Company Quick10K Filing
Sterling Bancorp
Price10.05 EPS1
Shares52 P/E9
MCap518 P/FCF7
Net Debt-146 EBIT136
TEV371 TEV/EBIT3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-13
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-03-28
8-K 2020-08-12 Exhibits
8-K 2020-08-03 Earnings, Exhibits
8-K 2020-05-29
8-K 2020-05-27
8-K 2020-05-19
8-K 2020-05-07
8-K 2020-03-18
8-K 2020-03-06
8-K 2020-02-11
8-K 2020-01-29
8-K 2019-12-17
8-K 2019-12-09
8-K 2019-11-07
8-K 2019-11-05
8-K 2019-10-28
8-K 2019-10-15
8-K 2019-07-29
8-K 2019-07-19
8-K 2019-06-18
8-K 2019-06-18
8-K 2019-05-23
8-K 2019-05-21
8-K 2019-05-13
8-K 2019-04-29
8-K 2019-03-04
8-K 2019-02-11
8-K 2019-01-28
8-K 2018-11-07
8-K 2018-10-29
8-K 2018-10-17
8-K 2018-08-27
8-K 2018-08-13
8-K 2018-07-30
8-K 2018-05-15
8-K 2018-05-15
8-K 2018-04-30
8-K 2018-03-21
8-K 2018-03-06
8-K 2018-02-20
8-K 2018-02-15
8-K 2018-01-31
8-K 2018-01-30

SBT 10Q Quarterly Report

Part 1. Financial Information
Item 1. Financial Statements
Note 1 - Nature of Operations and Basis of Presentation
Note 2 - New Accounting Standards
Note 3 - Summary of Significant Accounting Policies
Note 4 - Investment Securities
Note 5 - Loans
Note 6 - Mortgage Servicing Rights, Net
Note 7 - Deposits
Note 8 - Federal Home Loan Bank Borrowings
Note 9 - Subordinated Notes, Net
Note 10 - Stock Repurchase Program
Note 11 - Stock - Based Compensation
Note 12 - Income per Share
Note 13 - Fair Values of Financial Instruments
Note 14 - Regulatory Capital Requirements
Note 15 - Related Party Transactions
Note 16 - Operating Leases
Note 17 - Commitments and Contingencies
Note 18 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 a19-17610_1ex31d1.htm
EX-31.2 a19-17610_1ex31d2.htm
EX-32.1 a19-17610_1ex32d1.htm
EX-32.2 a19-17610_1ex32d2.htm

Sterling Bancorp Earnings 2019-09-30

Balance SheetIncome StatementCash Flow

10-Q 1 a19-17610_110q.htm 10-Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2019

 

OR

 

o         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

 

(I.R.S. Employer

incorporation or organization)

 

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

 

SBT

 

The NASDAQ Stock Market LLC

value per share

 

 

 

(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 x  No o

 

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 x  No o

 

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 o

 

Accelerated filer x

 

Non-accelerated filer o

 

Smaller reporting company x

 

 

 

 

 

 

Emerging growth company x

 

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. x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

As of November 4, 2019, there were 50,203,081 shares of the Registrant’s Common Stock 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 September 30, 2019 and December 31, 2018

2

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018

3

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018

4

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

6

 

Notes to the Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

44

 

 

 

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 6.

Exhibits

46

Exhibit Index

 

46

SIGNATURES

 

47

 

1


Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Assets

 

 

 

 

 

Cash and due from banks

 

  $

146,246

 

  $

52,526

 

Interest-bearing time deposits with other banks

 

1,100

 

1,100

 

Investment securities

 

153,306

 

148,896

 

Mortgage loans held for sale

 

837

 

1,248

 

Loans, net of allowance for loan losses of $21,204 and $21,850

 

2,904,232

 

2,895,953

 

Accrued interest receivable

 

13,861

 

13,529

 

Mortgage servicing rights, net

 

9,910

 

10,633

 

Leasehold improvements and equipment, net

 

9,386

 

9,489

 

Operating lease right-of-use assets

 

19,662

 

 

Federal Home Loan Bank stock, at cost

 

22,950

 

22,950

 

Cash surrender value of bank-owned life insurance

 

31,761

 

31,302

 

Deferred tax asset, net

 

6,681

 

6,122

 

Other assets

 

2,298

 

3,026

 

Total assets

 

  $

3,322,230

 

  $

3,196,774

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Noninterest-bearing deposits

 

  $

77,335

 

  $

76,815

 

Interest-bearing deposits

 

2,494,510

 

2,375,870

 

Total deposits

 

2,571,845

 

2,452,685

 

Federal Home Loan Bank borrowings

 

229,000

 

293,000

 

Subordinated notes, net

 

65,140

 

65,029

 

Operating lease liabilities

 

20,804

 

 

Accrued expenses and other liabilities

 

84,064

 

51,003

 

Total liabilities

 

2,970,853

 

2,861,717

 

 

 

 

 

 

 

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 50,424,940 and 53,012,283 shares at September 30, 2019 and December 31, 2018, respectively

 

85,515

 

111,238

 

Additional paid-in capital

 

13,138

 

12,713

 

Retained earnings

 

252,571

 

211,115

 

Accumulated other comprehensive income (loss)

 

153

 

(9

)

Total shareholders’ equity

 

351,377

 

335,057

 

Total liabilities and shareholders’ equity

 

  $

3,322,230

 

  $

3,196,774

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

 

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,

 

 

 

2019

 

2018

 

2019

 

2018

 

Interest income

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

  $

42,351

 

  $

40,772

 

  $

127,374

 

  $

115,752

 

Interest and dividends on investment securities and restricted stock

 

1,252

 

958

 

3,751

 

2,619

 

Other interest

 

608

 

166

 

1,060

 

399

 

Total interest income

 

44,211

 

41,896

 

132,185

 

118,770

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

Interest on deposits

 

12,249

 

8,628

 

34,429

 

22,396

 

Interest on Federal Home Loan Bank borrowings

 

777

 

1,297

 

3,207

 

3,464

 

Interest on subordinated notes

 

1,175

 

1,173

 

3,524

 

3,516

 

Total interest expense

 

14,201

 

11,098

 

41,160

 

29,376

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

30,010

 

30,798

 

91,025

 

89,394

 

Provision (recovery) for loan losses

 

251

 

423

 

(583)

 

2,184

 

Net interest income after provision (recovery) for loan losses

 

29,759

 

30,375

 

91,608

 

87,210

 

 

 

 

 

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

 

 

 

 

Service charges and fees

 

111

 

100

 

327

 

266

 

Investment management and advisory fees

 

477

 

445

 

1,242

 

1,568

 

Loss on sale of investment securities

 

 

 

 

(3

)

Gain on sale of mortgage loans held for sale

 

194

 

129

 

374

 

222

 

Gain on sale of portfolio loans

 

1,683

 

2,876

 

5,985

 

11,885

 

Unrealized gains (losses) on equity securities

 

30

 

(31)

 

136

 

(125

)

Net servicing income (loss)

 

240

 

291

 

(437)

 

1,001

 

Income on cash surrender value of bank-owned life insurance

 

324

 

299

 

949

 

889

 

Other

 

106

 

124

 

485

 

320

 

Total non-interest income

 

3,165

 

4,233

 

9,061

 

16,023

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

7,545

 

6,973

 

22,193

 

20,851

 

Occupancy and equipment

 

2,126

 

1,760

 

6,533

 

4,916

 

Professional fees

 

1,389

 

898

 

3,455

 

2,344

 

Advertising and marketing

 

269

 

470

 

1,114

 

1,170

 

FDIC assessments

 

(5)

 

186

 

440

 

1,203

 

Data processing

 

271

 

311

 

882

 

894

 

Other

 

1,831

 

1,933

 

5,656

 

5,277

 

Total non-interest expense

 

13,426

 

12,531

 

40,273

 

36,655

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

19,498

 

22,077

 

60,396

 

66,578

 

Income tax expense

 

5,614

 

6,336

 

17,395

 

19,106

 

Net income

 

  $

13,884

 

  $

15,741

 

  $

43,001

 

  $

47,472

 

 

 

 

 

 

 

 

 

 

 

Income per share:

 

 

 

 

 

 

 

 

 

Basic

 

  $

0.28

 

  $

0.30

 

  $

0.84

 

  $

0.90

 

Diluted

 

  $

0.28

 

  $

0.30

 

  $

0.83

 

  $

0.90

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

50,428,108

 

52,963,308

 

51,490,046

 

52,963,308

 

Diluted

 

50,441,572

 

52,966,593

 

51,500,657

 

52,965,089

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(dollars in thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Net income

 

  $

13,884  

 

  $

15,741  

 

  $

43,001  

 

  $

47,472

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains (loss) on investment securities, arising during the period, net of tax effect of $(14), $5, $63, and $19, respectively

 

(35)

 

19

 

162

 

72

 

Reclassification adjustment for losses included in net income of $-, $-, $-, and $3, respectively, in loss on sale of investment securities, net of tax effect of $-, $-, $-, and $(1), respectively

 

 

 

 

2

 

Total other comprehensive income (loss)

 

(35)

 

19

 

162

 

74

 

Comprehensive income

 

  $

13,849  

 

  $

15,760  

 

  $

43,163

 

  $

47,546

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(dollars in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Shareholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

 

Balance at January 1, 2018

 

52,963,308

 

 $

111,238

 

 $

12,416

 

 $

149,816

 

 $

(172)

 

 $

273,298

 

Cumulative effect adjustment, reclassification of unrealized losses on equity securities

 

 

 

 

(50)

 

50

 

 

Net income

 

 

 

 

15,749

 

 

15,749

 

Stock-based compensation

 

39,655

 

 

9

 

 

 

9

 

Other comprehensive loss

 

 

 

 

 

(13)

 

(13

)

Dividends distributed ($0.01 per share)

 

 

 

 

(531)

 

 

(531

)

Balance at March 31, 2018

 

53,002,963

 

111,238

 

12,425

 

164,984

 

(135)

 

288,512

 

Net income

 

 

 

 

15,982

 

 

15,982

 

Stock-based compensation

 

 

 

76

 

 

 

76

 

Other comprehensive income

 

 

 

 

 

68

 

68

 

Dividends distributed ($0.01 per share)

 

 

 

 

(528)

 

 

(528

)

Balance at June 30, 2018

 

53,002,963

 

111,238

 

12,501

 

180,438

 

(67)

 

304,110

 

Net income

 

 

 

 

15,741

 

 

15,741

 

Stock-based compensation

 

9,320

 

 

103

 

 

 

103

 

Other comprehensive income

 

 

 

 

 

19

 

19

 

Dividends distributed ($0.01 per share)

 

 

 

 

(530)

 

 

(530

)

Balance at September 30, 2018

 

53,012,283

 

 $

111,238

 

 $

12,604

 

 $

195,649

 

 $

(48)

 

 $

319,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

53,012,283

 

 $

111,238

 

 $

12,713

 

 $

211,115

 

 $

(9)

 

 $

335,057

 

Net income

 

 

 

 

15,683

 

 

15,683

 

Repurchases of shares of common stock (Note 10)

 

(1,212,574)

 

(11,544)

 

 

 

 

(11,544

)

Stock-based compensation

 

71,144

 

 

126

 

 

 

126

 

Other comprehensive income

 

 

 

 

 

106

 

106

 

Dividends distributed ($0.01 per share)

 

 

 

 

(526)

 

 

(526

)

Balance at March 31, 2019

 

51,870,853

 

99,694

 

12,839

 

226,272

 

97

 

338,902

 

Net income

 

 

 

 

13,434

 

 

13,434

 

Repurchases of shares of common stock (Note 10)

 

(1,034,792)

 

(10,011)

 

 

 

 

(10,011

)

Stock-based compensation

 

10,460

 

 

153

 

 

 

153

 

Other comprehensive income

 

 

 

 

 

91

 

91

 

Dividends distributed ($0.01 per share)

 

 

 

 

(516)

 

 

(516

)

Balance at June 30, 2019

 

50,846,521

 

89,683

 

12,992

 

239,190

 

188

 

342,053

 

Net income

 

 

 

 

13,884

 

 

13,884

 

Repurchases of shares of common stock (Note 10)

 

(421,581)

 

(4,168)

 

 

 

 

(4,168

)

Stock-based compensation

 

 

 

146

 

 

 

146

 

Other comprehensive loss

 

 

 

 

 

(35)

 

(35

)

Dividends distributed ($0.01 per share)

 

 

 

 

(503)

 

 

(503

)

Balance at September 30, 2019

 

50,424,940

 

 $

85,515

 

 $

13,138

 

 $

252,571

 

 $

153

 

 $

351,377

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

 

Sterling Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2019

 

2018

 

Cash Flows From Operating Activities

 

 

 

 

 

Net income

 

  $

43,001

 

  $

47,472

 

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

 

 

 

 

 

Provision (recovery) for loan losses

 

(583)

 

2,184

 

Deferred income taxes

 

(622)

 

(174)

 

Loss on sale of investment securities

 

 

3

 

Unrealized (gains) losses on equity securities

 

(136)

 

125

 

Accretion on investment securities, net

 

(1,273)

 

(514)

 

Depreciation and amortization of leasehold improvements and equipment

 

1,210

 

959

 

Amortization of intangible asset

 

338

 

338

 

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

 

(42,026)

 

(29,565)

 

Proceeds from sale of mortgage loans held for sale

 

42,375

 

27,623

 

Gain on sale of mortgage loans held for sale

 

(374)

 

(222)

 

Gain on sale of portfolio loans

 

(5,985)

 

(11,885)

 

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

 

(459)

 

(466)

 

Valuation allowance adjustments and amoritzation of mortgage servicing rights

 

3,488

 

1,375

 

Stock-based compensation

 

425

 

188

 

Other

 

124

 

104

 

Change in operating assets and liabilities:

 

 

 

 

 

Accrued interest receivable

 

(332)

 

(1,594)

 

Other assets

 

4,170

 

(851)

 

Accrued expenses and other liabilities

 

30,443

 

24,795

 

Net cash provided by operating activities

 

73,784

 

59,895

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

Investment securities:

 

 

 

 

 

Maturities and principal receipts

 

114,433

 

57,891

 

  Sales

 

 

2,778

 

Purchases

 

(117,209)

 

(76,091)

 

Loans originated, net of repayments

 

(177,470)

 

(547,298)

 

Proceeds from the sale of portfolio loans

 

173,397

 

352,141

 

Purchase of leasehold improvements and equipment

 

(1,107)

 

(2,956)

 

Net cash used in investing activities

 

(7,956)

 

(213,535)

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

Net increase in deposits

 

119,160

 

166,961

 

Proceeds from advances from Federal Home Loan Bank

 

2,461,000

 

4,275,000

 

Repayments of advances from Federal Home Loan Bank

 

(2,525,000)

 

(4,278,000)

 

Repurchases of shares of common stock

 

(25,723)

 

 

Dividends paid to shareholders

 

(1,545)

 

(1,589)

 

Net cash provided by financing activities

 

27,892

 

162,372

 

Net change in cash and due from banks

 

93,720

 

8,732

 

Cash and due from banks at beginning of period

 

52,526

 

40,147

 

Cash and due from banks at end of period

 

  $

146,246

 

  $

48,879

 

 

 

 

 

 

 

Supplemental cash flows information

 

 

 

 

 

Cash paid:

 

 

 

 

 

Interest

 

  $

29,667

 

  $

23,568

 

Income taxes

 

15,946

 

18,500

 

Noncash investing and financing activities:

 

 

 

 

 

Transfers of residential real estate loans to mortgage loans held for sale

 

169,844

 

382,531

 

Transfers of residential real estate loans from mortgage loans held for sale

 

103

 

39,210

 

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

 

740

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


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 to 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 construction, residential and commercial real estate 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 30 branches of which 26 branches are located in San Francisco and Los Angeles, California with the remaining branches located in New York, New York, Southfield, Michigan and the greater Seattle market.

 

The Company is headquartered in Southfield, Michigan and its operations are in the financial services industry. Management evaluates the performance of its 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 (“Federal Reserve”). The Bank is a federally chartered stock savings bank which 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 September 30, 2019, and the condensed consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the three and nine months ended September 30, 2019 and 2018 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 nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019 or for any future annual or interim period. The consolidated balance sheet at December 31, 2018 included herein was derived from the audited consolidated financial statements as of that date. The accompanying unaudited 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, 2018.

 

Note 2New Accounting Standards

 

Adoption of New Accounting Standard

 

The Company has adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and all subsequent amendments as of January 1, 2019. Topic 842 requires a lessee to recognize the following for all leases, except short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Topic 842 also requires expanded disclosures.

 

Topic 842 permits entities to use a modified retrospective transition approach to apply the guidance as of the beginning of the earliest period presented in the financial statements in the period adopted or the optional transition method which allows entities to apply the new guidance at the adoption date and record a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and not to restate the comparative periods presented.

 

The Company adopted Topic 842 as of January 1, 2019 using the optional transition method. Therefore, the comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the standard resulted in the recognition of operating lease right-of-use assets of $21,812 and operating lease liabilities of $22,682 on the condensed consolidated balance sheet as of January 1, 2019. The operating lease right-of-use assets includes the impact of unamortized lease incentives and deferred rent. The Company elected to apply the package of practical expedients upon transition, which includes no reassessment of whether existing contracts are or contain leases and allowed for the lease classification for existing leases to be retained. The Company did not elect the practical expedient to use hindsight in determining the lease term. After transition, in certain instances, the cost of renewal options will be recognized earlier in the term of the lease than under the

 

7


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

previous lease accounting rules. The Company elected the practical expedient to not separate non-lease components from the lease components contained in the operating lease agreements but instead to combine them and account for them as a single lease component and will continue to do so for its real estate operating leases. The new standard did not have a significant impact on the condensed consolidated statements of income or statements of cash flows in 2019.

 

The Company’s operating leases are included in operating lease right-of-use assets and operating lease liabilities in the condensed consolidated balance sheet at September 30, 2019. The lessors’ rate implicit in the operating leases were not available to the Company and were not determinable from the terms of the leases. Therefore, the Company’s incremental borrowing rate was used in determining the present value of the future lease payments when measuring the operating lease liabilities. The incremental borrowing rates were not observable and therefore, the rates were estimated primarily using observable borrowing rates on the Company’s FHLB advances. The FHLB borrowing rates are generally for over collateralized advances for varying lengths of maturity. Therefore, the risk-free U.S. Government bond rate and high-credit quality unsecured corporate bond rates were also considered in estimating the incremental borrowing rates. The Company’s incremental borrowing rates were developed considering its monthly payment amounts and the initial terms of its leases. These incremental borrowing rates were applied to future lease payments in determining the present value of the operating lease liability for each lease.

 

As stated, the comparative prior period information for the three and nine months ended September 30, 2018 has not been adjusted and continues to be reported under the Company’s historical lease recognition policies under Topic 840, Leases.

 

The disclosure requirements of Topic 842 are included within Note 16, Operating Leases.

 

Recently Issued Accounting Guidance Not Yet Adopted

 

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements as follows: (1) removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and the reporting entity’s policy for timing of transfers between levels; (2) removes the requirement to disclose the valuation processes for Level 3 fair value measurements; (3) clarifies that the measurement uncertainty disclosure for recurring Level 3 fair value measurements is to communicate information about the uncertainty in measurement as of the reporting date; (4) requires disclosure of the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period; and (5) requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. An entity is permitted to early adopt the provisions that remove or modify disclosures upon issuance of this ASU and delay adoption of the additional disclosures until the effective date. The adoption of the new guidance is not expected to have a material impact on the Company’s current fair value measurement disclosures.

 

In June 2016, the FASB issued 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. In addition, this guidance modifies the other-than-temporary impairment model for available for sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for a reversal of credit losses in future periods. 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 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and improves areas of guidance related to Topic 326. In May 2019, the FASB issued ASU 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. ASU No. 2016-13 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019. 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 to assist in implementing required changes to credit loss estimation models and processes. The historical data set for model development has been finalized, and the credit loss estimation models are in the process of being developed and tested. The Company expects to recognize a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the first reporting period in which ASU No.

 

8


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

2016-13 is effective. The Company has not yet determined the magnitude of any such one-time adjustment or the overall impact of ASU No. 2016-13 on its condensed consolidated financial statements.

 

In October 2019, the FASB voted to issue an additional ASU to defer 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 Company, as a smaller reporting company as of the relevant measuring period, would qualify for this extension. Management plans to delay the implementation of CECL beyond 2020 and adjust the timetable of different CECL implementation tasks. Management believes that the Company will benefit from additional time to run parallel testing and refine credit loss estimation models.

 

Note 3—Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared using 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 subsidiaries. All significant intercompany accounts and transactions have been eliminated in the 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 period. 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.

 

Concentration of Credit Risk

 

The loan portfolio consists primarily of residential real estate loans which are collateralized by real estate. At September 30, 2019 and December 31, 2018, residential real estate loans accounted for 86% and 84%, respectively, of the loan portfolio. 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. Approximately 90% and 94% of the loan portfolio was originated in California at September 30, 2019 and December 31, 2018, respectively.

 

Reclassifications to Prior Periods’ Financial Statements

 

Certain prior period amounts have been reclassified to conform with the current period presentation. Net servicing income (loss) has been reclassified from other non-interest income and reported separately on the condensed consolidated statements of income.

 

Note 4—Investment Securities

 

Debt Securities

 

The following tables summarize the amortized cost and fair value of debt securities available for sale at September 30, 2019 and December 31, 2018 and the corresponding amounts of gross unrealized gains and losses:

 

 

 

September 30, 2019

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

147,363

 

$

189

 

$

(4

)

$

147,548

 

Collateralized mortgage obligations

 

1,236

 

45

 

 

1,281

 

Collateralized debt obligations

 

217

 

 

(17

)

200

 

Total

 

$

148,816

 

$

234

 

$

(21

)

$

149,029

 

 

9


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

 

 

December 31, 2018

 

 

 

Amortized

 

Gross Unrealized

 

Fair

 

 

 

Cost

 

Gain

 

Loss

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

142,905

 

$

9

 

$

(56

)

$

142,858

 

Collateralized mortgage obligations

 

1,554

 

46

 

 

1,600

 

Collateralized debt obligations

 

308

 

 

(11

)

297

 

Total

 

$

144,767

 

$

55

 

$

(67

)

$

144,755

 

 

No securities of any single issuer, other than debt securities issued by the U.S. government were in excess of 10% of total shareholders’ equity as of September 30, 2019 and December 31, 2018.

 

There were no sales of debt securities available for sale during the three and nine months ended September 30, 2019. The proceeds from sales of debt securities available for sale were zero and $2,778 for the three and nine months ended September 30, 2018. Gross realized losses on these sales were zero and $3 for the three and nine months ended September 30, 2018.

 

The amortized cost and fair value of debt securities available for sale issued by U.S. Treasury at September 30, 2019 are shown below by contractual maturity. Collateralized mortgage obligations and collateralized debt obligations are disclosed separately in the table below 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
Cost

 

Fair
Value

 

U.S. Treasury securities

 

 

 

 

 

Due less than one year

 

$

127,566

 

$

127,744

 

Due greater than one year

 

 

19,797

 

 

19,804

 

Collateralized mortgage obligations

 

1,236

 

1,281

 

Collateralized debt obligations

 

217

 

200

 

Total

 

$

148,816

 

$

149,029

 

 

The table summarizes debt securities available for sale, at fair value, with unrealized losses at September 30, 2019 and December 31, 2018 aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss position, as follows:

 

 

 

September 30, 2019

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

U.S. Treasury securities

 

$

19,912

 

$

(4

)

$

 

$

 

$

19,912

 

$

(4

)

Collateralized debt obligations

 

 

 

200

 

(17

)

200

 

(17

)

Total

 

$

19,912

 

$

(4

)

$

200

 

$

(17

)

$

20,112

 

$

(21

)

 

 

 

December 31, 2018

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

Fair
Value

 

Unrealized
Losses

 

U.S. Treasury securities

 

$

113,219

 

$

(56

)

$

 

$

 

$

113,219

 

$

(56

)

Collateralized debt obligations

 

 

 

297

 

(11

)

297

 

(11

)

Total

 

$

113,219

 

$

(56

)

$

297

 

$

(11

)

$

113,516

 

$

(67

)

 

As of September 30, 2019, the Company’s debt securities portfolio consisted of 8 debt securities, with 2 debt securities in an unrealized loss position. For debt securities in an unrealized loss position, management has both the intent and ability to hold these investments until the recovery of the decline; thus, the impairment was determined to be temporary.

 

A collateralized debt obligation with a carrying value of $200 and $297 at September 30, 2019 and December 31, 2018, respectively, was rated high quality at inception, but it was subsequently rated by Moody’s as Ba1, which is defined as “speculative”. The issuers of the underlying collateral for the security are primarily banks. Management uses in-house and third party other-than-

 

10


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

temporary impairment evaluation models to compare the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows during the period. The other-than-temporary impairment model considers the structure and term of the collateralized debt obligations and the financial condition of the underlying issuers. Assumptions used in the model include expected future default rates and prepayments. The collateralized debt obligation remained classified as available for sale and represented $17 and $11 of the unrealized losses reported at September 30, 2019 and December 31, 2018, respectively.

 

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 Pacific Coast Banker’s Bank, a thinly traded, restricted stock. At September 30, 2019 and December 31, 2018, equity securities totaled $4,277 and $4,141, respectively.

 

At September 30, 2019 and December 31, 2018, equity securities with readily determinable fair values were $4,031 and $3,895, respectively. The following is a summary of unrealized and realized gains and losses recognized in the condensed consolidated statements of income during the three and nine months ended September 30, 2019 and 2018:

 

 

 

Three Month Ended
September 30, 

 

Nine Months Ended
September 30, 

 

 

 

2019

 

2018

 

2019

 

2018

 

Net gains (losses) recorded during the period on equity securities

 

$

30

 

$

(31

)

$

136

 

$

(125

)

Less: net gains (losses) recorded during the period on equity securities sold during the period

 

 

 

 

 

Unrealized gains (losses) recorded during the period on equity securities held at the reporting date

 

$

30

 

$

(31

)

$

136

 

$

(125

)

 

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. The investment was reported at $246 for both September 30, 2019 and December 31, 2018.

 

Note 5—Loans

 

Major categories of loans were as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

Residential real estate

 

$

2,505,274

 

$

2,452,441

 

Commercial real estate

 

 224,570

 

250,955

 

Construction

 

 171,051

 

176,605

 

Commercial lines of credit

 

 24,512

 

37,776

 

Other consumer

 

 29

 

26

 

Total loans

 

2,925,436

 

2,917,803

 

Less: allowance for loan losses

 

(21,204

)

(21,850

)

Loans, net

 

$

2,904,232

 

$

2,895,953

 

 

Loans with carrying values of $936,864 and $898,731 were pledged as collateral on FHLB borrowings at September 30, 2019 and December 31, 2018, respectively.

 

The table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ending September 30, 2019 and 2018:

 

Three Months Ended

September 30, 2019

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

12,758

 

$

3,214

 

$

3,067

 

$

780

 

$

1

 

$

1,098

 

$

20,918

 

Provision (recovery) for loan losses

 

 (321

)

696

 

155

 

(193

)

 

(86

)

251

 

Charge offs

 

 

 

 

 

 

 

 

Recoveries

 

3

 

30

 

 2

 

 

 

 

35

 

Total ending balance

 

$

12,440

 

$

3,940

 

$

3,224

 

$

587

 

$

1

 

$

1,012

 

$

21,204

 

 

11


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

Nine Months Ended

September 30, 2019

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

13,826

 

$

2,573

 

$

3,273

 

$

1,058

 

$

1

 

$

1,119

 

$

21,850

 

Provision (recovery) for loan losses

 

(1,402

)

 1,275

 

 (54

)

 (295

)

 

(107

)

(583

)

Charge offs

 

 

 

 

 (176

)

 

 

(176

)

Recoveries

 

16

 

 92

 

 5

 

 —

 

 

 

113

 

Total ending balance

 

$

12,440

 

$

3,940

 

$

3,224

 

$

587

 

$

1

 

$

1,012

 

$

21,204

 

 

Three Months Ended

September 30, 2018

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

12,675

 

$

2,595

 

$

3,211

 

$

787

 

$

1

 

$

1,031

 

$

20,300

 

Provision (recovery) for loan losses

 

28

 

 

110

 

181

 

 

104

 

423

 

Charge offs

 

 

 

 

 

 

 

 

Recoveries

 

6

 

31

 

5

 

 

 

 

42

 

Total ending balance

 

$

12,709

 

$

2,626

 

$

3,326

 

$

968

 

$

1

 

$

1,135

 

$

20,765

 

 

Nine Months Ended

September 30, 2018

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

12,279

 

$

2,040

 

$

2,218

 

$

469

 

$

1

 

$

1,450

 

$

18,457

 

Provision (recovery) for loan losses

 

421

 

484

 

1,095

 

499

 

 

(315

)

2,184

 

Charge offs

 

(4

)

 

 

 

 

 

(4

)

Recoveries

 

13

 

102

 

13

 

 

 

 

128

 

Total ending balance

 

$

12,709

 

$

2,626

 

$

3,326

 

$

968

 

$

1

 

$

1,135

 

$

20,765

 

 

The following tables present the balance in the allowance for loan losses and the recorded investment by portfolio segment and based on impairment method as of September 30, 2019 and December 31, 2018:

 

September 30, 2019

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

43

 

$

 

$

 

$

5

 

$

 

$

 

$

48

 

Collectively evaluated for impairment

 

12,397

 

3,940

 

3,224

 

582

 

1

 

1,012

 

21,156

 

Total ending allowance balance

 

$

12,440

 

$

3,940

 

$

3,224

 

$

587

 

$

1

 

$

1,012

 

$

21,204

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

219

 

$

1,118

 

$

4,503

 

$

134

 

$

 

$

 

$

5,974

 

Loans collectively evaluated for impairment

 

2,505,055

 

223,452

 

166,548

 

24,378

 

29

 

 

2,919,462

 

Total ending loans balance

 

$

2,505,274

 

$

224,570

 

$

171,051

 

$

24,512

 

$

29

 

$

 

$

2,925,436

 

 

12


Table of Contents

 

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued

(dollars in thousands, except per share amounts)

 

December 31, 2018

 

Residential
Real Estate

 

Commercial
Real Estate

 

Construction

 

Commercial
Lines of
Credit

 

Other
Consumer

 

Unallocated

 

Total

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

46

 

$

30

 

$

78

 

$

195

 

$

 

$

 

$

349

 

Collectively evaluated for impairment

 

13,780

 

2,543

 

3,195

 

863

 

1

 

1,119

 

21,501

 

Total ending allowance balance

 

$

13,826

 

$

2,573

 

$

3,273

 

$

1,058

 

$

1

 

$

1,119

 

$

21,850

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

228

 

$

3,779

 

$

7,412

 

$

416

 

$

 

$

 

$

11,835

 

Loans collectively evaluated for impairment

 

2,452,213

 

247,176

 

169,193

 

37,360

 

26

 

 

2,905,968

 

Total ending loans balance

 

$

2,452,441

 

$

250,955

 

$

176,605

 

$

37,776

 

$

26

 

$

 

$

2,917,803

 

 

The following tables present information related to impaired loans by class of loans as of and for the periods indicated:

 

 

 

At September 30, 2019

 

At December 31, 2018

 

 

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses

 

Unpaid
Principal
Balance

 

Recorded
Investment

 

Allowance
for Loan
Losses

 

With no related allowance for loan losses recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate, first mortgage

 

$

127

 

$

101

 

$

 

$

 

$

 

$

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

1,323

 

1,118

 

 

1,370

 

1,174

 

 

Multifamily