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Sterling Bancorp (STL)

Filed: 30 Jul 21, 4:11pm
0001070154us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:FairValueInputsLevel1Member2020-12-31

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 June 30, 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 July 28, 2021
$0.01 per share  192,694,991



STERLING BANCORP AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
QUARTERLY PERIOD ENDED JUNE 30, 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)


 June 30,December 31,
20212020
ASSETS:
Cash and due from banks$487,409 $305,002 
Securities available for sale, at estimated fair value2,671,000 2,298,618 
Securities held to maturity (“HTM”), net of allowance for credit losses (“ACL”) of $749 at June 30, 2021 and $1,499 at December 31, 20201,695,470 1,740,838 
Loans held for sale19,088 11,749 
Portfolio loans20,724,097 21,848,409 
ACL - loans(314,873)(326,100)
Portfolio loans, net20,409,224 21,522,309 
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost151,443 166,190 
Accrued interest receivable96,728 97,505 
Premises and equipment, net204,632 202,555 
Goodwill1,683,482 1,683,482 
Other intangible assets, net86,012 93,564 
Bank owned life insurance (“BOLI”)635,411 629,576 
Other real estate owned816 5,347 
Other assets1,003,203 1,063,403 
Total assets$29,143,918 $29,820,138 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits$23,146,711 $23,119,522 
FHLB and other borrowings382,000 
Federal funds purchased277,000 
Repurchase agreements25,802 27,101 
Subordinated Notes - Bank143,703 
Subordinated Notes - Company492,219 491,910 
Mortgage escrow funds66,521 59,686 
Other liabilities689,809 728,702 
Total liabilities24,421,062 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 June 30, 2021 and December 31, 2020)136,224 136,689 
Common stock (par value $0.01 per share; 310,000,000 shares authorized at June 30, 2021 and December 31, 2020; 229,872,925 shares issued at June 30, 2021 and December 31, 2020; 192,715,433 and 192,923,371 shares outstanding at June 30, 2021 and December 31, 2020, respectively)2,299 2,299 
Additional paid-in capital3,753,068 3,761,993 
Treasury stock, at cost (37,157,492 shares at June 30, 2021 and 36,949,554 shares at December 31, 2020)(696,711)(686,911)
Retained earnings1,459,077 1,291,628 
Accumulated other comprehensive income, net of tax expense of $26,317 at June 30, 2021 and $32,399 at December 31, 202068,899 84,816 
Total stockholders’ equity4,722,856 4,590,514 
Total liabilities and stockholders’ equity$29,143,918 $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 endedSix months ended
June 30,June 30,
2021202020212020
Interest and dividend income:
Loans and loan fees$201,685 $219,904 $407,540 $455,343 
Securities taxable15,749 18,855 31,101 39,484 
Securities non-taxable11,718 12,831 23,456 25,828 
Other earning assets1,158 1,636 2,060 6,098 
Total interest and dividend income230,310 253,226 464,157 526,753 
Interest expense:
Deposits6,698 28,110 15,566 73,891 
Borrowings5,085 11,817 12,150 27,791 
Total interest expense11,783 39,927 27,716 101,682 
Net interest income218,527 213,299 436,441 425,071 
Provision for credit losses - loans6,000 56,606 16,000 193,183 
Provision for credit losses - held to maturity securities(750)(750)1,703 
Net interest income after provision for credit losses213,277 156,693 421,191 230,185 
Non-interest income:
Deposit fees and service charges7,096 5,345 13,659 11,968 
Accounts receivable management / factoring commissions and fees5,491 4,419 10,917 9,956 
Bank owned life insurance4,981 4,950 9,936 9,967 
Loan commissions and fees8,762 8,003 19,239 19,028 
Investment management fees2,018 1,379 3,870 3,225 
Net gain on sale of securities485 706 8,896 
Net (loss) gain on called securities(80)(67)4,880 
Other1,946 1,509 4,310 5,496 
Total non-interest income30,214 26,090 62,570 73,416 
Non-interest expense:
Compensation and benefits56,953 54,668 115,040 109,544 
Stock-based compensation plans6,781 5,913 13,398 11,919 
Occupancy and office operations13,875 14,695 28,390 29,894 
Information technology9,741 7,312 18,987 15,330 
Professional fees7,561 5,458 14,638 11,207 
Amortization of intangible assets3,776 4,200 7,552 8,400 
FDIC insurance and regulatory assessments2,344 3,638 5,574 6,844 
Other real estate owned expense, net(72)1,233 (140)1,285 
Merger-related expense2,481 2,481 
Impairment related to financial centers and real estate consolidation strategy475 1,108 
Loss on extinguishment of borrowings1,243 9,723 1,243 10,476 
Other15,471 18,041 30,523 34,695 
Total non-interest expense120,629 124,881 238,794 239,594 
Income before income tax expense122,862 57,902 244,967 64,007 
Income tax expense (benefit)24,523 7,110 47,478 (932)
Net income98,339 50,792 197,489 64,939 
Preferred stock dividend1,959 1,972 3,922 3,948 
Net income available to common stockholders$96,380 $48,820 $193,567 $60,991 
Weighted average common shares:
Basic191,436,885 193,479,757 191,655,897 194,909,498 
Diluted192,292,989 193,604,431 192,456,817 195,168,557 
Earnings per common share:
Basic$0.50 $0.25 $1.01 $0.31 
Diluted0.50 0.25 1.01 0.31 
See accompanying notes to consolidated financial statements.
4

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
Three months endedSix months ended
June 30,June 30,
2021202020212020
Net income$98,339 $50,792 $197,489 $64,939 
Other comprehensive income, before tax:
Change in unrealized holding gains (losses) on securities available for sale15,082 29,356 (18,857)78,111 
Reclassification adjustment for net realized losses (gains) included in net income(485)(706)(8,896)
Accretion of net unrealized loss on securities transferred to held to maturity40 59 85 156 
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans504 76 (2,521)(2,492)
Total other comprehensive income (loss), before tax15,626 29,006 (21,999)66,879 
Deferred tax (expense) benefit related to other comprehensive income(4,318)(8,017)6,082 (18,485)
Other comprehensive income (loss), net of tax11,308 20,989 (15,917)48,394 
Comprehensive income$109,647 $71,781 $181,572 $113,333 
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 (adoption of Current Expected Credit Loss standard (“CECL”))— — — — — (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 
Net income— — — — — 50,792 — 50,792 
Other comprehensive income— — — — — — 20,989 20,989 
Stock options & other stock transactions, net10,000 — — — 95 — 101 
Common shares acquired from stock compensation plan activity(14,467)— — (180)(16)— (191)
Stock-based compensation2,616 — — 6,146 (233)— — 5,913 
Cash dividends declared ($0.07 per common share)— — — — — (13,648)— (13,648)
Cash dividends declared ($16.25 per preferred share)— (221)— — — (1,972)— (2,193)
Balance at June 30, 2020194,458,805 $137,142 $2,299 $3,755,474 $(660,223)$1,160,885 $88,610 $4,484,187 
6

STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(Dollars in thousands, except share and per share data)

Number of common
shares
Preferred
stock
Common
stock
Additional
paid-in
capital
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
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 
Net income— — — — — 98,339 — 98,339 
Other comprehensive income— — — — — — 11,308 11,308 
Stock options & other stock transactions, net166,459 — — — 3,072 (1,243)— 1,829 
Common shares acquired from stock compensation plan activity(18,927)— — 70 (43)(1)— 26 
Stock-based compensation— — — 7,108 (325)(2)— 6,781 
Cash dividends declared ($0.07 per common share)— — — — — (13,398)— (13,398)
Cash dividends declared ($16.25 per preferred share)— (234)— — — (1,959)— (2,193)
Balance at June 30, 2021192,715,433 $136,224 $2,299 $3,753,068 $(696,711)$1,459,077 $68,899 $4,722,856 
See accompanying notes to consolidated financial statements.
7

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

Six months ended
June 30,
20212020
Cash flows from operating activities:
Net income$197,489 $64,939 
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses - loans16,000 193,183 
(Credit) provision for credit losses - held to maturity securities(750)1,703 
Net (gain) loss from write-downs and sales of other real estate owned(219)1,019 
Net loss on extinguishment of subordinated notes - Bank1,243 
Depreciation of premises and equipment9,025 9,941 
Loss on extinguishment of FHLB borrowings10,476 
Impairment on fixed assets197 
Impairment of early termination of leases127 
Amortization of intangible assets7,552 8,400 
Gain on sale of premises and equipment(309)
Amortization of low income housing tax credits23,333 16,388 
Net gain on sale of securities(706)(8,896)
Loss (gain) on security calls available for sale62 (4,897)
Loss on security calls held to maturity17 
Net gain on loans held for sale(2,881)
Net amortization of premiums on securities15,592 15,801 
 Amortization of premium on certificates of deposit(508)(1,229)
 Net accretion of purchase discount and amortization of net deferred loan costs(15,484)(20,172)
 Net accretion of debt issuance costs and amortization of premium on borrowings363 (446)
Restricted stock compensation expense13,398 11,919 
Originations of loans held for sale(36,313)
Increase in cash surrender value of bank owned life insurance(9,936)(9,967)
Deferred income tax benefit(6,838)(56,339)
 Other adjustments (principally net changes in other assets and other liabilities)32,426 (154,806)
Net cash provided by operating activities282,062 37,840 
Cash flows from investing activities:
Purchases of securities:
Available for sale(689,486)(285,798)
Held to maturity(779)(1,355)
Proceeds from maturities and other principal payments on securities:
Available for sale254,483 241,438 
Held to maturity34,291 40,364 
Proceeds from sales of securities available for sale20,706 459,994 
Proceeds from calls of securities available for sale19,080 138,872 
Proceeds from calls of securities held to maturity925 905 
Portfolio loan repayments (originations), net876,850 (932,814)
Proceeds from sale of commercial loans228,380 98,412 
Redemptions of FHLB and FRB stock, net14,747 58,139 
Proceeds from sales of other real estate owned4,750 3,237 
Purchases of premises and equipment(14,887)(11,509)
Proceeds from bank owned life insurance4,101 2,907 
Proceeds from sale of premises and equipment3,897 1,910 
Purchases of low income housing tax credits(23,318)(63,349)
Net cash provided by (used in) investing activities733,740 (248,647)
8

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

Six months ended
June 30,
20212020
Cash flows from financing activities:
 Net increase in transaction, savings and money market deposits590,266 1,995,896 
Net decrease in certificates of deposit(562,569)(812,704)
Net decrease in short-term FHLB borrowings(382,000)(195,000)
Advances of term FHLB borrowings375,000 
Repayments of term FHLB borrowings(1,450,000)
Advances under the Paycheck Protection Program Liquidity Facility568,350 
 Repayment of Senior Notes(173,373)
 Repayment of subordinated notes - Bank(145,000)
 Net (decrease) increase in other short term borrowings(278,299)3,770 
Net increase in mortgage escrow funds6,835 11,370 
Stock options & other stock transactions, net2,581 515 
Common shares acquired related to stock compensation plan activity(6,609)(4,604)
Treasury shares repurchased(27,325)(81,032)
Cash dividends paid - common stock(26,888)(27,416)
Cash dividends paid - preferred stock(4,387)(4,387)
Net cash (used in) provided by financing activities(833,395)206,385 
Net increase (decrease) in cash and cash equivalents182,407 (4,422)
Cash and cash equivalents at beginning of period305,002 329,151 
Cash and cash equivalents at end of period$487,409 $324,729 
Supplemental cash flow information:
Interest payments$30,196 $109,820 
Income tax payments14,446 14,017 
Real estate acquired in settlement of loans732 
Loans transferred from held for investment to held for sale235,719 95,179 
Operating cash flows from operating leases7,631 10,328 
See accompanying notes to consolidated financial statements.
9

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 ACL and the status of contingencies, and are subject to change.

(d) Definitive Merger Agreement with Webster Financial Corporation
On April 19, 2021, Webster Financial Corporation (NYSE: WBS) (“Webster”), the parent company of Webster Bank, National Association (“Webster Bank”), and Sterling, the parent company of the Bank, jointly announced that they had entered into a definitive agreement (the “Merger Agreement”) under which the companies will combine in an all stock merger of equals (the “Merger”). In May, Webster filed the necessary applications with federal regulators and in July we filed our joint proxy statement, with our stockholder vote scheduled for August. We continue to target a transaction close date in the fourth quarter of 2021, subject to regulatory and stockholder approval.

(e) Risks and Uncertainties - COVID-19
The COVID-19 pandemic and the resulting slow down in global economic activity, has continued to impact our business and our clients. In line with the continuing recovery in the broader economy and in the New York metropolitan region, we saw further improvement in our operating results in the second quarter and first six months of 2021, when compared to the second quarter and first six months of 2020. However, there continues to be some uncertainty around the pace and sustainability of the economic recovery, which in combination with accomodative monetary policy, is creating downward pressure on yields and considerable competition for earning assets. Additionally, the New York metropolitan region was disproportionately impacted by the broader deterioration in macro-economic conditions and, while we have seen an uptick in economic activity in the region, it remains below pre-pandemic levels and has continued to dampen demand for our products. Against the backdrop of an improving macro-economic outlook and stabilization of key asset quality metrics our provision for credit losses - loans was $6.0 million and $16.0 million in the second quarter of 2021 and in the first six months of 2021, respectively, compared to $56.6 million and $193.2 million for the respective periods in 2020. In addition, non-interest income was $30.2 million in the second quarter of 2021 compared to $26.1 million in the second quarter of 2020 which reflects an increase in transaction volumes compared to the prior year period and improvement in many of our clients business operations.


10

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)
With uncertainty as to the trajectory of the ongoing pandemic, we expect to see continued volatility in the broader economy and in the interest rate environment. Further, it is possible that the continuing threat to public health posed by COVID-19 may result in additional governmental actions that may impact our business and that of our clients. A further downturn in the economic activity, at the national or regional level, 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 extent to which the ongoing pandemic could materially adversely affect the longer term business climate and therefore our business and results of operations will depend on a number of evolving factors and future developments that are difficult to predict. To the extent that the 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.

(2) Securities

The following table summarizes our securities as of June 30, 2021, including a summary of the amortized cost fair value and ACL 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”:
June 30, 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
ACL
Residential MBS:
Agency-backed$881,777 $35,346 $(200)$916,923 $74,810 $2,813 $$77,623 $
CMOs/Other MBS263,417 11,143 274,560 
Total residential MBS1,145,194 46,489 (200)1,191,483 74,810 2,813 77,623 
Other securities:
US Treasury and federal agencies380,034 5,248 (463)384,819 24,871 529 25,400 
Corporate685,058 32,924 (2,840)715,142 19,824 729 20,553 35 
State and municipal364,754 14,917 (115)379,556 1,558,964 112,986 (53)1,671,897 700 
Other17,750 153 (114)17,789 14 
Total other securities1,429,846 53,089 (3,418)1,479,517 1,621,409 114,397 (167)1,735,639 749 
Total securities$2,575,040 $99,578 $(3,618)$2,671,000 $1,696,219 $117,210 $(167)$1,813,262 $749 

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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
ACL
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 June 30, 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.
 June 30, 2021
Available for saleHeld to maturity
 Amortized
cost
Fair
value
Amortized
cost
Fair
value
Remaining period to contractual maturity:
One year or less$1,914 $1,911 $28,453 $28,717 
One to five years368,570 380,544 78,748 82,744 
Five to ten years684,198 713,149 395,588 421,669 
Greater than ten years375,164 383,913 1,118,620 1,202,509 
Total securities with a stated maturity date1,429,846 1,479,517 1,621,409 1,735,639 
Residential MBS1,145,194 1,191,483 74,810 77,623 
Total securities$2,575,040 $2,671,000 $1,696,219 $1,813,262 

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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 endedFor the six months ended
June 30,June 30,
2021202020212020
Available for sale:
Proceeds from sales$$52,470 $20,706 $459,994 
Gross realized gains485 1,236 8,964 
Gross realized losses(530)(68)
Income tax expense on realized net gains61 138 112 
Proceeds from calls$17,055 $$20,005 $139,777 
Gross realized gains16 47 4,909 
Gross realized losses(96)(114)(29)
Income tax (benefit) expense on realized net (loss) gains(16)(13)610 

At June 30, 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 securities issued by the U.S. federal government and its agencies.

The following table summarizes AFS securities with unrealized losses for which an ACL has not been recorded at June 30, 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
June 30, 2021
Residential MBS:
Agency-backed$57,518 $(194)$262 $(6)$57,780 $(200)
Other securities:
US Treasury and federal agencies90,135 (463)90,135 (463)
Corporate124,236 (2,840)124,236 (2,840)
State and municipal1,650 (5)8,084 (110)9,734 (115)
Total other securities216,021 (3,308)8,084 (110)224,105 (3,418)
Total securities$273,539 $(3,502)$8,346 $(116)$281,885 $(3,618)
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, and 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, because we do not intend to sell and because it is unlikely that we will 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 June 30, 2021, a total of 32 AFS securities were in a continuous unrealized loss position for less than 12 months and 48 AFS securities were in a continuous unrealized loss position for 12 months or longer.

At June 30, 2021 and December 31, 2020, accrued interest receivable on AFS securities was $12.9 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 HTM securities 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
June 30, 2021
Other securities:
State and municipal$$$3,912 $(53)$3,912 $(53)
Other14,886 (114)14,886 (114)
Total securities$14,886 $(114)$3,912 $(53)$18,798 $(167)
December 31, 2020
Other securities:
State and municipal$105 $(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 six month periods ended June 30, 2021 and 2020:
June 30, 2021June 30, 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(71)(679)1,696 
Total ACL - HTM at end of period$49 $700 $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, based on our back testing process.

At June 30, 2021 and December 31, 2020, accrued interest receivable on HTM securities was $15.5 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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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 June 30, 2021. At June 30, 2021, 3 HTM securities were 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 June 30, 2021 aggregated by credit quality indicator:
Credit Rating:Corporate and otherState and municipal
AAA$$987,413 
AA17,750 546,072 
A20,331 
BBB65 
Non-rated19,824 5,083 
Total$37,574 $1,558,964 

The majority of state and municipal securities had a rating of A or greater at June 30, 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. 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 June 30, 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:
June 30,December 31,
20212020
AFS securities pledged for borrowings, at fair value$25,802 $27,101 
AFS securities pledged for municipal deposits, at fair value545,072 569,724 
HTM securities pledged for municipal deposits, at amortized cost1,384,217 1,221,964 
Total securities pledged$1,955,091 $1,818,789 



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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:
June 30, 2021December 31, 2020
Commercial:
Commercial & Industrial (“C&I”):
Traditional C&I$2,917,848 $2,920,205 
Asset-based lending707,207 803,004 
Payroll finance158,424 159,237 
Warehouse lending1,229,588 1,953,677 
Factored receivables217,399 220,217 
Equipment financing1,381,308 1,531,109 
Public sector finance1,723,270 1,572,819 
Total C&I8,335,044 9,160,268 
Commercial mortgage:
Commercial real estate (“CRE”)5,861,542 5,831,990 
Multi-family4,281,615 4,406,660 
Acquisition, development and construction (“ADC”)690,224 642,943 
Total commercial mortgage10,833,381 10,881,593 
Total commercial19,168,425 20,041,861 
Residential mortgage1,389,294 1,616,641 
Consumer166,378 189,907 
Total portfolio loans20,724,097 21,848,409 
ACL(314,873)(326,100)
Total portfolio loans, net$20,409,224 $21,522,309 

Portfolio loans are shown at amortized cost, which includes deferred fees, deferred costs and purchase accounting adjustments, which were $5.8 million at June 30, 2021 and $20.9 million at December 31, 2020.

The balance of portfolio loans excludes accrued interest receivable. Accrued interest receivable was $68.3 million and $71.0 million at June 30, 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 June 30, 2021, was $7.8 million of principal balance related to 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 six months.

In the three and six months ended June 30, 2021, we sold $122.5 million and $192.5 million of loans, respectively, largely comprised of commercial real estate loans, the majority of which were rated special mention and substandard. In connection with these sales, we charged-off against the ACL - loans the uncollectible portion, which amounted to $11.7 million and $17.6 million in the three and six months ended June 30, 2021, respectively.

At June 30, 2021 and December 31, 2020, the Bank pledged residential mortgage and CRE loans of $6.1 billion and $6.5 billion, respectively, to the FHLB as collateral for certain borrowing arrangements. See Note 7. “Borrowings”.
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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 June 30, 2021, is presented below:
 June 30, 2021
 Current30-59
days
past due
60-89
days
past due
90+
days
past due
Total
Traditional C&I$2,898,001 $6,005 $10,136 $3,706 $2,917,848 
Asset-based lending707,207 707,207 
Payroll finance158,424 158,424 
Warehouse lending1,229,588 1,229,588 
Factored receivables217,399 217,399 
Equipment financing1,371,266 847 143 9,052 1,381,308 
Public sector finance1,723,270 1,723,270 
CRE5,822,083 23,345 15,530 584 5,861,542 
Multi-family4,268,435 2,823 10,030 327 4,281,615 
ADC665,224 25,000 690,224 
Residential mortgage1,366,022 6,138 2,078 15,056 1,389,294 
Consumer155,669 1,155 584 8,970 166,378 
Total loans$20,582,588 $40,313 $38,501 $62,695 $20,724,097 
Total TDRs included above$50,212 $$$2,327 $52,539 
Non-performing loans:
Loans 90+ days past due and still accruing$
Non-accrual loans173,319 
Total non-performing loans$173,319 


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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 June 30, 2021:
Collateral type
Real estateBusiness assetsEquipmentTaxi medallionsTotal
Traditional C&I$400 $24,596 $3,123 $2,976 $31,095 
Asset-based lending11,051 11,051 
Payroll finance652 652 
Equipment finance9,928 9,928 
CRE55,408 55,408 
ADC25,000 25,000 
Residential mortgage3,539 3,539 
Consumer6,676 6,676 
Total$91,023 $36,299 $13,051 $2,976 $143,349 

Collateral-dependent loans include all loans that were deemed TDRs at June 30, 2021. In the table above, $126.6 million of the total loans were on non-accrual at June 30, 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, public sector finance or multi-family loans that were collateral-dependent at June 30, 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 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 deemed 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:
June 30, 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$41,593 $6,053 $$19,223 $16,914 $94 
Asset-based lending7,535 3,745 5,255 4,613 
Payroll finance652 652 2,300 2,300 
Equipment financing23,452 4,356 30,634 11,578 
CRE48,074 46,053 38,529 74 
Multi-family327 4,485 2,156 
ADC25,000 30,000 
Residential mortgage17,132 1,973 18,661 808 
Consumer9,554 775 10,278 875 
Total$173,319 $17,554 $$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 June 30, 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 the balance of non-accrual residential mortgage loans above.

There were 0 warehouse lending, factored receivables or public sector finance loans that were non-accrual or 90 days past due at June 30, 2021 or December 31, 2020.


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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 provides information on accrued interest receivable that was reversed against interest income for the three and six months ended June 30, 2021 and 2020:
For the three months endedFor the six months ended
June 30,June 30,
2021202020212020
Traditional C&I$$42 $38 $49 
Asset-based lending67 
Equipment financing49 87 
CRE264 142 271 288 
Multi-family84 111 
ADC297 
Residential mortgage53 99 226 179 
Consumer12 31 
Total interest reversed$380 $367 $653 $998 

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, provided:

The modifications were 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 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 June 30, 2021, we have temporary deferrals to borrowers on 175 loans with an outstanding balance of $109.8 million. There was $6.3 million of accrued interest associated with these loans. Under the provisions of the CARES Act, none of these loans were considered TDR at June 30, 2021. The table below reflects the balance of deferrals by principal:

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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$2,917,848 $%$$
Asset-based lending707,207 
Payroll finance158,424 
Warehouse lending1,229,588 
Factored receivables217,399 
Equipment finance1,381,308 1,577 0.1 1,577 
Public sector finance1,723,270 
Total C&I8,335,044 1,577 1,577 
Commercial mortgage:
Commercial real estate5,861,542 47,738 0.8 47,738 
Multi-family4,281,615 5,166 0.1 3,636 1,530 
ADC690,224 
Total commercial mortgage10,833,381 52,904 0.5 3,636 49,268 
Total commercial19,168,425 54,481 0.3 3,636 50,845 
Residential1,389,294 51,881 3.7 354 
Consumer166,378 3,402 2.0 194 
Total Portfolio loans$20,724,097 $109,764 0.5 %$3,636 $51,393 

TDRs
At June 30, 2021 and December 31, 2020, TDRs were $52.5 million and $79.0 million, respectively. The decline was mainly due to the repayment of a $13.0 million CRE loan and approximately $11.1 million of loans included in our second quarter loan sale. Of the total ACL - loans, $5.2 million at June 30, 2021 and $915 thousand at December 31, 2020 was 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 June 30, 2021 or December 31, 2020.

There was 1 equipment financing loan that was classified as TDR in the six months ended June 30, 2021. This loan was formerly included in our CARES Act modifications, however, after two modifications, the borrower requested an additional modification, and we concluded the loan should be considered a TDR. We charged-off the loan balance to the estimated collateral value based on our assessment of the borrower’s ability to service the debt.
The following table presents loans classified as TDRs during the first six months of 2021 and 2020 broken down by segment:
June 30, 2021June 30, 2020
 Recorded investmentRecorded investment
 NumberPre-
modification
Post-
modification
NumberPre-
modification
Post-
modification
Asset-based lending$$$10,553 $9,822 
Equipment financing2,465 1,428 
Total TDRs$2,465 $1,428 $10,553 $9,822 
During the six months ended June 30, 2021, 1 residential mortgage TDR loan, which totaled $490 thousand, experienced payment defaults within the twelve months following the modification. During the six months ended June 30, 2020, there were 2 equipment finance loans, 2 CRE loans, 2 residential loan and 2 consumer loans that were designated TDR and which totaled $16.9 million and experienced a payment default within 12 months following the modification. A payment default is defined as missing three
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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.

(4) ACL - Loans

Activity in our ACL - loans for the three months ended June 30, 2021 and June 30, 2020 is summarized in the table below:
 For the three months ended June 30, 2021
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I$46,393 $(1,148)$588 $(560)$1,661 $47,494 
Asset-based lending11,165 1,998 1,998 (2,689)10,474 
Payroll finance1,519 (86)(82)130 1,567 
Warehouse lending1,232 (145)1,087 
Factored receivables3,237 (761)52 (709)497 3,025 
Equipment financing28,025 (3,004)719 (2,285)2,247 27,987 
Public sector finance4,632 1,536 6,168 
CRE159,422 (7,375)97 (7,278)3,445 155,589 
Multi-family33,376 (4,982)15 (4,967)3,645 32,054 
ADC13,803 (2,432)11,371 
Residential mortgage15,970 (237)(237)(1,701)14,032 
Consumer4,412 (231)38 (193)(194)4,025 
Total ACL - loans$323,186 $(17,824)$3,511 $(14,313)$6,000 $314,873 
Annualized net charge-offs to average loans outstanding:0.28 %


 For the three months ended June 30, 2020
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I$35,289 $(3,988)$116 $(3,872)$13,097 $44,514 
Asset-based lending26,490 (1,500)(1,500)5,863 30,853 
Payroll finance3,730 (560)(559)(1,240)1,931 
Warehouse lending289 379 668 
Factored receivables9,194 (3,731)(3,730)5,122 10,586 
Equipment financing60,028 (7,863)387 (7,476)25,620 78,172 
Public sector finance1,929 1,836 3,765 
CRE97,586 (11)584 573 746 98,905 
Multi-family49,097 (154)(153)(12,292)36,652 
ADC15,204 (1)(1)2,992 18,195 
Residential mortgage23,090 (702)(702)11,567 33,955 
Consumer4,518 (172)31 (141)2,916 7,293 
Total ACL - loans$326,444 $(18,682)$1,121 $(17,561)$56,606 $365,489 
Annualized net charge-offs to average loans outstanding:0.32 %
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
 For the six months ended June 30, 2021
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision/ (credit)Ending balance
Traditional C&I$42,670 $(2,175)$1,056 $(1,119)$5,943 $47,494 
Asset-based lending12,762 1,998 1,998 (4,286)10,474 
Payroll finance1,957 (86)(80)(310)1,567 
Warehouse lending1,724 (637)1,087 
Factored receivables2,904 (765)458 (307)428 3,025 
Equipment financing31,794 (5,412)1,573 (3,839)32 27,987 
Public sector finance4,516 1,652 6,168 
CRE155,313 (10,308)584 (9,724)10,000 155,589 
Multi-family33,320 (8,212)15 (8,197)6,931 32,054 
ADC17,927 (5,000)(5,000)(1,556)11,371 
Residential mortgage16,529 (504)37 (467)(2,030)14,032 
Consumer4,684 (622)130 (492)(167)4,025 
Total ACL - loans$326,100 $(33,084)$5,857 $(27,227)$16,000 $314,873 
Annualized net charge-offs to average loans outstanding:0.26 %
On January 1, 2020, we adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the ACL. Under CECL, we record at the inception of the loan an expected loss of all cash flows we do not expect to collect over the life of the loan. The adoption of CECL on January 1, 2020, resulted in an increase in our ACL of $90.6 million, which did not impact our consolidated income statements.
 For the six months ended June 30, 2020
 Beginning
balance
CECL Day 1Charge-offsRecoveriesNet
charge-offs
Provision/ (credit)Ending balance
Traditional C&I$15,951 $5,325 $(4,286)$591 $(3,695)$26,933 $44,514 
Asset-based lending14,272 11,973 (2,485)(2,485)7,093 30,853 
Payroll finance2,064 1,334 (560)10 (550)(917)1,931 
Warehouse lending917 (362)113 668 
Factored receivables654 795 (3,738)(3,733)12,870 10,586 
Equipment financing16,723 33,000 (12,656)1,492 (11,164)39,613 78,172 
Public sector finance1,967 (766)2,564 3,765 
CRE27,965 8,037 (1,286)644 (642)63,545 98,905 
Multi-family11,440 14,906 (154)(153)10,459 36,652 
ADC4,732 (119)(4)105 101 13,481 18,195 
Residential mortgage7,598 14,104 (1,774)(1,774)14,027 33,955 
Consumer1,955 2,357 (1,577)1,156 (421)3,402 7,293 
Total allowance for loan losses$106,238 $90,584 $(28,520)$4,004 $(24,516)$193,183 $365,489 
Annualized net charge-offs to average loans outstanding:0.24 %

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

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 affected 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 June 30, 2021 and December 31, 2020, the risk category of non-pass rated loans by segment was as follows:
June 30, 2021December 31, 2020
 Special MentionSubstandardSpecial MentionSubstandard
Traditional C&I$45,368 $114,777 $24,162 $84,792 
Asset-based lending61,631 11,051 111,597 11,669 
Payroll finance652 2,300 
Factored receivables5,523 
Equipment financing22,993 43,797 7,737 45,018 
CRE159,425 333,377 249,403 280,796 
Multi-family97,086 56,095 61,146 44,872 
ADC2,023 25,000 1,407 30,000 
Residential mortgage17,416 468 18,942 
Consumer9,640 15 10,371 
Total$388,535 $611,805 $461,458 $528,760 

At June 30, 2021 and December 31, 2020 there were 0 warehouse lending or public sector finance loans rated special mention or substandard.

At June 30, 2021, there were $4.6 million of 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 June 30, 2021, our loans based on year of origination and risk designation are as follows:
Term loans amortized cost basis by origination yearRevolving loans converted to term
20212020201920182017PriorRevolving loansTotal
Traditional C&I
Pass$91,836 $252,798 $169,916 $215,953 $109,019 $149,792 $1,763,789 $$2,753,103 
Special mention7,808 14,282 16,952 3,233 1,237 1,856 45,368 
Substandard2,352 27,064 39,379 9,388 5,573 6,505 24,516 114,777 
Doubtful4,600 4,600 
Total traditional C&I101,996 279,862 223,577 242,293 117,825 157,534 1,794,761 2,917,848 
Asset-based lending
Pass17,716 12,472 7,314 2,393 7,119 34,162 553,349 634,525 
Special mention6,000 430 2,253 52,948 61,631 
Substandard— 11,051 11,051 
Total asset-based lending17,716 18,472 7,744 4,646 7,119 34,162 617,348 707,207 
Payroll finance
Pass3,398 154,374 157,772 
Substandard652 652 
Total payroll finance3,398 155,026 158,424 
Warehouse lending
Pass29,795 92,352 29,427 28,274 158,681 891,059 1,229,588 
Total warehouse lending29,795 92,352 29,427 28,274 158,681 891,059 1,229,588 
Factored receivables
Pass217,399 217,399 
Total factored receivables217,399 217,399 
Equipment financing
Pass128,331 360,648 450,558 194,832 78,053 101,955 141 1,314,518 
Special mention1,919 5,554 12,284 3,201 35 022,993 
Substandard5,580 18,675 7,068 9,147 3,327 43,797 
Total equipment financing128,331 368,147 474,787 214,184 90,401 105,317 141 1,381,308 
Public Sector Finance
Pass214,019 426,185 394,939 203,317 257,317 227,493 1,723,270 
Total public sector finance214,019 426,185 394,939 203,317 257,317 227,493 1,723,270 
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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
CRE
Pass337,013 1,022,939 1,237,313 792,634 512,895 1,465,946 5,368,740 
Special mention5,342 36,331 33,984 36,681 47,087 159,425 
Substandard28,674 87,751 69,134 34,141 113,677 333,377 
Total CRE337,013 1,056,955 1,361,395 895,752 583,717 1,626,710 5,861,542 
Multi-family
Pass391,155 368,799 700,556 385,545 577,737 1,633,820 70,822 4,128,434 
Special mention4,872 23,869 5,358 11,405 51,582 97,086 
Substandard22,288 5,180 24,156 4,471 56,095 
Total multi-family391,155 373,671 746,713 396,083 589,142 1,709,558 75,293 4,281,615 
ADC
Pass104,700 148,463 261,293 73,668 27,601 47,476 663,201 
Special mention2,023 2,023 
Substandard25,000 25,000 
Total ADC104,700 150,486 261,293 73,668 52,601 47,476 690,224 
Residential
Pass2,753 10,803 11,234 31,165 34,198 1,281,725 1,371,878 
Substandard260 17,156 17,416 
Total residential2,753 10,803 11,234 31,425 34,198 1,298,881 1,389,294 
Consumer
Pass67 318 330 176 4,824 94,363 56,646 156,729 
Special mention
Substandard393 3,225 6,022 9,640 
Total consumer67 318 330 569 8,058 100,385 56,646 166,378 
Total Loans$1,327,483 $2,777,000 $3,511,427 $2,093,370 $1,891,570 $6,106,248 $2,960,353 $56,646 $20,724,097 

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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:
June 30,December 31,
20212020
Goodwill$1,683,482 $1,683,482 
Other intangible assets:
Core deposits$62,552 $69,808 
Customer lists2,960 3,256 
Trade name20,500 20,500 
Total$86,012 $93,564 

The decrease in other intangible assets at June 30, 2021 compared to December 31, 2020 was due to amortization of intangibles.

The estimated aggregate future amortization expense for intangible assets remaining as of June 30, 2021 was as follows:
Amortization expense
Remainder of 2021$7,552 
202213,703 
202312,322 
202410,448 
20258,722 
20267,134 
Thereafter5,631 
Total$65,512 

(6) Deposits

Deposit balances at June 30, 2021 and December 31, 2020 were as follows:
 June 30,December 31,
 20212020
Non-interest bearing demand$5,963,828 $5,443,907 
Interest bearing demand4,706,781 4,960,800 
Savings2,653,678 2,603,570 
Money market8,388,671 8,114,415 
Certificates of deposit1,433,753 1,996,830 
Total deposits$23,146,711 $23,119,522 
Total municipal deposits, which are included in the deposit balances above, were $1.8 billion and $1.6 billion at June 30, 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 June 30, 2021 and December 31, 2020 were as follows:
June 30,December 31,
 20212020
Interest bearing demand$16,839 $433,790 
Money market494,614 1,045,478 
Certificates of deposit100,003 
Total brokered deposits$511,453 $1,579,271 
In the second quarter of 2021, we concluded that one of our deposit relationships that was considered a brokered deposit at December 31, 2020 and March 31, 2021, and which totaled $520.9 million at June 30, 2021, now meets the “primary purpose” exception to the deposit broker definition. Accordingly, these deposits are included in core deposits at June 30, 2021 and we no longer report these deposits as brokered deposits.

(7) Borrowings

Our borrowings and weighted average interest rates were as follows for the periods presented:  
 June 30,December 31,
 20212020
 AmountRateAmountRate
By type of borrowing:
FHLB borrowings$%$382,000 0.35 %
Repurchase agreements25,802 0.10 27,101 0.10 
Federal funds purchased277,000 0.11 
Subordinated Notes - Bank143,703 5.45 
Subordinated Notes - 2029270,451 4.18 270,284 4.17 
Subordinated Notes - 2030221,768 4.06 221,626 4.06 
Total borrowings$518,021 3.92 %$1,321,714 2.25 %
By remaining period to maturity:
Less than one year$25,802 0.10 %$686,101 0.24 %
Greater than five years492,219 4.13 635,613 4.43 
Total borrowings$518,021 3.92 %$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 June 30, 2021 and December 31, 2020, the Bank had total residential mortgage and CRE loans pledged after discount of $6.1 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 June 30, 2021, the Bank had unused borrowing capacity at the FHLB of $6.0 billion and may increase such borrowing capacity by pledging securities not required to be pledged for other purposes with a collateral value of approximately $2.4 billion.

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

(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 futures markets such as the Chicago Mercantile Exchange (“CME”) and London Clearing House (“LCH”). At June 30, 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 a settled-to-market (“STM”) transaction. At June 30, 2021 and December 31, 2020, we posted cash collateral under STMs in the amounts
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
of $64.0 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.

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 June 30, 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
June 30, 2021
Included in other assets:
Third-party interest rate swap$$
Customer interest rate swap1,836,282 107,361 
Total$1,836,282 4.114.42 %1 m Libor + 2.21%$107,361 
Included in other liabilities:
Third-party interest rate swap$1,836,282 $43,354 
Customer interest rate swap
Total$1,836,282 4.114.42 %1 m Libor + 2.21%$43,354 
December 31, 2020
Included in other assets:
Third-party interest rate swap$$
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 endedFor the six months ended
 June 30,June 30,
 2021202020212020
Income before income tax expense$122,862 $57,902 $244,967 $64,007 
Tax at federal statutory rate of 21%25,801 12,159 51,443 13,441 
State and local income taxes, net of federal tax benefit7,038 1,091 13,122 1,680 
Tax exempt interest, net of disallowed interest(5,800)(7,493)(11,577)(14,902)
BOLI income(1,043)(1,034)(2,047)(2,145)
Low income housing tax credits and other benefits(13,402)(10,458)(27,182)(18,920)
Low income housing investment amortization expense11,826 8,987 23,333 16,388 
Tax rate adjustment benefit due to CARES Act net operating loss (“NOL”) carryback(21,313)
Uncertain tax position reserve11,480 
Annual effective tax rate adjustment3,862 12,110 
Non-deductible compensation expense 1
421 1,061 
Equity-based stock compensation (benefit) expense(300)287 (452)778 
FDIC insurance premium limitation148 315 405 571 
Other, net(166)(606)(628)(100)
Actual income tax expense (benefit)$24,523 $7,110 $47,478 $(932)
Effective income tax rate20.0 %12.3 %19.4 %(1.5)%
1 Includes $161 thousand in the three months ended June 30, 2021 and $678 thousand in the six months ended June 30, 2021 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 $30.3 million at June 30, 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 six months 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 June 30, 2021, the accrual for unrecognized gross tax benefits was as follows:
For the three months endedFor the six months ended
June 30,June 30,
2021202020212020
Uncertain tax positions beginning of period$7,000 $11,480 $7,000 $
Additions for tax positions related to prior tax years11,480 
Decrease due to settlement
Interest expense in tax positions123 123 
Uncertain tax positions at end of period$7,000 $11,603 $7,000 $11,603 

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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.
(10) Stock-Based Compensation

The following table summarizes the activity in our stock-based compensation plan for the six months ended June 30, 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 $11.14 
Amended 2015 Omnibus Equity and Incentive Plan3,500,000 — — — — 
Granted(1,138,246)1,138,246 20.36 
Stock awards vested(825,909)21.31 
Exercised— — (240,405)10.74 
Forfeited38,924 (38,924)19.02 
Canceled/expired31,109 (31.109)20.85 
Balance at June 30, 20214,243,205 3,235,947 $19.37 96,216 $12.13 
Exercisable at June 30, 202196,216 $12.13 
On May 26, 2021, our stockholders approved the Amended and Restated 2015 Omnibus Equity and Incentive Plan (the “Amended Omnibus Plan”). The Amended Omnibus Plan increased the shares available for issuance to 10,500,000 from 7,000,000. We intend that the additional shares under the Amended Omnibus Plan will be made available from authorized but unissued shares of our common stock or from treasury shares. Shares awarded will be removed from the share reserve as of the grant date, and cancellations and forfeitures will be added back to the share reserve. Each grant of a stock option, stock appreciation right or other award will be counted as one (1) share against this limit. Pursuant to our Merger Agreement with Webster, we are required to obtain the prior written consent of Webster before we grant any shares under the Amended Omnibus Plan.
The total intrinsic value of outstanding in-the-money stock options, was $1.2 million at June 30, 2021, all of which are exercisable.

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 six months ended June 30, 2021 or June 30, 2020. As a result, we incurred 0 stock option expense during the six month periods ended June 30, 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
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
presented below:
For the three months endedFor the six months ended
June 30,June 30,
2021202020212020
Stock options$$$$
Non-vested stock awards/performance units6,781 5,913 13,398 11,919 
Non-vested stock awards/performance units$6,781 $5,913 $13,398 $11,919 
Income tax benefit1,322 739 2,613 1,490 
Proceeds from stock option exercises1,829 101 2,581 515 

Unrecognized stock-based compensation expense as of June 30, 2021 was $41.4 million and is expected to be recognized over 1.72 years.

(11) Other Non-Interest Expense, Other Assets and Other Liabilities

(a) Other Non-Interest Expense
Other non-interest expense items for the three and six months ended June 30, 2021 and 2020, respectively, are presented in the following table:
For the three months endedFor the six months ended
June 30,June 30,
2021202020212020
Other non-interest expense:
Depreciation expense on operating leases$2,917 $3,136 $6,042 $6,628 
Advertising and promotion1,960 1,140 3,668 3,123 
Communications1,323 1,320 2,750 2,950 
Residential mortgage loans servicing1,303 1,247 2,752 2,624 
Commercial loan servicing1,254 1,293 2,233 2,318 
Insurance & surety bond premium1,044 1,158 1,958 2,248 
Operational losses601 609 1,194 1,215 
Other5,069 8,138 9,926 13,589 
Total other non-interest expense$15,471 $18,041 $30,523 $34,695 

(b) Other Assets
Other assets are presented in the following table. Significant components of the aggregate of other assets are presented separately.
June 30,December 31,
20212020
Other assets:
Low income housing tax credit investments$492,298 $488,303 
Right of use asset for operating leases100,145 105,667 
Fair value of swaps107,361 149,797 
Cash on deposit as swap collateral / net of settlement62,513 82,478 
Operating leases - equipment and vehicles leased to others46,116 55,224 
Other asset balances194,770 181,934 
Total other assets$1,003,203 $1,063,403 

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


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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(c) Other Liabilities
Other liabilities are presented in the following table. Significant components of the aggregate of other liabilities are presented separately.
June 30,December 31,
20212020
Other liabilities:
Commitment to fund low income housing tax credit investments$259,405 $283,849 
Lease liability106,070 113,405 
Payroll finance and factoring liabilities143,153 115,802 
Swap liabilities (see Note 8)43,354 60,004 
Other liability balances137,827 155,642 
Total other liabilities$689,809 $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.

(12) Earnings Per Common Share

The following is a summary of the calculation of earnings per common share (“EPS”):
For the three months endedFor the six months ended
 June 30,June 30,
 2021202020212020
Net income available to common stockholders$96,380 $48,820 $193,567 $60,991 
Weighted average common shares outstanding for computation of basic EPS191,436,885 193,479,757 191,655,897 194,909,498 
Common-equivalent shares due to the dilutive effect of stock options and unvested performance share grants(1)
856,104 124,674 800,920 259,059 
Weighted average common shares for computation of diluted EPS192,292,989 193,604,431 192,456,817 195,168,557 
EPS(2):
Basic$0.50 $0.25 $1.01 $0.31 
Diluted0.50 0.25 1.01 0.31 
(1) Represents incremental shares computed using the treasury stock method.
(2) Anti-dilutive shares are not included in determining diluted EPS. There were 0 anti-dilutive shares in the three and six months ended June 30, 2021 and 305,014 and 79,589 for the three and six months ended June 30, 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 Company includes a permissible portion of the ACL. Tier 2 capital at the Company also includes $492.2 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.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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 CECL on 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 CECL at January 1, 2020 and 25% of subsequent changes in our ACL during each quarter of the two year period ending December 31, 2021.

The following tables present actual and required capital ratios as of June 30, 2021 and December 31, 2020 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented as of June 30, 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
June 30, 2021
Common equity tier 1 to RWA:
Sterling National Bank$3,341,494 14.44 %$1,620,211 7.00 %$1,504,482 6.50 %
Sterling Bancorp2,881,948 12.43 1,623,064 7.00 N/AN/A
Tier 1 capital to RWA:
Sterling National Bank3,341,494 14.44 %1,967,400 8.50 %1,851,670 8.00 %
Sterling Bancorp3,018,172 13.02 1,970,864 8.50 N/AN/A
Total capital to RWA:
Sterling National Bank3,522,227 15.22 %2,430,317 10.50 %2,314,588 10.00 %
Sterling Bancorp3,691,124 15.92 2,434,597 10.50 N/AN/A
Tier 1 leverage ratio:
Sterling National Bank3,341,494 12.10 %1,105,002 4.00 %1,381,253 5.00 %
Sterling Bancorp3,018,172 10.91 1,106,661 4.00 N/AN/A

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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 June 30, 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.

(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:
 June 30,December 31,
 20212020
Loan origination commitments$596,603 $641,965 
Unused lines of credit1,602,172 1,623,745 
Letters of credit171,237 181,890 

We record ACL - off-balance sheet financial instrument exposures through a charge to other non-interest expense on our consolidated income statements. At June 30, 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 six months ended June 30, 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 or six months ended June 30, 2021 and 2020.


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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
(b) Leases
Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2021 were as follows:
Remainder of 2021$9,311 
202218,174 
202316,710 
202414,895 
202512,184 
202611,054 
2027 and thereafter39,161 
Total lease payments121,489 
Interest15,419 
Present value of lease liabilities$106,070 

(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.

Following the Merger announcement, 6 civil actions were filed challenging, among other things, the adequacy of the disclosures contained in the preliminary proxy statement/prospectus filed by Webster with the SEC in connection with the proposed transaction. Five of these suits were filed by purported Sterling stockholders against Sterling and its Board and assert claims under Sections 14(a) and 20(a) of the Exchange Act challenging the adequacy of the public disclosures made concerning the proposed transaction. One of these five suits also asserts a claim against Webster. The sixth suit was filed by a purported Webster stockholder against Webster and its board of directors and asserts similar claims against Webster. The plaintiffs in these actions seek, among other things, an injunction preventing the closing of the Merger, rescission of the Merger Agreement or damages in the event it is consummated, and the award of attorneys' fees and expenses. Sterling believes the claims asserted in these actions are without merit.

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 June 30, 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
All 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 June 30, 2021 and December 31, 2020, 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 may be traded in an over-the-counter market where quoted market prices are not always available. Our derivatives at June 30, 2021 and December 31, 2020 consisted of interest rate swaps. See Note 8. “Derivatives” for additional information.
 
A summary of assets and liabilities at June 30, 2021 and December 31, 2020, respectively, measured at estimated fair value on a recurring basis, is as follows:
June 30, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets:
Investment securities available for sale:
Residential MBS:
Agency-backed$916,923 $$916,923 $
CMOs/Other MBS274,560 274,560 
Total residential MBS1,191,483 1,191,483 
Other securities:
Federal agencies384,819 384,819 
Corporate715,142 715,142 
State and municipal379,556 379,556 
Total other securities1,479,517 1,479,517 
Total AFS2,671,000 2,671,000 
Swaps107,361 107,361 
Total assets$2,778,361 $$2,778,361 $
Liabilities:
Swaps$43,354 $$43,354 $
Total liabilities$43,354 $$43,354 $
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.
June 30, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Traditional C&I$2,976 $$$2,976 
Payroll finance652 652 
Equipment financing3,174 3,174 
CRE24,123 24,123 
ADC25,000 25,000 
Residential mortgage549 549 
Consumer3,189 3,189 
Total collateral dependent loans measured at fair value$59,663 $$$59,663 

December 31, 2020
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Traditional C&I$10,916 $$$10,916 
ABL1,899 1,899 
Payroll finance2,300 2,300 
CRE27,323 27,323 
Residential mortgage1,307 1,307 
Consumer3,593 3,593 
Total collateral dependent loans measured at fair value$47,338 $$$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 June 30, 2021:
 June 30, 2021
 Carrying
amount

Level 1 inputs

Level 2 inputs

Level 3 inputs
Financial assets:
Cash and cash equivalents$487,409 $487,409 $$
Securities AFS2,671,000 2,671,000 
Securities HTM, net1,695,470 1,813,262 
Loans held for sale19,088 19,088 
Portfolio loans, net20,409,224 20,362,871 
Accrued interest receivable on securities28,428 28,428 
Accrued interest receivable on loans68,300 68,300 
FHLB stock and FRB stock151,443 
Swaps107,361 107,361 
Financial liabilities:
Non-maturity deposits21,712,958 21,712,958 
Certificates of deposit1,433,753 1,432,649 
Other borrowings25,802 25,801 
Subordinated Notes - Company492,219 525,679 
Mortgage escrow funds66,521 66,521 
Accrued interest payable on deposits529 529 
Accrued interest payable on borrowings1,484 1,484 
Swaps43,354 43,354 

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:
June 30,December 31,
20212020
Net unrealized holding gain on available for sale securities$95,960 $115,523 
Related income tax expense(26,523)(31,931)
Available for sale securities, net of tax69,437 83,592 
Net unrealized holding loss on securities transferred to held to maturity(263)(348)
Related income tax benefit73 96 
Securities transferred to held to maturity, net of tax(190)(252)
Net unrealized holding (loss) gain on retirement plans(481)2,040 
Related income tax benefit (expense)133 (564)
Retirement plans, net of tax(348)1,476 
Accumulated other comprehensive income$68,899 $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 June 30, 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 June 30, 2021
Balance beginning of the period$58,523 $(219)$(713)$57,591 
Other comprehensive income before reclassification10,914 10,914 
Amounts reclassified from AOCI29 365 394 
Total other comprehensive income10,914 29 365 11,308 
Balance at end of period$69,437 $(190)$(348)$68,899 
For the three months ended June 30, 2020
Balance beginning of the period$67,249 $(468)$840 $67,621 
Other comprehensive income before reclassification21,242 21,242 
Amounts reclassified from AOCI(351)43 55 (253)
Total other comprehensive income20,891 43 55 20,989 
Balance at end of period$88,140 $(425)$895 $88,610 
Location in consolidated income statements where reclassification from accumulated other comprehensive income is includedNet (loss) gain on sale of securitiesInterest income on securitiesOther non-interest expense
The following table presents the changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, 2021 and 2020:
Net unrealized holding (loss) gain on available for sale securitiesNet unrealized holding (loss) gain on securities transferred to held to maturityNet unrealized holding gain (loss) on retirement plansTotal
For the six months ended June 30, 2021
Balance beginning of the period$83,592 $(252)$1,476 $84,816 
Other comprehensive loss before reclassification(13,644)(13,644)
Amounts reclassified from AOCI(511)62 (1,824)(2,273)
Total other comprehensive (loss) income(14,155)62 (1,824)(15,917)
Balance at end of period$69,437 $(190)$(348)$68,899 
For the six months ended June 30, 2020
Balance beginning of the period$38,056 $(538)$2,698 $40,216 
Other comprehensive income before reclassification56,521 56,521 
Amounts reclassified from AOCI(6,437)113 (1,803)(8,127)
Total other comprehensive income (loss)50,084 113 (1,803)48,394 
Balance at end of period$88,140 $(425)$895 $88,610 
Location in consolidated income statements where reclassification from AOCI is includedNet (loss) gain 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
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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.

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 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 not to 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;
39

STERLING BANCORP AND SUBSIDIARIES
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 our 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 and into the first half of 2021, as business conditions improved, driving increased demand for our products and an increase in the amount of new business generated. Although loan origination activity has continued to recover in the second 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 new Delta variant of COVID-19 (which appears to be the most transmissible variant to date), 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.

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.
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STERLING BANCORP AND SUBSIDIARIES

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

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 combined company will have approximately $64 billion of assets, $42 billion in loans and $52 billion in deposits. We are progressing with our integration efforts and have identified the senior leadership of the combined company. In addition, we have filed the proxy statement / prospectus and are requesting stockholders approval of the Merger on or before August 17, 2021. The transaction is expected to close in the fourth quarter of 2021.

Performance Summary
For the second quarter of 2021, we reported net income available to common stockholders of $96.4 million, or $0.50 per diluted share, and adjusted net income available to common stockholders of $100.4 million, or $0.52 per diluted share. While we continue to operate in a low interest rate environment, for the second quarter of 2021, we reported net interest income of $218.5 million, an increase of $5.2 million compared to the three months ended June 30, 2020. In the second quarter of 2021, as compared to the second quarter of 2020, accretion income on acquired loans declined by $2.3 million, and loan yields declined by 15 basis points, while our cost of funding liabilities declined by 43 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 3.42% an increase of 22 basis points over the period ended June 30, 2020.

Our adjusted non-interest expenses were $109.7 million in the second quarter of 2021, an increase of $1.9 million over the quarter ended June 30, 2020. The increase was mainly due to increases in compensation, professional fees and information technology costs partially offset by lower foreclosed property expense, regulatory assessments and occupancy expenses. For the second quarter of 2021, our reported operating efficiency ratio was 48.5% and our adjusted operating efficiency ratio was 44.1%.

For the three months ended June 30, 2021, our provision for credit losses - loans expense was $6.0 million and our ACL - loans was $314.9 million, which represented 1.52% of total loans and 181.7% of non-performing loans. Net charge-offs in the second quarter were $14.3 million.

At June 30, 2021, total portfolio loans were $20.7 billion, a decrease of $1.1 billion from December 31, 2020, which was mainly due to a $724.1 million decline in warehouse lending, the impact of $192.5 million in loan sales and pay downs of PPP loans amounting to $133.8 million. A slowdown in mortgage refinance activity was the primary driver of the decline in our mortgage warehouse balances while the low interest rate environment and heightened competition for earning assets has contributed to an increase in the level of pay downs in certain portfolios. Our loans to deposits ratio was 89.5% at quarter end.

Total deposits were $23.1 billion at June 30, 2021, an increase of $27.2 million from December 31, 2020. Our cost of total deposits declined four basis points relative to the linked quarter, while cost of interest-bearing deposits declined five basis points. In the six months ended June 30, 2021, FHLB and other short-term borrowings declined $382.0 million and brokered deposits declined $1.1 billion.

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

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.

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
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STERLING BANCORP AND SUBSIDIARIES
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%.

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 June 30,At or for the six months ended June 30,
2021202020212020
End of period balances:
AFS and HTM securities, net$4,366,470 $4,548,078 $4,366,470 $4,548,078 
Portfolio loans20,724,097 22,295,267 20,724,097 22,295,267 
Total assets29,143,918 30,839,893 29,143,918 30,839,893 
Non-interest bearing deposits5,963,828 5,407,728 5,963,828 5,407,728 
Interest bearing deposits17,182,883 18,192,893 17,182,883 18,192,893 
Total deposits23,146,711 23,600,621 23,146,711 23,600,621 
Borrowings518,021 2,014,259 518,021 2,014,259 
Stockholders’ equity4,722,856 4,484,187 4,722,856 4,484,187 
Tangible common stockholders’ equity (“TCE”)1
2,817,138 2,561,599 2,817,138 2,561,599 
Average balances:
AFS and HTM securities, net$4,322,126 $4,630,056 $4,189,290 $4,838,315 
Total loans2
20,843,661 21,940,636 21,067,859 21,573,406 
Total assets29,390,977 30,732,914 29,486,261 30,608,673 
Non-interest bearing deposits5,747,679 5,004,907 5,635,233 4,675,713 
Interest bearing deposits17,768,996 18,459,030 17,896,484 18,402,541 
Total deposits and mortgage escrow23,516,675 23,463,937 23,531,717 23,078,254 
Borrowings527,272 2,101,016 623,919 2,340,969 
Stockholders’ equity4,670,718 4,464,403 4,643,838 4,485,470 
TCE1
2,762,292 2,538,842 2,733,420 2,557,700 
Selected operating data:
Total interest and dividend income$230,310 $253,226 $464,157 $526,753 
Total interest expense11,783 39,927 27,716 101,682 
Net interest income218,527 213,299 436,441 425,071 
Provision for credit losses5,250 56,606 15,250 194,886 
Net interest income after provision for credit losses213,277 156,693 421,191 230,185 
Total non-interest income30,214 26,090 62,570 73,416 
Total non-interest expense120,629 124,881 238,794 239,594 
Income before income tax122,862 57,902 244,967 64,007 
Income tax expense (benefit)24,523 7,110 47,478 (932)
Net income98,339 50,792 197,489 64,939 
Preferred stock dividend1,959 1,972 3,922 3,948 
Net income available to common stockholders$96,380 $48,820 $193,567 $60,991 
Per share data:
Reported basic EPS (GAAP)$0.50 $0.25 $1.01 $0.31 
Reported diluted EPS (GAAP)0.50 0.25 1.01 0.31 
Adjusted diluted EPS1 (non-GAAP)
0.52 0.29 1.02 0.28 
Dividends declared per common share0.07 0.07 0.14 0.14 
Book value per share23.80 22.35 23.80 22.35 
Tangible book value per common share1
14.62 13.17 14.62 13.17 
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
At or for the three months ended June 30,At or for the six months ended June 30,
2021202020212020
Common shares outstanding:
Shares outstanding at period end192,715,433 194,458,805 192,715,433 194,458,805 
Weighted average shares basic191,436,885 193,479,757 191,655,897 194,909,498 
Weighted average shares diluted192,292,989 193,604,431 192,456,817 195,168,557 
Other data:
Full time equivalent employees at period end1,491 1,617 1,491 1,617 
Financial centers at period end72 78 72 78 
Performance ratios:
Return on average assets1.32 %0.64 %1.32 %0.40 %
Return on average equity8.28 4.40 8.41 2.73 
Reported return on average tangible assets1
1.40 0.68 1.41 0.42 
Adjusted return on average tangible assets1
1.46 0.79 1.43 0.38 
Reported return on average TCE1
13.99 7.73 14.28 4.78 
Adjusted return on average TCE1
14.58 9.02 14.52 4.21 
Reported operating efficiency1
48.5 52.2 47.9 48.1 
Adjusted operating efficiency1
44.1 45.1 44.2 43.7 
Net interest margin-GAAP3.38 3.15 3.38 3.15 
Net interest margin-tax equivalent3
3.42 3.20 3.43 3.20 
Capital ratios (Company)4:
Tier 1 leverage ratio10.91 %9.51 %10.91 %9.51 %
Common equity Tier 1 capital ratio12.43 11.00 12.43 11.00 
Tier 1 risk-based capital ratio13.02 11.57 13.02 11.57 
Total risk-based capital ratio15.92 14.20 15.92 14.20 
Tangible equity to tangible assets10.79 9.29 10.79 9.29 
Tangible common equity to tangible assets1
10.29 8.82 10.29 8.82 
Regulatory capital ratios (Bank)4:
Tier 1 leverage ratio12.10 %10.09 %12.10 %10.09 %
Tier 1 risk-based capital ratio14.44 12.24 14.44 12.24 
Total risk-based capital ratio15.22 13.85 15.22 13.85 
Asset quality data and ratios:
Allowance for credit - loans$314,873 $365,489 $314,873 $365,489 
Non-performing loans (“NPLs”)173,319 260,605 173,319 260,605 
Non-performing assets (“NPAs”)174,135 269,270 174,135 269,270 
Net charge-offs14,313 17,561 27,227 24,516 
NPAs to total assets0.60 %0.87 %0.60 %0.87 %
NPLs to total loans5
0.84 1.17 0.84 1.17 
Allowance for loan losses to non-performing loans181.67 140.25 181.67 140.25 
Allowance for loan losses to total loans4
1.52 1.64 1.52 1.64 
Annualized net charge-offs to average loans0.28 0.32 0.26 0.24 
__________________
1 See a reconciliation of as reported financial measures to as adjusted (non-GAAP) financial measures beginning on page 62 below under the caption “Supplemental Reporting of Non-GAAP Financial Measures.”
2 Includes loans held for sale but excludes the ACL.
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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STERLING BANCORP AND SUBSIDIARIES
Results of Operations
For the three months ended June 30, 2021, we reported net income available to common stockholders of $96.4 million, or $0.50 per diluted common share, compared to net income available to common stockholders of $48.8 million, or $0.25 per diluted common share, for the three months ended June 30, 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 87.9% and 89.1% of total revenue in the three months ended June 30, 2021 and June 30, 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 June 30, 2021, we considered 97.7% of our total deposits to be core deposits compared to 92.8% at June 30, 2020. The increase in core deposits was mainly due to the reclassification of one deposit relationship that met the “primary purpose” exception of the relevant guidance. See Note 6. “Deposits” for more information. Non-interest bearing demand deposits were $6.0 billion of our total deposits at June 30, 2021, compared to $5.4 billion at June 30, 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 June 30,
 20212020
 Average
balance
InterestYield/RateAverage
balance
InterestYield/Rate
Interest earning assets:
Traditional C&I and commercial finance loans$8,269,192 $76,983 3.73 %$8,791,024 $84,192 3.85 %
CRE (includes multi-family)10,331,355 103,225 4.01 10,404,643 106,408 4.11 
ADC645,094 6,650 4.13 519,517 5,762 4.46 
Commercial loans19,245,641 186,858 3.89 19,715,184 196,362 4.01 
Consumer loans170,965 1,712 4.02 219,052 2,233 4.10 
Residential mortgage loans1,427,055 13,115 3.68 2,006,400 21,309 4.25 
Total gross loans1
20,843,661 201,685 3.88 21,940,636 219,904 4.03 
Securities taxable2,378,213 15,749 2.66 2,507,384 18,855 3.02 
Securities non-taxable1,943,913 14,833 3.05 2,122,672 16,242 3.06 
Interest earning deposits651,271 164 0.10 455,626 146 0.13 
FRB and FHLB stock151,877 994 2.63 213,796 1,490 2.80 
Total securities and other earning assets5,125,274 31,740 2.48 5,299,478 36,733 2.79 
Total interest earning assets25,968,935 233,425 3.61 27,240,114 256,637 3.79 
Non-interest earning assets3,422,042 3,492,800 
Total assets$29,390,977 $30,732,914 
Interest bearing liabilities:
Interest bearing demand deposits$4,964,386 $1,614 0.13 %$4,766,298 $4,806 0.41 %
Savings deposits2
2,777,651 531 0.08 2,890,402 2,418 0.34 
Money market deposits8,508,735 3,140 0.15 8,035,750 11,711 0.59 
Certificates of deposit1,518,224 1,413 0.37 2,766,580 9,175 1.33 
Total interest bearing deposits17,768,996 6,698 0.15 18,459,030 28,110 0.61 
Senior Notes— — — 127,862 944 2.95 
Other borrowings35,156 0.10 1,528,844 5,684 1.50 
Subordinated Notes - Bank— — — 173,265 2,361 5.45 
Subordinated Notes - Company492,116 5,076 4.13 271,045 2,828 4.17 
Total borrowings527,272 5,085 3.87 2,101,016 11,817 2.26 
Total interest bearing liabilities18,296,268 11,783 0.26 20,560,046 39,927 0.78 
Non-interest bearing deposits5,747,679 5,004,907 
Other non-interest bearing liabilities676,312 703,558 
Total liabilities24,720,259 26,268,511 
Stockholders’ equity4,670,718 4,464,403 
Total liabilities and stockholders’ equity$29,390,977 $30,732,914 
Net interest rate spread3
3.35 %3.01 %
Net interest earning assets4
$7,672,667 $6,680,068 
Net interest margin - tax equivalent221,642 3.42 %216,710 3.20 %
Less tax equivalent adjustment(3,115)(3,411)
Net interest income218,527 213,299 
Accretion income on acquired loans7,812 10,086 
Tax equivalent net interest margin excluding accretion income on acquired loans$213,830 3.30 %$206,624 3.05 %
Ratio of interest earning assets to interest bearing liabilities141.9 %132.5 %
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
 For the six months ended June 30,
 20212020
 Average
balance
InterestYield/RateAverage
balance
InterestYield/Rate
Interest earning assets:
Traditional C&I and commercial finance loans$8,456,690 $154,988 3.70 %$8,412,567 $173,342 4.14 %
CRE (includes multi-family)10,307,456 206,850 4.05 10,346,810 217,147 4.22 
ADC634,734 12,506 3.97 508,263 12,083 4.78 
Commercial loans19,398,880 374,344 3.89 19,267,640 402,572 4.20 
Consumer loans176,681 3,794 4.33 226,347 5,173 4.60 
Residential mortgage loans1,492,298 29,402 3.94 2,079,419 47,598 4.58 
Total gross loans1
21,067,859 407,540 3.90 21,573,406 455,343 4.24 
Securities taxable2,241,749 31,101 2.80 2,695,376 39,484 2.95 
Securities tax exempt1,947,541 29,691 3.05 2,142,939 32,693 3.05 
Interest earning deposits649,733 313 0.10 472,659 1,978 0.84 
FRB and FHLB stock151,951 1,747 2.32 225,808 4,120 3.67 
Total securities and other earning assets4,990,974 62,852 2.54 5,536,782 78,275 2.84 
Total interest earning assets26,058,833 470,392 3.64 27,110,188 533,618 3.96 
Non-interest earning assets3,427,428 3,498,485 
Total assets$29,486,261 $30,608,673 
Interest bearing liabilities:
Interest bearing demand deposits$4,972,853 $3,656 0.15 %$4,691,478 $14,364 0.62 %
Savings deposits2
2,747,802 1,002 0.07 2,845,212 5,924 0.42 
Money market deposits8,445,983 6,953 0.17 7,863,566 30,107 0.77 
Certificates of deposit1,729,846 3,955 0.46 3,002,285 23,496 1.57 
Total interest bearing deposits17,896,484 15,566 0.18 18,402,541 73,891 0.81 
Senior Notes— — — 150,592 2,378 3.18 
Other borrowings60,416 44 0.15 1,746,136 15,040 1.73 
Subordinated Notes - Bank71,464 1,957 5.48 173,234 4,718 5.45 
Subordinated Notes - Company492,039 10,149 4.13 271,007 5,655 4.17 
Total borrowings623,919 12,150 3.93 2,340,969 27,791 2.39 
Total interest bearing liabilities18,520,403 27,716 0.30 20,743,510 101,682 0.99 
Non-interest bearing deposits5,635,233 4,675,713 
Other non-interest bearing liabilities686,787 703,980 
Total liabilities24,842,423 26,123,203 
Stockholders’ equity4,643,838 4,485,470 
Total liabilities and stockholders’ equity$29,486,261 $30,608,673 
Net interest rate spread3
3.34 %2.97 %
Net interest earning assets4
$7,538,430 $6,366,678 
Net interest margin - tax equivalent442,676 3.43 %431,936 3.20 %
Less tax equivalent adjustment(6,235)(6,865)
Net interest income436,441 425,071 
Accretion income on acquired loans16,084 20,772 
Tax equivalent net interest margin excluding accretion income on acquired loans$426,592 3.30 %$411,164 3.05 %
Ratio of interest earning assets to interest bearing liabilities140.7 %130.7 %
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.
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STERLING BANCORP AND SUBSIDIARIES
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 June 30,
 2021 vs. 2020
 Increase / (Decrease)
due to
Total
increase /
 VolumeRate(decrease)
Interest earning assets:
Traditional C&I and commercial finance loans$(4,727)$(2,482)$(7,209)
CRE (includes multi-family)(717)(2,466)(3,183)
ADC1,334 (446)888 
Commercial loans(4,110)(5,394)(9,504)
Consumer loans(478)(43)(521)
Residential mortgage loans(5,596)(2,598)(8,194)
Total loans(10,184)(8,035)(18,219)
Securities taxable(937)(2,169)(3,106)
Securities tax exempt(1,356)(53)(1,409)
Interest earning deposits56 (38)18 
FRB and FHLB stock(410)(86)(496)
Total interest earning assets(12,831)(10,381)(23,212)
Interest bearing liabilities:
Interest bearing demand deposits198 (3,390)(3,192)
Savings deposits1
(92)(1,795)(1,887)
Money market deposits664 (9,235)(8,571)
Certificates of deposit(2,985)(4,777)(7,762)
Total interest bearing deposits(2,215)(19,197)(21,412)
Senior Notes(472)(472)(944)
Other borrowings(2,788)(2,887)(5,675)
Subordinated Notes - Bank(1,181)(1,180)(2,361)
Subordinated Notes - Company2,275 (27)2,248 
Total borrowings(2,166)(4,566)(6,732)
Total interest bearing liabilities(4,381)(23,763)(28,144)
Change in tax equivalent net interest income(8,450)13,382 4,932 
Less tax equivalent adjustment(343)47 (296)
Change in net interest income$(8,107)$13,335 $5,228 
______________________
1 Includes club accounts and interest bearing mortgage escrow balances.
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STERLING BANCORP AND SUBSIDIARIES
For the six months ended June 30,
 2021 vs. 2020
 Increase / (Decrease)
due to
Total
increase /
 VolumeRate(decrease)
Interest earning assets:
Traditional C&I and commercial finance loans$863 $(19,217)$(18,354)
CRE (includes multi-family)(889)(9,408)(10,297)
ADC2,681 (2,258)423 
Commercial loans2,655 (30,883)(28,228)
Consumer loans(1,088)(291)(1,379)
Residential mortgage loans(12,172)(6,024)(18,196)
Total loans(10,605)(37,198)(47,803)
Securities taxable(6,438)(1,945)(8,383)
Securities tax exempt(3,002)— (3,002)
Interest earning deposits538 (2,203)(1,665)
FRB and FHLB stock(1,117)(1,256)(2,373)
Total interest earning assets(20,624)(42,602)(63,226)
Interest bearing liabilities:
Interest bearing demand deposits818 (11,526)(10,708)
Savings deposits1
(194)(4,728)(4,922)
Money market deposits2,052 (25,206)(23,154)
Certificates of deposit(7,324)(12,217)(19,541)
Total interest bearing deposits(4,648)(53,677)(58,325)
Senior Notes(1,189)(1,189)(2,378)
Other borrowings(7,795)(7,201)(14,996)
Subordinated Notes - Bank(2,787)26 (2,761)
Subordinated Notes - Company4,548 (54)4,494 
Total borrowings(7,223)(8,418)(15,641)
Total interest bearing liabilities(11,871)(62,095)(73,966)
Change in tax equivalent net interest income(8,753)19,493 10,740 
Less tax equivalent adjustment(719)89 (630)
Change in net interest income$(8,034)$19,404 $11,370 
______________________
1 Includes club accounts and interest bearing mortgage escrow balances.

Tax equivalent net interest income increased $4.9 million for the three months ended June 30, 2021, compared to the three months ended June 30, 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 half of 2021, we have continued to reprice deposit relationships and have repaid higher costing FHLB and other borrowings. As a result, interest expense declined by 70.5% over the prior year quarter, while tax equivalent interest and dividend income declined by 9.0% over the same period. For the three months ended June 30, 2021, total interest earning assets yielded 3.61% compared to 3.79% during the same period in 2020. The cost of interest bearing liabilities declined to 0.26% in the second quarter of 2021 compared to 0.78% in the same period in 2020. The tax equivalent net interest margin increased 22 basis points to 3.42% in the second quarter of 2021 from 3.20% in the second quarter of 2020. The percentage of average loans to average earning assets decreased to 80.3% compared to 80.5% in 2020.
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Tax equivalent net interest income increased $10.7 million to $442.7 million for the six months ended June 30, 2021, compared to $431.9 million for the six months ended June 30, 2020, largely as a result of the same factors discussed above. The tax equivalent net interest margin increased to 3.43% for the six months ended June 30, 2021 from 3.20% in the six months ended June 30, 2020. The yield on interest earning assets was 3.64% compared to 3.96% for the six months ended June 30, 2020, which was mainly due to changes in market interest rates and lower accretion income. The percentage of loans to average earning assets increased to 80.8% for the six months ended June 30, 2021, compared to 79.6% for the six months ended June 30, 2020. The cost of interest bearing liabilities declined to 0.30% for the six months ended June 30, 2021 compared to 0.99% for the six months ended June 30, 2020, which was mainly due to the same factors described above.

Average interest earning assets decreased by $1.3 billion between the three month periods ended June 30, 2021 and 2020. Average interest earning assets decreased by $1.1 billion between the six months periods ended June 30, 2021 and 2020. The decline was mainly due to net sales and repayments of investment securities and continued runoff in our residential mortgage loan portfolio.

The average balance of commercial loans decreased $469.5 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The decrease was mainly due to loan sales and repayments of PPP loans, a decline in our mortgage warehouse balances, and net repayments from traditional C&I, ABL, and multifamily portfolios. The average yield on commercial loans declined to 3.89% compared to 4.01% 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 commercial loans declined to $6.4 million for the three months ended June 30, 2021 compared to $7.4 million in the corresponding prior year quarter.

The average balance of loans outstanding decreased $505.5 million in the six months ended June 30, 2021, compared to the six months ended June 30, 2020, mainly due to the same factors as discussed above. The average yield on loans was 3.90% in the six months ended June 30, 2021 compared to 4.24% in the comparable year ago period. The decrease was mainly due to declines in market rates of interest and the decline in accretion income on acquired commercial loans for the six months ended June 30, 2021 to $12.8 million compared to $15.0 million in the year ago period.

Interest income on traditional C&I and commercial finance loans decreased $7.2 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The yield on traditional C&I and commercial finance loans declined to 3.73% compared to 3.85% in the corresponding 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 larger percentage of total traditional C&I and commercial finance loans in 2021 than in 2020.

Interest income on traditional C&I and commercial finance loans decreased $18.4 million and was $155.0 million in the six months ended June 30, 2021 compared to $173.3 million for the six months ended June 30, 2020. This decrease was mainly due to the same factors as discussed above. The yield on traditional C&I and commercial finance loans decreased to 3.70% compared to 4.14% in the six months ended June 30, 2020.

Interest income on CRE loans and multi-family loans decreased $3.2 million to $103.2 million for the three months ended June 30, 2021 compared to $106.4 million for the three months ended June 30, 2020. The decrease was mainly due to repayments of broker originated multi-family loans and declines in market rates of interest. The yield on CRE and multi-family loans was 4.01% for the three months ended June 30, 2021 compared to 4.11% in the three months ended June 30, 2020.

Interest income on CRE loans and multi-family loans decreased $10.3 million to $206.9 million in the six months ended June 30, 2021 compared to $217.1 million for the six months ended June 30, 2020. The yield on CRE and multi-family loans was 4.05% in the six months ended June 30, 2021 compared to 4.22% in the six months ended June 30, 2020. The decrease in yield was mainly due to the change in market rates of interest and the increase in lower yielding CRE loans, which replaced the majority of the multi-family run off.

Interest income on residential mortgage loans declined $8.2 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The decrease was mainly due to a decline in average balances and a 57 basis point decline in the yield, a result of adjustable rate loans repricing to market rates of interest and lower accretion income on acquired loans, which was $1.2 million in the three months ended June 30, 2021 compared to $2.4 million in the prior year period. The average balance of residential mortgage loans declined $579.3 million, mainly due to continued run-off as well as the sale of certain residential mortgage loans in 2020.

Interest income on residential mortgage loans decreased $18.2 million to $29.4 million in the six months ended June 30, 2021 compared to $47.6 million for the six months ended June 30, 2020. The decrease was mainly due to a $587.1 million decline in the average balance of residential mortgage loans resulting from elevated levels of pay downs as well as a result of the loan sales in 2020. The yield on residential mortgage loans decreased to 3.94% compared to 4.58% for the six months ended June 30, 2020. Accretion income on
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acquired residential mortgage loans was $2.9 million for the six months ended June 30, 2021 compared to $5.3 million for the six months ended June 30, 2020.

Tax equivalent interest income on securities decreased $4.5 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, mainly due to a decrease of $307.9 million 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 decreased to 2.84% compared to 3.05% in the prior year period. The decrease in tax equivalent yield was mainly due to deployment of excess cash at the Federal Reserve Bank into US Treasury securities and continued pay downs in our municipal securities portfolio. The average balance of tax-exempt securities declined to $1.9 billion for the three months ended June 30, 2021, compared to $2.1 billion for the corresponding period in 2020.

Tax equivalent interest income on securities decreased $11.4 million to $60.8 million in the six months ended June 30, 2021, compared to $72.2 million for the six months ended June 30, 2020. This was mainly the result of a decrease of $649.0 million in the average balance of securities between the periods. The tax equivalent yield on securities was 2.93% in the six months ended June 30, 2021, compared to 3.00% in the six months ended June 30, 2020. The decrease in tax equivalent yield on securities was mainly due to the same factors as discussed in respect of the three month period.

Average interest earning deposits were $651.3 million for the three months ended June 30, 2021, an increase of $195.6 million compared to the three months ended June 30, 2020. The increase was due to deposit inflows and lower than anticipated loan demand. Interest earning deposits yielded 0.10% for the three months ended June 30, 2021, compared to 0.13% for the same period in 2020.

Average total deposits and mortgage escrow balances increased $52.7 million to $23.5 billion in the three months ended June 30, 2021 compared to the second quarter of 2020. Average interest bearing deposits decreased $690.0 million and average non-interest bearing deposits increased $742.8 million. 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 0.15% in the second quarter of 2021 compared to 0.61% in the second quarter of 2020. The average cost of total deposits was 0.11% in the second quarter of 2021 compared to 0.48% in the second 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 total deposits and mortgage escrow increased $453.5 million to $23.5 billion in the six months ended June 30, 2021, compared to $23.1 billion in the six months ended June 30, 2020. Over the same period, average interest bearing deposits decreased $506.1 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Average non-interest bearing deposits increased $959.5 million to $5.6 billion in the six months ended June 30, 2021, compared to $4.7 billion in the six months ended June 30, 2020. The increase was mainly due to organic growth generated by our commercial banking teams and financial centers. The average cost of interest bearing deposits was 0.18% in the six months ended June 30, 2021 compared to 0.81% in the six months ended June 30, 2020. The average cost of total deposits was 0.13% in the six months ended June 30, 2021 compared to 0.64% in the six months ended June 30, 2020. The decrease in the cost of deposits was mainly due to the same factors discussed above.

Average borrowings declined $1.6 billion in the three months ended June 30, 2021, compared to the same period a year ago. Given the increase in deposits and the decline in our loan portfolio and in investment securities between the periods, excess liquidity was used to reduce borrowings. The average cost of borrowings was 3.87% for the second quarter of 2021, compared to 2.26% in the prior year period. The increase in the average cost of borrowings was a result of changes in funding mix, with a greater proportion of our borrowings comprised of longer term and more expensive subordinated notes in 2021, compared to 2020.

Average borrowings decreased $1.7 billion to $623.9 million in the six months ended June 30, 2021, compared to $2.3 billion in the same period a year ago. The decrease in average borrowings was due to the same factors as discussed in the three month period. The average cost of borrowings was 3.93% for the six months ended June 30, 2021 compared to 2.39% in the six months ended June 30, 2020. The increase was mainly due to the same factors as discussed in the three month period.

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 June 30, 2021 and June 30, 2020, the provision for credit losses - loans was $6.0 million and $56.6 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. In the second quarter of 2021, we recorded a $750 thousand reduction in our provision for credit losses - HTM securities with no similar provision recorded in the second quarter of 2020. In the six months ended June 30,
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STERLING BANCORP AND SUBSIDIARIES
2020, we recorded a provision for credit losses - HTM securities of $1.7 million. The provision for credit losses - HTM securities is based on our estimate of loss given anticipated defaults. Based on our modeling of expected credit losses for municipal and corporate securities, which reflected lower expected losses, we reduced the ACL - HTM securities in the period.

Non-interest income. The components of non-interest income were as follows for the periods presented below:
For the three months endedFor the six months ended
June 30,June 30,
2021</