Sterling Bancorp Announces Results for the Three Months and Full Year Ended December 31, 2015

MONTEBELLO, NY--(Marketwired - January 27, 2016) -

 Key Highlights for the Full Year ended December 31, 2015

• Core net income¹ was $105.4 million, which represented 58.1% growth over 2014.
• Core diluted earnings per share¹ were $0.96, which represented growth of 21.5% over the prior year.
• Core operating efficiency ratio¹ was 50.8%.
• Core return on average tangible assets¹ was 1.17% and core return on average tangible equity¹ was 13.86%.

 Key Highlights for the Three Months ended December 31, 2015

• Total revenue³ reached $111.6 million.
• Core net income¹ was $33.5 million, which represented growth of 4.7% over the linked quarter and 70.9% over the fourth quarter of 2014.
• Core diluted earnings per share¹ were $0.26; which represented growth of 13.0% over the fourth quarter of 2014.
• Tax equivalent net interest margin was 3.68%, compared to 3.76% in the linked quarter and 3.70% in the fourth quarter of 2014.
• Total non-interest income excluding securities gains was $16.2 million, which represented 14.5% of total revenue³.
• Core total revenue¹ grew 2.0% while core non-interest expense decreased by 0.9% over the linked quarter.
• Core operating efficiency ratio¹ was 47.6%.
• Annualized commercial loan growth of 20.4% (end of period balances) and 21.8% (average balances) over the linked quarter.
• Loans to deposits ratio of 91.6%; total deposits were $8.6 billion with over 91.2% core deposits⁴ and a weighted average cost of deposits of 0.26%.
• Core return on average tangible assets¹ was 1.22%, compared to 1.21% in the linked quarter and 1.13% in the fourth quarter of 2014.
• Core return on average tangible equity¹ was 14.60%, compared to 14.33% in the linked quarter and 14.42% in the fourth quarter of 2014.
• Completed four new team hires in commercial relationship banking and expanded asset-based lending capabilities.

Sterling Bancorp (NYSE: STL), the parent company of Sterling National Bank, (the "Company") today announced results for the three months ended December 31, 2015. Net income for the quarter was $32.8 million, or $0.25 per diluted share, compared to net income of $24.2 million, or $0.19 per diluted share, for the linked quarter ended September 30, 2015 and net income of $17.0 million, or $0.20 per diluted share, for the fourth quarter of 2014.

Net income for the year ended December 31, 2015 was $66.1 million, or $0.60 per diluted share, compared to net income of $58.7 million, or $0.70 per diluted share for the prior calendar year. Results for the year ended December 31, 2015 included pre-tax merger-related expenses and other restructuring charges of $42.7 million that were incurred in connection with the Company's merger (the "HVB Merger") with Hudson Valley Holding Corp. ("Hudson Valley"). Results for 2015 also included a pre-tax charge of $13.4 million related to the termination of the Company's defined benefit pension plans, which was incurred in the third quarter.

President's Comments

Jack Kopnisky, President and Chief Executive Officer, commented: "This was another year of strong operating performance, highlighted by significant organic growth in loans and deposits and our acquisition of Hudson Valley in June 2015. Since December 31, 2014, our total loans have grown by $3.0 billion to $7.9 billion, and total commercial loans have grown by $2.8 billion to $6.8 billion. This represents growth of 63.2% and 67.6%, respectively. As of December 31, 2015, our total assets reached $12.0 billion compared to $7.4 billion a year ago. Excluding the balances acquired in the HVB Merger, total loans for the year grew $1.3 billion, or 26.0%; and total deposits grew $206.9 million, or 4.0%. We are well-positioned for future growth and continue to focus on our objective of creating a high performing regional bank.

"Core net income for the quarter was $33.5 million and core diluted earnings per share were $0.26 compared to $19.6 million and $0.23, respectively, for the same quarter a year ago. Our core return on average tangible assets was 1.22% and core return on average tangible equity was 14.60%. This compares to 1.13% and 14.42%, respectively, for the same quarter a year ago.

"For the year ended December 31, 2015, our core net income was $105.4 million and our core earnings per diluted share were $0.96. This represented an increase of 58.1% and 21.5%, respectively, over the same period a year ago. For the year, our core return on average tangible assets was 1.17% and core return on average tangible equity was 13.86%. Both metrics are on-track to achieve our long-term profitability goals.

"On a linked quarter basis, our core total revenue grew 2.0% while core non-interest expense decreased by 0.9%. We are focused on creating positive operating leverage, which continued in the fourth quarter with revenue growth that significantly outpaced the level of expense growth. For the quarter, our core operating efficiency ratio was 47.6%, which compares to 49.0% in the linked quarter and 54.0% in the same quarter last year. For the year, our core operating efficiency ratio was 50.8%, which represented an improvement of 610 basis points relative to the twelve months ended December 31, 2014.

"We continue to experience strong loan growth across multiple asset classes. As of December 31, 2015, total loans were $7.9 billion, which represented annualized growth of 17.6% over the prior quarter end and growth of $623.8 million, or 17.1% annualized, since the completion of the merger with Hudson Valley. During the quarter, our commercial loan balances grew $334.0 million, which represented annualized growth of 20.4% over the prior quarter end. Through the addition of four new teams, we are continuing to build our banking relationships which will support our future growth.

"As of December 31, 2015, our total deposits were $8.6 billion. Our core deposits were $7.8 billion, which represented 91.2% of our total deposit balances. Our total cost of deposits was 0.26% for the three months ended December 31, 2015. For the quarter, the average balances of our demand, savings and money market deposits grew by $122.8 million, an annualized growth rate of 6.0% over the linked quarter.

"We continue to focus on diversifying and improving our revenue mix. Non-interest income excluding securities losses was $16.2 million for the quarter, which represented 14.5% of total revenue. We will continue growing our diversified commercial lending businesses, which are strong fee income generators, and we will continue to actively evaluate opportunistic acquisitions, as we have previously disclosed.

"Net charge-offs against the allowance for loan losses for the three months ended December 31, 2015 were $3.0 million, or 0.15% on an annualized basis, compared to $1.7 million, or 0.09% on an annualized basis, in the three months ended September 30, 2015. The allowance for loan losses to total loans was 0.64%. 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 ratio of allowance for loan losses to non-performing loans continues to strengthen and increased from 70.4% at September 30, 2015 to 75.5% at December 31, 2015.

"Our capital position remains strong. At December 31, 2015, our tangible equity to tangible assets ratio was 8.18% and our Tier 1 leverage ratio was 8.94%. At Sterling National Bank, our Tier 1 leverage ratio was 9.65%. We have ample capital and liquidity to support our organic growth and execute our strategy.

"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 February 22, 2016 to our holders as of the record date of February 5, 2016."

Reconciliation of Core to GAAP Results

Net income of $32.8 million, or $0.25 per diluted share, for the fourth quarter of 2015, included a net loss on sale of securities of $121 thousand and amortization of non-compete agreements and acquired customer list intangibles of $961 thousand. Excluding the impact of these items, core net income was $33.5 million, or $0.26 per diluted share.

See the reconciliation of the Company's non-GAAP financial measures included in this press release beginning on page 11. Non-GAAP financial measures include references to the terms "core" or "excluding".

Net Interest Income and Margin

Fourth quarter 2015 compared with fourth quarter 2014

Net interest income was $95.4 million, up $35.2 million compared to the fourth quarter of 2014. This was mainly the result of higher average loans and investment securities balances due to the HVB Merger and organic growth. For the fourth quarter of 2015 compared to the fourth quarter of 2014 the tax-equivalent yield on investment securities decreased 7 basis points to 2.66% and the yield on loans decreased 9 basis points to 4.65%. Yield on loans in the fourth quarter of 2015 included $7.1 million in accretion of the fair value discount associated with prior acquisitions. The cost of total deposits was 26 basis points and the cost of borrowings was 2.04% compared to 21 basis points and 2.21%, respectively for the prior year. The tax-equivalent yield on interest earning assets declined 6 basis points from the fourth quarter of 2014 to 4.09% for the fourth quarter of 2015. The net interest margin on a tax-equivalent basis was 3.68% compared to 3.70% for the same period a year ago.

Fourth quarter 2015 compared with linked quarter ended September 30, 2015

Net interest income increased $2.1 million compared to the linked quarter ended September 30, 2015. The increase in net interest income was mainly due to a $327.1 million increase in the average balance of loans outstanding compared to the linked quarter. Partially offsetting this increase was a decline in the yield on loans, which was 4.65% for the quarter compared to 4.75% for the linked quarter. The decline in the yield on loans was mainly the result of lower collections in the fourth quarter on loans formerly charged-off by Hudson Valley and lower loan prepayment penalties. The tax-equivalent yield on interest earning assets was 4.09% compared to 4.15% in the linked quarter. Tax-equivalent net interest margin was 3.68% compared to 3.76% in the linked quarter.

Non-interest Income

Fourth quarter 2015 compared with fourth quarter 2014

Excluding net (loss) gains on sale of securities, non-interest income increased $2.2 million to $16.2 million in the fourth quarter of 2015 compared to the same quarter last year. The increase was mainly due to increases in factoring commissions and other fees, bank owned life insurance, investment management fees and other non-interest income. The Company realized a net loss on sale of securities of $121 thousand in the fourth quarter of 2015 compared to a net loss on sale of securities of $43 thousand in the same quarter last year.

Fourth quarter 2015 compared with linked quarter ended September 30, 2015

Excluding net (loss) gains on sale of securities, non-interest income increased $126 thousand to $16.2 million during the fourth quarter of 2015. The increase was mainly due to an increase in other income of $369 thousand and an increase in bank owned life insurance of $499 thousand. These gains were partially offset by a decrease in factoring commissions and other fees of $372 thousand. The Company realized a net gain on sale of securities of $2.7 million in the linked quarter ended September 30, 2015.

Non-interest Expense

Fourth quarter 2015 compared with fourth quarter 2014

Non-interest expense increased $11.6 million relative to the fourth quarter of 2014 to $57.4 million. The increase was due to increases in compensation and benefits expense of $7.5 million, occupancy and office operations expense of $2.1 million and amortization of intangible assets of $1.6 million which were mainly due to the HVB Merger.

Fourth quarter 2015 compared with linked quarter ended September 30, 2015

Non-interest expense decreased $13.9 million compared to the linked quarter, mainly due to a decrease attributed to the pension plan termination charge of $13.4 million, which was incurred in the third quarter of 2015. Also contributing to the decline in non-interest expense was a $1.0 million decrease in other non-interest expense and a decline in occupancy and office operations of $270 thousand. These declines were partially offset by an increase in compensation and benefits expense of $630 thousand, as we have continued to add personnel in our commercial relationship banking, asset-based lending and community development banking businesses to support future growth.

Taxes

In the fourth quarter of 2015, the Company recorded income taxes at a rate of 32.5%, compared to an effective tax rate of 32.5% in the linked quarter and 33.2% for the same quarter last year. We estimate our effective tax rate for 2016 will be 34.0%.

Key Balance Sheet Highlights at December 31, 2015

• Total assets were $12.0 billion.
• Total loans, including loans held for sale, were $7.9 billion.
• Commercial and industrial loans (which includes traditional C&I, asset-based lending, payroll finance, factoring and warehouse lending) represented 39.8%, commercial real estate loans represented 44.9%, consumer and residential mortgage loans represented 12.9%, and acquisition, development and construction loans represented 2.4% of the total loan portfolio.
• Commercial loan growth, which includes commercial and industrial loans described above, commercial real estate and acquisition development and construction loans was $334.0 million for the quarter ended December 31, 2015, and represented annualized growth of 20.4% over the prior quarter.
• The allowance for loan losses was $50.1 million and represented 0.64% of total loans. Loans acquired in prior merger transactions were recorded at fair value at the acquisition date; a substantial portion of these loans continue to carry no allowance for loan losses.
• Securities, excluding FHLB and FRB stock, were $2.6 billion and represented 22.1% of total assets.
• Core deposits were $7.8 billion and represented 91.2% of total deposits.
• Total deposits were $8.6 billion compared to $8.8 billion at September 30, 2015. Average deposits were $8.8 billion for the fourth quarter compared to $8.7 billion for the prior quarter.
• Borrowings were $1.5 billion compared to $948.0 million at September 30, 2015. Average borrowings were $988.6 million for the fourth quarter compared to $772.8 million for the third quarter.
• Tangible book value per share was $7.05.

Credit Quality

Non-performing loans, which includes non-accrual loans and loans over 90 days past due still accruing interest, decreased $1.3 million to $66.4 million, or 0.84% of total loans at December 31, 2015 compared to $67.7 million, or 0.90% of total loans at September 30, 2015. Net charge-offs for the fourth quarter of 2015 that were charged to the allowance for loan losses were $3.0 million, compared to $1.7 million in the linked quarter. The allowance for loan losses at December 31, 2015 was $50.1 million, which represented 75.5% of non-performing loans and 0.64% of our total loan portfolio compared to $47.6 million, 70.4% and 0.63%, respectively, as of September 30, 2015. The increase in the balance of the allowance for loan losses was mainly related to the higher balance of loans outstanding at December 31, 2015.

Capital

The Company's stockholders' equity was $1.7 billion at December 31, 2015, an increase of $12.9 million relative to September 30, 2015. The increase in stockholders' equity was mainly the result of net income of $32.8 million and stock option exercises and stock-based compensation which totaled $448 thousand. These increases were partially offset by dividends declared of $9.1 million and a decline in other comprehensive income of $11.3 million, which was mainly due to a change in the fair value of our available for sale securities portfolio.

Tangible book value per share increased to $7.05 at December 31, 2015 from $6.94 at September 30, 2015. Total goodwill and other intangible assets were $748.1 million at December 31, 2015, a decrease of $3.5 million compared to September 30, 2015. For the quarter ended December 31, 2015, basic and diluted weighted average common shares outstanding increased to 129.8 million and 130.4 million, respectively, compared to 129.7 million basic shares and 130.2 million diluted shares, respectively, for the quarter ended September 30, 2015. Total shares outstanding at December 31, 2015 were approximately 130.0 million.

Consolidated tangible equity to tangible assets was 8.18% at December 31, 2015 and the Company's Tier 1 leverage ratio was 8.94%. Sterling National Bank remained well capitalized at December 31, 2015 with a Tier 1 leverage ratio of 9.65%.

Sterling Bancorp will host a teleconference and webcast on Thursday, January 28, 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 (855) 877-0343, Conference ID #19370348. A replay of the teleconference can be accessed through the Company's website.

About Sterling Bancorp

Sterling Bancorp, with its principal subsidiary 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: delays in integrating Hudson Valley Holding Corp. business or fully realizing cost savings and other benefits; 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 Annual Report on Form 10-K for the year ended December 31, 2015. 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.

1. Core measures are defined in the non-GAAP tables beginning on page 11.
2. Commercial loans include commercial real estate, commercial and industrial and acquisition, development and construction loans.
3. Total revenue is equal to net interest income plus non-interest income excluding securities gains and losses.
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 CDARs.

¹ Includes loans held for sale, excludes allowance for loan losses. 
^*Tax exempt income assumed at a statutory 35% federal tax rate.

¹ See reconciliation of non-GAAP measures beginning on page 11.
² Tax equivalent adjustment represents interest income earned on municipal securities divided by the applicable Federal tax rate of 35% for all periods presented.

(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.