STERLING BANCORP - FORM 10-Q

STERLING BANCORP - FORM 10-Q - May 6, 2016

Attached files

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 CERTIFICATION - STERLING BANCORP	exhibit311certification033.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION - STERLING BANCORP	exhibit312certification033.htm
EX-32.1 - EXHIBIT 32.0 CERTIFICIATION - STERLING BANCORP	exhibit320certification033.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35385

______________________________

STERLING BANCORP

(Exact Name of Registrant as Specified in its Charter)

______________________________



Delaware		80-0091851
(State or Other Jurisdiction of		(IRS Employer ID No.)
Incorporation or Organization)

400 Rella Boulevard, Montebello, New York		10901
(Address of Principal Executive Office)		(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Classes of Common Stock		Shares Outstanding as of May 5, 2016
$0.01 per share		130,582,909

STERLING BANCORP AND SUBSIDIARIES

FORM 10-Q TABLE OF CONTENTS

QUARTERLY PERIOD ENDED MARCH 31, 2016



	PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	3
	Consolidated Income Statements (unaudited) for the three months ended March 31, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income (unaudited) for the three months months ended March 31, 2016 and 2015	5
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2016 and 2015	6
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015	7
	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68

Item 4.	Controls and Procedures	69

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	71

Item 1A.	Risk Factors	71

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

Item 3.	Defaults Upon Senior Securities	71

Item 4.	Mine Safety Disclosures	71

Item 5.	Other Information	71

Item 6.	Exhibits	71

	Signatures	72

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

(Dollars in thousands, except share and per share data)



	March 31,			December 31,
	2016			2015
ASSETS:
Cash and due from banks	$	486,730		$	229,513
Securities:
Available for sale, at fair value	1,894,820			1,921,032
Held to maturity, at amortized cost (fair value of $973,826 and $734,079 at March 31, 2016 and December 31, 2015, respectively)	952,922			722,791
Total securities	2,847,742			2,643,823
Loans held for sale	27,237			34,110
Portfolio loans	8,286,163			7,859,360
Allowance for loan losses	(53,014		)	(50,145		)
Portfolio loans, net	8,233,149			7,809,215
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost	118,330			116,758
Accrued interest receivable	33,392			31,531
Premises and equipment, net	62,432			63,362
Goodwill	696,600			670,699
Core deposit and other intangible assets	75,790			77,367
Bank owned life insurance	197,615			196,288
Other real estate owned	14,527			14,614
Other assets	71,812			68,672
Total assets	$	12,865,356		$	11,955,952
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	9,328,622		$	8,580,007
FHLB borrowings	1,444,817			1,409,885
Other borrowings (repurchase agreements)	23,571			16,566
Senior notes	98,996			98,893
Subordinated notes	108,124			—
Mortgage escrow funds	14,972			13,778
Other liabilities	148,121			171,750
Total liabilities	11,167,223			10,290,879
Commitments and Contingent liabilities (See Note 16. Commitments and Contingencies)	—			—
STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)	—			—
Common stock (par value $0.01 per share; 190,000,000 shares authorized; 136,673,149 shares issued at March 31, 2016 and December 31, 2015; 130,548,989 and 130,006,926 shares outstanding at March 31, 2016 and December 31, 2015, respectively)	1,367			1,367
Additional paid-in capital	1,501,417			1,506,612
Treasury stock, at cost (6,124,160 shares at March 31, 2016 and 6,666,223 at December 31, 2015)	(70,142		)	(76,190		)
Retained earnings	261,332			245,408
Accumulated other comprehensive income (loss), net of tax expense (benefit) of $2,751 at March 31, 2016 and $(8,961) at December 31, 2015	4,159			(12,124		)
Total stockholders’ equity	1,698,133			1,665,073
Total liabilities and stockholders’ equity	$	12,865,356		$	11,955,952

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Income Statements (unaudited)

(Dollars in thousands, except share and per share data)



	Three months ended
	March 31,
	2016			2015
Interest and dividend income:
Loans and loan fees	$	89,034		$	55,271
Securities taxable	12,016			7,632
Securities non-taxable	3,879			2,867
Other earning assets	1,077			902
Total interest and dividend income	106,006			66,672
Interest expense:
Deposits	6,409			3,091
Borrowings	6,087			4,714
Total interest expense	12,496			7,805
Net interest income	93,510			58,867
Provision for loan losses	4,000			2,100
Net interest income after provision for loan losses	89,510			56,767
Non-interest income:
Accounts receivable management / factoring commissions and other fees	4,494			3,502
Mortgage banking income	2,002			3,157
Deposit fees and service charges	4,496			3,622
Net (loss) gain on sale of securities	(283		)	1,534
Bank owned life insurance	1,327			1,076
Investment management fees	1,124			360
Other	2,270			759
Total non-interest income	15,430			14,010
Non-interest expense:
Compensation and benefits	30,020			23,165
Stock-based compensation plans	1,540			1,109
Occupancy and office operations	9,282			6,580
Amortization of intangible assets	3,053			1,399
FDIC insurance and regulatory assessments	2,258			1,428
Other real estate owned expense (income), net	582			(37		)
Merger-related expense	265			2,455
Loss on extinguishment of FHLB borrowings	8,716			—
Other	13,215			9,822
Total non-interest expense	68,931			45,921
Income before income tax expense	36,009			24,856
Income tax expense	12,243			8,078
Net income	$	23,766		$	16,778
Weighted average common shares:
Basic	129,974,025			87,839,029
Diluted	130,500,975			88,252,768
Earnings per common share:
Basic	$	0.18		$	0.19
Diluted	0.18			0.19

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)



	Three months ended
	March 31,
	2016			2015
Net income	$	23,766		$	16,778
Other comprehensive income, before tax:
Change in unrealized holding gains on securities available for sale	26,352			10,378
Accretion of net unrealized loss on securities transferred to held to maturity	(74		)	539
Reclassification adjustment for net realized losses (gains) included in net income	283			(1,534		)
Change in the actuarial gain of defined benefit plan and post-retirement benefit plans	354			203
Total other comprehensive income, before tax	26,915			9,586
Deferred tax expense related to other comprehensive income	(10,632		)	(4,074		)
Other comprehensive income, net of tax	16,283			5,512
Comprehensive income	$	40,049		$	22,290

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except per share data)



	Number of shares	Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive (loss) income			Total stockholders’ equity
Balance at January 1, 2015	83,927,572	$	912	$	858,489		$	(82,908	)	$	208,958		$	(10,251	)	$	975,200
Net income	—	—		—			—			16,778			—			16,778
Other comprehensive income	—	—		—			—			—			5,512			5,512
Stock option & other stock transactions, net	208,054	—		279			2,384			72			—			2,735
Restricted stock awards, net	85,905	—		6			994			132			—			1,132
Common equity issued, net of costs of issuance	6,900,000	69		84,990			—			—			—			85,059
Cash dividends declared ($0.07 per common share)	—	—		—			—			(5,873		)	—			(5,873		)
Balance at March 31, 2015	91,121,531	$	981	$	943,764		$	(79,530	)	$	220,067		$	(4,739	)	$	1,080,543

Balance at January 1, 2016	130,006,926	$	1,367	$	1,506,612		$	(76,190	)	$	245,408		$	(12,124	)	$	1,665,073
Net income	—	—		—			—			23,766			—			23,766
Other comprehensive income	—	—		—			—			—			16,283			16,283
Stock option & other stock transactions, net	74,797	—		202			807			(148		)	—			861
Restricted stock awards, net	467,266	—		(5,397		)	5,241			1,381			—			1,225
Cash dividends declared ($0.07 per common share)	—	—		—			—			(9,075		)	—			(9,075		)
Balance at March 31, 2016	130,548,989	$	1,367	$	1,501,417		$	(70,142	)	$	261,332		$	4,159		$	1,698,133

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)



	Three months ended
	March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	23,766		$	16,778
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses	4,000			2,100
Loss (gain), net from write-downs and sales of other real estate owned	153			(487		)
Depreciation of premises and equipment	2,102			1,633
Asset write-downs, severance and retention compensation and other restructuring charges	2,485			312
Amortization of intangibles	3,053			1,399
Amortization of low income housing tax credit	48			50
Net loss (gain) on sale of securities	283			(1,534		)
Net gain on loans held for sale	(2,002		)	(3,157		)
Net amortization of premiums, net on securities	3,328			1,155
Net accretion of purchase discount and amortization of net deferred loan costs	(5,084		)	(790		)
Accretion of debt issuance costs and amortization of premium on borrowings, net	97			86
Restricted stock compensation expense	1,414			828
Stock option compensation expense	126			281
Originations of loans held for sale	(102,165		)	(137,538		)
Proceeds from sales of loans held for sale	111,040			111,155
Increase in cash surrender value of bank owned life insurance	(1,327		)	(1,076		)
Deferred income tax expense	6,214			2,516
Other adjustments (principally net changes in other assets and other liabilities)	(50,113		)	(8,926		)
Net cash (used in) operating activities	(2,582		)	(15,215		)
Cash flows from investing activities:
Purchases of securities:
Available for sale	(269,220		)	(237,602		)
Held to maturity	(242,428		)	(28,161		)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale	44,908			41,017
Held to maturity	11,090			14,639
Proceeds from sales of securities available for sale	275,358			115,554
Loan originations, net	(121,428		)	(143,695		)
Proceeds from sale of loans held for investment	19,054			44,020
(Purchases) sales of FHLB and FRB stock, net	(1,572		)	6,573
Proceeds from sales of other real estate owned	376			997
Purchases of premises and equipment	(996		)	(334		)
Cash paid for acquisitions, net of cash received	(346,690		)	(24,670		)
Net cash (used in) investing activities	(631,548		)	(211,662		)

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)



	Three months ended
	March 31,
	2016			2015
Cash flows from financing activities:
Net increase in transaction, savings and money market deposits	689,379			310,430
Net increase in time deposits	59,236			33,191
Net increase (decrease) in short-term FHLB borrowings	205,000			(151,000		)
Advances of term FHLB borrowings	325,000			80,000
Repayments of term FHLB borrowings	(495,062		)	(75,059		)
Repayment of debt assumed in acquisition	—			(4,485		)
Net increase in other borrowings	7,005			15,399
Issuance of Bank subordinated notes	108,124			—
Net increase in mortgage escrow funds	1,194			1,638
Proceeds from stock option exercises	546			2,758
Equity capital raise, net of costs of issuance	—			85,059
Cash dividends paid	(9,075		)	(5,873		)
Net cash provided by financing activities	891,347			292,058
Net increase in cash and cash equivalents	257,217			65,181
Cash and cash equivalents at beginning of period	229,513			121,520
Cash and cash equivalents at end of period	$	486,730		$	186,701
Supplemental cash flow information:
Interest payments	$	14,598		$	9,376
Income tax payments	17,179			17,808
Real estate acquired in settlement of loans	442			2,874
Loans transferred from held for investment to held for sale	19,054			44,020

Acquisitions:
Non-cash assets acquired:
Total loans, net	320,447			22,307
Accrued interest receivable	1,443			—
Goodwill	25,698			11,931
Customer list	1,500			8,950
Premises and equipment, net	176			219
Other assets	2,265			56
Total non-cash assets acquired	351,529			43,463
Liabilities assumed:
Other liabilities	4,839			19,045
Total liabilities assumed	$	4,839		$	19,045
Net non-cash assets acquired	346,690			24,418
Cash and cash equivalents received in acquisitions	4,762			252
Total consideration paid	$	351,452		$	24,670

The Company completed the NSBC Acquisition on March 31, 2016 and completed the acquisition of Damian Services Corporation on February 27, 2015. These transactions are included in the acquisitions portion of the statement of cash flows for the three months ended March 31, 2016 and 2015, respectively. See Note 2. “Acquisitions” for additional information.

See accompanying notes to consolidated financial statements.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

(1) Basis of Financial Statement Presentation

(a) Nature of Operations

Sterling Bancorp (the “Company”) is a Delaware corporation, a bank holding company and a financial holding company headquartered in Montebello, New York, that owns all of the outstanding shares of common stock of Sterling National Bank (the “Bank”), its principal subsidiary. The Bank is a full-service regional bank specializing in the delivery of services and solutions to business owners, their families and consumers within the communities it serves through teams of dedicated and experienced relationship managers.

(b) Basis of Presentation

The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of the Company and all other entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies the Company follows conform, in all material respects, to accounting principles generally accepted in the United States (“GAAP”) and to general practices within the banking industry, which includes regulatory reporting instructions.

The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with GAAP and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2015, included in our Annual Report on Form 10-K filed with the SEC on February 29, 2016 (the “2015 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. Certain items in prior financial statements have been reclassified to conform to the current presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expense and contingencies at the date of the financial statements. Actual results could differ significantly from these estimates. The allowance for loan losses and the status of contingencies are particularly subject to change.

(d) Merger with Hudson Valley Holding Corp.

On June 30, 2015, Hudson Valley Holding Corp. (“HVHC”) merged with and into the Company (the “HVB Merger”). In connection with the merger, Hudson Valley Bank, the principal subsidiary of HVHC, also merged with and into the Bank.

(e) Merger with Sterling Bancorp

On October 31, 2013, Provident New York Bancorp (“Legacy Provident”) merged with legacy Sterling Bancorp (“Legacy Sterling”). In connection with the merger, the following corporate actions occurred:


•	Legacy Sterling merged with and into Legacy Provident.


•	Legacy Provident was the accounting acquirer and the surviving entity.


•	Legacy Provident changed its legal entity name to Sterling Bancorp.


•	Sterling National Bank merged into Provident Bank.


•	Provident Bank changed its legal entity name to Sterling National Bank.

We refer to the merger with Legacy Sterling as the “Provident Merger.”



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

(2) Acquisitions

NSBC Acquisition

On March 31, 2016, the Bank acquired 100% of the outstanding equity interests of NewStar Business Credit LLC, a Delaware limited liability company (“NSBC” and the “NSBC Acquisition”). NSBC is a provider of asset-based lending solutions to middle market commercial clients. NSBC’s loans were $320,447 on the acquisition date and consist of 100% floating-rate assets. The Bank paid a premium on the balance of gross loans receivable acquired of 5.90%, or $18,906. The Bank assumed $4,838 of liabilities, which consisted mainly of cash collateral on loans outstanding. The Bank recognized a customer list intangible asset of $1,500 that is being amortized over its 24 month estimated life and $25,698 of goodwill. The Bank recorded a $1,500 restructuring charge consisting mainly of retention and severance compensation, IT contract terminations and professional fees.

HVB Merger

On June 30, 2015, the Company completed the HVB Merger. Under the terms of the HVB Merger agreement, HVHC shareholders received 1.92 shares of the Company’s common stock for each share of HVHC common stock, which resulted in the issuance of 38,525,154 shares. Based on the Company’s closing stock price of $14.63 per share on June 29, 2015, the aggregate consideration paid to HVHC shareholders was $566,307, which, in accordance with the HVB Merger agreement, also included the in-the-money cash value of outstanding HVHC stock options, the fair value of outstanding HVHC restricted stock awards and cash in lieu of fractional shares. Consistent with the Company’s strategy, the primary reason for the HVB Merger was the expansion of the Company’s geographic footprint in the greater New York metropolitan region and beyond.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of June 30, 2015, based on management’s best estimate and using the information available as of the HVB Merger date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $269,757 and a core deposit intangible of $33,839. As of June 30, 2015, HVHC had assets with a net book value of approximately $288,208, including loans with a net book value of approximately $1,816,767, and deposits with a net book value of approximately $3,160,746. The table below summarizes the amounts recognized as of the HVB Merger date for each major class of assets acquired and liabilities assumed, the estimated fair value adjustments and the amounts recorded in the Company’s financial statements at fair value at the HVB Merger date:



Consideration paid through Sterling Bancorp common stock issued to HVHC shareholders	$	566,307



	HVHC net book value			Fair value adjustments				As recorded at acquisition
Cash and cash equivalents	$	878,988		$	—			$	878,988
Investment securities	713,625			217			(a)	713,842
Loans	1,816,767			(24,248		)	(b)	1,792,519
Federal Reserve Bank stock	5,830			—				5,830
Bank owned life insurance	44,231			—				44,231
Premises and equipment	11,918			4,925			(c)	16,843
Accrued interest receivable	7,392			—				7,392
Core deposits and other intangibles	—			33,839			(d)	33,839
Other real estate owned	222			—				222
Other assets	32,639			(7,931		)	(e)	24,708
Deposits	(3,160,746		)	—				(3,160,746		)
Other borrowings	(25,366		)	—				(25,366		)
Other liabilities	(37,292		)	1,540			(f)	(35,752		)
Total identifiable net assets	$	288,208		$	8,342			$	296,550

Goodwill recorded in the HVB Merger								$	269,757

Explanation of certain fair value related adjustments:



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)


(a)	Represents the fair value adjustment on investment securities held to maturity.


(b)	Represents the elimination of HVHC’s allowance for loan losses and an adjustment of the net book value of loans to estimated fair value, which includes an interest rate mark and credit mark adjustment.


(c)	Represents an adjustment to reflect the fair value of HVHC owned real estate as determined by independent appraisals, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.


(d)	Represents intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.


(e)	Represents an adjustment in net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangibles recorded.


(f)	Represents the elimination of HVHC’s deferred rent liability.

The fair values for loans acquired from HVB were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, fair value was estimated by analyzing the value of the underlying collateral, assuming the fair values of the loans were derived from the eventual sale of the collateral. These values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of HVHC’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value on the date of the HVB Merger.

Acquired loan portfolio data in the HVB Merger is presented below:



	Fair value of acquired loans at acquisition date		Gross contractual amounts receivable at acquisition date		Best estimate at acquisition date of contractual cash flows not expected to be collected
Acquired loans with evidence of deterioration since origination	$	96,973	$	122,104	$	19,024
Acquired loans with no evidence of deterioration since origination	1,695,546		1,974,740		37,520

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method. Other intangibles consist of below market rents, which are amortized over the remaining life of each lease using the straight-line method.

Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.

The fair value of land, buildings and equipment was estimated using appraisals. Buildings will be amortized over their estimated useful lives of approximately 30 years. Improvements and equipment will be amortized or depreciated over their estimated useful lives ranging from one to five years.

The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. Management concluded the carrying value was an appropriate estimate of fair value for these deposits.

Direct acquisition and other charges incurred in connection with the HVB Merger were expensed as incurred and totaled $0 and $645 for the three months ended March 31, 2016 and 2015, respectively. These expenses were mainly for severance compensation and were recorded in “Merger-related expenses” on the consolidated income statements.

FCC Acquisition

On May 7, 2015, the Bank acquired a factoring portfolio from FCC, LLC, a subsidiary of First Capital Holdings, Inc. (“FCC”), with an outstanding factoring receivables balance of approximately $44,500. The total consideration included a premium of $1,000 in addition to the outstanding receivables balance.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

Damian Acquisition

On February 27, 2015, the Bank acquired 100% of the outstanding common stock of Damian Services Corporation (“Damian”) for total consideration of $24,670 in cash. Damian is a payroll services provider located in Chicago, Illinois. In connection with the acquisition, the Bank acquired $22,307 of outstanding payroll finance loans and assumed $14,560 of liabilities. The Bank recognized a customer list intangible asset of $8,950 that is being amortized over its 16 year estimated life, and $11,930 of goodwill. The Bank also recognized a $1,500 restructuring charge consisting mainly of retention and severance compensation and asset write-downs related to the consolidation of Damian’s operations, and approximately $300 of legal fees.

(3) Securities

A summary of amortized cost and estimated fair value of securities as of March 31, 2016 and December 31, 2015 is presented below. The term “Residential MBS” refers to residential mortgage-backed securities and the term “CMO” refers to collateralized mortgage obligations. Both of these terms are further defined in Note 17. “Fair Value Measurements”.



	March 31, 2016
	Available for Sale									Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrecognized gains		Gross unrecognized losses			Fair value
Residential MBS:
Agency-backed	$	1,400,401	$	16,853	$	(303	)	$	1,416,951	$	247,094	$	5,599	$	(72	)	$	252,621
CMO/Other MBS	74,526		515		(369		)	74,672		47,687		496		(122		)	48,061
Total residential MBS	1,474,927		17,368		(672		)	1,491,623		294,781		6,095		(194		)	300,682
Other securities:
Federal agencies	83,575		138		(3		)	83,710		104,292		4,382		(9		)	108,665
Corporate	91,325		317		(4,463		)	87,179		25,192		—		(319		)	24,873
State and municipal	221,146		2,780		(409		)	223,517		522,657		11,675		(1,036		)	533,296
Other	8,781		10		—			8,791		6,000		310		—			6,310
Total other securities	404,827		3,245		(4,875		)	403,197		658,141		16,367		(1,364		)	673,144
Total securities	$	1,879,754	$	20,613	$	(5,547	)	$	1,894,820	$	952,922	$	22,462	$	(1,558	)	$	973,826



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)



	December 31, 2015
	Available for Sale									Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrecognized gains		Gross unrecognized losses			Fair value
Residential MBS:
Agency-backed	$	1,222,912	$	2,039	$	(7,089	)	$	1,217,862	$	252,760	$	1,857	$	(1,214	)	$	253,403
CMO/Other MBS	79,430		76		(1,133		)	78,373		49,842		87		(619		)	49,310
Total residential MBS	1,302,342		2,115		(8,222		)	1,296,235		302,602		1,944		(1,833		)	302,713
Other securities:
Federal agencies	85,124		7		(864		)	84,267		104,135		2,458		(635		)	105,958
Corporate	321,630		522		(7,964		)	314,188		25,241		11		(200		)	25,052
State and municipal	187,399		2,187		(551		)	189,035		285,813		9,327		(134		)	295,006
Trust preferred	27,928		589		—			28,517		—		—		—			—
Other	8,781		9		—			8,790		5,000		350		—			5,350
Total other securities	630,862		3,314		(9,379		)	624,797		420,189		12,146		(969		)	431,366
Total securities	$	1,933,204	$	5,429	$	(17,601	)	$	1,921,032	$	722,791	$	14,090	$	(2,802	)	$	734,079

During the quarter ended March 31, 2016, the Company sold all of the trust preferred securities it held at December 31, 2015.

The amortized cost and estimated fair value of securities at March 31, 2016 are presented below by contractual maturity. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential MBS are shown separately since they are not due at a single maturity date.



	March 31, 2016
	Available for sale				Held to maturity
	Amortized cost		Fair value		Amortized cost		Fair value
Remaining period to contractual maturity:
One year or less	$	17,162	$	17,194	$	13,059	$	13,160
One to five years	214,895		213,978		52,569		54,617
Five to ten years	113,074		112,148		219,829		227,552
Greater than ten years	59,696		59,877		372,684		377,815
Total securities with a stated maturity date	404,827		403,197		658,141		673,144
Residential MBS	1,474,927		1,491,623		294,781		300,682
Total securities	$	1,879,754	$	1,894,820	$	952,922	$	973,826

Sales of securities for the periods indicated below were as follows:



	For the three months ended
	March 31,
	2016			2015
Available for sale:
Proceeds from sales	$	275,358		$	115,554
Gross realized gains	1,562			1,663
Gross realized losses	(1,845		)	(129		)
Income tax (benefit) expense on realized net gains	(96		)	499



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

At March 31, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. federal government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following table summarizes securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position for the periods presented below:



	Continuous unrealized loss position
	Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
Available for sale
March 31, 2016
Residential MBS:
Agency-backed	$	46,003	$	(280	)	$	3,716	$	(23	)	$	49,719	$	(303	)
CMO/Other MBS	27,077		(359		)	1,563		(10		)	28,640		(369		)
Total residential MBS	73,080		(639		)	5,279		(33		)	78,359		(672		)
Other securities:
Federal agencies	206		—			2,998		(3		)	3,204		(3		)
Corporate	31,810		(1,880		)	31,304		(2,583		)	63,114		(4,463		)
State and municipal	5,857		(122		)	59,317		(287		)	65,174		(409		)
Total other securities	37,873		(2,002		)	93,619		(2,873		)	131,492		(4,875		)
Total	$	110,953	$	(2,641	)	$	98,898	$	(2,906	)	$	209,851	$	(5,547	)
December 31, 2015
Residential MBS:
Agency-backed	$	18,983	$	(528	)	$	854,491	$	(6,561	)	$	873,474	$	(7,089	)
CMO/Other MBS	23,682		(717		)	41,946		(416		)	65,628		(1,133		)
Total residential MBS	42,665		(1,245		)	896,437		(6,977		)	939,102		(8,222		)
Other securities:
Federal agencies	14,933		(260		)	57,886		(604		)	72,819		(864		)
Corporate	19,257		(715		)	236,048		(7,249		)	255,305		(7,964		)
State and municipal	3,439		(27		)	42,924		(524		)	46,363		(551		)
Total other securities	37,629		(1,002		)	336,858		(8,377		)	374,487		(9,379		)
Total	$	80,294	$	(2,247	)	$	1,233,295	$	(15,354	)	$	1,313,589	$	(17,601	)



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

The following table summarizes securities held to maturity with unrecognized losses, segregated by the length of time in a continuous unrecognized loss position for the periods presented below:



	Continuous unrecognized loss position
	Less than 12 months					12 months or longer					Total
	Fair value		Unrecognized losses			Fair value		Unrecognized losses			Fair value		Unrecognized losses
Held to maturity
March 31, 2016
Residential MBS:
Agency-backed	$	6,568	$	(69	)	$	1,261	$	(3	)	$	7,829	$	(72	)
CMO/Other MBS	7,984		(61		)	8,684		(61		)	16,668		(122		)
Total residential MBS	14,552		(130		)	9,945		(64		)	24,497		(194		)
Other securities:
Federal agencies	9,991		(9		)	—		—			9,991		(9		)
Corporate	—		—			24,872		(319		)	24,872		(319		)
State and municipal	2,223		(24		)	158,959		(1,012		)	161,182		(1,036		)
Total other securities	12,214		(33		)	183,831		(1,331		)	196,045		(1,364		)
Total	$	26,766	$	(163	)	$	193,776	$	(1,395	)	$	220,542	$	(1,558	)
December 31, 2015
Residential MBS:
Agency-backed	$	—	$	—		$	132,585	$	(1,214	)	$	132,585	$	(1,214	)
CMO/Other MBS	5,960		(156		)	40,033		(463		)	45,993		(619		)
Total residential MBS	5,960		(156		)	172,618		(1,677		)	178,578		(1,833		)
Other securities:
Federal agencies	14,642		(358		)	9,723		(277		)	24,365		(635		)
Corporate	—		—			20,039		(200		)	20,039		(200		)
State and municipal	2,562		(48		)	12,989		(86		)	15,551		(134		)
Total other securities	17,204		(406		)	42,751		(563		)	59,955		(969		)
Total	$	23,164	$	(562	)	$	215,369	$	(2,240	)	$	238,533	$	(2,802	)

At March 31, 2016, a total of 131 available for sale securities were in a continuous unrealized loss position for less than 12 months and 36 securities were in a continuous unrealized loss position for 12 months or longer. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other than temporary impairment (“OTTI”) losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Company anticipates it will receive full value for the securities. Furthermore, as of March 31, 2016, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. As of March 31, 2016, management believes the impairments detailed in the table above are temporary.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

Securities pledged for borrowings at FHLB and other institutions, and securities pledged for municipal deposits and other purposes were as follows for the periods presented below:



	March 31,		December 31,
	2016		2015
Available for sale securities pledged for borrowings, at fair value	$	95,317	$	101,994
Available for sale securities pledged for municipal deposits, at fair value	975,592		849,186
Available for sale securities pledged for customer back-to-back swaps, at fair value	4,323		1,839
Held to maturity securities pledged for borrowings, at amortized cost	2,500		206,337
Held to maturity securities pledged for municipal deposits, at amortized cost	369,334		327,589
Total securities pledged	$	1,447,066	$	1,486,945

(4) Portfolio Loans

The composition of the Company’s loan portfolio, excluding loans held for sale, was the following for the periods presented below:



	March 31,			December 31,
	2016			2015
Commercial:
Commercial and industrial:
Traditional commercial & industrial (“C&I”)	$	2,003,839		$	1,681,704
Payroll finance	199,119			221,831
Warehouse lending	341,790			387,808
Factored receivables	215,015			208,382
Equipment financing	656,775			631,303
Total C&I	3,416,538			3,131,028
Commercial mortgage:
Commercial real estate	2,790,145			2,733,351
Multi-family	886,069			796,030
Acquisition, development & construction (“ADC”)	179,517			186,398
Total commercial mortgage	3,855,731			3,715,779
Total commercial	7,272,269			6,846,807
Residential mortgage	718,733			713,036
Consumer	295,161			299,517
Total portfolio loans	8,286,163			7,859,360
Allowance for loan losses	(53,014		)	(50,145		)
Total portfolio loans, net	$	8,233,149		$	7,809,215

Total portfolio loans include net deferred loan origination costs of $1,612 at March 31, 2016, and $2,029 at December 31, 2015.

At March 31, 2016 and December 31, 2015, the Company pledged loans totaling $2,205,834 and $2,050,982, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 8. “Borrowings”.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) (Dollars in thousands, except share and per share data)

The following tables set forth the amounts and status of the Company’s loans, troubled debt restructurings (“TDRs”) and non-performing loans at March 31, 2016 and December 31, 2015:



	March 31, 2016
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
C&I	$	1,969,677	$	1,294	$	2,630	$	478	$	29,760	$	2,003,839
Payroll finance	198,805		39		59		159		57		199,119
Warehouse lending	341,790		—		—		—		—		341,790
Factored receivables	214,803		—		—		—		212		215,015
Equipment financing	651,995		1,276		926		—		2,578		656,775
Commercial real estate	2,767,800		1,130		3,074		332		17,809		2,790,145
Multi-family	882,028		—		—		—		4,041		886,069
ADC	175,501		—		—		—		4,016		179,517
Residential mortgage	694,104		6,092		684		—		17,853		718,733
Consumer	285,054		1,276		688		33		8,110		295,161
Total portfolio loans	$	8,181,557	$	11,107	$	8,061	$	1,002	$	84,436	$	8,286,163
Total TDRs included above	$	14,918	$	1,116	$	—	$	—	$	5,810	$	21,844
Non-performing loans:
Loans 90+ days past due and still accruing											$	1,002
Non-accrual loans											84,436
Total non-performing loans											$	85,438



	December 31, 2015
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
C&I	$	1,630,635	$	9,380	$	31,060	$	487	$	10,142	$	1,681,704
Payroll finance	221,394		—		349		88		—		221,831
Warehouse lending	387,808		—		—		—		—		387,808
Factored receivables	208,162		—		—		—		220		208,382
Equipment financing	627,056		1,088		1,515		—		1,644		631,303
Commercial real estate	2,702,671		7,417		2,521		—		20,742		2,733,351
Multi-family	791,828		2,485		—		—		1,717		796,030
ADC	182,615		—		—		83		3,700		186,398
Residential mortgage	686,445		6,014		897		—		19,680		713,036
Consumer	286,339		4,950		320		16

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