8-K: Sterling Bancorp to be Acquired by EverBank Financial Corp for $261 Million, Plans Dissolution

Sterling Bancorp has agreed to sell its bank subsidiary to EverBank for $261 million and will subsequently dissolve the company.

Summary

• Sterling Bancorp has entered into a definitive agreement to sell Sterling Bank and Trust, F.S.B. to EverBank Financial Corp for $261 million in cash.
• Following the sale, Sterling Bank will merge into EverBank, National Association.
• Sterling Bancorp plans to dissolve after the sale, distributing the proceeds to shareholders in two stages.
• An initial distribution of approximately $4.91 per share is expected shortly after the sale, with a final distribution following the resolution of all liabilities.
• The sale is subject to shareholder and regulatory approvals and is expected to close in the first quarter of 2025.
• As a condition of the sale, Sterling Bank will sell its portfolio of residential tenant-in-common mortgage loans to Bayview Acquisitions LLC for an undisclosed price.
• The company's board determined that maintaining independent operations was not viable due to high costs and the need for a potential dilutive equity raise.

Sentiment

Score: 4

Explanation: While the sale provides a resolution for shareholders, the underlying reasons for the sale and dissolution, including diminished earnings capacity and lack of a viable independent strategy, indicate a negative outlook for the company's future as a standalone entity. The discount to the recent share price also contributes to the lower sentiment.

Positives

• The sale provides a clear path for shareholders to receive value after years of challenges.
• EverBank has the cash and capital to complete the transaction without needing additional financing.
• The company has secured a buyer that is not expected to face unusual delays in regulatory approval.
• The company's capital and liquidity positions are strong.
• The multiple governmental investigations have concluded.
• Employees with unvested restricted stock will be fully vested upon closing.
• Employees whose positions are eliminated will receive severance packages.

Negatives

• The company's earnings capacity has diminished due to the mono-line nature of its legacy loan program.
• The company's strategic efforts have been complicated by unsettled conditions in the community banking space.
• The initial distribution of $4.91 per share represents a discount to the recent share price.
• The final distribution to shareholders is not expected until at least six months after the sale closing.
• The company will cease to exist after the dissolution.
• The Michigan branch will be closed.

Risks

• The sale is subject to customary closing conditions, including regulatory and shareholder approvals.
• There is a risk that the average daily closing balance of the Bank's deposits could fall below 85% of the July 31, 2024 level, which could jeopardize the deal.
• The final distribution amount to shareholders is uncertain and depends on the resolution of liabilities.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
• The company operates in a competitive and rapidly changing environment.
• There is a risk that the company may not achieve the plans, intentions, or expectations disclosed in forward-looking statements.

Future Outlook

The company expects to wind down as quickly as possible after the sale, with cash distributions to shareholders occurring in two stages. The initial distribution is expected shortly after closing, with a final distribution following the resolution of all liabilities. The company will also delist its stock from Nasdaq and deregister with the SEC.

Management Comments

• The board of directors of the Company has been considering various strategic initiatives for several years.
• Ultimately, Sterlings 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.
• 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.
• The situation at Sterling since the difficult days of 2020 has changed dramatically.
• The mono-line nature of the Banks legacy Advantage Loan Program business model has created a significant revenue void for us.
• The EverBank proposal represented the best available outcome for our shareholders, who have patiently supported us in our remediation efforts these past several years.

Industry Context

The announcement comes amid a challenging environment for community banks, with a decline in merger and acquisition activity and valuations since the banking crisis in March 2023. Sterling's decision to sell and dissolve reflects the difficulties in maintaining independent operations in this environment, particularly given its lack of a diversified business model. The acquisition by EverBank, which is seeking a stable branch platform, highlights the ongoing consolidation in the banking sector.

Comparison to Industry Standards

• The sale of Sterling Bank to EverBank is a strategic move in response to the challenging environment for community banks, similar to other banks that have sought mergers or acquisitions to navigate market pressures.
• The fixed cash consideration of $261 million is a common structure in bank acquisitions, providing certainty to the seller.
• The sale of the loan portfolio to Bayview Acquisitions is a typical step in these transactions, allowing the acquiring bank to focus on core operations.
• The plan of dissolution is a standard procedure for holding companies that no longer have operating subsidiaries.
• The two-stage distribution of cash to shareholders is a common approach to manage the wind-down process and ensure all liabilities are addressed.
• The engagement of financial advisors like Keefe, Bruyette & Woods and Hovde Group is standard practice for companies exploring strategic alternatives.

Stakeholder Impact

• Shareholders will receive cash distributions from the sale and dissolution.
• Employees of Sterling Bank will become employees of EverBank, with some positions potentially being eliminated.
• Customers of Sterling Bank will become customers of EverBank, with their deposit accounts continuing to be FDIC insured.
• The Michigan branch will be closed, impacting local customers and employees.

Next Steps

• Sterling will seek shareholder approval for the sale and dissolution.
• The company will file a proxy statement with the SEC.
• The sale is expected to close in the first quarter of 2025.
• The company will delist its stock from Nasdaq and deregister with the SEC.
• Cash distributions to shareholders will occur in two stages.
• The Michigan branch will be closed.

Key Dates

Keywords

acquisition, merger, bank sale, dissolution, shareholder distribution, EverBank, Sterling Bancorp, regulatory approval, mortgage loans, financial transaction