Sterling Bancorp Announces Results for the Three Months Ended March 31, 2016

MONTEBELLO, NY--(Marketwired - April 26, 2016) -

• Total revenue² was $109.2 million.
• Core net income¹ was $32.2 million compared to $18.5 million for the first quarter of 2015, an increase of 73.8%.
• Core diluted earnings per share¹ were $0.25, which represented growth of 19.0% over the first quarter of 2015.
• Tax equivalent net interest margin was 3.53% compared to 3.64% in the first quarter of 2015.
• Total non-interest income excluding securities losses was $15.7 million, which represented 14.4% of total revenue² and growth of 25.9% over the first quarter of 2015.
• Core operating efficiency ratio¹ was 48.9% compared to 56.4% in the first quarter of 2015.
• Annualized commercial loan³ growth of 25.0% (end of period balances including acquired loans) and 5.6% (average balances) over the linked quarter.
• Annualized core deposit⁴ growth of 36.6% (end of period balances) over the linked quarter.
• Loans to deposits ratio of 88.8%; total deposits were $9.3 billion with over 91.5% core deposits⁴ and a total cost of deposits of 0.29%.
• Core return on average tangible assets¹ was 1.15% compared to 1.07% in the first quarter of 2015.
• Core return on average tangible equity¹ was 13.78% compared to 12.66% in the first quarter of 2015.
• Completed a $110.0 million subordinated notes offering at Sterling National Bank, adding to Tier 2 capital.
• Completed the acquisition of NewStar Business Credit, LLC ("NSBC") doubling the size of our asset-based loan portfolio to $629.8 million.
• Announced the pending sale of our trust division to Midland States Bank, expected to be complete in Q3 2016.
• Repayment of $220.0 million of Federal Home Loan Bank ("FHLB") advances with a weighted average rate of 4.17%.

1. Core measures are defined in the non-GAAP tables beginning on page 12.
2. Total revenue is equal to net interest income plus non-interest income excluding securities gains and losses.
3. Commercial loans include commercial real estate, commercial and industrial and acquisition, development and construction loans.
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 parent company of Sterling National Bank (the "Company"), today announced results for the three months ended March 31, 2016. Net income for the quarter was $23.8 million, or $0.18 per diluted share, compared to net income of $32.8 million, or $0.25 per diluted share, for the linked quarter ended December 31, 2015 and net income of $16.8 million, or $0.19 per diluted share, for the first quarter of 2015.

Net income for the first quarter of 2016 was negatively impacted by a loss on extinguishment of FHLB borrowings, merger related expenses and other restructuring charges, which are detailed in our Non-GAAP Financial Measures beginning on page 12.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "Our positive momentum in operating performance continued this quarter, highlighted by strong profitability and significant growth in loans and deposits. As of March 31, 2016, our total assets reached $12.9 billion, compared to $7.7 billion a year ago. We are well-positioned for future growth and continue to execute our strategy of creating a high performing regional bank that focuses on serving commercial middle market clients and consumers.

"Core net income for the quarter was $32.2 million and core diluted earnings per share were $0.25, compared to $18.5 million and $0.21, respectively, for the same quarter a year ago. This represents growth of 73.8% and 19.0%, respectively, between the two periods. Our core return on average tangible assets was 1.15% and core return on average tangible equity was 13.78%. This compares to 1.07% and 12.66%, respectively, for the same quarter a year ago.

"On March 31, 2016, we completed the acquisition of NSBC, doubling the size of our asset-based lending business. The transaction exceeds all of our acquisition criteria; it is expected to be accretive to earnings per share, has an estimated internal rate of return greater than 20% and a tangible book value earn-back period of less than 2.5 years. Furthermore, the acquired loans are all floating-rate loans and have an attractive yield greater than 5%.

"We are focused on creating positive operating leverage and becoming a more efficient company. In the first quarter, we consolidated four financial centers bringing our total to 48 locations as of March 31, 2016. We expect to consolidate five additional financial centers in the second quarter of 2016. Additionally, we announced the sale of our trust division, which we expect to complete in the third quarter of 2016. We will continue to evaluate opportunities to create a more efficient, commercial client-focused bank. For the quarter, our core operating efficiency ratio was 48.9%, which compares to 56.4% in the same quarter last year.

"We continue to experience strong organic and acquired loan growth across multiple asset classes. As of March 31, 2016, total portfolio loans were $8.3 billion, which represented annualized growth of 21.8% over year end. Including the acquisition of NSBC, our commercial loan balances grew $425.5 million during the quarter, which represented annualized growth of 25.0% over the linked quarter end.

"As of March 31, 2016, our total deposits were $9.3 billion. Our core deposits were $8.5 billion, which represented 91.5% of our total deposit balances. Our total cost of deposits was 0.29% for the three months ended March 31, 2016. Our strong commercial deposit growth will allow us to continue reducing expenses and capital investments associated with our financial centers and enhance our ability to grow profitability.

"We continue to focus on diversifying and improving our revenue mix. Non-interest income excluding securities gains/losses was $15.7 million for the quarter, which represented 14.4% of total revenue and growth of 25.9% over the same quarter a year ago. We expect to continue growing our diversified commercial lending businesses, which are strong fee income generators, and we will continue to actively evaluate opportunistic acquisitions.

"Net charge-offs against the allowance for loan losses for the three months ended March 31, 2016 were $1.1 million, or 0.06% on an annualized basis, compared to $3.0 million, or 0.15% on an annualized basis, in the three months ended December 31, 2015. The allowance for loan losses to total loans was 0.64% at March 31, 2016 and December 31, 2015. 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 loans was 1.16% and 1.17% at December 31, 2015 and March 31, 2016, respectively. In the first quarter, non-performing loans increased by $19.0 million to $85.4 million mainly due to one taxi medallion relationship with a balance of $23.9 million that was placed on non-accrual during the quarter. As a result, the ratio of allowance for loan losses to non-performing loans declined to 62.0% at March 31, 2016 compared to 75.5% at December 31, 2015.

"We also enhanced our capital position during the quarter. On March 29, 2016, we completed the issuance of $110.0 million of subordinated notes by Sterling National Bank. The offering provides us with additional liquidity and regulatory capital to support

growth and will qualify as Tier 2 capital. At March 31, 2016, our tangible equity to tangible assets ratio was 7.66% and our estimated Tier 1 leverage ratio was 8.61%. At Sterling National Bank, our estimated Tier 1 leverage ratio was 9.16%.

"Lastly, I am pleased to announce our Board of Directors has declared a dividend on our common stock of $0.07 per share payable on May 23, 2016 to our holders as of the record date of May 6, 2016."

Reconciliation of Core to GAAP Results
GAAP net income of $23.8 million, or $0.18 per diluted share, for the first quarter of 2016, included: (i) a pre-tax net loss on sale of securities of $283 thousand; (ii) a loss on the early extinguishment of FHLB borrowings of $8.7 million; (iii) a pre-tax charge of $2.8 million due to merger-related expenses and restructuring charges incurred in connection with the acquisition of NSBC and the continued consolidation of financial centers and other locations; and (iv) amortization of non-compete agreements and acquired customer list intangibles of $968 thousand. Excluding the impact of these items, core net income was $32.2 million, or $0.25 per diluted share.

See the reconciliation of the Company's Non-GAAP Financial Measures beginning on page 12. Non-GAAP financial measures include references to the terms "core" or "excluding".

Net Interest Income and Margin
First quarter 2016 compared with first quarter 2015
Net interest income was $93.5 million, an increase of $34.6 million compared to the first quarter of 2015. This was mainly the result of higher average loans and investment securities balances due to the merger with Hudson Valley Holding Corp. (the "HVB Merger") and organic growth. For the first quarter of 2016, the yield on loans was 4.62% and declined 4 basis points compared to the first quarter of 2015. Yield on loans included $5.6 million of accretion of the fair value discount associated with prior acquisitions compared to $926 thousand in the first quarter of 2015. The tax-equivalent yield on investment securities decreased 14 basis points to 2.65%. The cost of total deposits was 29 basis points and the cost of borrowings was 1.92% compared to 23 basis points and 2.00%, respectively, for the same period a year ago. The tax-equivalent yield on interest earning assets declined 11 basis points from the first quarter of 2015 to 4.00% for the first quarter of 2016. The net interest margin on a tax-equivalent basis was 3.53% compared to 3.64% for the same period a year ago.

First quarter 2016 compared with linked quarter ended December 31, 2015
Net interest income declined $1.9 million compared to the linked quarter ended December 31, 2015. The decrease in net interest income was mainly due to lower accretion of the fair value discount, which was $7.1 million in the fourth quarter of 2015 compared to $5.6 million in the first quarter of 2016, and higher average borrowings balances which resulted in an increase of $1.0 million in interest expense in the first quarter of 2016. The yield on loans was 4.62% for the quarter compared to 4.65% for the linked quarter. The tax-equivalent yield on investment securities decreased one basis point to 2.65% in the quarter. The cost of total deposits increased 3 basis points from 26 basis points in the linked quarter and the total cost of borrowings declined 12 basis points from 2.04% in the linked quarter. The tax-equivalent yield on interest earning assets was 4.00% compared to 4.09% in the linked quarter. Tax-equivalent net interest margin was 3.53% compared to 3.68% in the linked quarter. Average interest-bearing cash balances increased by $128.5 million in the quarter, which resulted in an approximate five basis point decrease in net interest margin.

Non-interest Income
First quarter 2016 compared with first quarter 2015
Excluding net gain (loss) on sale of securities, non-interest income increased $3.2 million in the first quarter of 2016 to $15.7 million compared to $12.5 million in the same quarter last year. The increase was mainly due to increases in factoring commissions and other fees, an increase in other loan fees and commissions, and an increase in deposit fees and service charges. Partially offsetting these increases was a decline of $1.2 million in mortgage banking income. The Company realized a net loss on sale of securities of $283 thousand in the first quarter of 2016 compared to a net gain on sale of securities of $1.5 million in the same quarter last year.

First quarter 2016 compared with linked quarter ended December 31, 2015
Excluding net gain (loss) on sale of securities, non-interest income declined $489 thousand from $16.2 million during the fourth quarter of 2015. This was mainly the result of decreases in mortgage banking income of $760 thousand and bank owned life insurance of $465 thousand. The Company realized a net loss on sale of securities of $121 thousand in the linked quarter ended December 31, 2015.

Non-interest Expense
First quarter 2016 compared with first quarter 2015
Non-interest expense increased $23.0 million relative to the first quarter of 2015 to $68.9 million. The increase was due to increases in compensation and benefits expense of $6.9 million, occupancy and office operations expense of $2.7 million and amortization of intangible assets of $1.7 million which were all mainly due to the HVB Merger. In addition, in the first quarter of 2016, we recorded a pre-tax charge of $2.8 million due to merger-related expenses and other restructuring charges incurred in connection with the acquisition of NSBC and the consolidation of financial centers and other locations, and a pre-tax charge of $8.7 million related to a loss on extinguishment of $220.0 million of FHLB borrowings.

First quarter 2016 compared with linked quarter ended December 31, 2015
Non-interest expense increased $11.5 million compared to $57.4 million for the linked quarter, mainly due to the merger-related expenses and other restructuring charges and the loss on extinguishment of FHLB borrowings discussed above. Excluding the impact of these items, core non-interest expense increased $424 thousand between the first quarter of 2016 and the linked quarter.

Taxes
In the first quarter of 2016, the Company recorded income taxes at an estimated effective tax rate of 34.0%, compared to an effective tax rate of 32.5% in the linked quarter and the same quarter last year.

Key Balance Sheet Highlights at March 31, 2016

• Total assets were $12.9 billion.
• Total loans, including loans held for sale, were $8.3 billion.
• Commercial and industrial ("C&I") loans (which includes traditional C&I, asset-based lending, payroll finance, factoring and warehouse lending) represented 41.2%, commercial real estate loans represented 44.4%, consumer and residential mortgage loans represented 12.2%, and acquisition, development and construction loans represented 2.2% of the total loan portfolio.
• Commercial loan growth, which includes all C&I loans, commercial real estate and acquisition development and construction loans, was $425.5 million for the quarter ended March 31, 2016. Organic loan growth, which excludes the NSBC acquisition, was $102.9 million, and represented annualized growth of 6.0% over the prior quarter. Average commercial loans were $6.7 billion for the first quarter of 2016 compared to $6.6 billion for the linked quarter.
• The allowance for loan losses was $53.0 million and represented 0.64% of total loans. Loans acquired in prior merger transactions were recorded at fair value at the acquisition date and at March 31, 2016; the remaining purchase accounting adjustments on acquired loan were $44.2 million. The ratio of total valuation balances recorded against portfolio loans to adjusted gross portfolio loans was 1.17%. See a reconciliation of this non-GAAP measure on page 14.
• Investment securities, excluding FHLB and FRB stock, were $2.8 billion and represented 22.1% of total assets.
• Core deposits were $8.5 billion and represented 91.5% of total deposits.
• Total deposits were $9.3 billion compared to $8.6 billion at December 31, 2015. Average deposits were $8.9 billion compared to $8.8 billion for the linked quarter.
• Borrowings were $1.7 billion compared to $1.5 billion at December 31, 2015. Average borrowings were $1.3 billion compared to $988.6 million for the linked quarter.
• Tangible book value per share was $7.09.

Credit Quality
Non-performing loans, which includes non-accrual loans and loans over 90 days past due still accruing interest, increased $19.0 million to $85.4 million, or 1.03% of total loans at March 31, 2016 compared to $66.4 million, or 0.84% of total loans at December 31, 2015. The increase was mainly the result of one taxi medallion relationship with a balance of $23.9 million that was placed on non-accrual. Net charge-offs for the first quarter of 2016 that were charged to the allowance for loan losses were $1.1 million, compared to $3.0 million in the linked quarter. The allowance for loan losses at March 31, 2016 was $53.0 million, which represented 62.0% of non-performing loans and 0.64% of our total portfolio loans compared to $50.1 million, 75.5% and 0.64%, respectively, as of December 31, 2015.

Capital
The Company's stockholders' equity was $1.7 billion at March 31, 2016, an increase of $33.1 million relative to December 31, 2015. The increase in stockholders' equity was mainly the result of net income of $23.8 million and an increase in other comprehensive income of $16.3 million, which was primarily due to a change in the fair value of our available for sale securities portfolio, and stock option exercises and stock-based compensation, which totaled $853 thousand. These increases were partially offset by declared dividends of $9.1 million.

Tangible book value per share was $7.09 at March 31, 2016 compared to $7.05 at December 31, 2015. Total goodwill and other intangible assets were $772.4 million at March 31, 2016, an increase of $24.3 million compared to December 31, 2015, due to the NSBC acquisition. For the quarter ended March 31, 2016, basic and diluted weighted average common shares outstanding increased to 130.0 million and 130.5 million, respectively, compared to 129.8 million basic shares and 130.4 million diluted shares, respectively, for the quarter ended December 31, 2015. Total shares outstanding at March 31, 2016 were approximately 130.5 million.

Consolidated tangible equity to tangible assets was 7.66% at March 31, 2016 and the Company's estimated Tier 1 leverage ratio was 8.61%. Sterling National Bank remained well capitalized at March 31, 2016 with an estimated Tier 1 leverage ratio of 9.16%.

Sterling Bancorp will host a teleconference and webcast on Wednesday, April 27, 2016 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 (888) 437-9445, Conference ID #6055694. A replay of the teleconference can be accessed through the Company's website.

About Sterling Bancorp
Sterling Bancorp, of which the principal subsidiary is Sterling National Bank, specializes in the delivery of service and solutions to business owners, their families and consumers within the communities we serve 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 growth, grow revenues faster than we grow expenses, other strategic initiatives 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; 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 months ended March 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 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.

¹ See a reconciliation of this Non-GAAP Financial Measure on page 12.
² Includes loans held for sale, excludes allowance for loan losses.

¹ See a reconciliation of Non-GAAP Financial Measures beginning on page 12.
² Tax equivalent adjustment 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.

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 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.

The Company provides supplemental reporting of Non-GAAP Financial Measures as management believes this information is useful to investors. See legend on page 14.

The following table shows the reconciliation of stockholders' equity to tangible equity and the tangible equity ratio ¹:

The following table shows the reconciliation of return on average tangible equity and core return on average tangible equity ²:

The following table shows the reconciliation of return on tangible assets and core return on tangible assets³:

The Company provides supplemental reporting of non-GAAP measures as management believes this information is useful to investors. See legend on page 14.

The following table shows the reconciliation of the core operating efficiency ratio ⁴:

The following table shows the reconciliation of core net income and core earnings per share⁵:

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 measures as management believes this information is useful to investors. See legend below.

The following table shows a reconciliation of the allowance for loan losses and remaining purchase accounting adjustments to portfolio loans ⁶:

The non-GAAP measures presented above are used by management and the 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 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.

¹ Tangible equity as a % of tangible assets 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 Return on average tangible equity and core return on average tangible equity measures provide information to evaluate the use of our tangible equity.

³ Return on tangible assets and the core return on tangible assets measures provide information to help assess our profitability.

⁴ The core operating efficiency ratio is a non-GAAP measure calculated by dividing non-interest expense by total net revenue. The core operating efficiency ratio is a measure we use to assess our core operating performance.

⁵ Core net income and core earnings per share present a summary of our earnings to exclude certain non-core revenues and non-core expenses to help in assessing our core 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 population.