UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer |
(
(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 |
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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.
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).
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 ☐ |
|
| 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
As of May 6, 2022,
STERLING BANCORP, INC.
FORM 10-Q
INDEX
1
Sterling Bancorp, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Assets |
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Cash and due from banks | $ | | $ | | ||
Interest-bearing time deposits with other banks | | | ||||
Investment securities |
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Loans held for sale |
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Loans, net of allowance for loan losses of $ |
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Accrued interest receivable |
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Mortgage servicing rights, net | | | ||||
Leasehold improvements and equipment, net |
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Operating lease right-of-use assets | | | ||||
Federal Home Loan Bank stock, at cost | | | ||||
Cash surrender value of bank-owned life insurance |
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Deferred tax asset, net |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity |
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Liabilities: |
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Noninterest-bearing deposits | $ | | $ | | ||
Interest-bearing deposits |
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Total deposits |
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Federal Home Loan Bank borrowings |
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Subordinated notes, net |
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Operating lease liabilities | | | ||||
Accrued expenses and other liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, authorized |
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Common stock, |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
| ( |
| ( | ||
Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
2
Sterling Bancorp, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(dollars in thousands, except per share amounts)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Interest income | ||||||
Interest and fees on loans | $ | | $ | | ||
Interest and dividends on investment securities and restricted stock | ||||||
Other interest | ||||||
Total interest income | | |||||
Interest expense | ||||||
Interest on deposits | ||||||
Interest on Federal Home Loan Bank borrowings | ||||||
Interest on subordinated notes | ||||||
Total interest expense | ||||||
Net interest income | | | ||||
Provision (recovery) for loan losses | ( | ( | ||||
Net interest income after provision (recovery) for loan losses | | | ||||
Non-interest income | ||||||
| ||||||
Gain on sale of mortgage loans held for sale | | | ||||
Unrealized losses on equity securities | ( | ( | ||||
Net servicing income (loss) | | ( | ||||
Income on cash surrender value of bank-owned life insurance | | | ||||
Other | | | ||||
Total non-interest income | | | ||||
Non-interest expense | ||||||
Salaries and employee benefits | | | ||||
Occupancy and equipment | | | ||||
Professional fees | | | ||||
FDIC assessments | | | ||||
Data processing | | | ||||
Net recovery of mortgage repurchase liability | ( | ( | ||||
Other | | | ||||
Total non-interest expense | | | ||||
Income before income taxes | | | ||||
Income tax expense | | | ||||
Net income | $ | | $ | | ||
Income per share, basic and diluted | | | ||||
Weighted average common shares outstanding: | ||||||
Basic | | | ||||
Diluted | | |
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 | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Net income | $ | | $ | | ||
Other comprehensive income (loss), net of tax: | ||||||
Unrealized losses on investment securities, arising during the period, net of tax effect of $( | ( | ( | ||||
Comprehensive income (loss) | $ | ( | $ | |
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 |
| Income (Loss) |
| Equity | ||||||
Balance at January 1, 2021 | | $ | | $ | | $ | | $ | | $ | | ||||||
Net income | — | — | — | | — | | |||||||||||
Repurchase of restricted shares to pay employee tax liability | ( | — | ( | — | — | ( | |||||||||||
Stock-based compensation | | — | | — | — | | |||||||||||
Other comprehensive loss | — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at March 31, 2021 | | $ | | $ | | $ | | $ | | $ | | ||||||
Balance at January 1, 2022 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income | — | — | — | | — | | |||||||||||
Repurchase of restricted shares to pay employee tax liability | ( | — | ( | — | — | ( | |||||||||||
Stock-based compensation | | — | | — | — | | |||||||||||
Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||
Balance at March 31, 2022 | | $ | | $ | | $ | | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
5
Sterling Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Cash Flows From Operating Activities |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Provision (recovery) for loan losses |
| ( |
| ( | ||
Deferred income taxes |
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Unrealized losses on equity securities |
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Amortization, net, on investment securities |
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Depreciation and amortization on leasehold improvements and equipment | | | ||||
Originations, net of principal payments, of loans held for sale |
| ( |
| ( | ||
Proceeds from sale of mortgage loans held for sale |
| |
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Gain on sale of loans originated for investment and loans held for sale |
| ( |
| ( | ||
Net recovery of mortgage repurchase liability | ( | ( | ||||
Increase in cash surrender value of bank-owned life insurance, net of premiums |
| ( |
| ( | ||
Valuation allowance adjustments and amortization of mortgage servicing rights |
| ( |
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Stock-based compensation | | | ||||
Other |
| ( |
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Change in operating assets and liabilities: |
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Accrued interest receivable |
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Other assets | ( | | ||||
Accrued expenses and other liabilities |
| ( |
| ( | ||
Net cash provided by operating activities |
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Cash Flows From Investing Activities |
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Maturities of interest-bearing time deposits with other banks | — | | ||||
Maturities and principal receipts of investment securities | | | ||||
Purchases of investment securities |
| ( | — | |||
Proceeds received from redemption of Federal Home Loan Bank stock | | — | ||||
Net decrease in loans |
| |
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Purchases of portfolio loans | — | ( | ||||
Principal payments received on commercial real estate loans held for sale | | — | ||||
Proceeds from the sale of commercial real estate loans originated for investment | | — | ||||
Purchases of leasehold improvements and equipment |
| ( |
| ( | ||
Net cash provided by investing activities |
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Cash Flows From Financing Activities |
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Net decrease in deposits |
| ( |
| ( | ||
Cash paid for surrender of vested shares to satisfy employee tax liability | ( | ( | ||||
Net cash used in financing activities |
| ( |
| ( | ||
Net change in cash and due from banks |
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| ( | ||
Cash and due from banks at beginning of period |
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Cash and due from banks at end of period | $ | | $ | | ||
Supplemental cash flows information |
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Cash paid for: |
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Interest | $ | | $ | | ||
Income taxes | | — | ||||
Noncash investing and financing activities: | ||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | — | |
See accompanying notes to condensed consolidated financial statements.
6
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except share and 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 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 residential and commercial real estate loans, construction loans, commercial lines of credit and other consumer loans and provides deposit products, consisting primarily of checking, savings and term certificate accounts. The Bank operates through a network of
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
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 March 31, 2022, and the condensed consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the three months ended March 31, 2022 and 2021 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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022 or for any future annual or interim period. The condensed consolidated balance sheet at December 31, 2021 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, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2022 (the “2021 Form 10-K”).
Note 2— Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiary.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Due to the inherent uncertainty involved in making estimates, actual results reported in the future periods may be based upon amounts that could differ from those estimates.
7
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except share and per share amounts)
Concentration of Credit Risk
The loan portfolio consists primarily of residential real estate loans, which are collateralized by real estate. At March 31, 2022 and December 31, 2021, residential real estate loans accounted for
In March 2020, the Bank permanently discontinued its Advantage Loan program. Loans originated under this program comprised a significant component of the Bank’s total loan originations. Advantage Loan Program loans (including residential real estate loans held for sale of $
Recently Issued Accounting Guidance Not Yet Adopted
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for troubled debt restructurings by creditors in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings involving borrowings that are experiencing financial difficulty. Specifically, rather than applying the troubled debt restructuring recognition and measurement guidance, creditors will evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. Also, losses associated with troubled debt restructurings should be incorporated in a creditor’s estimate of its allowance for credit losses. 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. For entities that have not yet adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“2016-13”), ASU 2022-02 is effective when the entity adopts the guidance in ASU 2016-13. The Company is currently evaluating this ASU, along with its adoption of ASU 2016-13, as discussed below.
In June 2016, the FASB issued ASU No. 2016-13, 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. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies the scope of the credit losses standard and addresses issues related to accrued interest receivable balances and recoveries, among other things. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief. The amendments provide entities with an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis, upon adoption of Topic 326. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. This update deferred the effective dates of Topic 326 to January 1, 2023 for certain entities including smaller reporting companies as defined by the SEC. The Company, as a smaller reporting company as of the relevant measuring period, qualified for this extension.
8
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except share and per share amounts)
At this time, a cross-functional implementation team consisting of individuals from accounting, finance, servicing and information systems is working with the Bank’s loan system vendor and consultants, and an application to create credit loss estimation models and processes has been developed. The historical data set for model development has been finalized, and the credit loss estimation models have been developed and tested. Once the credit loss estimation models have been finalized, the Bank will run the new credit loss estimation models in parallel with the current allowance for loan losses model to understand the differences in the models and assess the impact of the change. The Company expects to recognize a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2023, the beginning 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 cumulative adjustment or of the overall impact of ASU No. 2016-13 on its condensed consolidated financial statements.
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, 2022 and December 31, 2021 and the corresponding amounts of gross unrealized gains and losses:
March 31, 2022 | ||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||
| Cost |
| Gain |
| Loss |
| Value | |||||
Available for sale: |
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U.S. Treasury and Agency securities | $ | | $ | | $ | ( | $ | | ||||
Mortgage-backed securities | | — | ( | | ||||||||
Collateralized mortgage obligations |
| |
| |
| ( |
| | ||||
Collateralized debt obligations |
| |
| — |
| ( |
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Total | $ | | $ | | $ | ( | $ | |
December 31, 2021 | ||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||
| Cost |
| Gain |
| Loss |
| Value | |||||
Available for sale: |
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U.S. Treasury and Agency securities | $ | | $ | | $ | ( | $ | | ||||
Mortgage-backed securities | | | ( | | ||||||||
Collateralized mortgage obligations |
| |
| |
| ( |
| | ||||
Collateralized debt obligations |
| |
| — |
| ( |
| | ||||
Total | $ | | $ | | $ | ( | $ | |
Securities with a fair value of $
All of the Company’s mortgage-backed securities, and a majority of the Company’s collateralized mortgage obligations are issued and/or guaranteed by a U.S. government agency (Government National Mortgage Association) or a U.S. government-sponsored enterprise (Federal Home Loan Mortgage Corporation (“Freddie Mac”) or Federal National Mortgage Association (“Fannie Mae”)). The fair value of the private-label collateralized mortgage obligations was $
9
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except share and per share amounts)
The amortized cost and fair value of U.S. Treasury and Agency securities at March 31, 2022 are shown by contractual maturity in the table below. Mortgage-backed securities, collateralized mortgage obligations and collateralized debt obligations are disclosed separately, 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 | Fair | |||||
| Cost |
| Value | |||
U.S. Treasury and Agency securities |
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Due less than one year | $ | | $ | | ||
Due after one year through five years | | | ||||
Mortgage-backed securities | | | ||||
Collateralized mortgage obligations |
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Collateralized debt obligations |
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Total | $ | | $ | |
The following table summarizes debt securities available for sale, at fair value, with unrealized losses at March 31, 2022 and December 31, 2021 aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss position:
March 31, 2022 | ||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | |||||||
U.S Treasury and Agency securities | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Mortgage-backed securities | | ( | | ( | | ( | ||||||||||||
Collateralized mortgage obligations | | ( | — | — | | ( | ||||||||||||
Collateralized debt obligations |
| — | — | | ( | | ( | |||||||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
December 31, 2021 | ||||||||||||||||||
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | |||||||
U.S Treasury and Agency securities | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Mortgage-backed securities | | ( | | ( | | ( | ||||||||||||
Collateralized mortgage obligations | | ( | | ( | | ( | ||||||||||||
Collateralized debt obligations |
| — |
| — |
| |
| ( |
| |
| ( | ||||||
Total | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
As of March 31, 2022, the debt securities portfolio consisted of
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 the common equity of Pacific Coast Banker’s Bank, a thinly traded restricted stock. At March 31, 2022 and December 31, 2021, equity securities totaled $
10
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except share and per share amounts)
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, 2022 and December 31, 2021, equity securities with readily determinable fair values were $
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Net losses recorded during the period on equity securities | $ | ( | $ | ( | ||
Less: net gains (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 | $ | ( | $ | ( |
The Company has elected to account for its investment in a thinly traded restricted stock using the measurement alternative for equity securities without readily determinable fair values, resulting in the investment carried at cost based on no evidence of impairment or observable trading activity during the three months ended March 31, 2022 and 2021. The investment was reported at $
Note 4—Loans
Loans Held for Sale
The major categories of loans held for sale were as follows: