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STL Sterling Bancorp.

Filed: 29 Apr 21, 8:00pm
0001070154us-gaap:SubsequentEventMember2021-04-19

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________ 
FORM 10-Q
______________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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) 
Two Blue Hill Plaza, 2nd Floor 
Pearl River,New York10965
(Address of Principal Executive Office) (Zip Code)
(845) 369-8040
(Registrant’s Telephone Number including area code)
______________________________

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSTLNew York Stock Exchange
Depositary Shares, each representing 1/40 interest in a share of 6.50% Non-Cumulative Perpetual Preferred Stock, Series ASTLPRANew York Stock Exchange
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      No  
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 such files). Yes      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                 Accelerated filer             
Non-accelerated filer             ☐    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  
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 April 28, 2021
$0.01 per share  192,599,296



STERLING BANCORP AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
QUARTERLY PERIOD ENDED MARCH 31, 2021
 
PART I. FINANCIAL INFORMATION - UNAUDITED
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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)


 March 31,December 31,
20212020
ASSETS:
Cash and due from banks$935,633 $305,002 
Securities available for sale, at estimated fair value2,524,671 2,298,618 
Securities held to maturity (“HTM”), net of allowance for credit losses of $1,499 at March 31, 2021 and December 31, 20201,716,786 1,740,838 
Loans held for sale36,237 11,749 
Portfolio loans21,151,973 21,848,409 
Allowance for credit losses - loans(323,186)(326,100)
Portfolio loans, net20,828,787 21,522,309 
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost153,968 166,190 
Accrued interest receivable103,323 97,505 
Premises and equipment, net199,782 202,555 
Goodwill1,683,482 1,683,482 
Other intangible assets, net89,788 93,564 
Bank owned life insurance (“BOLI”)630,430 629,576 
Other real estate owned5,227 5,347 
Other assets1,006,168 1,063,403 
Total assets$29,914,282 $29,820,138 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits$23,841,718 $23,119,522 
FHLB and other borrowings382,000 
Federal Funds Purchased277,000 
Repurchase agreements31,679 27,101 
Subordinated Notes - Bank143,757 143,703 
Subordinated Notes - Company492,063 491,910 
Mortgage escrow funds82,245 59,686 
Other liabilities702,656 728,702 
Total liabilities25,294,118 25,229,624 
Commitments and Contingent liabilities (See Note 14. “Commitments and Contingencies”)00
STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; 135,000 shares issued and outstanding at March 31, 2021 and December 31, 2020)136,458 136,689 
Common stock (par value $0.01 per share; 310,000,000 shares authorized at March 31, 2021 and December 31, 2020; 229,872,925 shares issued at March 31, 2021 and December 31, 2020; 192,567,901 and 192,923,371 shares outstanding at March 31, 2021 and December 31, 2020, respectively)2,299 2,299 
Additional paid-in capital3,745,890 3,761,993 
Treasury stock, at cost (37,305,024 shares at March 31, 2021 and 36,949,554 shares at December 31, 2020)(699,415)(686,911)
Retained earnings1,377,341 1,291,628 
Accumulated other comprehensive income, net of tax expense of $21,999 at March 31, 2021 and $32,399 at December 31, 202057,591 84,816 
Total stockholders’ equity4,620,164 4,590,514 
Total liabilities and stockholders’ equity$29,914,282 $29,820,138 
See accompanying notes to consolidated financial statements.
3

STERLING BANCORP AND SUBSIDIARIES
Consolidated Income Statements (Unaudited)
(Dollars in thousands, except share and per share data)

Three months ended
March 31,
20212020
Interest and dividend income:
Loans and loan fees$205,855 $235,439 
Securities taxable15,352 20,629 
Securities non-taxable11,738 12,997 
Other earning assets902 4,462 
Total interest and dividend income233,847 273,527 
Interest expense:
Deposits8,868 45,781 
Borrowings7,065 15,974 
Total interest expense15,933 61,755 
Net interest income217,914 211,772 
Provision for credit losses - loans10,000 136,577 
Provision for credit losses - held to maturity securities1,703 
Net interest income after provision for credit losses207,914 73,492 
Non-interest income:
Deposit fees and service charges6,563 6,622 
Accounts receivable management / factoring commissions and fees5,426 5,538 
Bank owned life insurance4,955 5,018 
Loan commissions and fees10,477 11,024 
Investment management fees1,852 1,847 
Net gain on sale of securities719 8,412 
Net gain on called securities4,880 
Other2,364 3,985 
Total non-interest income32,356 47,326 
Non-interest expense:
Compensation and benefits58,087 54,876 
Stock-based compensation plans6,617 6,006 
Occupancy and office operations14,515 15,199 
Information technology9,246 8,018 
Professional fees7,077 5,749 
Amortization of intangible assets3,776 4,200 
FDIC insurance and regulatory assessments3,230 3,206 
Other real estate owned expense, net(68)52 
Impairment related to financial centers and real estate consolidation strategy633 
Loss on extinguishment of borrowings744 
Other15,052 16,663 
Total non-interest expense118,165 114,713 
Income before income tax expense (benefit)122,105 6,105 
Income tax expense (benefit)22,955 (8,042)
Net income99,150 14,147 
Preferred stock dividend1,963 1,976 
Net income available to common stockholders$97,187 $12,171 
Weighted average common shares:
Basic191,890,512 196,344,061 
Diluted192,621,907 196,709,038 
Earnings per common share:
Basic$0.51 $0.06 
Diluted0.50 0.06 
See accompanying notes to consolidated financial statements.
4

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
Three months ended
March 31,
20212020
Net income$99,150 $14,147 
Other comprehensive income, before tax:
Change in unrealized holding (losses) gains on securities available for sale(33,926)48,755 
Reclassification adjustment for net realized (gains) included in net income(719)(8,412)
Accretion of net unrealized loss on securities transferred to held to maturity45 97 
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans(3,025)(2,568)
Total other comprehensive (loss) income, before tax(37,625)37,872 
Deferred tax benefit (expense) related to other comprehensive income10,400 (10,467)
Other comprehensive (loss) income, net of tax(27,225)27,405 
Comprehensive income$71,925 $41,552 
See accompanying notes to consolidated financial statements.
5

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 stockCommon
stock
Additional
paid-in
capital
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive income
Total
stockholders’
equity
Balance at January 1, 2020198,455,324 $137,581 $2,299 $3,766,716 $(583,408)$1,166,709 $40,216 $4,530,113 
Cumulative effect of change in accounting principle (see Note 1. “Basis of Financial Statement Presentation”)— — — — — (54,254)— (54,254)
Balance at January 1, 2020 (as adjusted for change in accounting principle)198,455,324 137,581 2,299 3,766,716 (583,408)1,112,455 40,216 4,475,859 
Net income— — — — — 14,147 — 14,147 
Other comprehensive income— — — — — — 27,405 27,405 
Stock options & other stock transactions, net41,000 — — — 346 68 — 414 
Common shares acquired from stock compensation plan activity(316,582)— — (24,516)5,916 14,187 — (4,413)
Stock-based compensation1,181,673 — — 7,308 (1,891)589 6,006 
Cash dividends declared ($0.07 per common share)— — — — — (13,768)— (13,768)
Cash dividends declared ($16.25 per preferred share)— (218)— — — (1,976)— (2,194)
Purchase of treasury stock(4,900,759)— — — (81,032)— — (81,032)
Balance at March 31, 2020194,460,656 $137,363 $2,299 $3,749,508 $(660,069)$1,125,702 $67,621 $4,422,424 
Number of common
shares
Preferred
stock
Common
stock
Additional
paid-in
capital
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
stockholders’
equity
Balance at January 1, 2021192,923,371 $136,689 $2,299 $3,761,993 $(686,911)$1,291,628 $84,816 $4,590,514 
Net income— — — — — 99,150 — 99,150 
Other comprehensive loss— — — — — — (27,225)(27,225)
Stock options & other stock transactions, net73,946 — — — 1,376 (624)— 752 
Common shares acquired from stock compensation plan activity(332,290)— — (23,241)13,860 2,746 — (6,635)
Stock-based compensation1,138,246 — — 7,138 (415)(106)— 6,617 
Cash dividends declared ($0.07 per common share)— — — — — (13,490)— (13,490)
Cash dividends declared ($16.25 per preferred share)— (231)— — — (1,963)— (2,194)
Purchase of treasury stock(1,235,372)— — — (27,325)— — (27,325)
Balance at March 31, 2021192,567,901 $136,458 $2,299 $3,745,890 $(699,415)$1,377,341 $57,591 $4,620,164 
See accompanying notes to consolidated financial statements.
6

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

Three months ended
March 31,
20212020
Cash flows from operating activities:
Net income$99,150 $14,147 
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses - loans10,000 136,577 
Provision for credit losses - held to maturity securities1,703 
Net (gain) from write-downs and sales of other real estate owned(2)(62)
Net (gain) on extinguishment of Senior Notes(8)
Depreciation of premises and equipment4,576 5,034 
Loss on extinguishment of FHLB borrowings753 
Impairment on fixed assets197 
Impairment of early termination of leases127 
Amortization of intangible assets3,776 4,200 
Loss on sale of premises and equipment309 
Amortization of low income housing tax credits11,507 7,401 
Net (gain) on sale of securities(706)(8,412)
(Gain) on security calls available for sale(18)(4,897)
Loss on security calls held to maturity17 
Net amortization of premiums on securities7,601 7,978 
 Amortization of premium on certificates of deposit(286)(692)
 Net accretion of purchase discount and amortization of net deferred loan costs(7,972)(10,385)
 Net accretion of debt issuance costs and amortization of premium on borrowings207 (144)
Restricted stock compensation expense6,617 6,006 
Proceeds from sales of loans held for sale81,752 
Increase in cash surrender value of bank owned life insurance(4,955)(5,018)
Deferred income tax benefit(10,888)(60,653)
 Other adjustments (principally net changes in other assets and other liabilities)41,331 (86,627)
Net cash provided by operating activities242,328 6,919 
Cash flows from investing activities:
Purchases of securities:
Available for sale(419,386)(124,408)
Held to maturity(652)(882)
Proceeds from maturities and other principal payments on securities:
Available for sale134,901 64,600 
Held to maturity17,953 17,343 
Proceeds from sales of securities available for sale20,706 407,524 
Proceeds from calls of securities available for sale2,025 138,872 
Proceeds from calls of securities held to maturity925 905 
Portfolio loan repayments (originations), net585,254 (339,730)
Proceeds from sale of commercial loans95,179 
Redemptions of FHLB and FRB stock, net12,222 11,083 
Proceeds from sales of other real estate owned122 1,168 
Purchases of premises and equipment(5,588)(8,374)
 Proceeds from bank owned life insurance4,101 2,218 
Proceeds from sale of premises and equipment3,279 1,884 
Purchases of low income housing tax credits(9,286)(45,196)
Net cash provided by investing activities346,576 222,186 
7

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

Three months ended
March 31,
20212020
Cash flows from financing activities:
 Net increase in transaction, savings and money market deposits961,084 628,101 
Net (decrease) in certificates of deposit(238,602)(487,787)
Net (decrease) in short-term FHLB borrowings(382,000)(40,000)
Advances of term FHLB borrowings300,000 
Repayments of term FHLB borrowings(550,000)
 Repayment of Senior Notes(2,000)
 Net (decrease) increase in other short term borrowings(272,422)4,884 
Net increase in mortgage escrow funds22,559 38,175 
Stock options & other stock transactions, net752 414 
Common shares acquired related to stock compensation plan activity(6,635)(4,413)
Treasury shares repurchased(27,325)(81,032)
Cash dividends paid - common stock(13,490)(13,768)
Cash dividends paid - preferred stock(2,194)(2,194)
Net cash provided by (used in) financing activities41,727 (209,620)
Net increase in cash and cash equivalents630,631 19,485 
Cash and cash equivalents at beginning of period305,002 329,151 
Cash and cash equivalents at end of period$935,633 $348,636 
Supplemental cash flow information:
Interest payments$9,595 $58,803 
Income tax payments5,316 5,678 
Real estate acquired in settlement of loans732 
Loans transferred from held for investment to held for sale106,240 95,179 
Operating cash flows from operating leases3,928 5,109 
See accompanying notes to consolidated financial statements.
8

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

(1) Basis of Financial Statement Presentation and Summary of Significant Accounting Policies

(a) Nature of Operations
Sterling Bancorp (“Sterling”, the “Company,” “we,” “us” and “our” ) is a Delaware corporation, a bank holding company and a financial holding company headquartered in Pearl River, 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 our 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, 2020, included in our Annual Report on Form 10-K, as filed with the SEC on February 26, 2021 (the “2020 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.

(c) Use of Estimates
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 credit losses and the status of contingencies, and are subject to change.

(d) Announcement of Definitive Merger Agreement
On April 19, 2021, Webster Financial Corporation (NYSE: WBS) (“Webster”), the parent company of Webster Bank, National Association, and Sterling, the parent company of the Bank, jointly announced that they have entered into a definitive agreement under which the companies will combine in an all stock merger of equals. See Note 18. “Subsequent Events” for further information.

(e) Risks and Uncertainties - COVID-19
The COVID-19 pandemic and the resultant deterioration in global macro-economic conditions has continued to impact our business and our clients. While significant progress is being made in the U.S. in connection with vaccine distribution efforts and the macro-economic forecasts are generally more positive, some uncertainty continues to exist regarding the speed of the economic recovery, especially in the NY Metro Market area, and the ultimate impact on our business, financial position, results of operations and cash flows will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the scope and duration of the pandemic globally, the actions that will be taken by governmental authorities to both contain the outbreak and to provide continuing support to affected businesses through additional stimulus funds and otherwise, the speed and efficiency of the vaccine roll out in New York state and elsewhere, and the ongoing response of, and impact to, our clients and business partners.

The COVID-19 pandemic negatively impacted the global economy, causing businesses to shut down and unemployment rates to increase, disrupted global supply chains and created significant volatility and disruption in financial markets. In response to the pandemic, governmental and other authorities instituted numerous measures to contain the virus including travel bans, shelter-in-place orders and business shutdowns. Our business, financial position, results of operations and cash flows have been and will be impacted by factors which include, but are not limited to: a continued dampened demand for our products and services, a prolonged period of low or near zero interest rates, a potential further deterioration in the financial condition of our clients resulting in an increase in our allowance for credit losses and the recognition of further credit losses, and a prolonged deterioration of business conditions in our primary markets, particularly the New York Metro Market and the New York Suburban Market.
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Table of Contents
 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

Some of our clients continue to face a very challenging business environment. The current economic conditions, especially if prolonged, could negatively impact the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, cause an increase in the number of non-performing loans, impair the value of collateral securing loans, and cause significant property damage, all of which could negatively impact our operating results and financial condition.

The pandemic resulted in a significant increase in our allowance for credit losses (“ACL”) - loans to $323.2 million or 1.53% of total portfolio loans recorded at March 31, 2021 versus $106.2 million or 0.50% at December 31, 2019. During the year ended December 31, 2020, approximately $165.0 million of the $251.7 million of provision for credit loss expense was recorded as a result of changes in the macro-economic assumptions in our forecast model resulting from the COVID-19 pandemic. While the improving macro-economic forecast drove a lower quarter over linked quarter estimate for the ACL at March 31, 2021, in light of continued, though slowing, credit migration in our portfolio, we have continued to take a measured and conservative approach to reserve releases and recorded an ACL as of March 31, 2021 that was roughly flat versus December 31, 2020. At March 31, 2021, loans criticized as special mention were $494.5 million and classified loans (substandard and doubtful) were $590.1 million. The collateral for these loans is mainly located in the New York Metro Market and includes office, retail, hotel and multi-family properties. At March 31, 2021, we had $130.5 million of loan payment deferral agreements with borrowers, down from $208.4 million at December 31, 2020.

The New York Metro Market and the New York Suburban Market have been particularly impacted by COVID-19, resulting in prolonged periods of business interruption, heightened levels of unemployment caused by business closures, temporary and permanent, and a significant decline in demand for commercial real estate. This has had the effect of negatively impacting the net operating income of some of our commercial real estate borrowers as well as the value of collateral underlying our commercial real estate loan portfolio. As such, given our business concentration in the New York Metro Market and the New York Suburban Market, our results may be disproportionately impacted when compared to the results and financial condition of other banks or bank holding companies that do not operate in or have a geographic concentration in the New York Metro Market or the New York Suburban Market.

To the extent the COVID-19 pandemic adversely affects our business, financial position, results of operations and/or cash flows, it may also have the effect of heightening many of the other risks we face, including the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 26, 2021.



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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(2) Securities

The following table summarizes our securities as of March 31, 2021, including a summary of the amortized cost fair value and allowance for credit losses related to HTM securities and the amortized cost, fair value of AFS securities. The terms “MBS” refers to mortgage-backed securities and the term “CMOs” refers to collateralized mortgage obligations. Both of these terms are further defined in Note 15. “Fair Value Measurements”:
March 31, 2021
Available for SaleHeld to Maturity
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrecognized
gains
Gross
unrecognized
losses
Fair
value
Allowance for credit losses
Residential MBS:
Agency-backed$832,665 $33,917 $(1,789)$864,793 $87,645 $3,013 $$90,658 $
CMOs/Other MBS302,349 12,403 314,752 
Total residential MBS1,135,014 46,320 (1,789)1,179,545 87,645 3,013 90,658 
Other securities:
US Treasury and federal agencies340,074 4,898 (1,500)343,472 24,844 687 25,531 
Corporate594,845 25,200 (7,121)612,924 19,837 868 20,705 80 
State and municipal373,860 15,232 (362)388,730 1,568,209 103,435 (58)1,671,586 1,374 
Other17,750 173 (171)17,752 45 
Total other securities1,308,779 45,330 (8,983)1,345,126 1,630,640 105,163 (229)1,735,574 1,499 
Total securities$2,443,793 $91,650 $(10,772)$2,524,671 $1,718,285 $108,176 $(229)$1,826,232 $1,499 

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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

A summary of amortized cost and estimated fair value of securities as of December 31, 2020 is presented below:
December 31, 2020
Available for SaleHeld to Maturity
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrecognized
gains
Gross
unrecognized
losses
Fair
value
Allowance for credit losses
Residential MBS:
Agency-backed$873,358 $44,911 $(9)$918,260 $104,329 $4,100 $$108,429 $
CMOs/Other MBS352,473 20,811 373,284 
Total residential MBS1,225,831 65,722 (9)1,291,544 104,329 4,100 108,429 
Other securities:
Federal agencies149,852 6,615 156,467 24,811 844 25,655 
Corporate438,226 27,334 (2,048)463,512 19,851 535 20,386 75 
State and municipal369,186 18,090 (181)387,095 1,575,596 126,575 (69)1,702,102 1,379 
Other17,750 189 (7)17,932 45 
Total other securities957,264 52,039 (2,229)1,007,074 1,638,008 128,143 (76)1,766,075 1,499 
Total securities$2,183,095 $117,761 $(2,238)$2,298,618 $1,742,337 $132,243 $(76)$1,874,504 $1,499 

The amortized cost and estimated fair value of securities at March 31, 2021 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.
 March 31, 2021
Available for saleHeld to maturity
 Amortized
cost
Fair
value
Amortized
cost
Fair
value
Remaining period to contractual maturity:
One year or less$1,930 $1,929 $23,767 $24,114 
One to five years321,730 332,513 84,722 88,811 
Five to ten years603,636 624,601 392,685 417,633 
Greater than ten years381,483 386,083 1,129,466 1,205,016 
Total securities with a stated maturity date1,308,779 1,345,126 1,630,640 1,735,574 
Residential MBS1,135,014 1,179,545 87,645 90,658 
Total securities$2,443,793 $2,524,671 $1,718,285 $1,826,232 

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Sales and calls of securities for the periods indicated below were as follows:
For the three months ended
March 31,
20212020
Available for sale:
Proceeds from sales$20,706 $407,524 
Gross realized gains1,236 8,480 
Gross realized losses(530)(68)
Income tax expense on realized net gains131 1,472 
Proceeds from calls$2,950 $139,777 
Gross realized gains31 4,909 
Gross realized losses(18)(29)
Income tax expense on realized net gains854 

At March 31, 2021 and December 31, 2020, 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.

The following table summarizes AFS securities with unrealized losses in an unrealized loss position for which an ACL has not been recorded at March 31, 2021 and December 31, 2020 aggregated by major security type and length of time in a continuous unrealized loss position:
 Continuous unrealized loss position  
 Less than 12 months12 months or longerTotal
Fair
value
Unrealized lossesFair
value
Unrealized lossesFair
value
Unrealized losses
AFS
March 31, 2021
Residential MBS:
Agency-backed$48,576 $(1,781)$276 $(8)$48,852 $(1,789)
Other securities:
US Treasury and federal agencies208,506 (1,500)208,506 (1,500)
Corporate187,172 (7,121)187,172 (7,121)
State and municipal24,361 (195)10,706 (167)35,067 (362)
Total other securities420,039 (8,816)10,706 (167)430,745 (8,983)
Total securities$468,615 $(10,597)$10,982 $(175)$479,597 $(10,772)
December 31, 2020
Residential MBS:
Agency-backed$396 $(1)$1,970 $(8)$2,366 $(9)
Other securities:
Corporate83,191 (2,048)83,191 (2,048)
State and municipal2,507 (29)10,872 (152)13,379 (181)
Total other securities85,698 (2,077)10,872 (152)96,570 (2,229)
Total securities$86,094 $(2,078)$12,842 $(160)$98,936 $(2,238)

We regularly review AFS securities for impairment resulting from credit losses using both qualitative and quantitative criteria based on the composition of the portfolio at each reporting period. Unrealized losses on corporate and state and municipal securities have not been recognized into income because the issuers are of high credit quality, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

At March 31, 2021, a total of 59 AFS securities were in a continuous unrealized loss position for less than 12 months and 56 AFS securities were in a continuous unrealized loss position for 12 months or longer.

At March 31, 2021 and December 31, 2020, accrued interest receivable on AFS securities was $14.9 million and $10.9 million, respectively. Accrued interest receivable on AFS securities is included in accrued interest receivable on the consolidated balance sheets. The following table summarizes securities HTM with unrecognized losses, segregated by the length of time in a continuous unrecognized loss position for the periods presented below:
 Continuous unrecognized loss position  
 Less than 12 months12 months or longerTotal
Fair
value
Unrecognized lossesFair
value
Unrecognized lossesFair
value
Unrecognized losses
HTM
March 31, 2021
Other securities:
State and municipal$$$3,910 $(58)$3,910 $(58)
Other4,829 (171)4,829 (171)
Total securities$4,829 $(171)$3,910 $(58)$8,739 $(229)
December 31, 2020
Residential MBS:
Agency-backed$$$$$$
Other securities:
State and municipal105 (1)4,386 (68)4,491 (69)
Other9,993 (7)9,993 (7)
Total other securities10,098 (8)4,386 (68)14,484 (76)
Total securities$10,098 $(8)$4,386 $(68)$14,484 $(76)

The following table presents the activity in the ACL - HTM securities by type of security for the three month periods ended March 31, 2021 and 2020:
March 31, 2021March 31, 2020
Type of securityType of security
Corporate and OtherState and municipalCorporate and OtherState and municipal
ACL - HTM:
Balance at beginning of period$120 $1,379 $$
Impact of adoption on January 1, 2020108 688 
Provision for credit loss expense(5)1,696 
Total ACL - HTM at end of period$125 $1,374 $115 $2,384 

The ACL - HTM securities was estimated using a discounted cash flow approach. We discounted the expected cash flows using the effective interest rate inherent in the security. For floating rate securities, we projected interest rates using forward interest rate curves. We review the term structures for probability of default, probability of prepayment and loss given default. We estimate a reasonable and supportable term of three years, which was supported by our back testing process.

At March 31, 2021 and December 31, 2020, accrued interest receivable on HTM securities was $18.1 million and $15.6 million, respectively, and was excluded from the estimate of ACL-HTM securities. Accrued interest receivable on HTM securities is included in accrued interest receivable on the consolidated balance sheets.
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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Credit Quality Indicators
We monitor the credit quality of HTM investment securities through the use of credit ratings, internal reviews and analysis of financial information and other data, and external reviews from a third-party vendor. We monitor credit quality indicators at least quarterly, and all credit ratings were updated and reviewed as of March 31, 2021. At March 31, 2021, 1 HTM security was in a continuous unrealized loss position for less than 12 months and 26 HTM securities were in a continuous unrealized loss position for 12 months or longer. The following table summarizes the amortized cost of HTM securities at March 31, 2021 aggregated by credit quality indicator:
Credit Rating:Corporate and otherState and municipal
AAA$$991,273 
AA17,750 550,395 
A20,522 
BBB64 
Non-rated19,837 5,955 
Total$37,587 $1,568,209 

The majority of state and municipal securities had a rating of A or greater at March 31, 2021. State and municipal securities consist mainly of securities issued by jurisdictions located in the state of New York and securities issued by other states. The non-rated state and municipal securities consist of general obligation securities and short-term bond anticipation notes and tax anticipation notes issued by municipalities in the state of New York.

A security is considered to be delinquent once it is 30 days past due under the terms of the agreement. There were no past due securities and there were no securities on non-accrual at March 31, 2021.

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:
March 31,December 31,
20212020
AFS securities pledged for borrowings, at fair value$31,679 $27,101 
AFS securities pledged for municipal deposits, at fair value611,646 569,724 
HTM securities pledged for municipal deposits, at amortized cost1,512,763 1,221,964 
Total securities pledged$2,156,088 $1,818,789 



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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(3) Portfolio Loans

The composition of our total portfolio loans, which excludes loans held for sale, was the following for the periods presented below:
March 31, 2021December 31, 2020
Commercial:
Commercial & Industrial (“C&I”):
Traditional C&I$2,886,336 $2,920,205 
Asset-based lending693,015 803,004 
Payroll finance153,987 159,237 
Warehouse lending1,394,945 1,953,677 
Factored receivables229,629 220,217 
Equipment financing1,475,716 1,531,109 
Public sector finance1,617,986 1,572,819 
Total C&I8,451,614 9,160,268 
Commercial mortgage:
Commercial real estate (“CRE”)6,029,282 5,831,990 
Multi-family4,391,850 4,406,660 
Acquisition, development and construction (“ADC”)618,295 642,943 
Total commercial mortgage11,039,427 10,881,593 
Total commercial19,491,041 20,041,861 
Residential mortgage1,486,597 1,616,641 
Consumer174,335 189,907 
Total portfolio loans21,151,973 21,848,409 
Allowance for credit losses(323,186)(326,100)
Total portfolio loans, net$20,828,787 $21,522,309 

Portfolio loans are shown at amortized cost, which includes deferred fees, deferred costs and purchase accounting adjustments, which were $12.9 million at March 31, 2021 and $20.9 million at December 31, 2020.

The balance of portfolio loans excludes accrued interest receivable. Accrued interest receivable was $70.3 million and $71.0 million at March 31, 2021 and December 31, 2020, respectively, and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. All interest accrued but not received on loans placed on non-accrual is reversed against interest income.

Included in traditional C&I loans at March 31, 2021, were $110.1 million principal balance of loans originated under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program, the PPP. These loans are 100% guaranteed by the SBA and the full principal amount of the loan may qualify for forgiveness. The loans we originated have a maturity of two years, an interest rate of 1.00% and loan payments are deferred for the initial three months.

In the three months ended March 31, 2021, we sold $70.0 million of loans, largely comprised of commercial real estate loans, the majority of which were rated special mention and substandard.

At March 31, 2021 and December 31, 2020, the Bank pledged residential mortgage and CRE loans of $6.2 billion and $6.5 billion, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 7. “Borrowings”.
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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Portfolio loans:
An analysis of the aging of portfolio loans, segregated by loan type as of March 31, 2021, is presented below:
 March 31, 2021
 Current30-59
days
past due
60-89
days
past due
90+
days
past due
Total
Traditional C&I$2,865,977 $2,659 $997 $16,703 $2,886,336 
Asset-based lending693,015 693,015 
Payroll finance153,987 153,987 
Warehouse lending1,394,945 1,394,945 
Factored receivables229,629 229,629 
Equipment financing1,449,419 2,975 2,526 20,796 1,475,716 
Public sector finance1,617,986 1,617,986 
CRE6,012,339 4,057 10,079 2,807 6,029,282 
Multi-family4,377,043 14,026 778 4,391,850 
ADC593,295 25,000 618,295 
Residential mortgage1,462,169 7,381 2,702 14,345 1,486,597 
Consumer163,360 1,229 398 9,348 174,335 
Total loans$21,013,164 $32,327 $16,705 $89,777 $21,151,973 
Total TDRs included above$74,064 $$490 $1,892 $76,446 
Non-performing loans:
Loans 90+ days past due and still accruing$
Non-accrual loans168,555 
Total non-performing loans$168,557 


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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

The following table represents an analysis of the aging of portfolio loans, segregated by loan type as of:
 December 31, 2020
Current30-59
days
past due
60-89
days
past due
90+
days
past due
Total
Traditional C&I$2,905,964 $1,215 $6,054 $6,972 $2,920,205 
Asset-based lending803,004 803,004 
Payroll finance159,237 159,237 
Warehouse lending1,953,677 1,953,677 
Factored receivables220,217 220,217 
Equipment financing1,469,653 24,286 11,077 26,093 1,531,109 
Public sector finance1,572,819 1,572,819 
CRE5,794,115 13,591 17,421 6,863 5,831,990 
Multi-family4,393,950 11,578 811 321 4,406,660 
ADC612,943 30,000 642,943 
Residential mortgage1,590,068 7,444 3,426 15,703 1,616,641 
Consumer178,587 1,043 907 9,370 189,907 
Total loans$21,654,234 $59,157 $39,696 $95,322 $21,848,409 
Total TDRs included above$60,257 $2,927 $13,492 $2,295 $78,971 
Non-performing loans:
Loans 90+ days past due and still accruing$170 
Non-accrual loans166,889 
Total non-performing loans$167,059 

The following table presents the amortized cost basis of collateral-dependent loans by loan type and collateral as of March 31, 2021:
Collateral type
Real estateBusiness assetsEquipmentTaxi medallionsTotal
Traditional C&I$412 $24,781 $5,428 $7,376 $37,997 
Asset-based lending13,264 13,264 
Payroll finance2,313 2,313 
Equipment finance1,885 13,366 15,251 
CRE36,114 36,114 
Multi-family7,725 7,725 
ADC25,000 25,000 
Residential mortgage6,214 6,214 
Consumer6,093 6,093 
Total$81,558 $42,243 $18,794 $7,376 $149,971 

Collateral-dependent loans include all loans that were TDRs at March 31, 2021. In the table above, $123.1 million of the total loans were on non-accrual at March 31, 2021. Business assets that secure traditional C&I and asset-based lending loans generally include accounts receivable, inventory, machinery and equipment. There were 0 warehouse lending, factored receivables or public sector finance loans that were collateral-dependent at March 31, 2021.
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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
The following table presents the amortized cost basis of collateral-dependent loans by loan type and collateral as of December 31, 2020:
Collateral type
Real estateBusiness assetsEquipmentTaxi medallionsTotal
Traditional C&I$425 $$5,998 $10,916 $17,339 
Asset-based lending8,280 8,280 
Payroll finance2,300 2,300 
Equipment finance1,117 10,461 11,578 
CRE53,212 53,212 
Multi-family9,914 9,914 
ADC30,000 30,000 
Residential mortgage5,025 5,025 
Consumer7,384 7,384 
Total$105,960 $11,697 $16,459 $10,916 $145,032 

Collateral-dependent loans include all loans that were TDRs at December 31, 2020. In the table above, $115.9 million of the total loans were on non-accrual at December 31, 2020. Business assets that secure traditional C&I and asset-based lending loans generally include accounts receivable, inventory, machinery and equipment. There were 0 warehouse lending, factored receivables or public sector finance loans that were collateral-dependent at December 31, 2020.

The following table provides additional information on our non-accrual loans and loans 90 days past due:
March 31, 2021December 31, 2020
Total Non-accrual LoansNon-accrual loans with no ACLLoans 90 days or more past due still accruing interestTotal Non-accrual LoansNon-accrual loans with no ACLLoans 90 days or more past due still accruing interest
Traditional C&I$50,351 $12,804 $$19,223 $16,914 $94 
Asset-based lending10,149 5,789 5,255 4,613 
Payroll finance2,313 2,313 2,300 2,300 
Equipment financing28,868 15,252 30,634 11,578 
CRE24,269 858 46,053 38,529 74 
Multi-family778 — 4,485 2,156 
ADC25,000 30,000 
Residential mortgage17,081 3,264 18,661 808 
Consumer9,746 775 10,278 875 
Total$168,555 $41,055 $$166,889 $77,773 $170 

When the ultimate collectability of the total principal of a 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 collectability of the total principal of a 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 March 31, 2021 and December 31, 2020, the recorded carrying value of residential mortgage loans that were in the process of
foreclosure was $2.9 million and $3.2 million, respectively, which is included in non-accrual residential mortgage loans above.

There were 0 warehouse lending or public sector finance loans that were non-accrual or 90 days past due at March 31, 2021 or December 31, 2020.

The following table provides information on accrued interest receivable that was reversed against interest income for the three months ended March 31, 2021 and March 31, 2020:
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 STERLING BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
For the three months ended
March 31,
20212020
Traditional C&I$36 $
Asset-based lending67 
Equipment financing38 
CRE146 
Multi-family27 
ADC297 
Residential mortgage173 80 
Consumer19 
Total interest reversed$273 $631 

Short-term Loan Deferrals
Under the CARES Act, financial institutions are permitted to not classify loan modifications that result from the impact of the COVID-19 pandemic as TDR, providing:

The modifications were made between March 1, 2020 and, as modified by the Consolidated Appropriations Act, the earlier of January 31, 2022, and or 60 days after the end of the public health emergency, and

The underlying loans were not more than 30 days past due as of December 31, 2019.

We implemented a loan modification program in accordance with the CARES Act to provide temporary relief to borrowers that meet the requirements. The program allows for deferral of payments for up to 90 days, which we may extend for an additional 90 days at our option. The deferred payments and accrued interest during the deferral period are due and payable on or before the maturity of the loan. At March 31, 2021, we have granted temporary deferrals to borrowers on 237 loans with an outstanding balance of $130.5 million. There was $8.5 million of accrued interest associated with these loans. Under the provisions of the CARES Act, none of these loans were considered TDR at March 31, 2021. The table below reflects the balance of deferrals by portfolio:

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Non-pass rated loans
Loan balance outstandingDeferral of principal and interest%Special mentionSubstandard
Commercial
C&I:
Traditional C&I$2,886,336 $%$$
Asset-based lending693,015 
Payroll finance153,987 
Warehouse lending1,394,945 
Factored receivables229,629 
Equipment finance1,475,716 3,143 0.2 2,297 
Public sector finance1,617,986 
Total C&I8,451,614 3,143 2,297 
Commercial mortgage:
Commercial real estate6,029,282 40,583 0.7 13,399 26,584 
Multi-family4,391,850 4,564 0.1 
ADC618,295 
Total commercial mortgage11,039,427 45,147 0.4 13,399 26,584 
Total commercial19,491,041 48,290 0.2 13,399 28,881 
Residential1,486,597 78,059 5.3 355 
Consumer174,335 4,176 2.4 
Total Portfolio loans$21,151,973 $130,525 0.6 %$13,399 $29,236 

TDRs
At March 31, 2021 and December 31, 2020, TDRs were $76.4 million and $79.0 million, respectively. ACL - loans of $4.3 million at March 31, 2021 and $0.9 million at December 31, 2020 were related to TDRs. The increase in the ACL - loans related to TDRs was based on updates to our expected lifetime losses for these loans. We did not have any outstanding commitments to lend additional amounts to customers with loans classified as TDRs as of March 31, 2021 or December 31, 2020.

There were no loans that were classified as TDR in the three months ended March 31, 2021. The modification of the terms of loans that were considered a TDR in the three months ended March 31, 2020 consisted mainly of an extension of a loan maturity date, converting a loan to interest only for a defined period of time, deferral of interest payments, waiver of certain covenants, or reducing collateral requirements or interest rates.
The following table presents loans classified as TDRs during the first three months of 2021 and 2020 broken down by segment:
March 31, 2021March 31, 2020
 Recorded investmentRecorded investment
 NumberPre-
modification
Post-
modification
NumberPre-
modification
Post-
modification
Asset-based lending$$$4,943 $4,943 
Total TDRs$$$4,943 $4,943 
During the three months ended March 31, 2021, 1 residential mortgage TDR loan, which totaled $490 thousand, experienced payment defaults within the twelve months following the modification. During the three months ended March 31, 2020, there were 2 equipment finance, 2 commercial real estate and 1 residential loan that were designated TDR that experienced a payment default within 12 months following the modification which totaled $16.6 million. A payment default is defined as missing three consecutive monthly payments or being over 90 days past due on a scheduled payment. TDRs are formal loan modifications which consist mainly of an extension of the loan maturity date, converting a loan to interest only for some defined period of time, deferral of interest payments, waiver of certain covenants, or reducing collateral requirements or interest rates.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(4) Allowance for Credit Losses - Loans

Activity in our ACL - loans for the three months ended March 31, 2021 and March 31, 2020 is summarized in the table below:
 For the three months ended March 31, 2021
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I$42,670 $(1,027)$468 $(559)$4,282 $46,393 
Asset-based lending12,762 (1,597)11,165 
Payroll finance1,957 (440)1,519 
Warehouse lending1,724 (492)1,232 
Factored receivables2,904 (4)406 402 (69)3,237 
Equipment financing31,794 (2,408)854 (1,554)(2,215)28,025 
Public sector finance4,516 116 4,632 
CRE155,313 (2,933)487 (2,446)6,555 159,422 
Multi-family33,320 (3,230)(3,230)3,286 33,376 
ADC17,927 (5,000)(5,000)876 13,803 
Residential mortgage16,529 (267)37 (230)(329)15,970 
Consumer4,684 (391)92 (299)27 4,412 
Total ACL - loans$326,100 $(15,260)$2,346 $(12,914)$10,000 $323,186 
Annualized net charge-offs to average loans outstanding:0.25 %


 For the three months ended March 31, 2020
 Beginning
balance
CECL Day 1Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I$15,951 $5,325 $(298)$475 $177 $13,836 $35,289 
Asset-based lending14,272 11,973 (985)(985)1,230 26,490 
Payroll finance2,064 1,334 323 3,730 
Warehouse lending917 (362)(266)289 
Factored receivables654 795 (7)(3)7,748 9,194 
Equipment financing16,723 33,000 (4,793)1,105 (3,688)13,993 60,028 
Public sector finance1,967 (766)728 1,929 
CRE27,965 8,037 (1,275)60 (1,215)62,799 97,586 
Multi-family11,440 14,906 22,751 49,097 
ADC4,732 (119)(3)105 102 10,489 15,204 
Residential mortgage7,598 14,104 (1,072)(1,072)2,460 23,090 
Consumer1,955 2,357 (1,405)1,125 (280)486 4,518 
Total ACL - loans$106,238 $90,584 $(9,838)$2,883 $(6,955)$136,577 $326,444 
Annualized net charge-offs to average loans outstanding:0.13 %

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)


Credit Quality Indicators
As part of the ongoing monitoring of the credit quality of our 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 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 New York Metro Market. We analyze 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 $750 thousand. This analysis is performed at least quarterly on all graded 7-Special Mention and lower loans. We use 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.

3 - This grade includes loans to borrowers with strong earnings and cash flow 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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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

Loans that are risk-rated 1 through 6 as defined above are considered to be pass-rated loans. As of March 31, 2021 and December 31, 2020, the risk category of non-pass rated loans by segment was as follows:
March 31, 2021December 31, 2020
 Special MentionSubstandardSpecial MentionSubstandard
Traditional C&I$37,627 $95,527 $24,162 $84,792 
Asset-based lending92,534 13,817 111,597 11,669 
Payroll finance1,176 2,313 2,300 
Factored receivables5,523 
Equipment financing6,323 47,527 7,737 45,018 
CRE240,770 347,393 249,403 280,796 
Multi-family114,402 31,328 61,146 44,872 
ADC1,613 25,000 1,407 30,000 
Residential mortgage17,368 468 18,942 
Consumer9,836 15 10,371 
Total$494,452 $590,109 $461,458 $528,760 

At March 31, 2021 and December 31, 2020 there were 0 warehouse lending or public sector finance loans rated special mention or substandard.

At March 31, 2021, there were $295 thousand traditional C&I loans rated doubtful and 0 loans rated loss. At December 31, 2020, there were $304 thousand of traditional C&I loans rated doubtful and 0 loans rated loss.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purposes of the table below. At March 31, 2021, our loans based on year of origination and risk designation is as follows:
Term loans amortized cost basis by origination yearRevolving loans converted to term
20212020201920182017PriorRevolving loansTotal
Traditional C&I
Pass$55,876 $394,938 $202,836 $247,049 $120,169 $162,274 $1,569,746 $$2,752,888 
Special mention438 165 8,846 17,261 4,030 1,555 5,332 37,627 
Substandard11 1,124 37,250 18,562 6,668 10,052 21,860 95,527 
Doubtful295 295 
Total traditional C&I56,325 396,227 248,932 282,872 130,867 173,881 1,597,233 2,886,337 
Asset-Based Loans
Pass12,108 45,326 27,339 5,451 10,212 58,968 427,260 586,664 
Special mention738 9,477 13,753 68,566 92,534 
Substandard553 13,264 13,817 
Total asset-based lending12,108 45,326 28,077 14,928 23,965 59,521 509,090 693,015 
Payroll Finance
Pass8,014 142,484 150,498 
Special mention1,176 1,176 
Substandard2,313 2,313 
Total payroll finance8,014 145,973 153,987 
Warehouse Lending
Pass41,469 112,045 41,103 53,592 236,757 909,979 1,394,945 
Special mention
Substandard
Total warehouse lending41,469 112,045 41,103 53,592 236,757 909,979 1,394,945 
Factored Receivables
Pass229,629 229,629 
Total factored receivables229,629 229,629 
Equipment Financing
Pass82,999 408,641 498,484 224,618 93,669 113,455 1,421,866 
Special mention3,999 2,023 185 116 6,323 
Substandard12 22,254 8,631 12,422 4,208 47,527 
Total equipment financing82,999 408,653 524,737 235,272 106,276 117,779 1,475,716 
Public Sector Finance
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Term loans amortized cost basis by origination yearRevolving loans converted to term
20212020201920182017PriorRevolving loansTotal
Pass73,774 437,123 398,280 206,591 261,963 240,255 1,617,986 
Total public sector finance73,774 437,123 398,280 206,591 261,963 240,255 1,617,986 
CRE
Pass168,163 1,047,246 1,247,285 882,651 514,007 1,581,766 5,441,118 
Special mention8,349 111,559 19,246 54,793 46,823 240,770 
Substandard37,821 65,059 95,688 29,448 119,377 347,393 
Total CRE168,163 1,093,416 1,423,903 997,585 598,248 1,747,966 6,029,281 
Multi-family
Pass211,873 371,457 707,272 431,720 600,632 1,855,436 67,730 4,246,120 
Special mention32,370 8,178 26,082 43,742 4,030 114,402 
Substandard10,185 18,196 2,947 31,328 
Total multi-family211,873 371,457 749,827 439,898 626,714 1,917,374 74,707 4,391,850 
ADC
Pass25,451 114,913 274,904 100,437 28,971 47,006 591,682 
Special mention1,613 1,613 
Substandard25,000 25,000 
Total ADC25,451 116,526 274,904 100,437 53,971 47,006 618,295 
Residential
Pass230 10,594 11,088 31,989 40,801 1,374,527 1,469,229 
Substandard17,368 17,368 
Total residential230 10,594 11,088 31,989 40,801 1,391,895 1,486,597 
Consumer
Pass70 358 376 222 5,013 98,640 59,813 164,492 
Special mention
Substandard394 3,225 6,217 9,836 
Total consumer70 358 376 222 5,407 101,872 66,030 174,335 
Total Loans$672,392 $2,991,437 $3,709,223 $2,363,540 $2,079,784 $6,611,063 $2,658,504 $66,030 $21,151,973 

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(5) Goodwill and Other Intangible Assets

The balance of goodwill and other intangible assets for the periods presented were as follows:
March 31,December 31,
20212020
Goodwill$1,683,482 $1,683,482 
Other intangible assets:
Core deposits$66,180 $69,808 
Customer lists3,108 3,256 
Trade name20,500 20,500 
Total$89,788 $93,564 

The decrease in other intangible assets at March 31, 2021 compared to December 31, 2020 was due to amortization of intangibles.

The estimated aggregate future amortization expense for intangible assets remaining as of March 31, 2021 was as follows:
Amortization expense
Remainder of 2021$11,328 
202213,703 
202312,322 
202410,448 
20258,722 
20267,134 
Thereafter5,631 
Total$69,288 

(6) Deposits

Deposit balances at March 31, 2021 and December 31, 2020 were as follows:
 March 31,December 31,
 20212020
Non-interest bearing demand$5,691,429 $5,443,907 
Interest bearing demand5,132,937 4,960,800 
Savings2,690,445 2,603,570 
Money market8,568,965 8,114,415 
Certificates of deposit1,757,942 1,996,830 
Total deposits$23,841,718 $23,119,522 
Total municipal deposits, which are included in the deposit balances above, were $2.0 billion and $1.6 billion at March 31, 2021 and December 31, 2020, respectively. See Note 2. “Securities” for the aggregate amount of securities that were pledged as collateral for municipal deposits and other purposes.     
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Brokered deposits at March 31, 2021 and December 31, 2020 were as follows:
March 31,December 31,
 20212020
Interest bearing demand$399,000 $433,790 
Money market1,034,070 1,045,478 
Certificates of deposit151,017 100,003 
Total brokered deposits$1,584,087 $1,579,271 

(7) Borrowings

Our borrowings and weighted average interest rates were as follows for the periods presented:  
 March 31,December 31,
 20212020
 AmountRateAmountRate
By type of borrowing:
FHLB borrowings$%$382,000 0.35 %
Repurchase agreements31,679 0.10 27,101 0.10 
Federal funds purchased277,000 0.11 
Subordinated Notes - Bank143,757 5.45 143,703 5.45 
Subordinated Notes - 2029270,366 4.18 270,284 4.17 
Subordinated Notes - 2030221,697 4.06 221,626 4.06 
Total borrowings$667,499 4.22 %$1,321,714 2.25 %
By remaining period to maturity:
Less than one year$31,679 0.10 %$686,101 0.24 %
Greater than five years635,820 4.43 635,613��4.43 
Total borrowings$667,499 4.22 %$1,321,714 2.25 %

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 March 31, 2021 and December 31, 2020, the Bank had total residential mortgage and CRE loans pledged after discount of $6.2 billion and $6.5 billion, respectively. In addition to the pledged mortgages, the Bank had also pledged securities to secure borrowings, which are disclosed in Note 2. “Securities.” As of March 31, 2021, the Bank had unused borrowing capacity at the FHLB of $6.2 billion and may increase such borrowing capacity by pledging securities not required to be pledged for other purposes with a collateral value of approximately $2.1 billion.

Subordinated Notes - Bank. On April 1, 2021, we redeemed the remaining balance of subordinated notes - Bank outstanding. Effective April 1, 2021, the eligibility of the subordinated notes - Bank as qualifying Tier 2 capital decreased by 20%. In anticipation of this redemption, we contributed $175.0 million as equity capital into the Bank in the fourth quarter of 2020.

(8) Derivatives

To facilitate interest rate swap contracts with customers (all of which are considered over-the-counter or “OTC”), we have entered into corresponding “back-to-back” interest rate swap contracts both on the OTC, and on exchange on futures markets such as the Chicago Mercantile Exchange (“CME”) and London Clearing House (“LCH”). At March 31, 2021 and December 31, 2020, the OTC derivatives are included in our consolidated financial statements at the gross fair value amount of the asset (included in other assets) and liability (included in other liabilities), which incorporates the change in the fair value of the contract since inception. The CME legally characterizes 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 (“STM”) transaction. As a result, at March 31, 2021 and December 31, 2020, we posted cash collateral under STMs in the amounts of $60.5 million and $89.8 million, respectively, for the net change in fair value of our CME and LCH interest rate swap contracts. The decrease was mainly due to changes in the fair value of the underlying interest rate swap contracts, which may change daily, positively or negatively, mainly due to changes in interest rates.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
We do not typically require our commercial customers to post cash or securities as collateral on their swaps. However, our swap contracts incorporate certain standard terms contained in the International Swaps and Derivatives Association agreement and loan documents whereby, in the event of default, we are permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability.

Summary information as of March 31, 2021 and December 31, 2020 regarding these derivatives is presented below:
 Notional
amount
Average
maturity (in years)
Weighted
average
fixed rate 
Weighted
average
variable rate
Fair value
March 31, 2021
Included in other assets:
Third-party interest rate swap$$
Customer interest rate swap1,913,381 105,772 
Total$1,913,381 4.294.42 %1 m Libor + 2.21%$105,772 
Included in other liabilities:
Third-party interest rate swap$1,913,381 $45,233 
Customer interest rate swap
Total$1,913,381 4.294.42 %1 m Libor + 2.21%$45,233 
December 31, 2020
Included in other assets:
Third-party interest rate swap$$
Customer interest rate swap1,913,607 149,797 
Total$1,913,607 4.404.44 %1 m Libor + 2.20%$149,797 
Included in other liabilities:
Third-party interest rate swap$1,913,607 $60,004 
Customer interest rate swap
Total$1,913,607 4.404.44 %1 m Libor + 2.20%$60,004 

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(9) 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
 March 31,
 20212020
Income before income tax expense$122,105 $6,105 
Tax at federal statutory rate of 21%25,642 1,282 
State and local income taxes, net of federal tax benefit6,160 589 
Tax exempt interest, net of disallowed interest(5,777)(7,409)
BOLI income(1,004)(1,111)
Low income housing tax credits and other benefits(13,780)(8,462)
Low income housing investment amortization expense11,507 7,401 
Tax rate adjustment benefit due to CARES Act net operating loss (“NOL”) carryback(21,313)
Uncertain tax position reserve11,480 
Annual effective tax rate adjustment8,248 
Non-deductible compensation expense 1
640 
Equity-based stock compensation (benefit) expense(152)491 
FDIC insurance premium limitation257 256 
Other, net(538)506 
Actual income tax expense (benefit)$22,955 $(8,042)
Effective income tax rate18.8 %(131.7)%
1 Includes $517 thousand from the write-off of deferred tax assets related to the vesting of restricted stock that will not be deductible based on Section 162(m) limitations.

Net deferred tax liabilities were $33.8 million at March 31, 2021, compared to $43.3 million at December 31, 2020. The change was mainly due to the change in value of our available for sale securities in the first quarter of 2021. NaN valuation allowance was recorded against any deferred tax assets as of those dates, based upon management’s evaluation of historical and anticipated future pre-tax income, and the reversal periods for the items resulting in deferred tax assets and liabilities.

As of March 31, 2021, the accrual for unrecognized gross tax benefits was as follows:
For the three months ended
March 31,
20212020
Uncertain tax positions beginning of period$7,000 $
Additions for tax positions related to prior tax years11,480 
Decrease due to settlement
Interest expense in tax positions
Uncertain tax positions at end of period$7,000 $11,480 

Significant tax filings that remain open for examination include the following:
Federal for tax years 2017 through present;
New York State tax filings for tax years 2017 through present;
New York City tax filings for tax years 2015 through present; and
New Jersey State tax filings for tax years 2017 through present.

Generally speaking, we are no longer subject to examination by federal, state or local taxing authorities in respect of tax years prior to December 31, 2017.

Interest and/or penalties related to income taxes are reported as a component of other non-interest expense.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(10) Stock-Based Compensation

The following table summarizes the activity in our stock-based compensation plan for the three months ended March 31, 2021:
Non-vested stock awards/stock units outstandingStock options outstanding
Shares available for grantNumber of sharesWeighted average grant date fair valueNumber of sharesWeighted average exercise price
Balance at January 1, 20211,811,418 2,993,643 $19.54 336,621 $11.41 
Granted(1,138,246)1,138,246 20.36 
Stock awards vested(820,633)21.31 
Exercised— — (73,946)10.17 
Forfeited21,775 (21,775)19.05 
Canceled/expired31,109 (31.109)20.85 
Balance at March 31, 2021726,056 3,258,372 $19.37 262,675 $11.41 
Exercisable at March 31, 2021262,675 $11.41 
The total intrinsic value of outstanding in-the-money stock options, all of which are exercisable, was $3.1 million at March 31, 2021.

We use an option pricing model to estimate the grant date fair value of stock options granted. There were 0 stock options granted during the three months ended March 31, 2021 or March 31, 2020. We incurred 0 stock option expense during the three month periods ended March 31, 2021 and 2020.

Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Stock-based compensation expense associated with non-vested stock awards and the related income tax benefit, and proceeds from stock option exercises are presented below:
For the three months ended
March 31,
20212020
Stock options$$
Non-vested stock awards/performance units6,617 6,006 
Non-vested stock awards/performance units$6,617 $6,006 
Income tax benefit1,224 1,051 
Proceeds from stock option exercises752 414 

Unrecognized stock-based compensation expense as of March 31, 2021 was $48.6 million and is expected to be recognized over 1.97 years.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(11) Other Non-Interest Expense, Other Assets and Other Liabilities

(a) Other Non-Interest Expense
Other non-interest expense items for the three months ended March 31, 2021 and 2020, respectively, are presented in the following table:
For the three months ended
March 31,
20212020
Other non-interest expense:
Depreciation expense on operating leases$3,124 $3,492 
Advertising and promotion1,708 1,983 
Communications1,427 1,630 
Residential mortgage loans servicing1,449 1,377 
Commercial loan servicing979 1,025 
Insurance & surety bond premium914 1,091 
Operational losses593 605 
Other4,858 5,460 
Total other non-interest expense$15,052 $16,663 

(b) Other Assets
Other assets are presented in the following table. Significant components of the aggregate of other assets are presented separately.
March 31,December 31,
20212020
Other assets:
Low income housing tax credit investments$484,885 $488,303 
Right of use asset for operating leases101,495 105,667 
Fair value of swaps105,772 149,797 
Cash on deposit as swap collateral / net of settlement69,014 82,478 
Operating leases - equipment and vehicles leased to others51,999 55,224 
Other asset balances193,003 181,934 
Total other assets$1,006,168 $1,063,403 

Other asset items include current income tax balances, prepaid insurance, prepaid property taxes, prepaid maintenance, accounts receivable and other miscellaneous assets.

(c) Other Liabilities
Other liabilities are presented in the following table. Significant components of the aggregate of other liabilities are presented separately.
March 31,December 31,
20212020
Other liabilities:
Commitment to fund low income housing tax credit investments$276,974 $283,849 
Lease liability109,720 113,405 
Payroll finance and factoring liabilities125,831 115,802 
Swap liabilities (see Note 8)45,233 60,004 
Other liability balances144,898 155,642 
Total other liabilities$702,656 $728,702 
Other liability balances include deferred taxes, accrued interest payable, accounts payable, accrued liabilities mainly for compensation and benefit plans and other miscellaneous liabilities.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

(12) Earnings Per Common Share

The following is a summary of the calculation of earnings per common share (“EPS”):
For the three months ended
 March 31,
 20212020
Net income available to common stockholders$97,187 $12,171 
Weighted average common shares outstanding for computation of basic EPS191,890,512 196,344,061 
Common-equivalent shares due to the dilutive effect of stock options and unvested performance share grants(1)
731,395 364,977 
Weighted average common shares for computation of diluted EPS192,621,907 196,709,038 
EPS(2):
Basic$0.51 $0.06 
Diluted0.50 0.06 
(1) Represents incremental shares computed using the treasury stock method.
(2) Anti-dilutive shares are not included in determining diluted EPS. Anti-dilutive shares were 0 and 23,590 for the three months ended March 31, 2021 and 2020, respectively.
(13) Stockholders’ Equity

(a) Regulatory Capital Requirements
Banks and bank holding companies are subject to various regulatory capital requirements administered by the 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 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 us includes a permissible portion of the ACL and $143.8 million and $97.9 million of the Subordinated Notes - Bank, respectively. Tier 2 capital at the Company also includes $492.1 million of the Subordinated Notes - Company. 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 risk-weighted assets (“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.

As permitted by the interim final rule issued on March 27, 2020 by our federal regulatory agency, we elected the option to delay the estimated impact of the adoption of the CECL Standard in our regulatory capital for two years. This two-year delay is in addition to the three-year transition period the agency had already made available. The adoption will delay the effects of CECL on our regulatory capital for the next two years, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of adoption of the CECL Standard at January 1, 2020 and 25% of subsequent changes in our ACL during each quarter of the two-year period ending December 31, 2021.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
The following tables present actual and required capital ratios as of March 31, 2021 and December 31, 2020 for us and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented as of March 31, 2021 and December 31, 2020 are based on the fully phased-in provisions of the Basel III Capital Rules. 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.
ActualMinimum capital required - Basel IIIRequired to be considered well- capitalized
Capital amountRatioCapital amountRatioCapital amountRatio
March 31, 2021
Common equity tier 1 to RWA:
Sterling National Bank$3,269,545 14.04 %$1,630,407 7.00 %$1,513,949 6.50 %
Sterling Bancorp2,786,496 11.95 1,632,817 7.00 N/AN/A
Tier 1 capital to RWA:
Sterling National Bank3,269,545 14.04 %1,979,780 8.50 %1,863,322 8.00 %
Sterling Bancorp2,922,954 12.53 1,982,706 8.50 N/AN/A
Total capital to RWA:
Sterling National Bank3,590,726 15.42 %2,445,610 10.50 %2,329,152 10.00 %
Sterling Bancorp3,690,353 15.82 2,449,225 10.50 N/AN/A
Tier 1 leverage ratio:
Sterling National Bank3,269,545 11.76 %1,111,894 4.00 %1,389,867 5.00 %
Sterling Bancorp2,922,954 10.50 1,113,426 4.00 N/AN/A
ActualMinimum capital required - Basel III fully phased-inRequired to be considered well- capitalized
Capital amountRatioCapital amountRatioCapital amountRatio
December 31, 2020
Common equity tier 1 to RWA:
Sterling National Bank$3,198,145 13.38 %$1,673,516 7.00 %$1,553,979 6.50 %
Sterling Bancorp2,727,385 11.39 1,675,747 7.00 N/AN/A
Tier 1 capital to RWA:
Sterling National Bank3,198,145 13.38 %2,032,127 8.50 %1,912,590 8.00 %
Sterling Bancorp2,864,074 11.96 2,034,836 8.50 N/AN/A
Total capital to RWA:
Sterling National Bank3,521,458 14.73 %2,510,274 10.50 %2,390,737 10.00 %
Sterling Bancorp3,638,033 15.20 2,513,621 10.50 N/AN/A
Tier 1 leverage ratio:
Sterling National Bank3,198,145 11.33 %1,128,913 4.00 %1,411,142 5.00 %
Sterling Bancorp2,864,074 10.14 1,130,362 4.00 N/AN/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 March 31, 2021 and December 31, 2020, 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 have changed the classification.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(14) Commitments and Contingencies

(a) Off-Balance Sheet Financial Instruments
The contractual or notional amounts of these instruments, which reflect the extent of our involvement in particular classes of off-balance sheet financial instruments, are summarized as follows:
 March 31,December 31,
 20212020
Loan origination commitments$598,171 $641,965 
Unused lines of credit1,493,031 1,623,745 
Letters of credit175,305 181,890 

We record ACL - off-balance sheet financial instrument exposures through a charge to other non-interest expense on our consolidated income statements. At March 31, 2021 and December 31, 2020, the ACL - off-balance sheet financial instrument credit exposures was $6.7 million and was included in other liabilities in our consolidated balance sheets. For the three months ended March 31, 2021 and 2020, credit loss expense for off-balance sheet financial instrument exposures was 0. Based on our review of quantitative and qualitative factors applicable to these financial instrument exposures, we did not record an increase in our off-balance sheet credit loss provision during the three months ended March 31, 2021 and 2020.

(b) Leases
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:
Remainder of 2021$13,805 
202218,069 
202316,605 
202414,790 
202512,176 
202611,054 
2027 and thereafter39,788 
Total lease payments126,287 
Interest16,567 
Present value of lease liabilities$109,720 

(c) Litigation
We and the Bank are involved in a number of judicial proceedings concerning matters arising from our and its business activities. These include routine legal proceedings arising in the ordinary course of business. These proceedings also include actions brought against us and the Bank with respect to corporate matters and transactions in which we and the Bank are or were involved.

There can be no assurance as to the ultimate outcome of a legal proceeding; however, we and the Bank have generally denied liability in all significant litigation pending against us and intend to vigorously defend each case, other than matters that are determined appropriate to be settled. We 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. At March 31, 2021 and December 31, 2020, we had 0 significant amounts accrued in respect of pending litigation.

(15) 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 an orderly transaction occurring in the principal or most advantageous market for such asset or liability between market participants on the measurement date. In estimating fair value, we use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. GAAP establishes a fair value hierarchy comprised of three levels of inputs that may be used to measure fair values.

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 our creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our 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 its 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, and 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 generally coincide with our monthly and/or quarterly valuation process.
AFS Investment Securities
The majority of our available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, we obtain 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.

We review 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, we do not purchase investment securities that have a complicated structure. Our 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, we validate, 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 March 31, 2021, management did not believe any of our securities are other-than-temporarily-impaired; however, management reviews all of our securities on at least a quarterly basis to assess whether impairment, if any, is other than temporary.

Derivatives
The fair values of derivatives are based on valuation models using current observable market data (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counterparty as of the measurement date, which are considered Level 2 inputs. Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Our derivatives at March 31, 2021 and December 31, 2020 consisted of interest rate swaps. See Note 8. “Derivatives” for additional information.
 
A summary of assets and liabilities at March 31, 2021 and December 31, 2020, respectively, measured at estimated fair value on a recurring basis, is as follows:
March 31, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets:
Investment securities available for sale:
Residential MBS:
Agency-backed$864,793 $$864,793 $
CMOs/Other MBS314,752 314,752 
Total residential MBS1,179,545 1,179,545 
Other securities:
Federal agencies343,472 343,472 
Corporate612,924 612,924 
State and municipal388,730 388,730 
Total other securities1,345,126 1,345,126 
Total AFS2,524,671 2,524,671 
Swaps105,772 105,772 
Total assets$2,630,443 $$2,630,443 $
Liabilities:
Swaps$45,233 $$45,233 $
Total liabilities$45,233 $$45,233 $
December 31, 2020
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets:
Investment securities available for sale:
Residential MBS:
Agency-backed$918,260 $$918,260 $
CMOs/Other MBS373,284 373,284 
Total residential MBS1,291,544 1,291,544 
Federal agencies156,467 156,467 
Corporate463,512 463,512 
State and municipal387,095 387,095 
Total other securities1,007,074 1,007,074 
Total AFS2,298,618 2,298,618 
Swaps149,797 149,797 
Total assets$2,448,415 $$2,448,415 $
Liabilities:
Swaps$60,004 $$60,004 $
Total liabilities$60,004 $$60,004 $

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.
Collateral Dependent Loans
For collateral dependent loans, which are presented in the table below, where we determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. For real estate loans, the fair value of the loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. The unobservable inputs may vary depending on the individual assets. We review third party appraisals for appropriateness and adjust the value downward to consider selling and closing costs, which generally range from 4% to 10% of the appraised value. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.
March 31, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Traditional C&I$7,376 $$$7,376 
Asset-based lending1,846 1,846 
Payroll finance2,313 2,313 
Equipment financing2,671 2,671 
CRE25,156 25,156 
ADC25,000 25,000 
Residential mortgage1,307 1,307 
Consumer2,451 2,451 
Total collateral dependent loans measured at fair value$68,120 $$$68,120 

December 31, 2020
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Traditional C&I$10,916 $$$10,916 
Asset-based lending1,899 1,899 
Payroll finance2,300 2,300 
CRE27,323 27,323 
Residential mortgage1,307 1,307 
Consumer3,593 3,593 
Total collateral dependent loans measured at fair value$47,338 $$$47,338 


















Fair Value of Financial Instruments
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 March 31, 2021:
 March 31, 2021
 Carrying
amount

Level 1 inputs

Level 2 inputs

Level 3 inputs
Financial assets:
Cash and cash equivalents$935,633 $935,633 $$
Securities AFS2,524,671 2,524,671 
Securities HTM, net1,716,786 1,826,232 
Loans held for sale36,237 36,237 
Portfolio loans, net20,828,787 20,772,549 
Accrued interest receivable on securities32,979 32,979 
Accrued interest receivable on loans70,344 70,344 
FHLB stock and FRB stock153,968 
Swaps105,772 105,772 
Financial liabilities:
Non-maturity deposits22,083,776 22,083,776 
Certificates of deposit1,757,942 1,758,273 
Other borrowings31,679 31,679 
Subordinated Notes - Bank143,757 145,000 
Subordinated Notes - Company492,063 496,330 
Mortgage escrow funds82,245 82,245 
Accrued interest payable on deposits597 597 
Accrued interest payable on borrowings10,234 10,234 
Swaps45,233 45,233 

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, 2020:
 December 31, 2020
 Carrying
amount

Level 1 inputs

Level 2 inputs

Level 3 inputs
Financial assets:
Cash and cash equivalents$305,002 $305,002 $$
Securities AFS2,298,618 2,298,618 
Securities HTM1,740,838 1,874,504 
Loans held for sale11,749 11,749 
Portfolio loans, net21,522,309 21,791,489 
Accrued interest receivable on securities26,508 26,508 
Accrued interest receivable on loans70,997 70,997 
FHLB stock and FRB stock166,190 
Swaps149,797 149,797 
Financial liabilities:
Non-maturity deposits21,122,692 21,122,692 
Certificates of deposit1,996,830 2,002,702 
FHLB borrowings382,000 382,000 
Other borrowings304,101 304,101 
Subordinated Notes - Bank143,703 145,870 
Subordinated Notes - Company491,910 506,497 
Mortgage escrow funds59,686 59,686 
Accrued interest payable on deposits1,068 1,068 
Accrued interest payable on borrowings3,425 3,425 
Swaps60,004 60,004 

(16) Accumulated Other Comprehensive Income

Components of accumulated other comprehensive income were as follows as of the dates shown below:
March 31,December 31,
20212020
Net unrealized holding gain on available for sale securities$80,878 $115,523 
Related income tax expense(22,355)(31,931)
Available for sale securities, net of tax58,523 83,592 
Net unrealized holding loss on securities transferred to held to maturity(303)(348)
Related income tax benefit84 96 
Securities transferred to held to maturity, net of tax(219)(252)
Net unrealized holding (loss) gain on retirement plans(985)2,040 
Related income tax benefit (expense)272 (564)
Retirement plans, net of tax(713)1,476 
Accumulated other comprehensive income$57,591 $84,816 

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
The following table presents the changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the three months ended March 31, 2021 and 2020:
Net unrealized holding gain on available for sale securitiesNet unrealized holding (loss) on securities transferred to held to maturityNet unrealized holding (loss) gain on retirement plansTotal
For the three months ended March 31, 2021
Balance beginning of the period$83,592 $(252)$1,476 $84,816 
Other comprehensive (loss) before reclassification(24,549)(24,549)
Amounts reclassified from AOCI(520)33 (2,189)(2,676)
Total other comprehensive (loss) income(25,069)33 (2,189)(27,225)
Balance at end of period$58,523 $(219)$(713)$57,591 
For the three months ended March 31, 2020
Balance beginning of the period$38,056 $(538)$2,698 $40,216 
Other comprehensive income before reclassification35,280 35,280 
Amounts reclassified from AOCI(6,087)70 (1,858)(7,875)
Total other comprehensive income (loss)29,193 70 (1,858)27,405 
Balance at end of period$67,249 $(468)$840 $67,621 
Location in consolidated income statements where reclassification from accumulated other comprehensive loss is includedNet gain (loss) on sale of securitiesInterest income on securitiesOther non-interest expense

(17) Recently Issued Accounting Standards Not Yet Adopted

ASU 2020-04, “Reference Rate Reform (Topic 848)” (“ASU 2020-04”) provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. Subject to certain conditions, where an agreement, contract or transaction is modified in connection with the reference rate reform, the guidance permits: (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. We may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once optional expedients are elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any LIBOR transition related modifications we execute between the selected start date (yet to be determined) and December 31, 2022 by allowing prospective recognition of the continuation of the contract. We are evaluating the impacts of this ASU and have not yet determined whether the LIBOR transition and our adoption of this ASU will have a material effect on our business operations and consolidated financial statements.

ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” (“ASU 2021-01”) clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment due to reference rate reform are in the scope of ASC 848. Entities may apply certain optional expedients in ASC 848 to derivative instruments that do not reference LIBOR or another rate expected to be discontinued as a result of reference rate reform if there is a change to the interest rate used for discounting, margining or contract price alignment. ASU 2021-01 also clarifies other aspects of ASC 848 and provides new guidance on how to address the effects of the cash compensation adjustment that is provided as part of the above change on certain aspects of hedge accounting. ASU 2021-01 is effective upon issuance and generally can be applied through December 31, 2022, similar to the rest of the relief provided under ASC 848. As we currently do not utilize hedge accounting, the guidance on hedge accounting is not expected to have a material effect on our business operations and consolidated financial statements.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)

(18) Subsequent Events

Announcement of Definitive Merger Agreement. On April 19, 2021, Webster Financial Corporation (NYSE: WBS) (“Webster”), the parent company of Webster Bank, National Association, and Sterling, the parent company of the Bank, jointly announced that, on April 18, 2021, they entered into a definitive agreement (the “Merger Agreement”) under which the companies will combine in an all stock merger of equals. Under the terms of the Merger Agreement, Sterling stockholders will receive 0.463 of a share of Webster common stock for each share of Sterling common stock they own. The legal and accounting acquirer will be Webster. At close, Webster stockholders will own approximately 50.4% and Sterling stockholders will own approximately 49.6% of the combined company. Each outstanding share of Sterling’s Non-Cumulative Perpetual Preferred Stock, Series A, will be converted into the right to receive one share of a newly created series of preferred stock of Webster with substantially identical terms. The Merger Agreement contains customary representations, warranties and covenants, including non-solicitation obligations and other provisions and includes a breakup fee of $185.0 million payable in certain circumstances. The Merger Agreement also provides certain termination rights for Sterling and Webster, including among others, if the merger has not been completed by April 18, 2022.

The Board of Directors of the combined company will consist of 15 directors, 8 directors from Webster and 7 directors from Sterling, including Jack Kopnisky, Sterling’s Chief Executive Officer, who will become Executive Chairman of Webster.

The combined company will operate under the Webster name and will be headquartered in Stamford, CT, while maintaining significant operations in Connecticut, New York, New Jersey, Massachusetts, Rhode Island, Wisconsin, Texas and Michigan. At close, the pro forma organization will hold approximately $63 billion in assets, $42 billion in net loans, and $52 billion in deposits.

The merger is expected to close in the fourth quarter of 2021, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the stockholders of each company.

Change in New York Corporate Franchise Tax Rate. On April 19, 2021, in connection with the enactment of the fiscal year 2022 New York Budget, the corporate franchise tax rate, which we are subject to, increased from 6.5% to 7.25% for the three year period beginning January 1, 2021 through December 31, 2023. We currently anticipate the impact of this rate increase will not be material to our effective income tax rate in 2021.

Repayment of Subordinated Notes - Bank. On April 1, 2021, we redeemed the remaining balance of subordinated notes - Bank outstanding. See Note 7. “Borrowings” for more detail.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make 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 in Part II. Item 1A. Risk Factors of this report 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:
risk related to the merger and integration of the Company into Webster including, among others, (i) failure to complete the merger with Webster or unexpected delays related to the merger or either party’s inability to obtain regulatory or stockholder approvals or
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STERLING BANCORP AND SUBSIDIARIES
satisfy other closing conditions required to complete the merger, (ii) expenses related to the proposed merger, (iii) a fluctuation in the market price of Webster’s common stock causing our stockholders to not be certain of the precise value of merger consideration, (iv) stockholder litigation that could prevent or delay the closing of the proposed merger or otherwise negatively impact the Company’s business and operations, (v) the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (vi) the risk that the integration of each party's operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party's businesses into the other's businesses, and (vii) deposit attrition, customer loss and/or revenue loss following the completed merger that exceeds expectations;
our ability to successfully implement growth and other strategic initiatives and reduce expenses;
oversight of the Bank by various federal regulators;
adverse publicity, regulatory actions or litigation with respect to us or other well-known companies and the financial services industry in general and a failure to satisfy regulatory standards;
the effects of and changes in monetary policies of the FRB and the U.S. Government, respectively;
our ability to make accurate assumptions and judgments about an appropriate level of ACL - loans and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio, result in our ACL - loans not being adequate to cover actual losses, and require us to materially increase our reserves;
our use of estimates in determining the fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuation;
our ability to manage changes in market interest rates;
our ability to capitalize on our substantial investments in our information technology and operational infrastructure and systems;
changes in other economic, competitive, governmental, regulatory, and technological factors affecting our markets, operations, pricing, products, services and fees;
the ongoing trajectory of COVID-19 and the extent to and speed at which the global economy recovers, the nature and extent of ongoing governmental measures to contain the pandemic, the speed and efficacy of the vaccine roll out in New York state and nationally, the availability of our colleagues, the impact on our clients and vendors, including the continued ability of our borrowers to repay their borrowings in accordance with loan terms, and the potential impact of a more severe or prolonged dampening in demand for our products; and
our success at managing the risks involved in the foregoing and managing our business.

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

Impact of COVID-19
The COVID-19 pandemic resulted in significant economic disruption adversely affecting our business and the business of our clients. We experienced a material decline in revenues in the second quarter of 2020, as a result of the decline in market interest rates, dampened demand for our lending products in our target markets and a significant decline in transactional activity in our receivables management and payroll businesses. We saw a recovery in our revenues during the second half of 2020 as business conditions improved, driving increased demand for our products and an increase in the amount of new business generated. We saw a continued rebound in business volumes in the first quarter of 2021. Although loan origination activity has continued to recover in the first quarter of 2021, prepayment activity in certain portfolios remained elevated, which impacted our earning asset balances.

Our consolidated financial statements reflect estimates and assumptions we make that impact the reported amounts of assets and liabilities, including the amount of the ACL we establish. The impact of the COVID-19 pandemic and the severe deterioration in macro-economic conditions that has resulted from it and the ongoing governmental measures needed to contain it, had a material adverse effect on the amount of our provision for credit losses - loans in 2020. Our provision for credit loss is discussed further below in “Results of Operations - Provision for Credit Losses - Loans.”

There is still significant uncertainty concerning the ongoing trajectory of the COVID-19 pandemic and the speed at which the national and local economy will recover, and the extent to which COVID-19 will continue to adversely affect our business will depend on numerous evolving factors and future developments that we are not able to predict, including the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, and how quickly and to what extent normal economic and operating conditions can resume.

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STERLING BANCORP AND SUBSIDIARIES
LIBOR Transition and Phase-Out
We have a significant amount of loans, borrowings and swaps that are tied to LIBOR benchmark interest rates. It is anticipated that the LIBOR index will be phased out by the end of 2021 and the Federal Reserve Bank of New York has established the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative to LIBOR. We have created a sub-committee of our Asset Liability Management Committee to address LIBOR transition and phase out issues. This committee includes personnel from legal, loan operations, risk, IT, credit, business intelligence, treasury, corporate banking, marketing, audit, accounting and corporate development. We are currently reviewing loan documentation, technology systems and procedures we will need to implement for the transition.

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 2020 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 the 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 21% effective income tax rate.

Dollar amounts in tables are stated in thousands, except for share and per share amounts and ratios.

Overview and Management Strategy
The Bank operates as a regional bank providing a broad offering of deposit, lending and wealth management products to commercial, consumer and municipal clients in the Greater New York metropolitan area and nationally. The Bank targets the following geographic markets: (i) the New York Metro Market, which includes Manhattan and Long Island; and (ii) the New York Suburban Market, which includes Rockland, Orange, Sullivan, Ulster and Westchester Counties in New York and Bergen County in New Jersey. Through our asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance businesses the Bank also originates loans and deposits in select markets nationally including California, Connecticut, Michigan, Texas and Illinois. We believe the Bank operates in an attractive footprint that presents us with significant opportunities to execute our strategy of targeting small and middle market commercial clients and affluent consumers. We believe that this is a client segment that is underserved by larger bank competitors in our market area.

Our primary strategic objective is to generate sustainable growth in revenue and earnings over time while driving positive operating leverage. We define operating leverage, which is a non-GAAP measurement, as the ratio of growth in adjusted total revenue divided by growth in adjusted total operating expenses. To achieve this goal, we focus on the following initiatives:

Target specific “high value” client segments and industry sectors in which we have competitive advantages and can generate attractive risk-adjusted returns.

Deploy a single point of contact, relationship-based distribution strategy through our commercial banking teams, business banking teams and financial centers, in which our colleagues are directly responsible for managing all aspects of the client relationship and experience.

Augment our distribution and client coverage strategy with a contemporary digital product and service offering that provides our commercial and consumer clients with the flexibility to self-serve or interact with us through various channels.

Expand into new technology-enabled, growth-oriented business verticals, including direct banking offerings and leverage our platform and technology to provide banking to other financial services providers (“Banking as a Service”).

Invest in technology to build a robust operating platform that uses artificial intelligence and related automation tools to maximize efficiency.

Create a high productivity culture through differentiated compensation programs based on a pay-for-performance philosophy.

Maintain and continue to enhance our strong risk management systems and proactively manage enterprise risk.

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STERLING BANCORP AND SUBSIDIARIES
Recent Developments
Announcement of Definitive Merger Agreement
On April 18, 2021, Sterling and Webster entered into a definitive Merger Agreement, pursuant to which we and Webster have agreed to combine our respective companies in an all stock merger of equals. The Merger Agreement provides that, upon the terms and subsequent conditions set forth therein, we will merge with and into Webster, with Webster continuing as the surviving entity, in a transaction we refer to as the “merger”. The Merger Agreement was approved by the boards of directors of Sterling and Webster, and is subject to stockholder and regulator approval and other customary closing conditions.

Under the terms of the Merger Agreement, stockholders of Sterling will receive 0.463 of a share of Webster for each share of Sterling common stock they own. After the merger, it is anticipated that Webster shareholders will own approximately 50.4% and Sterling stockholders will own approximately 49.6% of the combined company. The aggregate consideration including “in the money” outstanding stock options, is valued at $5.1 billion based on approximately 192.7 million shares of Sterling common stock outstanding as of April 16, 2021 and on Webster’s April 16, 2021 closing stock price. The exchange ratio represents a premium of 11.5% to Sterling’s stock price as of April 16, 2021. The transaction is expected to close in the fourth quarter of 2021.

Performance Summary
For the first quarter of 2021, we reported net income available to common stockholders of $97.2 million, or $0.50 per diluted share, and adjusted net income available to common stockholders of $97.6 million, or $0.51 per diluted share. While we continue to operate in a low interest rate environment, for the first quarter of 2021, we reported net interest income of $217.9 million, an increase of $6.1 million compared to the three months ended March 31, 2020. In the first quarter of 2021 as compared to the first quarter of 2020, accretion income on acquired loans declined by $2.4 million, loan yields declined by 55 basis points, while our cost of funding liabilities declined by 71 basis points. Our tax equivalent net interest margin, excluding purchase accounting adjustments, increased 25 basis points to 3.30% and our reported net interest margin on a tax equivalent basis was 3.43% an increase of 22 basis points over the period ended March 31, 2020.

For the three months ended March 31, 2021, our provision for credit losses - loans expense was $10.0 million and as of March 31, 2021, our ACL - loans was $323.2 million, which represented 1.53% of total loans and 191.7% of non-performing loans. Net charge-offs in the first quarter were $12.9 million.

Our adjusted non-interest expenses were $110.6 million in the first quarter of 2021, an increase of $4.4 million over the quarter ended March 31, 2020. The increase was mainly due to increases in compensation, professional fees and information technology. Our reported operating efficiency ratio was 47.2% and our adjusted operating efficiency ratio was 44.3% for the first quarter of 2021.

At March 31, 2021, total portfolio loans were $21.2 billion, a decrease of $696.4 million from December 31, 2020, which was mainly due to the $558.7 million decline in warehouse lending. A slowdown in mortgage refinance activity was the primary driver of the decline. Our loans to deposits ratio was 88.7% at quarter end, a factor of the decline in total portfolio loans and an increase in our deposit balances as discussed further below.

Total deposits were $23.8 billion at March 31, 2021, an increase of $722.2 million from December 31, 2020 and a factor of increased liquidity created in the banking system as a result of government stimulus and monetary policy measures implemented in response to the economic impact of the pandemic. Our cost of total deposits declined seven basis points relative to the linked quarter, while cost of interest-bearing deposits declined nine basis points. In the three months ended March 31, 2021, FHLB and other short-term borrowings declined $382.0 million and brokered deposits declined $4.8 million.

On April 1, 2021, we completed the previously announced redemption of subordinated debt - Bank with a principal balance of $145.0 million at March 31, 2021 and coupon interest rate of 5.25%.

In the first three months of 2021, we repurchased 1,235,372 shares of common stock at a weighted average price of $22.12 per share, for total consideration of $27.3 million. In connection with entering into the Merger Agreement, we have suspended our common stock repurchase program.

Critical Accounting Policies
Our accounting and reporting policies are prepared in accordance with GAAP and conform to general practices within the banking industry. Accounting policies considered critical to our financial results include the ACL - loans, accounting for goodwill and other intangible assets and accounting for deferred income taxes. For additional information on our significant accounting policies, see Note 1. “Basis of Financial Statement Presentation and Summary of Significant Accounting Policies” in the notes to consolidated financial statements in the 2020 Form 10-K.
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STERLING BANCORP AND SUBSIDIARIES

ACL - Loans. We consider the methodology for determining the ACL - loans to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the ACL - loans considered necessary. The balance recorded for the allowance represents our estimate of the net amount not expected to be collected on portfolio loans at the balance sheet date. The ACL - loans is mainly comprised of reserves on individual assets estimated by our valuation models. Mortgage warehouse loans and certain consumer loans are evaluated on a pool level basis as each portfolio has common risk characteristics. Generally, all other portfolio loans are evaluated individually for expected credit loss. In addition to quantitative amounts as determined by our valuation models, we apply a qualitative factors overlay that incorporates trends and conditions and factors that the models may not fully capture in our judgement. Our methodologies for estimating the ACL - loans considers available relevant information about the collectibility of cash flows, including information about past events, current conditions and reasonable and supportable forecasts.

Goodwill and Intangible Assets. We record goodwill as the excess of the purchase price in a business combination over the fair value of the identifiable net assets acquired in accordance with GAAP. Typically, we perform our annual intangible assets impairment test in the fourth quarter. Due to the impact of the pandemic, we performed the annual intangible assets impairment test during the second quarter of 2020. We engaged an independent third-party to evaluate the fair value of the Company compared to its carrying value. The results concluded that goodwill and intangible asset impairment did not exist. Fair value was estimated mainly using a discounted cash flow analysis. Significant assumptions included in the discounted cash flow analysis were the following:
management financial projections for the period 2020 through 2024;
earnings retention based on maintaining minimum tangible common capital ratio of 8.00%;
operating expense cost savings estimated at 10.0%; and
capitalization rate of 9.5% based on a 12.5% discount rate less estimated terminal growth of 3.0%.

At March 31, 2021, we concluded that an independent third-party evaluation of the fair value of goodwill was not necessary and that a goodwill and intangible asset impairment did not exist.

See Note 5. “Goodwill and Other Intangible Assets” in the notes to consolidated financial statements included elsewhere in this report for additional information regarding our goodwill impairment test. We will continue to monitor and evaluate the impact of COVID-19, economic conditions and other triggering events that may indicate an impairment of goodwill in the future. In the event that we conclude that all or a portion of our goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital ratios.

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STERLING BANCORP AND SUBSIDIARIES
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:
At or for the three months ended March 31,
20212020
End of period balances:
AFS and HTM securities, net$4,241,457 $4,617,012 
Portfolio loans21,151,973 21,709,957 
Total assets29,914,282 30,335,036 
Non-interest bearing deposits5,691,429 4,369,924 
Interest bearing deposits18,150,289 18,188,356 
Total deposits23,841,718 22,558,280 
Borrowings667,499 2,598,698 
Stockholders’ equity4,620,164 4,422,424 
Tangible common stockholders’ equity (“TCE”)1
2,710,436 2,495,415 
Average balances:
AFS and HTM securities, net$4,054,978 $5,046,573 
Total loans2
21,294,550 21,206,177 
Total assets29,582,605 30,484,433 
Non-interest bearing deposits5,521,538 4,346,518 
Interest bearing deposits18,025,390 18,346,050 
Total deposits and mortgage escrow23,546,928 22,692,568 
Borrowings721,642 2,580,922 
Stockholders’ equity4,616,660 4,506,537 
TCE1
2,704,227 2,576,558 
Selected operating data:
Total interest and dividend income$233,847 $273,527 
Total interest expense15,933 61,755 
Net interest income217,914 211,772 
Provision for credit losses10,000 138,280 
Net interest income after provision for credit losses207,914 73,492 
Total non-interest income32,356 47,326 
Total non-interest expense118,165 114,713 
Income before income tax122,105 6,105 
Income tax expense (benefit)22,955 (8,042)
Net income99,150 14,147 
Preferred stock dividend1,963 1,976 
Net income available to common stockholders$97,187 $12,171 
Per share data:
Reported basic EPS (GAAP)$0.51 $0.06 
Reported diluted EPS (GAAP)0.50 0.06 
Adjusted diluted EPS1 (non-GAAP)
0.51 (0.02)
Dividends declared per common share0.07 0.07 
Book value per share23.28 22.04 
Tangible book value per common share1
14.08 12.83 
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
At or for the three months ended March 31,
20212020
Common shares outstanding:
Shares outstanding at period end192,567,901 194,460,656 
Weighted average shares basic191,890,512 196,344,061 
Weighted average shares diluted192,621,907 196,709,038 
Other data:
Full time equivalent employees at period end1,457 1,619 
Financial centers at period end75 79 
Performance ratios:
Return on average assets1.33 %0.16 %
Return on average equity8.54 1.09 
Reported return on average tangible assets1
1.42 0.17 
Adjusted return on average tangible assets1
1.42 (0.04)
Reported return on average TCE1
14.58 1.90 
Adjusted return on average TCE1
14.64 (0.49)
Reported operating efficiency1
47.2 44.3 
Adjusted operating efficiency1
44.3 42.4 
Net interest margin-GAAP3.38 3.16 
Net interest margin-tax equivalent3
3.43 3.21 
Capital ratios (Company)4:
Tier 1 leverage ratio10.50 %9.41 %
Common equity Tier 1 capital ratio11.95 10.89 
Tier 1 risk-based capital ratio12.53 11.47 
Total risk-based capital ratio15.82 13.73 
Tangible equity to tangible assets10.12 9.22 
Tangible common equity to tangible assets1
9.63 8.74 
Regulatory capital ratios (Bank)4:
Tier 1 leverage ratio11.76 %9.99 %
Tier 1 risk-based capital ratio14.04 12.19 
Total risk-based capital ratio15.42 13.80 
Asset quality data and ratios:
Allowance for credit - loans$323,186 $326,444 
Non-performing loans (“NPLs”)168,557 253,750 
Non-performing assets (“NPAs”)173,784 265,565 
Net charge-offs12,914 6,955 
NPAs to total assets0.58 %0.88 %
NPLs to total loans5
0.80 1.17 
Allowance for loan losses to non-performing loans191.74 128.65 
Allowance for loan losses to total loans4
1.53 1.50 
Annualized net charge-offs to average loans0.25 0.13 
__________________
1 See a reconciliation of as reported financial measures to as adjusted (non-GAAP) financial measures beginning on page 63 below under the caption “Supplemental Reporting of Non-GAAP Financial Measures.”
2 Includes loans held for sale but excludes the allowance for credit losses.
3 Tax equivalent basis represents interest income earned on municipal securities divided by the applicable Federal tax rate of 21%.
4 We elected the five-year capital phase-in option. The phase-in option is further discussed in Note 13. “Stockholders’ Equity - (a) Regulatory Capital Requirements” in the notes to consolidated financial statements included elsewhere in this report.
5 Total loans excludes loans held for sale.
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Results of Operations
For the three months ended March 31, 2021, we reported net income available to common stockholders of $97.2 million, or $0.50 per diluted common share, compared to net income available to common stockholders of $12.2 million, or $0.06 per diluted common share, for the three months ended March 31, 2020.

Details of the changes in the various components of net 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 87.1% and 81.7% of total revenue in the three months ended March 31, 2021 and 2020, 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, which include transactional accounts for retail, commercial and municipal clients, money market and savings accounts and certificates of deposit accounts, including reciprocal brokered deposits, but exclude other brokered and wholesale deposits. As of March 31, 2021, we considered 93.2% of our total deposits to be core deposits compared to 91.8% at March 31, 2020. Non-interest bearing demand deposits were $5.7 billion of our total deposits at March 31, 2021, compared to $4.4 billion at March 31, 2020.

The following tables set forth average balances, 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 the respective average balance of the particular loan type, 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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STERLING BANCORP AND SUBSIDIARIES
 For the three months ended March 31,
 20212020
 Average
balance
InterestYield/RateAverage
balance
InterestYield/Rate
Interest earning assets:
Traditional C&I and commercial finance loans$8,646,272 $78,006 3.66 %$8,034,108 $89,150 4.46 %
CRE (includes multi-family)10,283,292 103,625 4.09 10,288,977 110,742 4.33 
ADC624,259 5,856 3.80 497,009 6,320 5.11 
Commercial loans19,553,823 187,487 3.89 18,820,094 206,212 4.41 
Consumer loans182,461 2,081 4.63 233,643 2,939 5.06 
Residential mortgage loans1,558,266 16,287 4.18 2,152,440 26,288 4.89 
Total gross loans1
21,294,550 205,855 3.92 21,206,177 235,439 4.47 
Securities taxable2,103,768 15,352 2.96 2,883,367 20,629 2.88 
Securities non-taxable1,951,210 14,858 3.05 2,163,206 16,451 3.04 
Interest earning deposits648,178 149 0.09 489,691 1,832 1.50 
FRB and FHLB stock152,026 753 2.01 237,820 2,630 4.45 
Total securities and other earning assets4,855,182 31,112 2.60 5,774,084 41,542 2.89 
Total interest earning assets26,149,732 236,967 3.68 26,980,261 276,981 4.13 
Non-interest earning assets3,432,873 3,504,172 
Total assets$29,582,605 $30,484,433 
Interest bearing liabilities:
Interest bearing demand deposits$4,981,415 $2,042 0.17 %$4,616,658 $9,558 0.83 %
Savings deposits2
2,717,622 471 0.07 2,800,021 3,506 0.50 
Money market deposits8,382,533 3,813 0.18 7,691,381 18,396 0.96 
Certificates of deposit1,943,820 2,542 0.53 3,237,990 14,321 1.78 
Total interest bearing deposits18,025,390 8,868 0.20 18,346,050 45,781 1.00 
Senior Notes— — — 173,323 1,434 3.31 
Other borrowings85,957 36 0.17 1,963,428 9,353 1.92 
Subordinated Notes - Bank143,722 1,957 5.45 173,203 2,360 5.45 
Subordinated Notes - Company491,963 5,072 4.12 270,968 2,827 4.17 
Total borrowings721,642 7,065 3.97 2,580,922 15,974 2.49 
Total interest bearing liabilities18,747,032 15,933 0.34 20,926,972 61,755 1.19 
Non-interest bearing deposits5,521,5384,346,518 
Other non-interest bearing liabilities697,375704,406 
Total liabilities24,965,94525,977,896 
Stockholders’ equity4,616,6604,506,537 
Total liabilities and stockholders’ equity$29,582,605$30,484,433 
Net interest rate spread3
3.34 %2.94 %
Net interest earning assets4
$7,402,700$6,053,289 
Net interest margin - tax equivalent221,034 3.43 %215,226 3.21 %
Less tax equivalent adjustment(3,120)(3,454)
Net interest income217,914 211,772 
Accretion income on acquired loans8,272 10,686 
Tax equivalent net interest margin excluding accretion income on acquired loans$212,762 3.30 %$204,540 3.05 %
Ratio of interest earning assets to interest bearing liabilities139.5 %128.9 %
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
1 Average balances include loans held for sale and non-accrual loans. Includes 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.
2 Includes club accounts and interest bearing mortgage escrow balances.
3 Net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities.
4 Net interest earning assets represents total interest earning assets less total interest bearing liabilities.

The following table presents 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 March 31,
 2021 vs. 2020
 Increase / (Decrease)
due to
Total
increase /
 VolumeRate(decrease)
Interest earning assets:
Traditional C&I and commercial finance loans$6,129 $(17,273)$(11,144)
CRE (includes multi-family)(71)(7,046)(7,117)
ADC1,372 (1,836)(464)
Commercial loans7,430 (26,155)(18,725)
Consumer loans(618)(240)(858)
Residential mortgage loans(6,554)(3,447)(10,001)
Total loans258 (29,842)(29,584)
Securities taxable(5,817)540 (5,277)
Securities tax exempt(1,644)51 (1,593)
Interest earning deposits441 (2,124)(1,683)
FRB and FHLB stock(745)(1,132)(1,877)
Total interest earning assets(7,507)(32,507)(40,014)
Interest bearing liabilities:
Interest bearing demand deposits679 (8,195)(7,516)
Savings deposits1
(101)(2,934)(3,035)
Money market deposits1,494 (16,077)(14,583)
Certificates of deposit(4,272)(7,507)(11,779)
Total interest bearing deposits(2,200)(34,713)(36,913)
Senior Notes(717)(717)(1,434)
Other borrowings(4,811)(4,506)(9,317)
Subordinated Notes - Bank(403)— (403)
Subordinated Notes - Company2,278 (33)2,245 
Total borrowings(3,653)(5,256)(8,909)
Total interest bearing liabilities(5,853)(39,969)(45,822)
Change in tax equivalent net interest income(1,654)7,462 5,808 
Less tax equivalent adjustment(381)47 (334)
Change in net interest income$(1,273)$7,415 $6,142 
______________________
1 Includes club accounts and interest bearing mortgage escrow balances.
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Tax equivalent net interest income increased $5.8 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. This was mainly a result of lower interest expense, which declined in line with lower market interest rates and as a result of changes in our funding mix. Over the course of 2020 and during the first quarter of 2021, we have continued to reprice deposit relationships and repaid higher costing FHLB and other borrowings. As a result, interest expense declined by 74.2% over the prior year quarter, while interest and dividend income declined by 14.5% over the same period. For the three months ended March 31, 2021, total interest earning assets yielded 3.68% compared to 4.13% during the same period in 2020. The cost of interest bearing liabilities declined to 0.34% in the first quarter of 2021 compared to 1.19% in the same period in 2020. The tax equivalent net interest margin increased 22 basis points to 3.43% in the first quarter of 2021 from 3.21% in the first quarter of 2020.

Average interest earning assets decreased by $830.5 million between the periods, which was mainly due to net sales and repayments of investment securities and continued runoff in our residential mortgage loan portfolio. The percentage of average loans to average earning assets increased to 81.4% compared to 78.6% in 2020.

The average balance of commercial loans increased $733.7 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The increase was due to loans originated by our commercial banking teams offset by pay downs and refinancing activity in certain portfolios. The average yield on commercial loans declined to 3.89% compared to 4.41% in the prior year period. The decrease in the yield on commercial loans was in line with declines in market interest rates as well as a decline in accretion income on acquired loans. Accretion income on acquired loans declined to $6.3 million compared to $7.5 million in 2020.

Interest income on traditional C&I and commercial finance loans decreased $11.1 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The yield on traditional C&I and commercial finance loans declined to 3.66% compared to 4.46% in the prior year period. In addition to the decrease in market interest rates, interest income on traditional C&I and commercial finance loans declined as lower yielding mortgage warehouse and public sector finance loans represented a substantial portion of the increase in average balances between the periods.

Interest income on CRE loans and multi-family loans decreased $7.1 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The average balance of CRE and multi-family loans decreased $5.7 million between the periods. The yield on CRE and multi-family loans was 4.09% compared to 4.33% for the three months ended March 31, 2020. The decrease in yield was mainly due to the change in market interest rates and lower accretion income on acquired loans.

Interest income on residential mortgage loans declined $10.0 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The decrease was mainly due to a decline in average balances and a 71 basis points decline in the yield, a result of the adjustable rate loans repricing to market rates of interest and lower accretion income on acquired loans, which was $1.7 million compared to $2.9 million in the prior year period. The average balance of residential mortgage loans declined $594.2 million, mainly due to continued run-off as well as the sale of certain residential mortgage loans in 2020.

Tax equivalent interest income on securities decreased $6.9 million for the three months ended March 31, 2021, mainly due to a decrease of $1.0 billion in average securities between the periods. The decline in balances was mainly due to accelerated repayment of mortgage-backed securities. The tax equivalent yield on securities increased to 3.02% compared to 2.96% in the prior year period. The increase in yield was mainly due to purchases of higher yielding corporate securities and sales of lower yielding municipal securities. The average balance of tax-exempt securities declined to $2.0 billion for the three months ended March 31, 2021, compared to $2.2 billion in 2020.

Average interest earning deposits were $648.2 million for the three months ended March 31, 2021, an increase of $158.5 million compared to the three months ended March 31, 2020. The increase was due to deposit inflows and lower than anticipated loan demand. Interest earning deposits yielded 0.09% for the three months ended March 31, 2021, compared to 1.50% for the same period in 2020.

Average total deposits and mortgage escrow balances increased $854.4 million to $23.5 billion in the three months ended March 31, 2021 compared to the first quarter of 2020. Average interest bearing deposits decreased $320.7 million and average non-interest bearing deposits increased $1.2 billion. The increase in deposits was mainly due to growth in commercial, consumer and on-line deposits coupled with higher cash balances held by many of our clients. The average cost of interest bearing deposits was 0.20% compared to 1.00%. The average cost of total deposits was 0.15% compared to 0.81% in the first quarter of 2020. The decrease in the cost of deposits was mainly due to repricing of deposit relationships in line with declines in market interest rates.

Average borrowings declined $1.9 billion in the three months ended March 31, 2021, compared to the same period a year ago. Given the increase in deposits and the decline in residential mortgage loans and investment securities between the periods, excess liquidity was used to reduce borrowings. The average cost of borrowings was 3.97% for the first quarter of 2021, compared to 2.49% in the prior year
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period. The increase in the average cost of borrowings was due to a greater proportion of our borrowings being comprised of longer term and more expensive subordinated notes in 2021 compared to 2020.

Provision for Credit Losses - Loans. The provision for credit losses - loans is determined as the amount to be added to the ACL - loans after net charge-offs have been deducted to bring the allowance to a level that is our best estimate of the net amount not expected to be collected on portfolio loans. For the three months ended March 31, 2021 and March 31, 2020, the provision for credit losses - loans was $10.0 million and $136.6 million, respectively. See the section captioned “Non-Performing Loans and Non-Performing Assets” later in this discussion for further analysis of the provision for credit losses - loans.

Provision for Credit Losses - HTM Securities. We recorded no provision for credit losses - HTM securities for the three months ended March 31, 2021, compared to $1.7 million for the three months ended March 31, 2020. The provision for credit losses - HTM securities is based on our estimate of loss given anticipated defaults due to the pandemic and economic conditions.

Non-interest income. The components of non-interest income were as follows for the periods presented below:
For the three months ended
March 31,
20212020
Deposit fees and service charges$6,563 $6,622 
Accounts receivable management / factoring commissions and other fees5,426 5,538 
Bank owned life insurance4,955 5,018 
Loan commissions and fees10,477 11,024 
Investment management fees1,852 1,847 
Net gain on sale of securities719 8,412 
Net gain on called securities— 4,880 
Other2,364 3,985 
Total non-interest income$32,356 $47,326 

Non-interest income was $32.4 million for the three months ended March 31, 2021, compared to $47.3 million in the same period a year ago.

Deposit fees and service charges were $6.6 million for the first quarter of 2021, which represented a $59 thousand decrease from the first quarter of 2020. This was mainly due to lower overdraft and related service charges attributable to higher deposit balances maintained by many of our clients.

Loan commissions and fee 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 $10.5 million for the three months ended March 31, 2021, compared to $11.0 million for the three months ended March 31, 2020. The decrease was mainly due to a $2.9 million gain on sale of equipment finance loans in the first quarter of 2020 that did not recur in the first quarter of 2021. Offsetting this decline was $1.8 million in fees earned in connection with second round PPP loans originated by a third party in respect of which we earned a referral fee. Pursuant to this referral arrangement, a total of 1,118 PPP loans were funded and closed with a principal amount of $160.9 million.

Net gain on sale of securities represents net gains realized on the sale of securities from our AFS investment securities portfolio. The gain on sale of securities in the first quarter of 2021 was mainly due to the sale of $20.7 million of corporate securities. The gain on sale of securities in the first quarter of 2020 was mainly due to the sale of $407,524 of AFS securities and the proceeds were used for liquidity management purposes.

Net gain on called securities in the three months ended March 31, 2020 represents income earned on securities called of $139.8 million, which were mainly government agency securities.
Other non-interest income principally includes fees for interest rate swaps, safe deposit rentals and foreign exchange fees. Other non-interest income declined to $2.4 million in the first quarter of 2021 from $4.0 million in the first quarter of 2020 mainly due to lower
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STERLING BANCORP AND SUBSIDIARIES
transactional volumes in our derivatives business, which was $400 thousand in the first quarter of 2021 compared to $2.4 million in the same period in 2020.

Non-interest expense. The components of non-interest expense were as follows for the periods presented below:
For the three months ended
March 31,
20212020
Compensation and benefits$58,087 $54,876 
Stock-based compensation plans6,617 6,006 
Occupancy and office operations14,515 15,199 
Information technology9,246 8,018 
Professional fees7,077 5,749 
Amortization of intangible assets3,776 4,200 
FDIC insurance and regulatory assessments3,230 3,206 
Other real estate owned expense (“OREO”), net(68)52 
  Impairment related to financial centers and real estate consolidation strategy633 — 
Loss on extinguishment of borrowings— 744 
Other non-interest expense15,052 16,663 
Total non-interest expense$118,165 $114,713 

Compensation and benefits expense was $58.1 million for the three months ended March 31, 2021, compared to $54.9 million for the three months ended March 31, 2020. The increase was mainly due to a higher bonus compensation accrual and an increase in medical costs.

Stock-based compensation plans expense was $6.6 million in the first quarter of 2021, compared to $6.0 million in the first quarter of 2020. The increase was due to additional personnel included in our stock-based compensation plan. For additional information related to our employee benefit plans and stock-based compensation, see Note 10. “Stock-Based Compensation” in the notes to consolidated financial statements included elsewhere in this report.

Occupancy and office operations expense was $14.5 million in the first quarter of 2021, compared to $15.2 million in the first quarter of 2020. The decline in occupancy and office operations expense is due to continuing rationalization of our real estate footprint.

Information technology expense, which mainly includes the cost of our loan and deposit operating systems and contracted service and maintenance associated with other data processing systems, was $9.2 million in the first quarter of 2021, compared to $8.0 million in the first quarter of 2020. The increase was mainly due to investments in various back-office automation initiatives and digital banking transformation efforts, which are designed to enable us to drive future revenue growth and expand our digital offerings.

Professional fees, was $7.1 million for the three months ended March 31, 2021, compared to $5.7 million for the three months ended March 31, 2020. The increase was mainly due to incremental fees for consulting services to assist us with automation and digital banking platform projects.

Amortization of intangible assets expense mainly includes amortization of core deposit intangible assets, customer lists and non-compete agreements. Amortization of intangible assets was $3.8 million in the three months ended March 31, 2021, compared to $4.2 million for the three months ended March 31, 2020. The decreases in amortization expense were mainly due to the accelerated amortization of the core deposit intangible assets that were recorded in the merger with Astoria Financial Corporation and other acquisitions. For additional information, see Note 5. “Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements included elsewhere in this report.

Impairment related to financial centers and real estate consolidation strategy was $633 thousand for the three months ended March 31, 2021. This charge included a write-off of leasehold improvements of $127 thousand, loss on sale of fixed assets from the sale of two owned locations of $309 thousand and $197 thousand of write-off of other fixed assets abandoned when we disposed of facilities.

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Loss on extinguishment of borrowings was $744 thousand for the period ended March 31, 2020. Due to significant growth in core deposits, we used excess cash to reduce wholesale borrowings.
Other non-interest expense includes depreciation expense on operating leases, advertising and promotion, communications, residential mortgage loan servicing, insurance, operational losses, commercial loan processing expenses, pension and post retirement plans, recruitment fees, taxes not included in income tax expense, travel and client entertainment, and colleague training expense. For the three months ended March 31, 2021, other non-interest expense was $15.1 million, compared to $16.7 million for the three months ended March 31, 2020. See Note 11. “Other Non-Interest Expense, Other Assets and Other Liabilities” in the notes to the consolidated financial statements included elsewhere in this report for details on significant components.

Income tax expense was $23.0 million, representing an effective income tax rate of 18.8% for the three months ended March 31, 2021, compared to an income tax benefit of $8.0 million for the three months ended March 31, 2020. Our estimated effective income tax rate for full year 2021 is 18.5% prior to the impact of discrete items. In the three months ended March 31, 2021, vesting of stock-based compensation decreased income tax expense by $152 thousand and an adjustment to reduce deferred tax assets associated with certain executive compensation increased income tax expense by $517 thousand.

In the first quarter of 2020, income tax expense was initially recorded at our estimated effective income tax rate for 2020 of 17.5%, and was impacted by the following discrete items:
Based on provisions of the CARES Act, we had an NOL carryback in the first quarter of 2020 that resulted in us recording an income tax benefit of $21.3 million. In the first quarter of 2020, we also recorded an accrual for uncertain tax positions of $11.5 million which is discussed in Note 9. “Income Taxes” in the notes to consolidated financial statements included elsewhere in this report. The net of these two items was an income tax benefit in the first quarter of 2020 of $9.8 million.
Vesting of stock based compensation increased income tax expense by $723 thousand.

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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.
 March 31, 2021December 31, 2020
 Amount%Amount%
Commercial:
C&I:
Traditional C&I$2,886,336 13.6 %$2,920,205 13.4 %
Asset-based lending693,015 3.3 803,004 3.7 
Payroll finance153,987 0.7 159,237 0.7 
Warehouse lending1,394,945 6.6 1,953,677 8.9 
Factored receivables229,629 1.1 220,217 1.0 
Equipment financing1,475,716 7.0 1,531,109 7.0 
Public sector finance1,617,986 7.7 1,572,819 7.2 
Total C&I8,451,614 40.0 9,160,268 41.9 
Commercial mortgage:
CRE6,029,282 28.5 5,831,990 26.7 
Multi-family4,391,850 20.8 4,406,660 20.2 
ADC618,295 2.9 642,943 2.9 
Total commercial mortgage11,039,427 52.2 10,881,593 49.8 
Total commercial19,491,041 92.2 20,041,861 91.7 
Residential mortgage1,486,597 7.0 1,616,641 7.4 
Consumer174,335 0.8 189,907 0.9 
Total portfolio loans21,151,973 100.0 %21,848,409 100.0 %
Allowance for credit losses - loans(323,186)(326,100)
Total portfolio loans, net$20,828,787 $21,522,309 
Note: the percentages in the table above are rounded to the nearest tenth of a percent.

Overview. Total portfolio loans, net, decreased $693.5 million to $20.8 billion at March 31, 2021, compared to $21.5 billion at December 31, 2020. A slowdown in mortgage refinance activity drove a $558.7 million sequential decline in our mortgage warehouse lending balance and was the primary driver of the decline in total C&I, total commercial and total portfolio loans.

At March 31, 2021, total C&I loans comprised 40.0% of the total loan portfolio, compared to 41.9% at December 31, 2020. Commercial mortgage loans comprised 52.2% and 49.8% of the total loan portfolio at March 31, 2021 and December 31, 2020, respectively. Residential mortgage loans comprised 7.0% of the total loan portfolio at March 31, 2021, compared to 7.4% at December 31, 2020. Our goal, over time, is for our loan portfolio to consist of at least 45.0% traditional C&I and commercial finance; 45.0% commercial real estate; and the balance comprised of consumer and residential mortgage loans.

In the three months ended March 31, 2021, traditional C&I loans decreased by $33.9 million primarily as a result of accelerated repayment activity. In addition to the decline in warehouse lending loans, total C&I loans declined mainly due to pay downs of asset-based lending loans, which decreased by $110.0 million. Equipment finance loans decreased $55.4 million and payroll finance loans decreased by $5.3 million. These decreases were partially offset by an increase in public sector finance loans of $45.2 million, mainly due to investments by local municipalities in infrastructure and other projects and an increase in factored receivable loans of $9.4 million.

CRE loans increased $197.3 million in the three months ended March 31, 2021. The increase was mainly due to a pick up in demand for these loan products in our market area. This increase was net of the sale of $70.0 million of mostly criticized and classified commercial real estate loans in the first quarter of 2021. Multi-family loans declined in the first three months of 2021 by $14.8 million, mainly due to run-off in broker originated loans.

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ADC loans, which are a component of commercial mortgage loans, decreased $24.6 million in the three months ended March 31, 2021. The decrease is mainly due to one construction loan converting to a multi-family loan during the quarter. The decrease was partially offset by origination related to our affordable housing tax credit investments.

Residential mortgage loans were $1.5 billion at March 31, 2021, compared to $1.6 billion at December 31, 2020. The decline was mainly due to repayments.

Included in our residential mortgage portfolio are loans that were originated in 2010 or earlier as 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 term, which typically results in a material increase in the borrower’s monthly payments upon conversion. After the tenth anniversary of the loan, principal and interest payments are required to amortize the loan over the remaining term. There were $544.0 million of residential mortgage loans that were originated as interest only ARM loans at March 31, 2021 compared to $599.5 million at December 31, 2020.

Non-Performing Loans and Non-Performing Assets
The table below sets forth the amounts and categories of our NPAs at the dates indicated. There were no warehouse lending or public sector finance loans that were non-performing at such dates.
 March 31,December 31,
 20212020
Non-accrual loans:
Traditional C&I$50,351 $19,223 
Asset-based lending10,149 5,255 
Payroll finance2,313 2,300 
Equipment financing28,868 30,634 
CRE24,269 46,053 
Multi-family778 4,485 
ADC25,000 30,000 
Residential mortgage17,081 18,661 
Consumer9,746 10,278 
Total non-accrual loans168,555 166,889 
Accruing loans past due 90 days or more170 
Total NPLs168,557 167,059 
OREO5,227 5,347 
Total NPAs$173,784 $172,406 
TDRs accruing and not included above$48,110 $37,492 
Ratios:
NPLs to total loans0.80 %0.76 %
NPAs to total assets0.58 0.58 

NPAs and NPLs. NPLs include non-accrual loans and accruing loans past due 90 days or more. NPAs include NPLs and OREO. At March 31, 2021, total NPLs increased $1.5 million to $168.6 million compared to $167.1 million at December 31, 2020. Non-accrual loans were $168.6 million and loans 90 days past due and still accruing interest which were well secured and in the process of collection, were $2 thousand as of March 31, 2021. Non-accrual loans increased by $1.7 million to $168.6 million at March 31, 2021 from $166.9 million at December 31, 2020. The increase was mainly due to two C&I relationships and ABL loans which are in the process of work-out or exit which were partially offset by the return of one CRE relationship to accrual and the partial charge off of one ADC loan.

TDRs. TDRs still accruing interest income are loans modified for borrowers that have experienced financial difficulties but are performing in accordance with the modified 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. At March 31, 2021, total TDRs were $76.4 million, of which $48.1 million were performing in accordance with their modified terms and $28.3 million were non-accrual. At December 31, 2020, total TDRs were $79.0 million of which $37.5 million were performing and $41.5 million were non-accrual. The decrease in non-accrual TDRs at March 31, 2021 was primarily due the return of one CRE
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relationship to accrual status. TDR balances are more fully discussed in Note 3. “Portfolio Loans - TDRs” in the notes to the consolidated financial statements included elsewhere in this report. As of March 31, 2021, there were no commitments to lend additional funds to borrowers with loans that have been classified as TDRs.

Forbearance under the CARES Act. The CARES Act permits financial institutions to suspend requirements related to loan modifications to borrowers affected by COVID-19 that would otherwise, in accordance with GAAP, be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and as modified by the Consolidated Appropriations Act, the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. On April 7, 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (the “Agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and provided practical expedients for evaluating whether loan modifications that occur in response to COVID-19 are TDRs. The Agencies confirmed with the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not considered to be TDRs. This includes short-term (e.g., three months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. We are applying this guidance to qualifying loan modifications.

At March 31, 2021, we had approved CARES Act conforming payment deferrals on outstanding loan balances as shown in the following table:
Loan balance outstandingDeferral of principal and interest%
Traditional C&I$2,886,336 $— — %
Asset-based lending693,015 — — 
Payroll finance153,987 — — 
Warehouse lending1,394,945 — — 
Factored receivables229,629 — — 
Equipment finance1,475,716 3,143 0.2 
Public sector finance1,617,986 — — 
Commercial real estate6,029,282 40,583 0.7 
Multi-family4,391,850 4,564 0.1 
ADC618,295 — — 
Residential1,486,597 78,059 5.3 
Consumer174,335 4,176 2.4 
Total Portfolio loans$21,151,973 $130,525 0.6 %

Principal and interest deferrals were in place in respect of loans representing 0.6% of our loan portfolio. Deferrals consist mainly of 90-day principal and interest deferral with the ability to extend an additional 90-day period at the Bank’s option. We are closely monitoring and working with our clients to determine ongoing deferral extensions and requests.

SBA PPP Loans. As of March 31, 2021, we had approximately 50 portfolio loans totaling $110.1 million outstanding and all loans are in the process of being forgiven. Included in loans held for sale at March 31, 2021 were PPP loans totaling $9.6 million, which had not started the forgiveness process.

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. When real estate is transferred to OREO, it is recorded at fair value less cost to sell. If the fair value less cost to sell is less than the loan balance, the difference is charged against the ACL - loans. 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 March 31, 2021, we had OREO properties with a recorded balance of $5.2 million, compared to $5.3 million at December 31, 2020. The decrease was mainly due to $120 thousand in sales. We had no additions to OREO in the three months ended March 31, 2021.

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Classification of Assets. Our determination as to the classification of our assets and the amount of our ACL - loans are subject to review by our regulators, who can direct the charge-off of loans and order the establishment of additions to our ACL. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. As of March 31, 2021, we had $494.5 million of loans designated as “special mention” compared to $461.5 million at December 31, 2020. The increase was mainly due to borrowers impacted by the pandemic and included commercial real estate loans and traditional C&I loans where impacted borrowers no longer meet certain debt service coverage or other ratios and which, accordingly, are considered criticized or classified under the terms of our credit policies. The vast majority of the borrowers continue to perform.

On the basis of management’s review of our assets at March 31, 2021, classified assets consisted of substandard loans of $590.4 million and OREO of $5.2 million. Substandard loans were $528.8 million and OREO was $5.3 million at December 31, 2020. The increase in substandard loans in the three months ended March 31, 2021 was mainly related to commercial real estate loans, including multi-family loans, traditional C&I loans, asset-based loans and one ADC loan. Our asset resolution team is working with these borrowers to reduce the outstanding balances and maximize repayments.

ACL - Loans. The ACL - loans is a valuation account that is deducted from the amortized cost basis of portfolio loans to present the net amount expected to be collected on portfolio loans over their contractual life. See Note 1. “Basis of Financial Statement Presentation - (e) Accounting Principle Change” for additional detail regarding our ACL - loan calculation methodology.

Our estimate of credit losses at March 31, 2021 is based in part on the macro-economic forecasts and assumptions contained in the Moody’s March 20, 2021 Forecast Vintage Baseline Scenario.

To address potential model uncertainties, we overlay qualitative factors to the quantitative results of loss estimates calculated under the assumptions above. The qualitative adjustments include the following:
Lending policies and procedures including changes in lending strategies, underwriting standards, collection, write-off and recovery practices;
Experience, ability and depth of management and lending and other relevant staff;
Nature and volume of our loans and changes therein;
Changes and expected changes in general market conditions of either the geographic area or industry related to our exposure;
An adjustment for economic conditions during a reasonable and supportable period; and
An adjustment for additional factors including data quality and changes in the number of assumptions used in quantitative models.

The ACL - loans decreased from $326.1 million at December 31, 2020 to $323.2 million at March 31, 2021. The ACL - loans at March 31, 2021 represented 191.7% of non-performing loans and 1.53% of total portfolio loans. At December 31, 2020, the allowance for loan losses represented 195.2% of non-performing loans and 1.49% of total portfolio loans.

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Allocation of ACL - loans. The following table sets forth the ACL - loans 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.
 March 31, 2021December 31, 2020
 Allowance
for credit losses
Loan
balance
% of ACL to loan balanceAllowance
for loan
losses
Loan
balance
% of ALLL to loan balance
Traditional C&I$46,393 $2,886,337 1.61 %$42,670 $2,920,205 1.46 %
Asset-based lending