Press Release

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

Company Release - 10/23/2018 4:10 PM ET

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

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

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 9/30/2017 9/30/2018 Change 
% / bps
 9/30/2017 9/30/2018 Change 
%/ bps
Total revenue2$134,061  $268,094  100.0% $138,681  $272,202  96.3%
Net income available to common44,852  117,657  162.3  47,865  114,273  138.7 
Diluted EPS available to common0.33  0.52  57.6  0.35  0.51  45.7 
Net interest margin33.29% 3.48% 19  3.42% 3.54% 12 
Return on average tangible common equity14.86  18.63  377  15.85  18.09  224 
Return on average tangible assets1.19  1.59  40  1.27  1.55  28 
Operating efficiency ratio446.7  41.7  (500) 40.6  38.9  (170)
  • Net income available to common stockholders of $117.7 million (as reported) and $114.3 million (as adjusted).

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

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

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

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

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

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

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 6/30/2018 9/30/2018 Change 
% / bps
 6/30/2018 9/30/2018 Change 
% / bps
Total revenue2$284,084  $268,094  (5.6)% $276,806  $272,202  (1.7)%
Net income available to common112,245  117,657  4.8  112,868  114,273  1.2 
Diluted EPS available to common0.50  0.52  4.0  0.50  0.51  2.0 
Net interest margin33.56% 3.48% (8) 3.62% 3.54% (8)
Return on average tangible common equity18.68  18.63  (5) 18.79  18.09  (70)
Return on average tangible assets1.54  1.59  5  1.55  1.55   
Operating efficiency ratio444.0  41.7  (230) 38.3  38.9  60 
  • Loan portfolio continues to transition; growth in average commercial loan balances of $330.8 million over linked quarter.

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

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

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

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

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

Sterling Bancorp (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, 2018. Net income available to common stockholders for the quarter ended September 30, 2018 was $117.7 million, or $0.52 per diluted share, compared to net income available to common stockholders of $112.2 million, or $0.50 per diluted share, for the linked quarter ended June 30, 2018, and net income available to common stockholders of $44.9 million, or $0.33 per diluted share, for the three months ended September 30, 2017.

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

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

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

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

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

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

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

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

“Lastly, we have declared a dividend on our common stock of $0.07 per share payable on November 19, 2018 to holders of record as of November 5, 2018.”

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

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

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

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

Net Interest Income and Margin

($ in thousands)For the three months ended Change % / bps
 9/30/2017 6/30/2018 9/30/2018 Y-o-Y Linked Qtr
Interest and dividend income$145,692  $304,906  $309,025  112.1% 1.4%
Interest expense25,619  58,690  65,076  154.0  10.9 
Net interest income$120,073  $246,216  $243,949  103.2  (0.9)
          
Accretion income on acquired loans$3,397  $28,010  $26,574  682.3% (5.1)%
Yield on loans4.67% 5.01% 5.01% 34   
Tax equivalent yield on investment securities2.87  2.88  2.87    (1)
Tax equivalent yield on interest earning assets4.12  4.47  4.47  35   
Cost of total deposits0.50  0.55  0.68  18  13 
Cost of interest bearing deposits0.69  0.68  0.84  15  16 
Cost of borrowings1.75  2.23  2.29  54  6 
Cost of interest bearing liabilities0.97  1.06  1.17  20  11 
Tax equivalent net interest margin53.42  3.62  3.54  12  (8)
          
Average loans, including loans held for sale$10,186,414  $20,339,964  $20,386,994  100.1% 0.2%
Average investment securities3,916,076  6,751,528  6,774,712  73.0  0.3 
Average total interest earning assets14,471,120  27,757,380  27,799,933  92.1  0.2 
Average deposits and mortgage escrow10,691,006  20,768,669  21,115,354  97.5  1.7 
5 Tax equivalent net interest margin is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average
interest earning assets. The tax equivalent adjustment is assumed at a 35% federal tax rate in 2017 and 21% in 2018.

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

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

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

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

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

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

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

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

The tax equivalent net interest margin was 3.54% compared to 3.62% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.21% in the linked quarter compared to 3.16% in the third quarter of 2018. The decrease in tax equivalent net interest margin excluding accretion income was mainly due to lower commercial loan prepayment activity and higher rates paid on deposits and other interest bearing liabilities. The composition of the Company’s earning assets continued to shift in the third quarter of 2018, as the average balance of residential mortgage loans represented 21.5% of total portfolio loans compared to 22.5% at June 30, 2018.

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

Non-interest Income

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

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

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

Non-interest Expense

($ in thousands)For the three months ended Change % / bps
 9/30/2017 6/30/2018 9/30/2018 Y-o-Y Linked Qtr
Compensation and benefits$31,727  $56,159  $54,823  72.8% (2.4)%
Stock-based compensation plans1,969  3,336  3,115  58.2  (6.6)
Occupancy and office operations8,583  17,939  16,558  92.9  (7.7)
Information technology2,512  9,997  10,699  325.9  7.0 
Amortization of intangible assets2,166  5,865  5,865  170.8   
FDIC insurance and regulatory assessments2,310  5,495  6,043  161.6  10.0 
Other real estate owned, (“OREO”) net894  (226) 1,497  67.4  (762.4)
Merger-related expenses4,109      (100.0)  
Charge for asset write-downs, systems integration,
retention and severance
  13,132     NM      (100.0)
Other expenses8,347  13,231  13,173  57.8  (0.4)
Total non-interest expense$62,617  $124,928  $111,773  78.5  (10.5)
Full time equivalent employees (“FTEs”) at period end992  2,037  1,959  97.5  (3.8)
Financial centers at period end40  121  113  182.5  (6.6)
Operating efficiency ratio, as reported646.7% 44.0% 41.7% 500  230 
Operating efficiency ratio, as adjusted640.6  38.3  38.9  170  (60)
6 See a reconciliation of this non-GAAP financial measure beginning on page 18.

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

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

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

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

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

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

Key Balance Sheet Highlights as of September 30, 2018

($ in thousands)As of Change % / bps
 9/30/2017 6/30/2018 9/30/2018 Y-o-Y Linked Qtr
Total assets$16,780,097  $31,463,077  $31,261,265  86.3%  (0.6)% 
Total portfolio loans, gross10,493,535  20,674,493  20,533,214  95.7  (0.7) 
Commercial & industrial (“C&I”) loans4,841,664  6,288,683  6,244,030  29.0  (0.7) 
Commercial real estate loans (including multi-family)4,473,245  9,160,760  9,284,657  107.6  1.4 
Acquisition, development and construction loans236,456  236,915  265,676  12.4  12.1 
Total commercial loans9,551,365  15,686,358  15,794,363  65.4  0.7 
Residential mortgage loans684,093  4,652,501  4,421,520  546.3  (5.0) 
Total deposits11,043,438  20,965,889  21,456,057  94.3  2.3 
Core deposits 89,753,052  19,870,947  20,448,343  109.7  2.9 
Investment securities4,515,650  6,789,246  6,685,972  48.1  (1.5) 
Total borrowings3,453,783  5,537,537  4,825,855  39.7  (12.9) 
Loans to deposits95.0% 98.6% 95.7% 70  (290) 
Core deposits to total deposits88.3  94.8  95.3  700  50 
Investment securities to total assets26.9  21.6  21.4  (550)  (20) 
8 Given the Company’s greater proportion of certificates of deposit after completion of the Astoria Merger, the Company modified its definition of core deposits to also include certificates of deposit beginning in the first quarter of 2018. Core deposits include retail, commercial and municipal transaction, money market and savings accounts and certificates of deposit accounts and exclude brokered and wholesale deposits, except for reciprocal Certificate of Deposit Account Registry balances.

Highlights in balance sheet items as of September 30, 2018 were the following:

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

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

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

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

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

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

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

Credit Quality

($ in thousands)For the three months ended Change % / bps
 9/30/2017 6/30/2018 9/30/2018 Y-o-Y Linked Qtr
Provision for loan losses$5,000  $13,000  $9,500  90.0%  (26.9)% 
Net charge-offs3,023  9,066  4,161  37.6  (54.1) 
Allowance for loan losses72,128  86,026  91,365  26.7  6.2 
Non-performing loans69,452  190,975  185,222  166.7  (3.0) 
Loans 30 to 89 days past due21,491  73,441  50,084  133.0  (31.8) 
Annualized net charge-offs to average loans0.12% 0.18% 0.08% (4)  (10) 
Allowance for loan losses to total loans0.69  0.42  0.44  (25)  2 
Allowance for loan losses to non-performing loans103.9  45.0  49.3  (5,460)  430 

Provision for loan losses was $9.5 million for the third quarter of 2018, compared to $13.0 million in the linked quarter and $5.0 million in the same period a year ago. In the third quarter of 2018, provision for loan losses was $5.3 million in excess of net charge-offs of $4.2 million.  Allowance coverage ratios were 0.44% of total loans and 49.3% of non-performing loans at September 30, 2018.  Due to the Astoria Merger, a significant portion of the Company’s loan portfolio does not carry an allowance for loan losses, as the acquired loans are recorded at their estimated fair value on the acquisition date. Non-performing loans decreased by $5.8 million to $185.2 million at September 30, 2018 compared to the linked quarter.  The decrease in non-performing loans was mainly due to net charge-offs and the return to performing status of certain loans that were previously categorized as non-performing. Loans 30 to 89 days past due declined $23.4 million in the linked quarter, mainly due to loans that were in the process of being renewed at June 30, 2018 and which were renewed in the third quarter.

Capital

($ in thousands, except share and per share data)As of Change % / bps
 9/30/2017 6/30/2018 9/30/2018 Y-o-Y Three
months
Total stockholders’ equity$1,971,480  $4,352,735  $4,438,303  125.1% 2.0%
Preferred stock  138,828  138,627  NM      (0.1)
Goodwill and intangible assets756,290  1,754,418  1,745,181  130.8  (0.5)
Tangible common stockholders’ equity$1,215,190  $2,459,489  $2,554,495  110.2  3.9 
Common shares outstanding135,807,544  225,470,254  225,446,089  66.0   
Book value per common share$14.52  $18.69  $19.07  31.3  2.0 
Tangible book value per common share 98.95  10.91  11.33  26.6  3.8 
Tangible common equity to tangible assets 97.58% 8.28% 8.65% 107  37 
Estimated Tier 1 leverage ratio - Company8.42  9.32  9.68  126  36 
Estimated Tier 1 leverage ratio - Bank8.54  9.84  10.10  156  26 
 9 See a reconciliation of non-GAAP financial measures beginning on page 18.

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

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

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

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

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, October 24, 2018 at 10:30 AM Eastern Time to discuss the Company’s results. Analysts, investors and interested parties are invited to listen to the webcast and view accompanying slides on the Company’s website at www.sterlingbancorp.com or by dialing (800) 289-0438, Conference ID #1015557.  A replay of the teleconference can be accessed through the Company’s website.

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

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

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

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

 9/30/2017 12/31/2017 9/30/2018
Assets:
     
Cash and cash equivalents$407,203  $479,906  $533,984 
Investment securities4,515,650  6,474,561  6,685,972 
Loans held for sale  5,246  31,042 
Portfolio loans:     
Commercial and industrial (“C&I”)4,841,664  5,306,821  6,244,030 
Commercial real estate (including multi-family)4,473,245  8,998,419  9,284,657 
Acquisition, development and construction236,456  282,792  265,676 
Residential mortgage684,093  5,054,732  4,421,520 
Consumer258,077  366,219  317,331 
Total portfolio loans, gross10,493,535  20,008,983  20,533,214 
Allowance for loan losses(72,128) (77,907) (91,365)
Total portfolio loans, net10,421,407  19,931,076  20,441,849 
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost191,276  284,112  351,455 
Accrued interest receivable57,561  94,098  109,377 
Premises and equipment, net56,378  321,722  289,794 
Goodwill696,600  1,579,891  1,609,772 
Other intangibles59,690  153,191  135,409 
Bank owned life insurance204,281  651,638  660,279 
Other real estate owned11,697  27,095  22,735 
Other assets158,354  357,005  389,597 
Total assets$16,780,097  $30,359,541  $31,261,265 
Liabilities:     
Deposits$11,043,438  $20,538,204  $21,456,057 
FHLB borrowings3,016,000  4,510,123  4,429,110 
Other borrowings188,403  30,162  22,888 
Senior notes76,719  278,209  200,972 
Subordinated notes172,661  172,716  172,885 
Mortgage escrow funds19,148  122,641  96,952 
Other liabilities292,248  467,308  444,098 
Total liabilities14,808,617  26,119,363  26,822,962 
Stockholders’ equity:     
Preferred stock  139,220  138,627 
Common stock1,411  2,299  2,299 
Additional paid-in capital1,590,752  3,780,908  3,773,164 
Treasury stock(59,674) (58,039) (51,973)
Retained earnings452,650  401,956  694,861 
Accumulated other comprehensive (loss)(13,659) (26,166) (118,675)
Total stockholders’ equity1,971,480  4,240,178  4,438,303 
Total liabilities and stockholders’ equity$16,780,097  $30,359,541  $31,261,265 
      
Shares of common stock outstanding at period end135,807,544  224,782,694  225,446,089 
Book value per common share$14.52  $18.24  $19.07 
Tangible book value per common share18.95  10.53  11.33 
1 See reconciliation of non-GAAP financial measures beginning on page 18.

 

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

 
   For the Quarter Ended  For the Nine Months Ended
 9/30/2017  6/30/2018  9/30/2018  9/30/2017  9/30/2018 
Interest and dividend income:                  
Loans and loan fees$119,898  $254,253  $257,211  $336,308  $746,079 
Securities taxable15,141  29,031  29,765  40,536  85,856 
Securities non-taxable8,542  15,403  15,244  23,951  45,959 
Other earning assets2,111  6,219  6,805  5,160  17,382 
Total interest and dividend income145,692  304,906  309,025  405,955  895,276 
Interest expense:         
Deposits13,392  28,464  35,974  33,805  88,645 
Borrowings12,227  30,226  29,102  30,029  82,098 
Total interest expense25,619  58,690  65,076  63,834  170,743 
Net interest income120,073  246,216  243,949  342,121  724,533 
Provision for loan losses5,000  13,000  9,500  14,000  35,500 
Net interest income after provision for loan losses115,073  233,216  234,449  328,121  689,033 
Non-interest income:         
Deposit fees and service charges3,309  6,985  6,333  9,893  20,319 
Accounts receivable management / factoring commissions and other related fees4,764  5,337  5,595  12,670  16,292 
Bank owned life insurance1,320  4,243  3,733  4,342  11,591 
Loan commissions and fees2,819  4,566  4,142  8,643  12,114 
Investment management fees271  2,121  1,943  825  5,889 
Net (loss) on sale of securities(21) (425) (56) (274) (5,902)
Gain on sale of fixed assets1  11,797    1  11,800 
Other1,525  3,244  2,455  4,342  8,617 
Total non-interest income13,988  37,868  24,145  40,442  80,720 
Non-interest expense:         
Compensation and benefits31,727  56,159  54,823  93,893  165,662 
Stock-based compensation plans1,969  3,336  3,115  5,602  9,304 
Occupancy and office operations8,583  17,939  16,558  25,550  51,956 
Information technology2,512  9,997  10,699  7,402  32,412 
Amortization of intangible assets2,166  5,865  5,865  6,582  17,782 
FDIC insurance and regulatory assessments2,310  5,495  6,043  6,232  16,885 
Other real estate owned, net894  (226) 1,497  2,682  1,635 
Merger-related expenses4,109      9,002   
Charge for asset write-downs, systems integration, retention and severance  13,132    603  13,132 
Other8,347  13,231  13,173  25,076  39,680 
Total non-interest expense62,617  124,928  111,773  182,624  348,448 
Income before income tax expense66,444  146,156  146,821  185,939  421,305 
Income tax expense21,592  31,915  27,171  59,620  88,542 
Net income44,852  114,241  119,650  126,319  332,763 
Preferred stock dividend  1,996  1,993    5,988 
Net income available to common stockholders$44,852  $112,245  $117,657  $126,319  $326,775 
Weighted average common shares:         
Basic135,346,791  225,084,232  225,088,511  135,276,634  224,969,121 
Diluted135,950,160  225,621,856  225,622,895  135,895,513  225,504,463 
Earnings per common share:         
Basic earnings per share$0.33  $0.50  $0.52  $0.93