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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 September 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 October 28, 2021
$0.01 per share  192,700,767



STERLING BANCORP AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
QUARTERLY PERIOD ENDED SEPTEMBER 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.



Table of Contents
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
STERLING BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, except share and per share data)


 September 30,December 31,
20212020
ASSETS:
Cash and due from banks$929,320 $305,002 
Securities available for sale, at estimated fair value
2,614,822 2,298,618 
Securities held to maturity (“HTM”), net of allowance for credit losses (“ACL”) of $749 at September 30, 2021 and $1,499 at December 31, 2020
1,669,147 1,740,838 
Loans held for sale 11,749 
Portfolio loans 21,276,549 21,848,409 
ACL - loans(309,915)(326,100)
Portfolio loans, net20,966,634 21,522,309 
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, at cost
151,004 166,190 
Accrued interest receivable 99,450 97,505 
Premises and equipment, net 202,519 202,555 
Goodwill 1,683,482 1,683,482 
Other intangible assets, net 82,236 93,564 
Bank owned life insurance (“BOLI”)640,294 629,576 
Other real estate owned816 5,347 
Other assets 988,701 1,063,403 
Total assets$30,028,425 $29,820,138 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits$23,936,023 $23,119,522 
FHLB and other borrowings  382,000 
Federal funds purchased 277,000 
Repurchase agreements31,023 27,101 
Subordinated Notes - Bank 143,703 
Subordinated Notes - Company492,383 491,910 
Mortgage escrow funds 79,221 59,686 
Other liabilities692,146 728,702 
Total liabilities25,230,796 25,229,624 
Commitments and Contingent liabilities (See Note 14. “Commitments and Contingencies”)
STOCKHOLDERS’ EQUITY:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; 135,000 shares issued and outstanding at September 30, 2021 and December 31, 2020)
135,986 136,689 
Common stock (par value $0.01 per share; 310,000,000 shares authorized at September 30, 2021 and December 31, 2020; 229,872,925 shares issued at September 30, 2021 and December 31, 2020; 192,681,503 and 192,923,371 shares outstanding at September 30, 2021 and December 31, 2020, respectively)
2,299 2,299 
Additional paid-in capital3,760,279 3,761,993 
Treasury stock, at cost (37,191,422 shares at September 30, 2021 and 36,949,554 shares at December 31, 2020)
(697,433)(686,911)
Retained earnings1,539,354 1,291,628 
Accumulated other comprehensive income, net of tax expense of $21,829 at September 30, 2021 and $32,399 at December 31, 2020
57,144 84,816 
Total stockholders’ equity4,797,629 4,590,514 
Total liabilities and stockholders’ equity$30,028,425 $29,820,138 
See accompanying notes to consolidated financial statements.
3

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

Three months endedNine months ended
September 30,September 30,
2021202020212020
Interest and dividend income:
Loans and loan fees$197,157 $213,009 $604,697 $668,352 
Securities taxable15,433 18,623 46,534 58,107 
Securities non-taxable11,607 12,257 35,063 38,085 
Other earning assets892 769 2,952 6,867 
Total interest and dividend income225,089 244,658 689,246 771,411 
Interest expense:
Deposits6,161 18,251 21,727 92,142 
Borrowings5,091 8,583 17,241 36,374 
Total interest expense11,252 26,834 38,968 128,516 
Net interest income213,837 217,824 650,278 642,895 
Provision for credit losses - loans 31,000 16,000 224,183 
Provision for credit losses - held to maturity securities (1,000)(750)703 
Net interest income after provision for credit losses213,837 187,824 635,028 418,009 
Non-interest income:
Deposit fees and service charges7,007 5,960 20,666 17,928 
Accounts receivable management / factoring commissions and fees5,937 5,393 16,854 15,349 
Bank owned life insurance5,009 5,363 14,945 15,331 
Loan commissions and fees8,620 7,290 27,859 26,317 
Investment management fees1,819 1,735 5,689 4,960 
Net gain on sale of securities
1,656 642 2,361 9,539 
Net gain on called securities
85  19 4,880 
Other2,414 1,842 6,724 7,337 
Total non-interest income32,547 28,225 95,117 101,641 
Non-interest expense:
Compensation and benefits57,178 55,960 172,218 165,504 
Stock-based compensation plans6,648 5,869 20,046 17,788 
Occupancy and office operations13,967 14,722 42,357 44,616 
Information technology10,214 8,422 29,201 23,752 
Professional fees
7,251 6,343 21,889 17,550 
Amortization of intangible assets3,776 4,200 11,328 12,600 
FDIC insurance and regulatory assessments2,844 3,332 8,418 10,176 
Other real estate owned expense, net1 151 (139)1,436 
Merger-related expense4,581  7,062  
Impairment related to financial centers and real estate consolidation strategy118  1,226  
Loss on extinguishment of borrowings 6,241 1,243 16,713 
Other18,390 14,122 48,913 48,821 
Total non-interest expense124,968 119,362 363,762 358,956 
Income before income tax expense121,416 96,687 366,383 160,694 
Income tax expense25,745 12,280 73,223 11,348 
Net income95,671 84,407 293,160 149,346 
Preferred stock dividend1,956 1,969 5,878 5,917 
Net income available to common stockholders$93,715 $82,438 $287,282 $143,429 
Weighted average common shares:
Basic191,508,071 193,494,929 191,606,643 194,436,137 
Diluted192,340,487 193,715,943 192,417,008 194,677,020 
Earnings per common share:
Basic$0.49 $0.43 $1.50 $0.74 
Diluted0.49 0.43 1.49 0.74 
See accompanying notes to consolidated financial statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
Three months endedNine months ended
September 30,September 30,
2021202020212020
Net income$95,671 $84,407 $293,160 $149,346 
Other comprehensive income, before tax:
Change in unrealized holding (losses) gains on securities available for sale(14,827)(1,296)(33,685)76,815 
Reclassification adjustment for net realized (gains) included in net income(1,656)(642)(2,361)(9,539)
Accretion of net unrealized loss on securities transferred to held to maturity 28 131 113 288 
Change in the actuarial loss of defined benefit plan and post-retirement benefit plans212 779 (2,309)(1,712)
Total other comprehensive (loss) income, before tax(16,243)(1,028)(38,242)65,852 
Deferred tax benefit (expense) related to other comprehensive income4,488 284 10,570 (18,202)
Other comprehensive (loss) income, net of tax(11,755)(744)(27,672)47,650 
Comprehensive income$83,916 $83,663 $265,488 $196,996 
See accompanying notes to consolidated financial statements.
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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 6 — 101 
Common shares acquired from stock compensation plan activity(14,467)— — (180)(16)5 — (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 
Net income— — — — — 84,407 — 84,407 
Other comprehensive income— — — — — — (744)(744)
Stock options & other stock transactions, net9,500 — — — 90 5 — 95 
Common shares acquired from stock compensation plan activity(19,662)— — (263)(43)16 — (290)
Stock-based compensation10,199 — — 6,005 (136)— — 5,869 
Cash dividends declared ($0.07 per common share)
— — — — — (13,545)— (13,545)
Cash dividends declared ($16.25 per preferred share)
— (225)— — — (1,969)— (2,194)
Balance at September 30, 2020194,458,842 $136,917 $2,299 $3,761,216 $(660,312)$1,229,799 $87,866 $4,557,785 
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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 
Net income— — — — — 95,671 — 95,671 
Other comprehensive loss— — — — — — (11,755)(11,755)
Stock options & other stock transactions, net8,000 — — — 148 (33)— 115 
Common shares acquired from stock compensation plan activity(41,930)— — 10 (317) — (307)
Stock-based compensation— — — 7,201 (553) — 6,648 
Cash dividends declared ($0.07 per common share)
— — — — — (13,405)— (13,405)
Cash dividends declared ($16.25 per preferred share)
— (238)— — — (1,956)— (2,194)
Balance at September 30, 2021192,681,503 $135,986 $2,299 $3,760,279 $(697,433)$1,539,354 $57,144 $4,797,629 
See accompanying notes to consolidated financial statements.
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

Nine months ended
September 30,
20212020
Cash flows from operating activities:
Net income $293,160 $149,346 
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for credit losses - loans16,000 224,183 
(Credit) provision for credit losses - held to maturity securities(750)703 
Net (gain) loss from write-downs and sales of other real estate owned(219)874 
Net loss on extinguishment of subordinated notes - Bank1,243  
Depreciation of premises and equipment13,550 14,798 
Loss on extinguishment of FHLB borrowings 16,713 
Impairment on fixed assets218  
Impairment of early termination of leases127  
Amortization of intangible assets11,328 12,600 
Gain on sale of premises and equipment(309) 
Amortization of low income housing tax credits35,452 24,571 
Net gain on sale of securities(2,361)(9,539)
Gain on security calls available for sale(36)(4,897)
Loss on security calls held to maturity17 17 
Net gain on loans held for sale(23,714)(2,881)
Net amortization of premiums on securities23,844 23,334 
 Amortization of premium on certificates of deposit
(696)(1,654)
 Net accretion of purchase discount and amortization of net deferred loan costs
(21,381)(29,044)
 Net accretion of debt issuance costs and amortization of premium on borrowings
527 (342)
Restricted stock compensation expense20,046 17,788 
Originations of loans held for sale(9,936)(36,702)
Proceeds from sales of loans held for sale21,685 3,501 
Increase in cash surrender value of bank owned life insurance(14,945)(15,331)
Deferred income tax benefit (8,951)(67,707)
 Other adjustments (principally net changes in other assets and other liabilities)
91,317 (115,753)
Net cash provided by operating activities445,216 204,578 
Cash flows from investing activities:
Purchases of securities:
Available for sale(896,749)(294,798)
Held to maturity(2,117)(3,454)
Proceeds from maturities and other principal payments on securities:
Available for sale353,137 422,942 
Held to maturity45,122 88,384 
Proceeds from sales of securities available for sale129,545 484,934 
Proceeds from sales of securities held to maturity 93,036 
Proceeds from calls of securities available for sale57,984 138,872 
Proceeds from calls of securities held to maturity11,805 905 
Portfolio loan repayments (originations), net332,676 (1,025,418)
Proceeds from sale of commercial loans252,094 106,996 
Proceeds from sale of residential mortgage loans  36,070 
Redemptions of FHLB and FRB stock, net15,186 84,512 
Proceeds from sales of other real estate owned4,750 5,379 
Purchases of premises and equipment(17,320)(14,442)
Proceeds from bank owned life insurance4,227 3,943 
Proceeds from sale of premises and equipment3,897 9,233 
Purchases of low income housing tax credits(73,370)(77,264)
Net cash provided by investing activities220,867 59,830 
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STERLING BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)

Nine months ended
September 30,
20212020
Cash flows from financing activities:
 Net increase in transaction, savings and money market deposits1,490,941 2,894,767 
Net decrease in certificates of deposit(673,744)(1,056,438)
Net decrease in short-term FHLB borrowings(382,000)(195,000)
Advances of term FHLB borrowings 447,000 
Repayments of term FHLB borrowings (2,100,000)
Advances under the Paycheck Protection Program Liquidity Facility 568,350 
 Repayment of Paycheck Protection Program Liquidity Facility (450,853)
 Repayment of Senior Notes
 (173,373)
 Repayment of subordinated notes - Bank(145,000) 
 Repayment of subordinated notes - Company (750)
 Net (decrease) increase in other short term borrowings(273,078)12,545 
Net increase in mortgage escrow funds19,535 25,715 
Stock options & other stock transactions, net2,696 610 
Common shares acquired related to stock compensation plan activity(6,916) 
Treasury shares repurchased (27,325)(81,032)
Cash dividends paid - common stock(40,293)(40,961)
Cash dividends paid - preferred stock(6,581)(6,581)
Net cash (used in) financing activities(41,765)(156,001)
Net increase in cash and cash equivalents624,318 108,407 
Cash and cash equivalents at beginning of period305,002 329,151 
Cash and cash equivalents at end of period$929,320 $437,558 
Supplemental cash flow information:
Interest payments$36,566 $133,225 
Income tax payments45,329 16,395 
Real estate acquired in settlement of loans 983 
Loans transferred from held for sale to portfolio 4,500 
Loans transferred from held for investment to held for sale259,433 254,564 
Operating cash flows from operating leases 11,217 15,437 
Right-of-use assets obtained in exchange for lease liabilities  2,846 
See accompanying notes to consolidated financial statements.
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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)

(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, in July we filed our joint proxy statement, and in August we received stockholder approval and approval from our primary bank regulator, the Office of the Comptroller of the Currency. We are prepared to execute the merger upon receipt of remaining regulatory approvals and subject to other customary closing conditions.

(e) Risks and Uncertainties - COVID-19
The COVID-19 pandemic and the resultant 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 third quarter and first nine months of 2021, when compared to the third quarter and first nine months of 2020. There continues to be some uncertainty around the Delta variant of the COVID-19 virus as well as the pace and sustainability of the economic recovery, which in combination with accommodative monetary policy, has continued to create downward pressure on yields and considerable competition for earning assets. 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 zero and $16.0 million in the third quarter of 2021 and in the first nine months of 2021, respectively, compared to $31.0 million and $224.2 million for the respective periods in 2020. In addition, non-interest income was $32.5 million in the third quarter of 2021 compared to $28.2 million in the third quarter of 2020 which reflects an increase in transaction volumes compared to the prior year period and improvement in the business operations of many of our clients.


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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)
We expect to see continued volatility in the broader economy and in the interest rate environment. Further, the ongoing effects of the pandemic continue to cause severe supply chain disruptions and labor shortages which could negatively impact the pace of the economic recovery. A downturn in 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, and our Quarterly Reports on Form 10-Q for quarters ended March 31, 2021 and June 30, 2021, filed on April 30, 2021 and July 30, 2021, respectively.

(2) Securities

The following table summarizes our securities as of September 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 term “MBS” refers to mortgage-backed securities and the term “CMOs” refers to collateralized mortgage obligations. Both of these terms are further defined in Note 15. “Fair Value Measurements”:
September 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$926,677 $30,961 $(2,356)$955,282 $66,620 $2,824 $ $69,444 $ 
CMOs/Other MBS226,700 8,138  234,838      
Total residential MBS
1,153,377 39,099 (2,356)1,190,120 66,620 2,824  69,444  
Other securities:
US Treasury and federal agencies370,898 3,150 (1,084)372,964 24,892 375  25,267  
Corporate649,445 30,787 (3,240)676,992 9,810 652  10,462 35 
State and municipal
361,625 13,244 (123)374,746 1,550,824 100,864 (40)1,651,648 700 
Other    17,750 128 (105)17,773 14 
Total other securities1,381,968 47,181 (4,447)1,424,702 1,603,276 102,019 (145)1,705,150 749 
Total securities
$2,535,345 $86,280 $(6,803)$2,614,822 $1,669,896 $104,843 $(145)$1,774,594 $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 municipal
369,186 18,090 (181)387,095 1,575,596 126,575 (69)1,702,102 1,379 
Other    17,750 189 (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 September 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.
 September 30, 2021
Available for saleHeld to maturity
 Amortized
cost
Fair
value
Amortized
cost
Fair
value
Remaining period to contractual maturity:
One year or less$1,671 $1,670 $27,746 $27,933 
One to five years441,892 452,863 98,153 102,829 
Five to ten years584,534 610,862 474,758 503,405 
Greater than ten years353,871 359,307 1,002,619 1,070,983 
Total securities with a stated maturity date1,381,968 1,424,702 1,603,276 1,705,150 
Residential MBS1,153,377 1,190,120 66,620 69,444 
Total securities$2,535,345 $2,614,822 $1,669,896 $1,774,594 

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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 nine months ended
September 30,September 30,
2021202020212020
Available for sale:
Proceeds from sales$108,839 $24,940 $129,545 $484,934 
Gross realized gains 1,656  2,891 8,964 
Gross realized losses (128)(530)(195)
Income tax expense on realized net gains331 (27)472 1,841 
Proceeds from calls$38,904 $34,839 $58,909 $174,616 
Gross realized gains114  161 4,909 
Gross realized losses(17) (130)(29)
Income tax expense on realized net gains19  6 610 
Held to maturity(1):
Proceeds from sales$ $93,036 $ $93,036 
Gross realized gains 1,809  1,809 
Gross realized losses (1,039) (1,039)
Income tax expense on realized net gains 162  162 

(1) In the three months ended September 30, 2020, we sold $93.0 million of state and municipal securities that were classified held to maturity at June 30, 2020. Management evaluated the issuer and individual securities and determined that the issuer had demonstrated significant deterioration in its creditworthiness since the acquisition date.

At September 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.

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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 summarizes AFS securities with unrealized losses for which an ACL has not been recorded at September 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
September 30, 2021
Residential MBS:
Agency-backed$266,531 $(2,348)$248 $(8)$266,779 $(2,356)
Other securities:
US Treasury and federal agencies259,748 (1,084)  259,748 (1,084)
Corporate101,540 (2,014)18,774 (1,226)120,314 (3,240)
State and municipal8,872 (33)7,281 (90)16,153 (123)
Total other securities370,160 (3,131)26,055 (1,316)396,215 (4,447)
Total securities$636,691 $(5,479)$26,303 $(1,324)$662,994 $(6,803)
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, we do not intend to sell, and it is unlikely that we will be required to sell the securities prior to their anticipated recovery. The increase in the amount of unrealized losses at September 30, 2021 compared to December 31, 2020 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.

At September 30, 2021, a total of 52 AFS securities were in a continuous unrealized loss position for less than 12 months and 46 AFS securities were in a continuous unrealized loss position for 12 months or longer.

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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
At September 30, 2021 and December 31, 2020, accrued interest receivable on AFS securities was $14.9 million and $10.9 million, respectively. Accrued interest receivable on AFS securities is included in accrued interest receivable on the consolidated balance sheets. The following table summarizes HTM securities with unrecognized losses, segregated by the length of time in a continuous unrecognized loss position, for the periods presented below:
 Continuous unrecognized loss position  
 Less than 12 months12 months or longerTotal
Fair
value
Unrecognized lossesFair
value
Unrecognized lossesFair
value
Unrecognized losses
HTM
September 30, 2021
Other securities:
State and municipal$ $ $3,029 $(40)$3,029 $(40)
Other9,999 (1)4,895 (104)14,894 (105)
Total securities$9,999 $(1)$7,924 $(144)$17,923 $(145)
December 31, 2020
Other securities:
State and municipal$105 $(1)$4,386 $(68)$4,491 $(69)
Other9,993 (7)  9,993 (7)
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 nine month periods ended September 30, 2021 and 2020:
September 30, 2021September 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, 2020  108 688 
Provision for credit loss(71)(679)7 696 
Total ACL - HTM at end of period$49 $700 $115 $1,384 

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 September 30, 2021 and December 31, 2020, accrued interest receivable on HTM securities was $17.8 million and $15.6 million, respectively, and was excluded from the estimate of ACL - HTM securities. Accrued interest receivable on HTM securities is included in accrued interest receivable on the consolidated balance sheets.
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
Credit Quality Indicators
We monitor the credit quality of HTM investment securities through the use of credit ratings, internal reviews and analysis of financial information and other data, and external reviews from a third-party vendor. We monitor credit quality indicators at least quarterly, and all credit ratings were updated and reviewed as of September 30, 2021. At September 30, 2021, two HTM securities were in a continuous unrealized loss position for less than 12 months and 21 HTM securities were in a continuous unrealized loss position for 12 months or longer. The following table summarizes the amortized cost of HTM securities at September 30, 2021 aggregated by credit quality indicator:
Credit Rating:Corporate and otherState and municipal
AAA$ $983,533 
AA17,750 542,627 
A 19,963 
BBB 64 
Non-rated9,810 4,637 
Total$27,560 $1,550,824 

The majority of state and municipal securities had a rating of A or greater at September 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 September 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:
September 30,December 31,
20212020
AFS securities pledged for borrowings, at fair value$31,023 $27,101 
AFS securities pledged for municipal deposits, at fair value1,067,796 569,724 
HTM securities pledged for municipal deposits, at amortized cost1,548,450 1,221,964 
Total securities pledged$2,647,269 $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:
September 30, 2021
December 31, 2020
Commercial:
Commercial & Industrial (“C&I”):
Traditional C&I$3,342,356 $2,920,205 
Asset-based lending673,679 803,004 
Payroll finance166,999 159,237 
Warehouse lending1,301,639 1,953,677 
Factored receivables228,834 220,217 
Equipment financing1,254,846 1,531,109 
Public sector finance1,825,976 1,572,819 
Total C&I8,794,329 9,160,268 
Commercial mortgage:
Commercial real estate (“CRE”)5,941,508 5,831,990 
Multi-family 4,296,829 4,406,660 
Acquisition, development and construction (“ADC”)
694,443 642,943 
Total commercial mortgage10,932,780 10,881,593 
Total commercial 19,727,109 20,041,861 
Residential mortgage1,395,248 1,616,641 
Consumer154,192 189,907 
Total portfolio loans21,276,549 21,848,409 
ACL(309,915)(326,100)
Total portfolio loans, net$20,966,634 $21,522,309 

Portfolio loans are shown at amortized cost, which includes deferred fees deferred costs and purchase accounting adjustments, which were $271 thousand at September 30, 2021 and $20.9 million at December 31, 2020.

The balance of portfolio loans excludes accrued interest receivable. Accrued interest receivable was $66.7 million and $71.0 million at September 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.

In the three and nine months ended September 30, 2021, we sold $23.7 million and $252.1 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 $1.2 million and $18.8 million in the three and nine months ended September 30, 2021, respectively.

At September 30, 2021 and December 31, 2020, the Bank pledged residential mortgage and CRE loans of $5.8 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 September 30, 2021, is presented below:
 September 30, 2021
 Current30-59
days
past due
60-89
days
past due
90+
days
past due
Total
Traditional C&I$3,331,998 $3,461 $675 $6,222 $3,342,356 
Asset-based lending673,679    673,679 
Payroll finance166,999    166,999 
Warehouse lending1,301,639    1,301,639 
Factored receivables228,834    228,834 
Equipment financing1,200,107 41,005 1,077 12,657 1,254,846 
Public sector finance1,825,976    1,825,976 
CRE5,896,696  16,703 28,109 5,941,508 
Multi-family 4,286,430 30 10,042 327 4,296,829 
ADC671,943   22,500 694,443 
Residential mortgage1,374,257 3,929 2,979 14,083 1,395,248 
Consumer144,198 1,444 146 8,404 154,192 
Total loans$21,102,756 $49,869 $31,622 $92,302 $21,276,549 
Total TDRs included above$45,998 $ $572 $1,777 $48,347 
Non-performing loans:
Loans 90+ days past due and still accruing$3,371 
Non-accrual loans202,082 
Total non-performing loans
$205,453 


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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 lending
803,004    803,004 
Payroll finance
159,237    159,237 
Warehouse lending
1,953,677    1,953,677 
Factored receivables
220,217    220,217 
Equipment financing
1,469,653 24,286 11,077 26,093 1,531,109 
Public sector finance
1,572,819    1,572,819 
CRE
5,794,115 13,591 17,421 6,863 5,831,990 
Multi-family
4,393,950 11,578 811 321 4,406,660 
ADC
612,943   30,000 642,943 
Residential mortgage
1,590,068 7,444 3,426 15,703 1,616,641 
Consumer
178,587 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 September 30, 2021:
Collateral type
Real estateBusiness assetsEquipmentTaxi medallionsTotal
Traditional C&I$392 $36,177 $3,273 $2,207 $42,049 
Asset-based lending  6,722   6,722 
Equipment finance  10,428  10,428 
CRE95,100    95,100 
ADC22,500    22,500 
Residential mortgage5,691    5,691 
Consumer6,192    6,192 
Total$129,875 $42,899 $13,701 $2,207 $188,682 

Collateral-dependent loans include all loans that were deemed TDRs at September 30, 2021. In the table above, $173.8 million of the total loans were on non-accrual at September 30, 2021. Business assets that secure traditional C&I and asset-based lending loans generally include accounts receivable, inventory, machinery and equipment. There were no warehouse lending, payroll finance, factored receivables, public sector finance, or multi-family loans that were collateral-dependent at September 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 lending 8,280   8,280 
Payroll finance 2,300   2,300 
Equipment finance 1,117 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 no 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:
September 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$41,447 $4,820 $3,371 $19,223 $16,914 $94 
Asset-based lending3,790   5,255 4,613  
Payroll finance   2,300 2,300  
Equipment financing21,478 3,737  30,634 11,578 2 
CRE87,014 1,382  46,053 38,529 74 
Multi-family327   4,485 2,156  
ADC22,500   30,000   
Residential mortgage16,976 2,744  18,661 808  
Consumer8,550 761  10,278 875  
Total$202,082 $13,444 $3,371 $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 September 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 no warehouse lending, factored receivables or public sector finance loans that were non-accrual or 90 days past due at September 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 nine months ended September 30, 2021 and 2020:
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
Traditional C&I$8 $12 $46 $61 
Asset-based lending   67 
Equipment financing1  88  
CRE581 609 852 897 
Multi-family  14  125 
ADC   297 
Residential mortgage44 111 270 290 
Consumer4 15 35 22 
Total interest reversed$638 $761 $1,291 $1,759 

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 interest accrued during the deferral period are due and payable on or before the maturity of the loan. At September 30, 2021, we have temporary deferrals in place with borrowers on 134 loans with an outstanding balance of $76.0 million. There was $1.6 million of accrued interest associated with these loans. Under the provisions of the CARES Act, none of these loans were considered TDR at September 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)
Loan balance outstandingDeferral of principal and interest% Short-term loan deferrals rated substandard
Commercial
C&I:
Traditional C&I$3,342,356 $  %$ 
Asset-based lending673,679    
Payroll finance166,999    
Warehouse lending1,301,639    
Factored receivables228,834    
Equipment finance1,254,846 728 0.1 544 
Public sector finance1,825,976    
Total C&I8,794,329 728  544 
Commercial mortgage:
Commercial real estate5,941,508 32,365 0.5 32,365 
Multi-family4,296,829    
ADC694,443    
Total commercial mortgage10,932,780 32,365 0.3 32,365 
Total commercial19,727,109 33,093 0.2 32,909 
Residential1,395,248 39,944 2.9  
Consumer154,192 2,961 1.9 31 
Total portfolio loans$21,276,549 $75,998 0.4 %$32,940 

There were no short-term loan deferrals rated special mention or doubtful at September 30, 2021.

TDRs
At September 30, 2021 and December 31, 2020, TDRs were $48.3 million and $79.0 million, respectively. The decline was mainly due to the repayment of $18.0 million of CRE loans and the sale of approximately $11.1 million of TDR loans in the second quarter. Of the total ACL - loans, $7.6 million at September 30, 2021 and $915 thousand at December 31, 2020 were related to TDRs. The increase in the ACL - loans related to TDRs was based on updates to our expected lifetime losses for these loans. We did not have any outstanding commitments to lend additional amounts to customers with loans classified as TDRs as of September 30, 2021 or December 31, 2020.

There were two equipment financing loan that were classified as TDR in the nine months ended September 30, 2021, including one in the third quarter of 2021. These loans were formerly included in our CARES Act modifications; however, after two modifications, the borrowers requested an additional modification, and we concluded the loans should be considered TDRs. We charged-off the loan balances to reflect estimated collateral value based on our assessment of the borrowers’ability to service the debt.
The following table presents loans classified as TDRs during the first nine months of 2021 and 2020 broken down by segment:
September 30, 2021September 30, 2020
 Recorded investmentRecorded investment
 NumberPre-
modification
Post-
modification
NumberPre-
modification
Post-
modification
Asset-based lending
 $ $ 2 $10,553 $9,822 
Equipment financing
2 3,578 2,000 1 1,027 773 
CRE
   1 24,270 24,270 
Total TDRs2 $3,578 $2,000 4 $35,850 $34,865 
During the nine months ended September 30, 2021, one residential mortgage TDR loan, which totaled $490 thousand, experienced payment defaults within the twelve months following the modification. During the nine months ended September 30, 2020, there were
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
three equipment finance loans, two CRE loans, two residential loans and two consumer loans that were designated TDR, which totaled $17.1 million and experienced a payment default within 12 months following the modification. A payment default is defined as missing three consecutive monthly payments or being over 90 days past due on a scheduled payment. 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 September 30, 2021 and September 30, 2020 is summarized in the table below:
 For the three months ended September 30, 2021
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I
$47,494 $(1,044)$169 $(875)$14,864 $61,483 
Asset-based lending
10,474 (7) (7)(416)10,051 
Payroll finance
1,567 (8)3 (5)129 1,691 
Warehouse lending
1,087    63 1,150 
Factored receivables
3,025  108 108 12 3,145 
Equipment financing
27,987 (968)525 (443)(2,070)25,474 
Public sector finance
6,168    (634)5,534 
CRE
155,589 (1,036)265 (771)(7,214)147,604 
Multi-family
32,054 (418) (418)(2,257)29,379 
ADC
11,371 (2,500) (2,500)1,509 10,380 
Residential mortgage
14,032 (13)1 (12)(3,146)10,874 
Consumer
4,025 (110)75 (35)(840)3,150 
Total ACL - loans
$314,873 $(6,104)$1,146 $(4,958)$ $309,915 
Annualized net charge-offs to average loans outstanding:0.10 %


 For the three months ended September 30, 2020
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision / (credit)Ending balance
Traditional C&I
$44,514 $(1,089)$677 $(412)$(4,429)$39,673 
Asset-based lending
30,853 (1,297) (1,297)(3,602)25,954 
Payroll finance
1,931  262 262 242 2,435 
Warehouse lending
668    838 1,506 
Factored receivables
10,586 (6,893)185 (6,708)1,266 5,144 
Equipment financing
78,172 (42,128)816 (41,312)(1,315)35,545 
Public sector finance
3,765    419 4,184 
CRE
98,905 (3,650) (3,650)29,008 124,263 
Multi-family
36,652    3,056 39,708 
ADC
18,195    (350)17,845 
Residential mortgage
33,955 (17,353) (17,353)6,235 22,837 
Consumer
7,293 (97)21 (76)(368)6,849 
Total ACL - loans
$365,489 $(72,507)$1,961 $(70,546)$31,000 $325,943 
Annualized net charge-offs to average loans outstanding:1.28 %
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
 For the nine months ended September 30, 2021
 Beginning
balance
Charge-offsRecoveriesNet
charge-offs
Provision/ (credit)Ending balance
Traditional C&I
$42,670 $(3,219)$1,225 $(1,994)$20,807 $61,483 
Asset-based lending
12,762 (7)1,998 1,991 (4,702)10,051 
Payroll finance
1,957 (94)9 (85)(181)1,691 
Warehouse lending
1,724    (574)1,150 
Factored receivables
2,904 (765)566 (199)440 3,145 
Equipment financing
31,794 (6,380)2,098 (4,282)(2,038)25,474 
Public sector finance
4,516    1,018 5,534 
CRE
155,313 (11,344)849 (10,495)2,786 147,604 
Multi-family
33,320 (8,630)15 (8,615)4,674 29,379 
ADC
17,927 (7,500) (7,500)(47)10,380 
Residential mortgage
16,529 (517)38 (479)(5,176)10,874 
Consumer
4,684 (732)205 (527)(1,007)3,150 
Total ACL - loans$326,100 $(39,188)$7,003 $(32,185)$16,000 $309,915 
Annualized net charge-offs to average loans outstanding:0.21 %
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 nine months ended September 30, 2020
 Beginning
balance
CECL Day 1Charge-offsRecoveriesNet
charge-offs
Provision/ (credit)Ending balance
Traditional C&I
$15,951 $5,325 $(5,375)$1,268 $(4,107)$22,504 $39,673 
Asset-based lending
14,272 11,973 (3,782) (3,782)3,491 25,954 
Payroll finance
2,064 1,334 (560)272 (288)(675)2,435 
Warehouse lending
917 (362)   951 1,506 
Factored receivables
654 795 (10,631)190 (10,441)14,136 5,144 
Equipment financing
16,723 33,000 (54,784)2,308 (52,476)38,298 35,545 
Public sector finance1,967 (766)   2,983 4,184 
CRE
27,965 8,037 (4,936)644 (4,292)92,553 124,263 
Multi-family
11,440 14,906 (154)1 (153)13,515 39,708 
ADC
4,732 (119)(4)105 101 13,131 17,845 
Residential mortgage
7,598 14,104 (19,127) (19,127)20,262 22,837 
Consumer
1,955 2,357 (1,674)1,177 (497)3,034 6,849 
Total allowance for loan losses$106,238 $90,584 $(101,027)$5,965 $(95,062)$224,183 $325,943 
Annualized net charge-offs to average loans outstanding:0.58 %

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 September 30, 2021 and December 31, 2020, the risk category of non-pass rated loans by segment was as follows:
September 30, 2021December 31, 2020
 Special Mention SubstandardSpecial Mention Substandard
Traditional C&I$24,300 $117,997 $24,162 $84,792 
Asset-based lending25,700 11,843 111,597 11,669 
Payroll finance   2,300 
Factored receivables  5,523  
Equipment financing18,784 36,380 7,737 45,018 
CRE155,502 323,500 249,403 280,796 
Multi-family107,925 63,895 61,146 44,872 
ADC19,384 42,384 1,407 30,000 
Residential mortgage86 17,272 468 18,942 
Consumer11 8,630 15 10,371 
Total$351,692 $621,901 $461,458 $528,760 

At September 30, 2021 and December 31, 2020 there were no warehouse lending or public sector finance loans rated special mention or substandard.

At September 30, 2021, there were $4.4 million of traditional C&I loans rated doubtful and no loans rated loss. At December 31, 2020, there were $304 thousand of traditional C&I loans rated doubtful and no 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 September 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$257,552 $241,873 $180,275 $183,148 $99,074 $113,147 $2,120,637 $ $3,195,706 
Special mention7,596  33 11,032 2,879 264 2,496  24,300 
Substandard1,605 26,697 38,061 14,454 7,683 3,909 25,588  117,997 
Doubtful      4,353  4,353 
Total traditional C&I266,753 268,570 218,369 208,634 109,636 117,320 2,153,074  3,342,356 
Asset-based lending
Pass12,590 17,262 6,750 3,002 6,723 32,692 557,117  636,136 
Special mention   1,324   24,376  25,700 
Substandard      11,843  11,843 
Total asset-based lending12,590 17,262 6,750 4,326 6,723 32,692 593,336  673,679 
Payroll finance
Pass      166,999  166,999 
Total payroll finance      166,999  166,999 
Warehouse lending
Pass18,628 118,247 22,646 11,575 111,967 1,018,576   1,301,639 
Total warehouse lending18,628 118,247 22,646 11,575 111,967 1,018,576   1,301,639 
Factored receivables
Pass      228,834  228,834 
Total factored receivables      228,834  228,834 
Equipment financing
Pass163,082 335,345 402,962 147,815 57,504 92,833 141  1,199,682 
Special mention 1,666 3,659 10,506 2,936 17  18,784 
Substandard 5,577 12,013 6,217 9,384 3,189   36,380 
Total equipment financing163,082 342,588 418,634 164,538 69,824 96,039 141  1,254,846 
Public Sector Finance
Pass365,023 414,074 388,128 192,198 254,458 212,095   1,825,976 
Total public sector finance365,023 414,074 388,128 192,198 254,458 212,095   1,825,976 
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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
Pass499,613 1,004,611 1,244,150 784,702 500,472 1,428,959   5,462,507 
Special mention 25,000 36,239 32,853 22,601 38,809   155,502 
Substandard 21,698 86,962 76,872 38,297 99,671   323,500 
Total CRE499,613 1,051,309 1,367,351 894,427 561,370 1,567,439   5,941,509 
Multi-family
Pass674,940 372,581 674,496 339,162 517,226 1,471,484 75,120  4,125,009 
Special mention 4,848 34,033 5,338 11,335 52,371   107,925 
Substandard  18,603 3,833 3,457 33,537 4,465  63,895 
Total multi-family674,940 377,429 727,132 348,333 532,018 1,557,392 79,585  4,296,829 
ADC
Pass163,519 140,041 230,100 48,597 7,836 42,581   632,674 
Special mention 2,416  16,968     19,384 
Substandard    42,384    42,384 
Total ADC163,519 142,457 230,100 65,565 50,220 42,581   694,442 
Residential
Pass156,549 10,532 10,109 27,103 33,247 1,140,350   1,377,890 
Special mention    86    86 
Substandard   259  17,013   17,272 
Total residential156,549 10,532 10,109 27,362 33,333 1,157,363   1,395,248 
Consumer
Pass528 63 281 281 135 4,633 86,062 53,568 145,551 
Special mention     11   11 
Substandard    343 2,410 5,877  8,630 
Total consumer528 63 281 281 478 7,054 91,939 53,568 154,192 
Total Loans$2,321,225 $2,742,531 $3,389,500 $1,917,239 $1,730,027 $5,808,551 $3,313,908 $53,568 $21,276,549 

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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:
September 30,December 31,
20212020
Goodwill$1,683,482 $1,683,482 
Other intangible assets:
Core deposits$58,924 $69,808 
Customer lists2,812 3,256 
Trade name20,500 20,500 
Total$82,236 $93,564 

The decrease in other intangible assets at September 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 September 30, 2021 was as follows:
Amortization expense
Remainder of 2021$3,776 
202213,703 
202312,322 
202410,448 
20258,722 
20267,134 
Thereafter5,631 
Total$61,736 

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

Deposit balances at September 30, 2021 and December 31, 2020 were as follows:
 September 30,December 31,
 20212020
Non-interest bearing demand$6,743,008 $5,443,907 
Interest bearing demand4,823,601 4,960,800 
Savings2,629,558 2,603,570 
Money market8,417,466 8,114,415 
Certificates of deposit1,322,390 1,996,830 
Total deposits$23,936,023 $23,119,522 
Total municipal deposits, which are included in the deposit balances above, were $2.4 billion and $1.6 billion at September 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.     
Brokered deposits at September 30, 2021 and December 31, 2020 were as follows:
September 30,December 31,
 20212020
Interest bearing demand$8,395 $433,790 
Money market522,222 1,045,478 
Certificates of deposit 100,003 
Total brokered deposits$530,617 $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 which totaled $524.9 million at September 30, 2021, now meets the “primary purpose” exception to the deposit broker definition. Accordingly, these deposits are included in core deposits at September 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:  
 September 30,December 31,
 20212020
 AmountRateAmountRate
By type of borrowing:
FHLB borrowings$  %$382,000 0.35 %
Repurchase agreements31,023 0.10 27,101 0.10 
Federal funds purchased  277,000 0.11 
Subordinated Notes - Bank  143,703 5.45 
Subordinated Notes - 2029270,543 4.18 270,284 4.17 
Subordinated Notes - 2030221,840 4.06 221,626 4.06 
Total borrowings$523,406 3.92 %$1,321,714 2.25 %
By remaining period to maturity:
Less than one year$31,023 0.10 %$686,101 0.24 %
Greater than five years492,383 4.13 635,613 4.43 
Total borrowings$523,406 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 September 30, 2021 and December 31,
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
2020, the Bank had total residential mortgage and CRE loans pledged after discount of $5.8 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 September 30, 2021, the Bank had unused borrowing capacity at the FHLB of $5.8 billion and may increase such borrowing capacity by pledging securities not required to be pledged for other purposes with a collateral value of approximately $1.6 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 September 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 September 30, 2021 and December 31, 2020, we posted cash collateral under STMs in the amounts of $56.4 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 September 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
September 30, 2021
Included in other assets:
Third-party interest rate swap$ $ 
Customer interest rate swap1,788,110 94,524 
Total $1,788,110 4.004.40 %
1 m Libor + 2.21%
$94,524 
Included in other liabilities:
Third-party interest rate swap$1,788,110 $38,093 
Customer interest rate swap  
Total$1,788,110 4.004.40 %
1 m Libor + 2.21%
$38,093 
December 31, 2020
Included in other assets:
Third-party interest rate swap$ $ 
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 nine months ended
 September 30,September 30,
 2021202020212020
Income before income tax expense $121,416 $96,687 $366,383 $160,694 
Tax at federal statutory rate of 21%25,497 20,305 76,940 33,746 
State and local income taxes, net of federal tax benefit6,698 4,942 19,820 6,622 
Tax exempt interest, net of disallowed interest(6,518)(7,811)(18,095)(22,713)
BOLI income(1,050)(1,122)(3,097)(3,267)
Non-deductible acquisition related costs1,204  1,204  
Low income housing tax credits and other benefits(13,721)(9,461)(40,903)(28,381)
Low income housing investment amortization expense12,119 8,183 35,452 24,571 
Tax rate adjustment benefit due to CARES Act net operating loss (“NOL”) carryback   (21,313)
Uncertain tax position reserve   11,480 
Annual effective tax rate adjustment (4,837) 7,273 
Non-deductible compensation expense (1)
450  1,511  
Equity-based stock compensation (benefit) expense
(21)192 (473)970 
FDIC insurance premium limitation237 266 642 837 
Other, net850 1,623 222 1,523 
Actual income tax expense $25,745 $12,280 $73,223 $11,348 
Effective income tax rate21.2 %12.7 %20.0 %7.1 %
(1) Includes $257 thousand in the three months ended September 30, 2021 and $936 thousand in the nine months ended September 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 $23.8 million at September 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 nine months of 2021. No 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 September 30, 2021, the accrual for unrecognized gross tax benefits was as follows:
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
Uncertain tax positions beginning of period$7,000 $11,603 $7,000 $ 
Additions for tax positions related to prior tax years   11,480 
Decrease due to settlement (1,315) (1,315)
Interest expense in tax positions   123 
Uncertain tax positions at end of period$7,000 $10,288 $7,000 $10,288 

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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 nine months ended September 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 (860,553)21.34   
Exercised — — (248,405)10.85 
Forfeited67,877 (67,877)19.20   
Canceled/expired31,109 (31,109)20.85   
Balance at September 30, 20214,272,158 3,172,350 $19.34 88,216 $11.93 
Exercisable at September 30, 202188,216 $11.93 
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 $1.1 million at September 30, 2021, all of which were exercisable.

We use an option pricing model to estimate the grant date fair value of stock options granted. There were no stock options granted during the nine months ended September 30, 2021 or September 30, 2020. As a result, we incurred no stock option expense during the nine month periods ended September 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 nine months ended
September 30,September 30,
2021202020212020
Stock options$ $ $ $ 
Non-vested stock awards/performance units6,648 5,868 20,046 17,788 
Non-vested stock awards/performance units$6,648 $5,868 $20,046 $17,788 
Income tax benefit1,330 734 4,009 2,224 
Proceeds from stock option exercises115 95 2,696 610 

Unrecognized stock-based compensation expense as of September 30, 2021 was $34.2 million and is expected to be recognized over 1.47 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 nine months ended September 30, 2021 and 2020, respectively, are presented in the following table:
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
Other non-interest expense:
Depreciation expense on operating leases$2,846 $3,130 $8,888 $9,758 
Advertising and promotion
2,027 1,291 5,695 4,414 
Communications1,379 1,424 4,129 4,374 
Residential mortgage loans servicing1,150 1,361 3,902 3,984 
Commercial loan servicing1,298 1,179 3,531 3,498 
Insurance & surety bond premium
1,125 942 3,083 3,191 
Operational losses
690 597 1,884 1,812 
Other
7,875 4,198 17,801 17,790 
Total other non-interest expense$18,390 $14,122 $48,913 $48,821 

(b) Other Assets
Other assets are presented in the following table. Significant components of the aggregate of other assets are presented separately.
September 30,December 31,
20212020
Other assets:
Low income housing tax credit investments$527,953 $488,303 
Right of use asset for operating leases 94,647 105,667 
Fair value of swaps
94,524 149,797 
Cash on deposit as swap collateral / net of settlement55,774 82,478 
Operating leases - equipment and vehicles leased to others43,052 55,224 
Other asset balances172,751 181,934 
Total other assets$988,701 $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.
September 30,December 31,
20212020
Other liabilities:
Commitment to fund low income housing tax credit investments $285,583 $283,849 
Lease liability
103,664 113,405 
Payroll finance and factoring liabilities117,227 115,802 
Swap liabilities (see Note 8)
38,093 60,004 
Other liability balances 147,579 155,642 
Total other liabilities$692,146 $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 nine months ended
 September 30,September 30,
 2021202020212020
Net income available to common stockholders$93,715 $82,438 $287,282 $143,429 
Weighted average common shares outstanding for computation of basic EPS
191,508,071 193,494,929 191,606,643 194,436,137 
Common-equivalent shares due to the dilutive effect of stock options and unvested performance share grants(1)
832,416 221,014 810,365 240,883 
Weighted average common shares for computation of diluted EPS192,340,487 193,715,943 192,417,008 194,677,020 
EPS(2):
Basic$0.49 $0.43 $1.50 $0.74 
Diluted0.49 0.43 1.49 0.74 
(1) Represents incremental shares computed using the treasury stock method.
(2) Anti-dilutive shares are not included in determining diluted EPS. There were no anti-dilutive shares in the three and nine months ended September 30, 2021 and 359,304 and 98,351 for the three and nine months ended September 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 $492.4 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 September 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 September 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 III Required to be considered well- capitalized
Capital amountRatioCapital amountRatioCapital amountRatio
September 30, 2021
Common equity tier 1 to RWA:
Sterling National Bank$3,448,597 14.52 %$1,663,006 7.00 %$1,544,220 6.50 %
Sterling Bancorp2,975,338 12.50 1,666,328 7.00 N/AN/A
Tier 1 capital to RWA:
Sterling National Bank3,448,597 14.52 %2,019,364 8.50 %1,900,578 8.00 %
Sterling Bancorp3,111,324 13.07 2,023,398 8.50 N/AN/A
Total capital to RWA:
Sterling National Bank3,626,007 15.26 %2,494,509 10.50 %2,375,723 10.00 %
Sterling Bancorp3,781,117 15.88 2,499,491 10.50 N/AN/A
Tier 1 leverage ratio:
Sterling National Bank3,448,597 12.60 %1,094,722 4.00 %1,368,402 5.00 %
Sterling Bancorp3,111,324 11.35 1,096,746 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 September 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.

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

(a) Off-Balance Sheet Financial Instruments
The contractual or notional amounts of these instruments, which reflect the extent of our involvement in particular classes of off-balance sheet financial instruments, are summarized as follows:
 September 30,December 31,
 20212020
Loan origination commitments$694,879 $641,965 
Unused lines of credit1,788,318 1,623,745 
Letters of credit169,128 181,890 

We record ACL - off-balance sheet financial instrument exposures through a charge to other non-interest expense on our consolidated income statements. At September 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 nine months ended September 30, 2021 and 2020, credit loss expense for off-balance sheet financial instrument exposures was zero. 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 nine months ended September 30, 2021 and 2020.

(b) Leases
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2021 were as follows:
Remainder of 2021$5,384 
202218,119 
202316,660 
202414,998 
202512,339 
202611,209 
2027 and thereafter40,889 
Total lease payments119,598 
Interest15,934 
Present value of lease liabilities$103,664 

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

There can be no assurance as to the ultimate outcome of a legal proceeding; however, we and the Bank have generally denied liability in all significant litigation pending against us and intend to vigorously defend each case, other than matters that are determined appropriate to be settled. We and the Bank accrue a liability for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. At September 30, 2021 we accrued $2.0 million to cover probable settlement and fees related to certain pending ligation and representing our best estimate of the amount of our exposure related to three legal matters. At December 31, 2020, we had no other 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 September 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 September 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 September 30, 2021 and December 31, 2020, respectively, measured at estimated fair value on a recurring basis, is as follows:
September 30, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Assets:
Investment securities available for sale:
Residential MBS:
Agency-backed$955,282 $ $955,282 $ 
CMOs/Other MBS234,838  234,838  
Total residential MBS1,190,120  1,190,120  
Other securities:
Federal agencies372,964  372,964  
Corporate 676,992  676,992  
State and municipal374,746  374,746  
Total other securities1,424,702  1,424,702  
Total AFS2,614,822  2,614,822  
Swaps94,524  94,524  
Total assets$2,709,346 $ $2,709,346 $ 
Liabilities:
Swaps$38,093 $ $38,093 $ 
Total liabilities$38,093 $ $38,093 $ 
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.
September 30, 2021
Fair valueLevel 1 inputsLevel 2 inputsLevel 3 inputs
Traditional C&I$2,207 $ $ $2,207 
Equipment financing3,675   3,675 
CRE24,004   24,004 
ADC22,500   22,500 
Residential mortgage1,312   1,312 
Consumer3,017   3,017 
Total collateral dependent loans measured at fair value$56,715 $ $ $56,715 

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 September 30, 2021:
 September 30, 2021
 Carrying
amount

Level 1 inputs

Level 2 inputs

Level 3 inputs
Financial assets:
Cash and cash equivalents$929,320 $929,320 $ $ 
Securities AFS2,614,822  2,614,822  
Securities HTM, net1,669,147  1,774,594  
Portfolio loans, net20,966,634   20,910,024 
Accrued interest receivable on securities32,719  32,719  
Accrued interest receivable on loans66,731   66,731 
FHLB stock and FRB stock151,004    
Swaps94,524  94,524  
Financial liabilities:
Non-maturity deposits22,613,633 22,613,633   
Certificates of deposit1,322,390  1,320,281  
Other borrowings31,023  31,023  
Subordinated Notes - Company492,383  522,520  
Mortgage escrow funds79,221  79,220  
Accrued interest payable on deposits491  491  
Accrued interest payable on borrowings6,403  6,403  
Swaps38,093  38,093  

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 - Company 491,910  506,497  
Mortgage escrow funds59,686  59,686  
Accrued interest payable on deposits 1,068  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:
September 30,December 31,
20212020
Net unrealized holding gain on available for sale securities$79,477 $115,523 
Related income tax expense(21,968)(31,931)
Available for sale securities, net of tax57,509 83,592 
Net unrealized holding loss on securities transferred to held to maturity(235)(348)
Related income tax benefit65 96 
Securities transferred to held to maturity, net of tax(170)(252)
Net unrealized holding (loss) gain on retirement plans(269)2,040 
Related income tax benefit (expense)74 (564)
Retirement plans, net of tax(195)1,476 
Accumulated other comprehensive income$57,144 $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 September 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 September 30, 2021
Balance beginning of the period$69,437 $(190)$(348)$68,899 
Other comprehensive loss before reclassification(10,730)  (10,730)
Amounts reclassified from AOCI(1,198)20 153 (1,025)
Total other comprehensive (loss) income(11,928)20 153 (11,755)
Balance at end of period$57,509 $(170)$(195)$57,144 
For the three months ended September 30, 2020
Balance beginning of the period$88,140 $(425)$895 $88,610 
Other comprehensive loss before reclassification(938)  (938)
Amounts reclassified from AOCI(465)95 564 194 
Total other comprehensive (loss) income(1,403)95 564 (744)
Balance at end of period$86,737 $(330)$1,459 $87,866 
Location in consolidated income statements where reclassification from AOCI is includedNet 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 nine months ended September 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 gain on retirement plansTotal
For the nine months ended September 30, 2021
Balance beginning of the period$83,592 $(252)$1,476 $84,816 
Other comprehensive loss before reclassification(24,375)  (24,375)
Amounts reclassified from AOCI(1,708)82 (1,671)(3,297)
Total other comprehensive (loss) income(26,083)82 (1,671)(27,672)
Balance at end of period$57,509 $(170)$(195)$57,144 
For the nine months ended September 30, 2020
Balance beginning of the period$38,056 $(538)$2,698 $40,216 
Other comprehensive income before reclassification55,583   55,583 
Amounts reclassified from AOCI(6,902)208 (1,239)(7,933)
Total other comprehensive income (loss)48,681 208 (1,239)47,650 
Balance at end of period$86,737 $(330)$1,459 $87,866 
Location in consolidated income statements where reclassification from AOCI is includedNet 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 the reference rate reform, the guidance permits: (i) modifications of loan agreements should be accounted for by prospectively adjusting
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands within tabular disclosure, except share and per share data)
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 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;
our ability to successfully implement growth and other strategic initiatives and reduce expenses;
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STERLING BANCORP AND SUBSIDIARIES
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 its variants) and the extent to and the speed at which the global economy recovers, the nature and extent of ongoing governmental measures to contain the pandemic (including through vaccines), the working conditions of our colleagues, the impact on our clients and vendors, and their businesses and employers, including the continued availability of our borrowers to repay 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 which adversely affected 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 in the first nine months 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 third quarter of 2021, prepayment activity in certain portfolios remained elevated, which continued to impact 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 resulted from it, as well as the 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 potential impact of new variants of COVID-19, the effectiveness of continuing containment measures, including the speed of the ongoing vaccine distribution effort, the efficacy of the various vaccines, the speed at which supply chain disruptions can be resolved, the impact of labor shortages on the broader economic recovery 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 stockholders 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, have identified the senior leadership of the combined company, confirmed our anticipated cost savings, and created processes to consolidate vendors. We have received stockholder and OCC approval. We are prepared to execute the Merger upon receipt of remaining regulatory approvals and subject to customary closing conditions.

Performance Summary
For the third quarter of 2021, we reported net income available to common stockholders of $93.7 million, or $0.49 per diluted share, and adjusted net income available to common stockholders of $99.6 million, or $0.52 per diluted share. We continue to operate in a low interest rate environment and for the third quarter of 2021, we reported net interest income of $213.8 million, a decrease of $4.0 million compared to the three months ended September 30, 2020. In the third quarter of 2021, as compared to the third quarter of 2020, accretion income on acquired loans declined by $3.0 million, and loan yields declined by 3 basis points, while our cost of funding liabilities declined by 23 basis points. Our tax equivalent net interest margin, excluding purchase accounting adjustments, increased 15 basis points to 3.25% and our reported net interest margin on a tax equivalent basis was 3.35%, an increase of 11 basis points over the three months ended September 30, 2020.

For the three months ended September 30, 2021, our provision for credit losses - loans was zero and our ACL - loans was $309.9 million, which represented 1.46% of total portfolio loans and 150.8% of non-performing loans. Net charge-offs in the third quarter of 2021 were $5.0 million. In the year earlier period, provision for credit losses - loans was $31.0 million and our ACL - loans was $325.9 million, which represented 1.46% of total portfolio loans and 180.2% of non-performing loans. The ACL - loans of 1.46% of total portfolio loans represents management's estimate of credit losses inherent in the portfolio and reflects declines in modeled reserve requirements resulting from an improving economic forecast, stabilizing asset quality metrics as well as continued uncertainty related to the speed and sustainability of ongoing recovery and its impact on certain sectors of the portfolio.

For the three months ended September 30, 2021, non-interest income was $32.5 million, an increase of $4.3 million over the same quarter a year ago. Deposit service charges, payroll finance fees, loan syndication fees, and fees from our swap business have continued to recover from the pandemic lows of the year ago period.

Our adjusted non-interest expenses were $111.3 million in the third quarter of 2021, an increase of $5.5 million over the quarter ended September 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 third quarter of 2021, our reported operating efficiency ratio was 50.7% and our adjusted operating efficiency ratio was 45.4%.

As of September 30, 2021, total portfolio loans were $21.3 billion, a decline of $571.9 million from December 31, 2020. This was mainly due to a $652.0 million decline in warehouse lending, the impact of $252.1 million in loan sales and pay downs of PPP loans amounting to $141.2 million. The majority of this decline occurred in the first half of 2021, while in the third quarter of 2021, we grew commercial loans by $558.7 million versus the linked quarter, mainly from robust growth in our traditional C&I and public sector finance portfolios. Our loans to deposits ratio was 88.9% as of September 30, 2021.

Total deposits were $23.9 billion at September 30, 2021, an increase of $816.5 million from December 31, 2020. Our cost of total deposits declined to 0.11% for the three months ended September 30, 2021 compared to 0.31% for the three months ended September 30, 2020, a result of changes in market rates of interest and our continued repricing efforts.

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
43

STERLING BANCORP AND SUBSIDIARIES
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 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 elements 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.


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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 September 30, At or for the nine months ended September 30,
2021202020212020
End of period balances:
AFS and HTM securities, net$4,283,969 $4,201,350 $4,283,969 $4,201,350 
Portfolio loans21,276,549 22,281,940 21,276,549 22,281,940 
Total assets
30,028,425 30,617,722 30,028,425 30,617,722 
Non-interest bearing deposits
6,743,008 5,874,554 6,743,008 5,874,554 
Interest bearing deposits17,193,015 18,380,779 17,193,015 18,380,779 
Total deposits23,936,023 24,255,333 23,936,023 24,255,333 
Borrowings523,406 993,535 523,406 993,535 
Stockholders’ equity4,797,629 4,557,785 4,797,629 4,557,785 
Tangible common stockholders’ equity (“TCE”)1
2,895,925 2,639,622 2,895,925 2,639,622 
Average balances:
AFS and HTM securities, net$4,320,243 $4,392,864 $4,233,420 $4,688,747 
Total loans2
20,629,138 22,159,535 20,920,013 21,771,593 
Total assets29,147,332 30,652,856 29,372,043 30,623,508 
Non-interest bearing deposits6,001,982 5,385,939 5,758,826 4,914,183 
Interest bearing deposits17,149,462 18,279,977 17,644,740 18,361,388 
Total deposits and mortgage escrow23,151,444 23,665,916 23,403,566 23,275,571 
Borrowings522,332 1,747,941 589,685 2,141,851 
Stockholders’ equity4,768,712 4,530,334 4,685,920 4,500,534 
TCE1
2,864,282 2,609,179 2,777,519 2,574,985 
Selected operating data:
Total interest and dividend income$225,089 $244,658 $689,246 $771,411 
Total interest expense
11,252 26,834 38,968 128,516 
Net interest income213,837 217,824 650,278 642,895 
Provision for credit losses— 30,000 15,250 224,886 
Net interest income after provision for credit losses213,837 187,824 635,028 418,009 
Total non-interest income32,547 28,225 95,117 101,641 
Total non-interest expense124,968 119,362 363,762 358,956 
Income before income tax 121,416 96,687 366,383 160,694 
Income tax expense25,745 12,280 73,223 11,348 
Net income
95,671 84,407 293,160 149,346 
Preferred stock dividend
1,956 1,969 5,878 5,917 
Net income available to common stockholders
$93,715 $82,438 $287,282 $143,429 
Per share data:
Reported basic EPS (GAAP)$0.49 $0.43 $1.50 $0.74 
Reported diluted EPS (GAAP)
0.49 0.43 1.49 0.74 
Adjusted diluted EPS1 (non-GAAP)
0.52 0.45 1.53 0.73 
Dividends declared per common share0.07 0.07 0.21 0.21 
Book value per share24.19 22.73 24.19 22.73 
Tangible book value per common share1
15.03 13.57 15.03 13.57 
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
At or for the three months ended September 30, At or for the nine months ended September 30,
2021202020212020
Common shares outstanding:
Shares outstanding at period end192,681,503 194,458,841 192,681,503 194,458,841 
Weighted average shares basic
191,508,071 193,494,929 191,606,643 194,436,137 
Weighted average shares diluted
192,340,487 193,715,943 192,417,008 194,677,020 
Other data:
Full time equivalent employees at period end
1,460 1,466 1,460 1,466 
Financial centers at period end72 78 72 78 
Performance ratios:
Return on average assets
1.28 %1.07 %1.31 %0.63 %
Return on average equity
7.80 7.24 8.20 4.26 
Reported return on average tangible assets1
1.36 1.14 1.39 0.66 
Adjusted return on average tangible assets1
1.44 1.21 1.43 0.66 
Reported return on average TCE1
12.98 12.57 13.83 7.44 
Adjusted return on average TCE1
13.79 13.37 14.21 7.34 
Reported operating efficiency1
50.7 48.5 48.8 48.2 
Adjusted operating efficiency1
45.4 43.1 44.6 43.5 
Net interest margin-GAAP3.30 3.19 3.35 3.17 
Net interest margin-tax equivalent3
3.35 3.24 3.40 3.22 
Capital ratios (Company)4:
Tier 1 leverage ratio11.35 %9.93 %11.35 %9.93 %
Common equity Tier 1 capital ratio
12.50 11.18 12.50 11.18 
Tier 1 risk-based capital ratio
13.07 11.75 13.07 11.75 
Total risk-based capital ratio
15.88 14.17 15.88 14.17 
Tangible equity to tangible assets
10.73 9.63 10.73 9.63 
Tangible common equity to tangible assets1
10.25 9.15 10.25 9.15 
Regulatory capital ratios (Bank)4:
Tier 1 leverage ratio
12.60 %10.48 %12.60 %10.48 %
Tier 1 risk-based capital ratio
14.52 12.39 14.52 12.39 
Total risk-based capital ratio
15.26 13.86 15.26 13.86 
Asset quality data and ratios:
Allowance for credit - loans$309,915 $325,943 $309,915 $325,943 
Non-performing loans (“NPLs”)
205,453 180,851 205,453 180,851 
Non-performing assets (“NPAs”)
206,269 187,770 206,269 187,770 
Net charge-offs
4,958 70,546 32,185 95,062 
NPAs to total assets
0.69 %0.61 %0.69 %0.61 %
NPLs to total loans5
0.97 0.81 0.97 0.81 
Allowance for loan losses to non-performing loans
150.84 180.23 150.84 180.23 
Allowance for loan losses to total loans4
1.46 1.46 1.46 1.46 
Annualized net charge-offs to average loans
0.10 1.27 0.21 0.58 
__________________
1 See a reconciliation of as reported financial measures to as adjusted (non-GAAP) financial measures beginning on page 63 below under the caption “Supplemental Reporting of Non-GAAP Financial Measures.”
2 Includes loans held for sale but excludes the 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 September 30, 2021, we reported net income available to common stockholders of $93.7 million, or $0.49 per diluted common share, compared to net income available to common stockholders of $82.4 million, or $0.43 per diluted common share, for the three months ended September 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 86.8% and 88.5% of total revenue in the three months ended September 30, 2021 and September 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 September 30, 2021, we considered 97.7% of our total deposits to be core deposits compared to 93.0% at September 30, 2020. The increase in core deposits was mainly due to the reclassification of one deposit relationship that met the “primary purpose” exception under the relevant guidance. See Note 6. “Deposits” for more information. Non-interest bearing demand deposits were $6.7 billion of our total deposits at September 30, 2021, compared to $5.9 billion at September 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 September 30,
 20212020
 Average
balance
InterestYield/RateAverage
balance
InterestYield/Rate
Interest earning assets:
Traditional C&I and commercial finance loans$8,260,805 $76,340 3.67 %$9,133,454 $83,415 3.63 %
CRE (includes multi-family)10,121,953 100,038 3.92 10,320,930 104,463 4.03 
ADC711,020 7,798 4.35 636,061 6,117 3.83 
Commercial loans19,093,778 184,176 3.83 20,090,445 193,995 3.84 
Consumer loans160,962 1,752 4.32 206,700 2,025 3.90 
Residential mortgage loans1,374,398 11,229 3.27 1,862,390 16,989 3.65 
Total gross loans1
20,629,138 197,157 3.79 22,159,535 213,009 3.82 
Securities taxable2,393,325 15,433 2.56 2,363,059 18,623 3.14 
Securities non-taxable1,926,918 14,692 3.05 2,029,805 15,515 3.06 
Interest earning deposits604,396 216 0.14 424,249 154 0.14 
FRB and FHLB stock151,230 676 1.77 186,689 615 1.31 
Total securities and other earning assets5,075,869 31,017 2.42 5,003,802 34,907 2.78 
Total interest earning assets25,705,007 228,174 3.52 27,163,337 247,916 3.63 
Non-interest earning assets3,442,325 3,489,519 
Total assets$29,147,332 $30,652,856 
Interest bearing liabilities:
Interest bearing demand deposits$4,686,129 $1,348 0.11 %$4,688,343 $2,911 0.25 %
Savings deposits2
2,721,327 446 0.07 2,727,475 1,205 0.18 
Money market deposits8,369,994 3,222 0.15 8,304,834 8,078 0.39 
Certificates of deposit1,372,012 1,145 0.33 2,559,325 6,057 0.94 
Total interest bearing deposits17,149,462 6,161 0.14 18,279,977 18,251 0.40 
Other borrowings30,057 0.09 1,303,849 3,378 1.03 
Subordinated Notes - Bank— — — 173,328 2,360 5.45 
Subordinated Notes - Company492,275 5,084 4.13 270,764 2,845 4.20 
Total borrowings522,332 5,091 3.87 1,747,941 8,583 1.95 
Total interest bearing liabilities17,671,794 11,252 0.25 20,027,918 26,834 0.53 
Non-interest bearing deposits6,001,982 5,385,939 
Other non-interest bearing liabilities704,844 708,665 
Total liabilities24,378,620 26,122,522 
Stockholders’ equity4,768,712 4,530,334 
Total liabilities and stockholders’ equity$29,147,332 $30,652,856 
Net interest rate spread3
3.27 %3.10 %
Net interest earning assets4
$8,033,213 $7,135,419 
Net interest margin - tax equivalent216,922 3.35 %221,082 3.24 %
Less tax equivalent adjustment(3,085)(3,258)
Net interest income213,837 217,824 
Accretion income on acquired loans6,197 9,172 
Tax equivalent net interest margin excluding accretion income on acquired loans$210,725 3.25 %$211,910 3.10 %
Ratio of interest earning assets to interest bearing liabilities145.5 %135.6 %
See legend on following page.
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STERLING BANCORP AND SUBSIDIARIES
 For the nine months ended September 30,
 20212020
 Average
balance
InterestYield/RateAverage
balance
InterestYield/Rate
Interest earning assets:
Traditional C&I and commercial finance loans$8,390,679 $231,327 3.69 %$8,654,615 $256,756 3.96 %
CRE (includes multi-family)10,244,942 306,889 4.00 10,338,120 321,610 4.16 
ADC660,442 20,304 4.11 552,558 18,200 4.40 
Commercial loans19,296,063 558,520 3.87 19,545,293 596,566 4.08 
Consumer loans171,384 5,546 4.33 219,751 7,198 4.38 
Residential mortgage loans1,452,566 40,631 3.73 2,006,549 64,588 4.29 
Total gross loans1
20,920,013 604,697 3.86 21,771,593 668,352 4.10 
Securities taxable2,292,829 46,534 2.71 2,583,795 58,107 3.00 
Securities tax exempt1,940,591 44,384 3.05 2,104,952 48,209 3.05 
Interest earning deposits634,455 530 0.11 456,405 2,131 0.62 
FRB and FHLB stock151,708 2,422 2.13 212,673 4,736 2.97 
Total securities and other earning assets
5,019,583 93,870 2.50 5,357,825 113,183 2.82 
Total interest earning assets
25,939,596 698,567 3.60 27,129,418 781,535 3.85 
Non-interest earning assets3,432,447 3,494,090 
Total assets$29,372,043 $30,623,508 
Interest bearing liabilities:
Interest bearing demand deposits$4,876,228 $5,003 0.14 %$4,690,425 $17,275 0.49 %
Savings deposits2
2,738,880 1,448 0.07 2,805,680 7,128 0.34 
Money market deposits8,420,375 10,176 0.16 8,011,729 38,186 0.64 
Certificates of deposit1,609,257 5,100 0.42 2,853,554 29,553 1.38 
Total interest bearing deposits17,644,740 21,727 0.16 18,361,388 92,142 0.67 
Senior Notes— — — 100,029 2,378 3.18 
Other borrowings50,185 52 0.14 1,597,631 18,418 1.54 
Subordinated Notes - Bank47,381 1,957 5.51 173,266 7,078 5.45 
Subordinated Notes - Company
492,119 15,232 4.13 270,925 8,500 4.18 
Total borrowings
589,685 17,241 3.91 2,141,851 36,374 2.27 
Total interest bearing liabilities
18,234,425 38,968 0.29 20,503,239 128,516 0.84 
Non-interest bearing deposits5,758,826 4,914,183 
Other non-interest bearing liabilities
692,872 705,552 
Total liabilities24,686,123 26,122,974 
Stockholders’ equity4,685,920 4,500,534 
Total liabilities and stockholders’ equity
$29,372,043 $30,623,508 
Net interest rate spread3
3.31 %3.01 %
Net interest earning assets4
$7,705,171 $6,626,179 
Net interest margin - tax equivalent659,599 3.40 %653,019 3.22 %
Less tax equivalent adjustment
(9,321)(10,124)
Net interest income650,278 642,895 
Accretion income on acquired loans
22,281 29,944 
Tax equivalent net interest margin excluding accretion income on acquired loans$637,318 3.28 %$623,075 3.07 %
Ratio of interest earning assets to interest bearing liabilities
142.3 %132.3 %
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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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 September 30,
 2021 vs. 2020
 Increase / (Decrease)
due to
Total
increase /
 VolumeRate(decrease)
Interest earning assets:
Traditional C&I and commercial finance loans$(7,995)$920 $(7,075)
CRE (includes multi-family)(1,831)(2,594)(4,425)
ADC781 900 1,681 
Commercial loans(9,045)(774)(9,819)
Consumer loans(478)205 (273)
Residential mortgage loans(4,122)(1,638)(5,760)
Total loans(13,645)(2,207)(15,852)
Securities taxable242 (3,432)(3,190)
Securities tax exempt(773)(50)(823)
Interest earning deposits62 — 62 
FRB and FHLB stock(130)191 61 
Total interest earning assets(14,244)(5,498)(19,742)
Interest bearing liabilities:
Interest bearing demand deposits(1)(1,562)(1,563)
Savings deposits1
(3)(756)(759)
Money market deposits65 (4,921)(4,856)
Certificates of deposit(2,048)(2,864)(4,912)
Total interest bearing deposits(1,987)(10,103)(12,090)
Other borrowings(1,678)(1,693)(3,371)
Subordinated Notes - Bank(1,180)(1,180)(2,360)
Subordinated Notes - Company2,288 (49)2,239 
Total borrowings(570)(2,922)(3,492)
Total interest bearing liabilities(2,557)(13,025)(15,582)
Change in tax equivalent net interest income(11,687)7,527 (4,160)
Less tax equivalent adjustment(220)47 (173)
Change in net interest income$(11,467)$7,480 $(3,987)
______________________
1 Includes club accounts and interest bearing mortgage escrow balances.
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For the nine months ended September 30,
 2021 vs. 2020
 Increase / (Decrease)
due to
Total
increase /
 VolumeRate(decrease)
Interest earning assets:
Traditional C&I and commercial finance loans$(7,858)$(17,571)$(25,429)
CRE (includes multi-family)(2,795)(11,926)(14,721)
ADC3,365 (1,261)2,104 
Commercial loans(7,288)(30,758)(38,046)
Consumer loans(1,571)(81)(1,652)
Residential mortgage loans(16,267)(7,690)(23,957)
Total loans(25,126)(38,529)(63,655)
Securities taxable(6,227)(5,346)(11,573)
Securities tax exempt(3,825)— (3,825)
Interest earning deposits605 (2,206)(1,601)
FRB and FHLB stock(1,165)(1,149)(2,314)
Total interest earning assets(35,738)(47,230)(82,968)
Interest bearing liabilities:
Interest bearing demand deposits646 (12,918)(12,272)
Savings deposits1
(165)(5,515)(5,680)
Money market deposits1,878 (29,888)(28,010)
Certificates of deposit(9,422)(15,031)(24,453)
Total interest bearing deposits(7,063)(63,352)(70,415)
Senior Notes(1,189)(1,189)(2,378)
Other borrowings(9,649)(8,717)(18,366)
Subordinated Notes - Bank(5,198)77 (5,121)
Subordinated Notes - Company6,834 (102)6,732 
Total borrowings(9,202)(9,931)(19,133)
Total interest bearing liabilities(16,265)(73,283)(89,548)
Change in tax equivalent net interest income(19,473)26,053 6,580 
Less tax equivalent adjustment(803)— (803)
Change in net interest income$(18,670)$26,053 $7,383 
______________________
1 Includes club accounts and interest bearing mortgage escrow balances.

Tax equivalent net interest income decreased $4.2 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. This was mainly a result of lower interest income, which declined in line with lower market interest rates and was only partially offset by lower funding costs. Over the course of 2020 and during the first nine months 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 58.1% over the prior year quarter, while tax equivalent interest and dividend income declined by 8.0% over the same period. For the three months ended September 30, 2021, total interest earning assets yielded 3.52% compared to 3.63% during the same period in 2020. The cost of interest bearing liabilities declined to 0.25% in the third quarter of 2021 compared to 0.53% in the same period in 2020. The tax equivalent net interest margin increased 11 basis points to 3.35% in the third quarter of 2021 from 3.24% in the third quarter of 2020. The percentage of average loans to average earning assets decreased to 80.3% compared to 81.6% in 2020.
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Tax equivalent net interest income increased $6.6 million to $659.6 million for the nine months ended September 30, 2021, compared to $653.0 million for the nine months ended September 30, 2020, with the decline in interest income offset by the decline in interest expense, due to the same factors discussed above. The tax equivalent net interest margin increased to 3.40% for the nine months ended September 30, 2021 from 3.22% in the nine months ended September 30, 2020. The yield on interest earning assets was 3.60% compared to 3.85% for the nine months ended September 30, 2020, which was mainly due to changes in market interest rates and lower accretion income. The cost of interest bearing liabilities declined to 0.29% for the nine months ended September 30, 2021 compared to 0.84% for the nine months ended September 30, 2020, which was mainly due to the same factors described above. The percentage of loans to average earning assets increased to 80.6% for the nine months ended September 30, 2021, compared to 80.3% for the nine months ended September 30, 2020.

Average interest earning assets decreased by $1.5 billion for the three months ended September 30, 2021 when compared to the prior year period. This was mainly due to a decline in average commercial loans of $996.7 million and average residential mortgage loans of $488.0 million. Average interest earning assets decreased by $1.2 billion for the nine months ended September 30, 2021. The decline year over year was mainly due to repayments and sales of securities, which resulted in a $455.3 million decline in average securities, a runoff of residential mortgage loans, which declined $554.0 million, and a decline of $249.2 million in the average balance of commercial loans.

The average balance of commercial loans decreased $996.7 million for the three months ended September 30, 2021, compared to the three months ended September 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 ABL, equipment finance and multifamily portfolios. The average yield on commercial loans declined to 3.83% compared to 3.84% 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 $6.2 million for the three months ended September 30, 2021 compared to $9.2 million in the corresponding prior year quarter.

The average balance of loans outstanding decreased $851.6 million in the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, mainly due to the same factors as discussed above. The average yield on loans was 3.86% in the nine months ended September 30, 2021 compared to 4.10% 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 nine months ended September 30, 2021, to $18.2 million compared to $22.0 million in the year ago period.

Interest income on traditional C&I and commercial finance loans decreased $7.1 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, which was mainly due to the decline in average balances discussed above. The yield on traditional C&I and commercial finance loans increased to 3.67%, compared to 3.63% in the corresponding prior year period. The increase in yield was mainly due to a change in the mix of our traditional C&I and commercial finance loans caused by the decline in mortgage warehouse loans, which have lower yields than most other traditional C&I and commercial finance loans.

Interest income on traditional C&I and commercial finance loans decreased $25.4 million and was $231.3 million in the nine months ended September 30, 2021, compared to $256.8 million for the nine months ended September 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 3.69% compared to 3.96% in the nine months ended September 30, 2020, in line with changes in market rates of interest.

Interest income on CRE loans and multi-family loans decreased $4.4 million to $100.0 million for the three months ended September 30, 2021 compared to $104.5 million for the three months ended September 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 3.92% for the three months ended September 30, 2021, compared to 4.03% in the three months ended September 30, 2020.

Interest income on CRE loans and multi-family loans decreased $14.7 million to $306.9 million in the nine months ended September 30, 2021 compared to $321.6 million for the nine months ended September 30, 2020. The yield on CRE and multi-family loans was 4.00% in the nine months ended September 30, 2021, compared to 4.16% in the nine months ended September 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 $5.8 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The decrease was mainly due to a decline in average balances and a 38 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 $629 thousand in the three months ended September 30, 2021, compared to $1.8 million in the prior year period. The average balance of
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residential mortgage loans declined $488.0 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 $24.0 million to $40.6 million in the nine months ended September 30, 2021 compared to $64.6 million for the nine months ended September 30, 2020. The decrease was mainly due to a $554.0 million decline in the average balance of residential mortgage loans resulting from elevated levels of pay downs as well as a result of loan sales in 2020. The yield on residential mortgage loans decreased to 3.73% for the nine months ended September 30, 2021 compared to 4.29% for the nine months ended September 30, 2020. Accretion income on acquired residential mortgage loans was $3.5 million for the nine months ended September 30, 2021, compared to $7.1 million for the nine months ended September 30, 2020.

Tax equivalent interest income on securities decreased $4.0 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, mainly due to a decrease of $72.6 million in the average balance of 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 2.77%, compared to 3.09% in the prior year period. The decrease in tax equivalent yield was mainly due to lower reinvestment rates 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 September 30, 2021, compared to $2.0 billion for the corresponding period in 2020.

Tax equivalent interest income on securities decreased $15.4 million to $90.9 million in the nine months ended September 30, 2021, compared to $106.3 million for the nine months ended September 30, 2020. This was mainly the result of a decrease of $455.3 million in the average balance of securities between the periods. The tax equivalent yield on securities was 2.87% in the nine months ended September 30, 2021, compared to 3.03% in the nine months ended September 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 $604.4 million for the three months ended September 30, 2021, an increase of $180.1 million compared to the three months ended September 30, 2020. The increase was due to deposit inflows and lower than anticipated loan demand. Interest earning deposits yielded 0.14% for the three months ended September 30, 2021, unchanged from the same period in 2020.

Average total deposits and mortgage escrow balances decreased $514.5 million to $23.2 billion in the three months ended September 30, 2021, compared to the third quarter of 2020. Average interest bearing deposits decreased $1.1 billion and average non-interest bearing deposits increased $616.0 million. The decrease in average interest bearing deposits was mainly due to a decline in higher costing certificate accounts which we allowed to mature without renewal. The increase in non-interest bearing deposits was due to organic growth. The average cost of interest bearing deposits was 0.14% for the three months ended September 30, 2021 compared to 0.40% in the three months ended September 30, 2020. The average cost of total deposits was 0.11% for the three months ended September 30, 2021, compared to 0.31% in the third 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 $128.0 million to $23.4 billion in the nine months ended September 30, 2021, compared to $23.3 billion in the nine months ended September 30, 2020. Over the same period, average interest bearing deposits decreased $716.6 million compared to the nine months ended September 30, 2020. Average non-interest bearing deposits increased $844.6 million to $5.8 billion in the nine months ended September 30, 2021, compared to $4.9 billion in the nine months ended September 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 0.16% in the nine months ended September 30, 2021 compared to 0.67% in the nine months ended September 30, 2020. The average cost of total deposits was 0.12% in the nine months ended September 30, 2021 compared to 0.53% in the nine months ended September 30, 2020. The decrease in the cost of deposits was mainly due to the same factors discussed above.

Average borrowings declined $1.2 billion in the three months ended September 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 third quarter of 2021, compared to 1.95% 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 $1.6 billion to $589.7 million in the nine months ended September 30, 2021, compared to $2.1 billion in the same period a year ago. The decrease in average borrowings was due to the same factors as discussed related to the three month period. The average cost of borrowings was 3.91% for the nine months ended September 30, 2021, compared to 2.27% in the nine months ended September 30, 2020. The increase was mainly due to the same factors as discussed in the three month period.
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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 September 30, 2021 and September 30, 2020, the provision for credit losses - loans was zero and $31.0 million, respectively. See the section “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 third quarter of 2021, we did not record a provision for credit losses - HTM securities compared to a negative provision of $1.0 million recorded in the third quarter of 2020. In the third quarter of 2020, we reduced the allowance for credit losses - HTM securities after we sold $93.0 million of HTM securities, that had demonstrated significant credit deterioration since the date of purchase. In the nine months ended September 30, 2021 we recorded a negative provision for credit losses - HTM securities of $750 thousand compared to the nine months ended September 30, 2020, for which we recorded a provision for credit losses - HTM securities of $703 thousand. The negative provision for credit losses recorded in the nine months ended September 30, 2021 reflects lower levels of modeled loss content in our HTM securities portfolio.

Non-interest income. The components of non-interest income were as follows for the periods presented below:
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
Deposit fees and service charges$7,007 $5,960 $20,666 $17,928 
Accounts receivable management / factoring commissions and other fees
5,937 5,393 16,854 15,349 
Bank owned life insurance5,009 5,363 14,945 15,331 
Loan commissions and fees8,620 7,290 27,859 26,317 
Investment management fees1,819 1,735 5,689 4,960 
Net gain on sale of securities1,656 642 2,361 9,539 
Net gain on called securities85 — 19 4,880 
Other2,414 1,842 6,724 7,337 
Total non-interest income$32,547 $28,225 $95,117 $101,641 

Non-interest income was $32.5 million for the three months ended September 30, 2021, compared to $28.2 million in the same period a year ago. Non-interest income was $95.1 million for the nine months ended September 30, 2021, compared to $101.6 million in the nine months ended September 30, 2020.

Deposit fees and service charges increased $1.0 million compared to the third quarter of 2020. This was mainly due to higher transaction volumes, higher analysis charges and an increase in wire fees and check printing fees. In the nine months ended September 30, 2021, deposit fees and charges increased $2.7 million compared to the same period a year ago. The increase was mainly due to increased transaction volumes compared to the same period a year ago which were impacted by the the pandemic.

Accounts receivable management / factoring commissions and other fees increased $544 thousand in the three months ended September 30, 2021 compared to the third quarter of 2020 and increased $1.5 million in the nine months ended September 30, 2021 as compared to the same period a year ago. The increases were mainly due to a rebound in transaction volume in our factoring and payroll finance businesses.

Loan commissions and fee income includes fees on lines of credit, loan servicing fees, loan syndication fees, collateral monitoring, and other loan related fees that are not included in interest income. The nine month period ended September 30, 2021 includes referral fees of $1.8 million earned earlier in the year from second round PPP loans. In the year ago period, loan fees also included gain on sale of equipment finance loans of $2.9 million. Excluding these items, the increase in the nine month period was mainly due to higher loan syndication fees.

Net gain on sale of securities represents net gains and losses realized on the sale of securities from our AFS investment securities portfolio. The net gain on sale of securities of $1.7 million realized in the three months ended September 30, 2021 was mainly due to the sale of US Government and corporate securities. The net gain in the three months ended September 30, 2020 was mainly due to the sale of securities held in our held to maturity portfolio, as we sold securities from one issuer that had demonstrated significant deterioration in
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credit quality since the date we acquired the securities. The net gain on sale of securities in the nine months ended September 30, 2020, was mainly to reduce the level of investment securities to total earning assets.

Net gain on called securities in the nine months ended September 30, 2020 represents the gain realized on securities called of $174.6 million, which were mainly government agency securities.

Other non-interest income principally includes fees for interest rate swaps, earnings from community development investments, safe deposit rentals, and foreign exchange fees. Other non-interest income increased $572 thousand compared to the third quarter of 2020. The increase was mainly due to an increase in earnings from community development investments and interest rate swaps. For the nine months ended September 30, 2021, other non-interest income declined $613 thousand, which was mainly due to lower transactional volumes in our derivatives business, which was $1.0 million in the nine months ended September 30, 2021, compared to $2.6 million in the same period in 2020. Partially offsetting this decline was an increase in earnings from community development investments.

Non-interest expense. The components of non-interest expense were as follows for the periods presented below:
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
Compensation and benefits$57,178 $55,960 $172,218 $165,504 
Stock-based compensation plans6,648 5,869 20,046 17,788 
Occupancy and office operations13,967 14,722 42,357 44,616 
Information technology10,214 8,422 29,201 23,752 
Professional fees 7,251 6,343 21,889 17,550 
Amortization of intangible assets3,776 4,200 11,328 12,600 
FDIC insurance and regulatory assessments2,844 3,332 8,418 10,176 
Other real estate owned expense (“OREO”), net151 (139)1,436 
Merger-related expense4,581 — 7,062 — 
 Impairment related to financial centers and real estate consolidation strategy118 — 1,226 — 
Loss on extinguishment of borrowings— 6,241 1,243 16,713 
Other non-interest expense18,390 14,122 48,913 48,821 
Total non-interest expense$124,968 $119,362 $363,762 $358,956 

Non-interest expense increased $4.3 million in the three months ended September 30, 2021, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021 non-interest expense increased $4.8 million compared to the same period a year ago. The increases were mainly due to merger-related expenses. Fluctuations in our non-interest expenses are discussed below.

Compensation and benefits expense was $57.2 million for the three months ended September 30, 2021, compared to $56.0 million for the three months ended September 30, 2020. The increase was mainly due to a higher bonus compensation accrual and an increase in medical costs. For the nine months ended September 30, 2021, compensation and employee benefits expense was $172.2 million compared to $165.5 million for the nine months ended September 30, 2020. The increase in the nine month period was mainly due to the same factors discussed above. The reduction in financial center personnel has been offset by continued hiring of commercial banking, business development and risk management personnel.

Stock-based compensation plans expense was $6.6 million in the third quarter of 2021, compared to $5.9 million in the third quarter of 2020. The increase was due to additional personnel included in our stock-based compensation plan. For additional information related to our employee benefit plans and stock-based compensation, see Note 10. “Stock-Based Compensation” in the notes to consolidated financial statements included elsewhere in this report. For the nine months ended September 30, 2021, stock-based compensation expense was $20.0 million compared to $17.8 million for the nine months ended September 30, 2020. The increase was due to the same factors discussed above.

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Occupancy and office operations expense was $14.0 million in the third quarter of 2021, compared to $14.7 million in the third quarter of 2020. The decline in occupancy and office operations expense is due to continuing efforts to rationalize our real estate footprint. For the nine months ended September 30, 2021, occupancy and office operations expense was $42.4 million, compared to $44.6 million for the nine months ended September 30, 2020. This decrease was due to the same factors discussed above.

Information technology expense, which mainly includes the cost of our loan and deposit operating systems and contracted service and maintenance associated with other data processing systems, as well as amortization related to our investment in various digital initiatives, was $10.2 million in the third quarter of 2021, compared to $8.4 million in the third quarter of 2020. The increase was mainly due to amortization on investments made in various back-office automation initiatives and digital transformation efforts, which are designed to enable us to drive future revenue growth and expand our digital offerings. For the nine months ended September 30, 2021, information technology expense was $29.2 million, compared to $23.8 million for the nine months ended September 30, 2020. The increase was due to the same factors discussed above.

Professional fees, were $7.3 million for the three months ended September 30, 2021, compared to $6.3 million for the three months ended September 30, 2020. The increase was mainly due to incremental fees related to outsourced services in connection with certain infrastructure needs as well as incremental consulting fees related to infrastructure transformation, automation and other digital initiatives. For the nine months ended September 30, 2021, professional fees were $21.9 million, compared to $17.6 million for the nine months ended September 30, 2020. The increase was due to the same factors discussed above.

Amortization of intangible assets expense mainly includes amortization of core deposit intangible assets, customer lists and non-compete agreements. Amortization of intangible assets was $3.8 million in the three months ended September 30, 2021, compared to $4.2 million for the three months ended September 30, 2020. Amortization of intangible assets expense was $11.3 million for the nine months ended September 30, 2021, compared to $12.6 million for the nine months ended September 30, 2020. The decreases in amortization expense were mainly due to the accelerated amortization of the core deposit intangible assets that were recorded in the merger with Astoria Financial Corporation and other acquisitions. For additional information, see Note 5. “Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements included elsewhere in this report.

FDIC insurance and regulatory assessments were $2.8 million and $8.4 million for the three and nine months ended September 30, 2021, respectively, compared to $3.3 million and $10.2 million for the three and nine months period ended September 30, 2020, respectively. The decline was due to lower FDIC insurance assessments and was mainly due to a decline in average assets, retention of 100% of capital, and improvement in earnings in 2021 compared to 2020.

Merger-related expense was $4.6 million and $7.1 million for the three months and nine months ended September 30, 2021, respectively, and was incurred in connection with our pending merger with Webster. The expense included fees for financial advisory services, diligence, and integration efforts to date.

Impairment related to financial centers and real estate consolidation strategy was $118 thousand for the three months ended September 30, 2021. This charge included a lease termination payment. The charge of $1.2 million for the nine months ended September 30, 2021, also included write-off of leasehold improvements of $127 thousand, loss on sale of fixed assets from the sale of two owned locations of $309 thousand, and write-off of other fixed assets abandoned when we disposed of certain facilities of $197 thousand.

Loss on extinguishment of borrowings was $1.2 million for the nine months ended September 30, 2021 and represents the loss related to the payoff of the subordinated notes - Bank, which were redeemed on April 1, 2021. For the three and nine months ended September 30, 2020, the losses of $6.2 million and $16.7 million, respectively, were related to the repayment of FHLB borrowings.
Other non-interest expense includes depreciation expense on operating leases, advertising and promotion, communications, residential mortgage loan servicing, insurance, operational losses, commercial loan processing expenses, pension and post retirement plans, recruitment fees, taxes not included in income tax expense, travel and client entertainment, and colleague training expense. The increase in the three month period ended September 30, 2021 when compared to the same period in 2020 was mainly due to accrual for legal settlements of $2.0 million, loss on the sale of the majority of our mortgage servicing assets of $324 thousand, an increase in loan processing expense of $510 thousand, an increase in franchise taxes of $368 thousand and an increase in recruiting fees of $300 thousand. For the nine months September 30, 2021 when compared to the same period in 2020, the increase was much smaller because in 2020 we incurred incremental operating costs related to the pandemic and made additional contributions to the Sterling National Bank Charitable Foundation. See Note 11. “Other Non-Interest Expense, Other Assets and Other Liabilities” in the notes to the consolidated financial statements included elsewhere in this report for details on significant components.
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Income tax expense was $25.7 million, representing an effective income tax rate of 21.2% for the three months ended September 30, 2021, compared to income tax expense of $12.3 million for the three months ended September 30, 2020. Our estimated effective income tax rate for full year 2021 is 20.0% prior to the impact of discrete items.

Income tax expense was $73.2 million, or 20.0% of pre-tax income, for the nine months ended September 30, 2021 and a benefit of $11.3 million, or a benefit of 7.1% for the nine months ended September 30, 2020. See Note 9. “Income Taxes” in the notes to the consolidated financial statements included elsewhere in this report for additional information.


Portfolio Loans
The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the periods indicated.
 September 30, 2021December 31, 2020
 Amount%Amount%
Commercial:
C&I:
Traditional C&I
$3,342,356 15.6 %$2,920,205 13.4 %
Asset-based lending673,679 3.2 803,004 3.7 
Payroll finance166,999 0.8 159,237 0.7 
Warehouse lending1,301,639 6.1 1,953,677 8.9 
Factored receivables228,834 1.1 220,217 1.0 
Equipment financing
1,254,846 5.9 1,531,109 7.0 
Public sector finance
1,825,976 8.6 1,572,819 7.2 
Total C&I
8,794,329 41.3 9,160,268 41.9 
Commercial mortgage:
CRE
5,941,508 27.9 5,831,990 26.7 
Multi-family
4,296,829 20.2 4,406,660 20.2 
ADC
694,443 3.3 642,943 2.9 
Total commercial mortgage10,932,780 51.4 10,881,593 49.8 
Total commercial19,727,109 92.7 20,041,861 91.7 
Residential mortgage1,395,248 6.6 1,616,641 7.4 
Consumer154,192 0.7 189,907 0.9 
Total portfolio loans21,276,549 100.0 %21,848,409 100.0 %
ACL - loans(309,915)(326,100)
Total portfolio loans, net
$20,966,634 $21,522,309 
Note: the percentages in the table above are rounded to the nearest tenth of a percent.

Overview. Total portfolio loans, net, decreased $555.7 million to $21.0 billion at September 30, 2021, compared to $21.5 billion at December 31, 2020. A slowdown in mortgage refinance activity drove a $652.0 million sequential decline in our mortgage warehouse lending balance and was the primary driver of the decline in total C&I. Repayments of multi-family loans that were predominately broker originated contributed to the decline in total commercial loans while repayments of residential mortgage loans contributed to the decline in total portfolio loans.

At September 30, 2021, total C&I loans comprised 41.3% of the total loan portfolio, compared to 41.9% at December 31, 2020. Commercial mortgage loans comprised 51.4% and 49.8% of the total loan portfolio at September 30, 2021 and December 31, 2020, respectively. Residential mortgage loans comprised 6.6% of the total loan portfolio at September 30, 2021, compared to 7.4% at December 31, 2020.

In the nine months ended September 30, 2021, traditional C&I loans increased by $422.2 million, primarily as a result of increases in line of credit usage and C&I loan origination activity, which was offset by repayments of PPP loans of $141.2 million. Total C&I loans
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STERLING BANCORP AND SUBSIDIARIES
declined largely as a result of the decline in warehouse lending loans discussed above and were also impacted by pay downs of asset-based lending loans, which decreased by $129.3 million, and by pay downs of equipment finance loans which decreased $276.3 million. These decreases were partially offset by an increase in public sector finance loans of $253.2 million.

CRE loans increased $109.5 million in the nine months ended September 30, 2021. The increase was mainly due to an uptick in demand for these loan products in our market area. Multi-family loans declined by $109.8 million in the first nine months of 2021, mainly due to run-off in broker originated loans. Our CRE loans balances were impacted by the sale of $23.7 million of classified loans in the third quarter of 2021 and the sale of $192.5 million of mostly criticized and classified CRE loans in the first half of 2021.

ADC loans, which are a component of commercial mortgage loans, increased $51.5 million in the nine months ended September 30, 2021. The increase is mainly due to originations related to our affordable housing tax credit investments.

Residential mortgage loans were $1.4 billion at September 30, 2021, compared to $1.6 billion at December 31, 2020. The decline was mainly due to repayments.

Included in our residential mortgage portfolio are loans that were originated as interest-only adjustable rate mortgages (“ARM loans”) with terms of up to forty years, which have an initial fixed rate for five, seven or 10 years and convert into one year interest-only ARM loans at the end of the initial fixed rate period. Interest-only ARM loans require the borrower to pay interest only during the first ten years of the loan term, which typically results in a material increase in the borrower’s monthly payments upon conversion. After the tenth anniversary of the loan, principal and interest payments are required to amortize the loan over the remaining term. There were $498.1 million of residential mortgage loans that were originated as interest only ARM loans at September 30, 2021 compared to $599.5 million at December 31, 2020.

Non-Performing Loans and Non-Performing Assets
The table below sets forth the amounts and categories of our NPAs at the dates indicated. There were no warehouse lending or public sector finance loans that were non-performing at such dates.
 September 30,December 31,
 20212020
Non-accrual loans:
Traditional C&I$41,447 $19,223 
Asset-based lending3,790 5,255 
Payroll finance— 2,300 
Equipment financing21,478 30,634 
CRE87,014 46,053 
Multi-family327 4,485 
ADC22,500 30,000 
Residential mortgage16,976 18,661 
Consumer8,550 10,278 
Total non-accrual loans
202,082 166,889 
Accruing loans past due 90 days or more
3,371 170 
Total NPLs205,453 167,059 
OREO816 5,347 
Total NPAs$206,269 $172,406 
TDRs accruing and not included above
$21,376 $37,492 
Ratios:
NPLs to total loans0.97 %0.76 %
NPAs to total assets
0.69 0.58 

NPAs and NPLs. NPLs include non-accrual loans and accruing loans past due 90 days or more. NPAs include NPLs and OREO. At September 30, 2021, total NPLs increased $38.4 million to $205.5 million compared to $167.1 million at December 31, 2020. Non-accrual loans were $202.1 million and loans 90 days or more past due and still accruing interest were $3.4 million as of September 30, 2021. Non-accrual loans increased by $35.2 million to $202.1 million at September 30, 2021 from $166.9 million at December 31, 2020. The increase was mainly due to three CRE relationships, two C&I relationships, one equipment finance relationship, and smaller ABL
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STERLING BANCORP AND SUBSIDIARIES
loans which are in the process of work-out or exit, partially offset by the payoff of one CRE relationship and two C&I relationships and the partial charge off of one ADC loan.

TDRs. TDRs still accruing interest income are loans modified for borrowers that have experienced financial difficulties but are performing in accordance with the modified terms of their loan and were performing prior to the modification. Loan modification concessions may include actions such as an extension of the maturity date or the lowering of interest rates and monthly payments. At September 30, 2021, total TDRs were $48.3 million, of which $21.4 million were performing in accordance with their modified terms and approximately $27.0 million were non-accrual. At December 31, 2020, total TDRs were $79.0 million, of which $37.5 million were performing and $41.5 million were non-accrual. The decrease in TDRs at September 30, 2021 was primarily due to the loan sales mentioned above and the payoff of one CRE relationship. TDR balances are more fully discussed in Note 3. “Portfolio Loans - TDRs” in the notes to the consolidated financial statements included elsewhere in this report. As of September 30, 2021, there were no commitments to lend additional funds to borrowers with loans that have been classified as TDRs.

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

At September 30, 2021, we had approved CARES Act conforming payment deferrals on outstanding loan balances as shown in the following table:
Loan balance outstandingDeferral of principal and interest%
Traditional C&I$3,342,356 $— — %
Asset-based lending673,679 — — 
Payroll finance166,999 — — 
Warehouse lending1,301,639 — — 
Factored receivables228,834 — — 
Equipment finance1,254,846 728 0.1 
Public sector finance1,825,976 — — 
Commercial real estate5,941,508 32,365 0.5 
Multi-family4,296,829 — — 
ADC694,443 — — 
Residential mortgage1,395,248 39,944 2.9 
Consumer154,192 2,961 1.9 
Total Portfolio loans$21,276,549 $75,998 0.4 %

Principal and interest deferrals were in place in respect of loans representing 0.4% of our loan portfolio. Deferrals consist mainly of 90-day principal and interest deferral with the ability to extend an additional 90-day period at the Bank’s option. We are closely monitoring and working with our clients to determine ongoing deferral extensions and requests.

OREO. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as OREO until such time as it is sold. When real estate is transferred to OREO, it is recorded at fair value less cost to sell. If the fair value less cost to sell is less than the loan balance, the difference is charged against the ACL - loans. After transfer to OREO, we regularly update the fair value of the properties.
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Subsequent declines in fair value are charged to current earnings and included in other non-interest expense as part of OREO expense. At September 30, 2021, we had OREO properties with a recorded balance of $816 thousand, compared to $5.3 million at December 31, 2020. The decrease was mainly due to sales of OREO properties for cash. We had no additions to OREO in the nine months ended September 30, 2021.

Classification of Assets. Our determination as to the classification of our assets and the amount of our ACL - loans is subject to review by our regulators, who can direct the charge-off of loans and order the establishment of additional ACL. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. As of September 30, 2021, we had $351.7 million of loans designated as special mention compared to $461.5 million at December 31, 2020. The decrease in special mention loans in the nine months ended September 30, 2021 was mainly due to approximately $105 million of loans that were downgraded to substandard, approximately $110 million of loans that were upgraded to pass, approximately $95 million of repayments and approximately $20 million of loans included in our loan sales. These declines were partially offset by approximately $230 million of loans, mainly multi-family, CRE, ADC and C&I that were newly designated special mention during the period. The vast majority of the borrowers continue to perform.

On the basis of management’s review of our assets at September 30, 2021, classified assets consisted of loans of $626.3 million ($611.8 million were rated substandard and one loan of $4.6 million was rated doubtful) and OREO of $816 thousand. Substandard loans were $528.8 million and OREO was $5.3 million at December 31, 2020. The increase in substandard loans in the nine months ended September 30, 2021 was mainly related to loans transferred from special mention and newly designated classified loans of approximately $273 million, and was partially offset by approximately $100 million of substandard loans that were included in our loan sales, approximately $100 million of repayments and approximately $9 million of charge-offs. Our asset resolution team is working with these borrowers to reduce the outstanding balances and maximize repayments.

ACL - Loans. The ACL - loans is a valuation account that is deducted from the amortized cost basis of portfolio loans to present the net amount expected to be collected on portfolio loans over their contractual life.

Our estimate of credit losses at September 30, 2021 is based in part on the macro-economic forecasts and assumptions contained in the Moody’s September 18, 2021 Forecast Vintage Baseline Scenario.

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

The ACL - loans decreased from $326.1 million at December 31, 2020 to $309.9 million at September 30, 2021. The ACL - loans at September 30, 2021 represented 150.8% of non-performing loans and 1.46% of total portfolio loans. At December 31, 2020, the allowance for loan losses represented 195.2% of non-performing loans and 1.49% of total portfolio loans.

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STERLING BANCORP AND SUBSIDIARIES
Allocation of ACL - loans. The following table sets forth the ACL - loans allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The ACL allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 September 30, 2021December 31, 2020
 Allowance
for credit losses
Loan
balance
% of ACL to loan balanceAllowance
for loan
losses
Loan
balance
% of ACL to loan balance
Traditional C&I$61,483 $3,342,356 1.84 %$42,670 $2,920,205 1.46 %
Asset-based lending10,051 673,679 1.49 12,762 803,004 1.59 
Payroll finance1,691 166,999 1.01 1,957 159,237 1.23 
Warehouse lending1,150 1,301,639 0.09 1,724 1,953,677 0.09 
Factored receivables3,145 228,834 1.37 2,904 220,217 1.32 
Equipment financing25,474 1,254,846 2.03 31,794 1,531,109 2.08 
Public sector finance5,534 1,825,976 0.30 4,516 1,572,819 0.29 
CRE147,604 5,941,508 2.48 155,313 5,831,990 2.66 
Multi-family29,379 4,296,829 0.68 33,320 4,406,660 0.76 
ADC
10,380 694,443 1.49 17,927 642,943 2.79 
Residential mortgage10,874 1,395,248 0.78 16,529 1,616,641 1.02 
Consumer3,150 154,192 2.04 4,684 189,907 2.47 
Total$309,915 $21,276,549 1.46 $326,100 $21,848,409 1.49 

Collateral Dependent Loans. A loan must meet both of the following conditions to be considered collateral dependent:
We expect repayment of the financial asset to be provided substantially through the operation or sale of the collateral.
We determined the borrower is experiencing financial difficulty as of the financial statement date.

Generally, loans are identified as collateral dependent when the loan is in foreclosure, is a TDR, or is a loan that was measured for impairment when we adopted CECL on January 1, 2020. For collateral dependent loans, we measure the expected credit losses based on the difference between the fair value of the collateral and the amortized cost basis. If the loan is in foreclosure, or we determine foreclosure is probable, we reduce the fair value of the collateral by cost to sell the asset. If we expect repayment from the operation of the asset, we do not reduce for the cost to sell.

Collateral dependent loans were $188.7 million at September 30, 2021, which was an increase of $43.7 million versus the $145.0 million at December 31, 2020. The increase in collateral dependent loans was mainly due the the addition of four CRE relationships, one C&I relationship and one equipment finance relationship. This increase in collateral dependent loans was partially offset by payoffs of three C&I relationships, one CRE relationship, the partial charge-off of an ADC loan and various other loans and the sale of certain CRE and multi-family loans. As our CECL methodology allows us to determine fair value and expected credit losses for each loan individually, we now consider loans collateral dependent based on the criteria discussed above. At September 30, 2021, we had specific reserves of $36.8 million allocated to $150.6 million in principal on loans that are considered collateral dependent loans in our ACL.

Changes in Financial Condition between September 30, 2021 and December 31, 2020
Total assets increased $208.3 million at September 30, 2021, compared to December 31, 2020. Components of the change in total assets were:
Cash balances increased $624.3 million to $929.3 million at September 30, 2021, compared to December 31, 2020. The increase was mainly due to increases in deposit balances and included the impact of seasonal increases in municipal deposits at the end of the third quarter in connection with tax collections.
Total investment securities increased by $244.5 million to $4.3 billion at September 30, 2021, compared to $4.0 billion at December 31, 2020. The increase in investment securities included the purchase of US Treasury and corporate securities in response to the significant levels of excess liquidity generated by deposit inflows and the contraction in our loan portfolio.
These increases were partially offset by the following:
Portfolio loans, net, decreased $555.7 million at September 30, 2021, compared to December 31, 2020, primarily as a result of the following:
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STERLING BANCORP AND SUBSIDIARIES
Commercial loans decreased by $314.8 million to $19.7 billion at September 30, 2021, compared to $20.0 billion at December 31, 2020. The decline was mainly due to a slowdown in mortgage refinance activity which resulted in a $652.0 million decline in mortgage warehouse loans. In addition we sold mainly criticized and classified commercial loan in 2021 that totaled $216.2 million.
Residential mortgage loans held in our loan portfolio declined by $221.4 million to $1.4 billion at September 30, 2021 compared to $1.6 billion at December 31, 2020 mainly due to repayments.
Other assets decreased by $74.7 million to $1.0 billion at September 30, 2021, compared to $1.1 billion at December 31, 2020. The components of other assets are as follows:
September 30,December 31,
20212020
Low income housing tax credit investments$527,953 $488,303 
Right of use asset for operating leases 94,647 105,667 
Fair value of swaps94,524 149,797 
Cash on deposit as swap collateral net of settlement55,774 82,478 
Operating leases - equipment and vehicles leased to others43,052 55,224 
Other assets172,751 181,934 
$988,701 $1,063,403 
The table above includes the following items:
We have invested in various limited partnerships that sponsor affordable housing projects using low income housing tax credits.
The right of use assets for operating leases represents the asset recognized under the lease accounting standard which requires all operating leases to be recorded in the consolidated balance sheets, which are discussed in Note 14. “Commitments and Contingencies” in the notes to consolidated financial statements included elsewhere in this report.
Fair value of swaps reflects the change in value since date of inception of our back-to-back commercial client loan swap program and positions, which are discussed in Note 8. “Derivatives” in the notes to consolidated financial statements included elsewhere in this report. The decrease was mainly due to the increase in interest rates in the nine months ended September 30, 2021.
Cash on deposit as swap collateral net of settlement represents amounts on deposit with third parties net of settlement to market for exchange traded and over the counter swaps.
Operating leases - equipment and vehicles leased to others is mainly the remaining balance of leases we acquired in 2019.
Other assets include income taxes, prepaid insurance, prepaid property taxes, prepaid maintenance, accounts receivable and other miscellaneous assets.

Total liabilities increased $1.2 million to $25.2 billion at September 30, 2021, as compared to December 31, 2020. The increase was mainly due to the following:
Total deposits increased $816.5 million to $23.9 billion at September 30, 2021, compared to $23.1 billion at December 31, 2020. The increase in the first nine months of 2021 included increases primarily in interest bearing and non-interest bearing transaction accounts, money market accounts and municipal deposits. Certificate of deposit accounts declined $674.4 million mainly due to higher costing balances that matured and were not renewed.
Municipal deposits increased $795.0 million to $2.4 billion at September 30, 2021, compared to $1.6 billion at December 31, 2020. The increase was mainly due to growth generated from our municipal and public sector banking teams as well as seasonal factors.
The increases above were partially offset by the following increases:
FHLB borrowings decreased $382.0 million, fed funds purchased decreased $277.0 million, and Subordinated Notes - Bank declined $143.7 million compared to December 31, 2020. The decreases were funded from excess liquidity generated by increases in our deposit base and loan repayments.
Other liabilities decreased $36.6 million to $692.1 million at September 30, 2021, compared to $728.7 million at December 31, 2020. The decrease was mainly due to declines in compensation payable as a result of the payment in the first quarter of accrued bonuses and a decline in the value of swap liabilities due to changes in interest rates.

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Supplemental Reporting of Non-GAAP Financial Measures
The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance and to assess our performance compared to our annual budget and strategic plans. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors, analysts, regulators and others information that we use to manage and evaluate our performance each period. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements, and notes thereto for the quarter ended September 30, 2021 included elsewhere in this report, and the year ended December 31, 2020, included in our Annual Report for the year ended December 31, 2020 filed on Form 10-K.


September 30,
20212020
The following table shows the reconciliation of pretax pre-provision net revenue to adjusted pretax pre-provision net revenue(1):
Net interest income$213,837 $217,824 
Non-interest income32,547 28,225 
Total net interest income and non-interest income246,384 246,049 
Non-interest expense124,968 119,362 
Pretax pre-provision net revenue121,416 126,687 
Adjustments:
Net (gain) on sale of securities(1,656)(642)
Litigation accrual2,000 — 
Loss on sale of mortgage servicing rights324 — 
Loss on extinguishment of debt— 6,241 
Impairment related to financial centers and real estate consolidation strategy118 — 
Merger-related expense 4,581 — 
Amortization of non-compete agreements and acquired customer list intangible assets148 172 
Adjusted pretax pre-provision net revenue including accretion income126,931 132,458 
Accretion income(6,197)(9,172)
Adjusted pretax pre-provision net revenue excluding accretion income$120,734 $123,286 
See legend beginning on page 66.
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September 30,
20212020
The following table shows the reconciliation of stockholders’ equity to tangible common equity and the tangible common equity ratio 2:
Total assets$30,028,425 $30,617,722 
Goodwill and other intangibles(1,765,718)(1,781,246)
Tangible assets28,262,707 28,836,476 
Stockholders’ equity4,797,629 4,557,785 
Preferred stock(135,986)(136,917)
Goodwill and other intangibles(1,765,718)(1,781,246)
Tangible common stockholders’ equity2,895,925 2,639,622 
Common stock outstanding at period end192,681,503 194,458,841 
Common stockholders’ equity as a % of total assets15.52 %14.44 %
Book value per common share$24.19 $22.73 
Tangible common equity as a % of tangible assets10.25 %9.15 %
Tangible book value per common share$15.03 $13.57 
See legend beginning on page 66.
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
The following table shows the reconciliation of reported return on average tangible assets and adjusted return on average tangible assets 3:
Average assets$29,147,332 $30,652,856 $29,372,043 $30,623,508 
Average goodwill and other intangibles(1,768,209)(1,784,016)(1,771,948)(1,788,190)
Average tangible assets27,379,123 28,868,840 27,600,095 28,835,318 
Net income available to common stockholders93,715 82,438 287,282 143,429 
Net income, if annualized371,804 327,960 384,095 191,588 
Reported return on average tangible assets1.36 %1.14 %1.39 %0.66 %
Adjusted net income (non-GAAP)$99,589 $87,682 $295,178 $141,418 
Annualized adjusted net income 395,109 348,822 394,652 188,902 
Adjusted return on average tangible assets (non-GAAP)1.44 %1.21 %1.43 %0.66 %
See legend beginning on page 66.
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STERLING BANCORP AND SUBSIDIARIES
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
The following table shows the reconciliation of reported net income and reported EPS (GAAP) to adjusted net income available to common stockholders (non-GAAP) and adjusted diluted EPS (non-GAAP)4:
Income before income tax expense$121,416 $96,687 $366,383 $160,694 
Income tax expense (benefit)25,745 12,280 73,223 11,348 
Net income (GAAP)95,671 84,407 293,160 149,346 
Adjustments:
Net (gain) on sale of securities(1,656)(642)(2,361)(9,539)
Accrual for legal settlements2,000 — 2,000 — 
Loss on sale of mortgage servicing rights324 — 324 — 
Impairment related to financial centers and real estate consolidation strategy118 — 1,226 — 
Net loss on extinguishment of borrowings— 6,241 1,243 16,713 
Merger-related expense4,581 — 7,062 — 
Amortization of non-compete agreements and acquired customer lists148 172 443 515 
Total pre-tax adjustments5,515 5,771 9,937 7,689 
Adjusted pre-tax income 126,931 102,458 376,320 168,383 
Adjusted income tax expense 25,386 12,807 75,264 21,048 
Adjusted net income (non-GAAP)101,545 89,651 301,056 147,335 
Preferred stock dividend1,956 1,969 5,878 5,917 
Adjusted net income available to common stockholders (non-GAAP)$99,589 $87,682 $295,178 $141,418 
Weighted average diluted shares192,340,487 193,715,943 192,417,008 194,677,020 
Diluted EPS as reported (GAAP)$0.49 $0.43 $1.49 $0.74 
Adjusted diluted EPS (non-GAAP)0.52 0.45 1.53 0.73 
See legend beginning on page 66.
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
The following table shows the reconciliation of reported return on average tangible common stockholders’ equity and adjusted return on average tangible common stockholders’ equity 5:
Average stockholders’ equity$4,768,712 $4,530,334 $4,685,920 $4,500,534 
Average preferred stock(136,221)(137,139)(136,453)(137,359)
Average goodwill and other intangibles(1,768,209)(1,784,016)(1,771,948)(1,788,190)
Average tangible common stockholders’ equity2,864,282 2,609,179 2,777,519 2,574,985 
Net income available to common stockholders93,715 82,438 287,282 143,429 
Net income, if annualized371,804 327,960 384,095 191,588 
Reported return on average tangible common stockholders’ equity12.98 %12.57 %13.83 %7.44 %
Adjusted net income (non-GAAP)$99,589 $87,682 $295,178 $141,418 
Annualized adjusted net income395,109 348,822 394,652 188,902 
Adjusted return on average tangible common stockholders’ equity (non-GAAP)13.79 %13.37 %14.21 %7.34 %
See legend beginning below.
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STERLING BANCORP AND SUBSIDIARIES
For the three months endedFor the nine months ended
September 30,September 30,
2021202020212020
The following table shows the reconciliation of the reported operating efficiency ratio and adjusted operating efficiency ratio6:
Net interest income$213,837 $217,824 $650,278 $642,895 
Non-interest income32,547 28,225 95,117 101,641 
Total revenue246,384 246,049 745,395 744,536 
Tax equivalent adjustment on securities3,085 3,258 9,321 10,124 
Net loss (gain) on sale of securities(1,656)(642)(2,361)(9,539)
Depreciation of operating leases(2,846)(3,130)(8,888)(9,758)
Adjusted total revenue (non-GAAP)244,967 245,535 743,467 735,363 
Non-interest expense124,968 119,362 363,762 358,956 
Impairment related to financial centers and real estate consolidation strategy(118)— (1,226)— 
Net loss on extinguishment of borrowings— (6,241)(1,243)(16,713)
Accrual for legal settlements(2,000)— (2,000)— 
Loss on sale of mortgage servicing rights(324)— (324)— 
Merger-related expense(4,581)— (7,062)— 
Depreciation of operating leases(2,846)(3,130)(8,888)(9,758)
Amortization of intangible assets(3,776)(4,200)(11,328)(12,600)
Adjusted non-interest expense (non-GAAP)$111,323 $105,791 $331,691 $319,885 
Reported operating efficiency ratio (non-GAAP)50.7 %48.5 %48.8 %48.2 %
Adjusted operating efficiency ratio (non-GAAP)45.4 43.1 44.6 43.5 
_______________
See legend beginning below.

1 PPNR is a non-GAAP financial measure calculated by summing our GAAP net interest income plus GAAP non-interest income minus our GAAP non-interest expense and eliminating provision for credit losses and income taxes. We believe the use of PPNR provides useful information to readers of our financial statements because it enables an assessment of our ability to generate earnings to cover losses through a credit cycle. Adjusted PPNR includes the adjustments we make for adjusted earnings and excludes accretion income. We believe adjusted PPNR supplements our PPNR calculation. We use this calculation to assess our performance in the current operating environment.

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

3 Reported return on average tangible assets and adjusted return on average tangible assets are non-GAAP measures that provide information to help assess our profitability.

4 Adjusted net income available to common stockholders and adjusted EPS are non-GAAP measures that present a summary of our earnings, which includes adjustments to exclude certain revenues and expenses (generally associated with discrete merger transactions and non-recurring strategic plans) to help in assessing our recurring profitability. For the purpose of calculating adjusted net income available for common stockholders and adjusted EPS, income tax expense is calculated using the estimated effective income tax rate for the full year in effect for the particular period end, as we believe this is a more accurate presentation of run rate income tax expense and earnings.

5 Reported return on average tangible common stockholders’ equity and the adjusted return on average tangible common stockholders’ equity are non-GAAP measures that provide information to evaluate the use of our tangible common equity.

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

Liquidity and Capital Resources
Capital. Stockholders’ equity was $4.8 billion as of September 30, 2021, an increase of $207.1 million relative to December 31, 2020. The increase was mainly due to net income of $293.2 million, stock-based compensation and stock option exercises of $22.7 million, partially offset by common stock repurchases of $27.3 million, common shares acquired from stock compensation plan activity of $6.9 million, common dividends of $40.3 million, preferred dividends of $6.6 million, and other comprehensive loss of $27.7 million, which was primarily due to a decline in the fair value of our AFS portfolio.

In the first quarter of 2021, we repurchased 1,235,372 common shares at a cost of $27.3 million and an average price of $22.12 per share. Pursuant to the Merger Agreement with Webster, we did not repurchase any common shares in the open market in the second or third quarters of 2021.

We paid dividends of $0.07 per common share in each quarter of 2020 and in each of the first three quarters of 2021. On October 20, 2021, our Board of Directors approved a dividend of $0.07 per common share, which is payable on November 15, 2021 to our holders of record on November 1, 2021. We paid dividends of $16.25 per preferred share in each quarter of 2020 and in each of the first three quarters of 2021. In addition, on October 15, 2021, we paid a dividend of $16.25 per preferred share.

Liquidity. As discussed in our 2020 Form 10-K, our liquidity position is continuously monitored and we make adjustments to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic activity, volatility in the financial markets, unexpected credit events or other significant occurrences. Contingencies have been expanded to include analysis of the impact to cash flows associated with outstanding forbearance agreements and other factors associated with the pandemic. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of September 30, 2021, our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, including the Basel III liquidity framework, which, if implemented, would have a material adverse effect on us.

At September 30, 2021, the Bank had $929.3 million in cash and cash equivalents on hand and unused borrowing capacity at the FHLB of $5.8 billion. In addition, the Bank may purchase federal funds from other institutions and enter into additional repurchase agreements. The Bank had $1.6 billion of unencumbered securities available to pledge as collateral as of September 30, 2021.

We are a bank holding company and do not conduct business operations. Our primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank. At September 30, 2021, the Bank had capacity to pay approximately $269.2 million of dividends to us under regulatory guidelines without prior regulatory approval.

We had cash on hand of $115.0 million at September 30, 2021. In the first nine months of 2021, we received dividends from the Bank of $80.0 million and our primary uses of cash were $27.3 million for common stock repurchases and $46.9 million for dividends.

We have a $35.0 million credit facility with a financial institution for general corporate purposes. The credit facility has no outstanding balance and requires us and the Bank to maintain certain ratios related to capital, non-performing assets to capital, reserves to non-performing loans and debt service coverage. We and the Bank were in compliance with all requirements at September 30, 2021. The facility expires on November 28, 2021.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

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

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

Estimated Changes in EVE and NII. The table below sets forth, as of September 30, 2021, the estimated changes in our (i) EVE that would result from the designated instantaneous changes in the forward rate curves; and (ii) NII that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results.
Interest ratesEstimatedEstimated change in EVEEstimatedEstimated change in NII
(basis points)EVEAmountPercentNIIAmountPercent
 (Dollars in thousands)
+300$5,400,890 $520,038 10.7 %$1,078,413 $204,227 23.4 %
+2005,339,799 458,947 9.4 1,011,114 136,928 15.7 
+1005,163,755 282,903 5.8 940,433 66,247 7.6 
04,880,852 — — 874,186 — — 
-1004,329,970 (550,882)(11.3)807,909 (66,277)(7.6)
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and NII require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and NII table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the re-pricing characteristics of specific assets and liabilities. Accordingly, although the EVE and NII table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes that market interest rates may have on our net interest income. Actual results will likely differ.

During the nine months ended September 30, 2021, the federal funds target rate remained in the range 0.00 - 0.25%. U.S. Treasury yields with two year maturities increased 15 basis points from 0.13% to 0.28% over the nine months ended September 30, 2021, while the yield on U.S. Treasury 10-year notes increased 59 basis points from 0.93% to 1.52% over the same period. The greater increase in interest rates on longer-term maturities relative to the lesser increase in interest rates on shorter-terms maturities resulted in a steeper 2-10 year U.S. Treasury yield curve at September 30, 2021 compared to December 31, 2020. At its September 2021 meeting, the Federal Open Markets Committee stated that it will be appropriate to maintain the current federal funds target rate until labor market conditions have reached levels consistent with the Committee’s assessment of maximum employment and inflation has risen to two percent and is on track to moderately exceed 2 percent for some time.

Item 4. Controls and Procedures

The Company’s management, including the principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief
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STERLING BANCORP AND SUBSIDIARIES
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in our reports filed with the SEC under the Securities Exchange Act of 1934, as amended, is: (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls 
There were no changes in the Company’s internal controls over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II
Item 1. Legal Proceedings

The “Litigation” section of Note 14. “Commitments and Contingencies” in the notes to consolidated financial statements included in Part I, Item 1 is incorporated herein by reference.

Item 1A. Risk Factors
For information regarding factors that could affect our business, results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A of our 2020 Form 10-K.

The risk factors set forth in our 2020 Form 10-K are updated by adding the following risk factors:

Failure to complete our proposed merger with Webster could negatively impact our business, financial results and stock price.

If the merger is not completed for any reason, our ongoing business may be adversely affected, and, without realizing any of the benefits of having completed the merger, we will be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including negative impacts on our stock price;
the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed;
we may experience negative reactions from our customers, vendors and colleagues;
we will have incurred substantial expenses and will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, investment banking and advisory and printing fees;
the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the merger, such restrictions, the waiver of which is subject to the consent of Webster (not to be unreasonably withheld, conditioned or delayed), may adversely affect our ability to execute certain of our business strategies; and
matters relating to the merger may require substantial commitments of time and resources by our management (including integration planning), which could otherwise have been devoted to other opportunities that may have been beneficial to us, as an independent company.

In addition to the above risks, if the Merger Agreement is terminated and our board of directors seeks another merger or business combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration Webster has agreed to provide. If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $185.0 million to Webster, which may adversely affect the price of our common stock. Any of the above risks could materially affect our business, financial results and stock price.

We face risks and uncertainties related to our proposed merger with Webster.

Uncertainty about the effect of the merger on colleagues and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is consummated and for a period of time thereafter, and could cause customers and others that deal with us to seek to change their existing business relationships with us. Colleagues retention may be particularly challenging during the pendency of the merger, as colleagues may experience uncertainty about their roles with the surviving corporation following the merger.

In addition, the Merger Agreement contains provisions that restrict our ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to our board of directors’ exercise of its fiduciary duties, engage in any negotiations concerning, or provide any confidential information relating to, any alternative business combination proposals. These provisions, which include a $185.0 million termination fee payable under certain circumstances, might discourage a potential competing acquirer that might have an interest in engaging in a superior transaction from considering or proposing that acquisition, or might result in lower value received by our stockholders than would have otherwise been received.

The Company and Webster have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings among other things, will depend, in part, on our and Webster's ability to successfully combine and integrate our and Webster’s businesses in a manner that facilitates growth opportunities and realizes cost savings. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of either company’s or both companies’ ongoing business, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally
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anticipated. If the combined companies experience difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected.

The Merger Agreement may be terminated in accordance with its terms and the merger may not be completed.

The Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include: the approval of the merger by our and Webster’s stockholders; the receipt of authorization for listing on the NYSE of the shares of Webster common stock and preferred stock (or depositary shares in respect thereof) to be issued in the merger; the receipt of all required regulatory approvals; the effectiveness of the registration statement on Form S-4 for the shares of Webster common stock and preferred stock (or depositary shares in respect thereof) to be issued in the merger; the absence of any order, injunction or other legal restraint preventing the completion of the merger or making the merger illegal; subject to certain exceptions, the accuracy of representations and warranties under the Merger Agreement; our and Webster’s performance of our and their respective obligations under the Merger Agreement in all material respects; and each of our and Webster’s receipt of a tax opinion to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. At this time, the parties have met most of their closing conditions including stockholder approval of the merger, receipt of OCC and FDIC approvals, and effectiveness of the Form S-4. Primarily, at this time, the parties await approval from the Federal Reserve, among other closing conditions. These conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.

We and Webster may elect to terminate the Merger Agreement under certain circumstances. Among other situations, if the merger is not completed by April 18, 2022, either we or Webster may choose not to proceed with the merger (unless the failure of the closing to occur by such date was due to the failure of the party seeking to terminate the Merger Agreement to perform or observe the obligations, covenants and agreements of such party set forth in the Merger Agreement). We and Webster can also mutually decide to terminate the Merger Agreement at any time. If the Merger Agreement is terminated, under certain limited circumstances, we may be required to pay a termination fee of $185.0 million to Webster.

Our ability to complete the merger is subject to the receipt of approval from various regulatory agencies, which may impose conditions that could adversely affect us or cause the merger to be abandoned.

Before the transactions contemplated in the Merger Agreement can be completed, the Company and Webster must obtain various approvals, including approval of the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency. At this time, the parties have received OCC approval and are awaiting approval of the Federal Reserve. The terms and conditions of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement. Although the Company and Webster do not currently expect that any such conditions or changes would be imposed, there can be no assurance that the regulators will not impose any such conditions, obligations or restrictions, and that such conditions, limitations, obligations or restrictions will not have the effect of delaying or preventing completion of any of the transactions contemplated by the Merger Agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe, any of which might have an adverse effect on the combined company following the merger.

Because the market price of Webster’s common stock may fluctuate, our stockholders cannot be certain of the precise value of the merger consideration they may receive in the merger.

At the time the merger is completed, each issued and outstanding share of our common stock will be converted into the right to receive 0.4630 of a share of Webster’s common stock.

There will be a time lapse between each of the date of the proxy statement/prospectus for the stockholder meeting to adopt the Merger Agreement, the date on which our stockholders vote to approve the Merger Agreement, and the date on which our stockholders entitled to receive shares of Webster’s common stock actually receive such shares. The market value of Webster’s common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, changes in Webster’s businesses, operations and prospects, and regulatory considerations. Many of these factors are outside of our and Webster’s control. Consequently, at the time that our stockholders must decide whether to approve the Merger Agreement, they will not know the actual market value of the shares of Webster’s common stock that they will receive when the merger is completed. The actual value of the shares of Webster common stock received by our stockholders will depend on the market value of shares of Webster common stock at the time the Merger is completed. This market value may be less or more than the value used to determine the exchange ratio stated in the Merger Agreement.
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Stockholder litigation could prevent or delay the closing of the proposed merger or otherwise negatively impact our business and operations.

In connection with the merger, lawsuits may be filed against us, Webster, or the directors and officers of either company in connection with the merger. Litigation filed against us, our board of directors or Webster and its board of directors could prevent or delay the completion of the merger or result in the payment of damages following completion of the merger. The defense or settlement of any lawsuit or claim that remains unresolved at the effective time of the merger may adversely affect the combined company's business, financial condition, results of operations, cash flows and market price.

The risks described above and in our 2020 Form 10-K are not the only risks that we encounter. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition and/or liquidity.

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

Issuer Purchases of Equity Securities
We did not repurchase any common shares in the open market in the third quarter of 2021. We have 13,511,810 shares remaining for repurchase under our Board approved stock repurchase plan; however, under the terms of the Merger Agreement, we have suspended further repurchases.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosure

Not Applicable.

Item 5. Other Information

Not Applicable.
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Item 6. Exhibits
Exhibit NumberDescription
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
31.1
31.2
32.0
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Calculation Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document

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

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

Sterling Bancorp
Date:October 29, 2021By:/s/ Jack Kopnisky
Jack Kopnisky
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date:October 29, 2021By:/s/ Beatrice Ordonez
Beatrice Ordonez
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


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