UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________



x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35385

______________________________

STERLING BANCORP

(Exact Name of Registrant as Specified in its Charter)

______________________________



Delaware		80-0091851
(State or Other Jurisdiction of		(IRS Employer ID No.)
Incorporation or Organization)

400 Rella Boulevard, Montebello, New York		10901
(Address of Principal Executive Office)		(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate website,~~ if any, every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ ~~(Do not check if a smaller reporting company)~~

Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Classes of Common Stock		Shares outstanding as of November ~~2, 2017~~1, 2018
$0.01 per share		~~224,707,726~~224,427,793

STERLING BANCORP AND SUBSIDIARIES

FORM 10-Q TABLE OF CONTENTS

QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2017~~2018



	PART I. FINANCIAL INFORMATION - UNAUDITED
Item 1.	Consolidated Balance Sheets as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017	3
	Consolidated Income Statements for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017	5
	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2018 and ~~2016~~2017	78
	Notes to Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4749

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7174

Item 4.	Controls and Procedures	7275

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	7477

Item 1A.	Risk Factors	7477

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7477

Item 3.	Defaults Upon Senior Securities	7477

Item 4.	Mine Safety Disclosures	7477

Item 5.	Other Information	7477

Item 6.	Exhibits	7478

	Signatures	7679

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

STERLING BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share and per share data)

September 30, December 31,
2017 2016
ASSETS:
Cash and due from banks $ 407,203
$ 293,646
Securities:
Available for sale, at fair value 2,579,076
1,727,417
Held to maturity, at amortized cost (fair value of $1,932,755 and $1,357,997 at September 30, 2017 and December 31, 2016, respectively) 1,936,574
1,391,421
Total securities 4,515,650
3,118,838
Loans held for sale —
41,889
Portfolio loans 10,493,535
9,527,230
Allowance for loan losses (72,128 ) (63,622 )
Portfolio loans, net 10,421,407
9,463,608
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost 191,276
135,098
Accrued interest receivable 57,561
43,319
Premises and equipment, net 56,378
57,318
Goodwill 696,600
696,600
Other intangible assets, net 59,690
66,353
Bank owned life insurance 204,281
199,889
Other real estate owned 11,697
13,619
Other assets 158,354
48,270
Total assets $ 16,780,097
$ 14,178,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits $ 11,043,438
$ 10,068,259
FHLB borrowings 3,016,000
1,791,000
Other borrowings 188,403
16,642
Senior Notes 76,719
76,469
Subordinated Notes 172,661
172,501
Mortgage escrow funds 19,148
13,572
Other liabilities 292,248
184,821
Total liabilities 14,808,617
12,323,264
Commitments and Contingent liabilities (See Note 16. “Commitments and Contingencies”) —
—
STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding) —
—
Common stock (par value $0.01 per share; 310,000,000 shares authorized at September 30, 2017; 190,000,000 shares authorized at December 31, 2016; 141,043,149 shares issued at September 30, 2017 and December 31, 2016; 135,807,544 and 135,257,570 shares outstanding at September 30, 2017 and December 31, 2016, respectively) 1,411
1,411
Additional paid-in capital 1,590,752
1,597,287
Treasury stock, at cost (5,235,605 shares at September 30, 2017 and 5,785,579 at December 31, 2016) (59,674 ) (66,188 )
Retained earnings 452,650
349,308
Accumulated other comprehensive (loss), net of tax (benefit) of $(8,918) at September 30, 2017 and $(17,390) at December 31, 2016 (13,659 ) (26,635 )
Total stockholders’ equity 1,971,480
1,855,183
Total liabilities and stockholders’ equity $ 16,780,097
$ 14,178,447



	September 30,			December 31,
	2018			2017
ASSETS:
Cash and due from banks	$	533,984		$	479,906
Securities:
Available for sale, at fair value	3,843,244			3,612,072
Held to maturity, at amortized cost (fair value of $2,746,080 and $2,863,909 at September 30, 2018 and December 31, 2017, respectively)	2,842,728			2,862,489
Total securities	6,685,972			6,474,561
Loans held for sale	31,042			5,246
Portfolio loans	20,533,214			20,008,983
Allowance for loan losses	(91,365		)	(77,907		)
Portfolio loans, net	20,441,849			19,931,076
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost	351,455			284,112
Accrued interest receivable	109,377			94,098
Premises and equipment, net	289,794			321,722
Goodwill	1,609,772			1,579,891
Other intangible assets, net	135,409			153,191
Bank owned life insurance	660,279			651,638
Other real estate owned	22,735			27,095
Other assets	389,597			357,005
Total assets	$	31,261,265		$	30,359,541
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits	$	21,456,057		$	20,538,204
FHLB borrowings	4,429,110			4,510,123
Repurchase agreements	22,888			30,162
Senior Notes	200,972			278,209
Subordinated Notes	172,885			172,716
Mortgage escrow funds	96,952			122,641
Other liabilities	444,098			467,308
Total liabilities	26,822,962			26,119,363
Commitments and Contingent liabilities (See Note 16. “Commitments and Contingencies”)
STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; 135,000 shares issued and outstanding at September 30, 2018 and December 31, 2017)	138,627			139,220
Common stock (par value $0.01 per share; 310,000,000 shares authorized at September 30, 2018 and December 31, 2017; 229,872,925 shares issued at September 30, 2018 and December 31, 2017; 225,446,089 and 224,782,694 shares outstanding at September 30, 2018 and December 31, 2017, respectively)	2,299			2,299
Additional paid-in capital	3,773,164			3,780,908
Treasury stock, at cost (4,426,836 shares at September 30, 2018 and 5,090,231 at December 31, 2017)	(51,973		)	(58,039		)
Retained earnings	694,861			401,956
Accumulated other comprehensive loss, net of tax benefit of $(45,332) at September 30, 2018 and $(17,083) at December 31, 2017	(118,675		)	(26,166		)
Total stockholders’ equity	4,438,303			4,240,178
Total liabilities and stockholders’ equity	$	31,261,265		$	30,359,541

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Income Statements (Unaudited)

(Dollars in thousands, except share and per share data)


	Three months ended					Nine months ended					Three months ended						Nine months ended
	September 30,					September 30,					September 30,						September 30,
	2017			2016		2017			2016		2018			2017			2018			2017
Interest and dividend income:
Loans and loan fees	$	119,898		$	100,503	$	336,308		$	286,195	$	257,211		$	119,898		$	746,079		$	336,308
Securities taxable	15,141			9,870		40,536			32,548		29,765			15,141			85,856			40,536
Securities non-taxable	8,542			6,751		23,951			16,501		15,244			8,542			45,959			23,951
Other earning assets	2,111			1,037		5,160			3,232		6,805			2,111			17,382			5,160
Total interest and dividend income	145,692			118,161		405,955			338,476		309,025			145,692			895,276			405,955
Interest expense:
Deposits	13,392			9,201		33,805			23,938		35,974			13,392			88,645			33,805
Borrowings	12,227			5,830		30,029			17,518		29,102			12,227			82,098			30,029
Total interest expense	25,619			15,031		63,834			41,456		65,076			25,619			170,743			63,834
Net interest income	120,073			103,130		342,121			297,020		243,949			120,073			724,533			342,121
Provision for loan losses	5,000			5,500		14,000			14,500		9,500			5,000			35,500			14,000
Net interest income after provision for loan losses	115,073			97,630		328,121			282,520		234,449			115,073			689,033			328,121
Non-interest income:
Deposit fees and service charges											6,333			3,309			20,319			9,893
Accounts receivable management / factoring commissions and other fees	4,764			4,898		12,670			13,548		5,595			4,764			16,292			12,670
Mortgage banking income	121			1,153		522			5,522
Deposit fees and service charges	3,309			3,407		9,893			11,981
Net (loss) gain on sale of securities	(21		)	3,433		(274		)	7,624
Bank owned life insurance	1,320			1,891		4,342			4,499		3,733			1,320			11,591			4,342
Loan commissions and fees											4,142			2,819			12,114			8,643
Investment management fees	271			1,086		825			3,144		1,943			271			5,889			825
Net loss on sale of securities											(56		)	(21		)	(5,902		)	(274		)
Gain on sale of fixed assets											—			1			11,800			1
Other	4,224			3,171		12,464			8,593		2,455			1,525			8,617			4,342
Total non-interest income	13,988			19,039		40,442			54,911		24,145			13,988			80,720			40,442
Non-interest expense:
Compensation and benefits	32,433			32,501		95,218			93,857		54,823			31,727			165,662			93,893
Stock-based compensation plans	1,969			1,673		5,602			4,960		3,115			1,969			9,304			5,602
Occupancy and office operations	8,583			8,021		25,550			26,113		16,558			8,583			51,956			25,550
Information technology											10,699			2,512			32,412			7,402
Amortization of intangible assets	2,166			3,241		6,582			9,535		5,865			2,166			17,782			6,582
FDIC insurance and regulatory assessments	2,310			2,151		6,232			6,709		6,043			2,310			16,885			6,232
Other real estate owned expense, net	894			721		2,682			1,844		1,497			894			1,635			2,682
Merger-related expense	4,109			—		9,002			265		—			4,109			—			9,002
Charge for asset write-downs, retention and severance	—			2,000		603			4,485		—			—			13,132			603
Loss on extinguishment of borrowings	—			1,013		—			9,729
Other	10,153			10,935		31,153			33,330		13,173			8,347			39,680			25,076
Total non-interest expense	62,617			62,256		182,624			190,827		111,773			62,617			348,448			182,624
Income before income tax expense	66,444			54,413		185,939			146,604		146,821			66,444			421,305			185,939
Income tax expense	21,592			16,991		59,620			47,646		27,171			21,592			88,542			59,620
Net income	$	44,852		$	37,422	$	126,319		$	98,958	$	119,650		$	44,852		$	332,763		$	126,319
Preferred stock dividend											1,993			—			5,988			—
Net income available to common stockholders											$	117,657		$	44,852		$	326,775		$	126,319
Weighted average common shares:
Basic	135,346,791			130,239,193		135,276,634			130,049,358		225,088,511			135,346,791			224,969,121			135,276,634
Diluted	135,950,160			130,875,614		135,895,513			130,645,705		225,622,895			135,950,160			225,504,463			135,895,513
Earnings per common share:
Basic	$	0.33		$	0.29	$	0.93		$	0.76	$	0.52		$	0.33		$	1.45		$	0.93
Diluted	0.33			0.29		0.93			0.76		0.52			0.33			1.45			0.93

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Net income $ 44,852
$ 37,422
$ 126,319
$ 98,958
Other comprehensive income (loss), before tax:
Change in unrealized holding gains (losses) on securities available for sale 4,209
(2,112 ) 20,374
39,691
Accretion of net unrealized loss on securities transferred to held to maturity 238
542
726
1,243
Reclassification adjustment for net realized losses (gains) included in net income 21
(3,433 ) 274
(7,624 )
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans 10
(18 ) 74
379
Total other comprehensive income (loss), before tax 4,478
(5,021 ) 21,448
33,689
Deferred tax (expense) benefit related to other comprehensive income (1,769 ) 1,984
(8,472 ) (13,672 )
Other comprehensive income (loss), net of tax 2,709
(3,037 ) 12,976
20,017
Comprehensive income $ 47,561
$ 34,385
$ 139,295
$ 118,975



	Three months ended						Nine months ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income	$	119,650		$	44,852		$	332,763		$	126,319
Other comprehensive (loss) income, before tax:
Change in unrealized holding (losses) gains on securities available for sale	(27,083		)	4,209			(128,496		)	20,374
Reclassification adjustment for net realized losses included in net income	56			21			5,902			274
Accretion of net unrealized loss on securities transferred to held to maturity	225			238			686			726
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans	415			10			1,150			74
Total other comprehensive (loss) income, before tax	(26,387		)	4,478			(120,758		)	21,448
Deferred tax benefit (expense) related to other comprehensive (loss) income	7,293			(1,769		)	33,378			(8,472		)
Other comprehensive (loss) income, net of tax	(19,094		)	2,709			(87,380		)	12,976
Comprehensive income	$	100,556		$	47,561		$	245,383		$	139,295

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands, except share and per share data)


	Number of shares	Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive (loss) income			Total stockholders’ equity
Balance at January 1, 2016	130,006,926	$	1,367	$	1,506,612		$	(76,190	)	$	245,408		$	(12,124	)	$	1,665,073
Net income	—	—		—			—			98,958			—			98,958
Other comprehensive income	—	—		—			—			—			20,017			20,017
Stock option & other stock transactions, net	413,819	—		428			4,807			(1,084		)	—			4,151
Restricted stock awards, net	432,928	—		(2,263		)	5,121			1,394			—			4,252
Cash dividends declared ($0.21 per common share)	—	—		—			—			(27,291		)	—			(27,291		)
Balance at September 30, 2016	130,853,673	$	1,367	$	1,504,777		$	(66,262	)	$	317,385		$	7,893		$	1,765,160
																			Number of common shares		Preferred stock		Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive (loss) income			Total stockholders’ equity
Balance at January 1, 2017	135,257,570	$	1,411	$	1,597,287		$	(66,188	)	$	349,308		$	(26,635	)	$	1,855,183		135,257,570		$	—	$	1,411	$	1,597,287		$	(66,188	)	$	349,308		$	(26,635	)	$	1,855,183
Net income	—	—		—			—			126,319			—			126,319			—		—		—		—			—			39,067			—			39,067
Other comprehensive income	—	—		—			—			—			12,976			12,976			—		—		—		—			—			—			2,914			2,914
Stock option & other stock transactions, net	118,598	—		146			1,627			(436		)	—			1,337			40,253		—		—		49			553			(109		)	—			493
Restricted stock awards, net	431,376	—		(6,681		)	4,887			5,806			—			4,012			306,612		—		—		(7,043		)	3,589			3,846			—			392
Cash dividends declared ($0.21 per common share)	—	—		—			—			(28,347		)	—			(28,347		)
Cash dividends declared ($0.07 per common share)																			—		—		—		—			—			(9,436		)	—			(9,436		)
Balance at March 31, 2017																			135,604,435		—		1,411		1,590,293			(62,046		)	382,676			(23,721		)	1,888,613
Net income																			—		—		—		—			—			42,400			—			42,400
Other comprehensive income																			—		—		—		—			—			$	—		7,353			7,353
Stock option & other stock transactions, net																			71,395		—		—		49			980			$	(298	)	—			731
Restricted stock awards, net																			(17,604	)	—		—		1,957			(510		)	$	293		—			1,740
Cash dividends declared ($0.07 per common share)																			—		—		—		—			—			(9,454		)	—			(9,454		)
Balance at June 30, 2017																			135,658,226		—		1,411		1,592,299			(61,576		)	415,617			(16,368		)	1,931,383
Net income																			—		—		—		—			—			44,852			—			44,852
Other comprehensive income																			—		—		—		—			—			—			2,709			2,709
Stock option & other stock transactions, net																			6,950		—		—		48			94			(29		)	—			113
Restricted stock awards, net																			142,368		—		—		(1,595		)	1,808			1,667			—			1,880
Cash dividends declared ($0.07 per common share)																			—		—		—		—			—			(9,457		)	—			(9,457		)
Balance at September 30, 2017	135,807,544	$	1,411	$	1,590,752		$	(59,674	)	$	452,650		$	(13,659	)	$	1,971,480		135,807,544		$	—	$	1,411	$	1,590,752		$	(59,674	)	$	452,650		$	(13,659	)	$	1,971,480

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands, except share and per share data)



	Number of common shares		Preferred stock			Common stock		Additional paid-in capital			Treasury stock			Retained earnings			Accumulated other comprehensive (loss) income			Total stockholders’ equity
Balance at January 1, 2018	224,782,694		$	139,220		$	2,299	$	3,780,908		$	(58,039	)	$	401,956		$	(26,166	)	$	4,240,178
Net income	—		—			—		—			—			98,872			—			98,872
Other comprehensive (loss)	—		—			—		—			—			—			(47,749		)	(47,749		)
Stock option & other stock transactions, net	28,794		—			—		2			375			(46		)	—			331
Restricted stock awards, net	654,778		—			—		(14,630		)	6,562			8,078			—			10
Cash dividends declared ($0.07 per common share)	—		—			—		—			—			(15,693		)	—			(15,693		)
Cash dividends declared ($16.25 per preferred share)	—		(195		)	—		—			—			(1,999		)	—			(2,194		)
Reclassification of the stranded income tax effects from the enactment of the Tax Cuts and Jobs Act from accumulated other comprehensive (loss)	—		—			—		—			—			5,129			(5,129		)	—
Balance at March 31, 2018	225,466,266		139,025			2,299		3,766,280			(51,102		)	496,297			(79,044		)	4,273,755
Net income	—		—			—		—			—			114,241			—			114,241
Other comprehensive (loss)	—		—			—		—			—			—			(20,537		)	(20,537		)
Stock option & other stock transactions, net	7,500		—			—		2			91			(18		)	—			75
Restricted stock awards, net	(3,512	)	—			—		3,223			(258		)	168			—			3,133
Cash dividends declared ($0.07 per common share)	—		—			—		—			—			(15,739		)	—			(15,739		)
Cash dividends declared ($16.25 per preferred share)	—		(197		)	—		—			—			(1,996		)	—			(2,193		)
Balance at June 30, 2018	225,470,254		138,828			2,299		3,769,505			(51,269		)	592,953			(99,581		)	4,352,735
Net income	—		—			—		—			—			119,650			—			119,650
Other comprehensive (loss)	—		—			—		—			—			—			(19,094		)	(19,094		)
Stock option & other stock transactions, net	13,500		—			—		2			164			(10		)	—			156
Restricted stock awards, net	(37,665	)	—			—		3,657			(868		)	—			—			2,789
Cash dividends declared ($0.07 per common share)	—		—			—		—			—			(15,739		)	—			(15,739		)
Cash dividends declared ($16.25 per preferred share)	—		(201		)	—		—			—			(1,993		)	—			(2,194		)
Balance at September 30, 2018	225,446,089		$	138,627		$	2,299	$	3,773,164		$	(51,973	)	$	694,861		$	(118,675	)	$	4,438,303

See accompanying notes to consolidated financial statements.

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	126,319		$	98,958		$	332,763		$	126,319
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses	14,000			14,500			35,500			14,000
Net loss from write-downs and sales of other real estate owned	1,647			280
Net loss on extinguishment of debt (FHLB borrowings and Senior Notes)	—			9,729
Net (gain) loss from write-downs and sales of other real estate owned							(796		)	1,647
Depreciation of premises and equipment	6,639			6,282			15,214			6,639
Asset write-downs, retention and severance compensation and other restructuring charges	603			4,485			13,132			603
Amortization of intangible assets	6,582			9,535			17,782			6,582
Amortization of low income housing tax credits	414			390			3,732			414
Net loss (gain) on sale of securities	274			(7,624		)
Net loss on sale of securities							5,902			274
Net gain on loans held for sale	(952		)	(6,228		)	(25		)	(952		)
Net gain on sale of premises and equipment							(11,800		)	(1		)
Net amortization of premiums on securities	16,635			11,100			29,759			16,635
Amortization of premium on certificates of deposit							(4,850		)	—
Net accretion of purchase discount and amortization of net deferred loan costs	(10,515		)	(13,590		)	(85,129		)	(10,515		)
Net accretion of debt issuance costs and amortization of premium on borrowings	410			1,140			(1,081		)	410
Restricted stock compensation expense	5,456			4,615			9,299			5,456
Stock option compensation expense	146			345			5			146
Originations of loans held for sale	(5,159		)	(385,135		)	(52,919		)	(5,159		)
Proceeds from sales of loans held for sale	48,000			343,778			27,148			48,000
Increase in cash surrender value of bank owned life insurance	(4,442		)	(4,499		)	(11,591		)	(4,442		)
Deferred income tax (benefit) expense	(1,933		)	250
Deferred income tax expense (benefit)							45,589			(1,933		)
Other adjustments (principally net changes in other assets and other liabilities)	(16,761		)	(12,479		)	(79,631		)	(16,760		)
Net cash provided by operating activities	187,363			75,832			288,003			187,363
Cash flows from investing activities:
Purchases of securities:
Available for sale	(1,017,426		)	(546,353		)	(753,638		)	(1,017,426		)
Held to maturity	(619,649		)	(714,868		)	(140,976		)	(619,649		)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale	164,598			225,346			271,558			164,598
Held to maturity	64,158			52,040			135,327			64,158
Proceeds from sales of securities available for sale	15,247			858,531			117,810			15,247
Proceeds from sales of securities held to maturity							254			—
Portfolio loan originations, net	(900,269		)	(903,802		)	10,619			(900,269		)
Portfolio loans purchased	(94,912		)	(163,320		)	(37,668		)	(94,912		)
Proceeds from sale of loans held for investment	28,990			81,758			—			28,990
Purchases of FHLB and FRB stock, net	(56,178		)	9,088			(67,343		)	(56,178		)
Proceeds from sales of other real estate owned	5,182			3,416			16,786			5,182
Purchases of premises and equipment	(5,699		)	(2,229		)	(16,369		)	(5,699		)
Proceeds from BOLI death benefit and redemption from termination of bank owned life insurance	50			2,231
Proceeds from bank owned life insurance							2,950			50
Proceeds from sale of premises and equipment							35,261			—
Purchases of low income housing tax credits	(8,260		)	—			(3,655		)	(8,260		)
Cash paid for acquisition, net	—			(346,690		)	(484,385		)	—
Net cash (used in) investing activities	(2,424,168		)	(1,444,852		)	(913,469		)	(2,424,168		)

Table of Contents

STERLING BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)


	Nine months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2018			2017
Cash flows from financing activities:
Net increase in transaction, savings and money market deposits	$	992,573		$	1,565,798		$	786,541		$	992,573
Net (decrease) increase in certificates of deposit	(17,394		)	51,448
Net increase (decrease) in short-term FHLB borrowings	200,000			(86,000		)
Net increase (decrease) in certificates of deposit							136,162			(17,394		)
Net (decrease) increase in short-term FHLB borrowings							(555,000		)	200,000
Advances of term FHLB borrowings	1,975,000			700,000			2,975,000			1,975,000
Repayments of term FHLB borrowings	(950,000		)	(842,396		)	(2,500,000		)	(950,000		)
Repayment of Senior Notes	—			(23,793		)	(77,000		)	—
Net increase in other borrowings	171,761			4,625
Proceeds from issuance of Bank Subordinated Notes	—			171,813
Net increase in mortgage escrow funds	5,576			2,058
Net (decrease) increase in other borrowings							(7,274		)	171,761
Net (decrease) increase in mortgage escrow funds							(25,689		)	5,576
Proceeds from stock option exercises	1,193			3,703			556			1,193
Cash dividends paid	(28,347		)	(27,291		)
Cash dividends paid - common stock							(47,171		)	(28,347		)
Cash dividends paid - preferred stock							(6,581		)	—
Net cash provided by financing activities	2,350,362			1,519,965			679,544			2,350,362
Net increase in cash and cash equivalents	113,557			150,945
Net decrease in cash and cash equivalents							54,078			113,557
Cash and cash equivalents at beginning of period	293,646			229,513			479,906			293,646
Cash and cash equivalents at end of period	$	407,203		$	380,458		$	533,984		$	407,203
Supplemental cash flow information:
Interest payments	$	57,357		$	39,174		$	165,306		$	57,357
Income tax payments	67,625			25,880			23,445			67,625
Real estate acquired in settlement of loans	4,907			4,780			11,630			4,907
Unsettled securities transactions	30,594			—
Loans transferred from held for investment to held for sale	28,990			81,758			—			28,990

Acquisitions:
Non-cash assets acquired:
Total loans, net	$	—		$	320,447		$	442,884		$	—
Accrued interest receivable	—			1,443
Goodwill	—			25,698			36,094			—
Customer list	—			1,500
Premises and equipment, net	—			176			379			—
Other assets	—			2,265			7,071			—
Total non-cash assets acquired	—			351,529			486,428			—
Liabilities assumed:
Other liabilities	—			4,839			4,884			—
Total liabilities assumed	—			4,839			4,884			—

Net non-cash assets acquired	—			346,690			481,544			—
Cash and cash equivalents received in acquisitions	—			4,762			20,508			—
Total consideration paid	$	—		$	351,452		$	502,052		$	—

The Company completed the acquisition of NewStar Business Credit LLC (“NSBC”) on March 31, 2016, which is included in the acquisitions portion of the statement of cash flows for the nine months ended September 30, 2016. See Note 2. “Acquisitions” for additional information.

See accompanying notes to consolidated financial statements.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

(1) Basis of Financial Statement Presentation

(a) Nature of Operations

Sterling Bancorp (the “Company”) is a Delaware corporation, a bank holding company and a financial holding company headquartered in Montebello, New York that owns all of the outstanding shares of common stock of Sterling National Bank (the “Bank”), its principal subsidiary. The Bank is a full-service regional bank specializing 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.

(b) Basis of Presentation

The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of the Company and all other entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies the Company follows conform, in all material respects, to accounting principles generally accepted in the United States (“GAAP”) and to general practices within the banking industry, which include regulatory reporting instructions.

The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with GAAP and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, ~~2016,~~2017, included in our Annual Report on Form 10-K, as filed with the SEC on ~~February 27, 2017~~March 1, 2018 (the ~~“2016~~“2017 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period. Certain items in prior financial statements have been reclassified to conform to the current presentation. These reclassifications had no impact on previously reported net income.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, expense and contingencies at the date of the financial statements. Actual results could differ significantly from these estimates, particularly the allowance for loan losses and the status of contingencies, and are subject to change.

(d) ~~Merger with Astoria Financial Corporation~~

On October 2, 2017, the Company completed its merger with Astoria Financial Corporation (“Astoria”). Astoria merged with and into the Company. The Company was the accounting acquirer and the surviving entity. Astoria Bank, the principal subsidiary of Astoria, merged into the Bank. We refer to these transactions as the “Astoria Merger”. As the Astoria Merger was completed on October 2, 2017, Astoria’s balances or results of operations are not included in this Quarterly Report on Form 10-Q. See Note 20. “Merger with Astoria Financial Corporation”.

~~(e)~~ Adoption of New Accounting ~~Standard~~Standards

~~Effective January 1, 2017, the~~The Company adopted the ~~provisions~~following new accounting standards effective January 1, 2018:

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (the “New Revenue Standard”), (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of non-financial assets, such as other real estate owned (“OREO”). The Company adopted the New Revenue Standard using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts continue to be reported in accordance with legacy GAAP. The adoption of the New Revenue Standard did not result in a significant change to the accounting for any in-scope revenue streams. As such, no cumulative effect adjustment was recorded. The majority of the Company’s revenues come from interest income and other sources, including loans and securities, that are outside the scope of the New Revenue Standard. The Company’s services that fall within the scope of the New Revenue Standard are primarily included within non-interest income in the consolidated income statements and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of the New Revenue Standard include deposit fees and services charges, accounts receivable management / factoring commissions and other fees, investment management fees and the sale of OREO, which is included within OREO, net expense. See Note 13. “Non-Interest Income and Other Non-Interest Expense” for further discussion on the Company’s accounting policies for revenue sources within the scope of the New Revenue Standard.

Accounting ~~Standard~~Standards Update (“ASU”) ~~2016-09, “Compensation~~No. 2016-01, Financial Instruments - ~~Stock Compensation (Topic 718)~~Overall (Subtopic 825-10): ~~Improvements to Employee Share-Based Payment Accounting.” This standard requires that all income tax effects related to settlements~~Recognition of ~~stock-based compensation awards be reported in earnings as an increase or decrease to income tax expense. The adoption of this standard reduced reported income tax expense by~~Financial Assets and Financial Liabilities ~~$64~~(the “New Fair Value Standard”), in the third quarter of 2017, and $806 in the nine months ended September 30, 2017. The Company also elected to recognize forfeitures of stock-based compensation awards as they occur, which did not have a material impactmakes targeted amendments to the ~~consolidated~~guidance for recognition, measurement, presentation and disclosure of financial ~~statements.~~instruments. The New Fair Value Standard requires equity investments to be measured at fair value with changes in fair value recognized in net income; however, the Company owned no assets subject to this

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Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

portion of the New Fair Value Standard. The New Fair Value Standard also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. As a result of the adoption of the New Fair Value Standard, the Company modified its calculation used to estimate the fair value of portfolio loans. See Note 17. “Fair Value Measurements” for further discussion of the Company’s methodology. The New Fair Value Standard had no impact to the consolidated balance sheets or income statements.

ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the “New Retirement Standard”), requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are presented as a component of other non-interest expense. The adoption of this standard resulted in the reclassification of $328 from compensation and benefits to other non-interest expense for the nine months ended September 30, 2017.

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (the “AOCI Standard”), allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for the stranded tax effects caused by the revaluation of estimated deferred taxes resulting from the enactment of the Tax Cuts and Jobs Act of 2017. As a result of the adoption of the AOCI Standard the Company reduced AOCI and increased retained earnings by $5,129 in the nine months ended September 30, 2018 related to unrealized losses on securities available for sale, securities transferred to held to maturity and a net actuarial loss on defined benefit retirement plans. As a result of the adoption of the AOCI standard, the Company will release such income tax effects only when the entire portfolio to which the underlying items are liquidated, sold or extinguished. The adoption of the AOCI Standard did not impact total stockholders’ equity or the consolidated income statements for any period.

(2) Acquisitions

~~Restaurant Franchise Financing Loan Portfolio~~

Advantage Funding Management Co., Inc. (“Advantage Funding”)

On September 9, 2016, the Bank acquired a restaurant franchise financing loan portfolio from GE Capital with an unpaid principal balance of $169,760. Total cash paid for the portfolio was $163,282, which included a discount to the balance of gross loans receivable of 4.00%, or $6,790, plus accrued interest receivable. As the acquired assets did not constitute a business, the transaction was accounted for as an asset purchase. These loans are classified as traditional commercial and industrial loans in our financial statements. See Note 4. “Portfolio Loans” for additional information.

~~NSBC Acquisition~~

~~On March 31, 2016,~~April 2, 2018, the Bank acquired 100% of the outstanding ~~equity interests~~common stock of ~~NSBC~~Advantage Funding (the ~~“NSBC~~“Advantage Funding Acquisition”). ~~NSBC~~The total consideration in the transaction was $502,052 and was paid in cash on the closing date. Advantage Funding is a provider of ~~asset-based lending solutions to middle market~~ commercial ~~clients. NSBC’s~~vehicle and transportation financing services based in Lake Success, NY. Advantage Funding had total outstanding loans ~~had a fair value~~and leases of ~~$320,447~~$457,638 on the acquisition date ~~and consisted~~consisting mainly of ~~100% floating-rate~~fixed rate assets. The fair value of these loans was $442,844. The Bank paid a premium on the ~~balance of~~ gross loans and leases receivable ~~acquired~~ of ~~5.90%,~~4.5% or $18,906. The Bank assumed $4,839 of liabilities, which consisted mainly of cash collateral on loans outstanding. The Bank recognized a customer list intangible asset of $1,500 that is being amortized over its 24-month estimated life and $25,698 of goodwill. The Bank$20,300. In the nine months ended September 30, 2018, we recorded a ~~$1,500~~$4,396 restructuring charge ~~in the first quarter of 2016~~ consisting mainly of professional fees, retention and severance compensation, ~~IT contract terminations~~systems integration expense and ~~professional fees.~~facilities consolidation. This charge is included in charge for asset write-downs, retention and severance on the consolidated income statement. The Advantage Funding Acquisition is consistent with our strategy of growing commercial loans and increasing the proportion of commercial loans in our loan portfolio. The operations of the business will be fully integrated into our equipment finance business line.

Astoria Merger

On October 2, 2017, Astoria Financial Corporation (“Astoria”) merged with and into the Company (the “Astoria Merger”). Under the terms of the Astoria Merger agreement, Astoria shareholders received 0.875 shares of the Company’s common stock for each share of Astoria common stock, which resulted in the issuance of 88,829,776 shares of the Company’s common stock. Based on the Company’s closing stock price per share of $24.65 on September 29, 2017, the aggregate consideration was $2,189,687, which included cash in lieu of fractional shares. Consistent with the Company’s strategy, the primary reason for the Astoria Merger was the expansion of the Company’s geographic footprint in the Greater New York metropolitan region, including Long Island.

The assets acquired and liabilities assumed were accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of October 2, 2017 based on management’s best estimate using the information available as of the Astoria Merger date. The Astoria Merger resulted in the recognition of loans of $9,209,398, deposits of $9,044,061 and goodwill of $883,291.

Accounting guidance identifies the measurement period for the Astoria Merger as the period that is required to identify and measure the fair value of the identifiable assets acquired and the liabilities assumed. The measurement period ends when the Company has all of the information that the Company arranged to obtain and that is known to be obtainable. The measurement period ended October 2, 2018. During the third quarter of 2018 the Company completed the final tax returns related to Astoria’s business and operations



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

through October 1, 2017. After completion of these tax returns, the Company reduced income tax balances and goodwill by $6,214, which finalized all purchase accounting adjustments for the Astoria Merger.

(3) Securities

A summary of amortized cost and estimated fair value of securities as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 is presented below. The term “MBS” refers to mortgage-backed securities and the term “CMOs” refers to collateralized mortgage obligations. Both of these terms are further defined in Note 17. “Fair Value Measurements”.


	September 30, 2017																		September 30, 2018
	Available for Sale									Held to Maturity									Available for Sale									Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrecognized gains		Gross unrecognized losses			Fair value		Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrecognized gains		Gross unrecognized losses			Fair value
Residential MBS:
Agency-backed	$	1,879,874	$	3,392	$	(13,299	)	$	1,869,967	$	273,727	$	1,767	$	(1,820	)	$	273,674	$	2,303,793	$	2	$	(96,604	)	$	2,207,191	$	326,950	$	33	$	(13,656	)	$	313,327
CMOs/Other MBS	66,863		39		(851		)	66,051		35,223		55		(466		)	34,812		603,692		2		(27,642		)	576,052		29,015		—		(1,328		)	27,687
Total residential MBS	1,946,737		3,431		(14,150		)	1,936,018		308,950		1,822		(2,286		)	308,486		2,907,485		4		(124,246		)	2,783,243		355,965		33		(14,984		)	341,014
Other securities:
Federal agencies	233,097		—		(7,340		)	225,757		58,531		1,557		—			60,088		338,764		—		(21,031		)	317,733		58,960		—		(440		)	58,520
Corporate	119,211		1,523		(690		)	120,044		35,000		966		—			35,966		512,221		408		(9,303		)	503,326		68,563		391		(1,045		)	67,909
State and municipal	296,799		1,994		(1,536		)	297,257		1,518,343		8,751		(14,754		)	1,512,340		244,267		135		(5,460		)	238,942		2,340,990		1,350		(81,727		)	2,260,613
Other	—		—		—			—		15,750		125		—			15,875		—		—		—			—		18,250		29		(255		)	18,024
Total other securities	649,107		3,517		(9,566		)	643,058		1,627,624		11,399		(14,754		)	1,624,269		1,095,252		543		(35,794		)	1,060,001		2,486,763		1,770		(83,467		)	2,405,066
Total securities	$	2,595,844	$	6,948	$	(23,716	)	$	2,579,076	$	1,936,574	$	13,221	$	(17,040	)	$	1,932,755	$	4,002,737	$	547	$	(160,040	)	$	3,843,244	$	2,842,728	$	1,803	$	(98,451	)	$	2,746,080



	December 31, 2017
	Available for Sale									Held to Maturity
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value		Amortized cost		Gross unrecognized gains		Gross unrecognized losses			Fair value
Residential MBS:
Agency-backed	$	2,171,044	$	1,570	$	(21,965	)	$	2,150,649	$	355,013	$	978	$	(2,504	)	$	353,487
CMOs/Other MBS	656,514		31		(7,142		)	649,403		33,496		26		(760		)	32,762
Total residential MBS	2,827,558		1,601		(29,107		)	2,800,052		388,509		1,004		(3,264		)	386,249
Other securities:
Federal agencies	409,322		—		(9,326		)	399,996		58,640		949		—			59,589
Corporate	147,781		1,421		(976		)	148,226		56,663		1,255		(103		)	57,815
State and municipal	264,310		1,380		(1,892		)	263,798		2,342,927		12,396		(10,900		)	2,344,423
Other	—		—		—			—		15,750		83		—			15,833
Total other securities	821,413		2,801		(12,194		)	812,020		2,473,980		14,683		(11,003		)	2,477,660
Total securities	$	3,648,971	$	4,402	$	(41,301	)	$	3,612,072	$	2,862,489	$	15,687	$	(14,267	)	$	2,863,909

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Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

December 31, 2016
Available for Sale Held to Maturity

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
losses

Fair
value

Amortized
cost

Gross
unrecognized
gains

Gross
unrecognized
losses

Fair
value
Residential MBS:
Agency-backed $ 1,213,733
$ 569
$ (20,821 ) $ 1,193,481
$ 277,539
$ 1,353
$ (3,625 ) $ 275,267
CMOs/Other MBS 57,563
44
(926 ) 56,681
40,594
74
(572 ) 40,096
Total residential MBS 1,271,296
613
(21,747 ) 1,250,162
318,133
1,427
(4,197 ) 315,363
Other securities:

Federal agencies 204,770
2
(10,793 ) 193,979
58,200
1,392
—
59,592
Corporate 43,464
150
(1,108 ) 42,506
35,048
431
(11 ) 35,468
State and municipal 245,304
739
(5,273 ) 240,770
974,290
3,571
(36,232 ) 941,629
Other —
—
—
—
5,750
195
—
5,945
Total other securities 493,538
891
(17,174 ) 477,255
1,073,288
5,589
(36,243 ) 1,042,634
Total securities $ 1,764,834
$ 1,504
$ (38,921 ) $ 1,727,417
$ 1,391,421
$ 7,016
$ (40,440 ) $ 1,357,997

The amortized cost and estimated fair value of securities at September 30, ~~2017~~2018 are presented below by contractual maturity. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Residential MBS are shown separately since they are not due at a single maturity date.


	September 30, 2017								September 30, 2018
	Available for sale				Held to maturity				Available for sale				Held to maturity
	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value
Remaining period to contractual maturity:
One year or less	$	15,768	$	15,798	$	58,985	$	59,078	$	22,244	$	22,260	$	92,954	$	92,982
One to five years	150,116		150,284		74,591		76,114		207,237		204,204		115,470		114,545
Five to ten years	314,574		310,946		248,328		252,765		759,223		732,965		476,895		467,936
Greater than ten years	168,649		166,030		1,245,720		1,236,312		106,548		100,572		1,801,444		1,729,603
Total securities with a stated maturity date	649,107		643,058		1,627,624		1,624,269		1,095,252		1,060,001		2,486,763		2,405,066
Residential MBS	1,946,737		1,936,018		308,950		308,486		2,907,485		2,783,243		355,965		341,014
Total securities	$	2,595,844	$	2,579,076	$	1,936,574	$	1,932,755	$	4,002,737	$	3,843,244	$	2,842,728	$	2,746,080

Sales of securities for the periods indicated below were as follows:


	For the three months ended						For the nine months ended						For the three months ended						For the nine months ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Available for sale:
Proceeds from sales	$	5,015		$	300,047		$	15,247		$	858,531		$	—		$	5,015		$	117,810		$	15,247
Gross realized gains(1)	1			4,272			7			10,667			—			1			82			7
Gross realized losses(1)	(22		)	(839		)	(281		)	(3,043		)	(3		)	(22		)	(5,910		)	(281		)
Income tax (benefit) expense on realized net (losses) gains	(7		)	1,141			(89		)	2,535
Income tax benefit on realized net losses													(1		)	(7		)	(1,224		)	(89		)
Held to maturity: ⁽²⁾
Proceeds from sale													$	—		$	—		$	254		$	—
Gross realized loss ⁽¹⁾													(53		)	—			(74		)	—
Income tax expense on realized loss													(11		)	—			(15		)	—

⁽¹⁾Gross realized gains and losses includes securities called prior to maturity.

⁽²⁾In the nine months ended September 30, 2018, the Company sold a security that was held to maturity due to a decline in the credit rating and other evidence of deterioration of the issuer’s creditworthiness.

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders’ equity, other than the U.S. federal government and its agencies.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following table summarizes securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position for the periods presented below:


	Continuous unrealized loss position															Continuous unrealized loss position
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
Available for sale
September 30, 2017
Residential MBS:
Agency-backed	$	1,102,564	$	(7,583	)	$	195,399	$	(5,716	)	$	1,297,963	$	(13,299	)
CMOs/Other MBS	38,979		(298		)	20,935		(553		)	59,914		(851		)
Total residential MBS	1,141,543		(7,881		)	216,334		(6,269		)	1,357,877		(14,150		)
Other securities:
Federal agencies	96,258		(1,443		)	129,498		(5,897		)	225,756		(7,340		)
Corporate	47,691		(115		)	15,288		(575		)	62,979		(690		)
State and municipal	43,670		(177		)	58,042		(1,359		)	101,712		(1,536		)
Total other securities	187,619		(1,735		)	202,828		(7,831		)	390,447		(9,566		)
Total	$	1,329,162	$	(9,616	)	$	419,162	$	(14,100	)	$	1,748,324	$	(23,716	)
December 31, 2016
September 30, 2018
Residential MBS:
Agency-backed	$	1,101,641	$	(20,816	)	$	686	$	(5	)	$	1,102,327	$	(20,821	)	$	1,110,789	$	(38,095	)	$	1,095,722	$	(58,509	)	$	2,206,511	$	(96,604	)
CMOs/Other MBS	38,841		(506		)	15,239		(420		)	54,080		(926		)	543,311		(26,005		)	32,546		(1,637		)	575,857		(27,642		)
Total residential MBS	1,140,482		(21,322		)	15,925		(425		)	1,156,407		(21,747		)	1,654,100		(64,100		)	1,128,268		(60,146		)	2,782,368		(124,246		)
Other securities:
Federal agencies	185,504		(10,793		)	4		—			185,508		(10,793		)	204,358		(11,154		)	113,375		(9,877		)	317,733		(21,031		)
Corporate	10,399		(137		)	14,942		(971		)	25,341		(1,108		)	355,696		(6,520		)	55,695		(2,783		)	411,391		(9,303		)
State and municipal	173,062		(5,196		)	3,733		(77		)	176,795		(5,273		)	144,619		(2,703		)	77,621		(2,757		)	222,240		(5,460		)
Total other securities	368,965		(16,126		)	18,679		(1,048		)	387,644		(17,174		)	704,673		(20,377		)	246,691		(15,417		)	951,364		(35,794		)
Total securities	$	1,509,447	$	(37,448	)	$	34,604	$	(1,473	)	$	1,544,051	$	(38,921	)	$	2,358,773	$	(84,477	)	$	1,374,959	$	(75,563	)	$	3,733,732	$	(160,040	)
December 31, 2017
Residential MBS:
Agency-backed																$	1,349,217	$	(10,550	)	$	486,948	$	(11,415	)	$	1,836,165	$	(21,965	)
CMOs/Other MBS																605,200		(6,064		)	36,107		(1,078		)	641,307		(7,142		)
Total residential MBS																1,954,417		(16,614		)	523,055		(12,493		)	2,477,472		(29,107		)
Other securities:
Federal agencies																243,476		(1,955		)	156,520		(7,371		)	399,996		(9,326		)
Corporate																65,056		(397		)	15,268		(579		)	80,324		(976		)
State and municipal																97,307		(757		)	56,324		(1,135		)	153,631		(1,892		)
Total other securities																405,839		(3,109		)	228,112		(9,085		)	633,951		(12,194		)
Total securities																$	2,360,256	$	(19,723	)	$	751,167	$	(21,578	)	$	3,111,423	$	(41,301	)

1214



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following table summarizes securities held to maturity with unrecognized losses, segregated by the length of time in a continuous unrecognized loss position for the periods presented below:


	Continuous unrecognized loss position															Continuous unrecognized loss position
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Fair value		Unrecognized losses			Fair value		Unrecognized losses			Fair value		Unrecognized losses			Fair value		Unrecognized losses			Fair value		Unrecognized losses			Fair value		Unrecognized losses
Held to maturity
September 30, 2017
September 30, 2018
Residential MBS:
Agency-backed	$	118,898	$	(1,428	)	$	11,570	$	(392	)	$	130,468	$	(1,820	)	$	200,871	$	(7,022	)	$	110,986	$	(6,634	)	$	311,857	$	(13,656	)
CMOs/Other MBS	18,704		(209		)	11,740		(257		)	30,444		(466		)	3,333		(69		)	24,354		(1,259		)	27,687		(1,328		)
Total residential MBS	137,602		(1,637		)	23,310		(649		)	160,912		(2,286		)	204,204		(7,091		)	135,340		(7,893		)	339,544		(14,984		)
Other securities:
Federal agencies																58,520		(440		)	—		—			58,520		(440		)
Corporate																47,519		(1,045		)	—		—			47,519		(1,045		)
State and municipal	594,870		(5,005		)	415,640		(9,749		)	1,010,510		(14,754		)	1,482,745		(51,225		)	637,296		(30,502		)	2,120,041		(81,727		)
Other																10,745		(255		)	—		—			10,745		(255		)
Total other securities	594,870		(5,005		)	415,640		(9,749		)	1,010,510		(14,754		)	1,599,529		(52,965		)	637,296		(30,502		)	2,236,825		(83,467		)
Total	$	732,472	$	(6,642	)	$	438,950	$	(10,398	)	$	1,171,422	$	(17,040	)
December 31, 2016
Total securities																$	1,803,733	$	(60,056	)	$	772,636	$	(38,395	)	$	2,576,369	$	(98,451	)
December 31, 2017
Residential MBS:
Agency-backed	$	185,116	$	(3,623	)	$	213	$	(2	)	$	185,329	$	(3,625	)	$	136,679	$	(572	)	$	74,303	$	(1,932	)	$	210,982	$	(2,504	)
CMOs/Other MBS	34,786		(572		)	—		—			34,786		(572		)	10,314		(129		)	20,160		(631		)	30,474		(760		)
Total residential MBS	219,902		(4,195		)	213		(2		)	220,115		(4,197		)	146,993		(701		)	94,463		(2,563		)	241,456		(3,264		)
Other securities:
Corporate	—		—			5,037		(11		)	5,037		(11		)	16,560		(103		)	—		—			16,560		(103		)
State and municipal	758,690		(36,169		)	2,816		(63		)	761,506		(36,232		)	860,536		(5,310		)	393,200		(5,590		)	1,253,736		(10,900		)
Total other securities	758,690		(36,169		)	7,853		(74		)	766,543		(36,243		)	877,096		(5,413		)	393,200		(5,590		)	1,270,296		(11,003		)
Total securities	$	978,592	$	(40,364	)	$	8,066	$	(76	)	$	986,658	$	(40,440	)	$	1,024,089	$	(6,114	)	$	487,663	$	(8,153	)	$	1,511,752	$	(14,267	)

At September 30, ~~2017,~~2018, a total of ~~198~~372 available for sale securities were in a continuous unrealized loss position for less than 12 months and 93237 available for sale securities were in a continuous unrealized loss position for 12 months or longer. At September 30, 2018, a total of 575 held to maturity securities were in a continuous unrealized loss position for less than 12 months and 206 held to maturity securities were in a continuous unrealized loss position for 12 months or longer. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other than temporary impairment (“OTTI”) losses, management considers, among other ~~things,~~things: (i) the length of time and the extent to which the fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

Management has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Company anticipates it will receive full value for the securities. Furthermore, as of September 30, ~~2017,~~2018, management did not have the intent to sell any of the securities classified as available for sale in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons related to credit quality. As of September 30, ~~2017,~~2018, management believes the impairments detailed in the table above are temporary.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

Securities pledged for borrowings at the FHLB and other institutions, and securities pledged for municipal deposits and other purposes, were as follows for the periods presented below:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2018		2017
Available for sale securities pledged for borrowings, at fair value	$	898,414	$	67,599	$	19,743	$	10,225
Available for sale securities pledged for municipal deposits, at fair value	318,428		398,961		651,439		323,341
Available for sale securities pledged for customer back-to-back swaps, at fair value	—		126
Held to maturity securities pledged for borrowings, at amortized cost	195,340		55,343		39,443		35,047
Held to maturity securities pledged for municipal deposits, at amortized cost	1,359,827		958,246		1,686,889		1,182,674
Total securities pledged	$	2,772,009	$	1,480,275	$	2,397,514	$	1,551,287

(4) Portfolio Loans

The composition of the Company’s loan portfolio, excluding loans held for sale, was the following for the periods presented below:

September 30, December 31,
2017 2016
Commercial:
Commercial and industrial (“C&I”):
       Traditional C&I $ 1,726,018
$ 1,404,774
Asset-based lending 794,632
741,942
Payroll finance 251,003
255,549
Warehouse lending 669,860
616,946
Factored receivables 236,051
214,242
Equipment financing 679,127
589,315
Public sector finance 484,973
349,182
Total C&I 4,841,664
4,171,950
Commercial mortgage:
       Commercial real estate 3,453,151
3,162,942
Multi-family 1,020,094
981,076
       Acquisition, development & construction (“ADC”) 236,456
230,086
Total commercial mortgage 4,709,701
4,374,104
Total commercial 9,551,365
8,546,054
Residential mortgage 684,093
697,108
Consumer 258,077
284,068
Total portfolio loans 10,493,535
9,527,230
Allowance for loan losses (72,128 ) (63,622 )
Total portfolio loans, net $ 10,421,407
$ 9,463,608

~~Total portfolio loans include net deferred loan origination fees of $3,742 and $1,788 at September 30, 2017 and December 31, 2016, respectively.~~

At September 30, 2017 and December 31, 2016, the Company pledged residential mortgage and commercial real estate loans of $2,607,655 and $2,050,982, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 8. “Borrowings”.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

~~The following tables set forth the amounts and status of the Company’s loans, troubled debt restructurings (“TDRs”) and non-performing loans at September 30, 2017 and December 31, 2016:~~

September 30, 2017
Current
30-59
days
past due

60-89
days
past due

90+
days
past due

Non-
accrual
Total
Traditional C&I $ 1,695,373
$ 2,694
$ 2,312
$ 230
$ 25,409
$ 1,726,018
Asset-based lending 794,632
—
—
—
—
794,632
Payroll finance 250,999
—
—
—
4
251,003
Warehouse lending 669,860
—
—
—
—
669,860
Factored receivables 236,051
—
—
—
—
236,051
Equipment financing 670,455
4,400
432
—
3,840
679,127
Public sector finance 484,973
—
—
—
—
484,973
Commercial real estate 3,426,670
4,352
1,177
78
20,874
3,453,151
Multi-family 1,020,039
—
—
—
55
1,020,094
ADC 234,628
—
—
—
1,828
236,456
Residential mortgage 671,083
1,956
978
84
9,992
684,093
Consumer 247,829
2,202
988
—
7,058
258,077
Total portfolio loans $ 10,402,592
$ 15,604
$ 5,887
$ 392
$ 69,060
$ 10,493,535
Total TDRs included above $ 16,212
$ 1,879
$ 527
$ —
$ 27,967
$ 46,585
Non-performing loans:
Loans 90+ days past due and still accruing $ 392

Non-accrual loans 69,060

Total non-performing loans $ 69,452



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~


	December 31, 2016												September 30,			December 31,
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total		2018			2017
Commercial:
Commercial and industrial (“C&I”):
Traditional C&I	$	1,376,181	$	835	$	817	$	555	$	26,386	$	1,404,774	$	2,037,556		$	1,979,448
Asset-based lending	741,942		—		—		—		—		741,942		868,047			797,570
Payroll finance	254,715		—		14		621		199		255,549		235,734			268,609
Warehouse lending	616,946		—		—		—		—		616,946		864,063			723,335
Factored receivables	213,624		—		—		—		618		214,242		270,002			220,551
Equipment financing	583,835		2,142		1,092		—		2,246		589,315		1,161,435			679,541
Public sector finance	349,182		—		—		—		—		349,182		807,193			637,767
Total C&I													6,244,030			5,306,821
Commercial mortgage:
Commercial real estate	3,140,561		967		—		406		21,008		3,162,942		4,457,485			4,138,864
Multi-family	981,005		—		—		—		71		981,076		4,827,172			4,859,555
ADC	224,817		—		—		—		5,269		230,086
Acquisition, development & construction (“ADC”)													265,676			282,792
Total commercial mortgage													9,550,333			9,281,211
Total commercial													15,794,363			14,588,032
Residential mortgage	675,750		5,509		951		108		14,790		697,108		4,421,520			5,054,732
Consumer	274,719		2,423		350		—		6,576		284,068		317,331			366,219
Total portfolio loans	$	9,433,277	$	11,876	$	3,224	$	1,690	$	77,163	$	9,527,230	20,533,214			20,008,983
Total TDRs included above	$	11,032	$	253	$	—	$	—	$	1,989	$	13,274
Non-performing loans:
Loans 90+ days past due and still accruing									$	1,690
Non-accrual loans									77,163
Total non-performing loans									$	78,853
Allowance for loan losses													(91,365		)	(77,907		)
Total portfolio loans, net													$	20,441,849		$	19,931,076



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

Total portfolio loans include net deferred loan origination fees of $5,892 and $4,813 at September 30, 2018 and December 31, 2017, respectively.

At September 30, 2018 and December 31, 2017, the Company pledged residential mortgage and commercial real estate loans of $8,548,416 and $9,123,601, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 8. “Borrowings”.

The following tables set forth the amounts and status of the Company’s loans, troubled debt restructurings (“TDRs”) and non-performing loans at September 30, 2018 and December 31, 2017:



	September 30, 2018
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	1,987,436	$	5,634	$	479	$	2,546	$	41,461	$	2,037,556
Asset-based lending	860,329		—		—		—		7,718		868,047
Payroll finance	234,749		—		756		—		229		235,734
Warehouse lending	864,063		—		—		—		—		864,063
Factored receivables	270,002		—		—		—		—		270,002
Equipment financing	1,135,922		11,835		3,714		—		9,964		1,161,435
Public sector finance	807,193		—		—		—		—		807,193
Commercial real estate	4,422,756		329		2,856		4,400		27,144		4,457,485
Multi-family	4,822,883		19		569		—		3,701		4,827,172
ADC	265,676		—		—		—		—		265,676
Residential mortgage	4,330,083		12,217		6,116		266		72,838		4,421,520
Consumer	296,816		4,213		1,347		134		14,821		317,331
Total portfolio loans	$	20,297,908	$	34,247	$	15,837	$	7,346	$	177,876	$	20,533,214
Total TDRs included above	$	39,393	$	57	$	367	$	418	$	37,112	$	77,347
Non-performing loans:
Loans 90+ days past due and still accruing									$	7,346
Non-accrual loans									177,876
Total non-performing loans									$	185,222



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)



	December 31, 2017
	Current		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	1,940,387	$	1,232	$	187	$	—	$	37,642	$	1,979,448
Asset-based lending	797,570		—		—		—		—		797,570
Payroll finance	268,609		—		—		—		—		268,609
Warehouse lending	723,335		—		—		—		—		723,335
Factored receivables	220,551		—		—		—		—		220,551
Equipment financing	667,083		1,143		3,216		—		8,099		679,541
Public sector finance	637,767		—		—		—		—		637,767
Commercial real estate	4,104,173		8,403		4,131		437		21,720		4,138,864
Multi-family	4,853,677		595		834		—		4,449		4,859,555
ADC	278,587		—		—		—		4,205		282,792
Residential mortgage	4,925,996		22,416		6,038		324		99,958		5,054,732
Consumer	350,502		4,364		974		95		10,284		366,219
Total portfolio loans	$	19,768,237	$	38,153	$	15,380	$	856	$	186,357	$	20,008,983
Total TDRs included above	$	13,175	$	389	$	—	$	—	$	29,325	$	42,889
Non-performing loans:
Loans 90+ days past due and still accruing									$	856
Non-accrual loans									186,357
Total non-performing loans									$	187,213

The following table provides additional analysis of the Company’s non-accrual loans at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017								December 31, 2016								September 30, 2018				December 31, 2017
	Recorded investment non-accrual loans		Recorded investment PCI⁽¹⁾ non-accrual loans		Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans		Recorded investment non-accrual loans		Recorded investment PCI⁽¹⁾ non-accrual loans		Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans		Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans		Recorded investment total non-accrual loans		Unpaid principal balance non-accrual loans
Traditional C&I	$	21,386	$	4,023	$	25,409	$	25,752	$	22,338	$	4,048	$	26,386	$	26,386	$	41,461	$	49,199	$	37,642	$	37,853
Asset-based lending																	7,718		7,718		—		—
Payroll finance	4		—		4		—		199		—		199		199		229		229		—		—
Factored receivables	—		—		—		—		618		—		618		618
Equipment financing	—		—		3,840		3,840		2,246		—		2,246		2,246		9,964		13,203		8,099		8,099
Commercial real estate	17,657		3,217		20,874		25,290		15,063		5,945		21,008		25,619		27,144		32,214		21,720		25,739
Multi-family	55		—		55		63		71		—		71		71		3,701		3,959		4,449		4,705
ADC	1,828		—		1,828		2,024		5,269		—		5,269		5,398		—		—		4,205		4,205
Residential mortgage	9,636		356		9,992		12,619		13,399		1,391		14,790		18,190		72,838		84,315		99,958		113,002
Consumer	6,337		721		7,058		8,649		5,719		857		6,576		7,865		14,821		16,966		10,284		12,096
Total	$	56,903	$	8,317	$	69,060	$	78,237	$	64,922	$	12,241	$	77,163	$	86,592	$	177,876	$	207,803	$	186,357	$	205,699

There were no non-accrual ADC, warehouse lending, factored receivables or public sector finance loans at September 30, 2018. There were no non-accrual asset-based lending, payroll finance, warehouse lending, factored receivables or public sector finance loans at December 31, 2017.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method.

At September 30, 2018 and December 31, 2017, the recorded investment of residential mortgage loans that were in the process of foreclosure was $52,087 and $76,712, respectively, which is included in non-accrual residential mortgage loans above.

The following table sets forth loans evaluated for impairment by segment and the allowance evaluated by segment at September 30, 2018:



	Loans evaluated by segment								Allowance evaluated by segment
	Individually evaluated for impairment		Collectively evaluated for impairment		PCI loans⁽¹⁾		Total loans		Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance for loan losses
Traditional C&I	$	40,909	$	1,987,707	$	8,940	$	2,037,556	$	—	$	14,716	$	14,716
Asset-based lending	18,573		849,474		—		868,047		—		6,828		6,828
Payroll finance	—		235,734		—		235,734		—		2,183		2,183
Warehouse lending	—		864,063		—		864,063		—		2,685		2,685
Factored receivables	—		270,002		—		270,002		—		1,508		1,508
Equipment financing	2,394		1,159,041		—		1,161,435		—		11,153		11,153
Public sector finance	—		807,193		—		807,193		—		1,444		1,444
Commercial real estate	37,739		4,390,799		28,947		4,457,485		—		31,468		31,468
Multi-family	1,688		4,814,697		10,787		4,827,172		��		7,682		7,682
ADC	—		265,676		—		265,676		—		1,876		1,876
Residential mortgage	2,332		4,322,621		96,567		4,421,520		—		6,800		6,800
Consumer	8,050		300,518		8,763		317,331		—		3,022		3,022
Total portfolio loans	$	111,685	$	20,267,525	$	154,004	$	20,533,214	$	—	$	91,365	$	91,365

⁽¹⁾The Company acquired loans for which there was, at acquisition, both evidence of deterioration of credit quality since origination and the probability, at acquisition, that all contractually required payments would not be collected. These loans are classified as purchased credit impaired loans (“PCI loans”).

~~There were no non-accrual asset-based lending, warehouse lending or public sector finance loans at September 30, 2017 or December 31, 2016.~~

When the ultimate collectibility of the total principal of an impaired loan is in doubt and the loan is on non-accrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectibility of the total principal of an impaired loan is not in doubt and the loan is on non-accrual status, contractual interest is credited to interest income when received, under the cash basis method.

At September 30, 2017 and December 31, 2016, the recorded investment of residential mortgage loans that was in the process of foreclosure was $6,780 and $9,263, respectively, which is included in non-accrual residential mortgage loans above.

1719



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following table sets forth loans evaluated for impairment by segment and the allowance evaluated by segment at ~~September 30,~~December 31, 2017:

Loans evaluated by segment Allowance evaluated by segment

Individually
evaluated for
impairment

Collectively
evaluated for
impairment
PCI loans
Total
loans

Individually
evaluated for
impairment

Collectively
evaluated for
impairment
Total allowance for loan losses
Traditional C&I $ 24,509
$ 1,689,063
$ 12,446
$ 1,726,018
$ —
$ 17,200
$ 17,200
Asset-based lending —
792,382
2,250
794,632
—
4,776
4,776
Payroll finance —
251,003
—
251,003
—
2,191
2,191
Warehouse lending —
669,860
—
669,860
—
3,734
3,734
Factored receivables —
236,051
—
236,051
—
1,273
1,273
Equipment financing 5,789
673,338
—
679,127
—
4,461
4,461
Public sector finance —
484,973
—
484,973
—
1,352
1,352
Commercial real estate 14,719
3,400,311
38,121
3,453,151
—
23,203
23,203
Multi-family —
1,015,858
4,236
1,020,094
—
4,054
4,054
ADC 5,584
230,611
261
236,456
—
1,314
1,314
Residential mortgage 1,605
681,389
1,099
684,093
—
5,054
5,054
Consumer 3,216
253,421
1,440
258,077
—
3,516
3,516
Total portfolio loans $ 55,422
$ 10,378,260
$ 59,853
$ 10,493,535
$ —
$ 72,128
$ 72,128

~~The following table sets forth loans evaluated for impairment by segment and the allowance evaluated by segment at December 31, 2016:~~


	Loans evaluated by segment								Allowance evaluated by segment						Loans evaluated by segment								Allowance evaluated by segment
	Individually evaluated for impairment		Collectively evaluated for impairment		PCI loans		Total loans		Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance for loan losses		Individually evaluated for impairment		Collectively evaluated for impairment		PCI loans		Total loans		Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance for loan losses
Traditional C&I	$	25,221	$	1,365,466	$	14,087	$	1,404,774	$	—	$	12,864	$	12,864	$	35,921	$	1,933,155	$	10,372	$	1,979,448	$	—	$	19,072	$	19,072
Asset-based lending	—		724,247		17,695		741,942		—		3,316		3,316		—		797,570		—		797,570		—		6,625		6,625
Payroll finance	570		254,979		—		255,549		—		951		951		—		268,609		—		268,609		—		1,565		1,565
Warehouse lending	—		616,946		—		616,946		—		1,563		1,563		—		723,335		—		723,335		—		3,705		3,705
Factored receivables	—		214,242		—		214,242		—		1,669		1,669		—		220,551		—		220,551		—		1,395		1,395
Equipment financing	1,413		587,902		—		589,315		—		5,039		5,039		5,341		674,200		—		679,541		—		4,862		4,862
Public sector finance	—		349,182		—		349,182		—		1,062		1,062		—		637,767		—		637,767		—		1,797		1,797
Commercial real estate	14,853		3,104,057		44,032		3,162,942		—		20,466		20,466		9,663		4,090,143		39,058		4,138,864		—		24,945		24,945
Multi-family	—		976,710		4,366		981,076		—		4,991		4,991		1,597		4,842,898		15,060		4,859,555		—		3,261		3,261
ADC	9,025		216,094		4,967		230,086		—		1,931		1,931		5,208		277,322		262		282,792		—		1,680		1,680
Residential mortgage	2,545		692,396		2,167		697,108		—		5,864		5,864		—		4,903,218		151,514		5,054,732		—		5,819		5,819
Consumer	1,764		280,710		1,594		284,068		—		3,906		3,906		3,132		352,741		10,346		366,219		—		3,181		3,181
Total portfolio loans	$	55,391	$	9,382,931	$	88,908	$	9,527,230	$	—	$	63,622	$	63,622	$	60,862	$	19,721,509	$	226,612	$	20,008,983	$	—	$	77,907	$	77,907

Management considers a loan to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Evaluation of impairment is generally treated the same across all classes of loans on a loan-by-loan ~~basis, except residential mortgage~~basis. Generally loans ~~and consumer loans, which include home equity lines~~ of ~~credit (“HELOC”) with an outstanding balance of $500~~$750 or less ~~which~~ are ~~generally~~ evaluated for impairment on a homogeneous pool basis. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

repayment of the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs when foreclosure or liquidation is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is generally recognized through a charge-off to the allowance for loan losses.

The carrying amount of PCI loans is presented in the tables above. At September 30, 2017, the net recorded amount of PCI loans was $59,853, which included $2,250 of asset-based lending loans acquired in the NSBC Acquisition. There was $775 and $685 of specific impairments included in the balance of accretable yield associated with PCI loans at September 30, 2017 and December 31, 2016, respectively.

~~The~~ following table presents the changes in the balance of the accretable yield discount for PCI loans for the three and nine months ended September 30, ~~2017~~2018 and ~~2016:~~2017:


	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended September 30,						For the nine months ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Balance at beginning of period	$	10,877		$	11,307		$	11,117		$	11,211		$	21,711		$	10,877		$	45,582		$	11,117
Balances acquired in the NSBC Acquisition	—			—			—			2,200
Accretion of income	(2,412		)	(1,168		)	(4,612		)	(3,447		)	(4,027		)	(2,412		)	(10,578		)	(4,612		)
Reclassification from non-accretable difference	1,412			1,398			3,372			1,573
Reclassification (to) from non-accretable difference													1,056			1,412			(1,192		)	3,372
Other, adjustments													—			—			(15,072		)	—
Balance at end of period	$	9,877		$	11,537		$	9,877		$	11,537		$	18,740		$	9,877		$	18,740		$	9,877

Income is not recognized on PCI loans unless the Company can reasonably estimate the cash flows that are expected to be collected over the life of the loan. The balance of PCI loans that were treated under the cost recovery method was ~~$8,317~~$5,363 and ~~$12,241~~$7,992 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

The following table presents loans individually evaluated for impairment, excluding PCI loans, by segment of loans at September 30, ~~2017~~2018 and December 31, ~~2016:~~2017:


	September 30, 2017				December 31, 2016				September 30, 2018				December 31, 2017
	Unpaid principal balance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Recorded investment		Unpaid principal balance		Recorded investment
Loans with no related allowance recorded:	Loans with no related allowance recorded:								Loans with no related allowance recorded:
Traditional C&I	$	24,886	$	24,509	$	25,221	$	25,221	$	54,756	$	40,909	$	36,408	$	35,921
Payroll finance	—		—		570		570
Asset-based lending									18,573		18,573		—		—
Equipment financing	5,789		5,789		1,413		1,413		2,394		2,394		5,341		5,341
Commercial real estate	16,488		14,719		16,365		14,853		45,150		37,739		10,128		9,663
Multi-family									2,352		1,688		1,597		1,597
ADC	5,850		5,584		9,025		9,025		—		—		5,474		5,208
Residential mortgage	1,943		1,605		2,545		2,545		2,552		2,332		—		—
Consumer	3,216		3,216		1,764		1,764		8,050		8,050		3,132		3,132
Total	$	58,172	$	55,422	$	56,903	$	55,391	$	133,827	$	111,685	$	62,080	$	60,862

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, there were no ~~asset-based lending,~~payroll finance, warehouse lending, factored receivables or public sector finance ~~or multi-family~~ loans that were individually evaluated for impairment.

The Company’s policy generally requires a charge-off of the difference between the present value of the cash flows or the net collateral value of the collateral securing the loan and the Company’s recorded investment. As a result, there were no impaired loans with an allowance recorded at September 30, ~~2017~~2018 or December 31, ~~2016.~~2017.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

The following table presents the average recorded investment and interest income recognized related to loans individually evaluated for impairment by segment for the three months ended September 30, ~~2017~~2018 and September 30, ~~2016:~~2017:


	For the three months ended												For the three months ended
	September 30, 2017						September 30, 2016						September 30, 2018						September 30, 2017
	QTD average recorded investment		Interest income recognized		Cash-basis interest income recognized		QTD average recorded investment		Interest income recognized		Cash-basis interest income recognized		QTD average recorded investment		Interest income recognized		Cash-basis interest income recognized		QTD average recorded investment		Interest income recognized		Cash-basis interest income recognized
Loans with no related allowance recorded:
Traditional C&I	$	24,653	$	8	$	—	$	27,173	$	30	$	—	$	36,731	$	116	$	—	$	24,653	$	8	$	—
Factored receivables	—		—		—		247		—		—
Asset-based lending													14,639		123		—		—		—		—
Equipment financing	5,469		—		—		2,028		—		—		798		—		—		5,469		—		—
Commercial real estate	13,258		95		—		16,414		64		—		27,149		294		—		13,258		95		—
Multi-family													1,768		17		—		—		—		—
ADC	5,611		48		—		8,434		63		—		—		—		—		5,611		48		—
Residential mortgage	1,060		—		—		515		—		—		1,849		—		—		1,060		—		—
Consumer	2,356		—		—		1,895		—		—		4,762		—		—		2,356		—		—
Total	$	52,407	$	151	$	—	$	56,706	$	157	$	—	$	87,696	$	550	$	—	$	52,407	$	151	$	—

~~There were no impaired loans with an allowance recorded at September 30, 2017 or December 31, 2016.~~ For the three months ~~and nine months~~ ended September 30, ~~2017~~2018 and ~~2016,~~2017, there were no ~~asset-based lending,~~ payroll finance, warehouse lending, factored receivables or public sector finance ~~or multi-family~~ loans that were impaired, and there was no cash-basis interest income recognized.

The following table presents the average recorded investment and interest income recognized related to loans individually evaluated for impairment by segment for the nine months ended September 30, 2017 and September 30, 2016:

For the nine months ended
September 30, 2017 September 30, 2016

YTD average
recorded
investment

Interest
income
recognized

Cash-basis
interest
income
recognized

YTD average
recorded
investment

Interest
income
recognized

Cash-basis
interest
income
recognized
Loans with no related allowance recorded:
Traditional C&I $ 24,747
$ 22
$ —
$ 22,370
$ 45
$ —
Factored receivables —
—
—
82
—
—
Equipment financing 3,429
—
—
1,259
—
—
Commercial real estate 10,410
271
—
13,516
135
—
ADC 5,562
154
—
8,346
178
—
Residential mortgage 787
—
—
515
—
—
Consumer 1,927
—
—
1,380
—
—
Total $ 46,862
$ 447
$ —
$ 47,468
$ 358
$ —

~~There were no asset-based lending, payroll finance, warehouse lending, public sector finance, or multi-family loans that were impaired.~~



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

~~Troubled Debt Restructuring (“TDRs”)~~

~~The following tables set forth the amounts and past due status of the Company’s TDRs at September 30, 2017 and December 31, 2016:~~

September 30, 2017
Current loans
30-59
days
past due

60-89
days
past due

90+
days
past due

Non-
accrual
Total
Traditional C&I $ 567
$ —
$ —
$ —
$ 23,188
$ 23,755
Equipment financing 961
1,879
—
—
—
2,840
Commercial real estate 2,940
—
—
—
118
3,058
ADC 4,189
—
—
—
1,828
6,017
Residential mortgage 5,379
—
336
—
2,648
8,363
Consumer 2,176
—
191
—
185
2,552
Total $ 16,212
$ 1,879
$ 527
$ —
$ 27,967
$ 46,585

December 31, 2016
Current loans
30-59
days
past due

60-89
days
past due

90+
days
past due

Non-
accrual
Total
Traditional C&I $ 572
$ —
$ —
$ —
$ 128
$ 700
Equipment financing —
—
—
—
29
29
Commercial real estate 2,443
253
—
—
—
2,696
ADC 5,962
—
—
—
458
6,420
Residential mortgage 2,055
—
—
—
1,374
3,429
Total $ 11,032
$ 253
$ —
$ —
$ 1,989
$ 13,274

There were no asset-based lending, payroll finance, warehouse lending, factored receivables, public sector finance, or multi-family loans that were TDRs for either period presented above. At December 31, 2016, there also were no consumer loans that were TDRs. The Company did not have outstanding commitments to lend additional amounts to customers with loans classified as TDRs as of September 30, 2017 or December 31, 2016.

There were eight loans modified as a TDR in the nine months ended September 30, 2017. These TDRs did not increase the allowance for loan losses and did not result in charge-offs in the nine months ended September 30, 2017.

~~The following table presents loans by segment modified as TDRs that occurred during the first nine months of 2017 and 2016:~~

September 30, 2017 September 30, 2016
Recorded investment Recorded investment
Number
Pre-
modification

Post-
modification
Number
Pre-
modification

Post-
modification
Traditional C&I 1
$ 23,188
$ 23,188
— $ —
$ —
Equipment financing 2
3,088
3,088
— —
—
Commercial real estate 2
1,724
1,724
— —
—
ADC 1
797
797
— —
—
Residential mortgage 2
552
551
1 469
469
Total TDRs 8
$ 29,349
$ 29,348
1 $ 469
$ 469

There were no asset-based lending, payroll finance, warehouse lending, factored receivables, public sector finance, multi-family or consumer loans modified as TDRs during the first nine months of 2017 and 2016.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

~~There were no TDRs that were modified during~~The following table presents the average recorded investment and interest income recognized related to loans individually evaluated for impairment by segment for the nine months ended September 30, 2017 or 2016 that subsequently defaulted (which is defined as missing three consecutive monthly payments or being over 90 days past due on a scheduled payment). The traditional C&I loan that was designated as a TDR is a taxi medallion loan that was on non-accrual prior to its restructuring.2018 and 2017:



	For the nine months ended
	September 30, 2018						September 30, 2017
	YTD average recorded investment		Interest income recognized		Cash-basis interest income recognized		YTD average recorded investment		Interest income recognized		Cash-basis interest income recognized
Loans with no related allowance recorded:
Traditional C&I	$	35,935	$	149	$	—	$	24,747	$	22	$	—
Asset-based lending	10,980		347		—		—		—		—
Equipment financing	598		—		—		3,429		—		—
Commercial real estate	22,704		360		—		10,410		271		—
Multi-family	1,726		48		—		—		—		—
ADC	—		—		—		5,562		154		—
Residential mortgage	1,387		—		—		787		—		—
Consumer	4,355		—		—		1,927		—		—
Total	$	77,685	$	904	$	—	$	46,862	$	447	$	—

~~(5) Allowance for Loan Losses~~

~~Activity in~~For the ~~allowance for loan losses for the three and~~ nine months ended September 30, 2018 and 2017, there were no payroll finance, warehouse lending, factored receivables or public sector finance loans that were impaired, and ~~2016 is summarized below:~~there was no cash-basis interest income recognized.

Troubled Debt Restructuring (“TDRs”)

The following tables set forth the amounts and past due status of the Company’s TDRs at September 30, 2018 and December 31, 2017:

For the three months ended September 30, 2017

Beginning
balance
Charge-offs Recoveries
Net
charge-offs
Provision / (reversal of) Ending balance
Traditional C&I $ 15,506
$ (68 ) $ 316
$ 248
$ 1,446
$ 17,200
Asset-based lending 2,582
—
1
1
2,192
4,775
Payroll finance 1,287
(188 ) 1
(187 ) 1,091
2,191
Warehouse lending 2,435
—
—
—
1,299
3,734
Factored receivables 1,151
(564 ) 5
(559 ) 679
1,271
Equipment financing 5,735
(741 ) 45
(696 ) (577 ) 4,462
Public sector finance 1,887
—
—
—
(535 ) 1,352
Commercial real estate 25,181
(1,345 ) 17
(1,328 ) (648 ) 23,205
Multi-family 5,028
—
—
—
(974 ) 4,054
ADC 920
(5 ) —
(5 ) 399
1,314
Residential mortgage 5,124
(389 ) —
(389 ) 319
5,054
Consumer 3,315
(156 ) 48
(108 ) 309
3,516
Total allowance for loan losses $ 70,151
$ (3,456 ) $ 433
$ (3,023 ) $ 5,000
$ 72,128
Annualized net charge-offs to average loans outstanding: 0.12 %


	For the three months ended September 30, 2016																September 30, 2018
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision / (reversal of)			Ending balance			Current loans		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	11,057	$	(570	)	$	381	$	(189	)	$	434		$	11,302		$	449	$	—	$	—	$	418	$	25,351	$	26,218
Asset-based lending	3,280		—			—		—			193			3,473			10,855		—		—		—		—		10,855
Payroll finance	1,165		—			—		—			145			1,310
Warehouse lending	652		—			—		—			829			1,481
Factored receivables	1,585		(60		)	10		(50		)	511			2,046
Equipment financing	5,346		(377		)	123		(254		)	108			5,200			3,340		—		—		—		1,181		4,521
Public sector finance	894		—			—		—			216			1,110
Commercial real estate	17,523		(630		)	111		(519		)	2,073			19,077			16,091		—		—		—		2,935		19,026
Multi-family	3,463		(399		)	—		(399		)	657			3,721
ADC	2,042		—			—		—			(298		)	1,744			434		—		—		—		—		434
Residential mortgage	4,875		(338		)	—		(338		)	347			4,884			5,685		—		367		—		2,473		8,525
Consumer	3,983		(259		)	48		(211		)	285			4,057			2,539		57		—		—		5,172		7,768
Total allowance for loan losses	$	55,865	$	(2,633	)	$	673	$	(1,960	)	$	5,500		$	59,405
Annualized net charge-offs to average loans outstanding:														0.09		%
Total																	$	39,393	$	57	$	367	$	418	$	37,112	$	77,347



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

For the nine months ended September 30, 2017
Beginning
balance Charge-offs Recoveries Net
charge-offs Provision/ (reversal of) Ending balance
Traditional C&I $ 12,864
$ (919 ) $ 978
$ 59
$ 4,277
$ 17,200
Asset-based lending 3,316
—
5
5
1,454
4,775
Payroll finance 951
(188 ) 1
(187 ) 1,427
2,191
Warehouse lending 1,563
—
—
—
2,171
3,734
Factored receivables 1,669
(871 ) 23
(848 ) 450
1,271
Equipment financing 5,039
(1,822 ) 331
(1,491 ) 914
4,462
Public sector finance 1,062
—
—
—
290
1,352
Commercial real estate 20,466
(2,372 ) 117
(2,255 ) 4,994
23,205
Multi-family 4,991
—
—
—
(937 ) 4,054
ADC 1,931
(27 ) 269
242
(859 ) 1,314
Residential mortgage 5,864
(668 ) 159
(509 ) (301 ) 5,054
Consumer 3,906
(687 ) 177
(510 ) 120
3,516
Total allowance for loan losses $ 63,622
$ (7,554 ) $ 2,060
$ (5,494 ) $ 14,000
$ 72,128
Annualized net charge-offs to average loans outstanding: 0.08 %



	December 31, 2017
	Current loans		30-59 days past due		60-89 days past due		90+ days past due		Non- accrual		Total
Traditional C&I	$	565	$	—	$	—	$	—	$	21,083	$	21,648
Equipment financing	898		—		—		—		826		1,724
Commercial real estate	2,921		—		—		—		115		3,036
ADC	1,495		—		—		—		4,205		5,700
Residential mortgage	5,154		336		—		—		2,810		8,300
Consumer	2,142		53		—		—		286		2,481
Total	$	13,175	$	389	$	—	$	—	$	29,325	$	42,889

There were no payroll finance, warehouse lending, factored receivables, public sector finance or multi-family loans that were TDRs for either period presented above and there were no asset-based lending loans that were TDRs at December 31, 2017. The Company did not have any outstanding commitments to lend additional amounts to customers with loans classified as TDRs as of September 30, 2018 or December 31, 2017.

There were 20 loans modified as a TDR in the nine months ended September 30, 2018. The following table presents loans by segment modified as TDRs that occurred during the first nine months of 2018 and 2017:


																	September 30, 2018					September 30, 2017
	For the nine months ended September 30, 2016																	Recorded investment					Recorded investment
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision/ (reversal of)			Ending balance			Number	Pre- modification		Post- modification		Number	Pre- modification		Post- modification
Traditional C&I	$	9,922	$	(1,488	)	$	847	$	(641	)	$	2,021		$	11,302		2	$	11,606	$	10,477	1	$	23,188	$	23,188
Asset-based lending	2,793		—			62		62			618			3,473			1	12,766		12,766		—	—		—
Payroll finance	1,936		(28		)	32		4			(630		)	1,310
Warehouse lending	589		—			—		—			892			1,481
Factored receivables	1,457		(933		)	51		(882		)	1,471			2,046
Equipment financing	4,925		(1,406		)	333		(1,073		)	1,348			5,200			4	3,307		3,307		2	3,088		3,088
Public sector finance	547		—			—		—			563			1,110
Commercial real estate	13,861		(734		)	185		(549		)	5,765			19,077			1	12,187		12,187		2	1,724		1,724
Multi-family	2,741		(417		)	2		(415		)	1,395			3,721
ADC	2,009		—			104		104			(369		)	1,744			—	—		—		1	797		797
Residential mortgage	5,007		(771		)	29		(742		)	619			4,884			11	1,684		1,367		2	552		551
Consumer	4,358		(1,302		)	194		(1,108		)	807			4,057			1	4,944		4,944		—	—		—
Total allowance for loan losses	$	50,145	$	(7,079	)	$	1,839	$	(5,240	)	$	14,500		$	59,405
Annualized net charge-offs to average loans outstanding:														0.08		%
Total TDRs																	20	$	46,494	$	45,048	8	$	29,349	$	29,348

There were no payroll finance, warehouse lending, factored receivables, public sector finance, or multi-family loans modified as TDRs during the first nine months of 2018 or 2017.

During the nine months ended September 30, 2018 or 2017, except for certain TDRs that are included in non-accrual loans, there were no TDRs that experienced a payment default within the twelve months following the modification. A payment default is defined as missing three consecutive monthly payments or being over 90 days past due on a scheduled payment. The asset-based lending loan that was designated as a TDR in 2018 is a borrowing base facility in which the advance rate is determined by the estimated value of loans to third parties used to finance the acquisition of taxi medallions, which are collateral for the facility. This loan has never been delinquent and has continued to perform according to its modified terms at the time of restructuring. TDRs during the periods presented above did not significantly impact the determination of the allowance for loan losses.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

(5) Allowance for Loan Losses

Activity in the allowance for loan losses for the three months ended September 30, 2018 and 2017 is summarized below:



	For the three months ended September 30, 2018
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision / (reversal of)			Ending balance
Traditional C&I	$	18,075	$	(3,415	)	$	235	$	(3,180	)	$	(179	)	$	14,716
Asset-based lending	5,837		—			—		—			991			6,828
Payroll finance	1,658		(2		)	5		3			522			2,183
Warehouse lending	2,787		—			—		—			(102		)	2,685
Factored receivables	1,321		(18		)	2		(16		)	203			1,508
Equipment financing	8,841		(829		)	85		(744		)	3,056			11,153
Public sector finance	1,354		—			—		—			90			1,444
Commercial real estate	26,870		(359		)	612		253			4,345			31,468
Multi-family	7,389		(168		)	4		(164		)	457			7,682
ADC	2,172		—			—		—			(296		)	1,876
Residential mortgage	5,917		(114		)	5		(109		)	992			6,800
Consumer	3,805		(458		)	254		(204		)	(579		)	3,022
Total allowance for loan losses	$	86,026	$	(5,363	)	$	1,202	$	(4,161	)	$	9,500		$	91,365
Annualized net charge-offs to average loans outstanding:														0.08		%



	For the three months ended September 30, 2017
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision / (reversal of)			Ending balance
Traditional C&I	$	15,506	$	(68	)	$	316	$	248		$	1,446		$	17,200
Asset-based lending	2,582		—			1		1			2,192			4,775
Payroll finance	1,287		(188		)	1		(187		)	1,091			2,191
Warehouse lending	2,435		—			—		—			1,299			3,734
Factored receivables	1,151		(564		)	5		(559		)	679			1,271
Equipment financing	5,735		(741		)	45		(696		)	(577		)	4,462
Public sector finance	1,887		—			—		—			(535		)	1,352
Commercial real estate	25,181		(1,345		)	17		(1,328		)	(648		)	23,205
Multi-family	5,028		—			—		—			(974		)	4,054
ADC	920		(5		)	—		(5		)	399			1,314
Residential mortgage	5,124		(389		)	—		(389		)	319			5,054
Consumer	3,315		(156		)	48		(108		)	309			3,516
Total allowance for loan losses	$	70,151	$	(3,456	)	$	433	$	(3,023	)	$	5,000		$	72,128
Annualized net charge-offs to average loans outstanding:														0.12		%



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

Activity in the allowance for loan losses for the nine months ended September 30, 2018 and 2017 is summarized below:



	For the nine months ended September 30, 2018
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision/ (reversal of)			Ending balance
Traditional C&I	$	19,072	$	(8,818	)	$	674	$	(8,144	)	$	3,788		$	14,716
Asset-based lending	6,625		—			9		9			194			6,828
Payroll finance	1,565		(316		)	34		(282		)	900			2,183
Warehouse lending	3,705		—			—		—			(1,020		)	2,685
Factored receivables	1,395		(181		)	7		(174		)	287			1,508
Equipment financing	4,862		(7,505		)	347		(7,158		)	13,449			11,153
Public sector finance	1,797		—			—		—			(353		)	1,444
Commercial real estate	24,945		(4,878		)	702		(4,176		)	10,699			31,468
Multi-family	3,261		(168		)	7		(161		)	4,582			7,682
ADC	1,680		(721		)	—		(721		)	917			1,876
Residential mortgage	5,819		(697		)	54		(643		)	1,624			6,800
Consumer	3,181		(1,074		)	482		(592		)	433			3,022
Total allowance for loan losses	$	77,907	$	(24,358	)	$	2,316	$	(22,042	)	$	35,500		$	91,365
Annualized net charge-offs to average loans outstanding:														0.15		%



	For the nine months ended September 30, 2017
	Beginning balance		Charge-offs			Recoveries		Net charge-offs			Provision/ (reversal of)			Ending balance
Traditional C&I	$	12,864	$	(919	)	$	978	$	59		$	4,277		$	17,200
Asset-based lending	3,316		—			5		5			1,454			4,775
Payroll finance	951		(188		)	1		(187		)	1,427			2,191
Warehouse lending	1,563		—			—		—			2,171			3,734
Factored receivables	1,669		(871		)	23		(848		)	450			1,271
Equipment financing	5,039		(1,822		)	331		(1,491		)	914			4,462
Public sector finance	1,062		—			—		—			290			1,352
Commercial real estate	20,466		(2,372		)	117		(2,255		)	4,994			23,205
Multi-family	4,991		—			—		—			(937		)	4,054
ADC	1,931		(27		)	269		242			(859		)	1,314
Residential mortgage	5,864		(668		)	159		(509		)	(301		)	5,054
Consumer	3,906		(687		)	177		(510		)	120			3,516
Total allowance for loan losses	$	63,622	$	(7,554	)	$	2,060	$	(5,494	)	$	14,000		$	72,128
Annualized net charge-offs to average loans outstanding:														0.08		%

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators, including trends related to (i) the weighted-average risk grade of commercial loans; (ii) the level of classified commercial loans; (iii) the delinquency status of residential mortgage and consumer loans, including ~~HELOC~~home equity lines of credit (“HELOC”) and other consumer loans; (iv) net charge-offs; (v) non-performing loans (see details above); and (vi) the general economic conditions in the greater New York metropolitan region. The Company analyzes loans individually by classifying the loans by credit risk, except residential mortgage loans, HELOC and other consumer loans, which are evaluated on a homogeneous pool basis unless the loan balance is greater than ~~$500.~~$750. This analysis is performed at least quarterly on all ~~criticized/classified~~graded 7-Special Mention and lower loans. The Company uses the following definitions of risk ratings:

1 and 2 - These grades include loans that are secured by cash, marketable securities or cash surrender value of life insurance policies.

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3 - This grade includes loans to borrowers with strong earnings and cash flow ~~and~~ that have the ability to service debt. The borrower’s assets and liabilities are generally well-matched and are above average quality. The borrower has ready access to multiple sources of funding, including alternatives such as term loans, private equity placements or trade credit.

4 - This grade includes loans to borrowers with above average cash flow, adequate earnings and debt service coverage ratios. The borrower generates discretionary cash flow, assets and liabilities are reasonably matched, and the borrower has access to other sources of debt funding or additional trade credit at market rates.

5 - This grade includes loans to borrowers with adequate earnings and cash flow and reasonable debt service coverage ratios. Overall leverage is acceptable and there is average reliance upon trade credit. Management has a reasonable amount of experience and depth, and owners are willing to invest available outside capital, as necessary.

6 - This grade includes loans to borrowers where there is evidence of some strain, earnings are inconsistent and volatile, and the borrowers’ outlook is uncertain. Generally, such borrowers have higher leverage than those with a better risk rating. These borrowers typically have limited access to alternative sources of bank debt and may be dependent upon debt funding for working capital support.

7 - Special Mention (OCC definition) - Other Assets Especially Mentioned are loans that have potential weaknesses which may, if not reversed or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date. Such assets constitute an undue and unwarranted credit risk but not to the point of justifying a classification of “Substandard.” The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances surrounding a specific asset.

8 - Substandard (OCC definition) - These loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some losses if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.

9 - Doubtful (OCC definition) - These loans have all the weakness inherent in one classified as “Substandard” with the added characteristics that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but, because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger, acquisition, liquidating procedures, capital injection, perfecting liens or additional collateral and refinancing plans.

10 - Loss (OCC definition) - These loans are charged-off because they are determined to be uncollectible and unbankable assets. This classification does not indicate that the asset has no absolute recovery or salvage value, but rather it is not practical or desirable to defer writing-off this asset even though partial recovery may be effected in the future. Losses should be taken in the period in which they are determined to be uncollectible.

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Loans that are risk-rated 1 through 6, as defined above, are considered to be pass-rated loans. As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the risk category of gross loans by segment was as follows:


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
	Special mention		Substandard		Doubtful		Special mention		Substandard		Doubtful		Special mention		Substandard		Doubtful		Special mention		Substandard		Doubtful
Traditional C&I	$	10,717	$	44,307	$	794	$	12,125	$	28,977	$	442	$	11,662	$	42,974	$	2,213	$	7,453	$	53,915	$	746
Asset-based lending	40,312		—		—		35,373		—		—		56		42,913		—		30,958		3,835		—
Payroll finance	14,703		1,976		—		—		820		—		13,708		15,511		—		15,542		352		—
Factored receivables	270		—		—		185		433		—		778		—		—		187		—		—
Equipment financing	10,703		5,204		—		2,128		3,397		—		10,593		16,266		—		4,093		9,299		—
Commercial real estate	35,105		28,970		—		39,190		29,463		—		18,822		52,870		—		40,438		34,529		—
Multi-family	—		634		—		7,072		658		—		21,201		18,489		—		26,602		14,266		—
ADC	4,204		4,948		—		6,899		8,870		—		4,096		434		—		4,204		4,639		—
Residential mortgage	978		10,958		—		951		15,796		—		6,116		75,803		—		6,038		101,149		—
Consumer	992		7,208		1		646		6,738		—		1,440		15,098		6		1,043		10,507		18
Total	$	117,984	$	104,205	$	795	$	104,569	$	95,152	$	442	$	88,472	$	280,358	$	2,219	$	136,558	$	232,491	$	764

There were no criticized or classified warehouse lending or public sector finance loans for the periods presented. There were no loans rated “loss” at September 30, ~~2017~~2018 or December 31, ~~2016.~~2017.

(6) Goodwill and Other Intangible Assets

The balance of goodwill and other intangible assets for the periods presented were as follows:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2018		2017
Goodwill	$	696,600	$	696,600	$	1,609,772	$	1,579,891
Other intangible assets:
Core deposits	$	32,515	$	37,455	$	109,833	$	126,545
Customer lists	6,312		7,683		4,972		5,854
Non-compete agreements	354		625		104		292
Trade name	20,500		20,500		20,500		20,500
Fair value of below market leases	9		90
Total	$	59,690	$	66,353	$	135,409	$	153,191

The increase in goodwill at September 30, 2018 compared to December 31, 2017 was due to the Advantage Funding Acquisition. See Note 2. “Acquisitions” for additional information.

The decrease in other intangible assets at September 30, ~~2017~~2018 compared to December 31, ~~2016~~2017 was due to amortization of intangibles.

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The estimated aggregate future amortization expense for intangible assets remaining as of September 30, ~~2017~~2018 was as follows:


	Amortization expense		Amortization expense
Remainder of 2017	$	2,175
2018	7,285
Remainder of 2018			$	5,863
2019	6,074		19,181
2020	5,428		16,800
2021	5,022		15,104
2022	4,522		13,703
2023			12,322
Thereafter	8,684		31,936
Total	$	39,190	$	114,909

(7) Deposits

Deposit balances at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2018		2017
Non-interest bearing demand	$	3,134,359	$	3,239,332	$	4,651,369	$	4,080,742
Interest bearing demand	2,397,172		2,220,456		4,302,725		3,882,064
Savings	807,845		747,031		2,470,949		2,758,642
Money market	4,137,702		3,277,686		7,460,064		7,377,118
Certificates of deposit	566,360		583,754		2,570,950		2,439,638
Total deposits	$	11,043,438	$	10,068,259	$	21,456,057	$	20,538,204

Total municipal deposits were ~~$1,751,012~~$2,019,893 and ~~$1,270,921~~$1,585,076 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. See Note 3. “Securities” for the aggregate amount of securities that were pledged as collateral for municipal deposits and other purposes.

Brokered deposits at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2018		2017
Interest bearing demand	$	24,518	$	426,437	$	17,471	$	23,820
Savings	—		5,560
Money market	499,413		246,572		779,285		773,804
Money market - reciprocal brokered deposits	142,094		153,060
CDARs¹ and ICS²one way	259,106		—
Money market - reciprocal deposits ⁽¹⁾					—		102,259
CDARs⁽²⁾ and ICS⁽³⁾one way					150,181		204,331
Total brokered deposits	$	925,131	$	831,629	$	946,937	$	1,104,214

¹ Section 29 of the Federal Deposit Insurance Act was amended to except a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions, including the Bank. As a result, the Bank no longer reports its reciprocal deposits as brokered deposits.

²CDARs are deposits generated through the certificate of deposit account registry service.

²³ICS are deposits generated through the insured cash sweep program.

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(8) Borrowings

The Company’s borrowings and weighted average interest rates were as follows for the periods presented:


	September 30,				December 31,				September 30,				December 31,
	2017				2016				2018				2017
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
By type of borrowing:
FHLB borrowings	$	3,016,000	1.40	%	$	1,791,000	1.01	%	$	4,429,110	2.21	%	$	4,510,123	1.69	%
Repurchase agreements	28,403		0.74		16,642		0.75		22,888		1.19		30,162		0.64
Federal funds purchased	160,000		1.31		—		—
Senior Notes	76,719		5.98		76,469		5.98
5.50% Senior Notes									—		—		76,805		5.98
3.50% Senior Notes									200,972		3.19		201,404		3.19
Subordinated Notes	172,661		5.45		172,501		5.45		172,885		5.45		172,716		5.45
Total borrowings	$	3,453,783	1.70	%	$	2,056,612	1.56	%	$	4,825,855	2.37	%	$	4,991,210	1.96	%
By remaining period to maturity:
Less than one year	$	2,621,122	1.46	%	$	1,397,642	0.87	%	$	2,707,935	2.24	%	$	2,989,093	1.69	%
One to two years	410,000		1.59		311,469		2.53		1,392,912		2.15		775,714		1.79
Two to three years	200,000		1.78		75,000		1.50		552,123		2.58		802,650		2.34
Three to four years	50,000		1.68		50,000		1.38		—		—		251,037		2.04
Four to five years	—		—		50,000		1.68
Greater than five years	172,661		5.45		172,501		5.45		172,885		5.45		172,716		5.45
Total borrowings	$	3,453,783	1.70	%	$	2,056,612	1.56	%	$	4,825,855	2.37	%	$	4,991,210	1.96	%

FHLB borrowings. As a member of the FHLB, the Bank may borrow up to a discounted percentage of the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Bank had total residential mortgage and commercial real estate loans pledged after discount of ~~$2,607,655~~$8,548,416 and ~~$2,050,982,~~$9,123,601, respectively. In addition to the pledged mortgages, the Bank had also pledged securities to secure borrowings, which are disclosed in Note 3. “Securities.” As of September 30, ~~2017,~~2018, the Bank had unused borrowing capacity at the FHLB of ~~$1,053,356~~$6,235,781 and may increase its borrowing capacity by pledging securities not required to be pledged for other purposes with a collateral value of approximately ~~$1,379,691.~~$3,578,859.

Repurchase agreements. The Bank enters into sales of securities under agreements to repurchase. These repurchase agreements facilitate the needs of our customers and a portion of our secured short-term funding needs. Securities sold under agreements to repurchase at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 are secured short-term borrowings that mature in one to 45 days and are generally renewed on a continuous basis. Repurchase agreements are stated at the amount of cash received in connection with these transactions. The securities pledged under these repurchase agreements fluctuate in value due to market conditions. The Bank is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

~~Federal funds purchased.~~ ~~The Bank maintains federal funds purchase lines with several financial institutions. Federal funds purchased are short-term borrowings that typically mature overnight. Federal funds purchased totaled~~ ~~$160,000~~ ~~and~~ $0 ~~at September 30, 2017 and December 31, 2016, respectively.~~

5.50% Senior Notes. On July 2, 2013, the Company issued $100,000 principal amount of 5.50% fixed rate ~~senior~~ notes, (the “Senior Notes”) through a private placement at a discount of 1.75%. The cost of issuance was $303, and at September 30, 2017 and December 31, 2016 the unamortized discount was $281 and $531, respectively, which ~~will be accreted to interest expense over the life of the Senior Notes, resulting in an effective yield of 5.98%. Interest is due semi-annually in arrears on January 2 and July 2 until maturity~~matured on July 2, 2018. ~~During September 2016,~~At such date, the Company ~~redeemed $23,000~~utilized cash on hand to repay the outstanding principal balance and interest of ~~the~~such notes.

3.50% Senior Notes.On October 2, 2017, in connection with the Astoria Merger, the Company assumed $200,000 principal amount of 3.50% fixed rate senior notes that mature on June 8, 2020 (the “3.50% Senior Notes”). The 3.50% Senior Notes were issued by Astoria on June 8, 2017 through a public offering. The Company recorded the 3.50% Senior Notes at an estimated fair value of 100.76% on the acquisition date, which was based on the quoted market value. The fair value adjustment, with a remaining balance of $972 at September 30, 2018, is being amortized over the remaining maturity using a level-yield methodology, which results in an effective cost of 3.19%.

Subordinated Notes. On March 29, 2016, the Bank issued $110,000 principal amount of 5.25% fixed-to-floating rate subordinated notes (the “Subordinated Notes”) through a private placement at a discount of 1.25%. The cost of issuance was $500. On September 2, 2016, the Bank reopened the Subordinated Notes offering and issued an additional $65,000 principal amount of Subordinated Notes. The Subordinated Notes issued September 2, 2016 are fully fungible with, rank equally in right of payment with, and form a single series with the Subordinated Notes issued in March 2016. The Subordinated Notes issued in September 2016 were issued to the

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~~single series with the Subordinated Notes issued in March 2016. The Subordinated Notes issued September 2016 were issued to the~~ purchasers at a premium of 0.50% and an underwriters discount of 1.25%. The cost of issuance was $275. At September 30, ~~2017,~~2018, the net unamortized discount of all Subordinated Notes was ~~$2,339,~~$2,115, which will be accreted to interest expense over the life of the Subordinated Notes, resulting in an effective yield of 5.45%. Interest is due semi-annually in arrears on April 1 and October 1 of each year, until April 1, 2021. From and including April 1, 2021, the Subordinated Notes will bear interest at a floating rate per annum equal to three-month LIBOR plus 3.937%, payable quarterly on January 1, April 1, July 1 and October 1 of each year, beginning on July 1, 2021, through maturity on April 1, 2026 or earlier redemption. The Subordinated Notes are also redeemable by the Bank, in whole or in part, on April 1, 2021 and each interest payment date thereafter. The Subordinated Notes are redeemable in whole at any time upon the occurrence of certain specified events. The Subordinated Notes are unsecured, subordinated obligations of the Bank and are subordinated in right of payment to all of the Bank’s existing and future senior indebtedness, including claims of depositors and general creditors. The Subordinated Notes qualify as Tier 2 capital for regulatory purposes. See Note 15. “Stockholders’ Equity” for additional information.

Revolving line of credit. Effective September ~~5, 2017,~~2, 2018, the Company renewed ~~and increased to~~its $35,000 ~~its~~ revolving line of credit facility (the “Credit Facility”). The Credit Facility, which is with another financial institution, matures on September ~~4, 2018.~~2, 2019. The balance was zero at September 30, ~~2017~~2018 and December 31, ~~2016.~~2017. The use of proceeds are for general corporate purposes. The Credit Facility and accrued interest is payable at maturity, and the Company is required to maintain a zero balance for at least 30 days during its term. Loans under the Credit Facility bear interest at one-month LIBOR plus 1.25%. Under the terms of the Credit Facility, the Company and the Bank must maintain certain ratios related to capital, non-performing assets to capital, reserves to non-performing loans and debt service coverage. The Company and the Bank were in compliance with all requirements of the Credit Facility at September 30, ~~2017.~~2018.

(9) Derivatives

The Company has entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Company’s customers to effectively convert a variable rate loan to a fixed rate loan. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts largely offset each other and do not materially impact results of operations.

The Company has entered into interest rate swap contracts that are both over-the-counter, or OTC, and those that are exchanged on futures markets such as the Chicago Mercantile Exchange ~~or the CME.~~(“CME”). At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the OTC derivatives are included in the financial statements at the gross fair value amount of the asset (included in other assets) and liability (included in other liabilities), which represents the change in the fair value of the contract since inception. Effective for the quarter ended March 31, 2017, the CME amended its rulebook to legally characterize variation margin payments (a payment made based on changes in the fair value of the interest rate swap contracts) as a settlement, referred to as settled-to-market ~~or STM.~~(“STM”). As a result of this change, at September 30, 2018 and December 31, 2017, the Company paid cash as STM in the amount of ~~$2,059~~$15,131 and $3,523, respectively, for the net fair value of its CME interest rate swap contracts with another financial institution. The variation margin payment changes daily, positively or negatively, based on a change in the fair value of the underlying interest rate swap contracts.

The Company does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back swaps. However, certain language is written into the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Company is allowed to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability.

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Summary information as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 regarding these derivatives is presented below:


	Notional amount			Average maturity (in years)	Weighted average fixed rate		Weighted average variable rate	Fair value			Notional amount			Average maturity (in years)	Weighted average fixed rate		Weighted average variable rate	Fair value
September 30, 2017
September 30, 2018
Included in other assets:
Third-party interest rate swap	$	154,798						$	442		$	670,460						$	3,347
Customer interest rate swap	352,213							4,341			213,651							290
Total	$	507,011		5.98	4.21	%	1 m Libor +2.28%	$	4,783		$	884,111		5.48	4.50	%	1 m Libor + 2.24%	$	3,637
Included in other liabilities:
Third-party interest rate swap	(352,213		)					$	(2,918	)	$	(213,651	)					$	(1,369	)
Customer interest rate swap	(154,798		)					(3,924		)	(670,460		)					(17,399		)
Total	$	(507,011	)	5.98	4.21	%	1 m Libor +2.28%	$	(6,842	)	$	(884,111	)	5.48	4.50	%	1 m Libor + 2.24%	$	(18,768	)
December 31, 2016
3rd party interest rate swap	$	296,282		5.63	3.94	%	1 m Libor + 2.29%	$	2,088
December 31, 2017
Included in other assets:
Third-party interest rate swap											$	314,754						$	1,155
Customer interest rate swap	(296,282		)	5.63	3.94		1 m Libor + 2.29%	(2,088		)	306,529							3,302
Total											$	621,283		5.79	4.28	%	1 m Libor + 1.94%	$	4,457
Included in other liabilities:
Third-party interest rate swap											$	(306,529	)					$	(4,718	)
Customer interest rate swap											(314,754		)					(3,262		)
Total											$	(621,283	)	5.79	4.28	%	1 m Libor + 1.94%	$	(7,980	)

The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments; however, the fair value of these commitments is not material.

(10) Income Taxes

Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory Federal tax rate for the

following reasons:


	For the three months ended						For the nine months ended						For the three months ended						For the nine months ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Income before income tax expense	$	66,444		$	54,413		$	185,939		$	146,604		$	146,821		$	66,444		$	421,305		$	185,939
Tax at Federal statutory rate of 35%	23,253			19,045			65,076			51,312
Tax at Federal statutory rate of 21% for 2018 and 35% for 2017													30,833			23,253			88,474			65,076
State and local income taxes, net of Federal tax benefit	2,531			2,938			7,302			7,923			7,330			2,531			21,284			7,302
Tax exempt interest, net of disallowed interest	(5,213		)	(3,942		)	(12,487		)	(7,734		)	(4,970		)	(5,213		)	(14,435		)	(12,487		)
Bank owned life insurance income	(462		)	(643		)	(1,484		)	(1,518		)	(861		)	(462		)	(2,406		)	(1,484		)
Non-deductible acquisition related costs	237			—			1,193			—			—			237			—			1,193
Low income housing tax credits	(139		)	(118		)	(416		)	(352		)
Investments in qualified affordable housing projects													(401		)	(139		)	(2,903		)	(416		)
Stock-based compensation benefit⁽¹⁾	(1		)	—			(807		)	—			—			(1		)	(441		)	(807		)
FDIC insurance premium limitation													466			—			1,483			—
Other, net	1,386			(289		)	1,243			(1,985		)	(5,226		)	1,386			(2,514		)	1,243
Actual income tax expense	$	21,592		$	16,991		$	59,620		$	47,646		$	27,171		$	21,592		$	88,542		$	59,620
Effective income tax rate	32.5		%	31.2		%	32.1		%	32.5		%	18.5		%	32.5		%	21.0		%	32.1		%

^{(1 )}~~See Note 1. “Basis of Financial Statement Presentation - Adoption of New Accounting Standard” for additional information.~~

Net deferred tax assets totaled ~~$33,569~~$85,431 at September 30, ~~2017~~2018 and ~~$40,548~~$97,333 at December 31, ~~2016.~~2017. No valuation allowance was recorded against deferred tax assets as of those dates, ~~as management believes it is more likely than not that all~~based upon management’s consideration of historical and anticipated future pre-



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tax income, and the reversal periods for the items resulting in deferred tax assets ~~will be realized because they were supported by recoverable taxes paid in prior years.~~and liabilities. There were no unrecognized tax benefits during any of the reported periods.

Interest and/or penalties related to income taxes are reported as a component of other non-interest expense. Such amounts were not material during the reported periods.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

The Company is generally no longer subject to examination by Federal, state and local taxing authorities for fiscal years prior to September 30, ~~2013.~~2014.

The Tax Cuts and Jobs Act of 2017 reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the Company was required to remeasure, through income tax expense, the Company’s deferred tax assets and liabilities using the enacted tax rate at which the deferred items are expected to be recovered or settled. The remeasurement of the Company’s net deferred tax assets resulted in additional provisional income tax expense of $40,285 recorded in 2017. During the third quarter of 2018 the Company completed its evaluation of certain aspects of the new tax law, as well as the final tax returns related to Astoria’s business and operations through October 1, 2017. After completion of these tax returns, the Company reduced income tax balances and goodwill in the amount of $6,214, which finalized all purchase accounting adjustments for the Astoria Merger.

(11) Stock-Based Compensation

The Company has active stock-based compensation plans, as described below.

The Company’s stockholders approved the 2015 Omnibus Equity and Incentive Plan (the “2015 Plan”) on May 28, 2015. The 2015 Plan permits the grant of stock options, stock appreciation rights, restricted stock (both time-based and performance-based), restricted stock units, deferred stock and other stock-based awards. The total number of shares that may be awarded under the 2015 Plan is 2,800,000 shares plus the remaining shares available for grant under the stockholder approved 2014 Stock Incentive Plan ~~(the “2014 Plan”)~~ as of the date of adoption of the 2015 Plan. At September 30, ~~2017,~~2018, there were, in aggregate, ~~3,146,510~~2,379,112 shares available for future grant ~~under the 2015 Plan.~~

The Company’s stockholders approved the 2014 Plan on February 20, 2014. The approval of the 2015 Plan resulted in the termination of the 2014 Plan. Awards granted under the 2014 Plan that were outstanding as of May 28, 2015 will continue to be governed by the 2014 Plan document; however, no future grants will be made under the 2014 Plan.

~~Under the 2015 Plan, one share is deducted from the 2015 Plan for every share or share underlying the equity award that is awarded and delivered~~ under the 2015 Plan.

Restricted stock awards are granted with a fair value equal to the market price of the Company’s common stock at the date of grant. Stock option awards are granted with a strike price that is equal to the market price of the Company’s common stock at the date of grant. The restricted stock awards generally vest in equal installments annually on the anniversary date of grant and have total vesting periods ranging from one to five years, while stock options have 10-year contractual terms.

In connection with the merger of the Company and Legacy Sterling Bancorp (“Legacy Sterling”) in 2013, the Company granted 104,152 options at an exercise price of $14.25 per share pursuant to a Registration Statement on Form S-8 under which the Company assumed all outstanding fully-vested Legacy Sterling stock options. All options were exercised or expired on March 15, 2017. The Company also granted 95,991 shares under the Legacy Sterling Bancorp 2013 Employment Inducement Award Plan to certain executive officers of Legacy Sterling. In addition, the Company issued 255,973 shares of restricted stock from shares available under a prior plan to certain executives of Legacy Sterling. The weighted average grant date fair value under both of these plans was $11.72 per share, and the restricted stock awards vested in October 2016.

The following table summarizes the activity in the Company’s active stock-based compensation plans for the nine months ended September 30, ~~2017:~~2018:


			Non-vested stock awards/stock units outstanding				Stock options outstanding						Non-vested stock awards/stock units outstanding				Stock options outstanding
	Shares available for grant		Number of shares		Weighted average grant date fair value		Number of shares		Weighted average exercise price		Shares available for grant		Number of shares		Weighted average grant date fair value		Number of shares		Weighted average exercise price
Balance at January 1, 2017	3,639,838		932,223		$	14.09	1,004,119		$	11.00
Balance at January 1, 2018											3,101,327		1,238,760		$	20.00	757,867		$	11.15
Granted	(556,534	)	556,534		24.07		—		—		(772,271	)	772,271		23.54		—		—
Stock awards vested	—		(155,498	)	14.28		—		—		—		(341,501	)	17.35		—		—
Exercised	—		—		—		(118,598	)	10.06		—		—		—		(49,794	)	11.19
Forfeited	68,113		(66,113	)	18.84		(2,000	)	13.18		55,356		(50,056	)	22.32		(5,300	)	13.18
Canceled/expired	(4,907	)	—		—		—		13.18		(5,300	)	—		—		—		13.18
Balance at September 30, 2017	3,146,510		1,267,146		$	19.61	883,521		$	11.12
Exercisable at September 30, 2017							776,767		$	10.81
Balance at September 30, 2018											2,379,112		1,619,474		$	22.08	702,773		$	11.13
Exercisable at September 30, 2018																	701,106		$	11.12

The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $7,640 and $7,629, respectively, at September 30, 2018.

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~~The total intrinsic value of outstanding in-the-money stock options and outstanding in-the-money exercisable stock options was $11,956 and $10,748, respectively, at September 30, 2017.~~

The Company uses an option pricing model to estimate the grant date fair value of stock options granted. There were no stock options granted during the nine months ended September 30, ~~2017~~2018 or September 30, ~~2016.~~2017.

Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Stock-based compensation expense associated with stock options and non-vested stock awards and the related income tax benefit are presented below:


	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Stock options	$	48	$	95	$	146	$	345	$	2	$	48	$	5	$	146
Non-vested stock awards/performance units	1,921		1,579		5,456		4,615		3,113		1,921		9,299		5,456
Total	$	1,969	$	1,674	$	5,602	$	4,960	$	3,115	$	1,969	$	9,304	$	5,602
Income tax benefit	640		557		1,821		1,652		654		640		1,954		1,821
Proceeds from stock option exercises	65		2,278		1,193		3,703		154		65		556		1,193

Unrecognized stock-based compensation expense as of September 30, ~~2017~~2018 was as follows:


	September 30, 2017		September 30, 2018
Stock options	$	12	$	—
Non-vested stock awards/performance units	14,894		21,289
Total	$	14,906	$	21,289

~~The weighted average period over which unrecognized stock options expense is expected to be recognized is 0.11 years.~~ The weighted average period over which unrecognized non-vested stock awards/performance units expense is expected to be recognized is ~~1.70~~1.67 years.

(12) Pension and Other Post-Retirement ~~Plans~~Benefits

Total pension and other post-retirement benefits expense is comprised of the following for the periods presented below:


	For the three months ended				For the nine months ended				For the three months ended
	September 30,				September 30,				September 30, 2018					September 30, 2017
	2017		2016		2017		2016		Pension Benefits			Other Post Retirement Benefits		Pension Benefits		Other Post Retirement Benefits
Service cost	$	—	$	—	$	—	$	—	$	—		$	20	$	—	$	—
Interest cost	101		104		302		313		2,121			254		—		101
Expected return on plan assets									(3,353		)	—		—		—
Net amortization and deferral	8		16		26		48		—			—		—		8
Total other post-retirement expense	$	109	$	120	$	328	$	361
Net periodic pension and other post-retirement (benefit) expense									$	(1,232	)	$	274	$	—	$	109



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)



	For the nine months ended
	September 30, 2018					September 30, 2017
	Pension Benefits			Other Post Retirement Benefits		Pension Benefits		Other Post Retirement Benefits
Service cost	$	—		$	62	$	—	$	—
Interest cost	6,364			780		—		302
Expected return on plan assets	(10,058		)	—		—		—
Net amortization and deferral	—			—		—		26
Net periodic pension and other post-retirement (benefit) expense	$	(3,694	)	$	842	$	—	$	328

Total net periodic pension and other post-retirement (benefit) expense is included as a component of ~~compensation~~other non-interest expense.

The Company’s pension benefit plans include all of the assets and ~~benefits expense~~liabilities of the Astoria Bank Pension Plan, the Astoria Excess and Supplemental Benefit Plans, the Astoria Directors’ Retirement Plan, the Greater New York Savings Bank Directors’ Retirement Plan and the Long Island Bancorp Directors’ Retirement Plan, which were assumed in the ~~consolidated income statements.~~Astoria Merger.

The Company’s other ~~post-retirement~~post retirement benefit plans include the assumed Astoria Bank Retiree Health Care Plan and the Astoria Bank BOLI plan, along with other non-qualified Supplemental Executive Retirement Plans (“SERPs”) that provide certain directors, officers and executives with supplemental retirement benefits.

The Company contributed ~~$109~~$41,825 and ~~$77~~$13 to fund ~~SERP~~pension and other post retirement benefits during the three months ended September 30, 2018 and 2017, respectively, and contributed $42,500 and $109 to fund pension and other post retirement benefits during the nine months ended September 30, 2018 and 2017, respectively. Included in the contribution made during the three and ~~2016, respectively.~~nine months ended September 30, 2018 was a payment of $41,510 towards the Astoria Bank Pension Plan unfunded accumulated benefit obligation. Total pension and other post-retirement ~~plan~~benefits plans liabilities were ~~$12,344~~$43,867 and ~~$12,125~~$89,965 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, and are included in other liabilities in the consolidated balance sheets.

(13) Non-Interest Income and Other Non-Interest Expense

(a) Non-Interest Income - Revenue from Contracts with Customers

The Company’s significant sources of non-interest income are presented on the face of the consolidated income statements, which include all income in the scope of the New Revenue Standard. A description of the Company’s revenue streams accounted for under the New Revenue Standard follows:

Deposit fees and service charges. The Company earns fees from its deposit customers mainly for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which includes services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Accounts receivable management / factoring commissions and other fees. The Company earns these fees / commissions from its payroll finance and factoring businesses, as described below.

Payroll finance. The Company provides financing and back office support services, which includes preparation of payroll, payroll tax payments, billings and collections, for clients in the temporary staffing industry. Upon completion of the back office support services, and as payroll remittances are made on behalf of the client to fund their employee payroll, which typically occurs weekly, the Company recognizes a portion of the total revenue generated as non-interest income. The Company collects invoices directly from the borrower’s customers, and retains the amounts billed for the temporary staffing services provided, and remits the remaining funds to the borrower net of amounts advanced, payroll taxes withheld, the Company’s fees, and subject to a reserve to offset potential uncollectible balances.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

Factored Receivables. The Company provides accounts receivable management services. The purchase of a client’s accounts receivable is traditionally known as “factoring” and results in payment by the client of a factoring fee. The factoring fee included in non-interest income represents compensation to the Company for the bookkeeping and collection services provided. The factoring fee, which is non-refundable, is recognized at the time the receivable is assigned to the Company. Other revenue associated with factored receivables includes wire fees, technology fees, field examination fees and UCC fees. All such fees are recognized as income upon receipt, which is when the Company’s obligations are provided to the Company’s customers.

Investment management fees. The Company earns investment management fees from its contracts with customers to manage assets for investment, and / or to transact on their accounts. Advisory fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date.

Gains / Losses on sales of OREO. The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform its obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company may adjust the transaction price and related gain (loss) on sale if a significant financing component is present.

Contract Balances. A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s non-interest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as investment management fees based on period-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2018 and December 31, 2017, the Company did not have any significant contract balances.

(b) Other Non-Interest Expense

Other non-interest expense items for the three and nine months ended September 30, 2018 and 2017, respectively, are presented in the following table:



	For the three months ended				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
Other non-interest expense:
Professional fees	$	2,866	$	2,234	$	9,269	$	6,917
Advertising and promotion	1,147		649		3,962		2,034
Telephone	1,238		589		4,500		1,705
Operational losses	791		130		2,945		642
Stationery & office supplies	507		170		1,790		641
Insurance & surety bond premium	1,299		841		2,680		2,065
Other	5,325		3,734		14,534		11,072
Total other non-interest expense	$	13,173	$	8,347	$	39,680	$	25,076



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

~~(13) Other Non-interest Expense~~

~~Other non-interest expense items for the three and nine months ended September 30, 2017 and 2016, respectively, are presented in the following table:~~

For the three months ended For the nine months ended
September 30, September 30,
2017 2016 2017 2016
Other non-interest expense:
   Advertising and promotion $ 649
$ 737
$ 2,034
$ 2,273
   Professional fees 2,234
2,604
6,917
7,684
   Data and check processing 2,512
2,402
7,402
6,417
Insurance & surety bond premium 841
821
2,065
2,503
   Other 3,917
4,371
12,735
14,453
Total other non-interest expense $ 10,153
$ 10,935
$ 31,153
$ 33,330

(14) Earnings Per Common Share

The following is a summary of the calculation of earnings per common share (“EPS”):


	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Net income	$	44,852	$	37,422	$	126,319	$	98,958
Net income available to common stockholders									$	117,657	$	44,852	$	326,775	$	126,319
Weighted average common shares outstanding for computation of basic EPS	135,346,791		130,239,193		135,276,634		130,049,358		225,088,511		135,346,791		224,969,121		135,276,634
Common-equivalent shares due to the dilutive effect of stock options and unvested performance share grants⁽¹⁾	603,369		636,421		618,879		596,347		534,384		603,369		535,342		618,879
Weighted average common shares for computation of diluted EPS	135,950,160		130,875,614		135,895,513		130,645,705		225,622,895		135,950,160		225,504,463		135,895,513
Earnings per common share:
EPS:
Basic	$	0.33	$	0.29	$	0.93	$	0.76	$	0.52	$	0.33	$	1.45	$	0.93
Diluted	0.33		0.29		0.93		0.76		0.52		0.33		1.45		0.93
Weighted average common shares that could be exercised that were anti-dilutive for the period⁽²⁾	—		—		—		—		—		—		—		—

⁽¹⁾ Represents incremental shares computed using the treasury stock method.

⁽²⁾ Anti-dilutive shares are not included in determining diluted ~~earnings per share.~~EPS. There were no anti-dilutive shares in the three and nine months ended September 30, ~~2017~~2018 or September 30, ~~2016.~~2017.

(15) Stockholders’ Equity

(a) Regulatory Capital Requirements

Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines, and additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk-weighting, and other factors.

The Basel III Capital Rules became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Common Equity Tier 1 capital (as defined in the regulations), Tier 1 capital (as defined in the regulations) and Total capital (as defined in the regulations) to risk-weighted assets (as



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

defined in the regulations, “RWA”), and of Tier 1 capital to adjusted quarterly average total assets (as defined in the regulations, the “Tier 1 leverage ratio”).

The Company’s and the Bank’s Common Equity Tier 1 capital consists of common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, we elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1 capital. Common Equity Tier 1 capital for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities and subject to transition provisions.

Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital (as defined in the regulations) for both the Bank and the Company includes a permissible portion of the allowance for loan losses and ~~$172,661~~$172,885 and ~~$156,699~~$139,429 of the Subordinated Notes, respectively. During the final five years of the term of the Subordinated Notes, the permissible portion eligible for inclusion in Tier 2 capital decreases by 20% annually.

The Common Equity Tier 1, Tier 1 and Total capital ratios are calculated by dividing the respective capital amounts by RWA. RWA is calculated based on regulatory requirements and includes total assets, excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet items, among other items.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which excludes goodwill and other intangible assets, among other items. When fully phased-in on January 1, 2019, the Basel III Capital Rules will require the Company and the Bank to maintain: (i) a minimum ratio of Common Equity Tier 1 capital to RWA of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to RWA of at least 7.0% upon full implementation); (ii) a minimum ratio of Tier 1 capital to RWA of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to RWA of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and (iv) a minimum Tier 1 leverage ratio of 4.0%.

The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and effective January 1, ~~2017,~~2018, increased to the ~~1.25%~~1.875% level and will be phased-in over a four-year period (increasing by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to RWA above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The following tables present actual and required capital ratios as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well-capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.



	Actual				Minimum capital required - Basel III phase-in schedule				Minimum capital required - Basel III fully phased-in				Required to be considered well- capitalized
	Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
September 30, 2018
Common equity tier 1 to RWA:
Sterling National Bank	$	2,970,656	14.23	%	$	1,330,866	6.375	%	$	1,461,343	7.00	%	$	1,356,961	6.50	%
Sterling Bancorp	2,710,568		12.97		1,332,021		6.375		1,462,611		7.00		N/A		N/A
Tier 1 capital to RWA:
Sterling National Bank	2,970,656		14.23	%	1,644,011		7.875	%	1,774,488		8.50	%	1,670,106		8.00	%
Sterling Bancorp	2,849,195		13.64		1,645,438		7.875		1,776,028		8.50		N/A		N/A
Total capital to RWA:
Sterling National Bank	3,235,560		15.50	%	2,061,538		9.875	%	2,192,015		10.50	%	2,087,633		10.00	%
Sterling Bancorp	3,080,643		14.74		2,063,327		9.875		2,193,917		10.50		N/A		N/A
Tier 1 leverage ratio:
Sterling National Bank	2,970,656		10.10	%	1,176,278		4.00	%	1,176,278		4.00	%	1,470,347		5.00	%
Sterling Bancorp	2,849,195		9.68		1,177,205		4.00		1,177,205		4.00		N/A		N/A

3337



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

Actual Minimum capital required - Basel III phase-in schedule Minimum capital required - Basel III fully phased-in Required to be considered well- capitalized
Capital amount Ratio Capital amount Ratio Capital amount Ratio Capital amount Ratio
September 30, 2017
Common equity tier 1 to RWA:
Sterling National Bank $ 1,276,461
10.41 % $ 704,960
5.75 % $ 858,212
7.00 % $ 796,911
6.50 %
Sterling Bancorp 1,259,416
10.27
704,787
5.75
858,002
7.00
N/A
N/A
Tier 1 capital to RWA:
Sterling National Bank 1,276,461
10.41 % 888,862
7.25 % 1,042,114
8.50 % 980,813
8.00 %
Sterling Bancorp 1,259,416
10.27
888,645
7.25
1,041,859
8.50
N/A
N/A
Total capital to RWA:
Sterling National Bank 1,521,795
12.41 % 1,134,065
9.25 % 1,287,317
10.50 % 1,226,017
10.00 %
Sterling Bancorp 1,488,787
12.15
1,133,788
9.25
1,287,002
10.50
N/A
N/A
Tier 1 leverage ratio:
Sterling National Bank 1,276,461
8.54
597,687
4.00 % 597,687
4.00 % 747,109
5.00 %
Sterling Bancorp 1,259,416
8.42
598,037
4.00
598,037
4.00
N/A
N/A


	Actual				Minimum capital required - Basel III phase-in schedule				Minimum capital required - Basel III fully phased-in				Required to be considered well- capitalized				Actual				Minimum capital required - Basel III phase-in schedule				Minimum capital required - Basel III fully phased-in				Required to be considered well- capitalized
	Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
December 31, 2016
December 31, 2017
Common equity tier 1 to RWA:
Sterling National Bank	$	1,176,497	10.87	%	$	554,663	5.125	%	$	757,588	7.00	%	$	703,475	6.50	%	$	2,770,381	13.95	%	$	1,142,247	5.75	%	$	1,390,561	7.00	%	$	1,291,236	6.50	%
Sterling Bancorp	1,160,739		10.73		554,474		5.125		757,330		7.00		N/A		N/A		2,458,449		12.37		1,143,045		5.75		1,391,534		7.00		N/A		N/A
Tier 1 capital to RWA:
Sterling National Bank	1,176,497		10.87	%	717,003		6.625	%	919,928		8.50	%	865,815		8.00	%	2,770,381		13.95	%	1,440,224		7.25	%	1,688,539		8.50	%	1,589,213		8.00	%
Sterling Bancorp	1,160,739		10.73		716,759		6.625		919,615		8.50		N/A		N/A		2,597,669		13.07		1,441,231		7.25		1,689,719		8.50		N/A		N/A
Total capital to RWA:
Sterling National Bank	1,413,165		13.06	%	933,457		8.625	%	1,136,382		10.50	%	1,082,269		10.00	%	3,021,658		15.21	%	1,837,527		9.25	%	2,085,842		10.50	%	1,986,516		10.00	%
Sterling Bancorp	1,377,547		12.73		933,139		8.625		1,135,995		10.50		N/A		N/A		2,818,404		14.18		1,838,812		9.25		2,087,300		10.50		N/A		N/A
Tier 1 leverage ratio:
Sterling National Bank	1,176,497		9.08	%	518,308		4.000	%	518,308		4.00	%	647,885		5.00	%	2,770,381		10.10	%	1,097,449		4.00	%	1,097,449		4.00	%	1,371,811		5.00	%
Sterling Bancorp	1,160,739		8.95		518,733		4.000		518,733		4.00		N/A		N/A		2,597,669		9.39		1,106,977		4.00		1,106,977		4.00		N/A		N/A

The Bank and the Company are subject to the regulatory capital requirements administered by the FRB, and, for the Bank, the Office of the Comptroller of the Currency. Regulatory authorities can initiate certain mandatory actions if the Bank or the Company fails to meet the minimum capital requirements, which could have a direct material effect on our financial statements. As of September 30, 2018, and December 31, 2017, the most recent regulatory notifications categorized the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes ~~that~~have changed the ~~Bank and the Company meet all capital adequacy requirements to which they are subject.~~classification.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

(b) Dividend Restrictions

The Company is mainly dependent on dividends from the Bank to provide funds for the payment of dividends to stockholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that fiscal year combined with the retained net profits for the preceding two fiscal years. Under the foregoing dividend restrictions and while maintaining its “well-capitalized” status, at September 30, ~~2017,~~2018, the Bank had capacity to pay aggregate dividends of up to ~~$221,000~~$324,008 to the Company without prior regulatory approval.

On November 22, 2016, the Company completed a public offering of 4,370,000 shares of common stock at an offering price of $20.95 per share for gross proceeds of approximately $92,863, and net proceeds, after underwriting discounts, commissions and other costs of issuance, of $90,995.

~~(d)~~ Stock Repurchase Plans

From time to time, the Company’s Board of Directors has authorized stock repurchase plans. The Company ~~has 776,713~~may purchase up to 10,000,000 common shares, ~~that are~~which represents 4.4% of our shares outstanding at September 30, 2018. Repurchases may be made at management’s discretion through open market purchases and block trades in accordance with SEC and regulatory requirements. Any common shares purchased will be held as Treasury stock and made available ~~to be purchased under a previously announced stock repurchase program.~~for general corporate purposes. There were no shares repurchased under the repurchase program during the nine months ended September 30, ~~2017~~2018 or September 30, ~~2016.~~

~~(e) Liquidation Rights~~

Upon completion of a second-step conversion in January 2004, the Bank established a special “liquidation account” in accordance with Office of the Comptroller of the Currency regulations. The account was established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as defined in the plan of conversion) in an amount equal to the greater of (i) the Mutual Holding Company’s (as defined in the plan of conversion) ownership interest in the retained earnings of the Bank as of the date of its latest balance sheet contained in the prospectus; or (ii) the retained earnings of the Bank at the time that the Bank reorganized into the Mutual Holding Company in 1999. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at the Bank would be entitled, in the event of a complete liquidation of the Bank, to a pro rata interest in the liquidation account prior to any payment to the stockholders of the Company. The liquidation account is reduced annually on September 30 to the extent that Eligible Account Holders and Supplemental Eligible Account Holders have reduced their qualifying deposits as of each anniversary date. At September 30, 2017, the liquidation account had a balance of $13,300. Subsequent increases in deposits do not restore such account holder’s interest in the liquidation account. The Bank may not pay cash dividends or make other capital distributions if the effect thereof would reduce its stockholders’ equity below the amount of the liquidation account.2017.

(16) Commitments and Contingencies

(a) Off-Balance Sheet Financial Instruments

In the normal course of business, the Company enters into various transactions, which, in accordance with GAAP, are not included in its consolidated balance ~~sheet.~~sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures.



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. Based on the Company’s credit risk exposure assessment of its standby letter of credit arrangements, the arrangements contain security and debt covenants similar to those contained in loan agreements.

The contractual or notional amounts of these instruments, which reflect the extent of the Company’s involvement in particular classes of off-balance sheet financial instruments, are summarized as follows:



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2018		2017
Loan origination commitments	$	252,197	$	245,319	$	372,047	$	510,135
Unused lines of credit	1,025,171		968,288		1,359,953		1,195,656
Letters of credit	131,611		114,582		289,877		166,824

(b) Lease Commitments

The Company leases certain premises and equipment under operating leases with terms expiring through January 2034. Included in occupancy and office operations expense was net rent expense of ~~$1,874~~$4,572 and ~~$2,394~~$1,874 during the three months ended September 30, 2018 and 2017, ~~and 2016, respectively, and net~~respectively. Net rent expense ofwas $13,972 and $6,263 ~~and $8,115 during~~for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Future minimum lease payments due under non-cancelable operating leases at September 30, ~~2017~~2018 were as follows:


Remainder of 2017	$	2,478
2018	9,616
Remainder of 2018			$	4,863
2019	8,513		17,817
2020	7,607		16,577
2021	6,168		13,878
2022	5,039		10,007
2023 and thereafter	15,716
2023			8,163
2024 and thereafter			22,158
	$	55,137	$	93,463

The Company and the Bank are involved in a number of judicial proceedings concerning matters arising from their business activities. These include routine legal proceedings arising in the ordinary course of business. These proceedings also include actions brought against the Company and the Bank with respect to corporate matters and transactions in which the Company and the Bank are or were involved; in particular, the Company has been named as a defendant in shareholder litigation arising out of the announcement of the Astoria Merger. While the Company believes these claims are without merit, the Company has agreed to settle the litigations related to the Astoria Merger, pending court approval, and believes these settlement amounts will be immaterial. In addition, the Company and the Bank may be requested to provide information or otherwise cooperate with government authorities in the conduct of investigations of other persons or industry groups.involved.

There can be no assurance as to the ultimate outcome of a legal proceeding; however, the Company and the Bank have generally denied liability in all significant litigation pending against them and intend to defend vigorously each case, other than matters that are determined appropriate to be settled. The Company and the Bank accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims.



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

(17) Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risk, etc.) or inputs that are derived principally from, or corroborated by, market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair value of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

In general, fair value is based on quoted market prices, when available. If quoted market prices in active markets are not available, fair value is based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other items, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates; therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which usually coincide with the Company’s monthly and/or quarterly valuation process.

Investment Securities Available for Sale

The majority of the Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are mortgage pass-through securities, state and municipal general obligation or revenue bonds, U.S. agency bullet and callable securities and corporate bonds. Pricing for such instruments is fairly generic and is easily obtained. From time to time, the Company validates, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.

As of September 30, ~~2017,~~2018, management does not believe any of our securities are OTTI; however, management reviews all of the Company’s securities on at least a quarterly basis to assess whether impairment, if any, is OTTI.

Derivatives

The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements, and the creditworthiness of the counterparty as of the measurement date (Level 2 inputs). The Company’s derivatives consist of interest rate swaps. See Note 9. “Derivatives” for additional information.

3740



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

A summary of such investment securities available for sale and derivatives at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, ~~were~~ measured at estimated fair value on a recurring basis, is as follows:


	September 30, 2017										September 30, 2018
	Fair value			Level 1 inputs		Level 2 inputs			Level 3 inputs		Fair value			Level 1 inputs		Level 2 inputs			Level 3 inputs
Assets:
Investment securities available for sale:
Residential MBS⁽¹⁾:
Agency-backed	$	1,869,967		$	—	$	1,869,967		$	—	$	2,207,191		$	—	$	2,207,191		$	—
CMOs⁽²⁾/Other MBS	66,051			—		66,051			—		576,052			—		576,052			—
Total residential MBS	1,936,018			—		1,936,018			—		2,783,243			—		2,783,243			—
Other securities:
Federal agencies	225,757			—		225,757			—		317,733			—		317,733			—
Corporate	120,044			—		120,044			—		503,326			—		503,326			—
State and municipal	297,257					297,257			—		238,942			—		238,942			—
Total other securities	643,058			—		643,058			—		1,060,001			—		1,060,001			—
Total available for sale securities	2,579,076			—		2,579,076			—		3,843,244			—		3,843,244			—
Swaps	4,783			—		4,783			—		3,637			—		3,637			—
Total assets	$	2,583,859		$	—	$	2,583,859		$	—	$	3,846,881		$	—	$	3,846,881		$	—
Liabilities:
Swaps	$	(6,842	)	$	—	$	(6,842	)	$	—	$	(18,768	)	$	—	$	(18,768	)	$	—
Total liabilities	$	(6,842	)	$	—	$	(6,842	)	$	—	$	(18,768	)	$	—	$	(18,768	)	$	—

⁽¹⁾Residential MBS are debt securities whose cash flows come from residential mortgage and consumer loans, such as mortgages and HELOCs. A residential MBS is comprised of a pool of mortgage loans created by financial institutions, including governmental agencies. The cash flows from each ~~of the~~ mortgage ~~loans~~loan included in the pool are structured through a special purpose entity into various classes and tranches, which then issue securities backed by those cash flows to investors.

⁽²⁾ CMOs are debt securities that are collateralized by a specific pool of residential mortgage loans, in which the issuer of the CMOs can direct the payments of principal and interest received on the underlying collateral to achieve specific investor cash flow objectives. The Bank generally acquires planned-amortization class securities and CMOs with a sequential pay structure in order to manage the duration and extension risk inherent in these securities.

3841



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)


	December 31, 2016										December 31, 2017
	Fair value			Level 1 inputs		Level 2 inputs			Level 3 inputs		Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Assets:
Investment securities available for sale:
Residential MBS:
Agency-backed	$	1,193,481		$	—	$	1,193,481		$	—	$	2,150,649	$	—	$	2,150,649	$	—
CMOs/Other MBS	56,681			—		56,681			—		649,403		—		649,403		—
Total residential MBS	1,250,162			—		1,250,162			—		2,800,052		—		2,800,052		—
Federal agencies	193,979			—		193,979			—		399,996		—		399,996		—
Corporate bonds	42,506			—		42,506			—		148,226		—		148,226		—
State and municipal	240,770					240,770			—		263,798		—		263,798		—
Total other securities	477,255			—		477,255			—		812,020		—		812,020		—
Total available for sale securities	1,727,417			—		1,727,417			—		3,612,072		—		3,612,072		—
Swaps	2,088			—		2,088			—		4,457		—		4,457		—
Total assets	$	1,729,505		$	—	$	1,729,505		$	—	$	3,616,529	$	—	$	3,616,529	$	—
Liabilities:
Swaps	$	(2,088	)	$	—	$	(2,088	)	$	—	$	7,980	$	—	$	7,980	$	—
Total liabilities	$	(2,088	)	$	—	$	(2,088	)	$	—	$	7,980	$	—	$	7,980	$	—

The following categories of financial assets are not measured at fair value on a recurring basis, but are subject to fair value adjustments in certain circumstances.

Impaired Loans

Loans that meet certain criteria are evaluated individually for impairment. Generally, ~~commercial~~ loans less than ~~$250 and residential mortgage and consumer loans, including HELOCs, less than $500~~$750 are evaluated for impairment on a pooled basis. Impairment amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated impairment amount applicable to that loan does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable by market participants. However, due to the substantial judgment applied and limited volume of activity as compared to other assets, fair value of the underlying collateral is based on Level 3 inputs. Estimates of fair value used for collateral supporting commercial loans generally are based on assumptions not observable in the market place and are also based on Level 3 inputs. Impaired loans are remeasured at least quarterly and their carrying values are adjusted as needed. Impaired loans subject to non-recurring fair value measurements were ~~$55,422~~$111,685 and ~~$55,391~~$60,862 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Changes in fair value recognized as a charge-off on loans held by the Company were ~~$542~~$10,477 and ~~$314~~$542 for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

When an impaired loan is collateral dependent, the Company charges-off the difference between the recorded investment in the loan and the appraised value less cost to sell. A discount for estimated costs to dispose of the asset and overall marketability is used when estimating the amount of impairment.

A summary of the classes with impaired loans at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, is set forth below:


	September 30, 2017								September 30, 2018
	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
C&I	$	177	$	—	$	—	$	177
Traditional C&I									$	30,895	$	—	$	—	$	30,895
Commercial real estate	3,278		—		—		3,278		11,160		—		—		11,160
Multi-family									1,236		—		—		1,236
Residential mortgage	921		—		—		921		769		—		—		769
Total impaired loans measured at fair value	$	4,376	$	—	$	—	$	4,376	$	44,060	$	—	$	—	$	44,060

3942



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)


	December 31, 2016								December 31, 2017
	Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs		Fair value		Level 1 inputs		Level 2 inputs		Level 3 inputs
Traditional C&I									$	114	$	—	$	—	$	114
Commercial real estate	$	6,786	$	—	$	—	$	6,786	782		—		—		782
Total impaired loans measured at fair value	$	6,786	$	—	$	—	$	6,786	$	896	$	—	$	—	$	896

Mortgage Servicing Rights

Mortgage servicing rights are carried at the lower of cost or estimated fair value. The fair value of mortgage servicing rights is estimated using a discounted cash flow model that is prepared by an independent third-party valuation provider and is performed on a quarterly basis. The significant assumptions, which are assumptions we believe other market participants would use, include the following: market discount rates, prepayment speeds, servicing revenue, the cost of servicing and loan default rates. The market discount rates and prepayment speeds are considered by management to be two of the most significant inputs into the determination of the estimated fair value. Due to the significant judgment involved, the determination of estimated fair value of mortgage servicing rights relies upon Level 3 inputs.

At September 30, ~~2017,~~2018, the assumption for constant prepayment ~~speeds~~rates (“CPR”) ranged from ~~100~~8.68 to ~~432~~19.23, with a weighted average ~~prepayment speed~~CPR of ~~187~~9.28, and the assumption for market discount rate ranged from ~~9.25%~~9.06% to ~~12.25%~~20.00%, with a weighted average market discount rate of ~~10.57%~~9.54%. At December 31, ~~2016,~~2017, the CPR assumption ~~for prepayment speeds~~ ranged from ~~100~~9.79 to ~~555~~16.76, with a weighted average ~~prepayment speed~~CPR of ~~174~~10.30, and the assumption for market discount rate ranged from ~~8.50%~~9.50% to ~~11.50%~~20.00%, with a weighted average market discount rate of ~~9.73%~~9.90%. The fair value of mortgage servicing rights at September 30, ~~2017~~2018 and December 31, ~~2016~~2017 was ~~$999~~$11,564 and ~~$1,024,~~$10,363, respectively.

Other Real Estate Owned

~~Other real estate owned~~OREO is initially recorded at fair value less costs to sell when acquired, which establishes a new cost basis. When an asset is acquired, the excess of the recorded investment in the loan over the fair value less cost to sell is charged to the allowance for loan losses. These assets are subsequently accounted for at the lower of cost or fair value less ~~costs~~cost to sell and are primarily comprised of commercial and residential real estate property. If the fair value declines, a write-down is recorded in other real estate owned expense, net on the consolidated income ~~statement.~~statements. Fair value is generally determined using appraisals or other indications of value based on comparable sales of similar properties or assumptions generally observable in the marketplace. Adjustments are routinely made in the appraisal process by independent appraisers for differences between comparable sales and income data available (in the case of income producing properties). The fair value is derived using Level 3 inputs. Appraisals are reviewed by the Company’s credit department and an external loan review consultant and verified by officers in the Company’s credit administration area.

At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, appraisals were discounted by 22.0%, which considers estimated costs to sell and overall marketability of the properties. ~~Other real estate owned~~OREO subject to non-recurring fair value measurement ~~were $11,697~~was $22,735 and ~~$13,619~~$27,095 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. There were ~~$1,737~~$553 and ~~$582~~$1,737 of write-downs related to changes in fair value for ~~other real estate owned~~OREO held by the Company during the nine months ended September 30, ~~2017~~2018 and September 30, ~~2016,~~2017, respectively.

Fair Value of Financial Instruments

Fair values for financial instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with ~~FASB~~ ASC Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

4043



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of September 30, ~~2017:~~2018:


	September 30, 2017											September 30, 2018
	Carrying amount			Level 1 inputs			Level 2 inputs			Level 3 inputs		Carrying amount			Level 1 inputs			Level 2 inputs			Level 3 inputs
Financial assets:
Cash and cash equivalents	$	407,203		$	407,203		$	—		$	—	$	533,984		$	533,984		$	—		$	—
Securities available for sale	2,579,076			—			2,579,076			—		3,843,244			—			3,843,244			—
Securities held to maturity	1,936,574			—			1,932,755			—		2,842,728			—			2,746,081			—
Loans held for sale												31,042			—			31,042			—
Portfolio loans, net	10,421,407			—			—			10,369,659		20,441,849			—			—			20,317,154
Accrued interest receivable on securities	26,283			—			26,283			—		43,934			—			43,934			—
Accrued interest receivable on loans	31,278			—			—			31,278		65,443			—			—			65,443
FHLB stock and FRB stock	191,276			—			—			—		351,455			—			—			—
Swaps	4,783			—			4,783			—		3,637			—			3,637			—
Financial liabilities:
Non-maturity deposits	(10,477,078		)	(10,477,078		)	—			—		(18,885,107		)	(18,885,107		)	—			—
Certificates of deposit	(566,360		)	—			(564,517		)	—		(2,570,950		)	—			(2,532,989		)	—
FHLB borrowings	(3,016,000		)	—			(3,043,454		)	—		(4,429,110		)	—			(4,403,358		)	—
Other borrowings	(188,403		)	—			(188,402		)	—		(22,888		)	—			(22,886		)	—
Senior Notes	(76,719		)	—			(78,987		)	—		(200,972		)	—			(199,370		)	—
Subordinated Notes	(172,661		)	—			(183,589		)	—		(172,885		)	—			(172,061		)	—
Mortgage escrow funds	(19,148		)	—			(19,148		)	—		(96,952		)	—			(87,766		)	—
Accrued interest payable on deposits	(812		)	—			(812		)	—		(1,905		)	—			(1,905		)	—
Accrued interest payable on borrowings	(9,949		)	—			(9,949		)	—		(14,284		)	—			(14,284		)	—
Swaps	(6,842		)	—			(6,842		)	—		(18,768		)	—			(18,768		)	—

Effective January 1, 2018, with the adoption of the New Fair Value Standard, the fair value of portfolio loans, net is determined using an exit price methodology. The exit price methodology continues to be based on a discounted cash flow analysis, in which projected cash flows are based on contractual cash flows adjusted for prepayments for certain loan types (e.g. residential mortgage loans and multi-family loans) and the use of a discount rate based on expected relative risk of the cash flows. The discount rate selected considers loan type, maturity date, a liquidity premium, cost to service, and cost of capital, which is a Level 3 fair value estimate. In 2017, the fair value estimate of portfolio loans, net was determined using an entrance price methodology based only on the discounted methodology outlined above.

4144



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following is a summary of the carrying amounts and estimated fair value of financial assets and liabilities (none of which were held for trading purposes) as of December 31, ~~2016:~~2017:


	December 31, 2016											December 31, 2017
	Carrying amount			Level 1 inputs			Level 2 inputs			Level 3 inputs		Carrying amount			Level 1 inputs			Level 2 inputs			Level 3 inputs
Financial assets:
Cash and cash equivalents	$	293,646		$	293,646		$	—		$	—	$	479,906		$	479,906		$	—		$	—
Securities available for sale	1,727,417			—			1,727,417			—		3,612,072			—			3,612,072			—
Securities held to maturity	1,391,421			—			1,357,997			—		2,862,489			—			2,863,909			—
Loans held for sale	41,889			—			41,889			—		5,246			—			5,246			—
Portfolio loans, net	9,463,608			—			—			9,461,469		19,931,076			—			—			19,903,231
Accrued interest receivable on securities	16,495			—			16,495			—		34,652			—			34,652			—
Accrued interest receivable on loans	26,824			—			—			26,824		59,446			—			—			59,446
FHLB stock and FRB stock	135,098			—			—			—		284,112			—			—			—
Swaps	2,088			—			2,088			—		4,457			—			4,457			—
Financial liabilities:
Non-maturity deposits	(9,484,505		)	(9,484,505		)	—			—		(18,098,566		)	(18,098,566		)	—			—
Certificates of deposit	(583,754		)	—			(582,811		)	—		(2,439,638		)	—			(2,412,495		)	—
FHLB borrowings	(1,791,000		)	—			(1,788,676		)	—		(4,510,123		)	—			(4,496,184		)	—
Other borrowings	(16,642		)	—			(16,642		)	—		(30,162		)	—			(30,160		)	—
Senior Notes	(76,469		)	—			(79,283		)	—		(278,209		)	—			(278,968		)	—
Subordinated Notes	(172,501		)	—			(169,813		)	—		(172,716		)	—			(179,619		)	—
Mortgage escrow funds	(13,572		)	—			(13,572		)	—		(122,641		)	—			(117,050		)	—
Accrued interest payable on deposits	(663		)	—			(663		)	—		(1,103		)	—			(1,103		)	—
Accrued interest payable on borrowings	(3,621		)	—			(3,621		)	—		(9,649		)	—			(9,649		)	—
Swaps	(2,088		)	—			(2,088		)	—		(7,980		)	—			(7,980		)	—

~~The following paragraphs summarize the principal methods and assumptions used by the Company to estimate the fair value~~

(18) Accumulated Other Comprehensive Loss

Components of accumulated other comprehensive loss were as follows as of the ~~Company’s financial instruments:~~dates shown below:

~~Loans~~

The estimated fair value approximates the carrying value for variable-rate loans that reprice frequently with no significant change in credit risk. The fair value of fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. An overall valuation adjustment is made for specific credit risks, as well as general portfolio credit risk.

~~FHLB Stock and FRB Stock~~

~~The redeemable carrying amount of these securities with limited marketability approximates their fair value.~~

~~Deposits and Mortgage Escrow Funds~~

Deposits with no stated maturity (such as demand, money market and savings deposits) are assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds are segregated by account type and original term, and fair values are estimated by discounting the contractual cash flows. The discount rate for each account grouping is equivalent to the current market rates for deposits of similar type and maturity.

These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposits. We believe that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.



	September 30,			December 31,
	2018			2017
Net unrealized holding loss on available for sale securities	$	(159,493	)	$	(36,899	)
Related income tax benefit	44,084			14,575
Available for sale securities, net of tax	(115,409		)	(22,324		)
Net unrealized holding loss on securities transferred to held to maturity	(3,741		)	(4,426		)
Related income tax benefit	1,034			1,748
Securities transferred to held to maturity, net of tax	(2,707		)	(2,678		)
Net unrealized holding loss on retirement plans	(773		)	(1,924		)
Related income tax benefit	214			760
Retirement plans, net of tax	(559		)	(1,164		)
Accumulated other comprehensive loss	$	(118,675	)	$	(26,166	)

4245



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

~~FHLB Borrowings, Other Borrowings, Senior Notes and Subordinated Notes~~

The ~~estimated fair value approximates~~following table presents the carrying value for short-term borrowings. The fair value of long-term fixed-rate borrowings is estimated using quoted market prices, if available, or by discounting future cash flows using current interest rates for similar financial instruments.

~~Accrued Interest Receivable/Payable~~

~~The carrying amounts of accrued interest approximate fair value and are classified~~changes in ~~accordance with the related instrument.~~

~~Other Financial Instruments~~

Other financial assets and liabilities listed in the tables above have estimated fair values that approximate their respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

The fair values of the Company’s off-balance sheet financial instruments described in the “Off-Balance Sheet Financial Instruments” section of Note 16. “Commitments and Contingencies” were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the creditworthiness of the counterparties. At September 30, 2017 and December 31, 2016, the estimated fair value of these instruments approximated the related carrying amounts, which were not material.

~~(18) Accumulated Other Comprehensive Income (Loss)~~

~~Components~~each component of accumulated other comprehensive ~~income (loss) (“AOCI”) were as follows as of~~loss for the ~~dates shown below:~~three months ended September 30, 2018 and 2017:

September 30, December 31,
2017 2016
Net unrealized holding loss on available for sale securities $ (16,768 ) $ (37,417 )
Related income tax benefit 6,623
14,780
Available for sale securities AOCI, net of tax (10,145 ) (22,637 )
Net unrealized holding loss on securities transferred to held to maturity (4,670 ) (5,395 )
Related income tax benefit 1,845
2,131
Securities transferred to held to maturity AOCI, net of tax (2,825 ) (3,264 )
Net unrealized holding loss on retirement plans (1,139 ) (1,213 )
Related income tax benefit 450
479
Retirement plans AOCI, net of tax (689 ) (734 )
AOCI $ (13,659 ) $ (26,635 )



	Net unrealized holding (loss) gain on available for sale securities			Net unrealized holding (loss) gain on securities transferred to held to maturity			Net unrealized holding (loss) gain on retirement plans			Total
For the three months ended September 30, 2018
Balance beginning of the period	$	(95,852	)	$	(2,870	)	$	(859	)	$	(99,581	)
Other comprehensive loss before reclassification	(19,613		)	—			—			(19,613		)
Amounts reclassified from accumulated other comprehensive loss	56			163			300			519
Total other comprehensive (loss) income	(19,557		)	163			300			(19,094		)
Balance at end of period	$	(115,409	)	$	(2,707	)	$	(559	)	$	(118,675	)
For the three months ended September 30, 2017
Balance beginning of the period	$	(12,704	)	$	(2,969	)	$	(695	)	$	(16,368	)
Other comprehensive gain before reclassification	2,538			—			—			2,538
Amounts reclassified from accumulated other comprehensive loss	21			144			6			171
Total other comprehensive income	2,559			144			6			2,709
Balance at end of period	$	(10,145	)	$	(2,825	)	$	(689	)	$	(13,659	)
Location in consolidated income statements where reclassification from accumulated other comprehensive loss is included	Net loss on sale of securities			Interest income on securities			Other non-interest expense

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Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

The following table presents the changes in each component of ~~AOCI~~accumulated other comprehensive loss for the ~~three and~~ nine months ended September 30, ~~2017~~2018 and ~~2016:~~2017:

Net unrealized holding gain (loss) on available for sale securities Net unrealized holding gain (loss) on securities transferred to held to maturity Net unrealized holding (loss) gain on retirement plans Total
For the three months ended September 30, 2017
Balance beginning of the period $ (12,704 ) $ (2,969 ) $ (695 ) $ (16,368 )
Other comprehensive gain before reclassification 2,538
—
—
2,538
Amounts reclassified from AOCI 21
144
6
171
Total other comprehensive income 2,559
144
6
2,709
Balance at end of period $ (10,145 ) $ (2,825 ) $ (689 ) $ (13,659 )
For the three months ended September 30, 2016
Balance beginning of the period $ 15,391
$ (3,731 ) $ (730 ) $ 10,930
Other comprehensive (loss) before reclassification (1,278 ) —
—
(1,278 )
Amounts reclassified from AOCI (2,076 ) 328
(11 ) (1,759 )
Total other comprehensive (loss) income (3,354 ) 328
(11 ) (3,037 )
Balance at end of period $ 12,037
$ (3,403 ) $ (741 ) $ 7,893
Location in income statement where reclassification from AOCI is included Net (loss) gain on sale of securities Interest income on securities Compensation and benefits expense


	Net unrealized holding (loss) gain on available for sale securities			Net unrealized holding (loss)gain on securities transferred to held to maturity			Net unrealized holding (loss) gain on retirement plans			Total			Net unrealized holding (loss) gain on available for sale securities			Net unrealized holding (loss)gain on securities transferred to held to maturity			Net unrealized holding (loss) gain on retirement plans			Total
For the nine months ended September 30, 2018
Balance beginning of the period													$	(22,324	)	$	(2,678	)	$	(1,164	)	$	(26,166	)
Reclassification of the stranded income tax effects from the enactment of the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive loss													(4,376		)	(525		)	(228		)	(5,129		)
Other comprehensive loss before reclassification													(94,611		)	—			—			(94,611		)
Amounts reclassified from accumulated other comprehensive loss													5,902			496			833			7,231
Total other comprehensive (loss) income													(93,085		)	(29		)	605			(92,509		)
Balance at end of period													$	(115,409	)	$	(2,707	)	$	(559	)	$	(118,675	)
For the nine months ended September 30, 2017
Balance beginning of the period	$	(22,637	)	$	(3,264	)	$	(734	)	$	(26,635	)	$	(22,637	)	$	(3,264	)	$	(734	)	$	(26,635	)
Other comprehensive gain before reclassification	12,218			—			—			12,218			12,218			—			—			12,218
Amounts reclassified from AOCI	274			439			45			758			274			439			45			758
Total other comprehensive income	12,492			439			45			12,976			12,492			439			45			12,976
Balance at end of period	$	(10,145	)	$	(2,825	)	$	(689	)	$	(13,659	)	$	(10,145	)	$	(2,825	)	$	(689	)	$	(13,659	)
For the nine months ended September 30, 2016
Balance beginning of the period	$	(6,999	)	$	(4,155	)	$	(970	)	$	(12,124	)
Other comprehensive gain before reclassification	23,649			—			—			23,649
Amounts reclassified from AOCI	(4,613		)	752			229			(3,632		)
Total other comprehensive income	19,036			752			229			20,017
Balance at end of period	$	12,037		$	(3,403	)	$	(741	)	$	7,893
Location in income statement where reclassification from AOCI is included	Net (loss) gain on sale of securities			Interest income on securities			Compensation and benefits expense
Location in consolidated income statements where reclassification from AOCI is included													Net loss on sale of securities			Interest income on securities			Other non-interest expense



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

(19) Recently Issued Accounting Standards Not Yet Adopted

~~ASU 2014-09,~~ ~~“Revenue from Contracts with Customers (Topic 606).”~~ ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This standard is effective for the Company on January 1, 2018. Our revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income, which is subject to ASU 2014-09. We expect that ASU 2014-09 may require the Company to change how it recognizes certain recurring revenue streams within accounts receivable management and factoring commissions and other categories of non-interest income; however, we do not anticipate these changes will be significant to our financial statements. The Company will adopt the standard in the first quarter of 2018 with a cumulative effect adjustment to opening retained earnings, if such amount is material to the Company’s financial statements.

~~ASU 2016-01,~~ ~~“Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”~~ ASU 2016-01, among other things: (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 is effective for the Company on January 1, 2018 and is not expected to have a significant impact on our financial statements.

ASU 2016-02,“Leases (Topic 842).” ASU 2016-02 amends existing lease accounting guidance, including the requirement to recognize most lease arrangements on the balance sheet. The adoption of this standard will result in the Company recognizing a right-of-use asset representing its rights to use the underlying asset for the lease term with an offsetting lease liability. ASU 2016-02 is effective for the company on January 1, ~~2019, with early adoption permitted and the adoption~~2019. ASU 2016-02 requires a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, ASU 2018-11 “Leases (Topic 842) Targeted Improvements” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company ~~has not yet concluded whether it will adopt~~is implementing a third-party vendor solution to assist in the ~~standard prior to January 1, 2019; however,~~application of the new lease standard. The Company has aggregated a list of all leases, and if the standard would have been effective at September 30, ~~2017,~~2018, it would not have had an impact on any borrowings or financial covenants that are relevant to the Company. Management estimates the increase in assets from the recognition of a right-of-use asset will be approximately $90 million to $110 million and that the impact to the Bank’s and the Company’s regulatory capital ratios would be a decrease of approximately five to seven basis points, ~~or less,~~ which would be due to an increase in total assets and risk-weighted assets, given our lease arrangements for financial centers and other locations. The Company currently intends to apply certain practical expedients provided under ASU 2016-02 in which we will not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, and initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases.

ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amends current guidance on the impairment of financial instruments. ASU 2016-13 adds an impairment model known as the current expected credit loss (“CECL”) model that is based on expected losses rather than incurred losses. For the Company, the CECL



Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (Dollars in thousands, except share and per share data)

model will apply mainly to held-to-maturity investment securities, loans and loan commitments. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2019, and the Company is permitted to early adopt the new guidance for fiscal years beginning after December 15, 2018. ASU 2016-13 will significantly change the accounting for credit impairments. The new guidance will require the Company to modify current processes and systems for establishing the allowance for loan losses and OTTI to ensure they comply with the requirements of the new standard. The Company engaged a nationally recognized accounting firm to assist management in performing an implementation readiness assessment. ~~During~~The Company has made significant progress since 2017 as disclosed in the ~~first~~2017 Form 10-K. In 2018, we are focusing on several areas including mitigation of gaps in data, and we anticipate being in a position to test our CECL models and methodology by the end of the fourth quarter of 2017, the Company, in conjunction with our advisor, established a CECL program steering committee, identified significant work streams and created a CECL program project timeline. During the second quarter of 2017, the Company evaluated several third-party models in order to determine the CECL modeling approach that will be used for the Company’s loan portfolios. During the third quarter of 2017, the Company selected vendors that will assist in data analytics and modeling.2018. The Company is unable to estimate the impact of adopting ASU 2016-13 at this ~~time,~~time; however, ~~we anticipate~~it currently anticipates the allowance for loan losses in the aggregate will be greater under the CECL model compared to



~~Table of Contents~~	~~STERLING BANCORP AND SUBSIDIARIES~~ ~~Notes to Consolidated Financial Statements (unaudited)~~ ~~(Dollars in thousands, except share and per share data)~~

the current incurred loss model and that the composition of the loan and securities portfolio, as well as the status of the economic environment, will be significant factors that impact the balance at date of adoption.

~~ASU 2017-04,~~ ~~“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”~~ ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company expects to early adopt this standard in our next goodwill impairment test cycle in 2017. Management expects ASU 2017-04 will not have a significant impact on the Company’s financial statements.

ASU 2017-08, “Premium Amortization on Purchased Callable Debt Securities.” ASU 2017-08 shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount as discounts continue to be amortized to maturity. ASU No. 2017-08 is effective for ~~interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted.~~the Company on January 1, 2019. The guidance includes a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ~~Management intends to adopt this standard effective January 1, 2018 and the~~The Company currently anticipates that impact of adoption will not be significant ~~on our~~to its financial statements.

ASU ~~2017-09,~~2017-12, “~~Compensation~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in GAAP. The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update also includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. Prior to the issuance of this updated, GAAP contained specific requirements for initial and ongoing quantitative hedge effectiveness testing and strict requirements for specialized effective testing methods that allowed an entity to forgo quantitative hedge effectiveness assessments for qualifying relationships. ASU 2017-12 is effective for the Company on January 1, 2019, and the Company anticipates using the modified retrospective method. The Company is in the process of reviewing its state and municipal and MBS investment securities portfolios to determine if it will reclassify securities from the held to maturity portfolio to the available for sale portfolio. The Company has not yet identified a population of specific securities to be reclassified and does not anticipate that the reclassification will have a material impact on its capital position.

ASU 2018-13, “Fair Value Measurement (Topic 820) - ~~Stock Compensation (Topic 718) - Scope of Modification Accounting.~~Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU ~~2017-09 clarifies when changes to~~2018-13 modifies the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) thedisclosure requirements on fair value measurements in Topic 820. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of ~~the award, (ii) the vesting conditions of the award~~certain disclosures, and ~~(iii) the classification of the award~~add disclosure requirements identified as ~~an equity or liability instrument.~~relevant. ASU ~~2017-09~~2018-13 will be effective for the Company on January 1, ~~2018~~2020, with early adoption permitted, and is not expected to have a significant impact on ~~the Company’s~~our financial statements.

ASU ~~2017-12, “Derivatives~~2018-14, “Compensation - Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20).” ASU 2018-14 amends and ~~Hedging (Topic 815) - Targeted Improvements to Accounting~~modifies the disclosure requirements for ~~Hedging Activities.”~~employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-122018-14 will be effective for ~~the Company~~us on January 1, ~~2019~~2021, with early adoption permitted, and is not expected to have a significant impact on ~~the Company’s~~our financial statements.

~~(20) Merger with Astoria Financial Corporation~~

~~On October 2, 2017,~~ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU 2018-15 aligns the ~~Company completed the Astoria Merger. In accordance~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the ~~definitive merger agreement,~~requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 does not affect the transaction was stock-for-stock merger and valued at $2,189,687, including $33 for fractional shares paid in cash. Based on the closing price of the Company’s common stock on September 29, 2017, Astoria shareholders received a fixed ratio of 0.875 shares of Company common stock for each share of Astoria common stock held. Sterling shareholders own approximately 60.5% of stock in the combined company and Astoria shareholders own approximately 39.5%.

In connection with the Astoria Merger, the Company issued 5.4 million depositary shares, each representing 1/40th interest in a share of 6.50% Non-cumulative Perpetual Preferred Stock, Series A at $25.00 per depositary share in exchange for 5.4 million depositary shares of Astoria, each of which represented 1/40th interest in a share of 6.50% Non-cumulative Perpetual Preferred Stock Series C at $25.00 per depositary share.

~~Pro forma information~~accounting for the ~~year ended December 31, 2016 was as follows:~~service element of a hosting arrangement that is a service contract. ASU 2018-15 will be effective for us on January 1, 2020, with early adoption permitted, and is not expected to have a significant impact on our financial statements.

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Table of Contents	STERLING BANCORP AND SUBSIDIARIES Notes to Consolidated Financial Statements ~~(unaudited)~~(Unaudited) (Dollars in thousands, except share and per share data)

For the year ended
December 31, 2016
Pro Forma Condensed Income Statement Information:
Net interest income $ 818,907
Provision for loan losses 10,849
Income before income taxes 385,185
Net income 251,173
Pro Forma Condensed Combined Balance Sheet Information:
Portfolio loans, net 19,530,795
Total assets 29,510,290
Deposits 18,956,004
Total stockholders’ equity 4,218,852

The Company has engaged an independent third-party to assist management in estimating the fair value of the majority of the assets acquired and liabilities to be assumed. Additional disclosures have been omitted because the information needed for the disclosures is not yet available due to the close proximity of the closing date with the date of this Quarterly Report on Form 10-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Sterling Bancorp (“we,” “our” and “us”) makes statements in this report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other financial, business or strategic matters regarding or affecting us that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “target,” “estimate,” “forecast,” “project,” by future conditional verbs such as “will,” “should,” “would,” “could” or “may,” or by variations of such words or by similar expressions. These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of management and the information available to management at the time that these disclosures were prepared.

Forward-looking statements are subject to numerous assumptions, risks (both known and unknown) and uncertainties, and other factors which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions, risks, uncertainties, and other factors, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements, and future results could differ materially from our historical performance.

The factors described herein in Part II. Item 1A. Risk Factors or otherwise described in our filings with the SEC, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations expressed in our forward-looking statements, including, but not limited to:

difficulties and delays in integrating our and Astoria’s businesses or fully realizing cost savings and other benefits, and business disruption following the Astoria Merger;

difficulties and delays in integrating Advantage Funding into our business and business disruption following the Advantage Funding Acquisition;

our ability to successfully implement growth and strategic initiatives, to increase revenues faster than we grow expenses, and to integrate and fully realize cost savings and other benefits we estimate in connection with ~~acquisitions;~~acquisitions and limit business disruption arising therefrom;

a deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in real estate markets and constrained financial markets;

oversight of the Bank by the Consumer Financial Protection ~~Bureau and impact of the Durbin Amendment on the Bank’s debit and interchange fees,~~ Bureau;

adverse publicity, regulatory actions or litigation with respect to us or other well-known financial services companies and the financial services industry in general and a failure to satisfy regulatory standards;

our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may

~~STERLING BANCORP AND SUBSIDIARIES~~

lead to increased losses and non-performing assets in our loan portfolio, result in our allowance for loan losses not being adequate to cover actual losses, and/or require us to materially increase our reserves;

our ability to manage changes in market interest rates, which could adversely affect our financial condition and results of operations;

our use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

our ability to capitalize on our substantial investments in our information technology and operational infrastructure and systems;

the effects of, and changes in, laws and regulations (including laws and regulations concerning banking and taxes) with which we and the Bank must comply;

changes in other economic, competitive, governmental, regulatory and technological factors affecting our markets, operations, pricing, products, services and fees; and

our success at managing the risks involved in the foregoing and managing our business.

STERLING BANCORP AND SUBSIDIARIES

These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements.

General

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist the reader in understanding our financial condition and results of operations. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes included in Part I, Item 1 of this report and with our audited consolidated financial statements, including the accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2016~~2017 Form 10-K. Operating results discussed herein are not necessarily indicative of the results of any future period.

Tax equivalent adjustments are the result of increasing income from tax exempt securities by an amount equal to the federal taxes that would be paid if the income were fully taxable based on a ~~35.0% marginal~~21.0% effective income tax ~~rate.~~rate for 2018, and a 35.0% effective income tax rate for 2017.

Dollar amounts in tables and the accompanying discussion that follows are stated in thousands, except for share and per share amounts and ratios.

Overview and Management Strategy

We, through our principal subsidiary, the Bank, specialize in the delivery of services and solutions to business owners, their families and consumers within the communities we serve through teams of dedicated and experienced relationship managers. The Bank ~~offers~~operates as a ~~complete line~~regional bank providing a broad offering of deposit, lending and wealth management products to commercial, ~~business~~consumer and consumer banking products and services. Our financial condition and results of operations are discussed herein on a consolidated basis with the Bank and certain other subsidiaries. References to “we”, “our” or “us” include the Bank, depending on the context.municipal clients in our market area.

~~We focus our efforts on generating core deposit relationships and originating high quality commercial and consumer loans, mainly for our held-for-investment portfolio. We also utilize excess funding~~Our primary strategic objective is to ~~purchase and hold investment securities. Our ability to gather low cost core deposits allows~~drive positive operating leverage, which we believe will allow us to ~~compete for and originate loans at an interest rate spread over our cost of funds and thereby~~ generate ~~attractive risk-adjusted returns. Our strategic objectives include generating~~ sustainable growth in revenues and earnings over time. We define operating leverage as the ratio of growth in adjusted total revenue divided by ~~increasing new client acquisitions, expanding existing client relationships, maintaining strong asset quality and increasing~~growth in adjusted total operating ~~efficiency.~~expenses (a reconciliation of non-GAAP financial measures is included beginning on page 71). To achieve ~~these goals,~~this goal, we ~~are focusing~~focus on the following initiatives:

Target specific ~~target~~“high value” client segments and geographic markets in which ~~include small~~we have competitive advantages.

Deploy a single point of contact, relationship-based distribution strategy through our commercial banking teams and ~~middle market commercial clients~~financial centers.

Continuously expand and ~~consumer clients, expanding~~refine our delivery and distribution channels ~~creating~~by rationalizing our investments in businesses that do not meet our risk-adjusted return targets and re-allocating our capital and resources to hiring commercial banking teams and growing other businesses that are in-line with our commercial banking strategy.

Maximize efficiency through a technology enabled, low-cost operating platform and by controlling operating costs.

Create a high productivity ~~performance~~ culture ~~controlling our operating costs~~through differentiated compensation programs based on a pay-for-performance philosophy.

Maintain strong risk management systems and proactively ~~managing~~manage enterprise risk. ~~Our goal is to create a full service commercial bank that achieves top-tier performance in return on equity, return on assets and growth in EPS.~~

The Bank targets the following geographic markets: (i) the New York Metro Market, which includes Manhattan ~~the boroughs~~ and Long Island; and (ii) the New York Suburban Market, which ~~consists of~~includes Rockland, Orange, Sullivan, Ulster, Putnam and Westchester ~~counties~~Counties in New York and Bergen County in New Jersey. ~~Our commercial finance businesses, which include~~The Bank also originates loans and deposits in select markets nationally through our asset-based lending, payroll finance, warehouse lending, factored receivables, equipment ~~financing~~finance and public sector ~~financing, also generate loans and deposits in other markets across the United States.~~finance businesses (collectively, our commercial finance businesses). We believe the Bank operates in an attractive footprint that presents us with significant opportunities to execute our ~~strategy.~~strategy of targeting small and middle market commercial clients and affluent consumers.

We deploy a team-based distribution strategy in which clients are served by a focused and experienced group of relationship managers who are responsible for all aspects of the client relationship and delivery of our products and services. While the Astoria Merger resulted in substantial growth in 2017, our commercial banking teams also generated significant originations of loans and deposits. As of September 30, ~~2017,~~2018, we had 3235 commercial banking teams and 40113 full service financial centers. We currently anticipate that we will increase ~~the~~our number of commercial banking teams by three to five ~~annually. In connection with the Astoria Merger, our total number of financial centers increased to 128. We intend to continue our financial center consolidation strategy~~annually and will reduce our ~~total number of~~ financial centers ~~gradually over time.~~as we continue to execute our real estate and financial center consolidation strategy.

Recent Developments

On April 2, 2018, we completed the Advantage Funding Acquisition in an all cash transaction. Advantage Funding, formerly a wholly-owned subsidiary of Macquaire Bank Limited, was a leading provider of commercial vehicle and transportation financing services based in Lake Success, NY. At the acquisition date, Advantage Funding had total outstanding loans and leases of $457.6 million with a diversified client base across various industry sectors and geographic markets nationwide. Advantage Funding is

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STERLING BANCORP AND SUBSIDIARIES

~~Recent Developments~~

~~On October 2, 2017, we completed the Astoria Merger. The Astoria Merger was~~being integrated into our established national equipment finance platform, which, on a ~~stock-for-stock transaction valued at $2,189,687, based on the closing price~~combined basis, had $1.2 billion of our common stock on September 29, 2017 of $24.65. Astoria shareholders received a fixed ratio of 0.875 shares of our common stock for each share of Astoria common stock held. Our shareholders own approximately 60.5% of stock in the combined companyloans and Astoria shareholders own approximately 39.5%. We issued 88,829,776 shares of our common stock to Astoria shareholders on the closing date of the Astoria Merger, which resulted in the significant increase in the number of sharesleases outstanding ~~at November 2, 2017,~~ as shown on the cover of this Report on Form 10-Q, relative to the number of shares outstanding on September 30, 2017. In addition, each share of Astoria’s 6.50% non-Cumulative Perpetual Preferred Stock Series C was converted to one share of our preferred stock, designated as 6.50% non-Cumulative Perpetual Preferred Stock, Series A (the “Preferred Shares”).

The Astoria Merger is consistent with our strategy to expand in the greater New York metropolitan region and build a diversified company with significant commercial and consumer banking capabilities. The strategic combination will create a high performing regional bank focused on serving commercial and consumer clients in the greater New York metropolitan area. As of September 30, 2017, the proforma combined company had approximately $31 billion in assets, $20 billion in gross loans, and $20 billion in deposits. The Astoria Merger is expected to be immediately accretive to tangible book value and EPS.2018.

~~We had record operating~~Our earnings performance infor the ~~three months ended September 30, 2017 as portfolio loans, total deposits, and core deposits reached all-time highs. Our GAAP~~third quarter of 2018 included reported net income ~~was $44,852,~~available to common stockholders of $117,657, or ~~$0.33 per diluted share, and our adjusted net income was $47,865, or $0.35 per diluted share, for the three months ended September 30, 2017, compared to GAAP net income of $37,422, or $0.29~~$0.52 per diluted share, and adjusted net income available to common stockholders of ~~$37,793,~~$114,273, or ~~$0.29~~$0.51 per diluted ~~share, for~~share. This represents growth of 162.3% in reported net income available to common stockholders and 138.7% in adjusted net income available to common stockholders, respectively, over the ~~three months ended September 30, 2016.~~same period a year ago. The reported EPS growth was 57.6%, and the adjusted EPS growth was 45.7%, respectively, over the same period a year ago. Results for the third quarter of ~~2017~~2018 reflect the ongoing execution of our commercial banking strategy, ~~and~~ the ~~positive impact that our successful~~substantial progress we have made on the integration of ~~prior acquisitions has had on~~the Astoria Merger, and our ~~operating results and efficiency. For~~ability to execute opportunistic transactions such as the Advantage Funding Acquisition. In the third quarter of ~~2017,~~2018, our reported operating efficiency ratio was ~~46.7%~~41.7% and our adjusted operating efficiency ratio was ~~40.6%~~38.9%. Our continued growth, diversification of our business and improved operating efficiency resulted in a reported return on average tangible assets of 1.59% and an adjusted return on average tangible assets of 1.55%, ~~which represented~~and a reported return on average tangible common stockholders’ equity of 18.63% and an ~~improvement~~adjusted return on average tangible common stockholders’ equity of ~~430 and 520 basis points, respectively, relative to~~18.09% in the third quarter ~~ended September 30, 2016.~~of 2018. Adjusted net income available to common stockholders, adjusted diluted EPS, reported operating efficiency ratio, ~~and~~ adjusted operating efficiency ratio, reported return on average tangible assets, adjusted return on average tangible assets, reported return on average tangible common equity and adjusted return on average tangible common stockholders’ equity are non-GAAP financial measures that are reconciled to our GAAP results beginning on page ~~68.~~71.

~~We have~~A significant component of our strategy includes repositioning our earning assets to create a ~~strong~~more optimal balance ~~sheet with a~~sheet. As of September 30, 2018, our total loan portfolio ~~that has a balanced mix~~was $20.5 billion, of ~~C&I loans and commercial real estate loans. Total commercial~~which 21.5% consisted of residential mortgage loans, ~~(which includes commercial real estate, multi-family and ADC loans), grew $335,597~~most of which we acquired in the Astoria Merger. The residential mortgage portfolio declined $633,212 in the first nine months of ~~2017~~2018 and ~~were $4,709,701, or 44.9%,~~we anticipate it will continue to run-off at approximately $200 - $250 million per quarter. We intend to replace the run-off of residential loans with more diversified commercial loans originated through our ~~total portfolio loans as of September 30, 2017, compared to $4,374,104, or 45.9% of our total portfolio loans as of December 31, 2016. Total C&I loans, including~~commercial banking teams, our commercial finance business lines, and through acquisitions. By the end of the fourth quarter of 2019, we are targeting a loan composition of approximately 45% C&I loans, ~~grew $669,714~~which includes our traditional C&I and ~~were $4,841,664, or 46.1%~~our commercial finance business lines, 45% commercial real estate loans, which includes multi-family and ADC loans, and 10% residential mortgage and consumer loans, which includes HELOCs and other personal loans. To accelerate the transition of our loan portfolio, ~~loans as of September 30, 2017, compared to $4,171,950, or 43.8%, of our portfolio loans as of December 31, 2016.~~

~~In anticipation of the Astoria Merger,~~ we repositioned our securities portfolio and, in the nine months ended September 30, 2017, purchased approximately $1,637,075 of investment securities consisting mainly of MBS, agency and municipal securities. Investment securities represent 26.9% of our total assets at September 30, 2017 compared to 22.0% at December 31, 2016. This reduced our net interest margin in the third quarter of 2017; however, these securities purchases will allow us to create an investment portfolio following the Astoria Merger that is consistent with our yield, duration and interest rate risk objectives.

We will continue to evaluate potential acquisitions of commercial finance loan portfolios and other ~~earning~~ assets that meet our risk-adjusted return ~~targets.~~criteria, similar to the Advantage Funding Acquisition. As potential acquisition opportunities arise, we may reduce or divest a portion of our residential mortgage loans and investment securities to accelerate the transition of our balance sheet and loan portfolio to the target mix highlighted above. We are evaluating a potential sale of approximately $1.5 billion of residential mortgage loans; however, we have not yet entered into a definitive agreement to do so, and we have not yet identified specific loans that may be sold. We do not anticipate recording a significant gain or loss on sale as we anticipate the carrying value of the residential mortgages approximates fair value, as the carrying value continues to include fair value purchase accounting adjustments recorded at the closing of the Astoria Merger. The Company intends to initially utilize the proceeds from a potential sale of residential mortgage loans to reduce borrowings in anticipation of completing potential acquisitions as outlined above.

As mentioned above, we have made significant progress on the integration of the employees, systems and facilities that we acquired and assumed in the Astoria Merger. As we previously announced, we intend to consolidate between 25 to 30 financial centers through the fourth quarter of 2019. In the first nine months of 2018, we consolidated 15 financial centers, which reduced our total number of financial centers to 113, and have announced the consolidation of seven additional financial centers in the fourth quarter of 2018. In addition, we are also executing a back-office real estate consolidation strategy, which included the sale of Astoria’s headquarters facility located in Lake Success, NY and the consolidation of two back-office locations in Long Island. We will reinvest a portion of the operating expense savings generated by these consolidations and reduction in our real estate footprint into hiring three to five additional commercial banking teams and our ongoing investment in risk management systems and personnel. We currently anticipate achieving an annual operating expense run-rate, excluding the impact of amortization of intangible assets, of approximately $425.0 million for the full year 2018 and an operating leverage ratio of 2 - 3x. Comparing our results in the third quarter of 2018 to the same quarter a year ago, we generated positive operating leverage of 2.7x, which is on the high end of our targeted range. We anticipate that our ability to generate positive operating leverage will allow us to improve profitability and result in growth in earnings and EPS.

Critical Accounting Policies

Our accounting and reporting policies are prepared in accordance with GAAP and conform to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain; and (ii) different estimates that management reasonably

STERLING BANCORP AND SUBSIDIARIES

could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial statements. Accounting policies related to the allowance for loan losses, business combinations, goodwill, trade names and other intangible assets, and deferred income taxes are considered to be critical, as these policies involve considerable subjective judgment and estimation by management. For additional information regarding critical accounting policies, refer to Note 1. “Basis of Financial Statement Presentation” in the notes to consolidated financial statements included elsewhere in this report and the sections captioned “Critical Accounting Policies” and “Allowance for Loan Losses” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2016~~

~~STERLING BANCORP AND SUBSIDIARIES~~

2017 Form 10-K. There have been no significant changes in our application of critical accounting policies for the nine months ended September 30, ~~2017.~~2018.

~~Selected financial condition data, statement of operations data, per share data, performance ratios, capital ratios, and asset quality data and ratios for the comparable periods were as follows:~~

At or for the three months ended September 30, At or for the nine months ended September 30,
2017 2016 2017 2016
End of period balances:
Total securities $ 4,515,650
$ 2,797,717
$ 4,515,650
$ 2,797,717
Portfolio loans 10,493,535
9,168,741
10,493,535
9,168,741
Total assets 16,780,097
13,617,228
16,780,097
13,617,228
Non-interest bearing deposits 3,134,359
3,342,404
3,134,359
3,342,404
Interest bearing deposits 7,909,079
6,854,849
7,909,079
6,854,849
Total deposits 11,043,438
10,197,253
11,043,438
10,197,253
Borrowings 3,453,783
1,451,526
3,453,783
1,451,526
Stockholders’ equity 1,971,480
1,765,160
1,971,480
1,765,160
Tangible equity¹
1,215,190
999,302
1,215,190
999,302
Average balances:
Total securities 3,916,076
2,937,708
3,543,776
2,847,225
Total loans²
10,186,414
8,744,508
9,754,768
8,269,574
Total assets 15,661,514
13,148,201
14,802,911
12,618,477
Non-interest bearing deposits 3,042,392
3,196,204
3,134,621
3,088,678
Interest bearing deposits 7,648,614
6,719,290
7,254,884
6,377,672
Total deposits 10,691,006
9,915,494
10,389,505
9,466,350
Borrowings 2,779,143
1,324,001
2,301,036
1,301,099
Stockholders’ equity 1,955,252
1,751,414
1,913,072
1,716,657
Tangible equity¹
1,197,754
983,661
1,153,282
954,604
Selected operating data:
Total interest and dividend income $ 145,692
$ 118,161
$ 405,955
$ 338,476
Total interest expense 25,619
15,031
63,834
41,456
Net interest income 120,073
103,130
342,121
297,020
Provision for loan losses 5,000
5,500
14,000
14,500
Net interest income after provision for loan losses 115,073
97,630
328,121
282,520
Total non-interest income 13,988
19,039
40,442
54,911
Total non-interest expense 62,617
62,256
182,624
190,827
Income before income tax expense 66,444
54,413
185,939
146,604
Income tax expense 21,592
16,991
59,620
47,646
Net income $ 44,852
$ 37,422
$ 126,319
$ 98,958
Per share data:
Reported basic EPS (GAAP) $ 0.33
$ 0.29
$ 0.93
$ 0.76
Reported diluted EPS (GAAP) 0.33
0.29
0.93
0.76
Adjusted diluted EPS¹(non-GAAP)
0.35
0.29
0.98
0.81
Dividends declared per share 0.07
0.07
0.21
0.21
Book value per share 14.52
13.49
14.52
13.49
Tangible book value per share¹
8.95
7.64
8.95
7.64

~~See legend on following page.~~

~~STERLING BANCORP AND SUBSIDIARIES~~

At or for the three months ended September 30, At or for the nine months ended September 30,
2017 2016 2017 2016
Common shares outstanding:
Shares outstanding at period end 135,807,544
130,853,673
135,807,544
130,853,673
Weighted average shares basic 135,346,791
130,239,193
135,276,634
130,049,358
Weighted average shares diluted 135,950,160
130,875,614
135,895,513
130,645,705
Other data:
Full time equivalent employees at period end 992
995
992
995
Financial centers at period end 40
41
40
41
Performance ratios:
Return on average assets 1.14 % 1.13 % 1.14 % 1.05 %
Return on average equity 9.10
8.50
8.83
7.70
Reported return on average tangible assets¹
1.19
1.20
1.20 % 1.11
Adjusted return on average tangible assets¹
1.27
1.21
1.27
1.19
Reported return on average tangible equity¹
14.86
15.13
14.64
13.85
Adjusted return on average tangible equity¹
15.85
15.28
15.50
14.74
Reported operating efficiency¹
46.71
50.96
47.74
54.22
Adjusted operating efficiency¹
40.63
45.76
42.06
47.23
Net interest margin-GAAP 3.29
3.41
3.35
3.45
Net interest margin-tax equivalent³
3.42
3.53
3.48
3.56
Capital ratios (Company):
Tier 1 leverage ratio 8.42 % 8.31 % 8.42 % 8.31 %
Tier 1 risk-based capital ratio 10.27
9.93
10.27
9.93
Total risk-based capital ratio 12.15
12.00
12.15
12.00
Tangible equity to tangible assets¹
7.58
7.78
7.58
7.78
Regulatory capital ratios (Bank):
Tier 1 leverage ratio 8.54 % 8.72 % 8.54 % 8.72 %
Tier 1 risk-based capital ratio 10.41
10.42
10.41
10.42
Total risk-based capital ratio 12.41
12.66
12.41
12.66
Asset quality data and ratios:
Allowance for loan losses $ 72,128
$ 59,405
$ 72,128
$ 59,405
Non-performing loans (“NPLs”) 69,452
81,067
69,452
81,067
Non-performing assets (“NPAs”) 81,149
97,489
81,149
97,489
Net charge-offs 3,023
1,960
5,494
5,240
NPAs to total assets 0.48 % 0.72 % 0.48 % 0.72 %
NPLs to total loans⁴
0.66
0.88
0.66
0.88
Allowance for loan losses to non-performing loans 103.85
73.28
103.85
73.28
Allowance for loan losses to total loans⁴
0.69
0.65
0.69
0.65
Annualized net charge-offs to average loans 0.12
0.09
0.08
0.08

~~_________________________~~

¹See a reconciliation of as reported financial measures to as adjusted (non-GAAP) financial measures beginning on page 68 below under the caption “Supplemental Reporting of Non-GAAP Financial Measures.”


²	~~Includes loans held for sale but excludes the allowance for loan losses.~~

³~~Tax equivalent basis represents interest income earned on municipal securities divided by the applicable Federal tax rate~~

~~of 35%.~~

⁴~~Total loans excludes loans held for sale.~~

~~STERLING BANCORP AND SUBSIDIARIES~~

Financial Impact of Recent Acquisitions

The balances of ~~NSBC~~Astoria were included in our balance sheet as of ~~March 31, 2016,~~October 2, 2017, and the operating results of ~~NSBC~~Astoria were included in our results of operations from that day forward. ~~There are no~~

The balances of Advantage Funding were included in our balance sheet oras of April 2, 2018, and the operating results of ~~Astoria~~Advantage Funding were included in our results of operations ~~in this Quarterly Report~~from that day forward.

Selected financial condition data, statement of operations data, per share data, performance ratios, capital ratios, and asset quality data and ratios for the comparable periods are presented as follows:

STERLING BANCORP AND SUBSIDIARIES



	At or for the three months ended September 30,				At or for the nine months ended September 30,
	2018		2017		2018		2017
End of period balances:
Total securities	$	6,685,972	$	4,515,650	$	6,685,972	$	4,515,650
Portfolio loans	20,533,214		10,493,535		20,533,214		10,493,535
Total assets	31,261,265		16,780,097		31,261,265		16,780,097
Non-interest bearing deposits	4,651,369		3,134,359		4,651,369		3,134,359
Interest bearing deposits	16,804,688		7,909,079		16,804,688		7,909,079
Total deposits	21,456,057		11,043,438		21,456,057		11,043,438
Borrowings	4,825,855		3,453,783		4,825,855		3,453,783
Stockholders’ equity	4,438,303		1,971,480		4,438,303		1,971,480
Tangible common stockholders’ equity¹	2,554,495		1,215,190		2,554,495		1,215,190
Average balances:
Total securities	$	6,774,712	$	3,916,076	$	6,710,104	$	3,543,776
Total loans²	20,386,994		10,186,414		20,123,704		9,754,768
Total assets	31,036,026		15,661,514		30,686,808		14,802,911
Non-interest bearing deposits	4,174,908		3,042,392		4,036,303		3,134,621
Interest bearing deposits	16,940,446		7,648,614		16,822,651		7,254,884
Total deposits and mortgage escrow	21,115,354		10,691,006		20,858,954		10,389,505
Borrowings	5,052,752		2,779,143		5,029,411		2,301,036
Stockholders’ equity	4,397,823		1,955,252		4,316,455		1,913,072
Tangible common stockholders’ equity¹	2,506,198		1,197,754		2,430,260		1,153,282
Selected operating data:
Total interest and dividend income	$	309,025	$	145,692	$	895,276	$	405,955
Total interest expense	65,076		25,619		170,743		63,834
Net interest income	243,949		120,073		724,533		342,121
Provision for loan losses	9,500		5,000		35,500		14,000
Net interest income after provision for loan losses	234,449		115,073		689,033		328,121
Total non-interest income	24,145		13,988		80,720		40,442
Total non-interest expense	111,773		62,617		348,448		182,624
Income before income tax expense	146,821		66,444		421,305		185,939
Income tax expense	27,171		21,592		88,542		59,620
Net income	$	119,650	$	44,852	$	332,763	$	126,319
Per share data:
Reported basic EPS (GAAP)	$	0.52	$	0.33	$	1.45	$	0.93
Reported diluted EPS (GAAP)	0.52		0.33		1.45		0.93
Adjusted diluted EPS¹(non-GAAP)	0.51		0.35		1.48		0.98
Dividends declared per common share	0.07		0.07		0.21		0.21
Book value per share	19.07		14.52		19.07		14.52
Tangible book value per common share¹	11.33		8.95		11.33		8.95

See legend on ~~Form 10-Q.~~following page.

STERLING BANCORP AND SUBSIDIARIES



	At or for the three months ended September 30,						At or for the nine months ended September 30,
	2018			2017			2018			2017
Common shares outstanding:
Shares outstanding at period end	225,446,089			135,807,544			225,446,089			135,807,544
Weighted average shares basic	225,088,511			135,346,791			224,969,121			135,276,634
Weighted average shares diluted	225,622,895			135,950,160			225,504,463			135,895,513
Other data:
Full time equivalent employees at period end	1,959			992			1,959			992
Financial centers at period end	113			40			113			40
Performance ratios:
Return on average assets	1.50		%	1.14		%	1.42		%	1.14		%
Return on average equity	10.61			9.10			10.12			8.83
Reported return on average tangible assets¹	1.59			1.19			1.51			1.20
Adjusted return on average tangible assets¹	1.55			1.27			1.54			1.27
Reported return on average TCE¹	18.63			14.86			17.98			14.64
Adjusted return on average TCE¹	18.09			15.85			18.33			15.50
Reported operating efficiency¹	41.7			46.7			43.3			47.7
Adjusted operating efficiency¹	38.9			40.6			39.1			42.1
Net interest margin-GAAP	3.48			3.29			3.53			3.35
Net interest margin-tax equivalent³	3.54			3.42			3.59			3.48
Capital ratios (Company):
Tier 1 leverage ratio	9.68		%	8.42		%	9.68		%	8.42		%
Common equity Tier 1 capital ratio	12.97			8.42			12.97			8.42
Tier 1 risk-based capital ratio	13.64			10.27			13.64			10.27
Total risk-based capital ratio	14.74			12.15			14.74			12.15
Tangible equity to tangible assets	9.12			7.58			9.12			7.58
Tangible common equity to tangible assets¹	8.65			7.58			8.65			7.58
Regulatory capital ratios (Bank):
Tier 1 leverage ratio	10.10		%	8.54		%	10.10		%	8.54		%
Tier 1 risk-based capital ratio and common equity Tier 1 capital ratio	14.23			10.41			14.23			10.41
Total risk-based capital ratio	15.50			12.41			15.50			12.41
Asset quality data and ratios:
Allowance for loan losses	$	91,365		$	72,128		$	91,365		$	72,128
Non-performing loans (“NPLs”)	185,222			69,452			185,222			69,452
Non-performing assets (“NPAs”)	207,957			81,149			207,957			81,149
Net charge-offs	4,161			3,023			22,042			5,494
NPAs to total assets	0.67		%	0.48		%	0.67		%	0.48		%
NPLs to total loans⁴	0.90			0.66			0.90			0.66
Allowance for loan losses to non-performing loans	49.33			103.85			49.33			103.85
Allowance for loan losses to total loans⁴	0.44			0.69			0.44			0.69
Annualized net charge-offs to average loans	0.08			0.12			0.15			0.08
________________
¹See a reconciliation of as reported financial measures to as adjusted (non-GAAP) financial measures beginning on page 71 below under the caption “Supplemental Reporting of Non-GAAP Financial Measures.” TCE is tangible common stockholders’ equity. ² Includes loans held for sale but excludes the allowance for loan losses. ³Tax equivalent basis represents interest income earned on municipal securities divided by the applicable Federal tax rate of 21% for 2018 and 35% for 2017. ⁴Total loans excludes loans held for sale.

STERLING BANCORP AND SUBSIDIARIES

Results of Operations

For the ~~nine~~three months ended September 30, ~~2017,~~2018, we reported net income available to common stockholders of ~~$126,319,~~$117,657, or ~~$0.93~~$0.52 per diluted common share, compared to net income ~~of $98,958, or $0.76 per diluted~~available to common ~~share, for the nine months ended September 30, 2016.~~

~~We reported net income~~stockholders of $44,852, or $0.33 per diluted common share, for the three months ended September 30, ~~2017,~~2017. The change in our results between the periods was mainly due to the following:

the closing of the Astoria Merger on October 2, 2017;

loans and deposits originated by our commercial banking teams and financial centers; and

the closing of the Advantage Funding Acquisition on April 2, 2018.

For the nine months ended September 30, 2018, we reported net income available to common stockholders of $326,775, or $1.45 per diluted common share, compared to net income available to common stockholders of ~~$37,422,~~$126,319, or ~~$0.29~~$0.93 per diluted common share, infor the ~~same period a year ago. In the three~~nine months ended September 30, ~~2017, we realized a pre-tax net loss on~~2017. The change in our results between the ~~sale of securities of $21; pre-tax merger-related expense in connection with~~periods was mainly due to the ~~Astoria Merger of$4,109~~; and amortization of non-compete agreements and acquired customer list intangibles of $333. In the three months ended September 30, 2016, we realized a pre-tax net gain on the sale of securities of $3,433; charges for asset write-downs, retention and severance of $2,000; loss on extinguishment of borrowings of $1,013; and amortization of non-compete agreements and acquired customer list intangible assets of $970.same factors as discussed above.

Details of the changes in the various components of net ~~interest~~ income available to common stockholders are further discussed below.

Net Interest Income is the difference between interest income on earning assets, such as loans and securities, and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest income is our largest source of revenue, representing ~~89.6%~~91.0% and ~~84.4%~~89.6% of total revenue in the three months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Net interest margin is the ratio of taxable equivalent net interest income to average earning assets for the period. The level of interest rates and the volume and mix of earning assets and interest bearing liabilities impact net interest income and net interest margin.

We are primarily funded by core deposits. Given our greater proportion of certificates of deposit after the Astoria Merger, we modified our definition of core deposits to include certificates of deposit in the first quarter of 2018. Core deposits include retail, commercial and municipal transaction, money market and savings accounts and ~~exclude~~ certificates of deposit and exclude brokered deposits except for reciprocal brokered deposits through the Promontory Interfinancial Network, including Insured Cash Sweep (“ICS”) and CDAR balances. As of September 30, ~~2017,~~2018, we considered ~~88.3%~~95.3% of our total deposits to be core deposits ~~unchanged from the same period a year ago. During 2016, we established relationships with large financial services companies that provide us access~~compared to ~~brokered interest bearing deposits. As a result, we utilized these brokered deposits in lieu of borrowings to fund a portion of the balance sheet growth that occurred between September 30, 2016 and~~88.3% at September 30, 2017. Non-interest bearing demand deposits were ~~28.4%~~$4,651,369 of our total deposits at September 30, ~~2017,~~2018, compared to ~~32.8%~~$3,134,359 at September 30, ~~2016.~~2017. We believe that our low cost deposit funding base, combined with the continued transition of our ~~composition of~~loan portfolio and earning assets, ~~would~~will have a positive impact on our net interest income and net interest margin over time in a scenario in which market interest rates continue to increase.

The following tables set forth average balance sheets, interest, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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	For the three months ended September 30,																For the three months ended September 30,
	2017								2016								2018								2017
	Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate
Interest earning assets:
Traditional C&I and specialty finance loans	$	4,564,517		$	58,395		5.08	%	$	3,685,465		$	45,188		4.88	%
Traditional C&I and commercial finance loans																	$	6,102,184		$	81,296		5.29	%	$	4,564,517		$	58,395		5.08	%
Commercial real estate (includes multi-family)	4,443,142			47,336			4.23		3,823,853			41,975			4.37		9,170,117			107,292			4.64		4,443,142			47,336			4.23
ADC	229,242			4,197			7.26		215,798			2,742			5.05		252,710			4,115			6.46		229,242			4,197			7.26
Commercial loans	9,236,901			109,928			4.72		7,725,116			89,905			4.63		15,525,011			192,703			4.92		9,236,901			109,928			4.72
Consumer loans	262,693			2,891			4.37		292,088			3,269			4.45		330,061			4,651			5.59		262,693			2,891			4.37
Residential mortgage loans	686,820			7,079			4.12		727,304			7,329			4.03		4,531,922			59,857			5.28		686,820			7,079			4.12
Total net loans¹	10,186,414			119,898			4.67		8,744,508			100,503			4.57		20,386,994			257,211			5.01		10,186,414			119,898			4.67
Securities taxable	2,483,718			15,141			2.42		1,838,775			9,870			2.14		4,193,910			29,765			2.82		2,483,718			15,141			2.42
Securities tax exempt	1,432,358			13,141			3.67		1,098,933			10,386			3.78		2,580,802			19,296			2.99		1,432,358			13,141			3.67
Interest earning deposits	202,650			462			0.90		230,478			167			0.29		278,450			1,038			1.48		202,650			462			0.90
FRB and FHLB stock	165,980			1,649			3.94		103,144			870			3.36		359,777			5,767			6.36		165,980			1,649			3.94
Total securities and other earning assets	4,284,706			30,393			2.81		3,271,330			21,293			2.59		7,412,939			55,866			2.99		4,284,706			30,393			2.81
Total interest earning assets	14,471,120			150,291			4.12		12,015,838			121,796			4.03		27,799,933			313,077			4.47		14,471,120			150,291			4.12
Non-interest earning assets	1,190,394								1,132,363								3,236,093								1,190,394
Total assets	$	15,661,514							$	13,148,201							$	31,036,026							$	15,661,514
Interest bearing liabilities:
Demand and savings²deposits	$	3,124,265		$	4,626		0.59	%	$	2,935,316		$	3,371		0.46	%
Interest bearing demand deposits																	$	4,286,278		$	9,717		0.90	%	$	2,298,645		$	3,701		0.64	%
Savingsdeposits²																	2,678,662			1,651			0.24		825,620			925			0.44
Money market deposits	3,889,780			6,897			0.70		3,174,536			4,357			0.55		7,404,208			16,547			0.89		3,889,780			6,897			0.70
Certificates of deposit	634,569			1,869			1.17		609,438			1,473			0.96		2,571,298			8,059			1.24		634,569			1,869			1.17
Total interest bearing deposits	7,648,614			13,392			0.69		6,719,290			9,201			0.54		16,940,446			35,974			0.84		7,648,614			13,392			0.69
Senior Notes	76,664			1,143			5.96		90,954			1,328			5.84		201,894			1,619			3.21		76,664			1,143			5.96
Other borrowings	2,529,854			8,733			1.37		1,104,581			2,733			0.98		4,678,011			25,129			2.13		2,529,854			8,733			1.37
Subordinated Notes	172,625			2,351			5.45		128,466			1,769			5.51		172,847			2,354			5.45		172,625			2,351			5.45
Total borrowings	2,779,143			12,227			1.75		1,324,001			5,830			1.75		5,052,752			29,102			2.29		2,779,143			12,227			1.75
Total interest bearing liabilities	10,427,757			25,619			0.97		8,043,291			15,031			0.74		21,993,198			65,076			1.17		10,427,757			25,619			0.97
Non-interest bearing deposits	3,042,392								3,196,204								4,174,908								3,042,392
Other non-interest bearing liabilities	236,113								157,292								470,097								236,113
Total liabilities	13,706,262								11,396,787								26,638,203								13,706,262
Stockholders’ equity	1,955,252								1,751,414								4,397,823								1,955,252
Total liabilities and stockholders’ equity	$	15,661,514							$	13,148,201							$	31,036,026							$	15,661,514
Net interest rate spread³							3.15	%							3.29	%							3.30	%							3.15	%
Net interest earning assets⁴	$	4,043,363							$	3,972,547							$	5,806,735							$	4,043,363
Net interest margin - tax equivalent				124,672			3.42	%				106,765			3.53	%				248,001			3.54	%				124,672			3.42	%
Less tax equivalent adjustment				(4,599		)						(3,635		)						(4,052		)						(4,599		)
Net interest income				$	120,073							$	103,130							$	243,949							$	120,073
Ratio of interest earning assets to interest bearing liabilities	138.8		%						149.4		%						126.4		%						138.8		%

See legend on following page.

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STERLING BANCORP AND SUBSIDIARIES


	For the nine months ended September 30,																For the nine months ended September 30,
	2017								2016								2018								2017
	Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate		Average balance			Interest			Yield/Rate
Interest earning assets:
Traditional C&I and specialty finance loans	$	4,205,530		$	159,213		5.06	%	$	3,337,310		$	122,636		4.91	%
Traditional C&I and commercial finance loans																	$	5,653,784		$	220,175		5.21	%	$	4,205,530		159,213			5.06	%
Commercial real estate (includes multi-family)	4,344,338			136,451			4.20		3,702,231			123,990			4.47		9,113,324			318,583			4.67		4,344,338			136,451			4.20
ADC	239,336			10,639			5.94		197,635			7,624			5.15		255,894			11,216			5.86		239,336			10,639			5.94
Commercial loans	8,789,204			306,303			4.66		7,237,176			254,250			4.69		15,023,002			549,974			4.89		8,789,204			306,303			4.66
Consumer loans	270,550			9,095			4.49		294,917			9,955			4.51		345,216			14,174			5.49		270,550			9,095			4.49
Residential mortgage loans	695,014			20,911			4.01		737,481			21,990			3.98		4,755,486			181,931			5.10		695,014			20,911			4.01
Total net loans¹	9,754,768			336,309			4.61		8,269,574			286,195			4.62		20,123,704			746,079			4.96		9,754,768			336,309			4.61
Securities taxable	2,215,923			40,535			2.45		1,973,344			32,548			2.20		4,108,186			85,856			2.79		2,215,923			40,535			2.45
Securities tax exempt	1,327,853			36,846			3.70		873,881			25,386			3.87		2,601,918			58,176			2.98		1,327,853			36,846			3.70
Interest earning deposits	202,073			1,018			0.67		266,393			735			0.37		292,096			2,649			1.21		202,073			1,018			0.67
FRB and FHLB stock	145,647			4,142			3.80		103,618			2,497			3.22		341,380			14,733			5.77		145,647			4,142			3.80
Total securities and other earning assets	3,891,496			82,541			2.84		3,217,236			61,166			2.54		7,343,580			161,414			2.94		3,891,496			82,541			2.84
Total interest earning assets	13,646,264			418,850			4.10		11,486,810			347,361			4.04		27,467,284			907,493			4.42		13,646,264			418,850			4.10
Non-interest earning assets	1,156,647								1,131,667								3,219,524								1,156,647
Total assets	$	14,802,911							$	12,618,477							$	30,686,808							$	14,802,911
Interest bearing liabilities:
Demand and savings² deposits	$	2,888,570		$	11,687		0.54	%	$	2,728,265		$	7,816		0.38	%
Interest bearing demand deposits																	$	4,085,595		$	22,269		0.73	%	$	2,075,434		$	8,946		0.58	%
Savings deposits²																	2,836,805			4,674			0.22		813,136			2,741			0.45
Money market deposits	3,766,428			17,350			0.62		3,032,982			12,181			0.54		7,378,522			40,327			0.73		3,766,428			17,350			0.62
Certificates of deposit	599,886			4,767			1.06		616,425			3,941			0.85		2,521,729			21,375			1.13		599,886			4,767			1.06
Total interest bearing deposits	7,254,884			33,804			0.62		6,377,672			23,938			0.50		16,822,651			88,645			0.70		7,254,884			33,804			0.62
Senior Notes	76,581			3,427			5.98		96,285			4,308			5.98		252,455			7,147			3.79		76,581			3,427			5.98
Other borrowings	2,051,881			19,552			1.27		1,124,581			9,929			1.18		4,604,165			67,891			1.97		2,051,881			19,552			1.27
Subordinated Notes	172,574			7,050			5.45		80,233			3,281			5.46		172,791			7,060			5.45		172,574			7,050			5.45
Total borrowings	2,301,036			30,029			1.74		1,301,099			17,518			1.80		5,029,411			82,098			2.18		2,301,036			30,029			1.74
Total interest bearing liabilities	9,555,920			63,833			0.89		7,678,771			41,456			0.72		21,852,062			170,743			1.04		9,555,920			63,833			0.89
Non-interest bearing deposits	3,134,621								3,088,678								4,036,303								3,134,621
Other non-interest bearing liabilities	199,297								134,371								481,988								199,298
Total liabilities	12,889,838								10,901,820								26,370,353								12,889,839
Stockholders’ equity	1,913,072								1,716,657								4,316,455								1,913,072
Total liabilities and stockholders’ equity	$	14,802,910							$	12,618,477							$	30,686,808							$	14,802,911
Net interest rate spread³							3.21	%							3.32	%							3.38	%							3.21	%
Net interest earning assets⁴	$	4,090,344							$	3,808,039							$	5,615,222							$	4,090,344
Net interest margin - tax equivalent				355,017			3.48	%				305,905			3.56	%				736,750			3.59	%				355,017			3.48	%
Less tax equivalent adjustment				(12,896		)						(8,885		)						(12,217		)						(12,896		)
Net interest income				$	342,121							$	297,020							$	724,533							$	342,121
Ratio of interest earning assets to interest bearing liabilities	142.8		%						149.6		%						125.7		%						142.8		%

¹Includes the effect of net deferred loan origination fees, amortization of premiums, accretion of discounts and costs and non-accrual loans. Interest includes prepayment fees and late charges.

²Includes club accounts and interest bearing mortgage escrow balances.

³Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.

⁴Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

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The following tables present the dollar amount of changes in interest income (on a fully tax equivalent basis) and interest expense for the major categories of our interest earning assets and interest bearing liabilities for the periods indicated. Information is provided for each category of interest earning assets and interest bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior period average rate); and (ii) changes attributable to changes in rate (i.e., changes in average rate multiplied by prior period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


	For the three months ended September 30,									For the three months ended September 30,
	2017 vs 2016									2018 vs 2017
	Increase (Decrease) due to						Total increase			Increase / (Decrease) due to					Total increase /
	Volume			Rate			(decrease)			Volume		Rate			(decrease)
Interest earning assets:
Traditional C&I and specialty finance loans	$	11,453		$	1,754		$	13,207
Traditional C&I and commercial finance loans										$	20,398	$	2,503		$	22,901
Commercial real estate (includes multi-family)	6,768			(1,407		)	5,361			54,949		5,007			59,956
ADC	181			1,274			1,455			405		(487		)	(82		)
Commercial loans	18,402			1,621			20,023			75,752		7,023			82,775
Consumer loans	(321		)	(57		)	(378		)	843		917			1,760
Residential mortgage loans	(414		)	164			(250		)	50,250		2,527			52,777
Total loans										126,845		10,467			137,312
Securities taxable	3,839			1,432			5,271			11,794		2,831			14,625
Securities tax exempt	3,070			(315		)	2,755			8,988		(2,833		)	6,155
Interest earning deposits	(22		)	317			295			212		364			576
FRB and FHLB stock	607			172			779			2,699		1,419			4,118
Total interest earning assets	25,161			3,334			28,495			150,538		12,248			162,786
Interest bearing liabilities:
Demand and savings¹ deposits	177			1,078			1,255
Interest bearing demand deposits										4,093		1,923			6,016
Savingsdeposits¹										1,297		(570		)	727
Money market deposits	1,150			1,390			2,540			7,421		2,230			9,651
Certificates of deposit	63			333			396			6,071		119			6,190
Total interest bearing deposits										18,882		3,702			22,584
Senior Notes	(213		)	28			(185		)	1,199		(723		)	476
Other borrowings	4,602			1,398			6,000			9,978		6,417			16,395
Subordinated Notes	601			(19		)	582			3		—			3
Total borrowings										11,180		5,694			16,874
Total interest bearing liabilities	6,380			4,208			10,588			30,062		9,396			39,458
Change in tax equivalent net interest income										120,476		2,852			123,328
Less tax equivalent adjustment	1,103			(139		)	964			3,088		(4,905		)	(1,817		)
Change in net interest income	$	17,678		$	(735	)	$	16,943		$	117,388	$	7,757		$	125,145

See legend on next page.

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STERLING BANCORP AND SUBSIDIARIES


	For the nine months ended September 30,									For the nine months ended September 30,
	2017 vs 2016									2018 vs 2017
	Increase (Decrease) due to						Total increase			Increase / (Decrease) due to					Total increase /
	Volume			Rate			(decrease)			Volume		Rate			(decrease)
Interest earning assets:
Traditional C&I and specialty finance loans	$	33,605		$	2,972		$	36,577
Traditional C&I and commercial finance loans										$	56,131	$	4,832		$	60,963
Commercial real estate (includes multi-family)	18,059			(5,598		)	12,461			165,283		16,849			182,132
ADC	1,746			1,269			3,015			723		(146		)	577
Commercial loans	53,410			(1,357		)	52,053			222,137		21,535			243,672
Consumer loans	(816		)	(44		)	(860		)	2,810		2,269			5,079
Residential mortgage loans	(1,248		)	169			(1,079		)	153,861		7,159			161,020
Total loans										378,808		30,963			409,771
Securities taxable	4,150			3,837			7,987			38,986		6,336			45,322
Securities tax exempt	12,615			(1,155		)	11,460			29,623		(8,294		)	21,329
Interest earning deposits	(209		)	492			283			581		1,050			1,631
FRB and FHLB stock	1,139			506			1,645			7,642		2,948			10,590
Total interest earning assets	69,041			2,448			71,489			455,640		33,003			488,643
Interest bearing liabilities:
Demand and savings¹deposits	407			3,464			3,871
Interest bearing demand deposits										10,516		2,807			13,323
Savingsdeposits¹										3,925		(1,992		)	1,933
Money market deposits	3,205			1,964			5,169			19,390		3,587			22,977
Certificates of deposit	(109		)	935			826			16,273		335			16,608
Total interest bearing deposits										50,104		4,737			54,841
Senior Notes	(881		)	—			(881		)	5,384		(1,664		)	3,720
Other borrowings	8,802			821			9,623			33,685		14,654			48,339
Subordinated Notes	3,769			—			3,769			10		—			10
Total borrowings										39,079		12,990			52,069
Total interest bearing liabilities	15,193			7,184			22,377			89,183		17,727			106,910
Change in tax equivalent net interest income										366,457		15,276			381,733
Less tax equivalent adjustment	4,420			(409		)	4,011			8,216		(8,895		)	(679		)
Change in net interest income	$	49,428		$	(4,327	)	$	45,101		$	358,241	$	24,171		$	382,412

__________________

¹Includes club accounts and interest bearing mortgage escrow balances.

Tax equivalent net interest income increased ~~$17,907~~$123,328 to $248,001 for the three months ended September 30, 2018, compared to $124,672 for the three months ended September 30, ~~2017, compared to~~

~~$106,765 for the three months ended September 30, 2016.~~2017. The increase was mainly due to an increase in average interest earning assets of ~~$2,455,282,~~$13,328,813, or ~~20.4%~~92.1%, due to the Astoria Merger, organic originations of loans and deposits and the Advantage Funding Acquisition. Also contributing to the increase in net interest income was an increase in accretion income on acquired loans, which was $26,574 for the three months ended September 30, ~~2017 relative~~2018 compared to $3,397 for the ~~prior year period.~~three months ended September 30, 2017. The tax ~~equivalent-~~equivalent net interest margin ~~declined 11~~increased 12 basis points to ~~3.42% for the third quarter of 2017~~3.54% from ~~3.53%~~3.42% in the third quarter of ~~2016.~~2017. The yield on interest earning assets was 4.47% compared to 4.12% for the three months ended September 30, 2017, ~~compared to 4.03% for the three months ended September 30, 2016, as increases in earning asset yields~~which was mainly due to ~~recent increases in market interest rates more than offset~~ the ~~declines~~increase in accretion income on ~~loans~~ acquired ~~in prior acquisitions and a change in the composition of our earning assets, as the~~loans. The percentage of loans to average earning assets ~~decreased~~increased to 73.3% from 70.4% for the three months ended September 30, ~~2017 from 72.8%~~2017. The cost of interest bearing liabilities increased to 1.17% for the three months ended September 30, ~~2016. Accretion income on loans acquired in prior acquisitions was $3,397 for the three months ended September 30, 2017~~2018 compared ~~to $4,381 for the three months ended September 30, 2016. The cost of interest bearing liabilities increased~~ to 0.97% for the three months ended September 30, 2017, ~~compared to 0.74% for the three months ended September 30, 2016,~~ which was due mainly to higher interest rates paid on deposits and borrowings due to increases in market interest ~~rates between the periods.~~rates.

Tax equivalent net interest income increased ~~$49,112~~$381,733 to ~~$355,017~~$736,750 for the nine months ended September 30, ~~2017,~~2018, compared to

$~~305,905~~355,017 for the nine months ended September 30, ~~2016.~~2017. The increase was mainly due to an increase in average interest earning assets of ~~$2,159,454,~~$13,821,020, or ~~18.8%,~~101.3% and was mainly due to the Astoria Merger, organic growth and the Advantage Funding Acquisition. The tax equivalent net interest margin increased 11 basis points to 3.59% for the nine months ended September 30, 2017 relative to the comparable year period. The increase was mainly due to organic growth and the franchise financing loans acquired from GE Capital in September 2016. The tax equivalent net interest margin decreased eight basis points to 3.48% for the nine months ended September 30, 2017 from 3.56% in the nine months ended September 30, 2016. The decrease was mainly due to a decline in accretion income on loans acquired in prior acquisitions and an increase in the cost of interest bearing liabilities. Accretion income was $9,767 for the nine months ended September 30, 2017 compared to $13,940 for the nine months ended September 30, 2016. The cost of interest bearing liabilities

5659

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2018 from 3.48% in the nine months ended September 30, 2017. The increase was mainly due to additional accretion income on acquired loans. Accretion income was $84,925 for the nine months ended September 30, 2018 compared to $9,767 for the nine months ended September 30, 2017. The yield on interest earning assets was 4.42% compared to 4.10% for the nine months ended September 30, 2017, which was mainly due to the increase in accretion income on acquired loans. The percentage of loans to average earning assets increased to 73.3% from 71.5% for the nine months ended September 30, 2017. The cost of interest bearing liabilities increased to 1.04% for the nine months ended September 30, 2018 compared to 0.89% for the nine months ended September 30, 2017, ~~compared to 0.72% for the nine months ended September 30, 2016,~~ mainly due to increases in market interest rates between the periods.

The average balance of loans outstanding increased ~~$1,441,906,~~$10,200,580, or ~~16.5%~~100.1%, for the three months ended September 30, ~~2017,~~2018, compared to the three months ended September 30, ~~2016.~~2017. The increase was mainly due to the Astoria Merger, organic ~~commercial loan~~ growth generated by our commercial banking teams and the ~~franchise finance loans acquired from GE Capital in September 2016.~~Advantage Funding Acquisition. The average yield on loans was ~~4.67% in the third quarter of 2017~~5.01% compared to ~~4.57%~~4.67% in the comparable year ago period. The increase in the yield on loans was mainly due to ~~increases in market interest rates, which offset declines~~the increase in accretion income on ~~loans~~ acquired in prior acquisitions. The yield on commercial loans, including specialty finance loans, was 5.08% for the three months ended September 30, 2017, compared to 4.88% for the three months ended September 30, 2016. The increase in yield was the result of increases in market interest rates between the periods. The yield on total commercial real estate loans, which includes multi-family loans, was 4.23% for the three months ended September 30, 2017 compared to 4.37% for the three months ended September 30, 2016. The decline was due to lower accretion income on acquired loans of approximately $1,400 and the competitive pricing environment for commercial mortgage loan originations in the Greater New York metropolitan area.loans.

The average balance of loans outstanding increased ~~$1,485,194,~~$10,368,936, or ~~18.0%~~106.3%, in the nine months ended September 30, ~~2017,~~2018, compared to the nine months ended September 30, ~~2016.~~2017. The increase was ~~primarily~~mainly due to the Astoria Merger, organic ~~loan~~ growth generated by our commercial banking teams and the ~~acquisition of the franchise financing~~Advantage Funding Acquisition. The average yield on loans ~~from GE Capital in September 2016. Loans accounted for 71.5% of average interest earning assets~~was 4.96% in the nine months ended September 30, ~~2017,~~2018 compared to ~~72.0%~~4.61% in the comparable year ago period. The ~~average~~increase was mainly due to the increase in accretion income on acquired loans.

Interest income on traditional C&I and commercial finance loans increased $22,901 and was $81,296 for the three months ended September 30, 2018 compared to $58,395 for the three months ended September 30, 2017. This increase was mainly due to organic loan growth and the Advantage Funding Acquisition. The yield on traditional C&I and commercial finance loans increased to 5.29% compared to 5.08% for the three months ended September 30, 2017. The increase in yield was ~~4.61%~~mainly due to repricing of floating rate loans to higher levels given increases in market interest rates.

Interest income on traditional C&I and commercial finance loans increased $60,963 and was $220,175 in the nine months ended September 30, ~~2017~~2018 compared to ~~4.62% in~~$159,213 for the ~~comparable year ago period. Accretion income~~three months ended September 30, 2017. This increase was mainly due to organic loan growth and the Advantage Funding Acquisition. The yield on traditional C&I and commercial finance loans ~~acquired in prior acquisitions was $9,767 and $13,940~~increased to 5.21% compared to 5.06% in the nine months ended September 30, 2017. The increase in yield was mainly due to repricing of floating rate loans to higher rates given increases in market interest rates.

Interest income on commercial real estate loans and multi-family loans increased $59,956 to $107,292 for the three months ended September 30, 2018 compared to $47,336 for the three months ended September 30, 2017. The increase was mainly due to loans acquired in the Astoria Merger. The yield on commercial real estate and multi-family loans was 4.64% compared to 4.23% for the three months ended September 30, 2017. The increase in yield was mainly due to an increase of $12,605 in accretion income on acquired commercial real estate and multi-family loans.

Interest income on commercial real estate loans and multi-family loans increased $182,132 to $318,583 in the nine months ended September 30, 2018 compared to $136,451 for the three months ended September 30, 2017. The increase was mainly due to loans acquired in the Astoria Merger. The yield on commercial real estate and multi-family loans was 4.67% compared to 4.20% in the nine months ended September 30, 2017. The increase in yield was mainly due to an increase of $38,092 in accretion income on acquired commercial real estate and multi-family loans.

Interest income on residential mortgage loans increased $52,778 to $59,857 for the three months ended September 30, 2018 compared to $7,079 for the three months ended September 30, 2017. The increase was mainly due to the Astoria Merger, which resulted in an increase of $3,845,102 in the average balance of residential mortgage loans. In addition, the yield on residential mortgage loans increased to 5.28% compared to 4.12% for the three months ended September 30, 2017, ~~and 2016, respectively.~~mainly due to the increase in accretion income on acquired residential mortgage loans of $12,885.

Interest income on residential mortgage loans increased $161,020 to $181,931 in the nine months ended September 30, 2018 compared to $20,911 for the three months ended September 30, 2017. The increase was mainly due to the Astoria Merger, which resulted in an increase of $4,060,472 in the average balance of residential mortgage loans. In addition, the yield on residential mortgage loans increased to 5.10% compared to 4.01% for the nine months ended September 30, 2017, mainly due to the increase in accretion income on acquired residential mortgage loans of $40,005.

Tax equivalent interest income on securities increased ~~$8,026~~$20,779 to $49,061 for the three months ended September 30, 2018, compared to $28,282 for the three months ended September 30, ~~2017, compared to $20,256 for the three months ended September 30, 2016.~~2017. This was mainly the result of an increase of ~~$978,368~~$2,858,636 in the average balance of securities between the periods. The tax equivalent yield on securities was unchanged at 2.87%, as the reduction

STERLING BANCORP AND SUBSIDIARIES

in tax equivalent interest income, which assumed a 35% federal tax rate in 2017 compared to a 21% federal tax rate in 2018, was offset by higher market rates of interest on securities. The average balance of tax exempt securities grew to $2.6 billion, compared to $1.4 billion in the third quarter of 2017.

Tax equivalent interest income on securities increased $66,651 to $144,032 in the nine months ended September 30, 2018, compared to $77,381for the three months ended September 30, 2017. This was mainly the result of an increase of $3,166,328 in the average balance of securities between the periods. The tax equivalent yield on securities was 2.87% in the third quarter of 2017, compared to 2.74% in the third quarter of 2016. The increase in tax equivalent yield on securities in 2017 was primarily due to a higher percentage of tax exempt securities to total securities held in the third quarter of 2017 and to higher levels of market interest rates.

~~Tax equivalent interest income on securities increased $19,447 to $77,381 in the~~ nine months ended September 30, ~~2017,~~2018, compared to $57,934 in the nine months ended September 30, 2016. This was mainly the result of an increase of $696,551 in the average balance of securities between the periods. The tax equivalent yield on securities was 2.92% in the nine months ended September 30, ~~2017, compared to 2.72% in the nine months ended September 30, 2016.~~2017. The ~~increase~~decrease in tax equivalent yield on securities was ~~mainly~~ due to the ~~increase~~change in the ~~percentage of~~assumed federal tax ~~exempt securities to total securities and to higher levels of market interest rates.~~rate between the periods.

Average deposits increased ~~$775,512~~$10,424,348 to ~~$10,691,006~~$21,115,354 in the three months ended September 30, ~~2017,~~2018, compared to ~~$9,915,494 for~~$10,691,006. Average interest bearing deposits increased $9,291,832 compared to the third quarter of 2017. Average non-interest bearing deposits increased to $4,174,908 in the three months ended September 30, ~~2016. Average interest bearing deposits increased $929,324~~2018, compared to $3,042,392 in the ~~third quarter of 2017 compared~~three months ended September 30, 2017. These increases were mainly due to the ~~third quarter of 2016. The growth in total deposits was primarily due to~~Astoria Merger and organic growth ~~driven~~generated by our commercial banking teams and ~~new brokered deposit relationships.~~financial centers. The average cost of interest bearing deposits was 0.84% compared to 0.69% in the third quarter of ~~2017 compared to 0.54% in the third quarter of 2016.~~2017. The average cost of total deposits was 0.68% compared to 0.50% in the third quarter of ~~2017 compared to 0.37% in the third quarter of 2016.~~2017. The increase in the cost of deposits was mainly due to anthe increase in ~~our proportion of commercial deposits to total deposits~~market interest rates and ~~increases in new brokered deposit relationships, which tend to be more interest rate sensitive in rising interest rate environments.~~the competitive environment.

Average deposits increased ~~$923,155~~$10,469,449 and were ~~$10,389,505~~$20,858,954 in the nine months ended September 30, ~~2017,~~2018, compared to ~~$9,466,350 for the nine months ended September 30, 2016.~~$10,389,505. Average interest bearing deposits increased ~~$877,212~~$9,567,767 in the nine months ended September 30, ~~2017~~2018 compared to the nine months ended September 30, ~~2016.~~2017. Average non-interest bearing deposits increased ~~$45,943~~$901,682 and were $4,036,303 in the nine months ended September 30, 2018, compared to $3,134,621 in the nine months ended September 30, ~~2017, compared to $3,088,678 in the nine months ended September 30, 2016.~~2017. These increases were mainly due to the Astoria Merger and organic growth generated by our commercial banking ~~teams.~~teams and financial centers. The average cost of interest bearing deposits was 0.70% in the nine months ended September 30, 2018 compared to 0.62% in the nine months ended September 30, ~~2017 compared to 0.50%~~2017. The average cost of total deposits was 0.57% in the nine months ended September 30, ~~2016. The average cost of total deposits was~~2018 compared to 0.44% in the nine months ended September 30, ~~2017 compared to 0.34% in the nine months ended September 30, 2016.~~2017. The increase in the cost of deposits was mainly due to the same factors ~~as the increase~~discussed in ~~the cost of deposits for~~ the three-month period.

Average borrowings increased ~~$1,455,142~~$2,273,609 to ~~$2,779,143~~$5,052,752 in the three months ended September 30, ~~2017,~~2018, compared to ~~$1,324,001~~$2,779,143 in the same period a year ago. The increase in average borrowings was mainly used to fund the increase in average earning assets, including growth in loans and investment securities. The average cost of borrowings was 2.29% for the third quarter of 2018, compared to 1.75% for the third quarter of ~~2017, unchanged from the third quarter of 2016. Although market~~2017. Market interest rates ~~for~~on borrowings have increased in the last 12 months, a

~~STERLING BANCORP AND SUBSIDIARIES~~

~~significant portion of our borrowings were lower cost shorter-term borrowings from~~which was the ~~FHLB, which resulted~~main factor contributing to the increase in ~~no change in total~~ the cost of borrowings.

Average borrowings increased ~~$999,937~~$2,728,375 to ~~$2,301,036~~$5,029,411 in the nine months ended September 30, ~~2017,~~2018, compared to ~~$1,301,099~~$2,301,036 in the same period a year ago. The increase in average borrowings was mainly used to fund the increase in average loan balances and investment securities. The average cost of borrowings was ~~1.74%~~2.18% for the nine months ended September 30, ~~2017~~2018 compared to ~~1.80%~~1.74% in the nine months ended September 30, ~~2016.~~2017. The ~~decline in the average cost of borrowings~~increase was mainly due to the ~~extinguishment of $220,000 of FHLB advances with a cost of 3.57%, which occurred~~same factors as discussed in ~~March 2016.~~the three month period.

Provision for Loan Losses. The provision for loan losses is determined as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level that is our best estimate of probable incurred credit losses inherent in the outstanding loan portfolio. For the three months ended September 30, ~~2017~~2018 and ~~September 30, 2016, the provision for loan losses was $5,000 and $5,500, respectively. For the nine months ended~~ September 30, 2017, the provision for loan losses was ~~$14,000~~$9,500 and $5,000, respectively. For the nine months ended September 30, 2018, the provision for loan losses was $35,500 compared to ~~$14,500~~$14,000 for the nine months ended September 30, ~~2016.~~2017. See the section captioned “Delinquent Loans, Troubled Debt Restructuring, Impaired Loans, Other Real Estate Owned and Classified Assets - Provision for Loan Losses” later in this discussion for further analysis of the provision for loan losses.

Non-interest income. The components of non-interest income were as follows for the periods presented below:

STERLING BANCORP AND SUBSIDIARIES


	For the three months ended					For the nine months ended					For the three months ended						For the nine months ended
	September 30,					September 30,					September 30,						September 30,
	2017			2016		2017			2016		2018			2017			2018			2017
Deposit fees and service charges											$	6,333		$	3,309		$	20,319		$	9,893
Accounts receivable management / factoring commissions and other related fees	$	4,764		$	4,898	$	12,670		$	13,548	5,595			4,764			16,292			12,670
Mortgage banking income	121			1,153		522			5,522
Deposit fees and service charges	3,309			3,407		9,893			11,981
Net (loss) gain on sale of securities	(21		)	3,433		(274		)	7,624
Bank owned life insurance	1,320			1,891		4,342			4,499		3,733			1,320			11,591			4,342
Loan commissions and fees											4,142			2,819			12,114			8,643
Investment management fees	271			1,086		825			3,144		1,943			271			5,889			825
Net (loss) on sale of securities											(56		)	(21		)	(5,902		)	(274		)
Gain on sale of fixed assets											—			1			11,800			1
Other	4,224			3,171		12,464			8,593		2,455			1,525			8,617			4,342
Total non-interest income	$	13,988		$	19,039	$	40,442		$	54,911	$	24,145		$	13,988		$	80,720		$	40,442

Non-interest income was ~~$13,988~~$24,145 for the three months ended September 30, ~~2017,~~2018, compared to ~~$19,039~~$13,988 in the same period a year ago. Included in non-interest income is net loss ~~or gain~~ on sale of securities, which was ~~a net loss of~~$56 for the three months ended September 30, 2018, compared to $21 for the three months ended September ~~20, 2017 compared to a net gain of $3,433 for the three months ended September~~ 30, ~~2016.~~2017. Net loss ~~or gain~~ on sale of securities is impacted significantly by changes in market interest rates and strategies we use to manage yield, liquidity and interest rate risk, and it is difficult to forecast the amount of net losses or gains consistently. ~~As a result, when~~When we analyze the results of our non-interest income, we exclude gains and losses on sales of ~~securities.~~securities and fixed assets. Excluding net loss oron sale of securities and gain on sale of ~~securities,~~fixed assets, non-interest income was $24,201 compared to $14,009 for the third quarter of ~~2017, compared~~2017. The increase was mainly due to ~~$15,606 for~~ the third quarter of 2016. The main drivers of the decrease between the periods were the sale of our residential mortgage originations business in August 2016, which resulted in a decline of $1,032 in mortgage banking income, and the sale of our trust division in November 2016, which resulted in a decline of $815 in investment management fees.Astoria Merger.

For the nine months ended September 30, ~~2017,~~2018, total non-interest income was ~~$40,442~~$80,720 compared to ~~$54,911~~$40,442 for the same period a year ago. Included in non-interest income for the nine months ended September 30, ~~2017~~2018 was ~~$274~~$5,902 of net loss on sale of securities compared to net ~~gain~~loss on sale of securities of ~~$7,624~~$274 for the comparable year ago period. ~~Excluding net loss or~~In addition, we realized a gain on sale of fixed assets during the nine months ended September 30, 2018 of $11,800 related to the sale of one real estate location acquired in the Astoria Merger. Excluding net loss on sale of securities and gain on sale of fixed assets, non-interest income was ~~$40,716~~$74,822 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$47,287~~$40,715 for the nine months ended September 30, ~~2016.~~2017. The ~~decrease~~increase between the periods was mainly due to the ~~same factors that resulted in the decrease in the three-month period.~~Astoria Merger.

~~The ratio~~Our annualized run-rate of non-interest income excluding securities ~~gains~~losses and ~~losses to tax equivalent net interest income plus~~gain on sale of fixed assets was $100,037 through the nine months ended September 30, 2018. We currently anticipate the main drivers of growth in non-interest income ~~excluding securities gains and losses was 10.1% for the third quarter of 2017, compared to 12.8% for the third quarter of 2016. We anticipate this ratio~~ will ~~increase in the future through growth in~~be other loan fees, loan swap fees, ~~other fee income generated by our commercial banking teams;~~loan syndication fees and deposit fees and service charges ~~driven~~generated by commercial treasury management services. WeAdditionally, we continue to evaluate potential acquisitions of ~~specialty~~ commercial ~~lending and other~~finance businesses that are also fee income generators. Changes in the components of non-interest income are discussed below.

~~STERLING BANCORP AND SUBSIDIARIES~~

Deposit fees and service charges were $6,333 for the third quarter of 2018, which represented a $3,024 increase compared to $3,309 for the same period a year ago. The increase in deposit fees and service charges is mainly due to the Astoria Merger. For the nine months ended September 30, 2018, deposit fees and service charges were $20,319, which represented an increase of $10,426 compared to the same period a year ago, and was mainly due to the Astoria Merger.

Accounts receivable management / factoring commissions and other related fees represents fees generated in our factoring and payroll finance businesses. A portion of the fees generated in the factoring and payroll finance businesses are allocated to interest income on loans and the remainder is recognized as fee income. In our factored receivables business, we receive a nonrefundable factoring fee, which is generally a percentage of the factored receivables or sales volume, and is designed to compensate us for the bookkeeping and collection services provided and, if applicable, the credit review of the client’s customer and assumption of customer credit risk. In payroll finance, we provide outsourcing support services for clients in the temporary staffing industry. We generate fee income in exchange for providing full back-office, payroll, tax and accounting services to independently-owned temporary staffing companies. Total fee income in these businesses ~~declined $134,~~increased $831, or ~~2.7%~~17.4%, to ~~$4,764~~$5,595 for the three months ended September 30, ~~2017,~~2018, compared to ~~$4,898~~$4,764 for the year ago period. The ~~decrease~~increase in fees between the periods is mainly due to ~~an increasing proportion~~a change in the allocation of total client revenue ~~being allocated to the lending component versus the~~between interest income and fee ~~income component of the businesses. For the nine months ended September 30, 2017, these fees were $12,670, compared to $13,548 for the same period a year ago, a decrease of 6.5% between the periods.~~income. Total revenue generated by factored receivables and payroll finance clients, including fee income and interest income, was ~~$12,348~~$12,389 in the third quarter of ~~2017~~2018 compared to ~~$12,390~~$12,294 in the third quarter of ~~2016. The decrease in total revenues was mainly due to client attrition in factored receivables.~~

~~Mortgage banking income~~ has decreased significantly in the first nine months of 2017 as a result of the sale of our mortgage banking originations business, which was completed in August 2016. In 2017, mortgage banking income represented payments received from the purchaser of the business, which are based on the volume of residential mortgage loans originated by the personnel that was transfered to the purchaser in connection with the transaction. It also includes revenue and2017. Total fee income generated by residential mortgage loans originated through our financial centers, which will be ongoing. In 2016, mortgage banking income represented the residential mortgage banking and mortgage brokerage business conducted through loan production offices that were located principally in ~~Brooklyn, Great Neck and New York City and through our financial centers. Mortgage banking income was $121 in the third quarter of 2017, compared~~these businesses increased to ~~$1,153 in the third quarter of 2016. For the nine months ended September 30, 2017, mortgage banking income was $522, compared to $5,522~~$16,292 for the nine months ended September 30, ~~2016.~~

~~Deposit fees and service charges~~ ~~were $3,309 for the third quarter of 2017, which represented a $98 decline~~2018, compared to ~~$3,407~~$12,670 for the same period a year ago. ~~For the nine months ended September 30, 2017, deposit~~The increase in fees ~~and service charges were $9,893, which represented a decrease of $2,088 compared~~was mainly due to the same period a year ago. Effective July 1, 2016, the Bank became subject to specific provisions of the Dodd-Frank Act, including the Durbin Amendment. As a result, the Bank’s interchange fee earned on debit card transactions, which is part of deposit fees and services charges, was reduced to comply with the provisions of the Durbin Amendment leading to the decreaserevenue allocation change in ~~deposit fees and service charges between the periods.~~2018.

~~Net (loss) gain on sale of securities~~ income represents losses or gains incurred on the sale of securities from our available for sale investment securities portfolio. We realized a net loss on sale of securities of $21 in the three months ended September 30, 2017 and a net gain on sale of securities of $3,433 in the three months ended September 30, 2016. Net gain on sale of securities in 2016 was the result of the sale of securities with net unrealized gains to reposition our securities portfolio to increase our proportion of holdings in municipal securities.

STERLING BANCORP AND SUBSIDIARIES

Bank owned life insurance (“BOLI”) income represents the change in the cash surrender value of life insurance policies owned by us. BOLI income was ~~$1,320~~$3,733 for the third quarter of ~~2017~~2018, compared to $1,320 in the same period a year ago, and ~~$4,342~~was $11,591 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$1,891 and $4,499~~$4,342 in the same ~~periods~~period a year ~~ago, respectively.~~ago. The ~~decline~~increase was mainly due to ~~lower revenues associated with life insurance settlements~~BOLI acquired in ~~2017~~the Astoria Merger.

Loan commissions and fees income includes fees on lines of credit, loan servicing fees, loan syndication fees, collateral monitoring, and other loan related fees that are not included in interest income. Loan commissions and fees were $4,142 for the three months ended September 30, 2018, compared to ~~2016.~~$2,819 for the three months ended September 30, 2017, and were $12,114 for the nine months ended September 30, 2018, compared to $8,643 in the same period a year ago. The increase was mainly due to higher loan syndication fees and other loan fees generated by our commercial banking teams.

Investment management fees ~~havehistorically represented~~represent fees from the sale of mutual funds, ~~and~~ annuities and ~~until November 2016, also included trust fees.~~insurance commissions. These revenues were ~~$271~~$1,943 in the third quarter of ~~2017~~2018 and ~~$825~~$271 in the same period a year ago, and were $5,889 for the first nine months of ~~2017~~2018, compared to ~~$1,086 and $3,144~~$825 in the same ~~periods~~period a year ~~ago, respectively.~~ago. We have increased our revenues from the sale of mutual funds, annuities and insurance agency commissions as a result of the Astoria Merger.

Net (loss) on sale of securities represents net losses incurred on the sale of securities from our available for sale investment securities portfolio. We realized a net loss on sale of securities of $56 in the three months ended September 30, 2018 compared to $21 in the three months ended September 30, 2017. We realized a net loss on sale of securities of $5,902 for the nine months ended September 30, 2018, compared to $274 for the same period a year ago. The ~~decrease~~loss on sale of securities in the nine months ended September 30, 2018 was mainly due to the sale of ~~our trust division~~$117,810 of available for sale securities; the proceeds were used to fund a portion of the purchase of Advantage Funding in ~~November 2016 which eliminated our trust fee income.~~April 2018.

~~STERLING BANCORP AND SUBSIDIARIES~~

Net gain on sale of fixed assets of $11,800 for the nine months ended September 30, 2018 is related to the sale of one real estate location acquired in the Astoria Merger. The sales price was $36,000, which we received in cash. We anticipate fully exiting the location in the first quarter of 2019.

Other non-interest income principally includes ~~miscellaneous~~fees for loan ~~fees earned, letter of credit fees, loan swap fees and~~swaps, safe deposit ~~rentals.~~rentals and foreign exchange fees. Other non-interest income increased ~~$1,053~~$930 to ~~$4,224~~$2,455 for the third quarter of ~~2017~~2018 from ~~$3,171~~$1,525 for the same period a year ago. The increase ~~in the third quarter of 2017 compared~~was mainly due to the ~~year earlier period was due to~~Astoria Merger and higher volumes of loan swap ~~fees, higher loan syndication fees and higher other loan fees.~~originations. Other non-interest income was ~~$12,464~~$8,617 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$8,593~~$4,342 for the nine months ended September 30, ~~2016.~~2017. The increase was due to the same factors as those discussed for the three-month period.

Non-interest expense. The components of non-interest expense were as follows for the periods presented below:


	For the three months ended				For the nine months ended				For the three months ended				For the nine months ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Compensation and benefits	$	32,433	$	32,501	$	95,218	$	93,857	$	54,823	$	31,727	$	165,662	$	93,893
Stock-based compensation	1,969		1,673		5,602		4,960
Stock-based compensation plans									3,115		1,969		9,304		5,602
Occupancy and office operations	8,583		8,021		25,550		26,113		16,558		8,583		51,956		25,550
Information technology									10,699		2,512		32,412		7,402
Amortization of intangible assets	2,166		3,241		6,582		9,535		5,865		2,166		17,782		6,582
FDIC insurance and regulatory assessments	2,310		2,151		6,232		6,709		6,043		2,310		16,885		6,232
Other real estate owned expense, net	894		721		2,682		1,844		1,497		894		1,635		2,682
Merger-related expense	4,109		—		9,002		265		—		4,109		—		9,002
Loss on extinguishment of borrowings	—		1,013		—		9,729
Charge for asset write-downs, retention and severance	—		2,000		603		4,485		—		—		13,132		603
Other non-interest expense	10,153		10,935		31,153		33,330		13,173		8,347		39,680		25,076
Total non-interest expense	$	62,617	$	62,256	$	182,624	$	190,827	$	111,773	$	62,617	$	348,448	$	182,624

Non-interest expense for the three months ended September 30, ~~2017~~2018 was ~~$62,617,~~$111,773, a ~~$361~~$49,156 increase compared to ~~$62,256~~$62,617 for the three months ended September 30, ~~2016.~~2017. For the nine months ended September 30, ~~2017,~~2018, non-interest expense was ~~$182,624, a decrease~~$348,448, an increase of ~~$8,203~~$165,824 compared to ~~$190,827~~$182,624 for the nine months ended September 30, ~~2016.~~2017. The ~~decrease~~increase between the ~~nine month~~ periods was mainly due to ~~a decrease~~the Astoria Merger. Our annualized run-rate of total non-interest expense excluding amortization of intangible assets was $420,178 in the ~~loss on extinguishment~~third quarter of ~~borrowings.~~2018. Changes in the components of non-interest expense are discussed below.

STERLING BANCORP AND SUBSIDIARIES

Compensation and benefits expense was ~~$32,433~~$54,823 for the three months ended September 30, ~~2017,~~2018, compared to ~~$32,501~~$31,727 for the three months ended September 30, ~~2016. Increases in the number~~2017. As of ~~commercial banking teams and risk management personnel have offset declines in full time~~September 30, 2018, our full-time equivalent employees ~~generated from the sales of the residential mortgage originations business and trust division.~~were 1,959 compared to 992 at September 30, 2017. For the nine months ended September 30, ~~2017,~~2018, compensation and employee benefits expense was ~~$95,218~~$165,662 compared to ~~$93,857~~$93,893 for the nine months ended September 30, ~~2016.~~2017. The increase in compensation and employee benefits for the three and nine month ~~period~~periods was mainly due to ~~an increase in~~ the ~~accrual for self-funded medical insurance~~Astoria Merger and ~~personnel retained as a result~~continued hiring of ~~the NSBC Acquisition. As of September 30, 2017, our full-time equivalent employees were 992 compared to 995 at September 30, 2016.~~commercial bankers and risk management personnel.

Stock-based compensation plans expense was $3,115 in the third quarter of 2018, compared to $1,969 in the third quarter of ~~2017, compared to $1,673 in the third quarter of 2016.~~2017. The increase ~~in stock-based compensation expense between the periods is~~was due to a greater percentage of compensation paid to our executive management and senior personnel in stock awards to better align the interests of management and employees to those of our stockholders. For the nine months ended September 30, ~~2017,~~2018, stock-based compensation expense was ~~$5,602~~$9,304 compared to ~~$4,960~~$5,602 for the nine months ended September 30, ~~2016,~~2017 and the increase was due to the same factors discussed above. For additional information related to our employee benefit plans and stock-based compensation, see Note 11. “Stock-Based Compensation” in the notes to consolidated financial statements included elsewhere in this report.

Occupancy and office operations expense was $16,558 in the third quarter of 2018, compared to $8,583 in the third quarter of ~~2017,~~2017. At September 30, 2018, we had 113 financial center locations, compared to ~~$8,021 in the third quarter of 2016.~~40 financial centers at September 30, 2017. For the nine months ended September 30, ~~2017,~~2018, occupancy and office operations expense was ~~$25,550,~~$51,956, compared to ~~$26,113~~$25,550 for the nine months ended September 30, ~~2016.~~2017. The ~~decrease between the nine month periods~~increase was mainly due to the ~~consolidation~~Astoria Merger. We anticipate we will reduce our total number of ~~several~~ financial centers over time. In the first nine months of 2018, we consolidated 15 financial centers, two back office facilities, and completed the sale of the Lake Success headquarters. We currently anticipate we will consolidate an additional seven financial centers in the fourth quarter of 2018.

Information technology expense, whichmainly includes the cost of our loan and deposit operating systems and contracted service and maintenance associated with other data processing systems, was $10,699 in the third quarter of 2018, compared to $2,512 in the third quarter of 2017. For the nine months ended September 30, 2018, information technology expense was $32,412, compared to $7,402 for the nine months ended September 30, 2017. The increase in information technology expense is mainly due to the Astoria Merger. During the three months ended September 30, 2018, we completed the full integration of Astoria’s legacy deposit systems. We anticipate a reduction in other back-office locations. At September 30, 2017, we had 40 financial center locations, compared to 41 financial centers at September 30, 2016. Our goal is to have a financial center network in which allinformation technology expense of ~~our locations meet or exceed our profitability and efficiency targets.~~approximately $1,500 per quarter as cost savings from the Astoria systems conversion are realized.

~~STERLING BANCORP AND SUBSIDIARIES~~

Amortization of intangible assets expense mainly includes amortization of core deposit intangible assets, customer lists and non-compete agreements. Amortization of intangible assets was ~~$2,166~~$5,865 in the three months ended September 30, ~~2017,~~2018, compared to ~~$3,241~~$2,166 for the three months ended September 30, ~~2016.~~2017. Amortization of intangible assets was $17,782 for the nine months ended September 30, 2018, compared to $6,582 for the nine months ended September 30, ~~2017, compared to $9,535 for the nine months ended September 30, 2016.~~2017. The ~~decrease~~increase in amortization expense was mainly due ~~mainly~~ to ~~intangibles~~amortization of the core deposit intangible assets recorded in ~~prior acquisitions that are now fully amortized.~~the Astoria Merger. For additional information, see Note 6. “Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements included elsewhere in this report.

FDIC insurance and regulatory assessments expense ~~expense~~was $6,043 for the third quarter of 2018, compared to $2,310 for the third quarter of ~~2017, compared to $2,151 for the third quarter of 2016.~~2017. The increase was mainly due to the Astoria Merger and organic growth in ~~assets subject to the assessment.~~assets. FDIC insurance and regulatory assessments expense was $16,885 for the nine months ended September 30, 2018, compared to $6,232 for the nine months ended September 30, ~~2017, compared to $6,709 for the nine months ended September 30, 2016.~~2017. The ~~decrease between~~increase in the nine month ~~periods~~period was ~~mainly~~ due to ~~a decline~~the same factors as in the ~~FDIC assessment charged to the Bank that occurred after the FDIC Deposit Insurance Fund reserve ratio reached 1.15%.~~three-month period.

Other real estate owned ~~(“OREO”)~~ expense, net includes property taxes, maintenance costs, ~~taxes,~~ insurance, write-downs (subsequent to any write-down at the time of foreclosure or transfer to OREO), and gains and losses from the disposition of OREO. OREO includes real estate assets that have been foreclosed and owned financial center locations that have been closed and are held for sale. OREO expense, net included the following:

STERLING BANCORP AND SUBSIDIARIES


	For the three months ended						For the nine months ended						For the three months ended						For the nine months ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Loss (gain) on sale	$	(8	)	$	(33	)	$	(93	)	$	(302	)
(Gain) on sale, net													$	(65	)	$	(8	)	$	(1,348	)	$	(93	)
Direct property write-downs	444			—			1,737			582			190			444			552			1,737
Rental income	(10		)	(14		)	(35		)	(56		)	(35		)	(10		)	(114		)	(35		)
Property tax	437			616			763			1,186			617			437			851			763
Other expenses	31			152			310			434			790			31			1,694			310
OREO expense, net	$	894		$	721		$	2,682		$	1,844		$	1,497		$	894		$	1,635		$	2,682

OREO expense, net was $1,497 for the three months ended September 30, 2018, compared to expense of $894 for the three months ended September 30, ~~2017, compared~~2017. The increase was mainly due to ~~$721~~additional OREO properties acquired in the Astoria Merger. OREO expense, net was $1,635 for the ~~three~~nine months ended September 30, ~~2016. The increase was due~~2018, compared to ~~direct property write-downs based on updated appraisals received in the third quarter of 2017. OREO expense, net was~~ $2,682 for the nine months ended September 30, ~~2017, compared to $1,844 for the nine months ended September 30, 2016. Based on updated appraisals and property valuations, we reduced the carrying value of several foreclosed properties in~~2017. In the nine months ended September 30, 2017 ~~and incurred~~we recorded a ~~charge of $1,737 compared to $582 in~~significant write-down on a residential property, which was subsequently sold during the ~~year earlier period. These write-downs facilitated the sale of several properties, and the~~year. The balance of OREO declined by ~~$1,922~~$4,360 to ~~$11,697~~$22,735 at September 30, ~~2017~~2018 compared to ~~$13,619~~$27,095 at December 31, ~~2016.~~2017.

Merger-related expense was ~~$4,109~~$0 in the three and nine months ended September 30, ~~2017~~2018, compared to $4,109 and ~~was~~ $9,002 for the three and nine months ended September 30, 2017, ~~compared to $265 for the nine months ended September 30, 2016. There was no merger-related~~respectively. Merger-related expense in ~~the three months ended September 30, 2016. Merger-related expense for the third quarter of~~ 2017 was incurred in connection with the Astoria Merger and consisted mainly of costs associated with merger-related marketing activities and preparation of client communications, re-branding of Astoria’s financial centers, temporary signage, professional fees (including appraisal and legal fees) and integration planning expenses. Merger-related expense for the nine months ended September 30, 2017 also included financial and legal advisory fees in connection with the Astoria Merger. ~~Merger-related~~

Charge for asset write-downs, severance and retention expensewas $13,132 for the nine months ended September 30, ~~2016~~2018 and was ~~incurred in connection with the NSBC Acquisition.~~

~~Loss on extinguishment of borrowings expense~~ was $1,013 and $9,729 for the three and nine months ended September 30, 2016, respectively. The loss in the three months ended September 30, 2016 was due to the repayment of $23,000 of outstanding senior notes. The loss for the nine months ended September 30, 2016 included the loss on repayment of senior notes and a loss due to the repayment of $220,000 of fixed rate FHLB borrowings with a weighted average interest rate of 3.57%. These borrowings were replaced with deposits and short-term and overnight FHLB borrowings that had a substantially lower cost. We did not extinguish borrowings in the first nine months of 2017.

~~Charge for asset write-downs, retention and severance~~ ~~was $0 for the three months ended September 30, 2017 and~~ $603 for the nine months ended September 30, ~~2017, compared to $2,000 for the three months ended September 30, 2016 and $4,485 for~~2017. In the nine months ended September 30, ~~2016.~~2018, we incurred a charge of $8,736 due to the consolidation and exit of one back-office location which was related to the Astoria Merger. This impairment charge had been identified at the time of the closing of the Astoria Merger; however, the exit of the back-office facility had not met the requirements to record the impairment charge until this reporting period. The balance of the charge recorded in nine months ended September 30, 2018 of $4,396 was related to the Advantage Funding Acquisition. The charge included professional fees, retention and severance, systems integration costs and an impairment of a lease assumed in the transaction. The charge incurred in 2017 was related to the consolidation of two financial centers. ~~The charge~~There were no such charges in the third quarter of ~~2016 was incurred in connection with the sale of the mortgage banking originations business. For the nine months~~2018 and 2017.

~~STERLING BANCORP AND SUBSIDIARIES~~

~~ended September 30, 2016, charges also included items related to the NSBC Acquisition and the consolidation of financial centers and other locations.~~

Other non-interest expense mainly includes professional fees, advertising and promotion, communications and operational losses. Also included in other non-interest expense are loan processing expenses, net benefit of pension and post retirement plans, recruitment fees, taxes not included in income tax expense, travel and client entertainment, and training expense. For the three months ended September 30, 2018, other non-interest expense was $13,173, compared to $8,347 for the three months ended September 30, 2017, ~~was $10,153, compared to $10,935 for the three months ended September 30, 2016~~ and was ~~$31,153~~$39,680 for the nine months ended September 30, ~~2017,~~2018, compared to ~~$33,330~~$25,076 for the same period a year ago. The ~~decrease~~increase was mainly related to the ~~sale of the residential mortgage originations business and the trust division.~~Astoria Merger. See Note 13. ~~“Other~~“Non-Interest Income and Other Non-Interest Expense” in the notes to the consolidated financial statements included elsewhere in this report for details on significant components.

In connection with the Astoria Merger, we anticipate that we will incur a material amount of merger-related expense and restructuring charges including professional and advisory fees, core system processing and other consulting integration fees, asset write-downs for facilities and fixed assets, severance, retention and change in control agreements. The majority of these expenses will be incurred in the fourth quarter of 2017.

Income tax expense was $27,171 for the three months ended September 30, 2018 compared to $21,592 for the three months ended September 30, 2017. Based upon the completion of the Astoria short-period tax returns for 2017, ~~compared~~and the increasing proportion of non-taxable assets and revenues due to ~~$16,991~~our business mix, our estimated effective tax rate for 2018 decreased to 21.0%. Therefore, we recorded income tax expense at 18.5% for the three months ended September 30, ~~2016,~~2018, which ~~represented~~resulted in an estimated effective income tax rate of 21.0% for the nine months ended September 30, 2018. Our estimated effective income tax rate was 32.5% ~~and 31.2%, respectively.~~ in 2017.

Income tax expense was $88,542 for the nine months ended September 30, 2018 and was $59,620 for the nine months ended September 30, 2017, ~~and was $47,646 for the nine months ended September 30, 2016,~~ which represented an effective income tax rate of ~~32.1%~~21.0% and ~~32.5%~~32.1%, respectively.

With the completion of the Astoria Merger, and based on the estimated amount of tax deductible merger-related expense and restructuring charges we anticipate our effective income tax rate for full year 2017 will be approximately 25% to 27.5%. Our effective tax rate differs from the 35% federal statutory rate due mainly to the effect of tax exempt interest from public sector finance loans, municipal securities and BOLI income.

The adoption of a new accounting standard in the first quarter of 2017 required that tax benefits in excess of compensation costs associated with our stock-based compensation plans be included in income tax expense as a discrete item. In the three and nine months ended September 30, 2017 we recorded a tax benefit of $1 and $807, respectively, associated with the vesting of stock-based compensation. This reduced our effective income tax rate by 68 basis points in the nine months ended September 30, 2017. See Note 10. “Income Taxes” in the notes to the consolidated financial statements included elsewhere in this report for additional information.

STERLING BANCORP AND SUBSIDIARIES

Portfolio Loans

The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the periods indicated.


	September 30, 2017					December 31, 2016					September 30, 2018					December 31, 2017
	Amount			%		Amount			%		Amount			%		Amount			%
Commercial:
C&I:
Traditional C&I	$	1,726,018		16.4	%	$	1,404,774		14.7	%	$	2,037,556		9.9	%	$	1,979,448		9.9	%
Asset-based lending	794,632			7.6		741,942			7.8		868,047			4.2		797,570			4.0
Payroll finance	251,003			2.4		255,549			2.7		235,734			1.1		268,609			1.3
Warehouse lending	669,860			6.4		616,946			6.5		864,063			4.2		723,335			3.6
Factored receivables	236,051			2.2		214,242			2.2		270,002			1.3		220,551			1.1
Equipment financing	679,127			6.5		589,315			6.2		1,161,435			5.7		679,541			3.4
Public sector finance	484,973			4.6		349,182			3.7		807,193			3.9		637,767			3.2
Total C&I	4,841,664			46.1		4,171,950			43.8		6,244,030			30.4		5,306,821			26.5
Commercial mortgage:
Commercial real estate	3,453,151			32.9		3,162,942			33.2		4,457,485			21.7		4,138,864			20.7
Multi-family	1,020,094			9.7		981,076			10.3		4,827,172			23.5		4,859,555			24.3
ADC	236,456			2.3		230,086			2.4		265,676			1.3		282,792			1.4
Total commercial mortgage	4,709,701			44.9		4,374,104			45.9		9,550,333			46.5		9,281,211			46.4
Total commercial	9,551,365			91.0		8,546,054			89.7		15,794,363			76.9		14,588,032			72.9
Residential mortgage	684,093			6.5		697,108			7.3		4,421,520			21.5		5,054,732			25.3
Consumer	258,077			2.5		284,068			3.0		317,331			1.5		366,219			1.8
Total portfolio loans	10,493,535			100.0	%	9,527,230			100.0	%	20,533,214			100.0	%	20,008,983			100.0	%
Allowance for loan losses	(72,128		)			(63,622		)			(91,365		)			(77,907		)
Total portfolio loans, net	$	10,421,407				$	9,463,608				$	20,441,849				$	19,931,076

Note the percentages in the table above are rounded to the nearest tenth of a percent.

Overview. Total portfolio loans, net, increased ~~$957,799, or 13.5% on an annualized basis,~~$510,773, to ~~$10,421,407~~$20,441,849 at September 30, ~~2017,~~2018, compared to ~~$9,463,608~~$19,931,076 at December 31, ~~2016.~~ 2017, as total commercial loans increased $1,206,331 while residential mortgage loans decreased by $633,212, which is consistent with our strategy of transitioning our loan portfolio composition to reduce residential mortgage loans and increase commercial loans.

At September 30, ~~2017,~~2018, total C&I loans comprised ~~46.1%~~30.4% of the total loan portfolio, compared to ~~43.8%~~26.5% at December 31, ~~2016.~~2017. Commercial mortgage loans comprised ~~44.9%~~46.5% and ~~45.9%~~46.4% of the total loan portfolio at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

~~C&I~~ Residential mortgage loans ~~increased $669,714, or~~comprised 21.5% ~~on an annualized basis, in~~of the ~~first nine months of 2017. Included in~~ total C&I loans are asset-based lending, payroll finance, warehouse lending, factored receivables, equipment financing and public sector finance, which collectively comprise our commercial finance loan portfolio. The commercial finance loan portfolio ~~increased by $348,470 in the first nine months of 2017 and totaled $3,115,646~~ at September 30, ~~2017,~~2018, compared to ~~$2,767,176~~25.3% at December 31, ~~2016, mainly due~~2017. Our goal, over time, is for our loan portfolio to ~~increases in public sector finance,~~consist of 20.0% traditional C&I; 25.0% commercial finance; 45.0% commercial real estate; and 10.0% consumer and residential mortgage loans.

In the nine months ended September 30, 2018, equipment finance ~~and warehouse lending described below.~~

~~Traditional C&I~~ loans grew ~~$321,244,~~$481,894, which includes the loans acquired in the Advantage Funding acquisition, public sector finance loans ~~increased $135,791, equipment financing loans increased $89,812 and~~grew $169,426, warehouse lending ~~increased $52,914 since~~loans grew $140,728, asset based lending loans grew $70,477, traditional C&I loans grew $58,108, and factored receivables grew $49,451 relative to December 31, ~~2016,~~2017. These increases were partially offset by s decline of $32,875 in payroll finance loans. The increase in traditional C&I and commercial finance portfolios is a significant component of our growth strategy. The warehouse lending portfolio can experience fluctuations at quarter end mainly due to ~~loans generated by our commercial banking teams. Traditional C&I loans include loans generated by our commercial banking teams that are focused on franchise~~changes in mortgage refinance activity. The decrease in payroll finance ~~healthcare finance and lender finance industry sectors.~~is consistent with performance in prior years, as this business line typically experiences seasonal highs in the fourth quarter of the year.

Commercial real estate loans increased ~~$290,209, or 12.3% on an annualized basis~~$318,621 in the nine months ended September 30, ~~2017.~~2018. Multi-family loans ~~grew $39,018, or 5.3% on an annualized basis,~~declined in the first nine months of ~~2017. The main drivers~~2018 by $32,383 mainly due to net repayments of ~~growth have been strong~~multi-family loans acquired in the Astoria Merger. Demand for commercial real estate, ~~market conditions~~including multi-family loans, in the greater New York metropolitan area ~~increasing interest rates~~continues to be strong; however, pricing and ~~pricing levels on new originations,~~loan terms are competitive and ~~higher origination volumes given~~ our ~~increased number of commercial banking teams.~~growth in these portfolios has been limited.

STERLING BANCORP AND SUBSIDIARIES

ADC loans, which are a component of commercial mortgage loans, ~~increased $6,370~~declined $17,116 in the nine months ended September 30, ~~2017.~~2018. The ~~increase~~decrease was due to ~~growth generated from our commercial banking teams.~~completion of construction projects, which resulted in the pay-off of a construction loan. We ~~have ceased originations of land acquisition and~~

~~STERLING BANCORP AND SUBSIDIARIES~~

~~development loans. However, we do~~ originate construction loans ~~on an exception basis but only~~mainly to select clients, mostly within our immediate footprint. Many of our new ADC originations are associated with low income housing tax credits, which are related to our community reinvestment activities.

Residential ~~mortgage~~ loans ~~decreased $13,015 to $684,093~~were $4,421,520 at September 30, ~~2017,~~2018 compared to ~~$697,108~~$5,054,732 at December 31, ~~2016.~~2017. The ~~majority of~~decline is mainly due to repayments. Included in our residential mortgage portfolio are loans that were originated in 2010 or earlier that are interest-only adjustable rate mortgages (“ARM loans”) with terms of up to forty years, which have an initial fixed rate for five, seven or 10 years and convert into one year interest-only ARM loans at the end of the initial fixed rate period. Interest-only ARM loans require the borrower to pay interest only during the first ten years of the loan ~~originations were held for sale and sold~~term, which typically results in a material increase in the secondary markets to various investors. We retain newly originated residential mortgage loans on an exception basis for select clients. We also acquire residential mortgage loans for Community Reinvestment Act purposes. Residential mortgage originations and portfolio balances have substantially decreased sinceborrower’s monthly payments upon conversion. After the ~~sale of our residential mortgage originations business in August 2016. Although the majority of such originations were sold in the secondary market, prior to the sale~~tenth anniversary of the ~~residential mortgage originations business we often retained non-conforming prime residential mortgage~~loan, principal and interest payments are required to amortize the loan over the remaining term. There were $342,531 of interest-only loans ~~in our portfolio.~~and loans that converted to principal amortization status within the past 24 months at September 30, 2018 compared to $599,714 at December 31, 2017.

Delinquent Loans, Troubled Debt Restructuring, Impaired Loans, Other Real Estate Owned and Classified Assets

Past Due, Non-Performing Loans, Non-Performing Assets (Risk Elements). The table below sets forth the amounts and categories of our NPAs at the dates indicated. There were no ~~asset-based~~warehouse lending, factored receivables or public sector finance ~~or warehouse lending~~ loans that were non-performing at such dates.


	September 30,			December 31,			September 30,			December 31,
	2017			2016			2018			2017
Non-accrual loans:
Traditional C&I	$	25,409		$	26,386		$	41,461		$	37,642
Asset-based lending							7,718			—
Payroll finance	4			199			229			—
Factored receivables	—			618
Equipment financing	3,840			2,246			9,964			8,099
Commercial real estate	20,874			21,008			27,144			21,720
Multi-family	55			71			3,701			4,449
ADC	1,828			5,269			—			4,205
Residential mortgage	9,992			14,790			72,838			99,958
Consumer	7,058			6,576			14,821			10,284
Total non-accrual loans	69,060			77,163			177,876			186,357
Accruing loans past due 90 days or more	392			1,690			7,346			856
Total NPLs	69,452			78,853			185,222			187,213
OREO	11,697			13,619			22,735			27,095
Total NPAs	$	81,149		$	92,472		$	207,957		$	214,308
TDRs accruing and not included above	$	18,618		$	11,285		$	39,817		$	13,564
Ratios:
NPLs to total loans	0.66		%	0.83		%	0.90		%	0.94		%
NPAs to total assets	0.48			0.65			0.67			0.71

NPAs and NPLs. NPLs include non-accrual loans and accruing loans past due 90 days or more. NPAs include NPLs and OREO. At September 30, ~~2017,~~2018, total NPLs declined ~~$9,401~~$1,991 to ~~$69,452~~$185,222 compared to ~~$78,853~~$187,213 at December 31, ~~2016. This was mainly due to repayments and loans transferred to OREO.~~2017. Non-accrual loans were ~~$69,060~~$177,876 and loans 90 days past due and still accruing interest which were well secured and in the process of collection were ~~$392~~$7,346 as of September 30, ~~2017.~~2018. Non-accrual loans declined ~~$8,103~~$8,481 from ~~$77,163~~$186,357 at December 31, ~~2016.~~2017. The decline in non-accrual loans was mainly the result of charge-offs and loans transferred to OREO. Loans past due 90 days or more and still accruing ~~declined $1,298~~increased $6,490 between the periods. ~~The declines in NPLs~~This was mainly due to ~~repayments, transfers to OREO~~traditional C&I and ~~charge-offs.~~commercial real estate loans that were in the process of being renewed that reached 90 days past due at September 30, 2018.

TDRs. TDRs still accruing interest income are loans modified for borrowers that have experienced financial difficulties but are performing in accordance with the terms of their loan and were performing prior to the modification. Loan modification concessions may include actions such as an extension of the maturity date or the lowering of interest rates and monthly payments. ~~Nearly all of these performing TDR loans are secured by real estate. Total~~At September 30, 2018, accruing TDRs were ~~$46,585 at September 30, 2017, of which $27,967 were non-accrual, none were 90 days past due and accruing, and $18,618 were performing according~~$39,817 compared to ~~their terms and accruing interest income. Total TDRs were $13,274~~$13,564 at December 31, ~~2016, of which $1,989 were non-accrual, none were 90 days past due and accruing, and $11,285 were performing according to their terms and accruing interest income.~~2017. The increase ~~in total TDRs for~~was mainly due to the designation as a TDR of one asset-based lending relationship, which is a borrowing base facility and one commercial real estate relationship during the nine months ended September 30, 2018. At September 30, 2018, the largest component of TDRs are taxi medallion related loans. At December 31, 2017, performing TDR loans were mainly secured by real estate, and non-accrual TDRS included a

STERLING BANCORP AND SUBSIDIARIES

taxi medallion relationship. Total TDRs were $77,347 at September 30, 2018, of which $37,112 were non-accrual. Total TDRs were $42,889 at December 31, 2017, of which $29,325 were non-accrual. The increase in non-accrual TDRs was mainly ~~due to~~ the ~~TDR designation~~result of ~~a non-accrual~~classifying one taxi medallion relationship as non-accrual when the loan ~~in the three months ended September 30, 2017. (See “Taxi Medallion Loans” below). Other TDRs were mainly due to concessions granted to certain commercial real estate, equipment finance~~was formally restructured as a TDR, and ~~residential mortgage clients. These~~classifying one HELOC loan as a TDR. TDR balances are detailed in the TDR section of Note

~~STERLING BANCORP AND SUBSIDIARIES~~

4. ~~“Loans”~~“Portfolio Loans” in the notes to the consolidated financial statements included elsewhere in this report. As of September 30, ~~2017,~~2018, there were no commitments to lend additional funds to borrowers with loans that have been classified as TDRs.

OREO. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as OREO until such time as it is sold. In addition, financial centers that were closed or consolidated that are held for sale are also classified as OREO. When real estate is transferred to OREO, it is recorded at fair value less costs to sell. If the fair value less cost to sell is less than the loan balance, the difference is charged against the allowance for loan losses. If the fair value of a financial center that we hold for sale is less than its prior carrying value, we recognize a charge included in other operating expense to reduce the recorded value of the investment to fair value, less costs to sell. After transfer to OREO, we regularly update the fair value of the properties. Subsequent declines in fair value are charged to current earnings and included in other non-interest expense as part of OREO expense.

At September 30, ~~2017,~~2018, we had OREO properties with a recorded balance of ~~$11,697,~~$22,735, compared to ~~$13,619~~$27,095 at December 31, ~~2016.~~2017. The decrease was due to ~~$5,089~~$15,437 in sales and ~~$1,737~~$553 of write-downs to reflect the estimated current sale value of the properties. This was partially offset by OREO additions of ~~$4,904~~$11,630 in the period.

Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality, such as “substandard”, “doubtful”, or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets is not warranted and are charged-off. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are designated as “special mention”. As of September 30, ~~2017,~~2018, we had ~~$117,984~~$88,472 of loans designated as “special mention” compared to ~~$104,569~~$136,558 at December 31, ~~2016.~~2017. The ~~increase~~decrease in loans designated as “special mention” at September 30, ~~2017~~2018 compared to December 31, ~~2016~~2017 was mainly due to ~~two relationships in our payroll finance portfolio~~loans that ~~continue to perform but warranted closer monitoring.~~were repaid and loans that were reclassified as substandard.

Our determination as to the classification of our assets and the amount of our loan loss allowance are subject to review by our regulators, which can direct the ~~charge-offs~~charge-off of loans and order the establishment of additions to our allowance for loan losses. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at September 30, ~~2017,~~2018, classified assets consisted of loans of ~~$105,000~~$282,577 and OREO of ~~$11,697.~~$22,735. Classified loans were ~~$95,594~~$233,255 and OREO was ~~$13,619~~$27,095 at December 31, ~~2016.~~2017. The increase in classified loans in the nine months ended September 30, ~~2017~~2018, includes loans that have been designated TDR, and was mainly due to ~~the designation of~~asset-based loans, one ~~taxi medallion~~payroll finance loan, ~~relationship as substandard~~equipment finance loans and commercial real estate loans that ~~had been classified~~were downgraded from pass and special mention, ~~at December 31, 2016. This~~which was partially offset by decline in residential mortgage loans due to repayments and loan ~~remains current on its payments and is on accrual.~~charge-offs.

Taxi Medallion Loans. At September 30, ~~2017,~~2018, we had three taxi medallion ~~loans of $48,301,~~relationships that totaled $36,832, or ~~0.46%~~0.18% of portfolio loans, compared to ~~$51,680,~~$45,976, or ~~0.54%~~0.23% of portfolio loans, at December 31, ~~2016.~~2017. The decline in the balance between the periods of $9,144 was mainly due to ~~repayments.~~partial charge-offs of $6,207, to reflect the decline in the value of collateral on two of our taxi medallion relationships, and repayments of $2,937. Our taxi medallion loans are mainly collateralized by New York City taxi medallions, and other corporate and personal collateral of the borrowers. ~~One of our three~~All taxi medallion ~~borrower relationships in the amount of $23,188 is on non-accrual and designated as a TDR, and the other two~~ relationships are classified as ~~substandard.~~TDRs and as substandard loans, and two of the relationships are on non-accrual and totaled $25,978 at September 30, 2018, compared to $33,083 at December 31, 2017. The third relationship, ~~that~~which is a performing asset-based lending TDR, ~~and on non-accrual declined by $528 in the first nine months~~had a balance of ~~2017 as a result of repayments.~~$10,855 at September 30, 2018. We continue to closely monitor the collateral values, cash flows and performance of each of these loans and are working with our borrowers to reduce these outstanding balances.

Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Our allowance for loan loss methodology includes allowance allocations calculated in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. Our process for determining the appropriate level of allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan

STERLING BANCORP AND SUBSIDIARIES

quality trends, including the levels of, and trends related to, non-accrual loans, past due loans, potential problem loans, classified and criticized loans and net charge-offs or recoveries and loan documentation exceptions, among other factors. See Note 5. “Allowance for Loan Losses” in the notes to consolidated financial statements included elsewhere in this report for further information regarding the allowance for loan losses.

~~STERLING BANCORP AND SUBSIDIARIES~~

The allowance for loan losses increased from ~~$63,622~~$77,907 at December 31, ~~2016~~2017 to ~~$72,128~~$91,365 at September 30, ~~2017,~~2018, as the provision for loan losses exceeded net charge-offs by ~~$8,506.~~$13,458. The allowance for loan losses at September 30, ~~2017~~2018 represented ~~103.9%~~49.3% of non-performing loans and ~~0.69%~~0.44% of total portfolio loans. At December 31, ~~2016,~~2017, the allowance for loan losses represented ~~80.7%~~41.6% of non-performing loans and ~~0.67%~~0.39% of total portfolio loans. Loans acquired in prior merger transactions and acquisitions were recorded with a fair value adjustment as of the acquisition date that included estimated lifetime credit losses and interest rate adjustments, among other factors (the “loan mark”). A substantial portion of portfolio loans covered by the loan mark continue to carry no allowance for loan losses. As a result, we believe our allowance for loan losses to portfolio loans may not be comparable to other banking entities that have not engaged in mergers and acquisitions.

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.


	September 30, 2017						December 31, 2016						September 30, 2018						December 31, 2017
	Allowance for loan losses		Loan balance		% of total loans		Allowance for loan losses		Loan balance		% of total loans		Allowance for loan losses		Loan balance		% of total loans		Allowance for loan losses		Loan balance		% of total loans
Traditional C&I	$	17,200	$	1,726,018	16.4	%	$	12,864	$	1,404,774	14.7	%	$	14,716	$	2,037,556	9.9	%	$	19,072	$	1,979,448	9.9	%
Asset-based lending	4,776		794,632		7.6		3,316		741,942		7.8		6,828		868,047		4.2		6,625		797,570		4.0
Payroll finance	2,191		251,003		2.4		951		255,549		2.7		2,183		235,734		1.1		1,565		268,609		1.3
Warehouse lending	3,734		669,860		6.4		1,563		616,946		6.5		2,685		864,063		4.2		3,705		723,335		3.6
Factored receivables	1,273		236,051		2.2		1,669		214,242		2.2		1,508		270,002		1.3		1,395		220,551		1.1
Equipment financing	4,461		679,127		6.5		5,039		589,315		6.2		11,153		1,161,435		5.7		4,862		679,541		3.4
Public sector finance	1,352		484,973		4.6		1,062		349,182		3.7		1,444		807,193		3.9		1,797		637,767		3.2
Commercial real estate	23,203		3,453,151		32.9		20,466		3,162,942		33.2		31,468		4,457,485		21.7		24,945		4,138,864		20.7
Multi-family	4,054		1,020,094		9.7		4,991		981,076		10.3		7,682		4,827,172		23.5		3,261		4,859,555		24.3
ADC	1,314		236,456		2.3		1,931		230,086		2.4		1,876		265,676		1.3		1,680		282,792		1.4
Residential mortgage	5,054		684,093		6.5		5,864		697,108		7.3		6,800		4,421,520		21.5		5,819		5,054,732		25.3
Consumer	3,516		258,077		2.5		3,906		284,068		3.0		3,022		317,331		1.5		3,181		366,219		1.8
Total	$	72,128	$	10,493,535	100.0	%	$	63,622	$	9,527,230	100.0	%	$	91,365	$	20,533,214	100.0	%	$	77,907	$	20,008,983	100.0	%

At September 30, 2018, the allocation of the allowance for loan losses increased in the equipment financing portfolio mainly due to $7,158 of net charge-offs, which caused an increase in our trailing loss factor which is a significant component of the overall allowance calculation. The increase in commercial real estate was also attributable to $4,176 of net charge-offs in the period. The decline in the allowance for loan losses applicable to traditional C&I loans was mainly due to the isolation of taxi medallion loans, which we have excluded from the trailing loss factor for traditional C&I loans as all taxi medallion loans are now individually evaluated for impairment.

Impaired Loans. A loan is impaired when it is probable we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loan values are based on one of three measures: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, our practice is to write-down the loan against the allowance for loan losses so the recorded investment matches the impaired value of the loan. Impaired loans generally include a portion of non-performing loans and accruing and performing TDR loans. At September 30, ~~2017,~~2018, we had ~~$55,422~~$111,685 in impaired loans compared to ~~$55,391~~$60,862 at December 31, ~~2016.~~2017. The increase ~~in impaired loans between September 30, 2017 and December 31, 2016~~ was mainly due to ~~additional~~ loans ~~identified~~that were designated as ~~impaired~~TDR during the period and included one taxi medallion relationship that was placed on non-accrual at the time of restructuring, certain commercial real estate loans that are in ~~the first nine months of the year which was partially offset by borrower repayments.~~workout, and certain residential mortgage loans.

PCI Loans. A PCI loan is an acquired loan that has demonstrated evidence of deterioration in credit quality subsequent to origination. As of September 30, ~~2017,~~2018, the balance of PCI loans was ~~$59,853,~~$154,004, compared to ~~$88,908~~$226,612 at December 31, ~~2016~~2017 and is mainly comprised of loans acquired in the ~~merger with Hudson Valley Holding Corp. in June 2015.~~Astoria Merger. The decline was mainly due to borrower ~~repayments.~~repayments, amounts charged-off against the loan purchase accounting mark, and loans that moved to OREO. At September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we

STERLING BANCORP AND SUBSIDIARIES

held ~~$8,317~~$5,363 and ~~$12,241,~~$7,992, respectively, of PCI loans, which are accounted for under the cost-recovery method and were included in our non-accrual loan totals above. The decline between the periods was mainly due to borrower repayments. The remaining PCI loans of ~~$51,536~~$148,641 and ~~$76,667~~$218,620 at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, are accounted for under applicable guidance, which results in an accretable yield that represents the amount of expected cash flows that exceeds the initial investment in the loan. See the tables of loans evaluated for impairment by segment and changes in accretable yield for PCI loans in Note 4. “Portfolio Loans” in the notes to consolidated financial statements included elsewhere in this report for additional information.

Provision for Loan Losses. We recorded ~~$5,000~~$9,500 in loan loss provision for the three months ended September 30, ~~2017,~~2018, compared to ~~$5,500~~$5,000 for the three months ended September 30, ~~2016.~~2017. Net charge-offs for the three months ended September 30, ~~2017~~2018 were ~~$3,023,~~$4,161, or ~~0.12%~~0.08% of average loans on an annualized basis, compared to net charge-offs of ~~$1,960,~~$3,023, or ~~0.09%~~0.12% of average loans on an annualized basis for the three months ended September 30, ~~2016.~~2017. Provision expense for the first nine months of ~~2017~~2018 was $35,500 compared to $14,000 for the nine months ended September 30, 2017. The increase in provision expense was driven mainly by ~~growth in loan balances generated organically by our commercial banking teams, as well as~~ loans acquired in prior

~~STERLING BANCORP AND SUBSIDIARIES~~

mergers and acquisitions that are now subject to our allowance for loan ~~losses. The decrease~~losses, organic loan growth and to changes in ~~the provision for~~ loan ~~losses between the periods was mainly due to the decline in non-performing loans between September 30, 2016 and September 30, 2017.~~classifications.

Changes in Financial Condition between September 30, ~~2017~~2018 and December 31, ~~2016~~2017

Total assets increased ~~$2,601,650,~~$901,724, or ~~18.3%~~3.0%, to ~~$16,780,097~~$31,261,265 at September 30, ~~2017,~~2018, compared to ~~$14,178,447~~$30,359,541 at December 31, ~~2016. This~~2017. Components of the change in total assets were:

Total portfolio loans increased by $524,231, or 2.6%, to $20,533,214 at September 30, 2018, compared to $20,008,983 at December 31, 2017. The increase was due to the Advantage Funding acquisition and organic loan growth, substantially offset by repayments of residential mortgage loans.

Commercial loans increased by $1,206,331, or 8.3%, to $15,794,363 at September 30, 2018, compared to $14,588,032 at December 31, 2017. The increase was due to the Advantage Funding Acquisition and organic loan growth.

Residential mortgage loans declined by $633,212 to $4,421,520 at September 30, 2018 compared to $5,054,732 at December 31, 2017. The decline was mainly due to repayments.

Total investment securities increased by $211,411, or 3.3%, to $6,685,972 at September 30, 2018, compared to $6,474,561 at December 31, 2017. The increase was mainly due to the ~~following:~~

Total portfolio loans increased by $966,305, or 10.1%, to $10,493,535 at September 30, 2017, compared to $9,527,230 at December 31, 2016. The increase was due to loans originated by our commercial banking teams.

~~Total investment securities increased by $1,396,812, or 44.8%, to $4,515,650 at September 30, 2017, compared to $3,118,838 at December 31, 2016. This increase was mainly due to our~~ purchase of ~~MBS~~corporate securities and ~~high investment grade~~ tax exempt securities issued by New York State, New York City, other municipal entities in New York, and by other states. ~~The increase in securities was mainly in connection with the repositioning of our securities portfolio in anticipation of the Astoria Merger.~~ Investment securities were ~~26.9%~~21.4% of total assets at September 30, ~~2017,~~2018, compared to ~~22.0%~~21.3% at December 31, ~~2016.~~2017.

Cash and cash equivalents increased by ~~$113,557~~$54,078 to ~~$407,203~~$533,984 at September 30, ~~2017,~~2018, compared to ~~$293,646~~$479,906 at December 31, ~~2016. Cash holdings at September 30, 2017 increased mainly due to~~2017.

Other changes in assets included the ~~timing of municipal deposit inflows, which are seasonal and reach their peak in connection with September 30 tax collections.~~following:


◦	an increase in Federal Reserve Bank of New York (“FRBNY”) common stock holdings, which we acquired in the first quarter of 2018 as a result of the Astoria Merger. FRBNY common stock increased $73,726 at September 30, 2018 compared to December 31, 2017.


◦	an increase of $25,796 in loans held for sale, which mainly represents originations from our loan syndications team.

Total liabilities increased ~~$2,485,353,~~$703,599, or ~~20.2%~~2.7%, to $~~14,808,617~~26,822,962 at September 30, ~~2017,~~2018, compared to ~~$12,323,264~~$26,119,363 at December 31, ~~2016.~~2017. This increase was mainly due to the following:

Total deposits increased ~~$975,179,~~$917,853, or ~~9.7%~~4.5%, to ~~$11,043,438~~$21,456,057 at September 30, ~~2017,~~2018, compared to ~~$10,068,259~~$20,538,204 at December 31, ~~2016.~~2017. Our core retail, commercial and municipal transaction, money market, ~~and~~ savings accounts and certificates of deposit accounts were ~~$9,753,052,~~$20,448,343, at September 30, ~~2017,~~2018, which represented ~~88.3%~~95.3% of our total deposit balances. The increase in deposits was mainly driven ~~in part~~ by our commercial banking teams, as several of our recent commercial banking hires are focused on growing deposits, as well as growth in municipal deposits. Municipal deposits, excluding municipal certificates of deposits, increased ~~$489,139~~$434,817 to ~~$1,733,550~~$2,019,893 at September 30, ~~2017,~~2018, compared to ~~$1,244,411~~$1,585,076 at December 31, ~~2016.~~2017.

FHLB borrowings ~~increased $1,225,000,~~decreased $81,013, to ~~$3,016,000~~$4,429,110 at September 30, ~~2017,~~2018, compared to ~~$1,791,000~~$4,510,123 at December 31, ~~2016.~~2017. The ~~increase~~decrease in FHLB borrowings was ~~used, together with our deposit~~mainly the result of growth ~~to fund increases~~ in ~~loans and investment securities.~~core deposits.

Supplemental Reporting of Non-GAAP Financial Measures

The non-GAAP financial measures presented below are used by our management and our 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 financial measures complement our GAAP reporting and are presented below 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,

STERLING BANCORP AND SUBSIDIARIES

our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements, and notes thereto for the quarter ended September 30, ~~2017,~~2018, included elsewhere in this report, and the year ended December 31, ~~2016,~~2017, included in the ~~2016 Annual Report on~~2017 Form 10-K.



	September 30,
	2018			2017
The following table shows the reconciliation of stockholders’ equity to tangible common equity and the tangible common equity ratio ¹:
Total assets	$	31,261,265		$	16,780,097
Goodwill and other intangibles	(1,745,181		)	(756,290		)
Tangible assets	29,516,084			16,023,807
Stockholders’ equity	4,438,303			1,971,480
Preferred stock	(138,627		)	—
Goodwill and other intangibles	(1,745,181		)	(756,290		)
Tangible common stockholders’ equity	2,554,495			1,215,190
Common stock outstanding at period end	225,446,089			135,807,544
Common stockholders’ equity as a % of total assets	13.75		%	11.75		%
Book value per common share	$	19.07		$	14.52
Tangible common equity as a % of tangible assets	8.65		%	7.58		%
Tangible book value per common share	$	11.33		$	8.95
_______________
See legend beginning on page 73.



	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
The following table shows the reconciliation of reported net income and reported EPS (GAAP) to adjusted net income available to common stockholders (non-GAAP) and adjusted diluted EPS (non-GAAP)²:
Income before income tax expense	$	146,821		$	66,444		$	421,305		$	185,939
Income tax expense	27,171			21,592			88,542			59,620
Net income (GAAP)	119,650			44,852			332,763			126,319
Adjustments:
Net loss on sale of securities	56			21			5,902			274
Net (gain) on sale of fixed assets	—			—			(11,800		)	(1		)
Merger-related expense	—			4,109			—			9,002
Charge for asset write-downs, retention and severance	—			—			13,132			603
Amortization of non-compete agreements and acquired customer lists	295			333			883			1,080
Total pre-tax adjustments	351			4,463			8,117			10,958
Adjusted pre-tax income	147,172			70,907			429,422			196,897
Adjusted income tax expense	(30,906		)	(23,042		)	(90,179		)	(63,181		)
Adjusted net income (non-GAAP)	116,266			47,865			339,243			133,716
Preferred stock dividend	1,993			—			5,988			—
Adjusted net income available to common stockholders (non-GAAP)	$	114,273		$	47,865		$	333,255		$	133,716

Weighted average diluted shares	225,622,895			135,950,160			225,504,463			135,895,513
Diluted EPS as reported (GAAP)	$	0.52		$	0.33		$	1.45		$	0.93
Adjusted diluted EPS (non-GAAP)	0.51			0.35			1.48			0.98
_______________
See legend beginning on page 73.

STERLING BANCORP AND SUBSIDIARIES

September 30,
2017 2016
The following table shows the reconciliation of stockholders’ equity to tangible equity and the tangible equity ratio ¹:
Total assets $ 16,780,097
$ 13,617,228
Goodwill and other intangibles (756,290 ) (765,858 )
Tangible assets 16,023,807
12,851,370
Stockholders’ equity 1,971,480
1,765,160
Goodwill and other intangibles (756,290 ) (765,858 )
Tangible stockholders’ equity $ 1,215,190
$ 999,302
Common stock outstanding at period end 135,807,544
130,853,673
Stockholders’ equity as a % of total assets 11.75 % 12.96 %
Book value per share $ 14.52
$ 13.49
Tangible equity as a % of tangible assets 7.58 % 7.78 %
Tangible book value per share $ 8.95
$ 7.64

~~______________~~

~~See legend beginning on page 71.~~



	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio ³:
Net interest income	$	243,949		$	120,073		$	724,533		$	342,121
Non-interest income	24,145			13,988			80,720			40,442
Total net revenue	268,094			134,061			805,253			382,563
Tax equivalent adjustment on securities	4,052			4,599			12,217			12,896
Net (gain) on sale of fixed assets	—			—			(11,800		)	(1		)
Net loss on sale of securities	56			21			5,902			274
Adjusted total revenue (non-GAAP)	272,202			138,681			811,572			395,732
Non-interest expense	111,773			62,617			348,448			182,624
Merger-related expense	—			(4,109		)	—			(9,002		)
Charge for asset write-downs, retention and severance	—			—			(13,132		)	(603		)
Amortization of intangible assets	(5,865		)	(2,166		)	(17,782		)	(6,582		)
Adjusted non-interest expense (non-GAAP)	$	105,908		$	56,342		$	317,534		$	166,437
Reported operating efficiency ratio	41.7		%	46.7		%	43.3		%	47.7		%
Adjusted operating efficiency ratio (non-GAAP)	38.9			40.6			39.1			42.1
_______________
See legend beginning on page 73.

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
The following table shows the reconciliation of reported net income and reported earnings per share (GAAP) to adjusted net income (non-GAAP) and adjusted diluted EPS (non-GAAP)²:
Income before income tax expense $ 66,444
$ 54,413
$ 185,939
$ 146,604
Income tax expense 21,592
16,991
59,620
47,646
Net income (GAAP) 44,852
37,422
126,319
98,958
Adjustments:
Net loss (gain) on sale of securities 21
(3,433 ) 274
(7,624 )
Merger-related expense 4,109
—
9,002
265
Charge for asset write-downs, retention and severance —
2,000
603
4,485
Loss on extinguishment of borrowings —
1,013
—
9,729
Amortization of non-compete agreements and acquired customer lists 333
970
1,080
2,907
Total adjustments 4,463
550
10,959
9,762
Income tax (benefit) (1,450 ) (179 ) (3,562 ) (3,354 )
Total adjustments net of tax 3,013
371
7,397
6,408
Adjusted net income (non-GAAP) $ 47,865
$ 37,793
$ 133,716
$ 105,366

Weighted average diluted shares 135,950,160
130,875,614
135,895,513
130,645,705
Diluted EPS as reported (GAAP) $ 0.33
$ 0.29
$ 0.93
$ 0.76
Adjusted diluted EPS (non-GAAP) 0.35
0.29
0.98
0.81

~~______________~~

~~See legend beginning on page 71.~~



	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
The following table shows the reconciliation of reported return on average tangible assets and adjusted return on average tangible assets ⁴:
Average assets	$	31,036,026		$	15,661,514		$	30,686,808		$	14,802,911
Average goodwill and other intangibles	(1,752,933		)	(757,498		)	(1,747,141		)	(759,790		)
Average tangible assets	29,283,093			14,904,016			28,939,667			14,043,120
Net income available to common stockholders	117,657			44,852			326,775			126,319
Net income, if annualized	466,791			177,945			436,897			168,888
Reported return on average tangible assets	1.59		%	1.19		%	1.51		%	1.20		%
Adjusted net income (non-GAAP)	$	114,273		$	47,865		$	333,255		$	133,716
Annualized adjusted net income	453,366			189,899			445,561			178,778
Adjusted return on average tangible assets (non-GAAP)	1.55		%	1.27		%	1.54		%	1.27		%
_______________
See legend beginning on page 73.

6872

STERLING BANCORP AND SUBSIDIARIES

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio ³:
Net interest income $ 120,073
$ 103,130
$ 342,121
$ 297,020
Non-interest income 13,988
19,039
40,442
54,911
Total net revenue 134,061
122,169
382,563
351,931
Tax equivalent adjustment on securities 4,599
3,635
12,896
8,885
Net (gain) on sale of securities 21
(3,433 ) 274
(7,624 )
Adjusted total revenue (non-GAAP) 138,681
122,371
395,733
353,192
Non-interest expense 62,617
62,256
182,624
190,827
Merger-related expense (4,109 ) —
(9,002 ) (265 )
Charge for asset write-downs, retention and severance —
(2,000 ) (603 ) (4,485 )
Loss on extinguishment of borrowings —
(1,013 ) —
(9,729 )
Amortization of intangible assets (2,166 ) (3,241 ) (6,582 ) (9,535 )
Adjusted non-interest expense (non-GAAP) $ 56,342
$ 56,002
$ 166,437
$ 166,813
Reported operating efficiency ratio 46.7 % 51.0 % 47.7 % 54.2 %
Adjusted operating efficiency ratio (non-GAAP) 40.6
45.8
42.1
47.2

~~__________________________~~

~~See legend beginning on page 71.~~

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
The following table shows the reconciliation of reported return on tangible assets and adjusted return on tangible assets ⁴:
Average assets $ 15,661,514
$ 13,148,201
$ 14,802,910
$ 12,618,477
Average goodwill and other intangibles (757,498 ) (767,753 ) (759,790 ) (762,053 )
Average tangible assets $ 14,904,016
$ 12,380,448
$ 14,043,120
$ 11,856,424
Net income 44,852
37,422
126,319
98,958
Net income, if annualized 177,945
148,874
168,888
132,185
Reported return on average tangible assets 1.19 % 1.20 % 1.20 % 1.11 %
Adjusted net income (non-GAAP) $ 47,865
$ 37,793
$ 133,716
$ 105,366
Annualized adjusted net income 189,899
150,350
178,778
140,744
Adjusted return on average tangible assets (non-GAAP) 1.27 % 1.21 % 1.27 % 1.19 %

~~___________________________~~

~~See legend beginning on page 71.~~



	For the three months ended September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
The following table shows the reconciliation of reported return on average tangible common stockholders’ equity and adjusted return on average tangible common stockholders’ equity ⁵:
Average stockholders’ equity	$	4,397,823		$	1,955,252		$	4,316,455		$	1,913,072
Average preferred stock	(138,692		)	—			(139,054		)	—
Average goodwill and other intangibles	(1,752,933		)	(757,498		)	(1,747,141		)	(759,790		)
Average tangible common stockholders’ equity	2,506,198			1,197,754			2,430,260			1,153,282
Net income available to common stockholders	117,657			44,852			326,775			126,319
Net income, if annualized	466,791			177,945			436,897			168,888
Reported return on average tangible common stockholders’ equity	18.63		%	14.86		%	17.98		%	14.64		%
Adjusted net income (non-GAAP)	$	114,273		$	47,865		$	333,255		$	133,716
Annualized adjusted net income	453,366			189,899			445,561			178,778
Adjusted return on average tangible common stockholders’ equity (non-GAAP)	18.09		%	15.85		%	18.33		%	15.50		%
_______________________
See legend beginning below.

~~STERLING BANCORP AND SUBSIDIARIES~~

For the three months ended September 30, For the nine months ended September 30,
2017 2016 2017 2016
The following table shows the reconciliation of reported return on average tangible equity and adjusted return on average tangible equity ⁵:
Average stockholders’ equity $ 1,955,252
$ 1,751,414
$ 1,913,072
$ 1,716,657
Average goodwill and other intangibles (757,498 ) (767,753 ) (759,790 ) (762,053 )
Average tangible stockholders’ equity 1,197,754
983,661
1,153,282
954,604
Net income 44,852
37,422
126,319
98,958
Net income, if annualized 177,945
148,874
168,888
132,185
Reported return on average tangible equity 14.86 % 15.13 % 14.64 % 13.85 %
Adjusted net income (non-GAAP) $ 47,865
$ 37,793
$ 133,716
$ 105,366
Annualized adjusted net income 189,899
150,350
178,778
140,744
Adjusted return on average tangible equity (non-GAAP) 15.85 % 15.28 % 15.50 % 14.74 %

~~_______________________~~

~~See legend beginning below.~~

¹ ~~Stockholders’~~Common 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 value per common share provides information to help assess our capital position and financial strength. We believe tangible book value 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 Adjusted net income available to common stockholders and adjusted EPS 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 recurring profitability. For the purpose of calculating adjusted earnings and adjusted earnings per share, income tax expense is calculated using the estimated effective income tax rate for the full year in effect for the particular period end, as we believe this is a more accurate presentation of run rate income tax expense and earnings.

³ 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.

⁴~~Return~~Reported return on average tangible assets and ~~the~~ adjusted return on average tangible assets measures provide information to help assess our profitability.

⁵ ~~Return~~Reported return on average tangible common stockholders’ equity and the adjusted return on average tangible common stockholders’ equity measures provide information to evaluate the use of our tangible common equity.

Liquidity and Capital Resources

Capital. Stockholders’ equity was ~~$1,971,480~~$4,438,303 as of September 30, ~~2017,~~2018, an increase of ~~$116,297~~$198,125 relative to December 31, ~~2016.~~2017. The increase was mainly the result of net income available to common stockholders of ~~$126,319.~~$326,775. Also contributing ~~to the increase~~ was an increase of stock option exercises and stock-based compensation, which totaled $6,494. These increases were offset by a decline in accumulated other comprehensive ~~income~~loss of ~~$12,976,~~$87,380, which was primarily due to a change in the fair value of our available for sale securities portfolio, as well as ~~stock option exercises and stock-based compensation, which totaled $5,349. These increases were partially offset by~~ declared dividends of ~~$28,347.~~$47,171 on common stock and $6,581 on preferred stock.

We paid dividends of $0.07 per common share in each quarter of ~~2016~~2017 and in the first ~~three~~two quarters of ~~2017.~~2018. Most recently, our Board of Directors declared a dividend of $0.07 per common share on October ~~24, 2017,~~23, 2018, which is payable November ~~20, 2017~~19, 2018 to our holders as of the record date of November ~~6, 2017.~~5, 2018. In addition, on October ~~16, 2017,~~15, 2018, we paid a dividend of $2,194 on the ~~Preferred Shares.~~preferred stock.

STERLING BANCORP AND SUBSIDIARIES

Basel III Capital Rules. The Basel III Capital Rules became effective for us on January 1, 2015 (subject to a phase-in period for certain provisions). The rules are discussed in Note 15. “Stockholders’ Equity - Regulatory Capital Requirements” in the notes to consolidated financial statements included elsewhere in this report.

Liquidity. As discussed in our ~~2016~~2017 Form 10-K, our liquidity position is continuously monitored and we make adjustments to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset /

~~STERLING BANCORP AND SUBSIDIARIES~~

liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic activity, volatility in the financial markets, unexpected credit events or other significant occurrences. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of September 30, ~~2017,~~2018, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, including the Basel III liquidity framework, which, if implemented, would have a material adverse effect on us.

At September 30, ~~2017,~~2018, the Bank had ~~$407,204~~$533,984 in cash and cash equivalents on hand and unused borrowing capacity at the FHLB of ~~$1,053,356.~~$6,235,781. In addition, the Bank may purchase ~~additional~~ federal funds from other institutions and enter into additional repurchase agreements. The Bank had ~~$1,379,691~~$3,578,859 of securities available to pledge as collateral as of September 30, ~~2017.~~2018. The Bank was required to maintain ~~$78,419~~$106,073 of cash on hand or on deposit with the FRB to meet regulatory reserve and clearing requirements at September 30, ~~2017.~~2018.

We are a bank holding company and do not conduct operations. Our primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. At September 30, ~~2017,~~2018, the Bank had capacity to pay approximately ~~$221,000~~$324,008 of dividends to us and maintain its “well capitalized” status under regulatory ~~guidelines. However, the Bank also has developed~~guidelines as well as internal capital management policies and ~~procedures and, under these policies and procedures, the Bank could pay dividends to us of approximately $6,000 at September 30, 2017.~~procedures. We had cash on hand of ~~$49,282~~$60,176 at September 30, ~~2017.~~2018. In October 2018, we received a regularly scheduled quarterly dividend from the Bank which increased our cash on hand. We utilized a portion of this cash to repurchase $17,000 principal amount, plus interest, of our outstanding 3.50% Senior Notes that we acquired in the Astoria Merger and we commenced the announced repurchase of our shares in the open market. Through October 31, 2018 we had purchased 1,020,000 shares of our common stock.

OnEffective September ~~5, 2017,~~2, 2018, we renewed ~~and increased~~ our ~~Credit Facility,~~$35,000 credit facility with another financial institution, which is more fully described in Note 8. “Borrowings” in the notes to consolidated financial statements included elsewhere in this report. The use of proceeds are for general corporate purposes. The ~~Credit Facility~~credit facility has no outstanding balance and requires us and the Bank to maintain certain ratios related to capital, non-performing assets to capital, reserves to non-performing loans and debt service coverage. We and the Bank were in compliance with all requirements at September 30, ~~2017.~~2018.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Management believes that our most significant form of market risk is interest rate risk. The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy, and then manage that risk in a manner that is consistent with our policy to limit the exposure of our net interest income to changes in market interest rates. The Bank’s Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment, and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. A committee of our Board of Directors reviews ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios, as well as the intrinsic value of our deposits and borrowings.

Management actively evaluates interest rate risk in connection with our lending, investing, and deposit activities. Management emphasizes the origination of commercial real estate loans, C&I loans, and consumer loans. We also invest in shorter-term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest earning assets by increasing our investments in shorter-term loans and securities may help us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.

Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in our and the Bank’s economic value of equity (“EVE”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The model assumes estimated loan prepayment rates, reinvestment rates and deposit decay rates that management believes is reasonable, based on historical experience during prior interest rate changes.

7174

STERLING BANCORP AND SUBSIDIARIES

Estimated Changes in EVE and NII. The table below sets forth, as of September 30, ~~2017,~~2018, the estimated changes in our (i) EVE that would result from the designated instantaneous changes in the forward rate curves; and (ii) NII that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results.


Interest rates	Estimated		Estimated change in EVE					Estimated		Estimated change in NII					Estimated		Estimated change in EVE					Estimated		Estimated change in NII
(basis points)	EVE		Amount			Percent		NII		Amount			Percent		EVE		Amount			Percent		NII		Amount			Percent
	(Dollars in thousands)														(Dollars in thousands)
+300	$	1,823,964	$	(300,331	)	(14.1	)%	$	555,312	$	31,718		6.1	%	$	4,162,254	$	(782,358	)	(15.8	)%	$	1,010,294	$	32,729		3.3	%
+200	1,938,580		(185,715		)	(8.7	)	545,474		21,880			4.2		4,481,181		(463,431		)	(9.4	)	1,004,688		27,123			2.8
+100	2,038,753		(85,542		)	(4.0	)	535,349		11,755			2.2		4,769,337		(175,275		)	(3.5	)	994,150		16,585			1.7
0	2,124,295		—			—		523,594		—			—		4,944,612		—			—		977,565		—			—
-100	2,137,800		13,505			0.6		502,173		(21,421		)	(4.1	)	4,964,471		19,859			0.4		948,055		(29,510		)	(3.0	)
-200															4,777,086		(167,526		)	(3.4	)	897,297		(80,268		)	(8.2	)

The table above indicates that at September 30, ~~2017,~~2018, in the event of an immediate 200 basis point increase in interest rates, we would expect to experience a ~~8.7%~~9.4% decrease in EVE and a ~~4.2%~~2.8% increase in NII. ~~Due to the current level of interest rates, management is unable to reasonably model the impact of decreases in interest rates on EVE and NII beyond -100 basis points.~~

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and NII table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the re-pricing characteristics of specific assets and liabilities. Accordingly, although the EVE and NII table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes that market interest rates may have on our net interest income. Actual results will likely differ.

During the third quarter of ~~2017,~~2018, the federal funds target rate increased a quarter point to ~~1.00~~2.00 - ~~1.25%~~2.25%. U.S. Treasury yields with two year maturities increased 2792 basis points from ~~1.20%~~1.89% to ~~1.47%~~2.81% over the nine months ended September 30, ~~2017,~~2018, while the yield on U.S. Treasury 10-year notes ~~decreased 12~~increased 65 basis points from ~~2.45%~~2.40% to ~~2.33%~~3.05% over the same nine month period. The ~~decrease~~increase in interest rates on longer-term maturities relative to the greater increase in interest rates on short-term maturities resulted in a flatter 2-10 year U.S. Treasury yield curve at September 30, ~~2017~~2018 compared to December 31, ~~2016.~~2017. At its September ~~2017~~2018 meeting, the Federal Open Markets Committee (the “FOMC”) stated that ~~its monetary policy remains accommodative. The FOMC further stated that it expects that economic conditions will evolve~~ in ~~a manner that will warrant gradual increases in~~determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and ~~the actual path of the federal funds rate will depend on the~~expected economic ~~outlook as informed by incoming data. The FOMC also stated that the balance sheet normalization program described previously will commence in October, 2017.~~conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. However, should economic conditions improve at a faster pace than anticipated, the FOMC could increase the federal funds target rate quicker. This could cause the shorter end of the yield curve to rise disproportionately relative to the longer end, thereby resulting in an even flatter yield curve, which may result in greater margin compression.

Due to the completion of the Astoria Merger, we anticipate our asset sensitivity will initially decrease from the levels presented in the table above given the composition of our combined balance sheet, which will include a greater proportion of fixed rate residential mortgage and commercial real estate loans acquired in the merger. We anticipate that asset sensitivity will change as we reposition Astoria’s investment securities portfolio, borrowings and loan portfolio over time to a balance sheet composition similar to what Sterling had prior to the closing of the merger.

Item 4. Controls and Procedures

The Company’s management, including the principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for the

~~STERLING BANCORP AND SUBSIDIARIES~~

purpose of ensuring that the information required to be disclosed in our reports filed with the SEC under the Securities Exchange Act of 1934, as amended, is: (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

STERLING BANCORP AND SUBSIDIARIES

Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the three months ended September 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

7376

Table of Contents

PART II

Item 1. Legal Proceedings

The “Litigation” section of Note 16. “Commitments and Contingencies” in the notes to consolidated financial statements included in Part I, Item 1 is incorporated herein by reference.

Item 1A. Risk Factors

For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A of our ~~2016~~2017 Form 10-K.

~~In addition, on March 6, 2017, we announced we had entered into a merger agreement with Astoria. In connection with the execution of that agreement, we supplemented the~~ There have been no material changes in these risk ~~factors previously disclosed in our 2016 Form 10-K under Part II, Item 1A of our Form 10-Q for the quarter ended March 31, 2017, also incorporated herein.~~factors.

The risks described in our ~~2016~~2017 Form 10-K ~~and Form 10-Q for the quarter ended March 31, 2017~~ are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition and/or liquidity.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

Not Applicable.

~~Item 6. Exhibits~~

7477

Table of Contents

Item 6. Exhibits



Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K filed ~~on June 1, 2015)~~herewith)
3.2		Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company as of June 13, 2017 (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on June 14, 2017)
~~3.3~~		Certificate of Designations of 6.50% Non-Cumulative Perpetual Preferred Stock, Series A (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on October 2, 2017)
~~3.4~~3.3		Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 24, 2017)
4.1		Form of Common Stock Certificate of the Company (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on November 1, 2013)
4.2		Form of Corporate Governance Agreement (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 7, 2012)
4.3		Deposit Agreement and specimen receipt attached as Exhibit A thereto, dated as of March 19, 2013, among Astoria Financial Corporation and Computershare, as Depositary, and the holders of depositary receipts (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-4, filed on April 5, 2017)
4.4		First Amendment to the Deposit Agreement, dated as of October 2, 2017, among Sterling Bancorp and Computershare, as Depositary, and the holders of the depositary receipts
4.5		Form of Certificate of 6.50% Non-Cumulative Perpetual Preferred Stock, Series A (Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-A12B filed on September 28, 2017)
4.6		Indenture by and between Astoria Financial Corporation, as Issuer, and Wilmington Trust, National Association, as Trustee, dated as of June 8, 2017 for Senior Debt Securities (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 2, 2017)
4.7		First Supplemental Indenture by and between Astoria Financial Corporation, as Issuer, and Wilmington Trust, National Association, as Trustee, dated as of June 8, 2017 for Senior Debt Securities (Incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on October 2, 2017)
4.8		Second Supplemental Indenture by and between Sterling Bancorp, as Issuer, and Wilmington Trust, National Association, as Trustee, dated as of October 2, 2017 for Senior Debt Securities (Incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed on October 2, 2017)
4.9		Form of Note for Astoria Financial Corporation 3.500% Senior Notes (Incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K filed on October 2, 2017)
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.0		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Calculation Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

The Company agrees to furnish to the SEC, upon request, any instrument with respect to long-term debt that the Company has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Sterling Bancorp



Date:	November ~~3, 2017~~2, 2018	By:	/s/ Jack Kopnisky
			Jack Kopnisky
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Date:	November ~~3, 2017~~2, 2018	By:	/s/ Luis Massiani
			Luis Massiani
			Senior Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

7679



	Net unrealized holding gain (loss) on available for sale securities			Net unrealized holding gain (loss) on securities transferred to held to maturity			Net unrealized holding (loss) gain on retirement plans			Total
For the three months ended September 30, 2017
Balance beginning of the period	$	(12,704	)	$	(2,969	)	$	(695	)	$	(16,368	)
Other comprehensive gain before reclassification	2,538			—			—			2,538
Amounts reclassified from AOCI	21			144			6			171
Total other comprehensive income	2,559			144			6			2,709
Balance at end of period	$	(10,145	)	$	(2,825	)	$	(689	)	$	(13,659	)
For the three months ended September 30, 2016
Balance beginning of the period	$	15,391		$	(3,731	)	$	(730	)	$	10,930
Other comprehensive (loss) before reclassification	(1,278		)	—			—			(1,278		)
Amounts reclassified from AOCI	(2,076		)	328			(11		)	(1,759		)
Total other comprehensive (loss) income	(3,354		)	328			(11		)	(3,037		)
Balance at end of period	$	12,037		$	(3,403	)	$	(741	)	$	7,893
Location in income statement where reclassification from AOCI is included	Net (loss) gain on sale of securities			Interest income on securities			Compensation and benefits expense



	For the year ended
	December 31, 2016
Pro Forma Condensed Income Statement Information:
Net interest income	$	818,907
Provision for loan losses	10,849
Income before income taxes	385,185
Net income	251,173
Pro Forma Condensed Combined Balance Sheet Information:
Portfolio loans, net	19,530,795
Total assets	29,510,290
Deposits	18,956,004
Total stockholders’ equity	4,218,852