Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2018

 

 

o         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

 

(I.R.S. Employer

incorporation or organization)

 

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)

 

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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer x

 

Smaller reporting company o

 

 

 

 

(Do not check if a

 

Emerging growth company x

 

 

 

 

smaller reporting 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. x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

As of May 11, 2018, there were 53,002,963 shares of the Registrant’s Common Stock outstanding.

 

 

 



Table of Contents

 

STERLING BANCORP, INC.

FORM 10-Q

INDEX

 

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

2

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017

3

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017

4

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2018 and 2017

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

6

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

34

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

47

Item 4.

Controls and Procedures

49

 

 

 

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 6.

Exhibits

49

Exhibit Index

 

50

SIGNATURES

 

51

 

1



Table of Contents

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets

(dollars in thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

37,541

 

$

40,147

 

Investment securities

 

124,956

 

126,848

 

Mortgage loans held for sale

 

200,467

 

112,866

 

Loans, net of allowance for loan losses of $19,132 and $18,457

 

2,580,560

 

2,594,357

 

Accrued interest receivable

 

11,936

 

11,493

 

Mortgage servicing rights, net

 

7,780

 

6,496

 

Leasehold improvements and equipment, net

 

7,705

 

7,043

 

Federal Home Loan Bank stock, at cost

 

22,950

 

22,950

 

Cash surrender value of bank-owned life insurance

 

30,837

 

30,680

 

Deferred tax asset, net

 

7,234

 

6,847

 

Other assets

 

2,366

 

2,231

 

Total assets

 

$

3,034,332

 

$

2,961,958

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Noninterest-bearing deposits

 

$

75,062

 

$

73,682

 

Interest-bearing deposits

 

2,216,103

 

2,171,428

 

Total deposits

 

2,291,165

 

2,245,110

 

Federal Home Loan Bank borrowings

 

342,937

 

338,000

 

Subordinated notes, net

 

64,923

 

64,889

 

Accrued expenses and other liabilities

 

46,795

 

40,661

 

Total liabilities

 

2,745,820

 

2,688,660

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, voting, no par value, authorized 500,000,000 shares; issued and outstanding 53,002,963 and 52,963,308 shares at March 31, 2018 and December 31, 2017, respectively

 

111,238

 

111,238

 

Additional paid-in capital

 

12,425

 

12,416

 

Retained earnings

 

164,984

 

149,816

 

Accumulated other comprehensive loss

 

(135

)

(172

)

Total shareholders’ equity

 

288,512

 

273,298

 

Total liabilities and shareholders’ equity

 

$

3,034,332

 

$

2,961,958

 

 

See accompanying notes to condensed consolidated financial statements.

 

2



Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

Interest income

 

 

 

 

 

Interest and fees on loans

 

$

35,856

 

$

26,759

 

Interest and dividends on investment securities

 

819

 

365

 

Other interest

 

114

 

19

 

Total interest income

 

36,789

 

27,143

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

Interest on deposits

 

6,589

 

3,534

 

Interest on Federal Home Loan Bank borrowings

 

833

 

830

 

Interest on subordinated notes and other

 

1,172

 

908

 

Total interest expense

 

8,594

 

5,272

 

 

 

 

 

 

 

Net interest income

 

28,195

 

21,871

 

Provision for loan losses

 

641

 

600

 

Net interest income after provision for loan losses

 

27,554

 

21,271

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

Service charges and fees

 

618

 

409

 

Investment management and advisory fees

 

623

 

552

 

Gain on sale of mortgage loans held for sale

 

65

 

187

 

Gain on sale of portfolio loans

 

3,941

 

3,865

 

Unrealized losses on equity securities

 

(64

)

 

Income on cash surrender value of bank-owned life insurance

 

295

 

291

 

Other income

 

559

 

282

 

Total non-interest income

 

6,037

 

5,586

 

 

 

 

 

 

 

Non-interest expense

 

 

 

 

 

Salaries and employee benefits

 

6,649

 

5,410

 

Occupancy and equipment

 

1,546

 

1,389

 

Professional fees

 

622

 

369

 

Advertising and marketing

 

349

 

192

 

FDIC assessments

 

543

 

242

 

Data processing

 

288

 

207

 

Other

 

1,506

 

1,283

 

Total non-interest expense

 

11,503

 

9,092

 

 

 

 

 

 

 

Income before income taxes

 

22,088

 

17,765

 

Income tax expense

 

6,339

 

7,349

 

Net income

 

$

15,749

 

$

10,416

 

 

 

 

 

 

 

Income per share, basic and diluted

 

$

0.30

 

$

0.23

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

52,963,308

 

45,271,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Net income

 

$

15,749

 

$

10,416

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

Unrealized losses on investment securities, arising during the year, net of income tax of ($3) and ($16) in 2018 and 2017, respectively

 

(13

)

(29

)

Less: reclassification adjustment for (gains) losses included in net income

 

 

 

Total other comprehensive loss

 

(13

)

(29

)

Comprehensive income

 

$

15,736

 

$

10,387

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

Sterling Bancorp, Inc.

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

(dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Voting

 

Nonvoting

 

Capital

 

Earnings

 

Loss

 

Equity

 

Balance at January 1, 2017

 

$

22,863

 

$

2,885

 

$

15,118

 

$

121,446

 

$

(40

)

$

162,272

 

Net income

 

 

 

 

10,416

 

 

10,416

 

Capital contributions from controlling member of merged entity (Note 1)

 

 

 

218

 

 

 

218

 

Other comprehensive loss

 

 

 

 

 

(29

)

(29

)

Dividends distributed ($0.04 per share)

 

 

 

 

(1,767

)

 

(1,767

)

Balance at March 31, 2017

 

$

22,863

 

$

2,885

 

$

15,336

 

$

130,095

 

$

(69

)

$

171,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

$

111,238

 

$

 

$

12,416

 

$

149,816

 

$

(172

)

$

273,298

 

Cumulative effect adjustment, reclassification of unrealized losses on equity securities (Note 3)

 

 

 

 

(50

)

50

 

 

Net income

 

 

 

 

15,749

 

 

15,749

 

Stock-based compensation

 

 

 

9

 

 

 

9

 

Other comprehensive loss

 

 

 

 

 

(13

)

(13

)

Dividends distributed ($0.01 per share)

 

 

 

 

(531

)

 

(531

)

Balance at March 31, 2018

 

$

111,238

 

$

 

$

12,425

 

$

164,984

 

$

(135

)

$

288,512

 

 

See accompanying notes to condensed consolidated financial statements.

 

5



Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

2017

 

Cash Flows From Operating Activities

 

 

 

 

 

Net income

 

$

15,749

 

$

10,416

 

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

 

 

 

 

 

Provision for loan losses

 

641

 

600

 

Deferred income taxes

 

(387

)

327

 

Unrealized losses on equity securities

 

64

 

 

Amortization and (accretion), net, debt securities available for sale

 

(69

)

3

 

Depreciation and amortization of leasehold improvements and equipment

 

318

 

268

 

Amortization of intangible asset

 

113

 

113

 

Origination, premium paid and purchase of loans, net of principal payments, mortgage loans held for sale

 

(7,424

)

(6,326

)

Proceeds from the sale of mortgage loans held for sale

 

6,165

 

9,695

 

Gain on sale of mortgage loans held for sale

 

(65

)

(187

)

Gain on sale of portfolio loans

 

(3,941

)

(3,865

)

Increase in cash surrender value of bank-owned life insurance

 

(157

)

(166

)

Net change in servicing assets

 

237

 

250

 

Other

 

43

 

33

 

Change in operating assets and liabilities:

 

 

 

 

 

Accrued interest receivable

 

(443

)

(261

)

Other assets

 

(245

)

153

 

Accrued expenses and other liabilities

 

6,134

 

8,783

 

Net cash provided by operating activities

 

16,733

 

19,836

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

Maturities and principal receipts of investment securities

 

26,615

 

23,671

 

Purchases of investment securities

 

(24,734

)

(35,234

)

Loans originated, net of repayments

 

(182,870

)

(123,695

)

Proceeds from the sale of portfolio loans

 

112,169

 

105,184

 

Purchase of leasehold improvements and equipment

 

(980

)

(659

)

Net cash used in investing activities

 

(69,800

)

(30,733

)

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

Net increase in deposits

 

46,055

 

107,003

 

Proceeds from advances from Federal Home Loan Bank

 

505,000

 

660,000

 

Repayments of advances from Federal Home Loan Bank

 

(513,000

)

(735,000

)

Net change in line of credit with Federal Home Loan Bank

 

12,937

 

(11,083

)

Capital contributions from controlling member of merged entity

 

 

218

 

Dividends paid to shareholders

 

(531

)

(1,767

)

Net cash provided by financing activities

 

50,461

 

19,371

 

Net increase (decrease) in cash and due from banks

 

(2,606

)

8,474

 

Cash and due from banks at beginning of period

 

40,147

 

22,124

 

Cash and due from banks at end of period

 

$

37,541

 

$

30,598

 

 

 

 

 

 

 

Supplemental cash flows information

 

 

 

 

 

Cash paid:

 

 

 

 

 

Interest

 

$

6,333

 

$

5,011

 

Income taxes

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Transfers of residential real estate loans to mortgage loans held for sale

 

198,184

 

 

Transfers of residential real estate loans from mortgage loans held for sale

 

2,158

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

6



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

Note 1—Nature of Operations and Basis of Presentation

 

Nature of Operations

 

Sterling Bancorp, Inc. (the “Company”) is a unitary thrift holding company that was incorporated in 1989 and the parent company to 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 construction, residential and commercial real estate loans, commercial lines of credit, and other consumer loans and receives deposits from its customers located primarily in California and Michigan. The Bank operates through a network of 28 branches: one branch at its headquarters, 25 branches located in San Francisco and Los Angeles, California and two branches located in New York, New York. Additionally, the Bank’s operations include a registered investment advisory business with assets held under management of $451 million at March 31, 2018.

 

The Company is headquartered in Southfield, Michigan and its operations are in the financial services industry. Management evaluates the performance of its 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 (“Federal Reserve”). The Bank is a federally chartered stock savings bank which 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.

 

Initial Public Offering

 

In November 2017, the Company completed its initial public offering whereby it issued and sold 7,692,308 shares of common stock at a public offering price of $12.00 per share. The Company received net proceeds of $85.5 million after deducting underwriting discounts and commissions of $5.5 million and other offering expenses of $1.3 million. The Company continues to use the proceeds to support the Bank’s growth initiatives.

 

Basis of Presentation

 

The condensed consolidated balance sheet as of March 31, 2018, and the condensed consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the three months ended March 31, 2018 and 2017 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect, in the opinion of management, all adjustments, consisting of a normal and 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 months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018 or for any future annual or interim period. The consolidated balance sheet at December 31, 2017 included herein was derived from the audited financial statements as of that date. The accompanying unaudited 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, 2017.

 

7



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

Merger of Quantum Fund, LLC

 

On April 24, 2017, the Bank acquired all the outstanding equity interests of Quantum Fund, LLC, an entity controlled by the Company’s principal shareholder who owned, directly and indirectly 80% of the members’ interests with the remaining 20% members’ interest held by a member of the Board of Directors of the Company and Bank, for $2.9 million in cash. The entity operated a registered investment advisory business with assets held under management of approximately $425 million.

 

In 2017, the Bank recorded the assets and liabilities transferred at their carrying amounts, consisting primarily of a customer-related intangible asset, in the accounts of the entity transferred. Prior to 2017, the consolidated financial statements have been retrospectively adjusted to include the results of the Company and its wholly-owned subsidiary, and the entity under common control on a combined basis, since the entities were under common control.

 

Note 2—Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the results of the Company and its wholly-owned subsidiary, and an entity under common control that was merged with the Company in April 2017 (Note 1). All significant intercompany accounts and transactions have been eliminated in the consolidation.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Fair Value Measurements

 

The Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Bank uses present value techniques and other valuations methods, as disclosed in Note 11, to estimate the fair value of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

 

Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record other assets and liabilities on a nonrecurring basis, such as impaired loans, other real estate owned, nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments generally involve write-downs of individual assets or application of lower of amortized cost or fair value accounting.

 

Concentration of Credit Risk

 

The Company’s loan portfolio consists primarily of residential real estate loans which are collateralized by real estate. At March 31, 2018 and December 31, 2017, residential real estate loans accounted for 82%, of the loan portfolio. In addition, most of these residential loans and other commercial loans have been made to individuals and businesses in the state of California which are dependent on the area economy for their livelihoods and servicing of their loan obligation. At March 31, 2018 and December 31, 2017, approximately 96% and 95% of the loan portfolio was originated in California, respectively.

 

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Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

Investment Securities

 

Investment securities includes available for sale debt securities and equity securities.

 

Debt Securities

 

Debt securities are classified as either available for sale or held to maturity. Management determines the classification of the investment securities when they are purchased.

 

Debt securities available for sale are stated at fair value, with unrealized gains and losses excluded from income and shown as a separate component of shareholders’ equity in accumulated other comprehensive income (loss), net of income taxes. Held to maturity securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts over the contractual life of the investment security using the effective interest method or, in the case of mortgage-backed securities, over the estimated life of the investment security using the effective yield method.

 

Interest income includes amortization or accretion of purchase premium or discount. Gains and losses on sales are recorded on the settlement date and determined using the specific identification method.

 

Management evaluates the debt securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In determining other-than-temporary impairment for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether a decline is other-than-temporary involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. A charge is recognized against income for all or a portion of the impairment if the loss is determined to be other than temporary.

 

If the Bank intends to sell the debt security or it is more likely than not that the Bank will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recorded as a loss in the condensed consolidated statements of income. If the Bank does not intend to sell the debt security and it is more likely than not that the Bank will not be required to sell the debt security prior to recovery of its amortized cost basis, only the current period credit loss of any impairment of a debt security is recognized in the condensed consolidated statements of income, with the remaining impairment recorded in other comprehensive income (loss).

 

Equity Securities

 

Beginning January 1, 2018, equity securities with readily determinable fair values are stated at fair value with unrealized and realized gains and losses reported in income. Those equity securities without readily determinable fair values are recorded at cost less any impairments, adjusted for subsequent observable price changes in orderly transactions for an identical or similar investment of the same issuer. Any changes in the carrying value of the equity investments are recognized in net income.  Refer to Note 3, Investment Securities.

 

For periods prior to January 1, 2018, equity securities were classified as available for sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.

 

The Company performs a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates that an impairment exists, the Company determines the fair value of the investment and records an impairment loss equal to the difference between the fair value and the carrying amount of the investment in net income.

 

9



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

Federal Home Loan Bank Stock

 

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest additional amounts. The FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. The FHLB stock does not have a readily determinable fair value and no quoted market value as the ownership is restricted to member institutions. Also, the FHLB stock is pledged as collateral on FHLB borrowings. Cash and stock dividends are reported as income in interest and dividends on investment securities in the condensed consolidated statements of income. Cash dividends received amounted $390 and $196 for the three months ended March 31, 2018 and 2017, respectively.

 

Revenue from Contracts with Customers

 

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to its customers. The core principle of ASC 606 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performed obligations are satisfied.

 

The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of the adoption date. The adoption of ASC 606 did not result in a change in the accounting for any of the in-scope revenue streams; as such no cumulative effect adjustment was recorded. The majority of the Company’s revenues are from interest income and other sources, including loans and investment securities, as well as fees related to mortgage servicing activities, that are not within the scope of ASC 606 and subject to other accounting guidance. The Company’s services that are within the scope of ASC 606 are recorded within non-interest income which includes investment management and advisory fees, service charges on deposit accounts, interchange income and other service charges and fees. Descriptions of these activities that are within the scope of ASC 606, which are presented in the condensed consolidated statements of income as components of non-interest income, are as follows:

 

Service charges on deposit accounts: The Bank earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Bank fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Bank satisfies the performance obligations. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

 

Investment management and advisory fees: The Bank enters into a contract with its customer to provide asset management services that will continue indefinitely unless terminated in writing by either party to the other.  The Bank receives a quarterly management fee, payable in advance, based on the customer’s assets held under management at the beginning of the period. These fees are earned over time as the Bank provides the contracted services and are assessed based on a tiered rate applied to the market value of assets held under management. The Bank does not earn performance-based incentives.

 

Interchange fees: The Bank earns interchange fees from debit cardholder transactions conducted through the MasterCard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Such interchange activity is shown on a net basis through other non-interest income.

 

Other service charges and fees: Other charges and fees includes revenue generated from wire transfers, lockboxes, and bank issuance of checks.  Such fees are recognized at the point in time the customer requests the service and the service has been rendered.

 

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

The following table presents the Company’s sources of non-interest income for the three months ended March 31, 2018 and 2017 that are within the scope of ASC 606:

 

 

 

Three Months Ended
March 31,

 

 

 

2018

 

2017

 

Non-Interest Income:

 

 

 

 

 

Service charges on deposit accounts*

 

$

52

 

$

40

 

Investment management and advisory fees

 

623

 

552

 

Interchange fees*

 

25

 

26

 

Other service charges and fees*

 

7

 

3

 

Not within the scope of ASC 606

 

5,330

 

4,965

 

Total non-interest income

 

$

6,037

 

$

5,586

 

 


* Included in service charges and fees in the condensed consolidated statements of income

 

Contract Balances

 

The Bank’s noninterest revenue streams are largely based on transactional activity, or month-end revenue accruals such as investment management and advisory fees based on the customer’s assets held under management at the beginning of the period.  Consideration is often received immediately or shortly thereafter, and the Bank satisfies its performance obligation and recognizes revenue over time. At March 31, 2018 and December 31, 2017, the Bank had a contract asset balance of $82 and $91 respectively, which was recorded in other assets in the condensed consolidated balance sheets.

 

Stock-based compensation

 

Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee members of the Company’s Board of Directors, based on the fair value of these awards at the date of grant. The fair value of stock options is estimated using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of the Company’s common stock at the date of grant reduced by the present value of dividends per share expected to be paid during the period the shares are not vested.

 

Compensation cost is recorded over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award. The Company’s accounting policy is to record forfeitures in the period that they occur.

 

Income per Share, Basic and Diluted

 

Basic income per share represents net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share represents net income divided by the weighted average number of common shares outstanding during the period, plus the effect of outstanding dilutive potential common shares.

 

Recently Issued Accounting Guidance

 

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring recording of credit losses on loans and other financial instruments on a more timely basis. The guidance will replace the current incurred loss accounting model with an expected loss approach and requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. 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 organization’s portfolio. ASU No. 2016-13 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU No. 2016-13 but expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning

 

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Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

of the first reporting period in which ASU No. 2016-13 is effective. The Company has not yet determined the magnitude of any such one-time adjustment or the overall impact of ASU No. 2016-13 on its consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which require lessees to recognize the following for all leases, except for short-term leases, at the commencement date: (1) a lease liability which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged. ASU No. 2016-02 will also require expanded disclosures. ASU No. 2016-02 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the ASU No. 2016-02 on its financial condition and results of operations. The Company will record a right-of-use asset and a lease liability on its consolidated balance sheet for the leases of its facilities in place at adoption of this ASU.

 

Note 3—Investment Securities

 

Debt Securities

 

The following tables summarize the amortized cost and fair value of debt securities available for sale at March 31, 2018 and December 31, 2017 and the corresponding amounts of gross unrealized gains and losses:

 

 

 

March 31, 2018

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

118,764

 

$

 

$

(224

)

$

118,540

 

Collateralized mortgage obligations

 

1,888

 

67

 

 

1,955

 

Collateralized debt obligations

 

311

 

 

(13

)

298

 

Total

 

$

120,963

 

$

67

 

$

(237

)

$

120,793

 

 

 

 

December 31, 2017

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

120,216

 

$

 

$

(174

)

$

120,042

 

Collateralized mortgage obligations

 

1,953

 

55

 

 

2,008

 

Collateralized debt obligations

 

606

 

 

(35

)

571

 

Total

 

$

122,775

 

$

55

 

$

(209

)

$

122,621

 

 

The Company held no securities of any single issuer, other than debt securities issued by the U.S. government, government agency and government-sponsored enterprises, which were in excess of 10% of shareholders’ equity as of March 31, 2018 and December 31, 2017.

 

There were no sales of debt securities available for sale for the three months ended March 31, 2018 and 2017.

 

The amortized cost and fair value of debt securities available for sale issued by U.S. Treasury at March 31, 2018 are shown by contractual maturity. Mortgage-backed securities and collateralized debt obligations are disclosed separately in the table below as the expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Amortized
Cost

 

Fair
Value

 

U.S. Treasury securities

 

 

 

 

 

Due less than one year

 

$

118,764

 

$

118,540

 

Collateralized mortgage obligations

 

1,888

 

1,955

 

Collateralized debt obligations

 

311

 

298

 

Total

 

$

120,963

 

$

120,793

 

 

12



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

The table summarizes debt securities available for sale, at fair value, with unrealized losses at March 31, 2018 and December 31, 2017 aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss position, as follows:

 

 

 

March 31, 2018

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

U.S. Treasury securities

 

$

118,540

 

$

(224

)

$

 

$

 

$

118,540

 

$

(224

)

Collateralized debt obligations

 

 

 

298

 

(13

)

298

 

(13

)

Total

 

$

118,540

 

$

(224

)

$

298

 

$

(13

)

$

118,838

 

$

(237

)

 

 

 

December 31, 2017

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

U.S. Treasury securities

 

$

120,042

 

$

(174

)

$

 

$

 

$

120,042

 

$

(174

)

Collateralized debt obligations

 

 

 

571

 

(35

)

571

 

(35

)

Total

 

$

120,042

 

$

(174

)

$

571

 

$

(35

)

$

120,613

 

$

(209

)

 

At March 31, 2018, the Company’s debt securities portfolio consisted of 9 debt securities, with 7 debt securities in an unrealized loss position. For debt securities in an unrealized loss position, management has both the intent and ability to hold these investments until the recovery of the decline; thus, the impairment was determined to be temporary.  All interest and dividends are considered taxable.

 

The Company holds a collateralized debt obligation with a carrying value of $298 and $571 at March 31, 2018 and December 31, 2017, respectively. The security was rated high quality at inception, but it was subsequently rated by Moody’s as B1, which is defined as “extremely speculative.” The issuers of the security are primarily banks. The Company uses in-house and third party other-than-temporary impairment evaluation models to compare the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows during the period. The other-than-temporary impairment model considers the structure and term of the collateralized debt obligations and the financial condition of the underlying issuers. Assumptions used in the model include expected future default rates and prepayments. The security remained classified as available for sale and represented $13 and $35 of the unrealized losses reported at March 31, 2018 and December 31, 2017, respectively.

 

13



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

Equity Securities

 

Equity securities consist of an investment in a qualified community reinvestment act investment fund, which is a publicly-traded mutual fund and an investment in Pacific Coast Banker’s Bank, a thinly traded, restricted stock. At March 31, 2018 and December 31, 2017, equity securities totaled $4,163 and $4,227, respectively. Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.

 

On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) and early adopted ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2018-03”). ASU No. 2016-01 requires equity investments, except those investments accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income. Also, for equity investments without readily determinable fair values, ASU No. 2016-01 provides a new measurement alternative. ASU No. 2016-01 requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in accumulated other comprehensive income. ASU No. 2018-03 clarifies certain aspects of the guidance in ASU No. 2016-01 primarily pertaining to the measurement alternative for equity securities without readily determinable fair values.

 

On January 1, 2018, the Company recorded a cumulative-effect adjustment to decrease retained earnings by $50 with offsetting adjustment to accumulated other comprehensive income. Beginning January 1, 2018, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

 

At March 31, 2018 and December 31, 2017, equity securities with readily determinable fair values were $3,917 and $3,981, respectively. The following is a summary of unrealized and realized gains and losses recognized in the condensed consolidated statement of income during the three months ended March 31, 2018:

 

 

 

Three months ended
March 31, 2018

 

Net losses recorded during the period on equity securities

 

$

(64

)

Less: Net losses recorded during the period on equity securities sold during the period

 

 

Unrealized losses recorded during the period on equity securities held at the reporting date

 

$

(64

)

 

The Company has elected to account for its investment in a thinly traded, restricted stock reported at $246 at March 31, 2018 and December 31, 2017 using the measurement alternative for equity securities without readily determinable fair values.

 

Note 4—Loans

 

Major categories of loans were as follows:

 

 

 

March 31,

 

December 31,

 

 

 

2018

 

2017

 

Construction loans

 

$

179,846

 

$

192,319

 

Residential real estate loans, mortgage

 

2,134,447

 

2,132,641

 

Commercial real estate loans, mortgage

 

239,204

 

247,076

 

Commercial and industrial loans, lines of credit

 

46,166

 

40,749

 

Other consumer loans

 

29

 

29

 

Total loans

 

2,599,692

 

2,612,814

 

Less: allowance for loan losses

 

(19,132

)

(18,457

)

Loans, net

 

$

2,580,560

 

$

2,594,357

 

 

Loans with carrying values of $1,038.7 million and $968.4 million were pledged as collateral on FHLB borrowings at March 31, 2018 and December 31, 2017, respectively.

 

14



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

The table presents the activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2018 and 2017:

 

March 31, 2018

 

Construction

 

Residential
Real
Estate

 

Commercial
Real Estate

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

2,218

 

$

12,279

 

$

2,040

 

$

469

 

$

1

 

$

1,450

 

$

18,457

 

Provision for loan losses

 

760

 

(782

)

501

 

147

 

 

15

 

641

 

Charge offs

 

 

 

 

 

 

 

 

Recoveries

 

1

 

2

 

31

 

 

 

 

34

 

Total ending balance

 

$

2,979

 

$

11,499

 

$

2,572

 

$

616

 

$

1

 

$

1,465

 

$

19,132

 

 

March 31, 2017

 

Construction

 

Residential
Real
Estate

 

Commercial
Real Estate

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

679

 

$

11,863

 

$

915

 

$

373

 

$

2

 

$

990

 

$

14,822

 

Provision for loan losses

 

185

 

 

147

 

3

 

 

265

 

600

 

Charge offs

 

 

 

 

 

 

 

 

Recoveries

 

95

 

10

 

40

 

 

 

 

145

 

Total ending balance

 

$

959

 

$

11,873

 

$

1,102

 

$

376

 

$

2

 

$

1,255

 

$

15,567

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment by portfolio segment and based on impairment method as of March 31, 2018 and December 31, 2017:

 

March 31, 2018

 

Construction

 

Residential
Real Estate

 

Commercial
Real Estate

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

$

46

 

$

11

 

$

95

 

$

 

$

 

$

152

 

Collectively evaluated for impairment

 

2,979

 

11,453

 

2,561

 

521

 

1

 

1,465

 

18,980

 

Total ending allowance balance

 

$

2,979

 

$

11,499

 

$

2,572

 

$

616

 

$

1

 

$

1,465

 

$

19,132

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

 

$

122

 

$

2,774

 

$

335

 

$

 

$

 

$

3,231

 

Loans collectively evaluated for impairment

 

179,846

 

2,134,325

 

236,430

 

45,831

 

29

 

 

2,596,461

 

Total ending loans balance

 

$

179,846

 

$

2,134,447

 

$

239,204

 

$

46,166

 

$

29

 

$

 

$

2,599,692

 

 

15



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

December 31, 2017

 

Construction

 

Residential
Real Estate

 

Commercial
Real Estate

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

 

$

37

 

$

19

 

$

98

 

$

 

$

 

$

154

 

Collectively evaluated for impairment

 

2,218

 

12,242

 

2,021

 

371

 

1

 

1,450

 

18,303

 

Total ending allowance balance

 

$

2,218

 

$

12,279

 

$

2,040

 

$

469

 

$

1

 

$

1,450

 

$

18,457

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

 

$

122

 

$

2,804

 

$

343

 

$

 

$

 

$

3,269

 

Loans collectively evaluated for impairment

 

192,319

 

2,132,519

 

244,272

 

40,406

 

29

 

 

2,609,545

 

Total ending loans balance

 

$

192,319

 

$

2,132,641

 

$

247,076

 

$

40,749

 

$

29

 

$

 

$

2,612,814

 

 

The following tables present information related to impaired loans by class of loans as of and for the periods indicated:

 

 

 

At March 31, 2018

 

At December 31, 2017

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses

 

With no related allowance for loan losses recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate, retail

 

$

1,415

 

$

1,228

 

$

 

$

1,431

 

$

1,247

 

$

 

Commercial lines of credit, private banking

 

145

 

145

 

 

147

 

147

 

 

Subtotal

 

1,560

 

1,373

 

 

1,578

 

1,394

 

 

With an allowance for loan losses recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate, first mortgage

 

122

 

122

 

46

 

122

 

122

 

37

 

Commercial real estate, offices

 

1,558

 

1,546

 

11

 

1,567

 

1,557

 

19

 

Commercial lines of credit, private banking

 

190

 

190

 

95

 

196

 

196

 

98

 

Subtotal

 

1,870

 

1,858

 

152

 

1,885

 

1,875

 

154

 

Total

 

$

3,430

 

$

3,231

 

$

152

 

$

3,463

 

$

3,269

 

$

154

 

 

16



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

2017

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Cash Basis
Interest
Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate, construction

 

$

 

$

 

$

 

$

 

$

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

1,238

 

16

 

10

 

1,308

 

17

 

17

 

Gas stations

 

 

 

 

31

 

 

 

Commercial lines of credit, private banking

 

146

 

2

 

2

 

153

 

2

 

2

 

Subtotal

 

1,384

 

18

 

12

 

1,492

 

19

 

19

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate, first mortgage

 

122

 

1

 

1

 

122

 

1

 

4

 

Commercial real estate, offices

 

1,550

 

21

 

14

 

1,587

 

19

 

19

 

Commercial lines of credit, private banking

 

193

 

3

 

2

 

213

 

3

 

3

 

Subtotal

 

1,865

 

25

 

17

 

1,922

 

23

 

26

 

Total

 

$

3,249

 

$

43

 

$

29

 

$

3,414

 

$

42

 

$

45

 

 

The unpaid principal balance is not reduced for partial charge offs. The recorded investment excludes accrued interest receivable on loans which was not significant.

 

Also presented in the above table is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. The average balances are calculated based on the month-end balances of the loans for the period reported.

 

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2018 and December 31, 2017:

 

 

 

March 31, 2018

 

December 31, 2017

 

 

 

Nonaccrual

 

Loans Past
Due Over
90
Days Still
Accruing

 

Nonaccrual

 

Loans Past
Due Over
90
Days Still
Accruing

 

Residential real estate:

 

 

 

 

 

 

 

 

 

Residential first mortgage

 

$

4,912

 

$

129

 

$

573

 

$

131

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

Retail

 

74

 

 

79

 

 

Total

 

$

4,986

 

$

129

 

$

652

 

$

131

 

 

17



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

The following tables present the aging of the recorded investment in past due loans as of March 31, 2018 and December 31, 2017 by class of loans:

 

March 31, 2018

 

30 - 59
Days
Past Due

 

60 - 89
Days
Past
Due

 

Greater
than
89 Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Total

 

Construction

 

$

 

$

 

$

 

$

 

$

179,846

 

$

179,846

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential first mortgage

 

731

 

48

 

5,041

 

5,820

 

2,109,748

 

2,115,568

 

Residential second mortgage

 

295

 

 

 

295

 

18,584

 

18,879

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

74

 

74

 

10,423

 

10,497

 

Apartments

 

 

 

 

 

61,388

 

61,388

 

Offices

 

 

 

 

 

25,592

 

25,592

 

Hotel

 

 

 

 

 

103,653

 

103,653

 

Industrial

 

 

 

 

 

11,317

 

11,317

 

Gas stations

 

 

 

 

 

1,036

 

1,036

 

Other

 

 

 

 

 

25,721

 

25,721

 

Commercial lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Private banking

 

 

 

 

 

26,587

 

26,587

 

C&I lending

 

 

 

 

 

19,579

 

19,579

 

Other consumer loans

 

 

 

 

 

29

 

29

 

Total

 

$

1,026

 

$

48

 

$

5,115

 

$

6,189

 

$

2,593,503

 

$

2,599,692

 

 

December 31, 2017

 

30 - 59
Days
Past Due

 

60 - 89
Days
Past  Due

 

Greater
than
89 Days
Past Due

 

Total
Past Due

 

Loans Not
Past Due

 

Total

 

Construction

 

$

 

$

 

$

 

$

 

$

192,319

 

$

192,319

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential first mortgage

 

8,902

 

392

 

704

 

9,998

 

2,105,142

 

2,115,140

 

Residential second mortgage

 

107

 

 

 

107

 

17,394

 

17,501

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

79

 

79

 

10,530

 

10,609

 

Apartments

 

 

 

 

 

59,582

 

59,582

 

Offices

 

 

 

 

 

26,571

 

26,571

 

Hotel

 

 

 

 

 

103,195

 

103,195

 

Industrial

 

 

 

 

 

15,907

 

15,907

 

Gas stations

 

 

 

 

 

1,067

 

1,067

 

Other

 

 

 

 

 

30,145

 

30,145

 

Commercial lines of credit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Private banking

 

 

 

 

 

22,898

 

22,898

 

C&I lending

 

 

 

 

 

17,851

 

17,851

 

Other consumer loans

 

 

 

 

 

29

 

29

 

Total

 

$

9,009

 

$

392

 

$

783

 

$

10,184

 

$

2,602,630

 

$

2,612,814

 

 

18



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The Company reviews the status of nonperforming loans which include loans 90 days past due and still accruing and nonaccrual loans.

 

Troubled Debt Restructurings

 

At March 31, 2018 and December 31, 2017, the balance of outstanding loans identified as troubled debt restructurings was $3,041 and $3,073, respectively. The Company has an allowance for loan losses of $57 and $56 on these loans at March 31, 2018 and December 31, 2017, respectively. There were no loans identified as troubled debt restructurings that subsequently defaulted.

 

The terms of certain loans have been modified as troubled debt restructurings by the Company. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; extension of the amortization period of the loan; change in loan payments to interest only for a defined period for the loan; or a permanent reduction of the recorded investment in the loan. During the three months ended March 31, 2018 and 2017, the Company did not modify any loans as a troubled debt restructuring.

 

The terms of certain other loans have been modified during the three months ended March 31, 2018 and 2017 that did not meet the definition of a troubled debt restructuring. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment. These other loans that were modified were not considered significant.

 

Credit Quality

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans such as residential real estate and consumer loans and non-homogeneous loans, such as commercial lines of credit, construction and commercial real estate loans. This analysis is performed monthly. The Company uses the following definitions for risk ratings:

 

Pass:  Loans are of satisfactory quality.

 

Special Mention:  Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

 

Substandard:  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful:  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable.

 

At March 31, 2018 and December 31, 2017, the risk rating of loans by class of loans was as follows:

 

19



Table of Contents

 

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

 

March 31, 2018

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Total

 

Construction

 

$

160,343

 

$

16,049

 

$

3,454

 

$

 

$

179,846

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

Residential first mortgage

 

2,110,600

 

 

4,339

 

629

 

2,115,568

 

Residential second mortgage

 

18,879

 

 

 

 

18,879

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Retail

 

9,268

 

 

1,229

 

 

10,497

 

Apartments

 

59,798

 

1,590

 

 

 

61,388

 

Offices

 

25,592

 

 

 

 

25,592

 

Hotel

 

103,653

 

 

 

 

103,653

 

Industrial

 

11,317

 

 

 

 

11,317

 

Gas stations

 

1,036

 

 

 

 

1,036

 

Other

 

20,379

 

4,704

 

638

 

 

25,721

 

Commercial lines of credit:

 

 

 

 

 

 

 

 

 

 

 

Private banking

 

26,397

 

 

190

 

 

26,587

 

C&I lending

 

18,706

 

873

 

 

 

19,579

 

Other consumer loans

 

29

 

 

 

 

29

 

Total

 

$

2,565,997

 

$

23,216

 

$

9,850

 

$

629

 

$

2,599,692

 

 

December 31, 2017

 

Pass

 

Special
Mention