans and loan fees $ 119,898     $ 254,253     $ 257,211     $ 336,308     $ 746,079  
Securities taxable 15,141     29,031     29,765     40,536     85,856  
Securities non-taxable 8,542     15,403     15,244     23,951     45,959  
Other earning assets 2,111     6,219     6,805     5,160     17,382  
Total interest and dividend income 145,692     304,906     309,025     405,955     895,276  
Interest expense:                  
Deposits 13,392     28,464     35,974     33,805     88,645  
Borrowings 12,227     30,226     29,102     30,029     82,098  
Total interest expense 25,619     58,690     65,076     63,834     170,743  
Net interest income 120,073     246,216     243,949     342,121     724,533  
Provision for loan losses 5,000     13,000     9,500     14,000     35,500  
Net interest income after provision for loan losses 115,073     233,216     234,449     328,121     689,033  
Non-interest income:                  
Deposit fees and service charges 3,309     6,985     6,333     9,893     20,319  
Accounts receivable management / factoring commissions and other related fees 4,764     5,337     5,595     12,670     16,292  
Bank owned life insurance 1,320     4,243     3,733     4,342     11,591  
Loan commissions and fees 2,819     4,566     4,142     8,643     12,114  
Investment management fees 271     2,121     1,943     825     5,889  
Net (loss) on sale of securities (21 )   (425 )   (56 )   (274 )   (5,902 )
Gain on sale of fixed assets 1     11,797         1     11,800  
Other 1,525     3,244     2,455     4,342     8,617  
Total non-interest income 13,988     37,868     24,145     40,442     80,720  
Non-interest expense:                  
Compensation and benefits 31,727     56,159     54,823     93,893     165,662  
Stock-based compensation plans 1,969     3,336     3,115     5,602     9,304  
Occupancy and office operations 8,583     17,939     16,558     25,550     51,956  
Information technology 2,512     9,997     10,699     7,402     32,412  
Amortization of intangible assets 2,166     5,865     5,865     6,582     17,782  
FDIC insurance and regulatory assessments 2,310     5,495     6,043     6,232     16,885  
Other real estate owned, net 894     (226 )   1,497     2,682     1,635  
Merger-related expenses 4,109             9,002      
Charge for asset write-downs, systems integration, retention and severance     13,132         603     13,132  
Other 8,347     13,231     13,173     25,076     39,680  
Total non-interest expense 62,617     124,928     111,773     182,624     348,448  
Income before income tax expense 66,444     146,156     146,821     185,939     421,305  
Income tax expense 21,592     31,915     27,171     59,620     88,542  
Net income 44,852     114,241     119,650     126,319     332,763  
Preferred stock dividend     1,996     1,993         5,988  
Net income available to common stockholders $ 44,852     $ 112,245     $ 117,657     $ 126,319     $ 326,775  
Weighted average common shares:                  
Basic 135,346,791     225,084,232     225,088,511     135,276,634     224,969,121  
Diluted 135,950,160     225,621,856     225,622,895     135,895,513     225,504,463  
Earnings per common share:                  
Basic earnings per share $ 0.33     $ 0.50     $ 0.52     $ 0.93     $ 1.45  
Diluted earnings per share 0.33     0.50     0.52     0.93     1.45  
Dividends declared per share 0.07     0.07     0.07     0.21     0.21  

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                                     9/30/2017     12/31/2017     3/31/2018     6/30/2018     9/30/2018
Total assets                                   $ 16,780,097   $ 30,359,541   $ 30,468,780   $ 31,463,077   $ 31,261,265
Tangible assets 1 16,023,807     28,626,459     28,741,750     29,708,659     29,516,084  
Securities available for sale 2,579,076     3,612,072     3,760,338     3,929,386     3,843,244  
Securities held to maturity 1,936,574     2,862,489     2,874,948     2,859,860     2,842,728  
Portfolio loans 10,493,535     20,008,983     19,939,245     20,674,493     20,533,214  
Goodwill 696,600     1,579,891     1,579,891     1,613,144     1,609,772  
Other intangibles 59,690     153,191     147,139     141,274     135,409  
Deposits 11,043,438     20,538,204     20,623,233     20,965,889     21,456,057  
Municipal deposits (included above) 1,751,012     1,585,076     1,775,472     1,652,733     2,019,893  
Borrowings 3,453,783     4,991,210     4,927,594     5,537,537     4,825,855  
Stockholders’ equity 1,971,480     4,240,178     4,273,755     4,352,735     4,438,303  
Tangible common equity 1 1,215,190     2,367,876     2,407,700     2,459,489     2,554,495  
Quarterly Average Balances                  
Total assets 15,661,514     29,277,502     30,018,289     30,994,904     31,036,026  
Tangible assets 1 14,904,016     27,567,351     28,287,337     29,237,608     29,283,093  
Loans, gross:                  
  Commercial real estate (includes multi-family) 4,443,142     8,839,256     9,028,849     9,100,098     9,170,117  
  Acquisition, development and construction 229,242     246,141     267,638     247,500     252,710  
Commercial and industrial:                  
  Traditional commercial and industrial 1,631,436     1,911,450     1,933,323     2,026,313     2,037,195  
  Asset-based lending2 740,037     781,732     781,392     778,708     820,060  
  Payroll finance2 229,522     250,673     229,920     219,545     223,636  
  Warehouse lending2 607,994     564,593     495,133     731,385     857,280  
  Factored receivables2 191,749     224,966     217,865     224,159     220,808  
  Equipment financing2 687,254     677,271     689,493     1,140,803     1,158,945  
Public sector finance2 476,525     480,800     653,344     725,675     784,260  
  Total commercial and industrial 4,564,517     4,891,485     5,000,470     5,846,588     6,102,184  
  Residential mortgage 686,820     5,168,622     4,977,191     4,801,595     4,531,922  
  Consumer 262,693     372,981     361,752     344,183     330,061  
Loans, total3 10,186,414     19,518,485     19,635,900     20,339,964     20,386,994  
Securities (taxable) 2,483,718     3,840,147     3,997,542     4,130,949     4,193,910  
Securities (non-taxable) 1,432,358     2,086,677     2,604,633     2,620,579     2,580,802  
Other interest earning assets 368,630     598,439     595,847     665,888     638,227  
Total earning assets 14,471,120     26,043,748     26,833,922     27,757,380     27,799,933  
Deposits:                  
  Non-interest bearing demand 3,042,392     4,043,213     3,971,079     3,960,683     4,174,908  
  Interest bearing demand 2,298,645     3,862,461     3,941,749     4,024,972     4,286,278  
  Savings (including mortgage escrow funds) 825,620     2,871,885     2,917,624     2,916,755     2,678,662  
  Money market 3,889,780     7,324,196     7,393,335     7,337,904     7,404,208  
  Certificates of deposit 634,569     2,382,102     2,464,360     2,528,355     2,571,298  
Total deposits and mortgage escrow 10,691,006     20,483,857     20,688,147     20,768,669     21,115,354  
Borrowings 2,779,143     4,121,605     4,597,903     5,432,582     5,052,752  
Stockholders’ equity 1,955,252     4,235,739     4,243,897     4,305,928     4,397,823  
Tangible common equity 1 1,197,754     2,386,245     2,373,794     2,409,674     2,506,198  
                   


1 See a reconciliation of non-GAAP financial measures beginning on page 18.
2 Asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance comprise our commercial finance loan portfolio.
3 Includes loans held for sale, but excludes allowance for loan losses.


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 9/30/2017     12/31/2017     3/31/2018     6/30/2018     9/30/2018  
Basic earnings (loss) per share $ 0.33     $ (0.16   $ 0.43     $ 0.50     $ 0.52  
Diluted earnings (loss) per share 0.33     (0.16 )   0.43     0.50     0.52  
Adjusted diluted earnings per share, non-GAAP 1 0.35     0.39     0.45     0.50     0.51  
Dividends declared per common share 0.07     0.07     0.07     0.07     0.07  
Book value per share 14.52     18.24     18.34     18.69     19.07  
Tangible book value per share1 8.95     10.53     10.68     10.91     11.33  
Shares of common stock o/s 135,807,544     224,782,694     225,466,266     225,470,254     225,446,089  
Basic weighted average common shares o/s 135,346,791     223,501,073     224,730,686     225,084,232     225,088,511  
Diluted weighted average common shares o/s 135,950,160     224,055,991     225,264,147     225,621,856     225,622,895  
Performance Ratios (annualized)                  
Return on average assets 1.14 %   (0.48 )%   1.31 %   1.45 %   1.50 %
Return on average equity 9.10     (3.30 )   9.26     10.46     10.61  
Return on average tangible assets 1.19     (0.51 )   1.39     1.54     1.59  
Return on average tangible common equity 14.86     (5.87 )   16.55     18.68     18.63  
Return on average tangible assets, adjusted 1 1.27     1.25     1.45     1.55     1.55  
Return on avg. tangible common equity, adjusted 1 15.85     14.49     17.24     18.79     18.09  
Operating efficiency ratio, as adjusted 1 40.6     41.4     40.3     38.3     38.9  
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 3,397     $ 33,726     $ 30,340     $ 28,010     $ 26,574  
Yield on loans 4.67 %   4.77 %   4.85 %   5.01 %   5.01 %
Yield on investment securities - tax equivalent 2 2.87     3.03     2.85     2.88     2.87  
Yield on interest earning assets - tax equivalent 2 4.12     4.32     4.31     4.47     4.47  
Cost of interest bearing deposits 0.69     0.54     0.59     0.68     0.84  
Cost of total deposits 0.50     0.43     0.47     0.55     0.68  
Cost of borrowings 1.75     1.94     2.01     2.23     2.29  
Cost of interest bearing liabilities 0.97     0.82     0.89     1.06     1.17  
Net interest rate spread - tax equivalent basis 2 3.15     3.50     3.42     3.41     3.30  
Net interest margin - GAAP basis 3.29     3.57     3.54     3.56     3.48  
Net interest margin - tax equivalent basis 2 3.42     3.67     3.60     3.62