美國
證券交易委員會
華盛頓特區 20549
表格
根據1934年證券交易法第13或15(d)條的季度報告 |
截至季度期
或
根據1934年證券交易法第13條或第15條的過渡報告 |
過渡期間從 到
委員會檔案編號
(註冊人名稱如章程中所列)
| ||
(州或其他管轄區的 | (美國國稅局僱主 |
(
(註冊地址,包括郵政編碼,和註冊人主要執行辦公室的電話號碼,包括區號)
不適用
(前名稱,前地址和前財政年度,如自上次報告以來有所更改)
根據法案第12(b)節註冊的證券:
每個類別的標題 |
| 交易標的 |
| 註冊的每個交易所的名稱 |
|
請勾選註冊人是否在過去12個月內(或註冊人被要求提交該等報告的更短期間內)已提交證券交易法1934年第13或15(d)條所要求的所有報告,以及註冊人是否在過去90天內受到此類提交要求。
請通過勾選表明註冊人是否在過去12個月內(或註冊人必須提交此類文件的更短期限內)根據S-t規則405(本章第232.405條)提交了所有電子互動數據文件。
請在檢查標記中標明註冊人是大型加速申報者、加速申報者、非加速申報者、較小的報告公司還是新興增長公司。詳見交易所法第120億.2條中「大型加速申報者」、「加速申報者」、「較小報告公司」和「新興增長公司」的定義。
大型加速報告人☐ |
|
| 非-加速申報人 ☐ |
| 較小報告公司 | ||
成長型企業 |
如果是新興成長型公司,請在複選框中打勾,以確定註冊人是否選擇不使用在1934年證券交易法第13(a)條項下提供的任何新的或修訂的財務會計準準則的延長過渡期。 ☐
請勾選是否註冊公司是外殼公司(根據《證券交易法》第12b-2規則定義)。是
截至2024年11月1日,
斯特林銀行公司
簡明合併資產負債表(未經審計)
(金額以千美元計)
第1部分 基本信息
項目 1. 財務報表
2023年9月30日, | 截至12月31日, | |||||
| 2024 |
| 2023 | |||
資產 |
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現金及銀行存款 | $ | | $ | | ||
與其他銀行的有息定期存款 | | | ||||
可供出售的債務證券,按公允價值計(攤銷成本 $ |
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權益證券 |
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貸款,扣除信用損失準備金 $ |
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應計利息應收款 |
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抵押貸款服務權,淨額 | | | ||||
租賃改進和設備,淨值 |
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經營租賃使用權資產 | | | ||||
聯邦住房貸款銀行存貨,成本 | | | ||||
聯邦儲備銀行的股票,按成本計算 | | | ||||
公司自有的壽險 |
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遞延所得稅資產,淨額 |
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其他資產 |
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總資產 | $ | | $ | | ||
負債和股東權益 | ||||||
負債 |
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非利息存款 | $ | | $ | | ||
利息產生的存款 |
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總存款 |
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聯邦住房貸款銀行借款 |
| — |
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經營租賃負債 | | | ||||
其他負債 |
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總負債 |
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股東權益 |
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授權的優先股, |
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普通股, |
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額外實收資本 |
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滾存收益 |
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累計其他綜合損失 |
| ( |
| ( | ||
總股東權益 |
| |
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總負債和股東權益 | $ | | $ | |
請參見附帶說明的簡 condensed consolidated 基本報表。
2
斯特林銀行公司
簡化合並運營報表(未審計)
(以千美元計,每股金額除外)
截止三個月 | 截止九個月 | |||||||||||
2023年9月30日, | 2023年9月30日, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
利息收入 |
|
| ||||||||||
貸款的利息和費用 | $ | | $ | | $ | | $ | | ||||
投資證券和限制性股票的利息及分紅派息 | | |
| |
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對軸承現金存款的利息 | | |
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總利息收入 | | |
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利息支出 |
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存款利息 | | |
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聯邦住房貸款銀行借款的利息 | — | |
| |
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次級票據的利息 | — | |
| — |
| | ||||||
總利息支出 | | |
| |
| | ||||||
淨利息收入 | | |
| |
| | ||||||
信用損失的準備(回收) | ( | ( |
| ( |
| ( | ||||||
扣除信用損失準備(回收)後的淨利息收入 | | |
| |
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非利息收入 |
|
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| ||||||||
| |
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投資證券出售損失 | — | — | — | ( | ||||||||
出售待售抵押貸款的收益 | — | — | — | | ||||||||
未實現股權證券的收益(損失) | | ( | | ( | ||||||||
淨服務收入 | | | | | ||||||||
公司擁有的壽險所產生的收入 | | |
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其他 | | |
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非利息收入總額 | | |
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非利息支出 |
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工資和員工福利 | | |
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佔用和設備 | | |
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專業費用 | | |
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聯邦存款保險 | | |
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數據處理 | | |
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其他 | | |
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非利息總費用 | | |
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稅前收入 | | |
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所得稅費用 | | |
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凈利潤(虧損) | $ | ( | $ | | $ | | $ | | ||||
基本和稀釋每股收益(虧損) | $ | ( | $ | | $ | | $ | | ||||
加權平均普通股流通股數: | ||||||||||||
基本 | | | | | ||||||||
稀釋 | | | | |
請參見附帶說明的簡 condensed consolidated 基本報表。
3
斯特林銀行控股公司
簡易合併綜合損益表(未經審計)
(金額以千美元計)
截止三個月 | 截止九個月 | |||||||||||
2023年9月30日, | 2023年9月30日, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
凈利潤(虧損) | $ | ( | $ | | $ | | $ | | ||||
其他綜合收益(損失), 淨額(稅後): |
|
| ||||||||||
投資證券在期間產生的未實現收益(損失),扣除稅收影響爲$ | | ( |
| |
| ( | ||||||
在凈利潤(虧損)中包含的損失的重分類調整爲$—, $—, $ — 和$ | — | — | — | | ||||||||
其他綜合收益(損失)總額 | | ( |
| |
| ( | ||||||
綜合收益(損失) | $ | | $ | ( | $ | | $ | |
請參見附帶說明的簡 condensed consolidated 基本報表。
4
斯特林銀行控股公司
合併簡化股東權益變動表(未經審計)
(金額以千美元計)
累計 | |||||||||||||||||
額外 | 其他 | 總計 | |||||||||||||||
普通股 | 實收資本 | 留存收益 | 綜合的 | 股東的 | |||||||||||||
| 股份 |
| 金額 |
| 資本 |
| 業績 |
| Loss |
| 股權 | ||||||
2023年1月1日餘額 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
會計原則變更的累計影響調整,稅後,採用ASU 2016-13時的影響 | — | — | — | | — | | |||||||||||
變更會計原則的累積效應調整(稅後),適用於ASU 2022-02的採納 | — | — | — | ( | — | ( | |||||||||||
淨損失 | — | — | — | ( | — | ( | |||||||||||
回購限制性股票以支付員工稅務責任 | ( |
| — |
| ( |
| — |
| — |
| ( | ||||||
基於股票的補償 | | — | | — | — | | |||||||||||
其他綜合收益 | — | — | — | — | | | |||||||||||
截至2023年3月31日的餘額 | | | | | ( | | |||||||||||
凈利潤 | — | — | — | | — | | |||||||||||
回購限制性股票以支付員工稅務責任 | ( | — | ( | — | — | ( | |||||||||||
向確定繳款養老計劃發行普通股股票 | | | — | — | — | | |||||||||||
基於股票的補償 | | — | | — | — | | |||||||||||
其他綜合損失 | — | — | — | — | ( | ( | |||||||||||
截至2023年6月30日的餘額 | | | | | ( | | |||||||||||
凈利潤 | — | — | — | | — | | |||||||||||
回購限制性股票以支付員工稅款 | ( | — | ( | — | — | ( | |||||||||||
基於股票的補償 | ( | — | | — | — | | |||||||||||
其他綜合損失 | — | — | — | — | ( | ( | |||||||||||
截至2023年9月30日的餘額 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
2024年1月1日的餘額 | | $ | | $ | | $ | | $ | ( | $ | | ||||||
淨損失 | — | — | — | ( | — | ( | |||||||||||
回購限制性股票以支付員工稅務責任 | ( | — | ( | — | — | ( | |||||||||||
基於股票的補償 | | — | | — | — | | |||||||||||
其他綜合損失 | — | — | — | — | ( | ( | |||||||||||
截至2024年3月31日的餘額 | | | | | ( | | |||||||||||
凈利潤 | — | — | — | | — | | |||||||||||
回購受限制股票以支付員工稅務責任 | ( | — | ( | — | — | ( | |||||||||||
基於股票的補償 | | — | | — | — | | |||||||||||
其他綜合損失 | — | — | — | — | ( | ( | |||||||||||
截至2024年6月30日的餘額 | | | | | ( | | |||||||||||
淨損失 | — | — | — | ( | — | ( | |||||||||||
回購限制性股票以支付員工稅務負債 | ( | — | ( | — | — | ( | |||||||||||
基於股票的補償 | ( | — | | — | — | | |||||||||||
其他綜合收益 | — | — | — | — | | | |||||||||||
截至2024年9月30日的餘額 | | $ | | $ | | $ | | $ | ( | $ | |
請參見附帶說明的簡 condensed consolidated 基本報表。
5
斯特林銀行公司
未經審計的簡明合併現金流量表
(金額以千美元計)
截止九個月 | ||||||
2023年9月30日, | ||||||
| 2024 |
| 2023 | |||
經營活動產生的現金流量 |
|
|
|
| ||
凈利潤 | $ | | $ | | ||
調整凈利潤與經營活動提供的(使用的)淨現金的關係: |
|
| ||||
信用損失的準備(回收) |
| ( |
| ( | ||
遞延所得稅 |
| |
| | ||
次級票據的註銷收益 | — | ( | ||||
投資證券出售損失 |
| — |
| | ||
股權證券未實現(收益)損失 |
| ( |
| | ||
債券證券的淨增值 |
| ( |
| ( | ||
對租賃改善和設備的折舊和攤銷 | | | ||||
持有待售貸款的原始款項,扣除本金支付 |
| — |
| ( | ||
出售待售抵押貸款的收益 |
| — |
| | ||
出售待售貸款的收益 |
| — |
| ( | ||
公司自有壽險的現金退保價值增加,減去保費 |
| ( |
| ( | ||
估值準備調整及抵押貸款服務權的攤銷 |
| |
| | ||
基於股票的補償 | | | ||||
其他 |
| ( |
| ( | ||
運營資產和負債的變更: |
|
| ||||
應計利息應收款 |
| ( |
| ( | ||
其他資產 | | | ||||
其他負債 |
| |
| ( | ||
經營活動產生的淨現金(使用) |
| |
| ( | ||
投資活動產生的現金流 |
|
|
|
| ||
向其他銀行購買計息定期存款 | — | ( | ||||
與其他銀行的計息定期存款到期 | | — | ||||
債務證券的到期和本金收回 | | | ||||
債務證券銷售收入 | — | | ||||
債務證券購買 | ( | ( | ||||
債務證券的到期(購買),淨額 | — | | ||||
購買聯邦儲備銀行股票 |
| ( | ( | |||
收到的聯邦住房貸款銀行股票贖回收益 | | | ||||
貸款淨減少 | | | ||||
從之前被分類爲投資組合貸款的待售貸款中獲得的收益 | — | | ||||
對以前分類爲投資組合貸款的待售貸款收到的本金償還款 | — | | ||||
設備銷售的收益 | — | | ||||
租賃改善和設備的採購 |
| ( |
| ( | ||
投資活動產生的淨現金 |
| |
| | ||
融資活動產生的現金流 |
|
|
|
| ||
存款的淨增加 |
| |
| | ||
向聯邦住房貸款銀行償還預付款 | ( | — | ||||
對次級票據的贖回付款 | — | ( | ||||
支付現金以贖回已歸屬的股份以滿足員工稅務負擔 | ( | ( | ||||
融資活動提供的淨現金 | | | ||||
現金及銀行存款的淨變動 |
| |
| | ||
期初現金及銀行存款 |
| |
| | ||
期末現金及銀行存款 | $ | | $ | | ||
補充現金流信息 |
|
|
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| ||
支付現金: |
|
|
|
| ||
利息 | $ | | $ | | ||
所得稅 | — | | ||||
非現金投資及融資活動: | ||||||
將住宅房地產業貸款轉移到待售貸款 | — | | ||||
將住宅房地產業貸款從待售貸款轉移 | — | | ||||
在定義貢獻養老計劃中,發行的普通股以滿足公司的匹配貢獻。 | — | | ||||
以新經營租賃負債換取的使用權資產 | | — |
請參見附帶說明的簡 condensed consolidated 基本報表。
6
附註1:業務性質和陳述基礎
(a)運營性質
Sterling Bancorp, Inc.(除非另有說明或上下文另有要求,否則連同其子公司爲 「公司」)是一家統一的舊貨控股公司,成立於1989年,是其全資子公司斯特林銀行和信託基金F.s.b.(「銀行」)的母公司,成立於1984年。該公司的業務是通過銀行開展的。該銀行發放商業房地產貸款以及商業和工業貸款,並提供存款產品,主要包括支票、儲蓄和定期證書賬戶。從歷史上看,該公司最大的資產類別是住宅抵押貸款。2023年,該銀行停止了發放住宅抵押貸款。該銀行還從事抵押銀行活動,因此收購、出售和服務住宅抵押貸款。該銀行通過以下網絡運營
公司受聯邦儲備系統理事會(「FRB」 或 「聯儲局」)的監管、審查和監督。該銀行是一家聯邦特許股票儲蓄銀行,選擇以擔保儲蓄協會的身份運營,自2023年8月9日起生效。作爲一家有擔保的儲蓄協會,該銀行通常以商業銀行的身份運作,不受適用於儲蓄機構的限制。在選舉生效之前,該銀行接受了合格節儉貸款人測試。根據合格節儉貸款人測試,儲蓄機構必須在每12個月的期限中至少九個月內將其投資組合資產的65%保留在某些合格的舊貨投資(主要是住宅抵押貸款和相關投資,包括某些抵押貸款支持和相關證券)中。該銀行受美國財政部貨幣審計長辦公室(「OCC」)和聯邦存款保險公司(「FDIC」)的監管、監督和審查,並且是聯邦儲蓄銀行體系和聯邦住房貸款銀行(「FHLB」)系統的成員。
(b)擬出售銀行及解散本公司
2024年9月15日,公司和銀行與特拉華州的一家公司EverBank Financial CORP(「EverBank」)簽訂了最終股票購買協議(「股票購買協議」),該協議規定公司以固定的購買價格向EverBank出售該銀行的所有已發行和流通股本
該交易受慣例成交條件的約束,其中包括公司股東批准股票購買協議、交易和解散計劃(「解散計劃」),以及獲得所需的監管批准。此外,EverBank完成交易的義務還受以下條件的約束:(i)銀行出售其住宅普通租戶貸款組合(總本金餘額約爲美元)
在執行股票購買協議的同時,銀行與特拉華州有限責任公司Bayview Acquisities LLC(「Bayview」)簽訂了抵押貸款購買協議(「抵押貸款購買協議」)。抵押貸款購買協議規定,Bayview將購買該銀行的住宅普通租戶貸款,總購買價格等於
7
此外,在2024年9月15日,公司的董事會一致通過了一項解散計劃,該計劃規定在交易結束後根據密歇根州法律解散公司。如果解散計劃獲得公司的股東批准,公司打算完成公司業務的清算,並按照密歇根州法律和解散計劃支付或準備公司債權人以及現有和合理可預見的債務、負債和對公司的義務及索賠(包括所有交易費用和代表任何股東對公司提出的任何索賠或要求),並根據各自的權利和利益將所有剩餘資產(預計全部爲現金)分配給股東,分配可以是一次或多次。
(c)財務報表的基礎
截至2024年9月30日的簡化合並資產負債表,以及截至2024年和2023年9月30日的三個月和九個月的簡化合並經營、綜合收益(損失)、股東權益變化和現金流量的報表均爲未經審計的。未經審計的簡化合並基本報表是基於年度合併基本報表準備的,並反映了管理層認爲對於公平顯示財務狀況、經營成果和所示期間的現金流量所必需的所有正常經常性性質的調整。這些附註中披露的與這些期間相關的財務數據和其他財務信息也未經過審計。截止到2024年9月30日的三個月和九個月的經營成果不一定表明截至2024年12月31日或任何未來年度或期間可能預期的結果。2023年12月31日的簡化合並資產負債表是從該日期的經過審計的財務報表中得出的。附帶的未經審計的簡化合並基本報表及其附註應與公司截至2023年12月31日的年度報告中包含的已審計合併基本報表及相關附註一起閱讀,該報告已於2024年3月14日提交給美國證券交易委員會。
註釋 2—重要會計政策摘要
合併原則
附帶的簡明合併基本報表已按照美國公認會計原則("U.S. GAAP")編制。簡明合併基本報表包括Sterling Bancorp, Inc.及其全資子公司的結果。
所有重要的公司間科目和交易已在合併中被消除。
估計的使用
按照U.S. GAAP編制簡明合併基本報表要求管理層做出估計和假設,這些估計和假設影響到在簡明合併基本報表日期報告的資產和負債的金額,以及或有資產和負債的披露,影響到報告期內的收入和費用的報告金額。由於進行估計時固有的不確定性,未來報告的實際結果可能基於與這些估計不同的金額。
信貸風險集中度
貸款組合主要由住宅房地產貸款組成,這些貸款是以房地產作爲抵押。在2024年9月30日和2023年12月31日,住宅房地產貸款佔
8
此外,貸款組合包括一種期限爲一年、三年、五年或七年的可調利率抵押貸款,要求至少支付
最近發佈的尚未採用的會計準則
2023年12月,會計準則委員會(「FASB」)發佈了會計準則更新(「ASU」)2023-09, 所得稅(主題740):所得稅披露的改進 (「ASU 2023-09」),該準則要求在報告實體的有效稅率調節中提供更多的信息拆分,並要求按轄區拆分已支付的所得稅。ASU 2023-09 自2024年12月15日後開始的年度期間生效。該指導原則應以前瞻性方式應用,並可選擇追溯適用該標準。允許提前採用。目前,公司的財務團隊正在評估ASU 2023-09對其所得稅披露的影響。
在2023年11月,FASB發佈了ASU 2023-07, segment reporting (主題 280): 可報告分部披露的改進 (「ASU 2023-07」)要求提供關於公共實體可報告分部的更詳細的費用信息,如果重大分部費用定期提供給首席運營決策者幷包含在每個報告的分部利潤或虧損指標中。此外,ASU 2023-07允許公共實體披露首席運營決策者使用的多個分部利潤或虧損指標。對於只有一個可報告分部的公共實體,ASU 2023-07確認所有分部指南中要求的披露,包括披露分部利潤或虧損的指標以及報告重大分部費用和其他項目,適用於這些實體。ASU 2023-07並未更改分部的定義、確定分部的方法或將運營分部彙總爲可報告分部的標準。ASU 2023-07自2023年12月15日之後開始的財年生效,及2024年12月15日之後開始的財年的中期報告。ASU 2023-07應在呈現的最早期間開始時追溯採用。允許提前採用。管理層認爲,ASU 2023-07的影響不應對公司的披露產生實質性影響。
注3—債務證券
以下表格總結了截至2024年9月30日和2023年12月31日可供出售債務證券的攤餘成本和公允價值,以及相關的未實現收益和損失的總額:
2024年9月30日 | ||||||||||||
攤餘 | 總未實現收益 | 公平 | ||||||||||
| 成本 |
| 增益 |
| Loss |
| 價值 | |||||
可供出售: |
|
|
|
|
|
|
|
| ||||
美國財政和機構證券 | $ | | $ | | $ | ( | $ | | ||||
抵押貸款支持證券 | | — | ( | | ||||||||
擔保抵押債務 |
| |
| |
| ( | | |||||
擔保債務憑證 |
| |
| — |
| ( |
| | ||||
總計 | $ | | $ | | $ | ( | $ | |
9
2023年12月31日 | ||||||||||||
攤餘 | 未實現總額 | 公平 | ||||||||||
| 成本 |
| 增益 |
| Loss |
| 價值 | |||||
可供出售: |
|
|
|
|
|
|
|
| ||||
美國國債和機構證券 | $ | | $ | | $ | ( | $ | | ||||
抵押貸款支持證券 | | — | ( | | ||||||||
擔保抵押貸款義務 |
| |
| |
| ( |
| | ||||
擔保債務義務 |
| |
| — |
| ( |
| | ||||
總計 | $ | | $ | | $ | ( | $ | |
公司已質押投資證券,公允價值爲$
可供出售債務證券的應計利息收入總計$
抵押貸款支持證券以及絕大多數擔保抵押貸款義務是由美國政府機構(政府國家抵押貸款協會)或美國政府贊助企業(聯邦住房貸款抵押公司(「弗雷迪·麥克」)或聯邦全國抵押貸款協會(「房利美」))發行和/或擔保的。私募標記的擔保抵押貸款義務的公允價值爲$
關於截至2024年和2023年9月30日的三個月和九個月內可供出售債務證券銷售的信息如下:
| 三個月結束 |
| 截至九個月 | |||||||||
九月三十日 | 九月三十日 | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
債務證券出售的收益 | $ | — | $ | — | $ | — | $ | | ||||
毛收益 | $ | — | $ | — | $ | — | $ | | ||||
毛損失 |
| — |
| — |
| — |
| ( | ||||
總淨實現損失 | $ | — | $ | — | $ | — | $ | ( |
與淨實現損失相關的所得稅利益爲$(
截至2024年9月30日,美國國債和機構證券的攤餘成本和公允價值按合同到期日列示在下表中。抵押貸款支持證券、擔保抵押貸款義務和擔保債務義務單獨披露,因爲如果借款人有權要求提前贖回或預付款項,預計到期日可能與合同到期日不同,無論是否存在提前贖回或預付款罰金。
攤餘 | 公平 | |||||
| 成本 |
| 價值 | |||
美國財政部和機構證券: |
|
|
|
| ||
到期時間少於一年 | $ | | $ | | ||
到期時間在一年至兩年之間 | | | ||||
抵押貸款支持證券 | | | ||||
擔保抵押貸款義務 |
| |
| | ||
擔保債務義務 |
| |
| | ||
總計 | $ | | $ | |
10
下表總結了截至2024年9月30日和2023年12月31日,尚未記錄信用損失準備金的可供出售債務證券的公允價值,這些證券處於未實現損失狀態,按主要安防類型和各個證券處於持續未實現損失狀態的時間長度進行彙總:
2024年9月30日 | ||||||||||||||||||
少於12個月 | 12個月或更多 | 總計 | ||||||||||||||||
公平 | 未實現 | 公平 | 未實現 | 公平 | 未實現 | |||||||||||||
| 價值 |
| 虧損 |
| 價值 |
| 虧損 |
| 價值 |
| 虧損 | |||||||
美國國債和機構證券 | $ | — | $ | — | $ | | $ | ( | $ | | $ | ( | ||||||
抵押貸款支持證券 | | ( | | ( |
| | ( | |||||||||||
抵押貸款擔保證券 | | ( | | ( | | ( | ||||||||||||
擔保債務憑證 |
| — | — | | ( | | ( | |||||||||||
總計 | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
2023年12月31日 | ||||||||||||||||||
少於12個月 | 12個月或更多 | 總計 | ||||||||||||||||
公平 | 未實現 | 公平 | 未實現 | 公平 | 未實現 | |||||||||||||
| 價值 |
| 虧損 |
| 價值 |
| 虧損 |
| 價值 |
| 虧損 | |||||||
美國財政部和機構證券 | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( | ||||||
抵押貸款支持證券 | — | — | | ( | | ( | ||||||||||||
擔保抵押債務工具 | |
| ( |
| |
| ( |
| |
| ( | |||||||
擔保債務義務 |
| — | — | | ( | | ( | |||||||||||
總計 | $ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
截至2024年9月30日,債務證券投資組合包括
公司的債務、抵押貸款支持證券及大多數擔保抵押貸款義務由美國政府、其機構和政府贊助企業發行和擔保。公司與美國政府、其機構和政府贊助企業的發行人沒有信用損失的長久歷史。因此,管理層預計其可供出售的債務證券不會出現任何信用損失。因此,公司在2024年9月30日和2023年12月31日未記錄可供出售債務證券的信用損失準備金。
註釋4—股票證券
權益證券由對一個符合社區再投資法案的投資基金的投資組成,該基金是一個公開交易的共同基金,以及對太平洋海岸銀行的普通股的投資,這是一種較少交易的限制性股票。截至2024年9月30日和2023年12月31日,權益證券總計爲$
11
可以隨時確定公允價值的權益證券按公允價值計量,已實現和未實現的收益和損失在合併的運營基本報表中列爲非利息收入。截止到2024年9月30日和2023年12月31日,公允價值可隨時確定的權益證券爲$
截止三個月 | 截止九個月 | |||||||||||
2023年9月30日, | 2023年9月30日, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
在本期間記錄的股票證券淨收益(損失) | $ | | $ | ( | $ | | $ | ( | ||||
減:在本期間賣出股票證券記錄的淨收益(損失) |
| — | — |
| — | — | ||||||
在報告日期持有的股票證券期間記錄的未實現收益(損失) | $ | | $ | ( | $ | | $ | ( |
公司選擇使用不易確定公允價值的股權證券的計量替代方法來對其投資進行會計處理,因此在截至2024年9月30日和2023年9月30日的九個月內,由於沒有減值證據或可觀察的交易活動,該投資按成本計入。該投資報告爲$
注5—貸款
持有待投資的貸款
持有待投資的貸款的主要類別及信用損失準備金如下:
2023年9月30日, | 截至12月31日, | |||||
| 2024 |
| 2023 | |||
住宅房地產 | $ | | $ | | ||
商業房地產 |
| |
| | ||
施工 | | | ||||
商業和工業 | | | ||||
其他消費 | | | ||||
總貸款 | | | ||||
減:信用損失準備金 | ( | ( | ||||
貸款,淨額 | $ | | $ | |
與總貸款相關的應計利息應收款爲$
公司已承諾貸款總額爲$
在2023年3月,持有投資的住宅房地產貸款的攤餘成本爲$
在截至2023年9月30日的九個月中,公司以$的賬面價值將其所有待售貸款賣出。
12
信用損失準備金
信用損失準備金的估算是使用當前預期信用損失模型進行的。公司對信用損失準備金的估算反映了貸款剩餘合同期限內預計的損失。合同期限不考慮延期、續約或修改,除非公司已識別出個別借款人正面臨財務困難。以下表格展示了截至2024年和2023年9月30日,按投資組合細分持有貸款相關的信用損失準備金的活動情況:
住宅 | 商業 | 商業 | |||||||||||||
截至2024年9月30日的三個月 |
| 房地產業 |
| 房地產業 |
| 施工 |
| 和工業 |
| 總計 | |||||
信貸損失準備金: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
期初餘額 |
| $ | | $ | | $ | | $ | | $ | | ||||
信用損失的準備(回收) |
| ( | ( | | |
| ( | ||||||||
沖銷 |
| — | — | — | — |
| — | ||||||||
回收 |
| — | — | | — |
| | ||||||||
總期末餘額 |
| $ | | $ | | $ | | $ | | $ | |
住宅 | 商業 | 商業 | |||||||||||||
截至2024年9月30日的九個月 |
| 房地產業 |
| 房地產業 |
| 施工 |
| 和工業 |
| 總計 | |||||
信貸損失準備金: |
|
|
|
|
|
|
|
|
|
| |||||
期初餘額 | $ | | $ | | $ | | $ | | $ | | |||||
信用損失的準備(回收) |
| ( |
| ( |
| ( |
| |
| ( | |||||
沖銷 |
| — |
| — |
| — |
| — |
| — | |||||
回收 |
| |
| — |
| |
| — |
| | |||||
期末總餘額 | $ | | $ | | $ | | $ | | $ | |
| 住宅 |
| 商業 |
|
| 商業 |
| ||||||||
截至2023年9月30日的三個月 |
| 房地產業 |
| 房地產業 |
| 施工 |
| 和工業 |
| 總計 | |||||
信貸損失準備金: |
|
|
|
|
|
|
|
|
|
| |||||
期初餘額 |
| $ | | $ | | $ | | $ | | $ | | ||||
信用損失的準備(回收) |
| | ( | ( | |
| ( | ||||||||
沖銷 |
| — | — | — | — |
| — | ||||||||
回收 |
| — | — | | — |
| | ||||||||
總結餘餘額 |
| $ | | $ | | $ | | $ | | $ | |
| 住宅 |
| 商業 |
|
| 商業 |
| ||||||||
截至2023年9月30日的九個月 | 房地產業 | 房地產 | 施工 | 以及工業 | 總計 | ||||||||||
信貸損失準備金: |
|
|
|
|
|
|
|
|
|
| |||||
期初餘額 | $ | | $ | | $ | | $ | | $ | | |||||
採用ASU 2016-13 |
| |
| | ( | ( |
| ( | |||||||
採納ASU 2022-02 |
| ( |
| — | | — |
| | |||||||
信用損失的準備(回收) | ( | |
| ( |
| | ( | ||||||||
沖銷 | ( | — |
| — |
| — | ( | ||||||||
回收 |
| |
| |
| |
| — |
| | |||||
總期末餘額 | $ | | $ | | $ | | $ | | $ | |
13
非應計 貸款和逾期貸款
逾期貸款是指在本金或利息支付方面合同規定逾期30天或更長時間的投資貸款。當本金或利息的合同支付逾期90天時,投資貸款被歸類爲非應計貸款,並停止對該貸款的利息計提。此外,在管理層對本金或利息的進一步可收回性有嚴重懷疑時,即使貸款處於正常還款狀態,貸款也可能在任何其他時間被置於非應計狀態。如果投資貸款處於催收過程中並且抵押物安全,則可以保持應計狀態。當投資貸款被置於非應計狀態時,未收取但已計提的利息將會從利息收入中衝回。在此類貸款上收到的利息將用於抵消貸款的本金餘額,直到符合重新轉入應計狀態的條件。貸款在所有合同到期的本金和利息支付完成且未來支付合理有保障後,將恢復爲應計狀態。
下表顯示了在非應計狀態下貸款的總攤銷成本基礎、在非應計狀態下沒有相關信用損失準備金的貸款攤銷成本基礎,以及截至2024年9月30日和2023年12月31日的逾期90天或更長時間但仍在計息的貸款:
2024年9月30日 | 2023年12月31日 | |||||||||||||||||
非應計 | 逾期90天 | 非應計 | 逾期90天 | |||||||||||||||
沒有 | 天或更多 | 沒有 | 天或更多 | |||||||||||||||
非應計 | 貸款損失準備金 | 並且仍然 | 非應計 | 貸款損失準備金 | 並且仍然 | |||||||||||||
| 貸款 |
| 信用損失 |
| 計提中 |
| 貸款 |
| 信用損失 |
| 計提中 | |||||||
住宅房地產: |
|
|
|
|
|
|
| |||||||||||
居民第一按揭 | $ | | $ | | $ | | $ | | $ | | $ | |
截至2024年9月30日,公司持有的投資貸款組合中有不計息貸款$
如果在原始條款下,逾期貸款按時償還所記錄的總利息收入爲$
逾期貸款的老化分析
下表顯示截至2024年9月30日和2023年12月31日合同性逾期貸款的攤餘成本基礎的老化情況:
| 30 - 59 |
| 60 - 89 |
| 90天 |
|
|
| ||||||||||
天 | 天 | 或更多 | 總計 | 當前 | ||||||||||||||
2024年9月30日 |
| 逾期 |
| 逾期 |
| 逾期 |
| 逾期 |
| 貸款 | 總計 | |||||||
住宅房地產 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
商業房地產 |
| — |
| — |
| — |
| — | |
| | |||||||
施工 |
| — |
| — |
| — |
| — | |
| | |||||||
商業和工業 |
| — |
| — |
| — |
| — | |
| | |||||||
其他消費 |
| — |
| — |
| — |
| — | |
| | |||||||
總計 | $ | | $ | | $ | | $ | | $ | | $ | |
30 - 59 | 60 - 89 | 90天 | ||||||||||||||||
天 | 天 | 或更多 | 總計 | 當前 | ||||||||||||||
2023年12月31日 |
| 逾期 |
| 逾期 |
| 逾期 |
| 逾期 |
| 貸款 |
| 總計 | ||||||
住宅房地產 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
商業房地產 |
| — |
| — |
| — |
| — | |
| | |||||||
施工 |
| — |
| — |
| — |
| — | |
| | |||||||
商業和工業 |
| — |
| — |
| — |
| — | |
| | |||||||
其他消費 |
| — |
| — |
| — |
| — | |
| | |||||||
總計 | $ | | $ | | $ | | $ | | $ | | $ | |
14
抵押品依賴貸款
抵押品依賴貸款是指償還(根據公司在報告日期的評估)預計主要通過抵押品的事件或出售來提供,且借款人正經歷財務困難。抵押品依賴貸款的攤銷成本基礎爲 $
針對面臨財務困難的借款人所做的修改可能包括利率降低、本金或利息免除、寬限、期限延長和其他旨在減少經濟損失並避免抵押品被止贖或再處置的措施。歷史上,公司已按要求爲住宅借款人提供貸款寬限,並通過提供期限延長來修改施工貸款。公司在截至三個月和九個月時,沒有面臨財務困難的借款人持有的投資貸款被修改。 九月 截至2024年30日和2023年,公司沒有針對面臨財務困難的借款人持有的投資貸款在之前被修改後隨後違約。 九月 截至2024年30日和2023年。
信用質量因數
公司根據借款人償還債務的能力相關信息(如:當前財務信息、歷史還款記錄、信用文件、公共信息以及當前經濟趨勢等因素)將貸款分類爲風險類別。公司通過對貸款進行個別分析,將貸款按信用風險進行分類。此分析包括同質貸款,如住宅房地產業和其他消費貸款,以及非同質貸款,如商業和工業、施工及商業房地產業貸款。此分析至少每季度進行一次。公司對風險評級使用以下定義:
特別關注:被分類爲特別關注的貸款存在潛在弱點,值得管理層密切關注。如果這些潛在弱點不加以糾正,可能會導致貸款的還款前景或公司未來的信用狀況惡化。
不合格:被分類爲不合格的貸款未被當前債務人的淨資產和償還能力或任何抵押品充分保護。被如此分類的貸款存在明確的弱點,可能危及貸款的清算。如果不足之處未得到糾正,公司將可能遭受損失。
可疑:被分類爲可疑的貸款具有不合格貸款所固有的所有弱點,且其弱點使得基於當前存在的事實、條件和價值進行完全收回或清算的可能性非常可疑且不太可能。
未滿足上述標準並作爲上述描述過程的一部分進行單獨分析的貸款被視爲合格貸款。
15
對於住宅和消費貸款類別,公司根據貸款的應計狀態評估信用質量。以下表格顯示了根據應計狀態按貸款 origination 年和信用質量的攤銷成本:
循環 | 循環 | ||||||||||||||||||||||||||
貸款 | 貸款 | ||||||||||||||||||||||||||
按原始年份來計算的定期貸款攤銷成本基礎 | 攤餘 | 轉換 | |||||||||||||||||||||||||
截至2024年9月30日 |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 以前 |
| 成本基礎 |
| 到期 |
| 總計 | |||||||||
住宅貸款 | |||||||||||||||||||||||||||
住宅抵押貸款: | |||||||||||||||||||||||||||
支付表現: |
| ||||||||||||||||||||||||||
應計 | $ | — | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
非應計 |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||||
總住宅抵押貸款 | $ | — | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
住宅按揭貸款: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
當前期間的總註銷 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
循環 | 循環 | ||||||||||||||||||||||||||
貸款 | 貸款 | ||||||||||||||||||||||||||
按發放年份計算的定期貸款攤銷成本基礎 | 攤餘 | 轉換 | |||||||||||||||||||||||||
截至2023年12月31日 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 以前 |
| 成本基礎 |
| 到期 |
| 總計 | |||||||||
住宅貸款 | |||||||||||||||||||||||||||
住房抵押貸款: | |||||||||||||||||||||||||||
支付表現: | |||||||||||||||||||||||||||
應計 | $ | | $ | | $ | | $ | | $ | | $ | |
| $ | | $ | | $ | | ||||||||
非應計 |
| — |
| — |
| — |
| — |
| |
| |
| — |
| — |
| | |||||||||
總住宅抵押貸款 | $ | | $ | | $ | | $ | | $ | | $ | |
| $ | | $ | | $ | | ||||||||
住宅按揭貸款: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
當前期間的總沖銷 | $ | — | $ | — | $ | — | $ | — | $ | | $ | |
| $ | | $ | — | $ | |
根據最近進行的分析,公司的商業貸款按年份和信用質量指標的攤銷成本基礎如下:
循環 | 循環 | ||||||||||||||||||||||||||
貸款 | 貸款 | ||||||||||||||||||||||||||
按原始年份的定期貸款攤銷成本基礎 | 攤銷 | 轉換 | |||||||||||||||||||||||||
截至2024年9月30日 |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| 以前 |
| 成本基礎 |
| 至期限 |
| 總計 | |||||||||
商業貸款 | |||||||||||||||||||||||||||
商業房地產: | |||||||||||||||||||||||||||
風險評級 |
| ||||||||||||||||||||||||||
通過 | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
特別提及 |
| |
| |
| |
| — |
| — |
| |
| — |
| — |
| | |||||||||
亞標準 |
| — |
| — |
| — |
| |
| — |
| |
| — |
| — |
| | |||||||||
商業房地產總計 | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
商業房地產: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
當前期間的毛額沖銷 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
建設: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
風險評級 |
| ||||||||||||||||||||||||||
通過 | $ | — | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | | |||||||||
亞標準 |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | |||||||||
總施工 | $ | — | $ | | $ | — | $ | — | $ | — | $ | | $ | — | $ | — | $ | | |||||||||
建設: |
| ||||||||||||||||||||||||||
當前期間的毛額沖銷 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
商業和工業: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
風險評級 |
| ||||||||||||||||||||||||||
通過 | $ | — | $ | | $ | — | $ | — | $ | — | $ | | $ | | $ | — | $ | | |||||||||
總商業和工業 | $ | — | $ | | $ | — | $ | — | $ | — | $ | | $ | | $ | — | $ | | |||||||||
商業和工業: |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
當前期間的毛額沖銷 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
16
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and 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 | |||||||||||||||||||||||||||
Commercial real estate: | |||||||||||||||||||||||||||
Risk rating | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Special mention | | | | | | | — | — | | ||||||||||||||||||
Substandard |
| — |
| — |
| |
| — |
| |
| |
| — |
| — |
| | |||||||||
Total commercial real estate | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Current period gross charge offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Construction: | |||||||||||||||||||||||||||
Risk rating | |||||||||||||||||||||||||||
Pass | $ | | $ | — | $ | — | $ | | $ | — | $ | — | $ | — | $ | — | $ | | |||||||||
Substandard | — | — | — | — | | — | — | — | | ||||||||||||||||||
Total construction | $ | | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | — | $ | | |||||||||
Construction: | |||||||||||||||||||||||||||
Current period gross charge offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Commercial and industrial: | |||||||||||||||||||||||||||
Risk rating | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | — | $ | — | $ | — | $ | | $ | | $ | | $ | | |||||||||
Total commercial and industrial | $ | | $ | | $ | — | $ | — | $ | — | $ | | $ | | $ | | $ | | |||||||||
Commercial and industrial: | |||||||||||||||||||||||||||
Current period gross charge offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
Note 6—Mortgage Servicing Rights, net
The 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 September 30, 2024 and December 31, 2023 are as follows:
September 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Residential real estate mortgage loan portfolios serviced for: |
|
|
|
| ||
FNMA | $ | | $ | | ||
FHLB |
| |
| | ||
Private investors |
| |
| | ||
Total | $ | | $ | |
Custodial escrow balances maintained with these serviced loans were $
17
抵押貸款服務權及相關估值準備的活動如下:
截止三個月 | 截止九個月 | |||||||||||
2023年9月30日, | 2023年9月30日, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
抵押貸款服務權: |
|
| ||||||||||
期初 | $ | | $ | | $ | | $ | | ||||
攤銷 | ( | ( |
| ( |
| ( | ||||||
期末 | | |
| |
| | ||||||
估值準備: | ||||||||||||
期初 | | |
| |
| | ||||||
增補(恢復) | | ( |
| |
| ( | ||||||
期末 | | |
| |
| | ||||||
抵押貸款服務權,淨額 | $ | | $ | | $ | | $ | |
服務收入,扣除服務權利的攤銷和估值準備的變化後爲$
抵押貸款服務權利的公允價值爲$
減值是通過根據主要風險特徵(如利率、貸款類型和投資者類型)將抵押貸款服務權分層分組來確定的。到2024年9月30日和2023年12月31日,某些單獨分組的賬面價值超過其公允價值,導致減值至公允價值。請參見說明14——公允價值。
說明7——存款
在簡明合併資產負債表中,計入利息-bearing 存款的定期存款爲$
滿足或超過FDIC保險限額250美元的定期存款爲$
注意 8 — FHLb 借款
FHLb 貸款
2024年5月15日,FHLb 行使其看漲權,要求償還公司長期固定利率FHLb 貸款的 $
18
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
FHLB Overdraft Line of Credit and Letters of Credit
The Company has established a short-term overdraft line of credit agreement with the FHLB, which provides for maximum borrowings of $
The Company entered into irrevocable standby letters of credit arrangements with the FHLB 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 $
Based on our collateral pledged with the FHLB, consisting of certain loans and investment securities, and holdings of FHLB stock, the Company had a borrowing capacity with the FHLB of $
Other Borrowings
The Company has available unsecured federal funds credit lines, which were held by two banks and reduced to $
Note 9— Subordinated Notes
On July 15, 2023, the Company redeemed all of its outstanding
The Subordinated Notes accrued interest at a variable interest rate based on the three-month London Interbank Offered Rate (“LIBOR”) plus a margin of
Note 10—Stock-based Compensation
The board of directors established the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which was approved by the shareholders in December 2020. The 2020 Plan provides for the grant of up to
Previously, the board of directors had established a 2017 Omnibus Equity Incentive Plan (the “2017 Plan”) which was approved by the shareholders. The stock-based awards were issued at no less than the market price on the date the awards were granted. Due to the adoption of the 2020 Plan, no further grants will be issued under the 2017 Plan.
19
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
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. Beginning with grants in 2020, stock option awards vest ratably over
A summary of the Company’s stock option activity as of and for the nine months ended September 30, 2024 is as follows:
|
|
| Weighted |
| ||||||
Weighted | Average | |||||||||
Average | Remaining | Aggregate | ||||||||
Number | Exercise | Contractual | Intrinsic | |||||||
of Shares | Price | Term | Value | |||||||
| (Years) | |||||||||
Outstanding at January 1, 2024 |
| | $ | |
| $ | | |||
Granted |
| — |
|
|
|
|
| |||
Exercised |
| — |
|
|
|
|
|
| ||
Forfeited/expired |
| — | ||||||||
Outstanding and exercisable at September 30, 2024 |
| | $ | | $ | |
The Company recorded stock-based compensation expense associated with stock options of $
Restricted Stock Awards
Restricted stock awards are issued to independent directors and certain key employees. The restricted stock awards generally vest
During the nine months ended September 30, 2024, the board of directors approved the issuance of
During the nine months ended September 30, 2024 and 2023, the Company withheld
20
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
A summary of the restricted stock awards activity as of and for the nine months ended September 30, 2024 is as follows:
|
| Weighted Average | |||
Number | Grant Date | ||||
| of Shares |
| Fair Value | ||
Nonvested at January 1, 2024 |
| | $ | | |
Granted |
| |
| | |
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Nonvested at September 30, 2024 |
| | $ | |
The fair value of the award is recorded as compensation expense on a straight-line basis over the vesting period. The Company recorded stock-based compensation expense associated with restricted stock awards of $
Note 11—Shareholders’ Equity
In April 2023, the Company issued and contributed
Note 12—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 capital to average total assets (leverage) ratio of greater than
21
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
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 September 30, 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 capital amounts and leverage ratio, and the minimum required capital amounts and leverage ratio thresholds required under the CBLR framework at September 30, 2024 and December 31, 2023:
To be Well Capitalized Under | |||||||||||
Prompt Corrective Action | |||||||||||
Actual | Regulations (CBLR Framework) | ||||||||||
| Amount |
| Ratio |
| Amount |
| Ratio | ||||
September 30, 2024 |
|
|
|
|
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| ||
Tier 1 (core) capital to average total assets (leverage ratio) |
| ||||||||||
Consolidated | $ | | | % | $ | | | % | |||
Bank | $ | | | % | $ | | | % |
To be Well Capitalized Under | |||||||||||
Prompt Corrective Action | |||||||||||
Actual | Regulations (CBLR Framework) | ||||||||||
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
December 31, 2023 |
|
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|
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|
| ||
Tier 1 (core) capital to average total assets (leverage ratio) |
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| ||
Consolidated | $ | |
| % | $ | |
| % | |||
Bank | $ | |
| % | $ | |
| % |
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 13—Income (Loss) Per Share
Basic income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income per common share further includes any common shares available to be issued upon the exercise of outstanding stock options and restricted stock awards if such inclusions would be dilutive. The Company determines the potentially dilutive common shares using the treasury stock method. In periods of a net loss, basic and diluted per share information are the same.
22
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
The following table presents the computation of income (loss) per share, basic and diluted:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Numerator: |
|
|
|
|
|
|
|
| ||||
Net income (loss) | $ | ( | $ | | $ | | $ | | ||||
Denominator: |
|
|
|
| ||||||||
Weighted average common shares outstanding, basic |
| |
| |
| |
| | ||||
Weighted average effect of potentially dilutive common shares: |
|
|
|
| ||||||||
Stock options |
| — |
| |
| |
| | ||||
Restricted stock |
| — |
| |
| |
| | ||||
Weighted average common shares outstanding, diluted |
| |
| |
| |
| | ||||
|
|
|
| |||||||||
Income (loss) per share, basic and diluted | $ | ( | $ | | $ | | $ | |
The weighted average effect of certain stock options and nonvested restricted stock that were excluded from the computation of weighted average diluted shares outstanding, as inclusion would be anti-dilutive, are summarized as follows:
Three Months Ended |
| Nine Months Ended | ||||||
September 30, | September 30, | |||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |
Stock options |
| |
| |
| |
| |
Restricted stock |
| |
| |
| |
| |
Total |
| |
| |
| |
| |
Note 14—Fair Value
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 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.
23
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
The following methods and significant assumptions are used to estimate fair 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). 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 evaluated for impairment based upon third-party valuations obtained. As disclosed in Note 6—Mortgage Servicing Rights, net, the valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants would use in estimating future net servicing income (Level 3).
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 September 30, 2024 and December 31, 2023:
Fair Value Measurements | ||||||||||||
at September 30, 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 | $ | | $ | | $ | | $ | — | ||||
Mortgage-backed securities | |
| — |
| |
| — | |||||
Collateralized mortgage obligations |
| |
| — |
| |
| — | ||||
Collateralized debt obligations |
| |
| — |
| — |
| | ||||
Equity securities |
| | | — | — |
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 | $ | | $ | | $ | | $ | — | ||||
Mortgage-backed securities | |
| — |
| |
| — | |||||
Collateralized mortgage obligations |
| |
| — |
| |
| — | ||||
Collateralized debt obligations |
| |
| — |
| — |
| | ||||
Equity securities | | | — | — |
24
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and 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) for the nine months ended September 30, 2024 and 2023:
Fair Value | ||||||
Measurements Using Significant | ||||||
Unobservable Inputs (Level 3) | ||||||
Collateralized Debt Obligations | ||||||
Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Balance of recurring Level 3 assets at beginning of period | $ | | $ | | ||
Total gains or losses (realized/unrealized): |
|
|
| |||
| |
| ( | |||
Principal maturities/settlements | ( | ( | ||||
Balance of recurring Level 3 assets at end of period | $ | | $ | |
Assets Measured at Fair Value on a Nonrecurring Basis
From time to time, the 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. For assets measured at fair value on a nonrecurring basis that were recorded in the condensed consolidated balance sheets at September 30, 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 September 30, 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 | $ | | $ | — | $ | — | $ | |
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 | $ | | $ | — | $ | — | $ | |
25
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
The following tables present quantitative information about Level 3 fair value measurements for assets measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023:
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2024 | |||||||||
Range | |||||||||
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| (Weighted Average) (1) | ||
Mortgage servicing rights | $ | | Discounted cash flow | Discount rate | |||||
( | |||||||||
|
|
|
| Prepayment speed | |||||
( | |||||||||
Default rate | |||||||||
( |
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 | $ | | Discounted cash flow | Discount rate | |||||
( | |||||||||
Prepayment speed | |||||||||
( | |||||||||
Default rate | |||||||||
( |
(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. |
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments not carried at fair value at September 30, 2024 and December 31, 2023, are as follows:
Fair Value Measurements | |||||||||||||||
at September 30, 2024 | |||||||||||||||
Carrying | Fair | ||||||||||||||
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
Financial Assets |
|
|
|
|
|
|
|
|
| ||||||
Cash and due from banks | $ | | $ | | $ | | $ | — | $ | — | |||||
Interest-bearing time deposits with other banks |
| |
| |
| |
| — |
| — | |||||
Loans, net |
| |
| |
| — |
| — |
| | |||||
Financial Liabilities |
| ||||||||||||||
Time deposits |
| |
| |
| — |
| |
| — |
Fair Value Measurements | |||||||||||||||
at December 31, 2023 | |||||||||||||||
Carrying | Fair | ||||||||||||||
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
Financial Assets |
|
|
|
|
|
|
|
|
| ||||||
Cash and due from banks | $ | | $ | | $ | | $ | — | $ | — | |||||
Interest-bearing time deposits with other banks |
| |
| |
| |
| — |
| — | |||||
Loans, net |
| |
| |
| — |
| — |
| | |||||
Financial Liabilities |
|
|
|
|
| ||||||||||
Time deposits |
| |
| |
| — |
| |
| — | |||||
Federal Home Loan Bank borrowings |
| |
| |
| — |
| |
| — |
26
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
Note 15—Commitments and Contingencies
Financial Instruments with Off-Balance Sheet Risk
The 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 nine months ended September 30, 2024 and 2023:
| Residential |
| Commercial |
|
| Commercial |
| ||||||||
Nine Months Ended September 30, 2024 | Real Estate | Real Estate | Construction | and Industrial | Total | ||||||||||
Liability for unfunded commitments: | |||||||||||||||
Balance at the beginning of the period | $ | | $ | | $ | | $ | | $ | | |||||
Increase (decrease) in provision for (recovery of) credit losses | | ( | | | | ||||||||||
Total ending balance | $ | | $ | | $ | | $ | | $ | |
Residential | Commercial | Commercial | |||||||||||||
Nine Months Ended September 30, 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 |
| | | | |
| | ||||||||
Increase (decrease) in provision for (recovery of) credit losses |
| ( |
| |
| ( |
| |
| ( | |||||
Total ending balance | $ | | $ | | $ | | $ | | $ | |
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 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 used. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans.
Unused Lines of Credit
The Company also issues unused lines of credit to meet customer financing needs. At September 30, 2024, the unused lines of credit include residential second mortgages of $
27
STERLING BANCORP, INC.
Notes to Condensed Consolidated Financial Statements – (Unaudited)
(dollars in thousands, except share and per share amounts)
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 Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the 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 Company is limited to the contractual amount of these letters. Collateral 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.
The following is a summary of the total amount of unfunded commitments to extend credit and standby letters of credit outstanding at September 30, 2024 and December 31, 2023:
September 30, | December 31, | |||||
| 2024 |
| 2023 | |||
Unused lines of credit | $ | | $ | | ||
Standby letters of credit |
| |
| |
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.
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 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 September 30, 2024, there is an outstanding agreement to repurchase an additional pool of Advantage Loan Program loans with an unpaid principal balance of $
At September 30, 2024 and December 31, 2023, the mortgage repurchase liability was $
Activity in the mortgage repurchase liability was as follows:
| Nine Months Ended September 30, | |||||
| 2024 |
| 2023 | |||
Balance, beginning of period |
| $ | |
| $ | |
Net recovery |
| ( |
| ( | ||
Balance, end of period |
| $ | |
| $ | |
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the U.S. Securities and Exchange Commission (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 certain statements that are, or may be deemed to be, “forward-looking statements” regarding the Company’s plans, expectations, thoughts, beliefs, estimates, goals and outlook for the future. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial 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” and “would,” or the negative versions of those words or other comparable words or phrases of a future or forward-looking 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 expectations for the anticipated sale of the Bank and ensuing Plan of Dissolution, the economy and financial markets, 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. 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 for the quarter ended September 30, 2024, see the risk factors set forth under “Item 1A. Risk Factors” in our 2023 Form 10-K and under “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. 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.
29
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 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.
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 set forth under “Item 1A. Risk Factors” 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 the Transaction
● | The impact of the announcement and pendency of the Transaction on our current business and contractual restrictions |
● | The receipt of regulatory approvals and any unanticipated additional conditions that regulators may impose in order to close the Transaction |
● | The Stock Purchase Agreement being terminated or the Transaction not completed, and the impact of such on our business |
● | The Stock Purchase Agreement’s restrictions on our ability to seek alternative acquisition proposals from competing acquirers |
● | Shareholder litigation that could prevent or delay the completion of the Transaction |
Risks Related to the Plan of Dissolution
● | The timing or ultimate amount of distributions to shareholders |
● | Shareholder liability to third parties for part or all of the liquidating distributions if cash reserves are inadequate |
● | The inability of shareholders of record to buy or sell shares of common stock after we close our stock transfer books at the effective time of the dissolution |
● | The expense of being a public reporting company if the exit process from certain Exchange Act reporting requirements is protracted |
● | The loss of key personnel on our ability to efficiently dissolve, delist, liquidate and wind down |
Risks Related to the Economy and Financial Markets
● | The effects of fiscal and monetary policies and regulations of the federal government and the Federal Reserve |
● | 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 |
30
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, including an accelerated decrease 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 |
● | Our deposit account balances that exceed the FDIC insurance limits may expose the Bank to enhanced liquidity risk |
Risks Related to Our Highly Regulated Industry
● | The extensive laws and regulations affecting the financial services industry, changes in banking and securities laws and regulations and their application by our regulators in the examination process, including as a result of the bank failures in 2023, and the expensive costs of compliance related thereto |
● | 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 |
31
● | The ability of customers and counterparties to provide accurate and complete information and the soundness of third parties on which we rely |
● | Our employees’ adherence to our internal policies and procedures |
● | The effects of natural disasters on us and our California borrowers and the adequacy of our business continuity and disaster recovery plans |
● | Environmental, Social and Governance matters and their effects on our reputation and the market price of our securities |
● | Climate change and related legislative and regulatory initiatives |
● | Adverse conditions internationally and their effects on our customers |
● | Fluctuations in securities markets, including changes to the valuation of our securities portfolio |
● | The reliance of our critical accounting policies and estimates, including for the allowance for credit losses, on analytical and forecasting techniques and models |
● | Compliance with the Plea Agreement and the effect of the Plea Agreement on our reputation and ability to raise capital |
● | 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 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, and our primary 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 metropolitan areas with the remaining branches located in New York, New York and Southfield, Michigan.
Sale of the Bank and Dissolution of the Company
On September 15, 2024, we entered into the Stock Purchase Agreement with EverBank, which provides that, upon the terms and subject to the conditions set forth therein, EverBank will acquire all of the issued and outstanding shares of capital stock of the Bank from the Company for a fixed purchase price of $261.0 million to be paid in cash to the Company. Afterward, EverBank will cause the Bank to merge with and into EverBank, National Association, the bank subsidiary of EverBank, with EverBank, National Association as the surviving bank. At that time, the separate corporate existence of the Bank will cease. The Stock Purchase Agreement contains customary representations and warranties from both EverBank and us, and we have agreed to customary covenants.
32
The Transaction is subject to customary closing conditions, among which include the approval of the Stock Purchase Agreement, the Transaction and the Plan of Dissolution by the requisite vote of the Company’s shareholders and the receipt of required regulatory approvals. In addition, EverBank’s obligation to complete the Transaction is also subject to the following conditions: (i) the sale by the Bank of its portfolio of residential tenant-in-common loans (with an aggregate principal balance of approximately $359.6 million at September 30, 2024) and receipt by the Bank of the purchase price and (ii) the average daily closing balance of the Bank’s deposits for the monthly period ending on the last day of the month before closing is not less than 85% of the average daily closing balance of such deposits for the monthly period ending on July 31, 2024.
Simultaneously with the execution of the Stock Purchase Agreement for the Transaction, the Bank entered into the Mortgage Loan Purchase Agreement with Bayview. The Mortgage Loan Purchase Agreement provides that Bayview will purchase the Bank’s residential tenant-in-common mortgage loans. The Bank’s obligation to consummate the sale contemplated by the Mortgage Loan Purchase Agreement is subject to certain conditions, including the receipt by the Bank of evidence of the shareholder and regulatory approvals required for the Transaction.
Also on September 15, 2024, our board of directors unanimously approved the Plan of Dissolution, which provides for the dissolution of the Company under Michigan law, subject to shareholder approval. If the Plan of Dissolution is approved, we intend to file a certificate of dissolution with the Michigan Department of Licensing and Regulatory Affairs and distribute all remaining assets, expected to be all cash, to our shareholders according to their respective rights and interests. We expect to make an initial distribution shortly after the closing of the Transaction and filing of the certificate of dissolution, with the final distribution subject to first completing the wind down of the Company and paying or providing for the Company’s creditors and existing and reasonably foreseeable debts, liabilities, and obligations in accordance with Michigan law and the Plan of Dissolution.
Overview of Quarterly Performance
Our financial results for the three months ended September 30, 2024 reflect a net loss as we engaged in an extensive effort to negotiate and finalize the terms of the Transaction while continuing to work to protect both book value and liquidity. We believe our credit quality, liquidity and capital ratios are robust. Total assets increased during the three months ended September 30, 2024, with cash and due from banks increasing primarily due to net cash inflows from growth in deposits and a decline in loans. Market interest rates continue to exert pressure on our net interest margin.
Our net loss was $(0.1) million for the three months ended September 30, 2024 compared to net income of $0.3 million for the three months ended September 30, 2023. The net loss for the three months ended September 30, 2024 reflects a decline in net interest income from $16.0 million during the three months ended September 30, 2023 to $13.6 million during the three months ended September 30, 2024. The decline in our net interest income primarily reflects a significant increase in our deposit costs in the higher interest rate environment, which outpaced the increase in the yields we earned on our interest-earning assets. Our non-interest income for the three months ended September 30, 2024 was essentially unchanged from the three months ended September 30, 2023.
The decline in non-interest expense of $2.1 million, or 12%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to a $1.2 million decrease in professional fees, although results for the three months ended September 30, 2024 included increased professional fees incurred in connection with the Transaction. Professional fees decreased substantially as the last of the government investigations against the Company and the Bank were resolved in 2023.
Our credit quality remained strong overall, though nonperforming residential real estate loans have increased during 2024. Our nonperforming assets, consisting entirely of residential real estate loans, were $13.2 million, or 0.54% of total assets, at September 30, 2024 compared to $9.0 million, or 0.37% of total assets, at December 31, 2023. In addition, our provision for (recovery of) credit losses was $(2.3) million during the three months ended September 30, 2024 compared to $(1.9) million during the three months ended September 30, 2023.
At September 30, 2024, the Tier 1 capital to average total assets (leverage) ratios of both the Company and the Bank remained above the capital ratio requirements to be considered well capitalized under the applicable prompt corrective action requirements.
33
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 nine months ended September 30, 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 are disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s 2023 Form 10-K.
Balance Sheet and Capital Analysis
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.
At September 30, 2024 |
| At December 31, 2023 | |||||||||
| Amount |
| % |
| Amount |
| % |
| |||
| (Dollars in thousands) | ||||||||||
Real estate: | |||||||||||
Residential real estate | $ | 904,438 | 74 | % | $ | 1,085,776 |
| 80 | % | ||
Commercial real estate |
| 306,927 | 25 | % |
| 236,982 |
| 18 | % | ||
Construction |
| 5,212 | — | % |
| 10,381 |
| 1 | % | ||
Total real estate |
| 1,216,577 |
| 99 | % |
| 1,333,139 |
| 99 | % | |
Commercial and industrial |
| 7,158 |
| 1 | % |
| 15,832 |
| 1 | % | |
Other consumer |
| 2 |
| — | % |
| 1 |
| — | % | |
Total loans |
| 1,223,737 |
| 100 | % |
| 1,348,972 |
| 100 | % | |
Less: allowance for credit losses |
| (24,970) |
|
| (29,404) |
|
| ||||
Loans, net | $ | 1,198,767 | $ | 1,319,568 |
|
|
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 September 30, 2024, approximately 76% of our loan portfolio was based in California with 53% and 23% in the San Francisco and Los Angeles metropolitan areas, respectively.
Residential Loans. Our loan portfolio consists primarily of residential real estate loans. Our residential loans totaled $904.4 million at September 30, 2024, a decrease of $181.3 million, or 17%, from $1.1 billion at December 31, 2023. This decrease includes loan payoffs prior to maturity of $132.6 million that have occurred since December 31, 2023.
At September 30, 2024, residential real estate loans accounted for 74% of total gross loans held for investment. Our residential real estate loans include a former loan product, consisting of one-, three-, five- or seven-year adjustable-rate mortgages that required a down payment of at least 35%, that was terminated in 2019, and continues to be the largest portion of our residential loans. This former loan product totaled $486.0 million, or 54% of gross residential loans at September 30, 2024 compared to $628.2 million, or 58% of gross residential loans at December 31, 2023.
In early 2023, the Bank discontinued originating residential real estate loans. No new residential real estate loans were added to our residential loan portfolio during the nine months ended September 30, 2024.
34
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 $319.3 million at September 30, 2024, an increase of $56.1 million from December 31, 2023. During the three and nine months ended September 30, 2024, we originated commercial loans with an aggregate principal balance of $59.3 million and $125.0 million, respectively, at the time of origination. 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 $306.9 million at September 30, 2024, of which the largest portion of these loans, or 39%, 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 may face increased risk of economic distress. The table below summarizes the commercial real estate loan portfolio, by property type, as of September 30, 2024:
At September 30, 2024 |
| |||||
|
| Percent of | ||||
| Amount |
| Total |
| ||
(Dollars in thousands) |
| |||||
Commercial real estate: | ||||||
Retail | $ | 57,192 | 19 | % | ||
Multifamily | 119,760 | 39 | % | |||
Office | 38,882 | 13 | % | |||
Hotels/Single-room occupancy hotels | 3,501 | 1 | % | |||
Industrial | 54,243 | 18 | % | |||
Mixed-Use | 10,723 | 3 | % | |||
Other | 22,626 | 7 | % | |||
Total | $ | 306,927 | 100 | % |
Our construction loans decreased to $5.2 million at September 30, 2024 from $10.4 million at December 31, 2023 due to construction loans that matured and were paid in full during the nine months ended September 30, 2024.
Our commercial and industrial loans totaled $7.2 million at September 30, 2024, a decrease of $8.7 million from December 31, 2023. The decrease is attributable to payments of loan principal of $14.0 million related to a shorter term loan which was partially offset by the addition of a new loan with a principal balance of $5.7 million at origination.
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 original or remaining life of the loan. The following table sets forth the recorded investment by interest rate type in our loan portfolio at September 30, 2024:
Adjustable Rate |
| ||||||||||||||||||
September 30, 2024 |
| Prime |
| Treasury |
| SOFR |
| Total |
| Fixed Rate |
| Total |
| ||||||
(Dollars in thousands) |
| ||||||||||||||||||
Residential real estate |
| $ | 7,738 |
| $ | 286,165 |
| $ | 594,041 |
| $ | 887,944 |
| $ | 16,494 |
| $ | 904,438 | |
Commercial real estate |
| — |
| 164,560 |
| 21,493 |
| 186,053 |
| 120,874 |
| 306,927 | |||||||
Construction |
| 5,203 |
| — |
| — |
| 5,203 |
| 9 |
| 5,212 | |||||||
Commercial and industrial |
| — |
| 346 |
| 6,281 |
| 6,627 |
| 531 |
| 7,158 | |||||||
Other consumer |
| — |
| — |
| — |
| — |
| 2 |
| 2 | |||||||
Total | $ | 12,941 | $ | 451,071 | $ | 621,815 | $ | 1,085,827 | $ | 137,910 | $ | 1,223,737 | |||||||
% by rate type at September 30, 2024 |
| 1 | % |
| 37 | % |
| 51 | % |
| 89 | % |
| 11 | % |
| 100 | % |
35
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 September 30, 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 | |||||||||||
September 30, 2024 |
| Year or Less |
| To Five Years |
| To Fifteen Years |
| Fifteen Years |
| Total | |||||
(In thousands) | |||||||||||||||
Residential real estate | $ | 1 | $ | 430 | $ | 11,663 | $ | 892,344 | $ | 904,438 | |||||
Commercial real estate | 19,361 | 117,959 | 169,607 |
| — | 306,927 | |||||||||
Construction | 5,203 | 9 | — |
| — | 5,212 | |||||||||
Commercial and industrial | 346 | 6,812 | — |
| — | 7,158 | |||||||||
Other consumer | 2 | — | — |
| — | 2 | |||||||||
Total | $ | 24,913 | $ | 125,210 | $ | 181,270 | $ | 892,344 | $ | 1,223,737 | |||||
Total loans with: | |||||||||||||||
Adjustable interest rates | $ | 5,550 | $ | 28,717 | $ | 170,421 | $ | 881,139 | $ | 1,085,827 | |||||
Fixed interest rates | 19,363 | 96,493 | 10,849 | 11,205 | 137,910 | ||||||||||
Total loans | $ | 24,913 | $ | 125,210 | $ | 181,270 | $ | 892,344 | $ | 1,223,737 |
The table set forth below contains the repricing dates of adjustable-rate loans included within our loan portfolio as of September 30, 2024:
Residential | Commercial |
|
| Commercial |
| Other |
| |||||||||||
September 30, 2024 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Consumer |
| Total | ||||||
(In thousands) | ||||||||||||||||||
Amounts to adjust in: |
|
|
|
|
|
| ||||||||||||
6 months or less | $ | 294,081 | $ | 67,922 | $ | 5,203 | $ | 6,627 | $ | — | $ | 373,833 | ||||||
After 6 months through 12 months |
| 313,902 |
| 4,305 |
| — |
| — |
| — |
| 318,207 | ||||||
After 12 months through 24 months |
| 106,758 |
| 928 |
| — |
| — |
| — |
| 107,686 | ||||||
After 24 months through 36 months |
| 55,090 |
| 60,421 |
| — |
| — |
| — |
| 115,511 | ||||||
After 36 months through 60 months |
| 72,114 |
| 51,236 |
| — |
| — |
| — |
| 123,350 | ||||||
After 60 months |
| 45,999 |
| 1,241 |
| — |
| — |
| — |
| 47,240 | ||||||
Fixed to maturity |
| 16,494 |
| 120,874 |
| 9 |
| 531 |
| 2 |
| 137,910 | ||||||
Total | $ | 904,438 | $ | 306,927 | $ | 5,212 | $ | 7,158 | $ | 2 | $ | 1,223,737 |
At September 30, 2024, $114.6 million, or 11%, of our adjustable interest rate loans were at their interest rate floor.
Asset Quality
Nonperforming Assets. Nonperforming assets include nonaccrual loans and loans that are past due 90 days or more and still accruing interest. Other than nonperforming loans, we do not have any other nonperforming assets. Restructuring of loans to borrowers who are experiencing financial difficulty are accounted for as a loan modification and further evaluated as to classification of a performing or nonperforming asset.
36
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.
The following table sets forth information regarding our nonperforming loans at the dates indicated.
| At September 30, | At December 31, |
| ||||
| 2024 |
| 2023 | ||||
(Dollars in thousands) |
| ||||||
Nonaccrual loans(1): |
|
| |||||
Residential real estate | $ | 13,187 |
| $ | 8,942 | ||
Loans past due 90 days or more and still accruing interest |
| 27 |
| 31 | |||
Total nonperforming loans | $ | 13,214 | $ | 8,973 | |||
Total loans(1) | $ | 1,223,737 | $ | 1,348,972 | |||
Total assets | $ | 2,438,554 | $ | 2,416,003 | |||
Nonaccrual loans to total loans |
| 1.08 | % |
| 0.66 | % | |
Nonperforming loans to total assets |
| 0.54 | % |
| 0.37 | % |
(1) | Loans are classified as held for investment and are presented before the allowance for credit losses. |
As of September 30, 2024, nonperforming assets, comprised primarily of nonaccrual residential real estate loans, totaled $13.2 million, an increase of $4.2 million from December 31, 2023. This increase was primarily due to residential loans of $9.8 million added to nonaccrual status. This increase was partially offset by loans totaling $2.5 million that were returned to accrual status, loans paid in full totaling $2.1 million and other payments of loan principal totaling $1.0 million.
As a result of the increase in nonaccrual loans, the ratio of nonaccrual loans to total loans increased to 1.08% at September 30, 2024 from 0.66% at December 31, 2023. Also, our ratio of nonperforming assets to total assets increased to 0.54% at September 30, 2024 from 0.37% at December 31, 2023.
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 $0.4 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and $0.8 million and $0.2 million for the nine months ended September 30, 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.
September 30, 2024 |
| December 31, 2023 | ||||||||||||||||
| 30 - 59 |
| 60 - 89 |
| 90 Days |
| 30 - 59 |
| 60 - 89 |
| 90 Days | |||||||
Days | Days | or More | Days | Days | or More | |||||||||||||
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Past Due |
| Past Due | |||||||
(In thousands) | ||||||||||||||||||
Residential real estate | $ | 8,612 | $ | 3,799 | $ | 13,214 | $ | 16,634 | $ | 2,305 | $ | 8,973 |
Total loans past due decreased $2.3 million, or 8%, from $27.9 million at December 31, 2023 to $25.6 million at September 30, 2024. This decrease is primarily due to a $8.0 million, or 48% decrease of loans 30-59 days past due to $8.6 million at September 30, 2024 from $16.6 million at December 31, 2023. Additionally, loans 90 days or more past due increased $4.2 million, or 47%, which includes nonaccrual loans, from $9.0 million at December 31, 2023. This increase was primarily attributable to the change in nonperforming assets discussed in “—Nonperforming Assets” above.
37
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 criticized as Special Mention or classified as Substandard or Doubtful were as follows at the dates indicated:
| September 30, |
| December 31, | ||||
| 2024 |
| 2023 | ||||
(Dollars in thousands) | |||||||
Special Mention: | |||||||
Commercial real estate |
| $ | 10,335 | $ | 21,516 | ||
Substandard: | |||||||
Residential real estate | 13,214 | 8,973 | |||||
Commercial real estate | 21,802 | 18,678 | |||||
Construction | 5,203 | 8,776 | |||||
Total Substandard | 40,219 | 36,427 | |||||
Total(1) | $ | 50,554 | $ | 57,943 | |||
Total loans | $ | 1,223,737 | $ | 1,348,972 | |||
Criticized and classified assets to total loans | 4 | % | 4 | % |
(1) | We did not have any loans classified as Doubtful at September 30, 2024 and December 31, 2023. |
Total Special Mention and Substandard loans were $50.6 million, or 4 % of total gross loans, at September 30, 2024, compared to $57.9 million, or 4% of total gross loans, at December 31, 2023.
The decrease of $11.2 million in Special Mention loans was primarily attributable to loans that were upgraded from Special Mention to Pass totaling $12.9 million, as a result of five commercial real estate loans where the borrowers took actions to improve the debt service coverage ratios of their loans. Additionally, a loan in the amount of $4.4 million was downgraded from Special Mention to Substandard. In addition, $5.3 million of loans were downgraded from Pass to Special Mention, while $1.1 million of Substandard loans were upgraded to Special Mention.
The increase of $3.8 million in Substandard loans was primarily attributable to loans downgraded to Substandard totaling $13.1 million which was partially offset by loans that were paid in full totaling $6.1 million, payments of loan principal totaling $0.8 million and loans that were upgraded from Substandard to Pass totaling $2.4 million.
Allowance for Credit Losses
The allowance for credit losses is a valuation allowance estimated at each condensed consolidated 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 credit losses is reduced by the same amount. Subsequent recoveries, if any, are credited to the allowance for 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 an 8-quarter forecast period and 2-quarter reversion period, which is the period where the macroeconomic variables are relaxed and revert to the average historical loss rates.
38
Also included in the allowance for 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 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 and nine months ended September 30, 2024 and 2023:
| Residential |
| Commercial |
|
| Commercial |
| Other |
|
| |||||||||
Three Months Ended September 30, 2024 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Consumer |
| Total |
| ||||||
(Dollars in thousands) |
| ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at the beginning of the period |
| $ | 12,971 | $ | 13,605 | $ | 809 | $ | 171 | $ | — | $ | 27,556 | ||||||
Provision for (recovery of) for credit losses |
| (710) |
| (2,109) |
| 52 |
| 171 |
| — |
| (2,596) | |||||||
Net (charge offs) recoveries |
|
|
|
|
|
| |||||||||||||
Charge offs |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Recoveries |
| — |
| — |
| 10 |
| — |
| — |
| 10 | |||||||
Total net (charge offs) recoveries |
| — |
| — |
| 10 |
| — |
| — |
| 10 | |||||||
Total ending balance |
| $ | 12,261 | $ | 11,496 | $ | 871 | $ | 342 | $ | — | $ | 24,970 | ||||||
Average gross loans during period | $ | 936,918 | $ | 296,632 | $ | 5,069 | $ | 7,427 | $ | 23 | $ | 1,246,069 | |||||||
Net (charge offs) recoveries to average gross loans during period |
| — | % | — | % | 0.20 | % | — | % | — | % | — | % |
| Residential |
| Commercial |
|
| Commercial |
| Other |
|
| |||||||||
Nine Months Ended September 30, 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 |
| (2,500) |
| (2,054) |
| (526) |
| 196 |
| — |
| (4,884) | |||||||
Net (charge offs) recoveries |
|
|
|
|
|
| |||||||||||||
Charge offs |
| — |
| — |
| — |
| — |
| — |
| — | |||||||
Recoveries |
| 439 |
| — |
| 11 |
| — |
| — |
| 450 | |||||||
Total net (charge offs) recoveries |
| 439 |
| — |
| 11 |
| — |
| — |
| 450 | |||||||
Total ending balance |
| $ | 12,261 | $ | 11,496 | $ | 871 | $ | 342 | $ | — | $ | 24,970 | ||||||
Average gross loans during period | $ | 1,002,124 | $ | 265,260 | $ | 5,768 | $ | 11,110 | $ | 32 | $ | 1,284,294 | |||||||
Net (charge offs) recoveries to average gross loans during period |
| 0.04 | % | — | % | 0.19 | % | — | % | — | % | 0.04 | % |
Residential | Commercial | Commercial | Other | ||||||||||||||||
Three Months Ended September 30, 2023 |
| Real Estate |
| Real Estate |
| Construction |
| and Industrial |
| Consumer |
| Total |
| ||||||
| (Dollars in thousands) | ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at the beginning of the period |
| $ | 16,909 | $ | 16,728 | $ | 2,475 | $ | 41 | $ | — |
| $ | 36,153 | |||||
Provision for (recovery of) for credit losses | 1,307 | (2,482) | (752) | 40 |
| — | (1,887) | ||||||||||||
Net (charge offs) recoveries | |||||||||||||||||||
Charge offs | — | — | — | — |
| — | — | ||||||||||||
Recoveries |
| — | — | 1 | — |
| — |
| 1 | ||||||||||
Total net (charge offs) recoveries |
| — | — | 1 | — | — |
| 1 | |||||||||||
Total ending balance | $ | 18,216 | $ | 14,246 | $ | 1,724 | $ | 81 | $ | — |
| $ | 34,267 | ||||||
Average gross loans during period | $ | 1,174,052 | $ | 228,939 | $ | 29,337 | $ | 17,796 | $ | 23 | $ | 1,450,147 | |||||||
Net (charge offs) recoveries to average gross loans during period | — | % | — | % | — | % | — | % | — | % | — | % |
39
Residential | Commercial | Commercial | Other | ||||||||||||||||
Nine Months Ended September 30, 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 | (4,477) | 1,301 | (818) | 77 |
| — | (3,917) | ||||||||||||
Net (charge offs) recoveries | |||||||||||||||||||
Charge offs | (6,478) | — | — | — |
| — | (6,478) | ||||||||||||
Recoveries |
| 366 | 100 | 3 | — |
| — | 469 | |||||||||||
Total net (charge offs) recoveries |
| (6,112) | 100 | 3 | — | — | (6,009) | ||||||||||||
Total ending balance | $ | 18,216 | $ | 14,246 | $ | 1,724 | $ | 81 | $ | — | $ | 34,267 | |||||||
Average gross loans during period | $ | 1,261,986 | $ | 224,984 | $ | 34,153 | $ | 7,204 | $ | 47 | $ | 1,528,374 | |||||||
Net (charge offs) recoveries to average gross loans during period | (0.48) | % | 0.04 | % | 0.01 | % | — | % | — | % | (0.39) | % |
Our allowance for credit losses at September 30, 2024 was $25.0 million, or 2.04% of total loans held for investment, compared to $29.4 million, or 2.18% of total loans held for investment, at December 31, 2023. In addition, our allowance for credit losses as a percentage of nonaccrual loans was 189% and 329% as of September 30, 2024 and December 31, 2023, respectively. The allowance for credit losses declined as a result of continued improvement in the credit quality of our commercial loan portfolio, which was somewhat mitigated by the increase in our nonperforming residential loans.
Net charge off (recoveries) were $(10) thousand and $(1) thousand during the three months ended September 30, 2024 and 2023. Net charge offs (recoveries) were $(0.5) million and $6.0 million during the nine months ended September 30, 2024 and 2023, respectively. Net charge offs during the nine months ended September 30, 2023 primarily reflects the $6.5 million in charge offs of our recorded investment on residential loans transferred to held for sale.
The following table sets forth the allowance for credit losses allocated by loan category at the dates indicated. The allowance for 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 September 30, |
| 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 |
| $ | 12,261 |
| 1.36 | % | 74 | % | $ | 14,322 |
| 1.32 | % | 80 | % |
Commercial real estate |
| 11,496 |
| 3.75 | % | 25 | % |
| 13,550 |
| 5.72 | % | 18 | % | |
Construction |
| 871 |
| 16.71 | % | — | % |
| 1,386 |
| 13.35 | % | 1 | % | |
Commercial and industrial |
| 342 |
| 4.78 | % | 1 | % |
| 146 |
| 0.92 | % | 1 | % | |
Total | $ | 24,970 |
| 2.04 | % | 100 | % | $ | 29,404 |
| 2.18 | % | 100 | % | |
Nonaccrual loans | $ | 13,187 | $ | 8,942 | |||||||||||
Nonperforming loans (1) | $ | 13,214 | $ | 8,973 | |||||||||||
Total loans | $ | 1,223,737 | $ | 1,348,972 | |||||||||||
Allowance for credit losses to total nonaccrual loans | 189 | % | 329 | % | |||||||||||
Allowance for credit losses to total loans | 2.04 | % | 2.18 | % |
(1) | Nonperforming loans include loans 90 days or more past due and still accruing interest. |
40
Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in determining the allowance for credit losses. Furthermore, while we believe we have established our allowance for credit losses in conformity with U.S. GAAP, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for 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 credit losses is adequate or that increases will not be necessary should the quality of any loans deteriorate. Any material increase in the allowance for 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 September 30, 2024 and December 31, 2023, the amortized cost basis of collateral-dependent loans was $3.5 million and $4.0 million, respectively. 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 experiencing financial difficulty that were modified during the three and nine months ended September 30, 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 and nine months ended September 30, 2024.
Investment Securities Portfolio
The following table sets forth the amortized cost and estimated fair value of our available for sale debt securities portfolio at the dates indicated.
At September 30, |
| At December 31, | ||||||||||
| 2024 |
| 2023 | |||||||||
Amortized | Fair | Amortized | Fair | |||||||||
| Cost |
| Value |
| Cost |
| Value | |||||
(In thousands) | ||||||||||||
U.S. Treasury and Agency securities |
| $ | 184,507 |
| $ | 182,536 |
| $ | 253,107 | $ | 248,988 | |
Mortgage-backed securities |
| 31,748 |
| 28,707 |
| 35,757 | 31,927 | |||||
Collateralized mortgage obligations |
| 234,992 |
| 225,023 |
| 151,196 | 138,157 | |||||
Collateralized debt obligations |
| 146 |
| 143 |
| 151 | 141 | |||||
Total | $ | 451,393 | $ | 436,409 | $ | 440,211 | $ | 419,213 |
The size of our available for sale debt securities portfolio (on an amortized-cost basis) increased by $11.2 million, or 3%, to $451.4 million at September 30, 2024. We continually evaluate our investment securities portfolio in response to established asset/liability management objectives and changing market conditions that could affect profitability and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and change the composition of our investment securities portfolio. In this regard, during the nine months ended September 30, 2024, we purchased Treasury and Agency securities of $104.6 million and collateralized mortgage obligations of $114.7 million to replace our maturing Treasury securities of $175.0 million to obtain higher rates of interest while still maintaining our targeted duration.
41
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 and magnitude of declines in the fair value of each security. At September 30, 2024, gross unrealized losses on debt securities totaled $15.4 million. Our U.S. Treasury and Agency securities, mortgage-backed securities and 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 have not recorded an allowance for credit losses for our available for sale debt securities at September 30, 2024.
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 September 30, 2024 and December 31, 2023, equity securities totaled $4.8 million and $4.7 million, respectively.
We are required to hold FHLB stock as a condition of our membership in the FHLB system. Our FHLB stock is considered a non-marketable equity security that is accounted for at cost, which equals its par value. At September 30, 2024 and December 31, 2023, we held $18.4 million and $18.9 million, respectively, 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 September 30, 2024 and December 31, 2023, we held $9.2 million and $9.0 million, respectively, in FRB stock.
Deposits
Deposits are the primary source of funding for the Company. We regularly review the need to adjust our deposit offering rates on various deposit products in order to maintain a stable liquidity profile and a competitive cost of funds. We obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time. The following table sets forth the composition of our deposits by account type at the dates indicated.
| At September 30, |
| At December 31, | |||
| 2024 |
| 2023 | |||
(In thousands) | ||||||
Noninterest-bearing deposits | $ | 31,276 | $ | 35,245 | ||
Money market, savings and NOW |
| 1,063,746 |
| 1,095,521 | ||
Time deposits |
| 972,171 |
| 873,220 | ||
Total deposits | $ | 2,067,193 | $ | 2,003,986 |
Total deposits were $2.1 billion as of September 30, 2024, an increase of $63.2 million from December 31, 2023. Our time deposits increased by $99.0 million, or 11%. Our money market, savings and NOW deposits decreased by $31.8 million, or 3%, and our noninterest-bearing demand deposits decreased $4.0 million, or 11%, from December 31, 2023. We did not have any brokered deposits at September 30, 2024 and December 31, 2023. Our current strategy is to continue to offer competitive interest rates on our deposit products to maintain our existing customer deposit base and maintain our liquidity.
Our estimated uninsured deposits were $461.1 million, or approximately 22% of total deposits, and $434.4 million, or 22% of total deposits, at September 30, 2024 and December 31, 2023, respectively. The uninsured amounts are estimated based on methodologies and assumptions used for the Bank’s regulatory reporting requirements.
42
The portion of U.S. time deposit accounts that exceeded the FDIC insurance limit of $250,000 was $108.0 million at September 30, 2024.
Borrowings
In addition to deposits, we use short-term borrowings, such as FHLB advances and drawdowns on an overdraft credit line with the FHLB, as sources of funds to meet the daily liquidity needs of our customers. Our short-term advances with the FHLB consist primarily of advances of funds for one- or two-week periods.
On May 15, 2024, the FHLB exercised its call right to require repayment of our long-term fixed rate FHLB advance of $50.0 million with an original maturity date of May 2029. We repaid the FHLB advance with our existing cash funds. The FHLB advance required monthly interest-only payments at 1.96% per annum.
At September 30, 2024, we had a borrowing capacity of $409.3 million from the FHLB, which included an available line of credit of $20.0 million. We also have 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 $334.6 million at September 30, 2024, compared to $327.7 million at December 31, 2023.
Analysis of Results of Operations
General. The Company had a net loss of $(0.1) million for the three months ended September 30, 2024 compared to net income of $0.3 million for the three months ended September 30, 2023. Net income was $1.0 million for the nine months ended September 30, 2024, a decrease of $1.4 million from $2.4 million for the nine months ended September 30, 2023.
Average Balance Sheet and Related Yields and Rates. The following table sets forth the average balance sheet, interest income or interest expense, average yields earned and interest rates paid for each category of interest-earning assets and 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.
43
As of and for the Three Months Ended September 30, | As of and for the Nine Months Ended September 30, |
| |||||||||||||||||||||||||||||||
| 2024 |
| 2023 | 2024 | 2023 |
| |||||||||||||||||||||||||||
Average | Average | Average | Average |
| |||||||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | Average | Yield/ | Average | Yield/ |
| |||||||||||||||||||||||||
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate |
| Balance |
| Interest |
| Rate | ||||||||||
| (Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Interest-earning assets | |||||||||||||||||||||||||||||||||
Loans(1) | |||||||||||||||||||||||||||||||||
Residential real estate and other consumer | $ | 936,941 | $ | 16,005 | 6.83 | % | $ | 1,174,075 | $ | 17,546 | 5.98 | % | $ | 1,002,156 | $ | 50,209 | 6.68 | % | $ | 1,272,056 | $ | 54,310 | 5.69 | % | |||||||||
Commercial real estate | 296,632 | 4,160 | 5.61 | % | 228,939 | 2,953 | 5.16 | % | 265,260 | 10,625 | 5.34 | % | 225,919 | 8,336 | 4.92 | % | |||||||||||||||||
Construction | 5,069 | 150 | 11.84 | % | 29,337 | 786 | 10.72 | % | 5,768 | 522 | 12.07 | % | 34,153 | 2,640 | 10.31 | % | |||||||||||||||||
Commercial and industrial | 7,427 | 191 | 10.29 | % | 17,796 | 378 | 8.50 | % | 11,110 | 739 | 8.87 | % | 7,204 | 429 | 7.94 | % | |||||||||||||||||
Total loans | 1,246,069 | 20,506 |
| 6.58 | % | 1,450,147 | 21,663 | 5.98 | % | 1,284,294 | 62,095 |
| 6.45 | % | 1,539,332 | 65,715 | 5.69 | % | |||||||||||||||
Securities, includes restricted stock(2) |
| 476,506 |
| 4,993 |
| 4.19 | % |
| 400,838 |
| 3,134 | 3.13 | % | 459,603 |
| 13,769 |
| 3.99 | % | 380,886 | 8,256 | 2.89 | % | ||||||||||
Other interest-earning assets |
| 650,089 |
| 8,855 |
| 5.45 | % |
| 589,267 |
| 8,081 | 5.49 | % | 623,672 |
| 25,636 |
| 5.48 | % | 514,957 | 19,890 | 5.15 | % | ||||||||||
Total interest-earning assets |
| 2,372,664 |
| 34,354 | 5.79 | % |
| 2,440,252 |
| 32,878 | 5.39 | % | 2,367,569 |
| 101,500 | 5.72 | % | 2,435,175 | 93,861 | 5.14 | % | ||||||||||||
Noninterest-earning assets |
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash and due from banks |
| 7,038 |
|
|
| 4,780 |
| 5,032 |
|
| 4,497 | ||||||||||||||||||||||
Other assets |
| 29,906 |
|
|
| 29,535 |
| 29,713 |
|
| 28,085 | ||||||||||||||||||||||
Total assets | $ | 2,409,608 |
|
| $ | 2,474,567 |
| $ | 2,402,314 |
|
| $ | 2,467,757 | ||||||||||||||||||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Money Market, Savings and NOW | $ | 1,077,346 | $ | 10,265 |
| 3.78 | % | $ | 1,099,070 | $ | 8,930 |
| 3.22 | % | $ | 1,071,565 | $ | 29,747 |
| 3.70 | % | $ | 1,027,336 | $ | 19,814 | 2.58 | % | ||||||
Time deposits |
| 938,514 |
| 10,471 |
| 4.43 | % |
| 907,466 |
| 7,461 |
| 3.26 | % | 911,464 |
| 28,439 |
| 4.16 | % | 926,122 | 19,723 | 2.85 | % | |||||||||
Total interest-bearing deposits |
| 2,015,860 |
| 20,736 |
| 4.08 | % |
| 2,006,536 |
| 16,391 | 3.24 | % | 1,983,029 |
| 58,186 |
| 3.91 | % | 1,953,458 | 39,537 | 2.71 | % | ||||||||||
FHLB borrowings |
| — |
| — |
| 0.00 | % |
| 50,000 |
| 250 | 1.96 | % | 24,635 |
| 367 |
| 1.98 | % | 50,000 | 743 | 1.99 | % | ||||||||||
Subordinated Notes, net |
| — |
| — |
| 0.00 | % |
| 9,218 |
| 243 | 10.32 | % | — |
| — |
| 0.00 | % | 46,370 | 3,727 | 10.60 | % | ||||||||||
Total borrowings |
| — |
| — |
| 0.00 | % |
| 59,218 |
| 493 | 3.26 | % | 24,635 |
| 367 |
| 1.96 | % | 96,370 | 4,470 | 6.12 | % | ||||||||||
Total interest-bearing liabilities |
| 2,015,860 |
| 20,736 |
| 4.08 | % |
| 2,065,754 |
| 16,884 | 3.24 | % | 2,007,664 |
| 58,553 |
| 3.89 | % | 2,049,828 | 44,007 | 2.87 | % | ||||||||||
Noninterest-bearing liabilities |
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Demand deposits |
| 31,507 |
|
| 42,355 |
| 32,923 |
| 45,519 | ||||||||||||||||||||||||
Other liabilities |
| 33,719 |
|
| 48,640 |
| 34,000 |
| 57,427 | ||||||||||||||||||||||||
Shareholders’ equity |
| 328,522 |
|
| 317,818 |
| 327,727 |
| 314,983 | ||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 2,409,608 | $ | 2,474,567 |
| $ | 2,402,314 | $ | 2,467,757 | ||||||||||||||||||||||||
Net interest income and spread(2) |
| $ | 13,618 |
| 1.71 | % |
| $ | 15,994 | 2.15 | % | $ | 42,947 |
| 1.83 | % | $ | 49,854 | 2.27 | % | |||||||||||||
Net interest margin(2) |
|
|
| 2.30 | % |
|
|
| 2.62 | % |
|
| 2.42 | % | 2.73 | % |
(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. |
44
The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate), (2) changes attributable to rate (change in rate multiplied by the prior 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 |
| Nine Months Ended | ||||||||||||||||
September 30, 2024 vs. 2023 |
| September 30, 2024 vs. 2023 | ||||||||||||||||
Increase (Decrease) |
| Net | Increase (Decrease) | Net | ||||||||||||||
due to | Increase |
| due to | Increase | ||||||||||||||
| Volume |
| Rate |
| (Decrease) |
| Volume |
| Rate |
| (Decrease) | |||||||
| (In thousands) | |||||||||||||||||
Change in interest income: | ||||||||||||||||||
Loans | ||||||||||||||||||
Residential real estate and other consumer | $ | (3,833) | $ | 2,292 | $ | (1,541) | $ | (12,632) | $ | 8,531 | $ | (4,101) | ||||||
Commercial real estate | 932 | 275 | 1,207 | 1,536 | 753 | 2,289 | ||||||||||||
Construction | (710) | 74 | (636) | (2,505) | 387 | (2,118) | ||||||||||||
Commercial and industrial | (254) | 67 | (187) | 255 | 55 | 310 | ||||||||||||
Total loans | (3,865) | 2,708 | (1,157) | (13,346) | 9,726 | (3,620) | ||||||||||||
Securities, includes restricted stock |
| 665 |
| 1,194 |
| 1,859 | 1,940 | 3,573 | 5,513 | |||||||||
Other interest-earning assets |
| 833 |
| (59) |
| 774 | 4,408 | 1,338 | 5,746 | |||||||||
Total change in interest income |
| (2,367) |
| 3,843 |
| 1,476 | (6,998) | 14,637 | 7,639 | |||||||||
Change in interest expense: |
| |||||||||||||||||
Money Markets, Savings and NOW |
| (178) |
| 1,513 |
| 1,335 | 896 | 9,037 | 9,933 | |||||||||
Time deposits |
| 262 |
| 2,748 |
| 3,010 | (315) | 9,031 | 8,716 | |||||||||
Total interest-bearing deposits |
| 84 |
| 4,261 |
| 4,345 | 581 | 18,068 | 18,649 | |||||||||
FHLB borrowings |
| (250) |
| — |
| (250) | (372) | (4) | (376) | |||||||||
Subordinated Notes, net |
| (243) |
| — |
| (243) | (3,727) | — | (3,727) | |||||||||
Total change in interest expense |
| (409) |
| 4,261 |
| 3,852 | (3,518) | 18,064 | 14,546 | |||||||||
Change in net interest income | $ | (1,958) | $ | (418) | $ | (2,376) | $ | (3,480) | $ | (3,427) | $ | (6,907) |
Net Interest Income. Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income is significantly impacted by changes in interest rates and market yield curves and their related impact on cash flows.
Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Net interest income was $13.6 million for the three months ended September 30, 2024, a decrease of $2.4 million, or 15%, from $16.0 million for the three months ended September 30, 2023. The decrease in net interest income reflects the impact of interest expense, primarily on interest-bearing deposits, increasing more than interest income on interest-earning assets during the higher interest rate environment. The prevailing interest rate environment combined with significant competition for deposits resulted in significant disparity between the impact on interest expense compared to interest income. In addition, the decline in net interest income partially reflects the continued reduction in the average balance of our residential mortgage loan portfolio.
45
Interest income was $34.4 million for the three months ended September 30, 2024, an increase of $1.5 million, or 4%, from $32.9 million for the three months ended September 30, 2023. The increase in interest income was primarily due to the yield earned on the average balance of our interest-earning assets. The yield on the average balance of our loan portfolio increased 60 basis points primarily due to an 85 basis point increase in the yield on our residential real estate loans as the portfolio repriced higher in the higher interest rate environment. The yield on the average balance of our securities increased 106 basis points 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 September 30, 2023. Also contributing to the increase in interest income, the average balance of our securities portfolio of $476.5 million for the three months ended September 30, 2024 increased $75.7 million, or 19%, compared to the three months ended September 30, 2023, and the average balance of our other interest-earning assets, which predominately consists of cash held at the Federal Reserve Bank which earns interest at the federal funds rate less 10 basis points, of $650.1 million for the three months ended September 30, 2024 increased $60.8 million, or 10%, compared to the three months ended September 30, 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 $204.1 million, or 14%.
Interest expense was $20.7 million for the three months ended September 30, 2024, an increase of $3.9 million, or 23%, from the three months ended September 30, 2023. Similar to our interest-earning assets, the increase in our interest expense was primarily driven by the change in interest rates. The rate paid on the average balance of interest-bearing deposits increased 84 basis points. We continued to competitively price our deposits in the higher interest rate environment and as competition for deposits significantly increased.
Net interest margin was 2.30% for the three months ended September 30, 2024, down 32 basis points from 2.62% for the three months ended September 30, 2023. The interest rate spread was 1.71% for the three months ended September 30, 2024, down 44 basis points from 2.15% for the three months ended September 30, 2023. Our net interest margin and interest rate spread were negatively impacted during the three months ended September 30, 2024 by higher interest rates paid on our interest-bearing deposits than in the comparable period in 2023, which outpaced the increase in the yield we earned on our interest-earning assets over the same period.
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Net interest income was $42.9 million for the nine months ended September 30, 2024, a decrease of $6.9 million, or 14%, from the nine months ended September 30, 2023. The decrease in net interest income primarily reflects interest expense on our interest-bearing deposits increasing more than interest income during this high interest rate environment.
Interest income was $101.5 million for the nine months ended September 30, 2024, an increase of $7.6 million, or 8%, compared to the nine months ended September 30, 2023. The increase in interest income was primarily due to a 58 basis point increase in the yield earned on the average balance of our total interest-earning assets with the rates on residential real estate loans, securities and other interest-earning assets increasing 99 basis points, 110 basis points and 33 basis points, respectively, as these portfolios repriced upward significantly in the higher interest rate environment. Also contributing to the increase in interest income, the average balance of our securities portfolio of $459.6 million for the nine months ended September 30, 2024 increased $78.7 million, or 21%, compared to the nine months ended September 30, 2023, and the average balance of our other interest-earning assets of $623.7 million for the nine months ended September 30, 2024 increased $108.7 million, or 21%, compared to the nine months ended September 30, 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 $255.0 million, or 17%.
Interest expense was $58.6 million for the nine months ended September 30, 2024 compared to $44.0 million for the nine months ended September 30, 2023. Similar to our interest-bearing assets, the increase in our interest expense was primarily driven by the change in interest rates. The increase in interest expense was primarily due to an increase in the rate paid on our interest-bearing deposits of 120 basis points from the nine months ended September 30, 2023. Specifically, the average rate paid on money market, savings and NOW accounts, and time deposits increased 112 basis points and 131 basis points, respectively, compared to the nine months ended September 30, 2023, as we continued to competitively price our deposits. Interest expense for the nine ended September 30, 2024 also reflected the elimination of interest expense from our Subordinated Notes, which were redeemed in the third quarter of 2023 and totaled $3.7 million for the nine months ended September 30, 2023.
Net interest margin was 2.42% for the nine months ended September 30, 2024, down 31 basis points from 2.73% for the nine months ended September 30, 2023. The interest rate spread was 1.83% for the nine months ended September 30, 2024, down 44 basis points from 2.27% for the nine months ended September 30, 2023.
46
Provision for (Recovery of) Credit Losses. The following table presents the components of our provision for credit losses:
| Three Months Ended |
| Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 | 2024 | 2023 | |||||||
(In thousands) | ||||||||||||
Provision for (recovery of) credit losses: |
|
|
|
|
|
|
| |||||
Loans | $ | (2,596) | $ | (1,887) | $ | (4,884) | $ | (3,917) | ||||
Off-balance sheet credit exposures |
| 258 |
| (55) |
| 508 |
| (253) | ||||
Total | $ | (2,338) | $ | (1,942) | $ | (4,376) | $ | (4,170) |
Our provision for (recovery of) credit losses was $(2.3) million for the three months ended September 30, 2024 compared to $(1.9) for the three months ended September 30, 2023. Our provision for (recovery of) credit losses was $(4.4) million for the nine months ended September 30, 2024 compared to $(4.2) million for the nine months ended September 30, 2023. The recovery of credit losses for the three months ended September 30, 2024 was primarily due to the reduction in the commercial real estate portfolio’s allowance for credit losses reflecting the continued strong credit quality of the portfolio. In addition, the residential mortgage portfolio’s allowance for credit losses declined primarily due to continued reduction in the aggregate principal balance of this portfolio while taking into account the increase in nonperforming residential mortgage loans. The recovery of credit losses for the nine months ended September 30, 2024 was primarily due to the reduction in the commercial real estate portfolio previously discussed as well as a reduction in the allowance for credit losses on our residential loans due to a decline in this portfolio, lower future loss rates on one of our residential loan products and changing economic forecasts used in the model assumptions. Partially offsetting this recovery, we increased the provision for our unfunded commitments.
The recovery for credit losses for each of the three and nine months ended September 30, 2023 primarily reflected the improvement in our overall credit quality, along with the continued reduction of the residential loan portfolio. These factors were offset in part by the increase in substandard commercial real estate loans during the nine months ended September 30, 2023, reflecting overall weakness in the commercial real estate market due to the substantial increase in market interest rates and the potential impact on borrowers’ ability to make scheduled loan payments as these loans reprice or mature.
Non-interest Income. The components of non-interest income were as follows:
Three Months Ended |
|
| Nine Months Ended |
| |||||||||||||||||||
September 30, | Change | September 30, | Change |
| |||||||||||||||||||
| 2024 |
| 2023 |
| Amount |
| Percent |
| 2024 |
| 2023 |
| Amount |
| Percent |
| |||||||
(Dollars in thousands) |
| ||||||||||||||||||||||
Service charges and fees | $ | 69 |
| $ | 97 |
| $ | (28) |
| (29) | % | $ | 248 | $ | 269 | $ | (21) | (8) | % | ||||
Loss on the sale of investment securities | — | — | — | N/M | — | (2) | 2 | 100 | % | ||||||||||||||
Gain on sale of loans held for sale |
| — |
| — |
| — |
| N/M | — | 1,695 | (1,695) | (100) | % | ||||||||||
Unrealized gain (loss) on equity securities |
| 160 |
| (137) |
| 297 |
| N/M | 94 | (137) | 231 | N/M | |||||||||||
Net servicing income |
| 61 | 107 |
| (46) |
| (43) | % | 182 | 268 | (86) | (32) | % | ||||||||||
Income earned on company‑owned life insurance |
| 84 |
| 83 |
| 1 |
| 1 | % | 251 | 244 | 7 | 3 | % | |||||||||
Other |
| 5 |
| 234 |
| (229) |
| (98) | % | 215 | 236 | (21) | (9) | % | |||||||||
Total non‑interest income | $ | 379 | $ | 384 | $ | (5) |
| (1) | % | $ | 990 | $ | 2,573 | $ | (1,583) | (62) | % |
N/M - not meaningful
Non-interest income was $0.4 million for the three months ended September 30, 2024 and 2023. The fair value of an equity security improved $0.2 million in the third quarter of 2024 as compared to a decline of $0.1 million in the same period in the prior year. The three months ended September 30, 2023 included a gain on the extinguishment of our Subordinated Notes of $0.2 million which was recorded in other non-interest income. Non-interest income was $1.0 million for the nine months ended September 30, 2024, a decrease of $1.6 million from the nine months ended September 30, 2023. The decrease was primarily due to the $1.7 million gain recognized on the sale of loans during the nine months ended September 30, 2023.
47
Non-interest Expense. The components of non-interest expense were as follows:
Three Months Ended |
|
|
| Nine Months Ended |
| ||||||||||||||||||
September 30, | Change | September 30, | Change |
| |||||||||||||||||||
| 2024 |
| 2023 |
| Amount |
| Percent |
| 2024 |
| 2023 |
| Amount |
| Percent | ||||||||
| (Dollars in thousands) | ||||||||||||||||||||||
Salaries and employee benefits |
| $ | 8,540 | $ | 8,753 |
| $ | (213) |
| (2) | % | $ | 25,196 |
| $ | 27,437 |
| $ | (2,241) | (8) | % | ||
Occupancy and equipment |
| 2,019 |
| 2,110 |
| (91) | (4) | % | 6,108 | 6,273 | (165) | (3) | % | ||||||||||
Professional fees |
| 3,005 |
| 4,242 |
| (1,237) | (29) | % | 7,334 | 10,984 | (3,650) | (33) | % | ||||||||||
FDIC insurance |
| 260 |
| 274 |
| (14) | (5) | % | 784 | 794 | (10) | (1) | % | ||||||||||
Data processing |
| 715 |
| 745 |
| (30) | (4) | % | 2,190 | 2,237 | (47) | (2) | % | ||||||||||
Other |
| 1,071 |
| 1,578 |
| (507) |
| (32) | % | 4,313 | 5,155 | (842) | (16) | % | |||||||||
Total non-interest expense | $ | 15,610 | $ | 17,702 | $ | (2,092) |
| (12) | % | $ | 45,925 | $ | 52,880 | $ | (6,955) | (13) | % |
Non-interest expense of $15.6 million for the three months ended September 30, 2024 reflected a decrease of $2.1 million compared to the three months ended September 30, 2023, primarily due to a decrease in professional fees and other non-interest expenses. Professional fees were $3.0 million for the three months ended September 30, 2024, a decrease of $1.2 million, or 29%, compared to the three months ended September 30, 2023. Professional fees decreased as the government investigations against the Company and Bank have been resolved despite increased expenses related to the pending Transaction. The Company expects to incur significant expenses for professional fees through the closing of the Transaction.
Salaries and employee benefits expense decreased $0.2 million, or 2% during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This decrease was primarily due to planned staff reductions in various support functions.
Other non-interest expenses decreased $0.5 million or 32% from the three months ended September 30, 2023 primarily due to lower insurance expense and advertising expenditures in 2024.
Non-interest expense of $45.9 million for the nine months ended September 30, 2024, reflected a decrease of $7.0 million compared to the nine months ended September 30, 2023, primarily due to decreases in salaries and employee benefits and professional fees. Professional fees were $7.3 million for the nine months ended September 30, 2024, a decrease of $3.7 million compared to the nine months ended September 30, 2023. Professional fees decreased substantially as the government investigations against the Company and Bank have been resolved which was partially offset by increased expenses related to the pending Transaction. The Company expects to incur significant expenses for professional fees through the closing of the Transaction. In addition, professional fees for the nine months ended September 30, 2023 was favorably impacted by reimbursements received from an insurance carrier of $2.2 million in the first quarter of 2023 for previously incurred legal fees, including advancement of legal expenses of third parties related to the government investigations.
Salaries and employee benefits expense decreased $2.2 million for the nine months ended September 30, 2024 compared to the same period in the prior year. This decrease was primarily due to staff reductions in various support functions. Also favorably impacting the nine months ended September 30, 2024 was a reversal of a liability in defered compensation no longer due to a former executive.
Other non-interest expenses decreased $0.8 million or 16% from the nine months ended September 30, 2023 primarily due to lower advertising expenditures in 2024.
Income Tax Expense. We recorded an income tax expense of $0.9 million for the three months ended September 30, 2024 compared to an income tax expense of $0.3 million for the three months ended September 30, 2023. We recorded an income tax expense of $1.4 million, or an effective tax rate of 59.1%, for the nine months ended September 30, 2024 compared to an income tax expense of $1.4 million, or an effective tax rate of 36.8%, for the nine months ended September 30, 2023. Income tax expense for the three and nine months ended September 30, 2024 includes an additional $0.6 million of income tax expense to reverse a tax position previously taken on the deductibility of interest earned on U.S. government obligations under applicable state tax law. Our effective tax rate varies from the statutory tax rate primarily due to the additional income tax expense recorded in the three months ended September 30, 2024 as previously discussed as well as the impact of non-deductible compensation-related expenses.
48
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations when they come due. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans to ensure we have adequate liquidity to fund our operations.
Our primary sources of funds consist of 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 portfolio and 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 September 30, 2024 and December 31, 2023, cash and due from banks totaled $710.4 million and $578.0 million, respectively. Interest-bearing time deposits with other banks totaled $5.0 million and $5.2 million at September 30, 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 $436.4 million and $419.2 million at September 30, 2024 and December 31, 2023, respectively. During the nine months ended September 30, 2024, we purchased Treasury and Agency securities of $104.6 million and collateralized mortgage obligations of $114.7 million to replace our maturing Treasury securities of $175.0 million. 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 in interest-earning deposits and short-term securities.
On May 15, 2024, the FHLB exercised its call right to require repayment of the Company’s long-term fixed rate FHLB advance of $50.0 million with an original maturity date of May 2029. We repaid the FHLB advance with our existing cash funds. The FHLB advance required monthly interest-only payments at 1.96% per annum. Based on our collateral pledged to the FHLB, consisting of certain loans and investment securities, and holdings of FHLB stock, the Company had a borrowing capacity with the FHLB of $409.3 million at September 30, 2024. We also have available credit lines with other banks totaling $60.0 million.
Cash flows from investing activities are 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 other earning assets as possible from customer deposits. During the nine months ended September 30, 2024 and 2023, we originated loans with an aggregate principal balance of $125.0 million and $44.4 million, respectively. Cash flows provided by loan payoffs totaled $175.6 million and $186.9 million during the nine months ended September 30, 2024 and 2023, respectively. From time to time, we also sell residential mortgage loans in the secondary market primarily to third party investors. Often, the agreements under which we sell residential 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 $13.2 million at September 30, 2024. These commitments expire in July 2025. We also have outstanding $11.1 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 warranties totaled $4.7 million at September 30, 2024. Should additional secondary market investors require us to repurchase a substantial portion of such outstanding loans subject to potential purchase, the cash required to fund these purchases will reduce our liquidity.
49
Cash flows from financing activities are primarily impacted by our deposits. Our total deposits were $2.1 billion at September 30, 2024, an increase of $63.2 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 obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time. We utilize borrowings and brokered deposits to supplement funding needs and manage our liquidity position though we have not used brokered deposits during the past four years. At September 30, 2024, time deposits due within one year were $903.8 million, or 44% 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 September 30, 2024. Also, cash flows from financing activities included the repayment of a FHLB advance of $50 million in May 2024 as discussed above.
We are a party to financial instruments in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to make loans and standby letters of credit that are not reflected in our condensed consolidated balance sheets, as well as commitments on unused lines of credit that involve elements of credit and interest rate risk in excess of the amount recorded in the condensed consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of these instruments. At September 30, 2024, we had unfunded commitments to extend credit totaling $25.3 million and standby letters of credit outstanding of $24 thousand.
The Company is a separate and distinct legal entity from the Bank, and, on a parent company-only basis, the Company’s primary source of funding is dividends received from the Bank. Federal banking regulations limit the dividends that may be paid by the Bank. Regulatory approval is required if the Bank’s total capital distributions for the applicable calendar year exceed the sum of the Bank’s net income for that year to date plus the Bank’s retained net income for the preceding two years, or the Bank would not be at least “adequately capitalized” under applicable regulations following the distribution. Federal banking regulations also limit the ability of the Bank to pay dividends under other circumstances. After receipt of the OCC approval, the Bank paid a cash dividend of $3.0 million to the Company during the three and nine months ended September 30, 2024.
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 usual course of business or (ii) its total assets would be less than the sum of its total liabilities plus the preferential rights upon dissolution of shareholders with preferential rights on dissolution that are superior to those receiving the dividend, and we are currently required to obtain the prior approval of the FRB in order to pay any dividends to our shareholders.
The Company and the Bank are subject to 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 quarterly basis. At September 30, 2024, the Company and the Bank met all regulatory capital requirements to which they were subject. The Company and Bank satisfied the requirements of the CBLR framework with leverage capital ratios of 14.18% and 13.72%, 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 capital requirements, refer to Note 12—Regulatory Capital Requirements to our condensed consolidated financial statements included in “Item 1. Financial Statements.”
The compliance with regulatory minimum capital 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 Company’s capital include the inherent limitations of fair value estimates and the assumptions thereof, the 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 periods of extreme stress.
50
As a result of the 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 in a private placement in reliance on the safe harbors provided by Regulation A or Regulation D. We have submitted to the 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 through a private placement under Regulation A or Regulation D, although we would remain eligible as an SEC registrant to access the equity capital markets through an SEC-registered offering or through another exemption from the registration requirements.
Recently Issued Accounting Guidance
See Note 2 – Summary of Significant Accounting Policies to our condensed consolidated financial statements included in “Item 1. Financial Statements” for a discussion of recently issued accounting guidance and related impact on our financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Asset Liability Committee of our board of 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 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.
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 move their funds to competing financial institutions; (iii) the expected yield of our loan portfolio and 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.
51
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 12-month period beginning September 30, 2024 and December 31, 2023. The table below demonstrates that we are asset sensitive at September 30, 2024 and December 31, 2023. The base net interest income decreased primarily due to the asset mix of the balance sheet with the reduction of our loan portfolio, which was replaced with lower yielding cash. Sensitivity to rising interest rates increased as a result of the repricing of our residential loan and fixed-rate Treasury portfolios, and sensitivity to declining interest rates decreased due to the growth of our short-term time deposits.
| At September 30, |
| 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 | $ | 63,915 |
| 8 | % | $ | 62,356 |
| 1 | % | |
100 |
| 61,926 |
| 4 | % |
| 62,560 |
| 1 | % | |
0 |
| 59,411 |
| — |
| 61,652 |
| — | |||
−100 |
| 57,908 |
| (3) | % |
| 60,057 |
| (3) | % | |
−200 |
| 56,863 |
| (4) | % |
| 57,636 |
| (7) | % |
Economic Value of Equity Simulation. We also analyze our sensitivity to changes in interest rates through an 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. 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 curves.
As described above, due to the nature of the EVE model and its underlying assumptions, the scenarios below may not fully reflect our exposure to interest rate risk. See “—Net Interest Income Simulation” above for further discussion regarding how our exposure to interest rate risk may change, particularly upon a significant, rapid decrease in interest rates.
The following table presents, as of September 30, 2024 and December 31, 2023, respectively, the impacts of immediate and permanent parallel hypothetical changes in market interest rates on EVE of the Bank, calculated on a bank-only basis. The base EVE increased from December 31, 2023 primarily from Residential loan valuation improvements related to the lower yield curve. The balance sheet was less sensitive to rising interest rates at September 30, 2024 due primarily to curve-related effects on residential loan values. 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 September 30, |
| 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 | $ | 288,405 |
| (11) | % | $ | 261,202 |
| (17) | % | |
100 |
| 309,596 |
| (4) | % |
| 293,190 |
| (6) | % | |
0 |
| 322,741 |
| — |
| 313,220 |
| — | |||
−100 |
| 331,746 |
| 3 | % |
| 322,399 |
| 3 | % | |
−200 |
| 337,599 | 5 | % |
| 326,171 |
| 4 | % |
52
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 maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed 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 in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the 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 September 30, 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 September 30, 2024.
Changes in Internal Control Over Financial Reporting
Our management is required to evaluate, with the participation of our Chief Executive Officer and our Chief Financial Officer, any changes in 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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, we are not aware of any material developments to our pending legal proceedings 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 legal proceedings, in the aggregate, are not material to our financial condition and results of operations.
Sterling Bank and Trust, F.S.B. and Sterling Bancorp, Inc. vs. Scott Seligman, et al.
On October 7, 2022, the Company and the Bank commenced an action against the Bank’s founder and controlling shareholder, Scott Seligman, and other nominal defendants, in the United States District Court for the Eastern District of Michigan styled Sterling Bank and Trust, F.S.B. and Sterling Bancorp, Inc. vs. Scott Seligman, et al., No. 2:22-cv-12398-SFC-DRG (E.D. Mich.). On September 25, 2024, the Company and the Bank entered into a Settlement Agreement and General Release with Scott Seligman, pursuant to which, among other things, the Company and the Bank agreed to dismiss their action, and Scott Seligman agreed to irrevocably discharge and release the Company and the Bank from any and all claims and covenanted not to sue the Company or the Bank on any and all claims, including claims with respect to the Company’s entrance into, approval and adoption of the Stock Purchase Agreement and Plan of Dissolution.
ITEM 1A. RISK FACTORS
Except as described herein, there are no material changes from the risk factors as disclosed in the Company’s 2023 Form 10-K.
Risks Related to the Transaction
The announcement and pendency of the Transaction may adversely affect our business, financial condition, and results of operations.
Uncertainty about the effect of the Transaction on our associates, clients, and other parties may have an adverse effect on our business, financial condition, and results of operations regardless of whether the Transaction is completed. These risks to our business include the following, among others, all of which may be exacerbated by a delay in the completion of the Transaction: (i) the impairment of our ability to attract, retain, and motivate our employees; (ii) the diversion of significant management time and attention from ongoing business operations towards the completion of the Transaction; (iii) difficulties maintaining relationships with clients, suppliers and other business partners; (iv) delays or deferments of certain business decisions by our clients, suppliers and other business partners; (v) the inability to pursue alternative business opportunities or make appropriate changes to our business because the Transaction requires us to, subject to certain exceptions, conduct business in the ordinary course of business and to not engage in certain kinds of transactions prior to the completion of the Transaction without the prior written consent of EverBank, even if such actions could prove beneficial; (vi) litigation relating to the Transaction and the costs and uncertainties related thereto; and (vii) the incurrence of significant costs, expenses, and fees for professional services and other Transaction costs in connection with the Transaction.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated.
The completion of the Transaction is conditioned on the receipt of all required regulatory approvals, the continuation of such regulatory approvals in full force and effect, the expiration of any applicable waiting periods relating to such regulatory approvals, and the absence of any material burdensome condition from such regulatory approvals. Even if the required regulatory approvals are received, the approvals may impose terms, conditions, limitations, obligations, or costs, may place restrictions on the conduct of our business or the conduct of EverBank’s business after the closing, or may require changes to the terms of the Transaction. There can be no assurance that regulators will not impose any such terms, conditions, limitations, obligations, restrictions or changes or that such terms, conditions, limitations, obligations, restrictions or changes will not have the effect of delaying the completion of the Transaction. In addition, there can be no assurance that any such terms, conditions, limitations, obligations, restrictions or changes will not result in the termination of the Stock Purchase Agreement and abandonment of the Transaction.
54
The Federal Reserve and the OCC take into consideration a number of factors when reviewing bank merger and acquisition proposals under the Bank Holding Company Act of 1956 and the Bank Merger Act, respectively. These factors include the effect of the transaction on competitiveness in affected banking markets, the financial and managerial resources of the companies and banks involved (including consideration of the capital adequacy, liquidity, and earnings performance, as well as the competence, experience and integrity of the officers, directors and principal shareholders, and the records of compliance with applicable laws and regulations) and future prospects of the combined organization. The Federal Reserve and the OCC also consider the effectiveness of the applicant in combatting money laundering, the convenience and needs of the communities to be served, as well as the extent to which the proposal would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. Neither the Federal Reserve nor the OCC may approve a proposal that would have significant adverse effects on competition or on the concentration of resources in any banking market.
The Stock Purchase Agreement may be terminated in accordance with its terms, and the Transaction may not be completed.
The Stock Purchase Agreement is subject to a number of conditions which must be fulfilled in order to complete the Transaction. Those conditions include: (i) the approval of the Stock Purchase Agreement, the Transaction and the Plan of Dissolution by the affirmative vote of a majority of all the votes entitled to be cast on such matters by holders of our common stock, (ii) the absence of any law, statute, rule, regulation, executive order, decree, ruling, injunction (whether temporary, preliminary or permanent) or other order which has the effect of restraining, enjoining or otherwise prohibiting or making illegal the consummation of the Transaction, and (iii) the receipt of the regulatory approvals with respect to the Stock Purchase Agreement, the Transaction and the bank merger by the Federal Reserve and the OCC as described above. In addition, EverBank’s obligation to complete the Transaction is also subject to the following conditions: (i) the sale by the Bank of its portfolio of residential tenant-in-common loans to Bayview and receipt by the Bank of the purchase price specified in such agreement and (ii) the average daily closing balance of the Bank’s deposits for the monthly period ending on the last day of the month before closing is not less than 85% of the average daily closing balance of such deposits for the monthly period ending on July 31, 2024. Each party’s obligation to complete the Transaction is also subject to certain additional conditions, including (a) subject to certain exceptions, the accuracy of the representations and warranties of the other party and (b) performance in all material respects by the other party of its obligations under the Stock Purchase Agreement.
These conditions to the closing may not be fulfilled in a timely manner or at all, and, accordingly, the Transaction may not be completed. In addition, the parties can mutually decide to terminate the Stock Purchase Agreement at any time, before or after the shareholder approval. Also, either EverBank or we may elect unilaterally to terminate the Stock Purchase Agreement in certain circumstances.
Failure to complete the Transaction could negatively impact us.
If the Transaction is not completed for any reason, including as a result of our shareholders failing to approve the Transaction or as a result of the failure to obtain all needed regulatory approvals, there may be various adverse consequences and we may experience negative reactions from the financial markets and from our clients and associates.
For example, our business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Transaction. Additionally, termination of the Transaction would likely have a negative effect on our market price. We also could be subject to litigation related to any failure to complete the Transaction or to proceedings commenced against us to perform our obligations under the Transaction. If the Stock Purchase Agreement is terminated under certain circumstances, including if the Company terminates the Stock Purchase Agreement to accept a superior proposal or if EverBank terminates the Stock Purchase Agreement after the board of directors changes its recommendation for shareholders to vote in favor of the Stock Purchase Agreement, we would be required to pay to EverBank a termination fee of up to $9,135,000.
Additionally, we expect to incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Stock Purchase Agreement, as well as the costs and expenses of preparing, filing, printing, and mailing a proxy statement, and all filing and other fees paid in connection with the Transaction. If the Transaction is not completed, we would have to pay a large portion of these expenses without realizing the expected benefits of the Transaction.
55
We will be subject to business uncertainties and contractual restrictions while the Transaction is pending.
Uncertainty about the effect of the Transaction on associates and clients may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel pending completion of the Transaction, and could cause clients and others that deal with us to seek to change existing business relationships with us. In addition, subject to certain exceptions, we have agreed to operate our business in the ordinary course prior to the closing, and we are restricted from making certain acquisitions and taking other specified actions without the consent of EverBank. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Transaction.
The Stock Purchase Agreement contains provisions that could discourage a potential competing acquiror that might be willing to pay more to acquire or merge with us.
The Stock Purchase Agreement contains provisions that restrict our ability to, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by our board of directors, engage in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, any alternative acquisition proposals. These provisions, which include a termination fee of up to $9,135,000 payable by us under certain circumstances, might discourage a potential competing acquiror that might have an interest in acquiring the Company, the Bank or a significant part of the Bank’s assets from considering or proposing that acquisition even if it were prepared to pay a consideration with a higher per share price to our shareholders than what is contemplated in the Transaction, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire us than it might otherwise have proposed to pay.
Shareholder litigation could prevent or delay the completion of the Transaction or otherwise negatively impact our business and operations.
One or more of our shareholders may file lawsuits against us and/or our directors and officers in connection with the Transaction. One of the conditions to the closing is the absence of any law, statute, rule, regulation, executive order, decree, ruling, injunction (whether temporary, preliminary or permanent) or other order which has the effect of restraining, enjoining or otherwise prohibiting or making illegal the consummation of the Transaction. If any plaintiff were successful in obtaining an injunction prohibiting us from completing the Transaction, then such injunction may delay or prevent the effectiveness of the Transaction and could result in significant costs to us, including any cost associated with the indemnification of our directors and officers. If a shareholder lawsuit is filed in connection with the Transaction, we may incur costs in connection with the defense or settlement of such lawsuit. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the completion of the Transaction.
Risks Related to the Plan of Dissolution
We cannot assure you as to the timing, amount, or number of distributions, if any, to be made to our shareholders.
Our current intention is that, if our shareholders approve the Plan of Dissolution at the Special Meeting, the Company would file a certificate of dissolution with the Michigan Department of Licensing and Regulatory Affairs; however, the Company’s board of directors would retain the discretion to determine not to proceed with the dissolution in its sole discretion and, if it does proceed with the dissolution, would have discretion as to the timing of the filing of the certificate of dissolution. No further shareholder approval would be required to effect the dissolution. However, if the board of directors determines prior to complete distribution of the Company’s assets that the dissolution is not in the Company’s best interest or in the best interest of our shareholders, the board of directors may, in its sole discretion, abandon the dissolution and terminate the Plan of Dissolution, subject to approval by the Company’s shareholders. Revocation of the dissolution would require the board of directors to adopt a resolution revoking dissolution which would then require shareholder approval under Michigan law.
Under the Michigan Business Corporation Act (the “MBCA”), a dissolved corporation continues its existence after dissolution for such period as is necessary to complete the winding down of its affairs, including the payment of its debts, obligations and other liabilities and the distribution of its remaining assets to its shareholders. Any action, suit or proceeding begun by or against the corporation before or during the wind down period does not terminate by reason of the dissolution, and for the purpose of any such action, suit or proceeding, the corporation will continue beyond the dissolution until any related final judgments, orders or decrees are rendered, without the necessity for any special direction by the applicable court. A dissolved corporation must pay or make provision for the payment (or reservation of funds as security for payment) of its debts, obligations and liabilities and claims against the corporation in accordance with the applicable provisions of the MBCA before the distribution of remaining assets to the corporation’s shareholders.
56
Any distribution to our shareholders will not occur until after the certificate of dissolution is filed, and we cannot predict with certainty the timing, amount, or number of any such distributions, or whether any such distributions will occur, as uncertainties as to the ultimate amount and scope of our liabilities, the operating costs and amounts to be set aside for claims, debts, obligations and provisions during the dissolution and wind down process, and the related timing to complete the wind down of our affairs, make it impossible to predict with certainty the actual net cash amount, if any, that will ultimately be available for distribution to shareholders or the timing of any such distributions. Among other things, our potential liabilities that may require provision could include those relating to indemnification obligations, if any, to third parties or to our current and former officers and directors, and to resolve any shareholder or other litigation that may emerge, even though none is now pending or to our knowledge threatened. Examples of uncertainties that could reduce the value of distributions to our shareholders include: the incurrence by the Company of expenses relating to the dissolution being different than estimated; unanticipated costs relating to the defense, satisfaction or settlement of lawsuits or other claims that may be threatened against us or our current or former directors or officers; amounts necessary to resolve claims of any creditors or other third parties; and delays in the dissolution and wind down process.
If it was determined by a court that we failed to make adequate provision for expenses, debts, obligations and liabilities or if the amount required to be paid in respect of such expenses, debts, obligations and liabilities exceeded the amount available from the reserve, a creditor could seek an injunction against the making of liquidating distributions under the Plan of Dissolution on the grounds that the amounts to be distributed were needed to provide for the payment of expenses and liabilities. Any such action could delay, substantially diminish or negate the cash distributions contemplated to be made to shareholders under the Plan of Dissolution.
In addition, as we wind down, we will continue to incur expenses from operations, including directors’ and officers’ insurance, severance payments, payments to service providers and any continuing employees or consultants, taxes, legal, accounting and consulting fees, costs associated with maintaining the listing of our common stock, and/or its delisting, and expenses related to our filing obligations with the SEC and/or others, which will reduce any amounts available for distribution to our shareholders. As a result, we cannot assure you as to the amounts, if any, that may ultimately be distributable or distributed to our shareholders if the Transaction is completed and the board of directors proceeds with the dissolution. If our shareholders do not approve the Plan of Dissolution, we will not be able to proceed with the dissolution and no liquidating distributions will be made in connection therewith.
It is the current intent of the board of directors, assuming approval of the dissolution and the Plan of Dissolution, that any cash will first be used to pay our outstanding current liabilities and obligations (including all transaction expenses incurred in connection with the negotiation and consummation of the Stock Purchase Agreement and any claims or demands received by the Company on behalf of any of its shareholders), and then will be retained to pay ongoing corporate and administrative costs and expenses associated with winding down the Company, liabilities and potential liabilities relating to or arising out of any litigation matters and potential liabilities relating to our indemnification obligations, if any, to our service providers, or to our current and former officers and directors, before such cash, if any remains, will be available for distribution to shareholders.
The board of directors will determine, in its sole discretion, the timing and number of the distributions of the remaining amounts, if any, to our shareholders in the dissolution. We can provide no assurance as to if or when any such distributions will be made, and we cannot provide any assurance as to the amounts, if any, that may ultimately be distributable or distributed to our shareholders in any such distributions, if any are to be made. Shareholders may receive substantially less than the amount that we currently estimate that they may receive, or they may receive no distribution at all.
Our shareholders may be liable to third parties for part or all of the amount received from us in our liquidating distributions if cash reserves are inadequate.
If the dissolution becomes effective, we are required to establish a cash reserve designed to satisfy any additional claims and obligations that may arise. Any reserve may not be adequate to cover all of our claims and obligations. Under the MBCA, in the event we fail to create an adequate reserve for the payment of expenses and liabilities and amounts have been distributed to the shareholders under the Plan of Dissolution, creditors may be able to pursue claims against shareholders directly to the extent that they have claims co-extensive with such shareholders’ receipt of liquidating distributions. Accordingly, in such event, a shareholder could be required to return part or all of the distributions previously made to such shareholder, and a shareholder could ultimately receive nothing from us under the Plan of Dissolution. Moreover, if a shareholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a situation in which a shareholder may incur a net tax cost if the repayment of the amount previously distributed does not cause a commensurate reduction in taxes payable in an amount equal to the amount of the taxes paid on amounts previously distributed.
57
Our shareholders of record will not be able to buy or sell shares of our common stock after we close our stock transfer books at the effective time of the dissolution.
If the board of directors determines to proceed with the dissolution, we intend to close our stock transfer books and discontinue recording transfers of our common stock at the effective time of the dissolution. After we close our stock transfer books, we will not record any further transfers of our common stock on our books except at our sole discretion by will, intestate succession, or operation of law. Therefore, shares of our common stock will not be freely transferable after the effective time. As a result of the closing of the stock transfer books, all liquidating distributions in the dissolution will likely be made to the same shareholders of record as the shareholders of record as of the effective time.
We plan to initiate steps to exit from certain reporting requirements under the Exchange Act, which may substantially reduce publicly available information about us. If the exit process is protracted, we will continue to bear the expense of being a public reporting company despite having no source of revenue.
Our common stock is currently registered under the Exchange Act, which requires that we, and our officers and directors with respect to Section 16 of the Exchange Act, comply with certain public reporting and proxy statement requirements thereunder. Compliance with these requirements is costly and time consuming. We plan to initiate steps to exit from such reporting requirements in order to curtail expenses; however, such process may be protracted and we may continue to be required to file Current Reports on Form 8-K to disclose material events, including those related to the dissolution, and other reports, including an Annual Report on Form 10-K for the year ending December 31, 2024. Accordingly, we may continue to incur expenses that will reduce any amount available for distribution, including expenses of complying with public company reporting requirements and paying our service providers, among others. If our reporting obligations cease, publicly available information about us will be substantially reduced.
The loss of key personnel could adversely affect our ability to efficiently dissolve, delist, liquidate, and wind down.
We intend to rely on a few individuals in key management roles and contractor support to dissolve, delist from Nasdaq, liquidate our remaining assets, and wind down operations. Loss of one or more of these key individuals, or inability to contract with essential personnel, could hamper the efficiency or effectiveness of these processes, and may substantially increase the cost of the dissolution as we may need to rely on the services of third party restructuring and consulting firms to assist with the wind down and dissolution.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
Withholding of Vested Restricted Stock Awards
During the three months ended September 30, 2024, the Company withheld shares of common stock representing a portion of the restricted stock awards that vested during the period under our employee stock benefit plans in order to pay employee tax liabilities associated with such vesting. These withheld shares are treated the same as repurchased shares for accounting purposes.
The following table provides certain information with respect to our purchases of shares of the Company’s common stock, as of the settlement date, during the three months ended September 30, 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) | ||
July 1 - 31, 2024 |
| 43,883 | $ | 5.23 |
| — | $ | 19,568,117 | ||
August 1 - 31, 2024 |
| — |
| — |
| — |
| 19,568,117 | ||
September 1 - 30, 2024 |
| 383 |
| 5.75 |
| — |
| 19,568,117 | ||
Total |
| 44,266 | $ | 5.23 |
| — |
|
|
(1) | These shares were acquired from employees to satisfy income tax withholding requirements in connection with vesting share awards during the three months ended September 30, 2024. |
(2) | In 2018, the Company announced a stock repurchase program for up to $50 million of its outstanding stock. At September 30, 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.
58
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
A list of exhibits to this Form 10-Q is set forth in the Exhibit Index below.
Incorporated by Reference | ||||||||||||
Exhibit |
| Exhibit Description |
| Filed /Furnished |
| Form |
| Period |
| Exhibit / |
| Filing Date |
2.1 | 8-K | 2.1 | 09/17/2024 | |||||||||
2.2 | 8-K | 2.2 | 09/17/2024 | |||||||||
2.3 | 8-K | 2.3 | 09/17/2024 | |||||||||
10.1+ | 8-K | 10.1 | 09/03/2024 | |||||||||
10.2 | 8-K | 10.1 | 09/17/2024 | |||||||||
10.3 | 8-K | 10.2 | 09/17/2024 | |||||||||
10.4+ | X | |||||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1* | X | |||||||||||
32.2* | X | |||||||||||
101.INS** | Inline XBRL Instance Document | X | ||||||||||
59
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 |
* 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 Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act.
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
+ Indicates a management contract or compensatory plan or arrangement.
60
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: November 7, 2024 | STERLING BANCORP, INC. | |
(Registrant) | ||
By: | /s/ THOMAS M. O’BRIEN | |
Thomas M. O’Brien | ||
By: | /s/ KAREN KNOTT | |
Karen Knott |
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