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

~~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 March 31, ~~2018~~2021

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

o~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
For the transition period fromto

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)
(I.R.S. Employer
Identification Number)

One Towne Square, Suite 1900
Southfield, Michigan48076
(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 x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 o☐

~~Non-accelerated~~Non-accelerated filer x☒

Smaller reporting company o☒

~~(Do not check if a~~

Emerging growth company x
☒
~~smaller reporting 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. 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 May 11, ~~2018, there were 53,002,963~~2021,50,189,609 shares of the ~~Registrant’s~~registrant’s Common Stock were outstanding.

Table of Contents

STERLING BANCORP, INC.
FORM 10-Q
INDEX
~~INDEX~~

PART I — FINANCIAL INFORMATION

Item 1.
~~Financial Statements (Unaudited)~~

Financial Statements (Unaudited)


Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2021 and December 31, ~~2017~~2020

2

Condensed Consolidated Statements of Income for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2021 and ~~2017~~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
34
37
Item 3.

Quantitative and Qualitative Disclosures about Market Risk
47
56
Item 4.

Controls and Procedures
49
57

PART II — OTHER INFORMATION

Item 1.
~~Legal Proceedings~~
49Legal Proceedings

58
Item 1A.
~~Risk Factors~~
49Risk Factors

59
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds
49
60
Item 6.
~~Exhibits~~
49Exhibits

61
Exhibit Index

5061
SIGNATURES

5162

~~PART 1. FINANCIAL INFORMATION~~1
Table of Contents
~~ITEM 1. FINANCIAL STATEMENTS~~
Sterling Bancorp, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(dollars in thousands)

March 31,

December 31,

2018

2017

(Unaudited)

Assets

Cash and due from banks

$
37,541

$
40,147

Investment securities

124,956

126,848

Mortgage loans held for sale

200,467

112,866

Loans, net of allowance for loan losses of $19,132 and $18,457

2,580,560

2,594,357

Accrued interest receivable

11,936

11,493

Mortgage servicing rights, net

7,780

6,496

Leasehold improvements and equipment, net

7,705

7,043

Federal Home Loan Bank stock, at cost

22,950

22,950

Cash surrender value of bank-owned life insurance

30,837

30,680

Deferred tax asset, net

7,234

6,847

Other assets

2,366

2,231

Total assets

$
3,034,332

$
2,961,958

Liabilities and Shareholders’ Equity

Liabilities:

Noninterest-bearing deposits

$
75,062

$
73,682

Interest-bearing deposits

2,216,103

2,171,428

Total deposits

2,291,165

2,245,110

Federal Home Loan Bank borrowings

342,937

338,000

Subordinated notes, net

64,923

64,889

Accrued expenses and other liabilities

46,795

40,661

Total liabilities

2,745,820

2,688,660

Shareholders’ equity:

Preferred stock, authorized 10,000,000 shares; no shares issued and outstanding

—

—

Common stock, voting, no par value, authorized 500,000,000 shares; issued and outstanding 53,002,963 and 52,963,308 shares at March 31, 2018 and December 31, 2017, respectively

111,238

111,238

Additional paid-in capital

12,425

12,416

Retained earnings

164,984

149,816

Accumulated other comprehensive loss

(135
)
(172
)
Total shareholders’ equity

288,512

273,298

Total liabilities and shareholders’ equity

$
3,034,332

$
2,961,958

PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

March 31,

December 31,


2021

2020
Assets




Cash and due from banks

$
873,223

$
998,497
Interest-bearing time deposits with other banks

5,528

7,021
Investment securities

259,686

304,958
Mortgage loans held for sale

19,848

22,284
Loans, net of allowance for loan losses of $71,871 and $72,387

2,389,599

2,434,356
Accrued interest receivable

10,439

10,990
Mortgage servicing rights, net

4,626

5,688
Leasehold improvements and equipment, net

9,085

8,512
Operating lease right-of-use assets

18,791

19,232
Federal Home Loan Bank stock, at cost

22,950

22,950
Cash surrender value of bank-owned life insurance

32,631

32,495
Deferred tax asset, net

24,104

24,326
Other assets

23,517

22,736
Total assets

$
3,694,027

$
3,914,045

Liabilities and Shareholders' Equity




Liabilities:




Noninterest-bearing deposits

$
61,329

$
58,458
Interest-bearing deposits

2,749,868

3,040,508
Deposits held for sale

78,035

—
Total deposits

2,889,232

3,098,966
Federal Home Loan Bank borrowings

318,000

318,000
Subordinated notes, net

65,384

65,341
Operating lease liabilities

20,056

20,497
Accrued expenses and other liabilities

79,439

91,650
Total liabilities

3,372,111

3,594,454

Shareholders’ equity:




Preferred stock, authorized 10,000,000 shares; 0 shares issued and outstanding

—

—
Common stock, 0 par value, authorized 500,000,000 shares; issued and outstanding 50,009,407 shares at March 31, 2021 and 49,981,861 shares at December 31, 2020, respectively

80,807

80,807
Additional paid-in capital

13,603

13,544
Retained earnings

227,178

224,853
Accumulated other comprehensive income

328

387
Total shareholders’ equity

321,916

319,591
Total liabilities and shareholders’ equity

$
3,694,027

$
3,914,045

See accompanying notes to condensed consolidated financial statements.

2
Table of Contents

Sterling Bancorp, Inc.
Condensed Consolidated Statements of ~~Income~~Operations (Unaudited)
(dollars in thousands, except per share amounts)

Three Months Ended

March 31,

2018

2017

Interest income

Interest and fees on loans

$
35,856

$
26,759

Interest and dividends on investment securities

819

365

Other interest

114

19

Total interest income

36,789

27,143

Interest expense

Interest on deposits

6,589

3,534

Interest on Federal Home Loan Bank borrowings

833

830

Interest on subordinated notes and other

1,172

908

Total interest expense

8,594

5,272

Net interest income

28,195

21,871

Provision for loan losses

641

600

Net interest income after provision for loan losses

27,554

21,271

Non-interest income

Service charges and fees

618

409

Investment management and advisory fees

623

552

Gain on sale of mortgage loans held for sale

65

187

Gain on sale of portfolio loans

3,941

3,865

Unrealized losses on equity securities

(64
)
—

Income on cash surrender value of bank-owned life insurance

295

291

Other income

559

282

Total non-interest income

6,037

5,586

Non-interest expense

Salaries and employee benefits

6,649

5,410

Occupancy and equipment

1,546

1,389

Professional fees

622

369

Advertising and marketing

349

192

FDIC assessments

543

242

Data processing

288

207

Other

1,506

1,283

Total non-interest expense

11,503

9,092

Income before income taxes

22,088

17,765

Income tax expense

6,339

7,349

Net income

$
15,749

$
10,416

Income per share, basic and diluted

$
0.30

$
0.23

Weighted average common shares outstanding, basic and diluted

52,963,308

45,271,000

Three Months Ended

March 31,


2021

2020
Interest income

Interest and fees on loans

$
31,294

$
39,525
Interest and dividends on investment securities and restricted stock

390

1,034
Other interest

263

434
Total interest income

31,947

40,993

Interest expense

Interest on deposits

6,702

10,364
Interest on Federal Home Loan Bank borrowings

838

810
Interest on subordinated notes

1,180

1,177
Total interest expense

8,720

12,351

Net interest income

23,227

28,642
Provision (recovery) for loan losses

(737)

20,853
Net interest income after provision (recovery) for loan losses

23,964

7,789

Non-interest income

Service charges and fees

159

117
Investment management and advisory fees

—

313
Gain on sale of investment securities

—

233
Gain on sale of mortgage loans held for sale

398

269
Unrealized gains (losses) on equity securities

(90)

80
Net servicing loss

(430)

(911)
Income on cash surrender value of bank-owned life insurance

313

328
Other

103

100
Total non-interest income

453

529

Non-interest expense

Salaries and employee benefits

7,848

6,753
Occupancy and equipment

2,196

2,118
Professional fees

8,755

3,312
Advertising and marketing

40

273
FDIC assessments

719

19
Data processing

346

335
Net recovery of mortgage repurchase liability

(153)

—
Other

1,583

1,425
Total non-interest expense

21,334

14,235

Income (loss) before income taxes

3,083

(5,917)
Income tax expense (benefit)

758

(1,887)
Net income (loss)

$
2,325

$
(4,030)

Income (loss) per share, basic and diluted

$
0.05

$
(0.08)

Weighted average common shares outstanding:

Basic

49,851,202

49,837,662
Diluted

49,912,860

49,837,662

See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

Sterling Bancorp, Inc.
Condensed Consolidated Statements of Comprehensive Income ~~(Unaudited)~~(Loss)
(dollars in thousands)

Three Months Ended

March 31,

2018

2017

Net income

$
15,749

$
10,416

Other comprehensive income (loss), net of tax:

Unrealized losses on investment securities, arising during the year, net of income tax of ($3) and ($16) in 2018 and 2017, respectively

(13
)
(29
)
Less: reclassification adjustment for (gains) losses included in net income

—

—

Total other comprehensive loss

(13
)
(29
)
Comprehensive income

$
15,736

$
10,387

Three Months Ended

March 31,


2021

2020
Net income (loss)

$
2,325

$
(4,030)
Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on investment securities, arising during the period, net of tax effect of $(23) and $284, respectively

(59)

731
Reclassification adjustment for gains included in net income of $- and $233, respectively, included in gain on sale of investment securities, net of tax effect of $- and $65, respectively

—

(168)
Total other comprehensive income (loss)

(59)

563
Comprehensive income (loss)

$
2,266

$
(3,467)

See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

Sterling Bancorp, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ ~~Equity (Unaudited)~~Equity
(dollars in thousands, except ~~per~~ share amounts)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’

Voting

Nonvoting

Capital

Earnings

Loss

Equity

Balance at January 1, 2017

$
22,863

$
2,885

$
15,118

$
121,446

$
(40
)
$
162,272

Net income

—

—

—

10,416

—

10,416

Capital contributions from controlling member of merged entity (Note 1)

—

—

218

—

—

218

Other comprehensive loss

—

—

—

—

(29
)
(29
)
Dividends distributed ($0.04 per share)

—

—

—

(1,767
)
—

(1,767
)
Balance at March 31, 2017

$
22,863

$
2,885

$
15,336

$
130,095

$
(69
)
$
171,110

Balance at January 1, 2018

$
111,238

$
—

$
12,416

$
149,816

$
(172
)
$
273,298

Cumulative effect adjustment, reclassification of unrealized losses on equity securities (Note 3)

—

—

—

(50
)
50

—

Net income

—

—

—

15,749

—

15,749

Stock-based compensation

—

—

9

—

—

9

Other comprehensive loss

—

—

—

—

(13
)
(13
)
Dividends distributed ($0.01 per share)

—

—

—

(531
)
—

(531
)
Balance at March 31, 2018

$
111,238

$
—

$
12,425

$
164,984

$
(135
)
$
288,512

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’


Shares

Amount

Capital

Earnings

Income (Loss)

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

(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

Balance at January 1, 2021

49,981,861

$
80,807

$
13,544

$
224,853

$
387

$
319,591
Net income

—

—

—

2,325

—

2,325
Restricted stock surrendered due to 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

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)

Three Months Ended

March 31,

2018

2017

Cash Flows From Operating Activities

Net income

$
15,749

$
10,416

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

Provision for loan losses

641

600

Deferred income taxes

(387
)
327

Unrealized losses on equity securities

64

—

Amortization and (accretion), net, debt securities available for sale

(69
)
3

Depreciation and amortization of leasehold improvements and equipment

318

268

Amortization of intangible asset

113

113

Origination, premium paid and purchase of loans, net of principal payments, mortgage loans held for sale

(7,424
)
(6,326
)
Proceeds from the sale of mortgage loans held for sale

6,165

9,695

Gain on sale of mortgage loans held for sale

(65
)
(187
)
Gain on sale of portfolio loans

(3,941
)
(3,865
)
Increase in cash surrender value of bank-owned life insurance

(157
)
(166
)
Net change in servicing assets

237

250

Other

43

33

Change in operating assets and liabilities:

Accrued interest receivable

(443
)
(261
)
Other assets

(245
)
153

Accrued expenses and other liabilities

6,134

8,783

Net cash provided by operating activities

16,733

19,836

Cash Flows From Investing Activities

Maturities and principal receipts of investment securities

26,615

23,671

Purchases of investment securities

(24,734
)
(35,234
)
Loans originated, net of repayments

(182,870
)
(123,695
)
Proceeds from the sale of portfolio loans

112,169

105,184

Purchase of leasehold improvements and equipment

(980
)
(659
)
Net cash used in investing activities

(69,800
)
(30,733
)

Cash Flows From Financing Activities

Net increase in deposits

46,055

107,003

Proceeds from advances from Federal Home Loan Bank

505,000

660,000

Repayments of advances from Federal Home Loan Bank

(513,000
)
(735,000
)
Net change in line of credit with Federal Home Loan Bank

12,937

(11,083
)
Capital contributions from controlling member of merged entity

—

218

Dividends paid to shareholders

(531
)
(1,767
)
Net cash provided by financing activities

50,461

19,371

Net increase (decrease) in cash and due from banks

(2,606
)
8,474

Cash and due from banks at beginning of period

40,147

22,124

Cash and due from banks at end of period

$
37,541

$
30,598

Supplemental cash flows information

Cash paid:

Interest

$
6,333

$
5,011

Income taxes

—

—

Noncash investing and financing activities:

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

198,184

—

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

2,158

—

Three Months Ended

March 31,


2021

2020
Cash Flows From Operating Activities




Net income (loss)

$
2,325

$
(4,030)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision (recovery) for loan losses

(737)

20,853
Deferred income taxes

245

(6,237)
Gain on sale of investment securities

—

(233)
Unrealized (gains) losses on equity securities

90

(80)
Amortization (accretion), net, on investment securities

576

(128)
Depreciation and amortization on leasehold improvements and equipment

408

398
Origination, net of principal payments, mortgage loans held for sale

(7,980)

(16,855)
Proceeds from sale of mortgage loans held for sale

10,740

14,578
Gain on sale of mortgage loans held for sale

(398)

(269)
Net recovery of mortgage repurchase liability

(153)

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

(136)

(153)
Valuation allowance adjustments and amortization of mortgage servicing rights

1,136

1,896
Stock-based compensation

105

109
Other

43

39
Change in operating assets and liabilities:

Accrued interest receivable

551

497
Other assets

190

662
Accrued expenses and other liabilities

(10,111)

(13,504)
Net cash used in operating activities

(3,106)

(2,457)

Cash Flows From Investing Activities




Maturities of interest-bearing time deposits with other banks

1,493

—
Maturities and principal receipts of investment securities

44,524

47,272
Sales of investment securities

—

23,044
Purchases of investment securities

—

(75,717)
Net decrease in loans

133,438

71,032
Purchases of portfolio loans

(90,862)

—
Purchase of leasehold improvements and equipment

(981)

(281)
Net cash provided by investing activities

87,612

65,350

Cash Flows From Financing Activities




Net increase (decrease) in deposits

(209,734)

149,853
Proceeds from advances from Federal Home Loan Bank

—

100,000
Cash paid for surrender of vested shares due to employee tax liability

(46)

—
Repurchase of shares of common stock

—

(82)
Dividends paid to shareholders

—

(499)
Net cash provided by (used in) financing activities

(209,780)

249,272
Net change in cash and due from banks

(125,274)

312,165
Cash and due from banks at beginning of period

998,497

77,819
Cash and due from banks at end of period

$
873,223

$
389,984

Supplemental cash flows information




Cash paid:




Interest

$
11,582

$
9,993
Income taxes

—

102
Noncash investing and financing activities:

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

530

42

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
~~STERLING BANCORP, INC.~~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~~(unless stated otherwise or the context otherwise requires, with its subsidiaries, the “Company”) is a unitary thrift holding company that was incorporated in 1989 and the parent company to its ~~wholly owned~~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, construction loans, commercial lines of credit and other consumer loans and ~~receives deposits from its customers located~~provides deposit products, consisting primarily ~~in California~~of checking, savings and ~~Michigan.~~term certificate accounts. The Bank operates through a network of ~~28 branches: one branch at its headquarters, 25~~30 branches of which 26 branches are located in San Francisco and Los Angeles, California ~~and two~~with the remaining branches located in New York, New ~~York. Additionally,~~York, Southfield, Michigan and the ~~Bank’s operations include a registered investment advisory business with assets held under management of $451 million at March 31, 2018.~~
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~~the Company's business based on ~~one~~1 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, subject to receipt of applicable regulatory approvals and other customary closing conditions. The sale includes the transfer of all deposit accounts located at the branch, with a total balance of $78,035 at March 31, 2021, as well as the transfer of all branch premises and equipment. The agreement provides that the Bank will receive a premium of 2.1% on the principal balance of the deposits at closing. The agreement also provides that the buyer intends to offer employment to all associated staff. This transaction is expected to close in the second quarter of 2021.
The Company is subject to regulation, examination and supervision by the Board of Governors of the Federal Reserve ~~(“Federal~~System (the “FRB” or “Federal Reserve”). The Bank is a federally chartered stock savings bank ~~which~~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.
~~Initial Public Offering~~
In November 2017, the Company completed its initial public offering whereby it issued and sold 7,692,308 shares of common stock at a public offering price of $12.00 per share. The Company received net proceeds of $85.5 million after deducting underwriting discounts and commissions of $5.5 million and other offering expenses of $1.3 million. The Company continues to use the proceeds to support the Bank’s growth initiatives.
Basis of Presentation
The condensed consolidated balance sheet as of March 31, ~~2018,~~2021, and the condensed consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the three months ended March 31, ~~2018~~2021 and ~~2017~~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, ~~all adjustments, consisting~~ of a normal ~~and~~ 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 months ended March 31, ~~2018~~2021 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018~~2021 or for any future annual or interim period. The consolidated balance sheet at December 31, ~~2017~~2020 included herein was derived from the audited 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, ~~2017.~~
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~Merger of Quantum Fund, LLC~~
On April 24, 2017, the Bank acquired all the outstanding equity interests of Quantum Fund, LLC, an entity controlled by the Company’s principal shareholder who owned, directly and indirectly 80% of the members’ interests2020, as filed with the remaining 20% members’ interest held by a member of the Board of Directors of the Company and Bank, for $2.9 million in cash. The entity operated a registered investment advisory business with assets held under management of approximately $425 million.SEC on March 26, 2021 (the “2020 Form 10-K”).

In 2017, the Bank recorded the assets and liabilities transferred at their carrying amounts, consisting primarily of a customer-related intangible asset, in the accounts of the entity transferred. Prior to 2017, the consolidated financial statements have been retrospectively adjusted to include the results of the Company and its wholly-owned subsidiary, and the entity under common control on a combined basis, since the entities were under common control.
Note 2—~~Summary of Significant~~New Accounting ~~Policies~~Standards
~~Principles of Consolidation~~
The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the results of the Company and its wholly-owned subsidiary, and an entity under common control that was merged with the Company in April 2017 (Note 1). All significant intercompany accounts and transactions have been eliminated in the consolidation.
~~Use of Estimates~~
The preparation of the 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
~~Fair Value Measurements~~
The Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Bank uses present value techniques and other valuations methods, as disclosed in Note 11, to estimate the fair value of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record other assets and liabilities on a nonrecurring basis, such as impaired loans, other real estate owned, nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments generally involve write-downs of individual assets or application of lower of amortized cost or fair value accounting.
~~Concentration of Credit Risk~~
The Company’s loan portfolio consists primarily of residential real estate loans which are collateralized by real estate. At March 31, 2018 and December 31, 2017, residential real estate loans accounted for 82%, 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. At March 31, 2018 and December 31, 2017, approximately 96% and 95% of the loan portfolio was originated in California, respectively.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~Investment Securities~~
~~Investment securities includes available for sale debt securities and equity securities.~~
~~Debt Securities~~
~~Debt securities are classified as either available for sale or held to maturity. Management determines the classification of the investment securities when they are purchased.~~
Debt securities available for sale are stated at fair value, with unrealized gains and losses excluded from income and shown as a separate component of shareholders’ equity in accumulated other comprehensive income (loss), net of income taxes. Held to maturity securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts over the contractual life of the investment security using the effective interest method or, in the case of mortgage-backed securities, over the estimated life of the investment security using the effective yield method.
Interest income includes amortization or accretion of purchase premium or discount. Gains and losses on sales are recorded on the settlement date and determined using the specific identification method.
Management evaluates the debt securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In determining other-than-temporary impairment for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether a decline is other-than-temporary involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. A charge is recognized against income for all or a portion of the impairment if the loss is determined to be other than temporary.
If the Bank intends to sell the debt security or it is more likely than not that the Bank will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recorded as a loss in the condensed consolidated statements of income. If the Bank does not intend to sell the debt security and it is more likely than not that the Bank will not be required to sell the debt security prior to recovery of its amortized cost basis, only the current period credit loss of any impairment of a debt security is recognized in the condensed consolidated statements of income, with the remaining impairment recorded in other comprehensive income (loss).
~~Equity Securities~~
~~Beginning January 1, 2018, equity securities with readily determinable fair values are stated at fair value with unrealized and realized gains and losses reported in income.~~ Those equity securities without readily determinable fair values are recorded at cost less any impairments, adjusted for subsequent observable price changes in orderly transactions for an identical or similar investment of the same issuer. Any changes in the carrying value of the equity investments are recognized in net income. Refer to Note 3, Investment Securities.
For periods prior to January 1, 2018, equity securities were classified as available for sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.
The Company performs a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates that an impairment exists, the Company determines the fair value of the investment and records an impairment loss equal to the difference between the fair value and the carrying amount of the investment in net income.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~Federal Home Loan Bank Stock~~
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest additional amounts. The FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. The FHLB stock does not have a readily determinable fair value and no quoted market value as the ownership is restricted to member institutions. Also, the FHLB stock is pledged as collateral on FHLB borrowings. Cash and stock dividends are reported as income in interest and dividends on investment securities in the condensed consolidated statements of income. Cash dividends received amounted $390 and $196 for the three months ended March 31, 2018 and 2017, respectively.
~~Revenue from Contracts with Customers~~
~~On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~and all subsequent amendments to the ASU (collectively,~~ ~~“ASC 606”~~), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to its customers. The core principle of ASC 606 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performed obligations are satisfied.
The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of the adoption date. The adoption of ASC 606 did not result in a change in the accounting for any of the in-scope revenue streams; as such no cumulative effect adjustment was recorded. The majority of the Company’s revenues are from interest income and other sources, including loans and investment securities, as well as fees related to mortgage servicing activities, that are not within the scope of ASC 606 and subject to other accounting guidance. The Company’s services that are within the scope of ASC 606 are recorded within non-interest income which includes investment management and advisory fees, service charges on deposit accounts, interchange income and other service charges and fees. Descriptions of these activities that are within the scope of ASC 606, which are presented in the condensed consolidated statements of income as components of non-interest income, are as follows:
~~Service charges on deposit accounts~~: The Bank earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Bank fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Bank satisfies the performance obligations. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
~~Investment management and advisory fees~~: The Bank enters into a contract with its customer to provide asset management services that will continue indefinitely unless terminated in writing by either party to the other. The Bank receives a quarterly management fee, payable in advance, based on the customer’s assets held under management at the beginning of the period. These fees are earned over time as the Bank provides the contracted services and are assessed based on a tiered rate applied to the market value of assets held under management. The Bank does not earn performance-based incentives.
~~Interchange fees:~~ The Bank earns interchange fees from debit cardholder transactions conducted through the MasterCard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Such interchange activity is shown on a net basis through other non-interest income.
~~Other service charges and fees:~~ Other charges and fees includes revenue generated from wire transfers, lockboxes, and bank issuance of checks. Such fees are recognized at the point in time the customer requests the service and the service has been rendered.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~The following table presents the Company’s sources of non-interest income for the three months ended March 31, 2018 and 2017 that are within the scope of ASC 606:~~

Three Months Ended
March 31,

2018

2017

Non-Interest Income:

Service charges on deposit accounts*

$
52

$
40

Investment management and advisory fees

623

552

Interchange fees*

25

26

Other service charges and fees*

7

3

Not within the scope of ASC 606

5,330

4,965

Total non-interest income

$
6,037

$
5,586

* Included in service charges and fees in the condensed consolidated statements of income
~~Contract Balances~~
The Bank’s noninterest revenue streams are largely based on transactional activity, or month-end revenue accruals such as investment management and advisory fees based on the customer’s assets held under management at the beginning of the period. Consideration is often received immediately or shortly thereafter, and the Bank satisfies its performance obligation and recognizes revenue over time. At March 31, 2018 and December 31, 2017, the Bank had a contract asset balance of $82 and $91 respectively, which was recorded in other assets in the condensed consolidated balance sheets.
~~Stock-based compensation~~
Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee members of the Company’s Board of Directors, based on the fair value of these awards at the date of grant. The fair value of stock options is estimated using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of the Company’s common stock at the date of grant reduced ~~by the present value of dividends per share expected to be paid during the period the shares are not vested.~~
Compensation cost is recorded over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award. The Company’s accounting policy is to record forfeitures in the period that they occur.
~~Income per Share, Basic and Diluted~~
Basic income per share represents net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share represents net income divided by the weighted average number of common shares outstanding during the period, plus the effect of outstanding dilutive potential common shares.
Recently Issued Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ~~ASU~~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
7
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

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. ~~2016-13 is~~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 ~~annual periods~~certain entities including smaller reporting companies (as defined by the U.S. Securities and ~~interim periods within those annual periods, beginning after December 15, 2019.~~Exchange Commission (the “SEC”)). The Company, ~~is currently evaluating~~as a smaller reporting company as of the ~~impact~~relevant measuring period, qualified for this extension.
At this time, the Company has formed a cross-functional implementation team consisting of ~~ASU No. 2016-13 but~~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 ~~one-time~~ cumulative effect adjustment to the ~~allowance for loan losses~~opening balance of retained earnings as of the beginning
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
of the first reporting period in which ASU No. 2016-13 is effective. The Company has not yet determined the magnitude of any such one-time adjustment or of the overall impact of ASU No. 2016-13 on its consolidated financial statements.
In ~~February 2016,~~March 2020, the FASB issued ASU No. ~~2016-02,~~2020-04, ~~Leases~~Reference Rate Reform (Topic ~~842)~~848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting ~~which require lessees~~. The relief provided by this guidance is elective and applies to ~~recognize~~all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the ~~following~~London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The guidance provides that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. If certain criteria are met, entities can elect to not apply certain modification accounting requirements to contracts affected by reference rate reform. The Company’s primary contracts that reference LIBOR are its loan contracts, purchase and sale agreements for investment securities transactions, customer deposit agreements and borrowing agreements with the FHLB. The Company has not yet determined an alternative rate to LIBOR at this time. The optional amendments in ASU No. 2020-04 are effective for all ~~leases,~~entities for contract modifications made for LIBOR transition between March 12, 2020 through December 31, 2022. The Company may take advantage of the LIBOR transition relief allowed under this ASU in the future.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), Scope. The amendments in this guidance refine the scope of Topic 848 and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting also apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform (commonly referred to as the discounting transition). ASU No. 2021-01 expands the scope of Topic 848 to also include certain derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. Currently, the Company does not use derivative instruments and does not anticipate taking advantage of the LIBOR transition relief allowed under this ASU.

Note 3—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.
On December 21, 2020, QCM, LLC, doing business as Quantum Capital Management, a wholly-owned subsidiary of Quantum Fund, LLC and an indirect wholly-owned subsidiary of the Bank, completed the sale of substantially all of its assets, which consisted
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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

primarily of client advisory agreements for ~~short-term leases,~~aggregate consideration of $250. The operations of Quantum Capital Management were not significant.
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 ~~commencement date: (1)~~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 March 31, 2021 and December 31, 2020, residential real estate loans accounted for 82% and 81%, 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. At March 31, 2021 and December 31, 2020, approximately 86% and 87%, respectively, of the loan portfolio was originated to customers in California.
Starting December 9, 2019, the Bank suspended its Advantage Loan Program and announced on March 6, 2020 that it permanently discontinued this program. Loans originated under this Program comprised a ~~lease liability which is~~significant component of the Bank’s total loan originations. Advantage Loan Program loans (including nonaccrual residential real estate loans held for sale of $18,572 at March 31, 2021) totaled $1,488,343 and $1,515,248, or 73% and 74%, of the residential loan portfolio at March 31, 2021 and December 31, 2020, respectively.
Risks and Uncertainties – COVID-19
The coronavirus disease 2019 (“COVID-19”) pandemic, and related efforts to contain it, have caused significant disruptions in the functioning of the financial markets, resulted in an unprecedented slowdown in economic activity and a ~~lessee’s obligation~~related increase in unemployment, and have increased economic and market uncertainty and volatility. The Company’s primary market areas of California, the greater Seattle market, and New York City have been hit particularly hard by the COVID-19 pandemic. Federal and state governments have taken, and continue to ~~make lease payments arising from a lease, measured on a discounted basis;~~take, unprecedented actions to contain the spread of the disease, including vaccine distribution, closures of businesses and ~~(2) a right-of-use asset, which is an asset that represents~~schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief for businesses and individuals impacted by the ~~lessee’s right~~pandemic.
During the first quarter of 2021, the COVID-19 pandemic continues to ~~use, or control the use of, a specified asset~~create and exacerbate significant risks and uncertainties for the ~~lease term. Lessor accounting is largely unchanged. ASU No. 2016-02 will also require expanded disclosures. ASU No. 2016-02 is effective for annual periods~~market that the Bank serves. As the Bank’s residential and ~~interim periods within those annual periods beginning after December 15, 2018.~~commercial customers are facing various levels of financial stress, the Bank continues to experience an elevated level of delinquent and nonaccrual loans, primarily in residential real estate, office, lodging, retail and construction loans.
The duration and severity of the effect of the COVID-19 pandemic on economic, market and business conditions remain uncertain. The Company ~~is currently evaluating~~continues to be subject to heightened business, operational, market, credit and other risks related to the ~~impact of the ASU No. 2016-02~~COVID-19 pandemic, which may have an adverse effect on its business, financial condition, ~~and~~liquidity, results of ~~operations. The Company will record a right-of-use asset~~operations, risk-weighted assets and ~~a lease liability on its consolidated balance sheet for the leases~~regulatory capital.

9
Table of ~~its facilities~~Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in ~~place at adoption of this ASU.~~thousands, except per share amounts)

Note 3—4—Investment Securities
Debt Securities
The following tables summarize the amortized cost and fair value of debt securities available for sale at March 31, ~~2018~~2021 and December 31, ~~2017~~2020 and the corresponding amounts of gross unrealized gains and losses:

March 31, 2018

Amortized

Gross Unrealized

Fair

Cost

Gain

Loss

Value

March 31, 2021

Amortized

Gross Unrealized

Fair


Cost

Gain

Loss

Value
Available for sale:








U.S. Treasury securities

$
118,764

$
—

$
(224
)
$
118,540

U.S. Treasury & Agency securities

$
118,624

$
162

$
—

$
118,786
Mortgage-backed securities

31,462

70

(418)

31,114
Collateralized mortgage obligations

1,888

67

—

1,955

103,658

729

(68)

104,319
Collateralized debt obligations

311

—

(13
)
298

213

—

(20)

193
Total

$
120,963

$
67

$
(237
)
$
120,793

$
253,957

$
961

$
(506)

$
254,412

December 31, 2017

Amortized

Gross Unrealized

Fair

Cost

Gain

Loss

Value

December 31, 2020

Amortized

Gross Unrealized

Fair


Cost

Gain

Loss

Value
Available for sale:








U.S. Treasury securities

$
120,216

$
—

$
(174
)
$
120,042

U.S. Treasury & Agency securities

$
138,742

$
255

$
—

$
138,997
Mortgage-backed securities

33,743

72

(1)

33,814
Collateralized mortgage obligations

1,953

55

—

2,008

126,359

628

(391)

126,596
Collateralized debt obligations

606

—

(35
)
571

214

—

(27)

187
Total

$
122,775

$
55

$
(209
)
$
122,621

$
299,058

$
955

$
(419)

$
299,594

Securities with a fair value of $73,725 were pledged as collateral on FHLB borrowings at March 31, 2021.
All of the Company’s mortgage-backed securities, and a majority of the Company’s collateralized mortgage obligations are issued and/or guaranteed by a U.S. government agency (Government National Mortgage Association) or a U.S. government-sponsored enterprise (Federal Home Loan Mortgage Corporation (“Freddie Mac”) or Federal National Mortgage Association (“Fannie Mae”)). The ~~Company held no~~fair value of the private-label collateralized mortgage obligations was $720 and $816 at March 31, 2021 and December 31, 2020, respectively.
NaN securities of any single issuer, other than debt securities issued by the U.S. government, government agency and government-sponsored enterprises, ~~which~~ were in excess of 10% of total shareholders’ equity as of March 31, ~~2018~~2021 and December 31, ~~2017.~~2020.
For the three months ended March 31, 2020, the proceeds from sales of debt securities available for sale were $23,044. The Company recorded gross realized gains of $235 and gross realized losses of $(2). There were no sales of debt securities available for sale for the three months ended March 31, ~~2018 and 2017.~~2021.
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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

The amortized cost and fair value of debt securities available for sale issued by U.S. Treasury and Agency securities at March 31, ~~2018~~2021 are shown by contractual maturity. Mortgage-backed securities, 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

$
118,764

$
118,540

Collateralized mortgage obligations

1,888

1,955

Collateralized debt obligations

311

298

Total

$
120,963

$
120,793

Amortized

Fair


Cost

Value
U.S. Treasury & Agency securities




Due less than one year

$
44,970

$
45,061
Due after one year through five years

73,654

73,725
Mortgage-backed securities

31,462

31,114
Collateralized mortgage obligations

103,658

104,319
Collateralized debt obligations

213

193
Total

$
253,957

$
254,412
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~

The following table summarizes debt securities available for sale, at fair value, with unrealized losses at March 31, ~~2018~~2021 and December 31, ~~2017~~2020 aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss ~~position, as follows:~~position:

March 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

$
118,540

$
(224
)
$
—

$
—

$
118,540

$
(224
)

March 31, 2021

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses
Mortgage-backed securities

$
20,970

$
(418)

—

$
—

$
20,970

$
(418)
Collateralized mortgage obligations

32,360

(68)

—

—

32,360

(68)
Collateralized debt obligations

—

—

298

(13
)
298

(13
)

—

—

193

(20)

193

(20)
Total

$
118,540

$
(224
)
$
298

$
(13
)
$
118,838

$
(237
)

$
53,330

$
(486)

$
193

$
(20)

$
53,523

$
(506)

December 31, 2017

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

$
120,042

$
(174
)
$
—

$
—

$
120,042

$
(174
)

December 31, 2020

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses
Mortgage-backed securities

$
5,694

$
(1)

$
—

$
—

$
5,694

$
(1)
Collateralized mortgage obligations

75,740

(391)

—

—

75,740

(391)
Collateralized debt obligations

—

—

571

(35
)
571

(35
)

—

—

187

(27)

187

(27)
Total

$
120,042

$
(174
)
$
571

$
(35
)
$
120,613

$
(209
)

$
81,434

$
(392)

$
187

$
(27)

$
81,621

$
(419)

AtAs of March 31, ~~2018,~~2021, the ~~Company’s~~ debt securities portfolio consisted of 922 debt securities, with 78 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;~~decline. The fair value is expected to increase as these securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2021, the unrealized losses in these securities are due to non-credit-related factors, including changes in interest rates and other market conditions; thus, the impairment was determined to be temporary. All interest and dividends are considered taxable.
~~The Company holds a~~A collateralized debt obligation with a carrying value of ~~$298~~$193 and ~~$571~~$187 at March 31, ~~2018~~2021 and December 31, ~~2017, respectively. The security~~2020, respectively, was rated high quality at inception, but it was subsequently rated by Moody’s as ~~B1,~~Ba1, which is defined as ~~“extremely~~ speculative.” The issuers of the ~~security~~underlying investments (the collateral) of the collateralized debt obligation are ~~primarily~~ banks. ~~The Company~~Management uses in-house and ~~third party~~third-party other-than-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 ~~security~~collateralized debt obligation remained classified as available for sale and represented ~~$13~~$20 and ~~$35~~$27 of the unrealized losses reported at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.
11
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

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 the common equity of Pacific Coast Banker’s Bank, a thinly traded restricted stock. At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, equity securities totaled ~~$4,163~~$5,274 and ~~$4,227, respectively. Prior to January 1, 2018, equity~~$5,364, respectively, and are included in investment securities ~~were stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.~~
~~On January 1, 2018,~~in the ~~Company adopted ASU No. 2016-01,~~ ~~Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”)~~ ~~and early adopted ASU No. 2018-03,~~ ~~Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2018-03”).~~ ASU No. 2016-01 requires equity investments, except those investments accounted for under the equity method of accounting, to be measured at fair value with changes in fair value recognized in net income. Also, for equity investments without readily determinable fair values, ASU No. 2016-01 provides a new measurement alternative. ASU No. 2016-01 requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in accumulated other comprehensive income. ASU No. 2018-03 clarifies certain aspects of the guidance in ASU No. 2016-01 primarily pertaining to the measurement alternative for equity securities without readily determinable fair values.
On January 1, 2018, the Company recorded a cumulative-effect adjustment to decrease retained earnings by $50 with offsetting adjustment to accumulated other comprehensive income. Beginning January 1, 2018, equitycondensed consolidated balance sheets. Equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.
At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, equity securities with readily determinable fair values were ~~$3,917~~$5,028 and ~~$3,981,~~$5,118, respectively. The following is a summary of unrealized and realized gains and losses recognized in the condensed consolidated ~~statement~~statements of income during the three months ended March 31, ~~2018:~~2021 and 2020:

Three months ended
March 31, 2018

Net losses recorded during the period on equity securities

$
(64
)
Less: Net losses recorded during the period on equity securities sold during the period

—

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

$
(64
)

Three Months Ended

March 31,


2021

2020
Net gains (losses) recorded during the period on equity securities

$
(90)

$
80
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

$
(90)

$
80

The Company has elected to account for its investment in a thinly traded restricted stock ~~reported at $246 at March 31, 2018 and December 31, 2017~~ using the measurement alternative for equity securities without readily determinable fair ~~values.~~values, resulting in the investment carried at cost based on no evidence of impairment or observable trading activity during the three months ended March 31, 2021 and 2020. The investment was reported at $246 at both March 31, 2021 and December 31, 2020.

Note 4—5—Loans
Major categories of loans were as follows:

March 31,

December 31,

2018

2017

Construction loans

$
179,846

$
192,319

Residential real estate loans, mortgage

2,134,447

2,132,641

Commercial real estate loans, mortgage

239,204

247,076

Commercial and industrial loans, lines of credit

46,166

40,749

Other consumer loans

29

29

Total loans

2,599,692

2,612,814

Less: allowance for loan losses

(19,132
)
(18,457
)
Loans, net

$
2,580,560

$
2,594,357

March 31,

December 31,


2021

2020
Residential real estate

$
2,008,439

$
2,033,526
Commercial real estate

263,508

259,958
Construction

184,490

206,581
Commercial lines of credit

5,029

6,671
Other consumer

4

7
Total loans

2,461,470

2,506,743
Less: allowance for loan losses

(71,871)

(72,387)
Loans, net

$
2,389,599

$
2,434,356

Loans ~~with carrying values of $1,038.7 million~~totaling $570,920 and ~~$968.4 million~~$630,197 were pledged as collateral on FHLB borrowings at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.
12
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ~~ending~~ended March 31, ~~2018~~2021 and ~~2017:~~2020:

March 31, 2018

Construction

Residential
Real
Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Commercial


Residential

Commercial



Lines of

Other




Three Months Ended March 31, 2021

Real Estate

Real Estate

Construction

Credit

Consumer

Unallocated

Total
Allowance for loan losses:














Beginning balance

$
2,218

$
12,279

$
2,040

$
469

$
1

$
1,450

$
18,457

$
32,366

$
21,942

$
17,988

$
91

$
—

$
—

$
72,387
Provision for loan losses

760

(782
)
501

147

—

15

641

Provision (recovery) for loan losses

486

805

(2,023)

(5)

—

—

(737)
Charge offs

—

—

—

—

—

—

—

—

—

—

—

—

—

—
Recoveries

1

2

31

—

—

—

34

204

16

1

—

—

—

221
Total ending balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

$
33,056

$
22,763

$
15,966

$
86

$
—

$
—

$
71,871

Commercial

Residential

Commercial

Lines of

Other

Three Months Ended March 31, 2020

Real Estate

Real Estate

Construction

Credit

Consumer

Unallocated

Total
Allowance for loan losses:














Beginning balance

$
12,336

$
5,243

$
3,822

$
328

$
1

$
—

$
21,730
Provision (recovery) for loan losses

6,808

5,999

7,616

40

—

390

20,853
Charge offs

—

—

—

—

—

—

—
Recoveries

10

19

1

—

—

—

30
Total ending balance

$
19,154

$
11,261

$
11,439

$
368

$
1

$
390

$
42,613
March 31, 2017

Construction

Residential
Real
Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Beginning balance

$
679

$
11,863

$
915

$
373

$
2

$
990

$
14,822

Provision for loan losses

185

—

147

3

—

265

600

Charge offs

—

—

—

—

—

—

—

Recoveries

95

10

40

—

—

—

145

Total ending balance

$
959

$
11,873

$
1,102

$
376

$
2

$
1,255

$
15,567

The following tables present the balance in the allowance for loan losses and the recorded investment by portfolio segment and based on impairment evaluation method as of March 31, ~~2018~~2021 and December 31, ~~2017:~~2020:

March 31, 2018

Construction

Residential
Real Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Commercial

Residential

Commercial

Lines of

Other

March 31, 2021

Real Estate

Real Estate

Construction

Credit

Consumer

Unallocated

Total
Allowance for loan losses:

Ending allowance balance attributable to loans:













Individually evaluated for impairment

$
—

$
46

$
11

$
95

$
—

$
—

$
152

$
43

$
—

$
1,965

$
4

$
—

$
—

$
2,012
Collectively evaluated for impairment

2,979

11,453

2,561

521

1

1,465

18,980

33,013

22,763

14,001

82

—

—

69,859
Total ending allowance balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

$
33,056

$
22,763

$
15,966

$
86

$
—

$
—

$
71,871
Loans:

Loans individually evaluated for impairment

$
—

$
122

$
2,774

$
335

$
—

$
—

$
3,231

$
208

$
19,032

$
41,988

$
2,408

$
—

$
—

$
63,636
Loans collectively evaluated for impairment

179,846

2,134,325

236,430

45,831

29

—

2,596,461

2,008,231

244,476

142,502

2,621

4

—

2,397,834
Total ending loans balance

$
179,846

$
2,134,447

$
239,204

$
46,166

$
29

$
—

$
2,599,692

$
2,008,439

$
263,508

$
184,490

$
5,029

$
4

$
—

$
2,461,470

13
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

December 31, 2017

Construction

Residential
Real Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

$
—

$
37

$
19

$
98

$
—

$
—

$
154

Collectively evaluated for impairment

2,218

12,242

2,021

371

1

1,450

18,303

Total ending allowance balance

$
2,218

$
12,279

$
2,040

$
469

$
1

$
1,450

$
18,457

Loans:

Loans individually evaluated for impairment

$
—

$
122

$
2,804

$
343

$
—

$
—

$
3,269

Loans collectively evaluated for impairment

192,319

2,132,519

244,272

40,406

29

—

2,609,545

Total ending loans balance

$
192,319

$
2,132,641

$
247,076

$
40,749

$
29

$
—

$
2,612,814

Commercial

Residential

Commercial

Lines of

Other

December 31, 2020

Real Estate

Real Estate

Construction

Credit

Consumer

Unallocated

Total
Allowance for loan losses:














Ending allowance balance attributable to loans:

Individually evaluated for impairment

$
41

$
287

$
1,905

$
4

$
—

$
—

$
2,237
Collectively evaluated for impairment

32,325

21,655

16,083

87

—

—

70,150
Total ending allowance balance

$
32,366

$
21,942

$
17,988

$
91

$
—

$
—

$
72,387
Loans:

Loans individually evaluated for impairment

$
208

$
20,974

$
48,871

$
3,981

$
—

$
—

$
74,034
Loans collectively evaluated for impairment

2,033,318

238,984

157,710

2,690

7

—

2,432,709
Total ending loans balance

$
2,033,526

$
259,958

$
206,581

$
6,671

$
7

$
—

$
2,506,743

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

At March 31, 2018

At December 31, 2017

Unpaid
Principal
Balance

Recorded
Investment

Allowance
for Loan
Losses

Unpaid
Principal
Balance

Recorded
Investment

Allowance
for Loan
Losses

At March 31, 2021

At December 31, 2020

Unpaid

Allowance

Unpaid

Allowance

Principal

Recorded

for Loan

Principal

Recorded

for Loan


Balance

Investment

Losses

Balance

Investment

Losses
With no related allowance for loan losses recorded:












Commercial real estate, retail

$
1,415

$
1,228

$
—

$
1,431

$
1,247

$
—

Commercial lines of credit, private banking

145

145

—

147

147

—

Residential real estate, first mortgage

$
113

$
91

$
—

$
116

$
94

$
—
Commercial real estate:

—
Retail

1,240

1,016

—

1,247

1,029

—
Hotels/Single-room occupancy hotels

17,923

18,016

—

11,428

11,419

—
Construction

35,150

34,560

—

42,669

41,951

—
Commercial lines of credit, C&I lending

2,285

2,285

—

3,857

3,857

—
Subtotal

1,560

1,373

—

1,578

1,394

—

56,711

55,968

—

59,317

58,350

—
With an allowance for loan losses recorded:


Residential real estate, first mortgage

122

122

46

122

122

37

113

117

43

114

114

41
Commercial real estate, offices

1,558

1,546

11

1,567

1,557

19

Commercial real estate, hotels/single-room occupancy hotels

—

—

—

8,645

8,526

287
Construction

7,463

7,428

1,965

6,920

6,920

1,905
Commercial lines of credit, private banking

190

190

95

196

196

98

123

123

4

124

124

4
Subtotal

1,870

1,858

152

1,885

1,875

154

7,699

7,668

2,012

15,803

15,684

2,237
Total

$
3,430

$
3,231

$
152

$
3,463

$
3,269

$
154

$
64,410

$
63,636

$
2,012

$
75,120

$
74,034

$
2,237

14
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Three Months Ended March 31,

2018

2017

Average
Recorded
Investment

Interest
Income
Recognized

Cash Basis
Interest
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Cash Basis
Interest
Recognized

With no related allowance recorded:

Residential real estate, construction

$
—

$
—

$
—

$
—

$
—

$
—

Commercial real estate:

Retail

1,238

16

10

1,308

17

17

Gas stations

—

—

—

31

—

—

Commercial lines of credit, private banking

146

2

2

153

2

2

Subtotal

1,384

18

12

1,492

19

19

With an allowance recorded:

Residential real estate, first mortgage

122

1

1

122

1

4

Commercial real estate, offices

1,550

21

14

1,587

19

19

Commercial lines of credit, private banking

193

3

2

213

3

3

Subtotal

1,865

25

17

1,922

23

26

Total

$
3,249

$
43

$
29

$
3,414

$
42

$
45

Three Months Ended March 31,

2021

2020

Average

Interest

Cash Basis

Average

Interest

Cash Basis

Recorded

Income

Interest

Recorded

Income

Interest


Investment

Recognized

Recognized

Investment

Recognized

Recognized
With no related allowance for loan losses recorded:






Residential real estate, first mortgage

$
93

$
—

$
—

$
96

$
—

$
—
Commercial real estate:

Retail

1,023

—

—

1,089

15

10
Hotels/Single-room occupancy hotels

18,005

—

—

—

—

—
Construction

34,274

123

80

26,653

466

269
Commercial lines of credit, private banking

2,285

—

—

1,243

21

14
Subtotal

55,680

123

80

29,081

502

293
With an allowance for loan losses recorded:






Residential real estate, first mortgage

115

—

—

117

1

1
Construction

7,174

—

—

—

—

—
Commercial lines of credit, private banking

124

2

1

131

2

1
Subtotal

7,413

2

1

248

3

2
Total

$
63,093

$
125

$
81

$
29,329

$
505

$
295

~~The~~In the tables above, the unpaid principal balance is not reduced for partial charge offs. ~~The~~Also, the recorded investment excludes accrued interest receivable on loans which was not significant.
Also presented in the table above ~~table~~ is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. The average balances are calculated based on the month-end balances of the loans for the period reported.
The following ~~tables present~~table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, ~~2018~~2021 and December 31, ~~2017:~~2020:

March 31, 2018

December 31, 2017

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

March 31, 2021

December 31, 2020

Loans Past

Loans Past

Due Over

Due Over

90 Days Still

90 Days Still


Nonaccrual

Accruing

Nonaccrual

Accruing
Residential real estate:








Residential first mortgage

$
4,912

$
129

$
573

$
131

$
26,921

$
45

$
20,043

$
46
Residential second mortgage

714

—

686

—
Commercial real estate:

Retail

74

—

79

—

1,016

—

20

—
Hotels/Single-room occupancy hotels

18,016

—

19,945

—
Construction

34,581

—

41,873

—
Commercial lines of credit:

Private banking

2,285

—

2,285

—
C&I lending

—

—

1,572

—
Total

$
4,986

$
129

$
652

$
131

$
83,533

$
45

$
86,424

$
46

15
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

The following tables present the aging of the recorded investment in past due loans as of March 31, ~~2018~~2021 and December 31, ~~2017~~2020 by class of loans:

March 31, 2018

30 - 59
Days
Past Due

60 - 89
Days
Past
Due

Greater
than
89 Days
Past Due

Total
Past Due

Loans Not
Past Due

Total

Construction

$
—

$
—

$
—

$
—

$
179,846

$
179,846

Greater

30 - 59

60 - 89

than

Days

Days

89 Days

Total

Loans Not

March 31, 2021

Past Due

Past Due

Past Due

Past Due

Past Due

Total
Residential real estate:












Residential first mortgage

731

48

5,041

5,820

2,109,748

2,115,568

$
28,749

$
12,780

$
26,966

$
68,495

$
1,922,807

$
1,991,302
Residential second mortgage

295

—

—

295

18,584

18,879

—

—

714

714

16,423

17,137
Commercial real estate:

Retail

—

—

74

74

10,423

10,497

1,232

—

1,016

2,248

13,845

16,093
Apartments

—

—

—

—

61,388

61,388

Multifamily

—

—

—

—

87,502

87,502
Offices

—

—

—

—

25,592

25,592

—

—

—

—

24,551

24,551
Hotel

—

—

—

—

103,653

103,653

Hotels/Single-room occupancy hotels

5,457

—

18,016

23,473

52,011

75,484
Industrial

—

—

—

—

11,317

11,317

—

—

—

13,158

13,158
Gas stations

—

—

—

—

1,036

1,036

Other

—

—

—

—

25,721

25,721

—

384

—

384

46,336

46,720
Construction

11,771

—

34,581

46,352

138,138

184,490
Commercial lines of credit:

Private banking

—

—

—

—

26,587

26,587

—

—

2,285

2,285

123

2,408
C&I lending

—

—

—

—

19,579

19,579

715

—

—

715

1,906

2,621
Other consumer loans

—

—

—

—

29

29

Other consumer

—

—

—

—

4

4
Total

$
1,026

$
48

$
5,115

$
6,189

$
2,593,503

$
2,599,692

$
47,924

$
13,164

$
83,578

$
144,666

$
2,316,804

$
2,461,470

December 31, 2017

30 - 59
Days
Past Due

60 - 89
Days
Past Due

Greater
than
89 Days
Past Due

Total
Past Due

Loans Not
Past Due

Total

Construction

$
—

$
—

$
—

$
—

$
192,319

$
192,319

Residential real estate:

Residential first mortgage

8,902

392

704

9,998

2,105,142

2,115,140

Residential second mortgage

107

—

—

107

17,394

17,501

Commercial real estate:

Retail

—

—

79

79

10,530

10,609

Apartments

—

—

—

—

59,582

59,582

Offices

—

—

—

—

26,571

26,571

Hotel

—

—

—

—

103,195

103,195

Industrial

—

—

—

—

15,907

15,907

Gas stations

—

—

—

—

1,067

1,067

Other

—

—

—

—

30,145

30,145

Commercial lines of credit:

Private banking

—

—

—

—

22,898

22,898

C&I lending

—

—

—

—

17,851

17,851

Other consumer loans

—

—

—

—

29

29

Total

$
9,009

$
392

$
783

$
10,184

$
2,602,630

$
2,612,814

Greater

30 - 59

60 - 89

than

Days

Days

89 Days

Total

Loans Not

December 31, 2020

Past Due

Past Due

Past Due

Past Due

Past Due

Total
Residential real estate:



Residential first mortgage

$
37,819

$
14,524

$
20,089

$
72,432

$
1,943,602

$
2,016,034
Residential second mortgage

362

134

686

1,182

16,310

17,492
Commercial real estate:

Retail

1,010

—

20

1,030

15,170

16,200
Multifamily

3,835

—

—

3,835

75,374

79,209
Offices

—

—

—

—

27,061

27,061
Hotels/ Single-room occupancy hotels

—

—

19,945

19,945

47,690

67,635
Industrial

—

—

—

—

13,186

13,186
Other

—

—

—

—

56,667

56,667
Construction

8,593

2,514

41,873

52,980

153,601

206,581
Commercial lines of credit:

Private banking

—

—

2,285

2,285

124

2,409
C&I lending

—

—

1,572

1,572

2,690

4,262
Other consumer

—

—

—

—

7

7
Total

$
51,619

$
17,172

$
86,470

$
155,261

$
2,351,482

$
2,506,743
~~STERLING BANCORP, INC.~~
~~Notes~~The aging of the loans in the table above as of March 31, 2021 has not been adjusted for customers granted a payment deferral in response to ~~Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars~~COVID-19. These loans remain in ~~thousands, except per share amounts)~~
the aging category that was applicable at the time of payment deferral. Interest continues to accrue on these loans. Refer to the discussion of forbearance loans below.
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate and other consumer ~~loan classes,~~loans, the Company also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The Company reviews the status of nonperforming loans, which include loans 90 days past due and still accruing and nonaccrual loans.
16
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Troubled Debt Restructurings
At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, the balance of outstanding loans identified as troubled debt restructurings, ~~was $3,041 and $3,073, respectively. The Company has an~~along with the allocated portion of the allowance for loan losses ~~of $57 and $56 on~~with respect to these loans, atwas as follows:

March 31, 2021

December 31, 2020

Recorded

Allowance for

Recorded

Allowance for

Investment

Loan Losses

Investment

Loan Losses
Residential real estate, first mortgage

$
208

$
43

$
209

$
41
Commercial real estate, retail

1,016

—

1,029

—
Construction

28,102

1,965

26,985

1,906
Commercial lines of credit, private banking

123

4

124

4
Total

$
29,449

$
2,012

$
28,347

$
1,951

During the three months ended March 31, ~~2018 and December 31, 2017, respectively. There were no loans identified as troubled debt restructurings that subsequently defaulted.~~
~~The terms of certain loans have been~~2021, the Bank modified ~~as troubled debt restructurings by the Company. The modification of~~ the terms of ~~such~~2 construction loans ~~included one or a combination of the following: a reduction of the stated interest rate of the loan;~~and 1 private banking loan with an extension of the maturity ~~date~~dates at ~~a stated~~the contract’s existing rate of interest, which is lower than the current market rate for a new ~~debt~~loan with similar ~~risk; extension of the amortization period of the loan; change in loan payments to interest only for a defined period for the loan; or a permanent reduction of the~~risk. The total outstanding recorded ~~investment in the loan.~~investments were $10,863 both before and after modification. During the three months ended March 31, ~~2018~~2021 and ~~2017, the Company did not modify any~~2020, there were no loans modified as a troubled debt ~~restructuring.~~
restructurings that defaulted for which the payment default occurred within one year of modification. NaN loans totaling $21,697 modified as troubled debt restructurings are in default under their modified terms as of March 31, 2021.
The terms of certain other loans have been modified during the three months ended March 31, ~~2018~~2021 and ~~2017~~2020 that did not meet the definition of a troubled debt restructuring. ~~The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment.~~ These other loans that were modified were not considered significant.
Forbearance Loans
As a response to the COVID-19 pandemic, the Company has offered forbearance under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to customers facing COVID-19-related financial difficulties. The CARES Act created a forbearance program for impacted borrowers and imposed a temporary 60-day moratorium on foreclosures and foreclosure-related evictions related to federally backed mortgage loans, which include loans secured by a first or subordinate lien on residential one-to-four family real property that have been purchased by Fannie Mae or Freddie Mac, are insured by HUD or are insured or guaranteed by other listed agencies. Borrowers of such federally backed mortgage loans experiencing a financial hardship as a result of COVID-19 may request forbearance, regardless of delinquency status, for up to 360 days. Subsequently, the federal agencies as well as the state of California announced extensions of their moratoria on single-family foreclosures and evictions and Federal Housing Administration insured loans, with the latest extensions through June 30, 2021.
Certain provisions of the CARES Act, as amended in December 2020 by the Consolidated Appropriations Act of 2021, encourage financial institutions to practice prudent efforts to work with borrowers impacted by the COVID-19 pandemic. Under these provisions, a modification deemed to be COVID-19-related would not be considered a troubled debt restructuring if the loan were not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or January 1, 2022. The banking regulators issued similar guidance, which also clarified that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings.
In this context, the Company implemented a COVID-19 forbearance program that generally provided for principal and interest forbearance for 120 days to residential borrowers with extensions available to qualified borrowers available for up to a maximum deferral period of twelve months, and these loans were not considered troubled debt restructurings. Under the forbearance program, interest continues to accrue at the note rate. At the end of the forbearance period, the borrower’s accrued but unpaid interest will be added to their outstanding principal balance while keeping the principal and interest payment at the amount determined in accordance with the terms of the note, thus extending the loan’s maturity date. The terms of commercial loan forbearances are reviewed and determined on a case-by-case basis, and these loans were not considered troubled debt restructurings. Loans modified under the CARES program during the three months ended March 31, 2021 totaled $36,130, among which $8,136 loans were granted an
17
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

extension of forbearance after the initial forbearance period expired by December 31, 2020. The amount of loans that remain in payment deferral totaled $41,855 and $15,785 at March 31, 2021 and December 31, 2020, respectively. Total accrued interest receivables on these loans were $552 and $146 at March 31, 2021 and December 31, 2020, respectively.
Foreclosure Proceedings
At March 31, 2021 and December 31, 2020, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $8,163 and $5,320, respectively. Of the loans in formal foreclosure proceedings $8,153 and $3,209 were included in mortgage loans held for sale in the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively, and were carried at the lower of amortized cost or fair value. The balance of loans are classified as held for investment and receive an allowance for loan losses reserve allocation consistent with a substandard loan loss allocation rate as these loans are classified as substandard at both March 31, 2021 and December 31, 2020, respectively.
Credit Quality
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans, such as residential real estate and other consumer loans, and non-homogeneous loans, such as commercial lines of credit, construction and commercial real estate loans. This analysis is performed ~~monthly.~~at least quarterly. The Company uses the following definitions for risk ratings:
Pass: Loans are of satisfactory quality.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the ~~debt.~~loan. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable.
18
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, the risk rating of loans by class of loans was as follows:

Special

March 31, 2021

Pass

Mention

Substandard

Doubtful

Total
Residential real estate:








Residential first mortgage

$
1,964,336

$
—

$
26,875

$
91

$
1,991,302
Residential second mortgage

16,423

—

714

—

17,137
Commercial real estate:

Retail

13,513

1,564

1,016

—

16,093
Multifamily

58,812

13,598

15,092

—

87,502
Offices

9,669

1,612

13,270

—

24,551
Hotels/ Single-room occupancy hotels

17,402

17,915

40,167

—

75,484
Industrial

5,859

—

7,299

—

13,158
Other

33,320

7,736

5,664

—

46,720
Construction

127,488

13,374

36,200

7,428

184,490
Commercial lines of credit:

Private banking

123

2,285

—

—

2,408
C&I lending

2,587

34

—

—

2,621
Other consumer

4

—

—

—

4
Total

$
2,249,536

$
58,118

$
146,297

$
7,519

$
2,461,470

Special

December 31, 2020

Pass

Mention

Substandard

Doubtful

Total
Residential real estate:

Residential first mortgage

$
1,995,945

$
—

$
19,995

$
94

$
2,016,034
Residential second mortgage

16,806

—

686

—

17,492
Commercial real estate:

Retail

13,599

1,572

1,029

—

16,200
Multifamily

55,772

14,238

9,199

—

79,209
Offices

12,014

1,623

13,424

—

27,061
Hotels/Single-room occupancy hotels

9,115

17,984

40,536

—

67,635
Industrial

5,867

—

7,319

—

13,186
Other

43,193

7,732

5,742

—

56,667
Construction

152,577

14,234

32,850

6,920

206,581
Commercial lines of credit:

Private banking

124

2,285

—

—

2,409
C&I lending

3,573

—

689

—

4,262
Other consumer

7

—

—

—

7
Total

$
2,308,592

$
59,668

$
131,469

$
7,014

$
2,506,743

During the three months ended March 31, 2021, the Bank repurchased a pool of Advantage Loan Program loans with a total outstanding principal balance of $87,944. For more information on the repurchases of mortgage loans, refer to Note 16—Commitments and Contingencies.

19
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

March 31, 2018

Pass

Special
Mention

Substandard

Doubtful

Total

Construction

$
160,343

$
16,049

$
3,454

$
—

$
179,846

Residential real estate:

Residential first mortgage

2,110,600

—

4,339

629

2,115,568

Residential second mortgage

18,879

—

—

—

18,879

Commercial real estate:

Retail

9,268

—

1,229

—

10,497

Apartments

59,798

1,590

—

—

61,388

Offices

25,592

—

—

—

25,592

Hotel

103,653

—

—

—

103,653

Industrial

11,317

—

—

—

11,317

Gas stations

1,036

—

—

—

1,036

Other

20,379

4,704

638

—

25,721

Commercial lines of credit:

Private banking

26,397

—

190

—

26,587

C&I lending

18,706

873

—

—

19,579

Other consumer loans

29

—

—

—

29

Total

$
2,565,997

$
23,216

$
9,850

$
629

$
2,599,692

December 31, 2017

Pass

Special
Mention

Substandard

Doubtful

Total

Construction

$
177,241

$
11,670

$
3,408

$
—

$
192,319

Residential real estate:

Residential first mortgage

2,114,511

—

109

520

2,115,140

Residential second mortgage

17,501

—

—

—

17,501

Commercial real estate:

Retail

9,363

1,167

79

—

10,609

Apartments

58,472

1,110

—

—

59,582

Offices

26,571

—

—

—

26,571

Hotel

103,195

—

—

—

103,195

Industrial

15,907

—

—

—

15,907

Gas stations

1,067

—

—

—

1,067

Other

24,741

4,733

671

—

30,145

Commercial lines of credit:

Private banking

22,702

—

196

—

22,898

C&I lending

17,851

—

—

—

17,851

Other consumer loans

29

—

—

—

29

Total

$
2,589,151

$
18,680

$
4,463

$
520

$
2,612,814

During the three months ended March 31, 2018 and 2017, the Bank sold pools of residential real estate mortgages for $112.2 million and $105.2 million, respectively, to third-party investors. The transactions resulted in full derecognition of the mortgages (i.e. transferred assets) from the consolidated balance sheets and recognition of gain on sale of portfolio loans of $3.9 million for each of the three months ended March 31, 2018 and 2017, respectively. After the sales, the Bank’s only continuing involvement in the transferred assets is to act as servicer of the mortgages.
Note 5—6—Mortgage Servicing Rights,
net
The Bank records servicing assets from the sale of residential real estate mortgage loans to the secondary market for which servicing has been retained. Residential real estate mortgage loans serviced for others are not included in the condensed consolidated balance sheets. The principal balance of these loans at March 31, ~~2018~~2021 and December 31, ~~2017~~2020 are as follows:
~~STERLING BANCORP, INC.~~

March 31,

December 31,


2021

2020
Residential real estate mortgage loan portfolios serviced for:




FNMA

$
157,605

$
171,553
FHLB

53,424

64,661
Private investors

302,982

429,816
Total

$
514,011

$
666,030
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~

March 31,
2018

December 31,
2017

Residential real estate mortgage loan portfolios serviced for:

FNMA

$
72,707

$
73,039

FHLB

93,402

92,697

Private investors

518,557

442,984

Custodial escrow balances maintained with these serviced loans were ~~$15,458~~$3,991 and ~~$11,944~~$6,051 at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.
Activity for mortgage servicing rights and the related valuation allowance are as follows:

Three Months Ended
March 31,

2018

2017

Three Months Ended

March 31,


2021

2020
Mortgage servicing rights:

Beginning of period

$
6,706

$
4,454

$
7,853

$
10,845
Additions

1,521

1,260

74

107
Amortization

(426
)
(260
)

(2,072)

(650)
End of period

7,801

5,454

5,855

10,302

Valuation allowance at beginning of period

210

40

2,165

1,080
Additions (recoveries)

(189
)
(10
)

(936)

1,246
Valuation allowance at end of period

21

30

1,229

2,326
Net carrying amount

$
7,780

$
5,424

Mortgage servicing rights, net

$
4,626

$
7,976

~~Mortgage servicing assets were $7,780 and $6,496 at March 31, 2018 and December 31, 2017, respectively.~~ Servicing fee ~~income,~~loss, net of amortization of servicing rights and changes in the valuation allowance, was ~~$477~~$(430) and ~~$169~~$(911) for the three months ended March 31, ~~2018~~2021 and ~~2017, respectively, and were included in other non-interest income in the condensed consolidated statements of income.~~
2020, respectively.
The fair value of mortgage servicing rights was ~~$9,074~~$4,855 and ~~$7,086~~$5,841 at ~~Mach~~March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively. The fair value of mortgage servicing rights is highly sensitive to changes in underlying assumptions. Changes in prepayment speed assumptions have the most significant impact on the estimate of the fair value of mortgage servicing rights. The fair value at March 31, ~~2018~~2021 was determined using discount rates ranging from 9.5% to 12.0%, prepayment speeds ~~ranging from 6.8% to 31.2%, depending~~with a weighted average of 20.0% (depending on the stratification of the specific right), a weighted average life of the mortgage servicing right of 49 months and a weighted average default rate of 0.2%~~. The~~.The fair value at December 31, ~~2017~~2020 was determined using discount rates ranging from 9.5% to 12.0%, prepayment speeds ~~ranging from 6.8% to 36.0%, depending~~with a weighted average of 22.5% (depending on the stratification of the specific right), a weighted average life of the mortgage servicing right of 43 months and a weighted average default rate of 0.2%.
Impairment is determined by stratifying the mortgage servicing rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. At March 31, 2021 and December 31, 2020, the carrying amount of certain individual groupings exceeded their fair values, resulting in write-downs to fair value. Refer to Note 13—Fair Values of Financial Instruments.

20
Table of Contents
~~Note 6—Deposits~~STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Note 7—Deposits
Time deposits, included in interest-bearing deposits, were ~~$679,622~~$1,482,122 and ~~$663,472~~$1,646,523 at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively. Time deposits ~~includes~~included brokered deposits of ~~$79,510~~$35,000 and ~~$156,084~~$42,751 at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.
Time deposits that meet or exceed the FDIC insurance limit of $250 were ~~$150,523~~$431,131 and ~~$129,101~~$487,340 at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.

Note 8—FHLB Borrowings
~~Note 7—Federal Home Loan Bank Borrowings~~
~~Federal Home Loan Bank~~FHLB borrowings at March 31, ~~2018~~2021 and December 31, ~~2017~~2020 consist of the following:

March 31,
2018

Interest Rates

December 31,
2017

Interest Rates

Short-term fixed rate advances

$
125,000

1.78%

$
148,000

1.47% - 1.56%

Short-term adjustable rate advances

15,000

2.06%*

—

Total short-term FHLB advances

140,000

148,000

Long-term fixed rate advances

190,000

0.98%-1.18%

190,000

0.98% - 1.18%

Total FHLB advances

330,000

338,000

FHLB overdraft line of credit

12,937

2.06%*

—

Total

$
342,937

$
338,000

March 31,

December 31,


2021

Interest Rates

2020

Interest Rates
Long-term fixed rate advances

$
318,000

0.43%-1.96%

$
318,000

0.43%-1.96%
*At period end.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
FHLB Advances
~~At March 31, 2018,~~The long-term fixed rate advances ~~totaled $315,000 with~~have maturity dates ranging from ~~April 2018~~July 2021 to ~~October 2026. Also, at March 31, 2018, the Bank had a variable rate advance of $15,000 (interest rate of 2.06% at March 31, 2018) with a maturity date of September 2018.~~
February 2030. Interest on these advances is payable monthly, and each advance is payable at its maturity date and may contain a prepayment penalty if paid before maturity. At March 31, ~~2018,~~2021, advances totaling ~~$157,000~~$307,000 were callable by the FHLB as follows: $100,000 in May 2021; $67,000 in September 2021; ~~and~~ $90,000 in October ~~2021.~~2021; and $50,000 in May 2024. At March 31, ~~2018,~~2021, the Bank had additional borrowing capacity of ~~$374 million~~$86,222 from the FHLB.
FHLB Overdraft Line of Credit
and Letter of Credit
The Bank has established an overdraft line of credit agreement with the FHLB providing maximum borrowings of $50,000. The average amount outstanding during the three months ended March 31, ~~2018~~2021 and ~~2017~~2020 was ~~$3,673~~$13 and ~~$14,597,~~$5, respectively. At March 31, ~~2018, the Bank had $12,937~~2021 and December 31, 2020, there were 0 outstanding borrowings under this agreement. Borrowings accrue interest based on a variable rate based on the FHLB’s overnight cost of funds rate, which was ~~2.06%~~0.41% and ~~1.67%~~0.46% at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively. The agreement has a one-year term and terminates in October ~~2018.~~
2021. The Bank also had a $7,500 letter of credit with the FHLB at March 31, 2021, which was not in use. This letter has a 16-month term and expires in July 2022.
The FHLB advances, ~~and~~ the overdraft line of credit and letter of credit are collateralized by pledged securities and loans. Refer to Note 4—Investment Securities for further information on securities pledged and Note 5—Loans for further information on loans ~~totaling $1,038.7 million at March 31, 2018.~~pledged.
Other Borrowings
The ~~Company~~Bank had available unsecured credit lines with other banks totaling ~~$60 million. There were no amounts outstanding under these credit lines~~$80,000 and $100,000 at March 31, ~~2018~~2021 and December 31, ~~2017.~~2020, respectively. There were 0 borrowings under these unsecured credit lines during the three months ended March 31, 2021 or 2020.

21
Table of Contents
~~Note 8—Subordinated Notes, net~~
~~The subordinated notes were as follows:~~

March 31,
2018

December 31,
2017

7.0% fixed to floating rate subordinated notes

$
65,000

$
65,000

Unamortized note premium

575

588

Unamortized debt issuance costs

(652
)
(699
)
Total

$
64,923

$
64,889

In August 2017, the Company issued an additional $15 million in aggregate principal amount of subordinated notes to accredited investors. The terms of the subordinated note purchase agreements were substantially identical to the subordinated notes that were previously issued in 2016 (collectively, “Notes”), except that the first interest payment on the subordinated notes included accrued interest from April 15, 2017. The Company recorded a premium of $611 and debt issuance costs of $191 upon issuance of the notes.
During the period April through September 2016, the Company issued subordinated notes to accredited investors in the aggregate principal amount of $50 million. Issuance costs of $729 were netted against the proceeds.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Note 9—Subordinated Notes, net
The subordinated notes (the "Notes") were as follows:

March 31,

December 31,


2021

2020
7.0% fixed to floating rate subordinated notes

$
65,000

$
65,000
Unamortized note premium

394

411
Unamortized debt issuance costs

(10)

(70)
Total

$
65,384

$
65,341

The Notes bear interest at 7% per annum, payable semi-annually on April 15 and October 15 in arrears, through April 2021 after which the Notes will have a variable interest rate of the three-month LIBOR rate plus a margin of 5.82%. Premiums and debt issuance costs are amortized over the contractual term of the Notes into interest expense using the effective interest method. Interest expense on these Notes was ~~$1,172~~$1,180 and ~~$908~~$1,177 for the three months ended March 31, ~~2018~~2021 and ~~2017,~~2020, respectively. The Notes mature in April 2026.
On or after April 14, 2021, the Company may redeem the Notes, in whole or in part, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued interest, in a principal amount with integral multiples of $1. The Notes ~~are~~were not redeemable by the Company prior to April 14, 2021 except in the event ofthat (i) the Notes no longer qualify as Tier 2 Capital, (ii) the interest on the Notes is determined by law to be not deductible for Federal Income Tax reporting or (iii) the Company is considered an investment company pursuant to the Investment Company Act of 1940. There have been no redemptions of the Notes. The Notes are not subject to redemption by the ~~noteholder.~~
noteholders.
The Notes are unsecured obligations and are subordinated in right of payment to all existing and future indebtedness, deposits and other liabilities of the Company’s current and future subsidiaries, including the Bank’s deposits as well as the Company’s ~~subsidiaries~~subsidiaries’ liabilities to general creditors and liabilities arising during the ordinary course of business. The Notes may be included in ~~Tier 1 capital of the Bank and~~ Tier 2 capital for the Company under current regulatory guidelines and interpretations. As long as the Notes are outstanding, the Company is permitted to pay dividends if prior to such dividends, the Bank is considered well capitalized, as defined ~~below.~~
~~Note 9—Stock-based Compensation~~
by regulatory guidelines.
The ~~Board~~Company currently may not issue new debt without the prior approval of ~~Directors~~the FRB.

Note 10—Stock Repurchase Program
In late 2018, the board of directors approved the repurchase of up to $50,000 of the Company’s outstanding shares of common stock. The stock repurchase program permits the Company to purchase shares of its common stock from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date. The Company received regulatory approval of its stock repurchase program and publicly announced the program in January 2019. Under this program, the Company is not obligated to repurchase shares of its common stock. The repurchased shares will be canceled and returned to authorized but unissued status.
During the three months ended March 31, 2020, the Company repurchased and cancelled 10,912 shares of its common stock for $82, including commissions and fees (average repurchase price of $7.57 per share). Such repurchases of common stock were funded through cash generated from operations. As of March 31, 2021, the Company had $19,568 of common stock purchases remaining that may be made under the program.
In March 2020, the Company suspended the stock repurchase program for at least the near term in connection with the issues related to the Advantage Loan Program. Refer to Note 16─Commitments and Contingencies for further information regarding the internal review of the Advantage Loan Program (the "Internal Review"). The Company currently may not repurchase any common stock without the approval of the FRB.

22
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Note 11—Stock-based Compensation
The board of directors established a 2017 Omnibus Equity Incentive Plan ~~(“The~~(the “2017 Plan”) which was approved by the ~~shareholders in October 2017.~~shareholders. The 2017 Plan ~~provides~~initially provided for the grant of up to 4,237,100 shares of common stock for stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards for issuance to employees, consultants and ~~Board~~board of ~~Directors~~directors of the Company. The stock-based awards are issued at no less than the market price on the date the awards are granted.
The board of directors established the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which was approved by the shareholders in December 2020. The 2020 Plan provides for the grant of up to 3,979,661 shares of common stock for stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares for issuance to employees, consultants and board of directors of the Company. The stock-based awards are issued at no less than the market price on the date the awards are granted. Due to the adoption of the 2020 Plan, no further grants will be issued under the 2017 Plan.
Stock Options
Stock option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant. ~~The~~Starting in 2020, stock option awards granted under the 2017 Plan generally vest ratably over three years (one-third per year) after the date of grant, while stock option awards granted prior to 2020 generally vest in installments of 50% in each of the third and fourth year after the date of ~~grant and~~grant. All stock option awards have a maximum term of ten years. NaN stock option awards were granted under the 2020 Plan during the three months ended March 31, 2021.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted below. Estimating the grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of the value of those underlying shares, the risk-free rate over the expected life of the stock options and the date on which share-based payments will be settled. Expected volatilities are based on a weighted average of the Company’s historic volatility and an implied volatility for a group of industry-relevant bank holding companies as of the measurement date. The expected term of options granted is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term). The risk-free rate for the expected term of the option is based upon U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield represents what the Company anticipates will be declared during the expected term of the options.
On March 21, 2018, the Board of Directors approved the issuance of options to purchase 92,625 shares of common stock with an exercise price of $13.73 to certain key employees which are accounted for as equity awards. These options to purchase shares of common stock had a weighted average grant-date fair value of $4.56 per option. The grant-date fair value of each stock option award for the three months ended March 31, 2018 is estimated using the Black-Scholes option pricing model that uses the assumptions set forth in the following table:
Exercise price of options

$
13.73

Risk-free interest rate

2.80
%
Expected term (in years)

6.75

Expected stock price volatility

23.7
%
Dividend yield

.29
%
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
A summary of the Company’s stock option activity as of and for the three months ended March 31, ~~2018~~2021 is as follows:

Number
of Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

(Years)

Outstanding at January 1, 2018

—

$
—

—

$
—

Weighted

Weighted

Average

Average

Remaining

Aggregate

Number

Exercise

Contractual

Intrinsic


of Shares

Price

Term

Value

(Years)

Outstanding at January 1, 2021

377,882

$
5.61

9.09

$
—
Granted

92,625

13.73

—

—

Exercised

—

—

—

—

Forfeited/expired

—

—

(3,000)

13.73

Outstanding at March 31, 2018

92,625

$
13.73

9.97

$
—

Outstanding at March 31, 2021

374,882

$
5.54

8.86

$
498

Exercisable at March 31, 2021

128,550

$
5.89

8.78

$
166

The Company recorded ~~share-based~~stock-based compensation expense associated with stock options of $3$57 and $26 for the three months ended March 31, ~~2018.~~2021 and 2020, respectively. At March 31, ~~2018,~~2021, there was ~~$419~~$138 of total unrecognized compensation cost related to nonvested stock options granted under the 2017 Plan. The unrecognized compensation cost related to nonvested stock options is expected to be recognized over a weighted-average period of ~~3.75~~1.08 years. ~~No options are exercisable at~~
23
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Restricted Stock Awards
During the three months ended March 31, ~~2018.~~
~~Restricted Stock Awards~~
2021, 45,000 shares of restricted stock were awarded to non-employee independent directors under the 2020 Plan. The restricted stock awards generally vest ratably over three years (one-third per year) after the date of grant. Upon a change in control, as defined in the Plan, the outstanding restricted stock awards will immediately vest. The value of a restricted stock award is based on the market value of the Company’s common stock at the date of grant reduced by the present value of dividends per share expected to be paid during the period the shares are not vested.
~~On March 21, 2018,~~A summary of the ~~Board of Directors approved the issuance of 39,655~~Company’s restricted stock awards ~~to certain key employees and non-employee directors. The~~activity for the three months ended March 31, 2021 is as follows:




Weighted Average

Number

Grant Date Fair

of Shares

Value

Nonvested at January 1, 2021

137,936

$
7.90
Granted

45,000

4.72
Vested

(31,906)

7.67
Forfeited

(8,918)

9.30
Nonvested at March 31, 2021

142,112

$
6.85

In connection with the vesting of restricted stock awards ~~of 33,100 issued to key employees vest in installments of 50% in each of~~during the ~~third and fourth year after~~three months ended March 31, 2021 under the date of grant. The 6,555 restricted stock awards issued to non-employee directors vest on the first anniversary of the grant date. The restricted stock awards were issued with a weighted average grant-date fair value of $13.60. Upon a change in control, as defined in the2017 Plan, the ~~outstanding restricted~~Company withheld 8,536 shares of stock ~~awards will immediately vest.~~in order to satisfy related tax withholding obligations.

The fair value of the award is recorded as compensation expense on a straight-line basis over the vesting period. The Company recorded ~~share-based~~stock-based compensation expense associated with restricted stock awards of $6$48 and $83 for the three months ended March 31, ~~2018.~~2021 and 2020, respectively. At March 31, ~~2018,~~2021, there was ~~$534~~$767 of total unrecognized compensation cost related to the nonvested stock granted under the ~~Plan.~~2017 Plan and the 2020 Plan collectively. The unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~3.48~~2.14 years. The total fair value of shares vested during the three months ended March 31, 2021 was $173.

24
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Note ~~10—~~ 12—Income (Loss) Per Share
Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share further includes any common shares available to be issued upon the exercise of outstanding stock options and restricted stock awards if such inclusions would be dilutive. The Company determines the potentially dilutive common shares using the treasury stock method.
~~For the three months ended March 31, 2018~~ In periods of a net loss, basic ~~income~~and diluted per share ~~and diluted~~information are the same. The following table presents the computation of income (loss) per share, ~~were the same since the~~basic and diluted:

Three Months Ended

March 31,


2021

2020
Numerator:




Net income (loss)

$
2,325

$
(4,030)

Denominator:

Weighted average common shares outstanding, basic

49,851,202

49,837,662
Weighted average effect of potentially dilutive common shares:

Stock options

49,790

—
Restricted stock

11,868

—
Weighted average common shares outstanding, diluted

49,912,860

49,837,662

Income (loss) per share:

Basic

$
0.05

$
(0.08)
Diluted

$
0.05

$
(0.08)

The weighted average effect of ~~the potential dilutive securities were considered antidilutive. Potentially dilutive securities, consisting of 39,655~~certain stock options and nonvested restricted ~~shares of common~~ stock ~~and 92,625 options to purchase shares of common stock,~~that were excluded from the computation of weighted average diluted ~~per share calculation. There were no dilutive securities~~shares outstanding, ~~for the three months ended March 31, 2017.~~
~~STERLING BANCORP, INC.~~as inclusion would be anti-dilutive, are summarized as follows:
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Three Months Ended

March 31,


2021

2020
Stock options

74,882

201,165
Restricted stock

64,647

234,273
Total

139,529

435,438

~~(dollars in thousands, except per share amounts)~~
In September 2017, the Board of Directors approved a 1,000 for one stock split to be effected as a stock dividend on the Company’s common stock. The stock split was effected on September 11, 2017. All share and per share amounts have been retroactively adjusted to reflect the stock split for the three months ended March 31, 2017.
Note ~~11—~~13—Fair Values of Financial Instruments
~~The Company’s financial~~Financial instruments include assets carried at fair value, as well as certain assets and liabilities carried at cost or amortized cost but disclosed at fair value in these condensed consolidated financial statements. Fair value is defined as the exit price, the price that would be received for an asset or paid to transfer a liability in the ~~principal~~ most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The inputs to valuation techniques used to measure fair value are prioritized into a three-level hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
25
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The ~~Company used the~~ following methods and significant assumptions are used to estimate ~~the~~ fair ~~value of investment securities available for sale:~~
value:
Investment Securities
The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the ~~model.~~analysis. Rating agency and industry research reports as well as defaults and deferrals on individual investment securities are reviewed and incorporated into the calculations.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at lower of amortized cost or fair value. Mortgage loans held for sale may be carried at fair value on a nonrecurring basis when fair value is less than cost. The fair value is based on outstanding commitments from investors or quoted prices for loans with similar characteristics (Level 2).
Impaired Loans
The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach, such as comparable sales or the income approach, or a combination of both. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Appraisals for collateral-dependent impaired loans are performed by certified general appraisers whose qualifications and licenses have been reviewed and verified by us. Once received, an appraisal compliance review is completed in accordance with regulatory guidelines.
Mortgage Servicing Rights
Fair value of mortgage servicing rights is initially determined at the individual grouping level based on an internal valuation model that calculates the present value of estimated future net servicing income. On a quarterly basis, mortgage servicing rights are evaluated for impairment based upon third party valuations obtained. As disclosed in Note 6—Mortgage Servicing Rights, net, the valuation model utilizes interest rate, prepayment speed, and default rate assumptions that market participants would use in estimating future net servicing income (Level 3).
26

Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)

Assets Measured at Fair Value on a Recurring Basis

The table below presents the assets measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset at March 31, ~~2018~~2021 and December 31, ~~2017:~~

~~STERLING BANCORP, INC.~~2020:

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~


			Fair Value Measurements at
			March 31, 2021
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Available for sale debt securities:
U.S. Treasury & Agency securities	$	118,786	$	20,053	$	98,733	$	—
Mortgage-backed securities		31,114		—		31,114		—
Collateralized mortgage obligations		104,319		—		104,319		—
Collateralized debt obligations		193		—		—		193
Equity securities		5,028		5,028		—		—

~~(dollars in thousands, except per share amounts)~~


			Fair Value Measurements at
			December 31, 2020
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Available-for-sale debt securities:
U.S. Treasury & Agency securities	$	138,997	$	40,192	$	98,805	$	—
Mortgage-backed securities		33,814		—		33,814		—
Collateralized mortgage obligations		126,596		—		126,596		—
Collateralized debt obligations		187		—		—		187
Equity securities		5,118		5,118		—		—

Fair Value Measurements at
March 31, 2018

Total

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets

Available for sale debt securities:

U.S. Treasury securities

$
118,540

$
118,540

$
—

$
—

Collateralized mortgage obligations

1,955

—

1,955

—

Collateralized debt obligations

298

—

—

298

Equity securities

3,917

3,917

—

—

Fair Value Measurements at
December 31, 2017

Total

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets

Available for sale debt securities:

U.S. Treasury securities

$
120,042

$
120,042

$
—

$
—

Collateralized mortgage obligations

2,008

—

2,008

—

Collateralized debt obligations

571

—

—

571

Equity securities

4,227

3,981

—

246
*

* The Company has elected to account for its investment in a thinly traded, restricted stock with a carrying value of $246 using the measurement alternative for equity securities without a readily determinable fair value therefore, the investment is excluded from the fair value measurement disclosures at March 31, 2018.

~~There were no transfers between Level 1 and Level 2 during 2018 and 2017.~~

~~STERLING BANCORP, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

The table below presents a reconciliation for ~~all~~ assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, ~~2018~~2021 and ~~December 31, 2017:~~2020:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Investment Securities
	March 31, 2018					December 31, 2017
	Collateralized Debt Obligations			Equity Securities		Collateralized Debt Obligations			Equity Securities

												Fair Value Measurements Using Significant
												Unobservable Inputs (Level 3)
												Collateralized Debt Obligations
												March 31, 2021		March 31, 2020
Balance of recurring Level 3 assets at beginning of period	$	571		$	—	$	585		$	529		$	187	$	199
Total gains or losses (realized/unrealized):
Included in income-realized	—			—		—			—				—		—
Included in other comprehensive income (loss)	22			—		(10		)	—				7		(9)
Principal maturities/settlements	(295		)	—		(4		)	(283		)		(1)		(1)
Sales	—			—		—			—				—		—
Transfers in and/or out of Level 3	—			—		—			—				—		—
Balance at end of period	$	298		$	—	$	571		$	246
Balance of recurring Level 3 assets at end of period												$	193	$	189

Table of Contents

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

Unrealized losses on Level 3 investments for collateralized debt obligations was $20 and $27 at March 31, 2018 was $13. In addition to the amounts included in income for the three months ended March 31, 2018 as presented in the table above, the Company also recorded interest income on collateralized debt obligations of $5. Unrealized losses on Level 3 investments for collateralized debt obligations2021 and ~~equity securities at~~ December 31, ~~2017 were $35 and $0,~~2020, respectively. In addition to the amounts included in income ~~for the year ended December 31, 2017~~ as presented in the table above, ~~the Company also recorded~~ interest income recorded on collateralized debt obligations ~~of $21~~was $1 and ~~dividend income on equity securities of $15.~~$2 for the three months ended March 31, 2021 and 2020, respectively.

The fair value of the collateralized debt obligations is obtained from third-party pricing information. It is determined by calculating discounted cash flows using LIBOR curves plus spreads that adjust for ~~loss severities, volatility,~~ credit risk and ~~optionality. When available, broker quotes are used to validate~~illiquidity. The Company also performs an internal analysis that considers the ~~internal model. Rating agency~~structure and industry research reports as well as assumptions about specific-issuer defaults and deferrals are reviewed and incorporated into the calculations. Assumptions are reviewed on a quarterly basis as specific-issuer deferral and defaults that occurred are compared to those that were projected and ongoing assumptions are adjusted in accordance with the level of unexpected deferrals and defaults that occurred.

~~The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2018 and December 31, 2017:~~

Fair Value

Valuation
Technique

Unobservable Inputs

March 31, 2018

Collateralized debt obligations

$
298

Discounted cash flow

Collateral default rate

0%

Recovery probability

15%

December 31, 2017

Collateralized debt obligations

$
571

Discounted cash flow

Collateral default rate

0%

Recovery probability

15%

~~STERLING BANCORP, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

~~The significant unobservable inputs used on the fair value measurement~~term of the ~~Company’s~~ collateralized debt obligations ~~are probabilities~~and the financial condition of specific-issuer defaults and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a significantly higher fair value measurement.the underlying issuers to corroborate the information used from the independent third party.

Assets Measured at Fair Value on a Non-Recurring Basis

From time to time, the Bank may be required to measure certain other assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. ~~There were no~~For assets ~~held~~measured at fair value on a ~~non-recurring~~nonrecurring basis that were recorded in the condensed consolidated balance sheet at March 31, ~~2018~~2021 and December 31, ~~2017.~~2020, the following table provides the level of valuation assumptions used to determine each adjustment and the related carrying value:

Fair Value Measurements at March 31, 2021

Quoted Prices in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans:

Construction

5,463

—

5,463

Mortgage servicing rights

3,244

—

3,244


	Fair Value Measurements at December 31, 2020
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Impaired loans:
Commercial real estate	$	8,240	$	—	$	—	$	8,240
Construction		5,015		—		—		5,015
Mortgage loans held for sale		19,375		—		19,375		—
Mortgage servicing rights		5,175		—		—		5,175

Table of Contents

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

As discussed previously, the fair values of collateral-dependent impaired loans carried at fair value are determined by third-party appraisals. Management adjusts these appraised values based on the age of the appraisal and the type of the property. The following table presents quantitative information about Level 3 fair value measurements at March 31, 2021 and December 31, 2020:

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2021

Valuation

Range


Fair Value

Technique

Unobservable Inputs

(Weighted Average) ⁽¹⁾
Impaired loans:

Construction

$
5,463

Hybrid of sales comparison and income capitalization approaches

Adjustments for differences between the comparable sales and income data for similar loans and collateral underlying such loans

N/A
(15%)
Mortgage servicing rights

$
3,244

Discounted cash flow

Discount rate

9.5% - 12.0%
(11.5%)



Prepayment speed

10.6% - 36.2%
(22.9%)

Default rate

0.1% - 0.2%
(0.2%)
(1)  The range and weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020

Valuation

Range


Fair Value

Technique

Unobservable Inputs

(Weighted Average) ⁽¹⁾
Impaired loans:

Commercial real estate

$
8,240

Sales comparison approach/Income capitalization approach

Adjustments for differences between the comparable sales and income data for similar loans and collateral underlying such loans

N/A
(36%)
Construction

$
5,015

Hybrid of sales comparison and income capitalization approaches

Adjustments for differences between the comparable sales and income data for similar loans and collateral underlying such loans

N/A
(15%)
Mortgage servicing rights

$
5,175

Discounted cash flow

Discount rate

9.5% - 12.0%
(11.6%)

Prepayment speed

10.5% - 37.0%
(23.7%)

Default rate

0.1% - 0.2%
(0.2%)
(1)  The range and weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

Fair Value of Financial Instruments

With the adoption of ASU No. 2016-01, the Company is required to calculate fair value of its financial instruments for disclosure purposes based on an exit price notion. The Company is not required to revise its prior-period disclosures of fair value for those financial instruments that may have been calculated using the entry price notion, which was acceptable prior to January 1, 2018. Therefore, the prior-period fair values disclosed may not be determined in a manner consistent with the current-period fair values disclosed because of a change in methodology.

The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, are as follows:

	Fair Value Measurements at March 31, 2018
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3

											Fair Value Measurements at March 31, 2021
											Carrying		Fair
											Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and due from banks	$	37,541	$	37,541	$	37,541	$	—	$	—	$	873,233	$	873,233	$	873,233	$	—	$	—
Interest-bearing time deposits with other banks												5,528		5,537		—		5,537		—
Mortgage loans held for sale	200,467		204,205		—		204,205		—			19,848		19,872		—		19,872		—
Loans, net	2,580,560		2,628,979		—		—		2,628,979

Loans, net⁽¹⁾												2,384,136		2,484,514		—		—		2,484,514

Financial Liabilities
Time deposits	679,622		675,620		—		675,620		—
Time deposits⁽²⁾												1,482,122		1,489,924		—		1,489,924		—
Federal Home Loan Bank borrowings	342,937		332,507		—		332,507		—			318,000		322,115		—		322,115		—
Subordinated notes, net	64,923		66,950		—		66,950		—			65,384		65,618		—		65,618		—

(1)	Excludes impaired loans measured at fair value on a nonrecurring basis at March 31, 2021.

(2)	Includes time deposits held for sale with a carrying value of $24,826 and a fair value of $24,956 (Level 2).

Fair Value Measurements at December 31, 2017

Carrying
Amount

Fair
Value

Level 1

Level 2

Level 3

Financial Assets

Cash and due from banks

$
40,147

$
40,147

$
40,147

$
—

$
—

Mortgage loans held for sale

112,866

115,619

—

115,619

—

Loans, net

2,594,357

2,635,986

—

—

2,635,986

Financial Liabilities

Time deposits

663,472

660,380

—

660,380

—

Federal Home Loan Bank borrowings

338,000

330,004

—

330,004

—

Subordinated notes, net

64,889

67,485

—

67,485

—


	Fair Value Measurements at December 31, 2020
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and due from banks	$	998,497	$	998,497	$	998,497	$	—	$	—
Interest-bearing time deposits with other banks		7,021		7,021		7,021		—		—
Mortgage loans held for sale		2,909		3,052		—		3,052		—
Loans, net		2,434,356		2,521,874		—		—		2,521,874

Financial Liabilities
Time deposits		1,646,523		1,658,020		—		1,658,020		—
Federal Home Loan Bank borrowings		318,000		328,150		—		328,150		—
Subordinated notes, net		65,341		65,753		—		65,753		—

~~STERLING BANCORP, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

Note ~~12—Income Taxes~~

The Tax Cut and Jobs Act (the “Tax Act”) enacted in December 2017 reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. Due to the change in tax rate, the Company was required to remeasure its deferred tax assets and liabilities, including the deferred tax balance attributable to items of pretax comprehensive income (loss), based on the rates at which they are expected to reverse in the future. The effect of the Tax Act of $3.3 million was recorded in deferred income tax expense in the fourth quarter and year ended December 31, 2017 which related entirely to the remeasurement of the net deferred tax asset.

~~The Company has implemented the new corporate tax rate in the three months ended March 31, 2018.~~ ~~The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:~~

Three Months Ended
March 31,

2018

2017

U.S. federal statutory rate

21.0
%
35.0
%
Effect of:

State taxes, net of federal benefit

7.9
%
6.0
%
Loss incurred by pass-through entity

—
%
0.7
%
Income on cash surrender value of bank-owned life insurance

(0.2
)%
(0.3
)%
Effective tax rate

28.7
%
41.4
%

~~Note 13—~~14—Regulatory Capital Requirements

The Bank is subject to the capital adequacy requirements of the OCC. The Company, as a thrift holding company, is subject to the capital adequacy requirements of the Federal Reserve. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors, and the regulators, in their discretion, can require the Company to lower classifications in certain cases. Prompt corrective action provisions are not applicable to thrift holding companies. Failure to meet minimum capital requirements can initiate regulatory action that could have a direct material effect on ~~the consolidated~~our business, financial ~~statements.~~

~~The final rules implementing Basel III became effective on January 1, 2015 with full compliance with all requirements being phased in over a multi-year schedule,~~condition and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer over the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer is 1.875% for 2018. The net unrealized gain or loss on investment securities is not included in regulatory capital. Management believes that asresults of ~~March 31, 2018, the Company and the Bank meet all regulatory capital requirements to which they are subject.~~

operations.

Prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. ~~The minimum requirements, excluding significantly undercapitalized and critically undercapitalized categories, are as follows:~~

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Capital
Weighted
Assets

Tier 1
Capital to
Average

Common
Tier 1

Total

Tier 1

Assets

(CET1)

Well Capitalized

10.0
%
8.0
%
5.0
%
6.5
%
Adequately Capitalized

8.0
%
6.0
%
4.0
%
4.5
%
Undercapitalized

6.0
%
4.0
%
3.0
%
3.0
%

STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

Under the Basel III capital rules, the Company and the Bank must hold a capital conservation buffer ("CCB") over the adequately capitalized risk-based capital ratios. At present, in order to avoid the imposition of restrictions on capital distributions and discretionary bonus payments, the Company is required to maintain a CCB of at least 2.50%. The net unrealized gain or loss on investment securities is not included in regulatory capital. Banking organizations are required to maintain a minimum total capital ratio of 10.5%, a minimum Tier 1 capital ratio of 8.5% and a minimum common equity Tier 1 capital ratio of 7.0% (in each case accounting for the required CCB). Management believes that at March 31, 2021, the Company and the Bank meet all regulatory capital requirements to which they are subject.

At March 31, 2018, the most recent regulatory notifications categorized the Bank as well capitalized. There have been no conditions or events since these notifications that management believes would have changed the Bank’s category.

~~At March 31, 2018~~2021 and December 31, ~~2017,~~2020, the Bank exceeded all capital requirements to be categorized as ~~well-capitalized~~well capitalized, and the Company exceeded ~~the Capital Adequacy~~applicable capital adequacy requirements as presented below. The ~~Company~~Company’s consolidated and the Bank’s actual and minimum required capital amounts and ratios, with such regulatory minimums not including the ~~capital conservation buffer,~~CCB as discussed above, at March 31, ~~2018~~2021 and December 31, ~~2017~~2020 are as follows:

Actual

For Capital
Adequacy
Purposes

To be Well
Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

March 31, 2018

Total adjusted capital to risk weighted assets

Consolidated

$
371,915

20.38
%
$
146,022

8.00
%
N/A

N/A

Bank

275,118

15.07

146,019

8.00

$
182,524

10.00
%
Tier 1 (core) capital to risk weighted assets

Consolidated

287,860

15.77

109,517

6.00

N/A

N/A

Bank

255,986

14.02

109,515

6.00

146,019

8.00

Common Tier 1 (CET1)

Consolidated

287,860

15.77

82,138

4.50

N/A

N/A

Bank

255,986

14.02

82,136

4.50

118,641

6.50

Tier 1 (core) capital to adjusted tangible assets

Consolidated

287,860

9.73

118,383

4.00

N/A

N/A

Bank

255,986

8.65

118,383

4.00

147,978

5.00


					For Capital				To be Well
	Actual				Adequacy Purposes				Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2021
Total adjusted capital to risk-weighted assets
Consolidated	$	409,349	23.52	%	$	139,209	8.00	%		N/A	N/A
Bank		391,014	22.66			138,030	8.00		$	172,538	10.00	%
Tier 1 (core) capital to risk-weighted assets
Consolidated		321,588	18.48			104,407	6.00			N/A	N/A
Bank		368,762	21.37			103,523	6.00			138,030	8.00
Common Equity Tier 1 (CET1)
Consolidated		321,588	18.48			78,305	4.50			N/A	N/A
Bank		368,762	21.37			77,642	4.50			112,150	6.50
Tier 1 (core) capital to adjusted tangible assets
Consolidated		321,588	8.34			154,264	4.00			N/A	N/A
Bank		368,762	9.60			153,689	4.00			192,111	5.00

~~STERLING BANCORP, INC.~~


					For Capital				To be Well
	Actual				Adequacy Purposes				Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2020
Total adjusted capital to risk-weighted assets
Consolidated	$	407,733	22.58	%	$	144,466	8.00	%		N/A	N/A
Bank		386,237	21.56			143,339	8.00			179,174	10.00	%
Tier 1 (core) capital to risk-weighted assets
Consolidated		319,204	17.68			108,350	6.00			N/A	N/A
Bank		363,224	20.27			107,504	6.00			143,339	8.00
Common Equity Tier 1 (CET1)
Consolidated		319,204	17.68			81,262	4.50			N/A	N/A
Bank		363,224	20.27			80,628	4.50			116,463	6.50
Tier 1 (core) capital to adjusted tangible assets
Consolidated		319,204	8.08			158,067	4.00			N/A	N/A
Bank		363,224	9.20			157,954	4.00			197,442	5.00

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

Actual

For Capital
Adequacy
Purposes

To be Well
Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2017

Total adjusted capital to risk weighted assets

Consolidated

$
365,078

20.28
%
$
140,447

8.00
%
N/A

N/A

Bank

259,165

14.76

140,447

8.00

$
175,559

10.00
%
Tier 1 (core) capital to risk weighted assets

Consolidated

272,732

15.53

105,336

6.00

N/A

N/A

Bank

240,708

13.71

105,336

6.00

140,447

8.00

Common Tier 1 (CET1)

Consolidated

272,732

15.53

79,002

4.50

N/A

N/A

Bank

240,708

13.71

79,002

4.50

114,114

6.50

Tier 1 (core) capital to adjusted tangible assets

Consolidated

272,732

9.83

110,949

4.00

N/A

N/A

Bank

240,708

8.68

110,949

4.00

138,687

5.00

Dividend Restrictions

As noted above, banking regulations require the Bank to maintain certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to its shareholders. The Company’s principal source of funds for dividend payments is dividends received from the Bank, and banking regulations limit the dividends that may be paid. ~~Also, pursuant to~~Approval by regulatory authorities is required if (i) the ~~terms~~total capital distributions for the applicable calendar year exceed the sum of the ~~subordinated note agreements,~~Bank’s net income for

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

that year to date plus the ~~Company may pay dividends if it is “well capitalized” as defined by regulatory guidelines. At March 31, 2018, $139.9 million of consolidated~~Bank’s retained ~~earnings were available to pay dividends to~~net income for the ~~Company’s shareholders.~~

preceding two years or (ii) the Bank would not be at least adequately capitalized following the distribution.

The Qualified Thrift Lender (“QTL”) test requires that a minimum of ~~65%~~65% of assets be maintained in ~~housing-related~~qualified thrift investments, including mortgage loans, housing- and real estate-related finance and other specified areas. If the QTL test is not met, limits are placed on growth, branching, new investments, FHLB ~~Advances~~advances and dividends, or the Bank must convert to a commercial bank charter. Management believes that the QTL test has been met. Also, pursuant to the terms of the subordinated note agreements, the Company may pay dividends if it is well capitalized as defined by regulatory guidelines.

The Bank is currently required to obtain the prior approval of the OCC in order to pay dividends to the Company due to the existence of a formal agreement with the OCC. Refer to Note 16—Commitments and Contingencies. In addition, the Company currently is required to obtain the prior approval of the FRB in order to pay dividends to the Company’s shareholders.

Note ~~14—~~15—Related Party Transactions

As disclosed in Note 1, the Company purchased an entity owned 80% by its principal shareholder and 20% by a member of the Board of Directors of the Company and Bank. At the time of the purchase in April 2017, the Director was and will continue as the Chief Executive Officer (“CEO”) of the purchased entity. For the three months ended March 31, 2017, the consolidated statements of income include compensation-related expenses of $125 for the Director’s services as CEO of this purchased entity.

From time to time, the Company ~~makes~~had made charitable contributions to a foundation for which certain members of the ~~Board~~boards of ~~Directors~~directors of the Company and Bank, and ~~whom~~who are also related to the Company’s ~~principal shareholder,~~controlling shareholders, serve as ~~trustees of the foundation.~~trustees. The Company paid $225 to the foundation during ~~each of~~ the three months ended March 31, ~~2018 and 2017.~~

2020. The Company ceased to make the charitable contributions in the second quarter of 2020.

The Bank leases certain storage and office space from entities owned by the Company’s principal shareholders. Amounts paid under such leases totaled $17 and $9 during the three months ended March 31, 2018 and 2017, respectively.

~~STERLING BANCORP, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

~~The Bank provides~~had provided monthly data processing and programming services to entities controlled by the Company’s ~~principal~~controlling shareholders. Aggregate fees ~~paid~~received for such services amounted to ~~$25 and~~ $27 during the three months ended March 31, ~~2018 and 2017, respectively.~~

~~Note 15—Commitments and Contingencies~~

~~Legal Proceedings~~

2020. The Bank terminated such data processing agreement, effective as of November 2020.

The Company historically had leased certain storage and ~~its subsidiaries may be subject to legal actions and claims arising~~office space from ~~contracts or other matters from time to time in~~entities owned by the ordinary course of business. Management is not aware of any pending or threatened litigation where the ultimate disposition or resolution could have a material adverse effect on its financial position, results of operations or liquidity.

~~Lease Commitments~~

~~The Company~~Company’s controlling shareholders. Amounts paid under such leases ~~its corporate headquarters and branch offices through noncancelable operating leases with terms that range from years 2009 to 2029, with renewal options thereafter. Rent expense was $921 and $825 for~~totaled $60 during the three months ended March 31, ~~2018~~2020. The leases have been terminated as of December 31, 2020.

The Company subleases certain office space to entities owned by the Company’s controlling shareholders. Amounts received under such subleases totaled $95 and ~~2017,~~$69 during the three months ended March 31, 2021 and 2020, respectively.

Note 16—Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which are not reflected in the condensed consolidated financial statements.

Unfunded Commitments to Extend Credit

A commitment to extend credit, such as a loan commitment, credit line and overdraft protection, is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specific purpose. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Bank will experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Bank is required to fund the commitment. The Bank uses the same credit policies in making commitments to extend credit as it does in making loans.

The commitments outstanding to make loans include primarily residential real estate loans that are made for a period of 90 days or less. At March 31, ~~2018,~~2021, outstanding commitments to make loans consisted of fixed rate loans of ~~$6,072~~$2,876 with interest rates ranging

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

from ~~3.75%~~2.375% to ~~7.00%~~4.125% and maturities ranging from ~~ten~~10 years to ~~thirty~~30 years and variable rate loans of ~~$258,464~~$23,701 with varying interest rates (ranging from ~~3.75%~~3.125% to ~~7.125%~~3.75% at March 31, ~~2018)~~2021) and maturities of ~~25 and~~ 30 years.

Unused Lines of Credit

The Bank also issues unused lines of credit to meet customer financing needs. At March 31, 2021, the unused lines of credit include residential second mortgages of $16,399, construction loans of $85,355, commercial lines of credit of $11 and consumer loans of $45. These unused lines of credit consisted of fixed rate loans of $45 with interest rates ranging from 5.25% to 18% and maturities ranging from 3 months to 6 years and variable rate loans of $101,765 with varying interest rates (ranging from 3.25% to 9.75%) and maturities ranging from one month to 15 years.

Standby Letters of Credit

Standby letters of credit are issued on behalf of customers in connection with construction contracts between the customers and third parties. Under standby letters of credit, the Bank assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the Bank arises from its obligation to make payment in the event of a customer’s contractual default. The maximum amount of potential future payments guaranteed by the Bank is limited to the contractual amount of these letters. Collateral ~~made~~may be obtained at exercise of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

~~STERLING BANCORP, INC.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(dollars in thousands, except per share amounts)~~

The following is a summary of the total amount of unfunded commitments to extend credit and standby letters of credit outstanding at March 31, ~~2018~~2021 and December 31, ~~2017:~~2020:

	March 31, 2018		December 31, 2017

					March 31,		December 31,
					2021		2020
Commitments to make loans	$	264,536	$	268,401	$	26,577	$	40,331
Unused lines of credit	160,177		157,234			101,810		140,665
Standby letters of credit	70		70			24		24

Legal Proceedings

The Company and its subsidiaries may be subject to legal actions and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened legal proceedings, except as described below, that are considered other than routine legal proceedings. The Company believes that the ultimate disposition or resolution of its routine legal proceedings, in the aggregate, are immaterial to its financial position, results of operations or liquidity.

The Bank is currently under formal investigation by the OCC and continues to be subject to a publicly available formal agreement with the OCC, dated June 18, 2019 (the “OCC Agreement”), relating primarily to certain aspects of its Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance program as well as the Bank’s credit administration. The OCC Agreement generally requires that the Bank enhance its policies and procedures to ensure compliance with BSA/AML laws and regulations and ensure effective controls over residential loan underwriting. Specifically, the OCC Agreement requires the Bank to: (i) establish a compliance committee to monitor and oversee the Bank’s compliance with the provisions of OCC Agreement; (ii) develop a revised customer due diligence and enhanced due diligence program; (iii) develop a revised suspicious activity monitoring program; (iv) engage an independent, third-party consultant to review and provide a written report on the Bank’s suspicious activity monitoring; (v) develop revised policies and procedures to ensure effective BSA/AML model risk management for the Bank’s automated suspicious activity monitoring system, which must be validated by a qualified, independent third party; (vi) ensure that the Bank’s BSA Department maintains sufficient personnel; and (vii) develop revised policies and procedures to ensure effective controls over loan underwriting. In addition to these requirements, while the OCC Agreement remains in effect, the Bank is subject to certain restrictions on expansion activities, such as growth through acquisition or branching to supplement organic growth of the Bank. Further, any failure to comply with the requirements of the OCC Agreement could result in further enforcement actions, the imposition of material restrictions on the activities of the Bank, or the assessment of fines or penalties. The Bank established a Compliance Committee to monitor and assure

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~~Note 16—Subsequent Events~~STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

compliance with the OCC Agreement, oversee the completion of an independent review of account and transaction activity to be conducted by a third-party vendor and engage a third party to conduct a model validation for its BSA/AML monitoring software.

The Bank is fully cooperating with the OCC investigation and implementing the items necessary to achieve compliance with the obligations in the OCC Agreement. A finding by the OCC that the Bank failed to comply with the OCC Agreement or adverse findings in the OCC investigation could result in additional regulatory scrutiny, constraints on the Bank’s business, or other formal enforcement action. Any of those events could have a material adverse effect on our future operations, financial condition, growth, or other aspects of our business. The Bank has incurred and expects to continue to incur significant costs in its efforts to comply with the OCC Agreement and respond to the OCC investigation, which are reflected in the Company's results of operations for the three months ended March 31, 2021 and 2020.

The Bank also has received grand jury subpoenas from the U.S. Department of Justice (the “DOJ”) beginning in 2020 requesting the production of documents and information in connection with an investigation that appears to be focused on the Bank’s Advantage Loan Program and related issues, including residential lending practices and public disclosures about that program. On April 15, 2021, the DOJ charged by criminal information the former managing director of residential lending of the Bank with conspiracy to commit bank and wire fraud in connection with the Advantage Loan Program, and that individual has entered into an agreement with the DOJ to plead guilty to that charge. The criminal information and plea agreement assert that the individual acted with the knowledge and encouragement of certain former members of senior management. The Bank is fully cooperating with this ongoing investigation. Adverse findings in the DOJ investigation could result in material losses due to damages, penalties, costs, and/or expenses imposed on the Company, which could have a material adverse effect on our future operations, financial condition, growth, or other aspects of our business. The Bank has and expects to continue to incur significant costs in its efforts to comply with the DOJ investigation in 2021.

In ~~March 2018,~~the first quarter of 2021, the Company ~~committed~~learned of a formal investigation recently initiated by the SEC. This investigation appears to ~~sell~~be focused on accounting, financial reporting and disclosure matters, as well as the Company's internal controls, related to the Advantage Loan Program. The Company has received document requests from the SEC and is fully cooperating with this investigation. Adverse findings in the SEC investigation could result in material losses due to penalties, disgorgement, costs and/or expenses imposed on the Company, which could have a material adverse effect on the Company's future operations, financial condition, growth or other aspects of its business. The Company expects to incur significant costs in its efforts to comply with the SEC investigation in 2021.

In addition, the Company, certain of its current and former officers and directors and other parties were named as defendants in a shareholder class action captioned Oklahoma Police Pension and Retirement System v. Sterling Bancorp, Inc., et al., Case No. 5:20-cv-10490-JEL-EAS, filed on February 26, 2020 in the U.S. District Court for the Eastern District of Michigan. The plaintiffs filed an amended complaint on July 2, 2020, seeking damages and reimbursement of fees and expenses. This action alleges violations of the federal securities laws, primarily with respect to disclosures concerning the Bank’s residential lending practices that were made in the Company’s registration statement and prospectus for its initial public offering, in subsequent press releases, in periodic and other filings with the SEC and during earnings calls. On September 22, 2020, the Company filed with the court a motion to dismiss the amended complaint. In February 2021, the Company, each individual defendant and the plaintiff reached an agreement in principle to settle the securities class action lawsuit. On April 19, 2021, the plaintiff, the Company and each of the other defendants entered into the final settlement agreement and submitted it to the court. Preliminary approval was granted by the court on April 28, 2021, and a final approval hearing is scheduled to be held before the court on September 16, 2021. The final agreement provides for a single $12,500 cash payment in exchange for the release of all of the defendants from all alleged claims therein and remains subject to final documentation, court approval and other conditions. This $12,500 liability has been accrued for as of December 31, 2020. The full amount of the settlement will be paid by the Company’s insurance carriers under applicable insurance policies. In the event final court approval is not received, or the settlement is not finalized for any other reason, the Company intends to vigorously defend this action.

The Company maintained a liability of $27,500 for contingent losses at March 31, 2021 and December 31, 2020. The outcome of the pending investigations and litigation is uncertain. There can be no assurance (i) that the Company will not incur material losses due to damages, penalties, costs and/or expenses as a result of such investigations and litigation, (ii) that the accrual for contingent losses will be sufficient to cover such losses, or (iii) that such losses will not materially exceed such accrual and have a material impact on the Company’s business, financial condition or results of operations.

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

In addition, on July 28, 2020, the Company received a demand letter from 2 law firms representing a purported shareholder of the Company alleging facts and claims substantially the same as many of the alleged facts and claims in the class action lawsuit. The demand letter requests that the board of directors take action to (1) recover damages the Company has purportedly sustained as a result of alleged breaches of fiduciary duties by certain of its officers and directors; (2) recover for the benefit of the Company the amounts by which certain of its officers and directors purportedly were unjustly enriched; and (3) correct alleged deficiencies in the Company's internal controls. The demand letter states that, if the board of directors has not taken the actions demanded within 90 days after the receipt of the letter, or in the event the board of directors refuses to take the actions demanded, the purported shareholder would commence a shareholder derivative action on behalf of the Company seeking appropriate relief. The board of directors established a demand review committee to evaluate the matters raised in the demand letter and to determine the actions, if any, that should be taken by the Company with respect to those matters. The Company responded to the demand letter advising the purported shareholder of the appointment of the demand review committee. The demand review committee's investigation is ongoing; accordingly, no additional actions with respect to this matter have been taken by the board of directors. Further, legal action has not yet been brought by the purported shareholder. Nevertheless, expenses related to the evaluation by the demand review committee have been significant. There can be no assurance as to whether any litigation will be commenced by or against the Company with respect to the demand letter or that, if any such litigation is commenced, the Company will not incur material losses due to damages, penalties, costs and/or expenses as a result of such litigation or that any such losses will not have a material impact on the Company’s financial condition or results of operations.

Mortgage Repurchase Liability

During the period 2015 through 2019, the Company sold portfolio loans originated under the Advantage Loan Program to private investors in the secondary market. The Company also sells conventional residential real estate loans (which excludes Advantage Loan Program loans) in the secondary market primarily to Fannie Mae on an ongoing basis. In connection with these loans sold, the Company makes customary representations and warranties about various characteristics of each loan. The Company may be required pursuant to the terms of the applicable mortgage loan purchase and sale agreements to repurchase any previously sold loan or indemnify (make whole) the investor for which the representation or warranty of the Company proves to be inaccurate, incomplete or misleading. In the event of a repurchase, the Company is typically required to pay the unpaid principal balance, the proportionate premium received when selling the loans and certain expenses.

As of March 31, 2021 and December 31, 2020, the Bank maintained a mortgage repurchase liability in connection with the above mentioned investigations stemming from the Advantage Loan Program totaling $6,629 and $9,699, respectively, which is included in accrued expenses and other liabilities in the condensed consolidated balance sheets. The unpaid principal balance of residential real estate loans sold that were subject to potential repurchase obligations for breach of representations and warranties totaled $426,758 and $562,139 at March 31, 2021 and December 31, 2020, respectively, including Advantage Loan Program loans totaling $302,982 and $429,816 at March 31, 2021 and December 31, 2020, respectively.

The mortgage repurchase liability reflects management's estimate of losses based on a combination of factors. The Company's estimation process requires management to make subjective and complex judgements about matters that are inherently uncertain, such as future repurchase demand expectations, economic factors and findings from the Internal Review. The actual repurchase losses could vary significantly from the recorded mortgage repurchase liability, depending on the outcome of various factors, including those previously discussed.

To avoid the uncertainty of audits and inquiries by third-party ~~investors. In April 2018,~~investors in the Advantage Loan Program, beginning at the end of the second quarter of 2020, the Company ~~received net proceeds~~commenced making offers to each of ~~$88.0 million and recorded a gain of $3.2 million on the sale of residential real estate loans. Servicing~~those investors to repurchase 100% of the ~~loan portfolio~~previously sold ~~was~~Advantage Loan Program loans.

In March 2021, a third-party investor accepted the Company’s offer to repurchase a pool of Advantage Loan Program loans with an outstanding unpaid principal balance of $87,944. These loans were previously sold to such third-party investor with servicing retained byand were considered to be performing at the ~~Company.~~repurchase date. In connection with this repurchase, the Company recognized a disposition of $1,255 mortgage servicing rights and charged a loss of $2,917 against the mortgage repurchase liability.

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STERLING BANCORP, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(dollars in thousands, except per share amounts)

The table below presents the activity in the mortgage repurchase liability at March 31, 2021 and 2020:


	March 31, 2021		March 31, 2020
Mortgage repurchase liability:
Beginning balance (as of January 1)	$	9,699	$	7,823
Net recovery		(153)		—
Charge offs		(2,917)		—
Ending balance	$	6,629	$	7,823

Note 17—Subsequent Events

Stock-based Compensation

On April 23, 2021, the Board of Directors approved the issuance of 182,702 restricted stock awards to certain key employees that vest ratably over three years (one-third per year) after the date of grant. The restricted stock awards were issued at fair market value at the date of grant. Upon a change in control, as defined in the 2020 Plan, the outstanding restricted stock awards will immediately vest.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following ~~Management’s Discussion~~management’s discussion and ~~Analysis~~analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes included in our ~~Annual~~2020 Form 10-K.

Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form ~~10-K for the year ended December 31, 2017,~~10-Q to “Sterling,” “we,” “our,” “us” or “the Company” refer to Sterling Bancorp, Inc., a Michigan corporation, and its subsidiaries, including Sterling Bank & Trust, F.S.B., which ~~was filed on March 28, 2018 with the U.S. Securities and Exchange Commission (“SEC”).~~

we sometimes refer to as “Sterling Bank,” “the Bank” or “our Bank.”

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains ~~forward-looking~~certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the ~~federal securities laws.~~Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding the Company’s plans, expectations, thoughts, beliefs, estimates, goals, and outlook for the future that are intended to be covered by the protections provided under the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “aim,” ~~“would,”~~“would” and “annualized” ~~and “outlook,”~~ or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and they are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

~~The forward-looking statements in this report should be read in conjunction with other cautionary statements that are included in the items set forth under the heading “~~~~Risk Factors”~~ in our Annual Report on Form 10-K for the year ended December 31, 2017. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements.

The risks, uncertainties and other factors identified in our filings with the SEC, and others, may cause actual future results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. A summary of these factors is below, under the heading “Risk Factors Summary.” For additional information on factors that could materially affect the forward-looking statements included in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, see the risk factors set forth under “Item 1A. Risk Factors” in our 2020 Form 10-K. You should carefully consider the factors discussed below, and in our Risk Factors and other disclosures, in evaluating these forward-looking statements.

Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise except as required by law. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of ~~each~~any particular risk, uncertainty or other factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

~~Overview~~Risk Factors Summary

The following is a summary of the material risks we are exposed to in the course of our business activities. The below summary does not contain all of the information that may be important to you, and you should read the below summary together with the more detailed discussion of risks set forth under “Part II, Item 1A. Risk Factors” and in our 2020 Form 10-K, as well as under this “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Risks Related to the Advantage Loan Program

●

The results of the Internal Review of our Advantage Loan Program and related matters

●

The results of investigations of us by the OCC, the DOJ, the SEC or other governmental agencies

●

The costs of legal proceedings, including settlements and judgments

●

The effects of the permanent discontinuation of our Advantage Loan Program

●

Compliance with the OCC Agreement and BSA /AML laws and regulations generally

●

Potential future losses in connection with representations and warranties we have made with respect to residential real estate loans that we have sold into the secondary market

Risks Related to the COVID-19 Pandemic

●

The economic impact, and governmental and regulatory actions to mitigate the impact, of the disruptions created by the COVID-19 pandemic

●

The effects of the economic disruptions resulting from the COVID-19 pandemic on our loan portfolio

Risks Related to the Economy and Financial Markets

●

The effects of fiscal and monetary policies and regulations of the federal government and Federal Reserve

●

Changes in the state of the general economy and the financial markets and their effects on the demand for our loan services

●

The effects of increases to the federal corporate tax rate

Risks Related to Credit

●

The credit risks of lending activities, including changes in the levels of delinquencies and nonperforming assets and changes in the financial performance and/or economic condition of our borrowers

●

Our concentration in residential real estate loans

●

The geographic concentration of our loans and operations in California

●

The potential insufficiency of our allowance for loan losses to cover losses in our loan portfolio

Risks Related to Our Highly Regulated Industry

●

The extensive laws and regulations affecting the financial services industry, including the QTL test, the continued effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and related rulemaking, changes in banking, securities and tax laws and regulations and their application by our regulators and the Community Reinvestment Act and fair lending laws

●

Adverse effects that may arise from the material weaknesses in our internal control over financial reporting or a failure to promptly remediate them

Risks Related to Competition

●

Strong competition within our market areas or with respect to our products and pricing

●

Our reputation as a community bank and the effects of continued negative publicity

●

Our ability to keep pace with technological change and introduce new products and services

●

Negative impacts of future changes in interest rates

●

Uncertainty relating to the determination and discontinuance of LIBOR

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Risks Related to Interest Rates

●

Our ability to ensure we have adequate liquidity

●

Our ability to obtain external financing on favorable terms, or at all, in the future

●

The quality of our real estate loans and our ability to sell our loans to the secondary market

Other Risks Related to Our Business

●

The recent significant transition in our senior management and our ability to attract and retain key employees and other qualified personnel

●

Our operational, technological and organizational infrastructure, including the effectiveness of our enterprise risk management framework at mitigating risk and loss to us

●

Operational risks from a high volume of financial transactions and increased reliance on technology, including risk of loss related to cybersecurity or privacy breaches

●

The ability of customers and counterparties to provide accurate and complete information and the soundness of third parties on which we rely

●

Our employees' adherence to our internal policies and procedures

●

The effects of natural disasters on us and our California borrowers and the adequacy of our business continuity and disaster recovery plans

●

Climate change and related legislative and regulatory initiatives

●

Adverse conditions internationally and their effects on our customers

●

Fluctuations in securities markets, including changes to the valuation of our securities portfolio

●

The value of our mortgage servicing rights

●

The reliance of our critical accounting policies and estimates, including for the allowance for loan losses, on analytical and forecasting techniques and models

●

Other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere herein or in the documents incorporated by reference herein and our other filings with the SEC

Risks Related to Governance Matters

●

The Seligman family's ability to influence our operations and control the outcome of matters submitted for shareholder approval

●

Our ability to pay dividends

The foregoing risk factors should not be construed as an exhaustive list and should be read in conjunction with the cautionary statements that are included under “Cautionary Note Regarding Forward-Looking Statements” above, under “Item 1A. Risk Factors” in our 2020 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, as well as the items set forth under “Part II, Item 1A. Risk Factors.”

Executive Summary

The following overview should be read in conjunction with our MD&A in its entirety.

Company Overview

We are a unitary thrift holding company headquartered in Southfield, Michigan ~~with~~and our primary ~~branch operations in San Francisco and Los Angeles, California. Through~~business is the operation of our wholly owned ~~bank~~ subsidiary, Sterling Bank. Through Sterling Bank, ~~and Trust, F.S.B., a qualified thrift lender,~~ we offer a ~~broad~~ range of loan products to the residential and commercial markets, as well as retail ~~and business~~ banking services.

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~~Since 2013, we~~

Internal Review, Investigations and Regulatory Matters Related to the Advantage Loan Program

On December 9, 2019, the Company announced it had voluntarily suspended its Advantage Loan Program in connection with the Internal Review. The primary focus of the Internal Review, which has been led by outside legal counsel under the direction of a special committee of independent directors (the “Special Committee”), has involved the origination of residential real estate loans under the Advantage Loan Program and related matters. The Internal Review has indicated that certain employees engaged in misconduct in connection with the origination of a significant number of such loans, including with respect to verification of income and employment, the amount of income reported for borrowers, reliance on third parties, and related documentation. As a result, the Company permanently discontinued the Advantage Loan Program, and a significant number of officers and employees have ~~experienced~~been terminated or resigned, including the top loan producers within the Advantage Loan Program. While the Internal Review is substantially complete, the Company expects it to remain open during the pendency of the government investigations discussed below, and it is possible additional work will be required in connection with the Internal Review.

The Bank is currently under formal investigation by the OCC, is responding to grand jury subpoenas from the DOJ and is responding to a formal investigation recently initiated by the SEC, all of which are related to the Advantage Loan Program. The Bank also continues to be subject to the OCC Agreement, which relates primarily to certain aspects of the Bank’s BSA/AML compliance program as well as its credit administration. The OCC Agreement requires the Bank to: (i) establish a compliance committee to monitor and oversee the Bank’s compliance with the provisions of OCC Agreement; (ii) develop a revised customer due diligence and enhanced due diligence program; (iii) develop a revised suspicious activity monitoring program; (iv) engage an independent, third-party consultant to review and provide a written report on the Bank’s suspicious activity monitoring; (v) develop revised policies and procedures to ensure effective BSA/AML model risk management for the Bank’s automated suspicious activity monitoring system, which must be validated by a qualified, independent third party; (vi) ensure that the Bank’s BSA Department maintains sufficient personnel; and (vii) develop revised policies and procedures to ensure effective controls over loan underwriting. In addition to these requirements, while the OCC Agreement remains in effect, the Bank is subject to certain restrictions on expansion activities, such as growth through acquisition or branching to supplement organic growth of the Bank.

The Company has incurred and continued to incur significant ~~growth while maintaining stable margins~~legal, consulting and ~~solid asset quality. We have made significant investments over the last several years~~other third-party expenses in ~~staffing and upgrading technology and system security. In~~ the first quarter ~~2017, we opened~~of 2021 in connection with the Internal Review, the government investigations, compliance with the OCC Agreement and defending litigation and threatened litigation related to the Advantage Loan Program.

For further information regarding these matters, see “Part II, Item 1. Legal Proceedings" and "Part II, Item 1A. Risk Factors."

Update on Impact of COVID-19

The COVID-19 pandemic continues to create extensive disruptions to U.S. and global economic conditions and financial markets and to businesses and the lives of individuals throughout the world. Although in various locations certain activity restrictions have been relaxed with some level of success, in many states and localities the number of individuals diagnosed with COVID-19 has increased significantly, causing a ~~new branch~~freezing or, in certain cases, a reversal of previously announced relaxation of activity restrictions and prompting the need for additional aid and other forms of relief. Recently, COVID-19 vaccinations have been increasing. It is too early to know how quickly these vaccines can be distributed to the broader population and how effective the vaccination of the broader population will be in mitigating the adverse social and economic effects of the pandemic. Further, variant strains of the COVID-19 virus have appeared, further complicating efforts of the medical community and federal, state and local governments in response to the pandemic. The ultimate impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken currently or in the ~~Los Angeles market~~future by governmental authorities in response to the pandemic.

Congress and various state governments and federal agencies have taken actions to require lenders to provide forbearance and other relief to borrowers (for example, waiving late payment and other fees). At March 31, 2021, pandemic-related forbearances totaled $41.9 million, or 1.7% of total loans, down significantly from peak levels in ~~April 2018,~~2020. The remaining forbearances consist of $20.3 million residential real estate loans, $14.1 million commercial real estate loans and $7.4 million construction loans. We continue to work together with our borrowers as circumstances permit.

The economic disruptions related to the COVID-19 pandemic have resulted in a significant increase in delinquencies and loans on nonaccrual status across our commercial real estate loan, construction loan and residential real estate loan portfolios as certain

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industries have been particularly hard-hit by the COVID-19 pandemic, which has adversely affected the ability of many of our borrowers to repay their loans. For example, as of March 31, 2021, our commercial real estate loan portfolio includes loans secured by SROs, hotels, retail properties and offices, totaling $116.1 million, representing 4.7% of total loans, including $75.5 million of loans secured by SROs and hotels. According to data from Cushman & Wakefield, the office vacancy rate in San Francisco continued to rise during the first quarter of 2021 and was 18.7% as of March 31, 2021. In addition, operating cash flows from tenants have decreased as a result of the COVID-19 pandemic, and decreased travel as a result of the COVID-19 pandemic has affected our SRO borrowers by reducing demand from tourists for travel accommodations in San Francisco. Our construction loan portfolio also includes similar substantial exposures. In addition, the elevated unemployment rate will continue to have a significant adverse impact on the ability of our residential real estate borrowers to repay their loans.

During the first quarter of 2021, we ~~opened~~continued to experience higher than normal downgrades and elevated nonaccrual level. Total loans 90 days or more past due, including nonaccrual loans but excluding loan forbearances related to the COVID-19 pandemic, totaled $83.6 million at March 31, 2021, compared to $86.5 million at December 31, 2020.

Overview of Quarterly Performance

Our historical lending strategy has been to offer a range of loan products to the residential and commercial markets. The majority of our loan portfolio consists of residential real estate mortgages, which accounted for 82% of our loan portfolio as of March 31, 2021. The balance of our loan portfolio consists of commercial real estate, construction, and commercial lines of credit.

Our focus for 2021 is to continue to work hard to resolve our outstanding compliance issues and re-establish strong credit metrics for new ~~branch in New York City and expanded our presence in Southern California with a new branch in Chino Hills. In the near future,~~lending initiatives. Going forward, we plan to ~~open an additional branch~~focus on the diversification of our overall loan production and develop new residential loan products. However, the implementation of any new loan products takes time and may be subject to the prior review and approval of applicable bank regulatory authorities. In addition, we continued to maintain a high level of liquidity to prepare for potential Advantage Loan Program repurchase requests, which we have solicited from loan investors, and to compensate for the Bank's reduced borrowing capacity from the FHLB as a result of a reduction in ~~Southern California~~collateral pledged, as well as ~~convert an existing loan production office~~to prepare for additional uncertainties related to our ongoing examinations and investigations. The Bank repurchased $87.9 million of Advantage Loan Program loans in the ~~Seattle market~~first quarter of 2021.

On March 19, 2021, the Bank entered into an agreement with First Federal Savings & Loan Association of Port Angeles, a ~~branch.~~ Washington state chartered bank, to sell the Bank’s Bellevue, Washington branch office, subject to receipt of applicable regulatory approvals and other customary closing conditions. The sale includes the transfer of all deposit accounts located at the branch, with a total balance of $78.0 million at March 31, 2021, as well as the transfer of all branch premises and equipment. The agreement provides that the Bank will receive a premium of 2.1% on the principal balance of the deposits at closing. The agreement also provides that the buyer intends to offer employment to all associated staff. This transaction is expected to close in the second quarter of 2021.

As of March 31, ~~2018,~~2021, the Company had total consolidated assets of ~~$3.03~~$3.69 billion, total consolidated deposits of ~~$2.29~~$2.89 billion and total consolidated shareholders’ equity of ~~$288.5~~$321.9 million.

~~In the first quarter of 2018, we originated~~ Liquid assets, comprising cash and due from banks and investment securities, decreased $170.5 million, or 13%, to $1.13 billion from $1.30 billion at December 31, 2020. Total loans ~~of $408~~held for investment decreased $45.3 million, ~~a 59% increase over the first quarter of 2017, which included $349 million in residential mortgage loans, $5 million in commercial real estate loans, $44 million in~~

~~construction loans and $10 million in commercial and industrial loans. Also, we sold pools of residential real estate mortgages for $112.2 million~~or 2%, to ~~third-party investors. We continue~~$2.46 billion from $2.51 billion at December 31, 2020. Net principal payments continued to ~~focus on the residential mortgage market, construction, and commercial real estate lending. Net interest income~~exceed new loan production for the ~~first quarter~~three months ended March 31, 2021. This decrease was partially offset by the repurchase of ~~2018 was $28.2~~$87.9 million ~~an increase~~ of ~~$6.3~~Advantage Loan Program loans.

Our net income (loss) increased $6.4 million ~~or 29% over~~from net loss of $(4.0) million for the ~~same period in 2017,~~three months ended March 31, 2020 to net income of $2.3 million for the three months ended March 31, 2021, primarily attributable to ~~an increase in average earnings assets. Noninterest income increased to $6.0~~a $0.7 million recovery of loan losses in the ~~first quarter of 2018 from $5.6~~current period compared to a $20.9 million provision for loan losses for the same period in 2020. This increase was partially offset by a $5.4 million decrease in our net interest income and a $5.4 million increase in professional fees related to our efforts to achieve compliance with the ~~prior year.~~OCC Agreement, our ongoing enhancements to our regulatory compliance framework (including our internal controls over financial reporting), and the ongoing government investigations and litigation. Our net interest margin decreased from 3.57% for the three months ended March 31, 2020 to 2.45% for the current period due primarily to a decline in the average balance of our loan portfolio, as well as a shift in the balance sheet mix and the impact of the current low interest rate environment.

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Our regulatory capital ratios remained well above the levels required to be considered well capitalized for regulatory purposes with a Common Equity Tier 1 ratio for the Company of 18.48% and a ratio of Tier 1 Capital to adjusted tangible assets of 8.34%. See "Liquidity and Capital Resources."

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

During the three months ended March 31, ~~2018,~~2021, there were no significant changes to our accounting policies that we believe are critical to an understanding of our financial condition and results of operations, which critical accounting policies ~~and estimates, which~~ are disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s ~~Annual Report on~~2020 Form ~~10-K filed with the SEC.~~

10-K.

~~Discussion and Analysis of~~ Financial Condition

The ~~following sets forth a discussion and analysis~~Company’s total assets were $3.69 billion at March 31, 2021 compared to $3.91 billion at December 31, 2020. Total loans, net of ~~our financial condition as of~~allowance for loan losses, decreased slightly to $2.39 billion compared to $2.43 billion at December 31, 2020. The investment securities portfolio decreased $45.3 million, or 15%, to $259.7 million at March 31, 2021 from $305.0 million at December 31, 2020. Total deposits, including $78.0 million deposits held for sale, decreased $209.7 million, or 7%, to $2.89 billion at March 31, 2021. Borrowings, excluding the ~~dates presented below.~~Notes, remain unchanged at $318.0 million at March 31, 2021.

Loan Portfolio Composition.The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.


											At March 31, 2021				At December 31, 2020
											Amount		%		Amount		%
	At March 31, 2018					At December 31, 2017
	Amount			%		Amount			%
	(Dollars in thousands)
Real Estate:
											(Dollars in thousands)
Real estate:
Residential real estate											$	2,008,439	82	%	$	2,033,526	81	%
Commercial real estate												263,508	11	%		259,958	11	%
Construction	$	179,846		7	%	$	192,319		7	%		184,490	7	%		206,581	8	%
1 - 4 family residential	2,134,447			82	%	2,132,641			82	%
Commercial real estate	239,204			9	%	247,076			9	%
Total real estate	2,553,497			98	%	2,572,036			98	%		2,456,437	100	%		2,500,065	100	%
Commercial	46,166			2	%	40,749			2	%
Consumer	29			—	%	29			—	%
Commercial lines of credit												5,029	—	%		6,671	—	%
Other consumer												4	—	%		7	—	%
Total loans	2,599,692			100	%	2,612,814			100	%		2,461,470	100	%		2,506,743	100	%
Allowance for loan losses	(19,132		)			(18,457		)				(71,871)				(72,387)
Loans, net	$	2,580,560				$	2,594,357				$	2,389,599			$	2,434,356

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The following table sets forth our fixed and adjustable-rate loans in our loan portfolio at March 31, ~~2018:~~2021:

Fixed

Adjustable

Total

(In thousands)

Real Estate:

1-4 family residential

$
13,807

$
2,120,640

$
2,134,447

Commercial real estate

20,161

219,043

239,204

Construction

—

179,846

179,846

Commercial

1,320

44,846

46,166

Consumer

29

—

29

Total

$
35,317

$
2,564,375

$
2,599,692


	Fixed		Adjustable		Total

	(In thousands)
Real estate:
Residential real estate	$	26,953	$	1,981,486	$	2,008,439
Commercial real estate		83,360		180,148		263,508
Construction		—		184,490		184,490
Commercial lines of credit		157		4,872		5,029
Other consumer		4		—		4
Total	$	110,474	$	2,350,996	$	2,461,470

The table set forth below contains the repricing dates of adjustable rate loans included within our loan portfolio as of March 31, ~~2018:~~2021:

March 31, 2018	1 - 4 Family Residential		Commercial Real Estate		Construction		Commercial		Consumer		Total

													Residential		Commercial				Commercial		Other
March 31, 2021													Real Estate		Real Estate		Construction		Lines of Credit		Consumer		Total
	(In thousands)
													(In thousands)
Amounts to adjust in:
6 months or less	$	436,499	$	19,501	$	179,846	$	44,846	$	—	$	680,692	$	472,129	$	20,459	$	184,490	$	4,872	$	—	$	681,950
More than 6 months through 12 months	551,133		14,195		—		—		—		565,328			482,188		11,758		—		—		—		493,946
More than 12 months through 24 months	259,077		25,864		—		—		—		284,941			418,015		47,768		—		—		—		465,783
More than 24 months through 36 months	415,209		38,268		—		—		—		453,477			207,826		25,498		—		—		—		233,324
More than 36 months through 60 months	373,478		118,023		—		—		—		491,501			337,502		74,665		—		—		—		412,167
More than 60 months	85,244		3,192		—		—		—		88,436			63,826		—		—		—		—		63,826
Fixed to Maturity	13,807		20,161		—		1,320		29		35,317			26,953		83,360		—		157		4		110,474
Total	$	2,134,447	$	239,204	$	179,846	$	46,166	$	29	$	2,599,692	$	2,008,439	$	263,508	$	184,490	$	5,029	$	4	$	2,461,470

At March 31, ~~2018, $215~~2021, $356.4 million, or ~~8.4%~~15.2%, of our adjustable interest rate loans were at their interest rate floor.

~~Delinquent Loans.~~ ~~The following tables set forth our loan delinquencies, including nonaccrual loans, by type and amount at the dates indicated.~~

March 31, 2018

December 31, 2017

30 - 59
Days
Past Due

60 - 89
Days
Past
Due

90 Days
or More
Past Due

30 - 59
Days
Past Due

60 - 89
Days
Past
Due

90 Days
or More
Past
Due

(In thousands)

1 - 4 family residential

$
1,026

$
48

$
5,041

$
9,009

$
392

$
704

Commercial real estate

—

—

74

—

—

79

Construction

—

��

—

—

—

—

Commercial

—

—

—

—

—

—

Consumer

—

—

—

—

—

—

Total delinquent loans

$
1,026

$
48

$
5,115

$
9,009

$
392

$
783

~~Nonperforming Assets~~Asset Quality

Nonperforming Assets. Nonperforming assets include nonaccrual loans, loans that are 90 or more days past due or ~~on nonaccrual status, including~~more and still accruing interest, troubled debt restructurings, ~~and real estate~~nonaccrual loans held for sale and other loan collateral acquired through ~~foreclosure~~foreclosures and repossession. Troubled debt restructurings include loans for economic or legal reasons related to the borrower’s financial difficulties, for which we grant a concession to the borrower that we would not consider otherwise.repossessions. At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, we had ~~one troubled debt restructuring in nonaccrual with a balance of $74,000~~$45 thousand and $79,000, respectively. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. At March 31, 2018 and December 31, 2017, we had $129,000 and $131,000,$46 thousand, respectively, of accruing loans that were past due 90 days ~~which consisted primarily of government guaranteed loans.~~or more. For nonaccrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on nonaccrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

~~Real estate that~~Troubled debt restructurings are modified loans in which a borrower demonstrated financial difficulties and for which a concession has been granted. However, not all troubled debt restructurings are placed on nonaccrual status. At March 31, 2021 and December 31, 2020, we ~~acquire as a result~~had troubled debt restructurings totaling $29.4 million and $28.3 million, respectively. Troubled debt restructurings on nonaccrual status at such dates totaled $21.8 million and $20.1 million, respectively, and are included in the nonaccrual loan categories in the following table. See Note 5—Loans—Troubled Debt Restructurings to our condensed consolidated financial statements for additional information about our troubled debt restructurings.

Table of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned until it is sold. When property is acquired, it is initially recorded at the fair value less costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income.Contents

The following table sets forth information regarding our nonperforming assets at the dates indicated. In addition to the exclusions and presentation conventions described in the footnotes to the table, the categories of nonperforming assets in the following table do not include COVID-19-related loan forbearances that may be excluded from troubled debt restructurings under the CARES Act.

At March 31,
2018

At December 31,
2017

(Dollars in thousands)

Nonaccrual loans (1):

1 - 4 family residential

$
4,912

$
573

Commercial Real Estate

74

79

Construction

—

—

Commercial

—

—

Consumer

—

—

Total nonaccrual loans

4,986

652

Loans past due 90 days and still accruing

129

131

Troubled debt restructurings (2)

2,967

2,994

Total nonperforming assets

$
8,082

$
3,777

Total loans

$
2,599,692

$
2,612,814

Total assets

$
3,034,332

$
2,961,958

Total nonaccrual loans to total loans

0.19
%
0.02
%
Total nonperforming assets to total assets

0.27
%
0.13
%


	At March 31,			At December 31,
	2021			2020

	(Dollars in thousands)
Nonaccrual loans ⁽¹⁾:
Residential real estate	$	27,635		$	20,729
Commercial real estate		19,032			19,965
Construction		34,581			41,873
Commercial lines of credit		2,285			3,857
Other consumer		—			—
Total nonaccrual loans ⁽²⁾		83,533			86,424
Other real estate owned		167			167
Loans past due 90 days or more and still accruing interest		45			46
Other troubled debt restructurings⁽³⁾		7,646			8,246
Nonaccrual loans held for sale⁽⁴⁾		18,572			19,375
Total nonperforming assets	$	109,963		$	114,258
Total loans	$	2,461,470		$	2,506,743
Total assets	$	3,694,027		$	3,914,045
Total nonaccrual loans to total loans⁽²⁾		3.39	%		3.45	%
Total nonperforming assets to total assets		2.98	%		2.92	%

(1) Loans are classified as held for investment and are presented before the allowance for loan losses.

(2) ~~Troubled~~ Total nonaccrual loans exclude nonaccrual loans held for sale but include troubled debt restructurings on nonaccrual status.

(3) Other troubled debt restructurings exclude those loans presented above as nonaccrual or past due 90 days or more and still ~~accruing.~~accruing interest.

(4) Nonaccrual loans held for sale were residential real estate loans as of March 31, 2021.

As of March 31, 2021, nonperforming assets totaled $110.0 million, reflecting a decrease of $4.3 million from $114.3 million as of December 31, 2020. This decrease is attributable primarily to nonaccrual construction loans, which totaled $34.6 million as of March 31, 2021, reflecting a decrease of $7.3 million from $41.9 million as of December 31, 2020. Residential real estate loans comprised 33% of total nonaccrual loans as of March 31, 2021 compared to 24% as of December 31, 2020. Commercial real estate and construction loans collectively comprised 64% of total nonaccrual loans compared to 72% as of December 31, 2020.

The decrease in nonaccrual construction loans is attributable primarily to three construction loans totaling $7.5 million paid in full and three construction loans totaling $4.6 million returning to accrual status upon conversion to commercial real estate bridge loans to allow time for the borrower to sell the project. The decrease was partially offset by the addition of one construction loan of $4.2 million to nonaccrual status.

The total amount of additional interest income on nonaccrual loans that would have been recognized for the quarter ended March 31, 2021 if interest on all such loans had been recorded based upon original contract terms was approximately $1.2 million. The total amount of interest income received during the quarter ended March 31, 2021 on nonaccrual loans was $0.9 million.

COVID-19-Related Forbearances. Under the CARES Act, COVID-19-related loan forbearances may be excluded from treatment as a troubled debt restructuring if such forbearance meets certain criteria. Further, in response to the COVID-19 pandemic, we have offered forbearance under the CARES Act to customers facing COVID-19-related financial difficulties. While the principal balance of loans modified due to the economic effects of the COVID-19 pandemic and still in forbearance declined from peak levels in 2020, we continue to work together with our borrowers as circumstances may permit. Residential real estate forbearances increased $9.6 million from $10.7 million at December 31, 2020 to $20.3 million at March 31, 2021. This increase was primarily attributable to eleven loans totaling $8.4 million, whose initial forbearance period expired by December 31, 2020, but whose borrowers subsequently requested and were granted an extension of forbearance in the first quarter of 2021, and the repurchase of previously sold loans totaling $1.7 million that were under forbearance. Two commercial real estate loans totaling $13.2 million and one construction loan of $7.4 million entered forbearance during the first quarter of 2021 and one commercial real estate loan of $4.2 million exited

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forbearance. Total loans in forbearance as of March 31, 2021 were $41.9 million, or 1.70%, of total loans held for investment. The following table sets forth such loans in forbearance at the dates indicated.


	March 31,			December 31,
Forbearance Composition	2021			2020
Residential real estate	$	20,298		$	10,729
Commercial real estate		14,129			5,056
Construction		7,428			—
Total loans in forbearance	$	41,855		$	15,785
Loans in forbearance to total loans held for investment		1.70	%		0.63	%

Delinquent Loans. The following tables set forth our loan delinquencies, including nonaccrual loans but excluding loan forbearances related to the COVID-19 pandemic, by type and amount at the dates indicated.


	March 31, 2021						December 31, 2020
	30 - 59		60 - 89		90 Days		30 - 59		60 - 89		90 Days
	Days		Days		or More		Days		Days		or More
	Past Due		Past Due		Past Due		Past Due		Past Due		Past Due

	(In thousands)
Residential real estate	$	28,749	$	12,780	$	27,680	$	38,181	$	14,658	$	20,775
Commercial real estate		6,689		384		19,032		4,845		—		19,965
Construction		11,771		—		34,581		8,593		2,514		41,873
Commercial lines of credit		715		—		2,285		—		—		3,857
Other consumer		—		—		—		—		—		—
Total delinquent loans	$	47,924	$	13,164	$	83,578	$	51,619	$	17,172	$	86,470

Total loans 90 days or more past due, including nonaccrual loans but excluding loan forbearances related to the COVID-19 pandemic, decreased $2.9 million, or 3%, from $86.5 million at December 31, 2020 to $83.6 million at March 31, 2021. This decrease was primarily attributable to our construction loan portfolio.

Classified Loans. We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The four risk categories utilized are Pass, Special Mention, Substandard and Doubtful. Loans in the Pass category are considered to be of satisfactory quality, while the remaining three categories indicate varying levels of credit risk. See Note 5—Loans—Credit Quality to our consolidated financial statements for additional information about our risk categories.

Loans classified as Substandard, Doubtful and Special Mention were as follows:


	March 31,			December 31,
	2021		2020

	(Dollars in thousands)
Special Mention	$	58,118	$	59,668
Substandard		146,297		131,469
Doubtful		7,519		7,014
Total	$	211,934	$	198,151

Total Special Mention, Substandard and Doubtful loans were $211.9 million, or 8.61% of total loans, at March 31, 2021, compared to $198.2 million, or 7.90% of total loans, at December 31, 2020. The $14.8 million increase in Substandard loans was mainly attributable to the downgrade of 16 residential real estate loans totaling $12.2 million that became over 90 days past due, one commercial real estate loans of $6.0 million and one construction loan of $4.4 million. These downgrades were offset, in part, by the upgrade of ten residential real estate loans totaling $4.9 million that became current on their scheduled payments and $3.5 million of loans paid in full.

Impaired Loans. A loan is considered impaired when, based on current information and events, it is probable that Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. If a loan is impaired, a portion of the

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allowance for loan losses is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral or operations of collateral. See Note 5—Loans to our condensed consolidated financial statements for tables presenting additional data regarding the allowance for loan losses and impaired loans.

At March 31, 2021 and December 31, 2020, we had 23 and 31 impaired loans with recorded investments of $63.6 million and $74.0 million, respectively. Total impaired loans decreased $10.4 million, or 14%, primarily attributable to $11.1 million impaired loans paid in full and $2.7 million impaired loans returning to accrual status. This decrease was partially offset by one construction loan of $4.2 million being added to impaired status.

Allowance for Loan Losses

The allowance for loan losses is maintained at levels considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of the condensed consolidated balance sheet reporting dates. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and nonaccrual loans, national and local business conditions, ~~and~~ loss experience and an overall evaluation of the quality of the underlying collateral. In addition, certain qualitative components within our allowance for loan losses methodology have taken on increased significance as a result of the economic impact of the COVID-19 pandemic. These qualitative components include increased unemployment, commercial property vacancy rates, uncertainty in property values and deterioration in the overall macro-economic environment.

The following table sets forth activity in the allowance for loan losses for the periods indicated.

Three Months
Ended
March 31,

Year Ended
December 31,

Three Months
Ended
March 31,

2018

2017

2017

(Dollars in thousands)

Allowance at beginning of period

$
18,457

$
14,822

$
14,822

Provision for loan losses

641

2,700

600

Charge offs:

1 - 4 family residential

—

(19
)
—

Commercial Real Estate

—

—

—

Construction

—

—

—

Commercial

—

—

—

Consumer

—

—

—

Total charge offs

—

(19
)
—

Recoveries:

1 - 4 family residential

2

261

10

Commercial Real Estate

31

569

40

Construction

1

107

95

Commercial

—

—

—

Consumer

—

17

—

Total recoveries

34

954

145

Allowance at end of period

$
19,132

$
18,457

$
15,567

Nonperforming loans and TDRs at end of period

$
8,082

$
3,777

$
3,703

Total loans outstanding at end of period

$
2,599,692

$
2,612,814

$
2,018,586

Average loans outstanding during period

$
2,733,759

$
2,276,282

$
2,044,732

Allowance for loan losses to nonperforming loans and TDRs

237
%
489
%
420
%
Allowance for loan losses to total loans at end of period

0.74
%
0.71
%
0.77
%
Net charge offs (recoveries) to average loans outstanding during the period

—
%
(0.04
)%
(0.01
)%


	Three Months Ended
	March 31,
	2021			2020

	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	72,387		$	21,730
Charge offs:
Residential real estate		—			—
Commercial real estate		—			—
Construction		—			—
Commercial lines of credit		—			—
Other consumer		—			—
Total charge offs		—			—
Recoveries:
Residential real estate		204			10
Commercial real estate		16			19
Construction		1			1
Commercial lines of credit		—			—
Other consumer		—			—
Total recoveries		221			30
Net recoveries		221			30
Provision (recovery) for loan losses		(737)			20,853
Allowance for loan losses at end of period	$	71,871		$	42,613
Nonperforming loans and troubled debt restructurings at end of period	$	91,224		$	40,790
Total loans at end of period	$	2,461,470		$	2,842,258
Average loans during period	$	2,467,037		$	2,870,715
Allowance for loan losses to nonperforming loans and troubled debt restructurings at end of period		79	%		105	%
Allowance for loan losses to total loans at end of period		2.92	%		1.50	%
Net recoveries to average loans outstanding during the period		(0.01)	%		—	%

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~~Allocation of Allowance for Loan Losses.~~

The following tables set forth the allowance for loan losses allocated by loan ~~category.~~category at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance for loan losses to absorb losses in other categories.

At March 31, 2018

At December 31, 2017

Allowance
for Loan
Losses

Percent of
Loans in
Each
Category to
Total Loans

Allowance
for Loan
Losses

Percent of
Loans in
Each
Category to
Total Loans

(Dollars in thousands)

1 - 4 family residential

$
11,499

82
%
$
12,279

82
%
Commercial real estate

2,572

9
%
2,040

9
%
Construction

2,979

7
%
2,218

7
%
Commercial

616

2
%
469

2
%
Consumer

1

—
%
1

—
%
Unallocated

1,465

—
%
1,450

—
%
Total

$
19,132

100
%
$
18,457

100
%


	At March 31, 2021				At December 31, 2020
			Percent of				Percent of
			Loans in				Loans in
	Allowance		Each		Allowance		Each
	for Loan		Category to		for Loan		Category to
	Losses		Total Loans		Losses		Total Loans

	(Dollars in thousands)
Residential real estate	$	33,056	82	%	$	32,366	81	%
Commercial real estate		22,763	11	%		21,942	10	%
Construction		15,966	7	%		17,988	8	%
Commercial lines of credit		86	—	%		91	1	%
Other consumer		—	—	%		—	—	%
Unallocated		—	N/A			—	N/A
Total	$	71,871	100	%	$	72,387	100	%

The allowance for loan losses as a percentage of loans was ~~.74%~~2.92% and ~~.71%~~2.89% as of March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, respectively.

~~The~~ Our total allowance for loan losses ~~is a valuation allowance for probable incurred credit losses, increased or~~ decreased by $0.5 million, or 0.71%, to $71.9 million during the ~~provision for loan losses and decreased by charge offs less recoveries. Loan losses are charged against the~~three months ended March 31, 2021, from $72.4 million at December 31, 2020. The $0.5 million decrease to our allowance for loan losses ~~when management believes the uncollectibility of~~was primarily attributable to a ~~loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses. Management estimates the~~$1.8 million reduction in required allowance for loan losses due to a decrease in the aggregate balance ~~required using past~~of Pass rated loans as a result of loan ~~loss experience,~~portfolio runoff, despite the ~~nature~~repurchase of residential real estate loans and ~~volume of~~new originations during the ~~portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of~~quarter. Partially offsetting the decrease in our allowance for loan losses ~~may be made for specific loans, but the entire~~was a $1.3 million increase in required allowance for loan ~~losses is available for any loan that,~~loss reflecting a $13.8 million net increase in ~~management’s judgment, should be charged off.~~Special Mention, Substandard and Doubtful loans during the quarter.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers all other loans and is based on historical loss experience adjusted for general economic conditions and other qualitative factors by portfolio segment. The historical loss experience is determined by portfolio segment, discussed below, and is based on the actual loss history experienced over the most recent three years. This actual loss experience is supplemented with economic and other factors based on the risks present for each portfolio segment. These economic and other risk factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings, as defined below, and classified as impaired.

Factors considered by us in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The measurement of an impaired loan is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate, (ii) the loan’s observable market price or (iii) the fair value of the collateral if the loan is collateral dependent.

Construction loans, commercial real estate loans and commercial lines of credit are individually evaluated for impairment. If a loan is impaired, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral or operations of collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

~~At March 31, 2018 and December 31, 2017, we had impaired loans of $3.2 million and $3.3 million, respectively.~~

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For loans that are considered troubled debt restructurings that subsequently go into default, the Company determines the amount to reserve in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with our loan policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in ~~making~~determining the ~~determinations.~~allowance for loan losses. Furthermore, while we believe we have established our allowance for loan losses in conformity with ~~generally accepted accounting principles in the United States of America,~~U.S. GAAP, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans ~~deteriorate as a result of the factors discussed above.~~deteriorate. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Investment Securities Portfolio

The following table sets forth the amortized cost and estimated fair value of our available-for-sale debt securities portfolio at the dates indicated.


									At March 31,				At December 31,
									2021				2020
									Amortized		Fair		Amortized		Fair
									Cost		Value		Cost		Value
	At March 31,				At December 31,
	2018				2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
U.S. Treasury securities	$	118,764	$	118,540	$	120,216	$	120,042
Non-Agency collateralized mortgage obligations	1,888		1,955		1,953		2,008
									(In thousands)
U.S. Treasury & Agency securities									$	118,624	$	118,786	$	138,742	$	138,997
Mortgage-backed securities										31,462		31,114		33,743		33,814
Collateralized mortgage obligations										103,658		104,319		126,359		126,596
Collateralized debt obligations	311		298		606		571			213		193		214		187
Total	$	120,963	$	120,793	$	122,775	$	122,621	$	253,957	$	254,412	$	299,058	$	299,594

We decreased the size of our available-for-sale debt securities portfolio (on an amortized-cost basis) $45.1 million, or 15.1%, from December 31, 2020 to $254.0 million at March 31, 2021, reflecting the maturity of a $20.0 million Treasury note and the paydown of the mortgage-backed securities and collateralized mortgage obligations portfolio.

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At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, we had no investments in a single company or entity, other than the U.S. government and government agency securities, with an aggregate book value in excess of 10% of our total shareholders’ equity.

We review the debt securities portfolio on a quarterly basis to determine the cause, magnitude and duration of declines in the fair value of each security. In estimating other-than-temporary impairment, we consider many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions and (4) whether we have the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized through income as ~~impairment through earnings.~~impairment. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) other-than-temporary impairment related to credit loss, which must be recognized in the ~~income statement~~condensed consolidated statements of operations and (2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive ~~income.~~income (loss). The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any ~~other than temporary~~other-than-temporary decline exists may involve a high

degree of subjectivity and judgment and is based on the information available to management at a point in time. We evaluate debt securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation.

At March 31, ~~2018,~~2021, gross unrealized losses on debt securities totaled ~~$237. Since~~$506 thousand. We do not consider the debt securities to be other-than-temporarily impaired at March 31, 2021, since (i) the decline in fair value of the debt securities is attributable to ~~(i)~~ changes in interest rates and illiquidity, not credit quality, (ii) we do not have the intent to sell the debt securities and (iii) it is likely that we will not be required to sell the debt securities before their anticipated ~~recovery, we do not consider the debt securities to be other-than-temporarily impaired at March 31, 2018.~~recovery.

~~The Company’s~~Our 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 the common equity of Pacific Coast Banker’s Bank, a thinly traded, restricted stock. AtEquity securities totaled $5.3 million and $5.4 million at March 31, ~~2018~~2021 and December 31, ~~2017, equity securities totaled $4,163~~2020, respectively.

Deposits

Deposits are the primary source of funding for the Company. We regularly review the need to adjust our deposit offering rates on various deposit products in order to maintain a stable liquidity profile and ~~$4,227, respectively.~~a competitive cost of funds.

~~Deposits~~

Total deposits ~~increased $46.1 million, or 2.1%, to $2.29~~were $2.89 billion at March 31, ~~2018 from $2.24~~2021, a decrease of $ 209.7 million, or 7%, compared to $3.10 billion at December 31, ~~2017,~~2020, reflecting our decision to begin to reduce our significant liquidity position through planned deposit runoff. The decrease was primarily asattributable to a ~~result of strong growth~~$164.4 million decrease in ~~our~~time deposits, and a $48.6 million decrease in money market, savings and ~~certificates of deposit products,~~NOW accounts, partially offset by a ~~decrease of our balance~~$3.3 million increase in ~~brokered~~noninterest bearing demand deposits. Brokered deposits totaled $35.0 million at March 31, 2021, compared to $42.8 million at December 31, 2020. We continue to focus on ~~the acquisition and expansion of~~ core ~~deposit relationships,~~deposits, which we define as all deposits except for ~~certificates of~~time deposits greater than ~~$250,000~~$250 thousand and brokered deposits. Core deposits totaled ~~$2.1~~$2.49 billion at March 31, ~~2018,~~2021, or ~~90%~~85% of total deposits at that ~~date. Brokered~~date, compared to $2.62 billion, or 85% of total deposits ~~totaled $80~~at December 31, 2020.

On March 19, 2021, the Bank entered into an agreement to sell the Bank’s Bellevue, Washington branch office, subject to receipt of applicable regulatory approvals and other customary closing conditions. The sale includes the transfer of all deposit accounts located at the branch, with a total balance of $78.0 million at March 31, ~~2018, down from $156 million at December 31, 2017.~~

~~Borrowings~~

At2021. The actual amount of deposits to be transferred will be based on their balances as of the transaction closing date. As of March 31, ~~2018, we had~~2021, the ~~ability~~deposits to ~~borrow a total~~be transferred consists of ~~$754~~$52.7 million from the Federal Home Loan Bank, including an available line of credit of $50 million. We also had available credit lines with additional banks totaling $60 million. At March 31, 2018, outstanding FHLB borrowings totaled $343money market, savings and NOW accounts, $24.8 million time deposits and there were no amounts outstanding on lines of credit held by other banks. In addition, between April and September 2016, we issued $50 million in aggregate principal amount of our Fixed to Floating Subordinated Notes due April 15, 2026 (the “Subordinated Notes”), and an additional $15 million in August 2017, of which $65 million remained outstanding as of December 31, 2017.$455 thousand noninterest bearing demand deposits.

Borrowings

In addition to deposits, we use short-term borrowings, such as FHLB advances and aan FHLB overdraft credit line, as ~~a source~~sources of funds to meet the daily liquidity needs of our ~~customers and fund growth in earning assets.~~customers. Our short-term FHLB advances ~~consists~~consist primarily of advances of funds ~~made~~ for ~~one-to-two-week~~one- or two-week periods.

Table of Contents

At March 31, 2021 and December 31, 2020, outstanding FHLB borrowings totaled $318.0 million, and there were no amounts outstanding on lines of credit with other banks. In addition, $65.0 million in principal amount of our Notes remained outstanding as of March 31, 2021 and December 31, 2020.

At March 31, 2021, we had the ability to borrow an additional $86.2 million from the FHLB, which included an available line of credit of $50.0 million and a letter of credit of $7.5 million. We also had available credit lines with other banks totaling $80.0 million.

Shareholders’ Equity

Total shareholders’ equity was $321.9 million at March 31, 2021, an increase of $2.3 million, or 1%, from December 31, 2020. The increase was primarily a result of an increase in retained earnings.

Results of Operations for the Three Months Ended March 31, 2021 and 2020

General. Net income was $2.3 million for the three months ended March 31, 2021, an increase of $6.4 million compared to net loss of $(4.0) million for the three months ended March 31, 2020. The increase in net income (loss) was primarily attributable to a $0.7 million recovery of loan losses compared to a $20.9 million provision for loan losses for the three months ended March 31, 2020. The increase in net income (loss) was partially offset by a $5.4 million increase in professional fees, and a $5.4 million decrease in net interest income, as our asset mix changed and the net interest margin decreased to 2.45% for the three months ended March 31, 2021 from 3.57% for the same period in 2020. Return on average assets was 0.24% and (0.49)% for the three months ended March 31, 2021 and 2020, respectively. Return on average shareholders' equity was 2.87% and (4.73)% for the three months ended March 31, 2021 and 2020, respectively. The dividend payout ratio was 0.0% and (12.36)% for the three months ended March 31, 2021 and 2020, respectively. Total average shareholders' equity to total average assets was 8.42% and 10.35% for the three months ended March 31, 2021 and 2020, respectively.

Table of Contents

Average Balance Sheet and Related Yields and ~~Rates~~

Rates.The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, ~~2018, year ended December 31, 2017~~2021 and ~~three months ended March 31, 2017.~~2020. The average balances are daily averages and, for loans, include both performing and nonperforming balances. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.

As of and for the
Three Months Ended

As of and for the
Year Ended

As of and for the
Three Months Ended

March 31, 2018

December 31, 2017

March 31, 2017

Average
Balance

Interest

Average
Yield/
Rate

Average
Balance

Interest

Average
Yield/
Rate

Average
Balance

Interest

Average
Yield/
Rate

Interest Earning Assets

Loans

$
2,733,759

$
35,856

5.25
%
$
2,276,282

$
120,701

5.30
%
$
2,044,732

$
26,759

5.23
%
Securities includes restricted stock

141,616

819

2.31
%
113,847

1,890

1.66
%
97,329

365

1.50
%
Other interest earning assets

24,663

114

1.85
%
14,300

157

1.10
%
9,574

19

0.79
%
Total interest earning assets

2,900,038

36,789

5.07
%
2,404,429

122,748

5.11
%
2,151,635

27,143

5.05
%
Noninterest earning assets

Cash and due from banks

12,261

9,965

8,773

Other assets

47,146

46,886

45,139

Total average assets

$
2,959,445

$
2,461,280

$
2,205,547

Interest-bearing liabilities

Savings, NOW, Money Markets

$
1,525,436

$
4,135

1.10
%
$
1,333,043

$
11,985

0.90
%
$
1,200,209

$
2,459

0.83
%
Time deposits

705,824

2,454

1.41
%
476,303

5,585

1.17
%
422,972

1,075

1.03
%
Total deposits

2,231,260

6,589

1.20
%
1,809,346

17,570

0.97
%
1,623,181

3,534

0.88
%
FHLB borrowings

259,056

833

1.29
%
299,719

3,795

1.27
%
273,622

830

1.21
%
Subordinated notes, net

64,901

1,172

7.22
%
55,315

4,070

7.36
%
49,349

908

7.36
%
Total borrowings

323,957

2,005

2.48
%
355,034

7,865

2.22
%
322,972

1,738

2.15
%
Total interest-bearing liabilities

2,555,217

8,594

1.36
%
2,164,380

25,435

1.18
%
1,946,152

5,272

1.10
%
Noninterest- bearing liabilities:

Demand deposits

70,076

69,407

59,218

Other liabilities

50,052

39,952

32,210

Total noninterest- bearing liabilities

120,128

109,359

91,428

Shareholders’ equity

284,100

187,541

167,967

Total average liabilities and equity

$
2,959,445

$
2,461,280

$
2,205,547

Net interest income and spread

$
28,195

3.71
%

$
97,313

3.93
%

$
21,871

3.95
%
Net interest margin

3.89
%

4.05
%

4.07
%


	As of and for the
	Three Months Ended
	March 31, 2021						March 31, 2020
					Average						Average
	Average				Yield/		Average				Yield/
	Balance		Interest		Rate		Balance		Interest		Rate

	(Dollars in thousands)
Interest-earning assets
Loans⁽¹⁾
Residential real estate and other consumer	$	2,006,112	$	24,596	4.90	%	$	2,402,975	$	32,012	5.33	%
Commercial real estate		256,610		3,183	4.96	%		261,093		3,545	5.43	%
Construction		198,628		3,412	6.87	%		188,566		3,660	7.76	%
Commercial lines of credit		5,687		103	7.24	%		18,081		308	6.81	%
Total loans		2,467,037		31,294	5.07	%		2,870,715		39,525	5.51	%
Securities, includes restricted stock⁽²⁾		312,969		390	0.50	%		174,802		1,034	2.37	%
Other interest-earning assets		1,017,642		263	0.10	%		167,035		434	1.04	%
Total interest-earning assets		3,797,648		31,947	3.36	%		3,212,552		40,993	5.10	%
Noninterest-earning assets
Cash and due from banks		7,806						9,505
Other assets		42,969						74,467
Total assets	$	3,848,423					$	3,296,524
Interest-bearing liabilities
Money Market, Savings and NOW	$	1,382,390	$	935	0.27	%	$	1,257,276	$	3,307	1.06	%
Time deposits		1,592,064		5,767	1.47	%		1,173,693		7,057	2.41	%
Total interest-bearing deposits		2,974,454		6,702	0.91	%		2,430,969		10,364	1.71	%
FHLB borrowings		318,013		838	1.05	%		267,468		810	1.20	%
Subordinated notes, net		65,358		1,180	7.22	%		65,194		1,177	7.22	%
Total borrowings		383,371		2,018	2.11	%		332,662		1,987	2.36	%
Total interest-bearing liabilities		3,357,825		8,720	1.05	%		2,763,631		12,351	1.79	%
Noninterest-bearing liabilities
Demand deposits		59,424						75,875
Other liabilities		107,167						115,820
Shareholders’ equity		324,007						341,198
Total liabilities and shareholders’ equity	$	3,848,423					$	3,296,524
Net interest income and spread			$	23,227	2.31	%			$	28,642	3.31	%
Net interest margin					2.45	%					3.57	%

(1) Nonaccrual loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis.

(2) Interest income does not include taxable equivalent adjustments.

Table of Contents

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (2) changes attributable to rate (change in rate multiplied by the prior year’s volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.


								Three Months Ended
								March 31, 2021 vs. 2020
								Increase (Decrease)				Net
								due to				Increase
								Volume		Rate		(Decrease)
	Three Months Ended March 31, 2018 vs. 2017
	Increase (Decrease) due to					Total Increase
	Volume		Rate			(Decrease)
	(Dollars in thousands)
								(In thousands)
Change in interest income:
Loans	$	9,037	$	60		$	9,097
Securities includes restricted stock	207		247			454
Interest earning cash	52		43			95
Residential real estate and other consumer								$	(5,003)	$	(2,413)	$	(7,416)
Commercial real estate									(60)		(302)		(362)
Construction									173		(421)		(248)
Commercial lines of credit									(211)		6		(205)
Total loans									(5,101)		(3,130)		(8,231)
Securities, includes restricted stock									172		(816)		(644)
Other interest-earning assets									220		(391)		(171)
Total change in interest income	9,296		350			9,646			(4,709)		(4,337)		(9,046)
Change in interest expense:
Saving/Now/Money Markets	764		912			1,676
Money Market, Savings and NOW									86		(2,458)		(2,372)
Time deposits	890		489			1,379			1,612		(2,902)		(1,290)
Total deposits	1,654		1,401			3,055
FHLB borrowings and subordinated notes	257		10			267
Total interest-bearing deposits									1,698		(5,360)		(3,662)
FHLB borrowings									101		(73)		28
Subordinated notes, net									3		—		3
Total change in interest expense	1,911		1,411			3,322			1,802		(5,433)		(3,631)
Change in net interest income	$	7,385	$	(1,061	)	$	6,324	$	(6,511)	$	1,096	$	(5,415)

~~Results~~Net Interest Income. Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of ~~Operations for~~interest-earning assets and interest-bearing liabilities and the ~~Three Months Ended March 31, 2018~~corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and ~~2017~~market yield curves and their related impact on cash flows.

~~General.~~Net interest income ~~increased $5.3 million, or 51.2%, to $15.7~~was $23.2 million for the three months ended March 31, ~~2018~~2021, a decrease of $5.4 million, or 19%, from $28.6 million for the ~~comparable 2017 period. The increase was driven by a $6.3 million increase~~same period in ~~net interest income and a $1.0 million decrease in income tax expense partially offset by a $2.4 million increase in operating expenses.~~2020.

~~Interest Income.~~Interest income ~~increased $9.6 million, or 35.5%, to $36.8~~was $31.9 million for the three months ended March 31, ~~2018~~2021, a decrease of $9.0 million, or 22%, from the same period in 2020. The decrease in interest income was primarily due to a change in asset mix, as the size of our loan portfolio decreased with excess cash flows from loan repayments and deposits invested in short-term, low yielding liquid assets. Our average yield on interest-earning assets decreased 174 basis points to 3.36% for the three months ended March 31, ~~2017 primarily due to an increase~~2021, reflecting the change in ~~loans.~~ asset mix.

The ~~increase in interest income on~~average balance of our securities and other interest-earning assets, which generally are lower-yielding and more liquid than our loans, was ~~due to average outstanding loans increasing $689 million, or 33.7% to $2.73~~$1.33 billion for the three months ended March 31, ~~2018 from $2.04~~2021 compared to $341.8 million for the three months ended March 31, 2020. These assets had an average yield of 0.20% for the three months ended March 31, 2021.

Our average balance of loans decreased $403.7 million, or 14%, to $2.47 billion for the three months ended March 31, ~~2017. The~~2021, as net principal payments exceeded new loan production. Our average ~~rate collected~~yield on loans ~~increased 2~~decreased 44 basis points ~~or 0.02%,~~ to ~~5.25%~~5.07% for the three months ended March 31, ~~2018 from 5.23% for~~2021. The yield on our loan portfolio decreased primarily due to our variable-rate loans resetting at lower interest rates in the ~~three months ended March 31, 2017.~~lower interest rate environment and new loans originating at lower interest rates than the loans that paid off.

Table of Contents

~~Interest Expense.~~Interest expense ~~increased $3.3 million, or 63.0%, to $8.6~~was $8.7 million for the three months ended March 31, ~~2018~~2021, a decrease of $3.6 million, or 29%, from ~~$5.3~~the same period in 2020. The decrease was primarily due to rate decreases reflecting the impact of the lower interest rate environment, as our average rate paid on interest-bearing liabilities decreased 74 basis points to 1.05% for the three months ended March 31, 2021. The decrease in average rate was partially offset by an increase in the average balance of interest-bearing liabilities of $594.2 million, or 22%, for the three months ended March 31, 2021 that was primarily attributable to an increase in average interest-bearing deposits as we pursued our strategy of increasing our liquidity.

Our average balance of interest-bearing deposits increased $543.5 million, or 22%, to $2.97 billion for the three months ended March 31, 2021. Our average rate paid on interest-bearing deposits decreased 80 basis points to 0.91% for the three months ended March 31, 2021. The rates on interest-bearing deposits were lower than in the prior year in response to changes in market rates.

Net Interest Margin and Interest Rate Spread. Net interest margin was 2.45% for the three months ended March 31, 2021, down 112 basis points from 3.57% for the same period in 2020. The interest rate spread was 2.31% for the three months ended March 31, 2021, down 100 basis points from 3.31% for the same period in 2020. Our net interest margin and interest rate spread were negatively impacted during the three months ended March 31, 2021 by a substantial increase in highly liquid, lower yielding interest-earning assets on our balance sheet, as part of our strategy to increase liquidity in order to reduce our risk profile, which resulted in an increase in the relative proportion of our lower-yielding interest-earning assets consisting primarily of deposits held in an interest-bearing account at the Federal Reserve. The declines in net interest margin and interest rate spread were also due to lower yields in our loan portfolios, partially offset by lower rates paid on our interest-bearing deposits, which was a reflection of the low interest rate environment experienced during 2020, which continued in the first quarter of 2021. A discussion of the effects of changing interest rates on net interest income is set forth in “Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk” in this report.

Provision (Recovery) for Loan Losses. We recorded a recovery for loan losses of $0.7 million during the three months ended March 31, 2021, compared to a provision for loan losses of $20.9 million during the three months ended March 31, 2020. The recovery for loan losses was primarily attributable to a net decline in our loan balances during the quarter, partially offset by an increase in required allowance for loan losses reflecting a $13.8 million net increase in Special Mention, Substandard and Doubtful loans. The provision for loan losses for the quarter ended March 31, 2020 was attributable in part to certain qualitative components within our allowance for loan losses methodology that took on increased significance as a result of the economic impact of the COVID-19 pandemic on our loan portfolios.

Non-interest Income. Non-interest income information is as follows:


	Three Months Ended
	March 31,				Change
	2021		2020		Amount		Percent

	(Dollars in thousands)
Service charges and fees	$	159	$	117	$	42	36	%
Investment management and advisory fees		—		313		(313)	(100)	%
Net gain on sale of investment securities		—		233		(233)	(100)	%
Gain on sale of mortgage loans held for sale		398		269		129	48	%
Unrealized gains (losses) on equity securities		(90)		80		(170)	(213)	%
Net servicing loss		(430)		(911)		481	53	%
Income on cash surrender value of bank-owned life insurance		313		328		(15)	(5)	%
Other		103		100		3	3	%
Total non-interest income	$	453	$	529	$	(76)	(14)	%

Non-interest income of $0.5 million for the three months ended March 31, ~~2017, primarily~~2021 reflected a decrease of $0.1 million as compared to the same period of 2020. The decrease was partly attributable to the absence of investment management and advisory fees as we sold substantially all the assets of Quantum Capital Management in December 2020 and the absence of sales of investment securities. The decrease was partially offset by a ~~result of deposit growth, an increase~~decrease in ~~average rate on interest-bearing deposits, and an increase in the average rate of our borrowings. The average rate we paid on interest-bearing deposits increased 32 basis points to 1.20% for~~net servicing loss during the three months ended March 31, ~~2018 from 0.88 % for~~2021, primarily due to the ~~three months ended March 31, 2017. Our average balance~~reversal of ~~interest-bearing deposits increased $608~~$0.9 million ~~or 37.5%, to $2.23 billion for~~valuation allowance recorded in the three months ended March 31, 2018 from $1.62 billion for the three months ended March 31, 2017.The average rate paid on borrowings increased 33 basis points to 2.48% for the three months ended March 31, 2018 from 2.15% for the three months ended March 31, 2017current period as a result of changes in anticipated prepayments due to the increase in ~~subordinated debt and increase in borrowing rates at the FHLB.~~long-term interest rates.

Table of Contents

~~Net Interest Income.~~ ~~Net interest income increased $6.3 million, or 28.9%, to $28.2~~

Non-interest Expense. Non-interest expense information is as follows:


	Three Months Ended
	March 31,				Change
	2021		2020		Amount		Percent

	(Dollars in thousands)
Salaries and employee benefits	$	7,848	$	6,753	$	1,095	16	%
Occupancy and equipment		2,196		2,118		78	4	%
Professional fees		8,755		3,312		5,443	164	%
Advertising and marketing		40		273		(233)	(85)	%
FDIC assessments		719		19		700	N/M
Data processing		346		335		11	3	%
Net recovery for mortgage repurchase liability		(153)		—		(153)	N/M
Other		1,583		1,425		158	11	%
Total non-interest expense	$	21,334	$	14,235	$	7,099	50	%

N/M - not meaningful

Non-interest expense of $21.3 million for the three months ended March 31, ~~2018 from $21.9~~2021 reflected an increase of $7.1 million compared to $14.2 million for the same period in 2020. The increase is primarily attributable to an increase in professional fees, including legal and consulting expenses related to our efforts to achieve compliance with the OCC Agreement, our ongoing enhancements to our regulatory compliance framework (including our internal controls over financial reporting), and the ongoing government investigations and litigation. We expect to continue to incur such expenses during the pendency of these matters, with the potential for increased fees in the near term due to our cooperation with the recently commenced SEC investigation. We expect these increased fees will be offset by gradual reductions in professional fees incurred starting as early as the second half of 2021 as matters are resolved such as the class action lawsuit. Salaries and employee benefits increased $1.1 million as the Company experienced a significant transition of senior management in 2020, adding qualified personnel to assist with these challenges both throughout 2020 and the first quarter of 2021. FDIC assessments increased $0.7 million due to both the increase in the insurance assessment rate and the FDIC small bank assessment credit being applied in the first quarter of 2020.

Income Tax Expense (Benefit). We recorded an income tax expense of $0.8 million for the three months ended March 31, ~~2017 primarily due~~2021, compared to ~~average earning assets increasing $748 million.~~an income tax benefit of $1.9 million for the same period of 2020. Our ~~net interest~~effective tax rate ~~spread decreased 24 basis points to 3.71%~~was 24.6% and 31.9% for the three months ended March 31, 2018 from 3.95% for the three months ended March 31, 2017, while our net interest margin decreased 18 basis points to 3.89% for the three months ended March 31, 2018 from 4.07% for the three months ended March 31, 2017. The average yield we earned on interest earning assets increased 2 basis points to 5.07%2021 and ~~the average rate we paid on interest-bearing liabilities increased by 26 basis points to 1.36%.~~

~~Provision for Loan Losses.~~2020, respectively. Our provision for loan losses was $.6 million for the three months ended March 31, 2018 and 2017. The provisions recorded resulted in an allowance for loan losses of $19.1 million, or .74% of total loans at March 31, 2018, compared to $15.6 million, or.77% of total loans at March 31, 2017.

~~Non-interest Income.~~ ~~Non-interest income information is as follows:~~

Three Months Ended
March 31,

Change

2018

2017

Amount

Percent

(In thousands)

Non-interest Income

Service charges and fees

$
618

$
409

$
209

51.1
%
Investment management and advisory fees

623

552

71

12.9
%
Net gain on sale of mortgage loans

65

187

(122
)
(65.2
)%
Gain on sale of portfolio loans

3,941

3,865

76

2.0
%
Income on cash surrender value of bank-owned life insurance

295

291

4

1.4
%
Other income

495

282

213

75.5
%
Total non-interest income

$
6,037

$
5,586

$
451

8.1
%

Service charges and fees have increased primarily due to growth in loan commitments. Other income has increased primarily due to growth in the servicing portfolio of mortgage loans sold to the secondary market for which servicing has been retained.

~~Non-interest Expense.~~ ~~Non-interest expense information is as follows:~~

Three Months Ended
March 31,

Change

2018

2017

Amount

Percent

(In thousands)

Non-interest Expense

Salaries and employee benefits

$
6,649

$
5,410

$
1,239

22.9
%
Occupancy and equipment

1,546

1,389

157

11.3
%
Professional fees

622

369

253

68.6
%
Advertising and marketing

349

192

157

81.8
%
FDIC assessments

543

242

301

124.4
%
Data processing

288

207

81

39.1
%
Other

1,506

1,283

223

17.4
%
Total non-interest expense

$
11,503

$
9,092

$
2,411

26.5
%

Salaries and employee benefits increased primarily as a result of additional full-time equivalent employees to support balance sheet and overall growth. Occupancy and equipment expenses also increased with the expansion of our branch network. The increase in professional fees can primarily be attributable to costs of being a public company. FDIC assessments increased due to a corresponding increase in the Bank’s assessment base.

~~Income Tax Expense.~~ ~~We recorded an income tax expense of $6.3 million for the three months ended March 31, 2018, reflecting an~~ effective tax rate is based on forecasted annual results which may fluctuate significantly through the rest of ~~28.7%, compared to $7.3 million for~~ the ~~three months ended March 31, 2017, reflecting an effective tax rate of 41.4%. The decrease~~year, in ~~the effective tax rate was primarily~~particular due to the ~~reduction~~uncertainty in our annual forecasts resulting from the ~~federal corporate tax rate to 21% that was effective January 1, 2018 because~~unpredictable impact of ~~the Tax Cuts and Jobs Act (H.R.1).~~COVID-19 on our operating results.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations when they come due. ~~In addition to the cash received of $85.5 million from our initial public offering which closed in November 2017, our~~Our primary sources of funds consist of deposit inflows, loan repayments and FHLB borrowings. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly review the need to adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest earning deposits and securities and (4) the objectives of our asset/liability management program. Excess liquid assets are generally invested ~~generally~~ in ~~interest earning~~interest-earning deposits and short-term securities.

Our most liquid assets are cash and due from banks, interest-bearing time deposits with other banks and ~~U.S. Treasury and Agency~~debt securities classified as available for sale. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, ~~2018~~2021 and December 31, ~~2017,~~2020, cash and due from banks totaled ~~$37.5~~$873.2 million and ~~$40.1~~$998.5 million, ~~respectively. Securities classified as available-for-sale,~~respectively; interest-bearing time deposits with other banks totaled $5.5 million and $7.0 million, respectively; and debt securities available for sale, which provide additional sources of liquidity, totaled ~~$120.8~~$254.4 million atand $299.6 million, respectively.

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At both March 31, ~~2018~~2021 and ~~$122.6 million at~~ December 31, ~~2017.~~

At March 31, 2018, we had the ability to borrow a total of $754 million from Federal Home Loan Bank including an available line of credit with Federal Home Loan Bank of $50 million. At March 31, 2018, we also had available credit lines with additional banks for $60 million. Outstanding2020, outstanding FHLB borrowings ~~on March 31, 2018 with the Federal Home Loan Bank~~ totaled ~~$342.9~~$318.0 million, and there were no amounts outstanding on lines of credit with ~~the aforementioned additional~~other banks.

At March 31, 2021, we had the ability to borrow an additional $143.7 million from the FHLB, which included an available line of credit of $50.0 million and a letter of credit of $7.5 million. We also had available credit lines with other banks totaling $80.0 million.

We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. ~~In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, we could access~~We believe that our existing liquidity combined with our borrowing capacity with the ~~Federal Home Loan Bank,~~FHLB and our bank lines of credit, oras well as the ability to obtain additional funds through brokered ~~certificates~~deposits, would allow us to manage any unexpected increase in loan demand or any unforeseen financial demand or commitment.

To avoid the uncertainty of ~~deposit.~~

audits and inquiries by third-party investors in the Advantage Loan Program loans, beginning at the end of the second quarter of 2020, the Company commenced making offers to each of those investors to repurchase 100% of sold Advantage Loan Program loans. For the three months ended March 31, 2021, the Company has repurchased a pool of Advantage Loan Program loans with a total outstanding unpaid principal balance of $87.9 million. In addition, we entered into an agreement with the same investor to repurchase an additional pool prior to July 22, 2023, with the specific timing for the repurchase at the discretion of the investor. The aggregate principal balance of the loans in this pool at March 31, 2021 was $36.3 million. Should additional secondary market investors accept our offers to repurchase Advantage Loan Program loans with respect to a substantial portion of such outstanding loans, the cash required to fund these repurchases will substantially reduce our liquidity. At March 31, 2021, the unpaid principal balance of the sold Advantage Loan Program loans totaled $303.0 million.

At March 31, ~~2018,~~2021, we had ~~$425~~$128.4 million in loan commitments ~~outstanding. We also had $70,000~~outstanding and $24 thousand in standby letters of ~~credit at March 31, 2018.~~credit. At December 31, ~~2017,~~2020, we had ~~$426~~$181.0 million in loan commitments ~~outstanding. We also had $70,000~~outstanding, and $24 thousand in standby letters of ~~credit at December~~credit.

As of March 31, ~~2017.~~

~~Certificates of deposit~~2021, time deposits due within one year ~~of March 31, 2018 totaled $591 million,~~were $1.12 billion, or ~~26%~~39% of total deposits. Total ~~certificates of deposit~~time deposits at March 31, 2021 were ~~$680 million,~~$1.48 billion, or ~~30%,~~51% of total deposits. ~~Certificates~~As of ~~deposit~~December 31, 2020, time deposits due within one year ~~of December 31, 2017 totaled $427 million,~~were $1.26 billion, or ~~19%~~41% of total deposits. Total ~~certificates of deposit~~time deposits at December 31, ~~2017~~2020 were ~~$663 million,~~$1.65 billion, or ~~30%~~53% of total deposits. On March 19, 2021, the Bank entered into an agreement to sell the Bank's Bellevue, Washington branch office, subject to receipt of applicable regulatory approvals and other customary closing conditions. The sale includes the transfer of all deposit accounts located at the branch, with a total balance of $78.0 million at March 31, 2021, which we will fund utilizing our excess liquidity. This transaction is expected to close in the second quarter of 2021.

Our primary investing activities are the origination of loans and to a lesser extent, the purchase of investment securities. During the three months ended March 31, ~~2018,~~2021, we originated ~~$408~~$46.9 million of loans and ~~purchased $24.7 million of~~did not purchase any investment securities. During the three months ended March 31, ~~2017,~~2020, we originated ~~$257~~$185.4 million of loans and purchased ~~$35.2~~$75.7 million of investment securities.

Cash flows provided by loan payoffs totaled $184.3 million and $175.0 million during the three months ended March 31, 2021 and 2020, respectively.

Financing activities consist primarily of activity in deposit accounts. We experienced a net ~~increases~~decrease in total deposits of ~~$46.1~~$209.7 million ~~and $107.0 million for~~in the three months ended March 31, ~~2018 and 2017, respectively.~~2021, from $3.10 billion at December 31, 2020. We generate deposits from local businesses and individuals through customer referrals and other relationships and through our retail presence. We believe we have a very stable core deposit base evidenced by the average life of our accounts, which we attribute to a high level of customer service and our consistently competitive rates. We expect the high level of liquid accounts to be maintained. We utilize borrowings and brokered deposits ~~and bulk sales of whole loans~~ to supplement funding needs and manage ~~overall growth.~~our liquidity position.

The Company is a separate and distinct legal entity from the Bank, and, on a parent company-only basis, the Company’s primary source of funding is dividends received from the Bank. Banking regulations limit the dividends that may be paid by the Bank. Approval by regulatory authorities is required if the total capital distributions for the applicable calendar year exceed the sum of the Bank’s net income for that year to date plus the Bank’s retained net income for the preceding two years, or the Bank would not be at least adequately capitalized following the distribution. Banking regulations also limit the ability of the Bank to pay dividends under other circumstances, including if the Bank is subject to a formal agreement with the OCC, or other supervisory enforcement action. At March 31, 2021, the Bank is required to obtain the prior approval of the OCC in order to pay any dividends to the Company due to the existence of the OCC Agreement. The Company has the legal ability to access the debt and equity capital markets for funding, although the Company currently is required to obtain the prior approval of the FRB in order to issue debt.

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~~We also manage liquidity by selling pools~~

In recent years, the Company’s primary funding needs on a parent company-only basis have consisted of ~~our portfolio loans into~~dividends to shareholders, interest expense on subordinated debt and stock repurchases. At March 31, 2021, the ~~secondary market from time to time. We generated $112.2 million and $105.1~~Company had $65.0 million in ~~proceeds from~~principal amount of Notes outstanding that are due April 15, 2026 but may be redeemed by us, in whole or in part, on or after April 14, 2021. Interest expense on the ~~sale~~Notes was $1.2 million for each of ~~loans in~~ the three months ended March 31, ~~2018~~2021 and ~~2017, respectively.~~2020. The Notes had an interest rate of 7% per annum, payable semi-annually on April 15 and October 15 in arrears, through April 2021, after which the Notes converted to a variable interest rate of the three-month LIBOR rate plus a margin of 5.82%. The Company’s ability to pay cash dividends is restricted by the terms of the Notes as well as applicable provisions of Michigan law and the rules and regulations of the OCC and the FRB. Under the terms of the Notes, as long as the Notes are outstanding, the Company is permitted to pay dividends if, prior to such dividends, the Bank is considered well capitalized under applicable regulatory capital requirements. In addition, under Michigan law, the Company is prohibited from paying cash dividends if, after giving effect to the dividend, (i) it would not be able to pay its debts as they become due in the usual course of business or (ii) its total assets would be less than the sum of its total liabilities plus the preferential rights upon dissolution of shareholders with preferential rights on dissolution that are superior to those receiving the dividend, and we are currently required to obtain the prior approval of the FRB in order to pay any dividends to our shareholders.

~~The~~As long as we do not elect the community bank leverage ratio, federal regulations will continue to require the Company and the Bank ~~are subject~~ to ~~various~~meet several regulatory capital requirements administered by the Federal Reserve and the OCC, respectively. We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the Federal Reserve and the OCC. We review capital levels on a monthly basis including our needs for additional capital and ability to pay cash dividends. At March 31, ~~2018~~2021 and December 31, ~~2017, each of~~2020, the Company and the Bank ~~exceeded~~met all ~~applicable~~ regulatory capital requirements to which they are subject, and the Bank was considered ~~“well capitalized” under~~well capitalized for regulatory ~~guidelines. Refer to Note 13 in the Unaudited Condensed Consolidated Financial Statements for additional information.~~

prompt corrective action purposes.

The following tables present our capital ratios as of the indicated dates for the Company (on a consolidated basis) and Sterling Bank.

	Well Capitalized	Adequately Capitalized		Under Capitalized		Company Actual at March 31, 2018		Company Actual at December 31, 2017

															Company		Company
															Actual at		Actual at
										Well	Adequately		Under		March 31,		December 31,
										Capitalized	Capitalized		Capitalized		2021		2020
Total adjusted capital to risk-weighted assets	N/A	8.00	%	6.00	%	20.38	%	20.28	%	N/A	8.00	%	6.00	%	23.52	%	22.58	%
Tier 1 (core) capital to risk-weighted assets	N/A	6.00	%	4.00	%	15.77	%	15.53	%	N/A	6.00	%	4.00	%	18.48	%	17.68	%
Common Equity Tier 1 (CET 1)										N/A	4.50	%	3.00	%	18.48	%	17.68	%
Tier 1 (core) capital to adjusted tangible assets	N/A	4.00	%	3.00	%	9.73	%	9.83	%	N/A	4.00	%	3.00	%	8.34	%	8.08	%
Common Tier 1 (CET 1)	N/A	4.50	%	3.00	%	15.77	%	15.53	%

	Well Capitalized		Adequately Capitalized		Under Capitalized		Bank Actual at March 31, 2018		Bank Actual at December 31, 2017

																	Bank		Bank
																	Actual at		Actual at
											Well		Adequately		Under		March 31,		December 31,
											Capitalized		Capitalized		Capitalized		2021		2020
Total adjusted capital to risk-weighted assets	10.00	%	8.00	%	6.00	%	15.07	%	14.76	%	10.00	%	8.00	%	6.00	%	22.66	%	21.56	%
Tier 1 (core) capital to risk-weighted assets	8.00	%	6.00	%	4.00	%	14.02	%	13.71	%	8.00	%	6.00	%	4.00	%	21.37	%	20.27	%
Common Equity Tier 1 (CET 1)											6.50	%	4.50	%	3.00	%	21.37	%	20.27	%
Tier 1 (core) capital to adjusted tangible assets	5.00	%	4.00	%	3.00	%	8.65	%	8.68	%	5.00	%	4.00	%	3.00	%	9.60	%	9.20	%
Common Tier 1 (CET 1)	6.50	%	4.50	%	3.00	%	14.02	%	13.71	%

~~Basel III revised the~~These capital ~~adequacy~~ requirements ~~and the Prompt Corrective Action Framework~~were effective January 1, 2015 ~~for~~and are the ~~Company. When fully phased in on January 1, 2019,~~result of a final rule implementing recommendations of the Basel ~~Rules will require the Company to maintain a 2.5% “capital conservation buffer”~~Committee on ~~top~~Banking Supervision and certain requirements of the Dodd-Frank Act. In addition to establishing the minimum regulatory capital requirements, the regulations have established a CCB consisting of 2.5% of common equity Tier 1 capital to risk-weighted ~~asset ratios.~~assets above the amount necessary to meet its minimum risk-based capital requirements. The ~~capital conservation buffer~~CCB is designed to absorb losses during periods of economic stress. Banking institutions with a (i) CET1 to risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the minimum plus the ~~capital conservation buffer~~CCB will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall. ~~The implementation~~At March 31, 2021 and December 31, 2020, the Company and the Bank held capital in excess of the ~~capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.~~CCB.

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Recently Issued Accounting Guidance

~~Refer to~~See Note 2 ~~Summary of Significant~~— New Accounting ~~Policies,~~Standards, to our unaudited condensed consolidated financial statements included in “Part I, Item 1. Financial ~~Statements~~Statements” for a discussion of recently issued accounting guidance and related impact on our financial condition and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General.The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Asset Liability Committee of our ~~Board~~board of ~~Directors~~directors has oversight of our asset and liability management function, which is implemented and managed by our Management Asset Liability Committee. Our Management Asset Liability Committee meets regularly to review, among other things, the sensitivity of our assets and liabilities to product offering rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. Our management of interest rate risk is overseen by our board of directors ALCO, and implemented by our management ALCO based on a risk management infrastructure approved by our board of directors that outlines reporting and measurement requirements. In particular, this infrastructure sets limits, calculated quarterly, for various interest rate-related metrics, our economic value of equity (“EVE”) and net interest income simulations involving parallel shifts in interest rate curves. Steepening and flattening yield curves and various prepayment and deposit duration assumptions are prepared at least annually. Our interest rate management policies also require periodic review and documentation of all key assumptions used, such as identifying appropriate interest rate scenarios, setting loan prepayment rates and deposit durations based on historical analysis.

We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Net Interest Income Simulation.We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest income. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows.

The following table presents the estimated changes in net interest income of the Bank, calculated on a bank-only basis, which would result from changes in market interest rates over a ~~twelve-month~~12-month period beginning on March 31, ~~2018~~2021 and December 31, ~~2017.~~2020. The table below demonstrates that for the initial ~~twelve-month~~12-month period after an immediate and parallel rate ~~shock, we~~shock. We are ~~liability~~asset sensitive in aboth rising and falling interest rate ~~environment.~~environments. The asset sensitivity of our balance sheet increased from December 31, 2020 in the up-rate scenario, primarily as a result of our periodic review of key assumptions pertaining to non-maturity deposit sensitivity.

	At March 31,			At December 31,
	2018			2017

							At March 31,				At December 31,
							2021				2020
							Estimated				Estimated
							12-Months				12-Months
							Net Interest				Net Interest
Change in Interest Rates (Basis Points)	Estimated 12-Months Net Interest Income	Change		Estimated 12-Months Net Interest Income	Change		Income		Change		Income		Change
	(Dollars in thousands)
							(Dollars in thousands)
400	93,997	(23.8	)%	88,051	(25.0	)%	$	113,834	15	%	$	100,768	5	%
300	103,006	(16.5	)%	97,204	(17.2	)%		110,768	12	%		99,958	4	%
200	111,427	(9.7	)%	105,213	(10.4	)%		106,676	8	%		98,447	2	%
100	118,427	(4.0	)%	111,634	(4.9	)%		102,785	4	%		97,172	1	%
0	123,388			117,408				98,672				96,252
–100	125,103	1.4	%	118,818	1.2	%		94,705	(4)	%		92,993	(3)	%

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Our net interest income interest rate sensitivity is affected by the time periods in which our adjustable rate loans reprice. Our adjustable loans reprice in an average of 22 months with 95% repricing within the next five years.

Economic Value of Equity Simulation.We also analyze our sensitivity to changes in interest rates through an ~~economic value of equity (“EVE”)~~EVE model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. EVE attempts to quantify our economic value using a discounted cash flow methodology. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent parallel shifts in the yield curve. We currently calculate EVE under the assumptions that interest rates increase 100, 200, 300 and 400 basis points from current market rates, and under the assumption that interest rates decrease 100 basis points from current market rates.

The following table presents, as of March 31, 2021 and December 31, 2020, respectively, the ~~estimated~~impacts of immediate and permanent parallel hypothetical changes in market interest rates on EVE of the Bank, calculated on a bank-only ~~basis, which would result~~basis. The sensitivity of our balance sheet increased from ~~changes in market interest rates over a twelve-month period beginning March 31, 2018 and~~ December 31, ~~2017.~~2020 in the up-rate scenario, primarily as a result of our periodic review of key assumptions pertaining to non-maturity deposit sensitivity.

	At March 31,			At December 31,
	2018			2017

							At March 31,				At December 31,
							2021				2020
							Economic				Economic
							Value of				Value of
Change in Interest Rates (Basis Points)	Economic Value of Equity	Change		Economic Value of Equity	Change		Equity		Change		Equity		Change
	(Dollars in thousands)
							(Dollars in thousands)
400	397,316	(9.8	)%	373,010	(10.3	)%	$	493,632	7	%	$	412,393	(2)	%
300	422,665	(4.1	)%	399,470	(3.9	)%		494,676	7	%		420,927	0	%
200	439,115	(0.3	)%	415,216	(0.2	)%		489,168	6	%		425,241	1	%
100	446,192	1.3	%	421,089	1.3	%		479,979	4	%		426,110	1	%
0	440,636			415,880				463,554				420,561
–100	410,479	(6.8	)%	381,348	(8.3	)%		413,943	(11)	%		350,307	(17)	%

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

ITEM 4. CONTROLS AND PROCEDURES

Background

The Company commenced the Internal Review in 2019. The primary focus of the Internal Review, which has been led by outside legal counsel under the direction of the Special Committee, has involved the origination of residential mortgage loans under the Advantage Loan Program and related matters. During the course of the Internal Review, the Special Committee and management discovered that certain employees had engaged in misconduct in connection with the origination of a significant number of residential mortgage loans under the Advantage Loan Program, and management identified certain material weaknesses in the Company’s internal control over financial reporting, as further described in “Item 9A. Controls and Procedures” of our 2020 Form 10-K.

Limitations on Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Disclosure Controls and Procedures

The ~~Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s~~Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2018. The Company’s disclosure controls and procedures are designed to ~~ensure~~provide reasonable assurance that information required to be disclosed byin the ~~Company in the~~Company’s reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported

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within the specified time periods ~~specified~~ in the ~~SEC’s~~ rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including ~~the Company’s~~its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of the CEO and the CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of March 31, 2021. Based on ~~this evaluation,~~these evaluations, the ~~Company’s Chief Executive Officer~~CEO and ~~Chief Financial Officer~~the CFO concluded that the Company’s disclosure controls and procedures were not effective as of March 31, ~~2018.~~2021 because of certain material weaknesses in our internal control over financial reporting, as further described in “Item 9A. Controls and Procedures” of our 2020 Form 10-K.

Notwithstanding such material weaknesses in internal control over financial reporting, management has concluded that our condensed consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America.

Changes in Internal Control ~~over~~Over Financial Reporting

~~There were no~~Our management is required to evaluate, with the participation of our CEO and our CFO, any changes in ~~the Company’s~~ internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Other than the ~~three months~~remediation actions disclosed in “Item 9A. Controls and Procedures” of our 2020 Form 10-K, there were no changes in our internal control over financial reporting during the quarter ended March 31, ~~2018~~2021 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting. As discussed in “Item 9A. Controls and Procedures” of our 2020 Form 10-K, we have undertaken a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting.

PART II —- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~There~~Except as described below and as described in “Part II, Item 1A. Risk Factors,” we are nonot aware of any other material developments to our pending legal proceedings ~~including~~as disclosed in the Company’s 2020 Form 10-K, nor are we involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. We believe that such routine ~~litigation incidental~~legal proceedings, in the aggregate, are immaterial to our financial condition and results of operations.

Shareholder Litigation

The Company, certain of its current and former officers and directors and other parties were named as defendants in a shareholder class action captioned Oklahoma Police Pension and Retirement System v. Sterling Bancorp, Inc., et al., Case No. 5:20-cv-10490-JEL-EAS, filed on February 26, 2020 in the U.S. District Court for the Eastern District of Michigan. The plaintiff filed an amended complaint on July 2, 2020, seeking damages and reimbursement of fees and expenses. This action alleges violations of the federal securities laws, primarily with respect to disclosures concerning the Bank’s residential lending practices that were made in the Company’s registration statement and prospectus for its initial public offering, in subsequent press releases, in periodic and other filings with the SEC and during earnings calls. On September 22, 2020, the Company filed with the court a motion to dismiss the amended complaint. In February 2021, the plaintiff, the Company and each of the other defendants reached an agreement in principle to settle the securities class action lawsuit. On April 19, 2021, the plaintiff, the Company and each of the other defendants entered into the final settlement agreement and submitted it to the ~~business,~~court for its approval. Preliminary approval was granted by the court on April 28, 2021, and a final approval hearing is scheduled to ~~which~~be held before the court on September 16, 2021. The final agreement provides for a single $12.5 million cash payment in exchange for the release of all of the defendants from all alleged claims therein and remains subject to court approval and other conditions. The full amount of the settlement will be paid by the Company’s insurance carriers under applicable insurance policies. In the event final court approval is not received, the Company intends to vigorously defend this action.

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In the event final court approval is not received or ~~one~~the settlement is not finalized for any other reason, the Company intends to vigorously defend this action; but there can be no assurance that we will be successful in any defense. We will continue to incur legal fees in connection with this and potentially other cases, including expenses for the reimbursement of legal fees of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. If the case is decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations and cash flows. In addition, there can be no assurance (i) that we will not incur material losses due to damages, costs and/or expenses as a result of this litigation, (ii) that our directors' and officers' insurance policy and the liabilities we have established will be sufficient to cover such losses or (iii) that such losses will not materially exceed the coverage limits of our insurance and such liabilities and will not have a material impact on our financial condition or results of operations. Further, the amount of time that will be required to resolve this lawsuit is unpredictable, and this action, together with the threatened derivative action discussed elsewhere in this section and the government investigations discussed under “Risk Factors” are likely to divert management's attention from the day-to-day operations of our business, which could further adversely affect our business, results of operations and cash flows.

In addition, on July 28, 2020, the Company received a demand letter from two law firms representing a purported shareholder of the Company alleging facts and claims substantially the same as many of the alleged facts and claims in the class action lawsuit. The demand letter requests that the board of directors take action to (1) recover damages the Company has purportedly sustained as a result of alleged breaches of fiduciary duties by certain of its ~~subsidiaries~~officers and directors; (2) recover for the benefit of the Company the amounts by which certain of its officers and directors purportedly were unjustly enriched; and (3) correct alleged deficiencies in the Company's internal controls. The demand letter states that, if the board of directors has not taken the actions demanded within 90 days after the receipt of the letter, or in the event the board of directors refuses to take the actions demanded, the purported shareholder would commence a shareholder derivative action on behalf of the Company seeking appropriate relief. The board of directors established a demand review committee to evaluate the matters raised in the demand letter and to determine the actions, if any, that should be taken by the Company with respect to those matters. The Company responded to the demand letter advising the purported shareholder of the appointment of the demand review committee. The demand review committee’s investigation is ongoing; accordingly, no additional actions with respect to this matter have been taken by the board of directors. Further, legal action has not yet been brought by the purported shareholder. Nevertheless, expenses related to the evaluation by the demand review committee have been significant. There can be no assurance as to whether any litigation will be commenced by or against the Company with respect to the demand letter or that, if any such litigation is commenced, the Company will not incur material losses due to damages, penalties, costs and/or expenses as a ~~party.~~result of such litigation or that any such losses will not have a material impact on the Company’s financial condition or results of operations.

ITEM 1A. RISK FACTORS

~~There~~Except as described below, there are no material changes from the risk factors as disclosed in the Company’s ~~Annual Report~~2020 Form 10-K.

Pending government investigations may result in adverse findings, reputational damage, the imposition of sanctions and other negative consequences that could adversely affect our financial condition and future operating results.

The Bank is currently under formal investigation by the OCC relating primarily to certain aspects of its BSA/AML compliance program as well as the Bank’s credit administration, including its Advantage Loan Program. The Bank also has received grand jury subpoenas from the DOJ beginning in 2020 requesting the production of documents and information in connection with an investigation that appears to be focused on ~~Form 10-K for~~ the Bank’s Advantage Loan Program and related issues, including residential lending practices and public disclosures about that program. On April 15, 2021, the DOJ charged by criminal information the former managing director of residential lending of the Bank with conspiracy to commit bank and wire fraud in connection with the Advantage Loan Program, and that individual has entered into an agreement with the DOJ to plead guilty to that charge. The criminal information and plea agreement assert that the individual acted with the knowledge and encouragement of certain former members of senior management. In addition, the Company is responding to a formal investigation initiated by the SEC in the first quarter of 2021. This investigation appears to be focused on accounting, financial reporting and disclosure matters, as well as the Company’s internal controls, related to the Advantage Loan Program. The Company has received document requests from the SEC and is fully cooperating with this investigation. The Bank and the Company are fully cooperating with these government investigations. The outcome of the pending government investigations is uncertain. There can be no assurance (i) that we will not incur material losses due to damages, penalties, costs and/or expenses imposed on the Company as a result of such investigations, (ii) that the liability we have established will be sufficient to cover such losses or (iii) that such losses will not materially exceed such liabilities and have a

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material adverse effect on our future operations, financial condition, growth or results of operations or other aspects of our business. Adverse findings in any of these investigations could also result in additional regulatory scrutiny, constraints on the Bank’s business or other formal enforcement action. Any of those events could have a material adverse effect on our future operations, financial condition, growth or other aspects of our business. In addition, management’s time and resources will be diverted to address the investigations and any related litigation, and we have incurred, and expect to continue to incur, significant legal and other costs and expenses in our defense of the investigations.

Increases to the federal corporate tax rate would adversely affect our financial condition and results of operations in future periods.

On March 31, 2021, President Biden unveiled his infrastructure plan, which includes a proposal to increase the federal corporate tax rate from 21% to 28% as part of a package of tax reforms to help fund the spending proposals in the plan. The Biden plan is in the early stages of the legislative process, which is expected to proceed this year ~~ended December 31, 2017.~~due to the Democratic Party’s majority in both houses of Congress. If adopted as proposed, the increase of the corporate tax rate would adversely affect our financial condition and results of operations in future periods.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Program

On December 24, 2018, the board of directors approved the repurchase of up to $50.0 million of the Company’s outstanding shares of common stock. The stock repurchase program permits the Company to acquire shares of common stock from time to time in the open market or in privately negotiated transactions. The Company received regulatory approval of the stock repurchase program and publicly announced the program on January 28, 2019. The program does not have an expiration date. Under the stock repurchase program, the Company is not obligated to repurchase shares of its common stock, and there is no assurance that it will continue to do so. Any shares repurchased under this program will be canceled and returned to authorized but unissued status. In March 2020, in connection with the issues giving rise to the Internal Review, the Company suspended the stock repurchase program for at least the near term.There were no purchases of shares of common stock during the three months ended March 31, 2021 related to the Company’s previously announced stock repurchase program discussed above.

Withholding of Vested Restricted Stock Awards

During the three months ended March 31, 2021, the Company withheld shares of common stock representing a portion of the restricted stock awards that vested during the period under our employee stock benefit plans in order to pay employee tax liabilities associated with such vesting. These withheld shares are treated the same as repurchased shares for accounting purposes.

The ~~Registration Statement on Form S-1 (File No. 333-221016) for~~following table provides certain information with respect to our purchases of shares of the ~~initial public offering of our~~Company’s common stock, ~~was declared effective by~~as of the ~~Securities and Exchange Commission on November 16, 2017. There has been no material change in~~settlement date, during the ~~planned use~~three months ended March 31, 2021:


	Issuer Purchases of Equity Securities
				Total Number of		Approximate Dollar
				Shares Purchased as		Value of Shares that
	Total Number	Average		Part of Publicly		May Yet Be Purchased
	of Shares	Price Paid		Announced Plans or		Under the
Period	Purchased	per Share		Programs		Plans or Programs
January 1 - 31, 2021	—	$	—	—	$	19,568,117
February 1 - 28, 2021	—		—	—		19,568,117
March 1 - 31, 2021	8,536		5.42	—		19,568,117
Total	8,536	$	5.42	—

Table of ~~proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission on November 17, 2017 pursuant to Rule 424(b)(4).~~Contents

ITEM 6. EXHIBITS

A list of exhibits to this Form 10-Q is set forth in the Exhibit Index below.

Incorporated by Reference

Exhibit

Number

Exhibit Description

~~Exhibit Description~~Filed/Furnished
Herewith

Form

~~Filed~~
~~Herewith~~Period
Ending

Exhibit /
Appendix
Number

~~Form~~

~~Period~~
~~Ending~~

~~Exhibit /~~
~~Appendix~~
~~Number~~

Filing Date

10.1*

~~Form of Restricted Stock Award Agreement~~

~~8-K~~

~~10.1~~

~~March 27, 2018~~

10.2*

~~Form of Notice of Grant of Stock Option and Stock Option Agreement~~

~~8-K~~

~~10.2~~

~~March 27, 2018~~

31.1

Section 302 Certification — Chief Executive Officer

31.2

Section 302 Certification — Chief Financial Officer

32.1**

Section 906 Certification — Chief Executive Officer

32.2**

Section 906 Certification — Chief Financial Officer

~~101.INS~~101.INS**

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* ~~Indicates a management contract or compensatory plan or arrangement.~~

**This document is being furnished with this Form 10-Q. This certification is deemed not filed for purposes of Section 18 of the ~~Securities~~ Exchange Act, ~~of 1934, as amended,~~ or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, ~~of 1933, as amended,~~ or the ~~Securities~~ Exchange ~~Act~~Act.

** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Table of ~~1934, as amended.~~Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 14, ~~2018~~2021

STERLING BANCORP, INC.

(Registrant)

By:
/s/ THOMAS ~~LOPP~~M. O’BRIEN

Thomas ~~Lopp~~
M. O’Brien
~~President~~
Chairman and Chief ~~Operating~~Executive Officer

(Principal Executive Officer)

By:
/s/ STEPHEN HUBER

Stephen Huber
Chief Financial Officer

(Principal Financial ~~Officer~~ and
~~Principal~~ Accounting Officer)

51

62


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

Michigan		38-3163775
(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)		(I.R.S. Employer Identification Number)


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)

Large accelerated filer o☐	Accelerated filer o☐	~~Non-accelerated~~Non-accelerated filer x☒	Smaller reporting company o☒
		~~(Do not check if a~~	Emerging growth company x
☒		~~smaller reporting company)~~


PART I — FINANCIAL INFORMATION
Item 1.	~~Financial Statements (Unaudited)~~
Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2021 and December 31, ~~2017~~2020		2
		Condensed Consolidated Statements of Income for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020		3
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020		4
		Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2021 and ~~2017~~2020		5
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2021 and ~~2017~~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	34	37
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	47	56
Item 4.		Controls and Procedures	49	57

PART II — OTHER INFORMATION
Item 1.	~~Legal Proceedings~~	49Legal Proceedings		58
Item 1A.	~~Risk Factors~~	49Risk Factors		59
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	49	60
Item 6.	~~Exhibits~~	49Exhibits		61
Exhibit Index				5061
SIGNATURES				5162

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Retained			Comprehensive			Shareholders’
	Voting		Nonvoting		Capital		Earnings			Loss			Equity
Balance at January 1, 2017	$	22,863	$	2,885	$	15,118	$	121,446		$	(40	)	$	162,272
Net income	—		—		—		10,416			—			10,416
Capital contributions from controlling member of merged entity (Note 1)	—		—		218		—			—			218
Other comprehensive loss	—		—		—		—			(29		)	(29		)
Dividends distributed ($0.04 per share)	—		—		—		(1,767		)	—			(1,767		)
Balance at March 31, 2017	$	22,863	$	2,885	$	15,336	$	130,095		$	(69	)	$	171,110

Balance at January 1, 2018	$	111,238	$	—	$	12,416	$	149,816		$	(172	)	$	273,298
Cumulative effect adjustment, reclassification of unrealized losses on equity securities (Note 3)	—		—		—		(50		)	50			—
Net income	—		—		—		15,749			—			15,749
Stock-based compensation	—		—		9		—			—			9
Other comprehensive loss	—		—		—		—			(13		)	(13		)
Dividends distributed ($0.01 per share)	—		—		—		(531		)	—			(531		)
Balance at March 31, 2018	$	111,238	$	—	$	12,425	$	164,984		$	(135	)	$	288,512

	Three Months Ended March 31,
	2018		2017
Non-Interest Income:
Service charges on deposit accounts*	$	52	$	40
Investment management and advisory fees	623		552
Interchange fees*	25		26
Other service charges and fees*	7		3
Not within the scope of ASC 606	5,330		4,965
Total non-interest income	$	6,037	$	5,586

	March 31, 2018
	Amortized		Gross Unrealized					Fair
	Cost		Gain		Loss			Value

										March 31, 2021
										Amortized		Gross Unrealized				Fair
										Cost		Gain		Loss		Value
Available for sale:
U.S. Treasury securities	$	118,764	$	—	$	(224	)	$	118,540
U.S. Treasury & Agency securities										$	118,624	$	162	$	—	$	118,786
Mortgage-backed securities											31,462		70		(418)		31,114
Collateralized mortgage obligations	1,888		67		—			1,955			103,658		729		(68)		104,319
Collateralized debt obligations	311		—		(13		)	298			213		—		(20)		193
Total	$	120,963	$	67	$	(237	)	$	120,793	$	253,957	$	961	$	(506)	$	254,412

	March 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	$	118,540	$	(224	)	$	—	$	—		$	118,540	$	(224	)

																March 31, 2021
																Less than 12 Months				12 Months or More				Total
																Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
																Value		Losses		Value		Losses		Value		Losses
Mortgage-backed securities																$	20,970	$	(418)		—	$	—	$	20,970	$	(418)
Collateralized mortgage obligations																	32,360		(68)		—		—		32,360		(68)
Collateralized debt obligations	—		—			298		(13		)	298		(13		)		—		—		193		(20)		193		(20)
Total	$	118,540	$	(224	)	$	298	$	(13	)	$	118,838	$	(237	)	$	53,330	$	(486)	$	193	$	(20)	$	53,523	$	(506)

	Three months ended March 31, 2018
Net losses recorded during the period on equity securities	$	(64	)
Less: Net losses recorded during the period on equity securities sold during the period	—
Unrealized losses recorded during the period on equity securities held at the reporting date	$	(64	)

March 31, 2018	Construction		Residential Real Estate			Commercial Real Estate		Commercial Lines of Credit		Other Consumer		Unallocated		Total

																						Commercial
																Residential		Commercial				Lines of		Other
Three Months Ended March 31, 2021																Real Estate		Real Estate		Construction		Credit		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,218	$	12,279		$	2,040	$	469	$	1	$	1,450	$	18,457	$	32,366	$	21,942	$	17,988	$	91	$	—	$	—	$	72,387
Provision for loan losses	760		(782		)	501		147		—		15		641
Provision (recovery) for loan losses																	486		805		(2,023)		(5)		—		—		(737)
Charge offs	—		—			—		—		—		—		—			—		—		—		—		—		—		—
Recoveries	1		2			31		—		—		—		34			204		16		1		—		—		—		221
Total ending balance	$	2,979	$	11,499		$	2,572	$	616	$	1	$	1,465	$	19,132	$	33,056	$	22,763	$	15,966	$	86	$	—	$	—	$	71,871

																						Commercial
																Residential		Commercial				Lines of		Other
Three Months Ended March 31, 2020																Real Estate		Real Estate		Construction		Credit		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance																$	12,336	$	5,243	$	3,822	$	328	$	1	$	—	$	21,730
Provision (recovery) for loan losses																	6,808		5,999		7,616		40		—		390		20,853
Charge offs																	—		—		—		—		—		—		—
Recoveries																	10		19		1		—		—		—		30
Total ending balance																$	19,154	$	11,261	$	11,439	$	368	$	1	$	390	$	42,613

March 31, 2017	Construction		Residential Real Estate		Commercial Real Estate		Commercial Lines of Credit		Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	679	$	11,863	$	915	$	373	$	2	$	990	$	14,822
Provision for loan losses	185		—		147		3		—		265		600
Charge offs	—		—		—		—		—		—		—
Recoveries	95		10		40		—		—		—		145
Total ending balance	$	959	$	11,873	$	1,102	$	376	$	2	$	1,255	$	15,567

March 31, 2018	Construction		Residential Real Estate		Commercial Real Estate		Commercial Lines of Credit		Other Consumer		Unallocated		Total

																					Commercial
															Residential		Commercial				Lines of		Other
March 31, 2021															Real Estate		Real Estate		Construction		Credit		Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	46	$	11	$	95	$	—	$	—	$	152	$	43	$	—	$	1,965	$	4	$	—	$	—	$	2,012
Collectively evaluated for impairment	2,979		11,453		2,561		521		1		1,465		18,980			33,013		22,763		14,001		82		—		—		69,859
Total ending allowance balance	$	2,979	$	11,499	$	2,572	$	616	$	1	$	1,465	$	19,132	$	33,056	$	22,763	$	15,966	$	86	$	—	$	—	$	71,871
Loans:
Loans individually evaluated for impairment	$	—	$	122	$	2,774	$	335	$	—	$	—	$	3,231	$	208	$	19,032	$	41,988	$	2,408	$	—	$	—	$	63,636
Loans collectively evaluated for impairment	179,846		2,134,325		236,430		45,831		29		—		2,596,461			2,008,231		244,476		142,502		2,621		4		—		2,397,834
Total ending loans balance	$	179,846	$	2,134,447	$	239,204	$	46,166	$	29	$	—	$	2,599,692	$	2,008,439	$	263,508	$	184,490	$	5,029	$	4	$	—	$	2,461,470

	At March 31, 2018						At December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses

													At March 31, 2021						At December 31, 2020
													Unpaid				Allowance		Unpaid				Allowance
													Principal		Recorded		for Loan		Principal		Recorded		for Loan
													Balance		Investment		Losses		Balance		Investment		Losses
With no related allowance for loan losses recorded:
Commercial real estate, retail	$	1,415	$	1,228	$	—	$	1,431	$	1,247	$	—
Commercial lines of credit, private banking	145		145		—		147		147		—
Residential real estate, first mortgage													$	113	$	91	$	—	$	116	$	94	$	—
Commercial real estate:																								—
Retail														1,240		1,016		—		1,247		1,029		—
Hotels/Single-room occupancy hotels														17,923		18,016		—		11,428		11,419		—
Construction														35,150		34,560		—		42,669		41,951		—
Commercial lines of credit, C&I lending														2,285		2,285		—		3,857		3,857		—
Subtotal	1,560		1,373		—		1,578		1,394		—			56,711		55,968		—		59,317		58,350		—
With an allowance for loan losses recorded:
Residential real estate, first mortgage	122		122		46		122		122		37			113		117		43		114		114		41
Commercial real estate, offices	1,558		1,546		11		1,567		1,557		19
Commercial real estate, hotels/single-room occupancy hotels														—		—		—		8,645		8,526		287
Construction														7,463		7,428		1,965		6,920		6,920		1,905
Commercial lines of credit, private banking	190		190		95		196		196		98			123		123		4		124		124		4
Subtotal	1,870		1,858		152		1,885		1,875		154			7,699		7,668		2,012		15,803		15,684		2,237
Total	$	3,430	$	3,231	$	152	$	3,463	$	3,269	$	154	$	64,410	$	63,636	$	2,012	$	75,120	$	74,034	$	2,237

	Three Months Ended March 31,
	2018						2017
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Residential real estate, construction	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Retail	1,238		16		10		1,308		17		17
Gas stations	—		—		—		31		—		—
Commercial lines of credit, private banking	146		2		2		153		2		2
Subtotal	1,384		18		12		1,492		19		19
With an allowance recorded:
Residential real estate, first mortgage	122		1		1		122		1		4
Commercial real estate, offices	1,550		21		14		1,587		19		19
Commercial lines of credit, private banking	193		3		2		213		3		3
Subtotal	1,865		25		17		1,922		23		26
Total	$	3,249	$	43	$	29	$	3,414	$	42	$	45

	March 31, 2018				December 31, 2017
	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing

									March 31, 2021				December 31, 2020
											Loans Past				Loans Past
											Due Over				Due Over
											90 Days Still				90 Days Still
									Nonaccrual		Accruing		Nonaccrual		Accruing
Residential real estate:
Residential first mortgage	$	4,912	$	129	$	573	$	131	$	26,921	$	45	$	20,043	$	46
Residential second mortgage										714		—		686		—
Commercial real estate:
Retail	74		—		79		—			1,016		—		20		—
Hotels/Single-room occupancy hotels										18,016		—		19,945		—
Construction										34,581		—		41,873		—
Commercial lines of credit:
Private banking										2,285		—		2,285		—
C&I lending										—		—		1,572		—
Total	$	4,986	$	129	$	652	$	131	$	83,533	$	45	$	86,424	$	46

March 31, 2018	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Construction	$	—	$	—	$	—	$	—	$	179,846	$	179,846

																	Greater
													30 - 59		60 - 89		than
													Days		Days		89 Days		Total		Loans Not
March 31, 2021													Past Due		Past Due		Past Due		Past Due		Past Due		Total
Residential real estate:
Residential first mortgage	731		48		5,041		5,820		2,109,748		2,115,568		$	28,749	$	12,780	$	26,966	$	68,495	$	1,922,807	$	1,991,302
Residential second mortgage	295		—		—		295		18,584		18,879			—		—		714		714		16,423		17,137
Commercial real estate:
Retail	—		—		74		74		10,423		10,497			1,232		—		1,016		2,248		13,845		16,093
Apartments	—		—		—		—		61,388		61,388
Multifamily														—		—		—		—		87,502		87,502
Offices	—		—		—		—		25,592		25,592			—		—		—		—		24,551		24,551
Hotel	—		—		—		—		103,653		103,653
Hotels/Single-room occupancy hotels														5,457		—		18,016		23,473		52,011		75,484
Industrial	—		—		—		—		11,317		11,317			—		—		—				13,158		13,158
Gas stations	—		—		—		—		1,036		1,036
Other	—		—		—		—		25,721		25,721			—		384		—		384		46,336		46,720
Construction														11,771		—		34,581		46,352		138,138		184,490
Commercial lines of credit:
Private banking	—		—		—		—		26,587		26,587			—		—		2,285		2,285		123		2,408
C&I lending	—		—		—		—		19,579		19,579			715		—		—		715		1,906		2,621
Other consumer loans	—		—		—		—		29		29
Other consumer														—		—		—		—		4		4
Total	$	1,026	$	48	$	5,115	$	6,189	$	2,593,503	$	2,599,692	$	47,924	$	13,164	$	83,578	$	144,666	$	2,316,804	$	2,461,470

December 31, 2017	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Construction	$	—	$	—	$	—	$	—	$	192,319	$	192,319
Residential real estate:
Residential first mortgage	8,902		392		704		9,998		2,105,142		2,115,140
Residential second mortgage	107		—		—		107		17,394		17,501
Commercial real estate:
Retail	—		—		79		79		10,530		10,609
Apartments	—		—		—		—		59,582		59,582
Offices	—		—		—		—		26,571		26,571
Hotel	—		—		—		—		103,195		103,195
Industrial	—		—		—		—		15,907		15,907
Gas stations	—		—		—		—		1,067		1,067
Other	—		—		—		—		30,145		30,145
Commercial lines of credit:
Private banking	—		—		—		—		22,898		22,898
C&I lending	—		—		—		—		17,851		17,851
Other consumer loans	—		—		—		—		29		29
Total	$	9,009	$	392	$	783	$	10,184	$	2,602,630	$	2,612,814


			Special
March 31, 2021	Pass		Mention		Substandard		Doubtful		Total
Residential real estate:
Residential first mortgage	$	1,964,336	$	—	$	26,875	$	91	$	1,991,302
Residential second mortgage		16,423		—		714		—		17,137
Commercial real estate:
Retail		13,513		1,564		1,016		—		16,093
Multifamily		58,812		13,598		15,092		—		87,502
Offices		9,669		1,612		13,270		—		24,551
Hotels/ Single-room occupancy hotels		17,402		17,915		40,167		—		75,484
Industrial		5,859		—		7,299		—		13,158
Other		33,320		7,736		5,664		—		46,720
Construction		127,488		13,374		36,200		7,428		184,490
Commercial lines of credit:
Private banking		123		2,285		—		—		2,408
C&I lending		2,587		34		—		—		2,621
Other consumer		4		—		—		—		4
Total	$	2,249,536	$	58,118	$	146,297	$	7,519	$	2,461,470

March 31, 2018	Pass		Special Mention		Substandard		Doubtful		Total
Construction	$	160,343	$	16,049	$	3,454	$	—	$	179,846
Residential real estate:
Residential first mortgage	2,110,600		—		4,339		629		2,115,568
Residential second mortgage	18,879		—		—		—		18,879
Commercial real estate:
Retail	9,268		—		1,229		—		10,497
Apartments	59,798		1,590		—		—		61,388
Offices	25,592		—		—		—		25,592
Hotel	103,653		—		—		—		103,653
Industrial	11,317		—		—		—		11,317
Gas stations	1,036		—		—		—		1,036
Other	20,379		4,704		638		—		25,721
Commercial lines of credit:
Private banking	26,397		—		190		—		26,587
C&I lending	18,706		873		—		—		19,579
Other consumer loans	29		—		—		—		29
Total	$	2,565,997	$	23,216	$	9,850	$	629	$	2,599,692

	March 31, 2018		December 31, 2017
Residential real estate mortgage loan portfolios serviced for:
FNMA	$	72,707	$	73,039
FHLB	93,402		92,697
Private investors	518,557		442,984

	March 31, 2018		Interest Rates	December 31, 2017		Interest Rates
Short-term fixed rate advances	$	125,000	1.78%	$	148,000	1.47% - 1.56%
Short-term adjustable rate advances	15,000		2.06%*	—
Total short-term FHLB advances	140,000			148,000
Long-term fixed rate advances	190,000		0.98%-1.18%	190,000		0.98% - 1.18%
Total FHLB advances	330,000			338,000
FHLB overdraft line of credit	12,937		2.06%*	—
Total	$	342,937		$	338,000

	March 31, 2018			December 31, 2017
7.0% fixed to floating rate subordinated notes	$	65,000		$	65,000
Unamortized note premium	575			588
Unamortized debt issuance costs	(652		)	(699		)
Total	$	64,923		$	64,889

Exercise price of options	$	13.73
Risk-free interest rate	2.80		%
Expected term (in years)	6.75
Expected stock price volatility	23.7		%
Dividend yield	.29		%

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
				(Years)
Outstanding at January 1, 2018	—	$	—	—	$	—

										Weighted
								Weighted		Average
								Average		Remaining	Aggregate
							Number	Exercise		Contractual	Intrinsic
							of Shares	Price		Term	Value
										(Years)
Outstanding at January 1, 2021							377,882	$	5.61	9.09	$	—
Granted	92,625	13.73					—		—
Exercised	—	—					—		—
Forfeited/expired	—	—					(3,000)		13.73
Outstanding at March 31, 2018	92,625	$	13.73	9.97	$	—
Outstanding at March 31, 2021							374,882	$	5.54	8.86	$	498

Exercisable at March 31, 2021							128,550	$	5.89	8.78	$	166


		Weighted Average
	Number	Grant Date Fair
	of Shares	Value

Nonvested at January 1, 2021	137,936	$	7.90
Granted	45,000		4.72
Vested	(31,906)		7.67
Forfeited	(8,918)		9.30
Nonvested at March 31, 2021	142,112	$	6.85

			Fair Value Measurements at March 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Available for sale debt securities:
U.S. Treasury securities	$	118,540	$	118,540	$	—	$	—
Collateralized mortgage obligations	1,955		—		1,955		—
Collateralized debt obligations	298		—		—		298
Equity securities	3,917		3,917		—		—

	Fair Value		Valuation Technique	Unobservable Inputs
March 31, 2018
Collateralized debt obligations	$	298	Discounted cash flow	Collateral default rate	0%
				Recovery probability	15%
December 31, 2017
Collateralized debt obligations	$	571	Discounted cash flow	Collateral default rate	0%
				Recovery probability	15%


	Quantitative Information about Level 3 Fair Value Measurements at March 31, 2021
			Valuation		Range
	Fair Value		Technique	Unobservable Inputs	(Weighted Average) ⁽¹⁾
Impaired loans:
Construction	$	5,463	Hybrid of sales comparison and income capitalization approaches	Adjustments for differences between the comparable sales and income data for similar loans and collateral underlying such loans	N/A (15%)
Mortgage servicing rights	$	3,244	Discounted cash flow	Discount rate	9.5% - 12.0% (11.5%)
				Prepayment speed	10.6% - 36.2% (22.9%)
				Default rate	0.1% - 0.2% (0.2%)

	Capital Weighted Assets				Tier 1 Capital to Average		Common Tier 1
	Total		Tier 1		Assets		(CET1)
Well Capitalized	10.0	%	8.0	%	5.0	%	6.5	%
Adequately Capitalized	8.0	%	6.0	%	4.0	%	4.5	%
Undercapitalized	6.0	%	4.0	%	3.0	%	3.0	%