Yahoo Finance Sterling Bancorp announces results for the third quarter and first nine months of 2021. Diluted earnings per share available to common stockholders in the third quarter of 2021 of $0.49 (as reported) and $0.52 (as adjusted).
Key Performance Highlights
GAAP net income available to common stockholders was $93.7 million.
Adjusted net income was $99.6 million compared to $100.4 million in the linked quarter.
Reported net interest margin excluding accretion income1 was 3.25% compared to 3.30% in the linked quarter.
Cost of funding liabilities decreased by one bp to 19 bps; earning asset yields decreased by nine bps to 3.52%.
Adjusted PPNR, excluding accretion income,1, 2 was $120.7 million; a decrease of $3.9 million, or 3.1%, compared to the linked quarter.
Total deposits were $23.9 billion, an increase of $789.3 million, or 3.4%, compared to the linked quarter.
Total core deposits were $23.4 billion, an increase of 3.5% compared to the linked quarter.
Total commercial loans were $19.7 billion, an increase of $558.7 million, or 2.9%, compared to the linked quarter.
Adjusted non-interest expense1 was $111.3 million; adjusted operating efficiency ratio3 was 45.4%.
NPLs increased by $32.1 million to $205.5 million; ACL / portfolio loans of 1.46% and ACL / NPLs of 150.8%.
TCE / TA1 was 10.25% and tangible book value per common share1 was $15.03, an increase of 10.8% from a year ago.
Received stockholder and Office of the Comptroller of the Currency approval for merger with Webster Financial Corporation.
Declared third quarter dividend per common share of $0.07.
Results for the Three Months ended September 30, 2021 vs. September 30, 2020
($ in thousands except per share amounts) | GAAP / As Reported | Non-GAAP / As Adjusted1 | |||||||||||||||||||||
September 30, | September 30, | Change | September 30, | September 30, | Change | ||||||||||||||||||
Total assets | $ | 30,617,722 | $ | 30,028,425 | (1.9 | ) | % | $ | 30,617,722 | $ | 30,028,425 | (1.9 | ) | % | |||||||||
Total portfolio loans, gross | 22,281,940 | 21,276,549 | (4.5 | ) | 22,281,940 | 21,276,549 | (4.5 | ) | |||||||||||||||
Total deposits | 24,255,333 | 23,936,023 | (1.3 | ) | 24,255,333 | 23,936,023 | (1.3 | ) | |||||||||||||||
PPNR1, 2 | 126,687 | 121,416 | (4.2 | ) | 123,286 | 120,734 | (2.1 | ) | |||||||||||||||
Net income available to common | 82,438 | 93,715 | 13.7 | 87,682 | 99,589 | 13.6 | |||||||||||||||||
Diluted EPS available to common | 0.43 | 0.49 | 14.0 | 0.45 | 0.52 | 15.6 | |||||||||||||||||
Net interest margin | 3.19 | % | 3.30 | % | 11 | 3.24 | % | 3.35 | % | 11 | |||||||||||||
Tangible book value per common share1 | $ | 13.57 | $ | 15.03 | 10.8 | $ | 13.57 | $ | 15.03 | 10.8 | |||||||||||||
Results for the Three Months ended September 30, 2021 vs. June 30, 2021
($ in thousands except per share amounts) | GAAP / As Reported | Non-GAAP / As Adjusted1 | |||||||||||||||||||||
June 30, | September 30, | Change | June 30, | September 30, | Change | ||||||||||||||||||
PPNR1, 2 | $ | 128,112 | $ | 121,416 | (5.2 | ) | $ | 124,647 | $ | 120,734 | (3.1 | ) | |||||||||||
Net income available to common | 96,380 | 93,715 | (2.8 | ) | 100,444 | 99,589 | (0.9 | ) | |||||||||||||||
Diluted EPS available to common | 0.50 | 0.49 | (2.0 | ) | 0.52 | 0.52 | — | ||||||||||||||||
Net interest margin | 3.38 | % | 3.30 | % | (8 | ) | 3.42 | % | 3.35 | % | (7 | ) | |||||||||||
Operating efficiency ratio3 | 48.5 | 50.7 | 220 | 44.1 | 45.4 | 130 | |||||||||||||||||
Allowance for credit losses (“ACL”) - loans | $ | 314,873 | $ | 309,915 | (1.6 | ) | $ | 314,873 | $ | 309,915 | (1.6 | ) | |||||||||||
ACL to portfolio loans | 1.52 | % | 1.46 | % | (6 | ) | 1.52 | % | 1.46 | % | (6 | ) | |||||||||||
ACL to NPLs | 181.7 | 150.8 | (31 | ) | 181.7 | 150.8 | (31 | ) | |||||||||||||||
Tangible book value per common share1 | $ | 14.62 | $ | 15.03 | 2.8 | $ | 14.62 | $ | 15.03 | 2.8 | |||||||||||||
1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 19.
2. PPNR represents pretax pre-provision net revenue. PPNR and PPNR excluding accretion income are non-GAAP measures and are measured as net interest income plus non-interest income less operating expenses before tax.
3. Operating efficiency ratio is a non-GAAP measure. See page 24 for an explanation of the operating efficiency ratio.
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PEARL RIVER, N.Y., Oct. 20, 2021 (GLOBE NEWSWIRE) -- Sterling Bancorp (NYSE: STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and nine months ended September 30, 2021. Net income available to common stockholders for the three months ended September 30, 2021 was $93.7 million, or $0.49 per diluted share, compared to net income available to common stockholders of $96.4 million, or $0.50 per diluted share, for the linked quarter ended June 30, 2021, and net income available to common stockholders of $82.4 million, or $0.43 per diluted share, for the three months ended September 30, 2020.
Net income available to common stockholders for the nine months ended September 30, 2021 was $287.3 million, or $1.49 per diluted share, compared to net income available to common stockholders of $143.4 million, or $0.74 per diluted share, for the same period in 2020.
Chief Executive Officer’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We are pleased to report strong results for the third quarter of 2021. We are finding opportunities in a competitive lending environment, and delivered robust growth in commercial loans and core deposits in the third quarter. Our credit outlook also continues to show steady improvement.
“Adjusted net income available to common stockholders was $99.6 million, or $0.52 per diluted share. Adjusted earnings per diluted share were in line with the linked quarter and represented an increase of 15.6% over the prior year. Over the past five years, our adjusted net income available per diluted common share has grown at a compound annual growth rate (“CAGR”) of 12.4% and tangible book value per common share has grown at a CAGR of 14.5%. Our key profitability metrics remained strong, with adjusted return on average tangible assets of 1.44% and adjusted return on average tangible common equity of 13.8%.
“Our net interest income was $213.8 million in the third quarter, a decline of $4.7 million over the linked quarter, which largely reflects lower prepayment fees from multi-family loans and lower accretion income. Our net interest margin excluding accretion income was 3.25%, a decline of five basis points from the linked quarter, a result of lower prepayment income and continued downward pressure on earning asset yields. Commercial loan growth accelerated through the third quarter, which should provide a strong tailwind to forward interest income. At September 30, 2021, our total commercial loans were $19.7 billion, an increase of $558.7 million, or 2.9% over the linked quarter, with the greatest contributions from traditional C&I loans and public sector finance portfolios. Our total core deposits were $23.4 billion, which represented an increase of $789.4 million over the linked quarter.
“In our fee-based businesses, client activity and transaction volumes continued to build from pandemic lows. In the third quarter, adjusted non-interest income was $30.9 million, an increase of $677 thousand versus the linked quarter. Relative to the linked quarter, we saw growth in fee income in our syndications, payroll finance and factoring, and derivatives businesses.
“In the third quarter, our adjusted non-interest expenses increased $1.6 million to $111.3 million, and our adjusted operating efficiency ratio was 45.4%. The expense increase reflects continued investment in our digital products and back office automation, as well as in our organic asset generation capabilities. We also saw an increase in regulatory assessments in line with balance sheet growth in the quarter.
“As of September 30, 2021, our allowance for credit losses - portfolio loans was $309.9 million, or 1.46% of total loans and 150.8% of non-performing loans, a decrease in absolute terms from the $314.9 million allowance we reported at the end of the second quarter. We recorded no provision for credit losses in the quarter, consistent with low levels of net charge-offs, continued improvement in the macro economic environment as well as in our asset quality metrics, all of which contributed to a lower modeled quantitative reserve requirement. We maintain prudent loan loss reserves as we continue to navigate the credit cycle and in the context of ongoing uncertainty related to the trajectory and timing of the economic recovery.
“We continue to build on our already strong capital position. At September 30, 2021, our tangible book value per common share was $15.03, an increase of 10.8% over a year ago. Our tangible common equity to tangible assets ratio was 10.25% and our Tier 1 leverage ratio was 11.35%. We declared our regular dividend of $0.07 on our common stock, payable on November 15, 2021 to holders of record as of November 1, 2021.
“Since the announcement of our definitive merger agreement with Webster Financial Corporation on April 19, 2021, we have been actively engaged with our partners at Webster to design a comprehensive integration plan that prioritizes our commitment to value creation, providing best-in-class service to our customers and continued adherence to the highest standards of risk governance. We received approval from our stockholders and our primary bank regulator. We continue to be confident in the merits of our proposed combination, and are prepared to execute the merger upon receipt of remaining regulatory approvals and subject to other customary closing conditions.”
Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $93.7 million, or $0.49 per diluted share, for the third
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quarter of 2021, included the following items:
merger-related expense of $4.6 million, which included transaction advisory fees, diligence, and integration efforts to date;
a pre-tax gain of $1.7 million on the sale of investment securities;
a pre-tax charge of $2.0 million related to a reserve established in connection with pending litigation;
a pre-tax charge of $324 thousand on the loss on sale of a substantial portion of our remaining mortgage servicing asset;
a pre-tax charge of $118 thousand related to our real estate consolidation strategy; and
the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $148 thousand.
Excluding the impact of these items, adjusted net income available to common stockholders for the third quarter of 2021 was $99.6 million, or $0.52 per diluted share. For the three months ended September 30, 2021, our effective income tax rate was 21.2%. Based on our results year to date, we increased our estimated effective tax rate for 2021 by 50 basis points to 20.0%. This resulted in a 21.2% effective income tax rate for the third quarter. Our effective tax rate for purposes of reporting adjusted earnings was 19.5% and 12.5% for the three months ended June 30, 2021 and September 30, 2020, respectively.
Non-GAAP financial measures include the terms “adjusted” or “excluding”. See the reconciliation of the Company’s non-GAAP financial measures beginning on page 19.
Net Interest Income and Margin
($ in thousands) | For the three months ended | Change % / bps | |||||||||||||||||
September 30, | June 30, | September 30, | Y-o-Y | Linked Qtr | |||||||||||||||
Interest and dividend income | $ | 244,658 | $ | 230,310 | $ | 225,089 | (8.0 | ) | % | (2.3 | ) | % | |||||||
Interest expense | 26,834 | 11,783 | 11,252 | (58.1 | ) | (4.5 | ) | ||||||||||||
Net interest income | $ | 217,824 | $ | 218,527 | $ | 213,837 | (1.8 | ) | (2.1 | ) | |||||||||
Accretion income on acquired loans | $ | 9,172 | $ | 7,812 | $ | 6,197 | (32.4 | ) | % | (20.7 | ) | % | |||||||
Yield on loans | 3.82 | % | 3.88 | % | 3.79 | % | (3 | ) | (9 | ) | |||||||||
Tax equivalent yield on investment securities4 | 3.09 | 2.84 | 2.77 | (32 | ) | (7 | ) | ||||||||||||
Tax equivalent yield on interest earning assets4 | 3.63 | 3.61 | 3.52 | (11 | ) | (9 | ) | ||||||||||||
Cost of total deposits | 0.31 | 0.11 | 0.11 | (20 | ) | — | |||||||||||||
Cost of interest bearing deposits | 0.40 | 0.15 | 0.14 | (26 | ) | (1 | ) | ||||||||||||
Cost of borrowings | 1.95 | 3.87 | 3.87 | 192 | — | ||||||||||||||
Cost of interest bearing liabilities | 0.53 | 0.26 | 0.25 | (28 | ) | (1 | ) | ||||||||||||
Total cost of funding liabilities5 | 0.42 | 0.20 | 0.19 | (23 | ) | (1 | ) | ||||||||||||
Tax equivalent net interest margin6 | 3.24 | 3.42 | 3.35 | 11 | (7 | ) | |||||||||||||
Average loans, including loans held for sale | $ | 22,159,535 | $ | 20,843,661 | $ | 20,629,138 | (6.9 | ) | % | (1.0 | ) | % | |||||||
Average commercial loans | 20,090,445 | 19,245,641 | 19,093,778 | (5.0 | ) | (0.8 | ) | ||||||||||||
Average investment securities | 4,392,864 | 4,322,126 | 4,320,243 | (1.7 | ) | — | |||||||||||||
Average cash balances | 424,249 | 651,271 | 604,396 | 42.5 | (7.2 | ) | |||||||||||||
Average total interest earning assets | 27,163,337 | 25,968,935 | 25,705,007 | (5.4 | ) | (1.0 | ) | ||||||||||||
Average deposits and mortgage escrow | 23,665,916 | 23,516,675 | 23,151,444 | (2.2 | ) | (1.6 | ) | ||||||||||||
4. Tax equivalent basis represents interest income earned on tax exempt securities divided by the applicable federal tax rate of 21%.
5. Includes interest bearing liabilities and non-interest bearing deposits.
6. Tax equivalent net interest margin is equal to net interest income plus the tax equivalent adjustment for tax exempt securities divided by average interest earning assets. The tax equivalent adjustment is assumed at a 21% federal tax rate in all periods presented.
Third quarter 2021 compared with third quarter 2020
Net interest income was $213.8 million for the quarter ended September 30, 2021, a decrease of $4.0 million compared to the third quarter of 2020. This was mainly due to a decline in accretion income and a decline in average interest earning assets between the periods. The impact of these two factors was substantially offset by a decline in interest expense. Other key
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components of changes in net interest income were the following:
The average balance of commercial loans declined $996.7 million, was mainly due to a $445.4 million decline in mortgage warehouse, a decline in multi-family loans of $352.1 million and run off totaling $277.2 million from our equipment finance portfolio.
The tax equivalent yield on interest earning assets decreased 11 basis points to 3.52%, as legacy assets repriced and securities and other short-term assets comprised a greater portion of our earning assets.
Loan yields declined from 3.82% in the third quarter of 2020 to 3.79% in the third quarter of 2021 as a result of continued downward pressure on yields, resulting from the competitive lending environment created by fiscal stimulus and other measures taken in response to the economic slowdown.
Accretion income on acquired loans was $6.2 million in the third quarter of 2021, compared to $9.2 million in the third quarter of 2020, a decline of $3.0 million.
Average investment securities were $4.3 billion, or 16.8%, of average total interest earning assets for the third quarter of 2021 compared to $4.4 billion, or 16.2%, of average total interest earning assets for the third quarter of 2020. The tax equivalent yield on investment securities was 2.77% for the third quarter of 2021 compared to 3.09% for the same period last year. The decline in yield on investments was mainly a result of an increase in US Treasury securities held in our portfolio.
Recent growth in deposits drove increases in average cash balances to $604.4 million compared to $424.2 million in the third quarter of 2020.
Total interest expense was $11.3 million, a decline of $15.6 million compared to the third quarter of 2020. This was mainly due to lower interest expense paid on deposits and short-term borrowings and the impact of repayment of higher cost borrowings.
The cost of total deposits was 11 basis points for the third quarter of 2021 compared to 31 basis points for the same period a year ago, as we aggressively repriced deposits in response to the low interest rate environment.
The cost of borrowings was 3.87% for the third quarter of 2021 compared to 1.95% for the same period a year ago. The increase was mainly due to the change in composition of our borrowings, with average borrowings of $522.3 million in the current quarter being comprised of $30.1 million in short-term borrowings and $492.3 million in higher coupon longer term borrowings, while for the prior year quarter average borrowings of $1.7 billion were comprised of predominately shorter term borrowings.
The total cost of interest bearing liabilities was 25 basis points for the third quarter of 2021 compared to 53 basis points for the same period a year ago. The decline was due to both changes in market rates of interest and changes in funding mix.
Average deposits and mortgage escrow of $23.2 billion decreased $514.5 million during the third quarter of 2021 compared to the same period a year ago. This was mainly due to a $1.2 billion decrease in certificate accounts, which were allowed to mature without renewal.
Third quarter 2021 compared with second quarter 2021
Net interest income decreased $4.7 million for the quarter ended September 30, 2021 compared to the linked quarter, mainly due to the impact of lower prepayment fees on multi-family loans and lower accretion income. Other key components of the changes in net interest income were the following:
The average balance of commercial loans decreased $151.9 million, which included a $209.4 million decline in CRE loans, including multi-family and a $98.3 million decline in mortgage warehouse loans.
The tax equivalent net interest margin was 3.35% compared to 3.42% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.25% compared to 3.30%, which was mainly due to a $3.0 million decline in prepayment fees from multi-family loans.
The yield on loans was 3.79% compared to 3.88% for the linked quarter. The decrease was mainly due to lower prepayment fees from multi-family loans, as well as run off of fixed rate loans, and a decline in accretion income on acquired loans.
The tax equivalent yield on interest earning assets was 3.52% compared to 3.61% in the linked quarter, primarily as a result of the factors discussed above.
The tax equivalent yield on investment securities was 2.77% compared to 2.84% for the linked quarter. The decline in yield was mainly due to the deployment of excess cash into US Treasury securities.
The total cost of borrowings remained at 3.87%, reflecting nominal short-term borrowings and ongoing interest expense in respect of outstanding subordinated notes.
Average deposits and mortgage escrow decreased by $365.2 million and average borrowings decreased by $4.9 million relative to the linked quarter.
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Non-interest Income
($ in thousands) | For the three months ended | Change % | ||||||||||||||||||
September 30, | June 30, | September 30, | Y-o-Y | Linked Qtr | ||||||||||||||||
Deposit fees and service charges | $ | 5,960 | $ | 7,096 | $ | 7,007 | 17.6 | % | (1.3 | ) | % | |||||||||
Accounts receivable management / factoring commissions and other related fees | 5,393 | 5,491 | 5,937 | 10.1 | % | 8.1 | % | |||||||||||||
Bank owned life insurance (“BOLI”) | 5,363 | 4,981 | 5,009 | (6.6 | ) | % | 0.6 | % | ||||||||||||
Loan commissions and fees | 7,290 | 8,762 | 8,620 | 18.2 | % | (1.6 | ) | % | ||||||||||||
Investment management fees | 1,735 | 2,018 | 1,819 | 4.8 | % | (9.9 | ) | % | ||||||||||||
Net gain on sale of securities | 642 | — | 1,656 | 157.9 | % | NM | ||||||||||||||
Net (loss) gain on security calls | — | (80 | ) | 85 | NM | NM | ||||||||||||||
Other | 1,842 | 1,946 | 2,414 | 31.1 | % | 24.0 | % | |||||||||||||
Total non-interest income | 28,225 | 30,214 | 32,547 | 15.3 | % | 7.7 | % | |||||||||||||
Net gain on sale of securities | 642 | — | 1,656 | 157.9 | % | NM | ||||||||||||||
Adjusted non-interest income | $ | 27,583 | $ | 30,214 | $ | 30,891 | 12.0 | % | 2.2 | % | ||||||||||
Third quarter 2021 compared with third quarter 2020
Adjusted non-interest income increased $3.3 million in the third quarter of 2021, compared to the same quarter last year. The increase was mainly due to increased transactional volumes in deposit accounts, in our payroll finance and factoring businesses, in loan syndications and fees from our investment management businesses. The increase in other revenue was mainly from our derivatives business. In the third quarter of 2020, we realized a gain of $642 thousand on the sale of $24.9 million available for sale securities compared to a gain of $1.7 million in the third quarter of 2021. The gain was from sale of two corporate securities and four US Treasury securities.
Third quarter 2021 compared with second quarter 2021
Adjusted non-interest income increased approximately $677 thousand relative to the linked quarter to $30.9 million primarily as a result of an increase in payroll finance and factoring fees, and an increase in other revenue, which includes fees from our syndications and derivatives business. Most other categories were broadly flat versus the linked quarter.
In the third quarter of 2021, we realized a gain of $1.7 million on sale of available for securities.
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Non-interest Expense
($ in thousands) | For the three months ended | Change % / bps | ||||||||||||||||||
September 30, | June 30, | September 30, | Y-o-Y | Linked Qtr | ||||||||||||||||
Compensation and benefits | $ | 55,960 | $ | 56,953 | $ | 57,178 | 2.2 | % | 0.4 | % | ||||||||||
Stock-based compensation plans | 5,869 | 6,781 | 6,648 | 13.3 | (2.0 | ) | ||||||||||||||
Occupancy and office operations | 14,722 | 13,875 | 13,967 | (5.1 | ) | 0.7 | ||||||||||||||
Information technology | 8,422 | 9,741 | 10,214 | 21.3 | 4.9 | |||||||||||||||
Professional fees | 6,343 | 7,561 | 7,251 | 14.3 | (4.1 | ) | ||||||||||||||
Amortization of intangible assets | 4,200 | 3,776 | 3,776 | (10.1 | ) | — | ||||||||||||||
FDIC insurance and regulatory assessments | 3,332 | 2,344 | 2,844 | (14.6 | ) | 21.3 | ||||||||||||||
Other real estate owned (“OREO”), net | 151 | (72 | ) | 1 | NM | NM | ||||||||||||||
Merger-related expenses | — | 2,481 | 4,581 | NM | 84.6 | |||||||||||||||
Impairment related to financial centers and real estate consolidation strategy | — | 475 | 118 | NM | (75.2 | ) | ||||||||||||||
Loss on extinguishment of borrowings | 6,241 | 1,243 | — | (100.0 | ) | (100.0 | ) | |||||||||||||
Other expenses | 14,122 | 15,471 | 18,390 | 30.2 | 18.9 | |||||||||||||||
Total non-interest expense | $ | 119,362 | $ | 120,629 | $ | 124,968 | 4.7 | 3.6 | ||||||||||||
Full time equivalent employees (“FTEs”) at period end | 1,466 | 1,491 | 1,460 | (0.4 | ) | (2.1 | ) | |||||||||||||
Financial centers at period end | 78 | 72 | 72 | (7.7 | ) | — | ||||||||||||||
Operating efficiency ratio, as reported7 | 48.5 | % | 48.5 | % | 50.7 | % | 220 | 220 | ||||||||||||
Operating efficiency ratio, as adjusted7 | 43.1 | 44.1 | 45.4 | 230 | 130 | |||||||||||||||
7. See a reconciliation of non-GAAP financial measures beginning on page 19. | ||||||||||||||||||||
Third quarter 2021 compared with third quarter 2020
Total non-interest expense increased $5.6 million relative to the third quarter of 2020. Key components of the change in non-interest expense between the periods include the following:
Compensation and benefits increased $1.2 million mainly due to an increase in medical costs incurred and an increase in the bonus accrual compared to the prior year period.
Occupancy and office operations expense decreased $755 thousand, mainly due to continued consolidation of financial centers and other back-office locations.
Information technology expense increased $1.8 million mainly due to the amortization of investments related to various back-office automation and digital banking initiatives.
Professional fees increased $908 thousand mainly due to consulting fees incurred in connection with our digital bank offering and launch of our Banking as a Service products.
Merger-related expenses of $4.6 million were incurred in connection with our pending merger with Webster, and included transaction advisory fees, and fees incurred related to diligence and integration efforts to date.
Other expenses in 2021 increased $4.3 million mainly due to an accrual for legal settlements of $2.0 million, loss on the sale of the majority of our mortgage servicing assets of $324 thousand, an increase in loan processing expense of $510 thousand, an increase in franchise taxes of $368 thousand and an increase in recruiting fees of $300 thousand.
Third quarter 2021 compared with second quarter 2021
Total non-interest expense increased $4.3 million to $125.0 million versus the linked quarter. The significant factors contributing to the increase were mentioned above and included merger-related expenses and an accrual for legal settlements. Other key components of the change in non-interest expense include the following:
Compensation and benefits increased $225 thousand to $57.2 million in the third quarter of 2021. The increase was mainly due to an increase in our incentive compensation accrual.
FDIC insurance and regulatory assessments increased in line with increases in assets and other factors that impact the FDIC assessment.
Loss on extinguishment of borrowings in the second quarter of 2021 was related to the repayment of the 5.25% fixed-to-floating rate subordinated notes issued by the Bank on March 29, 2016.
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Other expenses increased by $2.9 million versus the linked quarter, mainly due to the reasons discussed above.
Taxes
We recorded income tax expense of $25.7 million in the third quarter of 2021, compared to income tax expense of $24.5 million in the linked quarter and $12.3 million in the prior year quarter. For the three months ended September 30, 2021, we recorded income tax expense at an estimated effective income tax rate of 21.2% compared to 20.0% for the three months ended June 30, 2021. Based on performance year to date, we increased our estimated effective income tax rate prior to discrete items to 20.0% from 19.5%.
Key Balance Sheet Highlights as of September 30, 2021
($ in thousands) | As of | Change % / bps | |||||||||||||||||
September 30, | June 30, | September 30, | Y-o-Y | Linked Qtr | |||||||||||||||
Total assets | $ | 30,617,722 | $ | 29,143,918 | $ | 30,028,425 | (1.9 | ) | % | 3.0 | % | ||||||||
Total portfolio loans, gross | 22,281,940 | 20,724,097 | 21,276,549 | (4.5 | ) | 2.7 | |||||||||||||
Commercial & industrial (“C&I”) loans | 9,331,717 | 8,335,044 | 8,794,329 | (5.8 | ) | 5.5 | |||||||||||||
Commercial real estate loans (including multi-family) | 10,377,282 | 10,143,157 | 10,238,337 | (1.3 | ) | 0.9 | |||||||||||||
Acquisition, development and construction (“ADC”) loans | 633,166 | 690,224 | 694,443 | 9.7 | 0.6 | ||||||||||||||
Total commercial loans | 20,342,165 | 19,168,425 | 19,727,109 | (3.0 | ) | 2.9 | |||||||||||||
Residential mortgage loans | 1,739,563 | 1,389,294 | 1,395,248 | (19.8 | ) | 0.4 | |||||||||||||
Loan portfolio composition: | |||||||||||||||||||
Commercial & industrial (“C&I”) loans | 41.8 | % | 40.2 | % | 41.3 | % | (50 | ) | 110 | ||||||||||
Commercial real estate loans (including multi-family) | 46.6 | 49.0 | 48.1 | 150 | (90 | ) | |||||||||||||
Acquisition, development and construction (“ADC”) loans | 2.9 | 3.3 | 3.3 | 40 | — | ||||||||||||||
Residential and consumer | 8.7 | 7.5 | 7.3 | (140 | ) | (20 | ) | ||||||||||||
BOLI | $ | 625,236 | $ | 635,411 | $ | 640,294 | 2.4 | 0.8 | |||||||||||
Core deposits9 | 22,563,276 | 22,603,302 | 23,392,701 | 3.7 | 3.5 | ||||||||||||||
Total deposits | 24,255,333 | 23,146,711 | 23,936,023 | (1.3 | ) | 3.4 | |||||||||||||
Municipal deposits (included in core deposits) | 2,397,072 | 1,844,719 | 2,443,905 | 2.0 | 32.5 | ||||||||||||||
Investment securities, net | 4,201,350 | 4,366,470 | 4,283,969 | 2.0 | (1.9 | ) | |||||||||||||
Investment securities, net to earning assets | 15.6 | % | 17.2 | % | 16.5 | % | 90 | (70 | ) | ||||||||||
Total borrowings | $ | 993,535 | $ | 518,021 | $ | 523,406 | (47.3 | ) | 1.0 | ||||||||||
Loans to deposits | 91.9 | % | 89.5 | % | 88.9 | % | (300 | ) | (60 | ) | |||||||||
Core deposits9 to total deposits | 93.0 | 97.7 | 97.7 | 470 | — | ||||||||||||||
9 Core deposits include retail, commercial and municipal transaction, money market, savings accounts and certificates of deposit accounts, and reciprocal Certificate of Deposit Account Registry balances and exclude brokered and wholesale deposits.
Highlights related to balance sheet items as of September 30, 2021 included the following:
C&I loans and commercial real estate loans represented 89.4% of our loan portfolio as of September 30, 2021 compared to 88.4% a year ago. C&I loans include traditional C&I, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance loans.
In the third quarter of 2021, we sold $23.7 million of commercial real estate loans that were rated substandard. Related to this sale, we recorded charge-offs of $1.2 million against the allowance for credit losses - loans to reduce the carrying value of those loans to fair value.
Commercial loans increased $558.7 million in the third quarter versus the linked quarter, which was mainly due to growth of $424.5 million in traditional C&I loans and $102.7 million in public sector finance loans.
Residential mortgage loans were $1.4 billion as of September 30, 2021, an increase of $6.0 million from the linked quarter, which was due to purchases in the secondary market. Residential mortgage loans declined $344.3 million from the same period a year ago. The decline was mainly due to repayments.
7
Core deposits as of September 30, 2021 were $23.4 billion, an increase of $789.4 million compared to June 30, 2021, and an increase of $829.4 million compared to September 30, 2020. A significant driver of the increase versus the linked quarter was related to seasonal inflows of municipal deposits. The growth in core deposits on an annual basis was a result both of our successful deposit gathering strategies, as well as the increase in liquidity in the banking system overall, from government stimulus and other measures implemented in response to the economic downturn.
Certificate of deposit accounts declined $92.1 million as higher costing balances matured and were not renewed. Compared to September 30, 2020, certificate of deposit accounts declined $700.0 million.
Municipal deposits as of September 30, 2021 were $2.4 billion, an increase of $599.2 million relative to June 30, 2021. Municipal deposits generally reach their peak at the end of the third quarter due to seasonal tax collections by local municipalities.
Investment securities, net, decreased by $82.5 million from June 30, 2021 and increased $82.6 million from September 30, 2020, representing 16.5% of earning assets as of September 30, 2021. In the third quarter of 2021, the decrease in investment securities was mainly due to the sale of selected US Treasury and corporate securities in response to the changes in interest rates and other factors.
Total borrowings as of September 30, 2021 were $523.4 million, a decrease of $5.4 million relative to June 30, 2021, and a decrease of $470.1 million relative to September 30, 2020. As compared to 2020, the decline was mainly a result of the repayment of FHLB borrowings and the subordinated notes - Bank earlier this year.
Credit Quality
($ in thousands) | For the three months ended | Change % / bps | |||||||||||||||||
September 30, 2020 | June 30, 2021 | September 30, 2021 | Y-o-Y | Linked Qtr | |||||||||||||||
Provision for credit losses - loans | $ | 31,000 | $ | 6,000 | $ | — | (100.0 | ) | % | (100.0 | ) | % | |||||||
Net charge-offs | 70,546 | 14,313 | 4,958 | (93.0 | ) | (65.4 | ) | ||||||||||||
ACL - loans | 325,943 | 314,873 | 309,915 | (4.9 | ) | (1.6 | ) | ||||||||||||
Loans 30 to 89 days past due, accruing | 68,979 | 39,476 | 68,719 | (0.4 | ) | 74.1 | |||||||||||||
Non-performing loans | 180,851 | 173,319 | 205,453 | 13.6 | 18.5 | ||||||||||||||
Annualized net charge-offs to average loans | 1.27 | % | 0.28 | % | 0.10 | % | (117 | ) | (18 | ) | |||||||||
Special mention loans | $ | 204,267 | $ | 388,535 | $ | 351,692 | 72.2 | (9.5 | ) | ||||||||||
Substandard loans | 375,427 | 611,805 | 621,901 | 65.7 | 1.7 | ||||||||||||||
Total criticized and classified loans | 579,694 | 1,004,940 | 977,946 | 68.7 | (2.7 | ) | |||||||||||||
ACL - loans to total loans | 1.46 | % | 1.52 | % | 1.46 | % | — | (6 | ) | ||||||||||
ACL - loans to non-performing loans | 180.2 | 181.7 | 150.8 | (2,940 | ) | (3,090 | ) | ||||||||||||
For the three months ended September 30, 2021, we recorded no provision for credit losses on portfolio loans. The provision for credit losses is based on our reasonable and supportable forecasts of expected future losses inherent in our portfolio.
Net charge-offs were $5.0 million in the third quarter of 2021, which included $1.2 million of charge-offs related to the sale of $23.7 million of CRE loans that were rated substandard.
Non-performing loans increased by $32.1 million to $205.5 million at September 30, 2021 compared to the linked quarter. The increase was mainly due to a single, secured credit that is in the process of workout. Loans 30 to 89 days past due were $68.7 million, an increase of $29.2 million from the linked quarter. The increase was mainly due to one equipment finance loan to a US Government agency, which we anticipate will be current by the fourth quarter.
Total criticized and classified loans were $977.9 million representing a decrease of $27.0 million relative to the linked quarter.
Special mention loans decreased by $36.8 million from the linked quarter. This was mainly due to loans that were upgraded to pass grade or repayments on the loans.
Substandard loans increased $10.1 million versus the linked quarter. In the third quarter we sold substandard loans loans with an unpaid principal balance of $23.7 million. We incurred charge-offs of $1.2 million in connection with this sale.
As of September 30, 2021, loan payment deferrals were $76.9 million, or 0.4% of the total portfolio loans.
For additional information on our credit quality metrics including delinquency, criticized and classified, see page 17, “Asset Quality Information by Portfolio”.
8
Capital
($ in thousands, except share and per share data) | As of | Change % / bps | |||||||||||||||||
September 30, | June 30, | September 30, | Y-o-Y | Linked Qtr | |||||||||||||||
Total stockholders’ equity | $ | 4,557,785 | $ | 4,722,856 | $ | 4,797,629 | 5.3 | % | 1.6 | % | |||||||||
Preferred stock | 136,917 | 136,224 | 135,986 | (0.7 | ) | (0.2 | ) | ||||||||||||
Goodwill and other intangible assets | 1,781,246 | 1,769,494 | 1,765,718 | (0.9 | ) | (0.2 | ) | ||||||||||||
Tangible common stockholders’ equity 10 | $ | 2,639,622 | $ | 2,817,138 | $ | 2,895,925 | 9.7 | 2.8 | |||||||||||
Common shares outstanding | 194,458,841 | 192,715,433 | 192,681,503 | (0.9 | ) | — | |||||||||||||
Book value per common share | $ | 22.73 | $ | 23.80 | $ | 24.19 | 6.4 | 1.6 | |||||||||||
Tangible book value per common share 10 | 13.57 | 14.62 | 15.03 | 10.8 | 2.8 | ||||||||||||||
Tangible common equity as a % of tangible assets 10 | 9.15 | % | 10.29 | % | 10.25 | % | 110 | (4 | ) | ||||||||||
Est. Tier 1 leverage ratio - Company | 9.93 | 10.91 | 11.35 | 142 | 44 | ||||||||||||||
Est. Tier 1 leverage ratio - Company fully implemented | 9.59 | 10.55 | 10.99 | 140 | 44 | ||||||||||||||
Est. Tier 1 leverage ratio - Bank | 10.48 | 12.10 | 12.60 | 212 | 50 | ||||||||||||||
Est. Tier 1 leverage ratio - Bank fully implemented | 10.13 | 11.74 | 12.25 | 212 | 51 | ||||||||||||||
10 See a reconciliation of non-GAAP financial measures beginning on page 19. | |||||||||||||||||||
Total stockholders’ equity increased $74.8 million to $4.8 billion versus the linked quarter as a result of net income of $95.7 million, stock-based compensation of $6.6 million, partially offset by common dividends of $13.4 million, other comprehensive loss of $11.8 million, preferred dividends of $2.2 million and other stock activity net of stock option exercises of $192 thousand.
We elected to rely on the five-year transition for our adoption of Current Expected Credit Loss(“CECL”), which allows us to delay for two years the full impact on regulatory capital of our adoption of this accounting standard, followed by a three-year transition period. The September 30, 2021 fully implemented data reflects the full impact of CECL and excludes the benefits of phase-ins.
Tangible book value per common share was $15.03 at September 30, 2021, which represented an increase of 10.8% compared to a year ago.
Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, October 21, 2021 at 8:00 AM Eastern Time to discuss the Company’s results. Analysts, investors and interested parties are invited to listen to the webcast and view accompanying slides on the Company’s website at www.sterlingbancorp.com or by dialing (866) 548-4713 Conference ID 3170260. A replay of the teleconference can be accessed through the Company’s website.
About Sterling Bancorp
Sterling Bancorp, whose principal subsidiary is Sterling National Bank, specializes 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. 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.
9
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This release may contain certain forward-looking statements, including, but not limited to, certain plans, expectations, goals, projections, and statements about the Company and the benefits of the proposed transaction, between Webster and the Company, the plans, objectives, expectations and intentions of Webster and the Company the expected timing of completion of the transaction, and other statements that are not historical fact. Such statements are subject to numerous assumptions, risks, and uncertainties. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.
While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: changes in general economic, political, or industry conditions; the magnitude and duration of the COVID-19 pandemic and its impact on the global economy and financial market conditions and our business, results of operations, and financial condition; uncertainty in U.S. fiscal and monetary policy, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; movements in interest rates; reform of LIBOR; competitive pressures on product pricing and services; success, impact, and timing of our business strategies, including market acceptance of any new products or services; the nature, extent, timing, and results of governmental actions, examinations, reviews, reforms, regulations, and interpretations, including those related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III regulatory capital reforms, as well as those involving the OCC, Federal Reserve, FDIC, and CFPB; the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement between Webster and the Company; the outcome of any legal proceedings that may be instituted against Webster or the Company; delays in completing the transaction; the failure to obtain necessary regulatory approvals (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction); the failure to obtain stockholder approvals or to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Webster and the Company do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management's attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; the ability to complete the transaction and integration of Webster and the Company successfully; the dilution caused by Webster’s issuance of additional shares of its capital stock in connection with the transaction; and other factors that may affect the future results of Webster and the Company. Additional factors that could cause results to differ materially from those described above can be found in Webster’s Annual Report on Form 10-K for the year ended December 31, 2020, which is on file with the Securities and Exchange Commission (the “SEC”) and available on Webster’s investor relations website, https://webster.gcs-web.com/, under the heading “Financials” and in other documents Webster files with the SEC, and in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, which is on file with the SEC and available on the Company's investor relations website, https://sterlingbank.gcs-web.com/investor-relations, under the heading "Financials" and in other documents the Company files with the SEC.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. Neither Webster nor the Company assumes any obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
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 nine months ended September 30, 2021. 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 fiscal period, even though the new information was received by management subsequent to the date of this release.
10
Sterling Bancorp and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(unaudited, in thousands, except share and per share data)
September 30, | December 31, | September 30, | ||||||||||||
Assets: | ||||||||||||||
Cash and cash equivalents | $ | 437,558 | $ | 305,002 | $ | 929,320 | ||||||||
Investment securities, net | 4,201,350 | 4,039,456 | 4,283,969 | |||||||||||
Loans held for sale | 36,826 | 11,749 | — | |||||||||||
Portfolio loans: | ||||||||||||||
Commercial and industrial (“C&I”) | 9,331,717 | 9,160,268 | 8,794,329 | |||||||||||
Commercial real estate (including multi-family) | 10,377,282 | 10,238,650 | 10,238,337 | |||||||||||
Acquisition, development and construction (“ADC”) loans | 633,166 | 642,943 | 694,443 | |||||||||||
Residential mortgage | 1,739,563 | 1,616,641 | 1,395,248 | |||||||||||
Consumer | 200,212 | 189,907 | 154,192 | |||||||||||
Total portfolio loans, gross | 22,281,940 | 21,848,409 | 21,276,549 | |||||||||||
(325,943 | ) | |||||||||||||
