Sterling Bancorp Announces Strong Results for the Three and Nine Months Ended September 30, 2016

MONTEBELLO, NY--(Marketwired - October 25, 2016) -

Key Performance Highlights for the Three Months ended September 30, 2016 vs. September 30, 2015

• Total portfolio loans reached a record $9.2 billion as of September 30, 2016.
• Annualized loan growth of 26.6% (end of period balances, including acquired loans) and 20.6% (average balances, including acquired loans) over the linked quarter.
• Loans to deposits ratio of 89.9%; total deposits reached a record $10.2 billion at September 30, 2016 with over $9.0 billion in core deposits⁵ and a total cost of deposits of 0.37%.
• Annualized deposit growth of 16.7% (end of period balances) and 14.7% (average balances) over the linked quarter. Annualized core deposit⁵ growth of 8.7% (end of period balances) and 8.7% (average balances) over the linked quarter.
• Consolidated one financial center during the quarter; total of 12 financial centers consolidated year-to-date. Total financial centers were 41 as of September 30, 2016.
• Completed the divestiture of the residential mortgage originations business; incurred a charge of $2.0 million related to fixed asset impairments, facilities closures and severance. Income from existing loans held for sale and earn-out payments related to the divestiture are expected to be recognized over the next 12 months should result in a neutral impact to earnings over time.
• Completed the acquisition of a ~$170 million restaurant franchise finance portfolio from GE Capital in September 2016.

1. Adjusted measures are defined in the non-GAAP tables beginning on page 15.
2. Total revenue as adjusted is equal to tax equivalent net interest income plus non-interest income excluding securities gains and losses.
3. Net interest margin as adjusted is equal to net interest margin plus the tax equivalent adjustment for tax exempt securities.
4. See page 16 for the calculation of the efficiency ratio and page 17 for an explanation of the efficiency ratio.
5. 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 nine months ended September 30, 2016. Net income for the quarter was $37.4 million, or $0.29 per diluted share, compared to net income of $37.8 million, or $0.29 per diluted share, for the linked quarter ended June 30, 2016 and net income of $24.2 million, or $0.19 per diluted share, for the third quarter of 2015.

Net income for the nine months ended September 30, 2016 was $99.0 million, or $0.76 per diluted share, compared to net income of $33.3 million, or $0.32 per diluted share for the first nine months of 2015. Results for the first nine months of 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 June 30, 2015 (date of acquisition) through September 30, 2015.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "Our positive momentum in operating performance continued this quarter, highlighted by higher adjusted profitability and significant growth in loans and deposits. As of September 30, 2016, our total assets reached $13.6 billion, compared to $11.6 billion a year ago, and our total deposits reached $10.2 billion, compared to $8.8 billion a year ago. We continue to execute our strategy of creating a high performing regional bank that focuses on serving commercial middle market clients and consumers.

"The positive impact of our strategic initiatives, which include the continued reduction of our network of financial centers and the expansion of our commercial banking relationships and operations, is evident in our results. For the third quarter, our GAAP net income was $37.4 million, or $0.29 per diluted share. Our adjusted net income was $37.8 million and adjusted diluted earnings per share were $0.29, compared to $32.0 million and $0.25, respectively, for the same quarter a year ago. This represents adjusted growth of 18.0% and 16.0%, respectively, between the two periods. Our return on average tangible assets for the quarter was 1.20% and return on average tangible equity was 15.13%. This compares to 0.91% and 10.82% for the same quarter a year ago. Our adjusted return on average tangible assets for the quarter was 1.21% and adjusted return on average tangible equity was 15.28%. This compares to 1.21% and 14.33%, respectively, for the same quarter a year ago.

"We continue to focus on improving our operating leverage and becoming a more efficient and profitable company. During the quarter, our reported operating efficiency ratio was 51.0% and our adjusted efficiency ratio was 45.8%. This represents a decrease of 1,260 and 320 basis points, relative to the same quarter a year ago.

"We continuously evaluate the performance of our business lines to determine where we should allocate our capital and resources. During the third quarter, we closed the sale of our residential mortgage originations business, which will further improve our operating efficiency. We anticipate we will complete the sale of our trust division in the fourth quarter of 2016. We will reallocate capital and resources from these businesses to other businesses that are more in-line with our diversified commercial banking strategy and where we can achieve risk-adjusted returns that exceed our targets.

"We have a strong and diversified balance sheet, with ample funding to continue executing our strategy. We are confident in our ability to generate organic growth and acquisition opportunities, and we are well-positioned to continue delivering attractive returns for our shareholders.

"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 November 21, 2016 to holders of record as of November 7, 2016."

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
GAAP net income of $37.4 million, or $0.29 per diluted share, for the third quarter of 2016, included a pre-tax net gain on sale of securities of $3.4 million, a pre-tax loss on the extinguishment of debt of $1.0 million as the Company repurchased $23.0 million of senior notes due July 2018, a pre-tax restructuring charge recorded in connection with the divestiture of the residential mortgage originations business of $2.0 million and the amortization of non-compete agreements and acquired customer list intangibles of $970 thousand. Excluding the impact of these items, adjusted net income was $37.8 million, or $0.29 per diluted share, which matched our reported GAAP results.

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 15.

Third quarter 2016 compared with third quarter 2015
Net interest income was $103.1 million, an increase of $9.8 million compared to the third quarter of 2015. This was mainly due to an increase in average loans, resulting from the acquisition of NewStar Business Credit LLC ("NSBC"), which closed on March 31, 2016, and organic growth. Other key components of the changes in net interest income were the following:

• The yield on loans was 4.57%, compared to 4.75% for the three months ended September 30, 2015.
• Yield on loans included $4.4 million of accretion of the fair value discount associated with prior acquisitions compared to $5.8 million in the third quarter of 2015.
• Average commercial loans were $7.7 billion compared to $6.3 billion in the third quarter of 2015, an increase of $1.5 billion or 23.4%.
• The tax equivalent yield on investment securities increased 11 basis points to 2.74%.
• The cost of total deposits was 37 basis points and the cost of borrowings was 1.75%, compared to 24 basis points and 2.38%, respectively, for the same period a year ago.
• The tax equivalent yield on interest earning assets decreased 12 basis points from the third quarter of 2015 to 4.03% for the third quarter of 2016.
• Tax equivalent net interest margin was 3.53% compared to 3.76% for the same period a year ago.

Third quarter 2016 compared with linked quarter ended June 30, 2016
Net interest income increased $2.8 million compared to the linked quarter ended June 30, 2016. The increase was mainly due to organic loan growth, as the average balance of loans increased $431.0 million compared to the linked quarter ended June 30, 2016. The franchise financing loan portfolio acquired from GE Capital on September 9, 2016 increased our average commercial loan balances in the period by approximately $40 million. Net interest income also benefited from higher accretion of the fair value discount on acquired loans, which increased $293 thousand and was $4.4 million in the third quarter of 2016. Average interest bearing deposits increased by $216.9 million and average borrowings increased $19.6 million relative to the linked quarter, resulting in an increase of $1.1 million in interest expense.

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

• The yield on loans was 4.57% in the quarter compared to 4.68% in the linked quarter.
• Average commercial loans were $7.7 billion compared to $7.3 billion in the linked quarter, an increase of $436.9 million, or 23.9% on an annualized basis.
• During the quarter, we issued $65.0 million of subordinated notes at Sterling National Bank at an effective interest rate of 5.125%, and we redeemed $23.0 million of 5.50% senior notes due July 2018.
• The tax equivalent yield on investment securities decreased two basis points to 2.74% in the quarter.
• The cost of total deposits increased two basis points to 37 basis points in the quarter. The total cost of borrowings increased two basis points to 1.75% for the third quarter of 2016.
• The tax equivalent yield on interest earning assets decreased six basis points to 4.03% in the quarter.
• Tax equivalent net interest margin was 3.53% compared to 3.60% in the linked quarter.

Third quarter 2016 compared with third quarter 2015
Excluding net gain on sale of securities, adjusted non-interest income declined $470 thousand in the third quarter of 2016 to $15.6 million compared to $16.1 million in the same quarter last year. The change was mainly due to a decrease in mortgage banking fee income of $1.8 million as a result of the sale of our residential mortgage originations business, and a decrease of $1.0 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. Partially offsetting these decreases was an increase in other non-interest income of $1.4 million due to letters of credit, other commissions and loan fees and higher swap fees, an increase of $598 thousand in bank owned life insurance ("BOLI") income, and an increase of $137 thousand in accounts receivable/factoring commissions.

Third quarter 2016 compared with linked quarter ended June 30, 2016
Excluding net gain on sale of securities, adjusted non-interest income declined $362 thousand from $16.0 million in the second quarter of 2016 to $15.6 million in the third quarter of 2016. This was mainly due to lower mortgage banking fee income of $1.2 million as a result of the sale of our residential mortgage originations business and lower deposit fees and service charges of $677 thousand associated with the impact of the Durbin Amendment. These declines were partially offset by an increase of $742 thousand in accounts receivable/factoring commissions, and an increase of $610 thousand in BOLI income.

Third quarter 2016 compared with third quarter 2015
Total non-interest expense decreased $9.1 million relative to the third quarter of 2015, from $71.3 million to $62.3 million in the third quarter of 2016. Results for the third quarter of 2015 included a defined benefit plan termination charge of $13.4 million. Also contributing to the decline in non-interest expense was a decrease of $1.6 million in occupancy and office operations mainly due to the consolidation of 18 financial centers between the periods. Partially offsetting this decline was an increase in compensation and benefits expense of $3.3 million in the third quarter of 2016 compared to the third quarter of 2015, 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, and the loss on extinguishment of debt and charges related to the divestiture of the residential mortgage originations business increased non-interest expense by $3.0 million in the quarter, as discussed above.

Third quarter 2016 compared with linked quarter ended June 30, 2016
Non-interest expense increased $2.6 million from $59.6 million in the linked quarter to $62.3 million in the third quarter of 2016. This was mainly due to the loss on extinguishment of debt and charges related to the divestiture of the residential mortgage originations business, which is discussed above. Compensation and benefits expense increased $1.2 million between the periods due to incentive compensation and an increase in the cost of employee benefits associated with our health care plan. Partially offsetting these increases was a decline in occupancy and office operations of $789 thousand due to the ongoing consolidation of our financial centers and other locations, a decrease in other expenses associated with the sale of the residential mortgage originations business and a decrease in total FTEs from 1,065 to 995.

Taxes
As a result of the completion of the Company's income tax returns for fiscal 2015, and the continued growth of tax-exempt loans and municipal securities, the Company revised its estimated effective income tax rate to 32.5% for the nine months ended September 30, 2016. This resulted in an effective tax rate of 31.2% for the third quarter, compared to 32.8% in the second quarter of 2016 and 32.5% in the third quarter of 2015. The effective income tax rate for fiscal 2016 is expected to be between 32% and 33%.

Highlights in balance sheet items as of September 30, 2016 were the following:

• C&I loans (which include traditional C&I, asset-based lending, payroll finance, warehouse lending, factoring and equipment finance) represented 44.7%, commercial real estate loans represented 42.5%, consumer and residential mortgage loans represented 10.5%, and acquisition, development and construction loans represented 2.3% of the total loan portfolio.
• Commercial loan growth, which includes all C&I loans, commercial real estate and acquisition, development and construction loans, was $1.4 billion for the nine months ended September 30, 2016, which included $162.0 million of franchise financing loans acquired from GE Capital and $320.4 million of ABL loans acquired from NSBC.
• Residential mortgage warehouse lending balances reached a record $586.4 million as of September 30, 2016.
• Aggregate exposure to taxi medallion relationships was $51.9 million, which represented 0.57% of total loans as of September 30, 2016.
• Total deposits at September 30, 2016 increased $1.6 billion, or 25.2% annualized, over December 31, 2015, and $1.4 billion or 15.8%, over September 30, 2015.
• Core deposits at September 30, 2016 increased $1.2 billion, or 20.1% annualized, over December 31, 2015, and $844.4 million, or 10.4%, over September 30, 2015.
• Borrowings were $1.5 billion at September 30, 2016 and December 31, 2015.

Provision for loan losses was $5.5 million in the third quarter of 2016, an increase of $500 thousand from the linked quarter. This was mainly due to organic loan growth.

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 1.11% and 1.10% at June 30, 2016 and September 30, 2016, respectively.

Non-performing loans at September 30, 2016, which includes non-accrual loans and loans over 90 days past due still accruing interest increased by $1.5 million to $81.1 million from the linked quarter. The allowance for loan losses to non-performing loans increased to 73.3% as of September 30, 2016.

Aggregate exposure to taxi medallion relationships as of September 30, 2016 was $51.8 million. This represented a decrease of $6.1 million, or 10.4%, relative to the linked quarter.

⁶ See a reconciliation of this non-GAAP financial measure on page 17.

The increase in stockholders' equity of $100.1 million to $1.8 billion as of September 30, 2016 compared to December 31, 2015 was mainly the result of net income of $99.0 million, and an increase in other comprehensive income of $20.0 million. The change in accumulated other comprehensive income 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 $8.4 million. These increases were partially offset by declared dividends of $27.3 million.

Total goodwill and other intangible assets were $765.9 million at September 30, 2016, an increase of $17.8 million compared to December 31, 2015, which was due to the NSBC Acquisition, partially offset by amortization of $9.5 million.

For the quarter ended September 30, 2016, basic and diluted weighted average common shares outstanding increased to 130.2 million and 130.9 million, respectively, compared to 130.1 million basic shares and 130.7 million diluted shares, respectively, for the quarter ended June 30, 2016. Total common shares outstanding at September 30, 2016 were approximately 130.9 million.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Wednesday, October 26, 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) 312-9846, Conference ID #5351232. 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; customer disintermediation; and the success of Sterling Bancorp in managing those risks. Other factors that could cause Sterling Bancorp's actual results to differ from those indicated in forward-looking statements are included in the "Risk Factors" section of Sterling Bancorp's filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made and we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Financial information contained in this release should be considered to be an estimate pending the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 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.

The Company provides supplemental reporting of non-GAAP financial measures as management believes this information is useful to investors. See legend on page 17.