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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 June 30, 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 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.
 
 
 
 
 
 
 
 
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)



 
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.

3

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.

4

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.

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

 

 

 

 

 
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.

6

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
)

7

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 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.

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) 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

9

 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

10

 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



11

 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.


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
 
 
 
 
 
 
 
 
 
 
 
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
)


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
 
 
 
 
 
 
 
 
 
 
 
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.


14

 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



15

 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

 
236,915

Residential mortgage
4,548,423

 
12,866

 
3,546

 
721

 
86,945

 
4,652,501

Consumer
314,490

 
3,879

 
5,793

 
47

 
11,425

 
335,634

Total portfolio loans
$
20,410,077

 
$
45,496

 
$
27,945

 
$
12,349

 
$
178,626

 
$
20,674,493

Total TDRs included above
$
25,702

 
$
245

 
$
193

 
$

 
$
35,643

 
$
61,783

Non-performing loans:
 
 
 
 
 
 
 
 
 
 
 
Loans 90+ days past due and still accruing
 
 
 
 
 
 
 
 
$
12,349

 
 
Non-accrual loans
 
 
 
 
 
 
 
 
178,626