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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 September 30, 2023

OR

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

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 November 3, 2023, 52,072,631 shares of the registrant’s Common Stock were outstanding.

STERLING BANCORP, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

    

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022

2

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

39

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

63

Item 4.

Controls and Procedures

65

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

66

Item 1A.

Risk Factors

66

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 6.

Exhibits

68

Exhibit Index

68

SIGNATURES

69

1

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

September 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Cash and due from banks

$

563,622

$

379,798

Interest-bearing time deposits with other banks

1,174

934

Debt securities available for sale, at fair value (amortized cost $427,272 and $370,489 at September 30, 2023 and December 31, 2022, respectively)

 

398,302

 

343,558

Equity securities

 

4,505

 

4,642

Loans held for sale

 

 

7,725

Loans, net of allowance for credit losses of $34,267 and $45,464 at September 30, 2023 and December 31, 2022, respectively

 

1,382,860

 

1,613,385

Accrued interest receivable

 

8,854

 

7,829

Mortgage servicing rights, net

1,631

1,794

Leasehold improvements and equipment, net

 

5,583

 

6,301

Operating lease right-of-use assets

12,197

14,800

Federal Home Loan Bank stock, at cost

18,923

20,288

Federal Reserve Bank stock, at cost

9,001

Company-owned life insurance

 

8,658

 

8,501

Deferred tax asset, net

 

22,475

 

23,704

Other assets

 

8,888

 

11,476

Total assets

$

2,446,673

$

2,444,735

Liabilities and Shareholders’ Equity

Liabilities

 

  

 

  

Noninterest-bearing deposits

$

40,780

$

53,041

Interest-bearing deposits

 

1,999,878

 

1,900,996

Total deposits

 

2,040,658

 

1,954,037

Federal Home Loan Bank borrowings

 

50,000

 

50,000

Subordinated notes, net

 

 

65,271

Operating lease liabilities

13,317

15,990

Accrued expenses and other liabilities

 

26,595

 

46,810

Total liabilities

 

2,130,570

 

2,132,108

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 52,072,631 shares and 50,795,871 shares at September 30, 2023 and December 31, 2022, respectively

 

84,323

 

83,295

Additional paid-in capital

 

15,882

 

14,808

Retained earnings

 

236,901

 

234,049

Accumulated other comprehensive loss

 

(21,003)

 

(19,525)

Total shareholders’ equity

 

316,103

 

312,627

Total liabilities and shareholders’ equity

$

2,446,673

$

2,444,735

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

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Interest income

  

  

Interest and fees on loans

$

21,663

$

20,975

$

65,715

$

65,589

Interest and dividends on investment securities and restricted stock

3,134

1,945

 

8,256

 

4,133

Interest on interest-bearing cash deposits

8,081

1,925

 

19,890

 

2,931

Total interest income

32,878

24,845

 

93,861

 

72,653

Interest expense

 

 

Interest on deposits

16,391

3,724

 

39,537

 

8,070

Interest on Federal Home Loan Bank borrowings

250

253

 

743

 

919

Interest on subordinated notes

243

1,329

 

3,727

 

3,383

Total interest expense

16,884

5,306

 

44,007

 

12,372

Net interest income

15,994

19,539

 

49,854

 

60,281

Provision for (recovery of) credit losses

(1,942)

(4,357)

 

(4,170)

 

(9,755)

Net interest income after provision for (recovery of) credit losses

17,936

23,896

 

54,024

 

70,036

Non-interest income

 

 

Service charges and fees

97

124

 

269

 

351

Loss on the sale of investment securities

(2)

Gain on sale of mortgage loans held for sale

 

1,695

 

200

Unrealized loss on equity securities

(137)

(184)

(137)

(590)

Net servicing income (loss)

107

(384)

268

(118)

Income earned on company-owned life insurance

83

87

 

244

 

670

Other

234

 

236

 

586

Total non-interest income

384

(357)

 

2,573

 

1,099

Non-interest expense

 

 

Salaries and employee benefits

8,753

9,336

 

27,437

 

24,522

Occupancy and equipment

2,110

2,112

 

6,273

 

6,441

Professional fees

4,242

5,756

 

10,984

 

17,979

FDIC insurance

274

316

 

794

 

1,031

Data processing

745

725

 

2,237

 

2,292

Net provision for (recovery of) mortgage repurchase liability

(80)

(145)

(19)

(670)

Other

1,658

3,521

 

5,174

 

8,943

Total non-interest expense

17,702

21,621

 

52,880

 

60,538

Income before income taxes

618

1,918

 

3,717

 

10,597

Income tax expense

304

742

 

1,367

 

6,358

Net income

$

314

$

1,176

$

2,350

$

4,239

Income per share, basic and diluted

$

0.01

$

0.02

$

0.05

$

0.08

Weighted average common shares outstanding:

Basic

50,699,967

50,400,412

50,606,566

50,326,951

Diluted

51,069,683

50,572,931

50,749,879

50,523,076

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

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net income

$

314

$

1,176

$

2,350

$

4,239

Other comprehensive income (loss), net of tax:

 

 

Unrealized loss on investment securities, arising during the period, net of tax effect of $(1,014), $(2,632), $(563) and $(7,515), respectively

(2,671)

(7,154)

 

(1,479)

 

(19,839)

Reclassification adjustment for loss included in net income of $—, $—, $2 and $—, respectively, included in loss on sale of investment securities, net of tax effect of $—, $—, $1 and $—, respectively

1

Total other comprehensive loss

(2,671)

(7,154)

 

(1,478)

 

(19,839)

Comprehensive income (loss)

$

(2,357)

$

(5,978)

$

872

$

(15,600)

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

    

Loss

    

Equity

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 10)

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

Net income

1,176

1,176

Repurchase of restricted shares to pay employee tax liability

(1,299)

(8)

(8)

Stock-based compensation

(16,901)

255

255

Other comprehensive loss

(7,154)

(7,154)

Balance at September 30, 2022

50,800,012

$

83,295

$

14,560

$

252,482

$

(20,736)

$

329,601

Balance at January 1, 2023

50,795,871

$

83,295

$

14,808

$

234,049

$

(19,525)

$

312,627

Cumulative effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2016-13 (Note 2)

778

778

Cumulative effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2022-02 (Note 2)

(276)

(276)

Net loss

(503)

(503)

Repurchase of restricted shares to pay employee tax liability

(12,166)

(75)

(75)

Stock-based compensation

24,411

173

173

Other comprehensive income

2,786

2,786

Balance at March 31, 2023

50,808,116

83,295

14,906

234,048

(16,739)

315,510

Net income

2,539

2,539

Repurchase of restricted shares to pay employee tax liability

(28,826)

(158)

(158)

Issuance of shares of common stock to defined contribution retirement plan (Note 10)

184,928

1,028

1,028

Stock-based compensation

1,117,668

350

350

Other comprehensive loss

(1,593)

(1,593)

Balance at June 30, 2023

52,081,886

84,323

15,098

236,587

(18,332)

317,676

Net income

314

314

Repurchase of restricted shares to pay employee tax liability

(106)

(2)

(2)

Stock-based compensation

(9,149)

786

786

Other comprehensive loss

(2,671)

(2,671)

Balance at September 30, 2023

52,072,631

$

84,323

$

15,882

$

236,901

$

(21,003)

$

316,103

See accompanying notes to condensed consolidated financial statements.

5

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

Nine Months Ended

September 30, 

    

2023

    

2022

Cash Flows From Operating Activities

 

  

 

  

Net income

$

2,350

$

4,239

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

 

 

Provision for (recovery of) credit losses

 

(4,170)

 

(9,755)

Deferred income taxes

 

1,601

 

5,034

Gain on extinguishment of Subordinated Notes

(234)

Loss on sale of investment securities

 

2

 

Unrealized loss on equity securities

 

137

 

590

Net amortization (accretion) on investment securities

 

(1,859)

 

(342)

Depreciation and amortization on leasehold improvements and equipment

1,031

1,162

Net principal payments (originations) of loans held for sale

 

(2,655)

 

2,284

Proceeds from sale of mortgage loans held for sale

 

2,979

 

1,831

Gain on sale of mortgage loans held for sale

 

(1,695)

 

(200)

Net provision for (recovery of) mortgage repurchase liability

(19)

(670)

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

 

(157)

 

(292)

Valuation allowance adjustments and amortization of mortgage servicing rights

 

163

 

891

Stock-based compensation

1,309

640

Other

 

(1)

 

82

Change in operating assets and liabilities:

 

 

Accrued interest receivable

 

(1,025)

 

635

Other assets

2,187

(503)

Accrued expenses and other liabilities

 

(24,308)

 

1,905

Net cash provided by (used in) operating activities

 

(24,364)

 

7,531

Cash Flows From Investing Activities

 

  

 

  

Purchase of interest-bearing time deposits with other banks

(240)

Maturities and principal receipts of investment securities

43,231

80,551

Sales of investment securities

2,977

Purchases of investment securities

(101,287)

(147,493)

Maturities (purchases) of investment securities, net

 

153

Proceeds from redemption of Federal Home Loan Bank stock

1,365

2,662

Purchase of shares of Federal Reserve Bank stock

(4,501)

Net decrease in loans

 

205,495

 

380,865

Purchases of portfolio loans

(67,127)

Principal payments received on loans held for sale previously classified as portfolio loans

1,959

2,529

Proceeds from loans held for sale previously classified as portfolio loans

37,930

67,584

Proceeds received from settlement of company-owned life insurance policies

24,877

Proceeds from the sales of equipment

46

Purchases of leasehold improvements and equipment

 

(326)

 

(326)

Net cash provided by investing activities

 

186,802

 

344,122

Cash Flows From Financing Activities

 

  

 

  

Net increase (decrease) in deposits

 

86,621

 

(310,721)

Proceeds from Federal Home Loan Bank advances

35,000

Repayments of Federal Home Loan Bank advances

(135,000)

Payments on redemption of Subordinated Notes

 

(65,000)

 

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

(235)