SOURCE: Sterling Bancorp

Sterling Bancorp

January 24, 2017 16:15 ET

Sterling Bancorp Announces Record Results for the Three and Twelve Months Ended December 31, 2016

Strong operating momentum continued in the fourth quarter, highlighted by GAAP diluted earnings per share of $0.31, adjusted diluted earnings per share1 of $0.30 and record profitability

MONTEBELLO, NY--(Marketwired - January 24, 2017) -

 
Key Performance Highlights for the Twelve Months ended December 31, 2016 vs. December 31, 2015
 
($ in thousands except per share amounts)  GAAP / As Reported  Non-GAAP / As Adjusted1
   2015  2016  Change % / bps  2015  2016  Change % / bps
Net income  $ 66,114    $ 139,972    111.7 %  $ 105,398    $ 145,518    38.1 %
Diluted EPS   0.60     1.07    78.3     0.96     1.11    15.6  
Net interest margin2   3.60 %   3.44 %  (16 )   3.67 %   3.55 %  (12 )
Return on average tangible equity   8.70     14.34    564     13.86     14.90    104  
Return on average tangible assets   0.73     1.15    42     1.17     1.20    3  
Efficiency ratio3   69.6     52.2    (1,740 )   50.8     46.2    (460 )
  • Total portfolio loans reached a record $9.5 billion as of December 31, 2016.
  • Loan growth was $1.7 billion, or 21.2% (end of period balances, including acquired loans).
  • Loans to deposits ratio of 94.6%; total deposits were $10.1 billion at December 31, 2016.
  • Deposit growth was $1.5 billion, or 17.3% (end of period balances).
  • Core deposit4 growth of $982.7 million, or 12.6% (end of period balances); over $8.8 billion in core deposits.
 
Key Performance Highlights for the Three Months ended December 31, 2016 vs. December 31, 2015
 
($ in thousands except per share amounts)  GAAP / As Reported  Non-GAAP / As Adjusted1
   2015  2016  Change % / bps  2015  2016  Change % / bps
Net income  $ 32,791    $ 40,996    25.0 %  $ 33,525    $ 39,954    19.2 %
Diluted EPS   0.25     0.31    24.0     0.26     0.30    15.4  
Net interest margin2   3.62 %   3.40 %  (22 )   3.68 %   3.52 %  (16 )
Return on average tangible equity   14.28     15.66    138     14.60     15.27    67  
Return on average tangible assets   1.20     1.26    6     1.22     1.23    1  
Efficiency ratio3   51.5     46.3    (520 )   47.6     43.3    (430 )
  • Annualized loan growth of 15.6% (end of period balances, including acquired loans) and 23.8% (average balances, including acquired loans) over the linked quarter.
  • Total deposits decreased $129.0 million over the linked quarter due to seasonal flows in municipal deposits. Total commercial and retail demand deposits grew $105.8 million, or an annualized growth rate of 9.3%.
  • Completed a common equity offering raising $91.0 million in net proceeds; intended use of proceeds is for general corporate purposes, which may include working capital, funding potential acquisitions and other strategic business opportunities.
  • Completed the sale of the trust division in November 2016; realized a net gain on sale of $2.3 million.
  1. Non-GAAP/adjusted measures are defined in the non-GAAP tables beginning on page 16.
  2. Net interest margin as adjusted is equal to net interest margin plus the tax equivalent adjustment for tax exempt securities.
  3. See page 19 for an explanation of the efficiency ratio.
  4. Core deposits include retail, commercial and municipal transaction, money market and savings accounts and exclude certificates of deposit and brokered deposits, except for reciprocal Certificate of Deposit Account Registry balances.

Sterling Bancorp (NYSE: STL) (the "Company"), the parent company of Sterling National Bank (the "Bank"), today announced results for the three and twelve months ended December 31, 2016. Net income for the quarter ended December 31, 2016 was $41.0 million, or $0.31 per diluted share, compared to net income of $37.4 million, or $0.29 per diluted share, for the linked quarter ended September 30, 2016 and net income of $32.8 million, or $0.25 per diluted share, for the fourth quarter of 2015.

Net income for the twelve months ended December 31, 2016 was $140.0 million, or $1.07 per diluted share, compared to net income of $66.1 million, or $0.60 per diluted share for the same period in 2015. Results for 2015 included merger-related expense and other restructuring charges incurred in connection with the Hudson Valley Merger, and the results of operations of Hudson Valley for the period from June 30, 2015 (date of acquisition) through December 31, 2015.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "Our positive momentum in operating performance continued this quarter and throughout 2016, as evidenced by our ability to achieve record volumes in loans, revenues and profitability. As of December 31, 2016, our total assets reached $14.2 billion, compared to $12.0 billion a year ago. Our total portfolio loans ended at $9.5 billion, compared to $7.9 billion a year ago and our total deposits were $10.1 billion, compared to $8.6 billion a year ago. We end 2016 as a substantially larger, more diversified and more profitable company and we are making significant progress towards our goal of creating a high performing regional bank that focuses on serving commercial middle market clients and consumers.

"Our strategic initiatives have remained consistent. In 2016 we continued to grow our loans and deposits organically, recruit new commercial banking teams and augmented organic growth with opportunistic acquisitions of commercial finance businesses and portfolios. We also significantly reduced our network of financial centers and consolidated 12 locations during the year; we constantly evaluate opportunities to further reduce locations and are focused on maintaining a network in which all financial centers meet our profitability and efficiency targets. Finally, we simplified our operations by divesting our residential mortgage originations business and our trust division; these were businesses in which we did not have a competitive advantage and that were not in-line with our commercial banking strategy. We will reallocate the capital and resources from these divestitures to other businesses where we can achieve risk-adjusted returns that exceed our targets.

"The positive impact of our strategic initiatives is demonstrated in our results. For the twelve months ended December 31, 2016, our GAAP net income was $140.0 million, or $1.07 per diluted share. Our adjusted net income was $145.5 million and adjusted diluted earnings per share were $1.11, compared to $105.4 million and $0.96, respectively, for 2015. This represents growth in adjusted earnings and diluted earnings per share of 38.1% and 15.6%, respectively. Our return on average tangible assets for the year was 1.15% and return on average tangible equity was 14.34%. This compares to 0.73% and 8.70%, respectively, for 2015. Our adjusted return on average tangible assets for the year was 1.20% and adjusted return on average tangible equity was 14.90%. This compares to 1.17% and 13.86%, respectively, for 2015.

"Our performance in the fourth quarter was also strong. Our GAAP net income was $41.0 million, or $0.31 per diluted share. Our adjusted net income was $40.0 million and adjusted diluted earnings per share were $0.30, compared to $33.5 million and $0.26, respectively, for the fourth quarter of 2015. This represents growth in adjusted earnings and adjusted diluted earnings per share of 19.2% and 15.4%, respectively. We have continued to focus on increasing our operating leverage. During the quarter, our reported operating efficiency ratio was 46.3% and our adjusted efficiency ratio was 43.3%. This represents an all-time low efficiency ratio and a decrease of 520 and 430 basis points, respectively, relative to the same quarter a year ago.

"We have a strong balance sheet with a diversified loan portfolio that grew by 21.2% in 2016 and which has a balanced mix of 43.8% commercial and industrial loans, 45.9% commercial real estate loans and 10.3% consumer loans. We maintained our loans to deposits ratio within our target range of 90% to 95% throughout the year and closed 2016 with a loans to deposits ratio of 94.6%. Our core deposits grew by $982.7 million, representing a growth rate of 12.6%. We have ample funding and capital to continue executing our strategy. We completed a common equity offering in November 2016 raising $91.0 million in net proceeds and are confident in our ability to continue generating organic growth in loans, deposits and acquisition opportunities.

"Lastly, we have declared a dividend on our common stock of $0.07 per share payable on February 21, 2017 to holders of record as of February 6, 2017. Thank you to all of our clients, employees and stockholders for driving our success in 2016 and we look forward to continue working with all of you in 2017 and beyond."

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
GAAP net income of $41.0 million, or $0.31 per diluted share, for the fourth quarter of 2016, included a pre-tax net loss on sale of securities of $102 thousand, a pre-tax net gain on the sale of the trust division of $2.3 million and the amortization of non-compete agreements and acquired customer list intangibles of $610 thousand. Excluding the impact of these and other items, adjusted net income was $40.0 million, or $0.30 per diluted share.

Non-GAAP financial measures include references to the terms "adjusted" or "excluding". See the reconciliation of the Company's Non-GAAP financial measures beginning on page 16.

 
Net Interest Income and Margin
 
($ in thousands)  For the three months ended  Change % / bps
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Linked Qtr
Interest income  $ 106,224    $ 118,161    $ 123,075    15.9 %  4.2 %
Interest expense   10,803     15,031     15,827    46.5    5.3  
Net interest income  $ 95,421    $ 103,130    $ 107,248    12.4    4.0  
                   
Accretion on acquired loans  $ 7,090    $ 4,381    $ 4,504    (36.5 )%  2.8 %
Yield on loans   4.65 %   4.57 %   4.49 %  (16 )  (8 )
Tax equivalent yield on investment securities   2.66     2.74     2.81    15    7  
Tax equivalent yield on interest earning assets   4.09     4.03     4.02    (7 )  (1 )
Cost of total deposits   0.26     0.37     0.36    10    (1 )
Cost of interest bearing deposits   0.39     0.54     0.53    14    (1 )
Cost of borrowings   2.04     1.75     1.72    (32 )  (3 )
Tax equivalent net interest margin   3.68     3.53     3.52    (16 )  (1 )
                   
Average loans, includes loans held for sale  $ 7,658,651    $ 8,744,508    $ 9,267,290    21.0 %  6.0 %
Average investment securities   2,541,586     2,937,708     2,972,873    17.0    1.2  
Average total earning assets   10,460,168     12,015,838     12,565,744    20.1    4.6  
Average deposits   8,825,557     9,915,494     10,161,022    15.1    2.5  
                   

Fourth quarter 2016 compared with fourth quarter 2015
Net interest income was $107.2 million, an increase of $11.8 million compared to the fourth quarter of 2015. This was mainly due to an increase in average loans originated through our commercial banking teams and the acquisitions of NewStar Business Credit LLC ("NSBC"), which closed on March 31, 2016, and the franchise finance loan portfolio acquired from GE Capital, which closed in September 2016. Other key components of the changes in net interest income were the following:

  • The yield on loans was 4.49%, compared to 4.65% for the three months ended December 31, 2015.
  • Yield on loans included $4.5 million of accretion of the fair value discount associated with prior acquisitions compared to $7.1 million in the fourth quarter of 2015.
  • Average commercial loans were $8.2 billion compared to $6.6 billion in the fourth quarter of 2015, an increase of $1.6 billion or 24.6%.
  • The tax equivalent yield on investment securities increased 15 basis points to 2.81%. Tax exempt securities grew to $1.2 billion for the quarter ended December 31, 2016 compared to $429.6 million in the fourth quarter of 2015.
  • The cost of total deposits was 36 basis points and the cost of borrowings was 1.72%, compared to 26 basis points and 2.04%, respectively, for the same period a year ago.
  • The tax equivalent yield on interest earning assets decreased seven basis points from the fourth quarter of 2015 to 4.02% for the fourth quarter of 2016.
  • Tax equivalent net interest margin was 3.52% compared to 3.68% for the same period a year ago.

Fourth quarter 2016 compared with linked quarter ended September 30, 2016
Net interest income increased $4.1 million compared to the linked quarter ended September 30, 2016. The increase was mainly due to organic loan growth, as the average balance of loans increased $522.8 million for the fourth quarter of 2016 compared to the linked quarter. Net interest income also benefited from accretion of the fair value discount on acquired loans, which was $4.5 million in the fourth quarter of 2016. Average interest bearing deposits increased by $224.6 million and average borrowings increased $193.5 million relative to the linked quarter, which resulted in an increase of $796 thousand in interest expense. The average borrowings included $65.0 million of subordinated notes issued on September 2, 2016, which were fully outstanding for the entire fourth quarter of 2016.

Other key components of the change in net interest income were the following:

  • The yield on loans was 4.49% in the quarter compared to 4.57% in the linked quarter.
  • Average commercial loans were $8.2 billion compared to $7.7 billion in the linked quarter, an increase of $495.2 million, or 25.5% on an annualized basis.
  • The tax equivalent yield on investment securities increased seven basis points to 2.81% in the quarter.
  • The cost of total deposits decreased one basis point to 36 basis points in the quarter. The total cost of borrowings decreased three basis points to 1.72%.
  • The tax equivalent yield on interest earning assets decreased one basis point to 4.02% in the quarter.
  • Tax equivalent net interest margin was 3.52% compared to 3.53% in the linked quarter.
 
Non-interest Income
 
($ in thousands)  For the three months ended  Change %
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Linked Qtr
Total non-interest income  $ 16,081    $ 19,039  $ 16,057    (0.1 )%  (15.7 )%
Net (loss) gain on sale of securities   (121 )   3,433   (102 )  (15.7 )  NM
Net gain on sale of trust division   -     -   2,255    NM  NM
Adjusted non-interest income  $ 16,202    $ 15,606  $ 13,904    (14.2 )  (10.9 )
                  

Fourth quarter 2016 compared with fourth quarter 2015
Excluding net (loss) gain on sale of securities and net gain on sale of the trust division, adjusted non-interest income declined $2.3 million in the fourth quarter of 2016 to $13.9 million compared to $16.2 million in the same quarter last year. The change was mainly due to a decrease in mortgage banking fee income of $2.1 million resulting from the sale of our residential mortgage originations business, which was completed in the third quarter of 2016, and a decrease of $1.1 million in deposit fees and service charges associated mainly with the impact of the Durbin Amendment, which decreased our interchange revenue effective July 1, 2016. Bank owned life insurance income also decreased $459 thousand relative to the same period a year ago. Partially offsetting these decreases was an increase in other non-interest income of $1.9 million, which was due to an increase in letters of credit fees, higher other commissions and loan fees and loan swap fees mainly generated from the NSBC Acquisition and our commercial banking teams.

Fourth quarter 2016 compared with linked quarter ended September 30, 2016
Excluding net (loss) gain on sale of securities and net gain on sale of the trust division, adjusted non-interest income decreased $1.7 million from $15.6 million in the linked quarter ended September 30, 2016 to $13.9 million in the fourth quarter of 2016. This was mainly due to lower accounts receivable and factoring commissions of $750 thousand due to seasonality in the factoring business which experiences peak volumes in the third quarter; lower mortgage banking fee income of $502 thousand as a result of the sale of our residential mortgage originations business; lower investment management fees of $521 thousand due to the sale of the trust division; and lower deposit fees and service charges of $240 thousand. These declines were partially offset by an increase of $869 thousand in other non-interest income due to higher letters of credit fees and higher other commissions and loan fees, which were mainly due to higher loan syndication and loan participation activity.

 
Non-interest Expense
 
($ in thousands)  For the three months ended  Change % / bps
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Linked Qtr
Compensation and benefits  $ 29,868    $ 32,501    $ 32,060    7.3 %  (1.4 )%
Occupancy and office operations   9,306     8,021     8,372    (10.0 )  4.4  
Loss on extinguishment of debt   -     1,013     -    -    (100.0 )
Charge for asset write-downs and severance   -     2,000     -    NM  NM
Other expenses   18,245     18,721     16,640    (8.8 )  (11.1 )
Total non-interest expense  $ 57,419    $ 62,256    $ 57,072    (0.6 )  (8.3 )
Full time equivalent employees ("FTEs") at period end   1,089     995     970    (10.9 )  (2.5 )
Financial centers at period end   52     41     42    (19.2 )  2.4  
Efficiency ratio, as reported   51.5 %   51.0 %   46.3 %  5.2    4.7  
Efficiency ratio, as adjusted   47.6     45.8     43.3    4.3    2.5  
                   

Fourth quarter 2016 compared with fourth quarter 2015
Total non-interest expense decreased $0.3 million relative to the fourth quarter of 2015, from $57.4 million to $57.1 million, in the fourth quarter of 2016. Contributing to the decline in non-interest expense was a decrease of $934 thousand in occupancy and office operations, which was mainly due to the consolidation of 12 financial centers and other locations in 2016. Other expenses declined due to lower amortization of intangible assets of $550 thousand, as certain non-compete intangible assets from prior acquisitions are now fully amortized. Regulatory fees and assessments decreased by $756 thousand, as FDIC deposit insurance fees assessed to the Bank were reduced. Partially offsetting these declines was an increase in compensation and benefits expense of $2.2 million in the fourth quarter of 2016, which is mainly due to an increase in personnel as a result of the NSBC acquisition and the continued growth of our commercial banking teams.

Fourth quarter 2016 compared with linked quarter ended September 30, 2016
Non-interest expense declined $5.2 million from $62.3 million in the linked quarter to $57.1 million in the fourth quarter of 2016. Loss on extinguishment of debt and charge for assets write-downs and severance, which were related to the divestiture of the residential mortgage originations business and the extinguishment of a portion of the Company's senior notes, did not recur in the fourth quarter of 2016. Compensation and benefits expense decreased $441 thousand between the periods, mainly due to the sale of the trust division and the residential mortgage originations business. Partially offsetting these decreases was an increase in occupancy and office operations of $351 thousand due to real estate taxes and higher utilities expense incurred in the fourth quarter of 2016.

Taxes
The Company recorded income tax expense at an effective tax rate of 32.5% for the fourth quarter of 2016, unchanged from the fourth quarter of 2015. The effective tax rate in the linked quarter ended September 30, 2016 was 31.2%. The Company has estimated an effective tax rate of 32.5% for 2016. Based on the continued growth of tax-exempt loans, municipal securities and current tax law, the Company anticipates its effective income tax rate in 2017 will remain between 32% and 33%. However, the effective income tax rate may change materially should changes to current tax law be enacted in 2017. Any changes to current tax law may also have an impact on the Company's deferred tax position.

 
Key Balance Sheet Highlights as of December 31, 2016
 
($ in thousands)  As of  Change % / bps
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Linked Qtr
Total assets  $ 11,955,952    $ 13,617,228    $ 14,178,447    18.6 %  4.1 %
Total portfolio loans, gross   7,859,360     9,168,741     9,527,230    21.2    3.9  
Commercial & industrial ("C&I") loans   3,131,028     4,097,767     4,171,950    33.2    1.8  
Commercial real estate loans   3,715,779     4,107,072     4,374,104    17.7    6.5  
Total commercial loans   6,846,807     8,204,839     8,546,054    24.8    4.2  
Total deposits   8,580,007     10,197,253     10,068,259    17.3    (1.3 )
Core deposits   7,822,636     9,002,188     8,805,301    12.6    (2.2 )
Investment securities   2,643,823     2,797,717     3,069,398    16.1    9.7  
Total borrowings   1,525,344     1,451,526     2,056,612    34.8    41.7  
Loans to deposits   91.6 %   89.9 %   94.6 %  3.0    4.7  
Core deposits to total deposits   91.2     88.3     87.5    (3.70 )  (0.80 )
Investment securities to total assets   22.1     20.5     21.6    (0.5 )  1.1  

Highlights in balance sheet items as of December 31, 2016 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 43.8%, commercial real estate loans represented 43.5%, consumer and residential mortgage loans combined represented 10.3%, and acquisition, development and construction loans represented 2.4% of the total loan portfolio.
  • Commercial loan growth, which includes all C&I loans, commercial real estate and acquisition, development and construction loans, was $1.7 billion for the year ended December 31, 2016, which included $162.0 million of franchise financing loans acquired from GE Capital and $320.4 million of asset-based lending loans acquired from NSBC.
  • Aggregate exposure to taxi medallion relationships was $51.7 million, which represented 0.54% of total loans as of December 31, 2016, compared to $62.0 million, or 0.79% as of December 31, 2015.
  • Total deposits at December 31, 2016 decreased $129.0 million, or 1.3%, compared to September 30, 2016, and increased $1.5 billion, or 17.3%, over December 31, 2015. The decline in deposits was due to seasonal flows in municipal deposits, which typically reach their peak in September in connection with tax collections.
  • Core deposits at December 31, 2016 decreased $196.9 million, or 2.2%, compared to September 30, 2016, due to a seasonal decrease in municipal deposits. Core deposits increased $982.7 million, or 12.6%, over December 31, 2015.
 
Credit Quality
 
($ in thousands)  For the three months ended  Change % / bps
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Linked Qtr
Provision for loan losses  $ 5,500    $ 5,500    $ 5,500    - %  - %
Net charge-offs   2,966     1,960     1,283    (56.7 )  (34.5 )
Allowance for loan losses   50,145     59,405     63,622    26.9    7.1  
Non-performing loans   66,411     81,067     78,853    18.7    (2.7 )
Net charge-offs annualized   0.15 %   0.09 %   0.06 %  9.0    3.0  
Allowance for loan losses to total loans   0.64     0.65     0.67    3.0    2.0  
Total valuation balances recorded against portfolio loans to adjusted gross portfolio loans6   1.16     1.10     1.05    (11.0 )  (5.0 )
Allowance for loan losses to non-performing loans   75.5     73.3     80.7    520    740  

6 See a reconciliation of this non-GAAP financial measure on page 18.

Provision for loan losses was $5.5 million for all periods presented above; in the fourth quarter of 2016, provision for loan losses was $4.2 million greater than net charge-offs of $1.3 million. Allowance coverage ratios increased to 0.67% of total loans and 80.7% of non-performing loans. The increase in non-performing loans at September 30, 2016 compared to December 31, 2015 was mainly due to one taxi medallion relationship; non-performing loans decreased by $2.2 million to $78.9 million relative to the linked quarter.

As a result of purchase accounting, a substantial portion of the loans acquired in prior merger transactions do not have an allocation in the allowance for loan losses as the performance of these loans remains satisfactory. The total valuation balances recorded against portfolio loans to adjusted gross portfolio loans6 was 1.16% and 1.05% at December 31, 2015 and December 31, 2016, respectively.

Aggregate exposure to taxi medallion relationships as of December 31, 2016 was $51.7 million. This represented a decrease of $215 thousand relative to the linked quarter.

 
Capital
 
($ in thousands, except share and per share data)  As of  Change % / bps
   12/31/2015  9/30/2016  12/31/2016  Y-o-Y  Six months
Total stockholders' equity  $ 1,665,073    $ 1,765,160    $ 1,855,183    11.4 %  5.1 %
Goodwill and intangible assets   748,066     765,858     762,953    2.0    (0.4 )
Tangible stockholders' equity  $ 917,007    $ 999,302    $ 1,092,230    19.1    9.3  
Common shares outstanding   130,006,926     130,853,673     135,257,570    4.0    3.4  
Book value per share  $ 12.81    $ 13.49    $ 13.72    7.1    1.7  
Tangible book value per share   7.05     7.64     8.08    14.6    5.8  
Tangible equity to tangible assets   8.18 %   7.78 %   8.14 %  (0.04 )  0.36  
Estimated Tier 1 leverage ratio - Company   9.03     8.31     8.95    (0.08 )  0.64  
Estimated Tier 1 leverage ratio - Bank   9.65     8.72     9.08    (0.57 )  0.36  
                   

The increase in stockholders' equity of $190.1 million to $1.9 billion as of December 31, 2016 compared to December 31, 2015 was mainly the result of net income of $140.0 million, the common equity offering completed in November 2016, which raised $91.0 million in net proceeds, and stock option exercises and stock-based compensation, which totaled $8.4 million. These increases were partially offset by declared dividends of $36.4 million and an increase in other comprehensive loss of $14.5 million. The change in accumulated other comprehensive loss was primarily due to a change in the fair value of our available for sale securities portfolio.

Total goodwill and other intangible assets were $763.0 million at December 31, 2016, an increase of $14.9 million compared to December 31, 2015, which was due to the NSBC Acquisition, and was partially offset by amortization of intangibles of $12.4 million.

For the quarter ended December 31, 2016, basic and diluted weighted average common shares outstanding increased to 132.3 million and 133.0 million, respectively, compared to 130.2 million basic shares and 130.9 million diluted shares, respectively, for the quarter ended September 30, 2016. Total common shares outstanding at December 31, 2016 were approximately 135.3 million.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, January 25, 2017 at 10:30 AM Eastern Time to discuss the Company's results. Interested parties are invited to listen to the webcast and view accompanying slides on the Company's website at www.sterlingbancorp.com. Analysts are invited to listen by dialing (877) 718-5111, Conference ID #2283325. 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 service 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: our ability to successfully implement strategic initiatives, to grow revenues faster than we grow expenses, and to integrate and fully realize cost savings and other benefits we estimate in connection with acquisitions; a deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in the real estate market and constrained financial markets; inflation; the effects of, and changes in, trade; changes in asset quality and credit risk; introduction, withdrawal, success and timing of business initiatives; capital management activities; including our ability to effectively deploy recently raised capital; customer disintermediation; and the success of Sterling Bancorp in managing those risks. Other factors that could cause Sterling Bancorp's actual results to differ from those indicated in forward-looking statements are included in the "Risk Factors" section of Sterling Bancorp's filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made and we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Financial information contained in this release should be considered to be an estimate pending the filing with the Securities and Exchange Commission of the Company's Annual Report on Form 10-K for the year ended December 31, 2016. While the Company is not aware of any need to revise the results disclosed in this release, accounting literature may require information received by management between the date of this release and the filing of the Annual Report on Form 10-K to be reflected in the results of the fiscal period, even though the new information was received by management subsequent to the date of this release.

 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(unaudited, in thousands, except share and per share data)
 
   12/31/2015  9/30/2016  12/31/2016
Assets:            
Cash and cash equivalents  $ 229,513    $ 380,458    $ 293,646  
Investment securities   2,643,823     2,797,717     3,069,398  
Loans held for sale   34,110     81,695     41,889  
Portfolio loans:            
 Commercial and industrial   3,131,028     4,097,767     4,171,950  
 Commercial real estate   3,529,381     3,895,176     4,144,018  
 Acquisition, development and construction   186,398     211,896     230,086  
 Residential mortgage   713,036     672,355     697,108  
 Consumer   299,517     291,547     284,068  
  Total portfolio loans, gross   7,859,360     9,168,741     9,527,230  
 Allowance for loan losses   (50,145 )   (59,405 )   (63,622 )
  Total portfolio loans, net   7,809,215     9,109,336     9,463,608  
Federal Home Loan Bank ("FHLB") and Federal Reserve Bank Stock, at cost   116,758     107,670     135,098  
Accrued interest receivable   31,531     42,107     43,319  
Premises and equipment, net   63,362     58,761     57,318  
Goodwill   670,699     696,600     696,600  
Other intangibles   77,367     69,258     66,353  
Bank owned life insurance   196,288     198,556     199,889  
Other real estate owned   14,614     16,422     13,619  
Other assets   68,672     58,648     97,710  
  Total assets  $ 11,955,952    $ 13,617,228    $ 14,178,447  
Liabilities:            
Deposits  $ 8,580,007    $ 10,197,253    $ 10,068,259  
FHLB borrowings   1,409,885     1,181,498     1,791,000  
Other borrowings   16,566     21,191     16,642  
Senior notes   98,893     76,388     76,469  
Subordinated notes   -     172,449     172,501  
Mortgage escrow funds   13,778     15,836     13,572  
Other liabilities   171,750     187,453     184,821  
  Total liabilities   10,290,879     11,852,068     12,323,264  
Stockholders' equity:            
Common stock   1,367     1,367     1,411  
Additional paid-in capital   1,506,612     1,504,777     1,597,287  
Treasury stock   (76,190 )   (66,262 )   (66,188 )
Retained earnings   245,408     317,385     349,308  
Accumulated other comprehensive (loss) income   (12,124 )   7,893     (26,635 )
 Total stockholders' equity   1,665,073     1,765,160     1,855,183  
  Total liabilities and stockholders' equity  $ 11,955,952    $ 13,617,228    $ 14,178,447  
             
Shares of common stock outstanding at period end   130,006,926     130,853,673     135,257,570  
Book value per share  $ 12.81    $ 13.49    $ 13.72  
Tangible book value per share   7.05     7.64     8.08  
             
 
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED INCOME STATEMENTS
(unaudited, in thousands, except share and per share data)
 
   For the Quarter Ended  For the Year Ended
   12/31/2015  9/30/2016  12/31/2016  12/31/2015  12/31/2016
Interest and dividend income:                    
 Loans and loan fees  $ 89,707    $ 100,503  $ 104,651    $ 292,496  $ 390,847
 Securities taxable   12,201     9,870   9,125     39,369   42,540
 Securities non-taxable   3,139     6,751   8,036     12,076   23,669
 Other earning assets   1,177     1,037   1,263     4,200   4,495
 Total interest and dividend income   106,224     118,161   123,075     348,141   461,551
 Interest expense:                    
 Deposits   5,728     9,201   9,252     17,478   33,189
 Borrowings   5,075     5,830   6,575     19,447   24,093
Total interest expense   10,803     15,031   15,827     36,925   57,282
Net interest income   95,421     103,130   107,248     311,216   404,269
Provision for loan losses   5,500     5,500   5,500     15,700   20,000
Net interest income after provision for loan losses   89,921     97,630   101,748     295,516   384,269
Non-interest income:                    
 Accounts receivable / factoring commissions and other fees   4,389     4,898   4,148     17,088   17,695
 Mortgage banking income   2,762     1,153   651     11,405   6,173
 Deposit fees and service charges   4,241     3,407   3,167     15,871   15,166
 Net (loss) gain on sale of securities   (121 )   3,433   (102 )   4,837   7,522
 Bank owned life insurance   1,792     1,891   1,333     5,235   5,832
 Investment management fees   877     1,086   565     2,397   3,710
 Other   2,141     3,171   6,295     5,918   14,889
Total non-interest income   16,081     19,039   16,057     62,751   70,987
Non-interest expense:                    
 Compensation and benefits   29,868     32,501   32,060     104,939   125,916
 Stock-based compensation plans   1,281     1,673   1,557     4,581   6,518
 Occupancy and office operations   9,306     8,021   8,372     32,915   34,486
 Amortization of intangible assets   3,431     3,241   2,881     10,043   12,416
 FDIC insurance and regulatory assessments   2,287     2,151   1,531     7,380   8,240
 Other real estate owned, net   87     721   206     274   2,051
 Merger-related expenses   -     -   -     17,079   265
 Defined benefit plan termination charge   -     -   -     13,384   -
 Loss on extinguishment of borrowings   -     1,013   -     -   9,729
 Other   11,159     12,935   10,465     69,723   48,281
Total non-interest expense   57,419     62,256   57,072     260,318   247,902
Income before income tax expense   48,583     54,413   60,733     97,949   207,354
Income tax expense   15,792     16,991   19,737     31,835   67,382
Net income  $ 32,791    $ 37,422  $ 40,996    $ 66,114  $ 139,972
Weighted average common shares:                    
 Basic   129,812,551     130,239,193   132,271,761     109,907,645   130,607,994
 Diluted   130,354,779     130,875,614   132,995,762     110,329,353   131,234,462
Earnings per common share:                    
 Basic earnings per share  $ 0.25    $ 0.29  $ 0.31    $ 0.60  $ 1.07
 Diluted earnings per share   0.25     0.29   0.31     0.60   1.07
 Dividends declared per share   0.07     0.07   0.07     0.28   0.28
                   
 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
(unaudited, in thousands, except share and per share data)
 
   As of and for the Quarter Ended
End of Period  12/31/2015  3/31/2016  6/30/2016  9/30/2016  12/31/2016
Total assets  $ 11,955,952  $ 12,865,356  $ 13,065,248  $ 13,617,228  $ 14,178,447
Tangible assets1   11,207,886   12,092,966   12,296,123   12,851,370   13,415,494
Securities available for sale   1,921,032   1,894,820   1,613,013   1,417,617   1,677,977
Securities held to maturity   722,791   952,922   1,367,046   1,380,100   1,391,421
Portfolio loans   7,859,360   8,286,163   8,594,295   9,168,741   9,527,230
Goodwill   670,699   696,600   696,600   696,600   696,600
Other intangibles   77,367   75,790   72,525   69,258   66,353
Deposits   8,580,007   9,328,622   9,785,556   10,197,253   10,068,259
Municipal deposits (included above)   1,140,206   1,285,264   1,184,231   1,551,147   1,270,921
Borrowings   1,525,344   1,675,508   1,309,954   1,451,526   2,056,612
Stockholders' equity   1,665,073   1,698,133   1,735,994   1,765,160   1,855,183
Tangible equity1   917,007   925,743   966,869   999,302   1,092,230
Quarterly Average Balances                    
Total assets   11,622,621   12,001,370   12,700,038   13,148,201   13,671,676
Tangible assets1   10,872,287   11,253,958   11,929,107   12,380,448   12,907,133
Loans, gross:                    
 Commercial real estate (includes multi-family)   3,444,774   3,587,341   3,694,162   3,823,853   3,963,216
 Acquisition, development and construction   181,550   179,420   197,489   215,798   224,735
 Commercial and industrial:                    
  Traditional commercial and industrial   1,232,941   1,201,960   1,229,473   1,274,194   1,383,013
  Asset based lending   304,113   304,779   636,383   640,931   700,285
  Payroll finance   199,856   192,428   187,887   162,938   218,365
  Warehouse lending   293,387   248,831   301,882   404,156   551,746
  Factored receivables   210,081   181,974   183,051   200,471   231,554
  Equipment financing   587,445   616,995   630,922   652,531   586,078
  Public sector finance   145,701   179,147   226,929   350,244   361,339
   Total commercial and industrial   2,973,524   2,926,114   3,396,527   3,685,465   4,032,380
 Residential mortgage   777,561   755,564   729,685   727,304   759,692
 Consumer   281,242   297,028   295,666   292,088   287,267
Loans, total2   7,658,651   7,745,467   8,313,529   8,744,508   9,267,290
Securities (taxable)   2,111,953   2,139,547   2,032,518   1,838,775   1,814,649
Securities (non-taxable)   429,633   593,777   837,133   1,098,933   1,158,224
Other interest earning assets   259,931   401,565   375,244   333,622   325,581
Total earning assets   10,460,168   10,880,356   11,558,424   12,015,838   12,565,744
Deposits:                    
 Non-interest bearing demand   3,017,727   3,009,085   3,059,562   3,196,204   3,217,156
 Interest bearing demand   1,485,690   1,607,227   2,016,365   2,107,669   2,116,708
 Savings (including mortgage escrow funds)   962,766   814,485   809,123   827,647   798,090
 Money market   2,808,734   2,866,666   3,056,188   3,174,536   3,395,542
 Certificates of deposit   550,640   619,154   620,759   609,438   633,526
Total deposits and mortgage escrow   8,825,557   8,916,617   9,561,997   9,915,494   10,161,022
Borrowings   988,550   1,274,605   1,304,442   1,324,001   1,517,482
Stockholders' equity   1,661,282   1,686,274   1,711,902   1,751,414   1,805,790
Tangible equity1   910,948   938,862   940,971   983,661   1,041,247

1 See a reconciliation of this non-GAAP financial measure on page 16.
2 Includes loans held for sale, but excludes allowance for loan losses.

 
 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA AND PERFORMANCE RATIOS
(unaudited, in thousands, except share and per share data)
 
   As of and for the Quarter Ended
Per Share Data    12/31/2015   3/31/2016    6/30/2016    9/30/2016   12/31/2016
Basic earnings per share  $ 0.25   $ 0.18   $ 0.29   $ 0.29   $ 0.31  
Diluted earnings per share   0.25    0.18    0.29    0.29    0.31  
Adjusted diluted earnings per share, non-GAAP1   0.26    0.25    0.27    0.29    0.30  
Dividends declared per share   0.07    0.07    0.07    0.07    0.07  
Book value per share   12.81    13.01    13.29    13.49    13.72  
Tangible book value per share   7.05    7.09    7.40    7.64    8.08  
Shares of common stock o/s   130,006,926    130,548,989    130,620,463    130,853,673    135,257,570  
Basic weighted average common shares o/s   129,812,551    129,974,025    130,081,465    130,239,193    132,271,761  
Diluted weighted average common shares o/s   130,354,779    130,500,975    130,688,729    130,875,614    132,995,762  
            
Performance Ratios (annualized)                
Return on average assets   1.12 %  0.80 %  1.20 %  1.13 %  1.19 %
Return on average equity   7.83 %  5.67 %  8.87 %  8.50 %  9.03 %
Return on average tangible assets, as reported1   1.20 %  0.85 %  1.27 %  1.20 %  1.26 %
Return on average tangible equity, as reported1   14.28 %  10.18 %  16.14 %  15.13 %  15.66 %
Return on average tangible assets, as adjusted1   1.22 %  1.15 %  1.19 %  1.21 %  1.23 %
Return on average tangible equity, as adjusted1   14.60 %  13.78 %  15.14 %  15.28 %  15.27 %
Efficiency ratio, as adjusted1   47.6 %  48.9 %  47.2 %  45.8 %  43.3 %
            
Analysis of Net Interest Income                
Yield on loans   4.65 %  4.62 %  4.68 %  4.57 %  4.49 %
Yield on investment securities - tax equivalent2   2.66 %  2.65 %  2.76 %  2.74 %  2.81 %
Yield on interest earning assets - tax equivalent2   4.09 %  4.00 %  4.09 %  4.03 %  4.02 %
Cost of total deposits   0.26 %  0.29 %  0.35 %  0.37 %  0.36 %
Cost of borrowings   2.04 %  1.92 %  1.73 %  1.75 %  1.72 %
Cost of interest bearing liabilities   0.63 %  0.70 %  0.72 %  0.74 %  0.74 %
Net interest rate spread - tax equivalent basis2   3.46 %  3.30 %  3.37 %  3.29 %  3.28 %
Net interest margin - GAAP basis   3.62 %  3.46 %  3.49 %  3.41 %  3.40 %
Net interest margin - tax equivalent basis2   3.68 %  3.53 %  3.60 %  3.53 %  3.52 %
                 
Capital                
Tier 1 leverage ratio - Company3   9.03 %  8.60 %  8.36 %  8.31 %  8.95 %
Tier 1 leverage ratio - Bank only3   9.65 %  9.16 %  8.84 %  8.72 %  9.08 %
Tier 1 risk-based capital ratio - Bank only3   11.45 %  10.89 %  10.70 %  10.42 %  10.86 %
Total risk-based capital ratio - Bank only3   12.00 %  12.60 %  12.37 %  12.66 %  13.05 %
Tangible equity to tangible assets - Company1   8.18 %  7.66 %  7.86 %  7.78 %  8.14 %
                 
Condensed Five Quarter Income Statement                
Interest and dividend income  $ 106,224   $ 106,006   $ 114,309   $ 118,161   $ 123,075  
Interest expense   10,803    12,496    13,929    15,031    15,827  
Net interest income   95,421    93,510    100,380    103,130    107,248  
Provision for loan losses   5,500    4,000    5,000    5,500    5,500  
Net interest income after provision for loan losses   89,921    89,510    95,380    97,630    101,748  
Non-interest income   16,081    15,430    20,442    19,039    16,057  
Non-interest expense   57,419    68,931    59,640    62,256    57,072  
Income before income tax expense   48,583    36,009    56,182    54,413    60,733  
Income tax expense   15,792    12,243    18,412    16,991    19,737  
Net income  $ 32,791   $ 23,766   $ 37,770   $ 37,422   $ 40,996  
                 

1 See a reconciliation of non-GAAP financial measures beginning on page 16.
2 Tax equivalent basis represents interest income earned on municipal securities divided by the applicable Federal tax rate of 35%.
3 Regulatory capital amounts and ratios are preliminary estimates pending filing of the Company's and Bank's regulatory reports.

 
 
Sterling Bancorp and Subsidiaries
ASSET QUALITY INFORMATION
(unaudited, in thousands, except share and per share data)
 
   As of and for the Quarter Ended
Allowance for Loan Losses Roll Forward  12/31/2015  3/31/2016  6/30/2016  9/30/2016  12/31/2016
Balance, beginning of period  $ 47,611    $ 50,145    $ 53,014     55,865    $ 59,405  
Provision for loan losses   5,500     4,000     5,000     5,500     5,500  
Loan charge-offs1:                    
 Traditional commercial & industrial   (281 )   (489 )   (429 )   (570 )   (219 )
 Asset based lending   -     -     -     -     -  
 Payroll finance   -     -     (28 )   -     -  
 Factored receivables   (21 )   (81 )   (792 )   (60 )   (267 )
 Equipment financing   (1,463 )   (457 )   (572 )   (377 )   (576 )
 Commercial real estate   (1,134 )   (4 )   (100 )   (630 )   (225 )
 Multi-family   -     -     (18 )   (399 )   -  
 Acquisition development & construction   -     -     -     -     -  
 Residential mortgage   (524 )   (224 )   (209 )   (338 )   (274 )
 Consumer   (810 )   (511 )   (532 )   (259 )   (313 )
  Total charge offs   (4,233 )   (1,766 )   (2,680 )   (2,633 )   (1,874 )
Recoveries of loans previously charged-off1:                    
 Traditional commercial & industrial   675     313     153     381     152  
 Asset based lending   -     16     46     -     -  
 Payroll finance   24     4     28     -     -  
 Factored receivables   14     24     17     10     10  
 Equipment financing   409     108     102     123     227  
 Commercial real estate   56     21     53     111     168  
 Multi-family   9     2     -     -     -  
 Acquisition development & construction   43     -     104     -     -  
 Residential mortgage   -     28     1     -     1  
 Consumer   37     119     27     48     33  
  Total recoveries   1,267     635     531     673     591  
Net loan charge-offs   (2,966 )   (1,131 )   (2,149 )   (1,960 )   (1,283 )
Balance, end of period  $ 50,145    $ 53,014    $ 55,865    $ 59,405    $ 63,622  
                
Asset Quality Data and Ratios                    
Non-performing loans ("NPLs") non-accrual  $ 65,737    $ 84,436    $ 79,036    $ 77,794    $ 77,163  
NPLs still accruing   674     1,002     528     3,273     1,690  
Total NPLs   66,411     85,438     79,564     81,067     78,853  
 Other real estate owned   14,615     14,527     16,590     16,422     13,619  
 Non-performing assets ("NPAs")  $ 81,026    $ 99,965    $ 96,154    $ 97,489    $ 92,472  
 Loans 30 to 89 days past due  $ 67,996    $ 19,168    $ 18,653    $ 17,683    $ 15,100  
 Net charge-offs as a % of average loans (annualized)   0.15 %   0.06 %   0.10 %   0.09 %   0.06 %
 NPLs as a % of total loans   0.84     1.03     0.93     0.88     0.83  
 NPAs as a % of total assets   0.68     0.78     0.74     0.72     0.65  
 Allowance for loan losses as a % of NPLs   75.5     62.0     70.2     73.3     80.7  
 Allowance for loan losses as a % of total loans   0.64     0.64     0.65     0.65     0.67  
 Total valuation balances recorded against portfolio loans to adjusted gross portfolio loans2   1.16     1.17     1.11     1.10     1.05  
 Special mention loans  $ 68,003    $ 101,560    $ 103,710    $ 101,784    $ 104,569  
 Substandard loans   129,665     131,919     125,571     112,551     95,152  
 Doubtful loans   713     556     330     932     541  

1 There were no charge-offs or recoveries on warehouse lending or public sector finance in the period presented above.
2 See a reconciliation of this non-GAAP financial measure on page 18.

 
 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
 
   For the Quarter Ended
   September 30, 2016  December 31, 2016
   Average
balance
 Interest  Yield/Rate  Average
balance
 Interest  Yield/Rate
   (Dollars in thousands)
Interest earning assets:                      
 Commercial loans  $ 7,725,116    $ 89,905    4.63 %  $ 8,220,331    $ 94,043    4.55 %
 Consumer loans   292,088     3,269    4.45 %   287,267     3,187    4.41 %
 Residential mortgage loans   727,304     7,329    4.03 %   759,692     7,422    3.91 %
Total net loans1   8,744,508     100,503    4.57 %   9,267,290     104,652    4.49 %
 Securities taxable   1,838,775     9,870    2.14 %   1,814,649     9,993    2.19 %
 Securities non-taxable   1,098,933     10,386    3.78 %   1,158,224     11,027    3.81 %
 Interest earning deposits   230,478     167    0.29 %   215,120     200    0.37 %
 FHLB and Federal Reserve Bank stock   103,144     870    3.36 %   110,461     1,063    3.83 %
  Total securities and other earning assets   3,271,330     21,293    2.59 %   3,298,454     22,283    2.69 %
 Total interest earning assets   12,015,838     121,796    4.03 %   12,565,744     126,935    4.02 %
Non-interest earning assets   1,132,363            1,105,932         
Total assets  $ 13,148,201           $ 13,671,676         
Interest bearing liabilities:                      
 Demand deposits  $ 2,107,669    $ 1,856    0.35 %  $ 2,116,708    $ 1,763    0.33 %
 Savings deposits2   827,647     1,515    0.73 %   798,090     1,285    0.64 %
 Money market deposits   3,174,536     4,357    0.55 %   3,395,542     4,693    0.55 %
 Certificates of deposit   609,438     1,473    0.96 %   633,526     1,511    0.95 %
Total interest bearing deposits   6,719,290     9,201    0.54 %   6,943,866     9,252    0.53 %
 Senior notes   90,953.847     1,328    5.84 %   76,415     1,113    5.79 %
 Other borrowings   1,104,581     2,733    0.98 %   1,268,591     3,113    0.98 %
 Subordinated notes   128,466     1,769    5.51 %   172,476     2,349    5.42 %
  Total borrowings   1,324,001     5,830    1.75 %   1,517,482     6,575    1.72 %
 Total interest bearing liabilities   8,043,291     15,031    0.74 %   8,461,348     15,827    0.74 %
Non-interest bearing deposits   3,196,204            3,217,156         
Other non-interest bearing liabilities   157,292            187,382         
Total liabilities   11,396,787            11,865,886         
 Stockholders' equity   1,751,414            1,805,790         
Total liabilities and stockholders' equity  $ 13,148,201           $ 13,671,676         
Net interest rate spread3          3.29 %          3.28 %
Net interest earning assets4  $ 3,972,547           $ 4,104,396         
Net interest margin - tax equivalent       106,765    3.53 %       111,108    3.52 %
Less tax equivalent adjustment       (3,635 )          (3,860 )   
Net interest income      $ 103,130           $ 107,248     
Ratio of interest earning assets to interest bearing liabilities   149.4 %          148.5 %       

1 Average balances include the effect of net deferred loan origination fees and costs, allowance for loan losses and non-accrual loans. Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

 
 
Sterling Bancorp and Subsidiaries
QUARTERLY YIELD TABLE
(unaudited, in thousands, except share and per share data)
 
   For the Quarter Ended
   December 31, 2015  December 31, 2016
   Average
balance
 Interest  Yield/Rate  Average
balance
 Interest  Yield/Rate
   (Dollars in thousands)
Interest earning assets:                      
 Commercial loans  $ 6,599,848    $ 79,009    4.75 %  $ 8,220,331    $ 94,043    4.55 %
 Consumer loans   281,242     3,158    4.45 %   287,267     3,187    4.41 %
 Residential mortgage loans   777,561     7,540    3.88 %   759,692     7,422    3.91 %
 Total net loans1   7,658,651     89,707    4.65 %   9,267,290     104,652    4.49 %
 Securities taxable   2,111,953     12,201    2.29 %   1,814,649     9,993    2.19 %
 Securities non-taxable   429,633     4,831    4.50 %   1,158,224     11,027    3.81 %
 Interest earning deposits   168,199     77    0.18 %   215,120     200    0.37 %
 FHLB and Federal Reserve Bank stock   91,732     1,100    4.76 %   110,461     1,063    3.83 %
  Total securities and other earning assets   2,801,517     18,209    2.58 %   3,298,454     22,283    2.69 %
 Total interest earning assets   10,460,168     107,916    4.09 %   12,565,744     126,935    4.02 %
Non-interest earning assets   1,162,453            1,105,932         
Total assets  $ 11,622,621           $ 13,671,676         
Interest bearing liabilities:                      
 Demand deposits  $ 1,485,690    $ 890    0.24 %  $ 2,116,708    $ 1,763    0.33 %
 Savings deposits2   962,766     617    0.25 %   798,090     1,285    0.64 %
 Money market deposits   2,808,734     3,283    0.46 %   3,395,542     4,693    0.55 %
 Certificates of deposit   550,640     938    0.68 %   633,526     1,511    0.95 %
 Total interest bearing deposits   5,807,830     5,728    0.39 %   6,943,866     9,252    0.53 %
 Senior notes   98,827     1,476    5.93 %   76,415     1,113    5.79 %
 Other borrowings   889,723     3,599    1.60 %   1,268,591     3,113    0.98 %
 Subordinated notes   -     -    - %   172,476     2,349    5.42 %
  Total borrowings   988,550     5,075    2.04 %   1,517,482     6,575    1.72 %
 Total interest bearing liabilities   6,796,380     10,803    0.63 %   8,461,348     15,827    0.74 %
Non-interest bearing deposits   3,017,727            3,217,156         
Other non-interest bearing liabilities   147,232            187,382         
Total liabilities   9,961,339            11,865,886         
 Stockholders' equity   1,661,282            1,805,790         
Total liabilities and stockholders' equity  $ 11,622,621           $ 13,671,676         
Net interest rate spread3          3.46 %          3.28 %
Net interest earning assets4  $ 3,663,788           $ 4,104,396         
Net interest margin - tax equivalent       97,113    3.68 %       111,108    3.52 %
Less tax equivalent adjustment       (1,692 )          (3,860 )   
Net interest income      $ 95,421           $ 107,248     
Ratio of interest earning assets to interest bearing liabilities   153.9 %          148.5 %       

1 Average balances include the effect of net deferred loan origination fees and costs, allowance for loan losses and non-accrual loans. Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

 
 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors. See legend on page 18.
 
   As of and for the Quarter Ended
   12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
 
The following table shows the reconciliation of stockholders' equity to tangible equity and the tangible equity ratio1:
                 
Total assets  $ 11,955,952   $ 12,865,356   $ 13,065,248   $ 13,617,228   $ 14,178,447  
Goodwill and other intangibles   (748,066 )  (772,390 )  (769,125 )  (765,858 )  (762,953 )
Tangible assets   11,207,886    12,092,966    12,296,123    12,851,370    13,415,494  
Stockholders' equity   1,665,073    1,698,133    1,735,994    1,765,160    1,855,183  
Goodwill and other intangibles   (748,066 )  (772,390 )  (769,125 )  (765,858 )  (762,953 )
Tangible stockholders' equity   917,007    925,743    966,869    999,302    1,092,230  
Common stock outstanding at period end   130,006,926    130,548,989    130,620,463    130,853,673    135,257,570  
Stockholders' equity as a % of total assets   13.93 %  13.20 %  13.29 %  12.96 %  13.08 %
Book value per share  $ 12.81   $ 13.01   $ 13.29   $ 13.49   $ 13.72  
Tangible equity as a % of tangible assets   8.18 %  7.66 %  7.86 %  7.78 %  8.14 %
Tangible book value per share  $ 7.05   $ 7.09   $ 7.40   $ 7.64   $ 8.08  
                 
 
The following table shows the reconciliation of reported return on average tangible equity and adjusted return on average tangible equity2:
                 
Average stockholders' equity  $ 1,661,282   $ 1,686,274   $ 1,711,902   $ 1,751,414   $ 1,805,790  
Average goodwill and other intangibles   (750,334 )  (747,412 )  (770,931 )  (767,753 )  (764,543 )
Average tangible stockholders' equity   910,948    938,862    940,971    983,661    1,041,247  
Net income   32,791    23,766    37,770    37,422    40,996  
Net income, if annualized   130,095    95,586    151,910    148,874    163,093  
Reported return on average tangible equity   14.28 %  10.18 %  16.14 %  15.13 %  15.66 %
Adjusted net income (see reconciliation on page 17)  $ 33,525   $ 32,159   $ 35,414   $ 37,793   $ 39,954  
Annualized adjusted net income   133,007    129,343    142,434    150,350    158,947  
Adjusted return on average tangible equity   14.60 %  13.78 %  15.14 %  15.28 %  15.27 %
                 
The following table shows the reconciliation of reported return on tangible assets and adjusted return on tangible assets3:
                 
Average assets  $ 11,622,621   $ 12,001,370   $ 12,700,038   $ 13,148,201   $ 13,671,676  
Average goodwill and other intangibles   (750,334 )  (747,412 )  (770,931 )  (767,753 )  (764,543 )
Average tangible assets   10,872,287    11,253,958    11,929,107    12,380,448    12,907,133  
Net income   32,791    23,766    37,770    37,422    40,996  
Net income, if annualized   130,095    95,586    151,910    148,874    163,093  
Reported return on average tangible assets   1.20 %  0.85 %  1.27 %  1.20 %  1.26 %
Adjusted net income (see reconciliation on page 17)  $ 33,525   $ 32,159   $ 35,414   $ 37,793   $ 39,954  
Annualized adjusted net income   133,007    129,343    142,434    150,350    158,947  
Adjusted return on average tangible assets   1.22 %  1.15 %  1.19 %  1.21 %  1.23 %
                 
 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors. See legend on page 18.
 
   As of and for the Quarter Ended
   12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016
 
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
                 
Net interest income  $ 95,421   $ 93,510   $ 100,380   $ 103,130   $ 107,248  
Non-interest income   16,081    15,430    20,442    19,039    16,057  
Total net revenue   111,502    108,940    120,822    122,169    123,305  
Tax equivalent adjustment on securities   1,690    2,091    3,162    3,635    3,860  
Net loss (gain) on sale of securities   121    283    (4,474 )  (3,433 )  102  
Net (gain) on sale of trust division   -    -    -    -    (2,255 )
Adjusted total net revenue   113,313    111,314    119,510    122,371    125,012  
Non-interest expense   57,419    68,931    59,640    62,256    57,072  
Merger-related expense   -    (265 )  -    -    -  
Charge for asset write-downs, retention and severance   -    (2,485 )  -    (2,000 )  -  
Loss on extinguishment of borrowings   -    (8,716 )  -    (1,013 )  -  
Amortization of intangible assets   (3,431 )  (3,053 )  (3,241 )  (3,241 )  (2,881 )
Adjusted non-interest expense   53,988    54,412    56,399    56,002    54,191  
Reported efficiency ratio   51.5 %  63.3 %  49.4 %  51.0 %  46.3 %
Adjusted efficiency ratio   47.6    48.9    47.2    45.8    43.3  
                 
The following table shows the reconciliation of reported net income (GAAP) and adjusted net income (non-GAAP) and adjusted diluted earnings per share5:
                 
Income before income tax expense  $ 48,583   $ 36,009   $ 56,182   $ 54,413   $ 60,733  
Income tax expense   15,792    12,243    18,412    16,991    19,737  
Net income (GAAP)   32,791    23,766    37,770    37,422    40,996  
                 
Adjustments:                
 Net loss (gain) on sale of securities   121    283    (4,474 )  (3,433 )  102  
 Net (gain) on sale of trust division   -    -    -    -    (2,255 )
 Merger-related expense   -    265    -    -    -  
 Charge for asset write-downs, retention and severance   -    2,485    -    2,000    -  
 Loss on extinguishment of borrowings   -    8,716    -    1,013    -  
 Amortization of non-compete agreements and acquired customer list intangible assets   961    968    969    970    610  
Total adjustments   1,082    12,717    (3,505 )  550    (1,543 )
Income tax (benefit) expense   (348 )  (4,324 )  1,149    (179 )  501  
Total adjustments net of taxes   734    8,393    (2,356 )  371    (1,042 )
Adjusted net income (non-GAAP)  $ 33,525   $ 32,159   $ 35,414   $ 37,793   $ 39,954  
                 
Weighted average diluted shares   130,354,779    130,500,975    130,688,729    130,875,614    132,995,762  
Diluted EPS as reported (GAAP)  $ 0.25   $ 0.18   $ 0.29   $ 0.29   $ 0.31  
Adjusted diluted EPS (non-GAAP)   0.26    0.25    0.27    0.29    0.30  
                                
 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors. See legend below.
 
   As of and for the Quarter Ended
   12/31/2015  3/31/2016  6/30/2016  9/30/2016  12/31/2016
 
The following table shows a reconciliation of the allowance for loan losses and remaining purchase accounting adjustments to portfolio loans6:
Allowance for loan losses  $ 50,145    $ 53,014    $ 55,865    $ 59,405    $ 63,622  
Remaining purchase accounting adjustments:                    
 Acquired performing loans   24,766     27,340     23,802     26,003     22,199  
 Purchased credit impaired loans   16,617     16,862     15,955     15,513     14,813  
  Total remaining purchase accounting adjustments   41,383     44,202     39,757     41,516     37,012  
Total valuation balances recorded against portfolio loans  $ 91,528    $ 97,216    $ 95,622    $ 100,921    $ 100,634  
                     
Total portfolio loans, gross  $ 7,859,360    $ 8,286,163    $ 8,594,295    $ 9,168,741    $ 9,527,230  
Remaining purchase accounting adjustments:                    
 Acquired performing loans   24,766     27,340     23,802     26,003     22,199  
 Purchased credit impaired loans   16,617     16,862     15,955     15,513     14,813  
Adjusted portfolio loans, gross  $ 7,900,743    $ 8,330,365    $ 8,634,052    $ 9,210,257    $ 9,564,242  
Allowance for loan losses to total portfolio loans, gross   0.64 %   0.64 %   0.65 %   0.65 %   0.67 %
Total valuation balances recorded against portfolio loans to adjusted gross portfolio loans   1.16 %   1.17 %   1.11 %   1.10 %   1.05 %
                     
   For the Year Ended
December 31,
   2015  2016
       
The following table shows the reconciliation of reported net income (GAAP) and adjusted net income (non-GAAP) and adjusted diluted earnings per share5:
Income before income tax expense  $ 97,949    $ 207,354  
Income tax expense   31,835     67,382  
Net income (GAAP)   66,114     139,972  
         
Adjustments:        
 Net (gain) on sale of securities   (4,837 )   (7,522 )
 Net (gain) on sale of trust division   -     (2,255 )
 Merger-related expense   17,079     265  
 Charge for asset write-downs, retention and severance   29,046     4,485  
 Loss on extinguishment of borrowings   -     9,729  
 Charge on benefit plan settlement   13,384     -  
 Amortization of non-compete agreements and acquired customer list intangible assets   3,526     3,514  
Total adjustments   58,198     8,216  
Income tax (benefit)   (18,914 )   (2,670 )
Total adjustments net of taxes   39,284     5,546  
Adjusted net income (non-GAAP)  $ 105,398    $ 145,518  
         
Weighted average diluted shares   110,329,353     131,234,462  
Diluted EPS as reported (GAAP)  $ 0.60    $ 1.07  
Adjusted diluted EPS (non-GAAP)   0.96     1.11  
         
   For the Year Ended
December 31,
   2015  2016
 
The following table shows the reconciliation of reported return on tangible equity and adjusted return on tangible equity2:
Average stockholders' equity  $ 1,360,859    $ 1,739,073  
Average goodwill and other intangibles   (600,605 )   (762,679 )
Average tangible stockholders' equity   760,254     976,394  
Net income  $ 66,114    $ 139,972  
Reported return on average tangible equity   8.70 %   14.34 %
Adjusted net income (see reconciliation on page 20)  $ 105,398    $ 145,518  
Adjusted return on average tangible equity   13.86 %   14.90 %
 
The following table shows the reconciliation of reported return on tangible assets and adjusted return on tangible assets3:
Average assets  $ 9,604,256    $ 12,883,226  
Average goodwill and other intangibles   (600,605 )   (762,679 )
Average tangible assets   9,003,651     12,120,547  
Net income   66,114     139,972  
Reported return on average tangible assets   0.73 %   1.15 %
Adjusted net income  $ 105,398    $ 145,518  
Adjusted return on average tangible assets   1.17 %   1.20 %
 
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
Net interest income  $ 311,216    $ 404,269  
Non-interest income   62,751     70,987  
Total net revenues   373,967     475,256  
Tax equivalent adjustment on securities   6,503     12,745  
Net (gain) on sale of securities   (4,837 )   (7,522 )
Net (gain) on sale of trust division   -     (2,255 )
Adjusted total net revenue   375,633     478,224  
Non-interest expense   260,318     247,902  
Merger-related expense   (17,079 )   (265 )
Charge for asset write-downs, retention and severance   (29,046 )   (4,485 )
Loss on extinguishment of borrowings   -     (9,729 )
Charge on benefit plan settlement   (13,384 )   -  
Amortization of intangible assets   (10,043 )   (12,416 )
Adjusted non-interest expense   190,766     221,007  
Reported efficiency ratio   69.6 %   52.2 %
Adjusted efficiency ratio   50.8 %   46.2 %
         

The non-GAAP/adjusted measures presented above are used by our management and the Company's Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance and to assess our performance compared to our annual budget and strategic plans. These non-GAAP/adjusted financial measures complement our GAAP reporting and are presented above to provide investors, analysts, regulators and others information that we use to manage and evaluate our performance each period. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. When non-GAAP/adjusted measures are impacted by income tax expense, we present the pre-tax amount for the income and expense items that result in the non-GAAP adjustments and present the income tax expense impact at the effective tax rate in effect for the period presented.

1 Stockholders' equity as a percentage of total assets, book value per share, tangible equity as a percentage of tangible assets and tangible book value per share provides information to help assess our capital position and financial strength. We believe tangible book measures improve comparability to other banking organizations that have not engaged in acquisitions that have resulted in the accumulation of goodwill and other intangible assets.

2 Reported return on average tangible equity and adjusted return on average tangible equity measures provide information to evaluate the use of our tangible equity.

3 Reported return on tangible assets and adjusted return on tangible assets measures provide information to help assess our profitability.

4 The reported operating efficiency ratio is a non-GAAP measure calculated by dividing our GAAP non-interest expense by the sum of our GAAP net interest income plus GAAP non-interest income. The adjusted operating efficiency ratio is a non-GAAP measure calculated by dividing non-interest expense adjusted for intangible asset amortization and certain expenses generally associated with discrete merger transactions and non-recurring strategic plans by the sum of net interest income plus non-interest income plus the tax equivalent adjustment on securities income and elimination of the impact of gain or loss on sale of securities. The adjusted operating efficiency ratio is a measure we use to assess our operating performance.

5 Adjusted net income and adjusted earnings per share present a summary of our earnings which includes adjustments to exclude certain revenues and expenses (generally associated with discrete merger transactions and non-recurring strategic plans) to help in assessing our profitability.

6 The reconciliation of the allowance for loan losses and remaining purchase accounting adjustments to portfolio loans provides information to evaluate the impact of purchase accounting adjustments and the allowance for loan losses on our portfolio loans. In purchase accounting, the prior allowance for loan losses is not carried over, and in place, we are required to estimate the fair value of the loan, which includes an estimate of life of loan losses on the portfolio, which is included as a purchase discount within the acquired loan portfolio.

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