Sterling Bancorp(US:SBT)2023-08-09 14:08Financial Performance - Net income for Q2 2023 was $2.5 million, a significant increase from a net loss of $(2.2) million in Q2 2022, primarily due to a recovery of credit losses of $2.9 million and a gain on the sale of mortgage loans of $1.7 million [203]. - Net income for the three months ended June 30, 2023, was $2.5 million, compared to a net loss of $(2.2) million for the same period in 2022 [264]. - Net income for the six months ended June 30, 2023, was $2.0 million, a decrease of $1.1 million compared to $3.1 million for the same period in 2022 [264]. Asset and Loan Management - Total assets increased slightly to $2.5 billion at June 30, 2023, up from $2.4 billion at December 31, 2022, driven by increased liquid assets from loan repayments [205]. - As of June 30, 2023, total gross loans held for investment decreased by $173.0 million, or 10%, to $1.5 billion from $1.7 billion at December 31, 2022 [217]. - Residential real estate loans accounted for 82% of total gross loans held for investment as of June 30, 2023, down from 84% at December 31, 2022 [216]. - The company transferred loans with an amortized cost of $41.1 million from loans held for investment to loans held for sale during the six months ended June 30, 2023 [217]. - Approximately 80% of the loan portfolio was based in California, with 54% in the San Francisco metropolitan area and 26% in the Los Angeles metropolitan area [216]. Nonperforming Assets - Nonperforming assets decreased dramatically from $38.3 million at December 31, 2022, to $2.1 million at June 30, 2023, following the sale of nonperforming and chronically delinquent residential real estate loans [204]. - Nonperforming assets totaled $2.1 million at June 30, 2023, significantly down from $38.3 million at December 31, 2022 [225]. - The total nonaccrual loans to total loans ratio improved to 0.14% at June 30, 2023, from 2.03% at December 31, 2022 [225]. - Total loans 90 days or more past due decreased from $33.7 million at December 31, 2022, to $2.1 million at June 30, 2023 [229]. - Loans classified as Special Mention and Substandard decreased by $31.9 million from $84.8 million at December 31, 2022, although commercial real estate loans in the Substandard category increased by $18.9 million [231]. Credit Losses and Allowance - The allowance for credit losses was $36.2 million as of June 30, 2023, compared to $45.5 million at December 31, 2022 [216]. - The allowance for credit losses at June 30, 2023, was $36.2 million, or 2.43% of total loans held for investment, down from $44.2 million, or 2.66%, at January 1, 2023 [239]. - The decrease in the allowance for credit losses was primarily due to the transfer of nonaccrual and delinquent residential real estate loans to held for sale, resulting in a charge-off of $6.5 million [240]. - The total ending balance of the allowance for credit losses was $36.2 million as of June 30, 2023, reflecting a recovery of loan losses of $2.0 million due to improved credit quality [239]. - The recovery of credit losses was $(2.9) million for the three months ended June 30, 2023, compared to $(1.1) million for the same period in 2022, reflecting improved credit quality [285]. Deposits and Funding - Total deposits increased by $87.5 million, or 4%, to $2.0 billion as of June 30, 2023, compared to $1.95 billion at December 31, 2022 [254]. - Time deposits rose by $119.6 million, or 14%, reflecting the strategy to offer competitive interest rates [254]. - The total estimated uninsured deposits were approximately 24% of total deposits at June 30, 2023 [257]. - Core deposits totaled $1.8 billion, or 86% of total deposits, down from $1.7 billion, or 88%, at December 31, 2022 [255]. - The company had outstanding FHLB borrowings of $50.0 million as of June 30, 2023 [259]. Interest Income and Expense - Net interest income for Q2 2023 was $16.2 million, a decrease of $3.3 million, or 17%, from $19.5 million in Q2 2022 [270]. - The increase in interest expense on deposits outpaced interest income due to the rising rate environment, with the federal funds rate increasing from 1.50%-1.75% in June 2022 to 5.00%-5.25% in June 2023 [270]. - Total interest-earning assets amounted to $2.45 billion with an average yield of 5.15% for the three months ended June 30, 2023, compared to $2.64 billion and 3.47% in the same period of 2022 [270]. - Interest income for the three months ended June 30, 2023, was $31.6 million, an increase of $8.7 million, or 38%, from $22.9 million for the same period in 2022 [271]. - Interest expense rose to $15.4 million for the three months ended June 30, 2023, compared to $3.4 million for the same period in 2022, driven by a 235 basis point increase in the average rate paid on interest-bearing deposits [274]. Strategic Initiatives - The company engaged Keefe, Bruyette & Woods as a financial advisor to explore potential strategic alternatives, including a sale of the company or a merger [201]. - The strategic planning process includes the development of new banking products and services in light of the expected new status as a "covered savings association" [200]. - The company anticipates the election to be a "covered savings association" under HOLA will be effective before the end of 2023, allowing it to operate as a commercial bank without being subject to the qualified thrift lender test [199]. - The company is currently evaluating alternatives for the development of new loan products as part of a larger strategic planning process [218]. Regulatory Compliance - Regulatory capital ratios remained well above the levels required to be considered well capitalized for regulatory purposes as of June 30, 2023 [206]. - The Company and the Bank met all regulatory capital requirements and were considered "well capitalized" under applicable prompt corrective action requirements as of June 30, 2023 [313]. - The capital conservation buffer (CCB) is set at 2.5% of common equity Tier 1 capital to risk-weighted assets [311].