Q3 2019 Highlights

• Net income of $13.9 million, up from $13.4 million in Q2 2019, and down from $15.7 million in Q3 2018
• Fully diluted EPS of $0.28, up from $0.26 for Q2 2019, and down from $0.30 for Q3 2018
• Third quarter annualized ROAA of 1.67% and annualized ROATCE of 15.98%
• Revenue, net of interest expense, of $33.2 million, up from $32.8 million in Q2 2019, and down from $35.0 million in Q3 2018
• Total loan originations of $282.1 million, down from $356.5 million in Q2 2019 and $419.2 million in Q3 2018
• Total gross loans, including loans held for investment and loans held for sale of $2.93 billion, down 1% from Q2 2019, and flat from Q3 2018
• Prior to loan sales, total gross loans increased by 2% from Q2 2019
• Total deposits of $2.57 billion, up 1% from Q2 2019 and 7% increase from Q3 2018
• Net interest margin of 3.70%, compared to 3.84% in Q2 2019 and 3.95% in Q3 2018
• Repurchased approximately 0.4 million shares of common stock at an average price of $9.89 during the quarter

SOUTHFIELD, Mich.--(BUSINESS WIRE)--Oct. 28, 2019-- Sterling Bancorp, Inc. (NASDAQ: SBT) (the “Company”), the holding company of Sterling Bank and Trust, F.S.B. (the “Bank”), today reported unaudited financial results for its third quarter ended September 30, 2019.

For the third quarter 2019, net income totaled $13.9 million, or $0.28 per diluted share, based on 50.4 million weighted average diluted shares outstanding. This compares to second quarter 2019 net income of $13.4 million, or $0.26 per diluted share, based on 51.5 million weighted average diluted shares outstanding. For the third quarter of 2018, net income totaled $15.7 million, or $0.30 per diluted share, based on 53.0 million weighted average diluted shares outstanding.

“Overall, our financial results for the third quarter were in line with our expectations,” said Gary Judd, Chairman and CEO of Sterling Bancorp. “We continue to generate top quartile returns, as our annualized return on average assets was 1.67% and our annualized return on tangible common equity was 15.98%. Our moderately higher EPS for the quarter was driven by higher non-interest income and well-managed expenses.

“During the quarter, net interest margin was negatively impacted by our increased liquidity and lower yields on our loan portfolio. In addition, our loan production was lower during the quarter as we maintained our underwriting and pricing discipline in a very competitive lending market. Despite this pressure, our total loans grew modestly during the quarter, prior to our loan sales.

“We remain optimistic in our outlook as we end the year. We are focused on converting our healthy loan pipeline into closed loans while maintaining solid credit quality and reducing deposit costs. While we will continue to opportunistically utilize loan sales to diversify our revenue going forward, we may significantly reduce these sales in the fourth quarter and retain the majority of our new loan production on our balance sheet. Therefore, we expect to resume our loan growth and achieve net interest margin stability, which should translate into continued strong returns for our shareholders,” Mr. Judd concluded.

Financial Highlights (Unaudited)

Operating Results for the Third Quarter 2019

Revenue

Revenue, net of interest expense, was $33.2 million for the third quarter of 2019, an increase of 1% from the second quarter of 2019. The increase was primarily attributable to a $1.1 million increase in non-interest income, partially offset by a $0.7 million decrease in net interest income.

Revenue, net of interest expense, for the third quarter of 2018 was $35.0 million. The 5% year-over-year decrease was due to a $1.1 million decrease in non-interest income and a $0.8 million decrease in net interest income.

Net Interest Income

Net interest income for the third quarter of 2019 was $30.0 million, a decrease of 2% from $30.7 million for the second quarter of 2019. The decrease in net interest income was primarily attributable to a 14 basis point decrease in the net interest margin, partially offset by a $49.5 million increase in average interest earning assets.

Relative to the third quarter of 2018, net interest income decreased 3% from $30.8 million. The decrease in net interest income from the third quarter of 2018 was primarily driven by a 25 basis point decrease in the net interest margin, partially offset by a $130.5 million increase in average interest earning assets.

Net Interest Margin

Net interest margin for the third quarter of 2019 was 3.70%, down 14 basis points from the net interest margin of 3.84% for the second quarter of 2019. Net interest margin was impacted by a 15 basis point decrease in the average yield on interest earning assets, partially offset by a 2 basis point decrease in the cost of average interest-bearing liabilities.

Relative to the third quarter of 2018, net interest margin decreased from 3.95%, primarily due to a 38 basis point increase in the average cost of interest-bearing liabilities, partially offset by a 7 basis point increase in the average yield on interest earning assets.

Non-interest Income

Non-interest income for the third quarter of 2019 was $3.2 million, an increase from $2.1 million for the second quarter of 2019. The increase was primarily attributable to a lower mortgage servicing rights valuation allowance taken in the third quarter as compared to the prior quarter.

Non-interest income decreased $1.1 million from $4.2 million in the third quarter of 2018, primarily as a result of a $1.1 million decrease in the gain on sale of loans due to fewer residential mortgages sold in the secondary market as compared to the prior year period.

Non-interest Expense

Non-interest expense for the third quarter of 2019 was $13.4 million, a decrease from $13.7 million for the second quarter of 2019. The decrease was primarily attributable to lower FDIC assessments, advertising and marketing expenses, data processing and other expenses, partially offset by higher salaries and employee benefits and professional fees, a portion of which were related to increased regulatory compliance initiatives. The lower FDIC assessments is primarily the result of Small Bank Assessment Credits applied during the third quarter.

Relative to the third quarter of 2018, non-interest expense increased 7% from $12.5 million. The increase was primarily due to an increase in salaries and employee benefits and occupancy and equipment costs required to support new offices and the growth in the Company’s operations, as well as higher professional fees.

The Company’s operating efficiency ratio was 40.5% in the third quarter of 2019, compared with 41.9% in the second quarter of 2019 and 35.8% in the third quarter of 2018.

Income Taxes

The effective tax rate for the third quarter of 2019 was 29%, comparable to the effective tax rate of 29% for both the second quarter of 2019 and the third quarter of 2018.

Loan Portfolio

Total gross loans, which includes those held for investment and held for sale, were $2.93 billion at September 30, 2019, a decrease from $2.95 billion at June 30, 2019. The Company had an $18.6 million decrease in residential mortgage loans held for investment and a $4.3 million decrease in commercial lines of credit, partially offset by a net $2.6 million increase in construction and commercial real estate loans.

During the third quarter of 2019, the Company originated $282.1 million in loans, which included $241.7 million in residential mortgage loans and $40.4 million in construction and commercial real estate loans.

The Company sold $76.1 million in residential mortgage loans during the third quarter, including Agency sales. As the Company continues to utilize loan sales to support balance sheet and liquidity strategies, the amount of residential mortgage loans held for sale may vary from quarter to quarter.

Deposits

Total deposits were $2.57 billion at September 30, 2019, compared with $2.55 billion at June 30, 2019. The $25.2 million increase was primarily attributable to a $52.7 million increase in time deposits and a $6.9 million increase in noninterest-bearing deposits, partially offset by a $34.5 million decrease in money market, savings and NOW deposits. Within time deposits, retail deposits increased by $102.7 million to $1.192 billion and brokered CDs decreased by $50.0 million to $25.0 million.

Credit Quality

Nonperforming assets totaled $12.3 million, or 0.37% of total assets, at September 30, 2019, compared with $12.2 million, or 0.37% of total assets, at June 30, 2019. Nonperforming loans at September 30, 2019 totaled $10.0 million, compared with $6.7 million at June 30, 2019. The increase was primarily due to a $3.5 million construction loan which was placed on non-accrual during the quarter. The Company believes that no impairment exists, as there is more than sufficient collateral value supporting this loan.

Recoveries for the third quarter of 2019 were $35,000 and there were no charge-offs during the quarter. The Company recorded a provision for loan losses of $251,000 for the third quarter of 2019.

The allowance for loan losses was 0.72% of total loans and 213% of nonperforming loans at September 30, 2019, compared with 0.71% and 312%, respectively, at June 30, 2019.

Capital

At September 30, 2019, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution, as summarized in the following tables:

Share Repurchase Program

During the quarter, the Company repurchased approximately 0.4 million shares of common stock at an average price of $9.89 per share. Year-to-date, approximately 2.7 million shares have been repurchased at an average price of $9.64 per share.

Conference Call and Webcast

Management will host a conference call today at 5:00 p.m. Eastern Time to discuss the Company's financial results. The conference call number for U.S. participants is (833) 535-2201 and the conference call number for participants outside the U.S. is (412) 902-6744. Additionally, interested parties can listen to a live webcast of the call in the "Investor Relations" section of the Company's website at www.sterlingbank.com. An archived version of the webcast will be available in the same location shortly after the live call has ended.

A replay of the conference call may be accessed through November 11, 2019 by dialing (877) 344-7529, using conference ID number 10135479.

About Sterling Bancorp, Inc.

Sterling Bancorp, Inc. is a unitary thrift holding company. Its wholly owned subsidiary, Sterling Bank and Trust, F.S.B., has primary branch operations in San Francisco and Los Angeles, California, New York City and Bellevue, Washington. Sterling offers a broad range of loan products to the residential and commercial markets, as well as retail and business banking services. Sterling also has an operations center and a branch in Southfield, Michigan. Sterling was named as the top performing community bank in the United States with total assets between $3 billion and $10 billion in 2018 by S&P Global Market Intelligence for the second year in a row (in 2017 the asset range was $1 billion to $10 billion). For additional information, please visit the Company’s website at http://www.sterlingbank.com.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include “Average Tangible Common Equity,” and “Return on Average Tangible Common Equity,” each of which are common metrics in the banking industry. Our management uses these non-GAAP financial measures to assess the Company’s capital strength and business performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies. For further information see “Return on Average Tangible Common Equity Reconciliations (non-GAAP)” in the Financial Data section that follows.

Forward-Looking Statements

Readers should note that in addition to the historical information contained herein, this press release includes "forward-looking statements," within the meaning of the federal securities laws, including but not limited to statements about the Company’s expected loan production, operating expenses and future earnings levels. These statements are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, including changes in the financial markets; changes in business plans as circumstances warrant; and other risks detailed from time to time in filings made by the Company with the Securities and Exchange Commission. Readers should note that the forward-looking statements included in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe" or "continue," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Return on Average Tangible Common Equity Reconciliations (non-GAAP)

Average tangible common equity and return on average tangible common equity are non-GAAP disclosures. Sterling’s management uses these non-GAAP financial measures to assess the Company’s capital strength and business performance. Average tangible common equity excludes the effect of intangible assets. This non-GAAP financial measure should not be considered a substitute for those comparable measures that are similarly titled that are determined in accordance with U.S. GAAP that may be used by other companies. The following is a reconciliation of average tangible common equity to the average shareholders’ equity, its most comparable GAAP measure, as well as a calculation of return on average tangible common equity as of September 30, 2019 and 2018, and June 30, 2019.

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Source: Sterling Bancorp, Inc.

Financial Profiles, Inc.
Larry Clark
310-622-8223
Kristen Papke
310-622-8225
SBT@finprofiles.com