Sterling in Michigan to sell bank for $261 million

Sterling Bancorp in Southfield, Michigan, culminated a lengthy recovery from challenges caused by a now defunct mortgage program with a plan to sell its bank and wind down the parent company.

The $261 million deal, announced Monday and expected to close in the first quarter of 2025, involves Sterling selling its subsidiary Sterling Bank and Trust FSB to Jacksonville, Florida-based EverBank Financial for a fixed cash consideration.

The $2.4 billion-asset Sterling, which shuttered its tarnished Advantage Loan Program at the onset of this decade amid legal and regulatory probes that included its compliance with Bank Secrecy Act and anti-money-laundering laws, had publicly announced last summer that it engaged a financial advisor to evaluate strategic alternatives, including a sale.

Sterling Chairman, President and CEO Thomas O'Brien, who was hired to turn around the company, said it took more time to strike a deal than initially hoped due to the industry disruption caused by multiple regional bank failures in the spring of 2023.

The "collapse of three large depository institutions … roiled the market for acquisitions of banks," O'Brien said in a press release. "Consequently, our strategic process was significantly extended over time as this has been the environment in which we have been operating and evaluating our options."

O'Brien agreed to join the company in 2020. In the release, he said the company determined it had gone as far as it could on its own.

"Ultimately, Sterling's board of directors determined that there was no practical way to pursue any form of stand-alone independent operations given the extremely high costs required and the multiple years needed to execute a new strategic vision without risking ongoing losses and substantial loss of capital," O'Brien said.

"The financial risk and potential need for a dilutive equity raise made those options impractical," he added. "In the difficult capital market environment for banks post-March 2023, and with the assistance of our financial advisors, we conducted multiple outreach efforts to dozens of other financial institutions to assess the interest and value of a combination with Sterling."

Sterling said it ultimately found a fitting buyer in the $39.5 billion-asset EverBank.

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"We were focused on finding a transaction that would be fully funded and not likely to raise regulatory concerns in the application process, while also providing our shareholders with as attractive a consideration as we could develop," O'Brien said. "In EverBank, we believe that we have found solutions to each of those corporate imperatives. EverBank has been cooperative and forthcoming in all of our negotiations and we have confidence in their ability to execute the transaction in a timely fashion. EverBank has both the cash and capital to execute without need of further financing and we do not anticipate unusual delays in the regulatory approval process."

Under terms of the agreement, EverBank said it would acquire 25 Sterling branches in the San Francisco Bay Area and metropolitan Los Angeles, along with a branch in New York City. It would gain approximately $900 million of loans and $2 billion of deposits, EverBank said in a separate release.

While based in Michigan, the bulk of Sterling's operations are in California. EverBank CEO Greg Seibly said the deal would hasten a key strategic initiative to expand in California.

"This acquisition will significantly accelerate our efforts to expand EverBank's footprint in the California market, where we recently opened a West Coast headquarters in Irvine and will soon open new financial centers in Roseville and Encino," Seibly said in the release.

O'Brien said Sterling had steadied its ship following the meltdown of its mortgage unit. But it determined selling was in the best interest of shareholders, as opposed to a lengthy business line diversification effort.

According to the U.S. Department of Justice, Sterling required little documentation in making Advantage mortgage loans, which the government claimed made the program a magnet for fraud. Sterling ultimately pleaded guilty to securities fraud in connection with Advantage Loan, paying a $69 million penalty.

"The situation at Sterling since the difficult days of 2020 has changed dramatically. At that time, we were facing serious existential threats, which has evolved into a situation where our capital and liquidity positions are strong and the multiple governmental investigations have finally concluded, though our earnings capacity has diminished," O'Brien said.

"The monoline nature of the bank's legacy Advantage Loan Program business model has created a significant revenue void for us. While our current financial condition stands in stark contrast to that of a few years ago, the legacy absence of a diversified business model has constrained the company's ability to generate meaningful earnings and growth," O'Brien added. "The projected time and costs in reinventing the bank would be punitive."

Sterling said it would seek shareholder support for the transaction at an upcoming special meeting. In a proxy statement to be distributed in connection with this meeting, "we will explain in greater detail the extensive process that we have undertaken to arrive at this point and the business rationale for avoiding a 'go it alone' strategy," O'Brien said.