Sterling Bancorp Announces Results for the Three Months and Six Months Ended June 30, 2015

MONTEBELLO, NY--(Marketwired - July 27, 2015) - Sterling Bancorp (NYSE: STL)

Key Highlights for the Three Months ended June 30, 2015

• Total revenue² was $76.7 million.
• Core net income¹ was $21.4 million, which represented growth of 35.9% over the same quarter a year ago.
• Tax equivalent net interest margin was 3.57%.
• Total non-interest income excluding securities gains was $13.2 million, which represented 17.2% of total revenue².
• Core total revenue¹ grew 8.4% and core non-interest expense¹ declined 1.2% over the same quarter a year ago.
• Core operating efficiency ratio¹ was 52.6%.
• Organic commercial loan growth was 24.5% over a year ago and 47.7% annualized over the linked quarter.
• Organic deposit growth was 11.9% over a year ago and 11.2% annualized over the linked quarter.
• Core return on average tangible assets¹ was 1.13%, compared to 0.95% in the second quarter of 2014.
• Core return on average tangible equity¹ was 13.27%, compared to 12.42% in the second quarter of 2014.
• Acquired the parent company of Hudson Valley Bank, Hudson Valley Holding Corp. ("Hudson Valley") and First Capital Corporation's ("First Capital") factoring assets.

Sterling Bancorp (NYSE: STL), the parent company of Sterling National Bank, today announced results for the quarter and six months ended June 30, 2015. Net loss for the quarter, which included merger-related expenses and other restructuring charges, was $7.6 million, or $0.08 per common share, compared to net income of $15.0 million, or $0.18 per diluted share, for the same quarter last year and net income of $16.8 million, or $0.19 per diluted share, for the linked quarter ended March 31, 2015. For the six months ended June 30, 2015, net income was $9.1 million, or $0.10 per diluted share, compared to net income of $25.3 million, or $0.30 per diluted share, for the six months ended June 30, 2014.

The consolidated condensed statement of financial position as of June 30, 2015 reflects balances related to the merger with Hudson Valley, including the issuance of 38.5 million common shares in exchange for Hudson Valley's net assets. At June 30, 2015 Hudson Valley's total assets were $3.5 billion, which included $1.8 billion of loans and total liabilities were $3.2 billion, which consisted mainly of deposits. These assets and liabilities were recorded at their estimated fair value as of the acquisition date. The operating results of Hudson Valley were included as of June 30, 2015.

President's Comments
Jack Kopnisky, President and Chief Executive Officer, commented: "Our strong operating performance continued in the second quarter of 2015, highlighted by our growth in total revenue, continued management of operating expenses and growth in loans and deposits. We also successfully completed the acquisition of Hudson Valley, which will accelerate our momentum in building a high performing regional bank that delivers superior growth and profitability. As of June 30, 2015, our total assets were $11.6 billion; total portfolio loans were $7.2 billion and total deposits were $8.8 billion.

1. Core measures are defined in the non-GAAP tables beginning on page 10.

2. Total revenue is equal to net interest income plus non-interest income excluding securities gains and losses.

"Core net income for the quarter was $21.4 million and core diluted earnings per share were $0.23. This represents growth of 35.9% and 21.1%, respectively, over the same period a year ago. Our core return on average tangible assets was 1.13% and core return on average tangible equity was 13.27%. This compares to 0.95% and 12.42%, respectively, for the quarter ended June 30, 2014.

"Our primary focus continues to be delivering positive operating leverage. Year-over-year, our core total revenue grew 8.4% while core non-interest expense decreased by 1.2%. For the quarter, our core operating efficiency ratio was 52.6%, which compares to 56.4% in the linked quarter and 57.8% in the same quarter last year. We are confident we will realize the cost savings targets we have previously announced and anticipate the merger with Hudson Valley will allow us to further accelerate growth in operating leverage.

"We continue to experience strong organic loan growth across multiple asset classes. As of June 30, 2015, total portfolio loans were $7.2 billion, which included $1.8 billion of loans acquired in the Hudson Valley merger. Excluding these loans, our total portfolio loans were $5.4 billion, which represented annualized organic loan growth of 38.9% over the linked quarter and 18.9% over the same quarter a year ago. As of June 30, 2015, our total commercial loans, which include our commercial and industrial loans, commercial real estate loans and specialty lending businesses were $6.0 billion and represented 83.5% of our total portfolio loans. Organic commercial loan growth was $914.1 million, or 24.5% over the last 12 months.

"Organic core deposit growth was also strong during the quarter. As of June 30, 2015, our total deposits were $8.8 billion, which included $3.1 billion of deposits assumed in the Hudson Valley merger. Excluding these deposits, total deposits were $5.7 billion, which represented annualized growth of 11.2% over the linked quarter and 11.9% over the same quarter a year ago. On an organic basis, our retail and commercial transaction, savings and money market deposits have increased by $774.3 million over the last twelve months and were $5.2 billion at June 30, 2015. This represents annualized growth of 17.4% over balances at June 30, 2014. Combined with Hudson Valley, our deposit base consists of 92.3% core deposits and we had a total cost of deposits of 24 basis points as of June 30, 2015.

"Our non-interest income excluding securities gains was $13.2 million for the quarter, which represented 17.2% of total revenue. Due to the acquisition of Hudson Valley, we anticipate this ratio will decrease in future quarters, as Hudson Valley's revenue mix had a higher proportion of interest rate spread income relative to fee income. We continue to focus on diversifying and improving our revenue mix, and during the quarter we completed the acquisition of a portion of First Capital's factoring assets, which we anticipate will accelerate fee income growth. We will continue growing our diversified commercial lending businesses, which are strong fee income generators, and we are actively evaluating opportunistic acquisitions, as previously indicated.

"Net charge-offs against the allowance for loan losses for the three months ended June 30, 2015 were $1.7 million, compared to $1.6 million in the three months ended March 31, 2015. The allowance for loan losses to total loans was 0.61% at June 30, 2015. As a result of purchase accounting, a substantial portion of the loans acquired in prior merger transactions are not subject to the allowance for loan losses as these loans were recorded at fair value. The performance of these loans remains satisfactory. The ratio of allowance for loan losses to non-performing loans was 64.2% at June 30, 2015.

"Our capital position remains strong. At June 30, 2015, our tangible equity to tangible assets ratio was 8.04% and our estimated Tier 1 leverage ratio was 12.86%. At Sterling National Bank, our estimated Tier 1 leverage ratio was 13.81%. We have ample capital to support our organic 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 17, 2015 to our holders as of the record date of August 6, 2015."

Reconciliation of Core to GAAP Results for the Three Months Ended June 30, 2015
Results for the second quarter of 2015 were impacted by net gain on sale of securities of $697 thousand, pre-tax merger-related expense of $14.6 million, other restructuring charges of $28.1 million and amortization of non-compete agreements and customer list intangibles of $991 thousand. The merger-related expense and other restructuring charges were mainly incurred in connection with the acquisition of Hudson Valley. Excluding the impact of these items, core net income for the quarter was $21.4 million, or $0.23 per diluted share. Items included in merger-related expense and other restructuring charges were the following:

• Merger-related expense mainly included charges for change-in-control payments, employee benefit plan terminations, financial and legal advisory fees and merger-related marketing expenses.
• Other restructuring charges were recorded as other non-interest expense and mainly included charges for information technology services, contract terminations, impairments of leases and facilities and severance and retention compensation.

See the reconciliation of these non-GAAP measures beginning on page 10. Non-GAAP financial measures include references to the terms "core" or "excluding".

Net Interest Income and Margin
Second quarter 2015 compared with second quarter 2014
Net interest income was $63.6 million, an increase of $5.1 million compared to the second quarter of 2014. This was mainly due to higher average loan balances due to organic growth as average loans increased $890.0 million or 20.6% between the periods. The tax-equivalent yield on investment securities decreased 4 basis points and the yield on loans decreased 44 basis points. Yield on loans included $1.9 million in accretion of the fair value discount associated with loans acquired in prior merger transactions. The cost of total deposits was 24 basis points and the cost of borrowings was 1.63%, which compares to 18 basis points and 2.44% in the second quarter of 2014. Tax-equivalent net interest margin was 3.57% compared to 3.84% for the same period a year ago.

Second quarter 2015 compared with linked quarter ended March 31, 2015
Net interest income increased $4.7 million compared to the linked quarter ended March 31, 2015. This was mainly due to an increase in average loans of $399.0 million, or 8.3% between the periods. Partially offsetting this increase was a decline in the yield on loans, which was 4.60% for the quarter compared to 4.66% for the linked quarter. The tax-equivalent yield on interest earning assets was 4.03% compared to 4.11% in the linked quarter. The cost of total deposits was 24 basis points compared to 23 basis points in the linked quarter and the cost of borrowings was 1.63% compared to 2.00% in the linked quarter. Tax-equivalent net interest margin was 3.57% compared to 3.64% in the linked quarter.

Non-interest Income
Second quarter 2015 compared with second quarter 2014
Excluding net gain (loss) on sale of securities, non-interest income increased $882 thousand to $13.2 million in the second quarter of 2015 compared to the same quarter last year. The increase was mainly due to an increase in accounts receivable and factoring commissions of $822 thousand, which was the results of organic growth and the acquisitions of Damian Services Corporation and First Capital's factoring assets. Gain on sale income in mortgage banking also increased by of $603 thousand and was $2.5 million. These increases were offset by lower deposit fees and service charges and investment management fees. The Company realized a net gain on sale of securities of $697 thousand in the second quarter of 2015 compared to a net gain on sale of securities of $1.2 million in the same quarter last year.

Second quarter 2015 compared with linked quarter ended March 31, 2015
Excluding net gain (loss) on sale of securities, non-interest income increased $684 thousand to $13.2 million during the second quarter of 2015. The increase was mainly due to an increase in accounts receivable and factoring commissions of $933 thousand and an increase of $325 thousand in other non-interest income. This was offset by a decline of $627 thousand in gain on sale income in mortgage banking. The Company realized a net gain on sale of securities of $1.5 million in the linked quarter.

Non-interest Expense
Second quarter 2015 compared with second quarter 2014
Non-interest expense increased $40.8 million relative to the second quarter of 2014 and was $85.7 million. The increase was mainly due to merger-related expense of $14.6 million and other non-interest expenses, which increased $26.3 million to $36.6 million. These expense items include charges associated with the acquisition of Hudson Valley and are related to severance and retention compensation, change in control payments, facilities consolidation, contract terminations, financial and legal advisory fees and other items. Occupancy and office operations expense increased $461 thousand mainly due to higher property taxes and maintenance expenses. Partially offsetting these increases were declines in compensation and benefits of $714 thousand and amortization of intangible assets of $731 thousand.

Second quarter 2015 compared with linked quarter ended March 31, 2015
Non-interest expense increased $39.7 million compared to the linked quarter, mainly due to merger-related and other non-interest expense items discussed above. Compensation and benefits decreased $498 thousand as a result of a reduction in personnel and lower payroll taxes during the quarter.

Income Taxes
In the second quarter of 2015, the Company recorded income taxes at a rate of 32.5%, which is unchanged relative to the linked quarter, and recorded income taxes at a rate of 28.7% for the same quarter last year.

Key Balance Sheet Highlights at June 30, 2015

• Total assets were $11.6 billion.
• Total loans, including loans held for sale, were $7.3 billion.
• Commercial real estate loans represented 43.7%; commercial and industrial loans (which includes traditional C&I, asset-based lending, payroll finance, factoring, warehouse lending and equipment finance) represented 39.9%; consumer and residential mortgage loans represented 14.1%; and acquisition, development and construction loans represented 2.4% of total portfolio loans. On June 30, 2015, the Company acquired $1.8 billion of loans in the Hudson Valley merger.
• Organic commercial loan growth, which includes commercial and industrial loans, commercial real estate loans and specialty lending businesses was $492.3 million for the quarter ended June 30, 2015, and represented annualized growth of 47.7% over the prior quarter.
• Securities were $2.7 billion and represented 23.1% of total assets.
• Total deposits were $8.8 billion. On June 30, 2015, the Company assumed $3.1 billion of deposits in the Hudson Valley merger.
• Retail, commercial and municipal transaction, money market and savings deposits were $8.2 billion and represented 92.3% of total deposits.
• The allowance for loan losses was $44.3 million and represented 0.61% of total portfolio loans. Loans acquired from Hudson Valley merger included a $50.9 million fair value adjustment that consists of estimated lifetime credit losses and interest rate adjustments. In addition, loans from prior merger transactions were also recorded at fair value at the acquisition date; a substantial portion of these loans continue to carry no allowance for loan losses.
• Tangible book value per share was $6.70.

Credit Quality
Non-performing loans increased $22.4 million to $69.0 million, or 0.95% of total loans at June 30, 2015, compared to $46.6 million, or 0.97% of total loans at December 31, 2014. The increase was mainly due to $22.4 million of non-performing loans acquired in the Hudson Valley merger. Net charge-offs for the second quarter of 2015 were $1.7 million, compared to $1.6 million in the linked quarter. The allowance for loan losses at June 30, 2015 was $44.3 million, which represented 64.2% of non-performing loans and 0.61% of our total loan portfolio compared to $42.9 million, 92.3% and 0.87%, respectively, as of March 31, 2015. The increase in the balance of the allowance for loan losses was mainly related to the higher balance of loans outstanding at June 30, 2015 as a substantial portion of loans acquired in prior merger transactions continue to carry no allowance for loan losses.

Capital
The Company's stockholders' equity was $1.6 billion at June 30, 2015, an increase of $542.6 million relative to March 31, 2015. The increase was mainly the result of the 38.5 million shares exchanged in connection with the Hudson Valley merger. This increase was partially offset by the net loss of $7.6 million, a decrease in other comprehensive income of $3.0 million and dividends declared of $6.4 million. The increase in equity from exercise of stock options and stock based compensation was $1.4 million.

Tangible book value per share decreased to $6.70 at June 30, 2015 from $6.89 at March 31, 2015. Total goodwill and other intangible assets were $753.9 million at June 30, 2015, an increase of 301.2 million compared to March 31, 2015, mainly due to the Hudson Valley merger. For the quarter ended June 30, 2015, basic and diluted weighted average common shares outstanding increased to 91.6 million and 92.0 million, respectively, compared to 87.8 million basic shares and 88.3 million diluted shares, for the quarter ended March 31, 2015. The increase in shares outstanding was mainly the result of the issuance of 6.9 million shares in connection with the February common equity offering as the shares issued in the Hudson Valley merger were outstanding for only one day in the quarter. Total shares outstanding at June 30, 2015 were approximately 129.7 million.

Consolidated tangible equity to tangible assets was 8.04% at June 30, 2015 and the Company's estimated Tier 1 leverage ratio was 12.86%. Sterling National Bank remained well capitalized at June 30, 2015 with an estimated Tier 1 leverage ratio of 13.81%.

Sterling Bancorp will host a teleconference and webcast on Tuesday, July 28, 2015 at 10:30 AM eastern daylight savings time to discuss the Company's results. Interested parties are invited to listen to the webcast and view accompanying slides on the Company's website at www.sterlingbancorp.com. Analysts are invited to listen by dialing (855) 877-0343, Conference ID #83466816. A replay of the teleconference can be accessed through the Company's website.

About Sterling Bancorp
Sterling Bancorp, with its principal subsidiary 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: delays in integrating the Sterling Bancorp and Hudson Valley Holding Corp. business 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 three months ended June 30, 2015. 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 Quarterly Report on Form 10-Q to be reflected in the results of the period, even though the new information was received by management subsequent to the date of this release.

Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
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Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
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Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
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Sterling Bancorp and Subsidiaries
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Sterling Bancorp and Subsidiaries
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Sterling Bancorp and Subsidiaries
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