Sterling Bancorp announces results for the second quarter of 2020 with diluted income per share available to common stockholders of $0.25 (as reported) and $0.29 (as adjusted)

Company Release - 7/22/2020 4:10 PM ET

Key Performance Highlights for the Three Months ended June 30, 2020 vs. June 30, 2019

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 6/30/2019 6/30/2020 Change
% / bps
 6/30/2019 6/30/2020 Change
% / bps
Total assets$30,237,545  $30,839,893  2.0% $30,237,545  $30,839,893  2.0%
Total portfolio loans, gross20,370,306  22,295,267  9.4  20,370,306  22,295,267  9.4 
Total deposits20,948,464  23,600,621  12.7  20,948,464  23,600,621  12.7 
Pretax pre-provision net revenue (“PPNR”)2131,957  114,508  (13.2) 123,338  113,832  (7.7)
Net income available to common94,473  48,820  (48.3) 105,124  56,926  (45.8)
Diluted EPS available to common0.46  0.25  (45.7) 0.51  0.29  (43.1)
Net interest margin3.53% 3.15% (38) 3.58% 3.20% (38)
Allowance for credit losses (“ACL”) - loans$104,664  $365,489  249.2% $104,664  $365,489  249.2%
ACL to portfolio loans0.51% 1.64% 113  0.51% 1.64% 113 
Tangible book value per common share1$12.40  $13.17  6.2  $12.40  $13.17  6.2 
  • Adjusted PPNR excluding accretion income was $113.8 million and including accretion income was $123.9 million.
  • Net interest income was $213.3 million and net interest margin excluding accretion income was 3.05%.
  • Non-interest income was $26.1 million and was impacted by decreases in gain on securities, securities call income, deposit service charges and commercial loan fee income due to lower transaction volumes.
  • Total deposits were $23.6 billion, an increase of 11.8% year-over-year. Cost of total deposits was 48 basis points and cost of total funding liabilities was 63 basis points.
  • Used excess deposit liquidity to redeem $500.0 million of FHLB borrowings.
  • Funded nearly 3,300 clients and $649.4 million under the SBA Payroll Protection Program (“PPP”).
  • Increased tangible book value per common share 6.2% to $13.17 over past 12 months.
  • Capital levels remain strong with tangible common equity to tangible assets of 8.82% and Tier 1 leverage ratio of 9.51%.

Key Performance Highlights for the Three Months ended June 30, 2020 vs. March 31, 2020

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 3/31/2020 6/30/2020 Change
% / bps
 3/31/2020 6/30/2020 Change
% / bps
PPNR2$144,385  $114,508  (20.7) $126,203  $113,832  (9.8)
Net income available to common12,171  48,820  301.1  (3,124) 56,926  NA 
Diluted EPS available to common0.06  0.25  316.7  (0.02) 0.29  NA 
Net interest margin3.16% 3.15% (1) 3.21% 3.20% (1)
Operating efficiency344.27  52.17  790  42.40  45.08  268 
ACL to portfolio loans1.50  1.64  14  1.50  1.64  14 
Tangible book value per common share1$12.83  $13.17  2.7  $12.83  $13.17  2.7 
  • Continued build of credit reserves; ACL - loans was $365.5 million which represented 1.64% of total portfolio loans.
  • Net charge-offs were $17.6 million, or 0.32% annualized to average loans.
  • Loan payment deferrals were $1.7 billion, or 7.7% of portfolio loans.
  • Total operating expense was $124.9 million; included FHLB prepayment penalty of $9.7 million and $5.1 million of COVID-related expenses for charitable contributions, compensation, occupancy and foreclosed property expense.
  • Declared dividend per common share of $0.07.

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 18.
2. Pretax pre-provision net revenue represents our net interest income plus non-interest income less operating expenses before tax.
3. Operating efficiency ratio is a non-GAAP measure. See page 20 for an explanation of the operating efficiency ratio.

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MONTEBELLO, N.Y., July 22, 2020 (GLOBE NEWSWIRE) -- Sterling Bancorp (NYSE: STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and six months ended June 30, 2020. Net income available to common stockholders for the quarter ended June 30, 2020 was $48.8 million, or $0.25 per diluted share, compared to net income available to common stockholders of $12.2 million, or $0.06 per diluted share, for the linked quarter ended March 31, 2020, and net income available to common stockholders of $94.5 million, or $0.46 per diluted share, for the three months ended June 30, 2019.

Net income available to common stockholders for the six months ended June 30, 2020 was $61.0 million, or $0.31 per diluted share, compared to net income available to common stockholders of $193.9 million, or $0.92 per diluted share, for the six months ended June 30, 2019.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We have continued to work through this challenging operating environment, focusing on our top priorities of providing superior service to our clients and growing our business, while ensuring a safe and healthy working environment for all of our clients and colleagues. We have a strong and growing balance sheet, a diverse mix of lending and deposit businesses, ample liquidity and funding sources, and robust capital and credit reserves. We are well-positioned to continue building a high performing commercial bank that delivers long-term growth and profitability.

“We continue to provide relief to our clients and communities. In the second quarter of 2020, we contributed $1.5 million to the Sterling National Bank Charitable Foundation for grants and donations to various local charities. We funded nearly 3,300 loans under the PPP, which totaled $649.4 million. We are now working with clients on forgiveness of these loans. Through our relationship-based, single point of contact operating model, we have remained in close contact with our clients, providing working capital relief through loan payment deferral programs on $1.7 billion of loan balances.

“On an adjusted basis, we generated net income available to common stockholders of $56.9 million, or $0.29 per diluted share, while continuing to build our allowance for credit losses given the economic uncertainty. For the quarter ended June 30, 2020, provision for credit losses was $56.6 million, or $39.0 million greater than net-charge offs. As of June 30, 2020, our allowance for credit losses was $365.5 million, or 1.64% of total loans.

“Our total deposits were $23.6 billion and core deposit growth was $1.2 billion over the linked quarter. We substantially reduced our funding costs, as our cost of total deposits declined 33 basis points and our cost of total funding liabilities declined 35 basis points. Although we continued to experience pressure on our earning asset yields given decreasing interest rates, our balance sheet actions allowed us to grow our net interest income relative to the linked quarter and maintain our tax equivalent net interest margin excluding accretion income at 3.05%.

“Our adjusted PPNR, which excludes accretion income on acquired loans, was $113.8 million, a decrease of 9.8% relative to the linked quarter. This decline was mainly due to lower transaction activity in our commercial and consumer businesses because of the pandemic. This resulted in lower deposit service charges, wealth management fees and commercial loan fees. We are confident these fees will rebound as the economy and transaction activity normalize, which should allow us to maintain and grow adjusted PPNR.

“Our adjusted non-interest expenses were $107.8 million. Direct expenses related to the pandemic were $5.1 million, which included incremental expenses related to compensation and other special awards, occupancy expense, foreclosed property expense and our contribution to the Sterling National Bank Charitable Foundation. We expect we will reduce expenses in the second half of 2020 as these items are not anticipated will recur.

“We have a strong capital position, as our tangible common equity to tangible assets ratio increased eight basis points in the second quarter and was 8.82% and our Tier 1 leverage ratio was 9.51%. We declared our regular dividend of $0.07 on our common stock, payable on August 17, 2020 to holders of record as of August 3, 2020.

“Finally, I would like to thank our clients, shareholders, and colleagues, and in particular recognize our colleagues who operate and maintain our financial centers, call centers, and other essential operations, all of whom have exhibited extraordinary resilience through these events. The dedication and hard work of our colleagues will position us well to emerge from this as a better company.”

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $48.8 million, or $0.25 per diluted share, for the second quarter of 2020, included the following items:

  • a pre-tax gain of $485 thousand on the sale of available for sale securities;

  • a net pre-tax loss of $9.7 million related to the early redemption of $500.0 million of Federal Home Loan Bank (“FHLB”) borrowings; and


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  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $172 thousand.

Excluding the impact of these items, adjusted net income available to common stockholders was $56.9 million, or $0.29 per diluted share, for the three months ended June 30, 2020. For purposes of calculating our adjusted results, we use our estimated annual effective income tax rate for 2020, which declined at June 30, 2020 to 12.5% compared to 17.5% in the first quarter.

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
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Interest and dividend income$302,457  $273,527  $253,226  (16.3%)  (7.4)%
Interest expense70,618  61,755  39,927  (43.5)  (35.3)
Net interest income$231,839  $211,772  $213,299  (8.0)  0.7 
          
Accretion income on acquired loans$23,745  $10,686  $10,086  (57.5)%  (5.6)%
Yield on loans5.20% 4.47% 4.03% (117)  (44)
Tax equivalent yield on investment securities42.92  2.96  3.05  13   9 
Tax equivalent yield on interest earning assets44.66  4.13  3.79  (87)  (34)
Cost of total deposits0.91  0.81  0.48  (43)  (33)
Cost of interest bearing deposits1.14  1.00  0.61  (53)  (39)
Cost of borrowings2.54  2.49  2.26  (28)  (23)
Cost of interest bearing liabilities1.38  1.19  0.78  (60)  (41)
Total cost of funding liabilities51.15  0.98  0.63  (52)  (35)
Tax equivalent net interest margin63.58  3.21  3.20  (38)  (1)
          
Average commercial loans$16,996,838  $18,820,094  $19,715,184  16.0%  4.8%
Average loans, including loans held for sale19,912,839  21,206,177  21,940,636  10.2   3.5 
Average cash balances289,208  489,691  455,626  57.5   (7.0)
Average investment securities5,883,269  5,046,573  4,630,056  (21.3)  (8.3)
Average total interest earning assets26,377,053  26,980,261  27,240,114  3.3   1.0 
Average deposits and mortgage escrow21,148,872  22,692,568  23,463,937  10.9   3.4 

4. Tax equivalent basis represents interest income earned on tax exempt securities divided by the applicable federal tax rate of 21%.
5.  Includes interest bearing liabilities and non-interest bearing deposits.
6. 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 21% federal tax rate in all periods presented.

Second quarter 2020 compared with second quarter 2019

Net interest income was $213.3 million for the quarter ended June 30, 2020, a decrease of $18.5 million compared to the second quarter of 2019. This was mainly due to decreases in the yield on floating rate loans and accretion income on acquired loans. Other key components of changes were the following:

  • The yield on loans was 4.03% compared to 5.20% for the three months ended June 30, 2019. The decrease in yield on loans was mainly due to the decline in market interest rates. Accretion income on acquired loans was $10.1 million in the second quarter of 2020, compared to $23.7 million in the second quarter of 2019.
  • The tax equivalent yield on investment securities was 3.05% compared to 2.92% for the three months ended June 30, 2019. Average investment securities were $4.6 billion, or 17.0%, of average total interest earning assets for the second quarter of 2020 compared to $5.9 billion, or 22.3%, of average total interest earning assets for the second quarter of 2019. The increase in yield was mainly due to the sale of lower yielding securities in 2019.
  • In the second quarter of 2020, average cash balances were $455.6 million compared to $289.2 million in the second quarter of 2019. We have experienced higher levels of deposit inflows as a result of the pandemic. We used a portion of this excess liquidity to reduce FHLB borrowings.

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  • The tax equivalent yield on interest earning assets decreased 87 basis points to 3.79%.
  • The cost of total deposits was 48 basis points for the second quarter of 2020 compared to 91 basis points for the same period a year ago. The decrease was due to deposit pricing strategies we implemented in response to the declining interest rate environment. 
  • The cost of borrowings was 2.26% for the second quarter of 2020 compared to 2.54% for the same period a year ago. The decrease was mainly due to the maturity and repayment of higher cost FHLB borrowings.
  • The total cost of interest bearing liabilities was 0.78% for the second quarter of 2020 compared to 1.38% for the same period a year ago.
  • Average interest bearing deposits increased $1.5 billion during the second quarter of 2020 compared to the same period a year ago, due to growth from our commercial banking teams, financial centers and on-line channels. Average borrowings decreased $1.4 billion compared to the second quarter of 2019.
  • Total interest expense decreased by $30.7 million compared to the second quarter of 2019.

The tax equivalent net interest margin was 3.20% for the second quarter of 2020 compared to 3.58% for the second quarter of 2019. Excluding accretion income, tax equivalent net interest margin was 3.05% for the second quarter of 2020 compared to 3.22% for the second quarter of 2019.

Second quarter 2020 compared with linked quarter ended March 31, 2020

Net interest income increased $1.5 million for the quarter ended June 30, 2020 compared to the linked quarter. The increase was  mainly due to the reduction in interest expense. Other key components of the changes were the following:

  • The yield on loans was 4.03% compared to 4.47% for the linked quarter. The decrease was mainly due to the decline in market interest rates and the repricing of floating rate loans. Accretion income on acquired loans decreased $600 thousand to $10.1 million for the second quarter of 2020.
  • The average balance of commercial loans increased $895.1 million and the average balance of residential mortgage loans declined $146.0 million. The average balance of SBA PPP loans for the period was $377.7 million.
  • The tax equivalent yield on investment securities was 3.05% compared to 2.96% for the linked quarter. The increase in yield was mainly due to the mix of securities.
  • The tax equivalent yield on interest earning assets was 3.79% compared to 4.13% in the linked quarter.
  • The cost of total deposits decreased 33 basis points to 48 basis points, mainly due to improving conditions in our deposit markets and our deposit pricing strategies.
  • The total cost of borrowings decreased 23 basis points to 2.26%, due to the repayment of higher cost FHLB borrowings and the redemption of our senior notes.
  • Average deposits and mortgage escrow increased by $771.4 million and average borrowings decreased by $479.9 million relative to the linked quarter. Average municipal deposits declined $404.7 million, average wholesale deposits declined $69.3 million and average on-line deposits declined $6.8 million.
  • Total interest expense decreased $21.8 million from the linked quarter.

The tax equivalent net interest margin was 3.20% compared to 3.21% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was unchanged at 3.05%.

We originated $649.4 million of PPP loans in the second quarter. We anticipate net fees generated under the program will be $16.4 million, of which $4.3 million was recognized as interest income in the second quarter of 2020. We expect a significant portion of these loans will be forgiven in the third quarter of 2020.

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Non-interest Income

($ in thousands)For the three months ended Change %
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Deposit fees and service charges$7,098   $6,622  $5,345  (24.7)% (19.3)%
Accounts receivable management / factoring commissions and other related fees5,794   5,538  4,419  (23.7)% (20.2)%
Bank owned life insurance (“BOLI”)4,192   5,018  4,950  18.1% (1.4)%
Loan commissions and fees5,308   11,024  8,003  50.8% (27.4)%
Investment management fees2,050   1,847  1,379  (32.7)% (25.3)%
Net (loss) gain on sale of securities(528)  8,412  485  (191.9)% (94.2)%
Net gain on security calls   4,880    NM  NM 
Other3,144   3,985  1,509  (52.0)% (62.1)%
  Total non-interest income27,058   47,326  26,090  (3.6)% (44.9)%
  Net (loss) gain on sale of securities(528)  8,412  485  (191.9)% (94.2)%
  Adjusted non-interest income$27,586   $38,914  $25,605  (7.2)% (34.2)%

Second quarter 2020 compared with second quarter 2019
Adjusted non-interest income decreased $2.0 million in the second quarter of 2020 to $25.6 million, compared to $27.6 million in the same quarter last year. The change was mainly due to lower transaction activity as a result of the pandemic as deposit service charges declined $1.8 million, factoring commissions and fee income declined $1.4 million and swap fee income, which is included in other income, declined $1.7 million.

In the second quarter of 2020, we realized a gain of $485 thousand on the sale of available for sale securities compared to a $528 thousand loss in the year earlier period.

Second quarter 2020 compared with linked quarter ended March 31, 2020
Adjusted non-interest income decreased approximately $13.3 million relative to the linked quarter to $25.6 million. In the first quarter, we realized a gain on called securities of $4.9 million, which did not recur in the second quarter. Other commissions and loan fees declined $3.0 million, other income declined $2.5 million, mainly due to lower swap fees, and service charges on deposits declined $1.3 million as a result of lower transaction activity in our consumer and commercial businesses.

5

Non-interest Expense

($ in thousands)For the three months ended Change % / bps
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Compensation and benefits$54,473  $54,876  $54,668  0.4% (0.4)%
Stock-based compensation plans4,605  6,006  5,913  28.4  (1.5)
Occupancy and office operations16,106  15,199  14,695  (8.8) (3.3)
Information technology9,047  8,018  7,312  (19.2) (8.8)
Amortization of intangible assets4,785  4,200  4,200  (12.2)  
FDIC insurance and regulatory assessments2,994  3,206  3,638  21.5  13.5 
Other real estate owned (“OREO”), net458  52  1,233  169.2  2,271.2 
Impairment related to financial centers and real estate consolidation strategy14,398      NM  NM 
Other expenses20,074  23,156  33,222  65.5  43.5 
Total non-interest expense$126,940  $114,713  $124,881  (1.6) 8.9 
Full time equivalent employees (“FTEs”) at period end1,820  1,619  1,617  (11.2) (0.1)
Financial centers at period end97  79  79  (18.6)  
Operating efficiency ratio, as reported849.0% 44.3% 52.2% 320  790 
Operating efficiency ratio, as adjusted840.9  42.4  45.1  420  270 

8 See a reconciliation of non-GAAP financial measures beginning on page 18.

Second quarter 2020 compared with second quarter 2019
Total non-interest expense decreased $2.1 million relative to the second quarter of 2019. Key components of the change in non-interest expense between the periods were the following:

  • Compensation and benefits increased $195 thousand between the periods. Total FTEs declined to 1,617 from 1,820, which was mainly due to our ongoing financial center consolidation strategy. The increase in compensation was mainly due to the hiring of commercial bankers, business development officers, information technology, and risk management personnel, which was partially offset by the reduction of financial center personnel.
  • Occupancy and office operations expense decreased $1.4 million, mainly due to the consolidation of financial centers and other back-office locations. We consolidated 18 financial centers in the past twelve months.
  • Information technology expense declined $1.7 million, mainly due to a decrease in data processing expenses.
  • OREO expense increased $775 thousand due to write-downs on properties to fair value based on updated appraisals.
  • In the second quarter of 2019, we incurred an impairment charge related to financial centers and real estate consolidation strategy of $14.4 million.
  • Other expenses increased $13.1 million to $33.2 million, which was mainly due to an early termination charge of $9.7 million associated with the repayment of $500.0 million of FHLB advances. We incurred approximately $3.7 million of operating expenses associated with the pandemic including a donation to the Sterling National Bank Charitable Foundation, compensation for financial center and back-office personnel,  and occupancy expense. Depreciation expense of $3.1 million was recorded on operating leases acquired in the fourth quarter of 2019. These increases were partially offset by declines in professional fees, advertising and promotion and other expense. 

Second quarter 2020 compared with linked quarter ended March 31, 2020
Total non-interest expense increased $10.2 million to $124.9 million in the second quarter of 2020.  Key components of the change in non-interest expense were the following:

  • Compensation and benefits decreased $208 thousand to $54.7 million in the second quarter of 2020. The decrease was mainly due to a decline in payroll taxes.
  • The remaining fluctuations in operating expense are due to the same factors described above for the 2019 second quarter comparison.

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Taxes
We recorded income tax expense of $7.1 million in the second quarter of 2020, compared to an income tax benefit of $8.0 million in the linked quarter and income tax expense of $24.0 million in the year earlier period. For the three months ended June 30, 2020 and June 30, 2019, we recorded income tax expense at an estimated effective income tax rate of 12.5% and 19.9%, respectively. In the second quarter of 2020, we reduced our estimated effective tax rate from 17.5% to 12.5% based on earnings performance and an increase in tax exempt income to total income.

Key Balance Sheet Highlights as of June 30, 2020

($ in thousands)As of  Change % / bps
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Total assets$30,237,545  $30,335,036  $30,839,893  2.0% 1.7%
Total portfolio loans, gross20,370,306  21,709,957  22,295,267  9.4  2.7 
Commercial & industrial (“C&I”) loans7,514,834  8,483,474  9,166,744  22.0  8.1 
Commercial real estate loans (including multi-family)9,714,037  10,399,566  10,402,897  7.1   
Acquisition, development and construction (“ADC”) loans338,973  524,714  572,558  68.9  9.1 
Total commercial loans17,567,844  19,407,754  20,142,199  14.7  3.8 
Residential mortgage loans2,535,667  2,077,534  1,938,212  (23.6) (6.7)
BOLI598,880  616,648  620,908  3.7  0.7 
Core deposits919,893,875  20,704,023  21,904,429  10.1  5.8 
Total deposits20,948,464  22,558,280  23,600,621  12.7  4.6 
Municipal deposits (included in core deposits)1,699,824  2,091,259  1,724,049  1.4  (17.6)
Investment securities, net5,858,865  4,614,513  4,545,579  (22.4) (1.5)
Total borrowings4,133,986  2,598,698  1,445,909  (65.0) (44.4)
Loans to deposits97.2% 96.2% 94.5% (270) (170)
Core deposits to total deposits95.0  91.8  92.8  (220) 100 
Investment securities, net to earning assets21.9  17.2  16.7  (520) (50)

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

Highlights in balance sheet items as of June 30, 2020 were the following:

  • C&I loans (which includes traditional C&I, PPP, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance loans) represented 41.1% of total portfolio loans; commercial real estate loans (which include multi-family loans) represented 46.6% of total portfolio loans; consumer and residential mortgage loans combined represented 9.7% of total portfolio loans; and ADC loans represented 2.6% of total portfolio loans, respectively. At June 30, 2019, C&I loans represented 36.9%; commercial real estate loans represented 47.7%; consumer and residential mortgage loans combined represented 13.7%; and ADC loans represented 1.7% of total portfolio loans, respectively.
  • Total commercial loans, which include all C&I loans, commercial real estate and ADC loans, increased by $734.4 million over the linked quarter and $2.6 billion since June 30, 2019. As compared to the linked quarter, C&I loans increased $683.3 million, which was mainly due to PPP loans. Mortgage warehouse loans increased $210.9 million, public sector finance loans increased $165.1 million,  and ADC loans increased $47.8 million. ABL loans declined $219.1 million, factored receivables declined $66.6 million and payroll finance loans declined $55.2 million compared to March 31, 2020.
  • Residential mortgage loans were $1.9 billion at June 30, 2020, a decline of $139.3 million from the linked quarter and a decline of $597.5 million from the same period a year ago. The declines were mainly due to repayments.
  • The balance of BOLI increased by $4.3 million relative to the prior quarter and was $620.9 million at June 30, 2020. 
  • Core deposits at June 30, 2020 were $21.9 billion and increased $1.2 billion compared to March 31, 2020, and increased $2.0 billion compared to June 30, 2019. The growth was mainly due to successful commercial and digital deposit gathering and the increase in deposits that has occurred since the pandemic. 
  • Total deposits at June 30, 2020 increased $1.0 billion compared to March 31, 2020, and total deposits increased $2.7 billion compared to June 30, 2019.

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  • Municipal deposits at June 30, 2020 were $1.7 billion, a decrease of $367.2 million relative to March 31, 2020. The decrease was associated with seasonal withdrawals by local municipalities.
  • Investment securities decreased by $68.9 million from March 31, 2020 and $1.3 billion from June 30, 2019, and represented 16.7% of earning assets at June 30, 2020. In 2019, we sold securities to fund commercial loan growth including loan portfolio acquisitions. In the first quarter of 2020, we sold $400.2 million of lower yielding available for sale securities and realized a gain of $8.4 million. In addition, $139.8 million of securities were called prior to maturity.
  • Total borrowings at June 30, 2020 were $1.4 billion, a decrease of $1.2 billion relative to March 31, 2020 and $2.7 billion relative to June 30, 2019. The sale of securities and deposit inflows allowed us to reduce borrowings. Included in total borrowings at June 30, 2020 was $568.3 million from the Federal Reserve Bank PPP Liquidity Facility. These borrowings have a two year maturity and a rate of 35 basis points. We anticipate these borrowings will be repaid as the PPP loans are redeemed by the SBA.

Credit Quality

($ in thousands)For the three months ended Change % / bps
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Provision for credit losses$11,500  $138,280  $56,606  392.2% (59.1)%
Net charge-offs5,796  6,955  17,561  203.0  152.5 
Allowance for credit losses (“ACL”) - loans104,664  326,444  365,489  249.2  12.0 
Loans 30 to 89 days past due accruing76,364  69,769  66,268  (13.2) (5.0)
Non-performing loans192,647  253,750  260,605  35.3  2.7 
Annualized net charge-offs to average loans0.12% 0.13% 0.32% 20  19 
Special mention loans118,940  132,356  141,805  19.2  7.1 
Substandard loans311,418  402,393  415,917  33.6  3.4 
ACL - loans to total loans0.51  1.50  1.64  113  14 
ACL - loans to non-performing loans54.3  128.6  140.2  8,590  1,160 

For the three months ended June 30, 2020, provision for credit losses on portfolio loans was $56.6 million, which was $39.0 million greater than net charge-offs. The provision for credit losses was based on our reasonable and supportable forecasts of future macroeconomic scenarios used to estimate of expected credit losses. ACL - loans increased to $365.5 million, or 1.64% of total portfolio loans and 140.2% of non-performing loans.

Net charge-offs of $17.6 million were recorded mainly on small business equipment finance loans, asset-based lending loans, one commercial real estate loan and taxi medallion loans. Net charge-offs were 32 basis points of total loans on an annualized basis.

Non-performing loans increased by $6.9 million to $260.6 million at June 30, 2020 compared to the linked quarter. The increase was mainly due to relationships in asset-based lending, commercial real estate, ADC and small business equipment finance loans. Loans 30 to 89 days past due increased by $3.5 million.

As of June 30, 2020, we had provided loan payment deferrals on loans with outstanding balances of $1.7 billion, or 7.7% of portfolio loans, most of which were for an initial 90-day period, which may be extended for an additional 90-day period at the Bank’s option.

8

Capital

($ in thousands, except share and per share data)As of Change % / bps
 6/30/2019 3/31/2020 6/30/2020 Y-o-Y Linked Qtr
Total stockholders’ equity$4,459,158  $4,422,424  $4,484,187  0.6% 1.4%
Preferred stock138,011  137,363  137,142  (0.6) (0.2)
Goodwill and other intangible assets1,777,748  1,789,646  1,785,446  0.4  (0.2)
Tangible common stockholders’ equity 10$2,543,399  $2,495,415  $2,561,599  0.7  2.7 
Common shares outstanding205,187,243  194,460,656  194,458,805  (5.2)  
Book value per common share$21.06  $22.04  $22.35  6.1  1.4 
Tangible book value per common share 1012.40  12.83  13.17  6.2  2.7 
Tangible common equity to tangible assets 108.94% 8.74% 8.82% (12) 8 
Est. Tier 1 leverage ratio - Company9.57  9.41  9.51  (6) 10 
Est. Tier 1 leverage ratio - Company fully implemented  9.06  9.14  N/A  8 
Est. Tier 1 leverage ratio - Bank9.98  9.99  10.09  11  10 
Est. Tier 1 leverage ratio - Bank fully implemented  9.65  9.69  N/A  4 
          
 10 See a reconciliation of non-GAAP financial measures beginning on page 18.

Total stockholders’ equity increased $61.8 million to $4.5 billion as of June 30, 2020 compared to March 31, 2020. For the second quarter of 2020, net income available to common stockholders of $48.8 million and an increase in accumulated other comprehensive income of $21.0 million was partially offset by common dividends of $13.8 million and preferred dividends of $2.2 million. 

We elected the five-year transition provision to delay for two years the full impact of CECL on regulatory capital, followed by a three-year transition period. The June 30, 2020 fully implemented ratio data reflects the full impact of CECL and excludes the benefits of phase-ins. 

Total goodwill and other intangible assets were $1.8 billion at June 30, 2020, a decrease of $4.2 million compared to March 31, 2020, which was due to amortization.

Basic and diluted weighted average common shares outstanding declined relative to the linked quarter by approximately 2.9 million shares and were 193.5 million shares and 193.6 million shares, respectively. Total common shares outstanding at June 30, 2020 were approximately 194.5 million.

Tangible book value per common share was $13.17 at June 30, 2020, which represented an increase of 6.2% compared to a year ago.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, July 23, 2020 at 8:00 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) 367-2403 Conference ID 7783050. 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.

9

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, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset levels, asset quality, financial position,  plans, operations and prospects. Forward-looking statements involve certain risks, including the effects of the novel coronavirus disease (COVID-19), which include, but are not limited to, the federal, state and local government actions and reactions to COVID-19, the health of our staff and that of our clients, the continuity of our, our clients’ and our third party providers’ operations, the increased likelihood of cyber and payment fraud risk, the continued ability of our borrowers to repay their loans throughout and following the pandemic, the potential decline in collateral values resulting from COVID-19 and its effects, and the resulting impact upon our financial position, results of operations, cash flows and our outlook, as well as the following: 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 six months ended June 30, 2020. 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.

10

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

 6/30/2019 12/31/2019 6/30/2020
Assets:     
Cash and cash equivalents$343,368  $329,151  $324,729 
Investment securities, net5,858,865  5,075,309  4,545,579 
Loans held for sale27,221  8,125  44,437 
Portfolio loans:     
Commercial and industrial (“C&I”)7,514,834  8,232,719  9,166,744 
Commercial real estate (including multi-family)9,714,037  10,295,518  10,402,897 
ADC338,973  467,331  572,558 
Residential mortgage2,535,667  2,210,112  1,938,212 
Consumer266,795  234,532  214,856 
Total portfolio loans, gross20,370,306  21,440,212  22,295,267 
Allowance for credit losses(104,664) (106,238) (365,489)
Total portfolio loans, net20,265,642  21,333,974  21,929,778 
FHLB and Federal Reserve Bank Stock, at cost320,560  251,805  193,666 
Accrued interest receivable106,317  100,312  101,296 
Premises and equipment, net250,155  227,070  226,728 
Goodwill1,657,814  1,683,482  1,683,482 
Other intangibles119,934  110,364  101,964 
BOLI598,880  613,848  620,908 
Other real estate owned13,628  12,189  8,665 
Other assets675,161  840,868  1,058,661 
Total assets$30,237,545  $30,586,497  $30,839,893 
Liabilities:     
Deposits$20,948,464  $22,418,658  $23,600,621 
FHLB borrowings3,766,224  2,245,653  975,058 
Paycheck Protection Program Lending Facility    568,350 
Other borrowings20,901  22,678  26,448 
Senior notes173,800  173,504   
Subordinated notes - Company  270,941  271,096 
Subordinated notes - Bank173,061  173,182  173,307 
Mortgage escrow funds73,176  58,316  69,686 
Other liabilities622,761  693,452  671,140 
Total liabilities25,778,387  26,056,384  26,355,706 
Stockholders’ equity:     
Preferred stock138,011  137,581  137,142 
Common stock2,299  2,299  2,299 
Additional paid-in capital3,757,126  3,766,716  3,755,474 
Treasury stock(447,748) (583,408) (660,223)
Retained earnings969,124  1,166,709  1,160,885 
Accumulated other comprehensive income40,346  40,216  88,610 
Total stockholders’ equity4,459,158  4,530,113  4,484,187 
Total liabilities and stockholders’ equity$30,237,545  $30,586,497  $30,839,893 
      
Shares of common stock outstanding at period end205,187,243  198,455,324  194,458,805 
Book value per common share$21.06  $22.13  $22.35 
Tangible book value per common share112.40  13.09  13.17 
1 See reconciliation of non-GAAP financial measures beginning on page 18.

11

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

  For the Quarter Ended For the Six Months Ended
 6/30/2019 3/31/2020 6/30/2020 6/30/2019 6/30/2020
Interest and dividend income:         
Loans and loan fees$258,283  $235,439  $219,904  $518,578  $455,343 
Securities taxable24,632  20,629  18,855  52,479  39,484 
Securities non-taxable14,423  12,997  12,831  29,280  25,828 
Other earning assets5,119  4,462  1,636  11,520  6,098 
Total interest and dividend income302,457  273,527  253,226  611,857  526,753 
Interest expense:         
Deposits48,129  45,781  28,110  94,124  73,891 
Borrowings22,489  15,974  11,817  50,388  27,791 
Total interest expense70,618  61,755  39,927  144,512  101,682 
Net interest income231,839  211,772  213,299  467,345  425,071 
Provision for credit losses - loans11,500  136,577  56,606  21,700  193,183 
Provision for credit losses - held to maturity securities  1,703      1,703 
Net interest income after provision for credit losses220,339  73,492  156,693  445,645  230,185 
Non-interest income:         
Deposit fees and service charges7,098  6,622  5,345  13,310  11,968 
Accounts receivable management / factoring commissions and other related fees5,794  5,538  4,419  11,217  9,956 
BOLI4,192  5,018  4,950  7,833  9,967 
Loan commissions and fees5,308  11,024  8,003  9,146  19,028 
Investment management fees2,050  1,847  1,379  3,950  3,225 
Net (loss) gain on sale of securities(528) 8,412  485  (13,712) 8,896 
Net gain on security calls  4,880      4,880 
Gain on sale of residential mortgage loans      8,313   
Other3,144  3,985  1,509  6,598  5,496 
Total non-interest income27,058  47,326  26,090  46,655  73,416 
Non-interest expense:         
Compensation and benefits54,473  54,876  54,668  110,463  109,544 
Stock-based compensation plans4,605  6,006  5,913  9,728  11,919 
Occupancy and office operations16,106  15,199  14,695  32,641  29,894 
Information technology9,047  8,018  7,312  17,722  15,330 
Amortization of intangible assets4,785  4,200  4,200  9,611  8,400 
FDIC insurance and regulatory assessments2,994  3,206  3,638  6,332  6,844 
Other real estate owned, net458  52  1,233  675  1,285 
Impairment related to financial centers and real estate consolidation strategy14,398      14,398   
Charge for asset write-downs, systems integration, retention and severance      3,344   
Other20,074  23,156  33,222  37,018  56,378 
Total non-interest expense126,940  114,713  124,881  241,932  239,594 
Income before income tax expense (benefit)120,457  6,105  57,902  250,368  64,007 
Income tax expense (benefit)23,997  (8,042) 7,110  52,471  (932)
Net income96,460  14,147  50,792  197,897  64,939 
Preferred stock dividend1,987  1,976  1,972  3,976  3,948 
Net income available to common stockholders$94,473  $12,171  $48,820  $193,921  $60,991 
Weighted average common shares:         
Basic206,932,114  196,344,061  193,479,757  210,022,967  194,909,498 
Diluted207,376,239  196,709,038  193,604,431  210,419,425  195,168,557 
Earnings per common share:         
Basic earnings per share$0.46  $0.06  $0.25  $0.92  $0.31 
Diluted earnings per share0.46  0.06  0.25  0.92  0.31 
Dividends declared per share0.07  0.07  0.07  0.14  0.14 

12

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 Period6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020
Total assets$30,237,545  $30,077,665  $30,586,497  $30,335,036  $30,839,893 
Tangible assets128,459,797  28,304,702  28,792,651  28,545,390  29,054,447 
Securities available for sale3,843,112  3,061,419  3,095,648  2,660,835  2,620,624 
Securities held to maturity, net2,015,753  1,985,592  1,979,661  1,956,177  1,924,955 
Loans held for sale227,221  4,627  8,125  8,124  44,437 
Portfolio loans20,370,306  20,830,163  21,440,212  21,709,957  22,295,267 
Goodwill1,657,814  1,657,814  1,683,482  1,683,482  1,683,482 
Other intangibles119,934  115,149  110,364  106,164  101,964 
Deposits20,948,464  21,579,324  22,418,658  22,558,280  23,600,621 
Municipal deposits (included above)1,699,824  2,234,630  1,988,047  2,091,259  1,724,049 
Borrowings4,133,986  3,174,224  2,885,958  2,598,698  1,445,909 
Stockholders’ equity4,459,158  4,520,967  4,530,113  4,422,424  4,484,187 
Tangible common equity12,543,399  2,610,205  2,598,686  2,495,415  2,561,599 
Quarterly Average Balances         
Total assets29,666,951  29,747,603  30,349,691  30,484,433  30,732,914 
Tangible assets127,886,066  27,971,485  28,569,589  28,692,033  28,944,714 
Loans, gross:         
Commercial real estate (includes multi-family)9,486,333  9,711,619  10,061,625  10,288,977  10,404,643 
ADC307,290  387,072  459,372  497,009  519,517 
C&I:         
Traditional C&I2,446,676  2,435,644  2,399,901  2,470,570  3,130,248 
Asset-based lending31,070,841  1,151,793  1,137,719  1,107,542  981,518 
Payroll finance3196,160  202,771