Q2 2022 Sterling Bancorp Inc Earnings Call
you
Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the second quarter ended June 30th 2022.
Joining us today from Sterling's management team are Tom O'brien, Chairman, CEO , and President and Karen not Chief Financial Officer, and Treasurer Tom.
Tom will discuss the first quarter results then we'll open the call to your questions before.
Chief Financial Officer and Treasurer. Tom will discuss the first quarter results and we'll open the call to your questions.
Before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and finally, the financial condition of Sterling Bancorp that involve risks and uncertainties.
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 Bank Corp that involves 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.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.
These two factors are discussed in the company's SEC filings, which are available on the company's website.
These two 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 statements made during the call.
The company disclaims any obligation to update any forward-looking statements 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.
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 the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP 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 the GAAP to non-GAAP measures.
At this time I'd like to turn the call over to Tom O'brien Tom.
Okay.
Good morning, everyone and.
At this time, I'd like to turn the call over to Tom O'Brien. Tom? Hi every one, thanks for joining me today.
Welcome to our second quarter earnings call.
Thank you. Good morning everyone and welcome to our second quarter earnings call.
We have.
This morning, a net loss of four cents, a share or $2 $2 million.
We have reported this morning a net loss of four cents a share, or $2.2 million, predominantly, as I noted in the press release, related around some …
Dominantly as I noted in the press release related around some.
Oh extra ordinary items.
Now what we'd got gets called noisy.
Uh, extraordinary items.
Entries, we made but.
I know what we call noisy entries we made but
And I guess the problem with these noisy quarters as it tends to mask some of the important progress that we make but nonetheless, let's kind of go through them quickly here and then I'll get to the.
And I guess the problem with these noisy quarters is it tends to mask some of the important progress that we make. But nonetheless, let's kind of go through them quickly here and then we'll get to the more critical stuff at the end of my comments.
More critical stuff at the end of my comments.
First the expenses are still stubbornly high of $19 $5 million.
First, the expenses are still stubbornly high, $19.5 million. And an awfully large part of that excess is due to...
You know an awfully large part of that excess is due to them.
The legal and related costs of dealing with the various.
The various investigations.
the legal and related costs of dealing with the
Yep.
Process that takes.
the various investigations.
A lot of a lot of time and energy and obviously money.
and the
the process that that takes.
a lot of time and energy and obviously money.
Also in the quarter, we had.
Some significant noise related to the surrender of.
Also in the quarter we had some significant noise related to the surrender of a pretty large split dollar life policy and some smaller older boley policies that were former executives.
A pretty large split dollar life policy and some smaller older Bally policies that were former executives.
And the split dollar policy theme for.
Controlling shareholder.
So there was no tax implications for that.
and the split dollar policy being for a controlling shareholder. So there was tax implications for that and
And <unk>.
Reversal of some accrued liabilities.
And Karen can probably go through any of that.
reversal of some accrued liabilities.
You might have a particular interest in.
And Karen can probably go through any of that, that you might have a particular interest in.
Hum.
More importantly, we did move to an outsourced platform.
Inventory mortgage pass a program or.
More importantly, we did move to an outsourced platform, the Promontory Mortgage Paths Program for the origination prospectively of our room.
Or the origination prospectively of our.
Residential.
Home lending.
And our and our markets mortgage path well 11.
residential home lending in our markets. Mortgage path will
Basically handle.
I'm kind of like a turnkey basis.
All of the origination work, including quality control compliance and originating.
basically handle
kind of like a turnkey basis, all of the origination work including quality control compliance.
Subject to our final review and approval.
All of the.
and originating.
Mortgage loan products that.
subject to our final review and approval.
We might offer at any given time.
Okay.
mortgage loan products that we might offer at any given time.
Innovative program.
We were all pretty impressed with it we spent a fair amount of time.
It's an innovative program and we were all pretty impressed with it. We spent a fair amount of time in due diligence and
And due diligence and.
I think from our perspective.
Yeah.
Appeared to be a simpler program, which has some variable origination cost, but very limited fixed costs.
I think from our perspective it
appeared to be a simpler program which has some variable origination costs but very limited fixed costs.
As opposed to the previous platform we had in house.
We anticipate.
as opposed to the previous platform we had in-house.
Fixed cost savings of around $3 million a year.
We anticipate fixed cost savings of around $3 million a year.
<unk>.
And I guess equally critical to the decision was that many of the burdens.
fixed cost savings of around $3 million a year.
And I guess equally critical to the decision was that many of the burdens
And.
Residential lending reside in the compliance space and disclosure world and that is all assume yep.
Um, and.
residential lending reside in the compliance space and the disclosure world and that is all assumed by mortgage path. Again we would certainly have our oversight and audit of that process.
Mortgage path.
Again, we would certainly have our oversight and part of that process, but.
The critical parts of that are.
And this outsourced program and I think.
you know the critical parts of it are
Gets us away from a lot of the inherent risks and residential mortgage lending.
in this outsourced program and I think...
gets us away from a lot of the inherent risks in residential mortgage lending. And frankly, given the
And frankly, given the yeah.
Radical downturn in the residential business in the last couple of months with the.
radical downturn in the
Okay.
Slowing economy at significantly higher rates.
residential business in the last couple months with
with them.
For us the timing could not have been better.
slowing the economy and significantly higher rates.
With the adoption of that program that we did have some severance costs in the quarter.
For us, the timing could not have been better. With the adoption of that program, we did have some severance costs in the quarter.
And again that was.
About $400000 of more noise.
And again, that was about, I think, $400,000 of more noise.
The margin.
I don't know if I can if I can be a little bit creative with numbers here actually.
the margin
Improved.
I don't know if I can be a little bit creative with numbers here. You know, improved.
About 13 basis points on a.
On a basis.
about 13 basis points on a
That.
It doesn't consider the $1 $5 million, we had and Ricky.
on a basis.
Recovered income last quarter.
that
doesn't consider the $1.5 million we had in the past.
So we reported a margin of $2 95 versus three O tree.
or recovered income last quarter.
So we reported a margin of 295 versus 303.
Last quarter in the 303 was favorably impacted.
Probably about 21 basis points.
last quarter and the 303 was favorably impacted.
In the first quarter, so, but with a onetime recovery. So you know I.
by about 21 basis points.
I guess one.
the first quarter so with a one-time recovery so you know I guess
One of the ways to look at it I guess most favorable is.
We went from a.
282 basis point margin to $2 95.
one of the ways to look at it, I guess most favorable, is, you know, we went from a
And if you want to look at it than the reported numbers, we want them to.
282 basis point margin to a 295. And if you want to look at it, then the reported numbers we went from.
303 down to $2 95, a decline of eight basis points, but directionally I think.
303 down to 295 decline of eight basis points but directionally I think you know feel pretty confident in terms of
Okay, I feel pretty confident in terms of.
Where are we go with margin deposit costs, you know will.
Begin to go up.
where we go with margin. Deposit costs, you know, will...
They already have in some instances.
you know, begin to go up. They already have in some instances. And, you know, depending on what happens with the Federal Reserve and inflation, I think our expectations are that there will be.
Depending on what happens with the federal reserve.
<unk>.
I think our expectations are that there will be several more.
Increases certainly in the current year and probably going into 2023.
several more.
increases certainly in the current year and probably going into 2023.
The magnitude of.
Those increases I think that that's already.
Put a stake in the ground with 275 basis points increases.
magnitude
of those increases, I think the Fed's already
Perhaps they might be a little more moderate the next time around dependent.
But a stake in the ground with two 75 basis points increases, you know, perhaps they might be a little more moderate the next time around depending on.
What the inflation numbers look like but at the.
But the current rate.
Nine.
what the inflation numbers look like, but at the
9% eight and a half or however, you want to look at it it is.
At the current rate, you know, 9%, 8.5%, however you want to look at it, it is
An enormous cost for them.
Most people in the country compare and.
an enormous cost for...
Certainly my expectation as the fed will fit.
most people in the country could bear.
Adhere to what's our mandate and address them.
Certainly my expectation is the Fed will
Inflation as as.
As aggressively as it need be to.
adhere to its mandate and address some
Break that cycle.
inflation as
as aggressively as it need be.
So I guess the more important thing for most of US talk about here is where we stand with these investigations.
to break that cycle.
So, I guess the more important thing for most of us to talk about here is where we stand with these investigations.
The.
Work involved.
I think you've probably all appreciate the fact that it's.
The.
work involved
It's been a backbreaking for all of US and then certainly the patience of our shareholders.
I think you probably all appreciate the fact that it's.
It's been backbreaking for all of us and then certainly the patience of our shareholders is
I hope you realize always acknowledged appreciated.
It's.
Just been a very big undertaking.
I hope you realize always acknowledged and appreciated.
Yeah.
And dealing with two separate investigations as it takes a lot of time and energy, obviously costs, but I think it's safe to say here that the formal agreement.
just been a very big undertaking and
and dealing with two separate investigations takes a lot of time and energy and obviously cost. But I think it's safe to say here that the formal agreement, which has been outstanding since 2019,
Which has been outstanding since 2019.
You know all of the requirements in formal agreement or of course public.
But I think it's.
You know all of the requirements in the formal agreement are of course public
Safe to say that the requirements were pretty extensive.
But I think it's
As I noted in my remarks in the press release I think we're now in a position where we are.
safe to say that the requirements were pretty extensive. As I noted in my remarks in the press release, I think we're now in a position where we have.
Satisfied 100% of these findings and the requirements in a formal agreement and our expectation is that it will be lifted.
satisfied 100% of these findings and the requirements in the formal agreement and our expectation is that it will be lifted with the formal conclusion of our exam.
With the formal conclusion of our exam.
Uh huh.
Let's say.
It's an achievement that is hard for me to underestimate how.
It's a...
Critically important to us.
It's an achievement that's hard for me to underestimate how.
And that's really a testament to the hard work and the <unk>.
how critically important it was, but it's really a testament to the hard work and the expertise of Sterling's board, management, and staff.
Expertise of Sterling's Board management and staff.
Uh huh.
From the start of our efforts I think kits.
It's done about 18 months.
from the start of our efforts, I think it's
Since we have been able to fully attack the formal agreement with the <unk>.
It's been about 18 months.
New management group and then.
since we've been able to fully attack the formal agreement with the new management group and the direction we've...
The direction we are.
Uh Huh, followed in terms of satisfying has put itself.
Yeah.
It's if you dealt with formal agreements before or different enforcement actions from the bank regulators I think usually safe to say it.
followed in terms of satisfying it but it's so.
know it's gonna
If you've dealt with formal agreements before or different enforcement actions from the bank regulators, I think it's usually safe to say it's a
before or different enforcement actions from the bank regulators, I think it's usually safe to say it's a, you know.
Generally at best a two year process that.
More typically a three year process.
generally, that's the two-year process.
But it's important to understand that.
more typically a three-year process.
Faction of the formal.
<unk> requirements is really critical to closing out the OCC enforcement.
But it's important to understand that the satisfaction of the formal agreement requirements is really critical to closing out the OCC enforcement.
Yeah.
It's.
I would guess I would say I have a reasonable level of confidence.
Thank you..
Both the Doj and the OCC investigation.
It's.
I would guess I'd say I have a reasonable level of confidence that both the DOJ and the OCC investigation
We will conclude this year.
And again, we expect to be in a position to have much more clarity in the third quarter report.
will conclude this year.
And again, we expect to be in a position to have much more clarity in the third quarter report.
These investigations are independent of each other.
So it can be a laborious process, which means time and expense.
These investigations are independent of each other.
Again, we are complying with all of the requests and.
So it can be a laborious process, which means time and expense.
Again, we are complying with all of the requests and...
Christian as expeditiously as possible for banality again, only with respect to sterling or not individuals.
pushing as expeditiously as possible for finality, again, only with respect to sterling and not individuals.
But the.
The processes.
I think well underway.
But the
Again, as I said I think we've.
The process is, I think, well underway.
Personality by the end of the year.
Again, as I said, I think we...
But the timeline with respect to them.
functionality by the end of the year.
Uh huh.
Getting all the i's dotted and Ts crossed and.
but the timeline with respect to
And coming.
Coming up with.
getting all the i's dotted and t's crossed and
What ultimately the fines and penalties are going to be.
and you know coming up with what ultimately the fines and penalties are going to be.
It takes some time, we don't have any insight at this point and to.
What the fines and penalties are going to be or even proposed to be so that is.
takes some time. We don't have any insight at this point into what the fines and penalties are going to be or even proposed to be. So that is
It remains to be discussed.
Discovered as we at least get the initial proposals from the agencies.
remains to be.
And the.
discovered as we at least get the initial proposals from the agencies.
Weeks and months ahead.
As I said I think by the end of the third quarter.
And the.
We will have a.
weeks and months ahead. As I said, I think by the end of the third quarter, we will have a
Pretty good sense of where these are going and hopefully have everything documented completed by the end of the fourth quarter.
pretty good sense of where these are going and hopefully have everything documented and completed by the end of the fourth quarter.
There is some.
Yeah, good business and legal reasons to to meet that timeline and I think that's a that's a sense we've been given.
There's some.
good business and legal reasons to meet that timeline. And I think that's the sense we've been given.
So what I, probably worthwhile Karen if you just want to go through the noise with the.
So with that, I probably worthwhile Karen, if you just want to go through the noise with the...
The insurance colleagues policy surrenders.
How it impacted taxes in.
The insurance policy surrenders.
Operating expenses.
Sure I'd be happy to.
how it impacted taxes and
operating expenses.
So as Tom mentioned, we surrendered about $25 million worth of policies.
Sure, I'd be happy to.
So as Tom mentioned, we surrendered about $25 million worth of policies. With regard to that, the largest was the split dollar policy which had a cash surrender value around $19 million. Before that policy, we had two liabilities on the books recorded, one for the cost of the insurance which is just an accounting way to account for the portion of those proceeds that would have gone to the beneficiaries that were not the bank.
With regard to that the largest was the split dollar policy, which had a cash surrender value around 19 million before that policy, we had to liabilities on the books recorded one for that cost of insurance, which is just an accounting.
Way to account for the portion of those proceeds that would've gone to the beneficiaries that we're not the bank and then another smaller piece to cover taxes for.
The increase in the value. So those two totaled about four and a half million and those were reversed through the salary and benefit line.
And then another smaller piece to cover taxes for the increase in the value. So those two totaled about $4.5 million and those were reversed through the salary and benefit line on the expense side of the balance sheet. So additionally to that, we had to book taxes on the life to date gain on those policies. These were modified endowment contracts and if we would have...
On the expense.
Expense side of the balance sheet. So additionally to that are we.
We had to book taxes on the life to date gain in those policies. These were modified endowment contract and if we would've not surrendered them.
And waited and to receive a death benefit that would've been 100% tax free but because he surrenders than we had to pay tax on the gain so the gain was about $13 1 million and so that equated to about $3 6 million additional income tax expense and that in below the line and then lastly.
not surrendered them and waited to receive a death benefit, that would have been 100% tax-free. But because we surrendered them, we had to pay tax on the gain. So the gain was about $13.1 million, and so that equated to about $3.6 million additional income tax expense below the line. And then lastly, just like if you cash in something of your own early, since we cashed in the policies early, there was a modified endowment contract.
I'm just like if you cash and something of your own early because we cashed in the policies early there was a modified endowment contract.
Additional tax of 10% and that is in the other expense line on the income statement. So all in all it netted to about a half a million dollars of expense. It just happened to hit three different line items on our income statement.
additional tax of 10 percent and that is in the other expense line on the income statement.
So all in all it netted to about a half a million dollars of expense. It just happened to hit three different line items on that income statement.
Thank you and that's why I cited was created.
Created some noise on several different lines on the.
Thank you. And that's why I said it was it created some noise on several different lines within the
The income statement, but.
The net result is the.
Policies were surrendered.
the income statement but
We booked them accordingly.
The net result is the policies were surrendered, and we booked them accordingly. So with all of that, I'm.
So with all of that.
Happy to take questions on any of the topics that coverage.
Happy to take questions on any of the topics I covered.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing Nicky.
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
If you are using a speakerphone, please pick up your handset before pressing the keys.
If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our rust.
At this time, we will pause momentarily to assemble our rush.
And our first question will come from Ben Garlinger with Hep D Group. Please go ahead.
Hey, good morning, guys.
And our first question will come from Ben Gerlinger with Hoppedi Group. Please go ahead.
Good morning, Ben.
I, just kind of thinking big picture here about.
Hey, good morning guys.
Morning, Ben.
I get that there's.
Just kind of thinking big picture here about the expense base. I get that there's a lot of moving parts, especially given.
A lot of moving parts, especially given.
The all the noise in the quarter with the.
The new process on mortgage pass.
the all the noise in the corridor with the
New endeavor.
kind of the new process on mortgage path and that new endeavor and kind of than you want the, with the bold, you know, the tax things stripped out of two queues. And you think about three queues? Is there just like kind of a core run rate you guys would be guided to excluding professional fees? And that can always be a bit of a wild card for anyone in quarter. Like I'm just trying to think when you think holistically that the new expense base is X. Is there something you would guide to?
Kind of thinking what the what the board in all the tax thing stripped out of <unk>.
Thinking about three Q is there just like kind of a core run rate you guys would be guiding to excluding professional fees because I know that can always be a bit of a wildcard for any one quarter like I'm just trying to think when you think holistically.
The new expense base is backs is there something you would guide to for our core.
I'll give that to Karen.
for a core. I'll give that to Karen. Yeah, I mean, so obviously, salaries and benefits need to be higher than it was. So if you're excluding the professional fees, you're not going to be able to pay the
Yeah, I mean, so obviously salaries and benefits needs to be.
The higher than it was here.
If you're excluding the professional fees.
And I do a little math here [laughter].
Yeah.
Going to do a little math here.
Yeah.
Yeah.
I would say around 15 million or so with excluding professional fees.
Yeah.
I would say around $15 million or so with excluding professional fees.
Yeah.
Gotcha and then if.
If you were to strip out all the Doj Octu type.
Gotcha. And then...
Okay.
If you were to strip out all the DOJ and OCC type
Actions you guys are doing behind it seems like there's professional fees account for anything else like is there something else. That's also baked into that obviously would be minimal but can professional fees go to zero or is that.
Kind of the actions you guys are doing behind the scenes like this professional fees account for anything else like is there something else? That's also baked into that obviously would be minimal but can professional fees go to zero or that?
It's still something in there.
No there's definitely still expensive and there you know just the expenses of being a public company general legal fees from doing business.
There's still something in there.
No, there's definitely still expenses in there, you know, just the expenses of being a public company, general legal fees from, you know, doing business. But by far, you know, it's extremely bolstered by these investigations.
But by far you know it is.
Extremely bolstered by these investigations.
Got it okay, that's what I was thinking too.
And then what do you think this is kind of bigger picture here, obviously, I think everybody is well versed in the balance sheet is shrinking.
That's what I was thinking too.
And then when you think there's kind of bigger picture here, obviously I think everyone's well versed so that the balance sheet is shrinking.
With rates higher.
On mortgage properties.
Just in general do you think.
with rates higher on mortgage properties and just in general you think
The the melting ice cube as Tom and put it in here do you think that that slows at all or are we still kind of on the same path that we have.
the melting of the ice cube, as Tom would put it here. Do you think that that slows it all? Or are we still kind of on the same path that we've seen over the past couple of quarters?
So you know over the past couple of quarters.
Well I'd say Ben.
With higher rates and less liquidity on the balance sheet.
Well, I'd say, Ben, with higher rates and liquidity on the balance sheet...
We are.
We're getting some benefit in the margin.
And.
you know, we're...
That certainly is helpful to us.
you know, we're getting some benefit in the margin.
and that certainly is helpful to us.
But you know it's still a.
It's still a concern as you get into.
But, you know, it's still a...
Yeah.
Second half of 2023.
It's still a concern as you get into, you know.
Depending on your forecast for rates.
second half of 2023.
Volumes.
We've been pretty patient with.
dependent on your forecast for rates.
Yeah.
And volumes, I mean we
Even investing the bank's money.
We've been pretty patient with them.
When rates were quite so low.
even investing the bank's money when rates were quite so low.
We invested a little bit as rates went up and even that was too.
Too soon from them.
We invested a little bit as rates went up and even that was too soon from a...
A yield perspective.
We're fairly short term invested.
you know, a yield perspective, but, you know, we're fairly short term invested.
So I think we can we can manage through the process.
If the rates had stayed down basically at zero.
So, you know, I think we can manage through the process.
I think the you know the ice cube theory was.
If the rates had stayed down basically at zero.
I think the ice cube theory was...
More of a.
Current concern I think we buy a little time with higher rates.
More above.
But we still have the opposite to address some significant.
Current concern, I think we buy a little time with higher rates.
Strategic issues once we get through the <unk>.
but we still have to obviously to address some significant.
The sign offs on the.
strategic issues once we get through the
The various investigations.
And it's a little tough because it's not having a clue.
you know the sign offs on the
the various investigations.
Where the.
And it's a little tough because it's not having a clue.
Fines and penalties may come out.
You just don't know what you are dealing with.
where the fines and penalties may come out. You just don't know what you're dealing with.
Gotcha, Yeah, no I appreciate that.
Is there anything like that.
Yeah, no, I appreciate that.
For the color thanks, guys.
Good thank you.
I think that's everything I got.
Thanks guys.
Again, if you have a question. Please press Star then one our next question will come from Nick.
Good, thank you.
Again, if you have a question, please press star, then 1. Our next question will come from Nick..
Cook Cuccia Raleigh with Piper Sandler. Please go ahead.
Good morning, Tom and Karen how are you.
Kucharali with Piper Sandler, please go ahead.
Very well.
Thank you.
Good morning Tom and Karen, how are you?
Just wanted to follow up on the professional fees. So so making the assumption that the Doj and FCC investigations or concluded by year end do you have an estimate for normalized level of professional fees.
Very well, Nick. Can you go?
I just wanted to follow up on the professional fees. So making the assumption that the DOJ and OCC investigations are concluded by year-end, do you have an estimate for a normalized level of professional fees? In terms ofsn annual accounts, you should know Post church a ret to reuse the application function of you to effective food such as vegetables to back into
I don't care what are you.
Yeah.
Yeah, one thing that that I'm not sure it will be resolved or not maybe Tom can provide some color as well.
I don't care. What do you.
One thing that I'm not sure will be resolved or not, maybe Tom can provide some color, is...
The legal expenses, we're incurring for for third parties, though.
If that was all resolved both the company and the third party you know you're looking at minimal minimal amounts right like.
the legal expenses we're incurring for third parties. So if that was all resolved both the company and you know the third party, you know you're looking at minimal amounts right?
303 to 500000, a quarter and it's almost like situation.
300,000 to 500,000 a quarter in a normal situation.
Okay. That's helpful.
Yes.
Yeah.
The indemnified parties I mean there.
Okay, that's helpful.
There are.
Yeah, next week.
We see people.
And the bank.
the indemnified parties. I mean there there are
Who.
obviously people
Might be in a position to.
and the bank.
who
Provide some information.
Information to either or both of the agencies.
you know, might be in a position to provide some.
They are reaching.
Titled too.
information to either or both of the agencies.
Oh, the advancement of legal fees under certain conditions.
Title two.
And.
That's.
of advancement of legal fees under certain conditions.
The other thing that starts to get a little easier once.
We get some.
That's it.
Line off on the final.
you know, another thing that starts to get a little easier once
Terms and conditions of the various investigations.
we get to sign off on the final.
terms and conditions of the various investigations.
Yeah.
They are a little bit because I was looking primarily at legal and professional and it wasn't considering some.
Yeah, you know what, Nick, I want to up-change there a little bit because I was looking primarily at legal and professional and I wasn't considering some regular audit expenses and stuff that we have. So it's probably going to be closer to $750 on a normalized.
Regular audit expenses and stuff that we have so that's probably going to be closer to $7 50 on a normalized.
In the quarter.
Okay. Thank you for the clarification, you've made considerable progress in derisking, the balance sheet, and bringing down higher risk credits from an asset quality perspective, what are your remaining concerns at this point.
quarter.
Okay, thank you for the clarification. You've made considerable progress in de-risking the balance sheet and bringing down higher risk credits. From an asset quality perspective, what are your remaining concerns at this point?
It's funny I did in my remarks here I didn't get into much into the credit picture because.
You know, it's funny, I didn't, in my remarks here, I didn't get into much into the credit picture because... You know, I appreciate that, but that's part of my Legends entry, which I also do and
Hi.
I noted my quote in there last year at this time I think.
Expressed a fairly high degree of concern with the.
I as I noted my quote in there last year at this time, I think you know, I expressed a fairly high degree of concern with the
Aggressiveness.
Commercial portfolio.
We've got some.
aggressiveness in the commercial portfolio.
Really good credit people now.
Taken apart.
You know, we've got some.
Loans, we were most concerned about we got you.
really good credit people now who...
you know, taking apart the
No.
Accurate risk ratings on them.
loans we were most concerned about. We got, you know,
And.
Some cases, we worked with borrowers other cases.
accurate risk ratings on them.
Exited out of the.
You know, in some cases we worked with borrowers, other cases we exited out of the relationships. And you know, in the more significant case, we sold a large pool of those single room occupancy hotels. So that brought the risk down a little. I think.
Relationships.
And you know.
Our significant case, we sold a large pool of those.
All of them occupancy hotels, so that that brought the risk down a little I think.
As I noted in the press release.
We'd look at.
One more commercial sale.
As I noted in the press release, we'll probably look at...
And the next quarter or two.
one more commercial sale.
Of loans.
in the next quarter or two of loans that
That perform but are always going to be sub standard.
And the risk that they start to perform.
that perform but are always going to be substandard.
Radically but.
and the risk that they start to perform erratically.
And then with respect to the residential loans.
You know our experience with those continues to be quite good in terms of ultimate loss exposure.
And then with respect to the residential loans.
You know, our experience with those continues to be quite good in terms of ultimate loss exposure.
I think of the group that we reported as non accrual.
18, or so million was.
I think of the group that we reported as non-accrual, 18 or so million was
You know paying under some.
Delayed terms or modified terms, but not.
Not really ready for primetime accrual status.
pain under some.
delayed terms or modified terms but not really ready for primetime accrual status. And the rest are...
And the rest are them.
Loans that either.
We're about to hit foreclosure in foreclosure.
loans that either are about to hit foreclosure or are in foreclosure. And we might look...
And we might look.
Once we get clear to the investigations then we might look at.
Okay.
once we get clear to the investigations.
Significant sale of the.
Non performing or under foreclosure advantage loans.
then we might look at a significant sale of the
And.
non-performing or under foreclosure advantage loans.
And clean it up that way not too differently, if you've followed by what we did at Sun National Bank when I was there.
And
and clean it up that way. Not too different if you followed all what we did at Sun National Bank when I was there. You know, a couple of big transactions and all of a sudden the
You know a couple of big transactions and all of a sudden.
You know the risk profile was extremely modest.
And that's our goal here you don't want to bank.
you know, the risk profile was extremely modest. And that's our goal here. You don't want to make a.
You don't want to make high risk loans in a economy, that's slowing down and.
You don't want to make high-risk loans in an economy that's slowing down.
The challenge for us will be too.
Balance that against the net interest margin first and foremost is.
the challenge for us will be to balance that against the net interest margin. But first and foremost,
As the credit I think we're adequately reserved in the case of potential losses, and as I mentioned to.
is the credit. I think we're adequately reserved in the case of potential losses and as I mentioned to date
To date.
in the case of potential losses. And as I mentioned, today, you know, we've...
Loss.
Closure on the advantage loans.
Went into foreclosure or or otherwise to off the balance sheet. It.
Lots.
exposure on the Advantage loans that
went into foreclosure or otherwise off the balance sheet, pretty insignificant.
Pretty insignificant.
We had one that was a.
Uh huh.
A fire in the house.
And we had one that was a...
We lost some money on that.
For the most part they go to foreclosure we tend to at.
a fire in the house and you know we lost some money on that but you know for the most part they go to foreclosure we tend to
At the foreclosure sale, we tend to be outbid because the loan to values.
At origination where.
At the foreclosure sale we tend to be outbid because the loan devalues at origination were were you know fairly low and but more importantly prices have also improved.
Sure.
The low end.
But more importantly prices have also improved.
And most of those markets. So there's plenty of equity in those.
But it is.
The advantage loan which are the major part of our non.
in most of those markets. So there's plenty of equity in those.
But it is
Non accruals.
you know, the Advantage loans are the major part of our
That's great color just one final one for me can you remind us how much remains in the mortgage repurchase liability allowance and where you stand with respect to further repurchases of at finish line.
non-accruals.
That's great, caller. Just one final one from me. Can you remind us how much remains in the mortgage repurchase liability allowance and where you stand with respect to further repurchases of advantage loans?
I can't put Carrington.
[laughter].
Just under $2 million left on that repurchase reserve.
I can't, but Karen can.
There's just under $2 million left in that repurchase reserve. There's about just under $90 million worth of total advantage loans that have been sold to third-party investors. We were expecting to get a pullback, hopefully in the third quarter might be pushed to the fourth quarter of about probably $35 million by the time we get there, maybe a little less.
There's about just under $90 million worth of total advantage loans that.
Have been sold to third party investors, we were expecting to get a pull back.
Hopefully in the third quarter might be pushed to the fourth quarter of about probably $35 million by the time, we get there maybe a little less.
And then there's another a couple of others, one under agreement or not but those seem a little less likely at this point given where the market is.
And then there's another a couple of others one under agreement one not but those seem a little less likely At this point given where the market is
Great. Thank you so much for taking my questions.
And I guess I'd add Nick just put in perspective, when I joined the bank loans sold to others, which were all advantage loans was.
Great, thank you so much for taking my questions.
And I guess I'd add, Nick, just put in perspective, when I joined the bank, the loans sold to others, which were all Advantage loans, was $2.5 million.
I think if memory serves correctly around $850 million.
We're down to pretty much the tag ends of.
I think if memory serves correctly around 850 million dollars.
Our exposure to the.
We're down to pretty much the tag ends of...
Loan sold to others.
Most of them.
The performance levels, we look at in terms of the.
our exposure to the
to others and I think most of them.
Loan sold others that we service.
You know the performance levels we look at in terms of the loan sold to others that we service Remains quite good. So my guess is
<unk> remains remains quite good so my guess is they.
performance levels we look at in terms of the loans sold to others that we service remains quite good. So my guess is they'll just hang on to them.
They'll just hang on to them.
Yeah really big difference great job. Thank you very much.
Thank you.
Our next question will come from Ross Haberman with R. L. H. Please go ahead.
Yeah, really big difference great job. Thank you very much
Thank you.
Our next question will come from Ross Haberman with RLH. Please go ahead.
Good morning, Good morning, Tom Hey, Ron how are you.
I'm fine.
I just wanted to go back.
Good morning. Good morning, Tom. How are you? I'm fine, you know.
One more further some further questions on the on the non accrual and non performers.
I just wanted to go back one more further, some further questions on the non-accrual and non-performers. I don't have another blue t
Generally when would you say I don't know.
Would it be too aggressive to say you can knock that number in half by the end of the calendar year.
Generally, would you say, I don't know, would it be too aggressive to say you can knock that number in half by the end of the calendar year?
No I got you now.
If you take the.
Bob.
When we satisfied the [laughter].
No, you know, if you take the—
A sign off on the formal agreement and the Doj investigation, but let's just for argument's sake.
Well, you know, it depends on when we find them satisfied though.
Sign off on the formal agreement and the DOJ investigation. But let's just for argument's sake.
You know say Thats about 31.
Brian .
Then we could look at selling the portfolio of advantage loans that are 90 days or more delinquent and under foreclosure.
you know, say that's 1231. Right.
then we could look at selling the portfolio of advantage loans that are 90 days or more delinquent and under foreclosure. And that's more than half of the total. So yeah, in theory.
And that's more than half more.
More than half of the total so yeah in theory.
That would all work the timing I can't.
Quite pin it down to a quarter, but.
That would all work. The timing I can't...
So the market for those and.
quite pin it down to a quarter, but others market for those and
It just requires us to get through the.
The Doj investigation.
Could you remind us how you're talked seafood, yet and if not are you running parallel programs.
It just requires us to get through the...
the DOJ investigation.
Could you remind us, have you adopted CECL yet? And if not, are you running parallel programs and you're hopefully not going to shock us in March with a multi-million dollar addition, you'd seem pretty well reserved.
You hopefully not going to shock us in March with a multimillion dollar addition, you seem pretty well reserved.
E well I'll say what I.
And then Karen can add color to it but we've had a peaceful team in progress we had.
Um
Well, I'll say what I...
I think and then Karen can add color to it, but we've had a diesel, you know, team in progress. We've had
We have.
Outside experts are guiding us on the.
you know, we have outside experts guiding us.
The issue is centered around seasonal and we've hired another firm to validate everything we've done I think.
and the next
you know, the issues in and around CECL, and we've hired another firm to validate everything we've done. I think, you know, we're in.
We're in.
Good position to be.
Providing a little more information directionally in the third quarter.
very good position to be
And even more in the fourth quarter, then we should be fine with adoption.
a little more information directionally in the third quarter and even more in the fourth quarter and then we should be fine with adoption in first quarter 23. I would say in my opinion
directionally in the third quarter and even more in the fourth quarter, then we should be fine with adoption in first quarter of 23. I would say in my opinion, you won't see any shocks.
First quarter of 'twenty three.
I would say in my opinion.
I don't see any shocks.
But we hear from the CFO .
Yeah, I would agree with that you know we've been running the models parallel without adding the qualitative factors that were really just working on finalizing those and seeing what makes sense given the law.
but here from the CFO too.
Yeah, I would agree with that. You know, we've been running the models parallel without adding the qualitative factors. So we're really just working on finalizing those and seeing what makes sense given, you know, the models are more robust since they already bake in the economic forecast and such but I think we're pretty well reserved and I would be surprised to have any shocking news come the end of the year when we report a number.
The models are more robust since they already bake in the economic forecast and such but I think we're pretty well reserved and I wouldn't be surprised to have any shocking news cotton.
We ended the year when we report that number.
And just one follow up regarding the investment securities. The held for sale portion of that what was the average yield or average duration of that.
And just one follow-up regarding the investment securities the held-for-sale portion of that, what was the average yield or average duration of that?
I don't think we have any investment securities held for sale do we care.
I don't think we have any investment securities in Health for Sale, do we, Karen?
Yes.
So I think that's fine.
[laughter].
Well, the whole portfolio is out.
Uh huh.
so fine
Well, it's I don't have the data in front of me, but the duration is relatively short.
You know, I don't have the data in front of me, but the duration is relatively short. You know, when we buy things, we're always looking at, you know, two to three years. So it's pretty short.
When we buy things we're always looking at you know two to three years, so it's pretty pretty short.
Okay, Alright, Thanks, Hi, it's the best of luck hopefully you can wrap it can wrap everything up by the by the.
Okay, all right, thank you guys. The best of luck. Hopefully you can wrap everything up by Christmas. Thank you.
Christmas Thank you.
That would be a nice holiday gift.
And I was thinking of.
Trading portfolio not ultra.
Held for sale.
That would be a nice holiday gift. I was thinking of trading portfolio.
Okay.
Anything else.
All for sale.
Our next question is a follow up from Ben Garlinger with Hobdy Group. Please go ahead.
Okay.
Anything else?
Our next question is a follow-up from Ben Gerlinger with Hobdi Group. Please go ahead.
Sorry for the double question.
You kind of answered half of it I was just thinking sort of mega.
Sorry for the double question. You kind of answered half of it. I was just thinking to negative AOCI in the quarter.
In the quarter.
With rates up.
Pretty notably over the past 180 days or so and I know you guys have a different liquidity strategy relative to most banks.
with race.
pretty notably over the past 180 days or so. I know you guys have a different liquidity strategy relative to most banks.
Is it safe to say, we've probably seen most of our lumps here and the OCI can actually starting to get back to even or do you think we're going to have another negative.
Is it safe to say we've probably seen most of our lumps here in the AOCI and actually starting back to Even or do you think we're gonna have another negative?
I'm just thinking because of the curve is all over the place 10 years lower but the two years.
I'm just thinking because of the curve is all over the place to the 10 years lower, but the two years higher. I'm kind of thinking from that perspective of the balance sheet.
Here, what kind of thing from that perspective on the balance sheet.
Yeah for me.
But the yield curve the way that it is I mean, as Karen mentioned, we tend to invest three years again.
Yes, from the...
You know, but the yield curve the way that it is, I mean, as Karen mentioned, we tend to invest, you know, three years and then
So, we're probably a little more exposed to higher rates there.
From an ALC I perspective.
So we're probably a little more exposed to higher rates there from an AOCI perspective.
But the.
In a sense.
It might be it was generally the rates will go where they go and the you know.
But the
you know in a sense
The marks will be where they are.
My view is generally the race will go where they go and the marks will be where they are.
There is no no.
No credit risk in anything that we buy so it's hard to predict valuations other than.
There's no no credit risk in anything that we buy so it's it's it's hard to predict valuations other than
Even if even if those.
Two year kind of rates.
And shorter stay inverted.
even if even if those
to your kind of rates.
It'll impact the.
shorter stay you know inverted it'll impact the
The value of the securities, but at the end of the day.
We get our money back.
I don't lose a lot of sleep over it.
you know, the value of the securities, but at the end of the day, you know, we get our money back.
I'd be more concerned obviously, if we're at longer term investments.
I don't lose a lot of sleep over it.
With greater exposure, because then that just.
I'd be more concerned obviously if we had longer term investments.
Can dropped like a stone and be back where we were when I first started in this business.
with greater exposure because then it just
you know, can drop like a stone, back where we were when I first started in this business.
Right, Yeah, no I agree I just double check.
From a liquidity perspective, you are not going to have to sell it for a while now.
Right, yeah, no I agree. Just double checking, it seems like from a liquidity perspective, you are not going to have to sell for a lot. So like you said, it's Mark's hour where they are going to get it back.
Like you said.
Marks are where they are going to get it back in.
Three years or less.
Yeah, No matter how you look at these things are there either they either come back year their yield adjustments there.
three years or less.
Yeah, no matter how you look at these things, they either come back to you, they're yield adjustments, they're...
No.
Timing is always difficult for any institution buying securities.
You know, but you know, the timing is always difficult for
Whether it's equities or bonds.
You try to buy smart and you don't always do it.
any institution buying securities.
Whether it's equities or bonds, you try to buy smart and you don't always do it.
Right got you.
I appreciate the color. Thanks.
Uh huh.
Right, gotcha. Well, I appreciate the color. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Tom O'brien for any closing remarks.
This concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks.
No just hope.
Hope everybody enjoys the balance of the summer and.
No, just hope everybody enjoys the balance of the summer and.
Yours going incredibly quickly, but we will be talking to you again.
At the conclusion of the third quarter, so that'll be in October and.
The year is going incredibly quickly, but we will be talking to you again in...
That will have.
at the conclusion of the third quarter, so that'll be in October and.
the conclusion of the third quarter. So that'll be in October and I think we'll have, you know.
More to say at that point and I think you know.
Obviously as I mentioned earlier more clarity, but.
More to say at that point, and I think, you know, obviously, as I mentioned earlier, more clarity. But as always, we appreciate your time and your interest and wish you the good rest of the day. pois se NRCT people.
As always we appreciate your time and your interest and.
I wish you good rest of the day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.