UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|☒||Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934|
For the fiscal year ended December 31, 2020
|☐||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
Commission File Number: 001-35385
(Exact name of Registrant as Specified in its Charter)
|(State or Other Jurisdiction of|| ||(IRS Employer ID No.)|
|Incorporation or Organization)|| |
|Two Blue Hill Plaza, Second Floor|| |
|Pearl River,||New York||10965|
|(Address of Principal Executive Office)|| ||(Zip Code)|
(Registrant’s Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
|Title of Each Class||Trading Symbol(s)||Name of each exchange on which registered|
|Common Stock, par value $0.01 per share||STL||New York Stock Exchange|
|Depositary Shares, each representing a 1/40th interest in a share of 6.50% Non-Cumulative Perpetual Preferred Stock, Series A||STLPRA||New York Stock Exchange|
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock as of June 30, 2020, was approximately $2.3 billion.
As of February 25, 2021, there were 193,461,131 outstanding shares of the Registrant’s common stock.
DOCUMENT INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders (Part III) to be filed within 120 days after the end of the Registrant’s year ended December 31, 2020.
FORM 10-K TABLE OF CONTENTS
December 31, 2020
Except as otherwise stated or the context otherwise requires, references in this Annual Report on Form 10-K shall have the following meaning:
•“we,” “our,” “us” and “Company” refers to Sterling Bancorp, a Delaware corporation, and its consolidated subsidiaries;
•“Bank” refers to Sterling National Bank, our principal subsidiary;
•“ABL” refers to asset-based lending;
•“ACL” refers to the allowance for credit losses calculated under the current expected credit loss model;
•“ACL - loans” refers to the ACL for portfolio loans;
•“ACL - HTM securities” refers to the ACL for held to maturity investment securities;
•“ADC” refers to acquisition, development and construction loans;
•“Advantage Funding” refers to Advantage Funding Management Co. Inc., a financial services company;
•“Advantage Funding Acquisition” refers to the acquisition of Advantage Funding on April 2, 2018;
•“AFS” refers to investment securities classified as available for sale;
•“ALCO” refers to the Bank’s Asset/Liability Management Committee;
•“ALLL” refers to allowance for loan and lease losses;
•“Amended Omnibus Plan” refers to the Company’s Amended and Restated 2015 Omnibus Equity and Incentive Plan;
•“AOCI” refers to accumulated other comprehensive income;
•“ARM” refers to adjustable rate mortgage;
•“ASC” refers to Accounting Standards Codification;
•“Astoria” refers to Astoria Financial Corporation, a banking company we merged with on October 2, 2017;
•“Astoria Merger” refers to the merger with Astoria;
• “ASU” refers to Accounting Standards Update;
•“BHC Act” refers to the Bank Holding Company Act;
•“Board” refers to the Board of Directors of the Company;
•“BOLI” refers to Bank Owned Life Insurance;
•“C&I” refers to commercial and industrial loans where our C&I portfolio is comprised of the following loan types: traditional C&I, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance;
•“Capital Rules” or “Basel III” refers to the Basel Committee’s December 2010 final capital framework for strengthening international capital standards;
•“CARES Act” refers to The Coronavirus Aid, Relief, and Economic Security Act;
•“CECL” or the “CECL Standard” refers to current expected credit loss model and the accounting standard we adopted on January 1, 2020 to establish the ACL, which is codified in ASC Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments;
•“CET1” refers to Common Equity Tier 1;
•“CFPB” refers to the Consumer Financial Protection Bureau;
•“COSO” refers to the Committee of Sponsoring Organizations of the Treadway Commission;
•“COVID-19” or “pandemic” refers to the coronavirus disease 2019;
•“CRA” refers to the Community Reinvestment Act of 1977;
•“CRC” refers to the Credit Risk Committee, a board of directors established sub-committee of our Enterprise Risk Committee, to oversee the lending functions of the Bank;
•“CRE” refers to commercial real estate;
•“DIF” refers to the Deposit Insurance Fund of the Federal Deposit Insurance Corporation;
•“Dodd-Frank Act” refers to the Dodd-Frank Wall Street Reform and Consumer Protection Act;
•“EPS” refers to earnings per common share;
•“EVE” refers to economic value of equity;
•“Exchange Act” refers to the Securities Exchange Act of 1934;
•“FASB” refers to the Financial Accounting Standards Board;
•“FDIA” refers to the Federal Deposit Insurance Act;
•“FDIC” refers to the Federal Deposit Insurance Corporation;
•“FHLB” refers to the Federal Home Loan Bank of New York;
•“FICO” refers to Fair Isaac Corporation, the company that developed FICO credit scoring models that we use to help predict a consumer’s ability to repay their debt;
•“FinCEN” refers to the Financial Crimes Enforcement Network;
•“FRB” refers to the Board of Governors of the Federal Reserve System, our primary regulatory agency;
•“FRBNY” refers to the Federal Reserve Bank of New York;
•“FTE” refers to full time equivalent employees;
•“GAAP” or “U.S. GAAP” refers to U.S. generally accepted accounting principles;
•“GDP” refers to Gross Domestic Product;
•“HTM” refers to investment securities classified as held to maturity;
•“IRS” refers to the Internal Revenue Service;
•“LGD” refers to the percentage of the asset that is not expected to be collected due to default;
•“LIBOR” refers to London Interbank Offered Rate, and is a benchmark interest rate index for various adjustable-rate products;
•“LIHTC” refers to low income housing tax credits;
•“LTV” refers to loan to value;
•“MBS” refers to mortgage backed securities;
•“MSA” refers to metropolitan statistical areas;
•“Moody’s” refers to Moody’s Analytics, Inc.;
•“NII” refers to Net interest income;
•“NOL” refers to net operating loss;
•“NPL” refers to non-performing loans, which includes loans on non-accrual and accruing loans that are 90 days past due;
•“NYSE” refers to the New York Stock Exchange;
•“OCC” refers to the Office of the Comptroller of the Currency, the primary regulatory agency of the Bank;
•“OREO” refers to other real estate owned, which is real estate taken in foreclosure or in lieu of foreclosure;
•“OTTI” refers to other-than-temporary-impairment;
•“PCAOB” refers to the Public Company Accounting Oversight Board (United States);
•“PCD” refers to purchased with credit deterioration;
•“PCI” refers to purchase credit impaired, which are loans that had deteriorated in credit quality since origination at the time they were acquired by us;
•“PD” refers to the probability that the asset will default within a given time frame;
•“PPNR” refers to pre-tax pre-provision net revenue, 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;
•“PPP” refers to the Paycheck Protection Program;
•“PRIAC” refers to Prudential Retirement Insurance and Annuity Company;
•“REIT” refers to a real estate investment trust;
•“REMIC” refers to real estate mortgage investment conduit, which is a pool of mortgage securities that was divided into individual units of varying classes of securities with differing maturities and coupon payments;
•“RWA” refers to risk-weighted assets;
•“Santander” refers to Santander Bank;
•“Santander Portfolio Acquisition” refers to the acquisition of an equipment finance loan and lease portfolio consisting of equipment finance loans, sales-type leases and operating leases by the Bank from Santander on November 29, 2019;
•“Sarbanes-Oxley Act” refers to the Sarbanes-Oxley Act of 2002;
•“SBA” refers to Small Business Administration;
•“SCC” refers to the Senior Credit Committee, which consists of senior management and senior credit personnel and is authorized to approve all loans within the legal lending limit of the Bank;
•“SEC” refers to the Securities and Exchange Commission;
•“Securities Act” refers to the Securities Act of 1933, as amended;
•“SOFR” refers to the secured overnight financing rate, a benchmark interest rate for dollar denominated derivatives and loans that is replacing LIBOR;
•“Subordinated Notes – Bank” refers to $110.0 million aggregate principal amount of 5.25% fixed-to-floating rate subordinated notes issued by the Bank on March 29, 2016;
• “Subordinated Notes – 2029” refers to $275.0 million aggregate principal amount of 4.00% fixed-to-floating rate subordinated notes that mature on December 30, 2029 issued by the Company on December 16, 2019;
• “Subordinated Notes – 2030” refers to $225.0 million aggregate principal amount of 3.875% fixed-to-floating rate subordinated notes that mature on November 1, 2030 issued by the Company on October 30, 2020;
•“Subordinated Notes - Company” refers to Subordinated Notes - 2029 and Subordinated Notes 2030 collectively;
•“Tax Reform Act” refers to the Tax Cuts and Jobs Act of 2017;
•“TDR” refers to a troubled debt restructuring;
•“USA Patriot Act” refers to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001;
•“Woodforest” refers to Woodforest National Bank;
• “Woodforest Portfolio Acquisition” refers to the commercial loan portfolio consisting of equipment finance loans and leases and asset-based lending loans acquired by the Bank from Woodforest on February 28, 2019;
• “2015 Plan” refers to the Company’s 2015 Omnibus Equity and Incentive Plan;
• “2021 Proxy Statement” refers to our Proxy Statement for the 2021 Annual Meeting of Stockholders; and
• “3.50% Senior Notes” refers to $200.0 million principal amount of 3.50% fixed rate senior notes assumed in connection with the Astoria Merger on October 2, 2017.
The disclosures set forth in this item are qualified by Item 1A. Risk Factors and the section captioned “Forward-Looking Statements” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and other cautionary statements set forth elsewhere in this report.
We are a Delaware corporation, bank holding company and financial holding company founded in 1998 that owns all of the outstanding shares of common stock of our principal subsidiary, the Bank. At December 31, 2020, we had, on a consolidated basis, $29.8 billion in assets, $23.1 billion in deposits, stockholders’ equity of $4.6 billion and 192,923,371 shares of common stock issued and outstanding. Our financial condition and results of operations are discussed herein on a consolidated basis with the Bank and our other subsidiaries.
Sterling National Bank
The Bank is a full-service regional bank founded in 1888. Headquartered in Pearl River, New York, the Bank specializes in the delivery of services and solutions to business owners, their families and consumers within the communities we serve through teams of dedicated and experienced relationship managers. The Bank offers a complete line of commercial, business, and consumer banking products and services.
We conduct substantially all of our business operations through the Bank. The Bank has a number of wholly-owned subsidiaries, including a company that originates loans to municipalities and governmental entities and acquires securities issued by state and local governments, a real estate investment trust that holds real estate mortgage loans, and several subsidiaries that hold foreclosed properties acquired by the Bank. We also own other subsidiaries that have an immaterial impact on our financial condition or results of operations.
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. The New York Metro-Market and Mew York Suburban Market combined generate approximately 73% of our revenues. 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.
We focus on building client relationships that allow us to gather low cost core deposits and originate high quality loans. We maintain a disciplined pricing strategy on deposits that allows us to compete for loans while generating an appropriate risk adjusted return. We deploy a team-based distribution strategy in which clients are served by a focused and experienced group of relationship managers who are responsible for all aspects of the client relationship and delivery of our products and services. We offer diverse loan products to commercial businesses, real estate owners, real estate developers, municipalities and consumers.
We augment organic growth with opportunistic acquisitions of banks and other financial services businesses. These acquisitions have supported our expansion into attractive markets and have diversified our business lines. See additional disclosure of our acquisitions in Note 2. “Acquisitions” in the notes to consolidated financial statements.
The greater New York metropolitan region is a highly competitive market area with a concentration of financial institutions, a number of which are significantly larger institutions with greater financial resources than us. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions, insurance companies and other financial services companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from non-depository competitors such as mutual funds, securities and brokerage firms and insurance companies.
Human Capital Resources
We are committed to investing in our colleagues. Our significant accomplishments are a direct result of the collaboration, determination, initiative, and integrity of our team of dedicated professionals. Our colleagues embrace our values to exceed expectations, in-line with our corporate philosophy of “Above and beyond is standard procedure here.”
Our performance management program recognizes and rewards superior performance based on objective and consistent measurements.
As of December 31, 2020, we had 1,460 full-time equivalent employees consisting of 59% female and 41% male. Our employees are not represented by a collective bargaining unit.
We monitor employee turnover rates and tenure rates in the aggregate and on a per business unit. As of December 31, 2020, the average tenure of our employees was approximately nine and a half years. We believe that our competitive compensation practices including a broad and comprehensive employee benefits program assist in driving employee engagement and retention.
Diversity and Inclusion
We are committed to creating an equitable, diverse, and inclusive workplace. We partner with Diversity Best Practices, an organization that provides us with best practices and solutions to enhance our corporate culture and strategies on how to implement, grow measure and create first-in-class diversity programs, and with Getting Hired, a recruiting firm that helps us hire veterans with disabilities, provides access to thought leadership and, more broadly, assist us in our efforts to increase awareness regarding issues related to diversity and inclusion, by providing ongoing education, initiatives and programs on matters of race, color, religion, national origin, sex, disability and familial status.
Compensation and Benefits
We provide our colleagues with a competitive compensation and benefits package that rewards them:
•for work required for each position as defined in written job descriptions;
•in accordance with salary grades that reflect the value of each position to us and its internal relationship to other positions as determined by “job evaluations;”
•at a fair level, by establishing a salary structure that has a sound relationship to compensation paid for similar positions in the labor market;
•in an amount that reflects each individual’s performance as measured against our strategic goals through an objective and consistent procedure; and
•for the direct and specific contributions of colleagues to the success of our mission.
We provide a combination of fixed and variable pay including base salary and variable cash and other incentives. In addition, as part of our long-term incentive plan for executives and certain colleagues, we provide equity-based compensation as part of our pay-for-performance culture and to attract, retain and motivate our key leaders.
We seek to prioritize the health and well-being of our colleagues. To that end we offer a competitive and contemporary benefits program that supports our colleagues physical, financial and emotional well-being. We provide our employees with access to flexible and affordable medical programs, dental and vision coverage, health savings and flexible spending accounts, paid time-off, employee assistance programs, short-term disability insurance and term-life insurance. We offer a wide variety of voluntary benefits such as long-term disability insurance, pet insurance, accident insurance and hospital indemnity insurance. We provide subsidized child and elder care programs in order to meet the work life demands of our colleagues. We provide our colleagues with access to a 401(k) retirement plan (with a competitive employer match and profit sharing component) and certain eligible employees may elect to participate in a deferred compensation plan.
Commitment to Values and Ethics
Conducting our business in an ethical manner and creating and adhering to a “Culture of Compliance” is a core tenet of our business and philosophy. Our Code of Ethics and compliance framework promotes accountability for appropriate risk management and for full compliance with applicable laws and regulations. By creating and promoting a “Culture of Compliance” throughout our organization, and through consistent internal messaging and other educational initiatives, we demonstrate our commitment to behaving honestly, treating others fairly and acting with integrity. Our framework is grounded in the following core values:
Professional Development and Training
We believe in robust employee training as a retention and professional development tool. We have developed and deployed training programs across all levels of the organization to meet the needs of various roles, specialized skill sets and departments. We provide general compliance and regulatory education in addition to training specific to each colleagues’ role. We also provide general workplace safety, security and confidentiality training.
Communication and Engagement
We believe that to be successful, our colleagues need to understand how their work contributes to our overall strategy. We communicate with our colleagues through a variety of channels and encourage open and direct communication. We hold quarterly senior leadership town hall meetings led by our CEO, which include detailed discussions and presentations by our senior executive officers and are available to the majority of our colleagues. We provide frequent corporate email communications and we conduct regular employee engagement surveys.
Effect of Compliance with Supervision and Governmental Regulation
We and the Bank are subject to extensive regulation under federal and state laws, significant elements of which are described below. This description is qualified in its entirety by reference to the full text of the statutes, regulations and policies referenced. Also, such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and state regulatory
agencies. A change in statutes, regulations or various policies applicable to us and our subsidiaries could have a material effect on our business, financial condition and results of operations.
We are a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank and a financial holding company, we are regulated under the BHC Act, and our subsidiaries are subject to inspection, examination and supervision by the FRB as our primary federal regulator.
As a national bank, the Bank is principally subject to the supervision, examination and reporting requirements of the OCC, as its primary federal regulator, as well as the FDIC. Further, because the Bank’s total assets exceed $10 billion, it is also subject to CFPB supervision. Insured banks, including the Bank, are subject to extensive regulations that relate to, among other things: (i) the nature and amount of loans that may be made by the Bank and the rates of interest that may be charged; (ii) types and amounts of other investments; (iii) branching; (iv) permissible activities; (v) reserve requirements; and (vi) dealings with officers, directors and affiliates.
Bank Holding Company Activities
In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the FRB has determined to be closely related. In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the FRB), without prior approval of the FRB.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be “well capitalized” and “well managed.” A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements discussed in the section captioned “Prompt Corrective Action.” A depository institution subsidiary is considered “well managed” if it received a composite rating and management rating of at least “satisfactory” in its most recent FRB examination. A financial holding company’s status also depends upon it maintaining its status as “well capitalized” and “well managed” under applicable FRB regulations. If a financial holding company ceases to meet these capital and management requirements, the FRB’s regulations provide that the financial holding company must enter into an agreement with the FRB to comply with all applicable capital and management requirements. Until the financial holding company returns to compliance, the FRB may impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the FRB. If the company does not return to compliance within 180 days, the FRB may require divestiture of the holding company’s depository institutions.
The FRB has the power to order any bank holding company or its subsidiaries to terminate any activity or to order the bank holding company to terminate its ownership or control of any subsidiary when the FRB has reasonable grounds to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of any bank subsidiary of the bank holding company.
The BHC Act, the Bank Merger Act, and other federal and state statutes regulate the acquisitions of banks and bank holding companies. The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition of more than 5% of the voting shares or substantially all of the assets of a bank or bank holding company. Under the Bank Merger Act, the prior approval of the FRB or other appropriate bank regulatory authority is required for the Bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities will consider, among other things, the impact on competition, public benefit of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the CRA and fair housing laws and the effectiveness of the subject organizations policies and procedures in combating money laundering.
We are required to comply with applicable capital adequacy standards established by the FRB, and the Bank is required to comply with applicable capital adequacy standards established by the OCC. The current risk-based capital standards applicable to us and the Bank are based on the December 2010 capital standards enumerated by the Basel Committee on Banking Supervision, known as the Basel III Capital Rules.
The fully phased-in Basel III Capital Rules require us and the Bank to maintain minimum ratios as follows (i) Common Equity Tier 1 (“CET1”) to risk-weighted assets of at least 7%, (ii) Tier 1 capital (CET1 plus Additional Tier 1 capital) to risk-weighted assets of at
least 8.5%, and (iii) Total Capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 10.5%; and a minimum leverage ratio of 4%. Banking institutions with a ratio of CET1 to risk-weighted assets below the (7%) minimum will face constraints on dividends, equity repurchases and executive compensation based on the amount of the shortfall.
In addition, under the previously applicable general risk-based capital rules, the effects of accumulated other comprehensive income items included in capital were excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, we and the Bank made a one-time permanent election to continue to exclude these items. Under the Basel III Capital Rules, trust preferred securities no longer included in our Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis without phase-out.
The Basel III Capital Rules prescribe a standardized approach for risk weighting that expanded the risk-weighting categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories.
With respect to the Bank, the Basel III Capital Rules also revise the “prompt corrective action” regulations contained in Section 38 of the FDIA, as discussed in the section captioned “Prompt Corrective Action.”
Management believes that we and the Bank met all capital adequacy requirements under the Basel III Capital Rules as of December 31, 2020.
Prompt Corrective Action
The FDIA requires among other things, that federal banking agencies take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA regime includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures pursuant to the Basel III Capital Rules are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio, the leverage ratio and the ratio of tangible equity to average quarterly tangible assets.
A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 risk-based capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a Tier 1 leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a Tier 1 leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 risk-based capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a Tier 1 leverage ratio of less than 4.0% and is not “significantly undercapitalized” or “critically undercapitalized”; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 risk-based capital ratio less than 3.0%, a Tier 1 risk-based capital ratio of less than 4.0% or a Tier 1 leverage ratio of less than 3.0% and is not “critically undercapitalized”; and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” An “undercapitalized” institution is are subject to growth limitations and is required to submit a capital restoration plan to its principal regulator. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the “undercapitalized” depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized,” and may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
We believe that as of December 31, 2020, the Bank was “well capitalized” based on the aforementioned ratios. For further information regarding the capital ratios and leverage ratio of the Company and the Bank, please see the discussion in the section captioned “Liquidity and Capital Resources” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18. “Stockholders’ Equity - Regulatory Capital Requirements” in the notes to consolidated financial statements, all of which are included elsewhere in this report.
We depend on funds maintained or generated by our subsidiaries, principally the Bank, for our cash requirements. Dividend payments to us from the Bank, are not subject to prior regulatory approval but, are subject to regulatory limitations. Under the National Bank Act, without consent, a national bank may declare, in any one year, dividends only in an amount aggregating not more than the sum of its net profits for such year and its retained net profits for the preceding two years. In addition, the bank regulatory agencies have the authority to prohibit us from paying dividends if the supervising agency determines that such payment would constitute an unsafe or unsound banking practice.
Source of Strength Doctrine
FRB policy and federal law require bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Under this requirement, we are expected to commit resources to support the Bank, including at times when we may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks.
Substantially all of the deposits of the Bank are insured up to applicable limits by the DIF of the FDIC, and the Bank is subject to deposit insurance assessments to maintain the DIF. The deposit insurance provided by the FDIC is capped per account owner at $250 thousand of the total deposits across all accounts held at a single depositary institution.
As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit an insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions. Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based upon supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments. The range of current assessment rates is currently 1.5 to 40 basis points. As the DIF reserve ratio grows, the rate schedule will be adjusted downward. The FDIC has the authority to raise or lower assessment rates, subject to limits, and to impose special additional assessments. The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits.
FDIC deposit insurance expense totaled $9.8 million for the year ended December 31, 2020, $9.1 million for the year ended December 31, 2019, and $16.7 million for the year ended December 31, 2018. FDIC deposit insurance expense included deposit insurance assessments and Financing Corporation (“FICO”) assessments related to outstanding bonds issued by FICO in the late 1980s to recapitalize the now defunct Federal Savings & Loan Insurance Corporation. The FICO assessments were paid in full with the March 31, 2019 assessment.
Safety and Soundness Regulations
In accordance with the FDIA, the federal banking agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, regulations adopted by the federal banking agencies authorize the agencies to require that an institution that has been given notice that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, the institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing corrective actions and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. If the institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and impose civil monetary penalties.
The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines that apply to us and the Bank and prohibit incentive-based payment arrangements at specified regulated entities, that encourage inappropriate risk takings by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators were required to establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies proposed an initial version of such regulations in April 2011 and a revised version in May 2016, which largely retained the provisions from the April 2011 version. As of the date of this report, the regulations are still under review by the agencies and have not been finalized. If the regulations are adopted in the revised form proposed in May 2016, they will impose limitations on the manner in which we may structure compensation for our executives.
In June 2010, the FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers compensation for all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank Act, discussed above.
The FRB will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as ours, that are not “large, complex banking organizations”. These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives are included in the reports of examination. Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
Loans to a Single or Related Group of Borrowers
The Bank generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. Unimpaired capital and surplus includes the Bank’s Tier 1 and Tier 2 capital included in our risk-based capital calculation plus the balance of our allowance for credit losses not included in our Tier 2 capital. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2020, management believes the Bank was in compliance with these restrictions.
Community Reinvestment Act
The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings that must be publicly disclosed. In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering approval of certain applications. The Bank received a rating of “satisfactory” in its most recent CRA exam, which was conducted in 2020.
The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These regulations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.
The Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These guidelines describe the federal banking agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.
Anti-Money Laundering and the USA Patriot Act
A major focus of governmental policy related to financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties, and expanding the extra-territorial jurisdiction of the United States. Failure by a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions or to prohibit such transactions even if approval is not required.
The Dodd-Frank Act amended the BHC Act to require that the federal bank regulatory agencies adopt rules that prohibit banks and their affiliates from engaging in proprietary trading, investing activities and from acquiring and retaining ownership interest in certain unregistered investment companies (defined as hedge funds and private equity funds), commonly referred to as the “Volcker Rule”. The Volcker Rule also requires covered banking entities, including us and the Bank, to implement certain compliance programs, and the complexity and rigor of such programs is determined based on the asset size and complexity of the business of the covered company.
The Dodd-Frank Act included provisions which restrict interchange fees to those that are “reasonable and proportionate” for certain debit card issuers, and limits the ability of networks and issuers to restrict debit card transaction routing. This statutory provision is known as the “Durbin Amendment.” The Federal Reserve issued final rules implementing the Durbin Amendment on June 29, 2011. In the final rules, interchange fees for debit card transactions were capped at $0.21 plus five basis points in order to be eligible for a safe harbor such that the fee is conclusively determined to be reasonable and proportionate. The interchange fee restrictions contained in the Durbin Amendment, and the rules promulgated thereunder, only apply to debit card issuers with $10.0 billion or more in total consolidated assets, which includes the Bank.
Transactions with Affiliates
Transactions between the Bank and its affiliates are regulated by the FRB under sections 23A and 23B of the Federal Reserve Act and related FRB regulations. These regulations limit the types and amounts of covered transactions that the Bank can engage in and requires those transactions be on an arm’s-length basis. The term “affiliate” is defined to mean any company that controls or is under common control with the Bank and includes us and our non-bank subsidiaries. “Covered transactions” include a loan or extension of credit, as well as a purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the FRB) from the affiliate, certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In general, these regulations require that any such transaction by the Bank (or its subsidiaries) with an affiliate must be secured by designated amounts of specified collateral and must be limited to certain thresholds on an individual and aggregate basis.
Federal law also limits the Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Bank’s capital.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility for member institutions. As a member of the FHLB, the Bank is required to acquire and hold shares of capital stock of the FHLB in an amount at least equal to the sum of the membership stock purchase requirement, determined on an annual basis at the end of each calendar year, and the activity-based stock purchase requirement, determined on a daily basis. As of December 31, 2020, the Bank was in compliance with the minimum stock ownership requirement.
Federal Reserve System
FRB regulations require depository institutions to maintain cash reserves against balances in their net transaction accounts, primarily interest bearing demand deposit accounts and non-interest bearing demand deposit accounts. Effective March 26, 2020, the FRB reduced reserve requirements ratios to zero percent. Prior to this change, the reserve requirement ratios on net transactions accounts differed based on the balance held in net transactions accounts at the Bank. A balance in net transaction accounts below a certain amount, known as the “reserve requirement exemption amount,” was subject to a reserve requirement ratio of zero percent. Net transaction account
balances above the reserve requirement exemption amount and up to a specified amount, known as the “low reserve tranche,” (between $16.9 million and $127.5 million in 2020) were subject to a reserve requirement ratio of 3%. Net transaction account balances above the low reserve tranche were subject to a reserve requirement of 10%. The Bank was in compliance with the foregoing requirements for the period of January 1 through March 26, 2020 when the reserve requirement was reduced to zero percent.
Consumer Protection Regulations
The Bank is subject to federal consumer protection statutes and regulations promulgated under those laws, including, but not limited to, the following:
•The Truth-In-Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;
•The Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information about home mortgage and refinanced loans;
•The Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;
•The Fair Credit Reporting Act and Regulation V, governing the provision of consumer information to credit reporting agencies and the use of consumer information; and
•The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies.
Deposit operations are also subject to:
•The Truth in Savings Act and Regulation DD, which requires disclosure of deposit terms to consumers;
•Regulation CC, which relates to the availability of deposit funds to consumers;
•The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and
•The Electronic Funds Transfer Act and Regulation E, governing automatic deposits to, and withdrawals from, deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.
In addition, the Bank may be subject to certain state laws and regulations designed to protect consumers.
Consumer Financial Protection Bureau
Given extensive implementation and enforcement powers over all banks with over $10.0 billion in assets, including the Bank, the CFPB has broad rulemaking authority for a wide range of consumer protection financial laws that apply to all banks including, among other things, the authority to prohibit “unfair, deceptive, or abusive” acts and practices. The CFPB has the authority to investigate possible violations of federal consumer financial protection laws, hold hearings and commence civil litigation. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial protection laws. The CFPB may also institute a civil action against an entity that is found to be in violation of federal consumer financial protection law in order to impose a civil penalty or an injunction.
Access to our Information
We file reports with the SEC. Our corporate website (www.sterlingbancorp.com) provides a direct link to our filings with the SEC, including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these filings, registration statements on Form S-3 and Form S-4, as well as ownership reports on Forms 3, 4 and 5 filed by our directors and executive officers. Copies may also be obtained, without charge, by written request to Sterling Bancorp, Two Blue Hill Plaza, Second Floor, Pearl River, New York 10965, Attention: Emlen Harmon, Senior Managing Director - Investor Relations. The SEC also maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers at http://www.sec.gov. Information contained on our website is not part of this annual report on Form 10-K.
ITEM 1A. Risk Factors
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic continues to impact our business, and the ultimate impact on our business, financial position, results of operations and/or cash flows will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the scope and duration of the pandemic and the actions taken by governmental authorities, our clients and our business partners in response to the pandemic.
The COVID-19 pandemic and the resultant deterioration in global macro-economic conditions has continued to impact our business. Considerable uncertainty continues to exist regarding the likely trajectory of the pandemic and the speed of the economic recovery, and
the ultimate impact on our business, financial position, results of operations and cash flows will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the scope and duration of the pandemic, the actions that will be taken by governmental authorities to both contain the outbreak and to provide continuing support to affected businesses through additional stimulus funds and otherwise, the speed and efficiency of the vaccine roll out in New York state and nationally, and the ongoing response of and impact to our clients and business partners.
The COVID-19 pandemic has negatively impacted the global economy, causing businesses to shut down and unemployment rates to increase, has disrupted global supply chains, and has created significant volatility and disruption in financial markets. In response to the pandemic, governmental and other authorities have instituted numerous measures to contain the virus including travel bans, shelter-in-place orders and business shutdowns.
Our business, financial position, results of operations and cash flows will be impacted by factors which include, but are not limited to: the continued health and availability of our colleagues, continued dampened demand for our products and services, a prolonged period of low or near zero interest rates, a potential further deterioration in the financial condition of our clients resulting in an increase in our allowance for credit losses and the recognition of further credit losses, and a prolonged, deterioration of business conditions in our primary markets, particularly the New York Metro Market and the New York Suburban Market.
We have taken meaningful steps and precautions to safeguard the health and well-being of our colleagues. However, COVID-19 could still impact the availability and effectiveness of our colleagues as a result of illness, mandatory quarantines, mandated financial center closures or other reasons. If our employees are not able to work effectively or a substantial number of employees are unable to work, our business and financial result could be adversely affected.
Our clients face a very challenging business environment. The current economic conditions, especially if prolonged, could negatively impact the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, cause an increase in the number of non-performing loans, impair the value of collateral securing loans, and cause significant property damage, all of which could negatively impact our operating results and financial condition.
The pandemic has resulted in a significant increase in our ACL - loans to $326.1 million or 1.49% of total loans at December 31, 2020 versus $106.2 million or 0.50% at December 31, 2019. During the year ended December 31, 2020, approximately $165.0 million of the $251.7 million of provision for credit loss expense was recorded as a result of changes in the macro assumptions in our forecast model resulting from COVID-19 and the ensuing deterioration in macro-economic conditions. At December 31, 2020, loans criticized as special mention were $461.5 million and classified loans (substandard and doubtful) were $529.1 million. The collateral for these loans is mainly located in the New York Metro Market and includes office, retail, hotel and multi-family properties. At December 31, 2020, we had $208.4 million of loan payment deferral agreements with borrowers. The existing challenging business environment could deteriorate further or become prolonged, especially in our core markets, and this could have a material adverse effect on our loan portfolio and on our ACL - loans in future periods. Additionally, changing economic and market conditions affecting issuers may require us to recognize other-than-temporary impairments on the securities we hold in future periods, as well as reductions in other comprehensive income.
The New York Metro Market and the New York Suburban Market have been particularly impacted by COVID-19. Should the effects of the pandemic and related containment measures continue for an extended period of time, the demand for real estate in the New York City Metro Market may be negatively affected, impacting the value of collateral underlying our commercial real estate loan portfolio. A reduction in demand for commercial real estate would also likely impact our customers’ ability to make loan payments in a timely and / or complete manner. As such, given our business concentration in the New York Metro Market and the New York Suburban Market, our results may be disproportionately impacted when compared to the results and financial condition of other banks or bank holding companies that do not operate in or have a geographic concentration in the New York Metro Market or the New York Suburban Market.
The volatility in global capital markets resulting from the pandemic and related business conditions may restrict our access to capital and/or increase our cost of capital.
To the extent the COVID-19 pandemic adversely affects our business, financial position, results of operations and/or cash flows, it may also have the effect of heightening many of the other risks we face, including the other risks described below.
We continue to work with our stakeholders, including our colleagues, clients, and business partners, to assess, address and where possible mitigate the impact of the pandemic. However, the extent to which the pandemic will materially adversely affect our business and operating results will depend on numerous evolving factors and future developments that we are not able to predict.
Risks Related to Laws and Regulations
We are subject to extensive regulatory oversight.
We and our subsidiaries are subject to extensive supervision and regulation, see Item 1 “Business-Effect of Compliance with Supervision and Governmental Regulation.” We are supervised and regulated by the FRB and the Bank is supervised and regulated by the OCC, as its primary federal regulator, by the FDIC, as the insurer of its deposits, and by the CFPB, which has broad authority to regulate financial service providers and financial products. The application and administration of laws, rules and regulations may vary by such regulators.
In addition, we are subject to consolidated capital requirements and must serve as a source of strength to the Bank. As a result, we are limited in the manner in which we conduct our business, undertake new investments and activities and obtain financing. This regulatory structure is designed primarily for the protection of the DIF and our depositors, as well as other consumers, and not to benefit our stockholders. The regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes, all of which can have a material adverse effect on our financial condition, results of operations and our ability to pay dividends or repurchase shares. Our regulators have also intensified their focus on bank lending criteria and controls, and on the USA Patriot Act’s anti-money laundering and the Bank Secrecy Act compliance requirements, and there is increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with laws, rules, regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannot be certain that the policies, procedures and systems we have in place to ensure compliance are without error, and there is no assurance that in every instance we are in full compliance with these requirements. In addition, emerging technologies, such as cryptocurrencies, could limit our ability to maintain compliance with applicable requirements to track the movement of funds.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs, including by requiring additional compliance or other personnel and the implementation of additional internal controls. Further, we may incur compliance-related costs and our regulators may also consider our level of compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters. Further, changes in laws, regulations or regulatory policies could adversely affect the operating environment for the us in substantial and unpredictable ways, increase our cost of doing business, and impose new restrictions on the way in which we conduct our operations or adding significant operational constraints that might impair our profitability. We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any implementing regulations, would have on our business, financial condition or results of operations.
Our failure to comply with applicable laws, rules and regulations could result in a range of sanctions, legal proceedings and enforcement actions, including the imposition of civil monetary penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action,” depending on our capital levels. For example, currently, we are considered “well-capitalized” for prompt corrective action purposes. If we were to be designated by the OCC as “adequately capitalized,” we would become subject to additional restrictions and limitations, such as limits on the Bank’s ability to take brokered deposits. If we were to be designated by the OCC in one of the lower capital levels (such as “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized”), we would be required to raise additional capital and be subject to progressively more severe restrictions on our operations, and management, including the possible replacement of senior executive officers and directors and capital distributions, and, if we became “critically undercapitalized,” to the appointment of a conservator or receiver.
Changes in laws, government rules and regulations and monetary policy may have a material effect on our results of operations.
Financial institutions are subject to significant laws, rules and regulations and may be subject to further additional legislation, rulemaking or regulation in the future, none of which is within our control. Significant new laws, rules or regulations or changes in, or repeals of, existing laws, rules or regulations, may cause our results of operations to differ materially. In addition, the costs and burden of compliance with such laws, rules and regulations continue to increase and could adversely affect our ability to operate profitably. Further, federal monetary policy significantly affects credit conditions for the Bank, as well as for our borrowers, particularly as implemented through the Federal Reserve, primarily through open market operations in U.S. government securities, the discount rate for bank borrowings and reserve requirements. A material change in any of these conditions could have a material impact on the Bank or our borrowers, and, as a result, our results of operations.
Basel III capital rules generally require insured depository institutions and their holding companies to hold more capital, which could limit our ability to pay dividends, engage in share repurchases and pay discretionary bonuses.
The Federal Reserve, the FDIC and the OCC adopted final rules for the Basel III capital framework that substantially amended the regulatory risk-based capital rules applicable to us. The rules phased in over time, and became fully effective on January 1, 2019. The rules apply to us, as well as to the Bank, and require us to have a CET1 to risk-weighted assets ratio of 7%, a Tier 1 to risk-weighted
assets ratio of 8.5%, and a total capital to risk-weighted assets ratio of 10.5%. Failure to satisfy any of these three capital requirements will result in limits on our ability to pay dividends, engage in share repurchases and pay discretionary bonuses. These rules also establish a maximum percentage of eligible retained income that can be utilized for such actions.
Our ability to pay dividends is subject to regulatory and other limitations, which may affect our ability to pay dividends to our stockholders or to repurchase our common stock.
We are a separate legal entity from our subsidiary, the Bank, and we do not have significant operations of our own. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors that the Bank’s regulators could assert that payment of dividends or other payments may result in an unsafe or unsound practice. In addition, we are subjected to consolidated capital requirements and must serve as a source of strength to the Bank. If the Bank is unable to pay dividends to us or we are required to retain capital or contribute capital to the Bank, we may not be able to pay dividends on our common stock or to repurchase shares of common stock.
Risks Related to Accounting Matters
Changes in accounting standards and management's application of those standards could materially impact the Company’s financial statements.
From time to time, FASB introduces changes to the financial accounting and reporting standards that govern the preparation of financial statements. These changes can be difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. For example, in June 2016 the FASB issued an accounting standard related to credit losses that became effective for the Company on January 1, 2020. This standard replaced the incurred loss impairment methodology with an expected credit loss methodology and required consideration of a broader range of information to determine credit loss estimates. Implementation of the standard resulted in an increase to the ACL, with a corresponding negative impact to our stockholders’ equity at adoption. We elected an interim regulatory capital rule that allows us to delay for two years an estimate of the effect on regulatory capital of the CECL Standard, relative to the incurred loss methodology, followed by a three-year transition period. It is possible that our reported earnings and lending activity will be negatively impacted in future periods as a result of this accounting standard.
Changes in the value of goodwill and intangible assets could reduce our earnings.
We account for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level, and further requires us to recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit. Testing for impairment of goodwill and intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) which can be highly unpredictable, and may materially impact the fair value of publicly traded financial institutions, such as us, and could result in an impairment charge at a future date.
The need to account for assets at market prices may adversely affect our results of operations.
We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value, we use quoted market prices, when available, or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their fair value, we may incur losses even if the assets in question present minimal credit risk. In addition, we may be required to recognize other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.
Risks Related to Our Lending Activities
An inadequate ACL - loans would negatively impact our results of operations.
We are exposed to the risk that our customers will be unable to repay their loans according to agreed upon terms and that any collateral securing the payment of their loans will not be sufficient to avoid losses. Credit losses are inherent in the lending business and could have a material adverse effect on our results of operations. Volatility and deterioration in the broader economy may also increase our risk of credit losses. The determination of an appropriate level of ACL - loans is an inherently uncertain process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and charge-offs may exceed current estimates. We evaluate the collectability of our loan portfolio and record an ACL - loans that we believe is adequate to absorb potential losses over the expected life of the loans based upon various factors, including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience;
specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current economic conditions; the views of our regulators; and geographic and industry loan concentrations. If any of our evaluations are incorrect and/or borrower defaults result in losses exceeding our ACL - loans, our results of operations could be significantly and adversely affected. We cannot assure you that our ACL - loans will be adequate to cover actual loan losses realized on our portfolio.
Commercial real estate, commercial & industrial and ADC loans expose us to increased risk and earnings volatility.
We consider our CRE loans, C&I loans and ADC loans to be higher risk categories in our loan portfolio because these loans are particularly sensitive to economic conditions. At December 31, 2020, our portfolio of CRE loans, including multi-family loans, totaled $10.2 billion, or 46.9% of portfolio loans, our C&I loans (including traditional commercial & industrial, asset-based lending, payroll finance, warehouse lending, factored receivables, equipment finance and public sector finance) totaled $9.2 billion, or 41.9% of portfolio loans, and our ADC loans totaled $642.9 million, or 2.9% of portfolio loans.
CRE loans generally involve a higher degree of credit risk than residential loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend on the successful operation and management of the businesses that hold the loans, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In the case of C&I loans, although we strive to maintain high credit standards and limit exposure to any one borrower, the collateral for these loans often consists of accounts receivable, inventory and equipment. This type of collateral typically does not yield substantial recovery in the event we need to foreclose on it and may rapidly deteriorate, disappear, or be misdirected in advance of foreclosure. This adds to the potential that our charge-offs will be more volatile than we participated, which could significantly negatively affect our earnings in any quarter. In addition, some of our ADC loans pose higher risk levels than expected at origination, as projects may stall or sell at prices lower than anticipated. In addition, many of our borrowers also have more than one CRE, C&I or ADC loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss.
Continued concentration of loans in our primary market area may increase our risk.
Our success depends primarily on the general economic conditions in the markets in which we conduct most of our business. The economic conditions in these areas may be different from, and in some instances worse than, the economic conditions in the United States as a whole. Most of our loans and deposits are generated from customers primarily in the New York Metro Market, which includes Manhattan, the boroughs and Long Island, and certain portions of the New York Suburban Market including Rockland, Westchester and Orange Counties in New York. We also have a presence in Ulster, Sullivan and Putnam Counties in New York and in Bergen County, New Jersey, as well as other counties in northern New Jersey. Our expansion into New York City and continued growth in Westchester County and Bergen County has helped us diversify our geographic concentration with respect to our lending activities but deterioration in economic conditions in our market area would still adversely affect our results of operations and financial condition.
Loans in our residential mortgage loan portfolio include interest only loans and loans that were originated as interest only loans that have converted to principal amortization status.
At December 31, 2020, included in our residential mortgage loan portfolio were $599.5 million of interest only loans and other residential mortgage loans that have converted to principal amortization status. After conversion to principal amortization status, a borrower’s monthly payment may increase substantially and the borrower may not be able to meet the increased debt service, which could result in increased delinquencies and, accordingly, potentially adversely affect our operating results. At December 31, 2020, there were $8.8 million of loans that are interest only or that were interest only and have converted to principal amortization status that were in non-accrual status.
Risks Related to Our Business
Changes in market interest rates could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. Our results of operations substantially depend on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. In general, our balance sheet is modestly asset sensitive because our assets mature or re-price at a faster pace than our liabilities. If interest rates continue at existing levels or decline, net interest income would be adversely affected as asset yields would be expected to decline at faster rates than deposit or borrowing costs. A decline in net interest income may also occur if competitive market pressures limit our ability to reduce deposit costs. Wholesale funding costs may also increase at a faster pace than asset re-pricing.
We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and securities. Decreases in interest rates often result in increased prepayments of loans and securities, as borrowers refinance their
loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Conversely, increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans.
Changes in interest rates also affect the value of our interest earning assets and, in particular, our securities portfolio. The Federal Reserve reduced the federal funds rate two times in fiscal year 2020. Generally, the value of our securities fluctuates inversely with changes in interest rates. As of December 31, 2020, our available for sale securities portfolio totaled $2.3 billion. Decreases in the fair value of securities available for sale could have an adverse effect on stockholders’ equity and comprehensive income.
Uncertainty relating to LIBOR calculation process and phasing out of LIBOR could adversely affect our results of operations.
In 2017, the United Kingdom Financial Conduct Authority (the “UK FCA”), announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. In November 2020, the UK FCA announced it will consult on its proposal to extend the retirement date of certain offered rates (excluding the one week and two month LIBOR offered rates which otherwise ease after December 31, 2021); and that, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and other risks, the bank regulatory agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.
It is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate or SOFR as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments and on our financial condition and results of operations.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and could present additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers and internally could adversely impact our reputation financial condition and results of operations. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.
Our outstanding debt obligations and preferred stock, and our level of indebtedness could adversely affect our ability to raise additional capital and to meet our obligations under our existing indebtedness.
We have approximately $1.0 billion in outstanding indebtedness and obligations related to outstanding preferred stock. Our existing debt, together with any future additional indebtedness incurred, and outstanding preferred stock, could have important consequences for our creditors and stockholders. For example, it could:
•limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes;
•restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
•restrict us from paying dividends to our stockholders; and
•increase our vulnerability to general economic and industry conditions.
Our results of operations, financial condition or liquidity may be adversely impacted by issues arising from certain foreclosure practices.
Foreclosure timelines in our principal marketplace are longer than the national average. Residential mortgages, in particular, may present us with foreclosure process issues. For example, residential mortgages were 7.4% of our total portfolio loans as of December 31, 2020, but constituted 11.2% of our non-accrual loans on the same date. Collateral for many of our residential loans is located within the States of New York and New Jersey, where there may continue to be foreclosure process and timeline issues.
We are subject to competition from both banks and non-bank companies.
The financial services industry, including commercial banking, is highly competitive, and we face competition for deposits, loans and other financial services. Our principal competitors include commercial banks, savings banks and savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing companies, credit unions, mortgage companies, REITs, private issuers of debt obligations, venture capital firms, private equity funds and suppliers of other investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we are and thus have advantages over us in providing certain services. Further, many of our competitors are significantly larger than we are and have greater access to capital and other resources.
In addition, financial products and services have become increasingly technology-driven. The adoption of new technologies, including Internet banking services, mobile applications, advanced ATM functionality and cryptocurrencies could require us to make substantial expenditures to modify or adapt our current products and services or to build new products and services. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The ability to keep pace with technological change is important and may be costly, and the failure to do so could have a material adverse effect on our business, on our financial condition and results of operations.
Our ability to make acquisitions is subject to significant risks, including the risk that regulators will not provide the requisite approvals.
We will continue to evaluate potential acquisitions and may from time to time make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related businesses that we expect will further our business strategy, including through participation in FDIC-assisted acquisitions or assumption of deposits from troubled institutions. Any potential acquisition will be subject to regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or at all. Even if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than expected performance or higher than expected costs, difficulties related to integration, difficulties and costs associated with consolidation, diversion of management’s attention from other business activities, changes in relationships with customers, and the potential loss of key employees. In addition, we may not be successful in identifying acquisition candidates or preventing deposit erosion or loan quality deterioration at acquired institutions. Additionally, we may not be able to acquire other institutions on attractive terms. There can be no assurance that we will be successful in completing or will even pursue future acquisitions, or if such transactions are completed, that we will be successful in integrating acquired businesses into our existing operations. Our ability to grow may be limited if we choose not to pursue or are unable to successfully make acquisitions in the future.
The success of our and the Bank’s mergers and acquisition transactions may depend, in part, on our ability to realize the estimated cost savings from combining the acquired businesses with our and the Bank’s existing operations. It is possible that the potential cost savings could turn out to be more difficult to achieve than anticipated or that our estimates could turn out to be incorrect and that anticipated cost savings may not be realized fully or at all, and/or may take longer to realize than expected. Moreover, although we have successfully integrated business acquisitions in recent years, there is no assurance that we will be able to continue to do so in the future, which could delay or prevent the anticipated benefits of future acquisitions from being realized fully or at all. Finally, acquisitions typically involve the payment of a premium over book and trading value and thus may result in the dilution of our book value per share.
Risks Related to Our Operations
We are subject to laws regarding the privacy, information security and protection of personal information and any violation of these laws or incident involving the mishandling of personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii) requires that we provide certain disclosures to customers about our information collection, sharing and security practices and afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of customer information we process, as well as plans for responding to data security breaches.
Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification requirements in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs. Furthermore, we may not be able to ensure that all of our customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were to be mishandled or misused, we could be exposed to litigation or regulatory sanctions. Any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our operations and financial condition.
Further concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers and thereby reduce our revenues.
A breach, failure or interruption of information security and other systems, including as a result of cyber-attacks or other cyber incidents, could negatively affect our earnings or otherwise harm our business.
Increasingly, our data processing, communication and information exchange depends on a variety of computing platforms and networks, both internal and those of external, third-party vendors. We devote significant resources and management focus to ensuring the integrity of our systems through information security and business continuity programs and otherwise. But there can be no assurance that our systems will not experience a breach interruption in service or other failure. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by external or internal security breaches, acts of vandalism, viruses, misplaced or lost data, programming or human errors or other similar events, all of which could have an adverse effect on our results of operations.
Information security risks for financial institutions continue to increase in part because of new technologies, the use of the Internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information, hackers continue to engage in attacks against large financial institutions including denial of service attacks designed to disrupt external customer facing services, and ransomware attacks designed to deny organizations access to key internal resources or systems. Moreover, we are not able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid detection. Additionally, we face risks related to cyber-attacks and other security breaches in connection with our own and third-party systems, processes and data, including credit card transactions that typically require the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.
While to date we have not been the target of a successful, material cyber-attack, breach or other incidents, we cannot guarantee that our systems, or the systems of the third-party vendors we rely on, are free from vulnerability to attack, despite safeguards we and our third-party vendors have instituted.
While we diligently assess applicable regulatory and legislative developments affecting our business, laws and regulations relating to cybersecurity have been frequently changing, imposing new requirements on us, such as the recently adopted New York State Department of Financial Services’ Cybersecurity Requirements for Financial Services Companies regulation. In light of this, we face the potential for additional regulatory scrutiny that will lead to increasing compliance and technology expenses and, in some cases, could constrain our plans for growth and other strategic objectives.
We depend on our executive officers and key personnel to continue the implementation of our long-term business strategy and could be harmed by the loss of their services.
We believe that our continued growth and future success will depend in large part on the skills of our management team and our ability to motivate and retain these individuals and other key personnel. In particular, we rely on the leadership of our Chief Executive Officer, Jack Kopnisky, and our Chief Financial Officer, Luis Massiani, who was also recently appointed Chief Operating Officer. The loss of service of Mr. Kopnisky, Mr. Massiani or one or more of our other executive officers or key personnel could reduce our ability to
successfully implement our long-term business strategy, could cause our business to suffer, and could negatively impact the value of our common stock. Leadership changes will occur from time to time, such as the previously-announced upcoming transition of Bea Ordonez to the role of Chief Financial Officer, and we cannot predict whether resignations of key personnel will occur or whether we will be able to recruit additional qualified personnel. We believe our management team possesses valuable knowledge about the banking industry and our markets and that their knowledge and relationships would be very difficult to replicate. Although the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other executive officers have entered into employment agreements with us, it is possible that they may not complete the term of their employment agreements or renew them upon expiration. Our success also depends on the experience of our financial center managers and lending officers and on their relationships with the customers and communities they serve. The loss of these key personnel could negatively impact our banking operations. Further, the loss of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations.
Our investments in certain tax-advantaged projects may not generate returns as anticipated or at all and may have an adverse impact on our results of operations.
We invest in certain tax-advantaged investments that support qualified affordable housing projects and other community development initiatives. Our investments in these projects rely on the ability of the projects to generate a return primarily through the realization of federal and state income tax credits and other tax benefits. We face the risk that tax credits, which remain subject to recapture by taxing authorities based on compliance with relevant requirements at the project level, may not be able to be realized. The risk of not being able to realize the tax credits and other tax benefits associated with a particular project depends on many factors that are outside our control. A project’s failure to realize these tax credits and other tax benefits may have a negative impact on our investment and, as a result, on our financial condition and results of operations.
ITEM 1B.Unresolved Staff Comments
ITEM 2. Properties
Our headquarters are located in a leased facility located at Two Blue Hill Plaza, Second Floor, Pearl River, New York. We also lease corporate back-office space in New York City, Jericho on Long Island, and White Plains in Westchester County, all in New York. We lease space in a facility located in Dallas, Texas that includes our asset-based lending and equipment finance business lines. At December 31, 2020, we conducted our business through 76 full-service retail and commercial financial centers which serve the New York Metro Market and the New York Suburban Market 40 of which are owned, 36 of which are leased. Our financial centers are located in Nassau and Suffolk Counties on Long Island, in the boroughs of Manhattan, Westchester and Rockland County, all of which are in New York. We also have one office in New Jersey.
In addition to our financial center network and corporate offices, we lease nine additional properties that are used for general corporate purposes. See Note 6. “Premises and Equipment, Net” in the notes to consolidated financial statements for further detail on our premises and equipment.
ITEM 3. Legal Proceedings
See Note 20. “Litigation” in the notes to consolidated financial statements that is incorporated herein by reference. We do not anticipate that the aggregate liability arising out of litigation pending against us and our subsidiaries will be material to our consolidated financial statements.
ITEM 4.Mine Safety Disclosures
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Market Prices, Holders and Dividends
Our common stock is traded on the NYSE under the symbol “STL”.
As of December 31, 2020, there were 192,923,371 shares of our common stock outstanding held by 6,530 holders of record. The closing price per share of our common stock on December 31, 2020, which was the last trading day of our fiscal year, was $17.98.
The declaration of dividends is subject to the discretion of our Board. The Board is committed to continuing to pay regular cash dividends; however, there can be no assurance as to future dividends. The Board will consider factors such as financial results, capital requirements, financial condition and any other factors it deems relevant.
See the section captioned “Effect of Compliance with Supervision and Governmental Regulation” included in Item 1. “Business”, the section captioned “Liquidity and Capital Resources” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18. “Stockholders’ Equity” in the notes to consolidated financial statements, all of which are included elsewhere in this report, for additional information regarding our common stock and our ability to pay dividends.
Set forth below is a stock performance graph comparing the cumulative total shareholder return on Sterling Bancorp common stock with (a) the cumulative total return on the KBW Bank Index; and (b) the SNL Mid-Atlantic Bank Index, measured as of the last trading day of each period shown. The graph assumes an investment of $100 on December 31, 2015 and reinvestment of dividends on the date of payment without commissions. The performance graph represents past performance and should not be considered to be an indication of likely future stock performance.
|At December 31,|