Q4 2021 Sterling Bancorp Inc Earnings Call

Good morning, everyone.

Good morning, everyone.

Thank you for joining us today to discuss drilling Bancorp's financial results for the fourth quarter, and year ended December 31, 2021.

Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and year ended December 31 2021.

Joining us today from Sterling Management's team are Tom O'Brien, Chairman, CEO , and President, and Karen Knott, Chief Financial Officer and Treasurer.

Joining us today from Sterling management's team are Tom O'brien, Chairman, CEO , and President and Karen.

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Tom will discuss the fourth quarter and year-end results. And then we'll open the call to your questions.

Tom will discuss the fourth quarter and year end results.

And then we will open the call to your questions.

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

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

that involve risk and uncertainties. Various factors could cause actual results to be materially different from any future results, expressed or implied by such forward-looking statements.

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 in the company's FCC filings, which are available on the company's website.

These factors are discussed in the company's SEC filings, which are available on the company's website.

The company disclaims any obligation to update any forward-looking statement made during the call. Additionally, management may refer to non-GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures.

The company disclaims any obligation.

Any forward looking statements made during the call.

Additionally, management may refer to non-GAAP measures, we're trying to supplement but not substitute for the most directly comparable GAAP measures.

The press release, available on the website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the gap to non- GAAP measures .

The press release available on the website contains the financial and other quantitative information to be discussed today.

As well as the reconciliation of GAAP to non-GAAP measures.

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

At this time, I'd like to turn the call over to Tom O'Bann. Thank you. Good morning, everybody.

Tom.

Thank you and good morning, everybody.

Delighted to welcome you to our.

Year end 2021.

year end 2021 earnings call.

Earnings call.

First of all, the shock of all things is that it's actually the end of 2021. The year went by very quickly for most of us.

First of all the shock about things is actually at the end of 2021.

A year went by very quickly for them for most of us and.

things at the bank kept us all pretty busy during the year, and I'll go through a few of those things in a few minutes. But the...

Things that the bank kept us all pretty busy during the year and I'll go through a few of those things in a few minutes, but the.

You know, the headline news basically is, you know, in the quarter, we made 4.8 million or 10 cents a share, and a little over 20 million or 40 cents a share for the quarter. Margin improved nicely. Primarily, you know, we've tried to-

The headline news basically in the quarter, we made.

$4 8 million or 10 cents a share.

And little over $20 million or <unk> 40 cents a share for the quarter.

On.

Margin improved nicely, primarily we've tried to.

Begin to position the bank into a better funding mix less reliance on higher cost Cds and we're trying to build more.

begin to position the bank into a better funding mix, less reliance on higher costs.

CDs, and we're trying to build more in the transaction relationship type business on the deposit side. But the runoff on deposits really is predominantly...

And the <unk>.

Transaction and relationship type business on the deposit side, but.

Hum the run off on deposits really is predominantly.

A function of our.

Reduced reliance on them.

Certificates of deposit as you also saw in the earnings release.

of the deposit. As you also saw in the earnings release, we took advantage of an opportunity in the quarter to pay down about $150 million of advances and there was no prepayment penalty with that, just given the state of interest rates on that particular day.

We took advantage of an opportunity in the quarter too.

Paid down about $150 million of advances and there was no prepayment penalty with that just given the.

State of interest rates on that particular day.

So.

Okay.

All helps under the.

The guys are improving the margin and you know.

the guise of improving the margin and getting to a more.

Getting to a more.

Sustainable level over time.

sustainable level over time. Thanks. Capital continues to be quite good.

Capital continues to be.

Quite good.

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the leverage ratio, which is really the one most of us look at, is a little over 11%.

The leverage ratio, which is really the one most of US look at this little over 11%.

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Georgia during the quarter include.

The story during the quarter included a lot of things, some of those I'll say both in the quarter and the year. I kind of highlighted those in my comments.

Included a lot of things some of those I'll say, both in the quarter and the year.

And I kind of highlighted those in my <unk>.

Comments in the press release, but.

It really is fairly remarkable in my experience that.

It really is fairly remarkable in my experience that the list of things I'm going to give you here were done really in the period of 2021. A lot of these undertakings would normally be

The list of things I'm going to give you here we're done.

In the period of.

2021.

A lot of these undertakings would normally be.

No.

18 months to 24 months to implement and accomplish.

18 months to 24 months too.

Implement accomplish and.

And we did that by really a singular focus on addressing the...

And we did that by really a singular focus on addressing the.

The regulatory issues that the bank has been confronted with and.

The regulatory issues that the bank has been confronted with and trying to improve the entire platform across the board.

And trying to improve the entire platform across the board. So we've got.

a very talented group of people in each of our key departments. And I will tell you firsthand.

A very talented group of people in each of our key departments and.

We'll tell you firsthand that they all.

They all work long and hard and very smart and, and we made

I'll work long and hard and very smart and and.

And we made a.

you know, very good, very good progress, not the least of which in the major category. We did a complete platform conversion on our...

Good very good progress not the least of which and the major category.

We did a complete.

That form conversion on our.

technology product. With that, we also did a complete platform implementation of a new AML system.

Technology product.

And with that we also did a complete platform.

Implementation of the.

Of the new.

Hey, AML system.

Each of those are critical too.

Addressing the items in the formal agreement and if you read the formal agreement with all the different.

addressing the items in the formal agreement. And if you read the formal agreement with all the different articles in there for our attention.

Articles in there for our <unk>.

Our attention I think.

going to find six out of eight of those are related to BSA and AMS.

Youre going to find six out of eight of those are related to <unk>.

DSA in AML.

With that, we also completed the look-back process that was required under the formal agreement.

With that we.

Also completed the.

The look back process that was.

Required under the formal agreement that was.

probably a $10 million undertaking over the course of four or five quarters. We have successfully addressed all of that.

Probably a 10 million dollar undertaking over the course of.

Four or five quarters.

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We have successfully addressed all of that.

And.

And then as I noted in there.

The issues with respect to the.

credit front and of course the margin I already spoken about. On the credit side

The credit front and.

Of course, the margin already spoken about on the credit side.

I think most of you know the story that we've confronted there so what.

I think most of you know the story that we've confronted there. So what we have tried to do is work with the loans, legacy loans that I would say were done.

We have tried to do it.

His work.

Work with the loans legacy loans that I would say we're done.

more aggressively than one might be comfortable with. We've tried to address those and have successfully secured some.

More aggressively than one might be comfortable with.

Tried to address those.

And have successfully secured some.

Curtailments, some paydowns from the borrowers.

curtailment, some paydowns from the borrowers. We've had several that in the quarter that just paid off and most of those were on the construction front.

Had several debt in the quarter that just paid off.

And.

Most of those were on the construction front.

The.

The outcome is.

is an improvement in the and the loan classifications, which is another one of those critical measures.

As a and improvement in the <unk>.

And the loan classification switches.

Another one of those critical measures we need to.

get down from the stratosphere to a more market level.

Get down from the stratosphere two.

More market levels.

and we're doing that. Part of doing that was moving about $62 million of predominantly SRO single-room occupancy loans that I've talked about in previous quarters. We moved those down to health for sale and now embarking in this quarter on a liquidation process.

And we're doing that part of doing that was moving about $62 million of predominantly.

Zero single room occupancy loans that I've talked about in previous quarters, we moved those down to held for sale and are.

Now embarking.

In this quarter on a liquidation process.

We mark them down to market, which.

about 80 cents on the dollar and we hope to have that concluded.

About 80 cents on the dollar and we hope to have that.

That concluded.

As expeditiously as possible.

Again that brings down the.

The classified loans.

classified loans pretty dramatically.

Pretty dramatically.

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Nonperforming and troubled debt $65 million is a.

non-performing and troubled debt at $65 million is a nice decline from the September 30th numbers. I would also say within the $65 million, kind of low, mid $40 million of that is a

Nice decline from the.

September 30th numbers I'd also say the within the $65 million.

You know kind of low mid $40 million of that is.

Nonperforming advantage loans.

non-performing advantage loans. And of that 40 some million, about half of them are pain, sometimes pain in the rears, sometimes pain currently, but we have to give them six months or so or better to have sustained performance before we can move them to a cruel

And of that $47 million about half of them are pain, sometimes paying in arrears, sometimes paying currently but we have to give them.

Six months.

So are better too.

Have sustained performance before we can move them to accrual status. So the.

So the kind of below the waterline credit picture has improved, in my opinion, pretty dramatically and I think...

The kind of below the water line credit picture has has improved.

In my opinion pretty dramatically and I think.

you know with the hard work of the people in the credit department we've made very good progress.

With the hard work of the people in the credit Department we've.

We've made very good progress in.

And what was.

what was a, you know, probably, I don't remember what I said at this time last year, but, you know, that there's a, you know, fairly high degree of concern on my part with what we were facing on the commercial.

You know probably I don't remember what I said at this time last year, but.

Sure.

You know a fairly high degree of certain concern on my part with what we were facing on the commercial side.

Additionally, during the year, we settled the two major litigations that were confronting us.

Additionally, during the year it can be settled the two.

Two major litigations that confer.

Confronting us the class action.

Lawsuit was settled and.

lawsuit was settled and the derivative lawsuit, which began, I think, a couple of months after I arrived at the bank.

The derivative lawsuit.

Which began.

I think a couple of months after I arrived at the bank.

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That was resolved officially resolved in January .

early January . So those are two big items there. You know, the costs.

Early January so those are two big items there.

The cost for those suits.

in time and energy was quite high. A lot of the, virtually all of the

And time and energy was quite high.

A lot of the virtually all of the.

settlement expense was borne by the insurers, although obviously we incurred some of our own legal expenses.

Settlement expense was borne by the insurers, although obviously, we encourage some of her own legal expenses.

So we're certainly glad to have those out of the way.

And the, you know, as I mentioned earlier, the long-term goal is to...

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As I mentioned earlier, the real long term goal is to.

you know, improve the funding mix, improve the loan books so that it has more

Improve the funding mix improve the.

The loan book, so that it has more.

Market level.

credit risk profile and certainly more diversity of product than has been the long-term experience of the market.

Credit risk profile and.

And certainly more diversity of product that has been the long term experience at the bank.

The.

And again the margin improvement.

And again, the margin improvement, I think, is part of that. And that's kind of what you see in the improvement in the quarter. You know, non-interest expenses, still high. You know, I kind of said since, I think, last summer that we expect, you know, kind of a slower trickle down towards the end of the year.

I think as part of that.

And that's kind of what you see in the proven in the quarter.

Noninterest expenses.

Still high.

Kind of said since I think last summer that we expect kind of a slower trickle down in the.

Towards the end of the year end.

No that was generally achieved I mean, there was some noise in there because we had that.

You know, that was generally achieved. I mean, there was some noise in there because we had that credit under the CARES Act in the third quarter. We had some insurance cut recoveries and then some additional expenses to pay. But again, you know, looking at the

Credit under the cares Act and the third quarter, we had some insurance recoveries and then some additional expenses to pay but again.

Looking at the.

The run rate ex all of these extras.

you know, we're seeing some benefit because obviously the, you know, the look back which was expensive and the litigation with the shareholder matters that was expensive.

We're seeing some benefit because obviously the look back which was expensive in the litigation with the.

The shareholder matters that was expensive too so.

I think to sum it up we're making.

you know, if I can put the challenges for the institution into two categories, one being what we'll call the supervisory category, which is, you know, the regulatory issues that...

If I can put it.

The challenges for the institution into two categories, one being what we will call the supervisory category, which as you know.

The regulatory issues that.

predominantly found in the formal agreement but elsewhere too.

Predominantly found in a formal agreement, but but elsewhere too and and then the the.

enforcement or the criminal side of it, which is a DOJ.

Okay.

Enforcement or the criminal side of it which is the Doj matter.

On the supervisory side, I you know, my opinion is we've made extraordinary progress in a very short period of time. You know, we have

The supervisory side.

My opinion is we've made extraordinary progress in a very short period of time.

We have.

Pretty regular.

many exams or visitations from the OCC were in...

Many exams or visitations.

From the OCC.

very frequent communication with them and I think it's safe to say that they're...

Very frequent communication with them.

And I think it's safe to say that there.

They're getting quite satisfied with both the direction and the comprehensiveness of the solutions that we've been reduced in the bank in the last 18 months or so.

They're getting quite satisfied with both the direction.

And the.

The comprehensiveness of the solutions that we've we've introduced in the bank in the last.

18 months or so so I think that's that.

That's a pretty good story. On the other side of the equation, you know, as I've said,

It is a pretty good story on the other side of the equation as I've said.

I think every call since I've been there I don't have a lot of visibility into that.

The timeline is such that I think we'll probably be.

you know, closer to a resolution by mid-year, but in terms of, you know, the outcome, I'm...

Closer to a resolution by mid year.

But in terms of.

The outcome.

I'm, just not able to say much more about that because I really don't know much more but.

not able to say much more about that because I really don't know much more. But we're anxious to get that behind us and kind of move on. But that, you know, if I...

But we were anxious to get that behind us.

And kind of move on.

If I had to guess.

Just given the.

The history and the.

I think most anybody would say the extra ordinary cooperation we've provided to all the agencies. You know, I think...

I think most anybody would say the extra ordinary cooperation we've provided to all the agencies.

I think.

At the time.

It is getting closer to them to some resolution on that and certainly.

Certainly hopefully saw but as I said, we continue to cooperate fully and.

certainly hopefully so. But as I said, we continue to cooperate fully and transparently.

And.

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And we will.

We will keep moving towards resolution.

Yeah.

So with that, it's probably easier if Karen and I take some questions and hear what's on your mind.

So with that it's probably easier.

Karen I take some questions and hear what's on your mind.

We will now begin the question and answer session.

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At this time.

Good morning, Charlie to some our roster.

Our first question comes from Nick <unk> with Piper Sandler.

Our first question comes from Nick Tucherelli with Piper Sander. You may go ahead.

You May go ahead.

Good morning, Tom and Karen how are you good morning doing well thank you Mick.

Good morning, Tom and Karen. How are you? Good morning, Nick. Doing well. Thank you. Good morning, Nick.

So I wanted to start with expenses. Looks like you've made some really good progress and some projects are coming to a close. Can you update it on your expectations for professional fees in the broader expense base?

So I wanted to start with the expenses it looks like you've made some really good progress since the projects are coming to a close can you update us on your expectations for professional fees and the broader expense base.

That's a hard.

That's a hard one. That's not always in our control. But I think as we knock some of these items off, you know, the...

It's Pat.

It's not always in our control, but I think as you know.

As we knock some of these items off.

Inevitably will go down.

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you know, the DOJ stuff, you know, continues to roll on. So that's obviously going to be expensive, but there's fewer things to...

The Doj stuff continues.

To roll on so thats.

Actually going to be expensive, but theres fewer things too.

deal with their defend, then there were a year ago.

Deal with or defend than they were a year ago. So.

I think it's fair to say.

I think it's fair to say they'll continue to trend any aggregate, and I'm talking about the extraordinary expenses.

They'll continue to trend in the aggregate and I'm talking about the extraordinary expenses continue to trend in the aggregate.

Continue to trend in the aggregate. Lower.

Lower.

than they have been. But the big relief is only in sight when we come to a conclusion on all of these.

Then.

Then they have been.

But the bigger the big relief is only insight when.

We come to conclusion on on all of these matters.

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Having done this my whole life.

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The.

The cost of institutional problems in the banking world is...

The cost of.

Institutional problems in the banking World is.

usually, you know, a two or three multiple of what people anticipate and, and the timeline is usually, you know, substantially longer. I think we've cut the timeline a lot, but the cost has been obviously burdensome. But I...

Usually you know.

Two or three multiple of what people anticipate.

And the timeline is usually you know substantially longer.

We've cut the timeline a lot.

But the cost has been.

Obviously burdensome, but.

I'd be reluctant to give a.

One dollar figure Nick just because.

You know it kind of comes in waves, but the efficiencies in the settlements.

There's, you know, pure items on which the... You know, pure items on which the...

There is.

Theres fewer items on which the.

the cost can rest. But I'd say the DOJ stuff is going to continue to be, you know, costly.

The cost can risk, but I would say the Doj stuff is going to continue to be.

Costly.

But I don't think it would be wrong.

Karen Correct me, if you don't agree but I.

I think we should be able to see some aggregate reduction in extraordinary professional fees.

I think we should be able to see some aggregate reduction in extraordinary professional fees.

And each of the quarters, but maybe on the order of.

in each of the quarters, you know, but maybe on the order of 10%.

10%.

And Karen and then with just great.

Alright, Karen and tell me, if you don't agree with that but.

[laughter].

It seems about right.

And Thats very helpful prediction as prep.

And that's very helpful. Prediction is prayer. Yeah, understood, understood. So with respect to the 73 million of loan repurchases over the next 18 months, can you provide us some color on when you expect those purchases to be made?

Yeah understood understood. So with respect to the $73 million of loan repurchases over the next 18 months can you provide us some color on when you expect those purchases to be made.

Let's just, I think roughly 50, 50 and two buckets. One will be in next month in March, and the other one will be in July . And I think on the one in July , there's a technical risk that it could be pushed out to the next July .

That's just I think roughly 50 50 and two in two buckets one will be in next month in March and the other one will be in July .

And I think on the one in July there is a.

Technical risk that it could be pushed out.

Two the next July .

But.

That's at least the last nine look not likely so I would guess most of them. The two of them two tranches will be done March and July .

At least the last I looked not likely, so I would guess most of them, the two of them, two tranches will be done, March.

Okay, Great and then when you look at the Paydowns and payoffs and the loan book are you expecting a lower rate of decline in 2022.

Okay, great. And then when you look at the paydowns and payoffs in the loan book, are you expecting a lower rate of decline in 2025?

It's a little hard to predict the you know, a lot of it was due of course to and on the commercial side to our

It's a little hard to predict you know a lot of it was due of course to hit on the commercial side to our App.

efforts to reduce the very high credit risk exposure we had. And on the Advantage Loan side, they just paid down.

Efforts to.

Reduce the very high credit risk exposure, we had.

And.

On the advantage loan side, they just pay down quickly.

I think everybody realizes so it's hard to stay ahead of that.

So it's hard to stay ahead of that and then given the, you know, the regulatory issues we have, it's very difficult.

And then given the regulatory issues, we have it's it's very difficult to them.

devote the time and resources and track the talent and technology to diversify our businesses at this time.

Devote the time and resources and attract the talent and technology to diversify our businesses at this time.

So.

I would say.

even though we've had some recent, you know, long production.

Even though we've had some recent loan production.

I would say there's, you know, 2022, there's still going to be some more net liquid.

I would say there as you know.

2022, theres still going to be some.

More net liquidation in the loan book than not.

Okay, and then lastly, an advantage side, Nick.

Okay, and then lastly inside an advantage side Nick it's.

You know, it's a little bit of the devil, you know, the devil you know, and the devil you don't, but the, you know, the sooner they're gone, the better, from the, just from the perspective of us having to deal with them. And,

It's a little bit of that.

The Devil you know the Devil you know on the <unk>.

But the.

The sooner they are gone the better.

From the.

Just from the perspective of us having to deal with them.

And.

And that's one of those decisions will make post.

Post regulatory settlement too.

You know.

Kind of a smart way to address these issues holistically.

The philosophy is very helpful. They continue to behave well.

But the loans that behave, they continue to behave well. I mean, from the credit side, the credit side were the only issue to deal with here, that wouldn't be the same challenge. But the problem has been obviously on the compliant.

From the credit side, the credit side, we're the only issue to deal with you that wouldn't be the <unk>.

Same challenge, but the problem has been obviously on the come.

Compliance and BSA side.

I appreciate all the color and then lastly just there was some quarter to quarter volatility in the tax rate. What's your expectation for the Go Forward tax rate? That's why we have our

I appreciate all the color and then lastly, just there was some quarter to quarter volatility in the tax rate.

What's your expectation for the go forward tax rate.

That's why we have our CFO on the call.

Yes.

Yeah, we had some noise when we look at your end and our allocations in different market areas, but we like the 28% as a pretty solid number 28 to 30 is a pretty good range.

Noise, when we look at year end and our allocations in different market areas.

We like the 28% is a pretty solid number 20 to 30 is a pretty good range.

Thank you very much for taking my questions.

Thank you very much for taking my questions. Okay, take care.

Okay take care.

Again, if you have a question. Please press Star then one.

Again, if you have a question, please press star then 1.

There are currently no. Other questions. This concludes our question and answer session I would like to turn conference back over to Tom O'brien for any closing remarks.

There are currently no other questions. This concludes our question and answer session. I would like to turn the comments back over to Tom O'Brien for any closing remarks. Well, that's great. Thank you. We're keeping it easy on us today, so we appreciate that.

Well that's great. Thank you are you, making it easy on us today so.

We appreciate that.

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Anyhow to listen.

As always we appreciate your interest in Sterling.

We appreciate your interest in sterling and our progress. We're committed to getting these issues resolved as we move forward.

And our progress.

<unk> committed to getting these these issues resolved.

expeditiously and as comprehensively as humanly possible.

Expeditiously and as comprehensively as humanly possible.

lot of people in the bank, as I said, are just working long and hard in the interest of shareholders.

A lot of people in the bank because I've said it we're just working long and hard and.

In the interest of shareholders.

Putting this episode behind US. So we will continue to do that wish you all a wonderful day and I'll look forward to the.

putting this episode behind us. So we will continue to do that. Wish you all a wonderful day, and I look forward to the GaN caption.

First quarter 2022 call coming up in April Thank you.

first quarter 2022 call coming up in April .

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