Q4 2020 Sterling Bancorp Inc Earnings Call
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Good day and welcome to the Sterling Bancorp, Inc. Fourth quarter 2020 earnings conference call all for.
Participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like to turn the conference over to Steven Huber, Chief Financial Officer and Treasurer. Please go ahead Sir.
Thank you Chad and good afternoon, everyone. Thanks for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and year ended December 31 2020.
Joining us today from Sterling as management team are Tom O'brien, Chairman, President and CEO and myself, Stephen Huber Chief Financial Officer on Treasurer.
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 risk and uncertainties.
Further information is contained within the press release, which we encourage you to review.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
The press release available on the website contains financial and other quantitative information to be discussed today as well as a reconciliation of GAAP to non-GAAP measures.
At this time I'd like to turn the call over to Tom O'brien Tom.
Thanks, Steve and good.
Good afternoon, everyone. Thanks for joining us.
Sterling had did you probably know two press releases today the first one.
It was about the pending settlement of the class action lawsuit.
And that went out first thing this morning, but we're very pleased to announce that is.
You can probably imagine those things are a.
The distraction they consume an awful lot of time and of course they are expensive.
So as noted in the press release.
The resolution.
<unk> is subject to approval of the court, but for.
Optimistic that that will all you know.
Come through accordingly.
And without too much delay, although it certainly takes a couple of months to get through this entire process.
But yeah, we're very pleased about that and the.
Resulting outcome is at the press release also notes for the.
The cost of the settlement is borne by the banks insurers and and so as a consequence, we had to set up some reserves in.
In the.
Earlier in 2020 and.
10 million of those were released in the fourth quarter.
The.
Second release of course was our you know kind of a normal fourth quarter and full year 2020 financial results.
And I think they are pretty self explanatory.
<unk>.
The quarter remain noisy.
Apologize for that but still.
Still a lot to do here at the bank, but.
Underlying all of the.
Noise in the quarter, I think you'll probably see a fair amount of progress being made.
We still have.
A fair amount of remedial compliance and <unk>.
Technology of work ahead of us in 2021.
On the.
The groundwork that we've done so far in 2020.
Certainly paid some benefits and.
We just don't underestimate the work to be done but.
As I said progresses.
Meaningful and measurable at this point, we're pleased with that.
You know financially margins under pressure.
Primarily due to.
The level of liquidity, we have on the balance sheet, coupled with the very low interest rates.
Expenses.
Even though they were down in the quarter. After you take account for the for.
$10 million recovery, but expenses are still running high with legal and consulting work being done on the fourth quarter, we're optimistic that as the class action comes to full resolution.
<unk>.
Our cost with that disappear that as we get into the second half of 2021.
The Opex line will start to climb.
It's way lower.
I guess the most.
I noticed one thing in the quarter is the loan loss provision, we made a provision of $27 $6 million increase in the allowance too.
Just about two 9% of total loans.
And as I mentioned on the previous few calls.
The allowance reflects our concern with the.
The credit risk profile.
And various different components of the legacy bank loan portfolio.
On.
Of concern are the SRO loans in the San Francisco area.
And of course.
Some extent the advantage loans and.
On the bank's construction loans.
<unk>.
We remain on a revenue or.
Our focus and reflects some degree of concern.
Concern as to how they will.
We'll work out so we just thought it frankly was more prudent to.
Hmm get as much of this done as circumstances allow in the fourth quarter and also gives us the flexibility going forward in 2021 to move.
Moving aggressively.
Circumstances permit.
Nonperforming loans remained stubbornly high.
There are some <unk> in there, which help out on of course.
As you probably read in the press release, we moved about.
<unk> hundred $24 million worth of loans into held for sale and took a write down on those.
Our goal is to liquidate those loans in the either late this quarter on the very early part of Q2.
And then on the governance side we.
Accepted the resignation of Barry Allen, who had been a longtime director of Sterling.
Longtime chairman of the audit Committee and.
I think Barry had a total of 22 years on the board. So we were up.
Sorry to see him leave but understand his.
Desire to have some time for himself.
And with that we did announce subject to some regulatory approvals the appointment of Tracey Diedrich.
To the board and Tracey will join us as soon as.
We received the <unk>.
Non objections from well from a regulator.
And all of that is our efforts moving forward in terms of.
Providing the governance level that.
The company and the bank need and the oversight that we and management require.
So we're pleased.
These two announced that.
And with that it's probably going to be most.
Beneficial if I just take some questions here operator so.
Maybe open it up and hope to see what's on everybody's mind.
Alright. Thank you Sir we will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Ben Garlinger with healthy group. Please go ahead.
Hey, good afternoon guys.
Hi, Ben.
Alright.
The 27% reduction in professional fees.
From the third quarter on the fourth quarters.
Sizable step down and now that since you have bet that pending settlement.
Zone announced today I was wondering if you could a little guidance to kind of what we should project going forward.
Theyre all of January could be included vehicles all day.
Professional fees I was just kind of curious since you do have that pending settlement now should we.
Do you assume a ramp down on tree hold steady near current levels or.
Well, just kind of baked into that debt.
And then just really it doesn't apply so that's my first question I have on my follow up.
Well I would have generally said Ben is that I think.
In the second half of the year.
On the legal and professional fees will start to trend down.
Hum.
Not at this point I would not be able to say GAAP down because it's just too hard to predict but as we get things resolved and there is a little more revenue.
Clarity than they should.
She starts to reduce Steve do you have any specific number two on a throw on there.
Sure.
Well for next year, we're expecting on the maybe come down by as much as a third and compare to year 2020.
But again.
Not real material probably in the first second quarter of 2021 more would be a second half event as Thomas mentioned.
Yes, okay, so full year 'twenty one.
About a third less than the full year 'twenty I forget that rate.
Yes, correct.
And then my other question had to do with the.
For the time deposits.
<unk> from second quarter into third for you guys reduced by about 33 bps and the yield and then third quarter and the fourth was 10.
I'm curious if you could talk about kind of how.
Some of them on time deposits are coming off over the next few quarters in terms of percentage of the.
Total amount and then.
What's the kind of.
On the spot rate relative to that $1 58 on where you got your rate.
Reissuing that.
Please.
Yeah, why don't you talk on <unk>.
Share our spot rate at year end is just under 1% so hovering around 1%. We continue to decrease deposit rates, particularly in time deposits and money markets. So we're expecting those to re price and take effect as we move forward here.
We do have a lot of time deposits coming due to re price.
Ill begin on materially in the first quarter and basically through the third quarter.
<unk>.
Probably about anywhere from 16% to 25% of our deposits are going to re price.
So.
They take the opportunity of the lower rates that we've just recently to.
To bring that cost on a little bit.
It remained to be seen on how many of those still stick with us as they renew on the new time deposit or move to a money market.
But we're expecting some of those deposits to leave the bank altogether as well.
Got you and you said, 16% to 25.
Taking share I got it right, that's basically a quarter on the time deposits per quarter or is that in totality.
Yeah.
It might be a little more clarified.
Put it in dollar terms.
We have about $253 million repricing in the first quarter $432 million approximately on our second quarter on a $352 million in the third quarter.
Perfect. Thank you.
I'll step back into the queue. Thanks.
Sure. Thank you.
And the next question will be from Nick <unk> with Piper Sandler. Please go ahead.
Good afternoon, gentlemen, hope had been well.
Thank you so far.
So I wanted to just start with the liquidity position, which continues to grow given the optimism for mortgage repurchases. In early 2021 do you feel that once that process concludes liquidity will come down in a meaningful way.
Yes, absolutely.
Obviously.
A big drag on margin and.
We don't see any signs of that changing anytime soon so on us.
Steve mentioned, we've got some.
Significant Cds maturing so.
Our Gulf frankly would be to bring the balance sheet down in size somewhat.
And and then get these repurchase loans funded.
Probably.
Very late this quarter or early April.
Okay.
In terms of the loan originations is similar amount to last quarter are the originations predominantly in that tick product for you guys offer.
They've been predominantly there.
And we continue to fund commitments on construction loans.
And then.
We've done a debt.
Some residential loans, but the tenants in common product has.
From the bulk of it.
Thank you for taking my question.
Sure. Thank you.
And the next question will come from Anthony Pelini with American Capital Partners. Please go ahead.
Hey, guys.
Anthony how are you.
Okay.
And are you actually beat.
On a revenue projections by 500000.
Alright.
I don't know if we were depressed for you actually had a good quarter.
[laughter] on Goldstar.
Obviously, our credit quality is the.
Key issue here and I know I know Tom you are a hell of a lot of experience with this and whether you want to use a baseball analogy our garbage truck analogy you know are we in the early innings as far as.
What was that garbage truck for now it's just the cleanup process dumping it or is that front end still are having a little more activity than you'd like at this point.
That does.
Fair question, I mean, it's hard to predict I mean.
I'll speak to Sterling, but I do think in the community bank space kind of generally.
Between the.
Level and kind of the aggressiveness of originations over the last few years couple.
Coupled with the impact of the Corona virus I just think.
There's going to be some reckoning throughout 2021 that will not be insignificant.
And that philosophy is kind of guided where we are in sterling.
I have my.
Concerns as Ive mentioned on a few prior calls with them.
The commercial construction portfolio and.
I don't want to be caught short so.
I would say we've got it.
Almost a 3% of total loans reserved.
I'm feeling okay about that.
It gives us a lot of flexibility to work with the.
Loans that come into.
Problem status and those that we've identified and I will tell you we have been.
Very very thorough and aggressive in terms of risk rating and identifying loans.
Through the last few months.
Also large back log of loans to review when I joined the bank.
Got a very good team and they are now going through it we're being deliberate about it.
As you saw on the press release.
Think about $35 million I've got the number correct of loans that are just past due maturity by 90 days.
But we're reviewing them and looking carefully at them as to whether or not we're going to extend for them.
Find another.
On other strategies, so that's a long way of saying answering it.
You know it.
To think at least from the Sterling specific perspective.
We're heading into the stretch.
Ooh sounds like we might have a lower provision in the next quarter.
Well I hope, it's not higher [laughter].
Alright, guys I think you're doing a great job by the way.
I know youre, not I know, you're very familiar with the process, but it doesn't make it any more fun.
No growth.
Good job.
Now on the fund comes much later in the game yes.
Yes.
Thank you.
And once again, if you'd like to ask a question. Please press Star then one.
The next question is from Jeremy Chu with TCW Sapulpa. Please go ahead.
Hi, Tom how are you.
I am doing pilot on how are you good good.
Just curious.
Net level of criticized and classified loans for US is stubbornly high what is the level for.
For the size on classified.
Steve I'm going to I've got so many numbers in my head on.
Got it wrong.
Okay.
Yes.
It's a combination of Inc.
Commercial and residential.
But significantly commercial Tom mentioned.
Concern with the construction in SRO portfolio.
Yes.
That's another rough ideas level.
I think it's about 150 journey.
Understood Okay.
Hi.
If that's not right, we'll get back to you.
Okay I appreciate it.
That's about.
You also said you reclassify nonperforming mortgage loans for the cost base for the $19 million as held for sale what is right on associated with those loans.
Three and a half.
It was about 20.
For a million I think.
On.
Okay, that's the value.
One three and a half for something like that.
Yes, that's correct and then we wrote it down approximately 15% discount by which for us.
$3 5 million.
Okay.
Got it presumably youre looking to sell these loans for us.
We arent day.
You saw from one to four family mortgage.
Exactly.
Given the.
Overall, the 1% and for family value has gone up and loans, you've made are fairly low LTV comparatively.
All you have the property.
Yes, why why can't they be sold at par.
Can you just walk us well for.
The rationale behind the price.
That's a bit I'll take it.
I mean are these loans still of the value of these loans above the.
Home price Yep, Mark Let me tell you my thinking.
Let me tell you my thinking and it's not entirely financial.
On.
These are all of those advantage loans basically all of the advantaged loans that are.
Non accrual.
And.
And I felt.
It would be important for a lot of reasons. If you look at this portfolio on this as the bottom of the barrel of the advantage loans.
It would be very helpful to have some price discovery, because I think that gives us.
All of us investors regulators bankers.
On some degree of comfort as to what these are they are by all.
Factors that we know.
Well secured debt.
Lateral coverage is very good.
On the appraisals.
Plenty of room on them.
And so in the normal course, you might say.
It might be.
More financially beneficial too.
Spend a period of time and.
And go through the.
Foreclosure process and get paid out whole.
And I wouldn't.
Argue with that it's just relative opinion.
But I just felt like it might be wiser to go through.
This process for the reasons I outlined.
And.
And do it on a more expedited basis.
A little bit of a.
Test and.
And as I said I think it provides some.
Non financial benefits.
And from an Investor perspective, if you look at it okay, they're going to put up their money they've got to spend time and resources.
They need to get a pretty healthy return so on.
We'll see how it plays out but that's my that's my thinking on this.
Got it okay.
And then going forward I guess.
Do you have any thinking on her areas of focus for bank to continue making loans whats the new areas of business that you were thinking about.
Okay. Yeah, that's that's kind of the question.
We all struggle with but at the moment.
Our our commitment both internally to the board and to our regulator is we have to focus on.
The remedial actions necessary to address the formal agreement and the.
Requirements of that and they are going to take a lot of time and energy so.
We're going to have to.
Buying back these loans in this quarter.
On the balance sheet from a.
Income statement perspective.
But it's just premature for us to be sitting here.
Spending time.
Developing.
Loan products, one we've just got.
You know a fairly healthy list if you read the formal agreement. It's a public document there is a lot to do there is an awful lot. So that's kind of why I said at the beginning of this.
There's been a lot of underlying progress but.
We don't get ourselves that there is.
A fair amount to do going forward and.
And.
Candor, if you look at the <unk>.
You know the timeline.
For the formal agreement when it was announced in 2019.
There is there is not an insignificant amount of time that we've lost.
Getting to the point.
<unk> got a strong focus on it this past summer.
So we've got to make up for that so that's you know again.
Again on a long way of saying our priority is to fix the broken parts before we.
Get back into.
On a more strategic businesses.
Got it thanks.
Once again, if you'd like to ask a question. Please press Star then one.
Ladies and gentlemen, this concludes our question and answer session.
Turn the conference back over to Tom O'brien for any closing remarks.
Thank you and no just the.
I'd like to express.
The board and my appreciation Olive management too.
For those of US who follow the company and invest in it.
We certainly appreciate.
Your interest and your commitment.
We ask for some patience, but our goal is to.
Under promise and over deliver so that is what we're trying to do thank you for participating today I'll look forward to the opportunities to.
Chuck in the near future. Thank you. Thanks operator.
Thank you Sir common.
France has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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