Sterling Bancorp Announces Results for the Third Fiscal Quarter and Nine Months Ended June 30, 2014

MONTEBELLO, NY--(Marketwired - July 28, 2014) - Sterling Bancorp (NYSE: STL)

 Key Highlights for the Third Fiscal Quarter 2014

• Total revenue¹ reached $70.7 million.
• Tax equivalent net interest margin was 3.84%, compared to 3.76% in the linked quarter and 3.46% in the third quarter of fiscal 2013.
• Total non-interest income excluding securities gains was $12.3 million, which represented 17.4% of total revenue¹.
• Core total revenue growth² of 6.5% versus an increase in core non-interest expense of 12 basis points (linked quarter).
• Core operating efficiency² ratio was 57.8%.
• Annualized commercial loan growth of 33.4% over linked quarter.
• Core return on average tangible assets² was 0.95%, compared to 0.84% in the linked quarter and 0.68% in the third quarter of fiscal 2013.
• Core return on average tangible equity² was 12.4%, compared to 10.7% in the linked quarter and 7.5% in the third quarter of fiscal 2013.

Sterling Bancorp (NYSE: STL), the parent company of Sterling National Bank, today announced results for the quarter and nine months ended June 30, 2014. Net income for the quarter was $15.0 million, or $0.18 per diluted share, compared to net income of $6.4 million, or $0.15 per diluted share for the same quarter last year and net income of $10.3 million, or $0.12 per diluted share, for the linked quarter ended March 31, 2014. For the nine months ended June 30, 2014, net income was $11.3 million, or $0.14 per diluted share, compared to net income of $19.9 million, or $0.45 per diluted share for the nine months ended June 30, 2013.

President's Comments
Jack Kopnisky, President and CEO, commented: "The quarter was highlighted by higher profitability, strong loan growth and significant operating leverage, as we continued to successfully execute our strategy of building a high performance regional bank that delivers superior service to our small and middle market commercial clients and consumers. We continue to make significant progress in the integration of legacy Sterling Bancorp, as evidenced by our strong results in the quarter. Our earnings, balance sheet growth and operating efficiency continue to gain momentum and are on-track to achieve our long-term targets."

1. Total revenue is equal to net interest income plus non-interest income excluding securities gains and losses.
2. Core measures are defined in the Non-GAAP tables beginning on page 10.

"Core net income for the quarter was $15.7 million and core earnings per diluted share were $0.19, increasing over both the linked and year ago quarters. Our core return on average tangible assets was 0.95% and core return on average tangible equity was 12.4%. This compares to 0.68% and 7.5%, respectively for the same quarter a year ago. 

"On a linked quarter basis, our core total revenue grew 6.5% while core non-interest expense increased by 0.12%. We are realizing the anticipated revenue and expense benefits of the merger with legacy Sterling Bancorp and the consolidation of our financial centers and other locations. For the quarter, our core operating efficiency ratio was 57.8%, which compares to 61.4% in the linked quarter and 59.1% in the same quarter a year ago.

"We experienced strong loan growth across multiple asset classes. As of June 30, 2014, total loans including loans held for sale were $4.6 billion, which represented annualized growth of 29.4% over the prior quarter end. Our commercial loan balances grew by $286.2 million to $3.7 billion, which represented annualized growth of 33.4% over the prior quarter end. 

"Our funding and liquidity position remains strong. As of June 30, 2014, our retail, commercial and municipal transaction, money market and savings accounts were $4.5 billion, which represented 87.4% of our total deposit balances. A key component of our strategy is to continue growing commercial deposits. During the quarter, commercial transaction deposits increased by $48.0 million, which represented growth of 8.5% over the linked quarter. 

"We continue to focus on diversifying and improving our revenue mix. Non-interest income excluding securities gains was $12.3 million for the quarter, which represented approximately 17.4% of total revenue. We have a significant opportunity to grow our specialty lending businesses, which we anticipate will allow us to grow fee income and increase the proportion of fee income to total revenue to approximately 20% - 25% over time.

"Net charge-offs against the allowance for loan losses for the quarter ended June 30, 2014 were $1.6 million, compared to $3.4 million in the prior quarter. The allowance for loan losses to total loans, excluding loans acquired in the Gotham and legacy Sterling Bancorp transactions that were recorded at fair value at their acquisition dates and continue to carry no allowance, was 1.05%. The ratio of allowance for loan losses to non-performing loans continues to strengthen and increased from 53.1% at March 31, 2014 to 64.0% at June 30, 2014.

"All of the issued and outstanding 8.375% Cumulative Trust Preferred Securities of Sterling Bancorp Trust I were redeemed on June 1, 2014, which will generate significant interest expense savings.

"Our capital position remains strong. At June 30, 2014, our tangible equity to tangible assets ratio was 7.60% and our Tier 1 leverage ratio at Sterling National Bank was 9.42%. We have ample capital and liquidity to support our growth and execute our strategy. Lastly, I am pleased to announce our Board of Directors has declared a dividend on our common stock of $0.07 per share payable on August 14, 2014 to our holders on the record date of August 4, 2014."

Reconciliation of Core to GAAP Results
Results for the third fiscal quarter of 2014 were impacted by pre-tax gains of $2.8 million and pre-tax charges of $3.8 million, which are listed below. Excluding the impact of these items, net income was $15.7 million, or $0.19 per diluted share.

• A gain on the sale of a financial center location of $925 thousand. The gain was recognized as a reduction of foreclosed property expense.
• A gain on sale of securities of $1.2 million.
• A gain on the redemption of the 8.375% Cumulative Preferred Trust Securities of $712 thousand. The gain was recognized as a reduction of other non-interest expense.
• Costs associated with the banking systems conversion of $1.7 million, which included the payment of a contract termination fee to our current service provider. The charges were recognized as other non-interest expense.
• A charge to exit certain financial center locations of $571 thousand, which was recognized in other non-interest expense.
• Amortization of non-compete intangible assets of $1.5 million.

Results for the nine months ended June 30, 2014 were impacted by merger-related expenses associated with the legacy Sterling Bancorp merger transaction, and charges for asset write-downs, the settlement of benefit plan obligations and other charges. In total, merger-related expenses and other charges were $40.8 million the nine months ended June 30, 2014. Excluding the impact of these items, net income for the nine months ended June 30, 2014 was $39.8 million, or $0.50 per diluted share. 

See the reconciliation of the Company's non-GAAP financial measures included in this press release beginning on page 10. Non-GAAP financial measures include references to the terms "core" or "excluding".

Net Interest Income and Margin 
Third quarter fiscal 2014 compared to the third quarter fiscal 2013
Net interest income was $58.5 million, up $30.1 million compared to the third quarter of fiscal 2013. This was mainly the result of higher average loans and investment securities balances and an increase in net interest margin due to the merger transaction with legacy Sterling Bancorp. The tax-equivalent yield on investments increased 37 basis points and yield on loans increased 24 basis points. Yield on loans included $2.9 million in accretion of the fair value discount associated with the loans acquired from Gotham and legacy Sterling Bancorp. The cost of total deposits was 18 basis points and the cost of borrowings was 2.44%. The net interest margin on a tax-equivalent basis was 3.84% compared to 3.46% for the same period a year ago. 

Third quarter fiscal 2014 compared with linked quarter ended March 31, 2014
Net interest income increased $4.4 million compared to the linked quarter ended March 31, 2014. The increase in net interest income for the third quarter was due to higher average loans and investment securities balances and an increase in net interest margin. Average earning assets for the quarter were $6.3 billion, the yield on loans was 5.04% and tax-equivalent yield on interest earning assets was 4.30%. Tax-equivalent net interest margin increased to 3.84% from 3.76% in the linked quarter.

Non-interest Income
Third quarter fiscal 2014 compared with third quarter fiscal 2013
Excluding net gains on sale of securities, non-interest income increased $7.6 million to $12.3 million during the third quarter of fiscal 2014. The increase was mainly due to an increase in fees associated with service charges on deposits, fees generated in the factoring and payroll finance businesses and gain on sale income in mortgage banking. The Company realized a net gain on sale of securities of $1.2 million for the third quarter of fiscal 2014 compared to net gain on sale of securities of $1.9 million in the year ago quarter.

Third quarter fiscal 2014 compared with linked quarter ended March 31, 2014
Excluding net gains and losses on sale of securities, non-interest income decreased $77 thousand to $12.3 million during the third fiscal quarter of 2014. The decrease was mainly due to lower levels of gain on sale income in mortgage banking. The Company realized a net gain on sale of securities of $60 thousand in the linked quarter ended March 31, 2014.

Non-interest Expense
Third quarter fiscal 2014 compared with third quarter fiscal 2013
Non-interest expense increased $23.1 million relative to the third quarter of fiscal 2013 to $44.9 million, principally the result of increased compensation and benefits expense, occupancy and office operations expense, and other expenses due to the legacy Sterling Bancorp merger transaction. Other expenses for the quarter included a charge related to the banking systems conversion of $1.2 million, a charge to exit certain financial center locations of $571 thousand, and the amortization of non-compete agreements of approximately $1.5 million. The charge related to the banking systems conversion mainly consisted of an early contract termination fee to our current provider and consulting fees and personnel training costs incurred in connection with the integration of the legacy Provident Bank and legacy Sterling National Bank technology systems. Other expenses also included a favorable gain on the sale of a financial center of $925 thousand included in foreclosed property expense, and a gain on the redemption of the Company's 8.375% Cumulative Trust Preferred Securities of $712 thousand.

Third quarter fiscal 2014 compared with the linked quarter ended March 31, 2014
Non-interest expense decreased $1.8 million compared to the linked quarter. Other expenses in the second fiscal quarter included merger-related expenses of $388 thousand, a charge related to the core banking systems conversion of $423 thousand, severance compensation of $255 thousand, a charge on the settlement of the legacy Provident employee stock ownership plan and a portion of the legacy Sterling Bancorp defined benefit pension plan obligations of $1.5 million and the amortization of non-compete agreements of $1.5 million.

Income Taxes
In the third quarter of fiscal 2014 the Company recorded income taxes at a rate of 28.7% compared to an effective tax rate of 30.8% in the linked quarter and 30.8% for the same period in fiscal 2013. During the quarter, the Company completed the income tax returns for fiscal year 2013 which resulted in an adjustment to the effective estimated tax rate for fiscal 2014.

Key Balance Sheet Highlights at June 30, 2014

• Total assets were $7.3 billion. 
• Total loans including loans held for sale were $4.6 billion.
• Commercial and industrial loans represented 43.8%, commercial real estate loans represented 37.6%, consumer and residential mortgage loans represented 16.4%, and acquisition, development and construction loans represented 2.2% of the total loan portfolio.
• Commercial loan growth, which includes commercial and industrial loans, commercial real estate loans and specialty lending businesses was $286.3 million for the quarter ended June 30, 2014, and represented annualized growth of 33.4% over the prior quarter.
• Securities, excluding FHLB and FRB stock, were $1.7 billion and represented 23.9% of total assets.
• Total deposits were $5.1 billion.
• Transaction, money market and savings deposits (including municipal deposits) were $4.5 billion and represented 87.4% of total deposits.
• The allowance for loan losses was $36.4 million and represented 1.05% of total loans excluding the impact of loans acquired in the Gotham and the legacy Sterling Bancorp merger transactions that were recorded at fair value at the acquisition date and continue to carry no allowance for loan losses. 
• Tangible book value per share was $6.20.

Credit Quality
Non-performing loans decreased $3.5 million to $56.8 million, or 1.18% of total loans at June 30, 2014 compared to $60.3 million, or 1.30% of total loans at March 31, 2014. Net charge-offs for the third quarter that were charged to the allowance for loan losses were $1.6 million compared to $3.4 million in the linked quarter. The allowance for loan losses at June 30, 2014 was $36.4 million, which represented 64.0% of non-performing loans and 0.80% of our total loan portfolio. The increase in the balance of the allowance for loan losses was mainly related to the higher balance of loans outstanding at June 30, 2014. The allowance for loan losses to total loans, excluding loans acquired in the Gotham and legacy Sterling Bancorp merger transactions that were recorded at fair value at the acquisition dates and continue to carry no allowance, was 1.05% at June 30, 2014. Please refer to the Company's reconciliation of this non-GAAP measure on page 10.

Capital
The Company's stockholders' equity was $953.4 million at June 30, 2014, an increase of $470.6 million relative to September 30, 2013. The increase in stockholders' equity was mainly the result of the legacy Sterling Bancorp merger transaction, which increased capital by $457.4 million. Other contributors to the change in capital included fiscal year to date net income of $11.3 million, an increase in other comprehensive income of $7.6 million and items related to stock-based compensation of $5.6 million. These increases were partially offset by dividends of $11.7 million declared during the first nine months of fiscal 2014. 

Tangible book value per share decreased from $7.08 at September 30, 2013 to $6.20 at June 30, 2014. Total goodwill and other intangible assets were $435.2 million at June 30, 2014, an increase of $266.2 million over September 30, 2013. For the quarter ended June 30, 2014, basic and diluted weighted average common shares outstanding increased to 83.6 million and 83.8 million, respectively, compared to 43.7 million basic shares and 43.9 million diluted shares, respectively, for the quarter ended September 30, 2013. The increase in weighted average basic and diluted shares is mainly the result of the issuance of 39.1 million shares of common stock on October 31, 2013 in connection with the legacy Sterling Bancorp merger transaction. Total shares outstanding at June 30, 2014 were approximately 83.6 million.

Consolidated tangible equity to tangible assets was 7.60% at June 30, 2014 and Sterling National Bank remained well capitalized with a Tier 1 leverage ratio of 9.42%. 

Sterling Bancorp will host a teleconference and webcast on Tuesday, July 29, 2014 at 10:30 AM EDT to discuss the Company's results. Interested parties are invited to listen to the webcast and view accompanying slides on the Company's website www.sterlingbancorp.com. Analysts are invited to listen by dialing (855) 877-0343, Conference ID #68944927. A replay of the teleconference can be accessed through the Company's website.

About Sterling Bancorp
Sterling Bancorp, of which the principal subsidiary is Sterling National Bank, specializes in the delivery of service and solutions to business owners, their families and consumers within the communities we serve through teams of dedicated and experienced relationship managers. Sterling National Bank offers a complete line of commercial, business, and consumer banking products and services. For more information, visit the Sterling Bancorp website at www.sterlingbancorp.com.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This release may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may concern Sterling Bancorp's current expectations about its future results, plans, operations and prospects and involve certain risks, including the following: difficulties and delays in integrating the combined businesses of Provident New York Bancorp and legacy Sterling Bancorp or fully realizing cost savings and other benefits; inflation; the effects of, and changes in, trade; changes in asset quality and credit risk; introduction, withdrawal, success and timing of business initiatives; capital management activities; customer disintermediation; and the success of Sterling Bancorp in managing those risks. Other factors that could cause Sterling Bancorp's actual results to differ from those indicated in forward-looking statements are included in the "Risk Factors" section of Sterling Bancorp's filings with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made and we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Financial information contained in this release should be considered to be an estimate pending the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014. While the Company is not aware of any need to revise the results disclosed in this release, accounting literature may require information received by management between the date of this release and the filing of the Form 10-Q to be reflected in the results of the fiscal period, even though the new information was received by management subsequent to the date of this release.