UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

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

For the quarterly period ended March 31, ~~2018~~2024

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

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

Commission File Number 001-38290

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

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

incorporation or organization)

(I.R.S. Employer
Identification Number)

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

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

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

SBT

Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐

Accelerated filer o☒

~~Non-accelerated~~Non-accelerated filer x☐

Smaller reporting company o☒

~~(Do not check if a~~

Emerging growth company x
☐
~~smaller reporting company)~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x☐

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

As of ~~May 11, 2018, there were 53,002,963~~April 30, 2024, 52,025,988 shares of the ~~Registrant’s~~registrant’s Common Stock were outstanding.

Table of Contents

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

Page
PART I — FINANCIAL INFORMATION

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

Item 1.
~~Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017~~Financial Statements (Unaudited)

2

Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023

2

Condensed Consolidated Statements of ~~Income~~Operations for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023

3

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023

4

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023

6

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

7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
34
28
Item 3.
Quantitative and Qualitative Disclosures about Market Risk

47
Item 4.
Controls and Procedures

49

PART II — OTHER INFORMATION

~~Item 1.~~
~~Legal Proceedings~~
49
Item ~~1A.~~1.
~~Risk Factors~~Legal Proceedings
49
50
Item 2.1A.
Risk Factors

50
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49
~~Item 6.~~
~~Exhibits~~
49
~~Exhibit Index~~
50
~~SIGNATURES~~

51
Item 5.
Other Information

51
Item 6.
Exhibits

52
Exhibit Index

52
SIGNATURES

53

1
Table of Contents

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

March 31,

December 31,

2018

2017

(Unaudited)

Assets

Cash and due from banks

$
37,541

$
40,147

Investment securities

124,956

126,848

Mortgage loans held for sale

200,467

112,866

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

2,580,560

2,594,357

Accrued interest receivable

11,936

11,493

Mortgage servicing rights, net

7,780

6,496

Leasehold improvements and equipment, net

7,705

7,043

Federal Home Loan Bank stock, at cost

22,950

22,950

Cash surrender value of bank-owned life insurance

30,837

30,680

Deferred tax asset, net

7,234

6,847

Other assets

2,366

2,231

Total assets

$
3,034,332

$
2,961,958

Liabilities and Shareholders’ Equity

Liabilities:

Noninterest-bearing deposits

$
75,062

$
73,682

Interest-bearing deposits

2,216,103

2,171,428

Total deposits

2,291,165

2,245,110

Federal Home Loan Bank borrowings

342,937

338,000

Subordinated notes, net

64,923

64,889

Accrued expenses and other liabilities

46,795

40,661

Total liabilities

2,745,820

2,688,660

Shareholders’ equity:

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

—

—

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

111,238

111,238

Additional paid-in capital

12,425

12,416

Retained earnings

164,984

149,816

Accumulated other comprehensive loss

(135
)
(172
)
Total shareholders’ equity

288,512

273,298

Total liabilities and shareholders’ equity

$
3,034,332

$
2,961,958

ITEM 1. FINANCIAL STATEMENTS

March 31,

December 31,


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
Table of Contents

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

Three Months Ended

March 31,

2018

2017

Interest income

Interest and fees on loans

$
35,856

$
26,759

Interest and dividends on investment securities

819

365

Other interest

114

19

Total interest income

36,789

27,143

Interest expense

Interest on deposits

6,589

3,534

Interest on Federal Home Loan Bank borrowings

833

830

Interest on subordinated notes and other

1,172

908

Total interest expense

8,594

5,272

Net interest income

28,195

21,871

Provision for loan losses

641

600

Net interest income after provision for loan losses

27,554

21,271

Non-interest income

Service charges and fees

618

409

Investment management and advisory fees

623

552

Gain on sale of mortgage loans held for sale

65

187

Gain on sale of portfolio loans

3,941

3,865

Unrealized losses on equity securities

(64
)
—

Income on cash surrender value of bank-owned life insurance

295

291

Other income

559

282

Total non-interest income

6,037

5,586

Non-interest expense

Salaries and employee benefits

6,649

5,410

Occupancy and equipment

1,546

1,389

Professional fees

622

369

Advertising and marketing

349

192

FDIC assessments

543

242

Data processing

288

207

Other

1,506

1,283

Total non-interest expense

11,503

9,092

Income before income taxes

22,088

17,765

Income tax expense

6,339

7,349

Net income

$
15,749

$
10,416

Income per share, basic and diluted

$
0.30

$
0.23

Weighted average common shares outstanding, basic and diluted

52,963,308

45,271,000

Three Months Ended

March 31,


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
Table of Contents

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

Three Months Ended

March 31,

2018

2017

Net income

$
15,749

$
10,416

Other comprehensive income (loss), net of tax:

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

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

—

—

Total other comprehensive loss

(13
)
(29
)
Comprehensive income

$
15,736

$
10,387

Three Months Ended

March 31,


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
Table of Contents

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

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’

Voting

Nonvoting

Capital

Earnings

Loss

Equity

Balance at January 1, 2017

$
22,863

$
2,885

$
15,118

$
121,446

$
(40
)
$
162,272

Net income

—

—

—

10,416

—

10,416

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

—

—

218

—

—

218

Other comprehensive loss

—

—

—

—

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

—

—

—

(1,767
)
—

(1,767
)
Balance at March 31, 2017

$
22,863

$
2,885

$
15,336

$
130,095

$
(69
)
$
171,110

Balance at January 1, 2018

$
111,238

$
—

$
12,416

$
149,816

$
(172
)
$
273,298

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

—

—

—

(50
)
50

—

Net income

—

—

—

15,749

—

15,749

Stock-based compensation

—

—

9

—

—

9

Other comprehensive loss

—

—

—

—

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

—

—

—

(531
)
—

(531
)
Balance at March 31, 2018

$
111,238

$
—

$
12,425

$
164,984

$
(135
)
$
288,512

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Retained

Comprehensive

Shareholders’


Shares

Amount

Capital

Earnings

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
Table of Contents

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
Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Note 1—Nature of Operations and Basis of Presentation
Nature of Operations
Sterling Bancorp, Inc. ~~(the~~(unless stated otherwise or the context otherwise requires, together with its subsidiaries, the “Company”) is a unitary thrift holding company that was incorporated in 1989 and the parent company toof its wholly owned subsidiary, Sterling Bank and Trust, F.S.B. (the “Bank”)., 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 consumer~~industrial loans, and ~~receives deposits from its customers located~~provides deposit products, consisting primarily of checking, savings and term certificate accounts. The Bank also engages in ~~California~~mortgage banking activities and, ~~Michigan.~~as such, acquires, sells and services residential mortgage loans. The Bank operates through a network of ~~28 branches: one branch at its headquarters,~~27 branches of which 25 branches are located in the San Francisco and Los Angeles, California ~~and two~~metropolitan areas with the remaining branches located in New York, New ~~York. Additionally,~~York and Southfield, Michigan. In February 2024, the ~~Bank’s~~Company closed one of its branches in San Francisco and consolidated the operations ~~include~~into 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, ~~Michigan~~Michigan.
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 ~~(“Federal~~System (the “FRB” or “Federal Reserve”). The Bank is a federally chartered stock savings bank ~~which~~that 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, ~~2018~~2024 and ~~2017~~2023 are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, in the opinion of management, ~~all adjustments, consisting~~ of a normal ~~and~~ recurring nature that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The financial data and other financial information disclosed in these notes to the condensed consolidated financial statements related to these periods are also unaudited. The results of operations for the three months ended March 31, ~~2018~~2024 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2018~~2024 or for any future annual or interim period. The condensed consolidated balance sheet at December 31, ~~2017~~2023 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
Table of Contents
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 ~~using~~in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the results of ~~the Company~~Sterling Bancorp, Inc. and its wholly-owned ~~subsidiary, and an entity under common control that was merged with the Company in April 2017 (Note 1).~~ subsidiaries.
All significant intercompany accounts and transactions have been eliminated in ~~the~~ consolidation.
Use of Estimates
The preparation of the 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. Actual~~periods. Due to the inherent uncertainty involved in making estimates, actual results reported in the future periods may be based upon amounts that could differ from those estimates.
~~Fair Value Measurements~~
The Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Bank uses present value techniques and other valuations methods, as disclosed in Note 11, to estimate the fair value of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record other assets and liabilities on a nonrecurring basis, such as impaired loans, other real estate owned, nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments generally involve write-downs of individual assets or application of lower of amortized cost or fair value accounting.
Concentration of Credit Risk
The ~~Company’s~~ loan portfolio consists primarily of residential real estate loans, which are collateralized by real estate. At March 31, ~~2018~~2024 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, ~~2018~~2024 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.~~
~~Notes~~terminated 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 determines~~be the ~~classification~~largest 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 as~~the origination of a ~~separate component~~significant number of ~~shareholders’ equity in accumulated other comprehensive income (loss), net~~such 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 statements~~income 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 security~~gross 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 stated~~gross 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, ~~2018~~2024 and ~~2017,~~December 31, 2023, respectively.

~~Revenue from Contracts with Customers~~Recently Issued Accounting Standards Not Yet Adopted

~~On January 1, 2018,~~In December 2023, the ~~Company adopted~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09,~~2023-09, ~~Revenue from Contracts with Customers~~ ~~and all subsequent amendments~~Income Taxes (Topic 740): Improvements to ~~the~~ Income Tax Disclosures (“ASU ~~(collectively,~~ ~~“ASC 606”~~2023-09”), which ~~establishes principles for reporting~~requires 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 writing~~taxes 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
March 31,

2018

2017

Non-Interest Income:

Service charges on deposit accounts*

$
52

$
40

Investment management and advisory fees

623

552

Interchange fees*

25

26

Other service charges and fees*

7

3

Not within the scope of ASC 606

5,330

4,965

Total non-interest income

$
6,037

$
5,586

* Included in service charges and fees in the condensed consolidated statements of income
~~Contract Balances~~
The Bank’s noninterest revenue streams are largely based on transactional activity, or month-end revenue accruals such as investment management and advisory fees based on the customer’s assets held under management at the beginning of the period. Consideration is often received immediately or shortly thereafter, and the Bank satisfies its performance obligation and recognizes revenue over time. At March 31, 2018 and December 31, 2017, the Bank had a contract asset balance of $82 and $91 respectively, which was recorded in other assets in the condensed consolidated balance sheets.
~~Stock-based compensation~~
Compensation cost is recognized for stock options and restricted stock awards issued to employees and non-employee members of the Company’s Board of Directors, based on the fair value of these awards at the date of grant. The fair value of stock options is estimated using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of the Company’s common stock at the date of grant reduced ~~by the present value of dividends per share expected to be paid during the period the shares are not vested.~~
Compensation cost is recorded over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award. The Company’s accounting policy is to record forfeitures in the period that they occur.
~~Income per Share, Basic and Diluted~~
Basic income per share represents net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share represents net income divided by the weighted average number of common shares outstanding during the period, plus the effect of outstanding dilutive potential common shares.
~~Recently Issued Accounting Guidance~~
~~In June 2016, the Financial Accounting Standards Board (FASB) issued~~jurisdiction. 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 as~~2023-09 on its income tax disclosures.

8
Table of ~~the beginning~~Contents
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, ~~Leases~~Segment Reporting (Topic ~~842)~~280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which ~~require lessees~~requires more disaggregated expense information about a public entity’s reportable segments if the significant segment expenses are regularly provided to ~~recognize~~ the ~~following for~~chief 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, at~~of the ~~commencement date: (1)~~disclosures required in the segment guidance, including disclosing a ~~lease liability which is a lessee’s obligation~~measure 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 represents~~these entities. This ASU 2023-07 does not change the ~~lessee’s right to use, or control the use~~definition of a ~~specified asset~~segment, 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. 2016-02~~2023-07 is effective for ~~annual periods and interim periods within those annual periods~~fiscal 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. 2016-02~~2023-07 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, ~~2018~~2024 and December 31, ~~2017~~2023 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 no~~mortgage-backed securities, and a majority of the collateralized mortgage obligations are issued and/or guaranteed by a U.S. government agency (Government National Mortgage Association) or a U.S. government-sponsored enterprise (Federal Home Loan Mortgage Corporation (“Freddie Mac”) or Federal National Mortgage Association (“Fannie Mae”)). The fair value of the private-label collateralized mortgage obligations was $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, ~~2018~~2024 and December 31, ~~2017.~~2023.
9
Table of Contents
STERLING BANCORP, INC.
~~There were no~~Notes 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, ~~2018~~2024 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, ~~2018~~2024 are shown by contractual ~~maturity.~~maturity in the table below. Mortgage-backed securities, collateralized mortgage obligations and collateralized debt obligations are disclosed separately ~~in the table below~~ as the expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized
Cost

Fair
Value

U.S. Treasury securities

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, ~~with~~in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, ~~2018~~2024 and December 31, ~~2017~~2023, aggregated by major security type and length of time the individual securities have been in a continuous unrealized loss ~~position, as follows:~~position:

March 31, 2018

Less than 12 Months

12 Months or More

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

U.S. Treasury securities

$
118,540

$
(224
)
$
—

$
—

$
118,540

$
(224
)

March 31, 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
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

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
Table of Contents
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, ~~management~~the Company has both the intent and ability to hold these investments ~~until~~and, 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 determined~~Company had the intent and the ability to ~~be temporary. All interest and dividends are considered taxable.~~
~~The Company holds a collateralized~~hold the debt ~~obligation with a carrying value of $298 and $571~~securities in an unrealized loss position at March 31, ~~2018~~2024, 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, ~~2018~~2024 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, ~~2018~~2024 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 ~~statement~~statements of ~~income during the three months ended March 31, 2018:~~operations:

Three months ended
March 31, 2018

Net losses recorded during the period on equity securities

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

—

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

$
(64
)

Three Months Ended

March 31,


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
~~Major~~The 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 values~~Accrued 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, ~~2018~~2024 and December 31, ~~2017,~~2023, respectively.
11
Table of Contents
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 presents~~allowance 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 ~~loan~~credit losses related to loans held for investment by portfolio segment for the three months ~~ending~~ended March 31, ~~2018~~2024 and ~~2017:~~2023:

March 31, 2018

Construction

Residential
Real
Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Beginning balance

$
2,218

$
12,279

$
2,040

$
469

$
1

$
1,450

$
18,457

Provision for loan losses

760

(782
)
501

147

—

15

641

Charge offs

—

—

—

—

—

—

—

Recoveries

1

2

31

—

—

—

34

Total ending balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

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
Real
Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Beginning balance

$
679

$
11,863

$
915

$
373

$
2

$
990

$
14,822

Provision for loan losses

185

—

147

3

—

265

600

Charge offs

—

—

—

—

—

—

—

Recoveries

95

10

40

—

—

—

145

Total ending balance

$
959

$
11,873

$
1,102

$
376

$
2

$
1,255

$
15,567


Residential

Commercial



Commercial


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 present~~NonaccrualLoans 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 ~~balance~~accrual 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 ~~allowance~~process of collection and well secured. When a loan held for investment is placed in nonaccrual status, interest accrued but not received is reversed against interest income. Interest received on such loans is applied to the principal balance of the loan ~~losses~~until qualifying for return to accrual status. Loans are returned to accrual status after all principal and ~~the recorded investment by portfolio segment~~interest amounts contractually due are made and ~~based on impairment method as~~future payments are reasonably assured.
12
Table of ~~March 31, 2018 and December 31, 2017:~~Contents
March 31, 2018

Construction

Residential
Real Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

$
—

$
46

$
11

$
95

$
—

$
—

$
152

Collectively evaluated for impairment

2,979

11,453

2,561

521

1

1,465

18,980

Total ending allowance balance

$
2,979

$
11,499

$
2,572

$
616

$
1

$
1,465

$
19,132

Loans:

Loans individually evaluated for impairment

$
—

$
122

$
2,774

$
335

$
—

$
—

$
3,231

Loans collectively evaluated for impairment

179,846

2,134,325

236,430

45,831

29

—

2,596,461

Total ending loans balance

$
179,846

$
2,134,447

$
239,204

$
46,166

$
29

$
—

$
2,599,692

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
December 31, 2017

Construction

Residential
Real Estate

Commercial
Real Estate

Commercial
Lines of
Credit

Other
Consumer

Unallocated

Total

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

$
—

$
37

$
19

$
98

$
—

$
—

$
154

Collectively evaluated for impairment

2,218

12,242

2,021

371

1

1,450

18,303

Total ending allowance balance

$
2,218

$
12,279

$
2,040

$
469

$
1

$
1,450

$
18,457

Loans:

Loans individually evaluated for impairment

$
—

$
122

$
2,804

$
343

$
—

$
—

$
3,269

Loans collectively evaluated for impairment

192,319

2,132,519

244,272

40,406

29

—

2,609,545

Total ending loans balance

$
192,319

$
2,132,641

$
247,076

$
40,749

$
29

$
—

$
2,612,814

The following ~~tables present information related to impaired loans by class~~table presents the total amortized cost basis of loans ~~as of and for the periods indicated:~~

At March 31, 2018

At December 31, 2017

Unpaid
Principal
Balance

Recorded
Investment

Allowance
for Loan
Losses

Unpaid
Principal
Balance

Recorded
Investment

Allowance
for Loan
Losses

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
Recorded
Investment

Interest
Income
Recognized

Cash Basis
Interest
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Cash Basis
Interest
Recognized

With no related allowance recorded:

Residential real estate, construction

$
—

$
—

$
—

$
—

$
—

$
—

Commercial real estate:

Retail

1,238

16

10

1,308

17

17

Gas stations

—

—

—

31

—

—

Commercial lines of credit, private banking

146

2

2

153

2

2

Subtotal

1,384

18

12

1,492

19

19

With an allowance recorded:

Residential real estate, first mortgage

122

1

1

122

1

4

Commercial real estate, offices

1,550

21

14

1,587

19

19

Commercial lines of credit, private banking

193

3

2

213

3

3

Subtotal

1,865

25

17

1,922

23

26

Total

$
3,249

$
43

$
29

$
3,414

$
42

$
45

~~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 collectability~~basis of ~~the total principal of an impaired loan is not in doubt and the loan is~~loans on nonaccrual status ~~contractual interest is credited to interest income when received under the cash basis method. The average balances are calculated based on the month-end balances of the loans~~with no related allowance for ~~the period reported.~~
~~The following tables present the recorded investment in nonaccrual~~credit losses and loans past due ~~over~~ 90 days or more and still ~~on accrual by class of loans as of~~accruing at March 31, ~~2018~~2024 and December 31, ~~2017:~~2023:

March 31, 2018

December 31, 2017

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

Nonaccrual

Loans Past
Due Over
90
Days Still
Accruing

Residential real estate:

Residential first mortgage

$
4,912

$
129

$
573

$
131

Commercial real estate:

Retail

74

—

79

—

Total

$
4,986

$
129

$
652

$
131

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.~~
~~Notes~~At 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.
~~(dollars~~The 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 the~~table presents an aging of the ~~recorded investment in~~amortized cost basis of contractually past due loans as of March 31, ~~2018~~2024 and December 31, ~~2017 by class~~2023:


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
Table of ~~loans:~~Contents
March 31, 2018

30 - 59
Days
Past Due

60 - 89
Days
Past
Due

Greater
than
89 Days
Past Due

Total
Past Due

Loans Not
Past Due

Total

Construction

$
—

$
—

$
—

$
—

$
179,846

$
179,846

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
Days
Past Due

60 - 89
Days
Past Due

Greater
than
89 Days
Past Due

Total
Past Due

Loans Not
Past Due

Total

Construction

$
—

$
—

$
—

$
—

$
192,319

$
192,319

Residential real estate:

Residential first mortgage

8,902

392

704

9,998

2,105,142

2,115,140

Residential second mortgage

107

—

—

107

17,394

17,501

Commercial real estate:

Retail

—

—

79

79

10,530

10,609

Apartments

—

—

—

—

59,582

59,582

Offices

—

—

—

—

26,571

26,571

Hotel

—

—

—

—

103,195

103,195

Industrial

—

—

—

—

15,907

15,907

Gas stations

—

—

—

—

1,067

1,067

Other

—

—

—

—

30,145

30,145

Commercial lines of credit:

Private banking

—

—

—

—

22,898

22,898

C&I lending

—

—

—

—

17,851

17,851

Other consumer loans

—

—

—

—

29

29

Total

$
9,009

$
392

$
783

$
10,184

$
2,602,630

$
2,612,814

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Collateral-Dependent Loans
~~The Company considers~~Collateral-dependent loans are those for which repayment (on the ~~performance~~basis of the ~~loan portfolio~~Company’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. For~~borrower 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 the~~has 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 ~~modify~~have any loans ~~as a troubled debt restructuring.~~
~~The terms of certain other loans have been~~held for investment to borrowers experiencing financial difficulty that were modified during the three months ended March 31, ~~2018 and 2017 that~~2024. The Company did not ~~meet the definition of a troubled debt restructuring. The modification of these~~have any loans ~~involved either a modification of the terms of a loan~~held for investment to borrowers ~~who were not~~ experiencing financial ~~difficulties or a delay in a payment. These other loans~~difficulty 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
Table of Contents
~~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
Mention

Substandard

Doubtful

Total

Construction

$
160,343

$
16,049

$
3,454

$
—

$
179,846

Residential real estate:

Residential first mortgage

2,110,600

—

4,339

629

2,115,568

Residential second mortgage

18,879

—

—

—

18,879

Commercial real estate:

Retail

9,268

—

1,229

—

10,497

Apartments

59,798

1,590

—

—

61,388

Offices

25,592

—

—

—

25,592

Hotel

103,653

—

—

—

103,653

Industrial

11,317

—

—

—

11,317

Gas stations

1,036

—

—

—

1,036

Other

20,379

4,704

638

—

25,721

Commercial lines of credit:

Private banking

26,397

—

190

—

26,587

C&I lending

18,706

873

—

—

19,579

Other consumer loans

29

—

—

—

29

Total

$
2,565,997

$
23,216

$
9,850

$
629

$
2,599,692

December 31, 2017

Pass

Special
Mention

Substandard

Doubtful

Total

Construction

$
177,241

$
11,670

$
3,408

$
—

$
192,319

Residential real estate:

Residential first mortgage

2,114,511

—

109

520

2,115,140

Residential second mortgage

17,501

—

—

—

17,501

Commercial real estate:

Retail

9,363

1,167

79

—

10,609

Apartments

58,472

1,110

—

—

59,582

Offices

26,571

—

—

—

26,571

Hotel

103,195

—

—

—

103,195

Industrial

15,907

—

—

—

15,907

Gas stations

1,067

—

—

—

1,067

Other

24,741

4,733

671

—

30,145

Commercial lines of credit:

Private banking

22,702

—

196

—

22,898

C&I lending

17,851

—

—

—

17,851

Other consumer loans

29

—

—

—

29

Total

$
2,589,151

$
18,680

$
4,463

$
520

$
2,612,814

~~During~~For 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 derecognition~~accrual status of the ~~mortgages (i.e. transferred assets) from~~loan. The following table presents the ~~consolidated balance sheets~~amortized 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 each~~credit quality indicator of the ~~three months ended March 31, 2018~~Company’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

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

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Table of Contents
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 ~~Bank~~Company records servicing assets from the sale of residential real estate mortgage loans to the secondary market for which servicing has been retained. Residential real estate mortgage loans serviced for others are not included in the condensed consolidated balance sheets. The principal balance of these loans at March 31, ~~2018~~2024 and December 31, ~~2017~~2023 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,
2018

December 31,
2017

Residential real estate mortgage loan portfolios serviced for:

FNMA

$
72,707

$
73,039

FHLB

93,402

92,697

Private investors

518,557

442,984

Custodial escrow balances maintained with these serviced loans were ~~$15,458~~$352 and ~~$11,944~~$620 at March 31, ~~2018~~2024 and December 31, ~~2017,~~2023, respectively. These balances are included in noninterest-bearing deposits in the condensed consolidated balance sheets.
16
Table of Contents
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
March 31,

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, ~~2018~~2024 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 ~~Mach~~March 31, ~~2018~~2024 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, ~~2018~~2024 was determined using discount rates ranging from ~~9.5%~~10.0% to ~~12.0%~~12.5%, prepayment speeds ~~ranging from 6.8% to 31.2%, depending~~with a weighted average of 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, ~~2017~~2023 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%, depending~~with 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, ~~2018~~2024 and December 31, ~~2017,~~2023, respectively. ~~Time deposits includes~~The Company did not have any brokered deposits ~~of $79,510 and $156,084~~ at March 31, ~~2018~~2024 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, ~~2018~~2024 and December 31, ~~2017,~~2023, respectively.

Note ~~7—Federal Home Loan Bank~~8—FHLB Borrowings
FHLB Advances
~~Federal Home Loan Bank borrowings at~~At March 31, ~~2018~~2024 and December 31, ~~2017 consist of~~2023, the ~~following:~~

March 31,
2018

Interest Rates

December 31,
2017

Interest Rates

Short-term fixed rate advances

$
125,000

1.78%

$
148,000

1.47% - 1.56%

Short-term adjustable rate advances

15,000

2.06%*

—

Total short-term FHLB advances

140,000

148,000

Long-term fixed rate advances

190,000

0.98%-1.18%

190,000

0.98% - 1.18%

Total FHLB advances

330,000

338,000

FHLB overdraft line of credit

12,937

2.06%*

—

Total

$
342,937

$
338,000

*At period end.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
~~FHLB Advances~~
~~At March 31, 2018, fixed rate advances totaled $315,000 with maturity dates ranging from April 2018 to October 2026. Also, at March 31, 2018, the Bank had~~Company has a ~~variable rate~~long-term fixed-rate FHLB advance of ~~$15,000 (interest rate of 2.06% at March 31, 2018)~~$50,000 with a maturity date of ~~September 2018.~~
~~Interest~~May 2029. The 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 its~~the maturity date and may contain a prepayment penalty if paid before maturity. ~~At March 31, 2018, advances totaling $157,000 were~~The advance is callable by the FHLB ~~as follows: $67,000~~on May 15, 2024.
17
Table of Contents
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 ~~Bank~~Company has established ana short-term overdraft line of credit agreement with the FHLB, ~~providing~~which provides for maximum borrowings of ~~$50,000.~~$20,000. The ~~average amount outstanding~~overdraft line of credit was not used during the three months ended March 31, ~~2018~~2024 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 on~~at a ~~variable rate~~variable-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, ~~2018~~2024 and December 31, ~~2017,~~2023, respectively. At March 31, 2024 and December 31, 2023, there were no outstanding borrowings under this agreement. The ~~agreement has~~overdraft line of credit was renewed in October 2023. The overdraft line of credit is issued for a one-year term and ~~terminates~~automatically extends for an additional one-year term unless terminated in ~~October 2018.~~
advance of the renewal by the Company.
The Company entered into irrevocable standby letters of credit arrangements with the FHLB ~~advances~~to 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 million~~certain investment securities and loans. Based on this collateral and holdings of FHLB stock, the Company had additional borrowing capacity with the FHLB of $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 ~~had~~has available unsecured federal funds credit lines, ~~with other~~which 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 outstanding~~borrowings 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,
2018

December 31,
2017

7.0% fixed to floating rate subordinated notes

$
65,000

$
65,000

Unamortized note premium

575

588

Unamortized debt issuance costs

(652
)
(699
)
Total

$
64,923

$
64,889

In August 2017, the Company issued an additional $15 million in aggregate principal amount of subordinated notes to accredited investors. The terms of the subordinated note purchase agreements were substantially identical to the subordinated notes that were previously issued in 2016 (collectively, “Notes”), except that the first interest payment on the subordinated notes included accrued interest from April 15, 2017. The Company recorded a premium of $611 and debt issuance costs of $191 upon issuance of the notes.
During the period April through September 2016, the Company issued subordinated notes to accredited investors in the aggregate principal amount of $50 million. Issuance costs of $729 were netted against the proceeds.
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~
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, ~~2018~~2024 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 ~~Board~~board of ~~Directors~~directors established the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which was approved by the shareholders in December 2020. The 2020 Plan provides for the grant of up to 3,979,661 shares of common stock for stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares for issuance to employees, consultants and the board of directors of the Company, of which 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 ~~provides~~initially provided for the grant of up to 4,237,100 shares of common stock for stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards for issuance to employees, consultants and ~~Board~~the board of ~~Directors~~directors of the Company. The stock-based awards ~~are~~were issued at no less than the market price on the date the awards ~~are~~were granted.
Due to the adoption of the 2020 Plan, no further grants will be issued under the 2017 Plan.
Stock Options
Stock option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of grant. ~~The~~Beginning 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 and~~grant. All stock option awards have a maximum term of ten years.
18
Table of Contents
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, ~~2018~~2024 is as follows:

Number
of Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

(Years)

Outstanding at January 1, 2018

—

$
—

—

$
—






Weighted


Weighted

Average

Average

Remaining

Aggregate

Number

Exercise

Contractual

Intrinsic

of Shares

Price

Term

Value



(Years)

Outstanding at January 1, 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-based~~stock-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-based~~stock-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 cost~~which is expected to be recognized over a weighted-average period of ~~3.48~~2.33 years. The total fair value of shares vested during the three months ended March 31, 2024 and 2023 was $1,007 and $399, respectively.

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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Note 10— ~~Income~~Regulatory Capital Requirements
The Bank is subject to the capital adequacy requirements of the OCC. The Company, as a thrift holding company, generally is subject to the capital adequacy requirements of the Federal Reserve. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Prompt corrective action regulations provide five classifications for depository institutions like the Bank, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors, and the regulators, in their discretion, can require the Company to lower classifications in certain cases. Failure to meet minimum capital requirements can initiate regulatory action that could have a direct material effect on the Company’s business, financial condition and results of operations.
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.
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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)

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 for~~information 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)

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Table of Contents
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except ~~per share amounts)~~
In September 2017, the Board of Directors approved a 1,000 for one stock split to be effected as a stock dividend on the Company’s common stock. The stock split was effected on September 11, 2017. All share and per share ~~amounts have been retroactively adjusted to reflect~~amounts)
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 Instruments~~Value
~~The Company’s financial~~Financial instruments include assets carried at fair value, as well as certain assets and liabilities carried at cost or amortized cost but disclosed at fair value in these condensed consolidated financial statements. Fair value is defined as the exit price, the price that would be received for an asset or paid to transfer a liability in the ~~principal~~ most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions. The inputs to valuation techniques used to measure fair value are prioritized into a three-level hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The ~~Company used the~~ following methods and significant assumptions are used to estimate ~~the~~ fair ~~value of investment securities available for sale:~~
value:
Investment Securities
The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar investment securities (Level 2). For investment securities where quoted prices or market prices of similar investment securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). ~~Discounted~~The fair value of the collateralized debt obligations, which are categorized as Level 3, is obtained from third-party pricing information. It is determined by calculating discounted cash flows that include spreads that adjust for credit risk and illiquidity. The Company also performs an internal analysis that considers the structure and term of the collateralized debt obligations and the financial condition of the underlying issuers to corroborate the information used from the independent third party.
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 curves~~evaluated for impairment based upon third-party valuations obtained. As disclosed in Note 6—Mortgage Servicing Rights, net, the valuation model utilizes interest rate, prepayment speed and default rate assumptions that 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
Table of Contents
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, ~~2018~~2024 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
March 31, 2018

Total

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets

Available for sale debt securities:

U.S. Treasury securities

$
118,540

$
118,540

$
—

$
—

Collateralized mortgage obligations

1,955

—

1,955

—

Collateralized debt obligations

298

—

—

298

Equity securities

3,917

3,917

—

—

Fair Value Measurements at
December 31, 2017

Total

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Financial Assets

Available for sale debt securities:

U.S. Treasury securities

$
120,042

$
120,042

$
—

$
—

Collateralized mortgage obligations

2,008

—

2,008

—

Collateralized debt obligations

571

—

—

571

Equity securities

4,227

3,981

—

246
*
*  The Company has elected to account for its investment in a thinly traded, restricted stock with a carrying value of $246 using the measurement alternative for equity securities without a readily determinable fair value therefore, the investment is excluded from the fair value measurement disclosures at March 31, 2018.
~~There were no transfers between Level 1 and Level 2 during 2018 and 2017.~~
~~STERLING BANCORP, INC.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~
~~(dollars in thousands, except per share amounts)~~

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

Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)

Investment Securities

March 31, 2018

December 31, 2017

Collateralized
Debt
Obligations

Equity
Securities

Collateralized
Debt
Obligations

Equity
Securities

Balance of recurring Level 3 assets at beginning of period

$
571

$
—

$
585

$
529

Total gains or losses (realized/unrealized):

Included in income-realized

—

—

—

—

Included in other comprehensive income (loss)

22

—

(10
)
—

Principal maturities/settlements

(295
)
—

(4
)
(283
)
Sales

—

—

—

—

Transfers in and/or out of Level 3

—

—

—

—

Balance at end of period

$
298

$
—

$
571

$
246

~~Unrealized losses on Level 3 investments for collateralized debt obligations at March 31, 2018 was $13. In addition to the amounts included in income~~ for the three months ended March 31, ~~2018 as presented in the table above, the Company also recorded interest income on collateralized debt obligations~~2024 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
Table of $5. Unrealized losses on Level 3 investments for collateralized debt obligations and equity securities at December 31, 2017 were $35 and $0, respectively. In addition to the amounts included in income for the year ended December 31, 2017 as presented in the table above, the Company also recorded interest income on collateralized debt obligations of $21 and dividend income on equity securities of $15.Contents
The fair value of collateralized debt obligations is determined by calculating discounted cash flows using LIBOR curves plus spreads that adjust for loss severities, volatility, credit risk and optionality. When available, broker quotes are used to validate the internal model. Rating agency and industry research reports as well as assumptions about specific-issuer defaults and deferrals are reviewed and incorporated into the calculations. Assumptions are reviewed on a quarterly basis as specific-issuer deferral and defaults that occurred are compared to those that were projected and ongoing assumptions are adjusted in accordance with the level of unexpected deferrals and defaults that occurred.
~~The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2018 and December 31, 2017:~~

Fair Value

Valuation
Technique

Unobservable Inputs

March 31, 2018

Collateralized debt obligations

$
298

Discounted cash flow

Collateral default rate

0%

Recovery probability

15%

December 31, 2017

Collateralized debt obligations

$
571

Discounted cash flow

Collateral default rate

0%

Recovery probability

15%

STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
The significant unobservable inputs used on the fair value measurement of the Company’s collateralized debt obligations are probabilities of specific-issuer defaults and specific-issuer recovery assumptions. Significant increases in specific-issuer default assumptions or decreases in specific-issuer recovery assumptions would result in a significantly lower fair value measurement. Conversely, decreases in specific-issuer default assumptions or increases in specific-issuer recovery assumptions would result in a significantly higher fair value measurement.
Assets Measured at Fair Value on a ~~Non-Recurring~~Nonrecurring Basis
From time to time, the ~~Bank~~Company may be required to measure certain other assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. ~~There were no~~For assets ~~held~~measured at fair value on a ~~non-recurring~~nonrecurring basis that were recorded in the condensed consolidated balance sheets at March 31, 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, ~~2018~~2024 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

Table of Contents
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, ~~2018~~2024 and December 31, ~~2017,~~2023, are as follows:

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

											Fair Value Measurements
											at March 31, 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 Amount		Fair Value		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
March 31,

2018

2017

U.S. federal statutory rate

21.0
%
35.0
%
Effect of:

State taxes, net of federal benefit

7.9
%
6.0
%
Loss incurred by pass-through entity

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

(0.2
)%
(0.3
)%
Effective tax rate

28.7
%
41.4
%

Note 13—~~Regulatory Capital Requirements~~

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

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

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

Capital
Weighted
Assets

Tier 1
Capital to
Average

Common
Tier 1

Total

Tier 1

Assets

(CET1)

Well Capitalized

10.0
%
8.0
%
5.0
%
6.5
%
Adequately Capitalized

8.0
%
6.0
%
4.0
%
4.5
%
Undercapitalized

6.0
%
4.0
%
3.0
%
3.0
%

~~STERLING BANCORP, INC.~~

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

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

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

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

Actual

For Capital
Adequacy
Purposes

To be Well
Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

March 31, 2018

Total adjusted capital to risk weighted assets

Consolidated

$
371,915

20.38
%
$
146,022

8.00
%
N/A

N/A

Bank

275,118

15.07

146,019

8.00

$
182,524

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

Consolidated

287,860

15.77

109,517

6.00

N/A

N/A

Bank

255,986

14.02

109,515

6.00

146,019

8.00

Common Tier 1 (CET1)

Consolidated

287,860

15.77

82,138

4.50

N/A

N/A

Bank

255,986

14.02

82,136

4.50

118,641

6.50

Tier 1 (core) capital to adjusted tangible assets

Consolidated

287,860

9.73

118,383

4.00

N/A

N/A

Bank

255,986

8.65

118,383

4.00

147,978

5.00

~~STERLING BANCORP, INC.~~

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

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

Actual

For Capital
Adequacy
Purposes

To be Well
Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2017

Total adjusted capital to risk weighted assets

Consolidated

$
365,078

20.28
%
$
140,447

8.00
%
N/A

N/A

Bank

259,165

14.76

140,447

8.00

$
175,559

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

Consolidated

272,732

15.53

105,336

6.00

N/A

N/A

Bank

240,708

13.71

105,336

6.00

140,447

8.00

Common Tier 1 (CET1)

Consolidated

272,732

15.53

79,002

4.50

N/A

N/A

Bank

240,708

13.71

79,002

4.50

114,114

6.50

Tier 1 (core) capital to adjusted tangible assets

Consolidated

272,732

9.83

110,949

4.00

N/A

N/A

Bank

240,708

8.68

110,949

4.00

138,687

5.00

~~Dividend Restrictions~~

As noted above, banking regulations require the Bank to maintain certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to its shareholders. The Company’s principal source of funds for dividend payments is dividends received from the Bank and banking regulations limit the dividends that may be paid. Also, pursuant to the terms of the subordinated note agreements, the Company may pay dividends if it is “well capitalized” as defined by regulatory guidelines. At March 31, 2018, $139.9 million of consolidated retained earnings were available to pay dividends to the Company’s shareholders.

The Qualified Thrift Lender (“QTL”) test requires that a minimum of 65% of assets be maintained in housing-related finance and other specified areas. If the QTL test is not met, limits are placed on growth, branching, new investments, FHLB Advances and dividends, or the Bank must convert to a commercial bank charter. Management believes that the QTL test has been met.

~~Note 14—Related Party Transactions~~

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

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

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

The Company 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

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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 will~~Company may experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being ~~drawn upon.~~used. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the ~~Bank~~Company is required to fund the commitment. The ~~Bank~~Company uses the same credit policies in making commitments to extend credit as it does in making loans.

Unused Lines of Credit

The ~~commitments outstanding~~Company 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 make~~2024, 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 ~~ten~~five 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 ~~Bank~~Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the ~~Bank~~Company arises from its obligation to make payment in the event of a customer’s contractual default. The maximum amount of potential future payments guaranteed by the ~~Bank~~Company is limited to the contractual amount of these letters. Collateral ~~made~~may be obtained at exercise of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

~~STERLING BANCORP, INC.~~

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

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

The following is a summary of the total amount of unfunded commitments to extend credit and standby letters of credit outstanding at March 31, ~~2018~~2024 and December 31, ~~2017:~~2023:

	March 31, 2018		December 31, 2017
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.

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~~Note 16—Subsequent Events~~STERLING 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 ~~committed~~expects to ~~sell~~continue 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 ~~portfolio~~repurchase, the Company is typically required to pay the unpaid principal balance, the proportionate premium received when selling the loan and certain expenses. As a result, the Company may incur a loss with respect to each repurchased loan.

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 proceeds~~event of ~~$88.0 million~~breach of representations and ~~recorded a gain~~warranties 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

Table of ~~$3.2 million on the sale of residential real estate loans. Servicing of the loan portfolio sold was retained by the Company.~~Contents

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

The following ~~Management’s Discussion~~management’s discussion and ~~Analysis~~analysis of financial condition and results of operations ~~(“MD&A”)~~ should be read in conjunction with the unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes included in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2017, which was~~2023, 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-looking~~certain statements ~~within~~that are, or may be deemed to be, “forward-looking statements” regarding the ~~meaning of~~Company’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 ~~version~~versions 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.

Table of Contents

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 ~~each~~any particular risk, uncertainty or other factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

~~Overview~~Risk Factors Summary

The following is a summary of the material risks we are exposed to in the course of our business activities. The below summary does not contain all of the information that may be important to you, and you should read the below summary together with the more detailed discussion of risks set forth under “Part II, Item 1A. Risk Factors” and in our 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

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●

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

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●

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, ~~with~~and our primary ~~branch operations~~business 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 to~~California 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, ~~City~~New York and ~~expanded~~Southfield, 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 Seattle~~protect 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. We~~interest rate movements continue to ~~focus~~exert 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 quarter~~yields of ~~2018~~our 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 period~~three 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.

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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 on~~2023 Form ~~10-K filed with the SEC.~~

10-K.

~~Discussion~~Balance 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.

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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.

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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 loans~~the 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 rate~~adjustable-rate loans included within our loan portfolio as of March 31, ~~2018:~~2024:

March 31, 2018

1 - 4
Family
Residential

Commercial
Real Estate

Construction

Commercial

Consumer

Total

(In thousands)

Amounts to adjust in:

6 months or less

$
436,499

$
19,501

$
179,846

$
44,846

$
—

$
680,692

More than 6 months through 12 months

551,133

14,195

—

—

—

565,328

More than 12 months through 24 months

259,077

25,864

—

—

—

284,941

More than 24 months through 36 months

415,209

38,268

—

—

—

453,477

More than 36 months through 60 months

373,478

118,023

—

—

—

491,501

More than 60 months

85,244

3,192

—

—

—

88,436

Fixed to Maturity

13,807

20,161

—

1,320

29

35,317

Total

$
2,134,447

$
239,204

$
179,846

$
46,166

$
29

$
2,599,692


	Residential		Commercial				Commercial		Other
March 31, 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, $215~~2024, $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
Days
Past Due

60 - 89
Days
Past
Due

90 Days
or More
Past Due

30 - 59
Days
Past Due

60 - 89
Days
Past
Due

90 Days
or More
Past
Due

(In thousands)

1 - 4 family residential

$
1,026

$
48

$
5,041

$
9,009

$
392

$
704

Commercial real estate

—

—

74

—

—

79

Construction

—

��

—

—

—

—

Commercial

—

—

—

—

—

—

Consumer

—

—

—

—

—

—

Total delinquent loans

$
1,026

$
48

$
5,115

$
9,009

$
392

$
783

~~Nonperforming Assets~~Asset Quality

Nonperforming Assets.Nonperforming assets include nonaccrual loans 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 primarily~~or 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,
2018

At December 31,
2017

(Dollars in thousands)

Nonaccrual loans (1):

1 - 4 family residential

$
4,912

$
573

Commercial Real Estate

74

79

Construction

—

—

Commercial

—

—

Consumer

—

—

Total nonaccrual loans

4,986

652

Loans past due 90 days and still accruing

129

131

Troubled debt restructurings (2)

2,967

2,994

Total nonperforming assets

$
8,082

$
3,777

Total loans

$
2,599,692

$
2,612,814

Total assets

$
3,034,332

$
2,961,958

Total nonaccrual loans to total loans

0.19
%
0.02
%
Total nonperforming assets to total assets

0.27
%
0.13
%


	At March 31,			At December 31,
	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.

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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

or More

Days

or More

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.

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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.~~

~~Allowance~~credit 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 management~~the period where the macroeconomic variables are relaxed and revert to ~~provide~~the average historical loss rates.

Also included in the allowance for ~~probable loan~~credit 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 ~~loan~~forecasts 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)	%

Table of Contents

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 allowance~~three months ended March 31, 2024 compared to $6.5 million for ~~loan losses is based~~the 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 nonaccrual~~residential 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
Ended
March 31,

Year Ended
December 31,

Three Months
Ended
March 31,

2018

2017

2017

(Dollars in thousands)

Allowance at beginning of period

$
18,457

$
14,822

$
14,822

Provision for loan losses

641

2,700

600

Charge offs:

1 - 4 family residential

—

(19
)
—

Commercial Real Estate

—

—

—

Construction

—

—

—

Commercial

—

—

—

Consumer

—

—

—

Total charge offs

—

(19
)
—

Recoveries:

1 - 4 family residential

2

261

10

Commercial Real Estate

31

569

40

Construction

1

107

95

Commercial

—

—

—

Consumer

—

17

—

Total recoveries

34

954

145

Allowance at end of period

$
19,132

$
18,457

$
15,567

Nonperforming loans and TDRs at end of period

$
8,082

$
3,777

$
3,703

Total loans outstanding at end of period

$
2,599,692

$
2,612,814

$
2,018,586

Average loans outstanding during period

$
2,733,759

$
2,276,282

$
2,044,732

Allowance for loan losses to nonperforming loans and TDRs

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

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

—
%
(0.04
)%
(0.01
)%

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

At March 31, 2018

At December 31, 2017

Allowance
for Loan
Losses

Percent of
Loans in
Each
Category to
Total Loans

Allowance
for Loan
Losses

Percent of
Loans in
Each
Category to
Total Loans

(Dollars in thousands)

1 - 4 family residential

$
11,499

82
%
$
12,279

82
%
Commercial real estate

2,572

9
%
2,040

9
%
Construction

2,979

7
%
2,218

7
%
Commercial

616

2
%
469

2
%
Consumer

1

—
%
1

—
%
Unallocated

1,465

—
%
1,450

—
%
Total

$
19,132

100
%
$
18,457

100
%

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

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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-sale~~available 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 Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
U.S. Treasury securities	$	118,764	$	118,540	$	120,216	$	120,042
Non-Agency collateralized mortgage obligations	1,888		1,955		1,953		2,008












									(In thousands)
U.S. Treasury and Agency securities									$	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, ~~2018~~2024. 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 government~~are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and ~~government agency securities, with an aggregate book value in excess of 10%~~change the composition of our ~~shareholders’ equity.~~investment securities portfolio.

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 ~~duration~~magnitude 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 debt~~Agency securities, mortgage-backed securities and ~~(iii) it is likely that~~the 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 ~~will~~have not ~~be required to sell the~~recorded an allowance for credit losses for our available for sale debt securities ~~before their anticipated recovery, we do not consider the debt securities to be other-than-temporarily impaired~~ at March 31, ~~2018.~~2024.

~~The Company’s~~Our equity securities consist of an investment in a qualified community reinvestment act investment fund, which is a publicly-traded mutual fund, and an investment in the common equity of Pacific Coast Banker’s Bank, a thinly traded restricted stock. At March 31, ~~2018~~2024 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.

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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 ~~$46.1~~by $27.8 million, or ~~2.1%~~3%. Our money market, savings and NOW deposits decreased by $23.3 million, or 2%, ~~to $2.29 billion~~and 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 at~~2024 and December 31, ~~2017, primarily as a result~~2023. We have continued our current strategy of ~~strong growth in~~offering competitive interest rates on our ~~money market and certificates of~~ deposit products ~~partially offset by a decrease~~to 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 acquisition~~total 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 $80~~exceed 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 FHLB~~drawdowns on an overdraft credit line with the FHLB, as ~~a source~~sources of funds to meet the daily liquidity needs of our ~~customers and fund growth in earning assets.~~customers. Our short-term advances with the FHLB ~~advances consists~~consist primarily of advances of funds ~~made~~ for ~~one-to-two-week~~one- or two-week periods.

At March 31, 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.

Table of Contents

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

Rates.The following ~~tables present~~table 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, 2017~~each 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
Three Months Ended

As of and for the
Year Ended

As of and for the
Three Months Ended

March 31, 2018

December 31, 2017

March 31, 2017

Average
Balance

Interest

Average
Yield/
Rate

Average
Balance

Interest

Average
Yield/
Rate

Average
Balance

Interest

Average
Yield/
Rate

Interest Earning Assets

Loans

$
2,733,759

$
35,856

5.25
%
$
2,276,282

$
120,701

5.30
%
$
2,044,732

$
26,759

5.23
%
Securities includes restricted stock

141,616

819

2.31
%
113,847

1,890

1.66
%
97,329

365

1.50
%
Other interest earning assets

24,663

114

1.85
%
14,300

157

1.10
%
9,574

19

0.79
%
Total interest earning assets

2,900,038

36,789

5.07
%
2,404,429

122,748

5.11
%
2,151,635

27,143

5.05
%
Noninterest earning assets

Cash and due from banks

12,261

9,965

8,773

Other assets

47,146

46,886

45,139

Total average assets

$
2,959,445

$
2,461,280

$
2,205,547

Interest-bearing liabilities

Savings, NOW, Money Markets

$
1,525,436

$
4,135

1.10
%
$
1,333,043

$
11,985

0.90
%
$
1,200,209

$
2,459

0.83
%
Time deposits

705,824

2,454

1.41
%
476,303

5,585

1.17
%
422,972

1,075

1.03
%
Total deposits

2,231,260

6,589

1.20
%
1,809,346

17,570

0.97
%
1,623,181

3,534

0.88
%
FHLB borrowings

259,056

833

1.29
%
299,719

3,795

1.27
%
273,622

830

1.21
%
Subordinated notes, net

64,901

1,172

7.22
%
55,315

4,070

7.36
%
49,349

908

7.36
%
Total borrowings

323,957

2,005

2.48
%
355,034

7,865

2.22
%
322,972

1,738

2.15
%
Total interest-bearing liabilities

2,555,217

8,594

1.36
%
2,164,380

25,435

1.18
%
1,946,152

5,272

1.10
%
Noninterest- bearing liabilities:

Demand deposits

70,076

69,407

59,218

Other liabilities

50,052

39,952

32,210

Total noninterest- bearing liabilities

120,128

109,359

91,428

Shareholders’ equity

284,100

187,541

167,967

Total average liabilities and equity

$
2,959,445

$
2,461,280

$
2,205,547

Net interest income and spread

$
28,195

3.71
%

$
97,313

3.93
%

$
21,871

3.95
%
Net interest margin

3.89
%

4.05
%

4.07
%


		Three Months Ended March 31,
		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.

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

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


	Three Months Ended
	March 31, 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
March 31, 2018 vs. 2017

Increase (Decrease)
due to

Total
Increase

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

~~General.~~Net interest income ~~increased $5.3 million, or 51.2%, to $15.7~~was $14.9 million for the three months ended March 31, ~~2018 from the comparable 2017 period. The increase was driven by~~2024, a ~~$6.3 million increase in net interest income and a $1.0 million~~ decrease ~~in income tax expense partially offset by a $2.4 million increase in operating expenses.~~

~~Interest Income.~~ ~~Interest income increased $9.6~~of $2.7 million, or ~~35.5%~~16%, ~~to $36.8~~from $17.7 million for the three months ended March 31, ~~2018 from~~2023. The decrease in net interest income primarily reflects the ~~three months ended March 31, 2017~~impact of interest expense, primarily ~~due to an increase in loans. The increase in~~on interest-bearing deposits, increasing more than interest income on ~~loans was due to average outstanding loans~~interest-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 billion~~the target range for the ~~three months ended March 31, 2018 from $2.04 billion for the three months ended March 31, 2017. The average~~federal funds rate ~~collected on loans increased 2~~by 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% for~~impact 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.

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Interest ~~Expense.~~ ~~Interest expense increased $3.3 million, or 63.0%, to $8.6~~income was $33.3 million for the three months ended March 31, ~~2018~~2024, an increase of $3.9 million, or 13%, from ~~$5.3~~the 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 % for~~2023, 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 $28.2~~our securities portfolio of $437.7 million for the three months ended March 31, ~~2018 from $21.9~~2024 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, ~~2017~~2024, 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 ~~due~~driven 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 points~~competitively 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, ~~2018~~2024 also reflected the elimination of interest expense from ~~3.95% for~~our 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 $.6~~totaled $1.7 million for the three months ended March 31, ~~2018~~2023.

Net Interest Margin and ~~2017. The provisions recorded resulted in an allowance~~Interest Rate Spread. Net interest margin was 2.52% for ~~loan losses of $19.1 million, or .74% of total loans at~~the three months ended March 31, ~~2018, compared to $15.6 million, or.77% of total loans at~~2024, 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
March 31,

Change

2018

2017

Amount

Percent

(In thousands)

Non-interest Income

Service charges and fees

$
618

$
409

$
209

51.1
%
Investment management and advisory fees

623

552

71

12.9
%
Net gain on sale of mortgage loans

65

187

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

3,941

3,865

76

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

295

291

4

1.4
%
Other income

495

282

213

75.5
%
Total non-interest income

$
6,037

$
5,586

$
451

8.1
%

~~Service charges~~2023. 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 increased~~interest 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 growth~~higher interest rates paid on our interest-bearing deposits than in the ~~servicing portfolio of mortgage loans sold to~~comparable 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
March 31,

Change

2018

2017

Amount

Percent

(In thousands)

Non-interest Expense

Salaries and employee benefits

$
6,649

$
5,410

$
1,239

22.9
%
Occupancy and equipment

1,546

1,389

157

11.3
%
Professional fees

622

369

253

68.6
%
Advertising and marketing

349

192

157

81.8
%
FDIC assessments

543

242

301

124.4
%
Data processing

288

207

81

39.1
%
Other

1,506

1,283

223

17.4
%
Total non-interest expense

$
11,503

$
9,092

$
2,411

26.5
%

Salaries and employee benefits increased primarily as a result of additional full-time equivalent employees to support balance sheet and overall growth. Occupancy and equipment expenses also increased with the expansion of our branch network. The increase in professional fees can primarily be attributable to costs of being a public company. FDIC assessments increased due to a corresponding increase in the ~~Bank’s assessment base.~~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 rate~~2023. 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, reflecting~~2024 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.”

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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.

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Income Tax Benefit. We recorded an income tax benefit of $(103) thousand, or an effective tax rate of ~~41.4%. The decrease in~~34.3%, for the three months ended March 31, 2024 compared to an income tax benefit of $(54) thousand, or an effective tax rate ~~was~~of 9.7%, for the three months ended March 31, 2023. The effective rates vary from our statutory rate primarily due to the ~~reduction in~~low level of pretax earnings, the ~~federal corporate tax rate to 21% that was effective January 1, 2018 because~~effect of ~~the Tax Cuts~~non-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 addition~~We rely on our ability to generate deposits and effectively manage the ~~cash received~~repayment 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 ~~repayments~~portfolio and ~~FHLB borrowings.~~access to the discount window of the Federal Reserve and brokered deposits. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

Our most liquid assets are cash and due from banks 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 earning~~interest-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, ~~2018~~2024, 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, cash~~do not currently intend to replace it with another borrowing. Based on our collateral, consisting of certain loans and ~~due from banks totaled $37.5 million~~investment securities, and ~~$40.1 million, respectively. Securities classified as available-for-sale, which provide~~holdings of FHLB stock, the Company had additional ~~sources~~borrowing 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 ~~additional~~other banks ~~for $60~~totaling $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 primary~~Cash flows from investing activities are ~~the origination~~primarily 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. During~~during the three months ended March 31, ~~2017,~~2024 and 2023, respectively. From time to time, we ~~originated $257~~also 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 $35.2~~warranties 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.

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~~Financing~~Cash flows from financing activities ~~consist~~are primarily ~~of activity in deposit accounts. We experienced net increases in~~impacted by our deposits. Our total deposits ~~of $46.1 million and $107.0 million for the three months ended~~were $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 have~~obtain funds from depositors by offering a ~~very stable core~~range of deposit ~~base evidenced by the average life of our accounts, which we attribute to a high level of customer service~~types, including demand, savings, money market and ~~our consistently competitive rates. We expect the high level of liquid accounts to be maintained.~~time. We utilize borrowings and brokered deposits ~~and bulk sales of whole loans~~ to supplement funding needs and manage ~~overall growth.~~our liquidity position 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 pools~~are a party to financial instruments in the normal course of business to meet the financing needs of our ~~portfolio~~customers. These financial instruments include commitments to make loans ~~into~~and standby letters of credit that are not reflected in our condensed consolidated balance sheets, as well as commitments on unused lines of credit that involve elements of credit and interest rate risk in excess of the ~~secondary market from time~~amount recorded in the condensed consolidated balance sheets. Our exposure to ~~time. We generated $112.2~~credit 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 proceeds~~standby letters of credit outstanding of $24 thousand.

The Company is a separate and distinct legal entity from the ~~sale~~Bank, and, on a parent company-only basis, the Company’s primary source of ~~loans~~funding is dividends received from the Bank. Federal banking regulations limit the dividends that may be paid by the Bank. Regulatory approval is required if the Bank’s total capital distributions for the applicable calendar year exceed the sum of the Bank’s net income for that year to date plus the Bank’s retained net income for the preceding two years, or the Bank would not be at least “adequately capitalized” under applicable regulations following the distribution. Federal banking regulations also limit the ability of the Bank to pay dividends under other circumstances. Even if an application is not otherwise required, every savings bank that is a subsidiary of a unitary thrift holding company, such as the Bank, must still file a notice with the FRB at least 30 days before its board of directors declares a dividend or approves a capital distribution. The Company has the legal ability to access the debt and equity capital markets for funding, although the Company currently is required to obtain the prior approval of the FRB in order to issue debt.

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, 2018~~usual course of business or (ii) its total assets would be less than the sum of its total liabilities plus the preferential rights upon dissolution of shareholders with preferential rights on dissolution that are superior to those receiving the dividend, and ~~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 regulatory~~minimum capital adequacy requirements administered by the Federal Reserve and the OCC, respectively. We manage our capital to comply with our internal planning targets and regulatory capital standards administered by the Federal Reserve and the OCC. We review capital levels on a ~~monthly basis including our needs for additional capital and ability to pay cash dividends.~~quarterly basis. At March 31, ~~2018 and December 31, 2017, each of~~2024, the Company and the Bank ~~exceeded~~met all ~~applicable~~ regulatory capital requirements to which they were subject. The Company and Bank satisfied the ~~Bank was~~requirements 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. Refer~~capital 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 our~~compliance with regulatory minimum capital ~~ratios as~~requirements 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 for~~Company’s capital include the ~~Company and Bank.~~

Well
Capitalized

Adequately
Capitalized

Under
Capitalized

Company Actual at
March 31, 2018

Company Actual at
December 31, 2017

Total adjusted capital to risk-weighted assets

N/A

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

N/A

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

N/A

4.00
%
3.00
%
9.73
%
9.83
%
Common Tier 1 (CET 1)

N/A

4.50
%
3.00
%
15.77
%
15.53
%

Well
Capitalized

Adequately
Capitalized

Under
Capitalized

Bank Actual at
March 31, 2018

Bank Actual at
December 31, 2017

Total adjusted capital to risk-weighted assets

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

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

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

6.50
%
4.50
%
3.00
%
14.02
%
13.71
%

~~Basel III revised the capital adequacy requirements~~inherent limitations of fair value estimates and the ~~Prompt Corrective Action Framework effective January 1, 2015 for~~assumptions thereof, the ~~Company. When fully phased~~inherent 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 maintain~~periods of extreme stress.

Table of Contents

As a ~~2.5% “capital conservation buffer” on top~~result 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 with~~in 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 of~~safe harbors provided by Regulation A or Regulation D. We have submitted to the ~~shortfall. The implementation of~~SEC 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 at~~through 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 to~~See Note 2 – Summary of Significant Accounting Policies to our ~~unaudited~~ condensed consolidated financial statements included in ~~Item~~“Item 1. Financial ~~Statements~~Statements” for a discussion of recently issued accounting guidance and related impact on our financial condition and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~General.~~General. The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Asset Liability Committee of our ~~Board~~board of ~~Directors has~~directors 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, reinvestment~~deposits.

Table of Contents

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 ~~replacement~~move their funds to competing financial institutions; (iii) the expected yield of ~~asset~~our 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-month~~12-month period beginning on March 31, ~~2018~~2024 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 ~~liability~~asset sensitive ~~in a rising interest rate environment.~~

At March 31,

At December 31,

2018

2017

Change in Interest Rates (Basis
Points)

Estimated
12-Months
Net Interest
Income

Change

Estimated
12-Months
Net Interest
Income

Change

(Dollars in thousands)

400

93,997

(23.8
)%
88,051

(25.0
)%
300

103,006

(16.5
)%
97,204

(17.2
)%
200

111,427

(9.7
)%
105,213

(10.4
)%
100

118,427

(4.0
)%
111,634

(4.9
)%
0

123,388

117,408

–100

125,103

1.4
%
118,818

1.2
%

~~Our~~at March 31, 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 the~~expense 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 calculate~~curves.

As described above, due to the nature of the EVE ~~under~~model and its underlying assumptions, the ~~assumptions that~~scenarios 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 that~~rate risk. See “—Net Interest Income Simulation” above for further discussion regarding how our exposure to interest ~~rates~~rate risk may change, particularly upon a significant, rapid decrease ~~100 basis points from current market~~in interest rates.

Table of Contents

The following table presents, as of March 31, 2024 and December 31, 2023, respectively, the ~~estimated~~impacts of immediate and permanent parallel hypothetical changes in market interest rates on EVE of the Bank, calculated on a bank-only ~~basis, which would result~~basis. The base EVE increased from ~~changes in~~December 31, 2023 partially from higher market interest rates ~~over a twelve-month period beginning March 31, 2018 and~~combined 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
(Basis Points)

Economic
Value of
Equity

Change

Economic
Value of
Equity

Change

(Dollars in thousands)

400

397,316

(9.8
)%
373,010

(10.3
)%
300

422,665

(4.1
)%
399,470

(3.9
)%
200

439,115

(0.3
)%
415,216

(0.2
)%
100

446,192

1.3
%
421,089

1.3
%
0

440,636

415,880

–100

410,479

(6.8
)%
381,348

(8.3
)%

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’s~~Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2018. The Company’s disclosure controls and procedures are designed to ~~ensure~~provide reasonable assurance that information required to be disclosed byin the ~~Company in the~~Company’s reports that it files or submits under the 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’s~~its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required ~~disclosure. Based on this evaluation,~~disclosures.

Our management, with the ~~Company’s~~participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of March 31, 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 ~~over~~Over Financial Reporting

~~There were no~~Our management is required to evaluate, with the participation of our Chief Executive Officer and our Chief Financial Officer, any changes in ~~the Company’s~~ internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during each quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during the three months ended March 31, ~~2018~~2024 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

Table of Contents

PART II —- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~There~~We are nonot aware of any material developments to our pending legal proceedings ~~including~~as 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 incidental~~legal proceedings, in the aggregate, are not material to ~~the business, to which the Company or one~~our financial condition and results of ~~its subsidiaries is a party.~~operations.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors as disclosed in the Company’s ~~Annual Report on~~2023 Form ~~10-K for the year ended December 31, 2017.~~10-K.

Table of Contents

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) for~~Withholding of Vested Restricted Stock Awards

During the ~~initial public offering~~three months ended March 31, 2024, the Company withheld shares of ~~our~~ common stock ~~was declared effective by~~representing a portion of the ~~Securities and Exchange Commission on November 16, 2017. There has been no material change~~restricted stock awards that vested during the period under our employee stock benefit plans in order to pay employee tax liabilities associated with such vesting. These withheld shares are treated the ~~planned use~~same as repurchased shares for accounting purposes.

The following table provides certain information with respect to our purchases of ~~proceeds from our initial public offering~~shares of the Company’s common stock, as ~~described in our final prospectus filed with~~of 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.

Table of Contents

ITEM 6. EXHIBITS

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

Incorporated by Reference
Exhibit
Number

Exhibit Description

Filed /Furnished
Herewith

~~Incorporated by Reference~~
~~Exhibit~~
~~Number~~Form

~~Exhibit Description~~Period
Ending

~~Filed~~
~~Herewith~~Exhibit /
Appendix
Number

~~Form~~
~~Period~~
~~Ending~~
~~Exhibit /~~
~~Appendix~~
~~Number~~
Filing Date
10.1*
~~Form of Restricted Stock Award Agreement~~
~~8-K~~
~~10.1~~
~~March 27, 2018~~
10.2*
~~Form of Notice of Grant of Stock Option and Stock Option Agreement~~
~~8-K~~
~~10.2~~
~~March 27, 2018~~
31.1

Section 302 Certification — Chief Executive Officer

X

31.2

Section 302 Certification — Chief Financial Officer

X

32.1**

Section 906 Certification — Chief Executive Officer

X

32.2**

Section 906 Certification — Chief Financial Officer

X

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

Inline XBRL Instance Document

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

X

104

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

X

* ~~Indicates a management contract or compensatory plan or arrangement.~~
**This document is being furnished with this Quarterly Report on Form 10-Q. This certification is deemed not filed for purposes of Section 18 of the ~~Securities~~ Exchange Act, ~~of 1934, as amended,~~ or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, ~~of 1933, as amended,~~ or the ~~Securities~~ Exchange ~~Act~~Act.
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

52
Table of ~~1934, as amended.~~Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May ~~14, 2018~~9, 2024

STERLING BANCORP, INC.

(Registrant)

By:
/s/ THOMAS ~~LOPP~~M. O’BRIEN

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

(Principal Executive Officer)

By:
/s/ KAREN KNOTT

Karen Knott
Chief Financial Officer

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

51

53


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

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


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

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


			Page
PART I — FINANCIAL INFORMATION
~~Item 1.~~		~~Financial Statements (Unaudited)~~
Item 1.	~~Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017~~Financial Statements (Unaudited)		2
	Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023		2
	Condensed Consolidated Statements of ~~Income~~Operations for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023		3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023		4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023		5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2018~~2024 and ~~2017~~2023		6
	Notes to the Condensed Consolidated Financial Statements ~~(Unaudited)~~		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		47
Item 4.	Controls and Procedures		49

PART II — OTHER INFORMATION
~~Item 1.~~		~~Legal Proceedings~~	49
Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	49	50
Item 2.1A.	Risk Factors		50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
~~Item 6.~~	~~Exhibits~~	49
~~Exhibit Index~~		50
~~SIGNATURES~~		51
Item 5.	Other Information		51
Item 6.	Exhibits		52
Exhibit Index			52
SIGNATURES			53

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

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

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

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

										March 31, 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

	March 31, 2018
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	118,540	$	(224	)	$	—	$	—		$	118,540	$	(224	)

																March 31, 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)

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

March 31, 2018	Construction		Residential Real Estate			Commercial Real Estate		Commercial Lines of Credit		Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,218	$	12,279		$	2,040	$	469	$	1	$	1,450	$	18,457
Provision for loan losses	760		(782		)	501		147		—		15		641
Charge offs	—		—			—		—		—		—		—
Recoveries	1		2			31		—		—		—		34
Total ending balance	$	2,979	$	11,499		$	2,572	$	616	$	1	$	1,465	$	19,132

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

March 31, 2018	Construction		Residential Real Estate		Commercial Real Estate		Commercial Lines of Credit		Other Consumer		Unallocated		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	46	$	11	$	95	$	—	$	—	$	152
Collectively evaluated for impairment	2,979		11,453		2,561		521		1		1,465		18,980
Total ending allowance balance	$	2,979	$	11,499	$	2,572	$	616	$	1	$	1,465	$	19,132
Loans:
Loans individually evaluated for impairment	$	—	$	122	$	2,774	$	335	$	—	$	—	$	3,231
Loans collectively evaluated for impairment	179,846		2,134,325		236,430		45,831		29		—		2,596,461
Total ending loans balance	$	179,846	$	2,134,447	$	239,204	$	46,166	$	29	$	—	$	2,599,692

	At March 31, 2018						At December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related allowance for loan losses recorded:
Commercial real estate, retail	$	1,415	$	1,228	$	—	$	1,431	$	1,247	$	—
Commercial lines of credit, private banking	145		145		—		147		147		—
Subtotal	1,560		1,373		—		1,578		1,394		—
With an allowance for loan losses recorded:
Residential real estate, first mortgage	122		122		46		122		122		37
Commercial real estate, offices	1,558		1,546		11		1,567		1,557		19
Commercial lines of credit, private banking	190		190		95		196		196		98
Subtotal	1,870		1,858		152		1,885		1,875		154
Total	$	3,430	$	3,231	$	152	$	3,463	$	3,269	$	154

	March 31, 2018				December 31, 2017
	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Residential real estate:
Residential first mortgage	$	4,912	$	129	$	573	$	131
Commercial real estate:
Retail	74		—		79		—
Total	$	4,986	$	129	$	652	$	131

March 31, 2018	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Construction	$	—	$	—	$	—	$	—	$	179,846	$	179,846
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 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Construction	$	—	$	—	$	—	$	—	$	192,319	$	192,319
Residential real estate:
Residential first mortgage	8,902		392		704		9,998		2,105,142		2,115,140
Residential second mortgage	107		—		—		107		17,394		17,501
Commercial real estate:
Retail	—		—		79		79		10,530		10,609
Apartments	—		—		—		—		59,582		59,582
Offices	—		—		—		—		26,571		26,571
Hotel	—		—		—		—		103,195		103,195
Industrial	—		—		—		—		15,907		15,907
Gas stations	—		—		—		—		1,067		1,067
Other	—		—		—		—		30,145		30,145
Commercial lines of credit:
Private banking	—		—		—		—		22,898		22,898
C&I lending	—		—		—		—		17,851		17,851
Other consumer loans	—		—		—		—		29		29
Total	$	9,009	$	392	$	783	$	10,184	$	2,602,630	$	2,612,814

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


													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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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

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

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

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

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

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


		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


					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	%


			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		—		—

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

			Fair Value Measurements at December 31, 2017
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets
Available for sale debt securities:
U.S. Treasury securities	$	120,042	$	120,042	$	—	$	—
Collateralized mortgage obligations	2,008		—		2,008		—
Collateralized debt obligations	571		—		—		571
Equity securities	4,227		3,981		—		246		*