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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

OR

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

For the transition period from       to       

Commission File Number 001-38290

Sterling Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Michigan

    

38-3163775

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

One Towne Square, Suite 1900

Southfield, Michigan 48076

(248) 355-2400

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

SBT

Nasdaq Capital Market

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 12 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 pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of July 31, 2023, 52,076,082 shares of the registrant’s Common Stock were outstanding.

STERLING BANCORP, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

2

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

6

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

63

Item 4.

Controls and Procedures

65

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

66

Item 1A.

Risk Factors

67

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 6.

Exhibits

70

Exhibit Index

SIGNATURES

71

1

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

June 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Cash and due from banks

$

655,391

$

379,798

Interest-bearing time deposits with other banks

934

934

Debt securities available for sale, at fair value (amortized cost $359,793 and $370,489)

 

334,508

 

343,558

Equity securities

 

4,640

 

4,642

Loans held for sale

 

 

7,725

Loans, net of allowance for credit losses of $36,153 and $45,464

 

1,449,709

 

1,613,385

Accrued interest receivable

 

7,489

 

7,829

Mortgage servicing rights, net

1,658

1,794

Leasehold improvements and equipment, net

 

5,850

 

6,301

Operating lease right-of-use assets

13,025

14,800

Federal Home Loan Bank stock, at cost

20,288

20,288

Company-owned life insurance

 

8,605

 

8,501

Deferred tax asset, net

 

18,538

 

23,704

Other assets

 

11,375

 

11,476

Total assets

$

2,532,010

$

2,444,735

Liabilities and Shareholders’ Equity

Liabilities

 

  

 

  

Noninterest-bearing deposits

$

44,799

$

53,041

Interest-bearing deposits

 

1,996,692

 

1,900,996

Total deposits

 

2,041,491

 

1,954,037

Federal Home Loan Bank borrowings

 

50,000

 

50,000

Subordinated notes, net

 

65,234

 

65,271

Operating lease liabilities

14,176

15,990

Accrued expenses and other liabilities

 

43,433

 

46,810

Total liabilities

 

2,214,334

 

2,132,108

Shareholders’ equity

 

  

 

Preferred stock, authorized 10,000,000 shares; no shares issued and outstanding

 

 

Common stock, no par value, authorized 500,000,000 shares; issued and outstanding 52,081,886 shares and 50,795,871 shares at June 30, 2023 and December 31, 2022, respectively

 

84,323

 

83,295

Additional paid-in capital

 

15,098

 

14,808

Retained earnings

 

236,587

 

234,049

Accumulated other comprehensive loss

 

(18,332)

 

(19,525)

Total shareholders’ equity

 

317,676

 

312,627

Total liabilities and shareholders’ equity

$

2,532,010

$

2,444,735

See accompanying notes to condensed consolidated financial statements.

2

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Interest income

  

  

Interest and fees on loans

$

21,892

$

20,746

$

44,052

$

44,614

Interest and dividends on investment securities and restricted stock

2,666

1,353

 

5,122

 

2,188

Interest on interest-bearing cash deposits

7,002

791

 

11,809

 

1,006

Total interest income

31,560

22,890

 

60,983

 

47,808

Interest expense

 

 

Interest on deposits

13,337

2,016

 

23,146

 

4,346

Interest on Federal Home Loan Bank borrowings

248

314

 

493

 

666

Interest on subordinated notes

1,791

1,090

 

3,484

 

2,054

Total interest expense

15,376

3,420

 

27,123

 

7,066

Net interest income

16,184

19,470

 

33,860

 

40,742

Provision for (recovery of) credit losses

(2,902)

(1,109)

 

(2,228)

 

(5,398)

Net interest income after provision for (recovery of) credit losses

19,086

20,579

 

36,088

 

46,140

Non-interest income

 

 

Service charges and fees

78

105

 

172

 

227

Loss on the sale of investment securities

(2)

Gain on sale of mortgage loans held for sale

1,720

3

 

1,695

 

200

Unrealized loss on equity securities

(71)

(170)

(406)

Net servicing income (loss)

102

(177)

161

266

Income earned on company-owned life insurance

81

255

 

161

 

583

Other

1

29

 

2

 

586

Total non-interest income

1,911

45

 

2,189

 

1,456

Non-interest expense

 

 

Salaries and employee benefits

9,274

5,569

 

18,684

 

15,186

Occupancy and equipment

2,051

2,187

 

4,163

 

4,329

Professional fees

3,521

7,066

 

6,742

 

12,223

FDIC insurance assessments

263

346

 

520

 

715

Data processing

754

762

 

1,492

 

1,567

Net provision for (recovery of) mortgage repurchase liability

(59)

(312)

61

(525)

Other

1,537

3,876

 

3,516

 

5,422

Total non-interest expense

17,341

19,494

 

35,178

 

38,917

Income before income taxes

3,656

1,130

 

3,099

 

8,679

Income tax expense

1,117

3,327

 

1,063

 

5,616

Net income (loss)

$

2,539

$

(2,197)

$

2,036

$

3,063

Income (loss) per share, basic and diluted

$

0.05

$

(0.04)

$

0.04

$

0.06

Weighted average common shares outstanding:

Basic

50,672,461

50,386,856

50,559,092

50,289,612

Diluted

50,778,213

50,386,856

50,705,998

50,496,487

See accompanying notes to condensed consolidated financial statements.

3

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Net income (loss)

$

2,539

$

(2,197)

$

2,036

$

3,063

Other comprehensive income (loss), net of tax:

 

 

Unrealized gain (loss) on investment securities, arising during the period, net of tax effect of $(603), $(1,950), $451 and $(4,883), respectively

(1,593)

(5,142)

 

1,192

 

(12,685)

Reclassification adjustment for loss included in net income of $—, $—, $2 and $—, respectively, included in loss on sale of investment securities, net of tax effect of $—, $— $1, and $—, respectively

1

Total other comprehensive income (loss)

(1,593)

(5,142)

 

1,193

 

(12,685)

Comprehensive income (loss)

$

946

$

(7,339)

$

3,229

$

(9,622)

See accompanying notes to condensed consolidated financial statements.

4

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(dollars in thousands)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Loss

    

Equity

Balance at January 1, 2022

50,460,932

$

82,157

$

14,124

$

248,243

$

(897)

$

343,627

Net income

5,260

5,260

Repurchase of restricted shares to pay employee tax liability

(13,383)

(84)

(84)

Stock-based compensation

49,284

146

146

Other comprehensive loss

 

 

 

 

(7,543)

 

(7,543)

Balance at March 31, 2022

50,496,833

82,157

14,186

253,503

(8,440)

341,406

Net loss

(2,197)

(2,197)

Repurchase of restricted shares to pay employee tax liability

(16,345)

(112)

(112)

Issuance of shares of common stock to defined contribution retirement plan (Note 10)

160,978

1,138

1,138

Stock-based compensation

176,746

239

239

Other comprehensive loss

(5,142)

(5,142)

Balance at June 30, 2022

50,818,212

$

83,295

$

14,313

$

251,306

$

(13,582)

$

335,332

Balance at January 1, 2023

50,795,871

$

83,295

$

14,808

$

234,049

$

(19,525)

$

312,627

Cumulative effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2016-13 (Note 2)

778

778

Cumulative effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2022-02 (Note 2)

(276)

(276)

Net loss

(503)

(503)

Repurchase of restricted shares to pay employee tax liability

(12,166)

(75)

(75)

Stock-based compensation

24,411

173

173

Other comprehensive income

2,786

2,786

Balance at March 31, 2023

50,808,116

83,295

14,906

234,048

(16,739)

315,510

Net income

2,539

2,539

Repurchase of restricted shares to pay employee tax liability

(28,826)

(158)

(158)

Issuance of shares of common stock to defined contribution retirement plan (Note 10)

184,928

1,028

1,028

Stock-based compensation

1,117,668

350

350

Other comprehensive loss

(1,593)

(1,593)

Balance at June 30, 2023

52,081,886

$

84,323

$

15,098

$

236,587

$

(18,332)

$

317,676

See accompanying notes to condensed consolidated financial statements.

5

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

Six Months Ended

June 30, 

    

2023

    

2022

Cash Flows From Operating Activities

 

  

 

  

Net income

$

2,036

$

3,063

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Provision for (recovery of) credit losses

 

(2,228)

 

(5,398)

Deferred income taxes

 

4,524

 

4,281

Loss on sale of investment securities

 

2

 

Unrealized loss on equity securities

 

 

406

Net amortization (accretion) on investment securities

 

(1,140)

 

(41)

Depreciation and amortization on leasehold improvements and equipment

693

787

Net principal payments (originations) of loans held for sale

 

(2,655)

 

2,250

Proceeds from sale of mortgage loans held for sale

 

2,979

 

1,831

Gain on sale of mortgage loans held for sale

 

(1,695)

 

(200)

Net provision for (recovery of) mortgage repurchase liability

61

(525)

Increase in cash surrender value of company-owned life insurance, net of premiums

 

(104)

 

(240)

Valuation allowance adjustments and amortization of mortgage servicing rights

 

136

 

280

Stock-based compensation

523

385

Other

 

(1)

 

(35)

Change in operating assets and liabilities:

 

 

Accrued interest receivable

 

340

 

975

Other assets

1,843

2,735

Accrued expenses and other liabilities

 

(4,794)

 

(4,907)

Net cash provided by operating activities

 

520

 

5,647

Cash Flows From Investing Activities

 

  

 

  

Maturities and principal receipts of investment securities

11,684

21,904

Sales of investment securities

2,977

Purchases of investment securities

(2,979)

(108,267)

Maturities (purchases) of investment securities, net

 

153

Proceeds received from redemption of Federal Home Loan Bank stock

2,662

Net decrease in loans

 

136,336

 

268,078

Purchases of portfolio loans

(31,002)

Principal payments received on loans held for sale previously classified as portfolio loans

1,959

2,521

Proceeds from loans held for sale previously classified as portfolio loans

37,930

49,610

Proceeds received from settlement of company-owned life insurance policies

20,234

Proceeds from the sales of equipment

46

Purchases of leasehold improvements and equipment

 

(254)

 

(214)

Net cash provided by investing activities

 

187,852

 

225,526

Cash Flows From Financing Activities

 

  

 

  

Net increase (decrease) in deposits

 

87,454

 

(257,488)

Repayments of Federal Home Loan Bank advances

(100,000)

Cash paid for surrender of vested shares to satisfy employee tax liability

(233)

(196)

Net cash provided by (used in) financing activities

 

87,221

 

(357,684)

Net change in cash and due from banks

 

275,593

 

(126,511)

Cash and due from banks at beginning of period

 

379,798

 

411,676

Cash and due from banks at end of period

$

655,391

$

285,165

Supplemental cash flows information

 

  

 

  

Cash paid for:

 

  

 

  

Interest

$

26,382

$

7,127

Income taxes

300

457

Noncash investing and financing activities:

Transfer of residential real estate loans to loans held for sale

34,581

Transfer of residential real estate loans from loans held for sale

3,906

Shares of common stock issued in satisfaction of Company’s matching contribution in defined contribution retirement plan

1,028

1,138

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share amounts)

Note 1—Nature of Operations and Basis of Presentation

Nature of Operations

Sterling Bancorp, Inc. (unless stated otherwise or the context otherwise requires, together with its subsidiaries, the “Company”) is a unitary thrift holding company that was incorporated in 1989 and the parent company of its wholly owned subsidiary, Sterling Bank and Trust, F.S.B. (the “Bank”). The Company’s business is conducted through the Bank, which was formed in 1984. The Bank originates commercial real estate loans, commercial and industrial loans and consumer loans and provides deposit products, consisting primarily of checking, savings and term certificate accounts. Historically, the Company’s largest asset class has been residential mortgage loans. The Bank’s residential lending program has been suspended since the third-party residential lending service provider announced in November 2022 its intention to cease conducting business. Pending residential loan applications were processed through February 2023. The Company is currently performing an evaluation of its alternatives for new banking products and services. The Bank also engages in mortgage banking activities and, as such, acquires, sells and services residential mortgage loans. The Bank operates through a network of 28 branches of which 26 branches are located in the San Francisco and Los Angeles, California metropolitan areas with the remaining branches located in New York, New York and Southfield, Michigan.

The Company is headquartered in Southfield, Michigan, and its operations are in the financial services industry. Management evaluates the performance of the Company’s business based on one reportable segment, community banking.

The Company is subject to regulation, examination and supervision by the Board of Governors of the Federal Reserve System (the “FRB” or “Federal Reserve”). The Bank is a federally chartered stock savings bank that is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”) of the U.S. Department of Treasury and the Federal Deposit Insurance Corporation (“FDIC”) and is a member of the Federal Home Loan Bank (“FHLB”) system.

Basis of Presentation

The condensed consolidated balance sheet as of June 30, 2023, and the condensed consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for the three and six months ended June 30, 2023 and 2022 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, in the opinion of management, of a normal recurring nature that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The financial data and other financial information disclosed in these notes to the condensed consolidated financial statements related to these periods are also unaudited. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, 2023 or for any future annual or interim period. The condensed consolidated balance sheet at December 31, 2022 included herein was derived from the audited financial statements as of that date. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “2022 Form 10-K”).

7

Table of Contents

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share amounts)

Note 2—Adoption of New Accounting Standards

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2022-02, Financial Instruments – Credit Losses ( Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. Under the new guidance, creditors should evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan under the general loan modification guidance. Public business entities are required to disclose current-period gross write-offs by year of origination for loan financing receivables and net investment in leases. The Company adopted the provisions of ASU 2022-02 on January 1, 2023 on a prospective basis, along with its adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) as discussed in Note 3Summary of Significant Accounting Policies. On the date of adoption, the Company recorded a cumulative effect adjustment of $276, net of tax, to decrease the opening balance of retained earnings as of January 1, 2023, for the initial application of ASU 2022-02. The cumulative effect adjustment represents the difference between the allowance previously determined under the troubled debt restructuring model and the allowance determined under the new credit loss accounting model for existing troubled debt restructuring loans on the adoption date.

In June 2016, the FASB issued ASU 2016-13 (and subsequent amendments), which significantly changes estimates for credit losses related to financial assets measured at amortized cost, including loan receivables and other contracts, such as off-balance sheet credit exposure, specifically, loan commitments and standby letters of credit, financial guarantees and other similar instruments. The guidance replaced the current incurred loss accounting model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model requires the measurement of the lifetime expected credit losses on financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, ASU 2016-13 requires credit losses on available for sale debt securities to be presented as an allowance rather than as a write-down. The guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.

The Company adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while amounts for prior periods continue to be reported in accordance with previously applicable accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company recorded a cumulative effect adjustment of $778, net of tax, to increase the opening balance of retained earnings as of January 1, 2023, for the initial application of CECL. Upon adoption, the allowance for credit losses for loans decreased by $1,651 primarily driven by the allowance for credit losses on the construction loan portfolio due to the short contractual maturities of the loans in this portfolio segment (all construction loans mature in 2023). This was partially offset by an increase in the allowance for credit losses in both the residential real estate and commercial real estate portfolio segments which have longer contractual maturities. In addition, the Company established a liability for unfunded commitments of $579.

The details of the changes and quantitative impact on the financial statement line items in the condensed consolidated balance sheet as of January 1, 2023 for the adoption of ASU 2016-13, along with the adoption of ASU 2022-02, were as follows:

    

Prior to

    

Adjustments for 

    

Adjustments for

 

After

Adoption 

ASU 2016-13

ASU 2022-02

 

Adoption

Assets:

 

  

 

  

 

  

Allowance for credit losses – loans

$

45,464

$

(1,651)

$

380

$

44,193

Liabilities:

 

  

 

  

 

  

Liability for unfunded commitments