Sterling Bank & Trust

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 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

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.

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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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