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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, 2021

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

The NASDAQ Stock Market LLC (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 6, 2021, 50,475,181 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)

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

2

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2021 and 2020

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

6

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

40

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

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

65

SIGNATURES

66

1

Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

June 30, 

December 31, 

    

2021

    

2020

Assets

 

  

 

  

Cash and due from banks

$

774,478

$

998,497

Interest-bearing time deposits with other banks

805

7,021

Investment securities

 

195,974

 

304,958

Mortgage loans held for sale

 

15,107

 

22,284

Loans, net of allowance for loan losses of $70,669 and $72,387

 

2,287,857

 

2,434,356

Accrued interest receivable

 

9,660

 

10,990

Mortgage servicing rights, net

3,232

5,688

Leasehold improvements and equipment, net

 

9,423

 

8,512

Operating lease right-of-use assets

19,817

19,232

Federal Home Loan Bank stock, at cost

22,950

22,950

Cash surrender value of bank-owned life insurance

 

32,766

 

32,495

Deferred tax asset, net

 

23,749

 

24,326

Other assets

 

21,634

 

22,736

Total assets

$

3,417,452

$

3,914,045

Liabilities and Shareholders’ Equity

 

  

 

  

Liabilities:

 

  

 

  

Noninterest-bearing deposits

$

55,721

$

58,458

Interest-bearing deposits

 

2,481,198

 

3,040,508

Deposits held for sale

73,383

Total deposits

 

2,610,302

 

3,098,966

Federal Home Loan Bank borrowings

 

318,000

 

318,000

Subordinated notes, net

 

65,377

 

65,341

Operating lease liabilities

21,085

20,497

Accrued expenses and other liabilities

 

75,646

 

91,650

Total liabilities

 

3,090,410

 

3,594,454

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 50,475,181 shares at June 30, 2021 and 49,981,861 shares at December 31, 2020, respectively

 

82,157

 

80,807

Additional paid-in capital

 

13,796

 

13,544

Retained earnings

 

230,630

 

224,853

Accumulated other comprehensive income

 

459

 

387

Total shareholders’ equity

 

327,042

 

319,591

Total liabilities and shareholders’ equity

$

3,417,452

$

3,914,045

See accompanying notes to condensed consolidated financial statements.

2

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, 

    

2021

    

2020

    

2021

    

2020

Interest income

  

  

Interest and fees on loans

$

30,074

$

37,501

$

61,368

$

77,026

Interest and dividends on investment securities and restricted stock

385

1,037

 

775

 

2,071

Other interest

227

141

 

490

 

575

Total interest income

30,686

38,679

 

62,633

 

79,672

Interest expense

 

 

Interest on deposits

5,236

9,576

 

11,938

 

19,940

Interest on Federal Home Loan Bank borrowings

847

877

 

1,685

 

1,687

Interest on subordinated notes

1,005

1,178

 

2,185

 

2,355

Total interest expense

7,088

11,631

 

15,808

 

23,982

Net interest income

23,598

27,048

 

46,825

 

55,690

Provision (recovery) for loan losses

(1,806)

4,297

 

(2,543)

 

25,150

Net interest income after provision (recovery) for loan losses

25,404

22,751

 

49,368

 

30,540

Non-interest income

 

 

Service charges and fees

144

95

 

303

 

212

Gain (loss) on sale of investment securities

(34)

199

Gain on sale of mortgage loans held for sale

70

751

 

468

 

1,020

Unrealized gains (losses) on equity securities

15

43

(75)

123

Net servicing loss

(908)

(207)

(1,338)

(1,118)

Income on cash surrender value of bank-owned life insurance

322

317

 

635

 

645

Other

88

358

 

191

 

771

Total non-interest income

(269)

1,323

 

184

 

1,852

Non-interest expense

 

 

Salaries and employee benefits

8,678

7,336

 

16,526

 

14,089

Occupancy and equipment

2,249

2,208

 

4,445

 

4,326

Professional fees

5,721

8,268

 

14,476

 

11,580

FDIC assessments

500

240

 

1,219

 

259

Data processing

440

351

 

786

 

686

Net provision (recovery) of mortgage repurchase liability

(512)

25

(665)

25

Other

2,868

1,619

 

4,491

 

3,317

Total non-interest expense

19,944

20,047

 

41,278

 

34,282

Income (loss) before income taxes

5,191

4,027

 

8,274

 

(1,890)

Income tax expense (benefit)

1,739

1,160

 

2,497

 

(727)

Net income (loss)

$

3,452

$

2,867

$

5,777

$

(1,163)

Income (loss) per share, basic and diluted

$

0.07

$

0.06

$

0.12

$

(0.02)

Weighted average common shares outstanding:

Basic

50,009,053

49,837,948

49,930,563

49,837,805

Diluted

50,060,775

49,841,741

49,987,253

49,837,805

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, 

    

2021

    

2020

    

2021

    

2020

Net income (loss)

$

3,452

$

2,867

$

5,777

$

(1,163)

Other comprehensive income (loss), net of tax:

 

 

Unrealized gains (losses) on investment securities, arising during the period, net of tax effect of $51, $(66), $28, and $218, respectively

131

(171)

 

72

 

560

Reclassification adjustment for (gains) losses included in net income of $-, $34, $-, and $(199), respectively, included in gain (loss) on sale of investment securities, net of tax effect of $-, $(10), $-, and $56, respectively

25

(143)

Total other comprehensive income (loss)

131

(146)

 

72

 

417

Comprehensive income (loss)

$

3,583

$

2,721

$

5,849

$

(746)

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, except per share amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income

    

Equity

Balance at January 1, 2020

49,944,473

$

80,889

$

13,210

$

238,319

$

196

$

332,614

Net loss

(4,030)

(4,030)

Repurchases of shares of common stock (Note 10)

(10,912)

(82)

(82)

Stock-based compensation

134,177

109

109

Other comprehensive income

 

 

 

 

563

 

563

Dividends distributed ($0.01 per share)

 

 

 

(499)

 

 

(499)

Balance at March 31, 2020

50,067,738

$

80,807

$

13,319

$

233,790

$

759

$

328,675

Net income

2,867

2,867

Stock-based compensation

(60,323)

9

9

Other comprehensive loss

(146)

(146)

Balance at June 30, 2020

50,007,415

$

80,807

$

13,328

$

236,657

$

613

$

331,405

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 10)

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

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

Six Months Ended

June 30,

    

2021

    

2020

Cash Flows From Operating Activities

 

  

 

  

Net income (loss)

$

5,777

$

(1,163)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Provision (recovery) for loan losses

 

(2,543)

 

25,150

Deferred income tax expense (benefit)

 

549

 

(8,159)

Gain on sale of investment securities

 

 

(199)

Unrealized (gains) losses on equity securities

 

75

 

(123)

Amortization (accretion), net, on investment securities

 

964

 

(127)

Depreciation and amortization on leasehold improvements and equipment

813

801

Origination, net of principal payments, mortgage loans held for sale

 

(7,599)

 

(103,713)

Proceeds from sale of mortgage loans held for sale

 

14,904

 

102,396

Gain on sale of mortgage loans held for sale

 

(468)

 

(1,020)

Net provision (recovery) of mortgage repurchase liability

(665)

25

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

 

(271)

 

(298)

Valuation allowance adjustments and amortization of mortgage servicing rights

 

2,555

 

2,989

Stock-based compensation

298

118

Other

 

492

 

80

Change in operating assets and liabilities:

 

 

Accrued interest receivable

 

1,330

 

(146)

Other assets

2,862

2,010

Accrued expenses and other liabilities

 

(12,520)

 

(4,964)

Net cash provided by operating activities

 

6,553

 

13,657

Cash Flows From Investing Activities

 

  

 

  

Maturities of interest-bearing time deposits with other banks

6,216

Purchases of interest-bearing time deposits with other banks

(8,706)

Maturities and principal receipts of investment securities

108,045

83,231

Sales of investment securities

59,359

Purchases of investment securities

 

(246,749)

Net decrease in loans

 

316,804

 

186,902

Purchases of portfolio loans

(172,505)

(37,746)

Purchase of leasehold improvements and equipment

 

(1,772)

 

(452)

Net cash provided by investing activities

 

256,788

 

35,839

Cash Flows From Financing Activities

 

  

 

  

Net increase (decrease) in deposits

 

(488,664)

 

396,642

Proceeds from advances from Federal Home Loan Bank

 

 

100,000

Proceeds from issuance of shares of common stock

1,350

Repurchase of restricted shares to pay employee tax liability

(46)

Repurchases of shares of common stock

(82)

Dividends paid to shareholders

 

 

(499)

Net cash provided by (used in) financing activities

 

(487,360)

 

496,061

Net change in cash and due from banks

 

(224,019)

 

545,557

Cash and due from banks at beginning of period

 

998,497

 

77,819

Cash and due from banks at end of period

$

774,478

$

623,376

Supplemental cash flows information

 

  

 

  

Cash paid:

 

  

 

  

Interest

$

25,432

$

30,589

Income taxes

838

Noncash investing and financing activities:

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

2,512

3,009

See accompanying notes to condensed consolidated financial statements.

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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 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 29 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.

On March 19, 2021, the Bank entered into an agreement with First Federal Savings & Loan Association of Port Angeles, a Washington state chartered bank, to sell the Bank’s Bellevue, Washington branch office. The sale includes the transfer of all deposit accounts located at the branch, as well as the transfer of all branch premises and equipment. Subsequent to June 30, 2021, the Bank completed the sale of the branch office. Refer to Note 17—Subsequent Events for further details.

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, 2021 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, 2021 and 2020 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, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021 or for any future annual or interim period. The consolidated balance sheet at December 31, 2020 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, 2020, as filed with the SEC on March 26, 2021 (the “2020 Form 10-K”).

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Table of Contents

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

Note 2—New Accounting Standards

Recently Issued Accounting Guidance Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. 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 U.S. Securities and Exchange Commission (the “SEC”)). The Company, as a smaller reporting company as of the relevant measuring period, qualifies for this extension.

At this time, the Company has formed a cross-functional implementation team consisting of individuals from credit, finance and information systems. The implementation team has been working with a software vendor t