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Sterling Bancorp announces operating results for the three months and year ended December 31, 2017

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Key Performance Highlights for the Twelve Months ended December 31, 2017 vs. December 31, 2016

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  12/31/2016   12/31/2017   Change 
% / bps
  12/31/2016   12/31/2017   Change 
% / bps
Total revenue2 $ 475,256     $ 640,345     34.7 %   $ 478,224     $ 660,743     38.2 %
Net income available to common 139,972     91,029     (35.0 )   145,518     222,039     52.6  
Diluted EPS 1.07     0.58     (45.8 )   1.11     1.40     26.1  
Net interest margin3 3.44 %   3.44 %       3.55 %   3.55 %    
Return on average tangible common equity 14.34     6.22     (812 )   14.90     15.17     27  
Return on average tangible assets 1.15     0.52     (63 )   1.20     1.27     7  
Operating efficiency ratio4 52.2     67.7     1,550     46.2     41.8     (440 )
                                   
  • Total portfolio loans, gross were $20.0 billion as of December 31, 2017.
  • Loans to deposits ratio of 97.4%; total deposits reached $20.5 billion at December 31, 2017.
  • Recorded record volumes in loans, deposits, adjusted revenues and adjusted earnings available to common stockholders.
  • Adjusted diluted earnings per share available to common stockholders were $1.40, representing growth of 26.1% over the prior year.

Key Performance Highlights for the Three Months ended December 31, 2017 vs. quarter ended September 30, 2017

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  9/30/2017   12/31/2017   Change 
% / bps
  9/30/2017   12/31/2017   Change 
% / bps
Total revenue2 $ 134,061     $ 257,786     92.3 %   $ 138,681     $ 265,014     91.1 %
Net income (loss) available to common 44,852     (35,281 )   (178.7 )   47,865     87,171     82.1  
Diluted EPS 0.33     (0.16 )   (148.5 )   0.35     0.39     11.4  
Net interest margin3 3.29 %   3.57 %   28     3.42 %   3.67 %   25  
Return on average tangible common equity 14.86     (5.87 )   (2,073 )   15.85     14.49     (136 )
Return on average tangible assets 1.19     (0.51 )   (170 )   1.27     1.25     (2 )
Operating efficiency ratio4 46.7     97.3     5,060     40.6     41.4     80  
                                   
  • Completed merger with Astoria Financial Corporation ("Astoria" and the "Astoria Merger") on October 2, 2017.
  • Incurred pre-tax merger-related expense of $30.2 million and a restructuring charge of $104.5 million due to the Astoria Merger.
  • Income tax expense included a write-down of $40.3 million to our net deferred tax assets due to changes in tax laws.
  • Adjusted diluted earnings per share available to common stockholders of $0.39, a new record
  • Tangible book value per common share of $10.53 at December 31, 2017, representing growth of 17.7% over the prior quarter.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 17.
2. Total revenue is equal to net interest income plus non interest income. Total revenue as adjusted is equal to tax equivalent net interest income plus non-interest income excluding securities gains and losses.
3. Net interest margin is equal to net interest income as a percentage of interest earning assets. Net interest margin as adjusted is equal to net interest margin plus the tax equivalent adjustment for tax exempt securities.
4. See page 18 and 20 for an explanation of the operating efficiency ratio.

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MONTEBELLO, N.Y., Jan. 23, 2018 (GLOBE NEWSWIRE) -- Sterling Bancorp (NYSE:STL) (the "Company"), the parent company of Sterling National Bank (the "Bank"), today announced results for the three months and year ended December 31, 2017. Net loss available to common stockholders for the quarter ended December 31, 2017 was $(35.3) million, or $(0.16) per diluted share, compared to net income available to common stockholders of $44.9 million, or $0.33 per diluted share, for the linked quarter ended September 30, 2017 and net income available to common stockholders of $41.0 million, or $0.31 per diluted share, for the three months ended December 31, 2016. 

Net income available to common stockholders for the year ended December 31, 2017 was $91.0 million, or $0.58 per diluted share, compared to net income available to common stockholders of $140.0 million, or $1.07 per diluted share, for the year ended December 31, 2016.

Results for the fourth quarter and full year 2017 were impacted by merger-related expense and restructuring charges incurred in connection with the Astoria Merger, and a charge to income tax expense related to the Company's net deferred tax assets due to the changes in tax law. Please refer to the section below "Reconciliation of GAAP Results to Adjusted Results (Non-GAAP)" for additional information on these charges.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "We delivered another year of strong operating performance, closing 2017 as a larger, more diversified and more profitable company. As of December 31, 2017, our total assets increased to $30.4 billion, from $14.2 billion a year ago; our total gross loans increased to $20.0 billion from $9.5 billion a year ago; and our total deposits increased to $20.5 billion, from $10.1 billion a year ago. 

"Our strategy and execution have remained consistent since the current management team joined the Company in July 2011. Our primary focus has always been to deliver consistent improvements in operating leverage and efficiency, targeting growth in operating revenues at 2-3x the growth in operating expenses. To achieve this, we grow loans and deposits organically by generating higher levels of productivity from our existing commercial banking teams, we recruit and hire new commercial banking teams that fit our culture and strategy, we allocate capital to business lines and client segments that are scalable and that meet our risk-adjusted return hurdles, and we augment organic growth through opportunistic acquisitions that allow us to accelerate reaching new levels of efficiency and profitability. We are creating a company with a performance driven culture in which our colleagues are highly motivated and rewarded for delivering superior service and results.

"Our strategy is working; since December 2011, our total assets, adjusted earnings available to common stockholders and adjusted diluted earnings per share available to common stockholders have grown at a compound annual growth rate of 46.3%, 68.5% and 32.5%, respectively. Our growth has resulted in significant improvements in profitability and returns. For the year ended December 31, 2017, our adjusted diluted earnings per share available to common stockholders were $1.40, our adjusted return on average tangible assets was 1.27% and our adjusted return on average tangible common equity was 15.17%. We have also delivered substantial efficiency improvements. Since 2011, our total operating revenues have grown at almost 2x our total operating expenses. For the year ended December 31, 2017, our adjusted operating efficiency ratio was 41.8%. 

"The fundamentals of our business are strong heading into 2018.  Adjusting for the balances acquired in the Astoria Merger, we grew total commercial loans by $543.7 million in the fourth quarter, representing an annualized growth rate of 15.4% over the prior quarter. Astoria's attractive deposit franchise and the significant investments we have made in hiring commercial banking teams across all of our business lines will allow us to continue growing and building a diversified balance sheet with strong core funding. With over 8% in tangible common equity to tangible assets and an estimated Tier 1 Leverage ratio of 9.40%, we have ample capital to support our strategy.

"The Astoria Merger has allowed us to identify significant revenue enhancement and cost savings opportunities. Through the continued execution of our strategy, we anticipate we will transition the combined balance sheet, increase profitability and efficiency, and achieve our goal of building a high performing, diversified regional bank that serves middle market commercial clients and consumers. We are well positioned to capitalize on these opportunities.

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

"Lastly, we have declared a dividend on our common stock of $0.07 per share payable on February 20, 2018 to holders of record as of February 5, 2018."

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company's GAAP net loss available to common stockholders of $(35.3) million, or $(0.16) per diluted share, for the fourth quarter of 2017, included the following items:

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  • a pre-tax charge of $30.2 million due to merger-related expense associated with the Astoria Merger for professional fees, change-in-control payments, insurance, client communications, and due diligence expenses;
  • a pre-tax charge of $104.5 million associated with the Astoria Merger for asset write-downs, systems integration expenses, and severance and retention compensation;
  • a pre-tax net loss on sale of securities of $70 thousand; and
  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $333 thousand.

In addition, in the fourth quarter of 2017, in connection with the Tax Cuts and Jobs Act of 2017, we recorded a charge of $40.3 million in income tax expense to write-down our net deferred tax assets to their estimated value. Excluding the impact of these items and their corresponding tax adjustment at the Company's estimated effective tax rate of 31.5% for full year 2017, adjusted net income available to common stockholders was $87.2 million, or $0.39 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 17.

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Linked Qtr
Interest income $ 123,075     $ 145,692     $ 276,495     124.7 %   89.8 %
Interest expense 15,827     25,619     42,471     168.3     65.8  
Net interest income $ 107,248     $ 120,073     $ 234,024     118.2     94.9  
                   
Accretion income on acquired loans $ 4,504     $ 3,397     $ 33,726     648.8 %   892.8 %
Yield on loans 4.49 %   4.67 %   4.77 %   28     10  
Tax equivalent yield on investment securities 2.81     2.87     3.03     22     16  
Tax equivalent yield on interest earning assets 4.02     4.12     4.32     30     20  
Cost of total deposits 0.36     0.50     0.43     7     (7 )
Cost of interest bearing deposits 0.53     0.69     0.54     1     (15 )
Cost of borrowings 1.72     1.75     1.94     22     19  
Tax equivalent net interest margin5 3.52     3.42     3.67     15     25  
                   
Average loans, including loans held for sale $ 9,267,290     $ 10,186,414     $ 19,518,485     110.6 %   91.6 %
Average investment securities 2,973,410     3,916,076     5,926,824     99.3     51.3  
Average total earning assets 12,566,281     14,471,120     26,043,748     107.3     80.0  
Average deposits and mortgage escrow 10,161,022     10,691,006     20,483,857     101.6     91.6  
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. The tax equivalent adjustment is assumed at 35% federal tax rate for all periods presented.
 

Fourth quarter 2017 compared with fourth quarter 2016 
Net interest income was $234.0 million, an increase of $126.8 million compared to the fourth quarter of 2016.  This was mainly due to an increase in average loans outstanding between the periods as a result of the Astoria Merger and loans originated through our commercial banking teams. Other key components of the changes in net interest income and net interest margin were the following:

  • The yield on loans was 4.77%, compared to 4.49% for the three months ended December 31, 2016.  The increase in yield on loans was mainly due to an increase in accretion income on acquired loans, which was $33.7 million in the fourth quarter of 2017 compared to $4.5 million in the fourth quarter of 2016. Accretion income on acquired loans  in the fourth quarter of 2017 included $29.9 million related to the Astoria Merger.
  • Average commercial loans were $14.0 billion compared to $8.2 billion in the fourth quarter of 2016, an increase of $5.8 billion or 70.0%.
  • The tax equivalent yield on investment securities increased 22 basis points to 3.03%.  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 $2.1 billion for the quarter ended December 31, 2017, compared to $1.2 billion in the fourth quarter of 2016. Average investment securities were $5.9 billion, or 22.8%, of average earning assets for the fourth quarter of 2017 compared to $3.0 billion, or 23.7%, of average earning assets for the fourth quarter of 2016.

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  • The tax equivalent yield on interest earning assets increased 30 basis points between the periods to 4.32%.
  • The cost of total deposits was 43 basis points and the cost of borrowings was 1.94%, compared to 36 basis points and 1.72%, respectively, for the same period a year ago.
  • The total cost of interest bearing liabilities increased eight basis points to 0.82% for the fourth quarter of 2017 compared to 0.74% for fourth quarter of 2016.  This increase was due to an increase in market interest rates, which increased the cost of wholesale, brokered and certificates of deposit between the periods.

The tax equivalent net interest margin was 3.67% for the fourth quarter of 2017 compared to 3.52% for the fourth quarter of 2016. The increase in tax equivalent net interest margin was mainly due to an increase in accretion income on acquired loans.  Excluding accretion income, tax equivalent net interest margin was 3.16% for the fourth quarter of 2017 compared to 3.37% in the fourth quarter of 2016.

Fourth quarter 2017 compared with linked quarter ended September 30, 2017
Net interest income increased $114.0 million compared to the linked quarter ended September 30, 2017.  The increase in net interest income in the fourth quarter of 2017 relative to the linked quarter was mainly due to the Astoria Merger and the resulting increase in the average balance of loans and investment securities outstanding.  Key components of the changes in net interest income in the linked quarter were the following:

  • The yield on loans was 4.77% compared to 4.67% for the linked quarter, an increase of 10 basis points, which was mainly due to accretion income on acquired loans. Accretion income on acquired loans was $33.7 million in the fourth quarter of 2017 compared to $3.4 million in the linked quarter.
  • The average balance of loans increased $9.3 billion for the fourth quarter of 2017 compared to the linked quarter. Based on end of period balances, total loans increased $9.5 billion relative to the linked quarter.
  • The tax equivalent yield on investment securities increased 16 basis points to 3.03% in the fourth quarter of 2017.  Average investment securities increased $2.0 billion compared to the linked quarter.
  • The tax equivalent yield on interest earning assets increased 20 basis points in the fourth quarter of 2017 to 4.32% compared to 4.12% in the linked quarter.
  • The cost of total deposits decreased seven basis points to 43 basis points in the quarter. This was mainly due to the deposits assumed in the Astoria Merger.  The total cost of borrowings increased to 1.94% compared to 1.75% in the linked quarter due to $200.0 million of principal balance of senior notes assumed in the Astoria Merger and an increase in other borrowings.
  • Average interest bearing deposits increased by $8.8 billion and average borrowings increased $1.3 billion relative to the linked quarter, which resulted in an increase of $16.9 million in interest expense.

The tax equivalent net interest margin was 3.67% compared to 3.42% in the linked quarter. Excluding accretion income on acquired loans of $3.4 million, net interest margin was 3.32% in the linked quarter.

The decline in tax equivalent net interest margin excluding accretion income between the current quarter and the prior periods presented was due to a change in the composition of our loan portfolio as a result of the Astoria Merger. In the fourth quarter of 2017, residential mortgage loans represented 26.5% of average loans and multi-family loans represented 24.4%. A year earlier, residential mortgage loans comprised 8.2% of average earning assets and multi-family loans comprised 10.3% of average loans.  Residential mortgage and multi-family loans typically have lower yields than our commercial loans. We anticipate replacing the run-off of residential mortgage and multi-family loans with higher yielding commercial loans, which we expect will offset a significant portion of future declines in accretion income on acquired loans.

Through the fourth quarter of 2017, we calculated the tax equivalent adjustment on securities assuming a federal tax rate of 35%.  Due to the tax law changes, we will begin reporting the tax equivalent adjustment assuming a federal tax rate of 21% in the first quarter of 2018.  Although this change will have no impact on our GAAP net interest margin or the cash flows received from our securities portfolio, we anticipate this change will result in a decrease of 15 to 20 basis points in tax equivalent yield on securities and a decrease of eight to 10 basis points in tax equivalent net interest margin. We anticipate the decrease in tax equivalent net interest margin will be offset by a reduction in our estimated effective income tax rate, which will likely result in an increase to net income.

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Non-interest Income

($ in thousands) For the three months ended   Change %
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Linked Qtr
Total non-interest income $ 16,057     $ 13,988     $ 23,762     48.0 %   69.9 %
Net (loss) on sale of securities (102 )   (21 )   (70 )   (31.4 )   233.3  
Net gain on sale of trust division 2,255             (100.0 )   NM  
Adjusted non-interest income $ 13,904     $ 14,009     $ 23,832     71.4     70.1  
                                   

Fourth quarter 2017 compared with fourth quarter 2016
Excluding net (loss) on sale of securities and net gain on sale of trust division, adjusted non-interest income increased $9.9 million in the fourth quarter of 2017 to $23.8 million compared to $13.9 million in the same quarter last year.  The change was mainly due to the Astoria Merger.  Deposit fees and service charges increased by $4.1 million, bank owned life insurance income increased by $2.1 million and investment management fees increased by $1.5 million, which were all related to the completion of the Astoria Merger. In addition, fee income on loan swaps in the fourth quarter of 2017 increased to $1.1 million compared to $539 thousand for the year ago period.

Fourth quarter 2017 compared with linked quarter ended September 30, 2017
Excluding net (loss) on sale of securities, adjusted non-interest income increased approximately $9.8 million from $14.0 million in the linked quarter to $23.8 million in the fourth quarter of 2017.  This was mainly due to the same factors as discussed above.

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Linked Qtr
Compensation and benefits $ 32,060     $ 32,433     $ 55,670     73.6 %   71.6 %
Stock-based compensation plans 1,557     1,969     2,508     61.1     27.4  
Occupancy and office operations 8,372     8,583     18,100     116.2     110.9  
Amortization of intangible assets 2,881     2,166     6,426     123.0     196.7  
FDIC insurance and regulatory assessments 1,531     2,310     5,737     274.7     148.4  
Other real estate owned, net ("OREO") 206     894     742     260.2     (17.0 )
Merger-related expenses     4,109     30,230         635.7  
Charge for asset write-downs, systems integration, retention and severance         104,506     NM     NM  
Other expenses 10,465     10,153     26,827     156.3     164.2  
Total non-interest expense $ 57,072     $ 62,617     $ 250,746     339.4     300.4  
Full time equivalent employees ("FTEs") at period end 970     992     2,076     114.0     109.3  
Financial centers at period end 42     40     128     204.8     220.0  
Efficiency ratio, as reported 46.3 %   46.7 %   97.3 %   (5,100 )   (5,060 )
Efficiency ratio, as adjusted6 43.3     40.6     41.4     190     (80 )
6 See a reconciliation of non-GAAP financial measures beginning on page 17.
 

Fourth quarter 2017 compared with fourth quarter 2016 
Total non-interest expense increased $193.7 million relative to the fourth quarter of 2016.   Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $23.6 million between the periods.  Total FTEs increased to 2,076, which was mainly due to the Astoria Merger.  In addition, we continued to hire commercial bankers and risk management personnel.
  • Occupancy and office operations increased $9.7 million mainly due to 88 financial centers and other locations acquired in the Astoria Merger.
  • Amortization of intangible assets increased $3.5 million between the periods.  This was due to the Astoria Merger; the increase represents the amortization of the core deposit intangible asset that was recorded.

5

  • FDIC insurance and regulatory assessments increased $4.2 million to $5.7 million in the fourth quarter of 2017, compared to $1.5 million for the fourth quarter of 2016.  This was mainly due to growth in our total assets.
  • OREO expense increased $536 thousand to $742 thousand in the fourth quarter of 2017, compared to $206 thousand for the fourth quarter of 2016.  This was mainly due to write-downs on the value of properties based on updated appraisals.
  • Merger-related expense was $30.2 million in the fourth quarter of 2017, and included advisory fees, accounting and consulting fees, change-in-control payments, insurance premium expense and client communications expense. We did not incur merger-related expense in the fourth quarter of 2016.
  • Charge for asset write-downs, systems integration, retention and severance was $104.5 million, and included charges for severance and retention compensation, systems integration expense, and asset write-downs to continue our financial center and real estate  consolidation strategy. We did not incur similar charges in the fourth quarter of 2016.
  • Other expenses increased $16.4 million mainly due to the Astoria Merger and included a $9.5 million increase in data processing expense, a $1.0 million increase in communications expense, $999 thousand increase in advertising expense, and a $851 thousand increase in operational losses.

Fourth quarter 2017 compared with linked quarter ended September 30, 2017
Total non-interest expense increased $188.1 million from $62.6 million in the linked quarter to $250.7 million in the fourth quarter of 2017. Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $23.2 million and was $55.7 million in the fourth quarter of 2017 compared to $32.4 million in the linked quarter.  This was mainly due to the Astoria Merger.
  • Occupancy and office operations increased $9.5 million mainly due to 88 financial centers and other locations acquired in the Astoria Merger.
  • Merger-related expense was $30.2 million in the fourth quarter of 2017 compared to $4.1 million in the linked quarter.
  • Charges for asset write-downs, systems integration, severance and retention was $104.5 million in the fourth quarter of 2017.
  • OREO expense declined $152 thousand in the fourth quarter of 2017 due to lower property taxes incurred in the fourth quarter of 2017 compared to the linked quarter.
  • Other expense increased $16.7 million in the fourth quarter of 2017 and was $26.8 million compared to $10.2 million in the linked quarter. The increase was mainly due to the Astoria Merger.

Through December 31, 2017, we have recorded merger-related expense and other charges related to the Astoria Merger of $143.7 million, which is below the estimate of $165.0 million that we presented at the announcement of the Astoria Merger.  The difference between the actual amounts recorded and the initial estimate is mainly due to lower asset write-downs and restructuring charges on real estate and facilities.  As we continue to execute the integration of Astoria, we may incur incremental charges related mainly to additional financial center and real estate consolidations.  We estimate that in aggregate, these charges will be below our initial $165.0 million estimate and will be recognized once the GAAP requirements for recording these expenses are met.

Taxes
For the three months ended December 31, 2017, the Company incurred a pre-tax loss of $(5.0) million. However, we recorded income tax expense of $28.3 million which included a charge of $40.3 million to write-down our net deferred tax assets to their estimated value due to the enactment of the Tax Cuts and Jobs Act of 2017.

Due to the completion of the Astoria Merger and the merger-related expense and other charges discussed above, we revised our 2017 GAAP estimated effective income tax rate to 26.5% from 32.5%.  As a result, we reduced year to date income tax expense by recording an income tax benefit in the fourth quarter of 2017. The components of income tax expense in the fourth quarter were a benefit of $1.3 million based on our pre-tax loss of $(5.0) million and our 26.5% GAAP estimated effective tax rate; a benefit of $810 thousand related to vesting of stock-based compensation; the charge of $40.3 million related to the tax law change; and a benefit of $9.8 million related to the first nine months of 2017 to reduce income tax expense to 26.5% of pre-tax income for full year 2017.

The Company's adjusted earnings (non-GAAP) measures are calculated using an estimated effective tax rate of 31.5% for the full year and fourth quarter of 2017. This estimate excludes the impact that merger-related expense and other charges had on the Company's GAAP effective tax rate.  Through the first three quarters of 2017, the Company estimated an effective tax rate of 32.5% for GAAP and adjusted earnings.  The decrease to 31.5% in the fourth quarter  is due to an increase in the proportion of non-taxable income given strong origination volumes in public sector finance, purchases of municipal securities, an increase in bank owned life insurance income and an income tax benefit associated with the vesting of stock-based compensation in the fourth quarter of 2017. 

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Given the changes in tax laws, the Company anticipates it will record income taxes at an estimated effective tax rate of approximately 24% in 2018.

Key Balance Sheet Highlights as of December 31, 2017

($ in thousands) As of   Change % / bps
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Linked Qtr
Total assets $ 14,178,447     $ 16,780,097     $ 30,359,541     114.1 %   80.9 %
Total portfolio loans, gross 9,527,230     10,493,535     20,008,983     110.0     90.7  
Commercial & industrial ("C&I") loans 4,171,950     4,841,664     5,306,821     27.2     9.6  
Commercial real estate loans 4,144,018     4,473,245     8,998,419     117.1     101.2  
Acquisition, development and construction loans 230,086     236,456     282,792     22.9     19.6  
Total commercial loans 8,546,054     9,551,365     14,588,032     70.7     52.7  
Total deposits 10,068,259     11,043,438     20,538,204     104.0     86.0  
Core deposits6 8,805,301     9,753,052     17,100,838     94.2     75.3  
Investment securities 3,118,838     4,515,650     6,474,561     107.6     43.4  
Total borrowings 2,056,612     3,453,783     4,991,210     142.7     44.5  
Loans to deposits 94.6 %   95.0 %   97.4 %   280     240  
Core deposits to total deposits 87.5     88.3     83.3     (420 )   (500 )
Investment securities to total assets 22.0     26.9     21.3     (70 )   (560 )
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 December 31, 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 26.5%, commercial real estate loans represented 45.0%, consumer and residential mortgage loans combined represented 27.1%, and acquisition, development and construction loans represented 1.4% of the total loan portfolio.  Loan growth was a result of the Astoria Merger and originations generated by commercial banking teams.
  • C&I loans grew $465.2 million in the fourth quarter of 2017 compared to the linked quarter.  We acquired $96.9 million of C&I loans in the Astoria Merger.  Excluding loans acquired in the Astoria Merger, C&I loans increased $368.3 million, or 29.6% annualized in the fourth quarter of 2017.
  • Commercial loans, which includes all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $6.0 billion for the twelve months ended December 31, 2017. Commercial loans increased by $5.0 billion relative to the linked quarter.  Loans acquired in the Astoria Merger represented $4.5 billion of this increase.
  • Multi-family loans, which are included in commercial real estate in the table above increased $3.8 billion in the fourth quarter of 2017 and reached $4.9 billion.  The increase was due to the Astoria Merger.
  • Residential mortgage loans were $5.1 billion at December 31, 2017 compared to $672 million at September 30, 2017, the increase was due to the Astoria Merger.
  • Aggregate exposure to taxi medallion relationships was $46.0 million, which represented 0.23% of total loans as of December 31, 2017, a decline of $5.7 million from $51.7 million as of December 31, 2016.  The decline was mainly due to a charge-off of $2.0 million and repayments.
  • Total deposits at December 31, 2017 increased $9.5 billion compared to September 30, 2017, and increased $10.5 billion over December 31, 2016.  We assumed $9.0 billion of deposits in the Astoria Merger.  The remaining increase in deposits was mainly due to growth in commercial deposits and certificates of deposit.
  • Core deposits at December 31, 2017 increased $7.3 billion compared to September 30, 2017.  The increase was mainly due to the Astoria Merger. Core deposits increased $8.3 billion over December 31, 2016.

7

  • Municipal deposits at December 31, 2017 were $1.6 billion and decreased by $165.9 million relative to the linked quarter. Municipal deposits experience seasonal highs at the end of the third quarter.
  • Investment securities increased by $2.0 billion relative to the linked quarter, and represented 21.3% of total assets at December 31, 2017.

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Linked Qtr
Provision for loan losses $ 5,500     $ 5,000     $ 12,000     118.2 %   140.0 %
Net charge-offs 1,283     3,023     6,221     384.9     105.8  
Allowance for loan losses 63,622     72,128     77,907     22.5     8.0  
Non-performing loans 78,853     69,452     187,213     137.4     169.6  
Net charge-offs annualized 0.06 %   0.12 %   0.13 %   7     1  
Allowance for loan losses to total loans 0.67     0.69     0.39     (28 )   (30 )
Allowance for loan losses to non-performing loans 80.7     103.9     41.6     (3,910 )   (6,230 )
                             

Provision for loan losses was $12.0 million for the fourth quarter of 2017 compared to $5.0 million in the linked quarter and $5.5 million in the same period a year ago. In the fourth quarter of 2017, provision for loan losses was $5.8 million in excess of net charge-offs of $6.2 million.  Allowance coverage ratios were 0.39% of total loans and 41.6% of non-performing loans at December 31, 2017.  Due to the Astoria Merger, a significant portion of the Company's loan portfolio does not carry an allowance for loan losses, as the acquired loans are recorded at their estimated fair value on the acquisition date. Non-performing loans increased by $117.8 million to $187.2 million at December 31, 2017 compared to the linked quarter.  The increase in non-performing loans at December 31, 2017 is mainly due to $99.9 million of non-performing loans acquired in the Astoria Merger.

Capital

($ in thousands, except share and per share data) As of   Change % / bps
  12/31/2016   9/30/2017   12/31/2017   Y-o-Y   Three
months
Total stockholders' equity $ 1,855,183     $ 1,971,480     $ 4,240,178     128.6 %   115.1 %
Preferred stock         139,220     NM     NM  
Goodwill and intangible assets 762,953     756,290     1,733,082     127.2     129.2  
Tangible common stockholders' equity $ 1,092,230     $ 1,215,190     $ 2,367,876     116.8     94.9  
Common shares outstanding 135,257,570     135,807,544     224,782,694     66.2     65.5  
Book value per common share $ 13.72     $ 14.52     $ 18.24     32.9     25.6  
Tangible book value per common share7 8.08     8.95     10.53     30.3     17.7  
Tangible common equity to tangible assets7 8.14 %   7.58 %   8.27 %   13     69  
Estimated Tier 1 leverage ratio - Company 8.95     8.42     9.40     45     98  
Estimated Tier 1 leverage ratio - Bank 9.08     8.49     10.08     100     159  
7 See a reconciliation of non-GAAP financial measures beginning on page 17.
 

In connection with the Astoria Merger, the Company issued $135 million of 6.50% Non-Cumulative Perpetual Preferred Stock with a liquidation preference of $1,000 per share (the "Preferred Stock") in exchange for each share of Astoria's 6.50% Non-Cumulative Perpetual Preferred Stock issued and outstanding immediately prior to the the Astoria Merger. The Preferred Stock is redeemable in whole or in part from time to time, on October 15, 2022 or any dividend payment date thereafter.

The increase in total stockholders' equity of $2.3 billion to $4.2 billion as of December 31, 2017 compared to September 30, 2017 was mainly due to the Astoria Merger.  We issued 88.8 million shares of our common stock with a value of $2.2 billion as consideration for Astoria. Stock-based compensation activity increased stockholders' equity by  $3.3 million. These increases were partially offset by a net loss of $33.3 million, common dividends of $15.7 million and preferred dividends of $2.2 million.

8

Total goodwill and other intangible assets were $1.7 billion at December 31, 2017, an increase of $976.8 million compared to September 30, 2017, which was due to goodwill and the core deposit intangible asset recorded in the Astoria Merger, net of amortization of intangibles for the period.

For the quarter ended December 31, 2017, basic and diluted weighted average common shares outstanding increased to 223.5 million and 224.1 million, respectively, compared to 135.3 million and 136.0 million, respectively, for the quarter ended September 30, 2017.  The increase in the diluted weighted average shares was mainly due to the shares issued in the Astoria Merger. Total common shares outstanding at December 31, 2017 were approximately 224.8 million.

Tangible book value per share was $10.53 at December 31, 2017, which represented an increase of 30.3% over a year ago and an increase of 17.7% over September 30, 2017.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, January 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) 281-7829, Conference ID #1173570.  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 or fully realizing cost savings and other benefits; business disruption following the Astoria transaction; 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; 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 Annual Report on Form 10-K for the year ended December 31, 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 Annual Report on Form 10-K to be reflected in the results of the fiscal period, even though the new information was received by management subsequent to the date of this release.

9

 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(unaudited, in thousands, except share and per share data)
           
  12/31/2016   9/30/2017   12/31/2017
Assets:          
Cash and cash equivalents $ 293,646     $ 407,203     $ 479,906  
Investment securities 3,118,838     4,515,650     6,474,561  
Loans held for sale 41,889         5,246  
Portfolio loans:          
Commercial and industrial ("C&I") 4,171,950     4,841,664     5,306,821  
Commercial real estate 4,144,018     4,473,245     8,998,419  
Acquisition, development and construction 230,086     236,456     282,792  
Residential mortgage 697,108     684,093     5,054,732  
Consumer 284,068     258,077     366,219  
Total portfolio loans, gross 9,527,230     10,493,535     20,008,983  
Allowance for loan losses (63,622 )   (72,128 )   (77,907 )
Total portfolio loans, net 9,463,608     10,421,407     19,931,076  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank Stock, at cost 135,098     191,276     284,112  
Accrued interest receivable 43,319     57,561     94,098  
Premises and equipment, net 57,318     56,378     321,722  
Goodwill 696,600     696,600     1,579,891  
Other intangibles 66,353     59,690     153,191  
Bank owned life insurance 199,889     204,281     651,638  
Other real estate owned 13,619     11,697     27,095  
Other assets 48,270     158,354     357,005  
Total assets $ 14,178,447     $ 16,780,097     $ 30,359,541  
Liabilities:          
Deposits $ 10,068,259     $ 11,043,438     $ 20,538,204  
FHLB borrowings 1,791,000     3,016,000     4,510,123  
Other borrowings 16,642     188,403     30,162  
Senior notes 76,469     76,719     278,209  
Subordinated notes 172,501     172,661     172,716  
Mortgage escrow funds 13,572     19,148     122,641  
Other liabilities 184,821     292,248     467,308  
Total liabilities 12,323,264     14,808,617     26,119,363  
Stockholders' equity:          
Preferred stock         139,220  
Common stock 1,411     1,411     2,299  
Additional paid-in capital 1,597,287     1,590,752     3,780,908  
Treasury stock (66,188 )   (59,674 )   (58,039 )
Retained earnings 349,308     452,650     401,956  
Accumulated other comprehensive (loss) (26,635 )   (13,659 )   (26,166 )
Total stockholders' equity 1,855,183     1,971,480     4,240,178  
Total liabilities and stockholders' equity $ 14,178,447     $ 16,780,097     $ 30,359,541  
           
Shares of common stock outstanding at period end 135,257,570     135,807,544     224,782,694  
Book value per common share $ 13.72     $ 14.52     $ 18.24  
Tangible book value per common share1 8.08     8.95     10.53  
1 See reconciliation of non-GAAP financial measures beginning on page 17.
 

10

 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
       
   For the Quarter Ended   For the Year Ended
  12/31/2016   9/30/2017   12/31/2017   12/31/2016   12/31/2017
Interest and dividend income:                  
Loans and loan fees $ 104,651     $ 119,898     $ 234,452     $ 390,847     $ 570,761  
Securities taxable 9,993     15,141     24,743     42,540     65,278  
Securities non-taxable 7,168     8,542     13,295     23,669     37,245  
Other earning assets 1,263     2,111     4,005     4,495     9,165  
Total interest and dividend income 123,075     145,692     276,495     461,551     682,449  
Interest expense:                  
Deposits 9,252     13,392     22,305     33,189     56,110  
Borrowings 6,575     12,227     20,166     24,093     50,196  
Total interest expense 15,827     25,619     42,471     57,282     106,306  
Net interest income 107,248     120,073     234,024     404,269     576,143  
Provision for loan losses 5,500     5,000     12,000     20,000     26,000  
Net interest income after provision for loan losses 101,748     115,073     222,024     384,269     550,143  
Non-interest income:                  
Accounts receivable management / factoring commissions and other related fees 4,148     4,764     5,133     17,695     17,803  
Deposit fees and service charges 3,167     3,309     7,236     15,166     17,128  
Loan commissions and fees 3,282     2,819     2,995     9,524     11,637  
Bank owned life insurance 1,333     1,320     3,474     5,832     7,816  
Investment management fees 565     271     2,103     3,710     2,928  
Mortgage banking income 651     121     2     6,173     524  
Net (loss) gain on sale of securities (102 )   (21 )   (70 )   7,522     (344 )
Other 3,013     1,405     2,889     5,365     6,710  
Total non-interest income 16,057     13,988     23,762     70,987     64,202  
Non-interest expense:                  
Compensation and benefits 32,060     32,433     55,670     125,916     149,948  
Stock-based compensation plans 1,557     1,969     2,508     6,518     8,111  
Occupancy and office operations 8,372     8,583     18,100     34,486     43,649  
Amortization of intangible assets 2,881     2,166     6,426     12,416     13,008  
FDIC insurance and regulatory assessments 1,531     2,310     5,737     8,240     11,969  
Other real estate owned, net 206     894     742     2,051     3,423  
Merger-related expenses     4,109     30,230     265     39,232  
Charge for asset write-downs, systems integration, retention and severance         104,506     4,485     105,110  
Loss on extinguishment of borrowings             9,729      
Other 10,465     10,153     26,827     43,796     58,925  
Total non-interest expense 57,072     62,617     250,746     247,902     433,375  
Income before income tax expense 60,733     66,444     (4,960 )   207,354     180,970  
Income tax expense 19,737     21,592     28,319     67,382     87,939  
Net income (loss) $ 40,996     $ 44,852     $ (33,279 )   $ 139,972     $ 93,031  
Preferred stock dividend         2,002         2,002  
Net income (loss) available to common stockholders $ 40,996     $ 44,852     $ (35,281 )   $ 139,972     $ 91,029  
Weighted average common shares:                  
Basic 132,271,761     135,346,791     223,501,073     130,607,994     157,513,639  
Diluted 132,995,762     135,950,160     224,055,991     131,234,462     158,124,270  
Earnings per common share:                  
Basic earnings per share $ 0.31     $ 0.33     $ (0.16 )   $ 1.07     $ 0.58  
Diluted earnings per share 0.31     0.33     (0.16 )   1.07     0.58  
Dividends declared per share 0.07     0.07     0.07     0.28     0.28  
                             

11

 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
(unaudited, in thousands, except share and per share data)
   
  As of and for the Quarter Ended
End of Period 12/31/2016   3/31/2017   6/30/2017   9/30/2017   12/31/2017
Total assets $ 14,178,447     $ 14,659,337     $ 15,376,676     $ 16,780,097     $ 30,359,541  
Tangible assets 1 13,415,494     13,898,639     14,618,192     16,023,807     28,626,459  
Securities available for sale 1,727,417     1,941,671     2,095,872     2,579,076     3,612,072  
Securities held to maturity 1,391,421     1,474,724     1,456,304     1,936,574     2,862,489  
Portfolio loans 9,527,230     9,763,967     10,232,317     10,493,535     20,008,983  
Goodwill 696,600     696,600     696,600     696,600     1,579,891  
Other intangibles 66,353     64,098     61,884     59,690     153,191  
Deposits 10,068,259     10,251,725     10,502,710     11,043,438     20,538,204  
Municipal deposits (included above) 1,270,921     1,391,221     1,297,244     1,751,012     1,585,076  
Borrowings 2,056,612     2,328,576     2,661,838     3,453,783     4,991,210  
Stockholders' equity 1,855,183     1,888,613     1,931,383     1,971,480     4,240,178  
Tangible common equity 1 1,092,230     1,127,915     1,172,899     1,215,190     2,367,876  
Quarterly Average Balances                  
Total assets 13,671,676     14,015,953     14,704,793     15,661,514     29,277,502  
Tangible assets 1 12,907,133     13,253,877     13,944,946     14,904,016     27,567,351  
Loans, gross:                  
Commercial real estate (includes multi-family) 3,963,216     4,190,817     4,396,281     4,443,142     8,839,256  
Acquisition, development and construction 224,735     237,451     251,404     229,242     246,141  
Commercial and industrial:                  
Traditional commercial and industrial 1,383,013     1,410,354     1,497,005     1,631,436     1,911,450  
Asset-based lending2 700,285     713,438     737,039     740,037     781,732  
Payroll finance2 218,365     217,031     225,080     229,522     250,673  
Warehouse lending2 551,746     379,978     430,312     607,994     564,593  
Factored receivables2 231,554     184,859     181,499     191,749     224,966  
Equipment financing2 586,078     595,751     660,404     687,254     677,271  
Public sector finance2 361,339     370,253     441,456     476,525     480,800  
Total commercial and industrial 4,032,380     3,871,664     4,172,795     4,564,517     4,891,485  
Residential mortgage 759,692     700,934     697,441     686,820     5,168,622  
Consumer 287,267     280,650     268,502     262,693     372,981  
Loans, total3 9,267,290     9,281,516     9,786,423     10,186,414     19,518,485  
Securities (taxable) 1,789,553     2,016,752     2,142,168     2,483,718     3,840,147  
Securities (non-taxable) 1,183,857     1,256,906     1,292,367     1,432,358     2,086,677  
Other interest earning assets 325,581     334,404     341,895     368,630     598,439  
Total earning assets 12,566,281     12,889,578     13,562,853     14,471,120     26,043,748  
Deposits:                  
Non-interest bearing demand 3,217,156     3,177,448     3,185,506     3,042,392     4,043,213  
Interest bearing demand 2,116,708     1,950,332     1,973,498     2,298,645     3,862,461  
Savings (including mortgage escrow funds) 798,090     797,386     816,092     825,620     2,871,885  
Money market 3,395,542     3,681,962     3,725,257     3,889,780     7,324,196  
Certificates of deposit 633,526     579,487     584,996     634,569     2,382,102  
Total deposits and mortgage escrow 10,161,022     10,186,615     10,285,349     10,691,006     20,483,857  
Borrowings 1,517,482     1,799,204     2,313,992     2,779,143     4,121,605  
Stockholders' equity 1,805,790     1,869,085     1,913,933     1,955,252     4,235,739  
Tangible common equity 1 1,041,247     1,107,009     1,154,086     1,197,754     2,386,245  
                   
1 See a reconciliation of non-GAAP financial measure beginning on page 17.
2 Asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance comprise our commercial finance loan portfolio.
3 Includes loans held for sale, but excludes allowance for loan losses.
 

12

 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA AND PERFORMANCE RATIOS
(unaudited, in thousands, except share and per share data)
   
  As of and for the Quarter Ended
Per Common Share Data 12/31/2016   3/31/2017   6/30/2017   9/30/2017   12/31/2017
Basic earnings (loss) per share $ 0.31     $ 0.29     $ 0.31     $ 0.33     $ (0.16 )
Diluted earnings (loss) per share 0.31     0.29     0.31     0.33     (0.16 )
Adjusted diluted earnings per share, non-GAAP 1 0.30     0.31     0.33     0.35     0.39  
Dividends declared per share 0.07     0.07     0.07     0.07     0.07  
Book value per share 13.72     13.93     14.24     14.52     18.24  
Tangible book value per share1 8.08     8.32     8.65     8.95     10.53  
Shares of common stock o/s 135,257,570     135,604,435     135,658,226     135,807,544     224,782,694  
Basic weighted average common shares o/s 132,271,761     135,163,347     135,317,866     135,346,791     223,501,073  
Diluted weighted average common shares o/s 132,995,762     135,811,721     135,922,897     135,950,160     224,055,991  
Performance Ratios (annualized)                  
Return on average assets 1.19 %   1.13 %   1.16 %   1.14 %   (0.48 )%
Return on average equity 9.03 %   8.48 %   8.89 %   9.10 %   (3.30 )%
Return on average tangible assets 1.26 %   1.20 %   1.22 %   1.19 %   (0.51 )%
Return on avg tangible common equity 15.66 %   14.31 %   14.74 %   14.86 %   (5.87 )%
Return on average tangible assets, adjusted 1 1.23 %   1.27 %   1.28 %   1.27 %   1.25 %
Return on avg tangible common equity, adjusted 1 15.27 %   15.19 %   15.43 %   15.85 %   14.49 %
Efficiency ratio, as adjusted 1 43.35 %   43.73 %   41.97 %   40.63 %   41.35 %
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 4,504     $ 3,482     $ 2,888     $ 3,397     $ 33,726  
Yield on loans 4.49 %   4.57 %   4.58 %   4.67 %   4.77 %
Yield on investment securities - tax equivalent 2 2.81 %   2.97 %   2.93 %   2.87 %   3.03 %
Yield on interest earning assets - tax equivalent 2 4.02 %   4.09 %   4.09 %   4.12 %   4.32 %
Cost of interest bearing deposits 0.53 %   0.55 %   0.62 %   0.69 %   0.54 %
Cost of total deposits 0.36 %   0.38 %   0.43 %   0.50 %   0.43 %
Cost of borrowings 1.72 %   1.74 %   1.75 %   1.75 %   1.94 %
Cost of interest bearing liabilities 0.74 %   0.79 %   0.89 %   0.97 %   0.82 %
Net interest rate spread - tax equivalent basis 2 3.28 %   3.30 %   3.20 %   3.15 %   3.50 %
Net interest margin - GAAP basis 3.40 %   3.42 %   3.35 %   3.29 %   3.57 %
Net interest margin - tax equivalent basis 2 3.52 %   3.55 %   3.47 %   3.42 %   3.67 %
Capital                  
Tier 1 leverage ratio - Company 3 8.95 %   8.89 %   8.72 %   8.42 %   9.40 %
Tier 1 leverage ratio - Bank only 3 9.08 %   8.99 %   8.89 %   8.49 %   10.08 %
Tier 1 risk-based capital ratio - Bank only 3 10.87 %   10.79 %   10.67 %   10.19 %   12.10 %
Total risk-based capital ratio - Bank only 3 13.06 %   12.95 %   12.76 %   12.16 %   13.20 %
Tangible equity to tangible assets - Company 1 8.14 %   8.12 %   8.02 %   7.58 %   8.27 %
Condensed Five Quarter Income Statement                  
Interest and dividend income $ 123,075     $ 126,000     $ 134,263     $ 145,692     $ 276,495  
Interest expense 15,827     17,210     21,005     25,619     42,471  
Net interest income 107,248     108,790     113,258     120,073     234,024  
Provision for loan losses 5,500     4,500     4,500     5,000     12,000  
Net interest income after provision for loan losses 101,748     104,290     108,758     115,073     222,024  
Non-interest income 16,057     12,836     13,618     13,988     23,762  
Non-interest expense 57,072     60,350     59,657     62,617     250,746  
Income (loss) before income tax expense 60,733     56,776     62,719     66,444     (4,960 )
Income tax expense 19,737     17,709     20,319     21,592     28,319  
Net income (loss) $ 40,996     $ 39,067     $ 42,400     $ 44,852     $ (33,279 )
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 17.
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.
 

13

 
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 12/31/2016   3/31/2017   6/30/2017   9/30/2017   12/31/2017
Balance, beginning of period $ 59,405     $ 63,622     $ 66,939     $ 70,151     $ 72,128  
Provision for loan losses 5,500     4,500     4,500     5,000     12,000  
Loan charge-offs1:                  
Traditional commercial & industrial (219 )   (687 )   (164 )   (68 )   (4,570 )
Asset based lending                  
Payroll finance             (188 )    
Factored receivables (267 )   (296 )   (12 )   (564 )   (110 )
Equipment financing (576 )   (471 )   (610 )   (741 )   (1,343 )
Commercial real estate (225 )   (83 )   (944 )   (1,345 )   (7 )
Acquisition development & construction         (22 )   (5 )    
Residential mortgage (274 )   (158 )   (120 )   (389 )   (193 )
Consumer (313 )   (114 )   (417 )   (156 )   (408 )
Total charge offs (1,874 )   (1,809 )   (2,289 )   (3,456 )   (6,631 )
Recoveries of loans previously charged-off1:                  
Traditional commercial & industrial 152     139     523     316     164  
Asset-based lending     3     1     1      
Payroll finance             1     5  
Factored receivables 10     16     2     5      
Equipment financing 227     140     146     45     56  
Commercial real estate 168     2     98     17     46  
Acquisition development & construction     136     133          
Residential mortgage 1     149     10         2  
Consumer 33     41     88     48     137  
Total recoveries 591     626     1,001     433     410  
Net loan charge-offs (1,283 )   (1,183 )   (1,288 )   (3,023 )   (6,221 )
Balance, end of period $ 63,622     $ 66,939     $ 70,151     $ 72,128     $ 77,907  
Asset Quality Data and Ratios                  
Non-performing loans ("NPLs") non-accrual $ 77,163     $ 72,136     $ 70,416     $ 69,060     $ 186,357  
NPLs still accruing 1,690     788     935     392     856  
Total NPLs 78,853     72,924     71,351     69,452     187,213  
Other real estate owned 13,619     9,632     10,198     11,697     27,095  
Non-performing assets ("NPAs") $ 92,472     $ 82,556     $ 81,549     $ 81,149     $ 214,308  
Loans 30 to 89 days past due $ 15,100     $ 15,611     $ 15,070     $ 21,491     $ 53,533  
Net charge-offs as a % of average loans (annualized) 0.06 %   0.05 %   0.05 %   0.12 %   0.13 %
NPLs as a % of total loans 0.83     0.75     0.70     0.66     0.94  
NPAs as a % of total assets 0.65     0.56     0.53     0.48     0.71  
Allowance for loan losses as a % of NPLs 80.7     91.8     98.3     103.9     41.6  
Allowance for loan losses as a % of total loans 0.67     0.69     0.69     0.69     0.39  
Special mention loans $ 104,569     $ 110,832     $ 102,996     $ 117,984     $ 136,558  
Substandard loans 95,152     101,496     97,476     104,205     232,491  
Doubtful loans 442     902     895     795     764  
                   
1 There were no charge-offs or recoveries on warehouse lending, public sector finance or multi-family loans during the periods presented.
 

14

 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
   
  For the Quarter Ended
  September 30, 2017   December 31, 2017
  Average
balance
  Interest   Yield/
Rate
  Average
balance
  Interest   Yield/
Rate
  (Dollars in thousands)
Interest earning assets:                      
Traditional C&I and commercial finance loans $ 4,564,517     $ 58,395     5.08 %   $ 4,891,485     $ 60,452     4.90 %
Commercial real estate (includes multi-family) 4,443,142     47,336     4.23     8,839,256     102,789     4.61  
Acquisition, development and construction 229,242     4,197     7.26     246,141     3,727     6.01  
Commercial loans 9,236,901     109,928     4.72     13,976,882     166,968     4.74  
Consumer loans 262,693     2,891     4.37     372,981     5,103     5.43  
Residential mortgage loans 686,820     7,079     4.12     5,168,622     62,381     4.83  
Total gross loans 1 10,186,414     119,898     4.67     19,518,485     234,452     4.77  
Securities taxable 2,483,718     15,141     2.42     3,840,147     24,743     2.56  
Securities non-taxable 1,432,358     13,141     3.67     2,086,677     20,453     3.92  
Interest earning deposits 202,650     462     0.90     361,825     873     0.96  
FHLB and Federal Reserve Bank Stock 165,980     1,649     3.94     236,614     3,132     5.25  
Total securities and other earning assets 4,284,706     30,393     2.81     6,525,263     49,201     2.99  
Total interest earning assets 14,471,120     150,291     4.12     26,043,748     283,653     4.32  
Non-interest earning assets 1,190,394             3,233,754          
Total assets $ 15,661,514             $ 29,277,502          
Interest bearing liabilities:                      
Demand and savings2 deposits $ 3,124,265     $ 4,626     0.59 %   $ 6,734,346     $ 5,904     0.35 %
Money market deposits 3,889,780     6,897     0.70     7,324,196     10,790     0.58  
Certificates of deposit 634,569     1,869     1.17     2,382,102     5,611     0.93  
Total interest bearing deposits 7,648,614     13,392     0.69     16,440,644     22,305     0.54  
Senior notes 76,664     1,143     5.92     276,051     2,759     3.97  
Other borrowings 2,529,854     8,733     1.37     3,672,874     15,055     1.63  
Subordinated notes 172,625     2,351     5.45     172,680     2,352     5.45  
Total borrowings 2,779,143     12,227     1.75     4,121,605     20,166     1.94  
Total interest bearing liabilities 10,427,757     25,619     0.97     20,562,249     42,471     0.82  
Non-interest bearing deposits 3,042,392             4,043,213          
Other non-interest bearing liabilities 236,113             436,301          
Total liabilities 13,706,262             25,041,763          
Stockholders' equity 1,955,252             4,235,739          
Total liabilities and stockholders' equity $ 15,661,514             $ 29,277,502          
Net interest rate spread 3         3.15 %           3.50 %
Net interest earning assets 4 $ 4,043,363             $ 5,481,499          
Net interest margin - tax equivalent     124,672     3.42 %       241,182     3.67 %
Less tax equivalent adjustment     (4,599 )           (7,158 )    
Net interest income     $ 120,073             $ 234,024      
Ratio of interest earning assets to interest bearing liabilities 138.8 %           126.7 %        
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.
 

15

 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
   
  For the Quarter Ended
  December 31, 2016   December 31, 2017
  Average
balance
  Interest   Yield/
Rate
  Average
balance
  Interest   Yield/
Rate
  (Dollars in thousands)
Interest earning assets:                      
Traditional C&I and commercial finance loans $ 4,032,380     $ 49,261     4.86 %   $ 4,891,485     $ 60,452     4.90 %
Commercial real estate (includes multi-family) 3,963,216     42,147     4.23     8,839,256     102,789     4.61  
Acquisition, development and construction 224,735     2,635     4.66     246,141     3,727     6.01  
Commercial loans 8,220,331     94,043     4.55     13,976,882     166,968     4.74  
Consumer loans 287,267     3,187     4.41     372,981     5,103     5.43  
Residential mortgage loans 759,692     7,422     3.91     5,168,622     62,381     4.83  
Total gross loans 1 9,267,290     104,652     4.49     19,518,485     234,452     4.77  
Securities taxable 1,789,553     9,993     2.22     3,840,147     24,743     2.56  
Securities non-taxable 1,183,857     11,027     3.73     2,086,677     20,453     3.92  
Interest earning deposits 215,120     200     0.37     361,825     873     0.96  
FHLB and Federal Reserve Bank stock 110,461     1,063     3.83     236,614     3,132     5.25  
Total securities and other earning assets 3,298,991     22,283     2.69     6,525,263     49,201     2.99  
Total interest earning assets 12,566,281     126,935     4.02     26,043,748     283,653     4.32  
Non-interest earning assets 1,105,395             3,233,754          
Total assets $ 13,671,676             $ 29,277,502          
Interest bearing liabilities:                      
Demand and savings2 deposits $ 2,914,798     $ 3,048     0.42     $ 6,734,346     $ 5,904     0.35  
Money market deposits 3,395,542     4,693     0.55     7,324,196     10,790     0.58  
Certificates of deposit 633,526     1,511     0.95     2,382,102     5,611     0.93  
Total interest bearing deposits 6,943,866     9,252     0.53     16,440,644     22,305     0.54  
Senior notes 76,415     1,113     5.84     276,051     2,759     4.00  
Other borrowings 1,268,591     3,113     0.98     3,672,874     15,055     1.63  
Subordinated notes 172,476     2,349     5.51     172,680     2,352     5.45  
Total borrowings 1,517,482     6,575     1.72     4,121,605     20,166     1.94  
Total interest bearing liabilities 8,461,348     15,827     0.74     20,562,249     42,471     0.82  
Non-interest bearing deposits 3,217,156             4,043,213          
Other non-interest bearing liabilities 187,382             436,301          
Total liabilities 11,865,886             25,041,763          
Stockholders' equity 1,805,790             4,235,739          
Total liabilities and stockholders' equity $ 13,671,676             $ 29,277,502          
Net interest rate spread 3         3.28 %           3.50 %
Net interest earning assets 4 $ 4,104,933             $ 5,481,499          
Net interest margin - tax equivalent     111,108     3.52 %       241,182     3.67 %
Less tax equivalent adjustment     (3,860 )           (7,158 )    
Net interest income     $ 107,248             $ 234,024      
Ratio of interest earning assets to interest bearing liabilities 148.5 %           126.7 %        
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.
 

16

 
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 beginning on page 20.
  As of or for the Quarter Ended
  12/31/2016   3/31/2017   6/30/2017   9/30/2017   12/31/2017
 
The following table shows the reconciliation of stockholders' equity to tangible common equity and the tangible common equity ratio1:
                   
Total assets $ 14,178,447     $ 14,659,337     $ 15,376,676     $ 16,780,097     $ 30,359,541  
Goodwill and other intangibles (762,953 )   (760,698 )   (758,484 )   (756,290 )   (1,733,082 )
Tangible assets 13,415,494     13,898,639     14,618,192     16,023,807     28,626,459  
Stockholders' equity 1,855,183     1,888,613     1,931,383     1,971,480     4,240,178  
Preferred stock                 (139,220 )
Goodwill and other intangibles (762,953 )   (760,698 )   (758,484 )   (756,290 )   (1,733,082 )
Tangible common stockholders' equity 1,092,230     1,127,915     1,172,899     1,215,190     2,367,876  
Common stock outstanding at period end 135,257,570     135,604,435     135,658,226     135,807,544     224,782,694  
Common stockholders' equity as a % of total assets 13.08 %   12.88 %   12.56 %   11.75 %   13.97 %
Book value per common share $ 13.72     $ 13.93     $ 14.24     $ 14.52     $ 18.24  
Tangible common equity as a % of tangible assets 8.14 %   8.12 %   8.02 %   7.58 %   8.27 %
Tangible book value per common share $ 8.08     $ 8.32     $ 8.65     $ 8.95     $ 10.53  
 
The following table shows the reconciliation of reported return on average tangible common equity and adjusted return on average tangible common equity2:
                   
Average stockholders' equity $ 1,805,790     $ 1,869,085     $ 1,913,933     $ 1,955,252     $ 4,235,739  
Average preferred stock                 (139,343 )
Average goodwill and other intangibles (764,543 )   (762,076 )   (759,847 )   (757,498 )   (1,710,151 )
Average tangible common stockholders' equity 1,041,247     1,107,009     1,154,086     1,197,754     2,386,245  
Net income (loss) available to common 40,996     39,067     42,400     44,852     (35,281 )
Net income (loss), if annualized 163,093     158,438     170,066     177,945     (139,974 )
Reported return on avg tangible common equity 15.66 %   14.31 %   14.74 %   14.86 %   (5.87 )%
Adjusted net income (see reconciliation on page 18) $ 39,954     $ 41,461     $ 44,393     $ 47,865     $ 87,171  
Annualized adjusted net income 158,947     168,147     178,060     189,899     345,841  
Adjusted return on average tangible common equity 15.27 %   15.19 %   15.43 %   15.85 %   14.49 %
                   
The following table shows the reconciliation of reported return on average tangible assets and adjusted return on average tangible assets3:
                   
Average assets $ 13,671,676     $ 14,015,953     $ 14,704,793     $ 15,661,514     $ 29,277,502  
Average goodwill and other intangibles (764,543 )   (762,076 )   (759,847 )   (757,498 )   (1,710,151 )
Average tangible assets 12,907,133     13,253,877     13,944,946     14,904,016     27,567,351  
Net income (loss) 40,996     39,067     42,400     44,852     (35,281 )
Net income (loss), if annualized 163,093     158,438     170,066     177,945     (139,974 )
Reported return on average tangible assets 1.26 %   1.20 %   1.22 %   1.19 %   (0.51 )%
Adjusted net income (see reconciliation on page 18) $ 39,954     $ 41,461     $ 44,393     $ 47,865     $ 87,171  
Annualized adjusted net income 158,947     168,147     178,060     189,899     345,841  
Adjusted return on average tangible assets 1.23 %   1.27 %   1.28 %   1.27 %   1.25 %
                   
                   

17

 
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 beginning on page 20.
  As of and for the Quarter Ended
  12/31/2016   3/31/2017   6/30/2017   9/30/2017   12/31/2017
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
                   
Net interest income $ 107,248     $ 108,790     $ 113,258     $ 120,073     $ 234,024  
Non-interest income 16,057     12,836     13,618     13,988     23,762  
Total net revenue 123,305     121,626     126,876     134,061     257,786  
Tax equivalent adjustment on securities 3,860     4,102     4,195     4,599     7,158  
Net loss on sale of securities 102     23     230     21     70  
Net (gain) on sale of trust division (2,255 )                
Adjusted total net revenue 125,012     125,751     131,301     138,681     265,014  
Non-interest expense 57,072     60,350     59,657     62,617     250,746  
Merger-related expense     (3,127 )   (1,766 )   (4,109 )   (30,230 )
Charge for asset write-downs, systems integration, retention and severance         (603 )       (104,506 )
Amortization of intangible assets (2,881 )   (2,229 )   (2,187 )   (2,166 )   (6,426 )
Adjusted non-interest expense 54,191     54,994     55,101     56,342     109,584  
Reported operating efficiency ratio 46.3 %   49.6 %   47.0 %   46.7 %   97.3 %
Adjusted operating efficiency ratio 43.3     43.7     42.0     40.6     41.4  
                   
The following table shows the reconciliation of reported net income (GAAP) and adjusted net income available to common stockholders (non-GAAP) and adjusted diluted earnings per share5:
                   
Income (loss) before income tax expense $ 60,733     $ 56,776     $ 62,719     $ 66,444     $ (4,960 )
Income tax expense 19,737     17,709     20,319     21,592     28,319  
Net income (loss) (GAAP) 40,996     39,067     42,400     44,852     (33,279 )
Adjustments:                  
Net loss on sale of securities 102     23     230     21     70  
Net (gain) on sale of trust division (2,255 )                
Merger-related expense     3,127     1,766     4,109     30,230  
Charge for asset write-downs, systems integration, retention and severance         603         104,506  
Amortization of non-compete agreements and acquired customer list intangible assets 610     396     354     333     333  
Total pre-tax adjustments (1,543 )   3,546     2,953     4,463     135,139  
Adjusted pre-tax income 59,190     60,322     65,672     70,907     130,179  
Adjusted income tax expense (19,236 )   (18,861 )   (21,279 )   (23,042 )   (41,006 )
Adjusted net income (non-GAAP) 39,954     41,461     44,393     47,865     89,173  
Preferred stock dividend                 2,002  
Adjusted net income available to common stockholders (non-GAAP) $ 39,954     $ 41,461     $ 44,393     $ 47,865     $ 87,171  
                   
Weighted average diluted shares 132,995,762     135,811,721     135,922,897     135,950,160     224,055,991  
Reported diluted EPS (GAAP) $ 0.31     $ 0.29     $ 0.31     $ 0.33     $ (0.16 )
Adjusted diluted EPS (non-GAAP) 0.30     0.31     0.33     0.35     0.39  
                     
                     

18

 
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 beginning on page 20.
    For the Year Ended
December 31,
    2016   2017
         
The following table shows the reconciliation of reported net income (GAAP) and earnings per share to adjusted net income available to common stockholders (non-GAAP) and adjusted diluted earnings per share (non-GAAP)5:
Income before income tax expense   $ 207,354     $ 180,970  
Income tax expense   67,382     87,939  
Net income (GAAP)   139,972     93,031  
         
Adjustments:        
Net (gain) loss on sale of securities   (7,522 )   344  
Net (gain) on sale of trust division   (2,255 )    
Merger-related expense   265     39,232  
Charge for asset write-downs, systems integration, retention and severance   4,485     105,110  
Loss on extinguishment of borrowings   9,729      
Amortization of non-compete agreements and acquired customer list intangible assets   3,514     1,411  
Total pre-tax adjustments   8,216     146,097  
Adjusted pre-tax income   215,570     327,067  
Adjusted income tax expense   (70,052 )   (103,026 )
Adjusted net income (non-GAAP)   $ 145,518     $ 224,041  
Preferred stock dividend       2,002  
Adjusted net income available to common stockholders (non-GAAP)   $ 145,518     $ 222,039  
         
Weighted average diluted shares   131,234,462     158,124,270  
Diluted EPS as reported (GAAP)   $ 1.07     $ 0.58  
Adjusted diluted EPS (non-GAAP)   1.11     1.40  
             

19

 
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 below.
    For the Year Ended
December 31,
    2016   2017
The following table shows the reconciliation of reported return on average tangible common equity and adjusted return on average tangible common equity2:
Average stockholders' equity   $ 1,739,073     $ 2,498,512  
Average preferred stock       (35,122 )
Average goodwill and other intangibles   (762,679 )   (999,333 )
Average tangible common stockholders' equity   976,394     1,464,057  
Net income available to common stockholders   $ 139,972     $ 91,029  
Reported return on average tangible common equity   14.34 %   6.22 %
Adjusted net income available to common stockholders (see reconciliation on page 19)   $ 145,518     $ 222,039  
Adjusted return on average tangible common equity   14.90 %   15.17 %
The following table shows the reconciliation of reported return on avg tangible assets and adjusted return on avg tangible assets3:
Average assets   $ 12,883,226     $ 18,451,301  
Average goodwill and other intangibles   (762,679 )   (999,333 )
Average tangible assets   12,120,547     17,451,968  
Net income available to common stockholders   139,972     91,029  
Reported return on average tangible assets   1.15 %   0.52 %
Adjusted net income available to common stockholders (see reconciliation on page 19)   $ 145,518     $ 222,039  
Adjusted return on average tangible assets   1.20 %   1.27 %
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
Net interest income   $ 404,269     $ 576,143  
Non-interest income   70,987     64,202  
Total net revenues   475,256     640,345  
Tax equivalent adjustment on securities   12,745     20,054  
Net (gain) loss on sale of securities   (7,522 )   344  
Net (gain) on sale of trust division   (2,255 )    
Adjusted total net revenue   478,224     660,743  
Non-interest expense   247,902     433,375  
Merger-related expense   (265 )   (39,232 )
Charge for asset write-downs, retention and severance   (4,485 )   (105,110 )
Loss on extinguishment of borrowings   (9,729 )    
Amortization of intangible assets   (12,416 )   (13,008 )
Adjusted non-interest expense   $ 221,007     $ 276,025  
Reported operating efficiency ratio   52.2 %   67.7 %
Adjusted operating efficiency ratio   46.2 %   41.8 %
             

The non-GAAP/as adjusted measures presented above are used by our management and the Company's 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.

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1 Stockholders' equity as a percentage of total assets, book value per common share, tangible common equity as a percentage of tangible assets and tangible book common 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 common equity and adjusted return on average tangible common equity measures provide information to evaluate the use of our tangible common 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 diluted 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.

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

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