SEC Filing Report: Sterling Bancorp, Inc. 10-K for 2024
Executive Summary
Sterling Bancorp, Inc.’s 2024 10-K filing reveals a company in transition, primarily focused on the impending sale of its subsidiary, Sterling Bank, to EverBank Financial Corp. and subsequent dissolution. Financial performance was weaker compared to the previous year, with decreased net income, net interest income, and non-interest income. The company is managing liquidity and asset quality in anticipation of the transaction. Given the pending acquisition and planned dissolution, a traditional investment recommendation (buy/hold/sell) is not applicable. The focus is on the successful completion of the transaction and the distribution of remaining assets to shareholders.
Overall Assessment: Transaction-dependent. Monitor for successful completion of the EverBank acquisition and subsequent liquidation distributions.
Recommendations: Shareholders should closely monitor the progress of the EverBank acquisition, regulatory approvals, and the sale of TIC loans. Assess the potential risks to the timing and amount of liquidation distributions.
Company Overview
Sterling Bancorp, Inc. is a unitary thrift holding company operating primarily through its subsidiary, Sterling Bank. The bank focuses on commercial real estate and commercial & industrial loans, along with deposit products. Historically, residential mortgage loans were a significant part of the portfolio, but originations were suspended in early 2023. The company operates 27 branches, mainly in the San Francisco and Los Angeles metropolitan areas. The company has entered into a definitive agreement to sell Sterling Bank to EverBank Financial Corp, followed by a plan of dissolution of Sterling Bancorp, Inc.
Detailed Analysis
Transaction and Dissolution
The core focus of the 10-K is the pending sale of Sterling Bank to EverBank and the subsequent dissolution of Sterling Bancorp. Key points:
- Stock Purchase Agreement: All outstanding shares of Sterling Bank will be sold to EverBank for $261 million in cash.
- Plan of Dissolution: Sterling Bancorp intends to dissolve under Michigan law after the transaction, distributing remaining cash to shareholders.
- Regulatory Approvals: The transaction is subject to regulatory approvals, including the Federal Reserve.
- Conditions: EverBank’s obligation is contingent on the sale of the Bank’s tenant-in-common (TIC) loan portfolio and maintaining a specified deposit balance.
- Mortgage Loan Purchase Agreement: The Bank has an agreement with Bayview Acquisitions LLC to sell its TIC loans.
Financial Performance
Financial performance in 2024 was weaker than in 2023.
| Metric |
2024 |
2023 |
Change |
| Net Income |
$2.1 million |
$7.4 million |
Down $5.3 million |
| Net Interest Income |
$56.5 million |
$65.0 million |
Down $8.5 million |
| Non-Interest Income |
$1.1 million |
$2.8 million |
Down $1.7 million |
| Net Interest Margin |
2.37% |
2.68% |
Down 0.31% |
Key observations:
- Net income decreased due to lower net interest income and non-interest income.
- Net interest margin compressed, indicating challenges in maintaining profitability.
- Deposits increased slightly, while loans decreased, reflecting a shift in balance sheet composition.
Asset Quality
Asset quality metrics showed mixed results.
| Metric |
2024 |
2023 |
Change |
| Nonperforming Loans |
$14.6 million |
$9.0 million |
Up $5.6 million |
| Nonperforming Loans / Total Loans |
1.26% |
0.67% |
Up 0.59% |
| Allowance for Credit Losses / Total Loans |
1.80% |
2.18% |
Down 0.38% |
Key observations:
- Nonperforming loans increased, indicating potential credit quality concerns.
- The allowance for credit losses decreased as a percentage of total loans, potentially reflecting management’s view of reduced risk or a strategic decision in light of the pending transaction.
Liquidity and Capital Resources
Liquidity remained strong, with increased cash and due from banks.
| Metric |
2024 |
2023 |
Change |
| Cash and Due from Banks |
$878.2 million |
$578.0 million |
Up $300.2 million |
| Tier 1 Leverage Ratio (Consolidated) |
14.08% |
13.95% |
Up 0.13% |
Key observations:
- Significant increase in cash positions, likely in preparation for the transaction and subsequent liquidation.
- Strong capital ratios, exceeding regulatory requirements.
Risk Factors
The 10-K outlines several risks, primarily related to the pending transaction and dissolution:
- Transaction Risks: Uncertainty surrounding the transaction’s impact on business relationships, employee retention, and potential delays or termination.
- Regulatory Approvals: Failure to obtain necessary regulatory approvals or the imposition of burdensome conditions.
- Plan of Dissolution Risks: Uncertainty regarding the timing and amount of distributions to shareholders, potential shareholder liability, and inability to trade shares after dissolution.
- Economic and Financial Market Risks: Sensitivity to economic conditions, interest rate changes, and potential disruptions in financial markets.
- Credit Risks: Exposure to credit risks in the loan portfolio, particularly in residential and commercial real estate.
- Liquidity Risks: Maintaining adequate liquidity and access to external financing.
- Regulatory Risks: Compliance with extensive banking laws and regulations.
- Competition Risks: Intense competition in the financial services industry.
- Operational Risks: Cybersecurity threats, reliance on third-party vendors, and effectiveness of risk management framework.
- Governance Risks: Influence of the Seligman family and restrictions on dividend payments.
Opportunities
Given the pending transaction, traditional growth opportunities are limited. However, potential opportunities exist in:
- Successful Completion of the Transaction: Maximizing the value received from EverBank and efficiently managing the dissolution process.
- Efficient Asset Management: Optimizing the sale of the TIC loan portfolio to Bayview Acquisitions LLC.
- Cost Control: Reducing operating expenses during the wind-down phase.
Management’s Discussion and Analysis (MD&A)
Management’s discussion focuses heavily on the pending transaction and its implications. The tone is cautious, acknowledging the risks and uncertainties associated with the deal. Key takeaways from the MD&A:
- Emphasis on managing liquidity and asset quality in preparation for the transaction.
- Acknowledgement of the impact of the transaction on employee morale and business relationships.
- Discussion of regulatory requirements and potential challenges in obtaining approvals.
Red Flags and Uncommon Metrics
- Pending Litigation: The potential for shareholder litigation related to the transaction could delay or prevent its completion.
- Bad Actor Disqualification: The company’s guilty plea and criminal conviction may limit its ability to raise capital in the future.
- Deposit Balance Condition: EverBank’s obligation to complete the transaction is subject to the Bank’s deposit balances not falling below a certain level.
Conclusion and Actionable Insights
Sterling Bancorp’s 2024 10-K filing paints a picture of a company primarily focused on completing its acquisition by EverBank and subsequent dissolution. Financial performance is secondary to the successful execution of the transaction. The key risks revolve around regulatory approvals, potential litigation, and the ability to maintain deposit balances. Shareholders should closely monitor these factors and assess the potential impact on the timing and amount of liquidation distributions.
Actionable Insights:
- Track the progress of regulatory approvals from the Federal Reserve.
- Monitor the status of the TIC loan sale to Bayview Acquisitions LLC.
- Assess the potential impact of shareholder litigation on the transaction.
- Evaluate the risks to the timing and amount of liquidation distributions.