Sterling Bancorp, Inc. (the “Company”) (NASDAQ: SBT), the thrift
holding company for Sterling Bank and Trust, F.S.B., Southfield,
Michigan (the “Bank”), today announced that the Company entered
into a Plea Agreement (the “Plea Agreement”) with the U.S.
Department of Justice (the “DOJ”), resolving the DOJ’s
investigation of the Bank and Company relating to the Bank’s former
residential loan product, marketed as the Advantage Loan Program
(the “ALP”), and related matters. Under the Plea Agreement, the
Company has agreed to plead guilty to one count of securities fraud
primarily relating to disclosures with respect to the ALP contained
in the Company’s 2017 IPO Registration Statement and its
immediately following Annual Reports on Form 10-K filed in March of
2018 and March of 2019; pay $27,239,000 in restitution; and further
enhance its compliance program and internal controls related to
securities law compliance. This resolution releases the Company, as
well as the Bank, from further prosecution for securities fraud and
underlying mortgage fraud in the ALP. The Plea Agreement is subject
to court approval.
The Company also today revised its unaudited financial results
for its fourth quarter and year ended December 31, 2022, which will
be reflected in our Annual Report on Form 10-K that is expected to
be filed on March 16, 2023. Based on the estimated financial impact
of the Plea Agreement, the Company reported a net loss of $(14.2)
million for the full year 2022 and $(18.4) million for the fourth
quarter of 2022. The revised net income reflects an increase in the
provision (recovery) for contingent losses, net to $18.2 million
for the three months and year ended December 31, 2022. The change
to the provision (recovery) for contingent losses resulted in an
increase in the Company’s liability for contingent losses to $27.2
million at December 31, 2022. The liability for contingent losses
also reflects the impact of the $6.0 million civil money penalty
paid in 2022 pursuant to the Consent Order with the Office of the
Comptroller of the Currency (the “OCC”), entered into on September
27, 2022, to resolve the OCC’s investigation of the Bank relating
to the ALP. The Company’s and the Bank’s compliance with their
regulatory capital requirements was not materially affected. The
payment of the restitution is expected to be funded in part from a
dividend to be paid by the Bank to the Company, subject to
applicable regulatory requirements and regulatory non-objection.
The resulting material revisions to the Company’s financial
highlights for the fourth quarter and full year ended December 31,
2022 are below.
Revised Fourth Quarter and Year-End
2022 Highlights
- Fourth quarter net loss of $(18.4) million, or $(0.37) per
diluted share; full year net loss of $(14.2) million, or $(0.28)
per diluted share
- Fourth quarter non-interest expense of $37.1 million; full
year non-interest expense of $97.6 million
- Fourth quarter and full year provision for contingent
losses, net of $18.2 million
- Liability for contingent losses of $27.2 million at December
31, 2022
- Shareholders’ equity of $312.6 million
- Fourth quarter efficiency ratio of 197.7%; full year
efficiency ratio of 121.83%
“Today’s announcement ends the long running uncertainty around
the DOJ’s investigation of the Company. In the last few days, the
settlement conversations gathered steam, and the result is the
announcement from the government on its findings and the terms of
the settlement. Sterling Bancorp, Inc. is pleading guilty to one
count of securities fraud resulting from false and misleading
statements and/or omissions in various public securities filings
from the 2017 IPO through 2019,” said Thomas M. O’Brien, Chairman,
President and Chief Executive Officer, who was hired by the
Company’s Board of Directors in 2020 to lead the Company’s
remediation and turnaround efforts. “This is a serious charge and
one that the Company’s Board of Directors considered long and hard.
In the end, we concluded that the long-running fraud in the
origination of residential mortgage loans under the ALP was
undeniable and was known to the founder and certain former members
of senior management at the time of going public, and that it was
crucial to the long-term benefit of the Company and its
shareholders to accept the charge from the DOJ and finally resolve
this matter.”
In entering into the Plea Agreement, the DOJ noted that the
Company, through its founder and certain members of its former
senior management and loan officers, knew that it regularly
originated loans through the ALP based on false and inadequate due
diligence; that the former loan program constituted a significant
part of the Company’s revenues; and that the Company nevertheless
engaged in its initial public offering, making false statements
regarding the ALP.
Mr. O’Brien said, “While, as the DOJ currently notes, the fraud
was conceived with the knowledge and deception of ‘the founder and
certain former members of senior management,’ the Company bears its
own degree of accountability for their misdeeds. We accept this
outcome as a fair settlement of the damage done to non-insider
victim-shareholders. We trust that accountability for certain
individuals should be forthcoming, and we certainly hope that such
accountability will recognize the significant damage they did to
Sterling and its shareholders during their tenure.”
The DOJ specifically acknowledged the Company’s voluntary
disclosure of the ALP fraud to the OCC following the Company’s
internal investigation as well as the Company’s voluntary
disclosure of all relevant facts known to it over the course of the
DOJ’s investigation. The Company also provided to the DOJ all
relevant facts known throughout the Company’s ongoing internal
investigation, including collecting, analyzing, and organizing (and
even translating) the voluminous evidence and information provided;
providing information and producing documents upon request; and
making Company employees available for interviews. In doing so, the
Company received full credit for cooperation under the U.S.
Sentencing Guidelines and also received credit for cooperation
pursuant to DOJ’s guidelines for what the Company believes were
extraordinary efforts to cooperate with the DOJ’s investigation. In
determining an appropriate financial resolution, the DOJ also took
into account the Company’s $6,000,000 civil money penalty paid to
the OCC, the $12,500,000 payment made to settle the shareholder
class action captioned Oklahoma Police Pension and Retirement
System v. Sterling Bancorp, Inc., et al., No. 5:20-cv-10490-JEL-EAS
(E.D. Mich. 2021) and the Company’s inability to pay the full
amount of fines and restitution that were called for under the
Sentencing Guidelines or dictated by the amount of loss to
non-insider victim-shareholders. The Company agreed as part of the
Plea Agreement not to seek a tax deduction for the restitution
payment.
The DOJ further acknowledged that the Company has enhanced and
has committed to continuing to enhance its compliance program and
internal controls. Based on the foregoing, the DOJ determined that
an independent compliance monitor is not necessary for the
Company.
Mr. O’Brien stated, “The DOJ also favorably notes, ‘The
Defendant engaged in extensive remedial measures, including (i)
terminating employees involved in the ALP fraud, such that through
terminations and resignations, more than 100 officers and employees
left the bank; (ii) completely overhauling the bank’s senior
management, including terminations of former senior management;
(iii) overhauling the bank’s residential lending department,
internal audit function, compliance function, and Bank Secrecy
Act/Anti-Money Laundering function, and creating an enterprise risk
management function; (iv) permanently ending the ALP; (v) hiring a
new Chairman, Chief Executive Officer, and President; (vi) making
changes to the Defendant’s Board of Directors, resulting in a Board
of Directors composed only of independent Directors with the
exception of the new Chief Executive Officer and President; and
(vii) implementing a new business model to reduce its risk
profile.’”
“With the January 2020 formation of our Independent Directors
Review Committee, which was responsible for conducting the internal
review into the Advantage Loan Program and spearheaded by new
management who joined beginning in June 2020, we have followed an
absolute commitment to full transparency and cooperation with
governmental enforcement agencies. We have supplied millions of
pages of documents, made Bank current and former employees
available for interviews where possible, and pursued recovery from
culpable parties. The Board of Directors has been unflinching in
its support of the pursuit of full remediation and never withheld
the necessary resources to support the investigations,” added Mr.
O’Brien.
“The financial pain of the settlement comes from a $27.2 million
restitution fund to be paid solely to non-insider
victim-shareholders. The restitution will be paid by the holding
company, supported in part by a dividend from the Bank to the
holding company. Further information on its administration will be
forthcoming from the DOJ. Both the Bank and the Company remain well
capitalized with a leveraged capital ratio at December 31, 2022 of
approximately 16.6% for the Bank and 13.5% for the Company, each
well above the minimum CBLR ratio of 9%. Additionally our asset
quality and reserves are both strong while our on-balance sheet
liquidity amounts to approximately 25% of total assets at year
end,” Mr. O’Brien continued. “The Plea Agreement sets forth the
full fine and restitution amounts that could have been assessed
based on the totality of the misconduct. Those amounts would have
been ruinous. The Company’s inability to pay those amounts is
reflected in the agreed restitution amount and absence of a
criminal fine.”
Although the Company and the Bank remain under investigation by
the Securities and Exchange Commission related to the ALP, the
Company currently believes that the SEC’s investigation will not
result in an enforcement action against the Company. However, there
can be no assurance that (i) the Company will not incur material
losses due to damages, penalties, costs and/or expenses as a result
of such investigation or any future investigations; or (ii) such
losses will not have a material impact on the Company’s business,
financial condition or results of operations.
“On behalf of the Company and its Board of Directors, we are
sincerely grateful for the support of our public shareholders
throughout this difficult process. We have done our best to right
the wrongs of the past and atone for those serious wrongs. We can
now focus on developing a strategy that allows Sterling to
capitalize on forthcoming opportunities,” said Mr. O’Brien. “I will
host an investor call Thursday afternoon at 1:00 p.m., at which
time I will attempt to answer any questions left open in today’s
announcements.”
Recent Market Developments
Noting the recent upheaval in the banking industry resulting in
the failures of Silicon Valley Bank and Signature Bank, Mr. O’Brien
commented, “Anytime a bank fails, let alone two of the nation’s
larger institutions, many people suffer, from investors to
customers to employees who no longer have jobs. But the market
always quickly focuses on the rest of the industry trying to figure
who, if anyone, is next. I want to reassure all our constituents
that, as noted in the above information, Sterling continues to
maintain a very strong capital position and a high ratio of liquid
assets to total assets compared to the industry. As our investors
know, we took great pains to drastically increase liquidity in 2020
so that we could face whatever might come out of the repercussions
from the Advantage Loan Program. That strategy has served us well
in the current environment. Our investment securities, which are
all available for sale, are purposely shorter in duration, thus
helping protect against the more drastic valuation marks faced by
some other institutions. In addition, our business model
historically has been geared to retail customers rather than the
more wholesale-oriented institutions on which the market is
focused. We also have no balance sheet exposure to
cryptoasset-related companies or start-up/early-cycle technology
companies. I am further pleased to note that deposit levels in the
first quarter of 2023 have remained relatively stable, and I am not
aware of any significant deposit outflows in the past week.
All-in-all, I am very confident in our financial resiliency.
Maintaining that resiliency in the face of significant adverse
economic stress scenarios was a significant factor in our
evaluation of and decision to accept the financial consequences of
the Plea Agreement.”
Conference Call and Webcast
Management will host a conference call on Thursday, March 16,
2023 at 1:00 p.m. Eastern Time to discuss the Plea Agreement and
the Company’s revised unaudited financial results for the quarter
and year ended December 31, 2022. 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
Thursday, March 23, 2023 by dialing (877) 344-7529, using
conference ID number 6986611.
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 San Francisco and Los Angeles,
California and New York City. Sterling offers a range of loan
products to the residential and commercial markets, as well as
retail and business banking services. Sterling also has an
operations center and a branch in Southfield, Michigan. 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” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, regarding
the Company’s plans, expectations, thoughts, beliefs, estimates,
goals and outlook for the future that are intended to be covered by
the protections provided under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect our
current views with respect to, among other things, future events
and our financial performance. These statements are often, but not
always, made through the use of words or phrases such as “may,”
“might,” “should,” “could,” “predict,” “potential,” “believe,”
“expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,”
“estimate,” “intend,” “plan,” “projection,” “goal,” “target,”
“outlook,” “aim,” “would” and “annualized,” or the negative
versions of those words or other comparable words or phrases of a
future or forward-looking nature. 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. 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 31, 2022, 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. 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20230315005895/en/
Sterling Bancorp, Inc. Karen Knott Executive Vice President and
Chief Financial Officer (248) 359-6624
kzaborney@sterlingbank.com
Sterling Bancorp (NASDAQ:SBT)
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