Sterling Bancorp Reports Second Quarter 2024 Financial Results

Sterling Bancorp, Inc. (NASDAQ:SBT) ("Sterling" or the "Company"), the holding company of Sterling Bank and Trust, F.S.B. (the "Bank"), today reported its unaudited financial results for the second quarter ended June 30, 2024.

Second Quarter 2024 Highlights

• Net income of $1.3 million, or $0.03 per diluted share
• Net interest margin of 2.44%
• Nonperforming loans of $12.2 million, 0.97% of total loans and 0.51% of total assets
• Provision for (recovery of) credit losses of $(2.1) million; ratio of allowance for credit losses to total loans of 2.18%
• Non-interest expense of $14.9 million
• Shareholders' equity of $328.9 million
• Company's consolidated and Bank's leverage ratio of 14.26% and 13.80%, respectively
• Total deposits of $2.0 billion
• Total gross loans of $1.3 billion

The Company reported net income of $1.3 million, or $0.03 per diluted share, for the quarter ended June 30, 2024, compared to a net loss of $(0.2) million, or $(0.00) per diluted share, for the quarter ended March 31, 2024.

"Our focus remains fixed on protecting book value and Sterling's financial position while we continue to explore opportunities to prudently reposition the Company and increase net income. The margin compression experienced by Sterling is generally consistent with what is being felt in much of the community banking industry. Additionally, our substantial level of liquidity continues to exert some downward pressure on earnings. Credit quality remains strong as do our capital ratios. The capital markets have seen some welcome signs of life and recent activity continues to encourage us to maintain the course of action that we are on. Deposit levels remain essentially flat which is our preferred position at this time. While the residential portfolio continues to decline through prepayments and amortization, we are seeing some growth in our commercial portfolio as several very attractive opportunities have come to fruition," said Thomas M. O'Brien, Chairman, President, and Chief Executive Officer.

Balance Sheet

Total Assets – Total assets were $2.4 billion at June 30, 2024, a decrease of $39.8 million, or 2%, from March 31, 2024.

Cash and due from banks decreased $46.4 million, or 7%, to $599.8 million at June 30, 2024 compared to $646.2 million at March 31, 2024. Debt securities increased $47.1 million, or 12%, to $441.9 million at June 30, 2024. All debt securities are available for sale, have a relatively short duration and are considered part of our liquid assets.

Total gross loans of $1.3 billion at June 30, 2024 decreased $39.0 million, or 3%, from March 31, 2024. Residential real estate loans were $972.3 million, a decrease of $68.1 million from March 31, 2024. Commercial real estate loans were $277.3 million, an increase of $32.7 million from March 31, 2024.

Total Deposits – Total deposits were $2.0 billion at June 30, 2024, an increase of $7.6 million from March 31, 2024. Money market, savings and NOW deposits were $1.1 billion, an increase of $3.9 million from March 31, 2024. Time deposits were $905.2 million, an increase of $4.2 million from March 31, 2024. Noninterest-bearing deposits were $32.2 million at June 30, 2024 compared to $32.7 million at March 31, 2024. Total estimated uninsured deposits to total deposits were approximately 22% at June 30, 2024, March 31, 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.

Federal Home Loan Bank Borrowings – In May 2024 the Company repaid with existing cash $50.0 million of a long-term fixed rate borrowing that the Federal Home Loan Bank called, as expected.

Capital – Total shareholders' equity was $328.9 million at June 30, 2024, an increase of $1.6 million compared to $327.3 million at March 31, 2024.

At June 30, 2024, the consolidated Company's and Bank's leverage ratios were 14.26% and 13.80%, respectively. Both the Company and the Bank are required to maintain a Tier 1 leverage ratio of greater than 9.0% to have satisfied the minimum regulatory capital requirements as well as the capital ratio requirements to be considered well capitalized for regulatory purposes.

Asset Quality and Provision for (Recovery of) Credit Losses – A provision for (recovery of) credit losses of $(2.1) million was recorded for the second quarter of 2024 compared to a provision for credit losses of $41 thousand for the first quarter of 2024. In the second quarter of 2024, the recovery of credit losses related to loans of $(2.1) million was primarily the result of a reduction in the allowance for credit losses on our residential loans due to a decline in this portfolio and lower future loss rates on one of our residential loan products. A recovery of credit losses related to loans of $(0.1) million was recorded in the first quarter of 2024. A provision for credit losses on unfunded commitments was recorded for the three months ended June 30, 2024 and March 31, 2024 of $0.1 million and $0.2 million, respectively. The allowance for credit losses at June 30, 2024 was $27.6 million, or 2.18% of total loans, compared to $29.3 million, or 2.24% of total loans, at March 31, 2024.

Net charge offs (recoveries) during the second quarter of 2024 and first quarter of 2024 were $(0.4) million and $0, respectively.

Nonperforming loans, comprised primarily of nonaccrual residential real estate loans, totaled $12.2 million, or 0.51% of total assets at June 30, 2024, compared to $9.3 million, or 0.39% of total assets at March 31, 2024. Nonperforming loans at June 30, 2024 included a $1.1 million matured commercial real estate loan, which was extended subsequent to the end of the quarter and is included in loans 90 days past due and still accruing.

Results of Operations

Net Interest Income and Net Interest Margin – Net interest income for the second quarter of 2024 was $14.4 million compared to $14.9 million for the first quarter of 2024. The net interest margin was 2.44% and 2.52% for the second and first quarter of 2024, respectively. The decrease in net interest income during the second quarter of 2024 compared to the prior quarter was primarily due to a $1.3 million increase in interest expense on our average balance of interest-bearing deposits since the rate paid during the second quarter of 2024 increased 22 basis points. This decrease was partially offset by a $0.9 million increase in interest income earned on our average balance of investment securities and other interest-earnings assets. Interest income on loans declined $0.3 million in the second quarter of 2024 as compared to the prior quarter as a decline in the average loan portfolio balance of $58.7 million, or 4%, was offset in part by the 18 basis point increase in the yield on the average loan portfolio. The increase in the yield was due primarily to residential mortgage rates resetting in the higher interest rate environment.

Non-Interest Income – Non-interest income for the second quarter of 2024 and first quarter of 2024 was $0.4 million and $0.2 million, respectively, an increase of $0.2 million, primarily due to funds received from the Federal Home Loan Bank based on the performance of loans previously sold to them.

Non-Interest Expense – Non-interest expense of $14.9 million for the second quarter of 2024 reflected a decrease of $0.5 million, or 3%, compared to $15.4 million for the first quarter of 2024. This decrease was primarily due to a $0.3 million decrease in salaries and employee benefits. In the prior quarter, we completed staff reductions in various support positions which resulted in a decline of $0.2 million in salaries and employee benefits expense compared to the first quarter of 2024. Also, favorably impacting the first quarter of 2024 was a reversal of a liability for deferred compensation. In addition, the U.S. Department of Justice advised the Company in May 2024 that it had closed all of its investigations focused on the Bank's former Advantage Loan Program. Accordingly, we no longer expect to incur any future costs to cooperate with these completed government investigations or in connection with claims for the advancement or reimbursement of legal fees to third parties due to such investigations.

Income Tax Expense (Benefit)– For the three months ended June 30, 2024, the Company recorded an income tax expense of $0.6 million, or an effective tax rate of 33.0%, compared to an income tax (benefit) of $(0.1) million, or an effective tax rate of 34.3%, for the three months ended March 31, 2024. Our effective tax rate varies from the statutory rate primarily due to the impact of non-deductible compensation related expenses.

Mr. O'Brien said, "The year is progressing quickly and we believe there are some hopeful signs of easing inflation, moderating interest rates, and lessening financial stress in the economy. The Company will continue to move forward and explore its opportunities. We believe this is the most prudent course of action given our unique circumstances and the current market dynamics."

Conference Call and Webcast

Management will host a conference call on Wednesday, July 24, 2024 at 11:00 a.m. Eastern Time to discuss the Company's unaudited financial results for the quarter ended June 30, 2024. The conference call number for U.S. participants is (833) 535-2201 and the conference call number for participants outside the United States is (412) 902-6744. Additionally, interested parties can listen to a live webcast of the call in the "Investor Relations" section of the Company's website at www.sterlingbank.com. An archived version of the webcast will be available in the same location shortly after the live call has ended.

A replay of the conference call may be accessed through July 31, 2024 by U.S. callers dialing (877) 344-7529 and international callers dialing (412) 317-0088, using conference ID number 2233158.

About Sterling Bancorp, Inc.

Sterling Bancorp, Inc. is a unitary thrift holding company. Its wholly owned subsidiary, Sterling Bank and Trust, F.S.B., has primary branch operations in the San Francisco and Los Angeles, California metropolitan areas and New York City. Sterling also has an operations center and a branch in Southfield, Michigan. Sterling offers a range of loan products as well as retail and business banking services. For additional information, please visit the Company's website at http://www.sterlingbank.com.

Forward-Looking Statements

This Press Release 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," "believe," "expect," "continue," "will," "estimate," "intend," "plan," "anticipate," 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 the economy and financial markets, government investigations, credit quality, the regulatory scheme governing our industry, competition in our industry, interest rates, our liquidity, our business and our governance, are forward-looking statements. We have based the forward-looking statements in this Press Release primarily on our 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 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. The risks, uncertainties and other factors detailed from time to time in our public filings, including those included in the disclosures under the headings "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2024, subsequent periodic reports and future 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. These risks are not exhaustive. Other sections of this Press Release and our filings with the Securities and Exchange Commission 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 Press Release. 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. Accordingly, you should not place undue reliance on any such forward-looking statements. The Company disclaims any obligation to update, revise, or correct any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise.