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 |
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20182024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
oTRANSITION 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 |
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 |
| Accelerated filer |
|
|
| Smaller reporting company | |
| | | |
| | Emerging growth company | |
☐ |
| |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 53,002,963April 30, 2024, 52,025,988 shares of the Registrant’sregistrant’s Common Stock were outstanding.
STERLING BANCORP, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
FORM 10-Q
| | | |
| Page | ||
| | ||
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| 2 | ||
| Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 | | 2 |
| | 3 | |
| | 4 | |
| | 5 | |
| | 6 | |
| Notes to the Condensed Consolidated Financial Statements | | 7 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 28 | |
| 47 | ||
| 49 | ||
| | | |
| | ||
| |||
| 50 | ||
| 50 | ||
| |||
| |||
| |||
| 51 | ||
| 51 | ||
| 52 | ||
| 52 | ||
| 53 |
1
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, | ||
|
| 2024 |
| 2023 | ||
Assets |
| |
|
| |
|
Cash and due from banks | | $ | 646,168 | | $ | 577,967 |
Interest-bearing time deposits with other banks | | | 5,229 | | | 5,226 |
Debt securities available for sale, at fair value (amortized cost $416,917 and $440,211 at March 31, 2024 and December 31, 2023, respectively) | |
| 394,852 | |
| 419,213 |
Equity securities | |
| 4,656 | |
| 4,703 |
Loans, net of allowance for credit losses of $29,257 and $29,404 at March 31, 2024 and December 31, 2023, respectively | |
| 1,274,022 | |
| 1,319,568 |
Accrued interest receivable | |
| 9,195 | |
| 8,509 |
Mortgage servicing rights, net | | | 1,485 | | | 1,542 |
Leasehold improvements and equipment, net | |
| 5,206 | |
| 5,430 |
Operating lease right-of-use assets | | | 12,358 | | | 11,454 |
Federal Home Loan Bank stock, at cost | | | 18,923 | | | 18,923 |
Federal Reserve Bank stock, at cost | | | 9,096 | | | 9,048 |
Company-owned life insurance | |
| 8,764 | |
| 8,711 |
Deferred tax asset, net | |
| 18,240 | |
| 16,959 |
Other assets | |
| 6,361 | |
| 8,750 |
Total assets | | $ | 2,414,555 | | $ | 2,416,003 |
| | | | | | |
Liabilities and Shareholders’ Equity | | | | | | |
Liabilities | |
|
| |
|
|
Noninterest-bearing deposits | | $ | 32,680 | | $ | 35,245 |
Interest-bearing deposits | |
| 1,973,175 | |
| 1,968,741 |
Total deposits | |
| 2,005,855 | |
| 2,003,986 |
Federal Home Loan Bank borrowings | |
| 50,000 | |
| 50,000 |
Operating lease liabilities | | | 13,407 | | | 12,537 |
Other liabilities | |
| 18,027 | |
| 21,757 |
Total liabilities | |
| 2,087,289 | |
| 2,088,280 |
| | | | | | |
Shareholders’ equity | |
|
| |
| |
Preferred stock, authorized 10,000,000 shares; no shares issued and outstanding | |
| — | |
| — |
Common stock, no par value, authorized 500,000,000 shares; issued and outstanding 52,046,683 shares and 52,070,361 shares at March 31, 2024 and December 31, 2023, respectively | |
| 84,323 | |
| 84,323 |
Additional paid-in capital | |
| 17,173 | |
| 16,660 |
Retained earnings | |
| 241,767 | |
| 241,964 |
Accumulated other comprehensive loss | |
| (15,997) | |
| (15,224) |
Total shareholders’ equity | |
| 327,266 | |
| 327,723 |
Total liabilities and shareholders’ equity | | $ | 2,414,555 | | $ | 2,416,003 |
See accompanying notes to condensed consolidated financial statements.
2
Sterling Bancorp, Inc.
Condensed Consolidated Statements of IncomeOperations (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, | ||||
|
| 2024 |
| 2023 | ||
Interest income | | | | | | |
Interest and fees on loans | | $ | 20,969 | | $ | 22,160 |
Interest and dividends on investment securities and restricted stock | | | 4,018 | | | 2,456 |
Other interest | | | 8,295 | | | 4,807 |
Total interest income | | | 33,282 | | | 29,423 |
| | | | | | |
Interest expense | | | | | | |
Interest on deposits | | | 18,100 | | | 9,809 |
Interest on Federal Home Loan Bank borrowings | | | 248 | | | 245 |
Interest on Subordinated Notes | | | — | | | 1,693 |
Total interest expense | | | 18,348 | | | 11,747 |
| | | | | | |
Net interest income | | | 14,934 | | | 17,676 |
Provision for credit losses | | | 41 | | | 674 |
Net interest income after provision for credit losses | | | 14,893 | | | 17,002 |
| | | | | | |
Non-interest income | | | | | | |
Service charges and fees | | | 87 | | | 94 |
Loss on the sale of investment securities | | | — | | | (2) |
Loss on sale of loans held for sale | | | — | | | (25) |
Unrealized gain (loss) on equity securities | | | (47) | | | 71 |
Net servicing income | | | 75 | | | 59 |
Income earned on company-owned life insurance | | | 83 | | | 80 |
Other | | | 1 | | | 1 |
Total non-interest income | | | 199 | | | 278 |
| | | | | | |
Non-interest expense | | | | | | |
Salaries and employee benefits | | | 8,460 | | | 9,410 |
Occupancy and equipment | | | 2,084 | | | 2,112 |
Professional fees | | | 2,182 | | | 3,221 |
FDIC assessments | | | 262 | | | 257 |
Data processing | | | 733 | | | 738 |
Other | | | 1,671 | | | 2,099 |
Total non-interest expense | | | 15,392 | | | 17,837 |
| | | | | | |
Loss before income taxes | | | (300) | | | (557) |
Income tax benefit | | | (103) | | | (54) |
Net loss | | $ | (197) | | $ | (503) |
| | | | | | |
Loss per share, basic and diluted | | $ | (0.00) | | $ | (0.01) |
| | | | | | |
Weighted average common shares outstanding: | | | | | | |
Basic | | | 50,843,106 | | | 50,444,463 |
Diluted | | | 50,843,106 | | | 50,444,463 |
See accompanying notes to condensed consolidated financial statements.
3
Sterling Bancorp, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollars in thousands)
|
| Three Months Ended |
| ||||
|
| 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, | ||||
|
| 2024 |
| 2023 | ||
Net loss | | $ | (197) | | $ | (503) |
Other comprehensive income (loss), net of tax: | | | | | | |
Unrealized gain (loss) on investment securities, arising during the period, net of tax effect of $(293) and $1,054, respectively | | | (773) | | | 2,785 |
Reclassification adjustment for loss included in net loss of $— and $2, respectively, included in loss on sale of investment securities, net of tax effect of $— and $1, respectively | | | — | | | 1 |
Total other comprehensive income (loss) | | | (773) | | | 2,786 |
Comprehensive income (loss) | | $ | (970) | | $ | 2,283 |
See accompanying notes to condensed consolidated financial statements.
4
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 |
| Loss |
| Equity | |||||
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 | | — | | | — | | | — | | | 778 | | | — | | | 778 |
Cumulative-effect adjustment of a change in accounting principle, net of tax, on adoption of ASU 2022-02 | | — | | | — | | | — | | | (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 |
| | | | | | | | | | | | | | | | | |
Balance at January 1, 2024 | | 52,070,361 | | $ | 84,323 | | $ | 16,660 | | $ | 241,964 | | $ | (15,224) | | $ | 327,723 |
Net loss | | — | | | — | | | — | | | (197) | | | — | | | (197) |
Repurchase of restricted shares to pay employee tax liability | | (38,033) | | | — | | | (216) | | | — | | | — | | | (216) |
Stock-based compensation | | 14,355 | | | — | | | 729 | | | — | | | — | | | 729 |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (773) | | | (773) |
Balance at March 31, 2024 | | 52,046,683 | | $ | 84,323 | | $ | 17,173 | | $ | 241,767 | | $ | (15,997) | | $ | 327,266 |
See accompanying notes to condensed consolidated financial statements.
5
Sterling Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cash Flows From Operating Activities |
| |
|
| |
|
Net loss | | $ | (197) | | $ | (503) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| |
Provision for credit losses | |
| 41 | |
| 674 |
Deferred income taxes | |
| (988) | |
| 2,394 |
Loss on sale of investment securities | |
| — | |
| 2 |
Unrealized (gain) loss on equity securities | |
| 47 | |
| (71) |
Net amortization (accretion) on debt securities | |
| (1,128) | |
| (491) |
Depreciation and amortization on leasehold improvements and equipment | | | 276 | | | 352 |
Originations, net of principal payments, of loans held for sale | |
| — | |
| (2,667) |
Proceeds from sale of mortgage loans held for sale | |
| — | |
| 2,979 |
Loss on sale of loans held for sale | |
| — | |
| 25 |
Increase in cash surrender value of company-owned life insurance, net of premiums | |
| (53) | |
| (52) |
Valuation allowance adjustments and amortization of mortgage servicing rights | |
| 57 | |
| 91 |
Stock-based compensation | | | 729 | | | 173 |
Other | |
| 9 | |
| 175 |
Change in operating assets and liabilities: | |
| | |
| |
Accrued interest receivable | |
| (686) | |
| 212 |
Other assets | | | 1,967 | | | (2,340) |
Other liabilities | |
| (3,951) | |
| (4,426) |
Net cash used in operating activities | |
| (3,877) | |
| (3,473) |
| | | | | | |
Cash Flows From Investing Activities | |
|
| |
|
|
Maturities and principal receipts of debt securities | | | 106,585 | | | 5,358 |
Proceeds from sale of debt securities | | | — | | | 2,977 |
Purchases of debt securities | | | (82,162) | | | (2,979) |
Purchase of shares of Federal Reserve Bank stock | |
| (48) | | | — |
Net decrease in loans | | | 46,113 | | | 70,008 |
Principal payments received on commercial real estate loans held for sale | | | — | | | 10 |
Purchases of leasehold improvements and equipment | |
| (63) | |
| (190) |
Net cash provided by investing activities | |
| 70,425 | |
| 75,184 |
| | | | | | |
Cash Flows From Financing Activities | |
|
| |
|
|
Net increase (decrease) in deposits | |
| 1,869 | |
| (32,215) |
Cash paid for surrender of vested shares to satisfy employee tax liability | | | (216) | | | (75) |
Net cash provided (used in) financing activities | | | 1,653 | | | (32,290) |
Net change in cash and due from banks | |
| 68,201 | |
| 39,421 |
Cash and due from banks at beginning of period | |
| 577,967 | |
| 379,798 |
Cash and due from banks at end of period | | $ | 646,168 | | $ | 419,219 |
| | | | | | |
Supplemental cash flows information | |
|
| |
|
|
Cash paid for: | |
|
| |
|
|
Interest | | $ | 18,129 | | $ | 11,424 |
Income taxes | | | — | | | 25 |
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 |
Right-of-use assets obtained in exchange for new operating lease liabilities | | | 1,780 | | | — |
|
| 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
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”)., which was formed in 1984. The Company’s business is conducted through the Bank which was formed in 1984.Bank. The Bank originates construction, residential and commercial real estate loans and commercial lines of credit, and other consumerindustrial loans, and receives deposits from its customers locatedprovides deposit products, consisting primarily of checking, savings and term certificate accounts. The Bank also engages in Californiamortgage 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,27 branches of which 25 branches are located in the San Francisco and Los Angeles, California and twometropolitan areas with the remaining branches located in New York, New York. Additionally,York and Southfield, Michigan. In February 2024, the Bank’sCompany closed one of its branches in San Francisco and consolidated the operations includeinto a registered investment advisory business with assets held under management of $451 million at March 31, 2018.
nearby branch office. The Company is headquartered in Southfield, MichiganMichigan.
Historically, the Company’s largest asset class has been residential mortgage loans. In 2023, the Bank discontinued originating residential loans. The Company is currently exploring and its operations are in the financial services industry. Management evaluates the performance of its business based on one reportable segment, community banking.
evaluating potential strategic alternatives which may include incorporating new banking products and services.
The Company is subject to regulation, examination and supervision by the Board of Governors of the Federal Reserve (“FederalSystem (the “FRB” or “Federal Reserve”). The Bank is a federally chartered stock savings bank whichthat has elected to operate as a covered savings association, effective August 9, 2023. As a covered savings association, the Bank will generally function as a commercial bank without the constraints applicable to a thrift institution. Prior to the election becoming effective, the Bank was subject to the Qualified Thrift Lender (“QTL”) test. Under the QTL test, a savings institution is required to maintain at least 65% of its portfolio assets in certain qualified thrift investments (primarily residential mortgages and related investments, including certain mortgage-backed and related securities) in at least nine months out of each 12-month period. The Bank 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 FRB system and 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, 2018,2024, 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, 20182024 and 20172023 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, 20182024 are not necessarily indicative of the results that may be expected for the year ended December 31, 20182024 or for any future annual or interim period. The condensed consolidated balance sheet at December 31, 20172023 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, 2017.2023, as filed with the U.S. Securities and Exchange Commission on March 14, 2024.
7
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Merger of Quantum Fund, LLC
On April 24, 2017, the Bank acquired all the outstanding equity interests of Quantum Fund, LLC, an entity controlled by the Company’s principal shareholder who owned, directly and indirectly 80% of the members’ interests with the remaining 20% members’ interest held by a member of the Board of Directors of the Company and Bank, for $2.9 million in cash. The entity operated a registered investment advisory business with assets held under management of approximately $425 million.
In 2017, the Bank recorded the assets and liabilities transferred at their carrying amounts, consisting primarily of a customer-related intangible asset, in the accounts of the entity transferred. Prior to 2017, the consolidated financial statements have been retrospectively adjusted to include the results of the Company and its wholly-owned subsidiary, and the entity under common control on a combined basis, since the entities were under common control.
Note 2—Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared usingin conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the results of the CompanySterling 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 condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actualperiods. 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, 20182024 and December 31, 2017,2023, residential real estate loans accounted for 82%,80% 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, 20182024 and December 31, 2017,2023, approximately 96%79% and 95%80%, respectively, of gross loans were originated with respect to properties or businesses located in the state of California.
Also, the loan portfolio consists of a loan product 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 was originated in California, respectively.
STERLING BANCORP, INC.
Notesterminated at the end of 2019 and continues to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
Investment Securities
Investment securities includes available for sale debt securities and equity securities.
Debt Securities
Debt securities are classified as either available for sale or held to maturity. Management determinesbe the classificationlargest portion of gross residential loans. An internal review of the investment securities when they are purchased.
Debt securities available for sale are stated at fair value,Advantage Loan Program and investigations conducted by the U.S. Department of Justice and the OCC indicated that certain employees engaged in misconduct in connection with unrealized gains and losses excluded from income and shown asthe origination of a separate componentsignificant number of shareholders’ equity in accumulated other comprehensive income (loss), netsuch loans, including the falsification of information with respect to verification of income, taxes. Held to maturity securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts over the contractual life of the investment security using the effective interest method or, in the case of mortgage-backed securities, over the estimated life of the investment security using the effective yield method.
Interest income includes amortization or accretion of purchase premium or discount. Gains and losses on sales are recorded on the settlement date and determined using the specific identification method.
Management evaluates the debt securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In determining other-than-temporary impairment for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether a decline is other-than-temporary involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. A charge is recognized against income for all or a portion of the impairment if the loss is determined to be other than temporary.
If the Bank intends to sell the debt security or it is more likely than not that the Bank will be required to sell the debt security prior to the recovery of its amortized cost basis, the debt security is written down to fair value, and the full amount of any impairment charge is recorded as a loss in the condensed consolidated statementsincome reported for borrowers, reliance on third parties and related documentation. This former loan product totaled $593,144, or 57% of income. If the Bank does not intend to sell the debt securitygross residential loans, and it is more likely than not that the Bank will not be required to sell the debt security prior to recovery$628,245, or 58% of its amortized cost basis, only the current period credit loss of any impairment of a debt security is recognized in the condensed consolidated statements of income, with the remaining impairment recorded in other comprehensive income (loss).
Equity Securities
Beginning January 1, 2018, equity securities with readily determinable fair values are statedgross residential loans, at fair value with unrealized and realized gains and losses reported in income. Those equity securities without readily determinable fair values are recorded at cost less any impairments, adjusted for subsequent observable price changes in orderly transactions for an identical or similar investment of the same issuer. Any changes in the carrying value of the equity investments are recognized in net income. Refer to Note 3, Investment Securities.
For periods prior to January 1, 2018, equity securities were classified as available for sale and stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of tax.
The Company performs a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates that an impairment exists, the Company determines the fair value of the investment and records an impairment loss equal to the difference between the fair value and the carrying amount of the investment in net income.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
Federal Home Loan Bank Stock
The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest additional amounts. The FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. The FHLB stock does not have a readily determinable fair value and no quoted market value as the ownership is restricted to member institutions. Also, the FHLB stock is pledged as collateral on FHLB borrowings. Cash and stock dividends are reported as income in interest and dividends on investment securities in the condensed consolidated statements of income. Cash dividends received amounted $390 and $196 for the three months ended March 31, 20182024 and 2017,December 31, 2023, respectively.
Revenue from Contracts with CustomersRecently Issued Accounting Standards Not Yet Adopted
On January 1, 2018,In December 2023, the Company adoptedFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,2023-09, Revenue from Contracts with Customers and all subsequent amendmentsIncome Taxes (Topic 740): Improvements to the Income Tax Disclosures (“ASU (collectively, “ASC 606”2023-09”), which establishes principles for reportingrequires greater disaggregation of information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts to provide goods or services to its customers. The core principle of ASC 606 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performed obligations are satisfied.
The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of the adoption date. The adoption of ASC 606 did not result in a change in the accounting for any of the in-scope revenue streams; as such no cumulative effect adjustment was recorded. The majority of the Company’s revenues are from interest income and other sources, including loans and investment securities,reporting entity’s effective tax rate reconciliation as well as fees related to mortgage servicing activities, that are not within the scope of ASC 606 and subject to other accounting guidance. The Company’s services that are within the scope of ASC 606 are recorded within non-interest income which includes investment management and advisory fees, service charges on deposit accounts, interchange income and other service charges and fees. Descriptions of these activities that are within the scope of ASC 606, which are presented in the condensed consolidated statementsdisaggregation of income as components of non-interest income, are as follows:
Service charges on deposit accounts: The Bank earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Bank fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Bank satisfies the performance obligations. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
Investment management and advisory fees: The Bank enters into a contract with its customer to provide asset management services that will continue indefinitely unless terminated in writingtaxes paid by either party to the other. The Bank receives a quarterly management fee, payable in advance, based on the customer’s assets held under management at the beginning of the period. These fees are earned over time as the Bank provides the contracted services and are assessed based on a tiered rate applied to the market value of assets held under management. The Bank does not earn performance-based incentives.
Interchange fees: The Bank earns interchange fees from debit cardholder transactions conducted through the MasterCard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Such interchange activity is shown on a net basis through other non-interest income.
Other service charges and fees: Other charges and fees includes revenue generated from wire transfers, lockboxes, and bank issuance of checks. Such fees are recognized at the point in time the customer requests the service and the service has been rendered.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
The following table presents the Company’s sources of non-interest income for the three months ended March 31, 2018 and 2017 that are within the scope of ASC 606:
|
| Three Months Ended |
| ||||
|
| 2018 |
| 2017 |
| ||
Non-Interest Income: |
|
|
|
|
| ||
Service charges on deposit accounts* |
| $ | 52 |
| $ | 40 |
|
Investment management and advisory fees |
| 623 |
| 552 |
| ||
Interchange fees* |
| 25 |
| 26 |
| ||
Other service charges and fees* |
| 7 |
| 3 |
| ||
Not within the scope of ASC 606 |
| 5,330 |
| 4,965 |
| ||
Total non-interest income |
| $ | 6,037 |
| $ | 5,586 |
|
* Included in service charges and fees in the condensed consolidated statements of income
Contract Balances
The Bank’s noninterest revenue streams are largely based on transactional activity, or month-end revenue accruals such as investment management and advisory fees based on the customer’s assets held under management at the beginning of the period. Consideration is often received immediately or shortly thereafter, and the Bank satisfies its performance obligation and recognizes revenue over time. At March 31, 2018 and December 31, 2017, the Bank had a contract asset balance of $82 and $91 respectively, which was recorded in other assets in the condensed consolidated balance sheets.
Stock-based compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee members of the Company’s Board of Directors, based on the fair value of these awards at the date of grant. The fair value of stock options is estimated using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of the Company’s common stock at the date of grant reduced by the present value of dividends per share expected to be paid during the period the shares are not vested.
Compensation cost is recorded over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award. The Company’s accounting policy is to record forfeitures in the period that they occur.
Income per Share, Basic and Diluted
Basic income per share represents net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share represents net income divided by the weighted average number of common shares outstanding during the period, plus the effect of outstanding dilutive potential common shares.
Recently Issued Accounting Guidance
In June 2016, the Financial Accounting Standards Board (FASB) issuedjurisdiction. This ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring recording of credit losses on loans and other financial instruments on a more timely basis. The guidance will replace the current incurred loss accounting model with an expected loss approach and requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. ASU No. 2016-132023-09 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.2024. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. 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 loan losses as2023-09 on its income tax disclosures.
8
Table of the beginningContents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
of the first reporting period in which ASU No. 2016-13 is effective. The Company has not yet determined the magnitude of any such one-time adjustment or the overall impact of ASU No. 2016-13 on its consolidated financial statements.
In February 2016,November 2023, the FASB issued ASU No. 2016-02,2023-07, LeasesSegment Reporting (Topic 842)280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which require lesseesrequires more disaggregated expense information about a public entity’s reportable segments if the significant segment expenses are regularly provided to recognize the following forchief operating decision maker and included in each reported measure of segment profit or loss. Additionally, ASU 2023-07 allows public entities to disclose more than one measure of segment profit or loss used by the chief operating decision maker. For public entities that have one reportable segment, ASU 2023-07 confirmed that all leases, except for short-term leases, atof the commencement date: (1)disclosures required in the segment guidance, including disclosing a lease liability which is a lessee’s obligationmeasure of segment profit or loss and reporting significant segment expense and other items apply to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that representsthese entities. This ASU 2023-07 does not change the lessee’s right to use, or control the usedefinition of a specified assetsegment, the method of determining segments, or the criteria for the lease term. Lessor accounting is largely unchanged.aggregating operating segments into reportable segments. The ASU No. 2016-02 will also require expanded disclosures. ASU No. 2016-022023-07 is effective for annual periods and interim periods within those annual periodsfiscal years beginning after December 15, 2018.2023, and interim periods in fiscal years beginning after December 15, 2024. The ASU 2023-07 should be adopted retrospectively as of the beginning of the earliest period presented. Early adoption is permitted. The Company is currently evaluating the impact of the ASU No. 2016-022023-07 on its financial condition and results of operations. The Company will record a right-of-use asset and a lease liability on its consolidated balance sheet for the leases of its facilities in place at adoption of this ASU.segment reporting disclosures.
Note 3—Investment Securities
Debt Securities
The following tables summarize the amortized cost and fair value of debt securities available for sale debt securities at March 31, 20182024 and December 31, 20172023 and the corresponding amounts of gross unrealized gains and losses:
|
| March 31, 2018 |
| ||||||||||||||||||||||
|
| Amortized |
| Gross Unrealized |
| Fair |
| ||||||||||||||||||
|
| Cost |
| Gain |
| Loss |
| Value |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | March 31, 2024 | |||||||||||||||||||||||
| | 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 | | $ | 154,007 | | $ | 3 | | $ | (4,141) | | $ | 149,869 | |||||||||||||
Mortgage-backed securities | | | 34,629 | | | — | | | (4,020) | | | 30,609 | |||||||||||||
Collateralized mortgage obligations |
| 1,888 |
| 67 |
| — |
| 1,955 |
| |
| 228,131 | |
| 10 | |
| (13,910) | | | 214,231 | ||||
Collateralized debt obligations |
| 311 |
| — |
| (13 | ) | 298 |
| |
| 150 | |
| — | |
| (7) | |
| 143 | ||||
Total |
| $ | 120,963 |
| $ | 67 |
| $ | (237 | ) | $ | 120,793 |
| | $ | 416,917 | | $ | 13 | | $ | (22,078) | | $ | 394,852 |
|
| December 31, 2017 |
| ||||||||||||||||||||||
|
| Amortized |
| Gross Unrealized |
| Fair |
| ||||||||||||||||||
|
| Cost |
| Gain |
| Loss |
| Value |
| ||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | December 31, 2023 | |||||||||||||||||||||||
| | 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 | | $ | 253,107 | | $ | 57 | | $ | (4,176) | | $ | 248,988 | |||||||||||||
Mortgage-backed securities | | | 35,757 | | | — | | | (3,830) | | | 31,927 | |||||||||||||
Collateralized mortgage obligations |
| 1,953 |
| 55 |
| — |
| 2,008 |
| |
| 151,196 | |
| 27 | |
| (13,066) | |
| 138,157 | ||||
Collateralized debt obligations |
| 606 |
| — |
| (35 | ) | 571 |
| |
| 151 | |
| — | |
| (10) | |
| 141 | ||||
Total |
| $ | 122,775 |
| $ | 55 |
| $ | (209 | ) | $ | 122,621 |
| | $ | 440,211 | | $ | 84 | | $ | (21,082) | | $ | 419,213 |
Investment securities with a fair value of$75,400 were pledged as collateral on the FHLB borrowings at March 31, 2024.
Accrued interest receivable on available for sale debt securities totaled $1,403 and $1,535 at March 31, 2024 and December 31, 2023, respectively.
The Company held nomortgage-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 $285 and $308 at March 31, 2024 and December 31, 2023, 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, 20182024 and December 31, 2017.2023.
9
STERLING BANCORP, INC.
There were noNotes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Information pertaining to sales of debt securities available for sale debt securities for the three months ended March 31, 20182024 and 2017.2023 is as follows:
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
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 benefit 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, 20182024 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 |
| Fair |
| ||
U.S. Treasury securities |
|
|
|
|
| ||
Due less than one year |
| $ | 118,764 |
| $ | 118,540 |
|
Collateralized mortgage obligations |
| 1,888 |
| 1,955 |
| ||
Collateralized debt obligations |
| 311 |
| 298 |
| ||
Total |
| $ | 120,963 |
| $ | 120,793 |
|
| | | | | | |
| | Amortized | | Fair | ||
|
| Cost |
| Value | ||
U.S. Treasury and Agency securities: |
| |
|
| |
|
Due less than one year | | $ | 74,470 | | $ | 74,469 |
Due after one year through five years | | | 79,537 | | | 75,400 |
Mortgage-backed securities | | | 34,629 | | | 30,609 |
Collateralized mortgage obligations | |
| 228,131 | |
| 214,231 |
Collateralized debt obligations | |
| 150 | |
| 143 |
Total | | $ | 416,917 | | $ | 394,852 |
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
The following table summarizes debt securities available for sale debt securities, at fair value, within an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 20182024 and December 31, 20172023, aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss position, as follows:position:
|
| March 31, 2018 |
| ||||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total |
| ||||||||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||||||||||||||||||||
U.S. Treasury securities |
| $ | 118,540 |
| $ | (224 | ) | $ | — |
| $ | — |
| $ | 118,540 |
| $ | (224 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | March 31, 2024 | |||||||||||||||||||||||||||||||||||
| | 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 | | $ | 49,820 | | $ | (4) | | $ | 75,400 | | $ | (4,137) | | $ | 125,220 | | $ | (4,141) | |||||||||||||||||||
Mortgage-backed securities | | | — | | | — | | | 30,609 | | | (4,020) | | | 30,609 | | | (4,020) | |||||||||||||||||||
Collateralized mortgage obligations | | | 103,507 | | | (277) | | | 107,065 | | | (13,633) | | | 210,572 | | | (13,910) | |||||||||||||||||||
Collateralized debt obligations |
| — |
| — |
| 298 |
| (13 | ) | 298 |
| (13 | ) | |
| — | | | — | | | 143 | | | (7) | | | 143 | | | (7) | ||||||
Total |
| $ | 118,540 |
| $ | (224 | ) | $ | 298 |
| $ | (13 | ) | $ | 118,838 |
| $ | (237 | ) | | $ | 153,327 | | $ | (281) | | $ | 213,217 | | $ | (21,797) | | $ | 366,544 | | $ | (22,078) |
|
| December 31, 2017 |
| ||||||||||||||||||||||||||||||||||
|
| Less than 12 Months |
| 12 Months or More |
| Total |
| ||||||||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| ||||||||||||||||||||||||
U.S. Treasury securities |
| $ | 120,042 |
| $ | (174 | ) | $ | — |
| $ | — |
| $ | 120,042 |
| $ | (174 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | December 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 | | $ | 49,836 | | $ | (1) | | $ | 125,183 | | $ | (4,175) | | $ | 175,019 | | $ | (4,176) | |||||||||||||||||||
Mortgage-backed securities | | | — | | | — | | | 31,927 | | | (3,830) | | | 31,927 | | | (3,830) | |||||||||||||||||||
Collateralized mortgage obligations | | | 10,297 | | | (221) | | | 111,554 | | | (12,845) | | | 121,851 | | | (13,066) | |||||||||||||||||||
Collateralized debt obligations |
| — |
| — |
| 571 |
| (35 | ) | 571 |
| (35 | ) | |
| — | | | — | | | 141 | | | (10) | | | 141 | | | (10) | ||||||
Total |
| $ | 120,042 |
| $ | (174 | ) | $ | 571 |
| $ | (35 | ) | $ | 120,613 |
| $ | (209 | ) | | $ | 60,133 | | $ | (222) | | $ | 268,805 | | $ | (20,860) | | $ | 328,938 | | $ | (21,082) |
10
AtSTERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
As of March 31, 2018,2024, the Company’s debt securities portfolio consisted of 935 debt securities, with 732 debt securities in an unrealized loss position. For debt securities in an unrealized loss position, managementthe Company has both the intent and ability to hold these investments untiland, based on the 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 determinedCompany had the intent and the ability to be temporary. All interest and dividends are considered taxable.
The Company holds a collateralizedhold the debt obligation with a carrying value of $298 and $571securities in an unrealized loss position at March 31, 20182024, 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 the majority of the collateralized mortgage obligations are issued and guaranteed by the U.S. government, its agencies and government-sponsored enterprises. The Company has a long history with no credit losses from issuers of U.S. government, its agencies and government-sponsored enterprises. As a result, management does not expect any credit losses on its available for sale debt securities. Accordingly, the Company has not recorded an allowance for credit losses for its available for sale debt securities at March 31, 2024 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 term of the collateralized debt obligations and the financial condition of the underlying issuers. Assumptions used in the model include expected future default rates and prepayments. The security remained classified as available for sale and represented $13 and $35 of the unrealized losses reported at March 31, 2018 and December 31, 2017, respectively.2023.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
Note 4—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, 20182024 and December 31, 2017,2023, equity securities totaled $4,163$4,656 and $4,227,$4,703, 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, 20182024 and December 31, 2017,2023, equity securities with readily determinable fair values were $3,917$4,410 and $3,981,$4,457, respectively. The following is a summary of unrealized and realized gains and losses recognized in the condensed consolidated statementstatements of income during the three months ended March 31, 2018:operations:
|
| Three months ended |
| |
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, | ||||
|
| 2024 |
| 2023 | ||
Net gain (loss) recorded during the period on equity securities | | $ | (47) | | $ | 71 |
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 | | $ | (47) | | $ | 71 |
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, 2024 and 2023. The investment was reported at $246 at March 31, 2024 and December 31, 2023.
Note 5—Loans
Note 4—Loans Held for Investment
MajorThe major categories of loans held for investment and the allowance for credit losses 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, | ||
|
| 2024 |
| 2023 | ||
Residential real estate | | $ | 1,040,464 | | $ | 1,085,776 |
Commercial real estate | |
| 244,546 | |
| 236,982 |
Construction | | | 4,915 | | | 10,381 |
Commercial and industrial | | | 13,348 | | | 15,832 |
Other consumer | | | 6 | | | 1 |
Total loans | | | 1,303,279 | | | 1,348,972 |
Less: allowance for credit losses | | | (29,257) | | | (29,404) |
Loans, net | | $ | 1,274,022 | | $ | 1,319,568 |
Loans with carrying valuesAccrued interest receivable related to total gross loans was $6,701 and $6,617 as of $1,038.7 million and $968.4 million were pledged as collateral on FHLB borrowings at March 31, 20182024 and December 31, 2017,2023, respectively.
11
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Loans totaling $533,650 and $428,358 were pledged as collateral on the FHLB borrowings at March 31, 2024 and December 31, 2023, respectively. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $2,027 and $4,004 at March 31, 2024 and December 31, 2023, respectively.
In March 2023, residential real estate loans held for investment with an amortized cost of $41,059 were transferred 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. These residential real estate loans were sold in May 2023.
Allowance for Credit Losses
The table presentsallowance for credit losses 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 tables present the activity in the allowance for loancredit losses related to loans held for investment by portfolio segment for the three months endingended March 31, 20182024 and 2017:2023:
March 31, 2018 |
| Construction |
| Residential |
| Commercial |
| Commercial |
| Other |
| 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 |
|
| | | | | | | | | | | | | | | |
| | Residential | | Commercial | | | | | Commercial | | | | |||
Three Months Ended March 31, 2024 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Total | |||||
Allowance for credit losses: |
| |
|
| |
|
| |
|
| |
|
| |
|
Balance at the beginning of the period | | $ | 14,322 | | $ | 13,550 | | $ | 1,386 | | $ | 146 | | $ | 29,404 |
Provision for (recovery of) credit losses | |
| 912 | |
| (395) | |
| (616) | |
| (48) | |
| (147) |
Charge offs | |
| — | |
| — | |
| — | |
| — | |
| — |
Recoveries | |
| — | |
| — | |
| — | |
| — | |
| — |
Total ending balance | | $ | 15,234 | | $ | 13,155 | | $ | 770 | | $ | 98 | | $ | 29,257 |
March 31, 2017 |
| Construction |
| Residential |
| Commercial |
| Commercial |
| Other |
| 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 |
| | | ||||
Three Months Ended March 31, 2023 | | Real Estate | | Real Estate | | Construction | | and Industrial | | 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 |
The following tables presentNonaccrualLoans and Past Due Loans
Past due loans held for investment are loans contractually past due 30 days or more as to principal or interest payments. A loan held for investment is classified as nonaccrual, and the balanceaccrual of interest 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 management has serious doubts about further collectability of principal or interest according to the contractual terms, even though the loan is currently performing. A loan held for investment may remain in accrual status if it is in the allowanceprocess 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 lossesuntil qualifying for return to accrual status. Loans are returned to accrual status after all principal and the recorded investment by portfolio segmentinterest amounts contractually due are made and based on impairment method asfuture payments are reasonably assured.
12
Table of March 31, 2018 and December 31, 2017:Contents
March 31, 2018 |
| Construction |
| Residential |
| Commercial |
| Commercial |
| Other |
| 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 |
| Commercial |
| Commercial |
| Other |
| 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 information related to impaired loans by classtable presents the total amortized cost basis of loans as of and for the periods indicated:
|
| At March 31, 2018 |
| At December 31, 2017 |
| ||||||||||||||
|
| Unpaid |
| Recorded |
| Allowance |
| Unpaid |
| Recorded |
| Allowance |
| ||||||
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 |
|
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
|
| Three Months Ended March 31, |
| ||||||||||||||||
|
| 2018 |
| 2017 |
| ||||||||||||||
|
| Average |
| Interest |
| Cash Basis |
| Average |
| Interest |
| Cash Basis |
| ||||||
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 |
|
The unpaid principal balance 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 and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the amortized cost recovery method. When the ultimate collectabilitybasis of the total principal of an impaired loan is not in doubt and the loan isloans 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 loanswith no related allowance for the period reported.
The following tables present the recorded investment in nonaccrualcredit losses and loans past due over 90 days or more and still on accrual by class of loans as ofaccruing at March 31, 20182024 and December 31, 2017:2023:
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||
|
| Nonaccrual |
| Loans Past |
| Nonaccrual |
| Loans Past |
| ||||
Residential real estate: |
|
|
|
|
|
|
|
|
| ||||
Residential first mortgage |
| $ | 4,912 |
| $ | 129 |
| $ | 573 |
| $ | 131 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
| ||||
Retail |
| 74 |
| — |
| 79 |
| — |
| ||||
Total |
| $ | 4,986 |
| $ | 129 |
| $ | 652 |
| $ | 131 |
|
| | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 | ||||||||||||||
| | | | Nonaccrual | | Past Due 90 | | | | Nonaccrual | | Past Due 90 | ||||||
| | | | With No | | Days or More | | | | With No | | Days or More | ||||||
| | Nonaccrual | | Allowance for | | and Still | | Nonaccrual | | Allowance for | | and Still | ||||||
|
| Loans |
| Credit Losses |
| Accruing |
| Loans |
| Credit Losses |
| Accruing | ||||||
Residential real estate: |
| |
|
| |
| | |
| | | |
| |
| | | |
Residential first mortgage | | $ | 9,318 | | $ | 2,064 | | $ | 30 | | $ | 8,942 | | $ | 4,079 | | $ | 31 |
STERLING BANCORP, INC.
NotesAt March 31, 2024, the Company had nonaccrual loans of $9,318 in its held for investment loan portfolio. The increase in nonaccrual loans from December 31, 2023 was due to Condensed Consolidated Financial Statements (Unaudited)the addition of $1,480 of residential loans to nonaccrual status which was partially offset by loans totaling $877 that were returned to accrual status and payments of the loan principal of $227.
(dollarsThe total interest income that would have been recorded if the nonaccrual loans had been current in thousands, except per share amounts)accordance with their original terms was $215 and $538 for the three months ended March 31, 2024 and 2023, respectively. The Company does not record interest income on nonaccrual loans.
Aging Analysis of Past Due Loans
The following tables present thetable presents an aging of the recorded investment inamortized cost basis of contractually past due loans as of March 31, 20182024 and December 31, 2017 by class2023:
| | | | | | | | | | | | | | | | | | |
|
| 30 - 59 |
| 60 - 89 |
| 90 Days |
| | |
| | |
| | ||||
| | Days | | Days | | or More | | Total | | Current | | | | |||||
March 31, 2024 |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Loans | | Total | ||||||
Residential real estate | | $ | 10,316 | | $ | 2,708 | | $ | 9,348 | | $ | 22,372 | | $ | 1,018,092 | | $ | 1,040,464 |
Commercial real estate | |
| — | |
| — | |
| — | |
| — | | | 244,546 | |
| 244,546 |
Construction | |
| — | |
| — | |
| — | |
| — | | | 4,915 | |
| 4,915 |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | | | 13,348 | |
| 13,348 |
Other consumer | |
| — | |
| — | |
| — | |
| — | | | 6 | |
| 6 |
Total | | $ | 10,316 | | $ | 2,708 | | $ | 9,348 | | $ | 22,372 | | $ | 1,280,907 | | $ | 1,303,279 |
| | | | | | | | | | | | | | | | | | |
| | 30 - 59 | | 60 - 89 | | 90 Days | | | | | | | | | | |||
| | Days | | Days | | or More | | Total | | Current | | | | |||||
December 31, 2023 |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Loans |
| Total | ||||||
Residential real estate | | $ | 16,634 | | $ | 2,305 | | $ | 8,973 | | $ | 27,912 | | $ | 1,057,864 | | $ | 1,085,776 |
Commercial real estate | |
| — | |
| — | |
| — | |
| — | | | 236,982 | |
| 236,982 |
Construction | |
| — | |
| — | |
| — | |
| — | | | 10,381 | |
| 10,381 |
Commercial and industrial | |
| — | |
| — | |
| — | |
| — | | | 15,832 | |
| 15,832 |
Other consumer | |
| — | |
| — | |
| — | |
| — | | | 1 | |
| 1 |
Total | | $ | 16,634 | | $ | 2,305 | | $ | 8,973 | | $ | 27,912 | | $ | 1,321,060 | | $ | 1,348,972 |
13
March 31, 2018 |
| 30 - 59 |
| 60 - 89 |
| Greater |
| Total |
| Loans Not |
| Total |
| ||||||
Construction |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 179,846 |
| $ | 179,846 |
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential first mortgage |
| 731 |
| 48 |
| 5,041 |
| 5,820 |
| 2,109,748 |
| 2,115,568 |
| ||||||
Residential second mortgage |
| 295 |
| — |
| — |
| 295 |
| 18,584 |
| 18,879 |
| ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Retail |
| — |
| — |
| 74 |
| 74 |
| 10,423 |
| 10,497 |
| ||||||
Apartments |
| — |
| — |
| — |
| — |
| 61,388 |
| 61,388 |
| ||||||
Offices |
| — |
| — |
| — |
| — |
| 25,592 |
| 25,592 |
| ||||||
Hotel |
| — |
| — |
| — |
| — |
| 103,653 |
| 103,653 |
| ||||||
Industrial |
| — |
| — |
| — |
| — |
| 11,317 |
| 11,317 |
| ||||||
Gas stations |
| — |
| — |
| — |
| — |
| 1,036 |
| 1,036 |
| ||||||
Other |
| — |
| — |
| — |
| — |
| 25,721 |
| 25,721 |
| ||||||
Commercial lines of credit: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Private banking |
| — |
| — |
| — |
| — |
| 26,587 |
| 26,587 |
| ||||||
C&I lending |
| — |
| — |
| — |
| — |
| 19,579 |
| 19,579 |
| ||||||
Other consumer loans |
| — |
| — |
| — |
| — |
| 29 |
| 29 |
| ||||||
Total |
| $ | 1,026 |
| $ | 48 |
| $ | 5,115 |
| $ | 6,189 |
| $ | 2,593,503 |
| $ | 2,599,692 |
|
December 31, 2017 |
| 30 - 59 |
| 60 - 89 |
| Greater |
| Total |
| Loans Not |
| 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 to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Collateral-Dependent Loans
The Company considersCollateral-dependent loans are those for which repayment (on the performancebasis of the loan portfolioCompany’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and its impact on the allowance for loan losses. Forborrower is experiencing financial difficulty. The amortized cost basis of collateral-dependent loans was $2,027 and $4,004 at March 31, 2024 and December 31, 2023, respectively. These loans were collateralized by residential real estate property and consumer loan classes,the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.
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 also evaluates credit quality based on the aging status of thehas provided loan which is presented above,forbearances to residential borrowers when mandated and modified construction loans by payment activity.providing term extensions. The Company reviews the status of nonperforming loans which include loans 90 days past due and still accruing and nonaccrual loans.
Troubled Debt Restructurings
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, the Company did not modifyhave any loans as a troubled debt restructuring.
The terms of certain other loans have beenheld for investment to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2018 and 2017 that2024. The Company did not meet the definition of a troubled debt restructuring. The modification of thesehave any loans involved either a modification of the terms of a loanheld for investment to borrowers who were not experiencing financial difficulties or a delay in a payment. These other loansdifficulty that were previously modified were not considered significant.that subsequently defaulted during the three months ended March 31, 2024.
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.
14
At March 31, 2018 and December 31, 2017, the risk rating of loans by class of loans was as follows:
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
March 31, 2018 |
| Pass |
| Special |
| 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 |
| 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 |
|
DuringFor residential and consumer loan classes, the three months ended March 31, 2018 and 2017,Company evaluates credit quality based on 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 derecognitionaccrual status of the mortgages (i.e. transferred assets) fromloan. The following table presents the consolidated balance sheetsamortized cost in residential loans based on accrual status:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
| | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
As of March 31, 2024 |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| Prior |
| Costs Basis |
| to Term |
| Total | |||||||||
Residential lending | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment performance: | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Accrual | | $ | — | | $ | 762 | | $ | 71,885 | | $ | 130,283 | | $ | 97,241 | | $ | 722,935 | | $ | 7,767 | | $ | 273 | | $ | 1,031,146 |
Nonaccrual | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 9,318 | |
| — | |
| — | |
| 9,318 |
Total residential mortgage loans | | $ | — | | $ | 762 | | $ | 71,885 | | $ | 130,283 | | $ | 97,241 | | $ | 732,253 | | $ | 7,767 | | $ | 273 | | $ | 1,040,464 |
Residential mortgage loans: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Current period gross write offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
| | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
As of December 31, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Costs Basis |
| to Term |
| Total | |||||||||
Residential lending | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrual | | $ | 764 | | $ | 72,840 | | $ | 132,567 | | $ | 99,676 | | $ | 202,793 | | $ | 560,185 |
| $ | 7,729 | | $ | 280 | | $ | 1,076,834 |
Nonaccrual | |
| — | |
| — | |
| — | |
| — | |
| 1,739 | |
| 7,203 |
| | — | |
| — | |
| 8,942 |
Total residential mortgage loans | | $ | 764 | | $ | 72,840 | | $ | 132,567 | | $ | 99,676 | | $ | 204,532 | | $ | 567,388 |
| $ | 7,729 | | $ | 280 | | $ | 1,085,776 |
Residential mortgage loans: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
Current period gross write offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,858 | | $ | 4,601 |
| $ | 19 | | $ | — | | $ | 6,478 |
The amortized cost basis by year of origination and recognition of gain on sale of portfolio loans of $3.9 million for eachcredit quality indicator of the three months ended March 31, 2018Company’s commercial loans based on the most recent analysis performed was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
| | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
As of March 31, 2024 |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| Prior |
| Costs Basis |
| to Term |
| Total | |||||||||
Commercial lending | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate - commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14,929 | | $ | 22,176 | | $ | 78,672 | | $ | 34,970 | | $ | 34,958 | | $ | 24,352 | | $ | — | | $ | — | | $ | 210,057 |
Special mention | |
| — | |
| 944 | |
| 3,550 | |
| — | |
| 2,718 | |
| 8,632 | |
| — | |
| — | |
| 15,844 |
Substandard or lower | |
| — | |
| — | |
| — | |
| 11,785 | |
| — | |
| 6,860 | |
| — | |
| — | |
| 18,645 |
Total real estate – commercial real estate | | $ | 14,929 | | $ | 23,120 | | $ | 82,222 | | $ | 46,755 | | $ | 37,676 | | $ | 39,844 | | $ | — | | $ | — | | $ | 244,546 |
Real estate – commercial real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Real estate – construction: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | — | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 12 |
Substandard or lower | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 4,903 | |
| — | |
| — | |
| 4,903 |
Total real estate - construction | | $ | — | | $ | 12 | | $ | — | | $ | — | | $ | — | | $ | 4,903 | | $ | — | | $ | — | | $ | 4,915 |
Real estate – construction: | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Commercial and industrial: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | — | | $ | 9,467 | | $ | 1,064 | | $ | — | | $ | — | | $ | 94 | | $ | 2,672 | | $ | 51 | | $ | 13,348 |
Total commercial and industrial | | $ | — | | $ | 9,467 | | $ | 1,064 | | $ | — | | $ | — | | $ | 94 | | $ | 2,672 | | $ | 51 | | $ | 13,348 |
Commercial and industrial: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
15
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share 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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Revolving | | Revolving | | | | ||
| | | | | | | | | | | | | | | | | | | | Loans | | Loans | | | | ||
| | Term Loans Amortized Cost Basis by Origination Year | | Amortized | | Converted | | | | ||||||||||||||||||
As of December 31, 2023 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| Prior |
| Costs Basis |
| to Term |
| Total | |||||||||
Commercial lending | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Real estate - commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 28,975 | | $ | 79,013 | | $ | 33,694 | | $ | 35,148 | | $ | 6,938 | | $ | 13,020 | | $ | — | | $ | — | | $ | 196,788 |
Special mention | | | 948 | | | 3,574 | | | 1,407 | | | 2,724 | | | 8,610 | | | 4,253 | | | — | | | — | | | 21,516 |
Substandard or lower | |
| — | |
| — | |
| 11,778 | |
| — | |
| 2,805 | |
| 4,095 | |
| — | |
| — | |
| 18,678 |
Total real estate - commercial real estate | | $ | 29,923 | | $ | 82,587 | | $ | 46,879 | | $ | 37,872 | | $ | 18,353 | | $ | 21,368 | | $ | — | | $ | — | | $ | 236,982 |
Real estate - commercial real estate: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Real estate - construction: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14 | | $ | — | | $ | — | | $ | 1,591 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 1,605 |
Substandard or lower | | | — | | | — | | | — | | | — | | | 8,776 | | | — | | | — | | | — | | | 8,776 |
Total real estate - construction | | $ | 14 | | $ | — | | $ | — | | $ | 1,591 | | $ | 8,776 | | $ | — | | $ | — | | $ | — | | $ | 10,381 |
Real estate - construction: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Risk rating | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14,461 | | $ | 1,071 | | $ | — | | $ | — | | $ | — | | $ | 97 | | $ | 130 | | $ | 73 | | $ | 15,832 |
Total commercial and industrial | | $ | 14,461 | | $ | 1,071 | | $ | — | | $ | — | | $ | — | | $ | 97 | | $ | 130 | | $ | 73 | | $ | 15,832 |
Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current period gross charge offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Note 5—6—Mortgage Servicing Rights,
net
The BankCompany 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, 20182024 and December 31, 20172023 are as follows:
STERLING BANCORP, INC.
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Residential real estate mortgage loan portfolios serviced for: |
| |
|
| |
|
FNMA | | $ | 103,969 | | $ | 105,689 |
FHLB | |
| 30,464 | |
| 31,016 |
Private investors | |
| 29,937 | |
| 33,044 |
Total | | $ | 164,370 | | $ | 169,749 |
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
|
| March 31, |
| December 31, |
| ||
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$352 and $11,944$620 at March 31, 20182024 and December 31, 2017,2023, respectively. These balances are included in noninterest-bearing deposits in the condensed consolidated balance sheets.
16
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Activity for mortgage servicing rights and the related valuation allowance are as follows:
|
| Three Months Ended |
| ||||||||||
|
| 2018 |
| 2017 |
| ||||||||
| | | | | | | |||||||
| | Three Months Ended | |||||||||||
| | March 31, | |||||||||||
|
| 2024 |
| 2023 | |||||||||
Mortgage servicing rights: |
|
|
|
|
| | | | | | | ||
Beginning of period |
| $ | 6,706 |
| $ | 4,454 |
| | $ | 1,590 | | $ | 1,840 |
Additions |
| 1,521 |
| 1,260 |
| | | — | | | — | ||
Amortization |
| (426 | ) | (260 | ) | | | (64) | | | (74) | ||
End of period |
| 7,801 |
| 5,454 |
| | | 1,526 | | | 1,766 | ||
Valuation allowance at beginning of period |
| 210 |
| 40 |
| ||||||||
Valuation allowance: | | | | | | | |||||||
Beginning of period | | | 48 | | | 46 | |||||||
Additions (recoveries) |
| (189 | ) | (10 | ) | | | (7) | | | 17 | ||
Valuation allowance at end of period |
| 21 |
| 30 |
| ||||||||
Net carrying amount |
| $ | 7,780 |
| $ | 5,424 |
| ||||||
End of period | | | 41 | | | 63 | |||||||
Mortgage servicing rights, net | | $ | 1,485 | | $ | 1,703 |
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$75 and $169$59 for the three months ended March 31, 20182024 and 2017, respectively, and were included in other non-interest income in the condensed consolidated statements of income.
2023, respectively.
The fair value of mortgage servicing rights was $9,074$1,807 and $7,086$1,857 at MachMarch 31, 20182024 and December 31, 2017,2023, 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, 20182024 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%, dependingwith a weighted average of 9.6% (depending on the stratification of the specific right), a weighted average life of the mortgage servicing right of 77 months and a weighted average default rate of 0.2%. The fair value at December 31, 20172023 was determined using discount rates ranging from 9.5%10.0% to 12.0%12.5%, prepayment speeds ranging from 6.8% to 36.0%, dependingwith a weighted average of 9.8% (depending on the stratification of the specific right), a weighted average life of the 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, 2024 and December 31, 2023, the carrying amount of certain individual groupings exceeded their fair value, resulting in write-downs to fair value. Refer to Note 12—Fair Value.
Note 6—7—Deposits
Time deposits, included in interest-bearing deposits in the condensed consolidated balance sheets, were $679,622$900,996 and $663,472$873,220 at March 31, 20182024 and December 31, 2017,2023, respectively. Time deposits includesThe Company did not have any brokered deposits of $79,510 and $156,084 at March 31, 20182024 and December 31, 2017, respectively.
2023.
Time deposits that meet or exceed the FDIC insurance limit of $250 were $150,523$267,934 and $129,101$255,222 at March 31, 20182024 and December 31, 2017,2023, respectively.
Note 7—Federal Home Loan Bank8—FHLB Borrowings
FHLB Advances
Federal Home Loan Bank borrowings atAt March 31, 20182024 and December 31, 2017 consist of2023, the following:
|
| March 31, |
| Interest Rates |
| December 31, |
| 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 hadCompany has a variable ratelong-term fixed-rate FHLB advance of $15,000 (interest rate of 2.06% at March 31, 2018)$50,000 with a maturity date of September 2018.
InterestMay 2029. The FHLB 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 itsthe maturity date and may contain a prepayment penalty if paid before maturity. At March 31, 2018, advances totaling $157,000 wereThe advance is callable by the FHLB as follows: $67,000on May 15, 2024.
17
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in September 2021;thousands, except share and $90,000 in October 2021. At March 31, 2018, the Bank had additional borrowing capacity of $374 million from the FHLB.per share amounts)
FHLB Overdraft Line of Credit
and Letters of Credit
The BankCompany has established ana short-term overdraft line of credit agreement with the FHLB, providingwhich provides for maximum borrowings of $50,000.$20,000. The average amount outstandingoverdraft line of credit was not used during the three months ended March 31, 20182024 and 2017 was $3,673 and $14,597, respectively. At March 31, 2018, the Bank had $12,937 outstanding under this agreement.2023. Borrowings accrue interest based onat a variable ratevariable-rate based on the FHLB’s overnight cost of funds rate, which was 2.06%5.71% and 1.67%5.76% at March 31, 20182024 and December 31, 2017,2023, respectively. At March 31, 2024 and December 31, 2023, there were no outstanding borrowings under this agreement. The agreement hasoverdraft line of credit was renewed in October 2023. The overdraft line of credit is issued for a one-year term and terminatesautomatically extends for an additional one-year term unless terminated in October 2018.
advance of the renewal by the Company.
The Company entered into irrevocable standby letters of credit arrangements with the FHLB advancesto provide credit support for certain of its obligations related to its commitment to repurchase certain pools of Advantage Loan Program loans. The irrevocable standby letter of credit of $2,000 has a 36-month term and expires in July 2024. There were no borrowings outstanding on these standby letters of credit during the three months ended March 31, 2024 and 2023.
The long-term fixed-rate advance and the overdraft line of credit are collateralized by pledged loans totaling $1,038.7 millioncertain investment securities and loans. Based on this collateral and holdings of FHLB stock, the Company had additional borrowing capacity with the FHLB of $370,471 at March 31, 2018.2024. Refer to Note 3—Debt Securities for further information on securities pledged and Note 5—Loans for further information on loans pledged.
Other Borrowings
The Company hadhas available unsecured federal funds credit lines, with otherwhich were held by two banks and reduced to $60,000 in March 2024. Previously, these unsecured federal funds credit lines were held by three banks totaling $60 million.$80,000. There were no amounts outstandingborrowings under these unsecured credit lines at March 31, 2018 and December 31, 2017.
Note 8—Subordinated Notes, net
The subordinated notes were as follows:
|
| March 31, |
| December 31, |
| ||
7.0% fixed to floating rate subordinated notes |
| $ | 65,000 |
| $ | 65,000 |
|
Unamortized note premium |
| 575 |
| 588 |
| ||
Unamortized debt issuance costs |
| (652 | ) | (699 | ) | ||
Total |
| $ | 64,923 |
| $ | 64,889 |
|
In August 2017, the Company issued an additional $15 million in aggregate principal amount of subordinated notes to accredited investors. The terms of the subordinated note purchase agreements were substantially identical to the subordinated notes that were previously issued in 2016 (collectively, “Notes”), except that the first interest payment on the subordinated notes included accrued interest from April 15, 2017. The Company recorded a premium of $611 and debt issuance costs of $191 upon issuance of the notes.
During the period April through September 2016, the Company issued subordinated notes to accredited investors in the aggregate principal amount of $50 million. Issuance costs of $729 were netted against the proceeds.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
The Notes bear interest at 7% per annum, payable semi-annually on April 15 and October 15 in arrears, through April 2021 after which the Notes will have a variable interest rate of the three-month LIBOR rate plus a margin of 5.82%. Premiums and debt issuance costs are amortized over the contractual term of the Notes into interest expense using the effective interest method. Interest expense on these Notes was $1,172 and $908 forduring the three months ended March 31, 20182024 and 2017, respectively. The Notes mature in April 2026.2023.
On or after April 14, 2021, the Company may redeem the Notes, in whole or in part, at an amount equal to 100% of the outstanding principal amount being redeemed plus accrued interest, in a principal amount with integral multiples of $1. The Notes are 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. The Notes are not subject to redemption by the noteholder.
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 liabilities to general creditors and liabilities arising during the ordinary course of business. The Notes may be included in Tier 1 capital of the Bank and Tier 2 capital for the Company under current regulatory guidelines and interpretations. As long as the Notes are outstanding, the Company is permitted to pay dividends if prior to such dividends, the Bank is considered well capitalized, as defined below.
Note 9—Stock-based Compensation
The Boardboard of Directorsdirectors 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 2,239,858 shares were available for future grants as of March 31, 2024. 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 providesinitially 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 Boardthe board of Directorsdirectors of the Company. The stock-based awards arewere issued at no less than the market price on the date the awards arewere 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. TheBeginning with grants 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 andgrant. All stock option awards have a maximum term of ten years.
18
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted below. Estimating the grant date fair values for employee stock options requires management to make assumptions regarding expected volatility of the value of those underlying shares, the risk-free rate over the expected life of the stock options and the date on which share-based payments will be settled. Expected volatilities are based on a weighted average of the Company’s historic volatility and an implied volatility for a group of industry-relevant bank holding companies as of the measurement date. The expected term of options granted is calculated using the simplified method (the midpoint between the end of the vesting period and the end of the maximum term). The risk-free rate for the expected term of the option is based upon U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield represents what the Company anticipates will be declared during the expected term of the options.
On March 21, 2018, the Board of Directors approved the issuance of options to purchase 92,625 shares of common stock with an exercise price of $13.73 to certain key employees which are accounted for as equity awards. These options to purchase shares of common stock had a weighted average grant-date fair value of $4.56 per option. The grant-date fair value of each stock option award for the three months ended March 31, 2018 is estimated using the Black-Scholes option pricing model that uses the assumptions set forth in the following table:
Exercise price of options |
| $ | 13.73 |
|
Risk-free interest rate |
| 2.80 | % | |
Expected term (in years) |
| 6.75 |
| |
Expected stock price volatility |
| 23.7 | % | |
Dividend yield |
| .29 | % |
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
A summary of the Company’s stock option activity as of and for the three months ended March 31, 20182024 is as follows:
|
| Number |
| Weighted |
| Weighted |
| Aggregate |
| ||||||||||||
|
|
|
|
|
| (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, 2024 |
| 340,395 | | $ | 4.96 |
| 6.23 | | $ | 531 | |||||||||||
Granted |
| 92,625 |
| 13.73 |
|
|
|
|
|
| — | |
|
|
|
| |
| | ||
Exercised |
| — |
| — |
|
|
|
|
|
| — | |
|
|
|
| |
|
| ||
Forfeited/expired |
| — |
| — |
|
|
|
|
|
| — | | | | | | | | | ||
Outstanding at March 31, 2018 |
| 92,625 |
| $ | 13.73 |
| 9.97 |
| $ | — |
| ||||||||||
Outstanding and exercisable at March 31, 2024 |
| 340,395 | | $ | 4.96 | | 5.98 | | $ | 348 |
The Company recorded share-basedstock-based compensation expense associated with stock options of $3$1 for the three months ended March 31, 2018. At March 31, 2018, there was $419 of total 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.
2023.
Restricted Stock Awards
Restricted stock awards are issued to independent directors and certain key employees. The restricted stock awards generally vest one-third per year over three years after the date of grant, unless the Executive Compensation Committee determines to establish a different vesting schedule for specific grants. 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, 2024, 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 $5.77. 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, 2024 and 2023, the Company withheld 38,033 shares and 12,166 shares, respectively, 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 $216 and $75, 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 as of and for the three months ended March 31, 2024 is as follows:
| | | | | |
|
| |
| Weighted Average | |
| | Number | | Grant Date | |
|
| of Shares |
| Fair Value | |
Nonvested at January 1, 2024 |
| 1,364,570 | | $ | 5.27 |
Granted |
| 60,000 | |
| 5.77 |
Vested |
| (176,644) | |
| 5.50 |
Forfeited |
| (45,645) | |
| 5.36 |
Nonvested at March 31, 2024 |
| 1,202,281 | | $ | 5.26 |
The fair value of the award is recorded as compensation expense on a straight-line basis over the vesting period. The Company recorded share-basedstock-based compensation expense associated with restricted stock awards of $6$729 and $172 for the three months ended March 31, 2018.2024 and 2023, respectively. At March 31, 2018,2024, there was $534$4,527 of total unrecognized compensation cost related to the nonvested stock granted under the Plan. The costwhich is expected to be recognized over a weighted-average period of 3.482.33 years. The total fair value of shares vested during the three months ended March 31, 2024 and 2023 was $1,007 and $399, respectively.
19
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Note 10— IncomeRegulatory 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.
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, 2024, 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 under the CBLR framework at March 31, 2024 and December 31, 2023:
| | | | | | | | | | | |
| | | | | | | To be Well | | |||
| | | | | | | Capitalized Under | | |||
| | | | | | | Prompt Corrective | | |||
| | | | | | | Action Regulations | | |||
| | Actual | | (CBLR Framework) | | ||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio(1) | | ||
March 31, 2024 |
| |
|
|
|
| |
|
|
|
|
Tier 1 (core) capital to average total assets (leverage ratio) | |
| | | | | | | | | |
Consolidated | | $ | 341,243 | | 14.10 | % | $ | 217,783 | | 9.00 | % |
Bank | | $ | 328,531 | | 13.58 | % | $ | 217,727 | | 9.00 | % |
(1) Also represents the minimum leverage ratio threshold under the CBLR framework.
20
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
| | | | | | | | | | | |
| | | | | | | To be Well | | |||
| | | | | | | Capitalized Under | | |||
| | | | | | | Prompt Corrective | | |||
| | | | | | | Action Regulations | | |||
| | Actual | | (CBLR Framework) | | ||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio(1) |
| ||
December 31, 2023 |
| |
|
|
|
| |
|
|
|
|
Tier 1 (core) capital to average total assets (leverage ratio) |
| |
|
|
|
| |
|
|
|
|
Consolidated | | $ | 342,368 | | 13.95 | % | $ | 220,950 | | 9.00 | % |
Bank | | $ | 328,362 | | 13.38 | % | $ | 220,920 | | 9.00 | % |
(1) Also represents the minimum leverage ratio threshold under the CBLR framework.
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.
Note 11—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 per share and diluted income per share were the same since the effect of the potential dilutive securities were considered antidilutive. Potentially dilutive securities, consisting of 39,655 nonvested restricted shares of common stock and 92,625 options to purchase shares of common stock, were excluded from the diluted per share calculation. There were no dilutive securities outstanding forinformation are the three months ended March 31, 2017.same. The following table presents the computation of loss per share, basic and diluted:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Numerator: |
| |
|
| |
|
Net loss | | $ | (197) | | $ | (503) |
| | | | | | |
Denominator: | |
| | |
| |
Weighted average common shares outstanding, basic | |
| 50,843,106 | |
| 50,444,463 |
Weighted average effect of potentially dilutive common shares: | |
| | |
| |
Stock options | |
| — | |
| — |
Restricted stock | |
| — | |
| — |
Weighted average common shares outstanding, diluted | |
| 50,843,106 | |
| 50,444,463 |
| |
| | |
| |
Loss per share: | | | | | | |
Basic | | $ | (0.00) | | $ | (0.01) |
Diluted | | $ | (0.00) | | $ | (0.01) |
21
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 reflectamounts)
The weighted average effect of certain stock options and nonvested restricted stock that were excluded from the stock split for the three months ended March 31, 2017.computation of weighted average diluted shares outstanding, as inclusion would be anti-dilutive, are summarized as follows:
| | | | |
| | Three Months Ended | ||
| | March 31, | ||
|
| 2024 |
| 2023 |
Stock options |
| 109,775 |
| 349,545 |
Restricted stock |
| 530,449 |
| 349,512 |
Total |
| 640,224 |
| 699,057 |
Note 11—12—Fair Values of Financial InstrumentsValue
The Company’s financialFinancial 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). DiscountedThe 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.
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 calculated using spread to LIBOR curvesevaluated for impairment based upon third-party valuations obtained. As disclosed in Note 6—Mortgage Servicing Rights, net, the valuation model utilizes interest rate, prepayment speed and default rate assumptions that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual investment securities are reviewed and incorporated into the calculations.market participants would use in estimating future net servicing income (Level 3).
22
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(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, 20182024 and December 31, 2017:
STERLING BANCORP, INC.2023:
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | |
| | | | | Fair Value Measurements | |||||||
| | | | | at March 31, 2024 | |||||||
| | | | | Quoted Prices in | | Significant Other | | Significant | |||
| | | | | Active Markets for | | Observable | | Unobservable | |||
| | | | | Identical Assets | | Inputs | | Inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
Available for sale debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury and Agency securities | | $ | 149,869 | | $ | 120,598 | | $ | 29,271 | | $ | — |
Mortgage-backed securities | | | 30,609 | | | — | | | 30,609 | | | — |
Collateralized mortgage obligations | |
| 214,231 | |
| — | |
| 214,231 | |
| — |
Collateralized debt obligations | |
| 143 | |
| — | |
| — | |
| 143 |
Equity securities | |
| 4,410 | |
| 4,410 | |
| — | |
| — |
(dollars in thousands, except per share amounts)
| | | | | | | | | | | | |
| | | | | Fair Value Measurements | |||||||
| | | | | at December 31, 2023 | |||||||
| | | | | Quoted Prices in | | Significant Other | | Significant | |||
| | | | | Active Markets for | | Observable | | Unobservable | |||
| | | | | Identical Assets | | Inputs | | Inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
Available for sale debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury and Agency securities | | $ | 248,988 | | $ | 219,582 | | $ | 29,406 | | $ | — |
Mortgage-backed securities | | | 31,927 | | | — | | | 31,927 | | | — |
Collateralized mortgage obligations | |
| 138,157 | |
| — | |
| 138,157 | |
| — |
Collateralized debt obligations | |
| 141 | |
| — | |
| — | |
| 141 |
Equity securities | | | 4,457 | | | 4,457 | | | — | | | — |
|
|
|
| Fair Value Measurements at |
| ||||||||
|
| Total |
| Quoted Prices |
| Significant |
| Significant |
| ||||
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 |
| ||||||||
|
| Total |
| Quoted Prices |
| Significant |
| Significant |
| ||||
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 |
| ||||||||||
|
| Investment Securities |
| ||||||||||
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||
|
| Collateralized |
| Equity |
| Collateralized |
| Equity |
| ||||
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 obligations2024 and 2023:
| | | | | | |
| | Fair Value | ||||
| | Measurements Using Significant | ||||
| | Unobservable Inputs (Level 3) | ||||
| | Collateralized Debt Obligations | ||||
| | Three Months Ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Balance of recurring Level 3 assets at beginning of period | | $ | 141 | | $ | 147 |
Total gains or losses (realized/unrealized): | |
| | |
|
|
Included in other comprehensive income (loss) | |
| 3 | |
| (2) |
Principal maturities/settlements | | | (1) | | | (1) |
Balance of recurring Level 3 assets at end of period | | $ | 143 | | $ | 144 |
23
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 |
| 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-RecurringNonrecurring Basis
From time to time, the BankCompany 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 noFor assets heldmeasured at fair value on a non-recurringnonrecurring basis that were recorded in the condensed consolidated balance sheets at March 31, 2024 and December 31, 2023, 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, 2024 | ||||||||||
| | | | | Quoted Prices in | | Significant Other | | Significant | |||
| | | | | Active Markets for | | Observable | | Unobservable | |||
| | Fair | | Identical Assets | | Inputs | | Inputs | ||||
|
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Mortgage servicing rights | | $ | 382 | | $ | — | | $ | — | | $ | 382 |
| | | | | | | | | | | | |
| | Fair Value Measurements | ||||||||||
|
| at December 31, 2023 | ||||||||||
| | | | | Quoted Prices in | | Significant Other | | Significant | |||
| | | | | Active Markets for | | Observable | | Unobservable | |||
| | Fair | | Identical Assets | | Inputs | | Inputs | ||||
|
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Mortgage servicing rights | | $ | 576 | | $ | — | | $ | — | | $ | 576 |
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, 20182024 and December 31, 2017.2023:
| | | | | | | | | |
| | Quantitative Information about Level 3 Fair Value Measurements at March 31, 2024 | |||||||
| | | | | | | | | Range |
|
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| (Weighted Average) (1) | |
Mortgage servicing rights | | $ | 382 | | Discounted cash flow | | Discount rate | | 10.0% - 12.5% |
| | | | | | | | | (11.9%) |
| |
| |
|
|
| Prepayment speed | | 7.1% - 22.8% |
| | | | | | | | | (16.7%) |
| | | | | | | Default rate | | 0.1% - 0.2% |
| | | | | | | | | (0.1%) |
| | | | | | | | | |
| | Quantitative Information about Level 3 Fair Value Measurements at December 31, 2023 | |||||||
| | | | | | | | | Range |
|
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| (Weighted Average) (1) | |
Mortgage servicing rights | | $ | 576 | | Discounted cash flow | | Discount rate | | 10.0% - 12.5% |
| | | | | | | | | (12.2%) |
| | | | | | | Prepayment speed | | 6.9% - 22.7% |
| | | | | | | | | (18.5%) |
| | | | | | | Default rate | | 0.1% - 0.2% |
| | | | | | | | | (0.1%) |
(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. |
24
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(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, 20182024 and December 31, 2017,2023, are as follows:
|
| Fair Value Measurements at March 31, 2018 |
| ||||||||||||||||||||||||||||
|
| Carrying |
| Fair |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
| | Fair Value Measurements | |||||||||||||||||||||||||||||
| | at March 31, 2024 | |||||||||||||||||||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||||||||||||||||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||||||||||||||||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
| |
|
| |
|
| |
| |||||
Cash and due from banks |
| $ | 37,541 |
| $ | 37,541 |
| $ | 37,541 |
| $ | — |
| $ | — |
| | $ | 646,168 | | $ | 646,168 | | $ | 646,168 | | $ | — | | $ | — |
Mortgage loans held for sale |
| 200,467 |
| 204,205 |
| — |
| 204,205 |
| — |
| ||||||||||||||||||||
Interest-bearing time deposits with other banks | |
| 5,229 | |
| 5,229 | |
| 5,229 | |
| — | |
| — | ||||||||||||||||
Loans, net |
| 2,580,560 |
| 2,628,979 |
| — |
| — |
| 2,628,979 |
| |
| 1,274,022 | |
| 1,270,120 | |
| — | |
| — | |
| 1,270,120 | |||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | |||||
Time deposits |
| 679,622 |
| 675,620 |
| — |
| 675,620 |
| — |
| |
| 900,996 | |
| 902,983 | |
| — | |
| 902,983 | |
| — | |||||
Federal Home Loan Bank borrowings |
| 342,937 |
| 332,507 |
| — |
| 332,507 |
| — |
| |
| 50,000 | |
| 49,780 | |
| — | |
| 49,780 | |
| — | |||||
Subordinated notes, net |
| 64,923 |
| 66,950 |
| — |
| 66,950 |
| — |
|
|
| Fair Value Measurements at December 31, 2017 |
| ||||||||||||||||||||||||||||
|
| Carrying |
| Fair |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
| | Fair Value Measurements | |||||||||||||||||||||||||||||
| | at December 31, 2023 | |||||||||||||||||||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||||||||||||||||||
|
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||||||||||||||||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
|
| |
|
| |
|
| |
| |||||
Cash and due from banks |
| $ | 40,147 |
| $ | 40,147 |
| $ | 40,147 |
| $ | — |
| $ | — |
| | $ | 577,967 | | $ | 577,967 | | $ | 577,967 | | $ | — | | $ | — |
Mortgage loans held for sale |
| 112,866 |
| 115,619 |
| — |
| 115,619 |
| — |
| ||||||||||||||||||||
Interest-bearing time deposits with other banks | |
| 5,226 | |
| 5,226 | |
| 5,226 | |
| — | |
| — | ||||||||||||||||
Loans, net |
| 2,594,357 |
| 2,635,986 |
| — |
| — |
| 2,635,986 |
| |
| 1,319,568 | |
| 1,313,282 | |
| — | |
| — | |
| 1,313,282 | |||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
Financial Liabilities |
|
|
|
|
|
|
|
|
|
|
| |
| | |
| | |
| | |
| | |
| | |||||
Time deposits |
| 663,472 |
| 660,380 |
| — |
| 660,380 |
| — |
| |
| 873,220 | |
| 874,274 | |
| — | |
| 874,274 | |
| — | |||||
Federal Home Loan Bank borrowings |
| 338,000 |
| 330,004 |
| — |
| 330,004 |
| — |
| |
| 50,000 | |
| 49,370 | |
| — | |
| 49,370 | |
| — | |||||
Subordinated notes, net |
| 64,889 |
| 67,485 |
| — |
| 67,485 |
| — |
|
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 |
| ||
|
| 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 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 |
| Tier 1 |
| Common |
| ||
|
| 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.
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 |
| To be Well |
| |||||||||
|
| 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 |
| To be Well |
| |||||||||
|
| 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 certain storage and office space from entities owned by the Company’s principal shareholders. Amounts paid under such leases totaled $17 and $9 during the three months ended March 31, 2018 and 2017, respectively.
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except per share amounts)
The Bank provides 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 for the three months ended March 31, 2018 and 2017, respectively.
Financial Instruments with Off-Balance Sheet Risk
The BankCompany 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 is required to estimate the expected credit losses for off-balance sheet credit exposures. The Company maintains an estimated liability for unfunded commitments, primarily related to commitments to extend credit, which is included in other liabilities on the condensed consolidated balance sheets. 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 following presents the activity in the liability for unfunded commitments for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | |
|
| Residential |
| Commercial |
| | |
| Commercial |
| | | |||
Three Months Ended March 31, 2024 | | Real Estate | | Real Estate | | Construction | | and Industrial | | Total | |||||
Liability for unfunded commitments: | | | | | | | | | | | | | | | |
Balance at the beginning of the period | | $ | 1 | | $ | 124 | | $ | 763 | | $ | 8 | | $ | 896 |
Increase (decrease) in provision for (recovery of) credit losses | | | — | | | (9) | | | 107 | | | 90 | | | 188 |
Total ending balance | | $ | 1 | | $ | 115 | | $ | 870 | | $ | 98 | | $ | 1,084 |
25
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | |
|
|
| |
|
| |
|
| |
| | |
|
| |
| | Residential | | Commercial | | | | | Commercial | | | | |||
Three Months Ended March 31, 2023 | | Real Estate | | Real Estate | | Construction | | and Industrial | | 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 willCompany 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 BankCompany is required to fund the commitment. The BankCompany uses the same credit policies in making commitments to extend credit as it does in making loans.
Unused Lines of Credit
The commitments outstandingCompany also issues unused lines of credit to make loans include primarily residential real estate loans that are made for a period of 90 days or less.meet customer financing needs. At March 31, 2018, outstanding commitments to make2024, the unused lines of credit include residential second mortgages of $9,370, construction loans of $5,536, commercial real estate of $2,165 and commercial and industrial loans of $13,279, totaling $30,350. These unused lines of credit consisted of a fixed rate loan of $5,000 with an interest rate of 6.00% and a maturity of two years and variable-rate loans of $6,072$25,350 with interest rates ranging from 3.75%4.54% to 7.00%10.88% and maturities ranging from tenfive months to 22 years 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 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 BankCompany assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the BankCompany 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 BankCompany is limited to the contractual amount of these letters. Collateral mademay 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, 20182024 and December 31, 2017:2023:
|
| March 31, |
| December 31, |
| ||||||||
Commitments to make loans |
| $ | 264,536 |
| $ | 268,401 |
| ||||||
| | | | | | | |||||||
| | March 31, | | December 31, | |||||||||
|
| 2024 |
| 2023 | |||||||||
Unused lines of credit |
| 160,177 |
| 157,234 |
| | $ | 30,350 | | $ | 18,542 | ||
Standby letters of credit |
| 70 |
| 70 |
| |
| 24 | |
| 24 |
Legal Proceedings
The Company and its subsidiaries may be subject to legal actions and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened legal proceedings 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 not material to its financial position, results of operations or liquidity.
26
Note 16—Subsequent EventsSTERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
The Bank has incurred and expects to continue to incur significant costs in connection with its ongoing cooperation with the government investigations of certain individuals and the advancement or reimbursement of 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, 2024 and 2023. In March 2018,addition, the Company’s directors and officers insurance policies for matters related to the ongoing government investigations against selected individuals was exhausted in the fourth quarter of 2023. The Company understands that the government investigations into certain individuals are continuing, including calling individuals as witnessess. Therefore, the Company committedexpects to sellcontinue to receive claims for advancement or reimbursement of legal fees and any future costs the Company incurs will not be reimbursed by its insurance carriers.
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 sold 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 portfoliorepurchase, 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.
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, 2024, there is an outstanding agreement to repurchase an additional pool of Advantage Loan Program loans with an unpaid principal balance of $15,481 that extends to July 2025, with the final decision to effect any such repurchase, as determined by the applicable investor.
At March 31, 2024 and December 31, 2023, the mortgage repurchase liability was $749 and $750, respectively, which is included in 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 proceedsevent of $88.0 millionbreach of representations and recorded a gainwarranties totaled $40,033 and $49,667 at March 31, 2024 and December 31, 2023, respectively, including Advantage Loan Program loans totaling $29,936 and $33,044 at March 31, 2024 and December 31, 2023, respectively.
Activity in the mortgage repurchase liability was as follows:
| | | | | | |
|
| Three Months Ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Balance, beginning of period |
| $ | 750 |
| $ | 809 |
Net provision (recovery) |
| | (1) |
| | 120 |
Balance, end of the period |
| $ | 749 |
| $ | 929 |
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussionmanagement’s discussion and Analysisanalysis 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 ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2017, which was2023, as filed on March 28, 2018 with the U.S. Securities and Exchange Commission (“SEC”(the “SEC”) on March 14, 2024 (the “2023 Form 10-K”).
Unless we state otherwise or the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Sterling,” “we,” “our,” “us” or “the Company” refer to Sterling Bancorp, Inc., a Michigan corporation, and its subsidiaries, including Sterling Bank and Trust, F.S.B., which 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-lookingcertain statements withinthat are, or may be deemed to be, “forward-looking statements” regarding the meaning ofCompany’s plans, expectations, thoughts, beliefs, estimates, goals and outlook for the federal securities laws.future. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance.performance, including any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions. 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,”“outlook” and “would,” “annualized” and “outlook,” or the negative versionversions of those words or other comparable words or phrases of a future or forward-looking nature.nature, though the absence of these words does not mean a statement is not forward-looking. All statements other than statements of historical facts, including but not limited to statements regarding the economy and financial markets, government investigations, credit quality, the regulatory scheme governing our industry, competition in our industry, interest rates, our liquidity, our business and our governance, are forward-looking statements. We have based the forward-looking statements in this Quarterly Report on Form 10-Q primarily on current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs. These forward-looking statements are not historical facts, and they are based on our 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. There can be no assurance that future developments will be those that have been anticipated. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. 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 detailed from time to time in our public filings, including those included in the disclosures under the heading “Risk Factors” in our 2023 Form 10-K and subsequent periodic reports, could affect future results and events, causing those results and events to differ materially from those views expressed or implied in the Company’s 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, see the risk factors set forth under “Item 1A. Risk Factors” in our 2023 Form 10-K. You should carefully consider these risk factors in evaluating these forward-looking statements. These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q and our other filings with the SEC include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. Should one or more of the foregoing risks materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those projected in, or implied by, such forward-looking statements.
28
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, revise, correct 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 eachany 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.
OverviewRisk 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 2023 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 Our Strategy
● | The effects of the prevailing economic environment on successfully implementing and executing a new strategic plan or achieving a successful strategic transaction |
● | The impact of the prolonged suspension of our residential loan origination function coupled with the prior termination of our Advantage Loan Program |
Risks Related to the Economy and Financial Markets
● | The effects of fiscal and monetary policies and regulations of the federal government and Board of Governors of the FRB |
● | 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 |
● | 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 |
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 credit losses to cover current expected credit losses in our loan portfolio |
Risks Related to Interest Rates
● | Negative impacts of future changes in interest rates |
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 |
29
● | Our deposit account balances that exceed the FDIC insurance limits may expose the Bank to enhanced liquidity risk |
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 |
● | The costs of cooperating with ongoing governmental investigations of certain individuals |
● | The exhaustion of our directors and officers insurance policies covering various matters related to our former Advantage Loan Program |
● | The costs of legal proceedings, including settlements and judgments |
● | 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 Our Highly Regulated Industry
● | The extensive laws and regulations affecting the financial services industry, 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 |
● | 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 |
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 |
30
● | 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 |
● | Other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere herein or in the documents incorporated by reference herein and our other filings with the SEC |
Risks Related to Governance Matters
● | The Seligman family’s ability to influence our operations and control the outcome of matters submitted for shareholder approval |
● | Our ability to pay dividends |
The foregoing risk factors should not be construed as an exhaustive list and should be read in conjunction with the cautionary statements that are included under “Cautionary Note Regarding Forward-Looking Statements” above under “Item 1A. Risk Factors” in our 2023 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, including the items set forth under “Part II, Item A. Risk Factors.”
Company Overview
We are a unitary thrift holding company incorporated in 1989 and headquartered in Southfield, Michigan, withand our primary branch operationsbusiness is the operation of our wholly owned subsidiary, Sterling Bank, which was formed in 1984. Through Sterling Bank, we currently originate commercial real estate loans and commercial and industrial loans, and provide deposit products, consisting primarily of checking, savings and term certificate accounts. The Bank also engages in mortgage banking activities and, as such, acquires, sells and services residential mortgage loans. The Bank operates through a network of 27 branches of which 25 branches are located in the San Francisco and Los Angeles, California. Through our wholly owned bank subsidiary, Sterling Bank and Trust, F.S.B., a qualified thrift lender, we offer a broad range of loan products toCalifornia metropolitan areas with the residential and commercial markets, as well as retail and business banking services.
Since 2013, we have experienced significant growth while maintaining stable margins and solid asset quality. We have made significant investments over the last several years in staffing and upgrading technology and system security. In the first quarter 2017, we opened a new branch in the Los Angeles market and, in April 2018, we opened a new branchremaining branches located in New York, CityNew York and expandedSouthfield, Michigan.
Overview of Quarterly Performance
Financial results for the three months ended March 31, 2024 are essentially break-even and are consistent with our presence in Southern California with a new branch in Chino Hills. In the near future, we plan to open an additional branch in Southern California as well as convert an existing loan production office in the Seattleprotect both book value and liquidity during this period of financial uncertainty. We believe our credit quality, liquidity and capital levels are robust. However, market into a branch. As of March 31, 2018, the Company had total consolidated assets of $3.03 billion, total consolidated deposits of $2.29 billion and total consolidated shareholders’ equity of $288.5 million.
In the first quarter of 2018, we originated loans of $408 million, a 59% increase over the first quarter of 2017, which included $349 million in residential mortgage loans, $5 million in commercial real estate loans, $44 million in
construction loans and $10 million in commercial and industrial loans. Also, we sold pools of residential real estate mortgages for $112.2 million to third-party investors. Weinterest rate movements continue to focusexert pressure on our net interest margin, as deposit costs have increased faster than the residential mortgage market, construction, and commercial real estate lending. Net interest income for the first quarteryields of 2018our interest-earning assets, further inhibiting meaningful profitability. Our net loss was $28.2 million, an increase of $6.3 million, or 29% over the same period in 2017, primarily attributable to an increase in average earnings assets. Noninterest income increased to $6.0 million in the first quarter of 2018 from $5.6$(0.2) million for the same periodthree months ended March 31, 2024 compared to $(0.5) million for the three months ended March 31, 2023. The net loss for the three months ended March 31, 2024 reflects a decline in net interest income from $17.7 million during the three months ended March 31, 2023 to $14.9 million during the three months ended March 31, 2024. The decline in our net interest income primarily reflects a significant increase in our deposit costs in the prior year.higher interest rate environment, which outpaced the increase in the yields we earned on our interest-earning assets.
The decrease in net interest income was partially offset by the decrease in total non-interest expense from $17.8 million for the three months ended March 31, 2023 to $15.4 million for the three months ended March 31, 2024. Such decrease was primarily driven by salaries and employee benefits expense and professional fees, each of which decreased $1.0 million compared to the three months ended March 31, 2023. While the governmental investigations into the Company and the Bank are now resolved, we continued to incur significant professional fees, primarily due to the exhaustion of our directors and officers insurance, in connection with the ongoing investigations into certain individuals involved with the former Advantage Loan Program.
31
In addition, our credit quality remained strong overall. Our nonperforming assets were $9.3 million, or 0.39% of total assets, at March 31, 2024 compared to $9.0 million, or 0.37% of total assets, at December 31, 2023. In addition, our provision for credit losses during the three months ended March 31, 2024 decreased $0.6 million from $0.7 million during the three months ended March 31, 2023.
At March 31, 2024, the Tier 1 leverage capital ratios of both the Company and the Bank remained above the capital ratio requirements to be considered well capitalized under applicable prompt corrective action requirements.
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, 2018,2024, 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 on2023 Form 10-K filed with the SEC.
10-K.
DiscussionBalance Sheet and Capital Analysis of Financial Condition
The following sets forth a discussion and analysis of our financial condition as of the dates presented below.
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, 2024 |
| At December 31, 2023 | | ||||||
|
| Amount |
| % |
| Amount |
| % |
| ||
|
| (Dollars in thousands) | | ||||||||
Real estate: | | | | | | | | | | | |
Residential real estate | | $ | 1,040,464 | | 80 | % | $ | 1,085,776 |
| 80 | % |
Commercial real estate | |
| 244,546 | | 19 | % |
| 236,982 |
| 18 | % |
Construction | |
| 4,915 | | — | % |
| 10,381 |
| 1 | % |
Total real estate | |
| 1,289,925 |
| 99 | % |
| 1,333,139 |
| 99 | % |
Commercial and industrial | |
| 13,348 |
| 1 | % |
| 15,832 |
| 1 | % |
Other consumer | |
| 6 |
| — | % |
| 1 |
| — | % |
Total loans | |
| 1,303,279 |
| 100 | % |
| 1,348,972 |
| 100 | % |
Less: allowance for credit losses | |
| (29,257) |
| | |
| (29,404) |
|
| |
Loans, net | | $ | 1,274,022 | | | | $ | 1,319,568 |
|
| |
|
| 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 |
|
|
|
Most of our 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 metropolitan areas. As of March 31, 2024, approximately 79% of our loan portfolio was based in California with 55% and 24% in the San Francisco and Los Angeles metropolitan areas, respectively.
32
Residential Loans. Our loan portfolio consists primarily of residential real estate loans. At March 31, 2024, residential real estate loans accounted for 80% of total gross loans held for investment. Our residential loans totaled $1.0 billion at March 31, 2024, a decrease of $45.3 million, or 4%, from $1.1 billion at December 31, 2023. No new residential real estate loans were added during the three months ended March 31, 2024.
Commercial Loans. We offer a variety of commercial loan products, consisting of commercial real estate loans, construction loans and commercial and industrial loans. These categories of commercial loans totaled $262.8 million at March 31, 2024, a decrease of $0.4 million from December 31, 2023. During the three months ended March 31, 2024, we originated commercial loans with an aggregate principal balance of $30.0 million at the time of origination. Our construction loans decreased to $4.9 million from $10.4 million at December 31, 2023 due to maturing construction loans that were paid in full in the three months ended March 31, 2024. The majority of our commercial loans are secured by real estate or other business assets. Our commercial loans are almost exclusively recourse loans, as we generally obtain personal guarantees on each loan.
Commercial real estate loans totaled $244.5 million at March 31,2024, of which the largest portion of these loans, or 42%, are secured by multifamily properties. The repayment of commercial real estate loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy because it is dependent on the successful operation or development of the property or business involved. In addition, the collateral for commercial real estate loans is generally less readily marketable than for residential real estate loans, and its value may be more difficult to determine. A primary repayment risk for commercial real estate loans is the interruption or discontinuation of operating cash flows from the properties or businesses involved, which may be influenced by economic events, changes in governmental regulations, vacancies or other events not under the control of the borrower. Additionally, with the higher interest rate environment and slowed transaction market, the commercial real estate sector faces increased risk of economic distress. The table below summarizes the commercial real estate loan portfolio, by property type, as of March 31, 2024:
| | | | | | |
| | At March 31, 2024 |
| |||
|
| | |
| Percent of | |
|
| Amount |
| Total |
| |
| | (Dollars in thousands) |
| |||
Commercial real estate: | | | | | | |
Retail | | $ | 37,936 | | 16 | % |
Multifamily | | | 102,332 | | 42 | % |
Office | | | 39,113 | | 16 | % |
Hotels/Single-room occupancy hotels | | | 3,551 | | 1 | % |
Industrial | | | 29,586 | | 12 | % |
Mixed-use | | | 9,314 | | 4 | % |
Other | | | 22,714 | | 9 | % |
Total | | $ | 244,546 | | 100 | % |
Commercial and Industrial loans. Our commercial and industrial loans totaled $13.3 million at March 31, 2024, a decrease of $2.5 million, or 16%, from December 31, 2023.
33
Maturities and Sensitivities of Loans to Changes in Interest Rates. The Company’s loan portfolio includes adjustable-rate loans, primarily tied to Prime, U.S. Treasuries and the 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 loansthe recorded investment by interest rate type in our loan portfolio at March 31, 2018:2024:
|
| 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, 2024 |
| Prime |
| Treasury |
| SOFR |
| Total |
| Fixed Rate |
| Total |
| ||||||
| | ( Dollars in thousands) |
| ||||||||||||||||
Residential real estate |
| $ | 8,040 |
| $ | 302,732 |
| $ | 712,751 |
| $ | 1,023,523 |
| $ | 16,941 |
| $ | 1,040,464 | |
Commercial real estate | |
| — | |
| 135,394 | |
| 21,491 | |
| 156,885 | |
| 87,661 | |
| 244,546 | |
Construction | |
| 4,903 | |
| — | |
| — | |
| 4,903 | |
| 12 | |
| 4,915 | |
Commercial and industrial | |
| 9,005 | |
| 211 | |
| 2,461 | |
| 11,677 | |
| 1,671 | |
| 13,348 | |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| 6 | |
| 6 | |
Total | | $ | 21,948 | | $ | 438,337 | | $ | 736,703 | | $ | 1,196,988 | | $ | 106,291 | | $ | 1,303,279 | |
| | | | | | | | | | | | | | | | | | | |
% by rate type at March 31, 2024 | |
| 2 | % |
| 34 | % |
| 56 | % |
| 92 | % |
| 8 | % |
| 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 commercial and industrial loans, construction loans and home equity loans, adjust to an interest rate equal to Prime or up to 238 basis points above Prime. Our commercial real estate loans predominately adjust based on the U.S. Treasury five-year constant maturity Treasury rate. Interest rates on our adjustable-rate SOFR-based loans adjust to an interest rate typically equal to 350 to 450 basis points above the one-year SOFR. Our Treasury-based residential loans adjust to an interest rate based on the U.S. Treasury one- and five-year constant maturity Treasury rates.
The following table sets forth the contractual maturities of our loan portfolio and sensitivities of those loans to changes in interest rates at March 31, 2024. Overdraft loans are reported as being due in one year or less. The table does not include any estimate of prepayments that could significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.
| | | | | | | | | | | | | | | |
| | Due in One | | Due After One | | Due After Five | | Due After | | | | ||||
March 31, 2024 |
| Year or Less |
| To Five Years |
| To Fifteen Years |
| Fifteen Years |
| Total | |||||
| | (In thousands) | |||||||||||||
Residential real estate | | $ | 4 | | $ | 438 | | $ | 11,966 | | $ | 1,028,056 | | $ | 1,040,464 |
Commercial real estate | | | 37,129 | | | 64,625 | | | 142,792 | |
| — | | | 244,546 |
Construction | | | 4,903 | | | 12 | | | — | |
| — | | | 4,915 |
Commercial and industrial | | | 1,326 | | | 12,022 | | | — | |
| — | | | 13,348 |
Other consumer | | | 6 | | | — | | | — | |
| — | | | 6 |
Total | | $ | 43,368 | | $ | 77,097 | | $ | 154,758 | | $ | 1,028,056 | | $ | 1,303,279 |
| | | | | | | | | | | | | | | |
Total loans with: | | | | | | | | | | | | | | | |
Adjustable interest rates | | $ | 5,169 | | $ | 35,519 | | $ | 139,592 | | $ | 1,016,708 | | $ | 1,196,988 |
Fixed interest rates | | | 38,199 | | | 41,578 | | | 15,166 | | | 11,348 | | | 106,291 |
Total loans | | $ | 43,368 | | $ | 77,097 | | $ | 154,758 | | $ | 1,028,056 | | $ | 1,303,279 |
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The table set forth below contains the repricing dates of adjustable rateadjustable-rate loans included within our loan portfolio as of March 31, 2018:2024:
March 31, 2018 |
| 1 - 4 |
| Commercial |
| 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, 2024 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Consumer |
| Total | ||||||
| | (In thousands) | ||||||||||||||||
Amounts to adjust in: | | |
| | |
| | |
| | |
| | |
| | |
|
6 months or less | | $ | 349,759 | | $ | 22,562 | | $ | 4,903 | | $ | 11,677 | | $ | — | | $ | 388,901 |
After 6 months through 12 months | |
| 336,438 | |
| 47,044 | |
| — | |
| — | |
| — | |
| 383,482 |
After 12 months through 24 months | |
| 102,922 | |
| 4,354 | |
| — | |
| — | |
| — | |
| 107,276 |
After 24 months through 36 months | |
| 95,770 | |
| 26,963 | |
| — | |
| — | |
| — | |
| 122,733 |
After 36 months through 60 months | |
| 76,938 | |
| 55,962 | |
| — | |
| — | |
| — | |
| 132,900 |
After 60 months | |
| 61,696 | |
| — | |
| — | |
| — | |
| — | |
| 61,696 |
Fixed to maturity | |
| 16,941 | |
| 87,661 | |
| 12 | |
| 1,671 | |
| 6 | |
| 106,291 |
Total | | $ | 1,040,464 | | $ | 244,546 | | $ | 4,915 | | $ | 13,348 | | $ | 6 | | $ | 1,303,279 |
At March 31, 2018, $2152024, $117.9 million, or 8.4%10%, of our adjustable interest rate loans were at their interest rate floor.
Delinquent Loans. The following tables set forth our loan delinquencies, including nonaccrual loans, by type and amount at the dates indicated.
|
| March 31, 2018 |
| December 31, 2017 |
| ||||||||||||||
|
| 30 - 59 |
| 60 - 89 |
| 90 Days |
| 30 - 59 |
| 60 - 89 |
| 90 Days |
| ||||||
|
| (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 AssetsAsset Quality
Nonperforming Assets.Nonperforming assets include nonaccrual loans and 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 primarilyor more and still accruing interest. Restructuring of government guaranteed loans.loans to borrowers who are experiencing financial difficulty are accounted for as a modification and further evaluated as to classification of a performing or nonperforming asset.
In addition, a loan may be placed on nonaccrual at any other time management has serious doubts about further collectability of principal or interest according to the contractual terms, even though the loan is currently performing 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, |
| At December 31, |
| ||
|
| (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, |
| ||
|
| 2024 |
| 2023 | | ||
| | (Dollars in thousands) |
| ||||
Nonaccrual loans(1): | | |
| | |
| |
Residential real estate | | $ | 9,318 |
| $ | 8,942 | |
Loans past due 90 days or more and still accruing interest | |
| 30 | |
| 31 | |
Total nonperforming assets | | $ | 9,348 | | $ | 8,973 | |
Total loans(1) | | $ | 1,303,279 | | $ | 1,348,972 | |
Total assets | | $ | 2,414,555 | | $ | 2,416,003 | |
Total nonaccrual loans to total loans | |
| 0.71 | % |
| 0.66 | % |
Total nonperforming assets to total assets | |
| 0.39 | % |
| 0.37 | % |
(1)
(1) | Loans are classified as held for investment and are presented before the allowance for credit losses. |
As of March 31, 2024, nonperforming assets, comprised primarily of nonaccrual residential real estate loans, totaled $9.3 million, an increase of $0.4 million from December 31, 2023. This increase is primarily due to the addition of $1.5 million of residential loans to nonaccrual status which was partially offset by loans totaling $0.9 million that were returned to accrual status and payments of loan principal totaling $0.2 million that were received.
As a result of the increase in nonaccrual loans, the ratio of nonaccrual loans to total loans held for investment increased to 0.71% at March 31, 2024 from 0.66% at December 31, 2023. Also, our ratio of nonperforming assets to total assets increased to 0.39% at March 31, 2024 from 0.37% at December 31, 2023.
35
The total amount of additional interest income on nonaccrual loans that would have been recorded if the interest on all such loans had been recorded based upon the original terms was $0.2 million and $0.5 million for the three months ended March 31, 2024 and 2023, 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, 2024 |
| December 31, 2023 | ||||||||||||||
|
| 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 | | $ | 10,316 | | $ | 2,708 | | $ | 9,348 | | $ | 16,634 | | $ | 2,305 | | $ | 8,973 |
Total loans past due declined $5.5 million, or 20%, from $27.9 million at December 31, 2023 to $22.4 million at March 31, 2024. This decline is primarily due to a $6.3 million decrease, or 38%, of loans 30 – 59 days past due from $16.6 million at December 31, 2023. This decline is partially offset by an increase of loans 90 days or more past due, including nonaccrual loans, of $0.4 million, or 4%, from $9.0 million at December 31, 2023, which 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 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 and industrial, construction and commercial real estate loans. This analysis is performed at least quarterly. The four risk categories utilized are Pass, Special Mention, Substandard and Doubtful. Loans in the Pass category are considered of satisfactory quality, while the remaining three categories indicate varying levels of increasing 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, |
| December 31, | | ||
|
| 2024 |
| 2023 | | ||
| | (Dollars in thousands) | | ||||
Special Mention: | | | | | | | |
Commercial real estate |
| $ | 15,844 | | $ | 21,516 | |
Substandard: | | | | | | | |
Residential real estate | | | 9,348 | | | 8,973 | |
Commercial real estate | | | 18,645 | | | 18,678 | |
Construction | | | 4,903 | | | 8,776 | |
Total Substandard | | | 32,896 | | | 36,427 | |
Total(1) | | $ | 48,740 | | $ | 57,943 | |
| | | | | | | |
Total loans | | $ | 1,303,279 | | $ | 1,348,972 | |
Classified assets to total loans | | | 4 | % | | 4 | % |
(1) | We did not have any loans classified as Doubtful at March 31, 2024 and December 31, 2023. |
Total Special Mention and Substandard loans were $48.7 million, or 4% of total gross loans, at March 31, 2024, compared to $57.9 million, or 4% of total gross loans, at December 31, 2023.
The decrease of $5.7 million in Special Mention loans was primarily attributable to loans that were upgraded from Special Mention to Pass totaling $5.6 million, as a result of two commercial loans where the borrowers took actions to improve the debt service coverage ratios of their loans.
The decrease of $3.5 million in Substandard loans was primarily attributable to loans that were paid in full totaling $4.0 million, and loans that were upgraded from Substandard to Pass totaling $0.9 million. The decrease in Substandard loans was partially offset by loans downgraded to Substandard totaling $1.5 million.
36
Allowance for Credit Losses
The allowance for credit losses is a valuation allowance estimated at each balance sheet date in accordance with U.S. GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the allowance for loan losses.
(2) Troubled debt restructurings exclude those loans presented above as nonaccrual or past 90 days and still accruing.
Allowancecredit losses is reduced by the same amount. Subsequent recoveries, if any, are credited to the allowance for Loan Losses
credit losses when received.
The Company estimates the allowance for credit losses on loans using a Probability of Default/Probability of Attrition model which incorporates probability of default, loss given default, exposure to default and probability of attrition attributes. The model considers relevant available information at both the portfolio and loan level from internal data that is supplemented by information sourced from a third party. The model also incorporates reasonable and supportable forecasts over an 8-quarter forecast period. We continued to consider the impact of inflation and the risk of a recession in our process for estimating expected credit losses along with the uncertainty related to the severity and duration of the economic consequences resulting from such events. Our methodology and framework include a 8-quarter forecast period and 2-quarter reversion period, which is maintained at levels considered adequate by managementthe period where the macroeconomic variables are relaxed and revert to providethe average historical loss rates.
Also included in the allowance for probable loancredit losses on loans are qualitative amounts to cover risks that, in the Company’s assessment, may not be adequately reflected in the quantitative analysis. Factors that the Company considers include, among other things, adjustments for imprecision inherent in the loanforecasts of macroeconomic variables, levels of criticized and classified loans and collection strategies management may employ to reduce these levels, portfolio dispersion and the unique characteristics of our Advantage Loan Program loans which could result in behavior different than our historic losses in a downside economic cycle.
The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | | | | |
| | Residential | | Commercial | | | | | Commercial | | Other | | | | ||||
Three Months Ended March 31, 2024 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Consumer |
| Total | ||||||
|
| (Dollars in thousands) | ||||||||||||||||
Allowance for credit losses: | |
|
| |
|
| |
|
| |
|
| |
|
| | | |
Balance at the beginning of the period |
| $ | 14,322 |
| $ | 13,550 |
| $ | 1,386 |
| $ | 146 |
| $ | — |
| $ | 29,404 |
Provision for (recovery of) for credit losses | | | 912 | | | (395) | | | (616) | | | (48) | | | — | | | (147) |
Net (charge offs) recoveries | | | | | | | | | | | | | | | | | | |
Charge offs | | | — | | | — | | | — | | | — | | | — | | | — |
Recoveries |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Total net (charge offs) recoveries |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
Total ending balance | | $ | 15,234 |
| $ | 13,155 |
| $ | 770 |
| $ | 98 |
| $ | — |
| $ | 29,257 |
Average gross loans during period | | $ | 1,064,153 | | $ | 246,423 | | $ | 7,246 | | $ | 15,087 | | $ | 47 | | $ | 1,332,956 |
Net (charge offs) recoveries to average gross loans during period | | | — | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | |
| | 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 | |
Net (charge offs) recoveries | | | | | | | | | | | | | | | | | | | |
Charge offs | | | (6,478) | | | — | | | — | | | — | | | — | | | (6,478) | |
Recoveries |
| | 60 |
| | 5 | | | 1 | | | — | | | — | | | 66 | |
Total net (charge offs) recoveries |
| | (6,418) | | | 5 | | | 1 | | | — | | | — | | | (6,412) | |
Total ending balance | | $ | 20,498 | | $ | 16,067 | | $ | 1,994 | | $ | 6 | | $ | — | | $ | 38,565 | |
Average gross loans during period | | $ | 1,366,840 | | $ | 223,929 | | $ | 41,436 | | $ | 1,382 | | $ | 32 | | $ | 1,633,619 | |
Net (charge offs) recoveries to average gross loans during period | | | (0.47) | % | | — | | | — | | | — | | | — | | | (0.39) | % |
37
Our allowance for credit losses at March 31, 2024 was $29.3 million, or 2.24% of total loans held for investment, compared to $29.4 million, or 2.18% of total loans held for investment, at December 31, 2023. Our allowance for credit losses as a percentage of total gross loans increased due in part to the changes in economic forecasts used in our quantitative model assumptions for our residential real estate portfolio. In addition, our allowance for credit losses as a percentage of nonaccrual loans was 314% and 329% as of March 31, 2024 and December 31, 2023, respectively.
No charge offs were recorded during the consolidated balance sheet reporting dates. The allowancethree months ended March 31, 2024 compared to $6.5 million for loan losses is basedthe comparable period in 2023. Net charge offs in the three months ended March 31, 2023 primarily reflected the $6.5 million in charge offs of our recorded investment on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and nonaccrualresidential loans national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral.transferred to held for sale.
The following table sets forth activity in the allowance for loan losses for the periods indicated.
|
| Three Months |
| Year Ended |
| Three Months |
| |||
|
| 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 loancredit losses allocated by loan category.category at the dates indicated. The allowance for loancredit 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 |
| Percent of |
| Allowance |
| Percent of |
| ||
|
| (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 | % |
The allowance for loan losses as a percentage of loans was .74% and .71% as of March 31, 2018 and December 31, 2017, respectively.
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 when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings, as defined below, and classified as impaired.
Factors considered by us in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The measurement of an impaired loan is based on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate, (ii) the loan’s observable market price or (iii) the fair value of the collateral if the loan is collateral dependent.
Construction loans, commercial real estate loans and commercial lines of credit are individually evaluated for impairment. If a loan is impaired, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral or operations of collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.
At March 31, 2018 and December 31, 2017, we had impaired loans of $3.2 million and $3.3 million, respectively.
Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For loans that are considered troubled debt restructurings that subsequently go into default, the Company determines the amount to reserve in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.
Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with our loan policy, typically after 90 days of non-payment.
All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
| | | | | | | | | | | | | | | |
|
| At March 31, |
| At December 31, |
| ||||||||||
| | 2024 | | 2023 |
| ||||||||||
| | | | | Percent of | | Percent of | | | | | Percent of | | Percent of |
|
| | | | | Allowance for | | Loans in | | | | | Allowance for | | Loans in |
|
| | Allowance | | Credit Losses | | Each | | Allowance | | Credit Losses | | Each | | ||
| | for Credit | | to Category | | Category to | | for Credit | | to Category | | Category to |
| ||
|
| Losses |
| of Loans |
| Total Loans | | Losses |
| of Loans | | Total Loans |
| ||
|
| (Dollars in thousands) | | ||||||||||||
Residential real estate |
| $ | 15,234 |
| 1.46 | % | 80 | % | $ | 14,322 |
| 1.32 | % | 80 | % |
Commercial real estate | |
| 13,155 |
| 5.38 | % | 19 | % |
| 13,550 |
| 5.72 | % | 18 | % |
Construction | |
| 770 |
| 15.67 | % | — | % |
| 1,386 |
| 13.35 | % | 1 | % |
Commercial and industrial | |
| 98 |
| 0.73 | % | 1 | % |
| 146 |
| 0.92 | % | 1 | % |
Total | | $ | 29,257 |
| 2.24 | % | 100 | % | $ | 29,404 |
| 2.18 | % | 100 | % |
Nonaccrual loans | | $ | 9,318 | | | | | | $ | 8,942 | | | | | |
Nonperforming loans (1) | | $ | 9,348 | | | | | | $ | 8,973 | | | | | |
Total loans | | $ | 1,303,279 | | | | | | $ | 1,348,972 | | | | | |
Allowance for credit losses to nonaccrual loans | | | 314 | % | | | | | | 329 | % | | | | |
Allowance for credit losses to total loans | | | 2.24 | % | | | | | | 2.18 | % | | | | |
(1) | Nonperforming loans include loans 90 days or more past due and still accruing interest. |
Although we believe that we use the best information available to establish the allowance for loancredit losses, future adjustments to the allowance for loancredit losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in makingdetermining the determinations.allowance for credit losses. Furthermore, while we believe we have established our allowance for loancredit losses in conformity with generally accepted accounting principles in the United States of America,U.S. GAAP, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loancredit 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 loancredit losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above.deteriorate. Any material increase in the allowance for loancredit losses may adversely affect our financial condition and results of operations.
Collateral-Dependent Loans
Collateral-dependent loans are those for which repayment (on the basis of the Company’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. As of March 31, 2024, the amortized cost basis of collateral-dependent loans was $2.0 million. These loans were collateralized by residential real estate property and the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis loans.
Modifications to Borrowers 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 held for investment made to borrowers
38
experiencing financial difficulty that were modified during the three months ended March 31, 2024. 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 three months ended March 31, 2024.
Investment Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of our available-for-saleavailable for sale debt securities portfolio at the dates indicated.
| | | | | | | | | | | | | |||||||||||||
| | At March 31, |
| At December 31, | |||||||||||||||||||||
|
| 2024 |
| 2023 | |||||||||||||||||||||
| | Amortized | | Fair | | Amortized | | Fair | |||||||||||||||||
|
| Cost |
| Value |
| Cost |
| Value | |||||||||||||||||
|
| At March 31, |
| At December 31, |
| ||||||||||||||||||||
|
| 2018 |
| 2017 |
| ||||||||||||||||||||
|
| Amortized |
| Fair |
| Amortized |
| Fair |
| ||||||||||||||||
|
| (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 | | $ | 154,007 | | $ | 149,869 | | $ | 253,107 | | $ | 248,988 | |||||||||||||
Mortgage-backed securities | |
| 34,629 | |
| 30,609 | |
| 35,757 | | | 31,927 | |||||||||||||
Collateralized mortgage obligations | |
| 228,131 | |
| 214,231 | |
| 151,196 | | | 138,157 | |||||||||||||
Collateralized debt obligations |
| 311 |
| 298 |
| 606 |
| 571 |
| |
| 150 | |
| 143 | |
| 151 | | | 141 | ||||
Total |
| $ | 120,963 |
| $ | 120,793 |
| $ | 122,775 |
| $ | 122,621 |
| | $ | 416,917 | | $ | 394,852 | | $ | 440,211 | | $ | 419,213 |
AtThe size of our available for sale debt securities portfolio (on an amortized-cost basis) decreased by $23.3 million, or 5%, to $416.9 million at March 31, 20182024. We continually evaluate our investment securities portfolio in response to established asset/liability management objectives and December 31, 2017,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 governmentare 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.
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 (loss), net of income taxes.
We review the debt securities portfolio on a quarterly basis to determine the cause magnitude and durationmagnitude 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, 2018,2024, gross unrealized losses on debt securities totaled $237. Since the decline in fair value is attributable to (i) changes in interest rates$22.1 million. Our U.S. Treasury and illiquidity, not credit quality, (ii) we do not have the intent to sell the debtAgency securities, mortgage-backed securities and (iii) it is likely thatthe majority of the collateralized mortgage obligations are issued or guaranteed by the U.S. government, its agencies and government-sponsored enterprises. The Company has a long history with no credit losses from issuers of U.S. government, its agencies and government-sponsored enterprises. As a result, management does not expect any credit losses on its available for sale debt securities. Accordingly, we willhave not be required to sell therecorded 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, 2018.2024.
The Company’sOur 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, 20182024 and December 31, 2017,2023, equity securities totaled $4,163$4.7 million.
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 its par value. At March 31, 2024 and $4,227, respectively.December 31, 2023, we held $18.9 million in FHLB stock.
We are also required to hold FRB stock as a condition of our membership in the Federal Reserve, which is required of us as a covered savings association. Our FRB stock is considered a non-marketable equity security that is accounted for at cost, which equals its par value. At March 31, 2024 and December 31, 2023, we held $9.1 million and $9.0 million, respectively, in FRB stock.
39
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, | ||
|
| 2024 |
| 2023 | ||
| | (In thousands) | ||||
Noninterest-bearing deposits | | $ | 32,680 | | $ | 35,245 |
Money market, savings and NOW | |
| 1,072,179 | |
| 1,095,521 |
Time deposits | |
| 900,996 | |
| 873,220 |
Total deposits | | $ | 2,005,855 | | $ | 2,003,986 |
Total deposits were $2.0 billion as of March 31, 2024, an increase of $1.9 million from December 31, 2023. Our time deposits increased $46.1by $27.8 million, or 2.1%3%. Our money market, savings and NOW deposits decreased by $23.3 million, or 2%, to $2.29 billionand our noninterest-bearing demand deposits decreased $2.6 million, or 7%, from December 31, 2023. We did not have any brokered deposits at March 31, 2018 from $2.24 billion at2024 and December 31, 2017, primarily as a result2023. We have continued our current strategy of strong growth inoffering competitive interest rates on our money market and certificates of deposit products partially offset by a decreaseto maintain our existing customer deposit base and help manage our liquidity.
Our estimated uninsured deposits were $430.1 million, or approximately 22% of our balance in brokered deposits. We continue to focus on the acquisitiontotal deposits, and expansion of core deposit relationships, which we define as all deposits except for certificates of deposits greater than $250,000 and brokered deposits. Core deposits totaled $2.1 billion at March 31, 2018,$434.4 million, or 90%22% of total deposits, at March 31, 2024 and December 31, 2023, respectively. The uninsured amounts are estimated based on methodologies and assumptions used for the Bank’s regulatory reporting requirements.
The portion of U.S. time deposits, by account, that date. Brokered deposits totaled $80exceed the FDIC insurance limit of $250,000 was $94.9 million at March 31, 2018, down from $156 million at December 31, 2017.
2024.
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 FHLBdrawdowns on an overdraft credit line with the FHLB, as a sourcesources 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 consistsconsist primarily of advances of funds made for one-to-two-weekone- or two-week periods.
At March 31, 2024, our outstanding FHLB borrowings consisted of a long-term fixed rate advance of $50.0 million with an interest rate of 1.96% with a maturity date of May 2029, although the advance is callable by the FHLB on May 15, 2024. We expect to repay the FHLB advance with our existing cash funds and do not currently intend to replace it with another borrowing.
At March 31, 2024, we had the ability to borrow an additional $370.5 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 $60.0 million. There were no borrowings outstanding on the lines of credit with other banks.
Shareholders’ Equity
Total shareholders’ equity was $327.3 million at March 31, 2024, compared to $327.7 million at December 31, 2023.
Analysis of Results of Operations
General. The Company had a net loss of $(0.2) million for the three months ended March 31, 2024 compared to a net loss of $(0.5) million for the three months ended March 31, 2023.
40
Average Balance Sheet and Related Yields and Rates
Rates.The following tables presenttable sets forth the average balance sheet, information, interest income or interest expense, and the corresponding average yields earned and rates paid for the three months ended March 31, 2018, year ended December 31, 2017each category of interest-earning assets and three months ended March 31, 2017.interest-bearing liabilities, net interest spread and net interest margin on average interest-earning assets. 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 |
| As of and for the |
| As of and for the |
| ||||||||||||||||||
|
| March 31, 2018 |
| December 31, 2017 |
| March 31, 2017 |
| ||||||||||||||||||
|
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average |
| ||||||
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, | | ||||||||||||||
|
| 2024 |
| 2023 | | ||||||||||||
| | | | | | | | 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 | | $ | 1,064,200 | | $ | 17,197 | | 6.46 | % | $ | 1,366,872 | | $ | 18,514 | | 5.42 | % |
Commercial real estate | | | 246,423 | | | 3,213 | | 5.22 | % | | 223,929 | | | 2,596 | | 4.64 | % |
Construction | | | 7,246 | | | 242 | | 13.36 | % | | 41,436 | | | 1,034 | | 9.98 | % |
Commercial and industrial | | | 15,087 | | | 317 | | 8.40 | % | | 1,382 | | | 16 | | 4.63 | % |
Total loans | | | 1,332,956 | | | 20,969 |
| 6.29 | % | | 1,633,619 | | | 22,160 | | 5.43 | % |
Securities, includes restricted stock(2) | |
| 437,712 | |
| 4,018 |
| 3.67 | % |
| 366,346 | |
| 2,456 | | 2.68 | % |
Other interest-earning assets | |
| 601,791 | |
| 8,295 |
| 5.51 | % |
| 411,766 | |
| 4,807 | | 4.67 | % |
Total interest-earning assets | |
| 2,372,459 | |
| 33,282 | | 5.61 | % |
| 2,411,731 | |
| 29,423 | | 4.88 | % |
Noninterest-earning assets | |
| | |
| |
| | |
| | |
| |
| | |
Cash and due from banks | |
| 4,643 | |
| |
| | |
| 4,475 | |
| — | | — | |
Other assets | |
| 29,521 | |
| |
| | |
| 28,398 | |
| — | | — | |
Total assets | | $ | 2,406,623 | |
| |
| | | $ | 2,444,604 | |
| — | | — | |
Interest-bearing liabilities | |
| | |
| |
| | |
| | |
| |
| | |
Money market, savings and NOW | | $ | 1,074,937 | | $ | 9,655 |
| 3.60 | % | $ | 1,001,505 | | $ | 4,614 |
| 1.87 | % |
Time deposits | |
| 884,115 | |
| 8,445 |
| 3.83 | % |
| 900,890 | |
| 5,195 |
| 2.34 | % |
Total interest-bearing deposits | |
| 1,959,052 | |
| 18,100 |
| 3.71 | % |
| 1,902,395 | |
| 9,809 | | 2.09 | % |
FHLB borrowings | |
| 50,000 | |
| 248 |
| 1.96 | % |
| 50,000 | |
| 245 | | 1.96 | % |
Subordinated Notes, net | |
| — | |
| — |
| 0.00 | % |
| 65,264 | |
| 1,693 | | 10.38 | % |
Total borrowings | |
| 50,000 | |
| 248 |
| 1.96 | % |
| 115,264 | |
| 1,938 | | 6.73 | % |
Total interest-bearing liabilities | |
| 2,009,052 | |
| 18,348 |
| 3.66 | % |
| 2,017,659 | |
| 11,747 | | 2.36 | % |
Noninterest-bearing liabilities | |
| | |
| |
| | |
| | |
| | | | |
Demand deposits | ��� |
| 35,348 | |
| | | | |
| 50,284 | |
| | | | |
Other liabilities | |
| 34,924 | |
| | | | |
| 63,308 | |
| | | | |
Shareholders’ equity | |
| 327,299 | |
| | | | |
| 313,353 | |
| | | | |
Total liabilities and shareholders’ equity | | $ | 2,406,623 | | | | | | | $ | 2,444,604 | |
| | | | |
Net interest income and spread(2) | |
| | | $ | 14,934 |
| 1.95 | % |
| | | $ | 17,676 | | 2.52 | % |
Net interest margin(2) | |
| | |
| |
| 2.52 | % |
| | |
| |
| 2.93 | % |
(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. |
41
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earninginterest-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’speriod’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, 2024 vs. 2023 | |||||||
| | Increase (Decrease) | | Net | |||||
| | due to | | Increase | |||||
| | Volume |
| Rate |
| (Decrease) | |||
|
| (In thousands) | |||||||
Change in interest income: | | | | | | | | | |
Loans | | | | | | | | | |
Residential real estate and other consumer | | $ | (4,514) | | $ | 3,197 | | $ | (1,317) |
Commercial real estate | | | 275 | | | 342 | | | 617 |
Construction | | | (1,058) | | | 266 | | | (792) |
Commercial and industrial | | | 278 | | | 23 | | | 301 |
Total loans | | | (5,019) | | | 3,828 | | | (1,191) |
Securities, includes restricted stock | |
| 539 | |
| 1,023 | |
| 1,562 |
Other interest-earning assets | |
| 2,510 | |
| 978 | |
| 3,488 |
Total change in interest income | |
| (1,970) | |
| 5,829 | |
| 3,859 |
Change in interest expense: | |
| | | | | | | |
Money market, savings and NOW | |
| 370 | |
| 4,671 | |
| 5,041 |
Time deposits | |
| (98) | |
| 3,348 | |
| 3,250 |
Total interest-bearing deposits | |
| 272 | |
| 8,019 | |
| 8,291 |
FHLB borrowings | |
| 2 | |
| 1 | |
| 3 |
Subordinated Notes, net | |
| (1,693) | |
| — | |
| (1,693) |
Total change in interest expense | |
| (1,419) | |
| 8,020 | |
| 6,601 |
Change in net interest income | | $ | (551) | | $ | (2,191) | | $ | (2,742) |
|
| Three Months Ended |
| |||||||
|
| Increase (Decrease) |
| Total |
| |||||
|
| Volume |
| Rate |
| (Decrease) |
| |||
|
| (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 |
| |||
Total change in interest income |
| 9,296 |
| 350 |
| 9,646 |
| |||
Change in interest expense: |
|
|
|
|
|
|
| |||
Saving/Now/Money Markets |
| 764 |
| 912 |
| 1,676 |
| |||
Time deposits |
| 890 |
| 489 |
| 1,379 |
| |||
Total deposits |
| 1,654 |
| 1,401 |
| 3,055 |
| |||
FHLB borrowings and subordinated notes |
| 257 |
| 10 |
| 267 |
| |||
Total change in interest expense |
| 1,911 |
| 1,411 |
| 3,322 |
| |||
Change in net interest income |
| $ | 7,385 |
| $ | (1,061 | ) | $ | 6,324 |
|
Net Interest IncomeResults.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 forinterest-earning assets and interest-bearing liabilities and the Three Months Ended March 31, 2018corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and 2017market yield curves and their related impact on cash flows.
General.Net interest income increased $5.3 million, or 51.2%, to $15.7was $14.9 million for the three months ended March 31, 2018 from the comparable 2017 period. The increase was driven by2024, 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 $9.6of $2.7 million, or 35.5%16%, to $36.8from $17.7 million for the three months ended March 31, 2018 from2023. The decrease in net interest income primarily reflects the three months ended March 31, 2017impact of interest expense, primarily due to an increase in loans. The increase inon interest-bearing deposits, increasing more than interest income on loans was due to average outstanding loansinterest-earning assets during the higher rate environment. The higher rate environment reflects the Federal Open Market Committee increasing $689 million, or 33.7% to $2.73 billionthe target range for the three months ended March 31, 2018 from $2.04 billion for the three months ended March 31, 2017. The averagefederal funds rate collected on loans increased 2by a total of 525 basis points or 0.02%,from the end of the first quarter of 2022 to 5.25%July 2023. The prevailing market rate environment combined with significant competition for deposits resulted in significant disparity between the three months ended March 31, 2018 from 5.23% forimpact on interest expense compared to interest income. In addition, the three months ended March 31, 2017.decline in net interest income partially reflects the continued reduction of our residential mortgage loan portfolio.
42
Interest Expense. Interest expense increased $3.3 million, or 63.0%, to $8.6income was $33.3 million for the three months ended March 31, 20182024, an increase of $3.9 million, or 13%, from $5.3the three months ended March 31, 2023. The increase in interest income was primarily due to the yield earned on the average balance of our interest-earning assets as these portfolios repriced higher in the higher interest rate environment. The yield on the average balance of our loans, securities and other interest-earning assets increased 86 basis points, 99 basis points and 84 basis points, respectively, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase in the yield on the average balance of our loans was primarily due to residential mortgage rates resetting in the higher interest rate environment. The increase in the yield on the average balance of our securities was primarily due to the yield on our recently purchased securities being higher than the yield on the average balance of our securities for the three months ended March 31, 2023. The yield on the average balance of our other interest-earning assets, which are comprised primarily of cash and due from banks, benefitted from the higher rate environment as correspondent banks and the Federal Reserve increased their deposit rates and overnight funding rates. Also contributing to the increase in interest income, the average balance of our other interest-earning assets of $601.8 million for the three months ended March 31, 2017, primarily as a result of deposit growth, an increase in average rate on interest-bearing deposits, and an increase in the average rate of our borrowings. The average rate we paid on interest-bearing deposits2024 increased 32 basis points$190.0 million, or 46%, compared to 1.20% for the three months ended March 31, 2018 from 0.88 % for2023, and the three months ended March 31, 2017. Our average balance of interest-bearing deposits increased $608 million, or 37.5%, to $2.23 billion for the three months ended March 31, 2018 from $1.62 billion for the three months ended March 31, 2017.The average rate paid on borrowings increased 33 basis points to 2.48% for the three months ended March 31, 2018 from 2.15% for the three months ended March 31, 2017 due to the increase in subordinated debt and increase in borrowing rates at the FHLB.
Net Interest Income. Net interest income increased $6.3 million, or 28.9%, to $28.2our securities portfolio of $437.7 million for the three months ended March 31, 2018 from $21.92024 increased $71.4 million, or 19%, compared to the three months ended March 31, 2023. Partially offsetting the increase in interest income was the decline in interest income earned on our loans since the average balance of our loans decreased $300.7 million, or 18%.
Interest expense was $18.3 million for the three months ended March 31, 20172024, an increase of $6.6 million, or 56%, from the three months ended March 31, 2023. Similar to our interest-earning assets, the increase in our interest expense was primarily duedriven by the change in interest rates. The rate paid on the average balance of interest-bearing deposits increased 162 basis points. We continued to average earning assets increasing $748 million. Our net interest rate spread decreased 24 basis pointscompetitively price our deposits as rates continued to 3.71%rise in 2023 and as competition for deposits significantly increased. Interest expense for the three months ended March 31, 20182024 also reflected the elimination of interest expense from 3.95% forour Subordinated Notes, which were redeemed in 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%third quarter of 2023, and the average rate we paid on interest-bearing liabilities increased by 26 basis points to 1.36%.
Provision for Loan Losses. Our provision for loan losses was $.6totaled $1.7 million for the three months ended March 31, 20182023.
Net Interest Margin and 2017. The provisions recorded resulted in an allowanceInterest Rate Spread. Net interest margin was 2.52% for loan losses of $19.1 million, or .74% of total loans atthe three months ended March 31, 2018, compared to $15.6 million, or.77% of total loans at2024, down 41 basis points from 2.93% for the three months ended March 31, 2017.
Non-interest Income. Non-interest income information is as follows:
|
| Three Months Ended |
| 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 charges2023. The interest rate spread was 1.95% for the three months ended March 31, 2024, down 57 basis points from 2.52% for the three months ended March 31, 2023. Our net interest margin and fees have increasedinterest rate spread were negatively impacted during the three months ended March 31, 2024, primarily due to growth in loan commitments. Other income has increased primarily due to growthhigher interest rates paid on our interest-bearing deposits than in the servicing portfolio of mortgage loans sold tocomparable period in 2023, which outpaced the secondary market for which servicing has been retained.
Non-interest Expense. Non-interest expense information is as follows:
|
| Three Months Ended |
| Change |
| |||||||
|
| 2018 |
| 2017 |
| Amount |
| Percent |
| |||
|
| (In thousands) |
| |||||||||
Non-interest Expense |
|
|
|
|
|
|
|
|
| |||
Salaries and employee benefits |
| $ | 6,649 |
| $ | 5,410 |
| $ | 1,239 |
| 22.9 | % |
Occupancy and equipment |
| 1,546 |
| 1,389 |
| 157 |
| 11.3 | % | |||
Professional fees |
| 622 |
| 369 |
| 253 |
| 68.6 | % | |||
Advertising and marketing |
| 349 |
| 192 |
| 157 |
| 81.8 | % | |||
FDIC assessments |
| 543 |
| 242 |
| 301 |
| 124.4 | % | |||
Data processing |
| 288 |
| 207 |
| 81 |
| 39.1 | % | |||
Other |
| 1,506 |
| 1,283 |
| 223 |
| 17.4 | % | |||
Total non-interest expense |
| $ | 11,503 |
| $ | 9,092 |
| $ | 2,411 |
| 26.5 | % |
Salaries and employee benefits increased primarily as a result of additional full-time equivalent employees to support balance sheet and overall growth. Occupancy and equipment expenses also increased with the expansion of our branch network. The increase in professional fees can primarily be attributable to costs of being a public company. FDIC assessments increased due to a corresponding increase in the Bank’s assessment base.average yield on our interest-earning assets over the same period.
Provision for (Recovery of) Credit Losses. The following table presents the components of our provision for credit losses:
Income Tax Expense. We recorded an income tax expense of $6.3
| | | | | | |
|
| Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
| | (In thousands) | ||||
Provision for (recovery of) credit losses: |
| |
|
| |
|
Loans | | $ | (147) | | $ | 784 |
Off-balance sheet credit exposures | |
| 188 | |
| (110) |
Total | | $ | 41 | | $ | 674 |
Our provision for credit losses was $41 thousand for the three months ended March 31, 2024 compared $0.7 million for the three months ended March 31, 2018, reflecting an effective tax rate2023. Included in the provision for (recovery of) credit losses related to loans, we have recorded a provision for credit losses on residential loans of 28.7%, compared to $7.3$0.9 million for the three months ended March 31, 2017, reflecting2024 and a recovery of credit losses on residential loans of $(1.9) million for the three months ended March 31, 2023. The provision for credit losses attributable to loans for the three months ended March 31, 2024 was primarily due to changing economic forecasts used in model assumptions, partially offset by the decline in the residential loan portfolio during the three months ended March 31, 2024. The recovery of credit losses attributable to loans for the three months ended March 31, 2023 was primarily as a result of the transfer of nonaccrual and delinquent loans to held for sale and loan payoffs.
Additionally, the recovery for credit losses related to loans includes a recovery of commercial real estate loans of $(0.4) million for the three months ended March 31, 2024 and was primarily a result of the decrease in special mention loans of $5.7 million. A provision for credit losses of $3.2 million was recorded for the three months ended March 31, 2023. The provision for credit losses on the commercial real estate loan portfolio for the three months ended March 31, 2023 was primarily due to changes in our economic forecasts to reflect the weakening commercial real estate market. For additional information on changes to the allowance for credit losses, see “—Allowance for Credit Losses.”
43
In addition, the provision for credit losses related to off-balance sheet credit exposures increased by $0.3 million to $0.2 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase is primarily attributable to the Bank’s origination of a commercial and industrial loan with an aggregate principal balance of $15.0 million that also increased our unfunded commitments by $11.8 million during the three months ended March 31, 2024 compared to a decrease of our unfunded commitments by $3.1 million during the three months ended March 31, 2023.
Non-interest Income. The components of non-interest income were as follows:
| | | | | | | | | | | | |
| | Three Months Ended |
| | |
| | | ||||
| | March 31, | | Change | | |||||||
|
| 2024 |
| 2023 |
| Amount |
| Percent |
| |||
| | (Dollars in thousands) | | |||||||||
Service charges and fees | | $ | 87 | | $ | 94 | | $ | (7) | | (7) | % |
Loss on sale of investment securities | | | — | | | (2) | | | 2 | | 100 | % |
Loss on sale of loans held for sale | |
| — | | | (25) | | | 25 | | 100 | % |
Unrealized gain (loss) on equity securities | |
| (47) | | | 71 | | | (118) | | N/M | |
Net servicing income | |
| 75 | | | 59 | | | 16 | | 27 | % |
Income earned on company‑owned life insurance | |
| 83 | | | 80 | | | 3 | | 4 | % |
Other | |
| 1 | | | 1 | | | — | | — | % |
Total non‑interest income | | $ | 199 | | $ | 278 | | $ | (79) | | (28) | % |
N/M - not meaningful
Non-interest income was $0.2 million for the three months ended March 31, 2024, a decrease of $0.1 million from the three months ended March 31, 2023. Such decrease in non-interest income is primarily due to the decline in fair value of the equity securities during the three months ended March 31, 2024.
Non-interest Expense. The components of non-interest expense were as follows:
| | | | | | | | | | | | |
| | Three Months Ended |
| | |
|
| | ||||
| | March 31, | | Change | | |||||||
|
| 2024 |
| 2023 |
| Amount |
| Percent |
| |||
|
| (Dollars in thousands) | | |||||||||
Salaries and employee benefits | | $ | 8,460 | | $ | 9,410 | | $ | (950) | | (10) | % |
Occupancy and equipment | |
| 2,084 | | | 2,112 | | | (28) | | (1) | % |
Professional fees | |
| 2,182 | | | 3,221 | | | (1,039) | | (32) | % |
FDIC assessments | |
| 262 | | | 257 | | | 5 | | 2 | % |
Data processing | |
| 733 | | | 738 | | | (5) | | (1) | % |
Other | |
| 1,671 | | | 2,099 | | | (428) | | (20) | % |
Total non-interest expense | | $ | 15,392 | | $ | 17,837 | | $ | (2,445) | | (14) | % |
Non-interest expense of $15.4 million for the three months ended March 31, 2024, reflected a decrease of $2.4 million compared to the three months ended March 31, 2023, primarily due to decreases in salaries and employee benefits and professional fees. Salaries and employee benefits expense decreased $1.0 million for the three months ended March 31, 2024 compared to the same period in the prior year primarily due to continued staff reductions in various support functions and the reversal of a liability for deferred compensation that is no longer due to a former executive. Professional fees also decreased $1.0 million from the comparable prior period. Partially offsetting this decrease were reimbursements received in the three months ended March 31, 2023 from an insurance carrier of $2.2 million for previously incurred direct and third-party legal expenses related to the governmental investigations. The decrease in professional fees is due to lower legal fees incurred as the governmental investigations against the Company and Bank were resolved. As previously reported, our directors and officers insurance was exhausted in the fourth quarter of 2023. To the extent the governmental investigations with respect to individuals continue and involve the cooperation of individuals entitled to advancement and indemnification, we may continue to receive and pay such claims in accordance with our legal obligations but for which we no longer have insurance. Additionally, professional fees decreased due to replacing certain previously outsourced functions with internal resources.
44
Income Tax Benefit. We recorded an income tax benefit of $(103) thousand, or an effective tax rate of 41.4%. The decrease in34.3%, for the three months ended March 31, 2024 compared to an income tax benefit of $(54) thousand, or an effective tax rate wasof 9.7%, for the three months ended March 31, 2023. The effective rates vary from our statutory rate primarily due to the reduction inlow level of pretax earnings, the federal corporate tax rate to 21% that was effective January 1, 2018 becauseeffect of the Tax Cutsnon-deductible compensation and Jobs Act (H.R.1).interest on U.S. Treasury obligations which is exempt from state income taxes.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations when they come due. In additionWe rely on our ability to generate deposits and effectively manage the cash receivedrepayment and maturity schedules of $85.5 million from our initial public offering which closed in November 2017,loans to ensure we have adequate liquidity to fund our operations.
Our primary sources of funds consist of deposit inflows,cash flows from operations, deposits, principal repayments on loans and maturities and principal receipts on our available for sale debt securities. Additional liquidity is provided by our ability to borrow from the FHLB, our ability to sell portions of our loan repaymentsportfolio 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 and interest-bearing time deposits with other banks. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base. At March 31, 2024 and December 31, 2023, cash and due from banks totaled $646.2 million and $578.0 million, respectively. Interest-bearing time deposits with other banks totaled $5.2 million at March 31, 2024 and December 31, 2023.
Our liquidity is further enhanced by our ability to pledge loans and investment securities to access secured borrowings from the FHLB. Our available for sale debt securities totaled $394.9 million and $419.2 million at March 31, 2024 and December 31, 2023, 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 earninginterest-earning deposits and short-term securities.
Our most liquid assets are cash and due 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. At March 31, 20182024, we have a long-term fixed rate FHLB advance outstanding of $50.0 million with a maturity date of May 2029. The FHLB advance accrues interest at 1.96%. The advance is callable by the FHLB on May 15, 2024. On May 7, 2024, we received notification from the FHLB that the FHLB will exercise their call right. We expect to repay the FHLB advance with existing cash funds and December 31, 2017, cashdo not currently intend to replace it with another borrowing. Based on our collateral, consisting of certain loans and due from banks totaled $37.5 millioninvestment securities, and $40.1 million, respectively. Securities classified as available-for-sale, which provideholdings of FHLB stock, the Company had additional sourcesborrowing capacity with the FHLB of liquidity, totaled $120.8$370.5 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 of credit with Federal Home Loan Bank of $50 million. At March 31, 2018, we2024. We also had available credit lines with additionalother banks for $60totaling $60.0 million. Outstanding borrowings on March 31, 2018 with the Federal Home Loan Bank totaled $342.9 million, and there were no amounts outstanding with the aforementioned additional banks.
We have no material commitments or demands that are likely to affect our liquidity other than as set forth below. In the event loan demand were to increase faster than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity with the Federal Home Loan Bank, our bank lines of credit, or obtain additional funds through brokered certificates of deposit.
At March 31, 2018, we had $425 million in loan commitments outstanding. We also had $70,000 in standby letters of credit at March 31, 2018. At 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 primaryCash flows from investing activities are the originationprimarily impacted by our loan and investment securities activity, as discussed above. The Company’s goal is to obtain as much of its funding for loans held for investment and to a lesser extent, the purchase of securities.other earning assets as possible from customer deposits. During the three months ended March 31, 2018,2024 and 2023, we originated $408$30.0 million and $6.2 million of loans, respectively. Cash flows provided by loan payoffs totaled $40.7 million and purchased $24.7$53.2 million of securities. Duringduring the three months ended March 31, 2017,2024 and 2023, respectively. From time to time, we originated $257also sell residential mortgage loans in the secondary market primarily to third party investors. Often, the agreements under which we sell residential mortgage 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 an unpaid principal balance of $15.5 million at March 31, 2024. These commitments expire in July 2025. We also have outstanding $14.5 million of Advantage Loan Program loans that could be subject to repurchase at the demand of the investors. In addition, the unpaid principal balance of residential real estate loans, other than Advantage Loan Program loans, sold in the secondary market that were subject to potential repurchase obligations in the event of breach of representations and purchased $35.2warranties totaled $10.0 million at March 31, 2024. Should additional secondary market investors require us to repurchase a substantial portion of securities.such outstanding loans subject to potential purchase, the cash required to fund these purchases will reduce our liquidity.
45
FinancingCash flows from financing activities consistare primarily of activity in deposit accounts. We experienced net increases inimpacted by our deposits. Our total deposits of $46.1 million and $107.0 million for the three months endedwere $2.0 billion at March 31, 2018 and 2017, respectively.2024, an increase of $1.9 million, from December 31, 2023. We generate deposits from local businesses and individuals through customer referrals and other relationships and through our retail presence. We believe we haveobtain funds from depositors by offering a very stable corerange of deposit base evidenced by the average life of our accounts, which we attribute to a high level of customer servicetypes, 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 though we have not used brokered deposits during the past two years. At March 31, 2024, time deposits due within one year were $796.0 million, or 40% of total deposits. At December 31, 2023, time deposits due within one year were $761.7 million, or 38% of total deposits. In addition, we estimated our total uninsured deposits were approximately 22% of total deposits at March 31, 2024.
We also manage liquidity by selling poolsare a party to financial instruments in the normal course of business to meet the financing needs of our portfoliocustomers. These financial instruments include commitments to make loans intoand 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 secondary market from timeamount recorded in the condensed consolidated balance sheets. Our exposure to time. We generated $112.2credit loss is represented by the contractual amount of these instruments. At March 31, 2024, we had unfunded commitments to extend credit totaling $30.4 million and $105.1 million in proceedsstandby letters of credit outstanding of $24 thousand.
The Company is a separate and distinct legal entity from the saleBank, and, on a parent company-only basis, the Company’s primary source of loansfunding 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.
The Company’s ability to pay cash dividends is restricted by the terms of the applicable provisions of Michigan law and the rules and regulations of the OCC and the FRB. 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 three months ended March 31, 2018usual 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 2017, respectively.we are currently required to obtain the prior approval of the FRB in order to pay any dividends to our shareholders.
The Company and the Bank are subject to various regulatoryminimum 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 basis including our needs for additional capital and ability to pay cash dividends.quarterly basis. At March 31, 2018 and December 31, 2017, each of2024, the Company and the Bank exceededmet all applicable regulatory capital requirements to which they were subject. The Company and Bank satisfied the Bank wasrequirements of the CBLR framework with leveraged capital ratios of 14.10% and 13.58%, respectively, compared to the requirement for these ratios to be greater than 9%, and therefore are considered to have met the minimum capital requirements to be “well capitalized” under applicable prompt corrective action requirements. For further information regarding our regulatory guidelines. Refercapital requirements, refer to Note 1310—Regulatory Capital Requirements to our condensed consolidated financial statements included in the Unaudited Condensed Consolidated“Item 1. Financial Statements for additional information.
Statements.”
The following tables present ourcompliance with regulatory minimum capital ratios asrequirements is a tool used in assessing the Company’s capital adequacy, but is not necessarily determinative of how the Company would fare under extreme stress. Factors that may affect the adequacy of the indicated dates forCompany’s capital include the Company and Bank.
|
| Well |
| Adequately |
| Under |
| Company Actual at |
| Company Actual at |
|
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 |
| Adequately |
| Under |
| Bank Actual at |
| Bank Actual at |
|
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 requirementsinherent limitations of fair value estimates and the Prompt Corrective Action Framework effective January 1, 2015 forassumptions thereof, the Company. When fully phasedinherent limitations of accounting classifications of certain investments and the effect on their measurement, external macroeconomic conditions and their effects on capital and the Company’s ability to raise capital or refinance capital commitments, and extent of steps taken by state or federal governmental authorities in on January 1, 2019, the Basel Rules will require the Company to maintainperiods of extreme stress.
46
As a 2.5% “capital conservation buffer” on topresult of the minimum risk-weighted asset ratios.Company’s guilty plea and criminal conviction in July 2023 pursuant to our Plea Agreement with the U.S. Department of Justice, we fall within the “bad actor” disqualification provisions of Regulation A and Regulation D under the Securities Act. These provisions prohibit an issuer from offering or selling securities in a private placement in reliance on Regulation A for certain small offerings and Regulation D for certain private placement transactions for a period of up to five years under certain circumstances. The SEC may waive such disqualification upon a showing of good cause that disqualification is not necessary under the circumstances for which the safe harbor exemptions are being denied. Absent a waiver, we will be restricted in our ability to raise capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions within 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 will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers basedprivate placement in reliance on the amount ofsafe harbors provided by Regulation A or Regulation D. We have submitted to the shortfall. The implementation ofSEC a waiver request from the “bad actor” disqualifications. If the SEC were to deny our waiver request, we will be limited in our ability to raise capital conservation buffer began on January 1, 2016 atthrough a private placement under Regulation A or Regulation D, although we would remain eligible as an SEC registrant to access the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.equity capital markets through an SEC-registered offering or through another exemption from the registration requirements.
Recently Issued Accounting Guidance
Refer toSee Note 2 – Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in Item“Item 1. Financial StatementsStatements” for a discussion of recently issued accounting guidance and related impact on our financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General.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 Boardboard of Directors hasdirectors serves as 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.
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, reinvestmentdeposits.
47
Because these scenarios simulate instantaneous changes in interest rates on a static balance sheet that are subject to various assumptions, the scenarios below may not fully reflect our exposure to interest rate risk. For example, in the event of a significant decrease of the target federal funds rate by the Federal Open Market Committee we may not be able to lower our deposit rates at a similar pace in order to avoid significant deposit withdrawals as customers seek the highest yield possible for their funds. A significant, rapid decrease in interest rates could affect (i) the demand of our deposit products; (ii) our liquidity position if our depositors were to withdraw and replacementmove their funds to competing financial institutions; (iii) the expected yield of assetour loan portfolio and liability cash flows.debt securities; (iv) the average duration of our loan portfolio and debt securities; (v) the fair value of our financial assets and financial liabilities; and (vi) our balance sheet mix and composition. In addition, the lack of robust loan originations will inhibit our ability to reinvest loan prepayments that occur as interest rates decline in interest earning assets at the higher end of the yield curve, thus either narrowing our interest rate spread and net interest margin or resulting in further significant decline in the size of our condensed consolidated balance sheet.
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-month12-month period beginning on March 31, 20182024 and December 31, 2017.2023. The table below demonstrates that for the initial twelve-month period after an immediate and parallel rate shock, we are liabilityasset sensitive in a rising interest rate environment.
|
| At March 31, |
| At December 31, |
| ||||
|
| 2018 |
| 2017 |
| ||||
Change in Interest Rates (Basis |
| Estimated |
| Change |
| Estimated |
| 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 | % |
Ourat March 31, 2024 and December 31, 2023, with the asset sensitivity of our balance sheet increasing from December 31, 2023 primarily from higher cash balances and shifting balances from money market accounts into time deposits. Quarter-over-quarter, the base net interest income decreased primarily due to increased interest rate sensitivity is affected by theexpense on our 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.deposits.
| | | | | | | | | | | |
|
| At March 31, |
| At December 31, |
| ||||||
| | 2024 |
| 2023 |
| ||||||
| | Estimated | | |
| Estimated | | |
| ||
| | 12-Months | | |
| 12-Months | |
|
| ||
| | Net Interest | | |
| Net Interest | | |
| ||
Change in Interest Rates (Basis Points) |
| Income |
| Change |
| Income |
| Change |
| ||
|
| (Dollars in thousands) | | ||||||||
200 | | $ | 62,322 |
| 3 | % | $ | 62,356 |
| 1 | % |
100 | |
| 62,001 |
| 3 | % |
| 62,560 |
| 1 | % |
0 | |
| 60,412 |
| — | |
| 61,652 |
| — | |
−100 | |
| 57,556 |
| (5) | % |
| 60,057 |
| (3) | % |
−200 | |
| 54,428 |
| (10) | % |
| 57,636 |
| (7) | % |
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 calculatecurves.
As described above, due to the nature of the EVE undermodel and its underlying assumptions, the assumptions thatscenarios below may not fully reflect our exposure to interest rates increase 100, 200, 300 and 400 basis points from current market rates, and under the assumption thatrate risk. See “—Net Interest Income Simulation” above for further discussion regarding how our exposure to interest ratesrate risk may change, particularly upon a significant, rapid decrease 100 basis points from current marketin interest rates.
48
The following table presents, as of March 31, 2024 and December 31, 2023, respectively, the estimatedimpacts of immediate and permanent parallel hypothetical changes in market interest rates on EVE of the Bank, calculated on a bank-only basis, which would resultbasis. The base EVE increased from changes inDecember 31, 2023 partially from higher market interest rates over a twelve-month period beginning March 31, 2018 andcombined with changes to our decay speed assumptions which improved our money market account values. The sensitivity of our balance sheet worsened slightly from December 31, 2017.2023 in the rising rate scenarios primarily as a result of slower loan prepayments and faster decay speed assumptions in our key money market product. 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, |
| ||||||
| | 2024 | | 2023 |
| ||||||
| | Economic | | | | Economic | |
|
| ||
| | Value | | | | Value | | |
| ||
Change in Interest Rates (Basis Points) |
| of Equity |
| Change |
| of Equity |
| Change |
| ||
| | (Dollars in thousands) |
| ||||||||
200 | | $ | 270,543 |
| (17) | % | $ | 261,202 |
| (17) | % |
100 | |
| 304,806 |
| (7) | % |
| 293,190 |
| (6) | % |
0 | |
| 327,428 |
| — | |
| 313,220 |
| — | |
−100 | |
| 335,266 |
| 2 | % |
| 322,399 |
| 3 | % |
−200 | |
| 339,241 | | 4 | % |
| 326,171 |
| 4 | % |
|
| At March 31, |
| At December 31, |
| ||||
|
| 2018 |
| 2017 |
| ||||
Change in Interest Rates |
| Economic |
| Change |
| Economic |
| 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 | )% |
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 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.
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’sCompany 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 ensureprovide reasonable assurance that information required to be disclosed byin the Company in theCompany’s reports that it files or submits under the Securities Exchange Act of 1934 (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’sits 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’sparticipation 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, 2024. 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, 2018.2024.
Changes in Internal Control overOver Financial Reporting
There were noOur 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, 20182024 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
49
PART II —- OTHER INFORMATION
ThereWe are nonot aware of any material developments to our pending legal proceedings includingas disclosed in the Company’s 2023 Form 10-K, nor are we involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. We believe that such routine litigation incidentallegal proceedings, in the aggregate, are not material to the business, to which the Company or oneour financial condition and results of its subsidiaries is a party.operations.
There are no material changes from the risk factors as disclosed in the Company’s Annual Report on2023 Form 10-K for the year ended December 31, 2017.10-K.
50
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
The Registration Statement on Form S-1 (File No. 333-221016) forWithholding of Vested Restricted Stock Awards
During the initial public offeringthree months ended March 31, 2024, the Company withheld shares of our common stock was declared effective byrepresenting a portion of the Securities and Exchange Commission on November 16, 2017. There has been no material changerestricted 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 planned usesame as repurchased shares for accounting purposes.
The following table provides certain information with respect to our purchases of proceeds from our initial public offeringshares of the Company’s common stock, as described in our final prospectus filed withof the Securities and Exchange Commission on November 17, 2017 pursuant to Rule 424(b)(4).settlement date, during the three months ended March 31, 2024, all of 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, 2024 |
| 38,033 | | $ | 5.67 |
| — | | $ | 19,568,117 |
February 1 - 29, 2024 |
| — | |
| — |
| — | |
| 19,568,117 |
March 1 - 31, 2024 |
| — | |
| — |
| — | |
| 19,568,117 |
Total |
| 38,033 | | $ | 5.67 |
| — | |
|
|
(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, 2024. |
(2) | In 2018, the Company announced a stock repurchase program for up to $50 million of its outstanding stock. At March 31, 2024, $19.6 million remains of the $50 million authorized repurchase amount. In March 2020, the Company suspended the stock repurchase program. We are currently required to obtain approval of the FRB prior to engaging in a repurchase of our common stock other than a purchase of shares to satisfy income tax withholding requirements. |
ITEM 5. OTHER INFORMATION
None.
51
ITEM 6. EXHIBITS
A list of exhibits to this Form 10-Q is set forth in the Exhibit Index below.
*
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 52 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.
53 |