Q3 2021 Sterling Bancorp Earnings Call

Good day and welcome to the Sterling Bancorp second quarter 'twenty, One earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jack Kaplinsky. Please go ahead.

Hey, good morning, everyone and thanks for joining us for our third quarter 2021 earnings call joining.

Joining me today are bill <unk>, our Chief Financial Officer, Lisa <unk>, Our bank President, Rob Rowe, our Chief Credit Officer, and Emlen Harmon, our director of Investor Relations, we have our prayers.

And on our website, which along with our press release provides detailed information on our quarterly and year to date results.

In the third quarter, we reported adjusted earnings per share of 52 cents and adjusted net income of $99.6 million adjusted earnings.

<unk> per diluted share were in line with the linked quarter and represented an increase of 15, 6% over the prior year's quarter.

Reported net interest margin excluding accretion income.

325 basis points represents a decline of five basis points compared.

The linked quarter, and a 15 basis point increase year over year.

The results for the quarter represented a return on adjusted common equity of 13, 790% and return on average tangible assets of 144 basis points.

We continued to deliver meaningful growth in.

Compared to a book value per share, which was $15 three up.

Up 3% over prior quarter and 11% over prior year.

Now I want to highlight three key points regarding our performance this quarter and our pending merger with Webster Financial Corporation.

First.

We had a strong quarter growing core commercial loans and overall deposits as of September 32021, our total commercial loans were $19 7 billion.

An increase of $559 million or two 9% over the linked quarter.

<unk> driven by organic growth in public finance traditional C&I.

Commercial real estate and lender finance.

We would expect a similar increase in outstandings in the fourth quarter of 2021.

Total deposits of $23 9 billion.

<unk> increased three 4% compared to the linked quarter.

Secondly, our credit metrics continue to improve net charge offs for the quarter were $5 million or 10 basis points annualized.

Nonperforming loans increased slightly due to a single loan that is collateralized.

While criticized classified loans decreased.

As of the end of the quarter, our allowance for credit losses was $309 $9 million or 146% of total loans and 158% of nonperforming loans we recorded.

Provision for credit losses in the quarter consistent with the low level of charge offs stable asset quality metrics and continued improvement in the macroeconomic outlook.

Finally regarding our announced merger with Webster Financial Corporation, we have been actively engaged with our partners.

No Webster to design, a comprehensive integration plan that prioritizes, our commitment to value creation, providing best in class service to our clients a dynamic work environment for our colleagues and are continuing and continued adherence to the highest standards of risk governance, we announced this merger on.

So <unk> 2021 received approval from the OCC our primary regulator in record time on August <unk> 2021, and then receive shareholder approval on August 17, 2021, we are very confident in the merits of the proposed combination and are prepared to.

Execute the merger upon receipt of the remaining regulatory approvals.

I know that's short.

I tried to hit the high points. So now let's open it up for the line for questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star followed by one.

April one.

For a question, we'll pause for a brief moment, everyone an opportunity to signal for questions.

Well take our first question from Chris Mcgratty of <unk>. Please go ahead. Your line is open.

Hey.

Right.

Alright, Chris.

I wanted to start with the loan growth.

The range that you provided on slide 13 to 250 to 500 could you give a little bit more color. It sounds obviously, you're reiterating the guidance.

The building momentum to continue in Q4 can you just provide a little bit more color on portfolios.

<unk> line usage.

Borrower conversations thanks.

Yes.

I would tell you first of all though of course.

The pipelines are very very full.

In most of the asset categories. So they are very full in things like public finance where municipalities are spending more.

Good morning, everyone Theyre very full in.

Traditional C&I, where and maybe with a focus on some of the innovation and technology finance in that group.

Very full in terms of.

Commercial real estate and things like warehouse and.

And.

And.

More <unk> centers and traditional CRE related to companies along the way.

Our lender finance continues to have three years in great outstanding So.

Those pipelines and portfolios are really full.

Even the ADL is are starting.

To get more opportunities out there and that is a business that hasnt performed all that well over the last couple of years areas.

Areas, where there is non are things like equipment finance pricing pressure in equipment finance still is pretty strong.

So.

Those pipelines are a.

District more limited.

We're about flat on the multifamily what we what we are we have payoffs we we.

Have about equal amount put on so you will see the velocity of run off as you have in the past on the multifamily side.

Folks on the underlying use.

A little meat side of this thing more and more folks are starting to pull on this but what were finding is.

Again Metropolitan New York is Super Super diverse and the type of industries characteristics businesses. So.

And we have a pretty diverse offering in terms.

You see different types of lending, we can do and in New York in things like public finance more nationally as a as an example, so we're seeing more.

Activity in building not buildings more activity and capital spends more activity.

In Chile.

Trying to trying to hire more people along the way, which has been one of the biggest issues and.

Across the board in all industry segments. So we feel very good about the pipeline.

Feel very good about.

The growth in a number of the businesses.

That I mentioned.

Still some businesses like I said equipment, the may lag lag a bit out of this thing and maybe.

Still a lot of activity in multifamily, but a lot of.

Pricing pressure on multifamily to where payoffs versus origination stopped there.

Yes.

Yes.

That's great color, if I could ask one more.

The single credit you talked about.

In the quarter.

I've seen some headlines as well could you just provide a little more color on geography appetite.

Workout strategy, yes.

Yes, its a mid $30 million credit and it's Mitch.

Pulse in New York, and we're well collateralized on this thing we don't really anticipate any loss we've we've.

Kind of work with this with this client for a while and hopefully we can still work this thing out, but we're not concerned about losses and that particular credit.

That's great. Thank you very much.

Thank you Chris.

Well move onto our next question from Matthew Breese of Stephens incorporated. Please go ahead. Your line is open.

Hey, good morning.

Hey, Jay Matt last quarter, you had mentioned on the on the loan side, perhaps getting more competitive on loan yields to generate volume could you just talk a little bit about where new loan.

Yields are coming on and what the ultimate adjustment was so that you could you could produce a little bit more.

Yes, that's a great. That's a great question you always remember, what we said last quarter.

Which is awesome.

So we did get a little more competitive and you can see that that adjustment in the margin.

On loan yield.

Yields so.

Most of that competition is in the real estate side, where we got more a bit more competitive.

Not as much in public finance.

As much and lender finance and.

And frankly, not as much in C&I.

I think through it it's more in the commercial real estate side of it and it probably looked at about a 25 basis point decline in being more competitive in the real estate side of this thing so.

You are coming in.

Kind of high twos to kind.

Mid threes and in those areas.

Okay.

Great.

I wanted to touch on was you know over the last I would say a couple of years, we've seen several banking as a service and technology partnerships could.

Could you just touch on how much balance sheet impact those partnerships have had.

What are they produced in the way of deposits and loans has there been any fee income and maybe give us a sense for the opportunity.

On those businesses as.

You in EU and Webster merch.

Yes, we think it's a really great business frankly at the end of the day.

So far we have about.

So on the banking as a service and actually online, there's probably a half a billion dollars worth of deposits.

Today to date, we really anticipate on an annual basis to be able to originate anywhere from a half a billion dollars of $1 billion worth of deposits in that and what.

If they were trying to do is we're trying to create optionality in different types of funding.

Vertical or channels, so banking as a service is one really good viable channel.

We feel really good about that potential channel too.

To originate that kind of half a billion dollars to $1 billion with of.

Deposits are relatively very low cost deposits on an annual basis as you know in all the all the prices all compressed today.

But over time, we think it's a low cost long term sticky.

Yeah.

Our funding mechanism.

Kind of match that with traditional branch deposits deposits that you originate from the commercial teams.

Deposits that you come from the Muni side.

Wholesale deposits.

We match that with banking.

<unk> as a service out there.

<unk> and the technology partnerships, we're doing so.

Sure.

We feel very confident and the amount of opportunities that we have to drive partnerships.

<unk> is continuing to increase.

As our pipeline of opportunities that we screen.

<unk> is very high.

We are being very selective also so.

We.

<unk> been careful about making sure that the technology companies and partners on this.

The mechanism mechanism and structure to be able to conform to the risk management devices, we require them to go through so we've been a little more.

Specific about those types of things to make sure that these are long term relationships not.

One shot and we have to fix something they did so we now have the platform.

All in place.

Sure.

We're now bringing in real deposits and <unk>.

Frankly would expect to end the year somewhere around $750 billion to $1 billion.

<unk> deposits, including the online deposits.

Great I appreciate that.

The other one I had was in the release you note that you sold a $23 7 million dollar commercial real estate.

Loans rated substandard could you just give us a sense for what types of commercial real estate.

In total the multifamily and mixed use office and what the clearing price was versus when you. When it was underwritten I think everybody's trying to get a sense for post COVID-19 valuation impacts in New York City real estate right.

Not that many examples.

Sean Thanks for the question, yes, so its about $27 million and clean lines.

Loans might be rated sub standard as we noted in a mixed bag of credits in the multifamily space in the <unk> space, We took $1 2 million in charge offs on that and again look it's in line with what we did in prior quarters. We view this as a strategic move for certain types of lines in the portfolio.

These were essentially just see a long process to either return excellent.

For a long long process.

For instance to work out so for those kind of assets, where we see better rises at the onset when just proactively managing down that risk.

And exiting those credits.

The only thing I would add is that there were some reserves beyond.

Let me put our jobs that you mentioned.

The way to think about that sale is that really with somebody else, who will do that and then just one more pricing on the deal. It wasn't necessarily that things were bad deals are their subs.

Subset really terrible <unk>. Okay. So you just think that it was a alternative investors, they're going to look for more.

And that's why we couldn't get para.

Yes, I think.

So overall I think we would say that.

In general the prices are better than what we would've expected going through a cycle like that theyre kind of in the 95.

One O five rating range out.

There are.

There are many deals you could sell for higher than par and you kind of mix and match some of these things, but but the prices have been better than we would've expected.

Through a cycle like this.

Great. Okay last one from me.

Given all the recent news.

There is some anxiety around timing of deal closures, just just curious if you feel comfortable.

With the <unk> timeframe for closing the deal if theres been any updates from from the remaining regulators on on timing.

Yes, I can tell you on that Matt is we're very confident that.

We're going to close.

Out there when we're 100% ready for this.

The timing is.

Trying to figure out the timing like everybody else on this.

Understood Great Thats, all I had I appreciate you taking my questions.

Yes. Thank you.

Yeah.

And it appears there are no further questions over the audio at this time I'd.

Like to turn the conference back for any additional remarks.

And we really appreciate everybody's time, I know, especially the analysts have a ton of coal is today.

Remind everybody.

This company has performed really well over the years.

On a five year CAGR basis adjusted EPS is.

<unk>, 5%.

And our tangible book value is up almost 15% so on a on a CAGR basis over the past five years.

We're very confident in.

And the readiness and the opportunity to merge.

Merger of equals with Webster and we see.

The combined organization are going to it's going to be a really a great organization high performing organization.

And a great value provider. So appreciate it have a great have a great day take care. Thanks.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your practice.

You may now disconnect.

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Participants.

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