Q3 2022 Sterling Bancorp Inc Earnings Call

Good morning, and welcome to the Sterling Bancorp third quarter 2022 earnings Conference call all participants will be in a listen only mode.

Would you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Tom O'brien. Please go ahead Sir.

Okay. Thank you and good morning, everyone and welcome to the third quarter call and.

As always I'd turn your attention to the.

Disclosures.

Regarding our presentation that are available for your.

Review in the 8-K.

With that dialogue. So everybody has had a chance to look at those.

Understands them.

So in the third quarter here and as I noted in the press release, we've made very.

Very good progress on several fronts.

There's still a lot of noise I think we recognize that obviously.

And with all of that we're managing a small profit.

But notably in the quarter credit continues to improve.

On the commercial side.

For the first time in my tenure.

There were no delinquencies and no N P H and the.

Any of the commercial.

Portfolio.

That was helped in large measure by our sale of Hum.

$22 million.

Fourth of.

Weaker commercial real estate credits.

And.

But also we saw a nice decline in the residential.

Non accruals and delinquencies through both payoffs and some reinstatement.

Oh, the margin improved to $3 19 during the quarter helped.

You know obviously by higher interest rates that are in the market and and our.

Fairly liquid portfolio.

But additionally, we had some interest recoveries from loans that paid off in the quarter.

Prospectively I think it's fair to say liabilities.

We'll continue to reprice upwardly.

You know the idle funds from the past several years are.

You know how customers are looking for higher returns and better opportunities. So I think.

Well Sterling.

Actually all of the industry will experience.

Continued.

Increases in liability costs as interest rates continue to move up fairly.

Fairly aggressively in fairly quickly.

Obviously, I think everybody knows we signed a consent order with the OCC.

Right at the end of September .

And that consent order, we agreed to a $6 million civil money penalty.

That was assessed by the OCC for prior bad acts and the old advantage loan program.

I'm up.

Simultaneously the OCC released the bank from the formal agreement.

In recognition of the significant improvement we have made in the past two years and.

In addressing a very significant level of very severe findings and many.

Any violations of law so.

Both of those.

So you want a little more painful than the other but both of them are major accomplishments and a.

In a relatively short period of time as regulatory enforcement.

<unk> go.

And then finally, the court approved the settlement of the derivative.

Shareholder action and that is now done.

So the the only remaining outstanding issue for us is the.

Justice Department.

And C C.

As I've stated I think on every call we.

Very little.

Liability liability or Oh, God say theyre very liquid diet.

This ability into the timing.

The final resolution.

And we continue to work aggressively and have.

Regular conferences with the.

With the Doj.

We're pushing that as quickly as we possibly can but.

It's not something we have very much control over and I'm, certainly very very limited.

Feedback so I can't provide any estimate of timing.

Timing or cost.

Were just hopeful that.

Wraps up.

And the next few months and we.

We can put that behind us and them.

For the the <unk>.

The tuition Sterling institution metal.

You know resolved many many issues that.

That have been dogging us for quite a long time.

Individual actions.

Continue into the foreseeable future.

Notwithstanding how the bank settles out.

So.

That's kind of the condition of things in the third quarter.

I think for most of us as the year went very quickly we're now.

In the final stretches of plenty of 'twenty two.

And.

You know I think in that in the two years.

Say, an awful lot was accomplished that really arent visible to most people we did a complete transformation of the it platform.

The.

Yesterday in AML platform of their risk platform.

Obviously, if the credit acceptance and credit.

Credit management.

And.

And so obviously a campaign.

Paying the price you know an inexpensive for them.

Legal and professional fees to to get to this point.

That's another reason the sooner it's resolved.

Pierre will all be.

So with that operator, we can take some questions and go.

So to that.

Thank you Sir we will now begin our question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

And at this time, we'll pause momentarily to assemble that roster.

Yeah.

And our first question will come from Nick Pucciarelli with Piper Sandler. Please go ahead.

Hey, guys its actually Justin Crowley filling in for Nick This morning.

Good morning, Jessica.

So I wanted to start with expenses.

Just given the resolution with the OCC that you'd alluded to and that's been disclosed can you sort of share with us how you're thinking about that reduction in professional fees that we saw.

And then to the extent you can maybe quantify your expectations for sort of a near term run rate just more broadly on expenses.

That [laughter].

That Justin is a real challenge.

I hear you right.

Right.

The timing of course impacts that dramatically.

So the longer it goes on.

The.

The more we will spend.

Sure.

Yes.

You know the end of the OCC.

Investigation, plus the conclusion of the formal agreement.

You know will help.

Reduce the expenses, we had an end and that.

Several process.

And then as soon as the Doj has done.

Obviously there'll be ups.

Undoubtedly be a penalty.

Associated with that we don't know what it's going to be not even a clue.

So.

You know, we'll continue to have some legal and professional expenses with respect to that.

But I'd be reluctant to put a number on it or a percentage other than <unk>.

We're doing our best to make it include as quickly as possible.

Sure It seems like.

Every time I I think theyre going to go down they go down for a quarter or two and then the next quarter, they're up so yeah more often rondon right on my estimates there.

Got it yeah pretty crazy Crystal ball I totally understand.

And then I guess moving on so you know you noted in the release you spoke a little bit on it earlier, but comparable rates sub debt contributing in parts of the upward move in liability costs that you reference.

I just wonder given the real strong capital position I mean.

Is there any sort of potential to pay this down just to alleviate some of the funding pressures that you know.

Now and that are certainly impacting them kind of everybody in this environment.

I would do it in a heartbeat, if I'm if I were able.

But the.

The liquidity at the holding company is different than the liquidity at the bank.

And.

I can't get that much money or up to the holding company or even.

You know a fraction of it.

At this point in time.

But obviously the sooner I can better and.

It is particularly painful right now.

Sure and so I guess I don't want put words in your mouth, but in the near term sort of unlikely by the sounds of it.

I would say in the near term unlikely yes.

Okay.

And then just one last one for me can you just remind us how much remains in the mortgage repurchase liability allowance and then sort of where you stand with respect to furniture for future or further purchases.

Ah I can I can tell you that the balance of the loans sold to others has dropped dramatically.

With our purchase of the.

The $35 million in the quarter.

And keep in mind, when I joined the bank I think it was around $800 million.

And it's I'll, let Karen speak to the reserve and what's outstanding.

Sure. So in terms of advantage program loans, there's only 45 million are left outstanding we don't expect that we will be repurchasing those loans, although we still have an agreement where one of the investors could still a request that we do so so to that end we.

They'll have a modest just over half a million dollars reserved in case, they do pull the trigger on that agreement.

We just have a small amount for our agency loans that mean, that's an insignificant.

Okay.

Okay perfect. That's super helpful. I will leave it there guys. Thanks, so much for taking my questions.

Sure. Thanks, Justin.

And once again as a reminder, if you would like to ask a question. Please press Star then one.

And again Christian Star then one will allow you to ask a question.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Tom O'brien for any closing remarks.

Well he made it very easy on us today.

Hopefully we answered all your questions in the <unk>.

In the press release and in the opening remarks, but just.

Just.

I assure you that we continue to push forward and moved to successful resolution of all the remaining issues that we've had to deal with and.

You know we never obviously.

Get the interests of our.

Uh huh.

Public shareholders and our <unk>.

All of the stakeholders and the.

Ultimate success of Sterling, so with that enjoy your Halloween and we'll.

We'll look forward to talking to you at the year end call.

Thank you.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yeah.

Okay.

[music].