Sterling Bancorp announces results for the third quarter of 2020 with diluted income per share available to common stockholders of $0.43 (as reported) and $0.45 (as adjusted)

Company Release - 10/21/2020 4:10 PM ET

Key Performance Highlights for the third quarter of 2020

  • Adjusted PPNR excluding accretion income1, 2 of $123.3 million; growth of 8.3% over linked quarter.
  • Net interest margin excluding accretion income1 of 3.10%, an increase of five basis points (“bps”) over the linked quarter.
  • Total commercial loans were $20.3 billion, an increase of 11.7% over a year ago.
  • Total deposits increased to $24.3 billion and the cost of total deposits was 31 bps, a decrease of 17 bps relative to the linked quarter. Utilized excess liquidity to reduce wholesale borrowings by $1.0 billion. Cost of total funding liabilities decreased by 21 bps to 42 bps.
  • Adjusted non-interest expense1 was $105.8 million, a decrease of $2.0 million relative to the linked quarter. Severance expense was $2.2 million.
  • NPLs decreased by $79.8 million to $180.9 million; ACL / total loans of 1.46% and ACL / NPLs of 180.2%.
  • Total loan payment deferrals were $466.2 million, which represented 2.1% of total portfolio loans.
  • TCE / TA1 was 9.15% and tangible book value per common share1 was $13.57, an increase of 5.2% over a year ago
  • Declared dividend per common share of $0.07.
  • Entered into agreement to sell $267.6 million of PPP loans; anticipated to close in October 2020.
  • Reinstated common stock repurchase program in Q4 2020. 

Results for the Three Months ended September 30, 2020 vs. September 30, 2019

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 9/30/2019 9/30/2020 Change
% / bps
 9/30/2019 9/30/2020 Change
% / bps
Total assets$30,077,665  $30,617,722  1.8 % $30,077,665  $30,617,722  1.8 %
Total portfolio loans, gross20,830,163  22,281,940  7.0   20,830,163  22,281,940  7.0  
Total deposits21,579,324  24,255,333  12.4   21,579,324  24,255,333  12.4  
PPNR1, 2168,696  126,687  (24.9)  131,944  123,286  (6.6) 
Net income available to common120,465  82,438  (31.6)  105,629  87,682  (17.0) 
Diluted EPS available to common0.59  0.43  (27.1)  0.52  0.45  (13.5) 
Net interest margin3.36% 3.19% (17)  3.42% 3.24% (18) 
Tangible book value per common share1$12.90  $13.57  5.2   $12.90  $13.57  5.2  

Results for the Three Months ended September 30, 2020 vs. June 30, 2020

($ in thousands except per share amounts)GAAP / As Reported Non-GAAP / As Adjusted1
 6/30/2020 9/30/2020 Change   % / bps 6/30/2020 9/30/2020 Change   % / bps
PPNR1, 2$114,508  $126,687  10.6   $113,832  $123,286  8.3  
Net income available to common48,820  82,438  68.9   56,926  87,682  54.0  
Diluted EPS available to common0.25  0.43  72.0   0.29  0.45  55.2  
Net interest margin3.15% 3.19% 4   3.20% 3.24% 4  
Operating efficiency352.2  48.5  (370)  45.1  43.1  (200) 
Allowance for credit losses (“ACL”) - loans$365,489  $325,943  (10.8)  $365,489  $325,943  (10.8) 
ACL to portfolio loans1.64% 1.46% (18)  1.64% 1.46% (18) 
ACL to NPLs140.2  180.2  40   140.2  180.2  40  
Tangible book value per common share1$13.17  $13.57  3.0   $13.17  $13.57  3.0  

1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 18.
2. PPNR represents pretax pre-provision net revenue. PPNR and PPNR excluding accretion income are non-GAAP measures and are measured as 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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PEARL RIVER, N.Y., Oct. 21, 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 nine months ended September 30, 2020. Net income available to common stockholders for the three months ended September 30, 2020 was $82.4 million, or $0.43 per diluted share, compared to net income available to common stockholders of $48.8 million, or $0.25 per diluted share, for the linked quarter ended June 30, 2020, and net income available to common stockholders of $120.5 million, or $0.59 per diluted share, for the three months ended September 30, 2019.

Net income available to common stockholders for the nine months ended September 30, 2020 was $143.4 million, or $0.74 per diluted share, compared to net income available to common stockholders of $314.4 million, or $1.51 per diluted share, for the nine months ended September 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. The dedication of our colleagues, diversification of our business and high quality of our loan and deposit relationships is evident in our results. Through these unprecedented times, we have demonstrated strong profitability, managed our earning assets and funding liabilities, proactively addressed troubled credits, supported borrowers through various loan modification and assistance programs, and have continued to grow our tangible capital and tangible book value per common share.

“Our profitability remains strong, as our adjusted PPNR excluding accretion income was $123.3 million, an increase of 8.3% relative to the linked quarter. Our adjusted net income available to common stockholders was $87.7 million, or $0.45 per diluted share. For the quarter ended September 30, 2020, provision for credit losses - portfolio loans was $31.0 million. As of September 30, 2020, our allowance for credit losses - portfolio loans was $325.9 million, or 1.46% of total loans and 180.2% of non-performing loans.

“We continue to effectively manage our balance sheet against a challenging interest rate environment. Our total deposits were $24.3 billion and core deposit growth was $658.8 million over the linked quarter. We substantially reduced our funding costs, as our cost of total deposits declined 17 basis points and our cost of total funding liabilities declined 21 basis points. Business development and loan origination activities have begun to recover. Total commercial loans grew to $20.3 billion, an increase of 11.7% over last year. Although we continued to experience pressure on earning asset yields, our balance sheet actions allowed us to grow our net interest income by $4.5 million relative to the linked quarter and increase our tax equivalent net interest margin excluding accretion income by five basis points to 3.10%.

“Our adjusted non-interest expenses were $105.8 million and our adjusted operating efficiency ratio was 43.1%. Operating expenses included severance compensation of $2.2 million, which was mainly related to a staffing model redesign program in our financial centers. Total FTEs decreased from 1,617 at June 30, 2020 to 1,466 at September 30, 2020. We constantly evaluate our businesses and operations to identify opportunities to become more efficient. 

“Our top priority continues to be to work with clients and address credit issues early. As of September 30, 2020, the majority of our clients on loan payment deferrals as of the prior quarter had resumed making payments; total loan payment deferrals decreased to $466.2 million and were 2.1% of total portfolio loans. In the third quarter, we also sold our small balance transportation finance loans and the majority of our non-performing residential mortgage loans. These transactions included assets that did not meet our risk-adjusted return targets and were not core to our strategy.

“We have a strong capital position, as our tangible common equity to tangible assets ratio increased 33 basis points in the third quarter and was 9.15% and our Tier 1 leverage ratio was 9.93%. We declared our regular dividend of $0.07 on our common stock, payable on November 16, 2020 to holders of record as of November 2, 2020. We also reinstated our common stock repurchase program in the fourth quarter of 2020; the program had 16.7 million shares available for repurchase as of September 30, 2020.

“We recently announced several technology and digital initiatives that will augment our Brio Direct deposit platform and position us for continued growth. These included launching our Banking as a Service program, our strategic alliance with Cashfac for automated deposit account opening tools and implementing Skye, our automated client service agent. We are investing for the future, and are confident that these investments will drive scalable and efficient growth in our business and revenues.

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

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $82.4 million, or $0.43 per diluted share, for the third quarter of 2020, included the following items:

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  • a pre-tax gain of $642 thousand on the sale of investment securities;
  • a pre-tax loss of $6.2 million related to the early redemption of $450.0 million of Federal Home Loan Bank (“FHLB”) borrowings; and
  • 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 $87.7 million, or $0.45 per diluted share, for the three months ended September 30, 2020. Our estimated annual effective income tax rate for the third quarter of 2020 is 12.5%.

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
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Interest and dividend income$295,209  $253,226  $244,658  (17.1)% (3.4)%
Interest expense71,888  39,927  26,834  (62.7)  (32.8) 
Net interest income$223,321  $213,299  $217,824  (2.5)  2.1  
          
Accretion income on acquired loans$17,973  $10,086  $9,172  (49.0)% (9.1)%
Yield on loans4.97% 4.03% 3.82% (115)  (21) 
Tax equivalent yield on investment securities42.85  3.05  3.09  24   4  
Tax equivalent yield on interest earning assets44.50  3.79  3.63  (87)  (16) 
Cost of total deposits0.92  0.48  0.31  (61)  (17) 
Cost of interest bearing deposits1.16  0.61  0.40  (76)  (21) 
Cost of borrowings2.41  2.26  1.95  (46)  (31) 
Cost of interest bearing liabilities1.40  0.78  0.53  (87)  (25) 
Total cost of funding liabilities51.16  0.63  0.42  (74)  (21) 
Tax equivalent net interest margin63.42  3.20  3.24  (18)  4  
          
Average commercial loans$17,596,552  $19,715,184  $20,090,445  14.2 % 1.9 %
Average loans, including loans held for sale20,302,887  21,940,636  22,159,535  9.1   1.0  
Average cash balances304,820  455,626  424,249  39.2   (6.9) 
Average investment securities5,439,886  4,630,056  4,392,864  (19.2)  (5.1) 
Average total interest earning assets26,354,394  27,240,114  27,163,337  3.1   (0.3) 
Average deposits and mortgage escrow20,749,885  23,463,937  23,665,916  14.1   0.9  

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.

Third quarter 2020 compared with third quarter 2019
Net interest income was $217.8 million for the quarter ended September 30, 2020, a decrease of $5.5 million compared to the third quarter of 2019. This was mainly due to a decline in accretion income on acquired loans. Other key components of changes in net interest income were the following:

  • The yield on loans was 3.82% compared to 4.97% for the three months ended September 30, 2019. The decrease in yield on loans was mainly due to the decline in market interest rates. Accretion income on acquired loans was $9.2 million in the third quarter of 2020, compared to $18.0 million in the third quarter of 2019.
  • The tax equivalent yield on investment securities was 3.09% compared to 2.85% for the three months ended September 30, 2019. Average investment securities were $4.4 billion, or 16.2%, of average total interest earning assets for the third quarter of 2020 compared to $5.4 billion, or 20.6%, of average total interest earning assets for the third quarter of 2019. The increase in yield was mainly due to the sale of lower yielding securities in 2019.

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  • In the third quarter of 2020, average cash balances were $424.2 million compared to $304.8 million in the third 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 wholesale borrowings.
  • The tax equivalent yield on interest earning assets decreased 87 basis points to 3.63% mainly due to changes in market rates of interest.
  • Total interest expense was $26.8 million, a decline of $45.1 million compared to the third quarter of 2019. This was mainly due to lower interest expense paid on deposits and repayment of higher cost FHLB borrowings.
  • The cost of total deposits was 31 basis points for the third quarter of 2020 compared to 92 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 1.95% for the third quarter of 2020 compared to 2.41% 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 0.53% for the third quarter of 2020 compared to 1.40% for the same period a year ago. The decline was due to both changes in market rates of interest and changes in funding mix.
  • Average interest bearing deposits increased $1.8 billion during the third quarter of 2020 compared to the same period a year ago, due to growth generated by our commercial banking teams and financial centers. Average borrowings decreased $2.1 billion compared to the third quarter of 2019.

The tax equivalent net interest margin was 3.24% for the third quarter of 2020 compared to 3.42% for the third quarter of 2019. Excluding accretion income, tax equivalent net interest margin was 3.10% for the third quarter of 2020 compared to 3.15% for the third quarter of 2019.

Third quarter 2020 compared with linked quarter ended June 30, 2020
Net interest income increased $4.5 million for the quarter ended September 30, 2020 compared to the linked quarter. The increase was mainly due to a decrease in interest expense. Other key components of the changes in net interest income were the following:

  • The yield on loans was 3.82% compared to 4.03% for the linked quarter. The decrease was mainly due to a decline in market interest rates and the repricing of floating rate loans. Accretion income on acquired loans decreased $914 thousand to $9.2 million for the third quarter of 2020.
  • The average balance of commercial loans increased $375.3 million and the average balance of residential mortgage loans declined $144.0 million.
  • The total balance outstanding of Paycheck Protection Program (“PPP”) loans was $649.0 million at the end of the third quarter of 2020. We recognized $1.5 million in PPP loan fees as interest income in the third quarter of 2020, compared to $4.3 million in the linked quarter. 
  • The tax equivalent yield on investment securities was 3.09% compared to 3.05% 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 3.63% compared to 3.79% in the linked quarter as maturing loans are repricing to market and mortgage warehouse and public sector finance loans are increasing relative to the rest of the portfolio.
  • The cost of total deposits decreased 17 basis points to 31 basis points, mainly due to improving conditions in our deposit markets and our deposit pricing strategies.
  • The total cost of borrowings decreased 31 basis points to 1.95%, mainly due to the repayment of higher cost FHLB borrowings and the redemption of our senior notes.
  • Average deposits and mortgage escrow increased by $202.0 million and average borrowings decreased by $353.1 million relative to the linked quarter.
  • Total interest expense decreased $13.1 million from the linked quarter as a result of continued repricing of deposits, maturity of the senior notes acquired in the merger with Astoria Financial Corporation (“Astoria”) and repayment of higher cost FHLB borrowings.

The tax equivalent net interest margin was 3.24% compared to 3.20% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin increased five basis points to 3.10%.

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Non-interest Income

($ in thousands)For the three months ended Change %
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Deposit fees and service charges$6,582  $5,345  $5,960  (9.5)% 11.5 %
Accounts receivable management / factoring commissions and other related fees6,049  4,419  5,393  (10.8)% 22.0 %
Bank owned life insurance (“BOLI”)8,066  4,950  5,363  (33.5)% 8.3 %
Loan commissions and fees6,285  8,003  7,290  16.0 % (8.9)%
Investment management fees1,758  1,379  1,735  (1.3)% 25.8 %
Net gain on sale of securities6,882  485  642  (90.7)% 32.4 %
Gain on termination of pension plan12,097      NM NM
Other4,111  1,509  1,842  (55.2)% 22.1 %
Total non-interest income51,830  26,090  28,225  (45.5)% 8.2 %
Net gain on sale of securities6,882  485  642  (90.7)% 32.4 %
Gain on termination of pension plan12,097      NM NM
Adjusted non-interest income$32,851  $25,605  $27,583  (16.0)% 7.7 %
                    

Third quarter 2020 compared with third quarter 2019
Adjusted non-interest income decreased $5.3 million in the third quarter of 2020 to $27.6 million, compared to $32.9 million in the same quarter last year. The change was mainly due to lower BOLI income and lower swap fees. In the three months ended September 30, 2019 we restructured the BOLI assets acquired in the merger with Astoria by reallocating funds to more diversified investment asset classes. Loan swap fees, which are included in other income, declined $2.5 million.

In the third quarter of 2020, we realized a gain of $642 thousand on the sale of investment securities compared to $6.9 million in the year earlier period.

In the third quarter of 2019, we realized a gain on termination of pension plan of $12.1 million upon the termination and full settlement of the Astoria defined benefit pension plan.

Third quarter 2020 compared with linked quarter ended June 30, 2020
Adjusted non-interest income increased approximately $2.0 million relative to the linked quarter to $27.6 million. The majority of fee income line items started to recover in the third quarter due to higher transaction activity, mainly driven by increases in accounts receivable management / factoring commissions and other related fees. Loan commissions and fees, which are closely linked to loan origination activity declined compared to the second quarter due to lower syndication fees. 

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Non-interest Expense

($ in thousands)For the three months ended Change % / bps
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Compensation and benefits$52,850  $54,668  $55,960  5.9 % 2.4 %
Stock-based compensation plans4,565  5,913  5,869  28.6   (0.7) 
Occupancy and office operations15,836  14,695  14,722  (7.0)  0.2  
Information technology8,545  7,312  8,422  (1.4)  15.2  
Amortization of intangible assets4,785  4,200  4,200  (12.2)    
FDIC insurance and regulatory assessments3,194  3,638  3,332  4.3   (8.4) 
Other real estate owned (“OREO”), net79  1,233  151  91.1   (87.8) 
Loss on extinguishment of borrowings  9,723  6,241     (35.8) 
Other expenses16,601  23,499  20,465  23.3   (12.9) 
Total non-interest expense$106,455  $124,881  $119,362  12.1   (4.4) 
Full time equivalent employees (“FTEs”) at period end1,689  1,617  1,466  (13.2)  (9.3) 
Financial centers at period end87  78  78  (10.3)    
Operating efficiency ratio, as reported838.7% 52.2% 48.5% 980   (370) 
Operating efficiency ratio, as adjusted839.1  45.1  43.1  400   (200) 

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

Third quarter 2020 compared with third quarter 2019
Total non-interest expense increased $12.9 million relative to the third quarter of 2019. Key components of the change in non-interest expense between the periods were the following:

  • Compensation and benefits increased $3.1 million between the periods, mainly due to severance costs of for displaced personnel incurred in the third quarter of 2020 in the amount of $2.2 million. Total FTEs declined to 1,466 from 1,689, which was mainly related to a financial center staffing model redesign. Decreases in financial center personnel have been offset by hiring of information technology, and risk management personnel.
  • Occupancy and office operations expense decreased $1.1 million, mainly due to the consolidation of financial centers and other back-office locations. We consolidated 9 financial centers in the past twelve months.
  • Loss on extinguishment of borrowings in the third quarter of 2020 was incurred in connection with the repayment of $450.0 million of FHLB advances.
  • Other expenses increased $3.9 million to $20.5 million, mainly due to $3.1 million of depreciation expense on operating leases acquired in the fourth quarter of 2019. The remainder of the increase was mainly due to an increase in other post-retirement expense.

Third quarter 2020 compared with linked quarter ended June 30, 2020
Total non-interest expense decreased $5.5 million to $119.4 million in the third quarter of 2020.  Key components of the change in non-interest expense were the following:

  • Compensation and benefits increased $1.3 million to $56.0 million in the third quarter of 2020. The increase was mainly due to severance costs discussed above.
  • Information technology increased $1.1 million to $8.4 million in the third quarter of 2020. The increase was mainly due to amortization of investments related to various back-office automation and digital loan and deposit product initiatives.
  • Loss on extinguishment of borrowings in the quarter ended June 30, 2020 was incurred in connection with the repayment of $500.0 million of FHLB advances.
  • Other expenses declined by $3.0 million, mainly as pandemic-related operating expense of $3.7 million did not recur in the third quarter of 2020.

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Taxes
We recorded income tax expense of $12.3 million in the third quarter of 2020, compared to income tax expense of $7.1 million in the linked quarter and income tax expense of $32.5 million in the year earlier period. For the three months ended September 30, 2020 and June 30, 2020, we recorded income tax expense at an estimated effective income tax rate of 12.5%. For the three months ended September 30, 2019 we recorded income tax expense at an estimated effective income tax rate of 21.0%.

Our estimated effective income tax rate for full year 2020 prior to discrete items is 12.5%. Discrete items will include the impact of vesting of stock-based compensation and net operating loss provisions of the CARES Act. Our actual income tax rate for the full year 2020 is anticipated to be between 9.0% and 10.0%.

Key Balance Sheet Highlights as of September 30, 2020

($ in thousands)As of  Change % / bps
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Total assets$30,077,665  $30,839,893  $30,617,722  1.8 % (0.7)%
Total portfolio loans, gross20,830,163  22,295,267  22,281,940  7.0   (0.1) 
Commercial & industrial (“C&I”) loans7,792,569  9,166,744  9,331,717  19.8   1.8  
Commercial real estate loans (including multi-family)9,977,839  10,402,897  10,377,282  4.0   (0.2) 
Acquisition, development and construction (“ADC”) loans433,883  572,558  633,166  45.9   10.6  
Total commercial loans18,204,291  20,142,199  20,342,165  11.7   1.0  
Residential mortgage loans2,370,216  1,938,212  1,739,563  (26.6)  (10.2) 
BOLI609,720  620,908  625,236  2.5   0.7  
Core deposits920,296,395  21,904,429  22,563,276  11.2   3.0  
Total deposits21,579,324  23,600,621  24,255,333  12.4   2.8  
Municipal deposits (included in core deposits)2,234,630  1,724,049  2,397,072  7.3   39.0  
Investment securities, net5,047,011  4,545,579  4,201,350  (16.8)  (7.6) 
Total borrowings3,174,224  2,014,259  993,535  (68.7)  (50.7) 
Loans to deposits96.5% 94.5% 91.9% (460)  (260) 
Core deposits to total deposits94.1  92.8  93.0  (110)  20  
Investment securities, net to earning assets19.1  16.7  15.6  (350)  (110) 

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 September 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 41.8% 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 8.7% of total portfolio loans; and ADC loans represented 2.9% of total portfolio loans, respectively. At September 30, 2019, C&I loans represented 37.4%; commercial real estate loans represented 47.9%; consumer and residential mortgage loans combined represented 12.6%; and ADC loans represented 2.1% of total portfolio loans, respectively. In the third quarter of 2020 we sold $106.2 million of equipment finance loans, which represented the remaining balance of our small balance transportation finance loans.
  • Residential mortgage loans were $1.7 billion at September 30, 2020, a decline of $198.6 million from the linked quarter and a decline of $630.7 million from the same period a year ago. In the third quarter of 2020, we sold non-performing residential mortgage-loans with a net book value of $53.2 million.
  • The balance of BOLI increased by $4.3 million relative to the prior quarter and was $625.2 million at September 30, 2020. 
  • Core deposits at September 30, 2020 were $22.6 billion and increased $658.8 million compared to June 30, 2020, and increased $2.3 billion compared to September 30, 2019. The growth was mainly due to successful commercial banking and financial center deposit gathering strategies and the increase in deposits that has occurred since the outset of the pandemic. 
  • Total deposits at September 30, 2020 increased $654.7 million compared to June 30, 2020, and total deposits increased $2.7 billion compared to September 30, 2019. The increase was mainly due to the same factors as the change in core deposits.

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  • Municipal deposits at September 30, 2020 were $2.4 billion, an increase of $673.0 million relative to June 30, 2020. The increase was associated with seasonal tax collections by local municipalities.
  • Investment securities, net decreased by $344.2 million from June 30, 2020 and $845.7 million from September 30, 2019, and represented 15.6% of earning assets at September 30, 2020.  In the third quarter we sold securities from our held to maturity portfolio that had demonstrated significant credit deterioration since the date of purchase.
  • Total borrowings at September 30, 2020 were $993.5 million, a decrease of $1.0 billion relative to June 30, 2020 and $2.2 billion relative to September 30, 2019. The sale of securities and deposit inflows allowed us to reduce borrowings. Included in total borrowings at September 30, 2020 was $117.5 million from the Federal Reserve Bank PPP Liquidity Facility, which represented a decline of $450.9 million compared to June 30, 2020. 

Credit Quality

($ in thousands)For the three months ended Change % / bps
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Provision for credit losses$13,700  $56,606  $31,000  126.3 % (45.2)%
Net charge-offs13,629  17,561  70,546  417.6   301.7  
Allowance for credit losses (“ACL”) - loans104,735  365,489  325,943  211.2   (10.8) 
Loans 30 to 89 days past due accruing64,756  66,268  68,979  6.5   4.1  
Non-performing loans190,966  260,605  180,851  (5.3)  (30.6) 
Annualized net charge-offs to average loans0.27% 0.32% 1.27% 100   95  
Special mention loans136,972  141,805  204,267  49.1   44.0  
Substandard loans277,975  415,917  375,427  35.1   (9.7) 
ACL - loans to total loans0.50  1.64  1.46  96   (18) 
ACL - loans to non-performing loans54.8  140.2  180.2  12,540   4,000  
                 

For the three months ended September 30, 2020, provision for credit losses on portfolio loans was $31.0 million, which was $39.5 million less than net charge-offs. The provision for credit losses was based on our reasonable and supportable forecasts of future macroeconomic scenarios used to estimate expected credit losses. ACL - loans was $325.9 million, or 1.46% of total portfolio loans compared to 1.64% at June 30, 2020, and increased to 180.2% of non-performing loans from 140.2% at June 30, 2020.

Net charge-offs were $70.5 million in the third quarter of 2020. We sold $53.2 million of non-performing residential mortgage loans and $106.2 million of small balance transportation finance loans in the period, which resulted in aggregate charge-offs of $57.4 million. These charge-offs had been previously reserved at June 30, 2020 in our ACL - loans. Other net charge-offs in the third quarter were $13.1 million, and consisted mainly of asset-based lending loans, factored receivables, traditional C&I and commercial real estate loans.

Non-performing loans declined by $79.8 million to $180.9 million at September 30, 2020 compared to the linked quarter. Loans 30 to 89 days past due were $69.0 million an increase of $2.7 million over the linked quarter.

8

At September 30, 2020, loan payment deferrals declined significantly from the second quarter end as pandemic restrictions have been lifted and the businesses of commercial borrowers have proven more resilient than initially expected. The outstanding balances of loans under a full payment deferral were the following for the periods shown:

($ in millions)6/30/2020 9/30/2020 Change
 Amount Percentage Amount Percentage  
Traditional C&I$213  6.3% $23  0.7% $(190) 
Commercial finance237  14.1  77  4.9  (160) 
Commercial real estate749  12.9  140  2.4  (609) 
Multi-family198  4.3  38  0.8  (160) 
ADC17  3.0      (17) 
Total commercial1,414  7.0  278  1.4  (1,136) 
Residential293  15.1  176  10.1  (117) 
Consumer19  9.0  12  6.2  (7) 
Total$1,726  7.7% $466  2.1% $(1,260) 
                   

Note: commercial finance includes asset-based lending, equipment finance, factored receivables, mortgage warehouse lending, payroll finance and public sector finance loans. Note there were no deferrals of asset-based lending, factored receivables, mortgage warehouse lending or public sector finance loans for either period. There were no payroll finance loan deferrals at September 30, 2020.

Capital

($ in thousands, except share and per share data)As of Change % / bps
 9/30/2019 6/30/2020 9/30/2020 Y-o-Y Linked Qtr
Total stockholders’ equity$4,520,967  $4,484,187  $4,557,785  0.8 % 1.6 %
Preferred stock137,799  137,142  136,917  (0.6)  (0.2) 
Goodwill and other intangible assets1,772,963  1,785,446  1,781,246  0.5   (0.2) 
Tangible common stockholders’ equity 10$2,610,205  $2,561,599  $2,639,622  1.1   3.0  
Common shares outstanding202,392,884  194,458,805  194,458,841  (3.9)    
Book value per common share$21.66  $22.35  $22.73  4.9   1.7  
Tangible book value per common share 1012.90  13.17  13.57  5.2   3.0  
Tangible common equity as a % of tangible assets 109.22% 8.82% 9.15% (7)  33  
Est. Tier 1 leverage ratio - Company9.78  9.51  9.93  15   42  
Est. Tier 1 leverage ratio - Company fully implemented  9.14  9.59  N/A 45  
Est. Tier 1 leverage ratio - Bank10.08  10.09  10.48  40   39  
Est. Tier 1 leverage ratio - Bank fully implemented  9.69  10.13  N/A 44  
          
 10 See a reconciliation of non-GAAP financial measures beginning on page 18.
 

Total stockholders’ equity increased $73.6 million to $4.6 billion as of September 30, 2020 compared to $4.5 billion as of June 30, 2020. For the third quarter of 2020, net income $84.4 million and stock-based compensation activity that totaled $5.7 million and was partially offset by common dividends of $13.5 million, preferred dividends of $2.2 million and an other comprehensive loss of $744 thousand. 

We elected the five-year transition provision to delay for two years the full impact of the Current Expected Credit Losses (“CECL”) methodology on regulatory capital, followed by a three-year transition period. The September 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 September 30, 2020, a decrease of $4.2 million compared to June 30, 2020, which was due to amortization.

Basic and diluted weighted average common shares outstanding were relatively unchanged during the third quarter as stock option exercises were offset by shares returned in payment of taxes on vested awards. Total common shares outstanding at September 30, 2020 were approximately 194.5 million.

9

Tangible book value per common share was $13.57 at September 30, 2020, which represented an increase of 5.2% compared to a year ago.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, October 22, 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) 263-0877 Conference ID 8762366. 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, 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 nine months ended September 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)

 9/30/2019 12/31/2019 9/30/2020
Assets:     
Cash and cash equivalents$545,603   $329,151   $437,558  
Investment securities, net5,047,011   5,075,309   4,201,350  
Loans held for sale4,627   8,125   36,826  
Portfolio loans:     
Commercial and industrial (“C&I”)7,792,569   8,232,719   9,331,717  
Commercial real estate (including multi-family)9,977,839   10,295,518   10,377,282  
Acquisition, development and construction (“ADC”) loans433,883   467,331   633,166  
Residential mortgage2,370,216   2,210,112   1,739,563