Q2 2020 Sterling Bancorp Inc Earnings Call

Good morning, and welcome to the Sterling Bancorp Inc. second quarter 2020 Conference call. My name is Brendan and I'll be your operator today at this time all participants are in listen only mode.

This call is being recorded and will be available for replay through August 17th 2020, starting this afternoon at approximately one hour. After the completion of this call I would now like turn the conference over to Mr., Larry Clark Investor Relations for the company. Please go ahead Mr. Clark.

Thank you Brenda and good morning, everyone.

Thanks for joining us today to discuss drilling bancorp's financial highlights for the second quarter of 2020.

Joining us today from the company or Tom O'brien, Chairman, CEO, and President and Steve Hubert Chief Financial Officer and Treasurer.

Tom will begin the call with an overview of the financial highlights for the quarter.

And then we'll open the cold your questions.

Our management will not be answering any questions related to the ongoing internal review and investigations.

Before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of Sterling Bancorp that involve risks and uncertainties.

Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.

These factors are discussed the company's actually see filings, which are available in the company's website.

The company disclaims any obligation to update any forward looking statements made during the call.

At this time I'd like to turn the call over to Tom O'brien.

Thanks, Larry and.

Good morning, everyone and thank you for joining.

Sterling Bancorp second quarter call.

As you saw this morning, we announced a net income of $3.6 million about seven cents a share.

Once again, we are reporting what we're calling financial highlights as contrasted with the more traditional earnings release.

We are working our way through the 2019 audit.

And then the past two 10-K and 10-Q.

All the relevant parties are actively engaged and working towards the goal of having the audits and these reports completed as quickly as possible.

I began my role as CEO of Sterling and the last month of the second quarter.

And that time, we have worked to identify critical needs and begin the process of building a strong and compliant foundation.

From which the company can operate.

To that end.

Every single area and department will receive close attention and any remedial actions required to bring it to the operating standard that we demand.

And that context I can also reports that the board of directors remains fully support up and actively committed to this course of action.

The financial results, I guess or what I would say an award okay. As you can see where saddled with extraordinarily high cost.

Related to the previously disclosed investigatory matters.

Margin at 308 basis points reflects a.

Very high liquidity level, and a very low rate environment.

The provision for loan losses came in at 4.3 million, which brings the allowance to just under 47 million.

Capital levels at both the bank and the holding company remain robust.

Deposit flows are likewise strong.

Credit metrics are somewhat weaker due in part to how we measure delinquencies today versus prior management.

Forbearance levels are predominantly compliance of residential property lines.

We remain diligent and evaluating the impact of the cold at 19 virus.

With our business and our employees.

We have a substantial number of employees working from home as you might expect and I expect that to continue for the next few months at least.

We remain productive in this environment.

The.

Quarter results as you can kind of saying the bullet points you know.

Predominantly driven by these higher expenses that that I referred to earlier.

And and the liquidity level the.

Tension of the management team is on you know.

Focus is almost exclusively on you know identifying the areas that need attention the staffing needs the executive needs of the bank.

And you know looking critically at.

Commercial loan portfolio with the residential loan portfolio and.

He.

Deviations from what we might expect there, it's a little difficult with the virus in the forbearance request to get to handle on exactly what's happening.

And the underlying markets, but generally I think like most banks we see.

Cash flows impacted on commercial properties.

Construction projects delayed.

By the inability to well.

Huh.

You know complete the projects during the.

General time, a lot of because of the shutdown with the virus and so were you know we're trying to be I'm cautious diligent.

Residential.

Loans were the only originations we had in the quarter at $83 million.

We've not.

Originator and anything on the commercial or construction site.

And that time period.

So.

You know I would say an awful lot to do the.

You know the challenges are not.

No.

Insignificant, but also not insurmountable who's just you know lot will keep us busy over the next.

Couple of quarters.

All the things you can see you know impacting us during their release, but our goal is to get through this got these expenses.

Down as quickly as possible and you know come out the other side with the Oh.

Oh, you know a stronger stronger business model you know as transparent.

As we possibly can be and certainly as compliant as.

Everyone expects us to be so that's you know.

A short sense where were rather.

Situated today.

Probably the best thing for me to do let's just take some questions from those on the phone and.

Let's see where it takes us, but as Larry mentioned, you know and unlike the first call I had a with the first quarter results.

There's really nothing I can say with respect to the investigations or anything else related to those at this time, but that'll be what it'll be in.

It will come out at the time when everything is completed and.

Done.

With that.

Let's go to some couponing.

We will now begin the question and answer session [noise].

Who asked the question you May Press Star then one on your Touchtone phone.

We're using speakerphone, please pick up your handset before pressing the keys to.

To withdraw your question. Please press Star then too.

This time, we'll pause momentarily to assemble a roster.

Our first question comes from Anthony Pollini with American Capital Partners. Please go ahead.

Hey, guys.

Good morning.

Tom glad to see is still there [laughter].

[laughter] [laughter] okay.

I mean, there's not a whole lot. It can ask for you know what I was looking at your your net interest margin and looking at your net interest income. It implies that you had some balance sheet growth during the quarter.

Yeah or is there any I know you don't have total assets, what total earning assets on the a highlight sheet, but could you share some of that detail with us.

Yeah. We had you know we had good deposit flows which built liquidity I mean liquidity.

The primary liquidity comes in you know little over $630 million. So.

Yeah that's.

Really where you see the growth I mean, we had a little bit of as I mentioned, a little bit of residential loan originations at $83 million.

But this was really a you know deposit flow.

Increase and the.

I guess a lot of banks are experiencing the same thing so.

But I thought you know reason I said that thought the quarter was okay is that you know a margin north of three today is pretty darn, good and given that lot of level of liquidity I'd say you know.

Even better than.

You know the stated number.

[music].

But that was at what that.

With the flows.

If we had to kind of look at the next quarter from a balance sheet perspective compared to this quarter should we see that trends continue or perhaps slow the liquidity continue to build but at a slower pace et cetera.

A little hard to predict that but I think generally you know, what you're saying and most all the markets and the a and the country is that.

You know, there's a a preference for safety and yield and as modest as those yields are.

And no bank deposits continue to be pretty robust.

And bank opportunities to invest those deposits are pretty paltry.

So.

I think it will continue I'd be surprised if it was at the same level as we had in the second quarter, but to be honest I was surprised by the second quarter also.

Then just to be good and an affordable liquidity. We have you know we have.

Uses for the liquidity or you know potentially over the next quarter so too so.

When I look at the provision and compare it to out what I'll call, Eric Guesstimate for the quarter. It did come in lower.

And did you have a any material charge offs in the quarter.

No.

Okay. So that's pretty much all went to the reserve.

Yep, Yeah the allowance.

Just just under 47 million.

Okay.

Yeah, that's will charge off at the bank of you know.

Ben.

You know modest work for quite awhile.

You know I mean, but.

The provision in the last two quarters and you know the.

You know the profile of bank lending and.

In particular, you know commercial and construction stuff you know it as well.

Cost could be cautious.

So I you know I think to the extent circumstances or continue to be.

Sideways or worse than the economy will.

Continue to.

Build the allowance and anticipation of some ultimate charge offs, but you know to date the actual charge offs of then.

No.

When I look at the for parents portfolio, we'll call it.

Yeah, it's actually not that high given how big your loan portfolio is but what do you think the.

Total balance for that is gonna be.

Our next quarter music high or low or maybe the same hard to tell and do you see material loss content in that portfolio.

Very hard to predict where it goes I mean.

You know, we're now basically into August with events that began in March. So you would argue that.

From the at least the forbearance request.

Timeframe, you are pretty much true what.

But you know a second round of you know virus type lockdowns.

You know could change that.

I don't you know when you look at whats in the forbearance portfolio.

You know just on a collateral basis, you know the collateral levels are you know.

Hi relative to the loan amounts.

So.

You know what I.

I think we're okay, there, but you know there's not a lot of.

The ability for actual price discovery and a.

You know in a market that is.

You know where it is today, but you know I think a lot of the residential loans you know the average loan to value.

It was probably.

No more than 60% today and.

So people are taking advantage of the forbearance, you know leased and our portfolios to some extent it may be opportunistic. It may be you know unemployment for a temporary period of time.

All sorts of things, but it's it's hard for me to see where people would walk away from that much.

That much equity in their ROE and their home the commercial side of it has been you know really modest relative to what I've seen and.

Some of the banks that I know when I follow.

You know, there's always more risk in the commercial side of the business.

And and always more risk in the you know the construction portfolio too but.

So parts you know from the pure forbearance and Hum.

You know I'm not panicking.

I guess I'd say.

Okay.

How about the.

<unk> expenses.

I mean, obviously those are hard to predict also.

But.

When do you think we start to see.

The workout slash called <unk>.

Slash regulatory expenses start to peak or maybe you know a moderate start to come down.

I think you know.

It's hard for me to see them going higher but I think they'll continue at high levels for the next couple of quarters.

So I I you know at least my hope would be we'd see some relief as we get into 2021.

Because that has really been huh.

You know the C anchor that's dragging us Oh, you know for I don't I guess, the last year plus.

This was a uh huh.

Hi quarter.

I would expect the third quarter, you know to be.

You know somewhere in this area, but then you know as we get into 2021, you know despite the fact of time passing and.

You know management, taking a you know a very proactive approach to.

Getting.

Yeah, So something you know the 10-Q isn't it.

10-K filed.

Not to getting past a lot of these or other issues.

You know they should start to moderate come down to you know more traditional levels.

But it's a it's.

It's an expensive process when you.

Got into trouble.

Yep.

That's the you know that's the one lesson.

It's very expensive.

Have you had some good quality time with the regulators over the last couple of months.

Indeed.

Okay.

Plenty of good anytime.

They are already a in the mix.

Yeah, No I am and I will say our.

You know how are you know relationship is.

As much improved you know there's a level of you know trust and confidence that's bilateral here. We're just finish which has been typical of my career, but the.

The annual you know safety and soundness exam began when I pretty much when I joined the bank and they're just finishing that up now which was an interesting experience too you know do it you know.

Somewhat remotely and virtually you know for both of us but.

[music].

We're in a good place from the the trust and confidence level I think.

You know they they certainly appreciate the transparency that we've.

We've given them in the last.

You know two months or so.

And you know well well always work with them and said they've been very.

Very supportive of our effort so.

You know, we all know there's a lot to do.

Well just do it.

Well, you're doing a great job. So far you know Ah I still view this as a value play distressed value play and you certainly these results were better than we had.

Expected and I wish you continued luck. Thank you for the time no. Thank you good to hear from you.

As a reminder, if you would like to ask your question. Please press Star then one.

Again, if you would like to ask the question. Please press Star then one.

[noise], making it's so easy on me.

We have a follow up from Anthony Pollini, It's American capital Partners. Please go ahead.

Oh, well the Mets ever when another game.

[laughter].

Yeah no.

My metal son in my youngest center huge Mets fans and HM.

I think that port guys are struggling.

I don't know.

Quite my son, and I went crazy this weekend that made it Tonight, you know being stuck in house pull side, but it's just can we find new ways to lose [laughter] paint well make sure they know diagrams pitching today okay.

All right all right well, let's say I know, you're gonna have new ownership to sell well you know.

Well see how that plays out hopefully it'll be.

I'm.

Not a rod [laughter] I don't know, it's certainly not going to be at the price point there at a before March.

Well I went to pad when calling went depends so we overlap so.

Okay.

I wouldn't mind seeing him in their he's the guy I'm rooting for but they already turned down a lot more money from them. So we'll have to see.

No.

I know I think a franchises or.

Many of them are down in value substantially.

Alright, Thanks, Dan bump outs.

Any time, Okay take care.

[music].

[noise] thing is there no further questions that where they spend the conference back over to Mr. O'brien for closing remarks.

Okay. Thank you easy easy time today. Thank all of you for joining the call and as I mentioned, where you know we're focused on the.

Remedial work that you know dictates our days and working aggressively towards.

Getting these overdue filings completed and filed and kinda back to lease normal.

Operating schedules and well do that as quickly as we can but with that thank you. All so much for your interest in for participating and look forward to another conversation. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Oh.