Key Performance Highlights for the Three Months ended June 30, 2019 vs. June 30, 2018

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  6/30/2018   6/30/2019   Change % / bps   6/30/2018   6/30/2019   Change % / bps
Total revenue2 $ 284,084     $ 258,897     (8.9 )%   $ 276,806     $ 263,259     (4.9 )%
Net income available to common 112,245     94,473     (15.8 )   112,868     105,124     (6.9 )
Diluted EPS available to common 0.50     0.46     (8.0 )   0.50     0.51     2.0  
Net interest margin3 3.56 %   3.53 %   (3 )   3.62 %   3.58 %   (4 )
Return on average tangible common equity 18.68     15.13     (355 )   18.79     16.83     (196 )
Return on average tangible assets 1.54     1.36     (18 )   1.55     1.51     (4 )
Operating efficiency ratio4 44.0     49.0     500     38.3     40.9     260  
  • Net income available to common stockholders of $94.5 million (as reported) and $105.1 million (as adjusted).
  • Total commercial loans of $17.6 billion at June 30, 2019; growth of 12.0% over June 30, 2018.
  • Operating efficiency ratio of 49.0% (as reported) and 40.9% (as adjusted).
  • Repurchased 4,502,053 common shares in the second quarter of  2019.
  • Tangible book value per common share1 of $12.40; growth of 13.6% over June 30, 2018.

Key Performance Highlights for the Three Months ended June 30, 2019 vs. March 31, 2019

($ in thousands except per share amounts) GAAP / As Reported   Non-GAAP / As Adjusted1
  3/31/2019   6/30/2019   Change % / bps   3/31/2019   6/30/2019   Change % / bps
Total revenue2 $ 255,103     $ 258,897     1.5 %   $ 263,923     $ 263,259     (0.3 )%
Net income available to common 99,448     94,473     (5.0 )   105,902     105,124     (0.7 )
Diluted EPS available to common 0.47     0.46     (2.1 )   0.50     0.51     2.0  
Net interest margin3 3.48 %   3.53 %   5     3.54 %   3.58 %   4  
Return on average tangible common equity 16.00     15.13     (87 )   17.04     16.83     (21 )
Return on average tangible assets 1.39     1.36     (3 )   1.48     1.51     3  
Operating efficiency ratio4 45.1     49.0     390     40.5     40.9     40  
  • Growth in commercial loans of $495.8 million over linked quarter; 11.6% annualized growth rate.
  • Total deposits were $20.9 billion with a cost of 0.91%.  Municipal deposit balances decreased by $327.7 million due to seasonal outflows.
  • Total cost of deposits increased by three basis points; total cost of funding liabilities decreased by one basis point.
  • As adjusted net interest margin increased four basis points to 3.58%.  Excluding accretion income on acquired loans, net interest margin for the three months ended June 30, 2019 was 3.22%.
  • Recorded pre-tax charge of $14.4 million related to ongoing financial center consolidation strategy. Consolidated two financial centers in the second quarter of 2019. An additional 10 financial centers and three back-office locations anticipated to be consolidated in 2019.
  1. Non-GAAP / as adjusted measures are defined in the non-GAAP tables beginning on page 18.
  2. Total revenue is equal to net interest income plus non-interest income. Total revenue as adjusted is equal to tax equivalent net interest income   plus non-interest income excluding securities gains and losses.
  3. Net interest margin is equal to net interest income divided by average interest earning assets. Net interest margin as adjusted, or 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.
  4. Operating efficiency ratio is a non-GAAP measure. See page 21 for an explanation of the operating efficiency ratio.

1

MONTEBELLO, N.Y., July 24, 2019 (GLOBE NEWSWIRE) — Sterling Bancorp (NYSE: STL) (the “Company”), the parent company of Sterling National Bank (the “Bank”), today announced results for the three and six months ended June 30, 2019. Net income available to common stockholders for the quarter ended June 30, 2019 was $94.5 million, or $0.46 per diluted share, compared to net income available to common stockholders of $99.4 million, or $0.47 per diluted share, for the linked quarter ended March 31, 2019, and net income available to common stockholders of $112.2 million, or $0.50 per diluted share, for the three months ended June 30, 2018.

Net income available to common stockholders for the six months ended June 30, 2019 was $193.9 million, or $0.92 per diluted share, compared to net income available to common stockholders of $209.1 million, or $0.93 per diluted share, for the six months ended June 30, 2018.

President’s Comments
Jack Kopnisky, President and Chief Executive Officer, commented: “We continued executing our strategy in the second quarter, focusing on growing our commercial businesses, transitioning our balance sheet and driving operational efficiency. In the second quarter of 2019, our adjusted net income available to common stockholders was $105.1 million and our adjusted diluted earnings per share available to common stockholders was $0.51. Our profitability metrics remained strong, including adjusted return on average tangible assets of 1.51% and adjusted return on average tangible common equity of 16.83%.

“Our commercial businesses have continued to demonstrate strong performance. We grew spot commercial loan balances by $888.3 million since December 31, 2018, which was offset by substantial run-off of residential mortgage loans of $297.6 million. At June 30, 2019, our loan portfolio consisted of 86.2% in total commercial loans, in-line with our longer-term target of commercial loans representing at least 85.0% of our total portfolio. We will remain disciplined on new loan originations and portfolio acquisitions, focusing on diversified commercial asset classes where we can achieve our target risk-adjusted returns.

“Our average total deposit balances have increased by $380.2 million since the second quarter of 2018. Total deposits were $20.9 billion and the cost of total deposits was 0.91% in the second quarter of 2019. We have seen an improvement in market conditions and competitive dynamics in our deposit markets, demonstrated by the increase of three basis points in total cost of deposits relative to the linked quarter. This is substantially lower than the pace of quarterly deposit rate increases we have experienced since the completion of the Astoria Merger in Q4 2017.

“Although we experienced some pressure on earning asset and loan origination yields, our net interest margin excluding accretion income on acquired loans increased six basis points to 3.22% in the second quarter of 2019. We anticipate that our loan portfolio transition, lower FHLB costs and borrowing balances, and improving deposit market competitive dynamics will allow us to maintain and potentially increase our current level of tax equivalent net interest margin excluding accretion income on acquired loans in 2019.

“We continue to focus on controlling operating expenses and driving operational efficiency. During the second quarter of 2019, we consolidated two financial centers, bringing our total to nine financial centers consolidated year to date.  We recorded a pre-tax  charge of $14.4 million related to our ongoing financial center consolidation strategy and anticipate consolidating an additional 10 financial center locations and three back-office locations through the rest of the year. We anticipate our total financial centers will be below 85 in the next 12 to 18 months. In the second quarter of 2019, our annualized adjusted operating expenses were $432.2 million and our adjusted operating efficiency ratio was 40.9%.

“Our tangible common equity ratio was 8.94% and our estimated Tier 1 Leverage ratio was 9.57% at June 30, 2019. Our tangible book value per common share was $12.40, which represented an increase of 13.6% from a year ago. Our ample capital position and strong internal capital generation will support our growth strategy and allow us to return capital to stockholders. In the second quarter of 2019, we repurchased 4,502,053 common shares. There are 8,380,581 shares remaining for repurchase at June 30, 2019 under our current authorized repurchase program. We anticipate we will complete our program by the end of 2019.

“We have created a Company with significant operating flexibility and are confident that our business mix, growth strategy and strong capital position will allow us to continue generating superior returns and earnings per share growth. We would like to thank our clients, colleagues and shareholders for your support and look forward to working with all of our partners as we continue to build a great company.

“Lastly, we have declared a dividend on our common stock of $0.07 per share payable on August 19, 2019 to holders of record as of August 5, 2019.”

2

Reconciliation of GAAP Results to Adjusted Results (non-GAAP)
The Company’s GAAP net income available to common stockholders of $94.5 million, or $0.46 per diluted share, for the second quarter of 2019, included the following items:

  • a pre-tax loss of $528 thousand on the sale of available for sale securities;
  • a pre-tax charge of $14.4 million related to the consolidation of financial centers and other back-office real estate locations; and
  • the pre-tax amortization of non-compete agreements and acquired customer list intangible assets of $200 thousand.

Excluding the impact of these items, adjusted net income available to common stockholders was $105.1 million, or $0.51 per diluted share, for the three months ended June 30, 2019.

Non-GAAP financial measures include references to the terms “adjusted” or “excluding”. See the reconciliation of the Company’s non-GAAP financial measures beginning on page 18.

Net Interest Income and Margin

($ in thousands) For the three months ended   Change % / bps
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Interest and dividend income $ 304,906     $ 309,400     $ 302,457     (0.8 %)   (2.2 )%
Interest expense 58,690     73,894     70,618     20.3     (4.4 )
Net interest income $ 246,216     $ 235,506     $ 231,839     (5.8 )   (1.6 )
                   
Accretion income on acquired loans $ 28,010     $ 25,580     $ 23,745     (15.2 )%   (7.2 )%
Yield on loans 5.01 %   5.17 %   5.20 %   19     3  
Tax equivalent yield on investment securities 2.88     2.99     2.92     4     (7 )
Tax equivalent yield on interest earning assets 4.47     4.64     4.66     19     2  
Cost of total deposits 0.55     0.88     0.91     36     3  
Cost of interest bearing deposits 0.68     1.09     1.14     46     5  
Cost of borrowings 2.23     2.53     2.54     31     1  
Cost of interest bearing liabilities 1.06     1.39     1.38     32     (1 )
Tax equivalent net interest margin5 3.62     3.54     3.58     (4 )   4  
                   
Average commercial loans $ 15,194,186     $ 16,237,855     $ 16,996,838     11.9 %   4.7 %
Average loans, including loans held for sale 20,339,964     20,412,274     19,912,839     (2.1 )   (2.4 )
Average investment securities 6,751,528     6,334,694     5,883,269     (12.9 )   (7.1 )
Average total interest earning assets 27,757,380     27,414,224     26,377,053     (5.0 )   (3.8 )
Average deposits and mortgage escrow 20,768,669     21,316,126     21,148,872     1.8     (0.8 )

5 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.

3

Second quarter 2019 compared with second quarter 2018

Net interest income was $231.8 million for the quarter ended June 30, 2019, a decrease of $14.4 million compared to the second quarter of 2018. This was mainly due to a $1.4 billion decline in average earning assets and the increase in the cost of interest bearing liabilities. Other key components of the changes in net interest income and net interest margin for the second quarter 2019 compared to the second quarter 2018 were the following:

  • The yield on loans was 5.20% compared to 5.01% for the three months ended June 30, 2018. The increase in yield on loans was mainly due an increase in the average balance of higher yielding commercial loans of $1.8 billion, and a decrease in the average balance of lower yielding residential mortgage loans of $2.2 billion. Accretion income on acquired loans was $23.7 million in the second quarter of 2019 compared to $28.0 million in the second quarter of 2018.
  • The tax equivalent yield on investment securities was 2.92% compared to 2.88% for the three months ended June 30, 2018. Average investment securities were $5.9 billion, or 22.3%, of average total interest earning assets for the second quarter of 2019 compared to $6.8 billion, or 24.3%, of average total interest earning assets for the second quarter of 2018. The decline in the average balance of investment securities was mainly due to the sale of $0.0 million of lower yielding securities to fund the commercial loan portfolio acquired from Woodforest National Bank and as part of our balance sheet transition strategy.
  • The tax equivalent yield on interest earning assets increased 19 basis points between the periods to 4.66%.
  • The cost of total deposits was 91 basis points and the cost of borrowings was 2.54%, compared to 55 basis points and 2.23%, respectively, for the same period a year ago. The increase was mainly due to increases in market rates of interest.
  • The total cost of interest bearing liabilities increased 32 basis points to 1.38% for the second quarter of 2019 compared to 1.06% for the second quarter of 2018, which was mainly due to the increase in market interest rates.
  • Average interest bearing deposits increased by $122.9 million and average borrowings decreased $1.9 billion compared to the second quarter of 2018. The decline in average borrowings was mainly due to the residential mortgage loan and investment securities sales that were completed in the first quarter of 2019. Total interest expense increased by $11.9 million compared to the second quarter of 2018.

The tax equivalent net interest margin was 3.58% for the second quarter of 2019 compared to 3.62% for the second quarter of 2018. The decrease in tax equivalent net interest margin was mainly due to the increase in the cost of interest bearing liabilities and the decrease in accretion income on acquired loans. Excluding accretion income, tax equivalent net interest margin was 3.22% for the second quarter of 2019 compared to 3.21% in the second quarter of 2018.

Second quarter 2019 compared with linked quarter ended March 31, 2019

Net interest income declined $3.7 million for the quarter ended June 30, 2019 compared to the linked quarter. The decrease in net interest income was mainly due to lower average balances of residential mortgage loans and investment securities due to the asset sales that were completed in the first quarter of 2019. In aggregate, the average balance of interest-earning assets declined $1.0 billion between the periods. In addition, accretion income on acquired loans also decreased between the two periods. Other key components of the changes in net interest income and net interest margin for the second quarter of 2019 compared to the linked quarter were the following:

  • The yield on loans was 5.20% compared to 5.17% for the linked quarter. The increase in the yield on loans was mainly driven by the change in composition of our loan portfolio as the average balance of residential mortgage loans declined by $1.2 billion and the average balance of commercial loans increased by $759.0 million. The growth in commercial loans was due to organic growth generated by our commercial banking teams and loan portfolio acquisitions. Accretion income on acquired loans was $23.7 million, a decrease of $1.8 million relative to the linked quarter.
  • The tax equivalent yield on investment securities was 2.92% compared to 2.99% for the linked quarter. The decrease in yield was mainly due to accelerated amortization of securities premiums related to repayments of mortgage-backed securities, which occurred as a result of the declining interest rate environment.
  • The tax equivalent yield on interest earning assets was 4.66% compared to 4.64% in the linked quarter.
  • The cost of total deposits increased three basis points to 91 basis points and the total cost of borrowings increased one basis point to 2.54%.
  • Average interest bearing deposits decreased by $137.9 million and average borrowings decreased by $921.5 million relative to the linked quarter. Total interest expense decreased by $3.3 million from the linked quarter.

The tax equivalent net interest margin was 3.58% compared to 3.54% in the linked quarter. Excluding accretion income on acquired loans, tax equivalent net interest margin was 3.22% compared to 3.16% in the linked quarter.

4

Non-interest Income

($ in thousands) For the three months ended   Change %
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Total non-interest income $ 37,868     $ 19,597     $ 27,058     (28.5 )%   38.1 %
Net (loss) on sale of securities (425 )   (13,184 )   (528 )   24.2     (96.0 )
Net gain on sale of residential mortgage loans     8,313         NM     NM  
Net gain on sale of fixed assets 11,797             NM     NM  
Adjusted non-interest income $ 26,496     $ 24,468     $ 27,586     4.1     12.7  

Second quarter 2019 compared with second quarter 2018

Excluding net (loss) on sale of securities and net gain on sale of fixed assets, adjusted non-interest income increased $1.1 million in the second quarter of 2019 to $27.6 million, compared to $26.5 million in the same quarter last year. The change was mainly due to higher loan commissions and fees generated by our commercial banking teams and higher accounts receivable management / factoring commissions and other related fees.

In the second quarter of 2019, we realized a loss of $528 thousand on the sale of available for sale securities compared to $425 thousand in the year earlier period.

In the second quarter of 2018, we sold the Lake Success facility and realized a pre tax gain of $11.8 million.

Second quarter 2019 compared with linked quarter ended March 31, 2019

Excluding net (loss) on sale of securities and net gain on sale of residential mortgage loans, adjusted non-interest income increased approximately $3.1 million from $24.5 million in the linked quarter to $27.6 million in the second quarter of 2019. The increase was mainly due to higher deposit fees and service charges, higher accounts receivable management / factoring commissions and other related fees and higher loan commissions and fees.

In the first quarter of 2019, we sold $0.0 million of available for sale securities and realized a loss on sale of $13.2 million. The securities were sold as we execute our strategy of repositioning our balance sheet and interest earning assets to a more optimal mix.

In the first quarter of 2019, we sold $1.3 billion of residential mortgage loans and realized a gain of $8.3 million.

5

Non-interest Expense

($ in thousands) For the three months ended   Change % / bps
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Compensation and benefits $ 56,159     $ 55,990     $ 54,473     (3.0 )%   (2.7 )%
Stock-based compensation plans 3,336     5,123     4,605     38.0     (10.1 )
Occupancy and office operations 17,939     16,535     16,106     (10.2 )   (2.6 )
Information technology 9,997     8,675     9,047     (9.5 )   4.3  
Amortization of intangible assets 5,865     4,826     4,785     (18.4 )   (0.8 )
FDIC insurance and regulatory assessments 5,495     3,338     2,994     (45.5 )   (10.3 )
Other real estate owned (“OREO”), net (226 )   217     458     (302.7 )   111.1  
Impairment related to financial centers and real estate consolidation strategy         14,398     NM     NM  
Charge for asset write-downs, systems integration, retention and severance 13,132     3,344         NM     NM  
Other expenses 13,231     16,944     20,074     51.7     18.5  
Total non-interest expense $ 124,928     $ 114,992     $ 126,940     1.6     10.4  
Full time equivalent employees (“FTEs”) at period end 2,037     1,855     1,820     (10.7 )   (1.9 )
Financial centers at period end 121     99     97     (19.8 )   (2.0 )
Operating efficiency ratio, as reported 44.0 %   45.1 %   49.0 %   (500 )   (390 )
Operating efficiency ratio, as adjusted 38.3     40.5     40.9     (260 )   (40 )

Second quarter 2019 compared with second quarter 2018
Total non-interest expense increased $2.0 million relative to the second quarter of 2018. Key components of the change in non-interest expense between the periods were the following:

  • Compensation and benefits decreased $1.7 million, mainly due to the decline in total FTEs between the periods. Total FTEs declined to 1,820 from 2,037, which was mainly due to the completion of the integration and ongoing financial center consolidation strategy following the merger with Astoria Financial Corporation (“Astoria”) (the “Astoria Merger”). This was partially offset by the hiring of commercial bankers, business development officers, risk management personnel and personnel retained in connection with the Advantage Funding and Woodforest commercial finance acquisitions.
  • Occupancy and office operations expense decreased $1.8 million mainly due to the consolidation of financial centers and other locations acquired in the Astoria Merger. We consolidated 24 financial centers and two back office locations over the past twelve months. We anticipate consolidating 10 additional financial centers and three back office locations over the balance of 2019 and are targeting a total financial center count of below 85 financial centers over the next 12 to 18 months.
  • Information technology expense decreased $1.0 million, mainly due to the completion of the conversion of Astoria’s legacy deposit systems in the third quarter of 2018.
  • FDIC insurance and regulatory assessments decreased $2.5 million to $3.0 million in the second quarter of 2019, compared to $5.5 million in the second quarter of 2018. This was mainly due to a decrease in FDIC deposit insurance expense.
  • OREO expense, net, increased $684 thousand to $458 thousand, compared to income of $226 thousand for the second quarter of 2018. In the second quarter of 2019, OREO expense, net, included gain on sale of $285 thousand, which was offset by $409 thousand of write-downs and $368 thousand of operating costs.
  • In connection with our financial center and back-office consolidation strategy, we recorded an impairment charge of $14.4 million related to the write-off of leasehold improvements, land and buildings, and the early termination of several leases.
  • Other expenses increased $6.8 million to $20.1 million, which was mainly due to a legal settlement charge of $1.1 million related to a troubled loan relationship that was acquired in a prior merger, and an increase in operational losses, which were $1.9 million and mainly related to check fraud and ATM losses. Other items that resulted in the increase in other expenses were a $1.5 million increase in consulting expense related to various back-office automation projects and an increase of $323 thousand in defined benefit pension plan expense.

Second quarter 2019 compared with linked quarter ended March 31, 2019
Total non-interest expense increased $11.9 million to $126.9 million in the second quarter of 2019. Key components of the change in non-interest expense were the following:

6

  • Compensation and benefits decreased $1.5 million to $54.5 million in the second quarter of 2019. The decrease was mainly due to lower payroll taxes and benefits expense. Total FTEs declined to 1,820 at June 30, 2019 from 1,855 at March 31, 2019.
  • Stock-based compensation plans decreased $518 thousand to $4.6 million in the second quarter of 2019. The decrease was mainly due to the vesting of performance-based awards granted in February 2016.
  • FDIC insurance and regulatory assessments decreased $344 thousand mainly due to lower FDIC insurance premiums.
  • Charge for asset write-downs, systems integration, retention and severance was incurred in the amount of $3.3 million in the linked quarter ended March 31, 2019 in connection with the commercial loan portfolio and origination platform acquisition from Woodforest National Bank.
  • Other expenses increased $3.1 million, which was mainly due to the legal settlement and operating losses discussed above.

Taxes
We recorded income tax expense equal to 19.9% of pre-tax income for the three months ended June 30, 2019, which resulted in an estimated effective tax rate of 21.0% for the six months ended June 30, 2019. For the three months ended March 31, 2019 and June 30, 2018, we recorded income at an estimated effective income tax rate of 22.0% and 21.8%, respectively.

Our effective tax rate for the full year 2019 is currently estimated at 21.0%. This is the effective tax rate used for purposes of calculating adjusted earnings per share available to common stockholders for the three months and six months ended June 30, 2019.

7

Key Balance Sheet Highlights as of June 30, 2019

($ in thousands) As of   Change % / bps
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Total assets $ 31,463,077     $ 29,956,607     $ 30,237,545     (3.9 )%   0.9 %
Total portfolio loans, gross 20,674,493     19,908,473     20,370,306     (1.5 )   2.3  
Commercial & industrial (“C&I”) loans 6,288,683     7,265,187     7,514,834     19.5     3.4  
Commercial real estate loans (including multi-family) 9,160,760     9,516,013     9,714,037     6.0     2.1  
Acquisition, development and construction loans 236,915     290,875     338,973     43.1     16.5  
Total commercial loans 15,686,358     17,072,075     17,567,844     12.0     2.9  
Residential mortgage loans 4,652,501     2,549,284     2,535,667     (45.5 )   (0.5 )
Bank owned life insurance 657,637     657,504     598,880     (8.9 )   (8.9 )
Total deposits 20,965,889     21,225,639     20,948,464     (0.1 )   (1.3 )
Core deposits6 19,870,947     20,160,733     19,893,875     0.1     (1.3 )
Municipal deposits (included in core deposits) 1,652,733     2,027,563     1,699,824     2.8     (16.2 )
Investment securities 6,789,246     5,915,050     5,858,865     (13.7 )   (0.9 )
Total borrowings 5,537,537     3,633,480     4,133,986     (25.3 )   13.8  
Loans to deposits 98.6 %   93.8 %   97.2 %   (140 )   340  
Core deposits to total deposits 94.8     95.0     95.0     20      
Investment securities to total assets 21.6     19.7     19.4     (220 )   (30 )

6 Core deposits include retail, commercial and municipal transaction, money market, savings accounts and certificates of deposits accounts, and reciprocal Certificate of Deposit Account Registry balances and exclude brokered and wholesale deposits.

Highlights in balance sheet items as of June 30, 2019 were the following:

  • C&I loans (which include traditional C&I, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance loans) represented 36.9%, commercial real estate loans (which include multi-family loans) represented 47.7%, consumer and residential mortgage loans combined represented 13.7%; and acquisition, development and construction loans represented 1.7% of total portfolio loans, respectively. At June 30, 2018, C&I loans represented 30.4%; commercial real estate loans (which include multi-family loans) represented 44.3%; consumer and residential mortgage loans combined represented 24.1%; and acquisition, development and construction loans represented 1.2% of total portfolio loans, respectively. We are making significant progress towards our goal of a loan mix comprised of 45% for each of C&I and commercial real estate loans and 10% other loans.
  • ADC loans increased $48.1 million over the linked quarter and $102.1 million since June 30, 2018. The increase was mainly related to construction loans associated with our low income housing tax credits.
  • Total commercial loans, which include all C&I loans, commercial real estate (including multi-family) and acquisition, development and construction loans, increased by $495.8 million over the linked quarter and $1.9 billion since June 30, 2018.
  • Residential mortgage loans held in our loan portfolio were $2.5 billion at June 30, 2019, a decline of $13.6 million from the linked quarter and a decline of $2.1 billion from a year ago. In the second quarter of 2019, we transferred residential mortgage loans with a balance of $128.1 million held for sale to portfolio loans. The carrying value of the loans approximated the fair value. We sold $1.3 billion of residential mortgage loans held for sale in the first quarter of 2019 and sold $94.6 million of residential mortgage loans held for sale in the second quarter of 2019.
  • The balance of bank owned life insurance decreased by $58.6 million relative to the prior quarter and was $598.9 million at June 30, 2019. The decrease is related to the restructuring of the legacy Astoria bank owned life insurance program, which is expected to be completed in the third quarter of 2019.
  • Total deposits at June 30, 2019 decreased $277.2 million compared to March 31, 2019, and total deposits decreased $17.4 million compared to June 30, 2018.
  • Core deposits at June 30, 2019 were $19.9 billion and decreased $266.9 million compared to March 31, 2019, and increased $22.9 million over June 30, 2018.
  • Municipal deposits at June 30, 2019 were $1.7 billion, and decreased $327.7 million relative to March 31, 2019. This decline was due to seasonal outflows. The balance at June 30, 2019 increased $47.1 million compared to a year ago.

8

  • Investment securities decreased by $930.4 million from June 30, 2018, and represented 19.4% of total assets at June 30, 2019. In connection with the adoption of a new accounting standard, effective January 1, 2019, we transferred held-to-maturity securities with a fair value of $708.6 million to available for sale. We sold securities with a book value of $0.5 million to fund the commercial loan portfolio acquired from Woodforest National Bank, and to reduce lower yielding securities as a percentage of total assets.
  • Total borrowings at June 30, 2019 were $4.1 billion, and increased $500.5 million relative to March 31, 2019, to fund loan growth.

Credit Quality

($ in thousands) For the three months ended   Change % / bps
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Provision for loan losses $ 13,000     $ 10,200     $ 11,500     (11.5 )%   12.7 %
Net charge-offs 9,066     6,917     5,796     (36.1 )   (16.2 )
Allowance for loan losses 86,026     98,960     104,664     21.7     5.8  
Non-performing loans 190,975     170,415     192,647     0.9     13.0  
Loans 30 to 89 days past due 73,441     64,260     76,365     4.0     18.8  
Annualized net charge-offs to average loans 0.18 %   0.14 %   0.12 %   (6 )   (2 )
Special mention loans 119,718     128,054     118,940     (0.6 )   (7.1 )
Substandard loans 251,840     288,694     311,418     23.7     7.9  
Allowance for loan losses to total loans 0.42     0.50     0.51     9     1  
Allowance for loan losses to non-performing loans 45.0     58.1     54.3     930     (380 )

Provision for loan losses was $11.5 million for the quarter ended June 30, 2019 and was $5.7 million in excess of net charge-offs of $5.8 million. Allowance coverage ratios were 0.51% of total loans and 54.3% of non-performing loans at June 30, 2019. Strong organic commercial loan growth increased the total allowance for loan losses requirement. Note that due to our various acquisitions and mergers, a significant portion of the Company’s loan portfolio does not carry an allowance for loan losses, as the acquired loans are recorded at their estimated fair value on the acquisition date.

Non-performing loans increased by $22.2 million to $192.6 million at June 30, 2019 compared to the linked quarter, and net charge-offs declined to 12 basis points of total loans on an annualized basis. Loans 30 to 89 days past due increased $12.1 million from the linked quarter.

Special mention loans decreased $9.1 million and substandard loans increased $22.7 million in the second quarter of 2019 compared to the linked quarter. The increase in substandard loans was due to deterioration in two asset-based lending relationships and one commercial real estate relationship. In addition to the two relationships that moved to substandard from special mention, there was a $14.8 million asset-based lending loan that was designated substandard at June 30, 2019.

Capital

($ in thousands, except share and per share data) As of   Change % / bps
  6/30/2018   3/31/2019   6/30/2019   Y-o-Y   Linked Qtr
Total stockholders’ equity $ 4,352,735     $ 4,419,223     $ 4,459,158     2.4 %   0.9 %
Preferred stock 138,828     138,218     138,011     (0.6 )   (0.1 )
Goodwill and other intangible assets 1,754,418     1,782,533     1,777,748     1.3     (0.3 )
Tangible common stockholders’ equity $ 2,459,489     $ 2,498,472     $ 2,543,399     3.4     1.8  
Common shares outstanding 225,470,254     209,560,824     205,187,243     (9.0 )   (2.1 )
Book value per common share $ 18.69     $ 20.43     $ 21.06     12.7     3.1  
Tangible book value per common share 7 10.91     11.92     12.40     13.6     4.0  
Tangible common equity to tangible assets 7 8.28 %   8.87 %   8.94 %   66     7  
Estimated Tier 1 leverage ratio – Company 9.32     9.21     9.57     25     36  
Estimated Tier 1 leverage ratio – Bank 9.84     9.58     9.98     14     40  
 7See a reconciliation of non-GAAP financial measures beginning on page 18.
 

9

Total stockholders’ equity increased $39.9 million to $4.5 billion as of June 30, 2019 compared to March 31, 2019 and increased $106.4 million compared to June 30, 2018. For the second quarter of 2019, net income available to common stockholders of $94.5 million and an increase in the fair value of our available for sale investment securities of $47.0 million was offset by common dividends of $14.6 million, preferred dividends of $2.2 million and common stock repurchases of $92.9 million.

Total goodwill and other intangible assets were $1.8 billion at June 30, 2019, a decrease of $4.8 million compared to March 31, 2019, which was due to amortization.

Basic and diluted weighted average common shares outstanding declined relative to the linked quarter by approximately 6.2 million shares and were 206.9 million shares and 207.4 million shares, respectively. Total common shares outstanding at June 30, 2019 were approximately 205.2 million. In the second quarter of 2019, we repurchased 4,502,053 shares of common stock at a weighted average price of $20.64 per share, for total consideration of $92.9 million. Under our Board of Directors approved repurchase program we have 8,380,581 shares remaining for repurchase at June 30, 2019, and we anticipate completing the repurchase program in the second half of 2019.

Tangible book value per common share was $12.40 at June 30, 2019, which represented an increase of 13.6% over a year ago and an increase of 4.0% over March 31, 2019.

Conference Call Information
Sterling Bancorp will host a teleconference and webcast on Thursday, July 25, 2019 at 10:30 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 (888) 394-8218, Conference ID #7082382. 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. 

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: business disruption; a failure to grow revenues faster than we grow expenses; a deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in the real estate market and constrained financial markets; 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 and six months ended June 30, 2019. 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)
 
  6/30/2018   12/31/2018   6/30/2019
Assets:          
Cash and cash equivalents $ 445,189     $ 438,110     $ 343,368  
Investment securities 6,789,246     6,667,180     5,858,865  
Loans held for sale 30,626     1,565,979     27,221  
Portfolio loans:          
Commercial and industrial (“C&I”) 6,288,683     6,533,386     7,514,834  
Commercial real estate (including multi-family) 9,160,760     9,406,541     9,714,037  
Acquisition, development and construction 236,915     267,754     338,973  
Residential mortgage 4,652,501     2,705,226     2,535,667  
Consumer 335,634     305,623     266,795  
Total portfolio loans, gross 20,674,493     19,218,530     20,370,306  
Allowance for loan losses (86,026 )   (95,677 )   (104,664 )
Total portfolio loans, net 20,588,467     19,122,853     20,265,642  
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank Stock, at cost 380,404     369,690     320,560  
Accrued interest receivable 103,095     107,111     106,317  
Premises and equipment, net 290,762     264,194     250,155  
Goodwill 1,613,144     1,613,033     1,657,814  
Other intangibles 141,274     129,545     119,934  
Bank owned life insurance 657,637     653,995     598,880  
Other real estate owned 20,264     19,377     13,628  
Other assets 402,969     432,240     675,161  
Total assets $ 31,463,077     $ 31,383,307     $ 30,237,545  
Liabilities:          
Deposits $ 20,965,889     $ 21,214,148     $ 20,948,464  
FHLB borrowings 5,067,492     4,838,772     3,766,224  
Other borrowings 19,114     21,338     20,901  
Senior notes 278,103     181,130     173,800  
Subordinated notes 172,828     172,943     173,061  
Mortgage escrow funds 130,629     72,891     73,176  
Other liabilities 476,287     453,232     622,761  
Total liabilities 27,110,342     26,954,454     25,778,387  
Stockholders’ equity:          
Preferred stock 138,828     138,423     138,011  
Common stock 2,299     2,299     2,299  
Additional paid-in capital 3,769,505     3,776,461     3,757,126  
Treasury stock (51,269 )   (213,935 )   (447,748 )
Retained earnings 592,953     791,550     969,124  
Accumulated other comprehensive (loss) income (99,581 )   (65,945 )   40,346  
Total stockholders’ equity 4,352,735     4,428,853     4,459,158  
Total liabilities and stockholders’ equity $ 31,463,077     $ 31,383,307     $ 30,237,545  
           
Shares of common stock outstanding at period end 225,470,254     216,227,852     205,187,243  
Book value per common share $ 18.69     $ 19.84     $ 21.06  
Tangible book value per common share1 10.91     11.78     12.40  
1 See reconciliation of non-GAAP financial measures beginning on page 18.
 

11

       
Sterling Bancorp and Subsidiaries      
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS      
(unaudited, in thousands, except share and per share data)      
       
   For the Quarter Ended   For the Six Months Ended
  6/30/2018   3/31/2019   6/30/2019   6/30/2018   6/30/2019
Interest and dividend income:                                      
Loans and loan fees $ 254,253     $ 260,295     $ 258,283     $ 488,868     $ 518,578  
Securities taxable 29,031     27,847     24,632     56,092     52,479  
Securities non-taxable 15,403     14,857     14,423     30,715     29,280  
Other earning assets 6,219     6,401     5,119     10,576     11,520  
Total interest and dividend income 304,906     309,400     302,457     586,251     611,857  
Interest expense:                  
Deposits 28,464     45,995     48,129     52,671     94,124  
Borrowings 30,226     27,899     22,489     52,996     50,388  
Total interest expense 58,690     73,894     70,618     105,667     144,512  
Net interest income 246,216     235,506     231,839     480,584     467,345  
Provision for loan losses 13,000     10,200     11,500     26,000     21,700  
Net interest income after provision for loan losses 233,216     225,306     220,339     454,584     445,645  
Non-interest income:                  
Deposit fees and service charges 6,985     6,212     7,098     13,988     13,310  
Accounts receivable management / factoring commissions and other related fees 5,337     5,423     5,794     10,696     11,217  
Bank owned life insurance 4,243     3,641     4,192     7,857     7,833  
Loan commissions and fees 4,566     3,838     5,308     7,973     9,146  
Investment management fees 2,121     1,900     2,050     3,946     3,950  
Net (loss) on sale of securities (425 )   (13,184 )   (528 )   (5,846 )   (13,712 )
Gain on sale of residential mortgage loans     8,313             8,313  
Gain on sale of fixed assets 11,797             11,800      
Other 3,244     3,454     3,144     6,161     6,598  
Total non-interest income 37,868     19,597     27,058     56,575     46,655  
Non-interest expense:                  
Compensation and benefits 56,159     55,990     54,473     110,840     110,463  
Stock-based compensation plans 3,336     5,123     4,605     6,190     9,728  
Occupancy and office operations 17,939     16,535     16,106     35,399     32,641  
Information technology 9,997     8,675     9,047     21,713     17,722  
Amortization of intangible assets 5,865     4,826     4,785     11,917     9,611  
FDIC insurance and regulatory assessments 5,495     3,338     2,994     10,841     6,332  
Other real estate owned, net (226 )   217     458     138     675  
Impairment related to financial centers and real estate consolidation strategy         14,398         14,398  
Charge for asset write-downs, systems integration, retention and severance 13,132     3,344         13,132     3,344  
Other 13,231     16,944     20,074     26,505     37,018  
Total non-interest expense 124,928     114,992     126,940     236,675     241,932  
Income before income tax expense 146,156     129,911     120,457     274,484     250,368  
Income tax expense 31,915     28,474     23,997     61,371     52,471  
Net income 114,241     101,437     96,460     213,113     197,897  
Preferred stock dividend 1,996     1,989     1,987     3,995     3,976  
Net income available to common stockholders $ 112,245     $ 99,448     $ 94,473     $ 209,118     $ 193,921  
Weighted average common shares:                  
Basic 225,084,232     213,157,090     206,932,114     224,908,436     210,022,967  
Diluted 225,621,856     213,505,842     207,376,239     225,444,579     210,419,425  
Earnings per common share:                  
Basic earnings per share $ 0.50     $ 0.47     $ 0.46     $ 0.93     $ 0.92  
Diluted earnings per share 0.50     0.47     0.46     0.93     0.92  
Dividends declared per share 0.07     0.07     0.07     0.14     0.14  
                             

12

 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
End of Period 6/30/2018   9/30/2018   12/31/2018   3/31/2019   6/30/2019
Total assets $ 31,463,077     $ 31,261,265     $ 31,383,307     $ 29,956,607     $ 30,237,545  
Tangible assets 1 29,708,659     29,516,084     29,640,729     28,174,074     28,459,797  
Securities available for sale 3,929,386     3,843,244     3,870,563     3,847,799     3,843,112  
Securities held to maturity 2,859,860     2,842,728     2,796,617     2,067,251     2,015,753  
Loans held for sale2 30,626     31,042     1,565,979     248,972     27,221  
Portfolio loans 20,674,493     20,533,214     19,218,530     19,908,473     20,370,306  
Goodwill 1,613,144     1,609,772     1,613,033     1,657,814     1,657,814  
Other intangibles 141,274     135,409     129,545     124,719     119,934  
Deposits 20,965,889     21,456,057     21,214,148     21,225,639     20,948,464  
Municipal deposits (included above) 1,652,733     2,019,893     1,751,670     2,027,563     1,699,824  
Borrowings 5,537,537     4,825,855     5,214,183     3,633,480     4,133,986  
Stockholders’ equity 4,352,735     4,438,303     4,428,853     4,419,223     4,459,158  
Tangible common equity 1 2,459,489     2,554,495     2,547,852     2,498,472     2,543,399  
Quarterly Average Balances                  
Total assets 30,994,904     31,036,026     30,925,281     30,742,943     29,666,951  
Tangible assets 1 29,237,608     29,283,093     29,179,942     28,986,437     27,886,066  
Loans, gross:                  
Commercial real estate (includes multi-family) 9,100,098     9,170,117     9,341,579     9,385,420     9,486,333  
Acquisition, development and construction 247,500     252,710     279,793     284,299     307,290  
Commercial and industrial:                  
Traditional commercial and industrial 2,026,313     2,037,195     2,150,644     2,418,027     2,446,676  
Asset-based lending3 778,708     820,060     812,903     876,218     1,070,841  
Payroll finance3 219,545     223,636     223,061     197,809     196,160  
Warehouse lending3 731,385     857,280     690,277     710,776     990,843  
Factored receivables3 224,159     220,808     267,986     250,426     246,382  
Equipment financing3 1,140,803     1,158,945     1,147,269     1,245,051     1,285,095  
Public sector finance3 725,675     784,260     828,153     869,829     967,218  
Total commercial and industrial 5,846,588     6,102,184     6,120,293     6,568,136     7,203,215  
Residential mortgage 4,801,595     4,531,922     4,336,083     3,878,991     2,635,903  
Consumer 344,183     330,061     311,475     295,428     280,098  
Loans, total4 20,339,964     20,386,994     20,389,223     20,412,274     19,912,839  
Securities (taxable) 4,130,949     4,193,910     4,133,456     3,833,690     3,453,858  
Securities (non-taxable) 2,620,579     2,580,802     2,552,533     2,501,004     2,429,411  
Other interest earning assets 665,888     638,227     635,443     667,256     580,945  
Total earning assets 27,757,380     27,799,933     27,710,655     27,414,224     26,377,053  
Deposits:                  
Non-interest bearing demand 3,960,683     4,174,908     4,324,247     4,247,389     4,218,000  
Interest bearing demand 4,024,972     4,286,278     4,082,526     4,334,266     4,399,296  
Savings (including mortgage escrow funds) 2,916,755     2,678,662     2,535,098     2,460,247     2,448,132  
Money market 7,337,904     7,404,208     7,880,331     7,776,501     7,538,890  
Certificates of deposit 2,528,355     2,571,298     2,530,226     2,497,723     2,544,554  
Total deposits and mortgage escrow 20,768,669     21,115,354     21,352,428     21,316,126     21,148,872  
Borrowings 5,432,582     5,052,752     4,716,522     4,466,172     3,544,661  
Stockholders’ equity 4,305,928     4,397,823     4,426,118     4,415,449     4,423,910  
Tangible common equity 1 2,409,674     2,506,198     2,542,256     2,520,595     2,504,883  
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 18.
At December 31, 2018 and March 31, 2019, loans held for sale included $1.54 billion and $222 million of residential mortgage loans, respectively, the other balances of loans held for sale are commercial syndication loans.
3 Asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance comprise our commercial finance loan portfolio.
4 Includes loans held for sale, but excludes allowance for loan losses.
 

13

 
Sterling Bancorp and Subsidiaries
SELECTED FINANCIAL DATA AND PERFORMANCE RATIOS
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
Per Common Share Data 6/30/2018   9/30/2018   12/31/2018   3/31/2019   6/30/2019
Basic earnings per share $ 0.50     $ 0.52     $ 0.51     $ 0.47     $ 0.46  
Diluted earnings per share 0.50     0.52     0.51     0.47     0.46  
Adjusted diluted earnings per share, non-GAAP 1 0.50     0.51     0.52     0.50     0.51  
Dividends declared per common share 0.07     0.07     0.07     0.07     0.07  
Book value per common share 18.69     19.07     19.84     20.43     21.06  
Tangible book value per common share1 10.91     11.33     11.78     11.92     12.40  
Shares of common stock o/s 225,470,254     225,446,089     216,227,852     209,560,824     205,187,243  
Basic weighted average common shares o/s 225,084,232     225,088,511     222,319,682     213,157,090     206,932,114  
Diluted weighted average common shares o/s 225,621,856     225,622,895     222,769,369     213,505,842     207,376,239  
Performance Ratios (annualized)                  
Return on average assets 1.45 %   1.50 %   1.44 %   1.31 %   1.28 %
Return on average equity 10.46     10.61     10.08     9.13     8.57  
Return on average tangible assets 1.54     1.59     1.53     1.39     1.36  
Return on average tangible common equity 18.68     18.63     17.56     16.00     15.13  
Return on average tangible assets, adjusted 1 1.55     1.55     1.58     1.48     1.51  
Return on avg. tangible common equity, adjusted 1 18.79     18.09     18.17     17.04     16.83  
Operating efficiency ratio, as adjusted 1 38.3     38.9     38.0     40.5     40.9  
Analysis of Net Interest Income                  
Accretion income on acquired loans $ 28,010     $ 26,574     $ 27,016     $ 25,580     $ 23,745  
Yield on loans 5.01 %   5.01 %   5.07 %   5.17 %   5.20 %
Yield on investment securities – tax equivalent 2 2.88     2.87     2.92     2.99     2.92  
Yield on interest earning assets – tax equivalent 2 4.47     4.47     4.54     4.64     4.66  
Cost of interest bearing deposits 0.68     0.84     0.97     1.09     1.14  
Cost of total deposits 0.55     0.68     0.77     0.88     0.91  
Cost of borrowings 2.23     2.29     2.43     2.53     2.54  
Cost of interest bearing liabilities 1.06     1.17     1.28     1.39     1.38  
Net interest rate spread – tax equivalent basis 2 3.41     3.30     3.26     3.25     3.28  
Net interest margin – GAAP basis 3.56     3.48     3.48     3.48     3.53  
Net interest margin – tax equivalent basis 2 3.62     3.54     3.53     3.54     3.58  
Capital                  
Tier 1 leverage ratio – Company 3 9.32 %   9.68 %   9.50 %   9.21 %   9.57 %
Tier 1 leverage ratio – Bank only 3 9.84     10.10     9.94     9.58     9.98  
Tier 1 risk-based capital ratio – Bank only 3 13.71     14.23     13.55     13.13     12.68  
Total risk-based capital ratio – Bank only 3 14.94     15.50     14.06     14.41     13.95  
Tangible common equity – Company 1 8.28     8.65     8.60     8.87     8.94  
Condensed Five Quarter Income Statement                  
Interest and dividend income $ 304,906     $ 309,025     $ 313,197     $ 309,400     $ 302,457  
Interest expense 58,690     65,076     70,326     73,894     70,618  
Net interest income 246,216     243,949     242,871     235,506     231,839  
Provision for loan losses 13,000     9,500     10,500     10,200     11,500  
Net interest income after provision for loan losses 233,216     234,449     232,371     225,306     220,339  
Non-interest income 37,868     24,145     22,475     19,597     27,058  
Non-interest expense 124,928     111,773     109,921     114,992     126,940  
Income before income tax expense 146,156     146,821     144,925     129,911     120,457  
Income tax expense 31,915     27,171     30,434     28,474     23,997  
Net income $ 114,241     $ 119,650     $ 114,491     $ 101,437     $ 96,460  
                   
1 See a reconciliation of non-GAAP financial measures beginning on page 18.
2 Tax equivalent basis represents interest income earned on tax exempt securities divided by the applicable Federal tax rate of 21%.
3 Regulatory capital amounts and ratios are preliminary estimates pending filing of the Company’s and Bank’s regulatory reports.
 

14

 
Sterling Bancorp and Subsidiaries
ASSET QUALITY INFORMATION
(unaudited, in thousands, except share and per share data)
 
  As of and for the Quarter Ended
Allowance for Loan Losses Roll Forward 6/30/2018   9/30/2018   12/31/2018   3/31/2019   6/30/2019
Balance, beginning of period                            
Provision for loan losses 13,000     9,500     10,500     10,200     11,500  
Loan charge-offs1:                  
Traditional commercial & industrial (1,831 )   (3,415 )   (452 )   (4,839 )   (754 )
Asset-based lending         (4,936 )       (3,551 )
Payroll finance (314 )   (2 )   (21 )       (84 )
Factored receivables (160 )   (18 )   (23 )   (32 )   (27 )
Equipment financing (2,477 )   (829 )   (1,060 )   (1,249 )   (1,335 )
Commercial real estate (3,166 )   (359 )   (56 )   (17 )   (238 )
Multi-family     (168 )   (140 )        
Acquisition development & construction (721 )                
Residential mortgage (544 )   (114 )   (694 )   (1,085 )   (689 )
Consumer (491 )   (458 )   (335 )   (443 )   (467 )
Total charge offs (9,704 )   (5,363 )   (7,717 )   (7,665 )   (7,145 )
Recoveries of loans previously charged-off1:                  
Traditional commercial & industrial 225     235     404     139     445  
Asset-based lending 9                  
Payroll finance 7     5     10     1     3  
Factored receivables 2     2     7     121     4  
Equipment financing 190     85     604     131     79  
Commercial real estate 74     612     185     9     649  
Multi-family     4     276     103     6  
Residential mortgage 34     5     11     1     1  
Consumer 97     254     32     243     162  
Total recoveries 638     1,202     1,529     748     1,349  
Net loan charge-offs (9,066 )   (4,161 )   (6,188 )   (6,917 )   (5,796 )
Balance, end of period $ 86,026     $ 91,365     $ 95,677     $ 98,960     $ 104,664  
Asset Quality Data and Ratios                  
Non-performing loans (“NPLs”) non-accrual $ 178,626     $ 177,876     $ 166,400     $ 166,746     $ 192,109  
NPLs still accruing 12,349     7,346     2,422     3,669     538  
Total NPLs 190,975     185,222     168,822     170,415     192,647  
Other real estate owned 20,264     22,735     19,377     16,502     13,628  
Non-performing assets (“NPAs”) $ 211,239     $ 207,957     $ 188,199     $ 186,917     $ 206,275  
Loans 30 to 89 days past due $ 73,441     $ 50,084     $ 97,201     $ 64,260     $ 76,365  
Net charge-offs as a % of average loans (annualized) 0.18 %   0.08 %   0.12 %   0.14 %   0.12 %
NPLs as a % of total loans 0.92     0.90     0.88     0.86     0.95  
NPAs as a % of total assets 0.67     0.67     0.60     0.62     0.68  
Allowance for loan losses as a % of NPLs 45.0     49.3     56.7     58.1     54.3  
Allowance for loan losses as a % of total loans 0.42     0.44     0.50     0.50     0.51  
Special mention loans $ 119,718     $ 88,472     $ 113,180     $ 128,054     $ 118,940  
Substandard loans 251,840     280,358     266,047     288,694     311,418  
Doubtful loans 856     2,219     59          
                   
1 There were no charge-offs or recoveries on warehouse lending or public sector finance loans during the periods presented. There were no acquisition development and construction recoveries during the periods presented.
 

15

Sterling Bancorp and Subsidiaries  
QUARTERLY YIELD TABLE  
(unaudited, in thousands, except share and per share data)  
   
  For the Quarter Ended
  March 31, 2019   June 30, 2019
  Average balance
  Interest
  Yield/Rate
  Average balance
  Interest
  Yield/Rate
                                           
  (Dollars in thousands)
Interest earning assets:                                          
Traditional C&I and commercial finance loans $ 6,568,136     $ 88,908     5.49 %   $ 7,203,215     $ 97,260     5.42 %
Commercial real estate (includes multi-family) 9,385,420     114,855     4.96     9,486,333     115,759     4.89  
Acquisition, development and construction 284,299     4,341     6.19     307,290     4,664     6.09  
Commercial loans 16,237,855     208,104     5.20     16,996,838     217,683     5.14  
Consumer loans 295,428     4,096     5.62     280,098     4,013     5.75  
Residential mortgage loans 3,878,991     48,095     4.96     2,635,903     36,587     5.55  
Total gross loans 1 20,412,274     260,295     5.17     19,912,839     258,283     5.20  
Securities taxable 3,833,690     27,847     2.95     3,453,858     24,632     2.86  
Securities non-taxable 2,501,004     18,806     3.01     2,429,411     18,257     3.01  
Interest earning deposits 331,954     1,501     1.83     289,208     1,295     1.80  
FHLB and Federal Reserve Bank Stock 335,302     4,900     5.93     291,737     3,824     5.26  
Total securities and other earning assets 7,001,950     53,054     3.07     6,464,214     48,008     2.98  
Total interest earning assets 27,414,224     313,349     4.64     26,377,053     306,291     4.66  
Non-interest earning assets 3,328,719             3,289,898          
Total assets $ 30,742,943             $ 29,666,951          
Interest bearing liabilities:                      
Demand and savings 2 deposits $ 6,794,513     $ 13,427     0.80 %   $ 6,847,428     $ 13,767     0.81 %
Money market deposits 7,776,501     22,616     1.18     7,538,890     23,020     1.22  
Certificates of deposit 2,497,723     9,952     1.62     2,544,554     11,342     1.79  
Total interest bearing deposits 17,068,737     45,995     1.09     16,930,872     48,129     1.14  
Senior notes 179,439     1,412     3.15     173,901     1,365     3.14  
Other borrowings 4,113,770     24,132     2.38     3,197,738     18,768     2.35  
Subordinated notes 172,963     2,355     5.45     173,022     2,356     5.45  
Total borrowings 4,466,172     27,899     2.53     3,544,661     22,489     2.54  
Total interest bearing liabilities 21,534,909     73,894     1.39     20,475,533     70,618     1.38  
Non-interest bearing deposits 4,247,389             4,218,000          
Other non-interest bearing liabilities 545,196             549,508          
Total liabilities 26,327,494             25,243,041          
Stockholders’ equity 4,415,449             4,423,910          
Total liabilities and stockholders’ equity $ 30,742,943             $ 29,666,951          
Net interest rate spread 3         3.25 %           3.28 %
Net interest earning assets 4 $ 5,879,315               $ 5,901,520            
Net interest margin – tax equivalent     239,455     3.54 %       235,673     3.58 %
Less tax equivalent adjustment     (3,949 )             (3,834 )      
Net interest income     235,506               231,839        
Accretion income on acquired loans     25,580               23,745        
Tax equivalent net interest margin excluding accretion income on acquired loans     $ 213,875     3.16 %       $ 211,928     3.22 %
Ratio of interest earning assets to interest bearing liabilities 127.3 %           128.8 %        

1 Average balances include loans held for sale and non-accrual loans.  Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

16

   
Sterling Bancorp and Subsidiaries  
QUARTERLY YIELD TABLE  
(unaudited, in thousands, except share and per share data)  
   
  For the Quarter Ended
  June 30, 2018   June 30, 2019
  Average balance   Interest   Yield/Rate   Average balance   Interest   Yield/Rate
   
  (Dollars in thousands)
Interest earning assets:                                          
Traditional C&I and commercial finance loans $ 5,846,588     $ 78,004     5.35 %   $ 7,203,215     $ 97,260     5.42 %
Commercial real estate (includes multi-family) 9,100,098     107,930     4.76     9,486,333     115,759     4.89  
Acquisition, development and construction 247,500     3,430     5.56     307,290     4,664     6.09  
Commercial loans 15,194,186     189,364     5.00     16,996,838     217,683     5.14  
Consumer loans 344,183     5,114     5.96     280,098     4,013     5.75  
Residential mortgage loans 4,801,595     59,775     4.98     2,635,903     36,587     5.55  
Total gross loans 1 20,339,964     254,253     5.01     19,912,839     258,283     5.20  
Securities taxable 4,130,949     29,031     2.82     3,453,858     24,632     2.86  
Securities non-taxable 2,620,579     19,497     2.98     2,429,411     18,257     3.01  
Interest earning deposits 292,862     784     1.07     289,208     1,295     1.80  
FHLB and Federal Reserve Bank stock 373,026     5,435     5.84     291,737     3,824     5.26  
Total securities and other earning assets 7,417,416     54,747     2.96     6,464,214     48,008     2.98  
Total interest earning assets 27,757,380     309,000     4.47     26,377,053     306,291     4.66  
Non-interest earning assets 3,237,524             3,289,898          
Total assets $ 30,994,904             $ 29,666,951          
Interest bearing liabilities:                      
Demand and savings 2 deposits $ 6,941,727     $ 8,400     0.49     $ 6,847,428     $ 13,767     0.81  
Money market deposits 7,337,904     12,869     0.70     7,538,890     23,020     1.22  
Certificates of deposit 2,528,355     7,195     1.14     2,544,554     11,342     1.79  
Total interest bearing deposits 16,807,986     28,464     0.68     16,930,872     48,129     1.14  
Senior notes 278,128     2,787     4.01     173,901     1,365     3.14  
Other borrowings 4,981,663     25,086     2.02     3,197,738     18,768     2.35  
Subordinated notes 172,791     2,353     5.45     173,022     2,356     5.45  
Total borrowings 5,432,582     30,226     2.23     3,544,661     22,489     2.54  
Total interest bearing liabilities 22,240,568     58,690     1.06     20,475,533     70,618     1.38  
Non-interest bearing deposits 3,960,683             4,218,000          
Other non-interest bearing liabilities 487,725             549,508          
Total liabilities 26,688,976             25,243,041          
Stockholders’ equity 4,305,928             4,423,910          
Total liabilities and stockholders’ equity $ 30,994,904             $ 29,666,951          
Net interest rate spread 3         3.41 %           3.28 %
Net interest earning assets 4 $ 5,516,812             $ 5,901,520          
Net interest margin – tax equivalent     250,310     3.62 %       235,673     3.58 %
Less tax equivalent adjustment     (4,094 )           (3,834 )    
Net interest income     246,216             231,839      
Accretion income on acquired loans     28,010             23,745      
Tax equivalent net interest margin excluding accretion income on acquired loans     $ 222,300     3.21 %       $ 211,928     3.22 %
Ratio of interest earning assets to interest bearing liabilities 124.8 %           128.8 %        

1 Average balances include loans held for sale and non-accrual loans.  Interest includes prepayment fees and late charges.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

17

                                       
Sterling Bancorp and Subsidiaries                                      
NON-GAAP FINANCIAL MEASURES                                      
(unaudited, in thousands, except share and per share data)                                      
                                       
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend beginning on page 21.
  As of or for the Quarter Ended
  6/30/2018
  9/30/2018
  12/31/2018
  3/31/2019
  6/30/2019
 
The following table shows the reconciliation of stockholders’ equity to tangible common equity and the tangible common equity ratio1:
Total assets $ 31,463,077     $ 31,261,265     $ 31,383,307     $ 29,956,607     $ 30,237,545  
Goodwill and other intangibles (1,754,418 )   (1,745,181 )   (1,742,578 )   (1,782,533 )   (1,777,748 )
Tangible assets 29,708,659     29,516,084     29,640,729     28,174,074     28,459,797  
Stockholders’ equity 4,352,735     4,438,303     4,428,853     4,419,223     4,459,158  
Preferred stock (138,828 )   (138,627 )   (138,423 )   (138,218 )   (138,011 )
Goodwill and other intangibles (1,754,418 )   (1,745,181 )   (1,742,578 )   (1,782,533 )   (1,777,748 )
Tangible common stockholders’ equity 2,459,489     2,554,495     2,547,852     2,498,472     2,543,399  
Common stock outstanding at period end 225,470,254     225,446,089     216,227,852     209,560,824     205,187,243  
Common stockholders’ equity as a % of total assets 13.39 %   13.75 %   13.67 %   14.29 %   14.29 %
Book value per common share $ 18.69     $ 19.07     $ 19.84     $ 20.43     $ 21.06  
Tangible common equity as a % of tangible assets 8.28 %   8.65 %   8.60 %   8.87 %   8.94 %
Tangible book value per common share $ 10.91     $ 11.33     $ 11.78     $ 11.92     $ 12.40  
 
The following table shows the reconciliation of reported return on average tangible common equity and adjusted return on average tangible common equity2:
                   
Average stockholders’ equity $ 4,305,928     $ 4,397,823     $ 4,426,118     $ 4,415,449     $ 4,423,910  
Average preferred stock (138,958 )   (138,692 )   (138,523 )   (138,348 )   (138,142 )
Average goodwill and other intangibles (1,757,296 )   (1,752,933 )   (1,745,339 )   (1,756,506 )   (1,780,885 )
Average tangible common stockholders’ equity 2,409,674     2,506,198     2,542,256     2,520,595     2,504,883  
Net income available to common 112,245     117,657     112,501     99,448     94,473  
Net income, if annualized 450,213     466,791     446,335     403,317     378,930  
Reported return on avg tangible common equity 18.68 %   18.63 %   17.56 %   16.00 %   15.13 %
Adjusted net income (see reconciliation on page 19) $ 112,868     $ 114,273     $ 116,458     $ 105,902     $ 105,124  
Annualized adjusted net income 452,712     453,366     462,034     429,492     421,651  
Adjusted return on average tangible common equity 18.79 %   18.09 %   18.17 %   17.04 %   16.83 %
                   
The following table shows the reconciliation of reported return on average tangible assets and adjusted return on average tangible assets3:
                   
Average assets $ 30,994,904     $ 31,036,026     $ 30,925,281     $ 30,742,943     $ 29,666,951  
Average goodwill and other intangibles (1,757,296 )   (1,752,933 )   (1,745,339 )   (1,756,506 )   (1,780,885 )
Average tangible assets 29,237,608     29,283,093     29,179,942     28,986,437     27,886,066  
Net income available to common 112,245     117,657     112,501     99,448     94,473  
Net income, if annualized 450,213     466,791     446,335     403,317     378,930  
Reported return on average tangible assets 1.54 %   1.59 %   1.53 %   1.39 %   1.36 %
Adjusted net income (see reconciliation on page 19) $ 112,868     $ 114,273     $ 116,458     $ 105,902     $ 105,124  
Annualized adjusted net income 452,712     453,366     462,034     429,492     421,651  
Adjusted return on average tangible assets 1.55 %   1.55 %   1.58 %   1.48 %   1.51 %
                   
                   

18

                                       
Sterling Bancorp and Subsidiaries                                      
NON-GAAP FINANCIAL MEASURES                                      
(unaudited, in thousands, except share and per share data)                                      
                                       
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend beginning on page 21.
  As of and for the Quarter Ended
  6/30/2018
  9/30/2018
  12/31/2018
  3/31/2019
  6/30/2019
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
Net interest income $ 246,216     $ 243,949     $ 242,871     $ 235,506     $ 231,839  
Non-interest income 37,868     24,145     22,475     19,597     27,058  
Total revenue 284,084     268,094     265,346     255,103     258,897  
Tax equivalent adjustment on securities 4,094     4,052     4,015     3,949     3,834  
Net loss on sale of securities 425     56     4,886     13,184     528  
Net (gain) on sale of fixed assets (11,797 )                
Net (gain) on sale of residential mtg loans             (8,313 )    
Adjusted total revenue 276,806     272,202     274,247     263,923     263,259  
Non-interest expense 124,928     111,773     109,921     114,992     126,940  
Charge for asset write-downs, systems integration, retention and severance (13,132 )           (3,344 )    
Impairment related to financial centers and real estate consolidation strategy                 (14,398 )
Gain on extinguishment of borrowings         172     46      
Amortization of intangible assets (5,865 )   (5,865 )   (5,865 )   (4,826 )   (4,785 )
Adjusted non-interest expense 105,931     105,908     104,228     106,868     107,757  
Reported operating efficiency ratio 44.0 %   41.7 %   41.4 %   45.1 %   49.0 %
Adjusted operating efficiency ratio 38.3     38.9     38.0     40.5     40.9  
                   
The following table shows the reconciliation of reported net income (GAAP) and earnings per share to adjusted net income available to common stockholders (non-GAAP) and adjusted diluted earnings per share(non-GAAP)5:
                   
Income before income tax expense $ 146,156     $ 146,821     $ 144,925     $ 129,911     $ 120,457  
Income tax expense 31,915     27,171     30,434     28,474     23,997  
Net income (GAAP) 114,241     119,650     114,491     101,437     96,460  
Adjustments:                  
Net loss on sale of securities 425     56     4,886     13,184     528  
Net (gain) on sale of fixed assets (11,797 )                
Net (gain) on sale of residential mtg loans             (8,313 )    
(Gain) on extinguishment of debt         (172 )   (46 )    
Impairment related to financial centers and real estate consolidation strategy                 14,398  
Charge for asset write-downs, systems integration, retention and severance 13,132             3,344      
Amortization of non-compete agreements and acquired customer list intangible assets 295     295     295     242     200  
Total pre-tax adjustments 2,055     351     5,009     8,411     15,126  
Adjusted pre-tax income 148,211     147,172     149,934     138,322     135,583  
Adjusted income tax expense 33,347     30,906     31,486     30,431     28,472  
Adjusted net income (non-GAAP) 114,864     116,266     118,448     107,891     107,111  
Preferred stock dividend 1,996     1,993     1,990     1,989     1,987  
Adjusted net income available to common stockholders (non-GAAP) $ 112,868     $ 114,273     $ 116,458     $ 105,902     $ 105,124  
                   
Weighted average diluted shares 225,621,856     225,622,895     222,769,369     213,505,842     207,376,239  
Reported diluted EPS (GAAP) $ 0.50     $ 0.52     $ 0.51     $ 0.47     $ 0.46  
Adjusted diluted EPS (non-GAAP) 0.50     0.51     0.52     0.50     0.51  
                             

19

 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend beginning on page 21.
    For the Six Months Ended June 30,
                    2018   2019
 
The following table shows the reconciliation of reported net income (GAAP) and earnings per share to adjusted net income available to common stockholders (non-GAAP) and adjusted diluted earnings per share (non-GAAP)5:
Income before income tax expense   $ 274,484     $ 250,368  
Income tax expense   61,371     52,471  
Net income (GAAP)   213,113     197,897  
         
Adjustments:        
Net loss on sale of securities   5,846     13,712  
Net (gain) on sale of fixed assets   (11,797 )    
Net (gain) on sale or residential mortgage loans       (8,313 )
Impairment related to financial centers and real estate consolidation strategy       14,398  
Charge for asset write-downs, systems integration, retention and severance   13,132     3,344  
(Gain) on extinguishment of borrowings       (46 )
Amortization of non-compete agreements and acquired customer list intangible assets   589     441  
Total pre-tax adjustments   7,770     23,536  
Adjusted pre-tax income   282,254     273,904  
Adjusted income tax expense   63,508     57,520  
Adjusted net income (non-GAAP)   $ 218,746     $ 216,384  
Preferred stock dividend   3,995     3,976  
Adjusted net income available to common stockholders (non-GAAP)   $ 214,751     $ 212,408  
         
Weighted average diluted shares   225,444,579     210,419,425  
Diluted EPS as reported (GAAP)   $ 0.93     $ 0.92  
Adjusted diluted EPS (non-GAAP)   0.95     1.01  
             

20

 
Sterling Bancorp and Subsidiaries
NON-GAAP FINANCIAL MEASURES
(unaudited, in thousands, except share and per share data)
 
The Company provides supplemental reporting of non-GAAP/adjusted financial measures as management believes this information is useful to investors.  See legend below.
    For the Six Months Ended June 30,
                    2018   2019
 
The following table shows the reconciliation of reported return on average tangible common equity and adjusted return on average tangible common equity2:
Average stockholders’ equity   $ 4,275,097     $ 4,419,703  
Average preferred stock   (139,054 )   (138,245 )
Average goodwill and other intangibles   (1,744,197 )   (1,768,763 )
Average tangible common stockholders’ equity   2,391,846     2,512,695  
Net income available to common stockholders   $ 209,118     $ 193,921  
Net income available to common stockholders, if annualized   421,702     391,056  
Reported return on average tangible common equity   17.63 %   15.56 %
Adjusted net income available to common stockholders (see reconciliation on page #SectionPage#)   $ 214,751     $ 212,408  
Adjusted net income available to common stockholders, if annualized   433,061     428,337  
Adjusted return on average tangible common equity   18.11 %   17.05 %
The following table shows the reconciliation of reported return on avg tangible assets and adjusted return on avg tangible assets3:
Average assets   $ 30,509,306     $ 30,201,974  
Average goodwill and other intangibles   (1,744,197 )   (1,768,763 )
Average tangible assets   28,765,109     28,433,211  
Net income available to common stockholders   209,118     193,921  
Net income available to common stockholders, if annualized   421,702     391,056  
Reported return on average tangible assets   1.47 %   1.38 %
Adjusted net income available to common stockholders (see reconciliation on page 20)   $ 214,751     $ 212,408  
Adjusted net income available to common stockholders, if annualized   433,061     428,337  
Adjusted return on average tangible assets   1.51 %   1.51 %
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio4:
Net interest income   $ 480,584     $ 467,345  
Non-interest income   56,575     46,655  
Total revenues   537,159     514,000  
Tax equivalent adjustment on securities   8,165     7,781  
Net loss on sale of securities   5,846     13,712  
Net loss (gain) on sale of fixed assets   (11,797 )    
(Gain) on extinguishment of debt       (8,313 )
Adjusted total net revenue   539,373     527,180  
Non-interest expense   236,675     241,932  
Charge for asset write-downs, retention and severance   (13,132 )   (3,344 )
Impairment related to financial centers and real estate consolidation strategy       (14,398 )
Gain on extinguishment of borrowings       46  
Amortization of intangible assets   (11,917 )   (9,611 )
Adjusted non-interest expense   $ 211,626     $ 214,625  
Reported operating efficiency ratio   44.1 %   47.1 %
Adjusted operating efficiency ratio   39.2 %   40.7 %
             

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The non-GAAP/as adjusted measures presented above are used by our management and the Company’s Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance and to assess our performance compared to our annual budget and strategic plans.  These non-GAAP/adjusted financial measures complement our GAAP reporting and are presented above to provide investors, analysts, regulators and others information that we use to manage and evaluate our performance each period. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results.  When non-GAAP/adjusted measures are impacted by income tax expense, we present the pre-tax amount for the income and expense items that result in the non-GAAP adjustments and present the income tax expense impact at the effective tax rate in effect for the period presented.

1 Stockholders’ equity as a percentage of total assets, book value per common share, tangible common equity as a percentage of tangible assets and tangible book common value per share provides information to help assess our capital position and financial strength.  We believe tangible book measures improve comparability to other banking organizations that have not engaged in acquisitions that have resulted in the accumulation of goodwill and other intangible assets.

2 Reported return on average tangible common equity and adjusted return on average tangible common equity measures provide information to evaluate the use of our tangible common equity.

3 Reported return on average tangible assets and adjusted return on average tangible assets measures provide information to help assess our profitability.

4 The reported operating efficiency ratio is a non-GAAP measure calculated by dividing our GAAP non-interest expense by the sum of our GAAP net interest income plus GAAP non-interest income. The adjusted operating efficiency ratio is a non-GAAP measure calculated by dividing non-interest expense adjusted for intangible asset amortization and certain expenses generally associated with discrete merger transactions and non-recurring strategic plans by the sum of net interest income plus non-interest income plus the tax equivalent adjustment on securities income and elimination of the impact of gain or loss on sale of securities. The adjusted operating efficiency ratio is a measure we use to assess our operating performance.

5 Adjusted net income available to common stockholders and adjusted diluted earnings per share present a summary of our earnings, which includes adjustments to exclude certain revenues and expenses (generally associated with discrete merger transactions and non-recurring strategic plans) to help in assessing our profitability.

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