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Table of Contents

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, 2022

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, no par value per share

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 August 10, 2022, 50,816,407 shares of the registrant’s Common Stock were outstanding.

Table of Contents

STERLING BANCORP, INC.

FORM 10-Q

INDEX

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

2

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

6

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

59

Item 4.

Controls and Procedures

61

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 6.

Exhibits

65

Exhibit Index

SIGNATURES

66

1

Table of Contents

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

June 30, 

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Cash and due from banks

$

285,165

$

411,676

Interest-bearing time deposits with other banks

1,183

1,183

Investment securities

 

382,309

 

313,879

Loans held for sale

 

8,964

 

64,987

Loans, net of allowance for loan losses of $51,766 and $56,548

 

1,726,366

 

1,956,266

Accrued interest receivable

 

6,721

 

7,696

Mortgage servicing rights, net

2,453

2,722

Leasehold improvements and equipment, net

 

6,848

 

7,421

Operating lease right-of-use assets

16,332

18,184

Federal Home Loan Bank stock, at cost

20,288

22,950

Cash surrender value of bank-owned life insurance

 

8,396

 

33,033

Deferred tax asset, net

 

22,028

 

21,426

Other assets

 

16,767

 

15,407

Total assets

$

2,503,820

$

2,876,830

Liabilities and Shareholders’ Equity

Liabilities

 

  

 

  

Noninterest-bearing deposits

$

82,387

$

63,760

Interest-bearing deposits

 

1,921,860

 

2,197,975

Total deposits

 

2,004,247

 

2,261,735

Federal Home Loan Bank borrowings

 

50,000

 

150,000

Subordinated notes, net

 

65,308

 

65,343

Operating lease liabilities

17,540

19,400

Accrued expenses and other liabilities

 

31,393

 

36,725

Total liabilities

 

2,168,488

 

2,533,203

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 50,818,212 shares at June 30, 2022 and 50,460,932 shares at December 31, 2021

 

83,295

 

82,157

Additional paid-in capital

 

14,313

 

14,124

Retained earnings

 

251,306

 

248,243

Accumulated other comprehensive loss

 

(13,582)

 

(897)

Total shareholders’ equity

 

335,332

 

343,627

Total liabilities and shareholders’ equity

$

2,503,820

$

2,876,830

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

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, 

    

2022

    

2021

    

2022

    

2021

Interest income

  

  

Interest and fees on loans

$

20,746

$

30,074

$

44,614

$

61,368

Interest and dividends on investment securities and restricted stock

1,353

385

 

2,188

 

775

Other interest

791

227

 

1,006

 

490

Total interest income

22,890

30,686

 

47,808

 

62,633

Interest expense

 

 

Interest on deposits

2,016

5,236

 

4,346

 

11,938

Interest on Federal Home Loan Bank borrowings

314

847

 

666

 

1,685

Interest on subordinated notes

1,090

1,005

 

2,054

 

2,185

Total interest expense

3,420

7,088

 

7,066

 

15,808

Net interest income

19,470

23,598

 

40,742

 

46,825

Provision (recovery) for loan losses

(1,109)

(1,806)

 

(5,398)

 

(2,543)

Net interest income after provision (recovery) for loan losses

20,579

25,404

 

46,140

 

49,368

Non-interest income

 

 

Service charges and fees

105

144

 

227

 

303

Gain on sale of mortgage loans held for sale

3

70

 

200

 

468

Unrealized gains (losses) on equity securities

(170)

15

(406)

(75)

Net servicing income (loss)

(177)

(908)

266

(1,338)

Income on cash surrender value of bank-owned life insurance

255

322

 

583

 

635

Other

29

88

 

586

 

191

Total non-interest income

45

(269)

 

1,456

 

184

Non-interest expense

 

 

Salaries and employee benefits

5,569

8,678

 

15,186

 

16,526

Occupancy and equipment

2,187

2,249

 

4,329

 

4,445

Professional fees

7,066

5,721

 

12,223

 

14,476

FDIC assessments

346

500

 

715

 

1,219

Data processing

762

440

 

1,567

 

786

Net recovery of mortgage repurchase liability

(312)

(512)

(525)

(665)

Other

3,876

2,868

 

5,422

 

4,491

Total non-interest expense

19,494

19,944

 

38,917

 

41,278

Income before income taxes

1,130

5,191

 

8,679

 

8,274

Income tax expense

3,327

1,739

 

5,616

 

2,497

Net income (loss)

$

(2,197)

$

3,452

$

3,063

$

5,777

Income (loss) per share, basic and diluted

$

(0.04)

$

0.07

$

0.06

$

0.12

Weighted average common shares outstanding:

Basic

50,386,856

50,009,053

50,289,612

49,930,563

Diluted

50,386,856

50,060,775

50,496,487

49,987,253

See accompanying notes to condensed consolidated financial statements.

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Sterling Bancorp, Inc.

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

(dollars in thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Net income (loss)

$

(2,197)

$

3,452

$

3,063

$

5,777

Other comprehensive income (loss), net of tax:

 

 

Unrealized (losses) gains on investment securities, arising during the period, net of tax effect of $(1,950), $51, $(4,883) and $28, respectively

(5,142)

131

 

(12,685)

 

72

Comprehensive income (loss)

$

(7,339)

$

3,583

$

(9,622)

$

5,849

See accompanying notes to condensed consolidated financial statements.

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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

49,981,861

$

80,807

$

13,544

$

224,853

$

387

$

319,591

Net income

2,325

2,325

Repurchase of restricted shares to pay employee tax liability

(8,536)

(46)

(46)

Stock-based compensation

36,082

105

105

Other comprehensive loss

 

 

 

 

(59)

 

(59)

Balance at March 31, 2021

50,009,407

$

80,807

$

13,603

$

227,178

$

328

$

321,916

Net income

3,452

3,452

Issuance of shares of common stock for cash ($4.50 per share) (Note 9)

300,000

1,350

1,350

Stock-based compensation

165,774

193

193

Other comprehensive income

131

131

Balance at June 30, 2021

50,475,181

$

82,157

$

13,796

$

230,630

$

459

$

327,042

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 9)

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

See accompanying notes to condensed consolidated financial statements.

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STERLING BANCORP, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

Six Months Ended

June 30,

    

2022

    

2021

Cash Flows From Operating Activities

 

  

 

  

Net income

$

3,063

$

5,777

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

 

 

Provision (recovery) for loan losses

 

(5,398)

 

(2,543)

Deferred income taxes

 

4,281

 

549

Unrealized losses on equity securities

 

406

 

75

Amortization (accretion), net, on investment securities

 

(41)

 

964

Depreciation and amortization on leasehold improvements and equipment

787

813

Net principal payments (originations) of loans held for sale

 

2,250

 

(7,599)

Proceeds from sale of mortgage loans held for sale

 

1,831

 

14,904

Gain on sale of loans held for sale

 

(200)

 

(468)

Net recovery of mortgage repurchase liability

(525)

(665)

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

 

(240)

 

(271)

Valuation allowance adjustments and amortization of mortgage servicing rights

 

280

 

2,555

Stock-based compensation

385

298

Other

 

(35)

 

492

Change in operating assets and liabilities:

 

 

Accrued interest receivable

 

975

 

1,330

Other assets

2,735

2,862

Accrued expenses and other liabilities

 

(4,907)

 

457

Net cash provided by operating activities

 

5,647

 

19,530

Cash Flows From Investing Activities

 

  

 

  

Maturities of interest-bearing time deposits with other banks

6,216

Maturities and principal receipts of investment securities

21,904

108,045

Purchases of investment securities

 

(108,267)

Proceeds received from redemption of Federal Home Loan Bank stock

2,662

Net decrease in loans

 

268,078

 

316,804

Purchases of portfolio loans

(31,002)

(172,505)

Principal payments received on commercial real estate loans held for sale

2,521

Proceeds from the sale of commercial real estate loans originated for investment

49,610

Proceeds received from settlement of bank-owned life insurance policies

20,234

Purchases of leasehold improvements and equipment

 

(214)

 

(1,772)

Net cash provided by investing activities

 

225,526

 

256,788

Cash Flows From Financing Activities

 

  

 

  

Net decrease in deposits

 

(257,488)

 

(501,641)

Repayment of FHLB advances

(100,000)

Proceeds from issuance of shares of common stock

1,350

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

(196)

(46)

Net cash used in financing activities

 

(357,684)

 

(500,337)

Net change in cash and due from banks

 

(126,511)

 

(224,019)

Cash and due from banks at beginning of period

 

411,676

 

998,497

Cash and due from banks at end of period

$

285,165

$

774,478

Supplemental cash flows information

 

  

 

  

Cash paid for:

 

  

 

  

Interest

$

7,127

$

25,432

Income taxes

457

Noncash investing and financing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities

2,512

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

1,138

See accompanying notes to condensed consolidated financial statements.

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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 28 branches of which 26 branches are located in San Francisco and Los Angeles, California 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, 2022, 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, 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 and six months ended June 30, 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.

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Table of Contents

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 June 30, 2022 and December 31, 2021, residential real estate loans accounted for 85% and 83%, respectively, of total gross loans. 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 June 30, 2022 and December 31, 2021, approximately 84% and 85%, respectively, of gross loans was originated with respect to properties or businesses located in the state of California.

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 $7,313 and $11,359 at June 30, 2022 and December 31, 2021, respectively, of which $3,999 and $8,671 were on nonaccrual status at June 30, 2022 and December 31, 2021, respectively) totaled $992,477 and $1,185,458, or 66% and 69% of gross residential loans, at June 30, 2022 and December 31, 2021, respectively. Refer to Note 16—Commitments and Contingencies.

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 invol