Market Overview

Sterling Bancorp announces results for the third quarter of 2019 with diluted earnings per share available to common stockholders of $0.59 (as reported) and $0.52 (as adjusted). Highlights include continued progress in balance sheet transition, improving efficiency, and strong expense management and profitability.

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Key Performance Highlights for the Three Months ended September 30, 2019 vs. September 30, 2018

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  9/30/2018   9/30/2019   Change
% / bps
  9/30/2018   9/30/2019   Change
% / bps
Total revenue2 $ 268,094     $ 275,151     2.6 %   $ 272,202     $ 259,758     (4.6 )%
Net income available to common 117,657     120,465     2.4     114,273     105,629     (7.6 )
Diluted EPS available to common 0.52     0.59     13.5     0.51     0.52     2.0  
Net interest margin3 3.48 %   3.36 %   (12 )   3.54 %   3.42 %   (12 )
Return on average tangible common equity 18.63     18.56     (7 )   18.09     16.27     (182 )
Return on average tangible assets 1.59     1.71     12     1.55     1.50     (5 )
Tangible book value per common share1 11.33     12.90     13.9     11.33     12.90     13.9  
  • Net income available to common stockholders of $120.5 million (as reported) and $105.6 million (as adjusted).
  • Total commercial loans of $18.2 billion at September 30, 2019; growth of 15.3% over September 30, 2018.
  • Operating efficiency ratio of 38.7% (as reported) and 39.1% (as adjusted)4.
  • Repurchased 2,808,046 common shares in the third quarter of 2019.
  • Tangible book value per common share1 of $12.90; growth of 13.9% over September 30, 2018.

Key Performance Highlights for the Three Months ended September 30, 2019 vs. June 30, 2019

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  6/30/2019   9/30/2019   Change
% / bps
  6/30/2019   9/30/2019   Change
% / bps
Total revenue2 $ 258,897     $ 275,151     6.3 %   $ 263,259     $ 259,758     (1.3 )%
Net income available to common 94,473     120,465     27.5     105,124     105,629     0.5  
Diluted EPS available to common 0.46     0.59     28.3     0.51     0.52     2.2  
Net interest margin3 3.53 %   3.36 %   (17 )   3.58 %   3.42 %   (16 )
Return on average tangible common equity 15.13     18.56     343     16.83     16.27     (56 )
Return on average tangible assets 1.36     1.71     35     1.51     1.50     (1 )
Tangible book value per common share1 12.40     12.90     4.0     12.40     12.90     4.0  
  • Growth in commercial loans of $636.4 million over linked quarter; 14.4% annualized growth rate.
  • Total deposits were $21.6 billion with a cost of 0.92%. Municipal deposit balances increased by $534.8 million.
  • Excluding accretion income on acquired loans, net interest margin was 3.15%.
  • Consolidated 10 financial centers and one back-office location in the third quarter of 2019.
  • Completed the restructuring of $394.8 million of bank owned life insurance ("BOLI").
  • Completed the termination of the Astoria defined benefit pension plan and recorded a $12.1 million gain.
  • Announced agreement to acquire an $843.0 million commercial loan portfolio. Anticipated close in Q4 2019.

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

1

MONTEBELLO, N.Y., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Sterling Bancorp (NYSE:STL) (the "Company"), the parent company of Sterling National Bank (the "Bank"), today announced results for the three and nine months ended September 30, 2019. Net income available to common stockholders for the quarter ended September 30, 2019 was $120.5 million, or $0.59 per diluted share, compared to net income available to common stockholders of $94.5 million, or $0.46 per diluted share, for the linked quarter ended June 30, 2019, and net income available to common stockholders of $117.7 million, or $0.52 per diluted share, for the three months ended September 30, 2018.

Net income available to common stockholders for the nine months ended September 30, 2019 was $314.4 million, or $1.51 per diluted share, compared to net income available to common stockholders of $326.8 million, or $1.45 per diluted share, for the nine months ended September 30, 2018.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "We continued executing our strategy in the third quarter, focusing on growing our commercial businesses, transitioning our balance sheet to a more optimal mix and driving operational efficiency. In the third quarter of 2019, our adjusted net income available to common stockholders was $105.6 million and our adjusted diluted earnings per share available to common stockholders ("adjusted EPS") was $0.52. Our profitability metrics remained strong, including adjusted return on average tangible assets of 1.50% and adjusted return on average tangible common equity of 16.3%. We have also continued delivering on our track record of growth and profitability. Over the past five years, our adjusted EPS has grown at a compound annual growth rate ("CAGR") of 18.8%; and our tangible book value per common share has grown at a CAGR of 15.4%.

"Our commercial businesses have continued to demonstrate strong performance. We organically grew spot commercial loan balances by $636.4 million in the third quarter of 2019 and $1.5 billion since December 31, 2018. In the same periods, run-off of residential mortgage loans was $165.5 million and $463.8 million, respectively. At September 30, 2019, our loan portfolio consisted of 87.4% in total commercial loans, in-line with our longer-term target of commercial loans representing at least 85.0% of our total portfolio. We continue to exercise discipline on new loan originations and portfolio acquisitions, focusing on diversified commercial asset classes where we can achieve our target risk-adjusted returns.

"We continue to focus on generating deposit growth through full client relationships. Total deposits were $21.6 billion and the cost of total deposits was 0.92% in the third quarter of 2019. We are seeing improving market conditions and competitive dynamics in our deposit markets, demonstrated by the increase of one basis point in total cost of deposits relative to the linked quarter. We anticipate that the current interest rate environment will allow us to reduce our cost of total funding liabilities; as of September 30, 2019, our spot cost of total funding liabilities was 1.10%, compared to an average of 1.16% for the third quarter. We will focus on further reducing costs of deposits and borrowings going forward.

"The changing interest rate environment resulted in pressure on our interest earning asset and loan origination yields, as our tax equivalent yield excluding accretion income on acquired loans was 3.15% in the third quarter of 2019 compared to 3.22% for the linked quarter. We anticipate that our loan portfolio transition, decreasing balances of Federal Home Loan Bank ("FHLB") borrowings, and improving deposit market competitive dynamics will allow us to support our current level of tax equivalent net interest margin excluding accretion income. However, a prolonged flat interest rate environment would impact our net interest margin and the profitability of our loan originations and balance sheet growth.

"We continue to maintain strong controls over operating expenses. During the third quarter of 2019, we consolidated 10 financial centers, bringing our total to 19 financial centers closed year to date. Our financial center count was 87 at September 30, 2019, and we anticipate our total financial centers will be below 80 in 2020. In the third quarter of 2019, our annualized adjusted operating expenses were $403.4 million and our adjusted operating efficiency ratio was 39.1%.

"We are constantly evaluating opportunities to make our business and operations more profitable. To that end, we executed several corporate actions during the quarter. First, we completed the restructuring of the BOLI program we acquired in the merger with Astoria Financial Corp. (the "Astoria Merger"). The restructuring consisted mainly of diversifying the investment asset classes available under the program and a reduction in fees and other charges. Our total BOLI income was $8.1 million in the quarter, and we anticipate BOLI income will be in a range of $5.0 million to $6.0 million per quarter going forward. Second, we completed the termination of the Astoria defined benefit pension plan, and recorded a net pre-tax gain of $12.1 million. Lastly, we announced we have entered into a definitive agreement to acquire $843 million of middle market commercial equipment finance loans and leases, which will augment our loan originations and accelerate our balance sheet and loan portfolio repositioning. The transaction is expected to close in the fourth quarter of 2019.

 "Our tangible common equity ratio was 9.22% and our estimated Tier 1 Leverage ratio was 9.77% at September 30, 2019. Our tangible book value per common share was $12.90, which represented an increase of 13.9% from a year ago. Our ample capital position and strong internal capital generation will support our growth strategy and allow us to return capital to stockholders. In the third quarter of 2019, we repurchased 2,808,046 common shares. We anticipate we will repurchase between 4.0 to 5.0 million shares in the fourth quarter of 2019, subject to market conditions.

2

"We have created a Company with significant operating flexibility and are confident that our business mix, growth strategy and strong capital position will allow us to continue generating superior returns and earnings per share growth. We would like to thank our clients, colleagues and shareholders for your support and look forward to working with all of our partners as we continue to build a great company.

"Lastly, we have declared a dividend on our common stock of $0.07 per share payable on November 18, 2019 to holders of record as of November 4, 2019."

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company's GAAP net income available to common stockholders of $120.5 million, or $0.59 per diluted share, for the third quarter of 2019, included the following items:

  • a pre-tax gain of $12.1 million on the termination of the legacy Astoria defined benefit pension plan;
  • a pre-tax gain of $6.9 million on the sale of available for sale securities; and
  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $200 thousand.

Excluding the impact of these items, adjusted net income available to common stockholders was $105.6 million, or $0.52 per diluted share, for the three months ended September 30, 2019.

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

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  9/30/2018   6/30/2019
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