Michigan bank hires turnaround expert to tackle long to-do list

Sterling Bancorp in Southfield, Mich., which reported a large quarterly loss, has hired a CEO with experience turning around struggling banks.

The $3.2 billion-asset Sterling said in a press release Monday that Thomas O’Brien will become its chairman, president and CEO, pending approval from its regulators. For now, O’Brien is serving as a consultant to Sterling’s board.

Steve Huber, the company’s chief financial officer, has been filling in as interim president and CEO since Thomas Lopp abruptly resigned in May.

O’Brien, 69, was president and CEO of Sun Bancorp from 2014 to 2018, where he addressed massive profitability issues before selling the New Jersey company to OceanFirst Financial. Over his career, O’Brien has led four banks, selling the institution in every instance.

Recently, O'Brien was vice chairman of Emigrant Bancorp in New York.

O’Brien “brings a wealth of expertise to this role, having served in a number of senior leadership capacities at various financial institutions over the past few decades,” Benjamin Wineman, chairman of Sterling’s special committee, said in the release.

“Each time [O’Brien] has been in the CEO chair, he has successfully led the turnaround of difficult situations, while enhancing operational integrity, driving shareholder value and creating a strong regulatory compliance culture,” Wineman added. “He is a proven leader and a strong strategic thinker.”

“This is not an opportunity that I actively sought,” O’Brien said. “As the pressing need to find new leadership recently developed, I could not say no to their request to step into this role.”

O’Brien plans to buy 300,000 shares of the company’s stock. O’Brien, who was paid $600,000 for consulting services provided from March to May, is set to receive a $3 million annual base salary once he becomes CEO.

Sterling, in a separate press release, said it lost $27.8 million in the first quarter. The results included a $20.9 million loan-loss reserve that reflects the potential impact of the coronavirus pandemic.

The company also set aside $25 million to cover potential litigation expenses tied to its Advantage Loan program. Sterling also incurred a $7.8 million expense for loan repurchase reserves tied to the sale of loans made under the program.

Sterling suspended the Advantage program in early December amid concerns about underwriting and documentation procedures. The decision came just weeks after Sterling fired two top-producing lenders after an internal compliance review.

The Advantage loans allowed applicants to use nonstandard documentation, such as a letter from an employer or a monthly bank statement. Problems with the program raised concerns about potentially broader issues with internal controls.

The program's suspension also created a significant revenue hole for the company.

About 86% of Sterling's total loans at Sept. 30 were mortgages, and Advantage loans made up 83% of all mortgage production during the first nine months of 2019.

Sterling has also been operating under a formal agreement with the Office of the Comptroller of the Currency since June tied to Bank Secrecy Act and anti-money-laundering compliance.

Sterling disclosed in March that it had received grand jury subpoenas from the Justice Department seeking documents and information tied to its residential lending practices and related issues. Sterling also disclosed at that time that the OCC had been looking into its credit administration and its BSA and AML compliance.

The company and certain current and former officers and directors were also named as defendants in a class-action lawsuit filed in the U.S. District Court for the Eastern District of Michigan. The lawsuit alleges that the defendants violated federal securities laws, primarily tied to disclosures about the bank’s residential lending practices.

Sterling said it “intends to vigorously defend” itself against the lawsuit.