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Section 1: 10-Q (10-Q)

Document
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
OR
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.
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


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.

3

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.

4

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.

5

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.

6

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
)

7

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.

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 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.

(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, 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.


9

 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.


10

 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



11

 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.

12

 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
)


13

 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.

14

 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”.


15

 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

 
 
.

16

 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

 



17

 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

 
4,205

Residential mortgage
93,377

 
106,825

 
99,958

 
113,002

Consumer
11,393

 
13,089

 
10,284

 
12,096

Total
$
181,745

 
$
205,338

 
$
186,357

 
$
205,699


There were no non-accrual asset-based lending, payroll finance, warehouse lending, factored receivables or public sector finance loans at March 31, 2018 or December 31, 2017.

When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on non-accrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an impaired loan is not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method.

At March 31, 2018 and December 31, 2017, the recorded investment of residential mortgage loans that was in the process of foreclosure was $65,796 and $76,712, respectively, which is included in non-accrual residential mortgage loans above.


18

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

The following table sets forth loans evaluated for impairment by segment and the allowance evaluated by segment at March 31, 2018:
 
Loans evaluated by segment
 
Allowance evaluated by segment
 
Individually
evaluated for
impairment
 
Collectively
evaluated for
impairment
 
PCI loans(1)
 
Total
 loans
 
Individually
evaluated for
impairment
 
Collectively
evaluated for
impairment
 
Total allowance for loan losses
Traditional C&I
$
45,775

 
$
1,956,996

 
$
9,691

 
$
2,012,462

 
$

 
$
19,410

 
$
19,410