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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, 2019
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)
______________________________
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
STL
 
New York Stock Exchange
Depositary Shares, each representing 1/40th interest in a share of 6.50% Non-cumulative Perpetual Preferred Stock, Series A
 
STLPRA
 
New York Stock Exchange
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, if any, every Interactive Data File required to be submitted 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 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             ¨    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 April 30, 2019
$0.01 per share
  
209,679,900



STERLING BANCORP AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
QUARTERLY PERIOD ENDED MARCH 31, 2019
 
 
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,
 
2019
 
2018
ASSETS:
 
 
 
Cash and due from banks
$
314,255

 
$
438,110

Securities:
 
 
 
Available for sale, at fair value
3,847,799

 
3,870,563

Held to maturity, at amortized cost (fair value of $2,079,057 and $2,740,522 at March 31, 2019 and December 31, 2018, respectively)
2,067,251

 
2,796,617

Total securities
5,915,050

 
6,667,180

Loans held for sale
248,972

 
1,565,979

Portfolio loans
19,908,473

 
19,218,530

Allowance for loan losses
(98,960
)
 
(95,677
)
Portfolio loans, net
19,809,513

 
19,122,853

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost
298,455

 
369,690

Accrued interest receivable
115,764

 
107,111

Premises and equipment, net
262,744

 
264,194

Goodwill
1,657,814

 
1,613,033

Other intangible assets, net
124,719

 
129,545

Bank owned life insurance
657,504

 
653,995

Other real estate owned
16,502

 
19,377

Other assets
535,315

 
432,240

Total assets
$
29,956,607

 
$
31,383,307

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
LIABILITIES:
 
 

Deposits
$
21,225,639

 
$
21,214,148

FHLB borrowings
3,259,507

 
4,838,772

Repurchase agreements
27,020

 
21,338

Senior Notes
173,952

 
181,130

Subordinated Notes
173,001

 
172,943

Mortgage escrow funds
102,036

 
72,891

Other liabilities
576,229

 
453,232

Total liabilities
25,537,384

 
26,954,454

Commitments and Contingent liabilities (See Note 17. “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, 2019 and December 31, 2018)
138,218

 
138,423

Common stock (par value $0.01 per share; 310,000,000 shares authorized at March 31, 2019 and December 31, 2018; 229,872,925 shares issued at March 31, 2019 and December 31, 2018; 209,560,824 and 216,227,852 shares outstanding at March 31, 2019 and December 31, 2018, respectively)
2,299

 
2,299

Additional paid-in capital
3,751,835

 
3,776,461

Treasury stock, at cost (20,312,101 shares at March 31, 2019 and 13,645,073 shares at December 31, 2018)
(355,357
)
 
(213,935
)
Retained earnings
888,838

 
791,550

Accumulated other comprehensive loss, net of tax benefit of $(2,763) at March 31, 2019 and $(25,429) at December 31, 2018
(6,610
)
 
(65,945
)
Total stockholders’ equity
4,419,223

 
4,428,853

Total liabilities and stockholders’ equity
$
29,956,607

 
$
31,383,307

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,
 
2019
 
2018
Interest and dividend income:
 
 
 
Loans and loan fees
$
260,295

 
$
234,615

Securities taxable
27,847

 
27,061

Securities non-taxable
14,857

 
15,312

Other earning assets
6,401

 
4,358

Total interest and dividend income
309,400

 
281,346

Interest expense:
 
 
 
Deposits
45,995

 
24,206

Borrowings
27,899

 
22,770

Total interest expense
73,894

 
46,976

Net interest income
235,506

 
234,370

Provision for loan losses
10,200

 
13,000

Net interest income after provision for loan losses
225,306

 
221,370

Non-interest income:
 
 
 
Deposit fees and service charges
6,212

 
7,003

Accounts receivable management / factoring commissions and other fees
5,423

 
5,360

Bank owned life insurance
3,641

 
3,614

Loan commissions and fees
3,838

 
3,406

Investment management fees
1,900

 
1,825

Net loss on sale of securities
(13,184
)
 
(5,421
)
Gain on sale of residential mortgage loans
8,313

 

Other
3,454

 
2,920

Total non-interest income
19,597

 
18,707

Non-interest expense:
 
 
 
Compensation and benefits
55,990

 
54,680

Stock-based compensation plans
5,123

 
2,854

Occupancy and office operations
16,535

 
17,460

Information technology
8,675

 
11,718

Amortization of intangible assets
4,826

 
6,052

FDIC insurance and regulatory assessments
3,338

 
5,347

Other real estate owned expense, net
217

 
364

Charge for asset write-downs, retention and severance
3,344

 

Other
16,944

 
13,274

Total non-interest expense
114,992

 
111,749

Income before income tax expense
129,911

 
128,328

Income tax expense
28,474

 
29,456

Net income
$
101,437

 
$
98,872

Preferred stock dividend
1,989

 
1,999

Net income available to common stockholders
$
99,448

 
$
96,873

Weighted average common shares:
 
 
 
Basic
213,157,090

 
224,730,686

Diluted
213,505,842

 
225,264,147

Earnings per common share:
 
 
 
Basic
$
0.47

 
$
0.43

Diluted
0.47

 
0.43

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,
 
2019
 
2018
Net income
$
101,437

 
$
98,872

Other comprehensive income (loss), before tax:
 
 
 
Change in unrealized holding gains (losses) on securities available for sale
75,329

 
(72,321
)
Unrealized loss on transfer of securities held to maturity to available for sale
(11,813
)
 

Reclassification adjustment for net realized losses included in net income
13,184

 
5,421

Accretion of net unrealized loss on securities transferred to held to maturity
2,417

 
234

Change in the actuarial loss of defined benefit plan and post-retirement benefit plans
2,883

 
679

Total other comprehensive income (loss), before tax
82,000

 
(65,987
)
Deferred tax (expense) benefit related to other comprehensive (loss) income
(22,665
)
 
18,238

Other comprehensive income (loss), net of tax
59,335

 
(47,749
)
Comprehensive income
$
160,772

 
$
51,123

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)
 
Total
stockholders’
equity
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 (loss)

 

 

 

 

 

 
(47,749
)
 
(47,749
)
Stock options & 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
)
Balance at 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




 
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, 2019
216,227,852

 
$
138,423

 
$
2,299

 
$
3,776,461

 
$
(213,935
)
 
$
791,550

 
$
(65,945
)
 
$
4,428,853

Net income

 

 

 

 

 
101,437

 

 
101,437

Other comprehensive income

 

 

 

 

 

 
59,335

 
59,335

Stock options & other stock transactions, net
3,893

 

 

 

 
49

 
6

 

 
55

Restricted stock awards, net
1,331,674

 

 

 
(24,626
)
 
12,818

 
12,913

 

 
1,105

Cash dividends declared ($0.07 per common share)

 

 

 

 

 
(15,079
)
 

 
(15,079
)
Cash dividends declared ($16.25 per preferred share)

 
(205
)
 

 

 

 
(1,989
)
 

 
(2,194
)
Purchase of treasury stock
(8,002,595
)
 

 

 

 
(154,289
)
 

 

 
(154,289
)
Balance at March 31, 2019
209,560,824

 
$
138,218

 
$
2,299

 
$
3,751,835

 
$
(355,357
)
 
$
888,838

 
$
(6,610
)
 
$
4,419,223

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,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
101,437

 
$
98,872

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provisions for loan losses
10,200

 
13,000

Net (gain) from write-downs and sales of other real estate owned
(316
)
 
(272
)
Net (gain) on extinguishment of Senior Notes
(46
)
 

Depreciation of premises and equipment
4,990

 
5,082

Asset write-downs, retention and severance compensation and other restructuring charges
3,344

 

Amortization of intangible assets
4,826

 
6,052

Amortization of low income housing tax credits
3,810

 
998

Net loss on sale of securities
13,184

 
5,421

Net gain on loans held for sale
(8,337
)
 
(2
)
Net amortization of premiums on securities
9,060

 
9,514

Amortization of premium on certificates of deposit
(1,077
)
 
(1,687
)
Net accretion of purchase discount and amortization of net deferred loan costs
(25,280
)
 
(30,090
)
Net accretion of debt issuance costs and amortization of premium on borrowings
(431
)
 
(595
)
Restricted stock compensation expense
5,123

 
2,852

Stock option compensation expense

 
2

Originations of loans held for sale
(4,500
)
 
(44,077
)
Proceeds from sales of loans held for sale
2,273

 
4,885

Increase in cash surrender value of bank owned life insurance
(3,641
)
 
(3,614
)
Deferred income tax expense
21,073

 
15,327

Other adjustments (principally net changes in other assets and other liabilities)
(27,324
)
 
(19,063
)
Net cash provided by operating activities
108,368

 
62,605

Cash flows from investing activities:
 
 
 
Purchases of securities:
 
 
 
Available for sale
(17,839
)
 
(416,491
)
Held to maturity
(3,420
)
 
(54,279
)
Proceeds from maturities, calls and other principal payments on securities:
 
 
 
Available for sale
71,784

 
76,694

Held to maturity
17,311

 
33,706

Proceeds from sales of securities available for sale
738,751

 
117,810

Portfolio loan originations, net
(200,709
)
 
86,297

Proceeds from sale of residential mortgage loans
1,319,234

 

Redemptions (purchases) of FHLB and FRB stock, net
71,235

 
(70,720
)
Proceeds from sales of other real estate owned
4,198

 
7,590

Purchases of premises and equipment
(3,540
)
 
(1,627
)
Proceeds from (premiums paid for) bank owned life insurance
132

 
(26
)
Purchases of low income housing tax credits
(3,602
)
 
(2,063
)
Cash paid for acquisition, net
(515,692
)
 

Net cash provided by (used in) investing activities
1,477,843

 
(223,109
)

7

Table of Contents
STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)


 
Three months ended
 
March 31,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Net (decrease) increase in transaction, savings and money market deposits
$
(44,755
)
 
$
19,992

Net increase in certificates of deposit
57,323

 
66,724

Net (decrease) in short-term FHLB borrowings
(754,000
)
 
(885,000
)
Advances of term FHLB borrowings
300,000

 
1,125,000

Repayments of term FHLB borrowings
(1,125,000
)
 
(300,000
)
Repayment of Senior Notes
(6,954
)
 

Net increase (decrease) in other borrowings
5,682

 
(3,312
)
Net increase in mortgage escrow funds
29,145

 
39,083

Proceeds from stock option exercises
55

 
329

Treasury shares repurchase
(154,289
)
 

Cash dividends paid - common stock
(15,079
)
 
(15,693
)
Cash dividends paid - preferred stock
(2,194
)
 
(2,194
)
Net cash (used in) provided by financing activities
(1,710,066
)
 
44,929

Net decrease in cash and cash equivalents
(123,855
)
 
(115,575
)
Cash and cash equivalents at beginning of period
438,110

 
479,906

Cash and cash equivalents at end of period
$
314,255

 
$
364,331

Supplemental cash flow information:
 
 
 
  Interest payments
$
69,935

 
$
41,870

  Income tax payments
14

 
9,647

Real estate acquired in settlement of loans
1,007

 
4,716

Unsettled securities transactions
7,188

 

Securities held to maturity transferred to available for sale
708,627

 

Operating cash flows from operating leases
4,153

 

Right-of-use assets obtained in exchange for lease liabilities
125,394

 

Acquisitions:
 
 
 
Non-cash assets acquired:
 
 
 
Total loans, net
$
471,878

 
$

Accrued interest receivable
1,789

 

Goodwill
44,781

 

Other assets
545

 

Total non-cash assets acquired
518,993

 

Liabilities assumed:
 
 
 
Other liabilities
3,301

 

Total liabilities assumed
3,301

 

Net non-cash assets acquired
515,692

 

Cash and cash equivalents received in acquisitions

 

Total consideration paid
$
515,692

 
$


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,” “we,” “us” and “our” ) 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 we follow 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 our 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, 2018, included in our Annual Report on Form 10-K, as filed with the SEC on March 1, 2019 (the “2018 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
We adopted ASU No. 2016-02 “Leases (Topic 842)”, as of January 1, 2019, which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. The standard included additional required qualitative and quantitative disclosures. We adopted the following practical expedients and elected the following accounting policies related to the leasing standard:
Carry over of historical lease classifications and whether existing contracts contain leases;
Current lease classification for existing leases;
Short-term lease accounting policy election allowing us not to recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
The option not to separate lease and non-lease components for certain leases.

Adoption of this standard resulted in the recognition of right-of-use assets of $125,394 and a lease liability of $130,860, included in other assets and other liabilities, respectively, in the March 31, 2019 consolidated balance sheet. The standard did not have a significant impact on operating results or cash flows. See Note 9. “Leases” for additional information.

We adopted ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities,” (“ASU 2017-12”) which amended the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. A provision in ASU 2017-12 provides that we may reclassify a debt security from held to maturity to available for sale at the time of adoption if the debt security is eligible to be hedged under the last-of-layer method in accordance ASU 2017-12. Generally, this includes debt securities that are pre-payable, including mortgage-

9

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

backed securities, and debt securities that are callable by the issuer, which are applicable to many of our state and local government debt securities. We transferred held to maturity securities with a book value of $720,440 and a fair value of $708,627 at December 31, 2018 to available for sale effective January 1, 2019. See Note 3. “Securities” for additional information.

(2) Acquisitions

Commercial loan portfolio and origination platform acquired from Woodforest National Bank
On February 28, 2019, the Bank acquired a commercial loan portfolio consisting of equipment finance loans and leases and asset-based lending loans from Woodforest National Bank. In addition, the Bank retained sales and relationship management personnel based in Novi, Michigan, which will continue to originate new loans and leases. The total consideration paid in cash at closing was $515,692. We acquired $166,143 of equipment finance loans, which are mainly fixed rate loans, and $331,842 of asset-based lending loans, which are mainly variable rate loans. The fair value of these loans was $471,878. The Bank paid a premium of 3.75% on the unpaid principal balance of the loans of $18,674. The transaction was accounted for as a business combination. We recorded a $3,344 restructuring charge consisting mainly of professional fees, severance, retention, systems integration expense and facilities consolidation, which is included in charge for asset write-downs, retention and severance on the consolidated income statement. We anticipate the acquired loans and origination platform will be fully integrated into our equipment finance and asset-based lending business lines.

Acquisition of 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. 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 $439,622. The Bank paid a premium on the gross loans and leases receivable of 4.5% or $20,300. In the second quarter of 2018, we recorded a $4,396 restructuring charge consisting mainly of professional fees, severance, retention, systems integration expense and facilities consolidation, which 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. We anticipate the operations of the business will be fully integrated into our equipment finance business line.

(3) Securities

A summary of amortized cost and estimated fair value of securities as of March 31, 2019 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 18. “Fair Value Measurements”.    
 
March 31, 2019
 
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
$
2,068,142

 
$
6,989

 
$
(23,827
)
 
$
2,051,304

 
$
190,516

 
$
88

 
$
(2,061
)
 
$
188,543

CMOs/Other MBS
545,415

 
2

 
(15,907
)
 
529,510

 

 

 

 

Total residential MBS
2,613,557

 
6,991

 
(39,734
)
 
2,580,814

 
190,516

 
88

 
(2,061
)
 
188,543

Other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
216,306

 
1,059

 
(1,093
)
 
216,272

 
59,168

 
370

 
(13
)
 
59,525

Corporate
364,774

 
5,722

 
(2,049
)
 
368,447

 
19,942

 
117

 
(55
)
 
20,004

State and municipal
680,217

 
4,573

 
(2,524
)
 
682,266

 
1,780,375

 
17,461

 
(4,206
)
 
1,793,630

Other

 

 

 

 
17,250

 
109

 
(4
)
 
17,355

Total other securities
1,261,297

 
11,354

 
(5,666
)
 
1,266,985

 
1,876,735

 
18,057

 
(4,278
)
 
1,890,514

Total securities
$
3,874,854

 
$
18,345

 
$
(45,400
)
 
$
3,847,799

 
$
2,067,251

 
$
18,145

 
$
(6,339
)
 
$
2,079,057


10

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

A summary of securities classified as held to maturity at December 31, 2018 that were transferred to available for sale effective January 1, 2019 is presented below.
 
Amortized
cost
 
Fair
value
Residential MBS:
 
 
 
Agency-backed
$
125,343

 
$
121,510

CMOs/Other MBS
27,780

 
27,017

Total residential MBS
153,123

 
148,527

Other securities:
 
 
 
Corporate
49,001

 
48,607

State and municipal
518,316

 
511,493

Total of securities transferred from held to maturity to available for sale
$
720,440

 
$
708,627


A summary of amortized cost and estimated fair value of securities as of December 31, 2018 is presented below:
 
December 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
$
2,328,870

 
$
2,347

 
$
(62,366
)
 
$
2,268,851

 
$
318,590

 
$
73

 
$
(8,605
)
 
$
310,058

CMOs/Other MBS
596,868

 
11

 
(22,109
)
 
574,770

 
27,780

 
2

 
(765
)
 
27,017

Total residential MBS
2,925,738

 
2,358

 
(84,475
)
 
2,843,621

 
346,370

 
75

 
(9,370
)
 
337,075

Other securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Federal agencies
283,825

 

 
(9,852
)
 
273,973

 
59,065

 
160

 
(128
)
 
59,097

Corporate
537,210

 
1,162

 
(10,407
)
 
527,965

 
68,512

 
431

 
(392
)
 
68,551

State and municipal
227,546

 
302

 
(2,844
)
 
225,004

 
2,305,420

 
2,654

 
(49,562
)
 
2,258,512

Other

 

 

 

 
17,250

 
49

 
(12
)
 
17,287

Total other securities
1,048,581

 
1,464

 
(23,103
)
 
1,026,942

 
2,450,247

 
3,294

 
(50,094
)
 
2,403,447

Total securities
$
3,974,319

 
$
3,822

 
$
(107,578
)
 
$
3,870,563

 
$
2,796,617

 
$
3,369

 
$
(59,464
)
 
$
2,740,522


The amortized cost and estimated fair value of securities at March 31, 2019 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.

11

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

 
March 31, 2019
 
Available for sale
 
Held to maturity
 
Amortized
cost
 
Fair
value
 
Amortized
cost
 
Fair
value
Remaining period to contractual maturity:
 
 
 
 
 
 
 
One year or less
$
11,554

 
$
11,568

 
$
65,358

 
$
65,471

One to five years
134,689

 
134,062

 
98,556

 
99,359

Five to ten years
816,088

 
822,318

 
210,940

 
214,695

Greater than ten years
298,966

 
299,037

 
1,501,881

 
1,510,989

Total securities with a stated maturity date
1,261,297

 
1,266,985

 
1,876,735

 
1,890,514

Residential MBS
2,613,557

 
2,580,814

 
190,516

 
188,543

Total securities
$
3,874,854

 
$
3,847,799

 
$
2,067,251

 
$
2,079,057


Sales of securities for the periods indicated below were as follows:
 
For the three months ended
 
March 31,
 
2019
 
2018
Available for sale:
 
 
 
Proceeds from sales
$
738,751

 
$
117,810

Gross realized gains (1)
4,355

 
1

Gross realized losses (1)
(17,539
)
 
(5,422
)
Income tax benefit on realized net losses
(3,644
)
 
(1,260
)
(1) Gross realized gains and losses includes securities called prior to maturity.

We adopted ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities,” which allowed us to reclassify a debt security from held to maturity to available for sale if the debt security is eligible to be hedged under the last-of-layer method in accordance with ASU 2017-12. Generally, this included debt securities that are pre-payable, including mortgage-backed securities, and debt securities that are callable by the issuer, which are applicable to many of our state and local government debt securities. We transferred held to maturity securities with a book value of $720,440 and a fair value of $708,627 at December 31, 2018 to available for sale effective January 1, 2019. In the first quarter of 2019, we sold securities with a book value of $751,935 to raise liquidity for the commercial loan and origination platform acquired from Woodforest National Bank on February 28, 2019, and to reduce lower yielding securities as a percentage of total assets.

At March 31, 2019 and December 31, 2018, 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, 2019
 
 
 
 
 
 
 
 
 
 
 
Residential MBS:
 
 
 
 
 
 
 
 
 
 
 
Agency-backed
$
95,470

 
$
(1,209
)
 
$
1,509,947

 
$
(22,618
)
 
$
1,605,417

 
$
(23,827
)
CMOs/Other MBS

 

 
526,178

 
(15,907
)
 
526,178

 
(15,907
)
Total residential MBS
95,470

 
(1,209
)
 
2,036,125

 
(38,525
)
 
2,131,595

 
(39,734
)
Other securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies

 

 
88,805

 
(1,093
)
 
88,805

 
(1,093
)
Corporate
23,201

 
(317
)
 
84,236

 
(1,733
)
 
107,437

 
(2,050
)
State and municipal
218,791

 
(1,847
)
 
99,224

 
(677
)
 
318,015

 
(2,524
)
Total other securities
241,992

 
(2,164
)
 
272,265

 
(3,503
)
 
514,257

 
(5,667
)
Total securities
$
337,462

 
$
(3,373
)
 
$
2,308,390

 
$
(42,028
)
 
$
2,645,852

 
$
(45,401
)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Residential MBS:
 
 
 
 
 
 
 
 
 
 
 
Agency-backed
$
156,787

 
$
(536
)
 
$
1,955,056

 
$
(61,830
)
 
$
2,111,843

 
$
(62,366
)
CMOs/Other MBS
94

 
(2
)
 
574,053

 
(22,107
)
 
574,147

 
(22,109
)
Total residential MBS
156,881

 
(538
)
 
2,529,109

 
(83,937
)
 
2,685,990

 
(84,475
)
Other securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies

 

 
273,973

 
(9,852
)
 
273,973

 
(9,852
)
Corporate
230,126

 
(4,278
)
 
119,869

 
(6,129
)
 
349,995

 
(10,407
)
State and municipal
16,172

 
(64
)
 
175,966

 
(2,780
)
 
192,138

 
(2,844
)
Total other securities
246,298

 
(4,342
)
 
569,808

 
(18,761
)
 
816,106

 
(23,103
)
Total securities
$
403,179

 
$
(4,880
)
 
$
3,098,917

 
$
(102,698
)
 
$
3,502,096

 
$
(107,578
)


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, 2019
 
 
 
 
 
 
 
 
 
 
 
Residential MBS:
 
 
 
 
 
 
 
 
 
 
 
Agency-backed
$

 
$

 
$
159,577

 
$
(2,061
)
 
$
159,577

 
$
(2,061
)
CMOs/Other MBS

 

 

 

 

 

Total residential MBS

 

 
159,577

 
(2,061
)
 
159,577

 
(2,061
)
Other securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies

 

 
14,824

 
(13
)
 
14,824

 
(13
)
Corporate

 

 
9,887

 
(55
)
 
9,887

 
(55
)
State and municipal
2,820

 
(2
)
 
410,039

 
(4,204
)
 
412,859

 
(4,206
)
Other
4,996

 
(4
)
 

 

 
4,996

 
(4
)
Total other securities
7,816

 
(6
)
 
434,750

 
(4,272
)
 
442,566

 
(4,278
)
Total securities
$
7,816

 
$
(6
)
 
$
594,327

 
$
(6,333
)
 
$
602,143

 
$
(6,339
)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Residential MBS:
 
 
 
 
 
 
 
 
 
 
 
Agency-backed
$
25,003

 
$
(147
)
 
$
273,974

 
$
(8,458
)
 
$
298,977

 
$
(8,605
)
CMOs/Other MBS
101

 
(2
)
 
25,066

 
(763
)
 
25,167

 
(765
)
Total residential MBS
25,104

 
(149
)
 
299,040

 
(9,221
)
 
324,144

 
(9,370
)
Other securities:
 
 
 
 
 
 
 
 
 
 
 
Federal agencies
29,485

 
(95
)
 
4,908

 
(33
)
 
34,393

 
(128
)
Corporate
21,859

 
(137
)
 
16,261

 
(255
)
 
38,120

 
(392
)
State and municipal
118,389

 
(877
)
 
1,897,758

 
(48,685
)
 
2,016,147

 
(49,562
)
Other
9,488

 
(12
)
 

 

 
9,488

 
(12
)
Total other securities
179,221

 
(1,121
)
 
1,918,927

 
(48,973
)
 
2,098,148

 
(50,094
)
Total securities
$
204,325

 
$
(1,270
)
 
$
2,217,967

 
$
(58,194
)
 
$
2,422,292

 
$
(59,464
)

At March 31, 2019, a total of 187 available for sale securities were in a continuous unrealized loss position for less than 12 months and 278 available for sale securities were in a continuous unrealized loss position for 12 months or longer. At March 31, 2019, a total of 6 held to maturity securities were in a continuous unrealized loss position for less than 12 months and 154 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) our intent and ability to retain the 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 we anticipate we will receive full value for the securities. Furthermore, as of March 31, 2019, 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 we 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, 2019, 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:
 
March 31,
 
December 31,
 
2019
 
2018
Available for sale securities pledged for borrowings, at fair value
$
27,020

 
$
12,206

Available for sale securities pledged for municipal deposits, at fair value
1,489,651

 
817,306

Held to maturity securities pledged for borrowings, at amortized cost
1,503

 
34,996

Held to maturity securities pledged for municipal deposits, at amortized cost
921,668

 
1,338,901

Total securities pledged
$
2,439,842

 
$
2,203,409


(4) Portfolio Loans

The composition of our total portfolio loans, which excludes loans held for sale, was the following for the periods presented below:
 
March 31, 2019
 
December 31, 2018
 
Originated loans
 
Acquired loans
 
Total
 
Originated loans
 
Acquired loans
 
Total
Commercial:
 
 
 
 
 
 
 
 
 
 
 
C&I:
 
 
 
 
 
 
 
 
 
 
 
Traditional C&I
$
2,386,984

 
$
70,227

 
$
2,457,211

 
$
2,321,131

 
$
75,051

 
$
2,396,182

Asset-based lending
793,598

 
291,974

 
1,085,572

 
792,935

 

 
792,935

Payroll finance
204,610

 

 
204,610

 
227,452

 

 
227,452

Warehouse lending
1,022,811

 

 
1,022,811

 
782,646

 

 
782,646

Factored receivables
263,033

 

 
263,033

 
258,383

 

 
258,383

Equipment financing
930,883

 
404,834

 
1,335,717

 
913,751

 
301,291

 
1,215,042

Public sector finance
896,233

 

 
896,233

 
860,746

 

 
860,746

Total C&I
6,498,152

 
767,035

 
7,265,187

 
6,157,044

 
376,342

 
6,533,386

Commercial mortgage:
 
 
 
 
 
 
 
 
 
 
 
CRE
4,391,136

 
431,785

 
4,822,921

 
4,154,956

 
487,461

 
4,642,417

Multi-family
1,554,913

 
3,138,179

 
4,693,092

 
1,527,619

 
3,236,505

 
4,764,124

ADC
290,875

 

 
290,875

 
267,754

 

 
267,754

Total commercial mortgage
6,236,924

 
3,569,964

 
9,806,888

 
5,950,329

 
3,723,966

 
9,674,295

Total commercial
12,735,076

 
4,336,999

 
17,072,075

 
12,107,373

 
4,100,308

 
16,207,681

Residential mortgage
571,594

 
1,977,690

 
2,549,284

 
621,471

 
2,083,755

 
2,705,226

Consumer
146,755

 
140,359

 
287,114

 
153,811

 
151,812

 
305,623

Total portfolio loans
13,453,425

 
6,455,048

 
19,908,473

 
12,882,655

 
6,335,875

 
19,218,530

Allowance for loan losses
(98,960
)
 

 
(98,960
)
 
(95,677
)
 

 
(95,677
)
Total portfolio loans, net
$
13,354,465

 
$
6,455,048

 
$
19,809,513

 
$
12,786,978

 
$
6,335,875

 
$
19,122,853



15

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



Acquired loans at March 31, 2019 and December 31, 2018 include loans that were acquired in the following transactions: the commercial loan portfolio acquired from Woodforest National Bank; the Advantage Funding Acquisition; the merger with Astoria Financial Corporation (“Astoria”) (the “Astoria Merger”); the merger with Hudson Valley Holding Corp. (the “HVB Merger”), and the the merger between Provident New York Bancorp and legacy Sterling Bancorp (the “Provident Merger”). Under our credit administration and accounting policies, once a loan relationship reaches maturity and is re-underwritten, the loan is no longer considered an acquired loan and is included in originated loans. In addition, acquired performing loans that were subsequently subject to a credit evaluation, such as after designation as criticized or classified or placed on non-accrual since the acquisition date, are also included in originated loans.

Consistent with our credit and accounting policies discussed above, at March 31, 2019, there were $1,237,567 of loans with an allowance for loan loss reserve of $9,448 that were originally considered acquired loans but have since migrated to the originated loans portfolio as they have reached maturity, were re-underwritten, have been designated as criticized or classified or have been placed on non-accrual since the acquisition date. At December 31, 2018, there were $1,365,682 of loans with an allowance for loan loss reserve of $9,607 that were originally considered acquired loans but have since migrated to the originated loans portfolio as they have reached maturity, were re-underwritten, have been designated criticized or classified or have been placed on non-accrual since the acquisition date.

Total portfolio loans include net deferred loan origination fees of $9,453 and $5,581 at March 31, 2019 and December 31, 2018, respectively.

Portfolio loans subject to purchase accounting adjustments are shown net of discounts on acquired loans, which were $115,290 at March 31, 2019 and $117,222 at December 31, 2018.

At March 31, 2019 and December 31, 2018, the Bank pledged residential mortgage and commercial real estate loans of $7,556,051 and $8,526,247, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 8. “Borrowings”.


16

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

The following tables set forth the amounts and status of our loans, troubled debt restructurings (“TDRs”) and non-performing loans at March 31, 2019 and December 31, 2018:

Originated loans:
 
March 31, 2019
 
Current
 
30-59
days
past due
 
60-89
days
past due
 
90+
days
past due
 
Non-
accrual
 
Total
Traditional C&I
$
2,344,556

 
$
3,541

 
$
36

 
$
2,084

 
$
36,767

 
$
2,386,984

Asset-based lending
791,261

 

 

 

 
2,337

 
793,598

Payroll finance
203,915

 

 

 

 
695

 
204,610

Warehouse lending
1,022,811

 

 

 

 

 
1,022,811

Factored receivables
263,033

 

 

 

 

 
263,033

Equipment financing
901,695

 
8,772

 
5,172

 
129

 
15,115

 
930,883

Public sector finance
896,233

 

 

 

 

 
896,233

CRE
4,356,172

 
3,711

 
4,785

 

 
26,468

 
4,391,136

Multi-family
1,550,317

 
141

 

 

 
4,455

 
1,554,913

ADC
287,088

 

 
2,563

 
790

 
434

 
290,875

Residential mortgage
540,028

 
466

 
322

 

 
30,778

 
571,594

Consumer
136,782

 
501

 
410

 
214

 
8,848

 
146,755

Total loans
$
13,293,891

 
$
17,132

 
$
13,288

 
$
3,217

 
$
125,897

 
$
13,453,425

Total TDRs included above
$
29,320

 
$

 
$
57

 
$
214

 
$
32,709

 
$
62,300

Non-performing loans:
 
 
 
 
 
 
 
 
 
 
 
Loans 90+ days past due and still accruing
 
 
 
 
 
 
 
 
$
3,217