STERLING BANCORP - FORM 10-Q

Attached files

file	filename
EX-32.0 - EXHIBIT 32.0 - STERLING BANCORP	exhibit320certification063.htm
EX-31.2 - EXHIBIT 31.2 - STERLING BANCORP	exhibit312certification063.htm
EX-31.1 - EXHIBIT 31.1 - STERLING BANCORP	exhibit311certification063.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 June 30, 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 August 2, 2018
$0.01 per share		225,476,577

STERLING BANCORP AND SUBSIDIARIES

FORM 10-Q TABLE OF CONTENTS

QUARTERLY PERIOD ENDED JUNE 30, 2018



	PART I. FINANCIAL INFORMATION - UNAUDITED
Item 1.	Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	3
	Consolidated Income Statements for the three and six months ended June 30, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2018 and 2017	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	72

Item 4.	Controls and Procedures	73

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	75

Item 1A.	Risk Factors	75

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

Item 3.	Defaults Upon Senior Securities	75

Item 4.	Mine Safety Disclosures	75

Item 5.	Other Information	75

Item 6.	Exhibits	76

	Signatures	77

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)



	June 30,			December 31,
	2018			2017
ASSETS:
Cash and due from banks	$	445,189		$	479,906
Securities:
Available for sale, at fair value	3,929,386			3,612,072
Held to maturity, at amortized cost (fair value of $2,788,581 and $2,863,909 at June, 30, 2018 and December 31, 2017, respectively)	2,859,860			2,862,489
Total securities	6,789,246			6,474,561
Loans held for sale	30,626			5,246
Portfolio loans	20,674,493			20,008,983
Allowance for loan losses	(86,026		)	(77,907		)
Portfolio loans, net	20,588,467			19,931,076
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost	380,404			284,112
Accrued interest receivable	103,095			94,098
Premises and equipment, net	290,762			321,722
Goodwill	1,613,144			1,579,891
Other intangible assets, net	141,274			153,191
Bank owned life insurance	657,637			651,638
Other real estate owned	20,264			27,095
Other assets	402,969			357,005
Total assets	$	31,463,077		$	30,359,541
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	20,965,889		$	20,538,204
FHLB borrowings	5,067,492			4,510,123
Repurchase agreements	19,114			30,162
Senior Notes	278,103			278,209
Subordinated Notes	172,828			172,716
Mortgage escrow funds	130,629			122,641
Other liabilities	476,287			467,308
Total liabilities	27,110,342			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 June 30, 2018 and December 31, 2017)	138,828			139,220
Common stock (par value $0.01 per share; 310,000,000 shares authorized at June 30, 2018 and December 31, 2017; 229,872,925 shares issued at June 30, 2018 and December 31, 2017; 225,470,254 and 224,782,694 shares outstanding at June 30, 2018 and December 31, 2017, respectively)	2,299			2,299
Additional paid-in capital	3,769,505			3,780,908
Treasury stock, at cost (4,402,671 shares at June 30, 2018 and 5,090,231 at December 31, 2017)	(51,269		)	(58,039		)
Retained earnings	592,953			401,956
Accumulated other comprehensive loss, net of tax benefit of $(38,038) at June 30, 2018 and $(17,083) at December 31, 2017	(99,581		)	(26,166		)
Total stockholders’ equity	4,352,735			4,240,178
Total liabilities and stockholders’ equity	$	31,463,077		$	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						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Interest and dividend income:
Loans and loan fees	$	254,253		$	111,840		$	488,868		$	216,410
Securities taxable	29,031			13,113			56,092			25,395
Securities non-taxable	15,403			7,791			30,715			15,409
Other earning assets	6,219			1,519			10,576			3,049
Total interest and dividend income	304,906			134,263			586,251			260,263
Interest expense:
Deposits	28,464			10,905			52,671			20,413
Borrowings	30,226			10,100			52,996			17,802
Total interest expense	58,690			21,005			105,667			38,215
Net interest income	246,216			113,258			480,584			222,048
Provision for loan losses	13,000			4,500			26,000			9,000
Net interest income after provision for loan losses	233,216			108,758			454,584			213,048
Non-interest income:
Deposit fees and service charges	6,985			3,249			13,988			6,584
Accounts receivable management / factoring commissions and other fees	5,337			4,137			10,696			7,906
Bank owned life insurance	4,243			1,652			7,857			3,022
Loan commissions and fees	4,566			2,836			7,973			5,823
Investment management fees	2,121			323			3,946			554
Net loss on sale of securities	(425		)	(230		)	(5,846		)	(253		)
Gain on sale of fixed assets	11,797			—			11,800			—
Other	3,244			1,651			6,161			2,818
Total non-interest income	37,868			13,618			56,575			26,454
Non-interest expense:
Compensation and benefits	56,159			31,394			110,840			62,785
Stock-based compensation plans	3,336			1,897			6,190			3,633
Occupancy and office operations	17,939			8,833			35,399			16,967
Information technology	9,997			2,421			21,713			4,890
Amortization of intangible assets	5,865			2,187			11,917			4,416
FDIC insurance and regulatory assessments	5,495			2,034			10,841			3,922
Other real estate owned (income) expense, net	(226		)	112			138			1,788
Merger-related expense	—			1,766			—			4,893
Charge for asset write-downs, retention and severance	13,132			603			13,132			603
Other	13,231			8,410			26,505			16,110
Total non-interest expense	124,928			59,657			236,675			120,007
Income before income tax expense	146,156			62,719			274,484			119,495
Income tax expense	31,915			20,319			61,371			38,028
Net income	$	114,241		$	42,400		$	213,113		$	81,467
Preferred stock dividend	1,996			—			3,995			—
Net income available to common stockholders	$	112,245		$	42,400		$	209,118		$	81,467
Weighted average common shares:
Basic	225,084,232			135,317,866			224,908,436			135,241,034
Diluted	225,621,856			135,922,897			225,444,579			135,867,861
Earnings per common share:
Basic	$	0.50		$	0.31		$	0.93		$	0.60
Diluted	0.50			0.31			0.93			0.60

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						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Net income	$	114,241		$	42,400		$	213,113		$	81,467
Other comprehensive (loss) income, before tax:
Change in unrealized holding (losses) gains on securities available for sale	(29,091		)	11,671			(101,412		)	16,166
Reclassification adjustment for net realized losses included in net income	425			230			5,846			253
Accretion of net unrealized loss on securities transferred to held to maturity	227			245			460			488
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans	58			8			736			64
Total other comprehensive (loss) income, before tax	(28,381		)	12,154			(94,370		)	16,971
Deferred tax benefit (expense) related to other comprehensive (loss) income	7,844			(4,801		)	26,084			(6,704		)
Other comprehensive (loss) income, net of tax	(20,537		)	7,353			(68,286		)	10,267
Comprehensive income	$	93,704		$	49,753		$	144,827		$	91,734

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	—	—			—		—			—			81,467			—			81,467
Other comprehensive income	—	—			—		—			—			—			10,267			10,267
Stock option & other stock transactions, net	111,648	—			—		98			1,533			(407		)	—			1,224
Restricted stock awards, net	289,008	—			—		(5,086		)	3,079			4,139			—			2,132
Cash dividends declared ($0.14 per common share)	—	—			—		—			—			(18,890		)	—			(18,890		)
Balance at June 30, 2017	135,658,226	$	—		$	1,411	$	1,592,299		$	(61,576	)	$	415,617		$	(16,368	)	$	1,931,383

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	—	—			—		—			—			213,113			—			213,113
Other comprehensive (loss)	—	—			—		—			—			—			(68,286		)	(68,286		)
Stock option & other stock transactions, net	36,294	—			—		4			466			(64		)	—			406
Restricted stock awards, net	651,266	—			—		(11,407		)	6,304			8,246			—			3,143
Cash dividends declared ($0.14 per common share)	—	—			—		—			—			(31,432		)	—			(31,432		)
Cash dividends declared ($32.50 per preferred share)	—	(392		)	—		—			—			(3,995		)	—			(4,387		)
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 June 30, 2018	225,470,254	$	138,828		$	2,299	$	3,769,505		$	(51,269	)	$	592,953		$	(99,581	)	$	4,352,735

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



	Six months ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	213,113		$	81,467
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses	26,000			9,000
Net (gain) loss from write-downs and sales of other real estate owned	(920		)	1,208
Depreciation of premises and equipment	10,199			4,249
Asset write-downs, retention and severance compensation and other restructuring charges	13,132			603
Amortization of intangible assets	11,917			4,416
Amortization of low income housing tax credits	1,995			276
Net loss on sale of securities	5,846			253
Net gain on loans held for sale	(22		)	(831		)
Net gain on sale of premises and equipment	(11,800		)	—
Net amortization of premiums on securities	19,022			11,090
Amortization of premium on certificates of deposit	(3,302		)	—
Net accretion of purchase discount and amortization of net deferred loan costs	(57,851		)	(6,869		)
Net accretion of debt issuance costs and amortization of premium on borrowings	(625		)	272
Restricted stock compensation expense	6,186			3,535
Stock option compensation expense	4			98
Originations of loans held for sale	(51,460		)	(5,159		)
Proceeds from sales of loans held for sale	26,102			47,879
Increase in cash surrender value of bank owned life insurance	(7,857		)	(3,022		)
Deferred income tax expense (benefit)	26,258			(414		)
Other adjustments (principally net changes in other assets and other liabilities)	(50,490		)	(22,417		)
Net cash provided by operating activities	175,447			125,634
Cash flows from investing activities:
Purchases of securities:
Available for sale	(722,860		)	(473,886		)
Held to maturity	(100,819		)	(111,794		)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale	183,964			107,245
Held to maturity	86,533			39,941
Proceeds from sales of securities available for sale	117,810			10,232
Proceeds from sales of securities held to maturity	254			—
Portfolio loan originations, net	(186,510		)	(636,923		)
Portfolio loans purchased	—			(94,912		)
Proceeds from sale of loans held for investment	—			28,990
Purchases of FHLB and FRB stock, net	(96,292		)	(25,143		)
Proceeds from sales of other real estate owned	14,446			4,369
Purchases of premises and equipment	(9,120		)	(4,725		)
Proceeds from bank owned life insurance	1,858			—
Proceeds from sale of premises and equipment	35,261			—
Purchases of low income housing tax credits	(3,655		)	(5,105		)
Cash paid for acquisition, net	(481,544		)	—
Net cash (used in) investing activities	(1,160,674		)	(1,161,711		)

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STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)



	Six months ended
	June 30,
	2018			2017
Cash flows from financing activities:
Net increase in transaction, savings and money market deposits	$	294,805		$	415,851
Net increase in certificates of deposit	136,182			18,600
Net (decrease) in short-term FHLB borrowings	(1,042,000		)	(451,000		)
Advances of term FHLB borrowings	2,975,000			1,425,000
Repayments of term FHLB borrowings	(1,375,000		)	(475,000		)
Net (decrease) increase in other borrowings	(11,048		)	105,954
Net increase in mortgage escrow funds	7,988			2,859
Proceeds from stock option exercises	402			1,224
Cash dividends paid - common stock	(31,432		)	(18,890		)
Cash dividends paid - preferred stock	(4,387		)
Net cash provided by financing activities	950,510			1,024,598
Net decrease in cash and cash equivalents	(34,717		)	(11,479		)
Cash and cash equivalents at beginning of period	479,906			293,646
Cash and cash equivalents at end of period	$	445,189		$	282,167
Supplemental cash flow information:
Interest payments	$	99,999		$	34,702
Income tax payments	16,622			22,880
Real estate acquired in settlement of loans	6,695			2,156
Loans transferred from held for investment to held for sale	—			28,990

Acquisitions:
Non-cash assets acquired:
Total loans, net	$	445,725		$	—
Goodwill	33,253			—
Premises and equipment, net	379			—
Other assets	7,071			—
Total non-cash assets acquired	486,428			—
Liabilities assumed:
Other liabilities	4,884			—
Total liabilities assumed	4,884			—

Net non-cash assets acquired	481,544			—
Cash and cash equivalents received in acquisitions	20,508			—
Total consideration paid	$	502,052		$	—

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) Adoption of New Accounting Standards

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

Accounting Standards Codification (“ASC”) 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.

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



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

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 $219 from compensation and benefits to other non-interest expense for the six months ended June 30, 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 the 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 six months ended June 30, 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.

(2) Acquisitions

Advantage Funding Management Co., Inc. (“Advantage Funding”)

On April 2, 2018, the Bank acquired 100% of the outstanding common stock of Advantage Funding (the “Advantage Funding Acquisition”). The total consideration in the transaction was $502,052 and was paid in cash on the closing date. The transaction was recorded final and there are no items that were recorded provisionally. Advantage Funding is a provider of commercial vehicle and transportation financing services based in Lake Success, NY. Advantage Funding had total outstanding loans and leases of $457,638 on the acquisition date consisting mainly of fixed rate assets. The fair value of these loans was $445,725. The Bank paid a premium on the gross loans and leases receivable of 4.5% or $20,300. In the quarter ended June 30, 2018, we recorded a $4,396 restructuring charge consisting mainly of professional fees, retention and severance compensation, systems integration expense and facilities consolidation. This charge is included in charge for asset write-downs, retention and severance on the consolidated income statement. The Advantage Funding Acquisition is consistent with our strategy of growing commercial loans and increasing the proportion of commercial loans in our loan portfolio. This operations of the business will be fully integrated into our equipment finance business line.

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 shares of the Company’s common stock. 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



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

October 2, 2018. The Company is preparing final tax returns related to Astoria’s business and operations through October 1, 2017 and, at this time, believes certain adjustments to income tax balances and goodwill may result upon completion of these returns. No adjustments were made during the six months ended June 30, 2018.

(3) Securities

A summary of amortized cost and estimated fair value of securities as of June 30, 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”.



	June 30, 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	$	2,351,003	$	3	$	(79,626	)	$	2,271,380	$	336,482	$	40	$	(11,079	)	$	325,443
CMOs/Other MBS	615,018		7		(23,161		)	591,864		30,424		1		(1,186		)	29,239
Total residential MBS	2,966,021		10		(102,787		)	2,863,244		366,906		41		(12,265		)	354,682
Other securities:
Federal agencies	339,157		—		(16,851		)	322,306		58,854		60		(169		)	58,745
Corporate	506,876		841		(9,785		)	497,932		68,614		549		(691		)	68,472
State and municipal	249,797		371		(4,264		)	245,904		2,347,236		2,273		(60,812		)	2,288,697
Other	—		—		—			—		18,250		55		(320		)	17,985
Total other securities	1,095,830		1,212		(30,900		)	1,066,142		2,492,954		2,937		(61,992		)	2,433,899
Total securities	$	4,061,851	$	1,222	$	(133,687	)	$	3,929,386	$	2,859,860	$	2,978	$	(74,257	)	$	2,788,581



	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



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

The amortized cost and estimated fair value of securities at June 30, 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.



	June 30, 2018
	Available for sale				Held to maturity
	Amortized cost		Fair value		Amortized cost		Fair value
Remaining period to contractual maturity:
One year or less	$	22,904	$	22,968	$	88,509	$	88,499
One to five years	158,319		156,323		103,699		103,484
Five to ten years	807,221		784,260		459,834		453,644
Greater than ten years	107,386		102,591		1,840,912		1,788,272
Total securities with a stated maturity date	1,095,830		1,066,142		2,492,954		2,433,899
Residential MBS	2,966,021		2,863,244		366,906		354,682
Total securities	$	4,061,851	$	3,929,386	$	2,859,860	$	2,788,581

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



	For the three months ended						For the six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Available for sale:
Proceeds from sales	$	—		$	10,000		$	117,810		$	10,232
Gross realized gains ⁽¹⁾	81			—			82			6
Gross realized losses ⁽¹⁾	(485		)	(230		)	(5,907		)	(259		)
Income tax benefit on realized net losses	(93		)	(75		)	(1,311		)	(82		)
Held to maturity: ⁽²⁾
Proceeds from sale	$	254		$	—		$	254		$	—
Gross realized loss	(21		)	—			(21		)	—
Income tax expense on realized loss	(5		)	—			(5		)	—

⁽¹⁾Gross realized gains and losses includes securities called prior to maturity.

⁽²⁾In the three months ended June 30, 2018, the Company sold a security that was held to maturity due to a decline in the credit rating and other evidence of deterioration of the issuer’s creditworthiness.

At June 30, 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
June 30, 2018
Residential MBS:
Agency-backed	$	444,999	$	(23,765	)	$	1,825,518	$	(55,861	)	$	2,270,517	$	(79,626	)
CMOs/Other MBS	31,137		(1,427		)	560,015		(21,734		)	591,152		(23,161		)
Total residential MBS	476,136		(25,192		)	2,385,533		(77,595		)	2,861,669		(102,787		)
Other securities:
Federal agencies	101,541		(7,914		)	220,765		(8,937		)	322,306		(16,851		)
Corporate	14,943		(870		)	397,537		(8,915		)	412,480		(9,785		)
State and municipal	42,553		(1,787		)	154,372		(2,477		)	196,925		(4,264		)
Total other securities	159,037		(10,571		)	772,674		(20,329		)	931,711		(30,900		)
Total securities	$	635,173	$	(35,763	)	$	3,158,207	$	(97,924	)	$	3,793,380	$	(133,687	)
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
June 30, 2018
Residential MBS:
Agency-backed	$	254,542	$	(6,922	)	$	69,401	$	(4,157	)	$	323,943	$	(11,079	)
CMOs/Other MBS	11,200		(317		)	17,935		(869		)	29,135		(1,186		)
Total residential MBS	265,742		(7,239		)	87,336		(5,026		)	353,078		(12,265		)
Other securities:
Federal agencies	49,058		(169		)	—		—			49,058		(169		)
Corporate	37,924		(691		)	—		—			37,924		(691		)
State and municipal	1,718,026		(45,182		)	374,576		(15,630		)	2,092,602		(60,812		)
Other	10,680		(320		)	—		—			10,680		(320		)
Total other securities	1,815,688		(46,362		)	374,576		(15,630		)	2,190,264		(61,992		)
Total securities	$	2,081,430	$	(53,601	)	$	461,912	$	(20,656	)	$	2,543,342	$	(74,257	)
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 June 30, 2018, a total of 424 available for sale securities were in a continuous unrealized loss position for less than 12 months and 140 available for sale securities were in a continuous unrealized loss position for 12 months or longer. At June 30, 2018, a total of 552 held to maturity securities were in a continuous unrealized loss position for less than 12 months and 152 held to maturity 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.



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

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 June 30, 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 June 30, 2018, management believes the impairments detailed in the table above are temporary.

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:



	June 30,		December 31,
	2018		2017
Available for sale securities pledged for borrowings, at fair value	$	10,375	$	10,225
Available for sale securities pledged for municipal deposits, at fair value	670,970		323,341
Held to maturity securities pledged for borrowings, at amortized cost	40,413		35,047
Held to maturity securities pledged for municipal deposits, at amortized cost	1,359,252		1,182,674
Total securities pledged	$	2,081,010	$	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:



	June 30,			December 31,
	2018			2017
Commercial:
Commercial and industrial (“C&I”):
Traditional C&I	$	2,065,144		$	1,979,448
Asset-based lending	790,177			797,570
Payroll finance	230,153			268,609
Warehouse lending	1,032,563			723,335
Factored receivables	225,814			220,551
Equipment financing	1,176,635			679,541
Public sector finance	768,197			637,767
Total C&I	6,288,683			5,306,821
Commercial mortgage:
Commercial real estate	4,225,662			4,138,864
Multi-family	4,935,098			4,859,555
Acquisition, development & construction (“ADC”)	236,915			282,792
Total commercial mortgage	9,397,675			9,281,211
Total commercial	15,686,358			14,588,032
Residential mortgage	4,652,501			5,054,732
Consumer	335,634			366,219
Total portfolio loans	20,674,493			20,008,983
Allowance for loan losses	(86,026		)	(77,907		)
Total portfolio loans, net	$	20,588,467		$	19,931,076



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

Total portfolio loans include net deferred loan origination fees of $6,076 and $4,813 at June 30, 2018 and December 31, 2017, respectively.

At June 30, 2018 and December 31, 2017, the Company pledged residential mortgage and commercial real estate loans of $8,781,460 and $9,123,601, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 8. “Borrowings”.

The following tables set forth the amounts and status of the Company’s loans, troubled debt restructurings (“TDRs”) and non-performing loans at June 30, 2018 and December 31, 2017:



	June 30, 2018
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual			Total
Traditional C&I	$	2,008,756	$	2,128	$	14,091	$	6,953	$	33,216		$	2,065,144
Asset-based lending	790,177		—		—		—		—			790,177
Payroll finance	229,917		—		—		—		236			230,153
Warehouse lending	1,032,563		—		—		—		—			1,032,563
Factored receivables	225,814		—		—		—		—			225,814
Equipment financing	1,150,768		8,783		4,041		—		13,043			1,176,635
Public sector finance	768,197		—		—		—		—			768,197
Commercial real estate	4,183,168		9,342		357		4,628		28,167			4,225,662
Multi-family	4,923,943		8,498		117		—		2,540			4,935,098
ADC	233,861		—		—		—		3,054		</

STERLING BANCORP - FORM 10-Q - August 3, 2018

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