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

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~~2023

☐
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 from       to       to

Commission File Number 001-38290

Sterling Bancorp, Inc.
(Exact name of registrant as specified in its charter)

Michigan
38-3163775
(State or other jurisdiction of
~~(I.R.S. Employer~~

incorporation or organization)

(I.R.S. Employer
Identification Number)

One Towne Square, Suite 1900
Southfield, Michigan48076
~~(248)~~ (248) 355-2400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock

SBT

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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~~1, 2023,50,791,553 shares of the ~~Registrant’s~~registrant’s Common Stock were outstanding.

Table of Contents

STERLING BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
~~FORM 10-Q~~
~~INDEX~~

PART I — FINANCIAL INFORMATION

Page
Item 1.
Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2023 and December 31, ~~2017~~2022

2

Condensed Consolidated Statements of ~~Income~~Operations for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022

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
38
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
47
59
Item 4.
Controls and Procedures
49
61

PART II — OTHER INFORMATION

Item 1.
Legal Proceedings
49
62
Item 1A.
Risk Factors
49
63
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49
65
Item 6.
Exhibits
49
66
Exhibit Index

50
SIGNATURES

5167

1
Table of Contents

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

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

ITEM 1. FINANCIAL STATEMENTS

March 31,

December 31,


2023

2022
Assets




Cash and due from banks

$
419,219

$
379,798
Interest-bearing time deposits with other banks

934

934
Debt securities available for sale, at fair value (amortized cost $365,622 and $370,489)

342,534

343,558
Equity securities

4,712

4,642
Loans held for sale

37,979

7,725
Loans, net of allowance for credit losses of $38,565 and $45,464

1,513,481

1,613,385
Accrued interest receivable

7,617

7,829
Mortgage servicing rights, net

1,703

1,794
Leasehold improvements and equipment, net

6,139

6,301
Operating lease right-of-use assets

13,916

14,800
Federal Home Loan Bank stock, at cost

20,288

20,288
Company-owned life insurance

8,553

8,501
Deferred tax asset, net

20,065

23,704
Other assets

14,408

11,476
Total assets

$
2,411,548

$
2,444,735

Liabilities and Shareholders’ Equity

Liabilities




Noninterest-bearing deposits

$
46,496

$
53,041
Interest-bearing deposits

1,875,326

1,900,996
Total deposits

1,921,822

1,954,037
Federal Home Loan Bank borrowings

50,000

50,000
Subordinated notes, net

65,253

65,271
Operating lease liabilities

15,089

15,990
Accrued expenses and other liabilities

43,874

46,810
Total liabilities

2,096,038

2,132,108

Shareholders’ equity



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

—

—
Common stock, no par value, authorized 500,000,000 shares; issued and outstanding 50,808,116 shares and 50,795,871 shares at March 31, 2023 and December 31, 2022, respectively

83,295

83,295
Additional paid-in capital

14,906

14,808
Retained earnings

234,048

234,049
Accumulated other comprehensive loss

(16,739)

(19,525)
Total shareholders’ equity

315,510

312,627
Total liabilities and shareholders’ equity

$
2,411,548

$
2,444,735

See accompanying notes to condensed consolidated financial statements.

2
Table of Contents

Sterling Bancorp, Inc.
Condensed Consolidated Statements of ~~Income~~Operation (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,


2023

2022
Interest income

Interest and fees on loans

$
22,160

$
23,868
Interest and dividends on investment securities and restricted stock

2,456

835
Other interest

4,807

215
Total interest income

29,423

24,918

Interest expense

Interest on deposits

9,809

2,330
Interest on Federal Home Loan Bank borrowings

245

352
Interest on subordinated notes

1,693

964
Total interest expense

11,747

3,646

Net interest income

17,676

21,272
Provision for (recovery of) credit losses

674

(4,289)
Net interest income after provision for (recovery of) credit losses

17,002

25,561

Non-interest income

Service charges and fees

94

122
Loss on the sale of investment securities

(2)

—
Gain (loss) on sale of mortgage loans held for sale

(25)

197
Unrealized gain (loss) on equity securities

71

(236)
Net servicing income

59

443
Income earned on company-owned life insurance

80

328
Other

1

557
Total non-interest income

278

1,411

Non-interest expense

Salaries and employee benefits

9,410

9,617
Occupancy and equipment

2,112

2,142
Professional fees

3,221

5,157
FDIC assessments

257

369
Data processing

738

805
Net provision for (recovery of) mortgage repurchase liability

120

(213)
Other

1,979

1,546
Total non-interest expense

17,837

19,423

Income (loss) before income taxes

(557)

7,549
Income tax expense (benefit)

(54)

2,289
Net income (loss)

$
(503)

$
5,260

Income (loss) per share, basic and diluted

$
(0.01)

$
0.10

Weighted average common shares outstanding:

Basic

50,444,463

50,191,288
Diluted

50,444,463

50,406,123

See accompanying notes to condensed consolidated financial statements.

3
Table of Contents

Sterling Bancorp, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(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,


2023

2022
Net income (loss)

$
(503)

$
5,260
Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on investment securities, arising during the period, net of tax effect of $1,054 and $(2,933), respectively

2,785

(7,543)
Reclassification adjustment for loss included in net income of $2 and $-, respectively, included in loss on sale of investment securities, net of tax effect of $1 and $-, respectively

1

—
Total other comprehensive income (loss)

2,786

(7,543)
Comprehensive income (loss)

$
2,283

$
(2,283)

See accompanying notes to condensed consolidated financial statements.

4
Table of Contents

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

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, 2022

50,460,932

$
82,157

$
14,124

$
248,243

$
(897)

$
343,627
Net income

—

—

—

5,260

—

5,260
Repurchase of restricted shares to pay employee tax liability

(13,383)

—

(84)

—

—

(84)
Stock-based compensation

49,284

—

146

—

—

146
Other comprehensive loss

—

—

—

—

(7,543)

(7,543)
Balance at March 31, 2022

50,496,833

$
82,157

$
14,186

$
253,503

$
(8,440)

$
341,406

Balance at January 1, 2023

50,795,871

$
83,295

$
14,808

$
234,049

$
(19,525)

$
312,627
Cumulative-effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2016-13 (Note 2)

—

—

—

778

—

778
Cumulative-effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2022-02 (Note 2)

—

—

—

(276)

—

(276)
Net loss

—

—

—

(503)

—

(503)
Repurchase of restricted shares to pay employee tax liability

(12,166)

—

(75)

—

—

(75)
Stock-based compensation

24,411

—

173

—

—

173
Other comprehensive income

—

—

—

—

2,786

2,786
Balance at March 31, 2023

50,808,116

$
83,295

$
14,906

$
234,048

$
(16,739)

$
315,510

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,


2023

2022
Cash Flows From Operating Activities




Net income (loss)

$
(503)

$
5,260
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Provision for (recovery of) credit losses

674

(4,289)
Deferred income taxes

2,394

3,494
Loss on sale of investment securities

2

—
Unrealized (gain) loss on equity securities

(71)

236
Net amortization (accretion) on investment securities

(491)

86
Depreciation and amortization on leasehold improvements and equipment

352

391
Originations, net of principal payments, of loans held for sale

(2,667)

(698)
Proceeds from sale of mortgage loans held for sale

2,979

1,518
(Gain) loss on sale of loans originated for investment and loans held for sale

25

(197)
Net provision for (recovery of) mortgage repurchase liability

120

(213)
Increase in cash surrender value of company-owned life insurance, net of premiums

(52)

(130)
Valuation allowance adjustments and amortization of mortgage servicing rights

91

(157)
Stock-based compensation

173

146
Other

55

(17)
Change in operating assets and liabilities:

Accrued interest receivable

212

1,041
Other assets

(2,340)

(1,586)
Accrued expenses and other liabilities

(4,426)

(3,687)
Net cash provided by (used in) operating activities

(3,473)

1,198

Cash Flows From Investing Activities




Maturities and principal receipts of investment securities

5,358

12,352
Sales of investment securities

2,977

—
Purchases of investment securities

(2,979)

(73,632)
Proceeds received from redemption of Federal Home Loan Bank stock

—

2,662
Net decrease in loans

70,008

142,123
Principal payments received on commercial real estate loans held for sale

10

2,515
Proceeds from the sale of commercial real estate loans originated for investment

—

49,610
Purchases of leasehold improvements and equipment

(190)

(114)
Net cash provided by investing activities

75,184

135,516

Cash Flows From Financing Activities




Net decrease in deposits

(32,215)

(61,563)
Cash paid for surrender of vested shares to satisfy employee tax liability

(75)

(84)
Net cash used in financing activities

(32,290)

(61,647)
Net change in cash and due from banks

39,421

75,067
Cash and due from banks at beginning of period

379,798

411,676
Cash and due from banks at end of period

$
419,219

$
486,743

Supplemental cash flows information




Cash paid for:




Interest

$
11,424

$
3,768
Income taxes

25

82
Noncash investing and financing activities:

Transfer of residential real estate loans to loans held for sale

34,581

—
Transfer of residential real estate loans from loans held for sale

3,906

—

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

—

See accompanying notes to condensed consolidated financial statements.

6
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and 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, together with its subsidiaries, the “Company”) is a unitary thrift holding company that was incorporated in 1989 and the parent company toof its wholly owned subsidiary, Sterling Bank and Trust, F.S.B. (the “Bank”). The Company’s business is conducted through the Bank, which was formed in 1984. The Bank originates ~~construction,~~ residential and commercial real estate loans, construction loans, commercial ~~lines of credit,~~and industrial loans and other consumer loans and ~~receives deposits from its customers located~~provides deposit products, consisting primarily of checking, savings and term certificate accounts. It also engages in ~~California~~mortgage banking activities and, ~~Michigan.~~as such, acquires, sells and services residential mortgage loans. The Bank operates through a network of 28 ~~branches: one branch at its headquarters, 25~~ 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, the Bank’s operations include a registered investment advisory business with assets held under management of $451 million at March 31, 2018.~~
York and Southfield, Michigan.
The Company is headquartered in Southfield, Michigan, and its operations are in the financial services industry. Management evaluates the performance of ~~its~~the Company’s business based on one reportable segment, community banking.
The Company is subject to regulation, examination and supervision by the Board of Governors of the Federal Reserve ~~(“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,~~2023, and the condensed consolidated statements of ~~income,~~operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022 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~~2023 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018~~2023 or for any future annual or interim period. The condensed consolidated balance sheet at December 31, ~~2017~~2022 included herein was derived from the audited financial statements as of that date. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “2022 Form 10-K”).

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

Note 2—~~Merger~~Adoption of ~~Quantum Fund, LLC~~New Accounting Standards
~~On April 24, 2017,~~In March 2022, the ~~Bank acquired~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2022-02, Financial Instruments – Credit Losses ( Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan refinancings and restructurings made to borrowers experiencing financial difficulty. Under the new guidance, creditors should evaluate all ~~the outstanding equity interests of Quantum Fund, LLC, an entity controlled by the Company’s principal shareholder who owned, directly and indirectly 80%~~loan modifications to determine if they result in a new loan or a continuation of the ~~members’ interests~~existing loan under the general loan modification guidance. Public business entities are required to disclose current-period gross write-offs by year of origination for loan financing receivables and net investment in leases. The Company adopted the provisions of ASU 2022-02 on January 1, 2023, along with ~~the remaining 20% members’ interest held by a member~~its adoption of ~~the Board~~ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of ~~Directors of the Company and Bank, for $2.9 million~~Credit Losses on Financial Instruments (“ASU 2016-13”) as discussed in ~~cash. The entity operated a registered investment advisory business with assets held under management of approximately $425 million.~~
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—3—Summary of Significant Accounting ~~Policies~~Policies. On the date of adoption, the Company recorded a cumulative effect adjustment of $276, net of tax, to decrease the opening balance of retained earnings as of January 1, 2023, for the initial application of ASU 2022-02. The cumulative effect adjustment represents the difference between the allowance previously determined under the troubled debt restructuring model and the allowance determined under the new credit loss accounting model for existing troubled debt restructuring loans on the adoption date.
~~Principles~~In June 2016, the FASB issued ASU 2016-13 (and subsequent amendments), which significantly changes estimates for credit losses related to financial assets measured at amortized cost, including loan receivables and other contracts, such as off-balance sheet credit exposure, specifically, loan commitments and standby letters of ~~Consolidation~~
credit, financial guarantees, and other similar instruments. The guidance replaced the current incurred loss accounting model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model requires the measurement of the lifetime expected credit losses on financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, ASU 2016-13 requires credit losses on available for sale debt securities to be presented as an allowance rather than as a write-down. The guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.
The ~~accompanying consolidated~~Company adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method for all financial ~~statements have been prepared using~~assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while amounts for prior periods continue to be reported in accordance with previously applicable accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company recorded a cumulative effect adjustment of $778, net of tax, to increase the opening balance of retained earnings as of January 1, 2023, for the initial application of CECL. Upon adoption, the allowance for credit losses for loans decreased by $1,651 primarily driven by the allowance for credit losses on the construction loan portfolio due to the short contractual maturities of the loans in this portfolio segment (all construction loans mature in 2023). This was partially offset by an increase in the allowance for credit losses in both our residential real estate and commercial real estate portfolio segments which have longer contractual maturities. In addition, the Company established a liability for unfunded commitments of $579.
The details of the changes and quantitative impact on the financial statement line items in the condensed consolidated balance sheet as of January 1, 2023 for the adoption of ASU 2016-13, along with the adoption of ASU 2022-02, were as follows:


Prior to

Adjustments for

Adjustments for

After

Adoption

ASU 2016-13

ASU 2022-02

Adoption
Assets:







Allowance for credit losses – loans

$
45,464

$
(1,651)

$
380

$
44,193
Liabilities:







Liability for unfunded commitments

—

579

—

579
Pretax cumulative effect adjustment of a change in accounting principle

—

(1,072)

380

—
Less: income taxes

—

294

(104)

—
Cumulative effect adjustment of a change in accounting principle, net of tax

—

$
(778)

$
276

—

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

The loan portfolio is pooled into segments with similar characteristics and risk profiles for which the probability of default/loss given default methodology is then applied. The Company utilizes a 24-month economic forecast. For all classes of financial assets deemed collateral dependent, the Company elected the practical expedient to estimate the expected credit losses based on the respective collateral’s fair value less cost to sell.

The Company also made an accounting policy election to not measure an allowance for credit losses on accrued interest receivable and to present accrued interest receivable separately from the related financial asset on the condensed consolidated balance sheet.
The Company’s available for sale debt securities are comprised of debt, mortgage-backed securities and collateralized mortgage obligations. The debt, mortgage-backed securities and the majority of the collateralized mortgage obligations are issued by the U.S. government, its agencies and government-sponsored enterprises. Management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost is zero. Thus, the Company has not recorded an allowance for credit losses for its available for sale debt securities at the date of adoption.
As stated, the comparative prior period information presented before January 1, 2023 has not been adjusted and continues to be reported under the Company’s historical allowance for loan losses policies as described in Note 2 to the consolidated financial statements in the 2022 Form 10-K.
Note 3— Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. The condensed consolidated financial statements include the results of ~~the Company~~Sterling Bancorp, Inc. and its wholly-owned ~~subsidiary, and an entity under common control that was merged with the Company in April 2017 (Note 1).~~ subsidiaries.
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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting ~~period. Actual~~periods. Due to the inherent uncertainty involved in making estimates, actual results reported in the future periods may be based upon amounts that could differ from those estimates.
~~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~~2023 and December 31, ~~2017,~~2022, residential real estate loans accounted for ~~82%~~83% and 84%, respectively, of ~~the loan portfolio.~~total gross loans. In addition, most of these residential loans and other commercial loans have been made to individuals and businesses in the state of California, which are dependent on the area economy for their livelihoods and servicing of their loan obligation. At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, approximately ~~96% and 95%~~81% of gross loans were originated with respect to properties or businesses located in the ~~loan portfolio was originated in California, respectively.~~state of California.
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STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and per share amounts)

In December 2019, the Company terminated a loan product consisting of one-, three-, five- or seven-year adjustable-rate mortgages that required a down payment of at least 35% (also referred to herein as “Advantage Loan Program loans”) which continues to be the largest portion of gross residential loans. An internal review of the Advantage Loan Program 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, the amount of income reported for borrowers, reliance on third parties and related documentation. Refer to Note 15—Commitments and Contingencies.
~~Investment Securities~~
~~Investment securities includes available~~Advantage Loan Program loans (including residential real estate loans held for sale ~~debt securities~~of $36,234 and ~~equity securities.~~$6,181 at March 31, 2023 and December 31, 2022, of which $26,074 and $1,942 were on nonaccrual status as of those respective dates) totaled $824,033 and $880,373, or 62% and 63% of gross residential loans, at March 31, 2023 and December 31, 2022, respectively.
Investment Securities
Debt Securities(Effective January 1, 2023)

Debt securities are classified as either available for sale or held to maturity. Management determines the classification of the ~~investment~~debt securities when they are purchased.
All debt securities were categorized as available for sale as of March 31, 2023 and December 31, 2022. 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~~reported in accumulated other comprehensive ~~income (loss),~~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 (noncallable) and accretion of discounts. The Company amortizes premiums and accretes discounts using the effective interest method over the contractual life of the ~~investment security using the effective interest method~~individual securities or, in the case of ~~mortgage-backed~~asset-backed securities, using the effective yield method over the estimated life of the ~~investment security using the effective yield method.~~individual securities.
Interest income includes amortization or accretion of purchase premium or discount. Gains and losses realized on the sales of available for sale debt securities are recorded on the settlement date and determined using the specific identification method.
~~Management evaluates the~~For available for sale debt securities ~~for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such~~in 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) whetherunrealized loss position, 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~~first assesses 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~~it intends to sell, ~~the debt security~~ or it is more likely than not that ~~the Bank~~it will be required to sell the ~~debt~~ security ~~prior to the~~before recovery of its amortized cost ~~basis,~~basis. If either of the ~~debt security~~criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the ~~full amount~~security, among other factors. If this assessment indicates that a credit loss exists, the present value of ~~any impairment charge~~cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.
Changes in the allowance for credit losses are recorded as ~~a loss~~provision for (or reversal of) credit losses. Losses are charged against the allowance for credit losses when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable on available for sale debt securities is recorded separately from the amortized cost basis of the debt securities in the condensed consolidated ~~statements~~balance sheets and is excluded from the estimate of ~~income. If the Bank does not intend~~credit losses.

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Table of Contents
STERLING BANCORP, INC.
Notes to ~~sell the debt security~~Condensed Consolidated Financial Statements
(dollars in thousands, except share 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).per share amounts)

Equity Securities
~~Beginning January 1, 2018, equity~~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~~Management performs a qualitative assessment each reporting period to identify ~~impairment.~~impairment of equity securities without readily determinable fair values. When a qualitative assessment indicates that an impairment exists, ~~the Company~~management determines the fair value of the investment and ~~records~~if the fair value is less than the investment’s carrying value, an impairment ~~loss~~charge is recorded in income equal to the difference between the fair value and the carrying amount of the investment.

Loans Held for Sale
The Company originates certain loans intended for sale in the secondary market. Loans held for sale are carried at the lower of amortized cost or fair value on an individual loan basis. The fair value of loans held for sale are primarily determined based on quoted prices for similar loans in active markets or outstanding commitments from third-party investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to non-interest income in the condensed consolidated statements of operations.
Performing residential real estate loans that are held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. On the sale of an originated loan, the servicing right is recorded at its estimated fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold and are recorded as a component of non-interest income.
Loans that are originated and classified as held for investment are periodically sold in order to manage liquidity, asset credit quality, interest rate risk or concentration risk. Loans that are reclassified into loans held for sale from loans held for investment, due to a change in intent, are recorded at the lower of cost or fair value.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, and deferred loan fees and costs. Accrued interest receivable related to loans is recorded separately from the amortized cost basis of loans on the condensed consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct loan origination costs, are deferred and amortized over the contractual lives of the respective loans as a yield adjustment using the effective interest method. Other credit-related fees are recognized as fee income, as a component of non-interest income.
Interest income on loans is accrued as earned using the interest method over the term of the loan. The accrual of interest income is discontinued at the time the loan is 90 days past due or earlier if conditions warrant and placed on nonaccrual status. In all cases, loans are placed on nonaccrual status at an earlier date if collection of principal or interest is considered doubtful. All interest accrued and not received for loans placed on nonaccrual status is reversed against interest income. Any payments received on nonaccrual loans are applied to interest income on a cash basis if the loan is considered well secured. Otherwise, all payments received are applied first to outstanding loan principal amounts and then to the recovery of the charged off loan amounts. Any excess is treated as a recovery of interest and fees. Loans are returned to accrual status after all principal and interest amounts contractually due are made and future payments are reasonably assured.

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

~~Federal Home Loan Bank Stock~~
Allowance for Credit Losses - Loans (Effective January 1, 2023)
The ~~Bank~~allowance for credit losses is a ~~member~~valuation account that is deducted from the amortized cost basis of held for investment loans to present the ~~FHLB system. Members are required~~net amount expected to ~~own a certain amount of stock based~~be collected on the ~~level of borrowings and other factors, and may invest additional amounts.~~loans. The ~~FHLB stock~~allowance for credit losses is ~~carried at cost, classified as~~adjusted through a ~~restricted security, and periodically evaluated~~charge (recovery) to provision 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(recovery of) credit losses 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,~~operations. When the Company ~~adopted Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers~~ determines that all or a portion of a loan is uncollectible, the appropriate amount is written off, and the allowance for credit losses is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally a loan will be considered uncollectible no later than when all ~~subsequent amendments~~efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ~~ASU (collectively,~~ ~~“ASC 606”~~), ~~which establishes principles~~allowance for ~~reporting information about~~credit losses when received. Portions of 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 depictallowance for credit losses may be allocated for specific credits; however, the ~~transfer of goods or services to customers~~entire allowance for credit losses is available for any credit that, in ~~an amount that reflects the consideration that it expects to~~management’s judgment, should be ~~entitled to receive in exchange for those goods or services recognized as performed obligations are satisfied.~~charged off.
The Company ~~adopted ASC 606 using~~estimates the ~~modified retrospective method applied~~allowance for credit losses on loans based on the underlying loans’ amortized cost. If the collection of principal becomes uncertain, the Company stops accruing interest and reverses the accrued but unpaid interest against interest income. The Company has made a policy election to ~~all contracts not completed as~~exclude accrued interest receivable from the measurement of the ~~adoption date.~~allowance for credit losses. The ~~adoption of ASC 606 did not result in a change in~~allowance for credit losses process involves procedures to appropriately consider the ~~accounting for any of the in-scope revenue streams; as such no cumulative effect adjustment was recorded. The majority~~unique characteristics of the Company’s ~~revenues are from interest income~~portfolio segments. The allowance for credit losses is measured on a collective (pool) basis for portfolios of loans with similar risk characteristics and ~~other sources, including~~risk profiles. The Company’s portfolio segments include the following: (i) commercial real estate, (ii) commercial construction, (iii) commercial and industrial, (iv) residential real estate and (v) home equity lines of credit. These portfolio segments were identified based on their common characteristics: loan type/purpose of loan, underlying collateral type, historical/expected credit loss patterns, availability of credit quality indicators (i.e., FICO, risk rating, delinquency) and completeness of the historical information. Loans which do not share risk characteristics — generally, nonaccrual commercial and construction loans, and ~~investment securities,~~collateral-dependent loans where the borrower is experiencing financial difficulty — are individually assessed for credit loss. The Company has elected, as ~~well as fees related~~a practical expedient, to ~~mortgage servicing activities, that are not within~~measure 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~~allowance 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 basedcredit losses on a ~~tiered rate applied to~~collateral-dependent loan, where 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 activityborrower 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~~experiencing financial difficulty, 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~~the collateral less estimated costs to sell. The portfolio segments are reviewed at least annually or when major changes occur in the ~~date of grant.~~ loan portfolio to ensure that the segmentation is still appropriate.
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~~amount of the ~~Company’s common stock at the date~~allowance for credit losses represents management’s best estimate of ~~grant reduced~~ ~~by the present value of dividends per share~~current 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~~
~~In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~~~, which is intended to improve financial reporting by requiring recording of~~ credit losses on loans considering available information from internal and ~~other financial instruments on~~external sources, which is relevant to assessing collectability of the loans over the loans’ contractual terms, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications unless: (i) management has 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 heldreasonable expectation at the reporting date ~~based on historical experience,~~that an individual borrower is experiencing financial difficulty and a modification of the loan will be executed, or (ii) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The Company estimates the allowance for credit losses using relevant available information related to past events, current conditions, and reasonable and supportable forecasts. ~~The guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating~~In determining the total allowance for credit losses, ~~as well as~~ the ~~credit quality and underwriting standards~~Company calculates the quantitative portion of an organization’s portfolio. ASU No. 2016-13 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU No. 2016-13 but expects to recognize a one-time cumulative effect adjustment to the allowance for credit losses using a methodology, the Advanced Probability of Default model, a logistic regression model, and adds qualitative adjustments to the model results and the results from any individual loan ~~losses as~~assessments.
12
Table of ~~the beginning~~Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and per share amounts)

The Advanced Probability of Default model estimates the expected lifetime net charge off balance utilizing the following: (i) probability that the loan will stop performing or default; (ii) probability that a loan will pay-off entirely prior to maturity; and (iii) macroeconomic variables, including but not limited to unemployment rates, gross domestic product, and the Treasury Yield Curve. This information is specific to each portfolio segment, though not necessarily solely reliant on internally sourced data. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the probability of default. The Company then applies a recovery rate to reflect the recoveries over an approximate 10-year period.
The probability of default is estimated by analyzing the relationship between the historical performance of each loan pool and historical economic trends over a complete economic cycle. The probability of default for each pool is adjusted using a statistical model to reflect the current impact of certain macroeconomic variables and their expected changes over a reasonable and supportable forecast period of eight quarters. The Company determined that it was reasonably able to forecast the macroeconomic variables used in the forecast modeling processes with an acceptable degree of confidence for a total of eight quarters. This forecast period is followed by a reversion process whereby the macroeconomic variables are relaxed to revert to the average historical loss rates for periods after the forecasted eight-quarter period.
Management qualitatively adjusts the allowance for credit loss model results for risk factors not considered within the quantitative modeling processes but are nonetheless relevant in assessing the expected credit losses within the portfolio segments. These qualitative risk factor adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. Qualitative risk factors considered include adjustments for model limitations, management’s adjustments to economic market forecasts and other current or forecasted events not captured in the Company’s historical loss experience.
For loans that do not share risk characteristics that are evaluated on an individual basis, specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. In such cases, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on an annual basis.
As disclosed above, the Company has identified the following portfolio segments used in measuring its expected credit losses in the loan portfolio and their respective risk characteristics:
The Residential Real Estate Mortgages portfolio includes residential first ~~reporting~~mortgages and residential second mortgages. The degree of risk in residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate and the borrower’s ability to repay in an orderly fashion. Economic trends determined by unemployment rates and other key economic indicators, particularly at the regional and local levels, are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.
The Home Equity Lines of Credit portfolio includes residential second mortgages in the form of a revolving line of credit that requires interest only payments for a period followed by an amortizing period. These loans have higher risk of default compared to first liens making it harder to rely on loan-to-value ratios and loan balances can fluctuate. These loans are secured by the residential real estate by serving as a second lien behind the first mortgage lien.
The Commercial Real Estate portfolio includes commercial loans made to many types of businesses involving retail, multifamily, offices, hotels/single-room occupancy hotels, industrial and other commercial properties. Adverse economic developments or an overbuilt market may impact commercial real estate projects and may result in troubled loans. Trends in vacancy rates of commercial properties impact the credit quality of these loans. High vacancy rates reduce operating revenues and the ability for the properties to produce sufficient cash flow to service debt obligations.
The Construction Loans portfolio is comprised of loans to builders and developers primarily for residential, commercial and mixed-use development. In addition to general commercial real estate risks, construction loans have additional risk of cost overruns, market deterioration during construction, lack of permanent financing and no operating history.
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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

The Commercial and Industrial portfolio is comprised of loans to many types of businesses for their operating needs of the business. The risk characteristics of these loans vary based on the borrowers’ business and industry as repayment is typically dependent on cash flows generated from the underlying business. These loans may be secured by real estate or other assets or may be unsecured.
Liability for Unfunded Commitments (Effective January 1, 2023)
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for these off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company estimates expected credit losses over the contractual period in which ~~ASU No. 2016-13~~the Company is ~~effective.~~exposed to credit risk through a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The ~~Company has not yet determined~~estimate of expected credit losses generally follows the ~~magnitude~~same methodology as the funded loans by utilizing the loss rates generated for each portfolio segment with an adjustment for the probability of ~~any such one-time adjustment or the overall impact of ASU No. 2016-13 on its consolidated financial statements.~~
~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ~~which require lessees~~funding to ~~recognize the following~~occur. The liability for ~~all leases, except for short-term leases, at the commencement date: (1) a lease liability~~unfunded commitments, which is ~~a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;~~recorded in Accrued expenses and ~~(2) a right-of-use asset, which is an asset that represents~~other liabilities in the lessee’s right to use, or control the use of, a specified asset 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 and interim periods within those annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the ASU No. 2016-02 on its financial condition and results of operations. The Company will record a right-of-use asset and a lease liability on itscondensed consolidated balance ~~sheet~~sheets, is adjusted through the provision for ~~the leases of its facilities in place at adoption of this ASU.~~(recovery of) credit losses.

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~~2023 and December 31, ~~2017~~2022 and the corresponding amounts of gross unrealized gains and ~~losses:~~losses recognized in accumulated other comprehensive loss:

March 31, 2018

Amortized

Gross Unrealized

Fair

Cost

Gain

Loss

Value

March 31, 2023

Amortized

Gross Unrealized

Fair


Cost

Gain

Loss

Value
Available for sale:








U.S. Treasury securities

$
118,764

$
—

$
(224
)
$
118,540

U.S. Treasury and Agency securities

$
176,318

$
21

$
(6,068)

$
170,271
Mortgage-backed securities

40,204

—

(4,236)

35,968
Collateralized mortgage obligations

1,888

67

—

1,955

148,945

6

(12,800)

136,151
Collateralized debt obligations

311

—

(13
)
298

155

—

(11)

144
Total

$
120,963

$
67

$
(237
)
$
120,793

$
365,622

$
27

$
(23,115)

$
342,534

December 31, 2017

Amortized

Gross Unrealized

Fair

Cost

Gain

Loss

Value

December 31, 2022

Amortized

Gross Unrealized

Fair


Cost

Gain

Loss

Value
Available for sale:








U.S. Treasury securities

$
120,216

$
—

$
(174
)
$
120,042

U.S. Treasury and Agency securities

$
175,878

$
17

$
(7,458)

$
168,437
Mortgage-backed securities

41,388

—

(4,655)

36,733
Collateralized mortgage obligations

1,953

55

—

2,008

153,066

4

(14,829)

138,241
Collateralized debt obligations

606

—

(35
)
571

157

—

(10)

147
Total

$
122,775

$
55

$
(209
)
$
122,621

$
370,489

$
21

$
(26,952)

$
343,558

Securities with a fair value of$107,817 were pledged as collateral on the FHLB borrowings at March 31, 2023.
14
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

Accrued interest receivable on available for sale debt securities totaled $712 and $808 at March 31, 2023 and December 31, 2022, respectively.
The ~~Company held no~~mortgage-backed securities, and a majority of the 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 fair value of the private-label collateralized mortgage obligations was $333 and $353 at March 31, 2023 and December 31, 2022, respectively.
No 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~~2023 and December 31, ~~2017.~~2022.
~~There were no~~Information pertaining to sales of ~~debt securities~~ available for sale debt securities for the three months ended March 31, ~~2018~~2023 and ~~2017.~~2022 is as follows:

Three Months Ended

March 31,


2023

2022
Proceeds from the sale of debt securities

$
2,977

$
—

Gross realized gains

$
1

$
—
Gross realized losses

(3)

—
Total net realized losses

$
(2)

$
—

The income tax expense related to the net realized losses was $1 for the three months ended March 31, 2023.
The amortized cost and fair value of ~~debt securities available for sale issued by~~ U.S. Treasury and Agency securities at March 31, ~~2018~~2023 are shown by contractual ~~maturity.~~maturity in the table below. 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

Amortized

Fair


Cost

Value
U.S. Treasury and Agency securities:




Due less than one year

$
118,764

$
118,540

$
97,032

$
95,595
Due after one year through five years

79,286

74,676
Mortgage-backed securities

40,204

35,968
Collateralized mortgage obligations

1,888

1,955

148,945

136,151
Collateralized debt obligations

311

298

155

144
Total

$
120,963

$
120,793

$
365,622

$
342,534

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

The following table summarizes ~~debt securities~~ available for sale debt securities, at fair value, ~~with~~in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, ~~2018~~2023 and December 31, ~~2017~~2022, aggregated by major security type and length of time the individual debt 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, 2023

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses
U.S. Treasury and Agency securities

$
53,801

$
(885)

$
93,449

$
(5,183)

$
147,250

$
(6,068)
Mortgage-backed securities

5,821

(41)

30,147

(4,195)

35,968

(4,236)
Collateralized mortgage obligations

40,693

(1,539)

91,149

(11,261)

131,842

(12,800)
Collateralized debt obligations

—

—

298

(13
)
298

(13
)

—

—

144

(11)

144

(11)
Total

$
118,540

$
(224
)
$
298

$
(13
)
$
118,838

$
(237
)

$
100,315

$
(2,465)

$
214,889

$
(20,650)

$
315,204

$
(23,115)

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, 2022

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized


Value

Losses

Value

Losses

Value

Losses
U.S. Treasury and Agency securities

$
100,815

$
(2,839)

$
44,605

$
(4,619)

$
145,420

$
(7,458)
Mortgage-backed securities

5,792

(139)

30,941

(4,516)

36,733

(4,655)
Collateralized mortgage obligations

69,088

(3,169)

64,715

(11,660)

133,803

(14,829)
Collateralized debt obligations

—

—

571

(35
)
571

(35
)

—

—

147

(10)

147

(10)
Total

$
120,042

$
(174
)
$
571

$
(35
)
$
120,613

$
(209
)

$
175,695

$
(6,147)

$
140,408

$
(20,805)

$
316,103

$
(26,952)

AtAs of March 31, ~~2018,~~2023, the ~~Company’s~~ debt securities portfolio consisted of 932 debt securities, with 729 debt securities in an unrealized loss position. For debt securities in an unrealized loss position, ~~management~~the Company has both the intent and ability to hold these investments ~~until~~and, based on current conditions, the Company does not believe it is likely that it will be required to sell these debt securities prior to recovery of the ~~decline; thus,~~amortized cost. As the ~~impairment was determined~~Company had the intent and the ability to ~~be temporary. All interest and dividends are considered taxable.~~
~~The Company holds a collateralized~~hold the debt ~~obligation with a carrying value of $298 and $571~~securities in an unrealized loss position at March 31, ~~2018~~2023, each security with an unrealized loss position was further assessed to determine if a credit loss exists.
The Company’s debt, mortgage-backed securities and ~~December 31, 2017, respectively. The security was rated high quality at inception, but it was subsequently rated by Moody’s as B1, which is defined as “extremely speculative.” The issuers of~~ the security are primarily banks. The Company uses in-house and 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 termmajority of the collateralized ~~debt~~mortgage obligations are issued by the U.S. government, its agencies and government-sponsored enterprises. Management has concluded that the ~~financial condition~~long history with no credit losses from issuers of U.S. government, its agencies and government-sponsored enterprises indicates an expectation that nonpayment of the ~~underlying issuers. Assumptions used in the model include expected future default rates and prepayments.~~amortized cost basis is zero. The ~~security remained classified as~~Company’s available for sale ~~and represented $13 and $35~~debt securities are explicitly or implicitly fully guaranteed by the U.S. government. As a result, the Company has not recorded an allowance for credit losses for its available for sale debt securities at March 31, 2023. Similarly, for the same reasons noted above, as of December 31, 2022, the Company determined that the unrealized losses ~~reported at March 31, 2018~~in these securities were due to non-credit-related factors, including changes in interest rates and ~~December 31, 2017, respectively.~~other market conditions.
16
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and 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~~2023 and December 31, ~~2017,~~2022, equity securities totaled ~~$4,163~~$4,712 and ~~$4,227,~~$4,642, respectively. ~~Prior to January 1, 2018, equity 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, 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, equityEquity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in ~~income.~~
non-interest income in the condensed consolidated statements of operations. At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, equity securities with readily determinable fair values were ~~$3,917~~$4,466 and ~~$3,981,~~$4,396, 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:~~operations:

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,


2023

2022
Net gain (loss) recorded during the period on equity securities

$
71

$
(236)
Less: net gain (loss) recorded during the period on equity securities sold during the period

—

—
Unrealized gain (loss) recorded during the period on equity securities held at the reporting date

$
71

$
(236)

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, 2023 and 2022. The investment was reported at $246 at March 31, 2023 and December 31, 2022.

Note 5—Loans
~~Note 4—~~Loans Held for Sale
~~Major~~The major categories of loans held for sale 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,


2023

2022
Residential real estate

$
36,445

$
6,181
Commercial real estate

1,534

1,544
Total loans held for sale

$
37,979

$
7,725

~~Loans with carrying values of $1,038.7 million and $968.4 million were pledged as collateral on FHLB borrowings at~~At March 31, ~~2018 and~~2023, loans held for sale include nonaccrual residential real estate loans of $26,270, of which $24,406 were transferred from loans held for investment during the three months ended March 31, 2023. Additionally, residential real estate loans with an amortized cost of $3,906 were transferred to loans held for investment. At December 31, ~~2017, respectively.~~2022, loans held for sale includes nonaccrual residential real estate loans of $1,942.
In February 2022, the Company sold substantially all of its commercial real estate loans held for sale, which loans had a carrying value of $49,455 on the date of sale, to a third party for cash proceeds of $49,610.
17
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and per share amounts)

Loans Held for Investment and Allowance for Credit Losses
The major categories of loans held for investment and the allowance for credit losses were as follows:

March 31,

December 31,

2023

2022
Residential real estate

$
1,289,554

$
1,391,276
Commercial real estate

224,792

221,669
Construction

36,255

44,503
Commercial and industrial

1,368

1,396
Other consumer

77

5
Total loans

1,552,046

1,658,849
Less: allowance for credit losses

(38,565)

(45,464)
Loans, net

$
1,513,481

$
1,613,385

Accrued interest receivable related to total gross loans, including loans held for sale, was $6,397 and $6,894 as of March 31, 2023 and December 31, 2022, respectively.
During the three months ended March 31, 2023, loans with an amortized cost of $41,059 were transferred from loans held for investment to loans held for sale due to management’s change in intent and decision to sell the loans. On the transfer, the Company recorded a $6,478 charge off applied against the allowance for credit losses to reflect these loans at their estimated fair value. As noted above, residential real estate loans with an amortized cost of $3,906 were transferred from loans held for sale.
Loans totaling $470,397 and $389,830 were pledged as collateral on the FHLB borrowings at March 31, 2023 and December 31, 2022, respectively.
The allowance for credit losses at March 31, 2023 was estimated using the current expected credit loss model. The Company’s estimate of the allowance for credit losses reflects losses expected over the remaining contractual life of the loans. The contractual term does not consider extensions, renewals or modifications unless the Company has identified a loan where the individual borrower is experiencing financial difficulty. The following table presents the activity in the allowance for ~~loan~~credit losses related to loans held for investment by portfolio segment for the three months ~~ending~~ended March 31, ~~2018 and 2017:~~2023:
March 31, 2018

Construction

Residential
Real
Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Beginning balance

$
2,218

$
12,279

$
2,040

$
469

$
1

$
1,450

$
18,457

Provision for loan losses

760

(782
)
501

147

—

15

641

Charge offs

—

—

—

—

—

—

—

Recoveries

1

2

31

—

—

—

34

Total ending balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

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 method as~~

Residential

Commercial

Commercial

Other

Three Months Ended March 31, 2023

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total
Allowance for credit losses:












Balance at the beginning of the period

$
27,951

$
11,694

$
5,781

$
38

$
—

$
45,464
Adoption of ASU 2016-13

865

1,151

(3,633)

(34)

—

(1,651)
Adoption of ASU 2022-02

(11)

—

391

—

—

380
Provision for (recovery of) credit losses

(1,889)

3,217

(546)

2

—

784
Charge offs

(6,478)

—

—

—

—

(6,478)
Recoveries

60

5

1

—

—

66
Total ending balance

$
20,498

$
16,067

$
1,994

$
6

$
—

$
38,565
18
Table of ~~March 31, 2018 and December 31, 2017:~~Contents
March 31, 2018

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

$
—

$
46

$
11

$
95

$
—

$
—

$
152

Collectively evaluated for impairment

2,979

11,453

2,561

521

1

1,465

18,980

Total ending allowance balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

Loans:

Loans individually evaluated for impairment

$
—

$
122

$
2,774

$
335

$
—

$
—

$
3,231

Loans collectively evaluated for impairment

179,846

2,134,325

236,430

45,831

29

—

2,596,461

Total ending loans balance

$
179,846

$
2,134,447

$
239,204

$
46,166

$
29

$
—

$
2,599,692

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and 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

The following ~~tables present~~table presents the activity in the allowance for credit losses for the three months ended March 31, 2022, as determined in accordance with ASC 310, Receivables(“ASC 310”), prior to the adoption of ASU 2016-13:

Commercial

Residential

Commercial

Lines of

Other

Three Months Ended March 31, 2022

Real Estate

Real Estate

Construction

Credit

Consumer

Total
Allowance for loan losses:












Beginning balance

$
32,202

$
12,608

$
11,730

$
8

$
—

$
56,548
Provision for (recovery of) loan losses

(2,481)

1,096

(2,902)

(2)

—

(4,289)
Recoveries

190

5

1

—

—

196
Total ending balance

$
29,911

$
13,709

$
8,829

$
6

$
—

$
52,455

Prior to the adoption of ASU 2016-13, the Company individually evaluated commercial real estate loans, construction loans and commercial lines of credit for impairment and large homogeneous loans, such as residential real estate loans and other consumer loans were collectively evaluated for impairment. The following table presents loans individually and collectively evaluated for impairment and their respective allowance for credit loss allocation as of December 31, 2022, as determined in accordance with ASC 310, prior to the adoption of ASU 2016-13:

Commercial

Residential

Commercial

Lines of

Other

December 31, 2022

Real Estate

Real Estate

Construction

Credit

Consumer

Total
Allowance for loan losses:












Ending allowance balance attributable to loans:

Individually evaluated for impairment

$
11

$
—

$
—

$
—

$
—

$
11
Collectively evaluated for impairment

27,940

11,694

5,781

38

—

45,453
Total ending allowance balance

$
27,951

$
11,694

$
5,781

$
38

$
—

$
45,464
Loans:

Loans individually evaluated for impairment

$
45

$
—

$
2,485

$
107

$
—

$
2,637
Loans collectively evaluated for impairment

1,391,231

221,669

42,018

1,289

5

1,656,212
Total ending loans balance

$
1,391,276

$
221,669

$
44,503

$
1,396

$
5

$
1,658,849

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

The following table presents information related to impaired loans by class of loans as of December 31, 2022, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:

At December 31, 2022

Unpaid

Allowance

Principal

Recorded

for Loan


Balance

Investment

Losses
With no related allowance for loan losses recorded:






Commercial real estate:

Retail

$
227

$
—

$
—
Construction

2,485

2,485

—
Commercial lines of credit:

Private banking

107

107

—
Subtotal

2,819

2,592

—
With an allowance for loan losses recorded:

Residential real estate, first mortgage

79

45

11
Total

$
2,898

$
2,637

$
11

The following table presents average impaired loans, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13, and interest recognized on such loans, for the ~~periods indicated:~~three months ended March 31, 2022:

At March 31, 2022

Average

Interest

Cash Basis

Recorded

Income

Interest


Investment

Recognized

Recognized
With no related allowance for loan losses recorded:

Residential real estate, first mortgage

$
63

$
—

$
—
Construction

8,395

39

25
Commercial lines of credit:

Private banking

115

2

1
Subtotal

8,573

41

26
With an allowance for loan losses recorded:

Residential real estate, first mortgage

285

1

—
Total

$
8,858

$
42

$
26

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

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

—

Subtotal

1,560

1,373

—

1,578

1,394

—

With an allowance for loan losses recorded:

Residential real estate, first mortgage

122

122

46

122

122

37

Commercial real estate, offices

1,558

1,546

11

1,567

1,557

19

Commercial lines of credit, private banking

190

190

95

196

196

98

Subtotal

1,870

1,858

152

1,885

1,875

154

Total

$
3,430

$
3,231

$
152

$
3,463

$
3,269

$
154

20
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and 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

NonaccrualLoans and Past Due Loans
~~The unpaid~~Past due loans held for investment are loans contractually past due 30 days or more as to principal ~~balance~~or interest payments. A loan held for investment is ~~not reduced for partial charge offs. The recorded investment excludes accrued interest receivable on loans which was not significant.~~
~~Also presented in the above table is the average recorded investment of the impaired loans~~classified as nonaccrual, and the ~~related amount~~accrual of interest ~~recognized during~~on such loan is discontinued, when the contractual payment of principal or interest becomes 90 days past due. In addition, a loan may be placed on nonaccrual at any other time ~~within the period that the impaired loans were impaired. When the ultimate~~management has serious doubts about further collectability of principal or interest according to the ~~total principal of an impaired loan is in doubt and~~contractual terms, even though the loan is currently performing. A loan held for investment may remain in accrual status if it is in the process of collection and well secured. When a loan held for investment is placed in nonaccrual status, interest accrued but not received is reversed against interest income. Interest received on such loans is applied to the principal balance of the loan until qualifying for return of accrual status. Loans are returned to accrual status after all principal and interest amounts contractually due are made to return the loan to current status and future payments are reasonably assured.
The following table presents the amortized cost basis of loans on nonaccrual status, ~~all payments are applied to principal under the~~amortized cost ~~recovery method. When the ultimate collectability~~basis of ~~the total principal of an impaired loan is not in doubt and the loan is~~loans 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~~with no related allowance for ~~the period reported.~~
~~The following tables present the recorded investment in nonaccrual~~credit losses and loans past due ~~over~~ 90 days or more and still accruing as of March 31, 2023 and December 31, 2022:

March 31, 2023

December 31, 2022

Nonaccrual

Nonaccrual

With No

Past Due

With No

Past Due

Allowance

90 Days or

Allowance

90 Days or

Nonaccrual

for Credit

More and

Nonaccrual

for Credit

More and


Loans

Losses

Still Accruing

Loans

Losses

Still Accruing
Residential real estate:







Residential real mortgage

$
—

$
—

$
34

$
33,501

$
—

$
35
Residential second mortgage

—

—

—

189

—

—
Total

$
—

$
—

$
34

$
33,690

$
—

$
35

At March 31, 2023, the Company has no nonaccrual loans in its held for investment loan portfolio. The decrease from December 31, 2022 is primarily due to nonaccrual loans of $24,406 that were transferred to held for sale and nonaccrual loans of $4,231 that were charged off to the allowance for credit losses. The remainder of the decrease in nonaccrual loans is primarily due to $3,096 of loans that were paid in full and $5,538 of loans that were returned to accrual status. Partially offsetting these decreases, loans totaling $4,296 were added to nonaccrual status and were part of the loans transferred to held for sale.
During the three months ended March 31, 2023 and 2022, the total interest income that would have been recorded if the nonaccrual loans had been current in accordance with their original terms was $538 and $624, respectively. The Company does not record interest income on ~~accrual by class~~nonaccrual loans.
Aging Analysis of Past Due Loans

The following table presents an aging of the amortized cost basis of contractually past due loans as of March 31, ~~2018 and December 31, 2017:~~2023:

March 31, 2018

December 31, 2017

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

Residential real estate:

Residential first mortgage

$
4,912

$
129

$
573

$
131

Commercial real estate:

Retail

74

—

79

—

Total

$
4,986

$
129

$
652

$
131

Greater

30 - 59

60 - 89

than

Days

Days

89 Days

Total

Current

March 31, 2023

Past Due

Past Due

Past Due

Past Due

Loans

Total
Residential real estate

$
6,017

$
—

$
34

$
6,051

$
1,283,503

$
1,289,554
Commercial real estate

—

—

—

—

224,792

224,792
Construction

—

—

—

—

36,255

36,255
Commercial and industrial

—

—

—

—

1,368

1,368
Other consumer

—

—

—

—

77

77
Total

$
6,017

$
—

$
34

$
6,051

$
1,545,995

$
1,552,046

21
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and per share amounts)

The following ~~tables present~~table presents the aging of the recorded investment in past due loans, presented in accordance with ASC 310, as of ~~March 31, 2018 and~~ December 31, ~~2017~~2022, 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

Current

December 31, 2022

Past Due

Past Due

Past Due

Past Due

Loans

Total
Residential real estate:



Residential first mortgage

731

48

5,041

5,820

2,109,748

2,115,568

$
17,881

$
5,337

$
33,536

$
56,754

$
1,324,545

$
1,381,299
Residential second mortgage

295

—

—

295

18,584

18,879

99

—

189

288

9,689

9,977
Commercial real estate:

Retail

—

—

74

74

10,423

10,497

—

—

—

—

28,971

28,971
Apartments

—

—

—

—

61,388

61,388

Offices

—

—

—

—

25,592

25,592

Hotel

—

—

—

—

103,653

103,653

Multifamily

—

—

—

—

81,444

81,444
Office

—

—

—

—

39,610

39,610
Hotels/Single-room occupancy hotels

—

—

—

—

5,208

5,208
Industrial

—

—

—

—

11,317

11,317

—

—

—

—

30,242

30,242
Gas stations

—

—

—

—

1,036

1,036

Other

—

—

—

—

25,721

25,721

—

—

—

—

36,194

36,194
Construction

—

—

—

—

44,503

44,503
Commercial lines of credit:

Private banking

—

—

—

—

26,587

26,587

—

—

—

—

107

107
C&I lending

—

—

—

—

19,579

19,579

—

—

—

—

1,289

1,289
Other consumer loans

—

—

—

—

29

29

Other consumer

—

—

—

—

5

5
Total

$
1,026

$
48

$
5,115

$
6,189

$
2,593,503

$
2,599,692

$
17,980

$
5,337

$
33,725

$
57,042

$
1,601,807

$
1,658,849
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

~~STERLING BANCORP, INC.~~
~~Notes~~Collateral-Dependent Loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to ~~Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~The Company considers~~be provided substantially through the ~~performance~~operation or sale of the ~~loan portfolio and its impact on the allowance for loan losses.~~collateral. For ~~residential real estate and consumer loan~~all classes of financial assets deemed collateral-dependent, the Company ~~also evaluates~~estimates the expected credit ~~quality~~losses 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.
~~Troubled Debt Restructurings~~
collateral’s fair value less cost to sell. At March 31, 2018 and December 31, 2017, the balance of outstanding loans identified as troubled debt restructurings was $3,041 and $3,073, respectively. The Company has an allowance for loan losses of $57 and $56 on these loans at 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 modified as troubled debt restructurings by the Company. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt 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 recorded investment in the loan. During the three months ended March 31, 2018 and 2017,2023, the Company did not ~~modify~~have any collateral-dependent loans held for investment where the borrower is experiencing financial difficulty.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Historically, the Company has provided loan forbearances to residential borrowers when mandated and modified construction loans by providing term extensions. The Company did not have any loans ~~as a troubled debt restructuring.~~
~~The terms of certain other loans have been~~held for investment made to borrowers experiencing financial difficulty that were modified during the three months ended March 31, ~~2018 and 2017 that~~2023. The Company did not ~~meet~~have any loans held for investment made to borrowers experiencing financial difficulty that were previously modified that subsequently defaulted during the ~~definition~~three months ended March 31, 2023.
Foreclosure Proceedings
At March 31, 2023 and December 31, 2022, the recorded investment of ~~a troubled debt restructuring.~~residential mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $6,130 and $5,711, respectively. Of the loans in formal foreclosure proceedings, $6,130 and $603 were included in loans held for sale in the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022, respectively, and were carried at the lower of amortized cost or fair value. The ~~modification of these loans involved either a modification~~balance of the ~~terms~~loans at December 31, 2022 were classified as held for investment and received an allocation of the allowance for credit losses consistent with a substandard loan loss allocation rate as the loans were classified as substandard.
22
Table of Contents
STERLING BANCORP, INC.
Notes to ~~borrowers who were not experiencing financial difficulties or a delay~~Condensed Consolidated Financial Statements
(dollars in ~~a payment. These other loans that were modified were not considered significant.~~thousands, except share and per share amounts)

Credit Quality
Indicators
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,~~and industrial, 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.
Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered pass-rated loans.
~~At March 31, 2018~~For residential and ~~December 31, 2017,~~consumer loan classes, the ~~risk rating~~Company evaluates credit quality based on the accrual status of the loan. The following table presents the amortized cost in residential and consumer loans ~~by class~~based on accrual status:

Term Loans Amortized Cost Basis by Origination Year

Revolving

Revolving

Loans

Loans

Amortized

Converted

As of March 31, 2023

2023

2022

2021

2020

2019

Prior

   Costs Basis

to Term

Total
Residential lending

Residential mortgage loans:

Payment performance:

Accrual

$
772

$
74,845

$
137,888

$
109,290

$
264,936

$
692,578

$
8,944

$
301

$
1,289,554
Nonaccrual

—

—

—

—

—

—

—

—

—
Total residential mortgage loans

$
772

$
74,845

$
137,888

$
109,290

$
264,936

$
692,578

$
8,944

$
301

$
1,289,554
Residential mortgage loans:

Current period gross write offs

$
—

$
—

$
—

$
—

$
1,858

$
4,601

$
19

$
—

$
6,478

23
Table of ~~loans was as follows:~~Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(dollars in thousands, except share and 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~~The amortized cost basis by year of origination 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~~credit quality indicator of the ~~mortgages (i.e. transferred assets) from~~Company’s commercial loans based on the ~~consolidated balance sheets~~most recent analysis performed was as follows:

Term Loans Amortized Cost Basis by Origination Year

Revolving

Revolving

Loans

Loans

Amortized

Converted

As of March 31, 2023

2023

2022

2021

2020

2019

Prior

Costs Basis

to Term

Total
Commercial lending

Real estate - construction:

Risk rating

Pass

$
—

$
—

$
—

$
9,581

$
10,782

$
6,329

$
—

$
—

$
26,692
Special mention

—

—

—

—

3,412

—

—

—

3,412
Substandard or lower

—

—

—

—

6,151

—

—

—

6,151
Total real estate – construction

$
—

$
—

$
—

$
9,581

$
20,345

$
6,329

$
—

$
—

$
36,255
Real estate – construction:















Current period gross charge offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—
Commercial and industrial:















Risk rating

Pass

$
—

$
—

$
—

$
—

$
—

$
—

$
1,368

$
—

$
1,368
Total commercial and industrial

$
—

$
—

$
—

$
—

$
—

$
—

$
1,368

$
—

$
1,368
Commercial and industrial:

Current period gross charge offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—
Real estate – commercial real estate:

















Risk rating

Pass

$
5,433

$
80,748

$
37,159

$
36,778

$
11,296

$
19,098

$
—

$
—

$
190,512
Special mention

—

3,645

12,215

2,941

7,364

8,115

—

—

34,280
Total real estate – commercial real estate

$
5,433

$
84,393

$
49,374

$
39,719

$
18,660

$
27,213

$
—

$
—

$
224,792
Real estate – commercial mortgage:

Current period gross charge offs

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

The credit risk profiles by internally assigned grade for loans by class of loans as of December 31, 2022, as determined in accordance with ASC 310, prior to the adoption of ASU 2016-13, were as follows:

Special

December 31, 2022

Pass

Mention

Substandard

Doubtful

Total
Residential real estate:

Residential first mortgage

$
1,347,763

$
—

$
33,536

$
—

$
1,381,299
Residential second mortgage

9,788

—

189

—

9,977
Commercial real estate:

Retail

28,971

—

—

—

28,971
Multifamily

67,361

14,083

—

—

81,444
Office

39,610

—

—

—

39,610
Hotels/ Single-room occupancy hotels

—

3,669

1,539

—

5,208
Industrial

30,242

—

—

—

30,242
Other

21,036

15,158

—

—

36,194
Construction

31,369

4,650

8,484

—

44,503
Commercial lines of credit:

Private banking

107

—

—

—

107
C&I lending

1,289

—

—

—

1,289
Other consumer

5

—

—

—

5
Total

$
1,577,541

$
37,560

$
43,748

$
—

$
1,658,849

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

Note 5—6—Mortgage Servicing Rights,
net
The ~~Bank~~Company 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~~2023 and December 31, ~~2017~~2022 are as follows:
~~STERLING BANCORP, INC.~~

March 31,

December 31,


2023

2022
Residential real estate mortgage loan portfolios serviced for:




FNMA

$
111,126

$
113,704
FHLB

33,506

34,282
Private investors

40,230

43,274
Total

$
184,862

$
191,260
~~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~~$842 and ~~$11,944~~$380 at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.
These balances are included in noninterest-bearing deposits in the condensed consolidated balance sheets.
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,


2023

2022
Mortgage servicing rights:

Beginning of period

$
6,706

$
4,454

$
1,840

$
3,332
Additions

1,521

1,260

—

9
Amortization

(426
)
(260
)

(74)

(253)
End of period

7,801

5,454

1,766

3,088
Valuation allowance at beginning of period

210

40

Valuation allowance:

Beginning of period

46

610
Additions (recoveries)

(189
)
(10
)

17

(410)
Valuation allowance at end of period

21

30

Net carrying amount

$
7,780

$
5,424

End of period

63

200
Mortgage servicing rights, net

$
1,703

$
2,888

~~Mortgage servicing assets were $7,780 and $6,496 at March 31, 2018 and December 31, 2017, respectively.~~ Servicing ~~fee~~ income, net of amortization of servicing rights and changes in the valuation allowance, was ~~$477~~$59 and ~~$169~~$443 for the three months ended March 31, ~~2018~~2023 and ~~2017, respectively, and were included in other non-interest income in the condensed consolidated statements of income.~~
2022, respectively.
The fair value of mortgage servicing rights was ~~$9,074~~$2,039 and ~~$7,086~~$2,154 at ~~Mach~~March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, 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~~2023 and December 31, 2022 was determined using discount rates ranging from ~~9.5%~~10.0% to ~~12.0%~~12.5%, prepayment speeds ~~ranging from 6.8% to 31.2%, depending~~with a weighted average of 10.2% (depending on the stratification of the specific ~~right, and~~right), a weighted average ~~default rate of 0.2%. The fair value at December 31, 2017 was determined using discount rates ranging from 9.5% to 12.0%, prepayment speeds ranging from 6.8% to 36.0%, depending on the stratification~~life of the ~~specific~~mortgage servicing right of 77 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, 2023 and December 31, 2022, the carrying amount of certain individual groupings exceeded their fair value, resulting in write-downs to fair value. Refer to Note 13—Fair Values of Financial Instruments.

Note 6—7—Deposits
Time deposits, included in interest-bearing deposits, were ~~$679,622~~$917,161 and ~~$663,472~~$861,733 at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively. ~~Time deposits includes brokered deposits~~
25
Table of ~~$79,510~~Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and ~~$156,084 at March 31, 2018 and December 31, 2017, respectively.~~per share amounts)

Time deposits that meet or exceed the FDIC insurance limit of $250 were ~~$150,523~~$263,648 and ~~$129,101~~$243,861 at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively.

Note ~~7—Federal Home Loan Bank~~8—FHLB Borrowings
FHLB Advances
~~Federal Home Loan Bank borrowings at~~At March 31, ~~2018~~2023 and December 31, ~~2017 consist of~~2022, 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

*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, fixed rate advances totaled $315,000 with maturity dates ranging from April 2018 to October 2026. Also, at March 31, 2018, the Bank had~~Company has a ~~variable rate~~long-term fixed-rate advance of ~~$15,000 (interest rate of 2.06% at March 31, 2018)~~$50,000 with a maturity date of ~~September 2018.~~
~~Interest~~May 2029. The advance requires monthly interest-only payments at 1.96% per annum with the principal amount due on ~~advances is payable monthly and each advance is payable at its~~the maturity date and may contain a prepayment penalty if paid before maturity. ~~At March 31, 2018, advances totaling $157,000 were~~The advance is callable by the FHLB ~~as follows: $67,000~~ in ~~September 2021; and $90,000 in October 2021. At March 31, 2018, the Bank had additional borrowing capacity of $374 million from the FHLB.~~May 2024.
FHLB Overdraft Line of Credit
and Letters of Credit
The ~~Bank~~Company has established ana short-term overdraft line of credit agreement with the FHLB, ~~providing~~which provides for maximum borrowings of ~~$50,000.~~$20,000 through October 2023. The ~~average amount outstanding~~overdraft line of credit was not used during ~~the~~ three months ended March 31, ~~2018~~2023 and ~~2017 was $3,673 and $14,597, respectively. At March 31, 2018, the Bank had $12,937 outstanding under this agreement.~~2022. Borrowings accrue interest ~~based on~~at a ~~variable rate~~variable-rate based on the FHLB’s overnight cost of funds rate, which was ~~2.06%~~5.24% and ~~1.67%~~4.74% at March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, respectively. At March 31, 2023 and December 31, 2022, there were no outstanding borrowings under this agreement. The ~~agreement has~~overdraft line of credit is issued for a one-year term and ~~terminates~~automatically extends for an additional one-year term unless terminated in ~~October 2018.~~advance of the renewal by the Company.
In 2021, the Company entered into irrevocable standby letters of credit arrangements with the FHLB totaling $11,500 to provide credit support for certain of its obligations related to its commitment to repurchase certain pools of Advantage Loan Program loans. An irrevocable standby letter of credit of $7,500 had a 16-month term and expired in July 2022. An irrevocable standby letter of credit of $4,000 has a 36-month term and expires in July 2024. This letter of credit was reduced to $2,000 during the second quarter of 2022; thereby, the Company has total available letters of credit of $2,000 at March 31, 2023 and December 31, 2022, respectively. There were no borrowings outstanding on these standby letters of credit during the three months ended March 31, 2023 and 2022.
The ~~FHLB advances~~long-term fixed-rate advance and the overdraft line of credit are collateralized by ~~pledged loans totaling $1,038.7 million~~certain investment securities and loans. Based on this collateral and holdings of FHLB stock, the Company had additional borrowing capacity with the FHLB of $398,361 at March 31, ~~2018.~~2023. Refer to Note 4—Investment Securities for further information on securities pledged and Note 5—Loans for further information on loans pledged.
Other Borrowings
The Company ~~had~~has available unsecured credit lines with other banks totaling ~~$60 million.~~$80,000 at March 31, 2023 and December 31, 2022. There were no ~~amounts outstanding~~borrowings under these unsecured credit lines atduring the three months ended March 31, ~~2018~~2023 and ~~December 31, 2017.~~2022.

Note 8—9—Subordinated Notes, net
The subordinated notes (the “Notes”) were as follows:

March 31,
2018

December 31,
2017

7.0% fixed to floating rate subordinated notes

$
65,000

$
65,000

March 31,

December 31,


2023

2022
Subordinated notes

$
65,000

$
65,000
Unamortized note premium

575

588

253

271
Unamortized debt issuance costs

(652
)
(699
)
Total

$
64,923

$
64,889

$
65,253

$
65,271
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)~~

The Notes ~~bear~~accrue 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 ofbased on the three-month ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) rate plus a margin of 5.82%~~. Premiums~~, payable quarterly in arrears. The interest rate was 10.65% and ~~debt issuance~~9.90% at March 31, 2023 and December 31, 2022, respectively. Note premium 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~~$1,693 and ~~$908~~$964 for the three months ended March 31, ~~2018~~2023 and ~~2017,~~2022, respectively. The Notes mature in April 2026.
26
Table of Contents
~~On or after April 14, 2021, the~~STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

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~~interest. There have been no redemptions of ~~$1. The Notes are not redeemable by~~ the Company prior to April 14, 2021 except in the event of (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.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~~Prior to January 1, 2023, the Notes ~~may be~~were included in ~~Tier 1 capital of the Bank and~~ Tier 2 capital for the Company ~~under current~~as permitted by applicable regulatory guidelines and interpretations. On January 1, 2023, the Company and the Bank elected to use the Community Bank Leverage Ratio (“CBLR”) framework for compliance with capital adcquacy requirements and such framework does not require a computation involving Tier 2 capital. Refer to Note 11—Regulatory Capital Requirements. 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-based Compensation
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 the board of directors of the Company, of which 3,435,696 shares were available for future grants. The stock-based awards are issued at no less than the market price on the date the awards are granted.
Previously, the board of directors had 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~~the board of ~~Directors~~directors of the Company. The stock-based awards ~~are~~were issued at no less than the market price on the date the awards ~~are~~were 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~~Beginning in 2020, stock option awards 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.
~~The fair value of each~~ No 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 optionsawards were 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)~~
2023 and 2022.
A summary of the Company’s stock option activity as of and for the three months ended March 31, ~~2018~~2023 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, 2023

349,545

$
5.19

7.17

$
627
Granted

92,625

13.73

—

Exercised

—

—

—

Forfeited/expired

—

—

—

Outstanding at March 31, 2018

92,625

$
13.73

9.97

$
—

Outstanding at March 31, 2023

349,545

$
5.19

6.93

$
498
Exercisable at March 31, 2023

349,545

$
5.19

6.93

$
498

27
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

The Company recorded ~~share-based~~stock-based compensation expense associated with stock options of $3$1 and $(13) for the three months ended March 31, ~~2018.~~2023 and 2022, respectively. At March 31, ~~2018,~~2023, there was ~~$419 of total~~no unrecognized compensation cost related to ~~nonvested~~ stock ~~options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.75 years. No options are exercisable at March 31, 2018.~~
options.
Restricted Stock Awards
Restricted stock awards are issued to independent directors and certain key employees. The restricted stock awards generally vest ratably over three years (one-third per year) after the date of grant. 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, the Board of Directors approved the issuance of 39,655 restricted stock awards to certain key employees and non-employee directors. The restricted stock awards of 33,100 issued to key employees vest in installments of 50% in each of the third and fourth year after 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 the 2017 Plan and 2020 Plan, the outstanding restricted stock awards will immediately vest.
During the three months ended March 31, 2023, the board of directors approved the issuance of 60,000 shares of restricted stock to independent directors with a weighted average grant-date fair value of $6.09. During the three months ended March 31, 2022, the board of directors approved the issuance of 53,681 shares of restricted stock, of which 45,000 shares were awarded to independent directors with a weighted average grant-date fair value of $5.75 and 8,681 shares were awarded to key employees with a weighted average grant-date fair value of $5.76.
During the three months ended March 31, 2023 and 2022, the Company withheld 12,166 shares and 13,383 shares of common stock representing a portion of the restricted stock awards that vested during the period in order to satisfy certain related employee tax withholding liabilities of $75 and $84, respectively, associated with vesting. These withheld shares are treated the same as repurchased shares for accounting purposes.

A summary of the restricted stock awards activity for the three months ended March 31, 2023 is as follows:




Weighted Average

Number

Grant Date


of Shares

Fair Value
Nonvested at January 1, 2023

390,125

$
6.17
Granted

60,000

6.09
Vested

(65,024)

6.62
Forfeited

(35,589)

6.23
Nonvested at March 31, 2023

349,512

$
6.07

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$172 and $159 for the three months ended March 31, ~~2018.~~2023 and 2022, respectively. At March 31, ~~2018,~~2023, there was ~~$534~~$1,540 of total unrecognized compensation cost related to the nonvested stock granted ~~under the Plan. The cost~~which is expected to be recognized over a weighted-average period of ~~3.48~~2 years. The total fair value of shares vested during the three months ended March 31, 2023 and 2022, was $399 and $332, respectively.

Note 11—Regulatory Capital Requirements
The Bank is subject to the capital adequacy requirements of the OCC. The Company, as a thrift holding company, generally 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. Prompt corrective action regulations provide five classifications for depository institutions like the Bank, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. 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. Failure to meet minimum capital requirements can initiate regulatory action that could have a direct material effect on the Company’s business, financial condition and results of operations.
28
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

The federal banking agencies’ regulations provide for an optional simplified measure of capital adequacy for qualifying community banking organizations (that is, the “CBLR” framework), as implemented pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018. The CBLR framework is designed to reduce the burden of the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. In order to qualify for the CBLR framework, a community banking organization must have (i) a Tier 1 leverage ratio of greater than 9.0%, (ii) less than $10 billion in total consolidated assets, and (iii) limited amounts of off-balance-sheet exposure and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the capital ratio requirements for the “well capitalized” capital category under applicable prompt corrective action regulations and will not be required to report or calculate risk-based capital under generally applicable capital adequacy requirements. Failure to meet the qualifying criteria within the grace period of two reporting periods, or to maintain a leverage ratio of 8.0% or greater, would require the institution to comply with the generally applicable capital adequacy requirements. An eligible banking organization can opt out of the CBLR framework and revert to compliance with general capital adequacy requirements and capital measurements under prompt corrective action regulations without restriction.
The Company and the Bank have determined the organization is a qualifying community banking organization and has elected to measure capital adequacy under the CBLR framework, effective as of January 1, 2023. Management believes as of March 31, 2023, the Company and the Bank meet all capital adequacy requirements to which they are subject. The following tables present the consolidated Company’s and the Bank’s actual and minimum required capital amounts and ratios at March 31, 2023 and December 31, 2022:

To be Well

Capitalized Under Prompt Corrective

Actual

Action Regulations (CBLR Framework)


Amount

Ratio

Amount

Ratio

March 31, 2023









Tier 1 (core) capital to average total assets (leverage ratio)

Consolidated

332,165

13.49
%

221,576

9.00
%
Bank

406,705

16.52
%

221,520

9.00
%

For Capital

To be Well

Actual

Adequacy Purposes

Capitalized


Amount

Ratio

Amount

Ratio


Amount

Ratio

December 31, 2022













Total adjusted capital to risk-weighted assets













Consolidated

$
390,591

25.64
%
$
121,888

8.00
%

N/A

N/A

Bank

425,159

27.93

121,795

8.00

$
152,244

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

Consolidated

332,068

21.79

91,416

6.00

N/A

N/A

Bank

405,803

26.65

91,346

6.00

121,795

8.00

Common Equity Tier 1 (CET1)

Consolidated

332,068

21.79

68,562

4.50

N/A

N/A

Bank

405,803

26.65

68,510

4.50

98,959

6.50

Tier 1 (core) capital to average total assets (leverage ratio)

Consolidated

332,068

13.54

98,073

4.00

N/A

N/A

Bank

405,803

16.56

98,032

4.00

122,540

5.00

29
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

Dividend Restrictions
As noted above, federal 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 holding company’s principal source of funds for dividend payments is dividends received from the Bank. Regulatory approval is required if (i) 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 (ii) the Bank would not be at least “adequately capitalized” following the distribution. 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.
Refer to Note ~~10—~~ 15—Commitments and Contingencies. 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 Qualified Thrift Lender (“QTL”) test requires that a minimum of 65% of assets be maintained in 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 and dividends, or the Bank must convert to a commercial bank charter. Management believes that the QTL test has been met.
Note 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 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,


2023

2022
Numerator:




Net income (loss)

$
(503)

$
5,260

Denominator:

Weighted average common shares outstanding, basic

50,444,463

50,191,288
Weighted average effect of potentially dilutive common shares:

Stock options

—

108,203
Restricted stock

—

106,632
Weighted average common shares outstanding, diluted

50,444,463

50,406,123

Income (loss) per share:

Basic

$
(0.01)

$
0.10
Diluted

$
(0.01)

$
0.10

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.~~as inclusion would be anti-dilutive, are summarized as follows:

Three Months Ended

March 31,


2023

2022
Stock options

349,545

49,545
Restricted stock

349,512

—
Total

699,057

49,545

30
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~
(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.~~amounts)

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.
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~~The fair value of the collateralized debt obligations, which are categorized as Level 3, is obtained from third-party pricing information. It is determined by calculating discounted cash flows that include spreads that adjust for credit risk and illiquidity. The Company also performs an internal analysis that considers the structure and term of the collateralized debt obligations and the financial condition of the underlying issuers to corroborate the information used from the independent third party.
Loans Held for Sale
Loans held for sale are ~~calculated using spread to LIBOR curves~~carried at the lower of amortized cost or fair value. 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).
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 ~~updated to incorporate loss severities, volatility, credit spread~~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 optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual investment securities are reviewed and incorporated into the calculations.default rate assumptions that market participants would use in estimating future net servicing income (Level 3).
31
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and 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~~2023 and December 31, ~~2017:~~
~~STERLING BANCORP, INC.~~2022:
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Fair Value Measurements at

March 31, 2023

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 and Agency securities

$
170,271

$
118,020

$
52,251

$
—
Mortgage-backed securities

35,968

—

35,968

—
Collateralized mortgage obligations

136,151

—

136,151

—
Collateralized debt obligations

144

—

—

144
Equity securities

4,466

4,466

—

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

Fair Value Measurements at

December 31, 2022

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 and Agency securities

$
168,437

$
116,355

$
52,082

$
—
Mortgage-backed securities

36,733

—

36,733

—
Collateralized mortgage obligations

138,241

—

138,241

—
Collateralized debt obligations

147

—

—

147
Equity securities

4,396

4,396

—

—

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 and December 31, 2017:~~

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

Balance of recurring Level 3 assets at beginning of period

$
571

$
—

$
585

$
529

Total gains or losses (realized/unrealized):

Included in income-realized

—

—

—

—

Included in other comprehensive income (loss)

22

—

(10
)
—

Principal maturities/settlements

(295
)
—

(4
)
(283
)
Sales

—

—

—

—

Transfers in and/or out of Level 3

—

—

—

—

Balance at end of period

$
298

$
—

$
571

$
246

~~Unrealized losses on Level 3 investments for collateralized debt obligations 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~~2023 and 2022:

Fair Value Measurements Using Significant

Unobservable Inputs (Level 3)

Collateralized Debt Obligations

Three Months Ended March 31,


2023

2022
Balance of recurring Level 3 assets at beginning of period

$
147

$
203
Total gains or losses (realized/unrealized):


Included in other comprehensive income (loss)

(2)

2
Principal maturities/settlements

(1)

(1)
Balance of recurring Level 3 assets at end of period

$
144

$
204

32
Table of $5. Unrealized losses on Level 3 investments for collateralized debt obligations and equity securities at December 31, 2017 were $35 and $0, 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 on collateralized debt obligations of $21 and dividend income on equity securities of $15.Contents
The fair value of collateralized debt obligations 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 the internal model. Rating agency 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 share and per share amounts)

The significant unobservable inputs used on the fair value measurement of the Company’s collateralized debt obligations are probabilities 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.
Assets Measured at Fair Value on a ~~Non-Recurring~~Nonrecurring Basis
From time to time, the ~~Bank~~Company 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 sheets at March 31, 2023 and December 31, 2022, 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, 2023




Quoted Prices in

Significant


Active Markets

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)
Loans held for sale

$
34,581

$
—

$
34,581

$
—
Mortgage servicing rights

542

—

—

542

Fair Value Measurements at December 31, 2022




Quoted Prices in

Significant


Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)
Mortgage servicing rights

$
391

$
—

$
—

$
391

The following tables present quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at March 31, ~~2018~~2023 and December 31, ~~2017.~~2022:

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2023

Range


Fair Value

Valuation Technique

Unobservable Inputs

(Weighted Average) ⁽¹⁾
Mortgage servicing rights

$
542

Discounted cash flow

Discount rate

10.0% - 12.5%
(12.3%)



Prepayment speed

7.6% - 22.6%
(18.9%)

Default rate

0.0%-0.2%
(0.2%)

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2022

Range


Fair Value

Valuation Technique

Unobservable Inputs

(Weighted Average) ⁽¹⁾
Mortgage servicing rights

$
391

Discounted cash flow

Discount rate

10.0% - 12.5%
(12.2%)

Prepayment speed

7.5% - 22.4%
(19.0%)

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.

33
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and 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~~2023 and December 31, ~~2017,~~2022, 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, 2023

Carrying

Fair


Amount

Value

Level 1

Level 2

Level 3
Financial Assets










Cash and due from banks

$
37,541

$
37,541

$
37,541

$
—

$
—

$
419,219

$
419,219

$
419,219

$
—

$
—
Mortgage loans held for sale

200,467

204,205

—

204,205

—

Interest-bearing time deposits with other banks

934

934

934

—

—
Loans held for sale ⁽¹⁾

3,398

3,440

—

3,440

—
Loans, net

2,580,560

2,628,979

—

—

2,628,979

1,513,481

1,436,596

—

—

1,436,596

Financial Liabilities

Time deposits

679,622

675,620

—

675,620

—

917,161

912,351

—

912,351

—
Federal Home Loan Bank borrowings

342,937

332,507

—

332,507

—

50,000

48,760

—

48,760

—
Subordinated notes, net

64,923

66,950

—

66,950

—

65,253

65,533

—

65,533

—

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, 2022

Carrying

Fair


Amount

Value

Level 1

Level 2

Level 3
Financial Assets










Cash and due from banks

$
379,798

$
379,798

$
379,798

$
—

$
—
Interest-bearing time deposits with other banks

934

934

934

—

—
Loans held for sale

7,725

7,833

—

7,833

—
Loans, net

1,613,385

1,516,771

—

—

1,516,771

Financial Liabilities

Time deposits

861,733

855,566

—

855,566

—
Federal Home Loan Bank borrowings

50,000

48,360

—

48,360

—
Subordinated notes, net

65,271

65,355

—

65,355

—
~~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—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 can 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(1)Excludes loans that ~~could have a direct material effect on the consolidated 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, 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 as of March 31, 2018, the Company and the Bank meet all regulatory capital requirements to which they are subject.
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:

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)~~
~~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.~~reflected in loans held for sale at fair value on a nonrecurring basis.

At March 31, 2018 and December 31, 2017, the Bank exceeded all capital requirements to be categorized as well-capitalized and the Company exceeded the Capital Adequacy requirements as presented below. The Company and the Bank’s actual and minimum required capital amounts and ratios, not including the capital conservation buffer, at March 31, 2018 and December 31, 2017 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

~~STERLING BANCORP, INC.~~
~~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 the terms of the subordinated note agreements, the Company may pay dividends if it is “well capitalized” as defined by regulatory guidelines. At March 31, 2018, $139.9 million of consolidated retained earnings were available to pay dividends to the Company’s shareholders.
The Qualified Thrift Lender (“QTL”) test requires that a minimum of 65% of assets be maintained in housing-related finance and other specified areas. If the QTL test is not met, limits are placed on growth, branching, new investments, FHLB Advances and dividends, or the Bank must convert to a commercial bank charter. Management believes that the QTL test has been met.
Note 14—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 charitable contributions to a foundation which certain members of the Board of Directors of the Company and Bank, and whom are also related to the Company’s principal shareholder, serve as trustees of the foundation. The Company ~~paid $225 to the foundation during each of the three months ended March 31, 2018 and 2017.~~
~~The Bank leases~~subleased certain ~~storage and~~ office space ~~from~~to entities owned by the Company’s ~~principal~~controlling shareholders. Amounts ~~paid~~received under such ~~leases~~subleases 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 monthly data processing and programming services to entities controlled by the Company’s principal shareholders. Aggregate fees paid amounted to $25 and $27 during the three months ended March 31, 2018 and 2017, respectively.
~~Note 15—Commitments and Contingencies~~
~~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 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 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$112 for the three months ended March 31, ~~2018~~2022. The sublease agreements ended March 31, 2022.

Note 15—Commitments and ~~2017, respectively.~~
Contingencies
Financial Instruments with Off-Balance Sheet Risk
The ~~Bank~~Company 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, such as loan commitments and unused credit lines, and standby letters of credit, which are not reflected in the condensed consolidated financial statements.
The Company adopted ASU 2016-13, effective January 1, 2023, which requires the Company to estimate expected credit losses for off-balance sheet credit exposures which are unconditionally cancellable. The liability for unfunded commitments is reduced in the period in which the off-balance sheet financial instruments expire, loan funding occurs or is otherwise settled. The Company maintains an estimated liability for unfunded commitments, primarily related to commitments to extend credit, on the condensed consolidated balance sheet.
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STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

The following presents the activity in the liability for unfunded commitments for the three months ended March 31, 2023:


















Residential

Commercial

Commercial

Other

Three Months Ended March 31, 2023

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total
Liability for unfunded commitments:












Balance at the beginning of the period

$
—

$
—

$
—

$
—

$
—

$
—
Adoption of ASU 2016-13

53

125

398

3

—

579
Increase (decrease) in provision for (recovery of) credit losses

49

30

(190)

1

—

(110)
Total ending balance

$
102

$
155

$
208

$
4

$
—

$
469

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~~Company may 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.~~used. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the ~~Bank~~Company is required to fund the commitment. The ~~Bank~~Company 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,~~2023, there were no outstanding commitments to make ~~loans consisted~~loans.
Unused Lines of ~~fixed rate~~Credit
The Company also issues credit lines to meet customer financing needs. At March 31, 2023, the unused lines of credit include residential second mortgages of $10,773, construction loans of ~~$6,072 with~~$5,974 and commercial and industrial loans of $972, totaling $17,719. These variable-rate unused lines of credit commitments have interest rates ranging from ~~3.75%~~4.72% to ~~7.00% and~~10.13% at March 31, 2023 with maturities ranging from ~~ten years~~3 months to ~~thirty years and variable rate loans of $258,464 with varying interest rates (ranging from 3.75% to 7.125% at March 31, 2018) and maturities of 25 and 30~~23 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~~Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the ~~Bank~~Company 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~~Company 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~~2023 and December 31, ~~2017:~~2022:

March 31,
2018

December 31,
2017

March 31,

December 31,


2023

2022
Commitments to make loans

$
264,536

$
268,401

$
—

$
—
Unused lines of credit

160,177

157,234

17,719

20,865
Standby letters of credit

70

70

24

24

35
Table of Contents
~~Note 16—Subsequent Events~~STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

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 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 focused on the Bank’s Advantage Loan Program and related issues, including residential lending practices and public disclosures about that program contained in the Company’s filings with the SEC. On March 15, 2023, the Company entered into a Plea Agreement (the “Plea Agreement”) with the DOJ, resolving the DOJ’s investigation. Under the Plea Agreement, the Company has agreed to plead guilty to one count of securities fraud primarily relating to disclosures with respect to the Advantage Loan Program contained in the Company’s 2017 IPO Registration Statement and its immediately following Annual Reports on Form 10-K filed in March 2018 and March 2019; pay $27,239 in restitution for the benefit of non-insider victim shareholders; further enhance its compliance program and internal controls with respect to securities law compliance; and provide periodic reports to the DOJ with respect to compliance matters. No criminal fine was imposed. The Company’s obligations under the Plea Agreement are generally effective for three years. This resolution releases the Company, as well as the Bank, from further prosecution for securities fraud and underlying mortgage fraud in the Advantage Loan Program. At a hearing held on April 19, 2023, the District Court for the Eastern District of Michigan preliminarily accepted the Plea Agreement, subject to the final court hearing. The Plea Agreement remains subject to final court approval.
In ~~March 2018,~~addition, the Company ~~committed~~remains under a formal investigation 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 and information requests from the SEC and has fully cooperated 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.
At March 31, 2023 and December 31, 2022, the Company has a liability for contingent losses of $27,239 for the outcome of the pending investigations. There can be no assurance (i) that the accrual for contingent losses will be sufficient to cover the cost of any payments required by the DOJ resolution, or (ii) that such costs will not materially exceed such accrual and have a further material impact on the Company’s business, financial condition or results of operations.
The Bank has incurred and expects to continue to incur significant costs in its efforts to respond to the governmental investigations, including to reimburse third parties for the legal costs pursuant to requests for indemnification and advancement of expenses, which are reflected in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022.
Mortgage Repurchase Liability
The Company has previously 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 loan and certain expenses. As a result, the Company may incur a loss with respect to each repurchased loan.
To avoid the uncertainty of audits and inquiries by third-party investors in the Advantage Loan Program, beginning at the end of the second quarter of 2020, the Company commenced making offers to each of those investors to repurchase 100% of the previously sold Advantage Loan Program loans. These loans were previously sold to third-party investors with servicing of the loan retained. Losses expected to be incurred upon the repurchase of such loans were reflected in the mortgage repurchase liability.
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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share and per share amounts)

Pursuant to the existing agreements with such investors, the Company also agreed to repurchase additional pools of Advantage Loan Program loans at the predetermined repurchase prices as stated in the agreements. At March 31, 2023, there was an outstanding agreement to repurchase an additional pool of Advantage Loan Program loans with an unpaid principal balance of $20,471 that extends to July 2025, with the final decision to effect any such repurchase, as determined by the applicable investor.
At March 31, 2023 and December 31, 2022, the mortgage repurchase liability was $929 and $809, 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 ~~third-party investors. In April 2018,~~potential repurchase obligations in the ~~Company received net proceeds~~event of ~~$88.0 million~~breach of representations and ~~recorded a gain~~warranties totaled $103,034 and $112,542 at March 31, 2023 and December 31, 2022, respectively, including Advantage Loan Program loans totaling $40,230 and $43,274 at March 31, 2023 and December 31, 2022, respectively.
Activity in the mortgage repurchase liability was as follows:

Three Months Ended

March 31,


2023

2022
Balance, beginning of period

$
809

$
2,954
Net provision (recovery)

120

(213)
Balance, end of the period

$
929

$
2,741

37
Table of ~~$3.2 million on the sale of residential real estate loans. Servicing of the loan portfolio sold was retained by the Company.~~Contents
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~~2022 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, 2023, see the risk factors set forth under “Item 1A. Risk Factors” in our 2022 Form 10-K. You should carefully consider these risk factors 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 2022 Form 10-K, as well as under this “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Risks Related to the Advantage Loan Program
● Compliance with the Plea Agreement and the effect of the Plea Agreement on our reputation and ability to raise capital
38
Table of Contents

● The results of governmental investigations
● The costs of legal proceedings, including settlements and judgments
● The effects of the termination of our Advantage Loan Program
● Potential claims for advancement and indemnification from certain directors and officers related to the governmental investigations and potential litigation against us or counterclaims by our controlling shareholder
Risks Related to the Economy and Financial Markets
● The effects of fiscal and monetary policies and regulations of the federal government and the FRB
● The disruptions to the economy and the U.S. banking system caused by recent bank failures
● 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 fiscal challenges facing the U.S. government
● The economic impact, and governmental and regulatory actions to mitigate the impact, of the disruptions created by the coronavirus disease 2019 (“COVID-19”) pandemic
● Macroeconomic and geopolitical challenges and uncertainties affecting the stability of regions and countries around the globe and the effect of changes in the economic and political relations between the U.S. and other nations
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, including the effects of continued inflation and the possibility of a recession
● 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 qualified thrift lender 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 and securities laws and regulations and their application by our regulators and the Community Reinvestment Act and fair lending laws, including as a result of the recent bank failures
● Failure to comply with banking laws and regulations
● Enforcement priorities of the federal bank regulatory agencies
Risks Related to Competition
● Strong competition within our market areas or with respect to our products and pricing
39
Table of Contents

● 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
● Consumers deciding not to use banks to complete their financial transactions
Risks Related to Interest Rates
● Negative impacts of future changes in interest rates
● Uncertainty relating to the determination and discontinuation of the LIBOR
Risks Related to Liquidity
● 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
● Our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk
Other Risks Related to Our Business
● 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 and the increased frequency and sophistication of cyberattacks
● The operational risk associated with third-party vendors and other financial institutions
● 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
● Environmental, social and governance matters and their effects on our reputation and the market price of our securities
● 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 reliance of our critical accounting policies and estimates, including for the allowance for credit losses, on analytical and forecasting techniques and models
40
Table of Contents

● 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
● We may experience increases in FDIC insurance assessments
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 2022 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.”
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.
~~Since 2013, we have experienced significant growth while maintaining stable margins~~ The Bank originates residential and ~~solid asset quality. We have made significant investments over the last several years~~commercial real estate loans, construction loans, commercial and industrial and other consumer loans and provides deposit products, consisting primarily of checking, savings and term certificate accounts. It also engages in ~~staffing~~mortgage banking activities and, ~~upgrading technology~~as such, acquires, sells and ~~system security. In the first quarter 2017, we opened~~services residential mortgage loans. The Bank operates through a ~~new branch~~network of 28 branches of which 26 branches are located in ~~the~~San Francisco and Los Angeles, ~~market and, in April 2018, we opened a new branch~~California with the remaining branches located in New York, ~~City~~New York and ~~expanded our presence~~Southfield, Michigan.
Recent Developments
On March 15, 2023, the Company entered into a Plea Agreement with the DOJ, resolving the DOJ’s investigation. Under the Plea Agreement, the Company has agreed to plead guilty to one count of securities fraud primarily relating to disclosures with respect to the Advantage Loan Program contained in ~~Southern California~~the Company’s 2017 IPO Registration Statement and its immediately following Annual Reports on Form 10-K filed in March 2018 and March 2019; pay $27.2 million in restitution for the benefit of non-insider victim shareholders; further enhance its compliance program and internal controls with ~~a new branch in Chino Hills. In~~respect to securities law compliance; and provide periodic reports to the ~~near future, we plan~~DOJ with respect to ~~open an additional branch in Southern California~~compliance matters. No criminal fine was imposed. The Company’s obligations under the Plea Agreement are generally effective for three years. This resolution releases the Company, as well as ~~convert an existing loan production office~~the Bank, from further prosecution for securities fraud and underlying mortgage fraud in the ~~Seattle market into~~Advantage Loan Program. At a ~~branch. As~~hearing held on April 19, 2023, the District Court for the Eastern District of ~~March 31, 2018,~~Michigan preliminarily accepted the ~~Company had total consolidated assets~~Plea Agreement, subject to the final court hearing. The Plea Agreement remains subject to final court approval.
For additional information regarding these matters, see “Part II, Item 1. Legal Proceedings.”
41
Table of ~~$3.03 billion, total consolidated deposits~~Contents

Overview of ~~$2.29 billion~~Quarterly Performance
The first quarter of 2023 continues to reflect our remediation and ~~total consolidated shareholders’ equity~~repositioning. The resolutions of ~~$288.5 million.~~
Inthe investigation by the DOJ during the first quarter of ~~2018,~~2023 and of the OCC investigation during the second half of 2022 remove much of the uncertainty that has existed since 2020. Furthermore, despite the uncertainty in the banking industry resulting from several recent bank failures, we ~~originated loans~~continue to maintain strong capital levels, liquidity and credit quality metrics.
We had a net loss of ~~$408~~$(0.5) million ~~a 59%~~for the three months ended March 31, 2023, compared to net income of $5.3 million for the three months ended March 31, 2022. This decrease was primarily due to an increase ~~over~~in interest expense on our average balance of interest-bearing deposits, as the average interest rate paid increased 166 basis points, while the average yield on interest-earning assets increased 133 basis points. The changes in our average interest rate paid and average yield are primarily driven by the Federal Open Market Committee’s increase of the federal funds rate range from 0.00% - 0.25% in March 2022 to 4.75% - 5.00% by March 31, 2023. Non-interest expenses remained high during 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~~2023, reflecting the continued high level of professional fees related to the DOJ investigation and ~~$10 million in commercial~~resolution, as well as the costs of our ongoing cooperation as both the OCC and ~~industrial loans. Also, we sold pools of residential real estate mortgages for $112.2 million to third-party investors. We~~DOJ continue to ~~focus on the residential mortgage market, construction, and commercial real estate lending. Net interest income for~~investigate certain individuals.
In addition, we continued to improve our credit metrics. During the first quarter of ~~2018 was $28.2~~2023, we reclassified $41.1 million ~~an increase~~ of ~~$6.3~~nonaccrual and delinquent residential loans as held for sale and recorded a $6.5 million charge off against the allowance for credit losses to reflect their estimated fair value of $34.6 million. This reclassification reduces our nonperforming loans held for investment to a negligible amount and our total nonperforming assets to $26.3 million, which is comprised almost entirely of nonaccrual residential loans held for sale.
In March 2023, two banks experienced significant deposit losses and ultimately failed. This caused investor and customer confidence in the banking sector to wane. However, our total deposits remained relatively stable in the three months ended March 31, 2023 and, in particular, during the month of March, only decreasing $32.2 million, or ~~29% over~~2%, from December 31, 2022 to $1.9 billion at March 31, 2023. Our current strategy remains to offer competitive interest rates on our deposit products to maintain our existing customer deposit base and help manage our liquidity.
Our regulatory capital ratios remained well above the ~~same period in 2017, primarily attributable~~levels required to ~~an increase in average earnings assets. Noninterest income increased to $6.0 million in the first quarter of 2018 from $5.6 million~~be considered well capitalized for ~~the same period in the prior year.~~
regulatory purposes.
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,~~2023, 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~~2022 Form 10-K, ~~filed~~except we have updated our discussion of our accounting policy that we consider as critical for the allowance for credit losses below as a result of our adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2023.
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Table of Contents

Allowance for Credit Losses
The allowance for credit losses is based on the accuracy of credit risk ratings on individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on nonaccrual loans, significant reliance on estimated loss rates on portfolios and consideration of our evaluation of macro-economic factors and trends. While our methodology in establishing the allowance for credit losses attributes portions of the allowance for credit losses to the residential and commercial real estate, and other consumer portfolio segments, the entire allowance for credit losses is available to absorb credit losses in the total loan portfolio.
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of held for investment loans to present the net amount expected to be collected from the loans. The allowance for credit losses is adjusted through a charge (recovery) to provision for (recovery of) credit losses. Changes in the allowance for credit losses and, therefore, in the related provision can materially affect net income. In applying the judgment and review required to determine the allowance for credit losses, management considers changes in economic conditions, customer behavior, and collateral value, among other factors. From time to time, economic factors or business decisions may affect the composition and mix of the loan portfolio, causing management to increase or decrease the allowance for credit losses. When the Company determines that all or a portion of a loan is uncollectible, the appropriate amount is written off, and the allowance for credit losses is reduced by the same amount. The Company applies judgment to determine when a loan is deemed uncollectible; however, generally a loan will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the allowance for credit losses when received.
The Company estimates the allowance for credit losses in accordance with the ~~SEC.~~
~~Discussion~~CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment. The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and ~~Analysis~~model risk inherent in the quantitative model output. Management's judgment is required for the selection and application of ~~Financial Condition~~
these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts. Loans that no longer share similar risk characteristics with any portfolio segment are subject to individual assessment and are removed from the collectively assessed segments. Management performs periodic sensitivity and stress testing using available economic forecasts in order to evaluate the adequacy of the allowance for credit losses under varying scenarios.
The ~~following sets forth a~~Company’s methodologies for estimating the allowance for credit losses considers available relevant information about the collectability of cash flows, including past events, current conditions, and reasonable and supportable forecasts. For additional discussion ~~and analysis of our financial condition as~~ of the ~~dates presented below.~~Company’s methodology in determining the allowance for credit losses, see Note 3 – Summary of Significant Accounting Policies, Allowance for Credit Losses - Loans to our condensed consolidated financial statements included in Item 1. Financial Statements.

43

Table of Contents

Balance Sheet and Capital Analysis

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, 2023

At December 31, 2022


Amount

%

Amount

%

(Dollars in thousands)

Real estate:

Residential real estate

$
1,289,554

83
%
$
1,391,276

84
%
Commercial real estate

224,792

15
%

221,669

13
%
Construction

36,255

2
%

44,503

3
%
Total real estate

1,550,601

100
%

1,657,448

100
%
Commercial and industrial

1,368

—
%

1,396

—
%
Other consumer

77

—
%

5

—
%
Total loans

1,552,046

100
%

1,658,849

100
%
Less: allowance for credit losses

(38,565)

(45,464)



Loans, net

$
1,513,481

$
1,613,385



At March 31, 2018

At December 31, 2017

Amount

%

Amount

%

(Dollars in thousands)

Real Estate:

Construction

$
179,846

7
%
$
192,319

7
%
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
%
Commercial

46,166

2
%
40,749

2
%
Consumer

29

—
%
29

—
%
Total loans

2,599,692

100
%
2,612,814

100
%
Allowance for loan losses

(19,132
)

(18,457
)

Loans, net

$
2,580,560

$
2,594,357

Our loan portfolio consists primarily of residential real estate loans, which are collateralized by real estate. At March 31, 2023 and December 31, 2022, residential real estate loans accounted for 83% and 84%, respectively, of total gross loans held for investment. Most of these residential loans and other commercial loans have been made to individuals and businesses in the state of California, specifically in the San Francisco and Los Angeles areas. As of March 31, 2023, approximately 81% of our loan portfolio was based in California with 54% and 27% in the San Francisco and Los Angeles areas, respectively.

Total gross loans held for investment of $1.6 billion at March 31, 2023 declined $106.8 million, or 6%, from $1.7 billion at December 31, 2022. The decline in our loan portfolio from December 31, 2022 was primarily attributable to repayments on loans, which continued to outpace our loan production. Also, contributing to the decline in loans held for investment, during the three months ended March 31, 2023, loans with an amortized cost of $41.1 million were transferred from loans held for investment to loans held for sale due to management’s change in intent and decision to sell the loans. On the transfer, the Company recorded a $6.5 million charge off applied against the allowance for credit losses to reflect these loans at their estimated fair value. Also, during the same period, residential real estate loans with an amortized cost of $3.9 million were transferred from loans held for sale to loans held for investment.

Our overall decline in loan production reflects a number of factors, including our decision to stop originating construction loans and the prevailing rising interest rate and inflationary environment of 2022, which practically limited the opportunities we had for meaningful loan production. Also, in May 2022, we outsourced our residential loan origination function to a third-party vendor. In November 2022, we were notified of our residential loan originator plans to exit the business. We used commercially reasonable efforts to evaluate and originate pending loan applications through February 28, 2023. The Company is in the process of finding a new mortgage fulfillment provider. Until such time as we enter into an agreement with a replacement provider, we have suspended the origination of residential loans and pending further evaluation of our alternatives, we may discontinue the origination of residential mortgage loans. In the meantime, we may look to purchase residential loans from the secondary market or pursue other similar alternatives. Finally, our loan production was impacted by our decision to delay introducing new loan products until we had resolved the governmental investigations.

Table of Contents

Maturities and Sensitivities of Loans to Changes in Interest Rates. The Company’s loan portfolio includes adjustable-rate loans, primarily tied to Prime, LIBOR, U.S. Treasuries and Secured Overnight Financing Rate (“SOFR”), and fixed-rate loans, for which the interest rate does not change through the life of the loan. The following table sets forth ~~our fixed and adjustable-rate loans~~the recorded investment by interest rate type in our loan portfolio at March 31, ~~2018:~~2023:

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

Adjustable Rate

March 31, 2023

Prime

LIBOR

Treasury

SOFR

Total

Fixed Rate

Total

(In thousands)

Residential real estate

$
9,245

$
898,532

$
332,091

$
29,995

$
1,269,863

$
19,691

$
1,289,554

Commercial real estate

—

—

121,808

21,488

143,296

81,496

224,792

Construction

36,255

—

—

—

36,255

—

36,255

Commercial and industrial

135

—

36

—

171

1,197

1,368

Other consumer

—

—

—

—

—

77

77

Total

$
45,635

$
898,532

$
453,935

$
51,483

$
1,449,585

$
102,461

$
1,552,046

% by rate type at March 31, 2023

3
%

58
%

29
%

3
%

93
%

7
%

100
%

Across our loan portfolio, our adjustable-rate loans are typically based on a 30-year amortization schedule and generally interest rates and payments adjust annually after a one-, three-, five- or seven-year initial fixed period. Our prime-based loans, which typically are construction loans and home equity loans, adjust to a rate equal to 25 to 238 basis points above Prime and have maturities of up to 36 months. Interest rates on our adjustable-rate LIBOR-based loans originated prior to March 8, 2021 adjust to a rate typically equal to 350 to 450 basis points above the one-year LIBOR, and those that were originated after March 8, 2021 adjust to a rate based on the U.S. Treasury one-year constant maturity Treasury rate. At March 31, 2023, we have adjustable-rate loans totaling $898.5 million, or 58%, of our loan portfolio that are LIBOR-indexed currently and will reprice to an interest rate based on LIBOR, until LIBOR is no longer available as a reference rate. Upon the cessation of the publication of LIBOR rate, currently expected on June 30, 2023, we have determined that our LIBOR-based loans will convert to rates based on SOFR.
At March 31, 2023, our SOFR-based loans consist of residential mortgage loans that were purchased in October 2022 and an origination of a large commercial real estate loan.
The table set forth below contains the repricing dates of ~~adjustable rate~~adjustable-rate loans included within our loan portfolio as of March 31, ~~2018:~~2023:

March 31, 2018

1 - 4
Family
Residential

Commercial
Real Estate

Construction

Commercial

Consumer

Total

(In thousands)

Amounts to adjust in:

6 months or less

$
436,499

$
19,501

$
179,846

$
44,846

$
—

$
680,692

More than 6 months through 12 months

551,133

14,195

—

—

—

565,328

More than 12 months through 24 months

259,077

25,864

—

—

—

284,941

More than 24 months through 36 months

415,209

38,268

—

—

—

453,477

More than 36 months through 60 months

373,478

118,023

—

—

—

491,501

More than 60 months

85,244

3,192

—

—

—

88,436

Fixed to Maturity

13,807

20,161

—

1,320

29

35,317

Total

$
2,134,447

$
239,204

$
179,846

$
46,166

$
29

$
2,599,692

Residential

Commercial



Commercial

Other


March 31, 2023

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total

(In thousands)
Amounts to adjust in:












6 months or less

$
406,972

$
26,790

$
36,255

$
171

$
—

$
470,188
After 6 months through 12 months

399,905

994

—

—

—

400,899
After 12 months through 24 months

113,802

50,320

—

—

—

164,122
After 24 months through 36 months

110,242

4,450

—

—

—

114,692
After 36 months through 60 months

149,940

57,503

—

—

—

207,443
After 60 months

89,002

3,239

—

—

—

92,241
Fixed to maturity

19,691

81,496

—

1,197

77

102,461
Total

$
1,289,554

$
224,792

$
36,255

$
1,368

$
77

$
1,552,046

At March 31, ~~2018, $215~~2023, $122.1 million, or ~~8.4%~~8%, of our adjustable interest rate loans were at their interest rate floor. See Item 3. Quantitative and Qualitative Disclosures about Market Risk relating to the discontinuance of LIBOR and our LIBOR based loans convert to SOFR-based rates.

Table of Contents

~~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 troubled debt restructurings and real estate and other loan collateral acquired through foreclosure 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. At March 31, 2018 and December 31, 2017, we had one troubled debt restructuring in nonaccrual with a balance of $74,000 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, respectively, of accruing loans past due 90 days ~~which consisted primarily~~or more and still accruing interest and nonaccrual loans held for sale.
We generally place a loan on nonaccrual status when management believes that collection of ~~government guaranteed loans.~~principal or interest has become doubtful or when a loan becomes 90 days past due as to principal or interest. 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 we acquire as a result 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.
The following table sets forth information regarding our nonperforming assets at the dates indicated.

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,

2023

2022

(Dollars in thousands)

Nonaccrual loans⁽¹⁾:





Residential real estate

$
—

$
33,690

Total nonaccrual loans⁽²⁾

—

33,690

Loans past due 90 days or more and still accruing interest

34

35

Other troubled debt restructurings⁽³⁾

—

2,637

Nonaccrual loans held for sale

26,270

1,942

Total nonperforming assets

$
26,304

$
38,304

Total loans⁽¹⁾

$
1,552,046

$
1,658,849

Total assets

$
2,411,548

$
2,444,735

Total nonaccrual loans to total loans⁽²⁾

—

2.03
%
Total nonperforming assets to total assets

1.09
%

1.57
%
~~(1)~~
(1) Loans are classified as held for investment and are presented before the allowance for credit losses.
(2) Total nonaccrual loans exclude nonaccrual loans held for sale. If nonaccrual loans held for sale are included, the ratio of total nonaccrual loans to total gross loans would be 1.65% and 2.14% at March 31, 2023 and December 31, 2022, respectively.
(3) Other troubled debt restructurings at December 31, 2022 exclude those loans presented above as nonaccrual or past due 90 days or more and still accruing interest. Effective January 1, 2023, loan modifications involving borrowers experiencing financial difficulty are evaluated under the new credit loss model. There were no such loan modifications during the three months ended March 31, 2023.
As of March 31, 2023, nonperforming assets totaled $26.3 million, a decrease of $12.0 million from $38.3 million at December 31, 2022. This decrease is primarily attributable to the reclassification of $24.4 million of nonaccrual residential loans from held for investment to held for sale, the repayment in full of $3.1 million of nonaccrual residential loans and the return of $5.5 million of nonaccrual residential loans to accrual status. Additionally, on the reclassification, nonaccrual residential real estate loans totaling $4.2 million were charged off. Partially offsetting these decreases, loans totaling $4.3 million were added to nonaccrual status and were included in the loans classified as held for sale. When including nonaccrual loans held for sale, the ratio of nonaccrual loans to total gross loans decreased from 2.14% at December 31, 2022 to 1.65% at March 31, 2023.
During the three months ended March 31, 2023 and 2022, the total interest income that would have been recorded if the nonaccrual loans had been current in accordance with their original terms was $0.5 million and $0.6 million, respectively. The Company does not record interest income on nonaccrual loans.
Delinquent Loans. The following tables set forth our loan delinquencies, including nonaccrual loans, by type and amount at the dates indicated.

March 31, 2023

December 31, 2022

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

$
6,017

$
—

$
34

$
17,980

$
5,337

$
33,725

Table of Contents

Total loans 90 days or more past due decreased from $33.7 million at December 31, 2022 to $34 thousand at March 31, 2023. This decrease was primarily attributable to the change in nonaccrual loans discussed in “—Nonperforming Assets” above.

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 condensed consolidated financial statements for additional information about our risk categories.

Loans classified as Special Mention, Substandard and Doubtful were as follows at the dates indicated:

March 31, 2023

December 31, 2022

Loans Held for

Loans Held

Loans Held for

Loans Held


Investment

for Sale

Total

Investment

for Sale

Total

(Dollars in thousands)

Special Mention:

Commercial real estate

$
34,280

$
1,534

$
35,814

$
32,910

$
1,544

$
34,454

Construction

3,412

—

3,412

4,650

—

4,650

Total Special Mention

37,692

1,534

39,226

37,560

1,544

39,104

Substandard:

Residential real estate

34

26,270

26,304

33,725

1,942

35,667

Commercial real estate

—

—

—

1,539

—

1,539

Construction

6,151

—

6,151

8,484

—

8,484

Total Substandard

6,185

26,270

32,455

43,748

1,942

45,690

Total

$
43,877

$
27,804

$
71,681

$
81,308

$
3,486

$
84,794

Total Loans

$
1,552,046

$
37,979

$
1,590,025

$
1,658,849

$
7,725

$
1,666,574

Classified assets to total loans

3
%

73
%

5
%

5
%

45
%

5
%

Allowance for Credit Losses
We adopted ASU 2016-13 on January 1, 2023 on a modified retrospective basis. This guidance changes the accounting for credit losses from an incurred loss model, which estimates a loss allowance based on current known and inherent losses within the loan portfolio to an expected loss model, which estimates a credit loss based on losses expected to be recorded over the lifetime of the loan portfolio. We recorded a pre-tax cumulative effect adjustment to decrease the allowance for credit losses by $1.7 million and we established a liability for unfunded commitments of $0.6 million. The decrease in the allowance for credit losses was primarily due to our construction portfolio which has short contractual maturities and was partially offset by an increase in the allowance for credit losses in both our residential real estate and commercial real estate portfolios which have longer contractual maturities.

Based on our evaluation of our available for sale debt securities, we did not record an allowance for credit losses on these securities, upon adoption. See Note 4 to our condensed consolidated financial statements included in Item 1. Financial Statements.

See “Critical Accounting Policies and Estimates – Allowance for Credit Losses” for additional discussion of our allowance for credit losses accounting policy.

Table of Contents

Prior to the adoption of CECL, the allowance for loan ~~losses.~~

~~(2)~~ ~~Troubled debt restructurings exclude those loans presented above as nonaccrual or past 90 days and still accruing.~~

~~Allowance for Loan Losses~~

~~The allowance for loan~~ losses iswas 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 iswas based on management’s assessment of various quantitative and qualitative factors affecting the loan portfolio, including portfolio composition, net charge-offs, delinquent and nonaccrual loans, foreclosures, Bank-specific factors (e.g., staff experience, underwriting guidelines etc.), national and local business conditions, ~~and~~historical loss experience, ~~and~~ an overall evaluation of the quality of the underlying ~~collateral.~~collateral and other external factors. Certain qualitative components within our allowance for loan losses methodology took on increased significance in prior periods, and to a lesser extent in the most recent period, as a result of the economic impact of the COVID-19 pandemic. These qualitative components included unemployment, commercial property vacancy rates, uncertainty in property values and deterioration in the overall macro-economic environment.

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023:

Residential

Commercial

Commercial

Other

Three Months Ended March 31, 2023

Real Estate

Real Estate

Construction

and Industrial

Consumer

Total

(Dollars in thousands)
Allowance for credit losses:











Balance at the beginning of the period

$
27,951

$
11,694

$
5,781

$
38

$
—

$
45,464
Adoption of ASU 2016-13

865

1,151

(3,633)

(34)

—

(1,651)
Adoption of ASU 2022-02

(11)

—

391

—

—

380
Provision for (recovery of) for credit losses

(1,889)

3,217

(546)

2

—

784
Charge offs

(6,478)

—

—

—

—

(6,478)
Recoveries

60

5

1

—

—

66
Total ending balance

$
20,498

$
16,067

$
1,994

$
6

$
—

$
38,565

The following table presents the activity in the allowance for credit losses for the three months ended March 31, 2022, as determined accordance with ASC 310, Receivables, prior to the adoption of ASU 2016-13:

Commercial

Residential

Commercial

Lines of

Other

Three Months Ended March 31, 2022

Real Estate

Real Estate

Construction

Credit

Consumer

Total

(Dollars in thousands)
Allowance for loan losses:











Beginning balance

$
32,202

$
12,608

$
11,730

$
8

$
—

$
56,548
Provision for (recovery of) for loan losses

(2,481)

1,096

(2,902)

(2)

—

(4,289)
Recoveries

190

5

1

—

—

196
Total ending balance

$
29,911

$
13,709

$
8,829

$
6

$
—

$
52,455

Table of Contents

Our allowance for credit losses at March 31, 2023 was $38.6 million, or 2.48% of total loans held for investment, compared to $44.2 million, or 2.66% (after the adoption of ASU 2016-13), of total loans held for investment, at January 1, 2023. The allowance for credit losses decreased from $44.2 million primarily due to the transfer of nonaccrual and delinquent residential real estate loans to held for sale, which resulted in a charge off of $6.5 million and removed all nonaccrual loans from our held for investment portfolio, and an overall reduction in our loan portfolio. These decreases were partially offset by an increase in the required allowance on our commercial real estate loans because of changes in our economic forecasts to reflect the weakening in the commercial real estate market.

Net charge offs during the first quarter of 2023 were $6.4 million compared to net recoveries of $(0.2) million for the three months ended March 31, 2022. Net charge offs in the first quarter of 2023 primarily reflects the $6.5 million in charge offs of our recorded investment on those residential loans transferred to held for sale during the three months ended March 31, 2023.

See “Results of Operations—Provision for (Recovery of) for Credit Losses” for additional information about our provision for (recovery of) for credit losses.

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
)%
~~Allocation of Allowance for Loan Losses.~~ ~~The following tables set forth the allowance for loan~~credit losses allocated by loan ~~category.~~category at the dates indicated. The allowance for ~~loan~~credit 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 credit 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, 2023

At December 31, 2022

Percent of

Percent of

Loans in

Loans in

Each

Each

Allowance

Category to

Allowance

Category to

for Credit

Total

for Credit

Total


Losses

Loans

Losses

Loans


(Dollars in thousands)

Residential real estate

$
20,498

83
%
$
27,951

84
%
Commercial real estate

16,067

15
%

11,694

13
%
Construction

1,994

2
%

5,781

3
%
Commercial and industrial

6

—
%

38

—
%
Other consumer

—

—
%

—

—
%
Total

$
38,565

100
%
$
45,464

100
%
Nonaccrual loans⁽¹⁾

$
—

—

$
33,690

—

Nonperforming loans and troubled debt restructurings⁽²⁾

$
34

—

$
36,362

—

Total loans

$
1,552,046

—

$
1,658,849

—

Allowance for credit losses to nonaccrual loans⁽¹⁾

—
%
—

135
%
—

Allowance for credit losses to total loans

2.48
%
—

2.74
%
—

(1) Nonaccrual loans exclude nonaccrual loans held for sale.
(2) Nonperforming loans and troubled debt restructurings exclude nonaccrual loans and troubled debt restructurings in loans held for sale.
~~The allowance for loan losses as a percentage of loans was .74% and .71% as of March 31, 2018 and December 31, 2017, respectively.~~
Collateral-Dependent Loans
The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased or decreased by the provision for loan losses and decreased by charge offs less recoveries. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses. Management estimates the allowance for loan losses balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off.
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~~collateral-dependent 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~~difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. At March 31, 2023, the Company did not have any collateral-dependent loans where the borrower is experiencing financial difficulty.

Table of Contents

Modifications to Borrowers Experiencing Financial Difficulty

In January 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (ASC 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) which eliminated the accounting guidance for troubled debt restructurings ~~as defined below,~~while enhancing disclosures requirements for certain loan refinancing and ~~classified as impaired.~~

~~Factors considered~~restructurings by ~~us in determining impairment include payment status, collateral value,~~creditors when a borrower is experiencing financial difficulty. The Company adopted the provisions of ASU 2022-02 on January 1, 2023, along with its adoption of ASU 2016-13, Financial Instruments—Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments (“2016-13”) and was applied using the ~~probability~~modified retrospective method. On the date of ~~collecting scheduled principal~~adoption, the Company increased its allowance for credit losses by $0.4 million, recorded a deferred income tax impact of $0.1 million and ~~interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance~~recorded a cumulative effect adjustment of ~~payment delays and payment shortfalls on a case-by-case basis, taking into consideration all~~$0.3 million, net of the ~~circumstances surrounding~~income tax impact of $0.1 million, to decrease the ~~loan and the borrower, including the length~~opening balance of ~~the delay, the reasons~~retained earnings as of January 1, 2023, for the ~~delay,~~initial application of ASU 2022-02. The cumulative effect adjustment represents 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~~difference between the allowance ~~for loan losses is allocated so that~~previously determined under 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,~~model and the ~~loan is reported, net, at~~allowance determined under the ~~fair value of the collateral. For loans that are considered~~new credit loss accounting model for existing 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~~restructuring 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~~adoption date.
Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest ~~is considered doubtful. Nonaccrual~~forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Historically, the Company has provided loan forbearances to residential borrowers when mandated and modified construction 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~~by providing term extensions. The Company did 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 the determinations. 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, 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~~held for investment made to borrowers experiencing financial difficulty that were modified during the ~~factors discussed above. Any material increase in~~three months ended March 31, 2023. The Company did not have any loans held for investment made to borrowers experiencing financial difficulty that were previously modified that subsequently defaulted during the ~~allowance for loan losses may adversely affect our financial condition and results of operations.~~
three months ended March 31, 2023.
Investment Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of our ~~available-for-sale~~available for sale debt securities portfolio at the dates indicated.

At March 31,

At December 31,

2023

2022

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 and Agency securities

$
176,318

$
170,271

$
175,878

$
168,437
Mortgage-backed securities

40,204

35,968

41,388

36,733
Collateralized mortgage obligations

148,945

136,151

153,066

138,241
Collateralized debt obligations

311

298

606

571

155

144

157

147
Total

$
120,963

$
120,793

$
122,775

$
122,621

$
365,622

$
342,534

$
370,489

$
343,558

AtWe decreased the size of our available for sale debt securities portfolio (on an amortized-cost basis) by $4.9 million, or 1.3%, from December 31, 2022 to $365.6 million at March 31, ~~2018~~2023. The decline in our debt securities (on an amortized cost basis) during the first quarter of 2023 was primarily due to principal receipts from our collateralized mortgage obligations and ~~December 31, 2017,~~mortgage-backed securities of $5.4 million. We continually evaluate our investment securities portfolio in response to established asset/liability management objectives and changing market conditions that could affect profitability and the level of interest rate risk to which we ~~had no investments in a single company or entity, other than government~~are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and ~~government agency securities, with an aggregate book value in excess of 10%~~change the composition of our ~~shareholders’ equity.~~investment securities portfolio.

Table of Contents

For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, we evaluate at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of income taxes.

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 as impairment through earnings. 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 and (2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. 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 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 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,~~2023, gross unrealized losses on debt securities totaled ~~$237. Since~~$23.1 million. Our debt, mortgage-backed securities and the ~~decline in fair value~~majority of the collateralized mortgage obligations are issued by the U.S. government, its agencies and government-sponsored enterprises. Management has concluded that the long history with no credit losses from issuers of U.S. government, its agencies and government-sponsored enterprises indicates an expectation that nonpayment of the amortized cost basis is ~~attributable to (i) changes in interest rates and illiquidity, not credit quality, (ii) we do not have the intent to sell the~~zero. Our available for sale debt securities ~~and (iii) it is likely that~~are explicitly or implicitly fully guaranteed by the U.S. government. As a result, we ~~will~~have not ~~be required to sell the~~recorded an allowance for credit losses for our available for sale debt securities ~~before their anticipated recovery, we do not consider the debt securities to be other-than-temporarily impaired~~ at March 31, ~~2018.~~2023.
~~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. At March 31, ~~2018~~2023 and December 31, ~~2017,~~2022, equity securities totaled ~~$4,163~~$4.7 million and ~~$4,227,~~$4.6 million, respectively.
We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or its redemption value. At March 31, 2022 and December 31, 2022, we held $20.3 million in FHLB stock.
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 a competitive cost of funds. We obtain funds from depositors by offering a range of deposit types, including demand, savings money market and time. The following table sets forth the composition of our deposits by account type at the dates indicated.

At March 31,

At December 31,

2023

2022

(In thousands)
Noninterest-bearing deposits

$
46,496

$
53,041
Money market, savings and NOW

958,165

1,039,263
Time deposits

917,161

861,733
Total deposits

$
1,921,822

$
1,954,037

Total deposits ~~increased $46.1~~were $1.9 billion as of March 31, 2023, a decrease of $32.2 million, or ~~2.1%~~2%, compared to ~~$2.29 billion at March 31, 2018 from $2.24~~$2.0 billion at December 31, ~~2017, primarily as a result of strong growth in our~~2022. Our money market, savings and ~~certificates~~NOW deposits decreased by $81.1 million, or 8%, and our noninterest-bearing demand deposits decreased $6.5 million, or 12%, from December 31, 2022. Our time deposits increased by $55.4 million, or 6%, due to our strategy to continue to offer time deposits at competitive interest rates to maintain our existing customer deposit base and help manage our liquidity. We also experienced our existing customers shifting their deposits from money market, savings and NOW accounts to time deposits to take advantage of ~~deposit products, partially offset by a decrease of our balance in~~the higher interest rates. We had no brokered ~~deposits.~~ deposits at March 31, 2023 or December 31, 2022.
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 and brokered deposits. Core deposits totaled ~~$2.1~~$1.7 billion, ~~at March 31, 2018,~~ or ~~90%~~86% of total deposits, at March 31, 2023 compared to $1.7 billion, or 88% of total deposits, at December 31, 2022.

Table of Contents

As of March 31, 2023, we had estimated $389.1 million in uninsured deposits. Total estimated uninsured deposits were approximately 20% of total deposits at March 31, 2023. The insured deposit data does not reflect an evaluation of all of the account styling distinctions that ~~date. Brokered~~would determine the availability of deposit insurance to individual accounts based on FDIC regulations. The portion of U.S. time deposits, ~~totaled $80~~by account, that exceed the FDIC insurance limit of $250,000 was $93.6 million at March 31, ~~2018, down from $156 million at December 31, 2017.~~

2023.

Borrowings

At March 31, 2018, we had the ability to borrow a total of $754 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 $343 million, 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.

In addition to deposits, we use short-term borrowings, such as FHLB advances and ~~a FHLB~~drawdowns on an overdraft credit line with the FHLB, 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 advances with the FHLB ~~advances consists~~consist primarily of advances of funds ~~made~~ for ~~one-to-two-week~~one- or two-week periods.

At March 31, 2023 and December 31, 2022, outstanding FHLB borrowings totaled $50.0 million. Our FHLB borrowings consisted of a long-term fixed rate advance with a fixed interest rate of 1.96% with a maturity date of May 2029, although the advance is callable by the FHLB in May 2024.
We have outstanding subordinated notes in a principal amount of $65.0 million (the “Notes”) at March 31, 2023, which have a variable interest rate equal to the three-month LIBOR rate plus a margin of 5.82%. The interest rate was 10.65% at March 31, 2023. The Notes mature on April 15, 2026. The Company may redeem the Notes, in whole or part, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued interest. There have been no redemptions of the Notes.
At March 31, 2023, we had the ability to borrow an additional $398.4 million from the FHLB, which included an available line of credit of $20.0 million. In addition, we have standby letters of credit, totaling $2.0 million, which provide credit support for certain of our obligations related to our commitments to repurchase certain pools of Advantage Loan Program loans. We also had available credit lines with other banks totaling $80.0 million. There were no borrowings outstanding on the lines of credit with other banks.
Shareholders’ Equity
Total shareholders’ equity was $315.5 million at March 31, 2023, compared to $312.6 million at December 31, 2022. The increase in shareholders’ equity is primarily attributable to unrealized losses on our investment securities portfolio in accumulated other comprehensive loss that have recovered by $2.8 million since December 31, 2022 which resulted from changes in market value related to the shift in the interest rate yield curve.
Analysis of Results of Operations
Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022
General. The Company had a net loss of $(0.5) million for the three months ended March 31, 2023 compared to net income of $5.3 million for the three months ended March 31, 2022.

Table of Contents

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

Rates. The following ~~tables present~~table presents 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~~2023 and ~~three months ended March 31, 2017.~~2022. 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
%

Three Months Ended

March 31, 2023

March 31, 2022

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

$
1,366,872

$
18,514

5.42
%
$
1,660,692

$
18,278

4.40
%
Commercial real estate

223,929

2,596

4.64
%

247,044

3,436

5.56
%
Construction

41,436

1,034

9.98
%

95,123

2,149

9.04
%
Commercial and industrial

1,382

16

4.63
%

350

5

5.71
%
Total loans

1,633,619

22,160

5.43
%

2,003,209

23,868

4.77
%
Securities, includes restricted stock⁽²⁾

366,346

2,456

2.68
%

350,150

835

0.95
%
Other interest-earning assets

411,766

4,807

4.67
%

452,651

215

0.19
%
Total interest-earning assets

2,411,731

29,423

4.88
%

2,806,010

24,918

3.55
%
Noninterest-earning assets

Cash and due from banks

4,475

4,016

Other assets

28,398

43,322

Total assets

$
2,444,604

$
2,853,348

Interest-bearing liabilities

Money market, savings and NOW

$
1,001,505

$
4,614

1.87
%
$
1,310,848

$
707

0.22
%
Time deposits

900,890

5,195

2.34
%

861,785

1,623

0.76
%
Total interest-bearing deposits

1,902,395

9,809

2.09
%

2,172,633

2,330

0.43
%
FHLB borrowings

50,000

245

1.96
%

150,000

352

0.94
%
Subordinated notes, net

65,264

1,693

10.38
%

65,337

964

5.90
%
Total borrowings

115,264

1,938

6.73
%

215,337

1,316

2.44
%
Total interest-bearing liabilities

2,017,659

11,747

2.36
%

2,387,970

3,646

0.62
%
Noninterest-bearing liabilities

Demand deposits

50,284

64,119

Other liabilities

63,308

55,479

Shareholders’ equity

313,353

345,780

Total liabilities and shareholders’ equity

$
2,444,604

$
2,853,348

Net interest income and spread⁽²⁾

$
17,676

2.52
%

$
21,272

2.93
%
Net interest margin⁽²⁾

2.93
%

3.03
%
~~(1)~~
(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 equivalence adjustments.

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

The following table presents the dollar amount of changes in interest income and interest expense for major components of ~~interest earning~~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~~period’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, 2023 vs. 2022
								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)
								(Dollars 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								$	(3,564)	$	3,800	$	236
Commercial real estate									(303)		(537)		(840)
Construction									(1,319)		204		(1,115)
Commercial and industrial									12		(1)		11
Total loans									(5,174)		3,466		(1,708)
Securities, includes restricted stock									40		1,581		1,621
Other interest-earning assets									(21)		4,613		4,592
Total change in interest income	9,296		350			9,646			(5,155)		9,660		4,505
Change in interest expense:
Saving/Now/Money Markets	764		912			1,676
Money market, savings and NOW									(211)		4,118		3,907
Time deposits	890		489			1,379			76		3,496		3,572
Total deposits	1,654		1,401			3,055
FHLB borrowings and subordinated notes	257		10			267
Total interest-bearing deposits									(135)		7,614		7,479
FHLB borrowings									(332)		225		(107)
Subordinated notes, net									(1)		730		729
Total change in interest expense	1,911		1,411			3,322			(468)		8,569		8,101
Change in net interest income	$	7,385	$	(1,061	)	$	6,324	$	(4,687)	$	1,091	$	(3,596)

~~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 $17.7 million for the three months ended March 31, ~~2018 from the comparable 2017 period. The increase was driven by~~2023, a ~~$6.3 million increase 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.~~

~~Interest Income.~~ ~~Interest income increased $9.6~~of $3.6 million, or ~~35.5%~~17%, ~~to $36.8~~from $21.3 million for the three months ended March 31, ~~2018~~2022. The decrease in net interest income reflects interest expense, primarily on deposits, increasing more than interest income during the rising rate environment of the past twelve months, which was the result of the Federal Open Market Committee increasing the federal funds rate range from 0.00% - 0.25% in March 2022 to 4.75% - 5.00% in March 2023.

Interest income was $29.4 million for the three months ended March 31, 2023, an increase of $4.5 million, or 18%, from the three months ended March 31, ~~2017 primarily due to an increase in loans.~~2022. The increase in interest income ~~on loans~~ was primarily due to interest income earned on the average ~~outstanding loans increasing $689~~balance of our investment securities and other interest-earning assets as these portfolios repriced significantly in the rising rate environment. Other interest-earning assets, which are comprised primarily of cash and due from banks, had an average yield of 4.67% for the three months ended March 31, 2023 compared to 0.19% for the three months ended March 31, 2022. These assets benefitted the most from the rising rate environment as correspondent banks and the Federal Reserve increased their deposit rate and overnight funding rates, respectively, by over 400 basis points. The impact of rising interest rates on our other interest-earning assets was slightly offset by a modest decline in the average balance of these assets. Although the average balance of our investment securities increased only 5%, these assets had an average yield of 2.68% for the three months ended March 31, 2023 compared to 0.95% for the three months ended March 31, 2022. The average balance of our investment securities was $366.3 million for the three months ended March 31, 2023 compared to $350.2 million for the three months ended March 31, 2022.

Partially offsetting the increased interest income earned on the average balance of our investment securities and other interest-earnings assets was a decline in interest income earned on our loan portfolio. Because much of our loan portfolio is comprised of

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adjustable-rate mortgages, the increase in interest income arising from rising interest rates was largely offset by the decline in the balance of our loan portfolio. The average balance of our loan portfolio declined $369.6 million, or ~~33.7% to $2.73~~18%, from $2.0 billion for the three months ended March 31, ~~2018~~2022. The decrease in our average balance of loans is primarily attributable to repayments on loans, which continued to outpace our loan production as the result of our decisions to delay the development of new residential and commercial loan products and stop originating construction loans. Although the average balance of our residential mortgage loan portfolio has declined, the average yield increased 102 basis points from ~~$2.04 billion for~~ the three months ended March 31, ~~2017. The average~~2022, due to our adjustable-rate residential real estate mortgage loans repricing at higher interest rates driven by the increasing interest rate ~~collected on loans increased 2 basis points, or 0.02%, to 5.25% for~~environment in the ~~three months ended March 31, 2018 from 5.23% for the three months ended March 31, 2017.~~second half of 2022 and into 2023.

~~Interest Expense.~~Interest expense ~~increased $3.3 million, or 63.0%, to $8.6~~was $11.7 million for the three months ended March 31, ~~2018 from $5.3~~2023 compared to $3.6 million for the three months ended March 31, ~~2017, primarily as a result of deposit growth, an~~2022. Similar to our interest-bearing assets, the increase in ~~average rate on~~our interest expense was primarily driven by the change in interest rates, partially offset by the impact of a decline in the balance of our interest-bearing ~~deposits, and~~liabilities. The increase in interest expense was primarily due to an increase in the average rate paid on our interest-bearing deposits of ~~our borrowings. The~~166 basis points from the three months ended March 31, 2022. Specifically, the average rate we paid on ~~interest-bearing~~money market, savings and NOW accounts and time deposits increased 32165 basis points and 158 basis points, respectively, compared to ~~1.20%~~the three months ended March 31, 2022, as we continued to competitively price our deposits as rates continued to rise throughout the past twelve months. Interest expense related to interest on deposits comprised 84% of total interest expense for the three months ended March 31, ~~2018 from 0.88 %~~2023 compared to 64% of total interest expense for the three months ended March 31, ~~2017. Our~~2022.

In addition, our interest expense on our subordinated notes increased $0.7 million as the average ~~balance of interest-bearing deposits~~rate paid increased ~~$608 million, or 37.5%,~~ to ~~$2.23 billion~~10.38% for the three months ended March 31, ~~2018 from $1.62 billion~~2023 compared to 5.90% for the three months ended March 31, ~~2017.The average~~2022, as the interest rate ~~paid~~ on ~~borrowings increased 33 basis points~~the notes continued to ~~2.48%~~reprice in the rising interest rate environment.

Net Interest Margin and Interest Rate Spread. Net interest margin was 2.93% for the three months ended March 31, ~~2018~~2023, down 10 basis points from ~~2.15%~~3.03% for the three months ended March 31, ~~2017~~2022. The interest rate spread was 2.52% for the three months ended March 31, 2023, down 41 basis points from 2.93% for the three months ended March 31, 2022. Our net interest margin and interest rate spread were negatively impacted during the three months ended March 31, 2023, due to the ~~increase~~average rate on our total interest-bearing liabilities primarily on our customer deposits due to the higher interest rate environment than the comparable period in ~~subordinated debt and increase in borrowing rates at the FHLB.~~2022.

~~Net Interest Income.~~ ~~Net interest income increased $6.3 million, or 28.9%, to $28.2~~Provision for (Recovery of) Credit Losses. Our provision for credit losses was $0.7 million for the three months ended March 31, ~~2018 from $21.9~~2023 compared to a recovery for loan losses of $(4.3) million for the three months ended March 31, ~~2017~~2022. The following table presents the components of our provision for (recovery of) credit losses:

Three Months Ended

March 31,

2023

2022

(In thousands)
Provision for (recovery of) credit losses:






Loans

$
0.8

$
(4.3)
Off-balance sheet credit exposures

(0.1)

—
Total

$
0.7

$
(4.3)

The increase in the provision for credit losses on loans was primarily due to ~~average earning assets increasing $748 million. Our~~ net ~~interest rate spread decreased 24 basis points to 3.71%~~charge offs of $6.4 million on the transfer of loans held 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%sale and the ~~average rate we paid~~increase in the allowance for credit losses on ~~interest-bearing liabilities increased~~our commercial real estate loans, which was offset by ~~26 basis points~~a decrease in the allowance for credit losses on our residential portfolio as a result of the transfer of loans to ~~1.36%.~~
~~Provision~~held for ~~Loan~~sale and loan payoffs. For additional information on changes to the allowance for credit losses, see “—Allowance for Credit Losses. ~~Our provision for loan losses was $.6~~”

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Non-interest Income. The components of non-interest income were as follows:

Three Months Ended




March 31,

Change


2023

2022

Amount

Percent


(Dollars in thousands)
Service charges and fees

$
94

$
122

$
(28)

(23)
%
Loss on sale of investment securities

(2)

—

(2)

N/M

Gain (loss) on sale of mortgage loans held for sale

(25)

197

(222)

N/M

Unrealized gain (loss) on equity securities

71

(236)

307

N/M

Net servicing income

59

443

(384)

(87)
%
Income earned on company-owned life insurance

80

328

(248)

(76)
%
Other

1

557

(556)

(100)
%
Total non-interest income

$
278

$
1,411

$
(1,133)

(80)
%
N/M - not meaningful
Non-interest income of $0.3 million for the three months ended March 31, ~~2018 and 2017. The provisions recorded resulted in an allowance for loan losses~~2023, a decrease of ~~$19.1~~$1.1 million ~~or .74% of total loans at~~from the three months ended March 31, ~~2018, compared~~2022. The decrease in non-interest income is primarily the result of declines in net servicing income of $0.4 million and approximately $0.4 million in recoveries of the loan valuation losses previously taken on certain commercial real estate loans that were sold in the first quarter of 2022. In addition, income earned on company-owned life insurance decreased $0.2 million due to ~~$15.6~~the surrender of certain policies in the second quarter of 2022. Further, gain (loss) on the sale of mortage loans held for sale decreased by $0.2 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~~fewer sales of mortage loans during the ~~servicing portfolio~~three months ended March 31, 2023 offset by the unrealized gain (loss) on equity securities increase of ~~mortgage loans sold to the secondary market for which servicing has been retained.~~$0.3 million.
Non-interest Expense. ~~Non-interest~~The components of non-interest expense ~~information is~~were as follows:

Three Months Ended





March 31,

Change


2023

2022

Amount

Percent


Three Months Ended
March 31,

Change

2018

2017

Amount

Percent

(In thousands)

Non-interest Expense

(Dollars in thousands)
Salaries and employee benefits

$
6,649

$
5,410

$
1,239

22.9
%

$
9,410

$
9,617

$
(207)

(2)
%
Occupancy and equipment

1,546

1,389

157

11.3
%

2,112

2,142

(30)

(1)
%
Professional fees

622

369

253

68.6
%

3,221

5,157

(1,936)

(38)
%
Advertising and marketing

349

192

157

81.8
%
FDIC assessments

543

242

301

124.4
%

257

369

(112)

(30)
%
Data processing

288

207

81

39.1
%

738

805

(67)

(8)
%
Net provision for (recovery of) mortgage repurchase liability

120

(213)

333

N/M

Other

1,506

1,283

223

17.4
%

1,979

1,546

433

28
%
Total non-interest expense

$
11,503

$
9,092

$
2,411

26.5
%

$
17,837

$
19,423

$
(1,586)

(8)
%
N/M - not meaningful
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~~Non-interest expense of ~~$6.3~~$17.8 million for the three months ended March 31, ~~2018, reflecting~~2023 reflected a decrease of $1.6 million compared to the three months ended March 31, 2022. This decrease was primarily attributable to reimbursements received from an insurance carrier of $2.2 million for previously incurred direct and third-party legal expenses related to the governmental investigations that were determined to be covered by our insurance. Absent the reimbursement from the insurance carrier, professional fees would have remained elevated. The decrease was partially offset by an increase in the net provision for mortage repurchase liability of $0.3 million and a $0.4 million increase in other non-interest expenses.
Income Tax Expense (Benefit). We recorded an income tax benefit of $(54) thousand, or effective tax rate of ~~28.7%~~9.7%, ~~compared to $7.3 million~~ for the three months ended March 31, ~~2017, reflecting~~2023 compared to an income tax expense of $2.3 million, or effective tax rate of ~~41.4%.~~30.3%, for the three months ended March 31, 2022. The decrease in ~~the~~our effective tax rate ~~was~~is primarily due to the ~~reduction~~lower level of pretax earnings in the ~~federal corporate tax rate~~three months ended March 31, 2023 as compared to ~~21% that was effective January 1, 2018 because~~the three months ended March 31, 2022.

Table of ~~the Tax Cuts and Jobs Act (H.R.1).~~Contents

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations when they come due. ~~In addition~~We rely on our ability to generate deposits and effectively manage the ~~cash received~~repayment and maturity schedules of ~~$85.5 million~~our loans to ensure we have adequate liquidity to fund our operations.

During the three months ended March 31, 2023, two large banks were closed and placed into receivership with the FDIC. Although we were not directly affected by these bank failures, this news caused depositors to withdraw or attempt to withdraw their funds from these and other financial institutions, including us. Our customer deposit balances have remained relatively stable following these bank failures. Should we be exposed to this type of contagion risk in the future, we may need to exit certain positions in investments at a pace and in a market environment that may result in substantial losses. The risk of significant deposit withdrawals may be magnified based on the amount of uninsured deposits; concentrations of depositors in certain industries, geographies and corporate life cycle stages; and the availability of alternative deposit and investment opportunities for our ~~initial public offering which closed in November 2017, our~~customers.

Our primary sources of funds consist of ~~deposit inflows,~~cash flows from operations, deposits and principal repayments on loans and sales of our investment securities. Additional liquidity is provided by our ability to borrow from the FHLB, our ability to sell portions of our loan ~~repayments~~portfolio, and ~~FHLB borrowings.~~access to the discount window of the Federal Reserve and brokered deposits. 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.

Our most liquid assets are cash and due from banks, interest-bearing time deposits with other banks and investment securities in our available for sale portfolio. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base. At March 31, 2023 and December 31, 2022, cash and due from banks totaled $419.2 million and $379.8 million, respectively; interest-bearing time deposits with other banks totaled $0.9 million; and debt securities available for sale, totaled $342.5 million and $343.6 million, respectively. We purchased investment securities of $3.0 million and $73.6 million during the three months ended March 31, 2023 and 2022, respectively, and had maturing investments or principal receipts of $5.4 million and $12.4 million during the three months ended March 31, 2023 and 2022, respectively. 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. The Company’s Asset Liability Management Committee monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. Excess liquid assets are generally invested ~~generally~~ in ~~interest earning~~interest-earning deposits and short-term securities.

Our ~~most liquid assets are cash~~liquidity is further enhanced by our ability to pledge loans and ~~due~~investment securities to access secured borrowings from banks and U.S. Treasury and Agency 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.the FHLB. At March 31, ~~2018~~2023 and December 31, ~~2017, cash and due from banks~~2022, outstanding FHLB advances totaled $37.5 million and $40.1 million, respectively. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $120.8 million at March 31, 2018 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~~$50.0 million. There were no amounts outstanding on lines of credit with ~~Federal Home Loan Bank of $50 million. At~~other banks during the three months ended March 31, ~~2018, we~~2023. Based on our collateral and holdings of FHLB stock, the Company had additional borrowing capacity with the FHLB of $398.4 million. We also had available credit lines with ~~additional~~other banks totaling $80.0 million.

In addition, as a result of the recent bank failures of Silicon Valley Bank and Signature Bank, the FRB has made available to banks the Bank Term Funding Program, against which we can borrow with qualifying collateral, including the bulk of the investment securities portfolio, valued at par as permitted by the terms of the program. The term is for ~~$60 million. Outstanding borrowings on March 31, 2018 with~~one year and the ~~Federal Home Loan Bank totaled $342.9 million,~~interest rate is fixed at the time the advance is taken and there ~~were~~is no ~~amounts outstanding with~~prepayment penalty. Allowable investments for pledge would include all of the ~~aforementioned additional banks.~~

~~We have no material commitments or demands that are likely~~Company’s investment securities except the non-Agency collateralized mortgage obligations and those allowable investments already pledged 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 our borrowing capacity with the Federal Home Loan Bank, our bank lines of credit, or obtain additional funds through brokered certificates of deposit.

FHLB. At March 31, ~~2018, we~~2023, the Company had ~~$425~~no advances outstanding under the Bank Term Funding Program, but would have unused borrowing capacity of $254.1 million ~~in loan commitments outstanding. We also had $70,000 in standby letters of credit~~thereunder. The program expires on March 11, 2024.

Cash flows from financing activities are primarily impacted by our deposits. Our total deposits were $1.9 billion at March 31, ~~2018. At~~2023, a decrease of $32.2 million, or 2% from December 31, ~~2017, we had $426 million in loan commitments outstanding. We also had $70,000 in standby letters of credit at December 31, 2017.~~

Certificates of deposit due within one year of March 31, 2018 totaled $591 million, or 26% of total deposits. Total certificates of deposit were $680 million, or 30%, of total deposits. Certificates of deposit due within one year of December 31, 2017 totaled $427 million, or 19% of total deposits. Total certificates of deposit at December 31, 2017 were $663 million, or 30% of total deposits.

Our primary investing activities are the origination of loans and to a lesser extent, the purchase of securities. During the three months ended March 31, 2018, we originated $408 million of loans and purchased $24.7 million of securities. During the three months ended March 31, 2017, we originated $257 million of loans and purchased $35.2 million of securities.

Financing activities consist primarily of activity in deposit accounts. We experienced net increases in total deposits of $46.1 million and $107.0 million for the three months ended March 31, 2018 and 2017, respectively.2022. We generate deposits from local businesses and individuals through customer referrals and other relationships and through our retail presence. We ~~believe we have~~obtain funds from depositors by offering a ~~very stable core~~range of deposit ~~base evidenced by the average life of our accounts, which we attribute to a high level of customer service~~types, including demand, savings money market and ~~our consistently competitive rates. We expect the high level of liquid accounts to be maintained.~~time. We utilize borrowings and brokered deposits ~~and bulk sales of whole loans~~ to supplement funding needs and manage ~~overall growth.~~our liquidity position. As of March 31, 2023, time deposits due within one year were $604.4 million, or 31% of total deposits. As of December 31, 2022, time deposits due within one year were $444.9 million, or 23% of total deposits. In addition, we estimated our total uninsured deposits were $389.1 million, or 20%, of total deposits. as of March 31, 2023.

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~~We also manage liquidity~~The cash outflows from decreases in deposits was more than offset by ~~selling pools of our portfolio loans into~~ the ~~secondary market~~cash inflows from ~~time to time. We generated $112.2 million and $105.1 million~~net decreases in ~~proceeds from the sale of loans in~~loans. During the three months ended March 31, ~~2018~~2023 and ~~2017,~~2022, we originated $6.2 million and $60.8 million, respectively, of loans. Cash flows provided by loan payoffs totaled $53.2 million and $182.0 million during the three months ended March 31, 2023 and 2022, respectively. From time to time, we also sell residential mortgage loans in the secondary market primarily to third party investors. Often, the agreements under which we sell residential mortgages loans may contain provisions that include various representations and warranties regarding origination and characteristics of the residential mortgage loans. The Company has outstanding commitments to repurchase pools of Advantage Loan Program loans sold with a total outstanding principal balance of $20.5 million at March 31, 2023. These commitments expire in July 2025. In addition, the unpaid principal balance of the sold Advantage Loan Program loans that would be subject to repurchase by us if 100% of our original offers to repurchase such loans were accepted totaled $40.2 million, which includes loans that we have committed to repurchase.

We are a party to financial instruments in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to make loans and standby letters of credit that are not reflected in our condensed consolidated balance sheets, as well as commitments on unused lines of credit that involve elements of credit and interest rate risk in excess of the amount recorded in the condensed consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of these instruments. At March 31, 2023, we had unfunded commitments to extend credit totaling $17.7 million and standby letters of credit outstanding of $24 thousand. The Company is required to estimate the expected credit losses for off-balance sheet credit exposures, including unfunded loan commitments and letters of credit, which are not unconditionally cancellable. At March 31, 2023, the Company has recorded a liability for unfunded commitments of $0.5 million.

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. Federal banking regulations limit the dividends that may be paid by the Bank. Regulatory approval is required if the Bank’s 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” under applicable regulations following the distribution. Federal banking regulations also limit the ability of the Bank to pay dividends under other circumstances. Even if an application is not otherwise required, every savings bank that is a subsidiary of a unitary thrift holding company, such as the Bank, must still file a notice with the FRB at least 30 days before its board of directors declares a dividend or approves a capital distribution. 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.

In recent years, the Company’s primary funding needs on a parent company-only basis have consisted of interest expense on subordinated notes and expenses attributable to public company operations. The Company suspended cash dividends to shareholders and its share repurchase program early in 2020. At March 31, 2023, the Company had $65.0 million in principal amount of subordinated notes outstanding that are due April 15, 2026, but may be redeemed by us, in whole or in part, at any time. There have been no redemptions on the subordinated notes. The subordinated notes require interest payable quarterly in arrears at a variable-rate of interest of the three-month LIBOR rate plus a margin of 5.82% (10.65% at March 31, 2023). Pursuant to recent federal and New York State legislation, upon the cessation of the publication of the three-month LIBOR rate on June 30, 2023, the subordinated notes will bear interest at a rate based on SOFR.

The Plea Agreement provides that the Company must make a restitution payment of $27.2 million for the benefit of non-insider victim shareholders. This restitution payment will need to be funded shortly after court approval. The Company intends to fund this payment primarily from a cash dividend from the Bank, subject to compliance with applicable regulations.

The Company’s ability to pay cash dividends is restricted by the terms of the subordinated 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 subordinated notes, as long as the subordinated notes are outstanding, the Company is permitted to pay dividends if prior to such dividends, the Bank is considered “well capitalized” under applicable regulations. 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.

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The Company and the Bank are subject to ~~various regulatory~~minimum capital adequacy 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~~quarterly basis including our needs for additional capital and ability to pay cash dividends. ~~At March 31, 2018 and December 31, 2017, each~~

The federal banking agencies’ capital requirements are the result of a final rule implementing recommendations of the ~~Company~~Basel Committee on Banking Supervision and ~~Bank exceeded all applicable~~certain requirements of the Dodd-Frank Act. In addition to establishing these minimum regulatory capital requirements, ~~and~~these regulations have established a CCB consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the ~~Bank was considered “well capitalized” under regulatory guidelines. Refer~~amount necessary to ~~Note 13 in the Unaudited Condensed Consolidated Financial Statements for additional information.~~

meet its minimum risk-based capital requirements. The ~~following tables present our capital ratios as of the indicated dates for the Company and Bank.~~

Well
Capitalized

Adequately
Capitalized

Under
Capitalized

Company Actual at
March 31, 2018

Company Actual at
December 31, 2017

Total adjusted capital to risk-weighted assets

N/A

8.00
%
6.00
%
20.38
%
20.28
%
Tier 1 (core) capital to risk-weighted assets

N/A

6.00
%
4.00
%
15.77
%
15.53
%
Tier 1 (core) capital to adjusted tangible assets

N/A

4.00
%
3.00
%
9.73
%
9.83
%
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

Total adjusted capital to risk-weighted assets

10.00
%
8.00
%
6.00
%
15.07
%
14.76
%
Tier 1 (core) capital to risk-weighted assets

8.00
%
6.00
%
4.00
%
14.02
%
13.71
%
Tier 1 (core) capital to adjusted tangible assets

5.00
%
4.00
%
3.00
%
8.65
%
8.68
%
Common Tier 1 (CET 1)

6.50
%
4.50
%
3.00
%
14.02
%
13.71
%
Basel III revised the capital adequacy requirements and the Prompt Corrective Action Framework effective January 1, 2015 for the Company. When fully phased in on January 1, 2019, the Basel Rules will require the Company to maintain a 2.5% “capital conservation buffer” on top of the minimum risk-weighted asset ratios. The capital conservation bufferCCB 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 December 31, 2022, the Company and the Bank met all regulatory capital requirements to which they were subject and held capital in excess of the ~~capital conservation buffer began on~~CCB; however, effective as of January 1, ~~2016~~2023, the Company and the Bank have each elected to use the CBLR framework for compliance with regulatory capital requirements. At March 31, 2023, the Company and Bank satisfied the requirements of the CBLR framework and therefore are considered to have met the minimum capital requirements to be “well capitalized” under applicable prompt corrective action requirement. Had we been subject to the CBLR framework at December 31, 2022, we would have been in compliance with the ~~0.625% level~~CBLR requirements and, ~~will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.~~
~~Recently Issued Accounting Guidance~~
~~Refer~~as a result, we would have been deemed to be “well capitalized” and in compliance with any other generally appliable capital requirements. For further information regarding our regulatory capital requirements, see Note ~~2, Summary of Significant Accounting Policies,~~11 to our ~~unaudited~~ condensed consolidated financial statements included in ~~Item~~“Item 1. Financial ~~Statements for~~Statements.
As observed in the wake of the recent bank failures, compliance with regulatory minimum capital requirements is a ~~discussion~~tool used in assessing the Company’s capital adequacy, but is not necessarily determinative of ~~recently issued~~how the Company would fare under extreme stress. Factors that may affect the adequacy of the Company’s capital include the inherent limitations of fair value estimates and the assumptions thereof, the inherent limitations of accounting ~~guidance~~classifications of certain investments and ~~related impact~~the effect on ~~our financial condition~~their measurement, external macroeconomic conditions and ~~results~~their effects on capital and the Company’s ability to raise capital or refinance capital commitments, and extent of ~~operations.~~steps taken by state or federal governmental authorities in periods of extreme stress.

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 (“ALCO”) 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.~~ business 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.

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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 on a static balance sheet and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates and pricing decisions on loans and ~~deposits, reinvestment and replacement of asset and liability cash flows.~~deposits.

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~~2023 and December 31, ~~2017.~~2022. The table below demonstrates that ~~for the initial twelve-month period after an immediate and parallel rate shock,~~ we are ~~liability~~asset sensitive ~~in a rising interest rate environment.~~

At March 31,

At December 31,

2018

2017

Change in Interest Rates (Basis
Points)

Estimated
12-Months
Net Interest
Income

Change

Estimated
12-Months
Net Interest
Income

Change

(Dollars in thousands)

400

93,997

(23.8
)%
88,051

(25.0
)%
300

103,006

(16.5
)%
97,204

(17.2
)%
200

111,427

(9.7
)%
105,213

(10.4
)%
100

118,427

(4.0
)%
111,634

(4.9
)%
0

123,388

117,408

–100

125,103

1.4
%
118,818

1.2
%
~~Our~~at March 31, 2023 and December 31, 2022, with the asset sensitivity of our balance sheet decreasing from December 31, 2022 primarily from the increasing the beta assumptions on our money market product. Quarter over quarter the base net interest income decreased from a combination of market 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.~~rates, balance sheet mix changes, and key model assumption updates.


At March 31,

At December 31,

2023

2022

Estimated

Estimated

12-Months

12-Months



Net Interest

Net Interest

Change in Interest Rates (Basis Points)

Income

Change

Income

Change


(Dollars in thousands)

200

$
74,234

2
%
$
83,587

4
%
100

73,607

2
%

82,016

2
%
0

72,483

80,074

−100

70,395

(3)
%

75,959

(5)
%
−200

66,314

(9)
%

70,881

(12)
%

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.~~liabilities. 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, 2023 and December 31, 2022, 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 base EVE decreased from ~~changes in market interest rates over a twelve-month period beginning March 31, 2018 and~~ December 31, ~~2017.~~2022 partially from interest rate and balance sheet mix changes, and partially from implementation of updated model assumptions of our non-maturity deposit beta and decay. The sensitivity of our balance sheet worsened from December 31, 2022 in the up-rate scenarios and improved in the down-rate scenarios primarily as a result of the updated decay assumptions. Since EVE is a long-term measurement of value, the change in EVE is not indicative of the short term (12-months) effects on earnings.

At March 31,

At December 31,

2018

2017

Change in Interest Rates
(Basis Points)

Economic
Value of
Equity

Change

Economic
Value of
Equity

Change

(Dollars in thousands)

400

397,316

(9.8
)%
373,010

(10.3
)%
300

422,665

(4.1
)%
399,470

(3.9
)%
200

439,115

(0.3
)%
415,216

(0.2
)%
100

446,192

1.3
%
421,089

1.3
%
0

440,636

415,880

–100

410,479

(6.8
)%
381,348

(8.3
)%


At March 31,

At December 31,

2023

2022

Economic

Economic



Value

Value

Change in Interest Rates (Basis Points)

of Equity

Change

of Equity

Change

(Dollars in thousands)

200

$
402,308

(13)
%
$
489,907

(10)
%
100

438,533

(5)
%

521,450

(4)
%
0

463,137

542,625

−100

478,525

3
%

537,092

(1)
%
−200

484,680

5
%

522,085

(4)
%

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables. 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

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taken in response to the changing rates. Accordingly, the data presented in the tables in this section should not be relied upon as indicative of actual results in the event of changes in interest rates and the resulting EVE and net interest income estimates are not intended to represent and should not be construed to represent our estimate of the underlying EVE or forecast of net interest income. Furthermore, the EVE presented in the foregoing table is not intended to present the fair market value of the Company, nor does it represent amounts that would be available for distribution to shareholders in the event of the liquidation of the Company.

LIBOR Discontinuation

In 2017, the U.K. Financial Conduct Authority announced that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023. On April 6, 2021, legislation was adopted in New York State that provides for the use of a statutory replacement for U.S. dollar LIBOR in certain New York law legacy contracts. On March 15, 2022, the Consolidated Appropriations Act of 2022, among other things, provided for the use of interest rates based on SOFR in certain contracts currently based on LIBOR and a safe harbor from liability for utilizing SOFR-based interest rates as a replacement for LIBOR. Regulations implementing this legislation were enacted by the FRB in a final rule on December 16, 2022.

We have significant exposure to financial instruments with attributes that are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. We ceased using LIBOR for new originations on March 8, 2021 and began originating loans based on the U.S. Treasury one-year constant maturity Treasury rates thereafter; however, our adjustable-rate loan products that are LIBOR-indexed currently continue to reset based on LIBOR. Pursuant to federal and New York State legislation, upon the cessation of the publication of the three-month LIBOR rate, the Company’s subordinated notes and our LIBOR-based loans will bear interest at a rate based on SOFR.

ITEM 4. CONTROLS AND PROCEDURES
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 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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required ~~disclosure. Based on this evaluation,~~disclosures.
Our management, with the ~~Company’s~~participation of the Chief Executive Officer and the Chief Financial Officer, 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, 2023. Based on these evaluations, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, ~~2018.~~2023.
Changes in Internal Control ~~over~~Over Financial Reporting
~~There were no~~Our management is required to evaluate, with the participation of our Chief Executive Officer and our Chief Financial Officer, 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 quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during the three months ended March 31, ~~2018~~2023 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

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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 material developments to our pending legal proceedings as disclosed in the Company’s 2022 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 legal proceedings, in the aggregate, are immaterial to our financial condition and results of operations.
Department of Justice Investigation
The Bank has received grand jury subpoenas from the DOJ beginning in 2020 requesting the production of documents and information in connection with an investigation focused on the Bank’s Advantage Loan Program and related issues, including ~~ordinary routine litigation incidental~~residential lending practices and public disclosures about that program contained in the Company’s filings with the SEC. On March 15, 2023, the Company, entered into a Plea Agreement with the DOJ, resolving the DOJ’s investigation. Under the Plea Agreement, the Company has agreed to plead guilty to one count of securities fraud primarily relating to disclosures with respect to the ~~business,~~Advantage Loan Program contained in the Company’s 2017 IPO Registration Statement and its immediately following Annual Reports on Form 10-K filed in March 2018 and March 2019; pay $27.2 million in restitution for the benefit of non-insider victim shareholders; further enhance its compliance program and internal controls with respect to ~~which~~securities law compliance; and provide periodic reports to the DOJ with respect to compliance matters. No criminal fine was imposed. The Company’s obligations under the Plea Agreement are generally effective for three years. This resolution releases the Company, as well as the Bank, from further prosecution for securities fraud and underlying mortgage fraud in the Advantage Loan Program. At a hearing held on April 19, 2023, the District Court for the Eastern District of Michigan preliminarily accepted the Plea Agreement, subject to the final court hearing. The Plea Agreement remains subject to final court approval.
Sterling Bank and Trust, F.S.B. and Sterling Bancorp, Inc. vs. Scott Seligman, et al.
On October 7, 2022, the Company and the Bank commenced an action against the Bank’s founder and controlling shareholder, and other nominal defendants, in the United States District Court for the Eastern District of Michigan styled Sterling Bank and Trust, F.S.B. and Sterling Bancorp, Inc. vs. Scott Seligman, et al., No. 2:22-cv-12398-SFC-DRG (E.D. Mich.). The complaint alleges that Mr. Seligman breached his fiduciary duties to the Company and the Bank by, among other actions and inactions, using his controlling position to develop and direct the Bank’s now-discontinued Advantage Loan Program to advance his own interests and unjustly enrich himself at the expense of the Company, the Bank and the Company’s minority shareholders. The complaint seeks to recover compensatory and other damages, disgorgement of certain monies and injunctive relief. On January 30, 2023, Mr. Seligman and the nominal defendants moved to dismiss the case. The Company and the Bank filed their opposition motions on March 13, 2023, and Mr. Seligman and the nominal defendants filed a reply brief on April 13, 2023. The court will hold a hearing to consider the plaintiff’s motion to dismiss, which we currently anticipate to take place in the third quarter of 2023. There is no assurance that we will be successful in any final adjudication of this case, that any remedy would be adequate in the event we are successful in the adjudication or ~~one~~that we would achieve an acceptable settlement.

Table of ~~its subsidiaries is a party.~~Contents

ITEM 1A. RISK FACTORS
~~There~~Except as described herein, there are no material changes from the risk factors as disclosed in the Company’s 2022 Form 10-K.

Our entry into the Plea Agreement may harm our reputation, harm our ability to engage with certain third parties and disqualify us from certain safe harbor exemptions from offering or selling our securities, and the failure to comply with the terms of the Plea Agreement may subject us to further prosecution.
As part of the Plea Agreement, the Company agreed to plead guilty to one count of securities fraud primarily relating to disclosures with respect to the Advantage Loan Program contained in the Company’s 2017 IPO Registration Statement and its immediately following Annual ~~Report~~Reports on Form 10-K filed in March 2018 and March 2019. In addition to the reputational risk and the negative publicity we have already received regarding the Advantage Loan Program, our entry into the Plea Agreement may cause further damage to our reputation in the communities we serve. Further, our entry into the Plea Agreement may cause third parties, including certain quasi-governmental agencies or exchanges, to elect to cease doing business with us, where they have the discretion to do such. Any such damage to our reputation and our ability to conduct business with third parties could materially adversely affect our business, results of operation and financial condition.

The “bad actor” disqualification provisions of Regulation D under the Securities Act restrict an issuer from offering or selling securities in a private placement in reliance on Regulation D if, among other things, the issuer has been convicted of any felony or misdemeanor, or other “disqualifying event” under the rule, which has not been waived. The SEC or the court may waive such disqualification upon a showing of good cause that disqualification is not necessary under the circumstances for which the ~~year~~safe harbor exemptions are being denied. Absent a waiver, we will be restricted in our ability to raise capital in a private placement in reliance on Regulation D as a direct consequence of pleading guilty to a charge of securities fraud. We have submitted to the SEC and to the court a waiver request from the “bad actor” disqualifications. There is no assurance that the SEC or the court will grant this request. If the SEC and the court were to deny our waiver request, we will be limited in our ability to raise capital through a private placement under Regulation D, which could have an adverse impact on our business, financial condition and results of operations.

Furthermore, if the Company were to breach the Plea Agreement, the Company would be subject to prosecution for any known or newly-discovered criminal violations, including additional charges. In such event, our ability to develop or introduce new loan products would once again be curtailed and become uncertain, which would have an adverse impact on our business and results of operations.

Recent volatility in the banking sector, triggered by the failures of Silicon Valley Bank and Signature Bank, may result in legislative initiatives, agency rulemaking activities, or changes in agency policies and priorities that could subject the Company and the Bank to enhanced government regulation and supervision.
On March 10, 2023, Silicon Valley Bank (“SIVB”) was closed by the California Department of Financial Protection and Innovation (the “CDFPI”). Two days later, on March 12, 2023, Signature Bank (“SBNY”) also failed. In each case, the FDIC was appointed as receiver. The FDIC, together with the FRB and the U.S. Treasury Secretary, then took action under applicable emergency systemic risk authority to fully protect the depositors of each bank as the institutions were wound down. SIVB and SBNY each had substantial business relationships with, and exposure to, entities within the innovation sector, including financial technology and digital asset companies, and had received an influx of deposits over the course of several years which coincided with the rapid growth of that sector. In recent periods, however, SIVB and SBNY each began to experience significant deposit losses. These losses increased rapidly in early March, ultimately causing each institution to fail. Relatedly, First Republic Bank (“FRC”) also experienced significant deposit losses in the aftermath of the failures of SIVB and SBNY, and was closed by the CDFPI, which appointed the FDIC as receiver, on May 1, 2023.
Investor and customer confidence in the banking sector—particular with regard to mid-size and larger regional banking organizations—waned in response to the failures of SIVB and SBNY. Notably, the Company’s share price decreased by approximately 9% during March 2023, consistent with other regional banking organizations. According to data published by the FRB, deposits at domestic commercial banks decreased by approximately $280 billion between the end of February 2023 and the week ended ~~December~~March 29, 2023. The Bank’s total deposits decreased by $32.2 million, or 2%, during the first quarter of 2023.
Congress and the federal banking agencies have begun to evaluate the events leading to the failures of SIVB and SBNY, and will likely also evaluate such with respect to the failure of FRC, to ascertain possible explanations for these developments. Preliminarily,

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legislators and the leadership of the federal banking agencies have posited varying theories, including, for example, inadequate prudential regulation of regional banking organizations (generally, institutions with less than $250 billion in total assets), insufficient supervision of such organizations, and a failure by the institutions themselves to properly manage risks—specifically including interest rate and liquidity risks in consideration of each institution’s business model, exposure to the innovation sector, and substantial uninsured deposit liabilities.

Further evaluation of recent developments in the banking sector may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence in the banking sector over the long term; (ii) agency rulemaking to modify and enhance relevant regulatory requirements, specifically with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices; and (iii) enhancement of the agencies’ supervision and examination policies and priorities. More specifically, for instance, the federal banking agencies may modify the risk-based capital regulations to eliminate the ability of certain banks to elect to offset portions of their accumulated other comprehensive income related to unrealized gains and losses on investment securities when calculating regulatory capital requirements. Alternatively, the treatment of accumulated other comprehensive income under U.S. GAAP also could be modified, the effect of which may carry through to banks’ capital management and regulatory compliance practices. The federal banking agencies may also re-evaluate applicable liquidity risk management standards, such as by reconsidering the mix of assets that are deemed to be “high-quality liquid assets” (“HQLA”) and/or how HQLA holdings and cash inflows and outflows are tabulated and weighted for liquidity management purposes.

Although we cannot predict with certainty which initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, including whether community banks such as the Bank would be impacted, any of the potential changes referenced above could, among other things, subject us to additional costs, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

We may experience increases in FDIC insurance assessments.

The losses incurred by the Deposit Insurance Fund in connection with the resolution of SIVB, SBNY and FRC, which are estimated to amount to approximately $35.5 billion in the aggregate, are required by law to be recovered through one or more special assessments on depository institutions and, potentially, their holding companies if the FDIC determines such action to be appropriate and the Secretary of the Treasury concurs. The FDIC must consider a variety of factors in determining the terms and applicability of any such special assessment, including, among others, the types of entities that benefit from the action taken by the agencies, economic conditions, and anticipated industry impacts. The FDIC has announced that it intends to publish a notice of proposed rulemaking for a special assessment in May 2023. It is also possible that our regular deposit insurance assessment rates will increase should the FDIC alter the assessment rate schedule or calculation methodology for all larger financial institutions (including the Bank) as a result of the recent bank failures. Although we cannot predict the specific timing and terms of any special assessment relating to the resolution of SIVB, SBNY and FRC, including whether such special assessment would be imposed on community banks such as the Bank, or any other increase in out deposit insurance assessment rates, any increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk in times of financial distress.

A significant factor in the failures of SIVB, SBNY and FRC appears to have been the proportion of the deposits held by each institution that exceeded FDIC insurance limits. In response to the failures of SIVB, SBNY and FRC, many large depositors across the industry have withdrawn deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions and, in many instances, moved these funds into money market mutual funds or other similar securities accounts in an effort to diversify the risk of further bank failure(s).

Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits. According to statements made by the FDIC staff and the leadership of the federal banking agencies, customers with larger uninsured deposit account balances often are small- and mid-sized businesses that rely upon deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor the financial condition and performance of their depository institutions. As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits.

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As of March 31, ~~2017.~~2023, approximately 20% of our total deposits of $1.9 billion were not insured by the FDIC. If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin. Obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present, and our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits, and this spread may be exacerbated by higher prevailing interest rates.

In addition, because the fair value of our available for sale investment securities decrease when interest rates increase, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated. At March 31, 2023, our accumulated other comprehensive loss related to unrealized net losses on investment securities was $16.7 million, which currently does not impact our regulatory capital ratios. However, should we sell all or a material portion of our investment securities portfolio to increase liquidity in the face of depositor withdrawals in the current interest rate environment, we may recognize significant losses that would, in turn, reduce our regulatory capital position. Under such circumstances, we may access funding from sources such as the FRB’s discount window or its recently-established Bank Term Funding Program to manage our liquidity risk and mitigate the risk to our regulatory capital position.

The occurrence of any of these events could materially and adversely affect our business, results of operations or financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
Withholding of Vested Restricted Stock Awards
During the three months ended March 31, 2023, 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, 2023, all 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).~~which represent tax withholding of restricted stock awards:


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⁽¹⁾

per Share

Programs

Plans or Programs⁽²⁾
January 1 - 31, 2023

972

$
6.00

—

$
19,568,117
February 1 - 28, 2023

—

—

—

19,568,117
March 1 - 31, 2023

11,194

6.20

—

19,568,117
Total

12,166

$
6.18

—


(1) These shares were acquired from employees to satisfy income tax withholding requirements in connection with vesting share awards during the three months ended March 31, 2023.
(2) In 2018, the Company announced a stock repurchase program for up to $50 million of its outstanding stock. At March 31, 2023, $19.6 million remains of the $50 million authorized repurchase amount. In March 2020, the Company suspended the stock repurchase program.

Table of 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~~
~~Filed~~
~~Herewith~~
~~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~~
X
~~31.2~~
~~Section 302 Certification — Chief Financial Officer~~
X
32.1**
~~Section 906 Certification — Chief Executive Officer~~
X
32.2**
~~Section 906 Certification — Chief Financial Officer~~
X
~~101.INS~~
~~XBRL Instance Document~~
X
~~101.SCH~~
~~XBRL Taxonomy Extension Schema Document~~
X
~~101.CAL~~
~~XBRL Taxonomy Extension Calculation Linkbase Document~~
X
~~101.DEF~~
~~XBRL Taxonomy Extension Definition Linkbase Document~~
X
~~101.LAB~~
~~XBRL Taxonomy Extension Label Linkbase Document~~
X
~~101.PRE~~
~~XBRL Taxonomy Extension Presentation Linkbase Document~~
X

Incorporated by Reference
Exhibit
Number

Exhibit Description

Filed /Furnished
Herewith

Form

Period
Ending

Exhibit /
Appendix
Number

Filing Date

10.1

Plea Agreement dated March 15, 2023 by and between Sterling Bancorp, Inc. and the U.S. Department of Justice

8-K

10.1

3/15/2023

31.1

Section 302 Certification — Chief Executive Officer

X

31.2

Section 302 Certification — Chief Financial Officer

X

32.1*

Section 906 Certification — Chief Executive Officer

X

32.2*

Section 906 Certification — Chief Financial Officer

X

101.INS**

Inline XBRL Instance Document

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X

104

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

X

* ~~Indicates a management contract or compensatory plan or arrangement.~~
**This document is being furnished with this Quarterly Report on 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~~10, 2023

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/ KAREN KNOTT

Karen Knott
Chief Financial Officer

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

51


☐	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	SBT	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			Page
Item 1.	Financial Statements (Unaudited)		2
	Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2023 and December 31, ~~2017~~2022		2
	Condensed Consolidated Statements of ~~Income~~Operations for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022		3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022		4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022		5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2023 and ~~2017~~2022		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	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47	59
Item 4.	Controls and Procedures	49	61

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	49	62
Item 1A.	Risk Factors	49	63
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49	65
Item 6.	Exhibits	49	66
Exhibit Index			50
SIGNATURES			5167

	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


	March 31,		December 31,
	2023		2022
Assets
Cash and due from banks	$	419,219	$	379,798
Interest-bearing time deposits with other banks		934		934
Debt securities available for sale, at fair value (amortized cost $365,622 and $370,489)		342,534		343,558
Equity securities		4,712		4,642
Loans held for sale		37,979		7,725
Loans, net of allowance for credit losses of $38,565 and $45,464		1,513,481		1,613,385
Accrued interest receivable		7,617		7,829
Mortgage servicing rights, net		1,703		1,794
Leasehold improvements and equipment, net		6,139		6,301
Operating lease right-of-use assets		13,916		14,800
Federal Home Loan Bank stock, at cost		20,288		20,288
Company-owned life insurance		8,553		8,501
Deferred tax asset, net		20,065		23,704
Other assets		14,408		11,476
Total assets	$	2,411,548	$	2,444,735

Liabilities and Shareholders’ Equity
Liabilities
Noninterest-bearing deposits	$	46,496	$	53,041
Interest-bearing deposits		1,875,326		1,900,996
Total deposits		1,921,822		1,954,037
Federal Home Loan Bank borrowings		50,000		50,000
Subordinated notes, net		65,253		65,271
Operating lease liabilities		15,089		15,990
Accrued expenses and other liabilities		43,874		46,810
Total liabilities		2,096,038		2,132,108

Shareholders’ equity
Preferred stock, authorized 10,000,000 shares; no shares issued and outstanding		—		—
Common stock, no par value, authorized 500,000,000 shares; issued and outstanding 50,808,116 shares and 50,795,871 shares at March 31, 2023 and December 31, 2022, respectively		83,295		83,295
Additional paid-in capital		14,906		14,808
Retained earnings		234,048		234,049
Accumulated other comprehensive loss		(16,739)		(19,525)
Total shareholders’ equity		315,510		312,627
Total liabilities and shareholders’ equity	$	2,411,548	$	2,444,735

										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



	Prior to		Adjustments for		Adjustments for		After
	Adoption		ASU 2016-13		ASU 2022-02		Adoption
Assets:
Allowance for credit losses – loans	$	45,464	$	(1,651)	$	380	$	44,193
Liabilities:
Liability for unfunded commitments		—		579		—		579
Pretax cumulative effect adjustment of a change in accounting principle		—		(1,072)		380		—
Less: income taxes		—		294		(104)		—
Cumulative effect adjustment of a change in accounting principle, net of tax		—	$	(778)	$	276		—

	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, 2023
										Amortized		Gross Unrealized				Fair
										Cost		Gain		Loss		Value
Available for sale:
U.S. Treasury securities	$	118,764	$	—	$	(224	)	$	118,540
U.S. Treasury and Agency securities										$	176,318	$	21	$	(6,068)	$	170,271
Mortgage-backed securities											40,204		—		(4,236)		35,968
Collateralized mortgage obligations	1,888		67		—			1,955			148,945		6		(12,800)		136,151
Collateralized debt obligations	311		—		(13		)	298			155		—		(11)		144
Total	$	120,963	$	67	$	(237	)	$	120,793	$	365,622	$	27	$	(23,115)	$	342,534

	December 31, 2017
	Amortized		Gross Unrealized					Fair
	Cost		Gain		Loss			Value

										December 31, 2022
										Amortized		Gross Unrealized				Fair
										Cost		Gain		Loss		Value
Available for sale:
U.S. Treasury securities	$	120,216	$	—	$	(174	)	$	120,042
U.S. Treasury and Agency securities										$	175,878	$	17	$	(7,458)	$	168,437
Mortgage-backed securities											41,388		—		(4,655)		36,733
Collateralized mortgage obligations	1,953		55		—			2,008			153,066		4		(14,829)		138,241
Collateralized debt obligations	606		—		(35		)	571			157		—		(10)		147
Total	$	122,775	$	55	$	(209	)	$	122,621	$	370,489	$	21	$	(26,952)	$	343,558

	Amortized Cost		Fair Value
U.S. Treasury securities

					Amortized		Fair
					Cost		Value
U.S. Treasury and Agency securities:
Due less than one year	$	118,764	$	118,540	$	97,032	$	95,595
Due after one year through five years						79,286		74,676
Mortgage-backed securities						40,204		35,968
Collateralized mortgage obligations	1,888		1,955			148,945		136,151
Collateralized debt obligations	311		298			155		144
Total	$	120,963	$	120,793	$	365,622	$	342,534

	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, 2023
																Less than 12 Months				12 Months or More				Total
																Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
																Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and Agency securities																$	53,801	$	(885)	$	93,449	$	(5,183)	$	147,250	$	(6,068)
Mortgage-backed securities																	5,821		(41)		30,147		(4,195)		35,968		(4,236)
Collateralized mortgage obligations																	40,693		(1,539)		91,149		(11,261)		131,842		(12,800)
Collateralized debt obligations	—		—			298		(13		)	298		(13		)		—		—		144		(11)		144		(11)
Total	$	118,540	$	(224	)	$	298	$	(13	)	$	118,838	$	(237	)	$	100,315	$	(2,465)	$	214,889	$	(20,650)	$	315,204	$	(23,115)

	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
Allowance for loan losses:
Beginning balance	$	2,218	$	12,279		$	2,040	$	469	$	1	$	1,450	$	18,457
Provision for loan losses	760		(782		)	501		147		—		15		641
Charge offs	—		—			—		—		—		—		—
Recoveries	1		2			31		—		—		—		34
Total ending balance	$	2,979	$	11,499		$	2,572	$	616	$	1	$	1,465	$	19,132

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


	Residential		Commercial				Commercial		Other
Three Months Ended March 31, 2023	Real Estate		Real Estate		Construction		and Industrial		Consumer		Total
Allowance for credit losses:
Balance at the beginning of the period	$	27,951	$	11,694	$	5,781	$	38	$	—	$	45,464
Adoption of ASU 2016-13		865		1,151		(3,633)		(34)		—		(1,651)
Adoption of ASU 2022-02		(11)		—		391		—		—		380
Provision for (recovery of) credit losses		(1,889)		3,217		(546)		2		—		784
Charge offs		(6,478)		—		—		—		—		(6,478)
Recoveries		60		5		1		—		—		66
Total ending balance	$	20,498	$	16,067	$	1,994	$	6	$	—	$	38,565

March 31, 2018	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	$	—	$	46	$	11	$	95	$	—	$	—	$	152
Collectively evaluated for impairment	2,979		11,453		2,561		521		1		1,465		18,980
Total ending allowance balance	$	2,979	$	11,499	$	2,572	$	616	$	1	$	1,465	$	19,132
Loans:
Loans individually evaluated for impairment	$	—	$	122	$	2,774	$	335	$	—	$	—	$	3,231
Loans collectively evaluated for impairment	179,846		2,134,325		236,430		45,831		29		—		2,596,461
Total ending loans balance	$	179,846	$	2,134,447	$	239,204	$	46,166	$	29	$	—	$	2,599,692


	At December 31, 2022
	Unpaid				Allowance
	Principal		Recorded		for Loan
	Balance		Investment		Losses
With no related allowance for loan losses recorded:
Commercial real estate:
Retail	$	227	$	—	$	—
Construction		2,485		2,485		—
Commercial lines of credit:
Private banking		107		107		—
Subtotal		2,819		2,592		—
With an allowance for loan losses recorded:
Residential real estate, first mortgage		79		45		11
Total	$	2,898	$	2,637	$	11


	At March 31, 2022
	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance for loan losses recorded:
Residential real estate, first mortgage	$	63	$	—	$	—
Construction		8,395		39		25
Commercial lines of credit:
Private banking		115		2		1
Subtotal		8,573		41		26
With an allowance for loan losses recorded:
Residential real estate, first mortgage		285		1		—
Total	$	8,858	$	42	$	26

	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
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		—
Subtotal	1,560		1,373		—		1,578		1,394		—
With an allowance for loan losses recorded:
Residential real estate, first mortgage	122		122		46		122		122		37
Commercial real estate, offices	1,558		1,546		11		1,567		1,557		19
Commercial lines of credit, private banking	190		190		95		196		196		98
Subtotal	1,870		1,858		152		1,885		1,875		154
Total	$	3,430	$	3,231	$	152	$	3,463	$	3,269	$	154

	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, 2023						December 31, 2022
			Nonaccrual						Nonaccrual
			With No		Past Due				With No		Past Due
			Allowance		90 Days or				Allowance		90 Days or
	Nonaccrual		for Credit		More and		Nonaccrual		for Credit		More and
	Loans		Losses		Still Accruing		Loans		Losses		Still Accruing
Residential real estate:
Residential real mortgage	$	—	$	—	$	34	$	33,501	$	—	$	35
Residential second mortgage		—		—		—		189		—		—
Total	$	—	$	—	$	34	$	33,690	$	—	$	35


					Greater
	30 - 59		60 - 89		than
	Days		Days		89 Days		Total		Current
March 31, 2023	Past Due		Past Due		Past Due		Past Due		Loans		Total
Residential real estate	$	6,017	$	—	$	34	$	6,051	$	1,283,503	$	1,289,554
Commercial real estate		—		—		—		—		224,792		224,792
Construction		—		—		—		—		36,255		36,255
Commercial and industrial		—		—		—		—		1,368		1,368
Other consumer		—		—		—		—		77		77
Total	$	6,017	$	—	$	34	$	6,051	$	1,545,995	$	1,552,046

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		Current
December 31, 2022													Past Due		Past Due		Past Due		Past Due		Loans		Total
Residential real estate:
Residential first mortgage	731		48		5,041		5,820		2,109,748		2,115,568		$	17,881	$	5,337	$	33,536	$	56,754	$	1,324,545	$	1,381,299
Residential second mortgage	295		—		—		295		18,584		18,879			99		—		189		288		9,689		9,977
Commercial real estate:
Retail	—		—		74		74		10,423		10,497			—		—		—		—		28,971		28,971
Apartments	—		—		—		—		61,388		61,388
Offices	—		—		—		—		25,592		25,592
Hotel	—		—		—		—		103,653		103,653
Multifamily														—		—		—		—		81,444		81,444
Office														—		—		—		—		39,610		39,610
Hotels/Single-room occupancy hotels														—		—		—		—		5,208		5,208
Industrial	—		—		—		—		11,317		11,317			—		—		—		—		30,242		30,242
Gas stations	—		—		—		—		1,036		1,036
Other	—		—		—		—		25,721		25,721			—		—		—		—		36,194		36,194
Construction														—		—		—		—		44,503		44,503
Commercial lines of credit:
Private banking	—		—		—		—		26,587		26,587			—		—		—		—		107		107
C&I lending	—		—		—		—		19,579		19,579			—		—		—		—		1,289		1,289
Other consumer loans	—		—		—		—		29		29
Other consumer														—		—		—		—		5		5
Total	$	1,026	$	48	$	5,115	$	6,189	$	2,593,503	$	2,599,692	$	17,980	$	5,337	$	33,725	$	57,042	$	1,601,807	$	1,658,849

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


	Term Loans Amortized Cost Basis by Origination Year
													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
As of March 31, 2023	2023		2022		2021		2020		2019		Prior		Costs Basis		to Term		Total
Residential lending
Residential mortgage loans:
Payment performance:
Accrual	$	772	$	74,845	$	137,888	$	109,290	$	264,936	$	692,578	$	8,944	$	301	$	1,289,554
Nonaccrual		—		—		—		—		—		—		—		—		—
Total residential mortgage loans	$	772	$	74,845	$	137,888	$	109,290	$	264,936	$	692,578	$	8,944	$	301	$	1,289,554
Residential mortgage loans:
Current period gross write offs	$	—	$	—	$	—	$	—	$	1,858	$	4,601	$	19	$	—	$	6,478

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


			Special
December 31, 2022	Pass		Mention		Substandard		Doubtful		Total
Residential real estate:
Residential first mortgage	$	1,347,763	$	—	$	33,536	$	—	$	1,381,299
Residential second mortgage		9,788		—		189		—		9,977
Commercial real estate:
Retail		28,971		—		—		—		28,971
Multifamily		67,361		14,083		—		—		81,444
Office		39,610		—		—		—		39,610
Hotels/ Single-room occupancy hotels		—		3,669		1,539		—		5,208
Industrial		30,242		—		—		—		30,242
Other		21,036		15,158		—		—		36,194
Construction		31,369		4,650		8,484		—		44,503
Commercial lines of credit:
Private banking		107		—		—		—		107
C&I lending		1,289		—		—		—		1,289
Other consumer		5		—		—		—		5
Total	$	1,577,541	$	37,560	$	43,748	$	—	$	1,658,849