Sterling in Michigan revises 2019 earnings to reflect mortgage woes

Sterling Bancorp in Southfield, Mich., which has been dealing with lingering issues tied to a discontinued mortgage business, drastically revised its earnings for 2019 following an audit of its operations.

The $3.2 billion-asset company said in a Tuesday press release that its profit fell by 49%, to $29.2 million. The lower amount reflects the creation of a $7.8 million loan repurchase liability and a $25 million contingent loss liability.

Sterling said the loan repurchase liability is largely tied to the sale of loans it originated under its discontinued Advantage Loan Program. The contingent loss liability is associated with ongoing litigation and investigations tied to the program.

Sterling had announced plans to set those funds aside earlier this year.

The company was also able to file its annual report with the Securities and Exchange Commission.

“We are pleased to have achieved this filing milestone … along the road to addressing the various challenges facing the company in 2020,” Thomas O’Brien, who was hired in June to serve as Sterling’s chairman, president and CEO, said in the release.

Sterling is preparing its quarterly reports for 2020 and hopes to file them “very soon,” O’Brien said. “We will continue to work hard to bring the company into full regulatory compliance and achieve sustainable profitable operations as quickly as possible.”

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 following 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 2019 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 has said it will “vigorously defend” itself against the lawsuit.