Market Overview

Sterling Bancorp Announces Record Operating Results for the Three Months Ended June 30, 2017

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Key Performance Highlights for the Three Months ended June 30, 2017 vs. June 30, 2016

($ in thousands except per share amounts)   GAAP / As Reported   Non-GAAP / As Adjusted1
  2016   2017   Change %
/ bps
  2016   2017   Change %
/ bps
Total revenue2 $   120,822     $   126,876     5.0 %   $   119,509     $   131,301     9.9 %
Net income 37,770     42,400     12.3     35,414     44,393     25.4  
Diluted EPS 0.29     0.31     6.9     0.27     0.33     22.2  
Net interest margin3 3.49 %   3.35 %   (14 )   3.60 %   3.47 %   (13 )
Return on average tangible equity 16.14     14.74          (140 )   15.14     15.43     29  
Return on average tangible assets 1.27     1.22     (5 )   1.19     1.28     9  
Operating efficiency ratio4 49.4     47.0     (240 )   47.2     42.0          (520 )
                                   
  • Total portfolio loans gross reached a record $10.2 billion as of June 30, 2017.
  • Loan growth was $1.6 billion, or 19.1% (end of period balances, including acquired loans).
  • Deposit growth was $717.2 million, or 7.3% (end of period balances).
  • Loans to deposits ratio of 97.4%; total deposits reached $10.5 billion at June 30, 2017.

Key Highlights for the Three Months ended June 30, 2017 vs. linked quarter March 31, 2017

($ in thousands except per share amounts)   GAAP / As Reported   Non-GAAP / As Adjusted1
  3/31/2017   6/30/2017   Change %
/ bps
  3/31/2017   6/30/2017   Change %
/ bps
Total revenue2 $   121,626     $   126,876     4.3 %   $   125,751     $   131,301     4.4 %
Net income 39,067     42,400     8.5     41,461     44,393     7.1  
Diluted EPS 0.29     0.31     6.9     0.31     0.33     6.5  
Net interest margin3 3.42 %   3.35 %   (7 )   3.55 %   3.47 %   (8 )
Return on average tangible equity 14.31     14.74     43     15.19     15.43     24  
Return on average tangible assets 1.20     1.22     2     1.27     1.28     1  
Operating efficiency ratio4 49.6     47.0          (260 )   43.7     42.0          (170 )
                                   
  • Annualized loan growth of 19.2% (end of period balances) and 21.8% (average balances) over the linked quarter.
  • Total retail and commercial deposits increased by $248.2 million, or annualized growth of 13.2%.
  • As adjusted diluted EPS, return on average tangible assets and return on average tangible equity reached record highs.
  • As adjusted operating efficiency ratio decreased to a record low at 42.0%.
  • Merger with Astoria Financial Corporation ("Astoria") approved by Sterling and Astoria shareholders in June 2017.
  • Announced receipt of Kroll debt rating of BBB+ at Sterling Bancorp and A- at Sterling National Bank.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 16.
2. Total revenue is equal to net interest 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 as a percentage of interest earnings assets. Net interest margin as adjusted is equal to net
interest margin plus the tax equivalent adjustment for tax exempt securities.
4. See page 17 for an explanation of the operating efficiency ratio.

MONTEBELLO, N.Y., July 25, 2017 (GLOBE NEWSWIRE) -- Sterling Bancorp (NYSE:STL) (the "Company"), the parent company of Sterling National Bank (the "Bank"), today announced results for the three and six months ended June 30, 2017.  Net income for the quarter ended June 30, 2017 was $42.4 million, or $0.31 per diluted share, compared to net income of $39.1 million, or $0.29 per diluted share, for the linked quarter ended March 31, 2017 and net income of $37.8 million, or $0.29 per diluted share, for the three months ended June 30, 2016. 

Net income for the six months ended June 30, 2017 was $81.5 million, or $0.60 per diluted share, compared to net income of $61.5 million, or $0.47 per diluted share, for the six months ended June 30, 2016.

President's Comments

Jack Kopnisky, President and Chief Executive Officer, commented: "Our positive momentum in operating performance continued in the second quarter of 2017, as we reached new records in loans, deposits, revenues and profitability.  As of June 30, 2017, our total assets reached $15.4 billion, compared to $13.1 billion a year ago.  Our total portfolio loans gross were $10.2 billion, compared to $8.6 billion a year ago, and our total deposits were $10.5 billion, compared to $9.8 billion a year ago. We continue to make progress in building a high performing regional bank that focuses on serving commercial middle market clients and consumers in the most attractive markets in the Greater New York metropolitan area.

"We had strong earnings performance in the quarter.  Our GAAP net income was $42.4 million, or $0.31 per diluted share. Our adjusted net income was $44.4 million and adjusted diluted earnings per share were $0.33, compared to $35.4 million and $0.27, respectively, for the second quarter of 2016. This represents growth in adjusted net income and adjusted diluted earnings per share of 25.4% and 22.2%, respectively. We continue to focus on controlling our operating expenses and improving our operating efficiency. During the quarter, our reported operating efficiency was 47.0% and our adjusted operating efficiency ratio was 42.0%.  This represents a decrease of 240 and 520 basis points, respectively, relative to the same quarter a year ago.  We also continue to improve our operating leverage. For the quarter ended June 30, 2017, adjusted total revenue grew 9.9% while adjusted non-interest expense declined 2.3% relative to the same quarter a year ago. We have also continued our strategy of reducing our real estate footprint and consolidated two financial center locations during the quarter.

"We have a strong balance sheet with a loan portfolio that has a balanced mix of 45.1% commercial and industrial loans, 43.3% commercial real estate loans, 2.2% acquisition development and construction loans and 9.4% consumer loans. Our diversified loan portfolio and businesses position us well for a rising interest rate environment.  During the quarter, the weighted average yield on loans was 4.58%, an increase of one basis point over the linked quarter; excluding the impact of accretion income on acquired loans, yield on loans increased five basis points to 4.47%. We continue to maintain a strong funding profile with a loans to deposits ratio of approximately 97.4% and a weighted average cost of deposits of 0.43%.  Our net interest margin was 3.47% on a tax equivalent basis, which represented a decrease of eight basis points over the linked quarter, which was mainly due to lower accretion income, lower prepayment penalties and a shift in the composition of our earning assets in the quarter. Based on our business mix and opportunities for growth in loans and deposits, we anticipate that net interest margin excluding accretion income on acquired loans should increase in the second half of the year, in-line with the guidance we have provided previously of 3.45% to 3.50% for the full year 2017.

"On June 13, 2017, we announced that shareholders of the Company and Astoria voted overwhelmingly in support of our merger with Astoria. Astoria operates in highly attractive markets in New York City and Long Island, has a premier low cost deposit base and the merger will allow us to further accelerate our strategy of building a high performing regional bank.  The combined company will have approximately $29 billion in assets and $19 billion in deposits in the Greater New York metropolitan area. We anticipate the merger will close in early fourth quarter 2017, subject to, among other items, regulatory approvals, and will be immediately accretive to tangible book value and earnings per share.

"Lastly, we have declared a dividend on our common stock of $0.07 per share payable on August 21, 2017 to holders of record as of August 7, 2017. Thank you to all of our clients, colleagues and stockholders for your continued support, and we look forward to welcoming our new partners at Astoria so we can work together to build a stronger, more diversified and more profitable company."

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)

GAAP net income of $42.4 million, or $0.31 per diluted share, for the second quarter of 2017, included a pre-tax net loss on sale of securities of $230 thousand, a pre-tax charge of $1.8 million due to merger-related expense associated with the pending merger with Astoria, a pre-tax charge of $603 thousand associated with the consolidation of financial centers, and the pre-tax amortization of non-compete agreements and acquired customer list intangibles of $354 thousand.  Excluding the impact of these items and their corresponding tax adjustment at the Company's estimated effective tax rate of 32.5% for full year 2017, adjusted net income was $44.4 million, or $0.33 per diluted share.

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 16.

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y   Linked Qtr
Interest income $ 114,309     $ 126,000     $ 134,263     17.5 %   6.6 %
Interest expense 13,929     17,210     21,005     50.8     22.1  
Net interest income $ 100,380     $ 108,790     $ 113,258     12.8     4.1  
                   
Accretion income on acquired loans $ 4,088     $ 3,482     $ 2,888        (29.4 )%      (17.1 )%
Yield on loans 4.68 %   4.57 %   4.58 %   (10 )   1  
Tax equivalent yield on investment securities 2.76     2.97     2.93     17     (4 )
Tax equivalent yield on interest earning assets   4.09     4.09     4.09          
Cost of total deposits 0.35     0.38     0.43     8     5  
Cost of interest bearing deposits 0.52     0.55     0.62     10     7  
Cost of borrowings 1.73     1.74     1.75     2     1  
Tax equivalent net interest margin5 3.60     3.55     3.47     (13 )   (8 )
                   
Average loans, includes loans held for sale $  8,313,529     $  9,281,516     $  9,786,423     17.7 %   5.4 %
Average investment securities 2,869,651     3,273,658     3,434,535     19.7     4.9  
Average total earning assets 11,558,424     12,889,578     13,562,853     17.3     5.2  
Average deposits and mortgage escrow 9,561,997     10,186,615     10,285,349     7.6     1.0  

5 Tax equivalent net interest margin is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average earning assets.

Second quarter 2017 compared with second quarter 2016
Net interest income was $113.3 million, an increase of $12.9 million compared to the second quarter of 2016.  This was mainly due to an increase in average loans originated through our commercial banking teams and the franchise finance loan portfolio acquired from GE Capital, which closed in September 2016. Other key components of the changes in net interest income were the following:

  • The yield on loans was 4.58%, compared to 4.68% for the three months ended June 30, 2016.  The decline in yield on loans  was mainly due to lower accretion income on acquired loans of $2.9 million compared to $4.1 million in the second quarter of 2016.  In addition, prepayment penalties in the second quarter of 2017 were $747 thousand lower than the year earlier period.
  • Average commercial loans were $8.8 billion compared to $7.3 billion in the second quarter of 2016, an increase of $1.5 billion or 21.0%.
  • The tax equivalent yield on investment securities increased 17 basis points to 2.93%.  This was mainly due to an increase in the proportion of tax exempt securities in the investment portfolio and an increase in market interest rates.  Average tax exempt securities balances grew to $1.3 billion for the quarter ended June 30, 2017, compared to $837.1 million in the second quarter of 2016.
  • Average investment securities to average total earnings assets were 25.3% in the quarter compared to 24.8% in the same quarter a year ago.
  • The tax equivalent yield on interest earning assets was unchanged between the periods at 4.09%.
  • The cost of total deposits was 43 basis points and the cost of borrowings was 1.75%, compared to 35 basis points and 1.73%, respectively, for the same period a year ago.
  • Tax equivalent net interest margin was 3.47% compared to 3.60% for the same period a year ago. 
  • Excluding the impact of accretion income on acquired loans, tax equivalent net interest margin was 3.39% compared to 3.46% for the same period a year ago.

Second quarter 2017 compared with linked quarter ended March 31, 2017
Net interest income increased $4.5 million, or 16.5% annualized, compared to the linked quarter ended March 31, 2017.  The increase in net interest income in the second quarter of 2017 relative to the linked quarter was mainly due to the increase in the average balance of loans outstanding in the second quarter of 2017.  Key components of the changes in net interest income in the linked quarter were the following:

  • The yield on loans was 4.58% compared to 4.57% for the linked quarter, an increase of one basis point, which was mainly due to an increase in market interest rates.
  • Accretion income on acquired loans was $2.9 million in the second quarter of 2017 compared to $3.5 million in the linked quarter. 
  • The average balance of loans increased $504.9 million for the second quarter of 2017 compared to the linked quarter. Based on end of period balances, total loans increased $468.4 million, or 19.2% annualized relative to the linked quarter.  Similar to the first quarter of 2017, the majority of loan growth in the second quarter was originated in the month of June; as a result, average loans should increase in the third quarter of 2017.
  • The tax equivalent yield on investment securities decreased four basis points to 2.93% in the second quarter of 2017.  This was mainly the result of investment securities acquired in the quarter as we reposition our securities portfolio in anticipation of the merger with Astoria. Average investment securities increased $160.9 million compared to the linked quarter.
  • The company intends to maintain a higher proportion of investment securities to total earning assets of approximately 25.0% in anticipation of the Astoria merger.
  • The tax equivalent yield on interest earning assets was unchanged at 4.09% in the quarter. 
  • The cost of total deposits increased five basis points to 43 basis points in the quarter. The total cost of borrowings increased one basis point to 1.75%.
  • Average interest bearing deposits increased by $90.7 million and average borrowings increased $514.8 million relative to the linked quarter, which resulted in an increase of $3.8 million in interest expense.
  • Tax equivalent net interest margin was 3.47% compared to 3.55% in the linked quarter. The decrease was mainly due to lower accretion income on acquired loans of $594 thousand and lower prepayment penalties of $870 thousand relative to the linked quarter. 
  • Excluding the impact of accretion income on acquired loans, tax equivalent net interest margin was 3.39% compared to 3.44% for the linked quarter.

Non-interest Income

($ in thousands) For the three months ended   Change %
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y   Linked Qtr
Total non-interest income $ 20,442     $ 12,836     $ 13,618     (33.4 )%          6.1 %
Net gain (loss) on sale of securities   4,474     (23 )   (230 )   (105.1 )   NM  
Adjusted non-interest income $   15,968     $   12,859     $   13,848     (13.3 )   7.7  
                                   

Second quarter 2017 compared with second quarter 2016
Excluding net gain (loss) on sale of securities, adjusted non-interest income declined $2.1 million in the second quarter of 2017 to $13.8 million compared to $16.0 million in the same quarter last year.  The change was mainly due to a decrease in mortgage banking fee income of $2.2 million resulting from the sale of our residential mortgage originations business, which occurred in the third quarter of 2016; a decrease of $0.8 million in deposit fees and service charges, associated mainly with the impact of the Durbin Amendment, which decreased our interchange revenue from July 1, 2016 onward; and a decline in investment management fees of $611 thousand, mainly due to the sale of our trust division in the fourth quarter of 2016.  Partially offsetting these decreases was an increase in other non-interest income of $1.2 million, which was due to an increase in letters of credit fees, higher other commissions and loan fees, syndication fees and loan swap fees in each case generated by our commercial banking teams.

Second quarter 2017 compared with linked quarter ended March 31, 2017
Excluding net gain (loss) on sale of securities, adjusted non-interest income increased approximately $1.0 million from $12.9 million in the linked quarter ended March 31, 2017 to $13.8 million in the second quarter of 2017.  This was mainly due to higher accounts receivable and factoring commissions of $368 thousand, higher other non-interest income of $474 thousand due mainly to an increase in loan swap fees, and higher investment management fees of $92 thousand due to increased sales of annuities through our financial centers.  These increases were partially offset by a decrease in deposit fees and service charges of $86 thousand and a decrease in mortgage banking income of $141 thousand.

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y   Linked Qtr
Compensation and benefits $   31,336     $   31,391     $   31,394     0.2 %   %
Occupancy and office operations 8,810     8,134     8,833     0.3     8.6  
Merger-related expense     3,127     1,766     NM     NM  
Charge for asset write-downs         603     NM     NM  
Other real estate owned, net ("OREO") 541     1,676     112          (79.3 )        (93.3 )
Other expenses 18,953     16,022     16,949     (10.6 )   5.8  
Total non-interest expense $ 59,640     $ 60,350     $ 59,657         (1.1 )
Full time equivalent employees ("FTEs") at period end   1,065     978     997     (6.4 )   1.9  
Financial centers at period end 42     42     40     (4.8 )   (4.8 )
Efficiency ratio, as reported 49.4 %   49.6 %   47.0 %   240     260  
Efficiency ratio, as adjusted6 47.2     43.7     42.0     520     170  

6 See a reconciliation of this non-GAAP financial measure on page 16.

Second quarter 2017 compared with second quarter 2016
Total non-interest expense increased $17 thousand relative to the second quarter of 2016. Total non-interest expense included $1.8 million of merger-related expense incurred in connection with the pending Astoria merger and a $603 thousand charge incurred on the consolidation of two financial centers.  Compensation and benefits increased $58 thousand between the periods.  Total FTE declined by 68 between the periods mainly due to the sale of the residential mortgage originations business, the sale of the trust division and the consolidation of several financial centers over the last 12 months. Total non-interest expense was positively impacted by a $429 thousand decline in OREO and a $2.0 million decline in other expenses, which was mainly due to lower amortization of intangible assets of $1.1 million. Regulatory fees and assessments also decreased by $266 thousand, as FDIC deposit insurance fees assessed to the bank were reduced.

Second quarter 2017 compared with linked quarter ended March 31, 2017
Total non-interest expense decreased $693 thousand from $60.4 million in the linked quarter to $59.7 million in the second quarter of 2017. The decrease was mainly related to a $1.4 million decline in merger-related expense, and a $1.6 million decline in OREO.  In the first quarter of 2017 we incurred OREO expense to write-down properties to their fair value based on updated appraisals and pending and completed sales. Partially offsetting the decline in merger-related expense and OREO expense was a $603 thousand charge to consolidate two financial centers.  Occupancy and office operations increased $699 thousand mainly due to an increase in equipment and software maintenance expense. FTE increased by19 relative to the linked quarter due to the addition of two new commercial banking teams, the addition of personnel to existing teams and an increase in risk management personnel.

Taxes

We recorded income tax expense at an effective tax rate of 32.4% for the second quarter of 2017, compared to 32.8% in the second quarter of 2016.  The effective tax rate in the linked quarter ended March 31, 2017 was 31.2%.

The adoption of a new accounting standard in the first quarter of 2017 requires that tax benefits in excess of compensation costs associated with our stock-based compensation plans be included in income tax expense as a discrete item.  In the first quarter of 2017, we recorded a tax benefit of $742 thousand associated with the vesting of stock-based compensation which reduced our tax rate by 1.3% for the period. In the second quarter of 2017, the tax benefit was $64 thousand and reduced our effective tax rate by 10 basis points from our expected 32.5% for the three months ended June 30, 2017.  We anticipate our effective income tax rate, excluding the impact of income tax expense associated with vested stock-based compensation plans in 2017 will remain between 32% and 33%. However, the effective income tax rate may change materially should changes to current tax law be enacted in 2017.  Any changes to current tax law may also have an impact on our deferred tax position. 

Key Balance Sheet Highlights as of June 30, 2017

($ in thousands) As of   Change % / bps
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y   Linked Qtr
Total assets $  13,065,248     $  14,659,337     $  15,376,676     17.7 %   4.9 %
Total portfolio loans, gross 8,594,295     9,763,967     10,232,317     19.1     4.8  
Commercial & industrial ("C&I") loans 3,639,169     4,181,818     4,619,789     26.9     10.5  
Commercial real estate loans 3,782,659     4,376,645     4,430,985     17.1     1.2  
Acquisition, development and construction loans   207,868     238,966     223,713     7.6           (6.4 )
Total commercial loans 7,629,696     8,797,429     9,274,487     21.6     5.4  
Total deposits 9,785,556     10,251,725     10,502,710     7.3     2.4  
Core deposits6 8,809,242     9,087,137     9,230,918     4.8     1.6  
Investment securities 2,980,059     3,416,395     3,552,176     19.2     4.0  
Total borrowings 1,309,954     2,328,576     2,661,838     103.2     14.3  
Loans to deposits 87.8 %   95.2 %   97.4 %   960     220  
Core deposits to total deposits 90.0     88.6     87.9     (210 )   (70 )
Investment securities to total assets 22.8     23.3     23.1     30     (20 )

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

Highlights in balance sheet items as of June 30, 2017 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 45.1%, commercial real estate loans represented 43.3%, consumer and residential mortgage loans combined represented 9.4%, and acquisition, development and construction loans represented 2.2% of the total loan portfolio.  Loan growth was driven by our commercial banking teams and the GE portfolio of restaurant franchise loans acquired in September 2016.
  • Commercial loan growth, which includes all C&I loans, commercial real estate and acquisition, development and construction loans, was $1.6 billion for the twelve months ended June 30, 2017. Commercial loan growth was $477.1 million relative to the linked quarter.
  • Mortgage warehouse lending balances were $687.7 million at June 30, 2017, an increase of $201.3 million, or 41.4%, compared to March 31, 2017. 
  • Aggregate exposure to taxi medallion relationships was $48.6 million, which represented 0.48% of total loans as of June 30, 2017, a decline of $3.0 million from $51.7 million as of December 31, 2016.  The decline was due to repayments.
  • Total deposits at June 30, 2017 increased $251.0 million, or 2.4%, compared to March 31, 2017, and increased $717.2 million, or 7.3%, over June 30, 2016.  The increase in deposits was mainly due to growth in commercial deposits.
  • Core deposits at June 30, 2017 increased $143.8 million, compared to March 31, 2017.  The increase was mainly due to growth in commercial deposits. Core deposits increased $421.7 million, or 4.8%, over June 30, 2016.6
  • Municipal deposits were $1.3 billion and decreased by $94.3 million relative to the linked quarter. Municipal deposits experience seasonal lows in the second quarter.
  • Total retail and commercial deposits increased by $248.2 million relative to the linked quarter, which represented an annualized growth rate of 13.2%.
  • Investment securities increased by $135.8 million relative to the linked quarter, and represented 23.1% of total assets. The company intends to maintain a proportion of investment securities to total assets of 23.0% to 25.0% in anticipation of the Astoria merger.

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y   Linked Qtr
Provision for loan losses $   5,000     $   4,500     $   4,500     (10.0 )%   %
Net charge-offs 2,149     1,183     1,288     (40.1 )   8.9  
Allowance for loan losses 55,865     66,939     70,151     25.6     4.8  
Non-performing loans 79,564     72,924     71,351     (10.3 )        (2.2 )
Net charge-offs annualized 0.10 %   0.05 %   0.05 %   (5 )    
Allowance for loan losses to total loans 0.65     0.69     0.69     4      
Allowance for loan losses to non-performing loans   70.2     91.8     98.3     2,810     650  
                             

Provision for loan losses was $4.5 million for the second quarter of 2017 compared to $4.5 million in the linked quarter and $5.0 million in the same period a year ago. In the second quarter of 2017, provision for loan losses was $3.2 million in excess of net charge-offs of $1.3 million.  Allowance coverage ratios were 0.69% of total loans and 98.3% of non-performing loans at June 30, 2017.  Non-performing loans decreased by $1.6 million to $71.4 million at June 30, 2017.

Aggregate exposure to taxi medallion relationships as of June 30, 2017 was $48.6 million.  This represented a decrease of $1.1 million relative to the linked quarter as a result of repayments.

Capital

($ in thousands, except share and per share data)   As of   Change % / bps
  6/30/2016   3/31/2017   6/30/2017   Y-o-Y    Three
months
Total stockholders' equity $ 1,735,994     $ 1,888,613     $ 1,931,383     11.3 %   2.3 %
Goodwill and intangible assets 769,125     760,698     758,484     (1.4 )        (0.3 )
Tangible stockholders' equity $ 966,869     $ 1,127,915     $ 1,172,899         21.3     4.0  
Common shares outstanding   130,620,463       135,604,435       135,658,226     3.9      
Book value per share $ 13.29     $ 13.93     $ 14.24     7.1     2.2  
Tangible book value per share7 7.40     8.32     8.65     16.9     4.0  
Tangible equity to tangible assets7 7.86 %   8.12 %   8.02 %   16     (10 )
Estimated Tier 1 leverage ratio - Company 8.36     8.89     8.72     36     (17 )
Estimated Tier 1 leverage ratio - Bank 8.84     8.99     8.89     5     (10 )

7 See a reconciliation of this non-GAAP financial measure on page 16.

The increase in stockholders' equity of $42.8 million to $1.9 billion as of June 30, 2017 compared to March 31, 2017 was mainly due to net income of $42.4 million.   Also contributing to the increase was a decline in accumulated other comprehensive loss of $7.4 million due to an increase in the fair value of our available for sale securities portfolio.  Stock-based compensation activity increased stockholders' equity by $2.5 million.  These increases were partially offset by declared dividends of $9.5 million.

Total goodwill and other intangible assets were $758.5 million at June 30, 2017, a decrease of $2.2 million compared to March 31, 2017, which was due to amortization of intangibles.

For the quarter ended June 30, 2017, basic and diluted weighted average common shares outstanding increased to 135.3 million and 135.9 million, respectively, compared to 135.2 million and 135.8 million, respectively, for the quarter ended March 31, 2017.  The increase in the diluted weighted average shares was mainly due to option exercises and grants to newly hired personal. Total common shares outstanding at June 30, 2017 were approximately 135.7 million.

Tangible book value per share7 was $8.65 at June 30, 2017, which represented an increase of 16.9% over a year ago.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, July 26, 2017 at 10:30 AM Eastern Time to discuss the Company's results. Interested parties are invited to listen to the webcast and view accompanying slides on the Company's website at www.sterlingbancorp.com. Analysts are invited to listen by dialing (888) 352-6809, Conference ID #2247191.  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 service 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: our ability to obtain regulatory approvals and meet other closing conditions to the merger with Astoria on the expected terms and schedule; delay in closing the Astoria merger; difficulties and delays in integrating Astoria's business or fully realizing cost savings and other benefits; business disruption following the Astoria transaction; 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; including our ability to effectively deploy recently raised capital; customer disintermediation; and the success of Sterling Bancorp in managing those risks.  Other factors that could cause Sterling Bancorp's actual results to differ from those indicated in forward-looking statements are included in the "Risk Factors" section of Sterling Bancorp's filings with the Securities and Exchange Commission.  The forward-looking statements speak only as of the date they are made and we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Financial information contained in this release should be considered to be an estimate pending the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2017. 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)
 
  6/30/2016   12/31/2016   6/30/2017
Assets:          
Cash and cash equivalents $ 258,326     $ 293,646     $ 282,167  
Investment securities 2,980,059     3,118,838     3,552,176  
Loans held for sale 57,249     41,889      
Portfolio loans:          
Commercial and industrial 3,639,169     4,171,950     4,619,789  
Commercial real estate 3,782,659     4,144,018     4,430,985  
Acquisition, development and construction 207,868     230,086     223,713  
Residential mortgage 673,208     697,108     692,562  
Consumer 291,391     284,068     265,268  
Total portfolio loans, gross 8,594,295     9,527,230     10,232,317  
Allowance for loan losses (55,865 )   (63,622 )   (70,151 )
Total portfolio loans, net 8,538,430     9,463,608     10,162,166  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank Stock, at cost   102,855     135,098     160,241  
Accrued interest receivable 35,106     43,319     47,548  
Premises and equipment, net 60,797     57,318     57,794  
Goodwill 696,600     696,600     696,600  
Other intangibles 72,525     66,353     61,884  
Bank owned life insurance 196,665     199,889     202,911  
Other real estate owned 16,590     13,619     10,198  
Other assets 50,046     48,270     142,991  
Total assets $ 13,065,248     $ 14,178,447     $ 15,376,676  
Liabilities:          
Deposits $ 9,785,556     $ 10,068,259     $ 10,502,710  
FHLB borrowings 1,074,492     1,791,000     2,290,000  
Other borrowings 28,202     16,642     122,596  
Senior notes 99,099     76,469     76,635  
Subordinated notes 108,161     172,501     172,607  
Mortgage escrow funds 14,283     13,572     16,431  
Other liabilities 219,461     184,821     264,314  
Total liabilities 11,329,254     12,323,264     13,445,293  
Stockholders' equity:          
Common stock 1,367     1,411     1,411  
Additional paid-in capital 1,503,027     1,597,287     1,592,299  
Treasury stock (69,355 )   (66,188 )   (61,576 )
Retained earnings 290,025     349,308     415,617  
Accumulated other comprehensive income (loss) 10,930     (26,635 )   (16,368 )
Total stockholders' equity 1,735,994     1,855,183     1,931,383  
  Total liabilities and stockholders' equity $ 13,065,248     $ 14,178,447     $ 15,376,676  
           
Shares of common stock outstanding at period end 130,620,463     135,257,570     135,658,226  
Book value per share $ 13.29     $ 13.72     $ 14.24  
Tangible book value per share1 7.40     8.08     8.65  
 
1 See reconciliation of non-GAAP financial measures beginning on page 16.
 


 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED INCOME STATEMENTS
(unaudited, in thousands, except share and per share data)
 
   For the Quarter Ended   For the Six Months Ended
  6/30/2016   3/31/2017   6/30/2017   6/30/2016   6/30/2017
Interest and dividend income:                  
Loans and loan fees $ 96,658     $ 104,570     $ 111,840     $ 185,692     $ 216,410  
Securities taxable 10,662     12,282     13,113     22,678     25,395  
Securities non-taxable 5,871     7,618     7,791     9,750     15,409  
Other earning assets 1,118     1,530     1,519     2,195     3,049  
Total interest and dividend income 114,309     126,000     134,263     220,315     260,263  
Interest expense:                  
Deposits 8,328     9,508     10,905     14,737     20,413  
Borrowings 5,601     7,702     10,100     11,688     17,802  
Total interest expense 13,929     17,210     21,005     26,425     38,215  
Net interest income 100,380     108,790     113,258     193,890     222,048  
Provision for loan losses 5,000     4,500     4,500     9,000     9,000  
Net interest income after provision for loan losses 95,380     104,290     108,758     184,890     213,048  
Non-interest income:                  
Accounts receivable / factoring commissions and other fees 4,156     3,769     4,137     8,650     7,906  
Mortgage banking income 2,367     271     130     4,369     401  
Deposit fees and service charges 4,084     3,335     3,249     8,574     6,584  
Net gain (loss) on sale of securities 4,474     (23 )   (230 )   4,191     (253 )
Bank owned life insurance 1,281     1,370     1,652     2,608     3,022  
Investment management fees 934     231     323     2,058     554  
Other 3,146     3,883     4,357     5,422     8,240  
Total non-interest income 20,442     12,836     13,618     35,872     26,454  
Non-interest expense:                  
Compensation and benefits 31,336     31,391     31,394     61,356     62,785  
Stock-based compensation plans 1,747     1,736     1,897     3,287     3,633  
Occupancy and office operations 8,810     8,134     8,833     18,092     16,967  
Amortization of intangible assets 3,241     2,229     2,187     6,294     4,416  
FDIC insurance and regulatory assessments 2,300     1,888     2,034     4,558     3,922  
Other real estate owned, net 541     1,676     112     1,123     1,788  
Merger-related expenses     3,127     1,766     266     4,893  
Charge for asset write-downs, retention and severance         603     2,485     603  
Loss on extinguishment of borrowings             8,716      
Other 11,665     10,169     10,831     22,394     21,000  
Total non-interest expense 59,640     60,350     59,657     128,571     120,007  
Income before income tax expense 56,182     56,776     62,719     92,191     119,495  
Income tax expense 18,412     17,709     20,319     30,655     38,028  
Net income $ 37,770     $ 39,067     $ 42,400     $ 61,536     $ 81,467  
Weighted average common shares:                  
Basic 130,081,465     135,163,347     135,317,866     129,953,397     135,241,034  
Diluted 130,688,729     135,811,721     135,922,897     130,522,021     135,867,861  
Earnings per common share:                  
Basic earnings per share $ 0.29     $ 0.29     $ 0.31     $ 0.47     $ 0.60  
Diluted earnings per share 0.29     0.29     0.31     0.47     0.60  
Dividends declared per share 0.07     0.07     0.07     0.14     0.14  
                             


 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
End of Period 6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017
Total assets $ 13,065,248     $ 13,617,228     $ 14,178,447     $ 14,659,337     $ 15,376,676  
Tangible assets 1 12,296,123     12,851,370     13,415,494     13,898,639     14,618,192  
Securities available for sale 1,613,013     1,417,617     1,727,417     1,941,671     2,095,872  
Securities held to maturity 1,367,046     1,380,100     1,391,421     1,474,724     1,456,304  
Portfolio loans 8,594,295     9,168,741     9,527,230     9,763,967     10,232,317  
Goodwill 696,600     696,600     696,600     696,600     696,600  
Other intangibles 72,525     69,258     66,353     64,098     61,884  
Deposits 9,785,556     10,197,253     10,068,259     10,251,725     10,502,710  
Municipal deposits (included above) 1,184,231     1,551,147     1,270,921     1,391,221     1,297,244  
Borrowings 1,309,954     1,451,526     2,056,612     2,328,576     2,661,838  
Stockholders' equity 1,735,994     1,765,160     1,855,183     1,888,613     1,931,383  
Tangible equity 1 966,869     999,302     1,092,230     1,127,915     1,172,899  
Quarterly Average Balances                  
Total assets 12,700,038     13,148,201     13,671,676     14,015,953     14,704,793  
Tangible assets 1 11,929,107     12,380,448     12,907,133     13,253,877     13,944,946  
Loans, gross:                  
Commercial real estate (includes multi-family) 3,694,162     3,823,853     3,963,216     4,190,817     4,396,281  
Acquisition, development and construction 197,489     215,798     224,735     237,451     251,404  
Commercial and industrial:                  
Traditional commercial and industrial 1,229,473     1,274,194     1,383,013     1,410,354     1,497,005  
Asset-based lending2 636,383     640,931     700,285     713,438     737,039  
Payroll finance2 187,887     162,938     218,365     217,031     225,080  
Warehouse lending2 301,882     404,156     551,746     379,978     430,312  
Factored receivables2 183,051     200,471     231,554     184,859     181,499  
Equipment financing2 630,922     652,531     586,078     595,751     660,404  
Public sector finance2 226,929     350,244     361,339     370,253     441,456  
  Total commercial and industrial 3,396,527     3,685,465     4,032,380     3,871,664     4,172,795  
Residential mortgage 729,685     727,304     729,834     700,934     697,441  
Consumer 295,666     292,088     287,267     280,650     268,502  
Loans, total3 8,313,529     8,744,508     9,267,290     9,281,516     9,786,423  
Securities (taxable) 2,032,518     1,838,775     1,789,553     2,016,752     2,142,168  
Securities (non-taxable) 837,133     1,098,933     1,183,857     1,256,906     1,292,367  
Other interest earning assets 375,244     333,622     325,581     334,404     341,895  
Total earning assets 11,558,424     12,015,838     12,566,281     12,889,578     13,562,853  
Deposits:                  
Non-interest bearing demand 3,059,562     3,196,204     3,217,156     3,177,448     3,185,506  
Interest bearing demand 2,016,365     2,107,669     2,116,708     1,950,332     1,973,498  
Savings (including mortgage escrow funds) 809,123     827,647     798,090     797,386     816,092  
Money market 3,056,188     3,174,536     3,395,542     3,681,962     3,725,257  
Certificates of deposit 620,759     609,438     633,526     579,487     584,996  
Total deposits and mortgage escrow 9,561,997     9,915,494     10,161,022     10,186,615     10,285,349  
Borrowings 1,304,442     1,324,001     1,517,482     1,799,204     2,313,992  
Stockholders' equity 1,711,902     1,751,414     1,805,790     1,869,085     1,913,933  
Tangible equity 1 940,971     983,661     1,041,247     1,107,009     1,154,086  
                   
1 See a reconciliation of this non-GAAP financial measure on page 16.
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 Share Data 6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017
Basic earnings per share $ 0.29     $ 0.29     $ 0.31     $ 0.29     $ 0.31  
Diluted earnings per share 0.29     0.29     0.31     0.29     0.31  
Adjusted diluted earnings per share, non-GAAP 1   0.27     0.29     0.30     0.31     0.33  
Dividends declared per share 0.07     0.07     0.07     0.07     0.07  
Book value per share 13.29     13.49     13.72     13.93     14.24  
Tangible book value per share1 7.40     7.64     8.08     8.32     8.65  
Shares of common stock o/s 130,620,463     130,853,673     135,257,570     135,604,435     135,658,226  
Basic weighted average common shares o/s 130,081,465     130,239,193     132,271,761     135,163,347     135,317,866  
Diluted weighted average common shares o/s 130,688,729     130,875,614     132,995,762     135,811,721     135,922,897  
Performance Ratios (annualized)                  
Return on average assets 1.20 %   1.13 %   1.19 %   1.13 %   1.16 %
Return on average equity 8.87 %   8.50 %   9.03 %   8.48 %   8.89 %
Return on average tangible assets, as reported 1 1.27 %   1.20 %   1.26 %   1.20 %   1.22 %
Return on average tangible equity, as reported 1 16.14 %   15.13 %   15.66 %   14.31 %   14.74 %
Return on average tangible assets, as adjusted 1 1.19 %   1.21 %   1.23 %   1.27 %   1.28 %
Return on average tangible equity, as adjusted 1 15.14 %   15.28 %   15.27 %   15.19 %   15.43 %
Efficiency ratio, as adjusted 1 47.19 %   45.76 %   43.35 %   43.73 %   41.97 %
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 4,088     $ 4,381     $ 4,504     3,482     $ 2,888  
Yield on loans 4.68 %   4.57 %   4.49 %   4.57 %   4.58 %
Yield on investment securities - tax equivalent 2 2.76 %   2.74 %   2.81 %   2.97 %   2.93 %
Yield on interest earning assets - tax equivalent 2 4.09 %   4.03 %   4.02 %   4.09 %   4.09 %
Cost of interest bearing deposits 0.52 %   0.54 %   0.53 %   0.55 %   0.62 %
Cost of total deposits 0.35 %   0.37 %   0.36 %   0.38 %   0.43 %
Cost of borrowings 1.73 %   1.75 %   1.72 %   1.74 %   1.75 %
Cost of interest bearing liabilities 0.72 %   0.74 %   0.74 %   0.79 %   0.89 %
Net interest rate spread - tax equivalent basis 2 3.37 %   3.29 %   3.28 %   3.30 %   3.20 %
Net interest margin - GAAP basis 3.49 %   3.41 %   3.40 %   3.42 %   3.35 %
Net interest margin - tax equivalent basis 2 3.60 %   3.53 %   3.52 %   3.55 %   3.47 %
Capital                  
Tier 1 leverage ratio - Company 3 8.36 %   8.31 %   8.95 %   8.89 %   8.72 %
Tier 1 leverage ratio - Bank only 3 8.84 %   8.72 %   9.08 %   8.99 %   8.89 %
Tier 1 risk-based capital ratio - Bank only 3 10.70 %   10.42 %   10.87 %   10.79 %   10.67 %
Total risk-based capital ratio - Bank only 3 12.37 %   12.66 %   13.06 %   12.95 %   12.76 %
Tangible equity to tangible assets - Company 1 7.86 %   7.78 %   8.14 %   8.12 %   8.02 %
Condensed Five Quarter Income Statement                  
Interest and dividend income $ 114,309     $ 118,161     $ 123,075     $ 126,000     $ 134,263  
Interest expense 13,929     15,031     15,827     17,210     21,005  
Net interest income 100,380     103,130     107,248     108,790     113,258  
Provision for loan losses 5,000     5,500     5,500     4,500     4,500  
Net interest income after provision for loan losses 95,380     97,630     101,748     104,290     108,758  
Non-interest income 20,442     19,039     16,057     12,836     13,618  
Non-interest expense 59,640     62,256     57,072     60,350     59,657  
Income before income tax expense 56,182     54,413     60,733     56,776     62,719  
Income tax expense 18,412     16,991     19,737     17,709     20,319  
Net income $ 37,770     $ 37,422     $ 40,996     $ 39,067     $ 42,400  
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 16.
2 Tax equivalent basis represents interest income earned on municipal securities divided by the applicable Federal tax rate of 35%.
3 Regulatory capital amounts and ratios are preliminary estimates pending filing of the Company's and Bank's regulatory reports.
 


 
Sterling Bancorp and Subsidiaries
ASSET QUALITY INFORMATION
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
Allowance for Loan Losses Roll Forward 6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017
Balance, beginning of period $ 53,014     $ 55,865     $ 59,405     $ 63,622     $ 66,939  
Provision for loan losses 5,000     5,500     5,500     4,500     4,500  
Loan charge-offs1:                  
Traditional commercial & industrial (429 )   (570 )   (219 )   (687 )   (164 )
Payroll finance (28 )                
Factored receivables (792 )   (60 )   (267 )   (296 )   (12 )
Equipment financing (572 )   (377 )   (576 )   (471 )   (610 )
Commercial real estate (100 )   (630 )   (225 )   (83 )   (944 )
Multi-family (18 )   (399 )            
Acquisition development & construction                 (22 )
Residential mortgage (209 )   (338 )   (274 )   (158 )   (120 )
Consumer (532 )   (259 )   (313 )   (114 )   (417 )
Total charge offs (2,680 )   (2,633 )   (1,874 )   (1,809 )   (2,289 )
Recoveries of loans previously charged-off1:                  
Traditional commercial & industrial 153     381     152     139     523  
Asset-based lending 46             3     1  
Payroll finance 28                  
Factored receivables 17     10     10     16     2  
Equipment financing 102     123     227     140     146  
Commercial real estate 53     111     168     2     98  
Acquisition development & construction 104             136     133  
Residential mortgage 1         1     149     10  
Consumer 27     48     33     41     88  
Total recoveries 531     673     591     626     1,001  
Net loan charge-offs (2,149 )   (1,960 )   (1,283 )   (1,183 )   (1,288 )
Balance, end of period $ 55,865     $ 59,405     $ 63,622     $ 66,939     $ 70,151  
Asset Quality Data and Ratios                  
Non-performing loans ("NPLs") non-accrual $ 79,036     $ 77,794     $ 77,163     $ 72,136     $ 70,416  
NPLs still accruing 528     3,273     1,690     788     935  
Total NPLs 79,564     81,067     78,853     72,924     71,351  
Other real estate owned 16,590     16,422     13,619     9,632     10,198  
Non-performing assets ("NPAs") $ 96,154     $ 97,489     $ 92,472     $ 82,556     $ 81,549  
Loans 30 to 89 days past due $ 18,653     $ 17,683     $ 15,100     $ 15,611     $ 15,070  
Net charge-offs as a % of average loans (annualized)   0.10 %   0.09 %   0.06 %   0.05 %   0.05 %
NPLs as a % of total loans 0.93     0.88     0.83     0.75     0.70  
NPAs as a % of total assets 0.74     0.72     0.65     0.56     0.53  
Allowance for loan losses as a % of NPLs 70.2     73.3     80.7     91.8     98.3  
Allowance for loan losses as a % of total loans 0.65     0.65     0.67     0.69     0.69  
Special mention loans $ 103,710     $ 101,784     $ 104,569     $ 110,832     $ 102,996  
Substandard loans 125,571     112,551     95,152     101,496     97,476  
Doubtful loans 330     932     442     902     895  
                   
1 There were no charge-offs or recoveries on warehouse lending or public sector finance loans during the periods presented.
 


 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
 
  For the Quarter Ended
  March 31, 2017   June 30, 2017
  Average
balance
  Interest   Yield/
Rate
  Average
balance
  Interest   Yield/
Rate
  (Dollars in thousands)
Interest earning assets:                      
Traditional C&I and commercial finance loans $ 3,871,664     $ 48,237        5.05 %   $ 4,172,795     $ 52,580          5.05 %
Commercial real estate (includes multi-family) 4,190,817     43,186     4.18     4,396,281     45,930     4.19  
Acquisition, development and construction 237,451     3,125     5.34     251,404     3,317     5.29  
Commercial loans 8,299,932     94,548          4.62     8,820,480     101,827     4.63  
Consumer loans 280,650     3,132     4.53     268,502     3,073     4.59  
Residential mortgage loans 700,934     6,890     3.93     697,441     6,940     3.98  
Total gross loans 1 9,281,516     104,570     4.57     9,786,423     111,840     4.58  
Securities taxable 2,016,752     12,282     2.47     2,142,168     13,113     2.46  
Securities non-taxable 1,256,906     11,720     3.73     1,292,367     11,986     3.71  
Interest earning deposits 210,800     254     0.49     195,004     302     0.62  
FHLB and Federal Reserve Bank stock 123,604     1,276     4.19     146,891     1,217     3.32  
Total securities and other earning assets 3,608,062     25,532     2.87     3,776,430     26,618     2.83  
Total interest earning assets 12,889,578     130,102     4.09     13,562,853     138,458     4.09  
Non-interest earning assets 1,126,375             1,141,940          
Total assets $ 14,015,953             $ 14,704,793          
Interest bearing liabilities:                      
Demand and savings2 deposits $ 2,747,718     $ 3,186     0.47     $ 2,789,590     $ 3,875     0.56  
Money market deposits 3,681,962     4,944     0.54     3,725,257     5,510     0.59  
Certificates of deposit 579,487     1,378     0.96     584,996     1,520     1.04  
Total interest bearing deposits 7,009,167     9,508     0.55     7,099,843     10,905     0.62  
Senior notes 76,497     1,141     6.05     76,580     1,142     5.98  
Other borrowings 1,550,183     4,212     1.10     2,064,840     6,608     1.28  
Subordinated notes 172,524     2,349     5.45     172,572     2,350     5.45  
Total borrowings 1,799,204     7,702     1.74     2,313,992     10,100     1.75  
Total interest bearing liabilities 8,808,371     17,210     0.79     9,413,835     21,005     0.89  
Non-interest bearing deposits 3,177,448             3,185,506          
Other non-interest bearing liabilities 161,049             191,519          
Total liabilities 12,146,868             12,790,860          
Stockholders' equity 1,869,085             1,913,933          
Total liabilities and stockholders' equity $ 14,015,953             $ 14,704,793          
Net interest rate spread 3         3.30 %           3.20 %
Net interest earning assets 4 $ 4,081,207             $ 4,149,018          
Net interest margin - tax equivalent     112,892     3.55 %       117,453     3.47 %
Less tax equivalent adjustment     (4,102 )           (4,195 )    
Net interest income     $ 108,790             $ 113,258      
Ratio of interest earning assets to interest bearing liabilities   146.3 %           144.1 %        
1 Average balances include loans held for sale and non-accrual loans.  Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.
 


 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
 
  For the Quarter Ended
  June 30, 2016   June 30, 2017
  Average
balance
  Interest   Yield/
Rate
  Average
balance
  Interest   Yield/
Rate
  (Dollars in thousands)
Interest earning assets:                      
Traditional C&I and commercial finance loans $ 3,396,527     $ 42,935        5.08 %   $ 4,172,795     $ 52,580        5.05 %
Commercial real estate (includes multi-family) 3,694,162     40,733     4.43     4,396,281     45,930     4.19  
Acquisition, development and construction 197,489     2,538     5.17     251,404     3,317     5.29  
Commercial loans 7,288,178     86,206     4.76     8,820,480     101,827     4.63  
Consumer loans 295,666     3,391     4.61     268,502     3,073     4.59  
Residential mortgage loans 729,685     7,061     3.87     697,441     6,940     3.98  
Total gross loans 1 8,313,529     96,658     4.68     9,786,423     111,840     4.58  
Securities taxable 2,032,518     10,662     2.11     2,142,168     13,113     2.46  
Securities non-taxable 837,133     9,032     4.32     1,292,367     11,986     3.71  
Interest earning deposits 272,426     258     0.38     195,004     302     0.62  
FHLB and Federal Reserve Bank stock 102,818     860     3.36     146,891     1,217     3.32  
Total securities and other earning assets 3,244,895     20,812     2.58     3,776,430     26,618     2.83  
Total interest earning assets 11,558,424     117,470     4.09     13,562,853     138,458     4.09  
Non-interest earning assets 1,141,614             1,141,940          
Total assets $ 12,700,038             $ 14,704,793          
Interest bearing liabilities:                      
Demand and savings2 deposits $ 2,825,488     $ 2,835     0.40     $ 2,789,590     $ 3,875     0.56  
Money market deposits 3,056,188     4,152     0.55     3,725,257     5,510     0.59  
Certificates of deposit 620,759     1,341     0.87     584,996     1,520     1.04  
Total interest bearing deposits 6,502,435     8,328     0.52     7,099,843     10,905     0.62  
Senior notes 99,032     1,478     6.00     76,580     1,142     5.98  
Other borrowings 1,097,270     2,642     0.97     2,064,840     6,608     1.28  
Subordinated notes 108,140     1,481     5.48     172,572     2,350     5.45  
Total borrowings 1,304,442     5,601     1.73     2,313,992     10,100     1.75  
Total interest bearing liabilities 7,806,877     13,929     0.72     9,413,835     21,005     0.89  
Non-interest bearing deposits 3,059,562             3,185,506          
Other non-interest bearing liabilities 121,697             191,519          
Total liabilities 10,988,136             12,790,860          
Stockholders' equity 1,711,902             1,913,933          
Total liabilities and stockholders' equity $ 12,700,038             $ 14,704,793          
Net interest rate spread 3         3.37 %           3.20 %
Net interest earning assets 4 $ 3,751,547             $ 4,149,018          
Net interest margin - tax equivalent     103,541     3.60 %       117,453     3.47 %
Less tax equivalent adjustment     (3,161 )           (4,195 )    
Net interest income     $ 100,380             $ 113,258      
Ratio of interest earning assets to interest bearing liabilities 148.1 %           144.1 %        
1 Average balances include loans held for sale and non-accrual loans.  Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.
 


 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend on page 19.
 
  As of and for the Quarter Ended
  6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017
 
The following table shows the reconciliation of stockholders' equity to tangible equity and the tangible equity ratio1:
                   
Total assets $ 13,065,248     $ 13,617,228     $ 14,178,447     $ 14,659,337     $ 15,376,676  
Goodwill and other intangibles (769,125 )   (765,858 )   (762,953 )   (760,698 )   (758,484 )
Tangible assets 12,296,123     12,851,370     13,415,494     13,898,639     14,618,192  
Stockholders' equity 1,735,994     1,765,160     1,855,183     1,888,613     1,931,383  
Goodwill and other intangibles (769,125 )   (765,858 )   (762,953 )   (760,698 )   (758,484 )
Tangible stockholders' equity 966,869     999,302     1,092,230     1,127,915     1,172,899  
                             
Common stock outstanding at period end 130,620,463     130,853,673     135,257,570     135,604,435     135,658,226  
Stockholders' equity as a % of total assets 13.29 %   12.96 %   13.08 %   12.88 %   12.56 %
Book value per share $ 13.29     $ 13.49     $ 13.72     $ 13.93     $ 14.24  
Tangible equity as a % of tangible assets 7.86 %   7.78 %   8.14 %   8.12 %   8.02 %
Tangible book value per share $ 7.40     $ 7.64     $ 8.08     $ 8.32     $ 8.65  
                   
 
The following table shows the reconciliation of reported return on average tangible equity and adjusted return on average tangible equity2:
                   
Average stockholders' equity $ 1,711,902     $ 1,751,414     $ 1,805,790     $ 1,869,085     $ 1,913,933  
Average goodwill and other intangibles (770,931 )   (767,753 )   (764,543 )   (762,076 )   (759,847 )
Average tangible stockholders' equity 940,971     983,661     1,041,247     1,107,009     1,154,086  
Net income 37,770     37,422     40,996     39,067     42,400  
Net income, if annualized 151,910     148,874     163,093     158,438     170,066  
Reported return on average tangible equity 16.14 %   15.13 %   15.66 %   14.31 %   14.74 %
Adjusted net income (see reconciliation on page 17) $ 35,414     $ 37,793     $ 39,954     $ 41,461     $ 44,393  
Annualized adjusted net income 142,434     150,350     158,947     168,147     178,060  
Adjusted return on average tangible equity 15.14 %   15.28 %   15.27 %   15.19 %   15.43 %
                   
The following table shows the reconciliation of reported return on tangible assets and adjusted return on tangible assets3:
                   
Average assets $ 12,700,038     $ 13,148,201     $ 13,671,676     $ 14,015,953     $ 14,704,793  
Average goodwill and other intangibles (770,931 )   (767,753 )   (764,543 )   (762,076 )   (759,847 )
Average tangible assets 11,929,107     12,380,448     12,907,133     13,253,877     13,944,946  
Net income 37,770     37,422     40,996     39,067     42,400  
Net income, if annualized 151,910     148,874     163,093     158,438     170,066  
Reported return on average tangible assets 1.27 %   1.20 %   1.26 %   1.20 %   1.22 %
Adjusted net income (see reconciliation on page 17) $ 35,414     $ 37,793     $ 39,954     $ 41,461     $ 44,393  
Annualized adjusted net income 142,434     150,350     158,947     168,147     178,060  
Adjusted return on average tangible assets 1.19 %   1.21 %   1.23 %   1.27 %   1.28 %
                   


 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend on page 19.
 
  As of and for the Quarter Ended
  6/30/2016   9/30/2016   12/31/2016   3/31/2017   6/30/2017
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
                   
Net interest income $ 100,380     $ 103,130     $ 107,248     $ 108,790     $ 113,258  
Non-interest income 20,442     19,039     16,057     12,836     13,618  
Total net revenue 120,822     122,169     123,305     121,626     126,876  
Tax equivalent adjustment on securities 3,161     3,635     3,860     4,102     4,195  
Net (gain) loss on sale of securities (4,474 )   (3,433 )   102     23     230  
Net (gain) on sale of trust division         (2,255 )        
Adjusted total net revenue 119,509     122,371     125,012     125,751     131,301  
Non-interest expense 59,640     62,256     57,072     60,350     59,657  
Merger-related expense             (3,127 )   (1,766 )
Charge for asset write-downs, retention and severance     (2,000 )           (603 )
Loss on extinguishment of borrowings     (1,013 )            
Amortization of intangible assets (3,241 )   (3,241 )   (2,881 )   (2,229 )   (2,187 )
Adjusted non-interest expense 56,399     56,002     54,191     54,994     55,101  
Reported operating efficiency ratio 49.4 %   51.0 %   46.3 %   49.6 %   47.0 %
Adjusted operating efficiency ratio 47.2     45.8     43.3     43.7     42.0  
                   
The following table shows the reconciliation of reported net income (GAAP) and adjusted net income (non-GAAP) and adjusted diluted earnings per share5:
                   
Income before income tax expense $ 56,182     $ 54,413     $ 60,733     $ 56,776     $ 62,719  
Income tax expense 18,412     16,991     19,737     17,709     20,319  
Net income (GAAP) 37,770     37,422     40,996     39,067     42,400  
                   
Adjustments:                  
Net (gain) loss on sale of securities (4,474 )   (3,433 )   102     23     230  
Net (gain) on sale of trust division         (2,255 )        
Merger-related expense             3,127     1,766  
Charge for asset write-downs, retention and severance     2,000             603  
Loss on extinguishment of borrowings     1,013              
Amortization of non-compete agreements and acquired customer list intangible assets 969     970     610     396     354  
Total adjustments (3,505 )   550     (1,543 )   3,546     2,953  
Income tax expense (benefit) 1,149     (179 )   501     (1,152 )   (960 )
Total adjustments net of taxes (2,356 )   371     (1,042 )   2,394     1,993  
Adjusted net income (non-GAAP) $ 35,414     $ 37,793     $ 39,954     $ 41,461     $ 44,393  
                   
Weighted average diluted shares 130,688,729     130,875,614     132,995,762     135,811,721     135,922,897  
Diluted EPS as reported (GAAP) $ 0.29     $ 0.29     $ 0.31     $ 0.29     $ 0.31  
Adjusted diluted EPS (non-GAAP) 0.27     0.29     0.30     0.31     0.33  
                     


 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
    For the Six Months Ended June 30,
    2016   2017
         
The following table shows the reconciliation of reported net income (GAAP) and adjusted net income (non-GAAP) and adjusted diluted earnings per share5:
Income before income tax expense   $ 92,191     $ 119,495  
Income tax expense   30,655     38,028  
Net income (GAAP)   61,536     81,467  
         
Adjustments:        
Net (gain) on sale of securities   (4,191 )   253  
Merger-related expense   266     4,893  
Charge for asset write-downs, retention and severance   2,485     603  
Loss on extinguishment of borrowings   8,716      
Amortization of non-compete agreements and acquired customer list intangible assets   1,937     750  
Total adjustments   9,213     6,499  
Income tax (benefit)   (3,175 )   (2,112 )
Total adjustments net of taxes   6,038     4,387  
Adjusted net income (non-GAAP)   $ 67,574     $ 85,854  
         
Weighted average diluted shares   130,522,021     135,867,861  
Diluted EPS as reported (GAAP)   $ 0.47     $ 0.60  
Adjusted diluted EPS (non-GAAP)   0.52     0.63  
             

The non-GAAP / adjusted measures presented above are used by our management and Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance and to assess our performance compared to our annual budget and strategic plans.  These non-GAAP/adjusted financial measures complement our GAAP reporting and are presented above to provide investors, analysts, regulators and others information that we use to manage and evaluate our performance each period. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results.  When non-GAAP / adjusted measures are impacted by income tax expense, we present the pre-tax amount for the income and expense items that result in the non-GAAP adjustments and present the income tax expense impact at the effective tax rate in effect for the period presented.

1 Stockholders' equity as a percentage of total assets, book value per share, tangible equity as a percentage of tangible assets and tangible book value per share provides information to help assess our capital position and financial strength.  We believe tangible book measures improve comparability to other banking organizations that have not engaged in acquisitions that have resulted in the accumulation of goodwill and other intangible assets.

2 Reported return on average tangible equity and adjusted return on average tangible equity measures provide information to evaluate the use of our tangible equity.

3 Reported return on tangible assets and adjusted return on tangible assets measures provide information to help assess our profitability.

4 The reported operating efficiency ratio is a non-GAAP measure calculated by dividing our GAAP non-interest expense by the sum of our GAAP net interest income plus GAAP non-interest income. The adjusted operating efficiency ratio is a non-GAAP measure calculated by dividing non-interest expense adjusted for intangible asset amortization and certain expenses generally associated with discrete merger transactions and non-recurring strategic plans by the sum of net interest income plus non-interest income plus the tax equivalent adjustment on securities income and elimination of the impact of gain or loss on sale of securities. The adjusted operating efficiency ratio is a measure we use to assess our operating performance.

5 Adjusted net income and adjusted earnings per share present a summary of our earnings which includes adjustments to exclude certain revenues and expenses (generally associated with discrete merger transactions and non-recurring strategic plans) to help in assessing our profitability. Historically we have imputed income tax expense on adjusted earnings at our GAAP earnings effective tax rate.  Due to the adoption of a new accounting standard in the second quarter of 2017 that requires vesting of share-based compensation awards be treated as a discrete item in income tax expense, our effective tax rate for GAAP earnings decreased from our estimate for full year 2017 of 32.5% to 32.4% for the quarter ended June 30, 2017.  Therefore, for purposes of calculating adjusted net income, we recognized income tax expense at our 2017 anticipated effective tax rate of 32.5%.

STERLING BANCORP CONTACT:
Luis Massiani, SEVP & Chief Financial Officer
845.369.8040
http://www.sterlingbancorp.com

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