STERLING BANCORP - FORM 10-Q

Attached files

file	filename
EX-32.0 - EXHIBIT 32.0 - STERLING BANCORP	exhibit320certification331.htm
EX-31.2 - EXHIBIT 31.2 - STERLING BANCORP	exhibit312certification331.htm
EX-31.1 - EXHIBIT 31.1 - STERLING BANCORP	exhibit311certification331.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, 2018



o	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, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)

Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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 2, 2018
$0.01 per share		225,473,473

STERLING BANCORP AND SUBSIDIARIES

FORM 10-Q TABLE OF CONTENTS

QUARTERLY PERIOD ENDED MARCH 31, 2018



	PART I. FINANCIAL INFORMATION - UNAUDITED
Item 1.	Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017	3
	Consolidated Income Statements for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2018 and 2017	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	65

Item 4.	Controls and Procedures	66

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68

Item 3.	Defaults Upon Senior Securities	68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68

Item 6.	Exhibits	68

	Signatures	70

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

STERLING BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

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



	March 31,			December 31,
	2018			2017
ASSETS:
Cash and due from banks	$	364,331		$	479,906
Securities:
Available for sale, at fair value	3,760,338			3,612,072
Held to maturity, at amortized cost (fair value of $2,807,106 and $2,863,909 at March 31, 2018 and December 31, 2017, respectively)	2,874,948			2,862,489
Total securities	6,635,286			6,474,561
Loans held for sale	44,440			5,246
Portfolio loans	19,939,245			20,008,983
Allowance for loan losses	(82,092		)	(77,907		)
Portfolio loans, net	19,857,153			19,931,076
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost	354,832			284,112
Accrued interest receivable	102,129			94,098
Premises and equipment, net	318,267			321,722
Goodwill	1,579,891			1,579,891
Other intangible assets, net	147,139			153,191
Bank owned life insurance	655,278			651,638
Other real estate owned	24,493			27,095
Other assets	385,541			357,005
Total assets	$	30,468,780		$	30,359,541
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	20,623,233		$	20,538,204
FHLB borrowings	4,449,829			4,510,123
Repurchase agreements	26,850			30,162
Senior Notes	278,144			278,209
Subordinated Notes	172,771			172,716
Mortgage escrow funds	161,724			122,641
Other liabilities	482,474			467,308
Total liabilities	26,195,025			26,119,363
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; 135,000 shares issued and outstanding at March 31, 2018 and December 31, 2017)	139,025			139,220
Common stock (par value $0.01 per share; 310,000,000 shares authorized at March 31, 2018 and December 31, 2017; 229,872,925 shares issued at March 31, 2018 and December 31, 2017; 225,466,266 and 224,782,694 shares outstanding at March 31, 2018 and December 31, 2017, respectively)	2,299			2,299
Additional paid-in capital	3,766,280			3,780,908
Treasury stock, at cost (4,406,659 shares at March 31, 2018 and 5,090,231 at December 31, 2017)	(51,102		)	(58,039		)
Retained earnings	496,297			401,956
Accumulated other comprehensive loss, net of tax benefit of $(30,194) at March 31, 2018 and $(17,083) at December 31, 2017	(79,044		)	(26,166		)
Total stockholders’ equity	4,273,755			4,240,178
Total liabilities and stockholders’ equity	$	30,468,780		$	30,359,541

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,
	2018			2017
Interest and dividend income:
Loans and loan fees	$	234,615		$	104,570
Securities taxable	27,061			12,282
Securities non-taxable	15,312			7,618
Other earning assets	4,358			1,530
Total interest and dividend income	281,346			126,000
Interest expense:
Deposits	24,206			9,508
Borrowings	22,770			7,702
Total interest expense	46,976			17,210
Net interest income	234,370			108,790
Provision for loan losses	13,000			4,500
Net interest income after provision for loan losses	221,370			104,290
Non-interest income:
Deposit fees and service charges	7,003			3,335
Accounts receivable management / factoring commissions and other fees	5,360			3,769
Bank owned life insurance	3,614			1,370
Loan commissions and fees	3,406			2,987
Investment management fees	1,825			231
Net loss on sale of securities	(5,421		)	(23		)
Other	2,920			1,167
Total non-interest income	18,707			12,836
Non-interest expense:
Compensation and benefits	54,680			31,187
Stock-based compensation plans	2,854			1,736
Occupancy and office operations	17,460			8,134
Information technology	11,718			2,469
Amortization of intangible assets	6,052			2,229
FDIC insurance and regulatory assessments	5,347			1,888
Other real estate owned expense, net	364			1,676
Merger-related expense	—			3,127
Other	13,274			7,904
Total non-interest expense	111,749			60,350
Income before income tax expense	128,328			56,776
Income tax expense	29,456			17,709
Net income	$	98,872		$	39,067
Preferred stock dividend	1,999			—
Net income available to common stockholders	$	96,873		$	39,067
Weighted average common shares:
Basic	224,730,686			135,163,347
Diluted	225,264,147			135,811,721
Earnings per common share:
Basic	$	0.43		$	0.29
Diluted	0.43			0.29

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,
	2018			2017
Net income	$	98,872		$	39,067
Other comprehensive (loss) income, before tax:
Change in unrealized holding (losses) gains on securities available for sale	(72,321		)	4,495
Reclassification adjustment for net realized losses included in net income	5,421			23
Accretion of net unrealized loss on securities transferred to held to maturity	234			243
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans	679			56
Total other comprehensive (loss) income, before tax	(65,987		)	4,817
Deferred tax benefit (expense) related to other comprehensive (loss) income	18,238			(1,903		)
Other comprehensive (loss) income, net of tax	(47,749		)	2,914
Comprehensive income	$	51,123		$	41,981

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

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



	Number of common shares	Preferred stock			Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive (loss) income			Total stockholders’ equity
Balance at January 1, 2017	135,257,570	$	—		$	1,411	$	1,597,287		$	(66,188	)	$	349,308		$	(26,635	)	$	1,855,183
Net income	—	—			—		—			—			39,067			—			39,067
Other comprehensive income	—	—			—		—			—			—			2,914			2,914
Stock option & other stock transactions, net	40,253	—			—		49			553			(109		)	—			493
Restricted stock awards, net	306,612	—			—		(7,043		)	3,589			3,846			—			392
Cash dividends declared ($0.07 per common share)	—	—			—		—			—			(9,436		)	—			(9,436		)
Balance at March 31, 2017	135,604,435	$	—		$	1,411	$	1,590,293		$	(62,046	)	$	382,676		$	(23,721	)	$	1,888,613

Balance at January 1, 2018	224,782,694	$	139,220		$	2,299	$	3,780,908		$	(58,039	)	$	401,956		$	(26,166	)	$	4,240,178
Net income	—	—			—		—			—			98,872			—			98,872
Other comprehensive income	—	—			—		—			—			—			(47,749		)	(47,749		)
Stock option & other stock transactions, net	28,794	—			—		2			375			(46		)	—			331
Restricted stock awards, net	654,778	—			—		(14,630		)	6,562			8,078			—			10
Cash dividends declared ($0.07 per common share)	—	—			—		—			—			(15,693		)	—			(15,693		)
Cash dividends declared ($16.25 per preferred share)	—	(195		)	—		—			—			(1,999		)	—			(2,194		)
Reclassification of the stranded income tax effects from the enactment of the Tax Cuts and Jobs Act from accumulated other comprehensive (loss)	—	—			—		—			—			5,129			(5,129		)	—
Balance at March 31, 2018	225,466,266	$	139,025		$	2,299	$	3,766,280		$	(51,102	)	$	496,297		$	(79,044	)	$	4,273,755

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,
	2018			2017
Cash flows from operating activities:
Net income	$	98,872		$	39,067
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses	13,000			4,500
Net (gain) loss from write-downs and sales of other real estate owned	(272		)	1,293
Depreciation of premises and equipment	5,082			2,014
Amortization of intangible assets	6,052			2,229
Amortization of low income housing tax credits	998			138
Net loss on sale of securities	5,421			23
Net gain on loans held for sale	(2		)	(701		)
Net amortization of premiums on securities	9,514			5,545
Amortization of premium on certificates of deposit	(1,687		)	—
Net accretion of purchase discount and amortization of net deferred loan costs	(30,090		)	(3,482		)
Net accretion of debt issuance costs and amortization of premium on borrowings	(595		)	134
Restricted stock compensation expense	2,852			1,686
Stock option compensation expense	2			50
Originations of loans held for sale	(44,077		)	(5,159		)
Proceeds from sales of loans held for sale	4,885			45,190
Increase in cash surrender value of bank owned life insurance	(3,614		)	(1,370		)
Deferred income tax expense (benefit)	15,327			(890		)
Other adjustments (principally net changes in other assets and other liabilities)	(19,063		)	(28,398		)
Net cash provided by operating activities	62,605			61,869
Cash flows from investing activities:
Purchases of securities:
Available for sale	(416,491		)	(282,437		)
Held to maturity	(54,279		)	(100,799		)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale	76,694			70,273
Held to maturity	33,706			14,124
Proceeds from sales of securities available for sale	117,810			232
Portfolio loan originations, net	86,297			(169,183		)
Portfolio loans purchased	—			(94,912		)
Proceeds from sale of loans held for investment	—			28,990
Purchases of FHLB and FRB stock, net	(70,720		)	(12,932		)
Proceeds from sales of other real estate owned	7,590			3,361
Purchases of premises and equipment	(1,627		)	(2,263		)
Premiums paid for bank owned life insurance	(26		)	—
Purchases of low income housing tax credits	(2,063		)	(2,200		)
Net cash (used in) investing activities	(223,109		)	(547,746		)

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



	Three months ended
	March 31,
	2018			2017
Cash flows from financing activities:
Net increase in transaction, savings and money market deposits	$	19,992		$	220,658
Net increase (decrease) in certificates of deposit	66,724			(37,192		)
Net (decrease) in short-term FHLB borrowings	(885,000		)	(256,000		)
Advances of term FHLB borrowings	1,125,000			625,000
Repayments of term FHLB borrowings	(300,000		)	(125,000		)
Net (decrease) increase in other borrowings	(3,312		)	27,830
Net increase (decrease) in mortgage escrow funds	39,083			(419		)
Proceeds from stock option exercises	329			493
Cash dividends paid - common stock	(15,693		)	(9,436		)
Cash dividends paid - preferred stock	(2,194		)	—
Net cash provided by financing activities	44,929			445,934
Net decrease in cash and cash equivalents	(115,575		)	(39,943		)
Cash and cash equivalents at beginning of period	479,906			293,646
Cash and cash equivalents at end of period	$	364,331		$	253,703
Supplemental cash flow information:
Interest payments	$	41,870		$	13,369
Income tax payments	9,647			2,785
Real estate acquired in settlement of loans	4,716			667
Loans transferred from held for investment to held for sale	—			28,990

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 include 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 (the “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, 2017, included in our Annual Report on Form 10-K, as filed with the SEC on March 1, 2018 (the “2017 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. These reclassifications had no impact on previously reported net income.

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, particularly the allowance for loan losses and the status of contingencies, and are subject to change.

(d) Merger with Astoria Financial Corporation

On October 2, 2017, Astoria Financial Corporation (“Astoria”) merged with and into the Company (the “Astoria Merger”). In connection with the merger, Astoria Bank, the principal subsidiary of Astoria, also merged with and into the Bank.

(e) Adoption of New Accounting Standards

The Company adopted the following new accounting standards effective January 1, 2018:

Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (the “New Revenue Standard”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of non-financial assets, such as other real estate owned (“OREO”). The Company adopted the New Revenue Standard using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard while prior period amounts continue to be reported in accordance with legacy GAAP. The adoption of the New Revenue Standard did not result in a significant change to the accounting for any in-scope revenue streams. As such, no cumulative effect adjustment was recorded. The majority of the Company’s revenues come from interest income and other sources, including loans and securities, that are outside the scope of the New Revenue Standard. The Company’s services that fall within the scope of the New Revenue Standard are primarily included within non-interest income in the consolidated income statements and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of the New Revenue Standard include deposit fees and services charges, accounts receivable management / factoring commissions and other fees, investment management fees and the sale of OREO, which is included within OREO, net expense. See Note 13. “Non-Interest Income and Other Non-Interest Expense” for further discussion on the Company’s accounting policies for revenue sources with the scope of the New Revenue Standard.



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

Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition of Financial Assets and Financial Liabilities (the “New Fair Value Standard”), which makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. The New Fair Value Standard requires equity investments to be measured at fair value with changes in fair value recognized in net income; however, the Company owned no assets subject to this portion of the New Fair Value Standard. The New Fair Value Standard also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. As a result of the adoption of the New Fair Value Standard, the Company modified its calculation used to estimate the fair value of portfolio loans. See Note 17. “Fair Value Measurements” for further discussion of the Company’s methodology. The New Fair Value Standard had no impact to the consolidated balance sheets or income statements.

ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the “New Retirement Standard”), which requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are presented as a component of other non-interest expense. The adoption of this standard resulted in the reclassification of $109 from compensation and benefits to other non-interest expense for the three months ended March 31, 2017.

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (the “AOCI Standard”), which allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for the stranded tax effects caused by the revaluation of estimated deferred taxes resulting from the enactment of Tax Cuts and Jobs Act of 2017. As a result of the adoption of the AOCI Standard the Company reduced AOCI and increased retained earnings by $5,129 in the three months ended March 31, 2018 related to unrealized losses on securities available for sale, securities transferred to held to maturity and a net actuarial loss on defined benefit retirement plans. As we finalize the accounting for the tax effects of the Tax Cuts and Jobs Act of 2017, additional reclassification adjustments may be recorded. As a result of the adoption of the AOCI standard, the Company will release such income tax effects only when the entire portfolio to which the underlying items are liquidated, sold or extinguished. The adoption of the AOCI Standard did not impact total stockholders’ equity or the consolidated income statements for any period.



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

(2) Acquisitions

Astoria Merger

On October 2, 2017, the Company completed the Astoria Merger. Under the terms of the Astoria Merger agreement, Astoria shareholders received 0.875 shares of the Company’s common stock for each share of Astoria common stock, which resulted in the issuance of 88,829,776 of the Company’s common shares. Based on the Company’s closing stock price per share of $24.65 on September 29, 2017, the aggregate consideration was $2,189,687, which included cash in lieu of fractional shares. Consistent with the Company’s strategy, the primary reason for the Astoria Merger was the expansion of the Company’s geographic footprint in the Greater New York metropolitan region, including Long Island.

The assets acquired and liabilities assumed were accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of October 2, 2017 based on management’s best estimate using the information available as of the Astoria Merger date. The Astoria Merger resulted in the recognition of loans of $9,209,398, deposits of

$9,044,061 and goodwill of $883,291.

Accounting guidance identifies the measurement period for the Astoria Merger as the period that is required to identify and measure the fair value of the identifiable assets acquired and the liabilities assumed. The measurement period ends when the Company has all of the information that the Company arranged to obtain and that is known to be obtainable. The measurement period runs through October 2, 2018. The Company is preparing final tax returns related to Astoria’s business and operations through October 1, 2017 and believes certain adjustments to income tax balances and goodwill may result upon completion of these returns. No adjustments were made during the three months ended March 31, 2018.

(3) Securities

A summary of amortized cost and estimated fair value of securities as of March 31, 2018 and December 31, 2017 is presented below. The term “MBS” refers to mortgage-backed securities and the term “CMOs” refers to collateralized mortgage obligations. Both of these terms are further defined in Note 17. “Fair Value Measurements”.



	March 31, 2018
	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	$	2,303,487	$	238	$	(62,943	)	$	2,240,782	$	346,167	$	143	$	(8,821	)	$	337,489
CMOs/Other MBS	625,985		10		(18,633		)	607,362		32,074		—		(1,010		)	31,064
Total residential MBS	2,929,472		248		(81,576		)	2,848,144		378,241		143		(9,831		)	368,553
Other securities:
Federal agencies	339,549		—		(13,481		)	326,068		58,747		220		(29		)	58,938
Corporate	335,035		1,082		(5,622		)	330,495		56,629		1,029		(198		)	57,460
State and municipal	260,081		268		(4,718		)	255,631		2,363,081		2,389		(61,375		)	2,304,095
Other	—		—		—			—		18,250		21		(211		)	18,060
Total other securities	934,665		1,350		(23,821		)	912,194		2,496,707		3,659		(61,813		)	2,438,553
Total securities	$	3,864,137	$	1,598	$	(105,397	)	$	3,760,338	$	2,874,948	$	3,802	$	(71,644	)	$	2,807,106



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



	December 31, 2017
	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	$	2,171,044	$	1,570	$	(21,965	)	$	2,150,649	$	355,013	$	978	$	(2,504	)	$	353,487
CMOs/Other MBS	656,514		31		(7,142		)	649,403		33,496		26		(760		)	32,762
Total residential MBS	2,827,558		1,601		(29,107		)	2,800,052		388,509		1,004		(3,264		)	386,249
Other securities:
Federal agencies	409,322		—		(9,326		)	399,996		58,640		949		—			59,589
Corporate	147,781		1,421		(976		)	148,226		56,663		1,255		(103		)	57,815
State and municipal	264,310		1,380		(1,892		)	263,798		2,342,927		12,396		(10,900		)	2,344,423
Other	—		—		—			—		15,750		83		—			15,833
Total other securities	821,413		2,801		(12,194		)	812,020		2,473,980		14,683		(11,003		)	2,477,660
Total securities	$	3,648,971	$	4,402	$	(41,301	)	$	3,612,072	$	2,862,489	$	15,687	$	(14,267	)	$	2,863,909

The amortized cost and estimated fair value of securities at March 31, 2018 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, 2018
	Available for sale				Held to maturity
	Amortized cost		Fair value		Amortized cost		Fair value
Remaining period to contractual maturity:
One year or less	$	13,961	$	13,941	$	95,514	$	95,347
One to five years	114,882		113,962		88,862		89,005
Five to ten years	661,990		646,016		398,931		395,413
Greater than ten years	143,832		138,275		1,913,400		1,858,788
Total securities with a stated maturity date	934,665		912,194		2,496,707		2,438,553
Residential MBS	2,929,472		2,848,144		378,241		368,553
Total securities	$	3,864,137	$	3,760,338	$	2,874,948	$	2,807,106

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



	For the three months ended
	March 31,
	2018			2017
Available for sale:
Proceeds from sales	$	117,810		$	232
Gross realized gains	1			6
Gross realized losses	(5,422		)	(29		)
Income tax benefit on realized net losses	(1,260		)	(7		)

At March 31, 2018 and December 31, 2017, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders’ equity, other than the U.S. federal government and its agencies.



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 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, 2018
Residential MBS:
Agency-backed	$	1,726,329	$	(41,888	)	$	463,042	$	(21,055	)	$	2,189,371	$	(62,943	)
CMOs/Other MBS	573,177		(17,249		)	33,661		(1,384		)	606,838		(18,633		)
Total residential MBS	2,299,506		(59,137		)	496,703		(22,439		)	2,796,209		(81,576		)
Other securities:
Federal agencies	223,016		(6,569		)	103,052		(6,912		)	326,068		(13,481		)
Corporate	232,747		(4,595		)	14,803		(1,027		)	247,550		(5,622		)
State and municipal	177,197		(2,862		)	45,181		(1,856		)	222,378		(4,718		)
Total other securities	632,960		(14,026		)	163,036		(9,795		)	795,996		(23,821		)
Total	$	2,932,466	$	(73,163	)	$	659,739	$	(32,234	)	$	3,592,205	$	(105,397	)
December 31, 2017
Residential MBS:
Agency-backed	$	1,349,217	$	(10,550	)	$	486,948	$	(11,415	)	$	1,836,165	$	(21,965	)
CMOs/Other MBS	605,200		(6,064		)	36,107		(1,078		)	641,307		(7,142		)
Total residential MBS	1,954,417		(16,614		)	523,055		(12,493		)	2,477,472		(29,107		)
Other securities:
Federal agencies	243,476		(1,955		)	156,520		(7,371		)	399,996		(9,326		)
Corporate	65,056		(397		)	15,268		(579		)	80,324		(976		)
State and municipal	97,307		(757		)	56,324		(1,135		)	153,631		(1,892		)
Total other securities	405,839		(3,109		)	228,112		(9,085		)	633,951		(12,194		)
Total securities	$	2,360,256	$	(19,723	)	$	751,167	$	(21,578	)	$	3,111,423	$	(41,301	)



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, 2018
Residential MBS:
Agency-backed	$	246,174	$	(5,259	)	$	70,957	$	(3,562	)	$	317,131	$	(8,821	)
CMOs/Other MBS	11,877		(248		)	19,186		(762		)	31,063		(1,010		)
Total residential MBS	258,051		(5,507		)	90,143		(4,324		)	348,194		(9,831		)
Other securities:
Federal agencies	14,666		(29		)	—		—			14,666		(29		)
Corporate	16,431		(198		)	—		—			16,431		(198		)
State and municipal	1,742,960		(45,717		)	377,930		(15,658		)	2,120,890		(61,375		)
Other	10,039		(211		)	—					10,039		(211		)
Total other securities	1,784,096		(46,155		)	377,930		(15,658		)	2,162,026		(61,813		)
Total securities	$	2,042,147	$	(51,662	)	$	468,073	$	(19,982	)	$	2,510,220	$	(71,644	)
December 31, 2017
Residential MBS:
Agency-backed	$	136,679	$	(572	)	$	74,303	$	(1,932	)	$	210,982	$	(2,504	)
CMOs/Other MBS	10,314		(129		)	20,160		(631		)	30,474		(760		)
Total residential MBS	146,993		(701		)	94,463		(2,563		)	241,456		(3,264		)
Other securities:
Corporate	16,560		(103		)	—		—			16,560		(103		)
State and municipal	860,536		(5,310		)	393,200		(5,590		)	1,253,736		(10,900		)
Total other securities	877,096		(5,413		)	393,200		(5,590		)	1,270,296		(11,003		)
Total securities	$	1,024,089	$	(6,114	)	$	487,663	$	(8,153	)	$	1,511,752	$	(14,267	)

At March 31, 2018, a total of 424 available for sale securities were in a continuous unrealized loss position for less than 12 months and 152 available for sale 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, 2018, management did 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 related to credit quality. As of March 31, 2018, 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 the 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,
	2018		2017
Available for sale securities pledged for borrowings, at fair value	$	10,228	$	10,225
Available for sale securities pledged for municipal deposits, at fair value	325,715		323,341
Held to maturity securities pledged for borrowings, at amortized cost	36,637		35,047
Held to maturity securities pledged for municipal deposits, at amortized cost	1,421,714		1,182,674
Total securities pledged	$	1,794,294	$	1,551,287

(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,
	2018			2017
Commercial:
Commercial and industrial (“C&I”):
Traditional C&I	$	2,012,462		$	1,979,448
Asset-based lending	806,305			797,570
Payroll finance	234,379			268,609
Warehouse lending	676,783			723,335
Factored receivables	238,258			220,551
Equipment financing	694,085			679,541
Public sector finance	679,276			637,767
Total C&I	5,341,548			5,306,821
Commercial mortgage:
Commercial real estate	4,207,135			4,138,864
Multi-family	4,892,471			4,859,555
Acquisition, development & construction (“ADC”)	262,591			282,792
Total commercial mortgage	9,362,197			9,281,211
Total commercial	14,703,745			14,588,032
Residential mortgage	4,883,452			5,054,732
Consumer	352,048			366,219
Total portfolio loans	19,939,245			20,008,983
Allowance for loan losses	(82,092		)	(77,907		)
Total portfolio loans, net	$	19,857,153		$	19,931,076

Total portfolio loans include net deferred loan origination fees of $5,064 and $4,813 at March 31, 2018 and December 31, 2017, respectively.

At March 31, 2018 and December 31, 2017, the Company pledged residential mortgage and commercial real estate loans of $9,055,229 and $9,123,601, 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, 2018 and December 31, 2017:



	March 31, 2018
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	1,973,000	$	4,200	$	355	$	30	$	34,877	$	2,012,462
Asset-based lending	806,305		—		—		—		—		806,305
Payroll finance	233,818		312		249		—		—		234,379
Warehouse lending	676,783		—		—		—		—		676,783
Factored receivables	238,258		—		—		—		—		238,258
Equipment financing	683,872		563		3,095		—		6,555		694,085
Public sector finance	679,276		—		—		—		—		679,276
Commercial real estate	4,162,119		985		16,192		—		27,839		4,207,135
Multi-family	4,887,224		1,729		3		—		3,515		4,892,471
ADC	254,198		4,204		—		—		4,189		262,591
Residential mortgage	4,769,568		14,388		5,848		271		93,377		4,883,452
Consumer	332,960		6,834		861		—		11,393		352,048
Total portfolio loans	$	19,697,381	$	33,215	$	26,603	$	301	$	181,745	$	19,939,245
Total TDRs included above	$	26,614	$	351	$	414	$	—	$	27,089	$	54,468
Non-performing loans:
Loans 90+ days past due and still accruing									$	301
Non-accrual loans									181,745
Total non-performing loans									$	182,046



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



	December 31, 2017
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	1,940,387	$	1,232	$	187	$	—	$	37,642	$	1,979,448
Asset-based lending	797,570		—		—		—		—		797,570
Payroll finance	268,609		—		—		—		—		268,609
Warehouse lending	723,335		—		—		—		—		723,335
Factored receivables	220,551		—		—		—		—		220,551
Equipment financing	667,083		1,143		3,216		—		8,099		679,541
Public sector finance	637,767		—		—		—		—		637,767
Commercial real estate	4,104,173		8,403		4,131		437		21,720		4,138,864
Multi-family	4,853,677		595		834		—		4,449		4,859,555
ADC	278,587		—		—		—		4,205		282,792
Residential mortgage	4,925,996		22,416		6,038		324		99,958		5,054,732
Consumer	350,502		4,364		974		95		10,284		366,219
Total portfolio loans	$	19,768,237	$	38,153	$	15,380	$	856	$	186,357	$	20,008,983
Total TDRs included above	$	13,175	$	389	$	—	$	—	$	29,325	$	42,889
Non-performing loans:
Loans 90+ days past due and still accruing									$	856
Non-accrual loans									186,357
Total non-performing loans									$	187,213



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 provides additional analysis of the Company’s non-accrual loans at March 31, 2018 and December 31, 2017:



	March 31, 2018				December 31, 2017
	Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans		Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans
Traditional C&I	$	34,877	$	38,114	$	37,642	$	37,853
Equipment financing	6,555		6,555		8,099		8,099
Commercial real estate	27,839		32,757		21,720		25,739
Multi-family	3,515		3,606		4,449		4,705
ADC	4,189		4,392		4,205

STERLING BANCORP - FORM 10-Q - May 4, 2018

Attached files