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EX-31.1 - EXHIBIT 31.1 CERTIFICATION - STERLING BANCORPexhibit311certification033.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION - STERLING BANCORPexhibit312certification033.htm
EX-32.1 - EXHIBIT 32.0 CERTIFICIATION - STERLING BANCORPexhibit320certification033.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
OR
 
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):
Large Accelerated Filer
 
x
  
Accelerated Filer
 
o
 
 
 
 
 
 
 
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
 
o
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.
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


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.

3

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.

4

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.

5

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.

6

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
)

7

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.

8

 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.

(c) Use of Estimates
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.”



9

 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:

10

 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 HVHCs 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.

11

 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



12

 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



13

 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
)


14

 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.

15

 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”.


16

 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