Q4 2023 Sterling Bancorp Inc (Southfield MI) Earnings Call
Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and full year ended December 31st, 2023. Joining us today from Sterling's management team are Tom O'Brien, Chairman, CEO, and President, and Karen Knott.
Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and full year ended December 31st 20 twenty-three joining us today from Sterling management team are Tom O'brien, Chairman CEO and President.
And Kevin it's not Chief Financial Officer, and Treasurer, Tom will discuss the fourth quarter and year end results and then we'll open the call up 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.
Tom O'brien: Chief Financial Officer and Treasurer. Tom will discuss the fourth quarter and year-end results, and then we'll open the call up to your questions.
Tom: Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Sterling Bancorp that involve risk and uncertainty.
Tom: And financial condition of Sterling Bancorp that involve risks and uncertainties in particular forward looking statements may be made on this conference call regarding the economy and financial markets government investigations.
Tom: In particular, forward-looking statements may be made on this conference call regarding the economy and financial markets, government investigations,
Tom: Credit quality and regulatory scheme governing the company's industry, competition in the company's industry, interest rates, and company's liquidity, the company's business, and company's governance.
Tom: Credit quality and regulatory scheme governing the company's industry competition, and the company's industry interest rates and companies like liquidity, the company's business and company's governance.
Tom: Any forward-looking statements made during this conference call are based primarily on the company's current expectations and projections about future events and trends that the company believes may affect its business, financial condition, results of operations, prospects, business strategy, and financial needs. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.
Any forward looking statements made during this conference call are based primarily on the Companys current expectations and projections about future events and trends that the company believes may affect its business financial condition results of operations prospects business strategy and financial needs.
Tom: Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements. These factors.
Tom: These factors
Tom: as well as examples of forward-looking statements are discussed in the company's SEC filings which are available on the company's website.
Tom: As well as examples of forward looking statements are discussed in the company's S. T SEC filings, which are available on the company's website.
Tom: These are not.
Tom: Or not.
Tom: Exhaustive new risks and uncertainties emerge from time to time, and it is not possible for the company to predict all risks and uncertainties that could have an impact on the forward-looking statements made during this conference call. The company disclaims any obligation to update any forward-looking statements made during this call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
Tom: Exhaustive, new risks and uncertainties emerge from time to time and it is not possible for the company to predict all risks and uncertainties that could have an impact on the forward looking statements made during this conference call. The company disclaims any obligation to update any forward looking.
Tom: <unk> made during this call. Additionally management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most director directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be.
Tom: 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?
Tom: <unk> discussed today as well as the.
Tom: Reconciliation of the GAAP to non-GAAP measures at this time I would like to turn the call over to Tom O'brien Tom.
Tom O'brien: Thank you. Good morning, everyone.
Speaker Change: Thank you good morning, everyone.
Tom O'brien: That intro may be longer than my remarks here,
Speaker Change: That intro maybe longer than my remarks here so well.
Tom O'brien: see how this goes, but anyhow, I'm joined in the boardroom here
Speaker Change: This goes but.
Speaker Change: Anyhow I'm joined in the boardroom herein.
Tom O'brien: Southfield, Michigan, by Karen Knott,
Speaker Change: Southfield, Michigan by Karen not our CFO and.
Karen Knott: See you, Paul.
Speaker Change: Chris Meredith, our Chief Risk Officer, and Liz Keogh, our General Counsel.
Speaker Change: Chris Meredith, our chief risk Officer Analyst <unk>, our general counsel.
Speaker Change: Um,
Speaker Change: And we're.
Speaker Change: And we're going to run.
Speaker Change: I'm going to run through the fourth quarter and year and 23
Speaker Change: Run through the fourth quarter and year end 'twenty three.
Speaker Change: financial results.
Speaker Change: Financial results.
Speaker Change: and I'll just hit the highlights. I assume everybody's looked at the press release, but for the quarter, we reported net income of 10 cents for the year, 15 cents.
Speaker Change: And I'll just hit the highlights I assume everybody's looked at the press release, but.
Speaker Change: For the quarter, we reported net.
Speaker Change: Net income of 10 cents for the year 15.
Speaker Change: Quarters mostly driven
Speaker Change: Quarters, mostly driven.
Speaker Change: by the recovery on D&O insurance that I think we referenced in the third quarter call as being expected in the fourth quarter, and then an allowance reversal, you know, driven by the
Speaker Change: By the recovery on D&O insurance that I think we referenced in the third quarter call as being expected in the fourth quarter and then.
Speaker Change: An allowance reversal driven by D.
Speaker Change: you know, strong,
Speaker Change: Strong.
Speaker Change: credit metrics for the bank and reduce loan portfolio and
Speaker Change: Credit metrics for the bank and reduce loan portfolio.
Speaker Change: you know, our general process and assessment.
Speaker Change: Our general process and assessment.
Speaker Change: But the allowance
Speaker Change: But the allowance.
Speaker Change: continues to remain at about
Speaker Change: Continues to remain.
Speaker Change: At about.
Speaker Change: Two and a quarter percent, roughly.
Speaker Change: So in a quarter percent roughly.
Speaker Change: 218. 218. Okay. So, still very healthy relative to the loan portfolio.
Speaker Change: Okay.
Speaker Change: So still very healthy relative to the loan portfolio.
Speaker Change: But again, you know, the quarter of the year,
Speaker Change: But again.
Speaker Change: Quarter of the year.
Speaker Change: as it has been the last few years, you know, pretty noisy at the top line. But beneath that, you know, things here as we got into the fourth quarter and then the end of the year and now into January, things are relatively quiet.
Speaker Change: As it has been in the last few years.
Speaker Change: Noisy at the top line.
But beneath that things here as we got into the fourth quarter and then the end of the year and now into January.
Speaker Change: Things are relatively quiet here.
Speaker Change: Things are relatively quiet here.
Speaker Change: say there's a lot going on. I think the big issue prospectively remains, you know, what happens with interest rates and NIM compression. You know, I would say at this point,
Speaker Change: And so there's a lot going on I think the big issue.
Speaker Change: <unk> remains what happens with interest rates and NIM compression.
Speaker Change: I would say at this point.
Speaker Change: were, you know, reasonably
Speaker Change: We're reasonably.
Speaker Change: looking at kind of flattish change in margins.
Speaker Change: Looking at kind of flattish.
Speaker Change: The change in <unk> and <unk>.
Speaker Change: Margins.
Speaker Change: Uh,
Speaker Change: But the risk is always the cost of funds and the, you know, the underlying interest rates in the general market and the economy. As I mentioned earlier, credit is benign.
But the risk is always the cost of funds and the.
Speaker Change: The underlying interest rates and the general market and the economy.
Speaker Change: As I mentioned earlier credit is benign.
Speaker Change:
Speaker Change: The allowance, of course, remains strong on a dollar and percentage basis. As you noticed, I assume the expenses are moderating considerably. I think that's
Speaker Change: The allowance of course remains.
Strong on a dollar and percentage basis.
Speaker Change: As you noticed I assume the expenses are moderating considerably.
Speaker Change: I think.
Speaker Change: you know,
Speaker Change: No.
Speaker Change: third-party legal expenses,
Speaker Change: Third party legal expenses.
Speaker Change: are
Speaker Change: Our.
Speaker Change: showing decline and I think as we get
Showing decline and.
Speaker Change: I think you know as we get.
Speaker Change: End of this quarter, that decline should continue to accelerate.
Speaker Change: And does this quarter that decline should.
Speaker Change: Continue to accelerate and we should.
Speaker Change: be I think near the end of the bulk of those in the next few weeks.
Speaker Change: B I think near the near the end of the bulk of those.
Speaker Change: And the next few weeks.
Speaker Change: Our own legal costs are likewise moderating considerably, again, as we put all the issues with the...
Speaker Change: Our own legal costs are likewise moderating considerably.
Speaker Change: Again, as we put all the issues with the.
Speaker Change: the regulators and the
Speaker Change: The regulators and the.
Speaker Change: Justice Department
Justice Department.
Speaker Change: behind the company and the bank.
Speaker Change: The company and the bank notes.
Speaker Change: notes.
Speaker Change: No.
Speaker Change: Those costs have continued to moderate, and again, we still see more of that in 2024, although we do have some modest costs related to the
Speaker Change: Those costs.
Speaker Change: Continued to moderate and again, we still see more of that.
2024, although we do have some modest costs related to the.
Speaker Change: ongoing compliance and reporting that we do with the Justice Department, but
Speaker Change: Ongoing compliance and reporting that we deal with the Justice Department.
Speaker Change: that really shouldn't move the needle anywhere. We also put in some expense cuts for the coming year.
Speaker Change: That really shouldn't move the needle anywhere.
Speaker Change: We also put in some expense cuts for the coming year.
Speaker Change: We believe that'll help us mitigate
Speaker Change: We believe that will help us mitigate.
Speaker Change: Yes.
Speaker Change: The uncertain period that we find ourselves in,
Speaker Change: The uncertain period that we find ourselves in.
Speaker Change: the economy, the general market, the kind of malaise,
Speaker Change: The economy and the general market.
Speaker Change: Kind of malaise.
Speaker Change: We're seeing in the capital markets
Speaker Change: We're seeing in the capital markets.
Speaker Change: You know, continues to put pressure on our.
Speaker Change: Continues to put pressure on R. R.
Speaker Change: Our margin and our ability to maintain profitability,
Speaker Change: Our margin and our ability to maintain profitability.
Speaker Change: But.
Speaker Change: But.
Speaker Change: I would say that's the most difficult part about what we deal with going forward is just getting a real sense on what the markets are going to do and what the opportunities for us are.
Speaker Change: I would say that's you know that's the most difficult part about what we deal with going forward, it's just getting a real sense.
Speaker Change: What the markets are going to do and what the opportunities for us are.
Speaker Change: In hindsight, I would say 2023 was a fairly amazing year, given that all that was accomplished.
Speaker Change: In hindsight I would say 2023 was a fairly amazing here given that all that was accomplished.
Speaker Change: I think, you know, the idea that Sterling
Speaker Change: I think the idea of that Sterling.
Speaker Change: bank is here today is probably the best news. That future was most assuredly
Speaker Change: Bank is here today.
It is probably the best news that future was most assuredly.
Speaker Change: Not guaranteed a few years ago, but at this point, you know, we have the opportunity to look forward.
Speaker Change: Guaranteed a few years ago.
Speaker Change: But at this point.
Speaker Change: We have the opportunity to look forward.
Speaker Change: and to continue to work hard on the strategic visions in these markets, as I noted.
Speaker Change: And to continue to work hard on the strategic visions.
Speaker Change: In these markets as I noted.
Speaker Change: Our focus.
Speaker Change: Our focus.
Speaker Change: in at least the short run here for the next couple of quarters,
Speaker Change: And you know at least the short run here over the next couple of quarters.
Speaker Change: is really on maintaining our tangible book value, our liquidity, and our
Speaker Change: Is really on maintaining our tangible book value our liquidity and our.
Speaker Change: very moderate risk credit risk profile and we believe that
Speaker Change: A very moderate risk credit risk profile and.
Speaker Change: We believe that.
Speaker Change: Those items, those three items are probably, you know, among the most valuable components that the institution has.
Speaker Change: Those items those three items are probably.
Speaker Change: Among the most valuable components that the institution has and.
Speaker Change: So we're not inclined to risk any of those. And we'll just kind of see what the next couple of quarters have in style for us as an institution and just for the industry in general.
Speaker Change: So we're not inclined to to risk any of those.
Speaker Change: And we'll just kind of see what the next couple of quarters have install for us as an institution.
Speaker Change: And just for the industry in general.
Speaker Change: On the regulatory side,
Speaker Change: On the.
The regulatory side.
Speaker Change: things are, you know,
Speaker Change: Thank you Sir.
Speaker Change: Very quiet.
Speaker Change: Very quiet.
Speaker Change: Our relationship continues to be very transparent with our regulators. I think the
Speaker Change: Our relationship continues to be.
Very transparent with our regulators.
Speaker Change: I think the.
Speaker Change: The business side remains.
Speaker Change: The business side remains.
Speaker Change: you know, very modest. We haven't
Very very modest.
Speaker Change: We haven't.
Speaker Change: stopped lending by any means, but we are being very careful in what we do and where we do it, and again, the run-up and the advantage loan portfolio is always going to be very hard to keep up with, so at some point, those pay off the next to nothing.
Speaker Change: Stopped lending by any means but we are being very careful on.
Speaker Change: And what we do and where we do it.
Speaker Change: And again the.
Speaker Change: The run up in the advantage long portfolio is always going to be very hard to keep up with so at some point.
Speaker Change: Those pay off the next to nothing.
Speaker Change: They've been more than cut in half in my tenure at the bank, but there's still, I don't know, $600 million, $630 million. So, well-
Speaker Change: But more than cut in half in my tenure at the bank.
But there is still.
Speaker Change: Six $600 million somebody else takes 3600 30 million so.
Speaker Change: Well.
Speaker Change: Well below half of what it was when I joined the bank, probably almost a third, two-thirds lower.
Speaker Change: No well below half of what it was when I joined the bank, probably almost a third two thirds lower.
Speaker Change: So,
Speaker Change: So.
Speaker Change: You know, that's.
That's our plan with those basically is just to let them continue to run off they behave.
Speaker Change: Our plan with those basically is just to let them continue to run off their behavior.
Speaker Change: perform relatively well, and we haven't had, you know, any concerns with the
And perform relatively well and we haven't had.
Speaker Change: And.
Speaker Change: Any concerns with the.
Speaker Change: performance of the loans, notwithstanding the issues that we had over the last several years with the underwriting and the
Speaker Change: Performance of the loans notwithstanding the issues that we had over the last several years what the.
Speaker Change: With the underwriting and the <unk>.
Speaker Change: bad actors that, um,
Speaker Change: Bad actors that.
Speaker Change: created the problems for the bank. So, as I said,
Speaker Change: Great.
For the bank so.
Speaker Change: So I said.
Speaker Change: You know, my comments are probably about the same as the intro on the call.
Speaker Change: My comments are probably about the same as the intro on the call.
Speaker Change: not an awful lot that
Speaker Change: Not an awful lot.
Speaker Change: I can think to add to the conversation other than we continue to keep our
Speaker Change: I can think to to add to the conversation other than we continue to keep our.
Speaker Change: eyes open and work hard and
Speaker Change: It is open and.
Speaker Change: And work hard and.
Speaker Change: We'll see what the questions are now, so operator, you can open the line up for questions.
Speaker Change: We'll see what the questions are now so.
Speaker Change: Later, you can open the lineup for questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, 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 one. At this time, we will pause momentarily to assemble our roster.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre 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 one.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Ross Haberman with RLH Investments. Please go ahead.
Speaker Change: Our first question comes from Ross Haberman with R. L. H investments. Please go ahead.
Ross Haberman: Good morning. How are you guys? Just a quick question to hear from you.
Ross Haberman: Good morning, how are you guys just not Roswell sitting here.
Ross Haberman: Quick question regarding the NIM or the margin. If we do get a cut or two in March or June, how do you see that affecting the spread of the margin? Okay.
Ross Haberman: A quick question regarding.
Ross Haberman: The NIM or the March and if we do get a cut or two in March or June.
Ross Haberman: How do you see that affecting the spread or the margin.
Ross Haberman: Thanks.
Speaker Change: I'll ask Karen to.
Ross Haberman: Thanks.
Speaker Change: Yes, Karen.
Speaker Change: Yeah, I think that.
Karen: Yeah, I think that Oh I.
Speaker Change: i think the the margin is going to stay relatively flat um you know we've done some work for the obviously 2024 projections and we forecasted a couple of rate cuts and the margin's pretty resilient even with those cuts
Karen: I think the margin is going to stay relatively flat.
Karen: You know we've done some work for it that obviously into 2024 projections than we forecast that a couple of rate cuts and the margins are pretty resilient and even with those costs.
Speaker Change: Our loan portfolio still is repricing upward even with rate cuts because of period caps.
Karen: Our loan portfolio still is repricing upward even with rate cuts because the period cats.
Speaker Change: and the quick rise of rates the last 18 months.
Karen: A quick rise of right the last 18 months.
Speaker Change: And just a quick question, too, about the,
Speaker Change: And just a quick question or two about the.
Speaker Change: The non-performers, the 9 million, refresh my memory, what's in that, and do you think you'll resolve?
Speaker Change: The non performers the 9 million.
Speaker Change: Refresh my memory, what's in that and do you think you'll resolve.
Speaker Change: most of that over the next, I don't know, quarter, two or three, and possibly take any more recoveries over the next quarter, two or three. Thanks.
Speaker Change: Most of that over the next I don't know a quarter or two or three and possibly.
Speaker Change: Hey, any more recoveries over the next quarter or two or three thanks.
Speaker Change: The 9 million are 100% residential loans, and
Speaker Change: The 9 million or 100% residential loans and.
Speaker Change: I think the bulk of those are in foreclosure seven or so million of it. Yeah, there's, you know, there's a couple of million that are actually current. We're just waiting for performance to be sustained before we put them back on accrual status and then
Speaker Change: I think the bulk of those are in.
Speaker Change: Foreclosure.
Speaker Change: 700, or so million of it yeah.
Speaker Change: Yeah. There's you know there's a couple of million that are actually current we're just waiting for performance.
It could be sustained before we put them back on accrual status and then.
Speaker Change: The bulk of them are in the foreclosure process. At least the loans in California, everything moves normally through there. So, you know, we're waiting for the redemption periods to expire, and then we'll have the sale. They're all very well collateralized. As you know, those Advantage loans have low LTVs to begin with, and they're very seasoned at this point.
Speaker Change: The bulk of them are in the foreclosure process at least along the California everything that moves normally through there. So we're waiting for the redemption periods to expire and then we'll have to stay out there all very well collateralized as he now those advantaged.
Speaker Change: We have low ltvs to begin with and they're very seasoned at this point.
Speaker Change: And the possibility of any further recoveries like you did this last quarter?
Speaker Change: And so we have the ability of any further recoveries like you did this last quarter.
Speaker Change: Well, we hate to project recoveries, but, you know, if you do the math on process with declining loan balances and
Speaker Change: Well, we hate to project recoveries, but if you do the math on Prost.
Speaker Change: Process with declining loan balances.
Speaker Change: Um.
Speaker Change:
Speaker Change: no loan losses, you probably can extrapolate some
Speaker Change: No loan losses, you probably can extrapolate some some benefits to that.
Speaker Change: some benefits to that.
Speaker Change: Yeah, I mean, provision recovery, for sure, and interest recovery, we haven't taken charge of on this particular pool that's in non-accrual due to the collateral value.
Speaker Change: Yeah, I mean, provisionary recovery for sure an interest recovery, we haven't taken charge offs.
Speaker Change: Particular in pool, that's in non accrual due to the collateral value.
Speaker Change: And Russ, I don't know if you're aware, but California is not a judicial foreclosure state the way New York was, so...
Speaker Change: And Ross I don't know, if you're aware, but California is not.
Speaker Change: Not a judicial foreclosure state the way New York was so.
Speaker Change: In New York, I know we would hang around with loans and foreclosure for a generation.
In New York, I know, we would hang around with.
Speaker Change: Loans in foreclosure for our generation.
Speaker Change: California is
California is.
Speaker Change: In many respects, challenging place to do business, but in terms of
Speaker Change: In many respects challenging place to do business, but in terms of.
Speaker Change: The foreclosure process, it is I think about a six to nine month
Speaker Change: The foreclosure process it as I think about six to nine months.
Speaker Change: You know, round trip, and our experience has been that the loans that go into foreclosure prior to the foreclosure sale get paid off.
A round trip and our experience has been that.
Speaker Change: <unk>.
Speaker Change: The loans that go into foreclosure prior to the foreclosure sale get paid off.
Speaker Change: I don't know that we've had.
Speaker Change: I don't know that we've had.
Speaker Change: I won't say none, but virtually none that actually went into owned real estate.
Speaker Change: I want to say, none, but virtually none that actually went into.
Speaker Change: Owned real estate.
Speaker Change: and just one file could you put a number on what you think uh your ongoing um
Speaker Change: And just one file could you put a number on what you think.
Speaker Change: Your ongoing.
Speaker Change:
Speaker Change: Your ongoing non-interest expense base is going to be, is it, even if you add.
Speaker Change: Your ongoing noninterest expense base is gonna be is it even if he had.
Speaker Change: Back to professionals, you were running, what, about 13.7, it looks like?
Speaker Change: Back to professionals, you were running about 13 seven it looks like.
Speaker Change: For the quarter, is that a good base to sort of – or using that as a base, let's just say?
Speaker Change: For the quarter is that a good base to sort of.
Speaker Change: Or using that as a base, let's just say.
Speaker Change: Could you be saving?
Could you be saving I don't know.
Speaker Change: I don't know, half a million to a million dollars.
Speaker Change: No a half million to a million dollars.
Speaker Change: Uh huh.
Speaker Change: As a reduction of that.
Speaker Change: As a reduction of that.
Speaker Change: Yeah, I can see where you're going with that.
Speaker Change: Yes sure.
Speaker Change: Are you going with that.
Speaker Change: Yeah, I think that's a little light because, you know, the non-interest expense for the quarter was $12.8, but we had $3.8 of legal recovery in there. So we're probably going to be, you know, a little bit north of $15, I would suspect, in a quarter in non-interest expense.
Speaker Change: Yeah, I think that's a little light because you know the non interest expense for the quarter was 12, eight but we had $3 eight.
Speaker Change: Legal recovery in there that we're probably going to be you know a little bit north of 15, I would suspect and a quarter and noninterest expense.
Speaker Change: But I think you threw out the idea that you're working on some cost savings.
Speaker Change: But I think you threw out the idea that you could you're working on some cost saves.
Speaker Change: Yeah.
Speaker Change: Oh, yeah, from that – using the starting point as the 15 for argument's sake.
Speaker Change: Oh, yeah from that using that started pointing out the 15 for argument's sake.
Speaker Change: I think that pretty much gets us there.
Speaker Change: I think that pretty much gets us there.
Speaker Change: I know the, you know, I mean every quarter for the last three
Speaker Change: I know the.
Speaker Change: I mean every quarter for the last three years have done.
Very volatile, but I think we.
Speaker Change: Kind of always thought the normalized run rate.
Speaker Change: Run rate was between 14 inch 13, five or so.
Speaker Change: depending on, you know, the first quarter's always higher with social security costs and things like that, but. Right.
Speaker Change: Pending on the first quarter is always higher with social security costs and things like that but right.
Speaker Change: I think
Speaker Change: I think.
Speaker Change: You know, as Karen said, I think 15 issues
Speaker Change: And as Karen said, I think 15 ish is it.
Speaker Change: is probably where we are for now.
Speaker Change: This is probably where we are for now.
Speaker Change: I got it. Okay.
Speaker Change: Got it okay.
Speaker Change: Thank you, guys. The best of luck.
Speaker Change: Thank you guys the best of luck.
Speaker Change: Thanks, Rob.
Speaker Change: Thanks Ross.
Moderator: Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and full year ended December 31st, 2023. Joining us today from Sterling's management team are Tom O'Brien, Chairman, CEO, and President, and Karen Knott, Chief Financial Officer and Treasurer.
Speaker Change: Again, if you have a question, please press star, then 1.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Yeah.
Speaker Change: We have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks.
Speaker Change: We have no further questions. This concludes our question and answer session I would like to turn the conference back over to Tom O'brien for any closing remarks.
Tom O'brien: Just quickly, thank you all for joining us today.
Moderator: Tom will discuss the fourth quarter and year-end results, and then 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 financial condition of Sterling Bancorp that involve risk and uncertainty. In particular, forward-looking statements may be made on this conference call regarding the economy and financial markets, government investigations, credit quality and the regulatory scheme governing the company's industry, competition in the company's industry, interest rates, and the company's liquidity, the company's business, and the company's governance. Any forward-looking statements made during this conference call are based primarily on the company's current expectations and projections about future events and trends that Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors, as well as examples of forward-looking statements, are discussed in the company's SEC filings, which are available on the company's website. These are not.
Tom O'brien: Just quickly. Thank you all for joining us today.
Tom O'brien: All right.
Tom O'brien: The analysts who covered us, we had one at Tufte and one at Piper Sandler and
Tom O'brien: The analysts who covered US we had one company and one at Piper Sandler.
Tom O'brien: Both of those analysts at around the same time went on to other firms
Tom O'brien: Both of those analysts at around the same time went onto other.
Tom O'brien: Firms.
Tom O'brien: So we have not had the,
Tom O'brien: So we have not had the.
Tom O'brien: Research coverage that we had been used to.
Tom O'brien: research coverage that we had been used to, but I do believe at some point in the near future,
Tom O'brien: Do believe at some point in the near future.
Tom O'brien: Piper Sandler is going to pick up
Tom O'brien: Piper Sandler is going to pick up.
Speaker Change: Uh huh.
Speaker Change: I'm an analyst with the assignment for Sterling, and I suspect, you know, at some point, you know,
Speaker Change: And analysts with the assignment for Sterling.
Speaker Change: And I suspect some point.
Speaker Change: Sure.
Speaker Change: And this quarter, anyhow, maybe Hufty will be doing the same process, but just unfortunate.
And this quarter any help maybe help people be doing the same prop.
Process, but.
Speaker Change: Unfortunate.
Speaker Change: have to deal with that. But in any case, I do wish you all a very Happy New Year and thank you for participating as always.
Speaker Change: You have to deal with that but any case.
Speaker Change: I do wish you all a very happy new year, and thank you for participating and as always been.
Speaker Change: See you at the April call.
Speaker Change: We'll see you at the April call.
Speaker Change: Thanks.
Speaker Change: Thanks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Moderator: Exhaustive new risks and uncertainties emerge from time to time, and it is not possible for the company to predict all risks and uncertainties that could have an impact on the forward-looking statements made during this conference call. The company disclaims any obligation to update any forward-looking statements made during this call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
Tom O'brien: 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 O'brien: Thank you. Good morning, everyone. That intro may be longer than my remarks here, see how this goes, but anyhow, I'm joined in the boardroom here in Southfield, Michigan, by Karen Knott, See you, Paul. Chris Meredith, our Chief Risk Officer, and Liz Keogh, our General Counsel. Um, And we are. I'm going to run through the fourth quarter and year and 23, financial results, and I'll just hit the highlights. I assume everybody's looked at the press release, but for the quarter, we reported net income of 10 cents for the year, 15 cents. Quarters mostly driven by the recovery on D&O insurance that I think we referenced in the third quarter call as being expected in the fourth quarter, and then an allowance reversal, you know, driven by the, you know, strong credit metrics for the bank and a reduced loan portfolio and you know, our general But the allowance continues to remain at about Two and a quarter percent, roughly 218. 218.
Tom O'brien: Okay. So, still very healthy relative to the loan portfolio. But again, the quarter of the year, as it has been the last few years, pretty noisy on the top line. But beneath that, you know, things here as we got into the fourth quarter and then the end of the year and now into January are relatively quiet, to say there's a lot going on.
Tom O'brien: I think the big issue prospectively remains, you know, what happens with interest rates and NIM compression. You know, I would say at this point that we are reasonably looking at kind of a flattish change in margins. Uh, But the risk is always the cost of funds and, you know, the underlying interest rates in the general market and the economy. As I mentioned earlier, credit is benign. The allowance, of course, remains high on a dollar and percentage basis.
Tom O'brien: As you noticed, I assume the expenses are moderating considerably. I think that's, you know, third-party legal expenses are showing a decline, and I think as we get closer to the end of this quarter, that decline should continue to accelerate, be I think near the end of the bulk of those in the next few weeks. Our own legal costs are likewise moderating considerably, again, as we put all the issues with the regulators and the Justice Department behind the company and the bank notes. Those costs have continued to moderate, and again, we should still see more of that in 2024, although we do have some modest costs related to the ongoing compliance and reporting that we do with the Justice Department, but that really shouldn't move the needle anywhere.
Tom O'brien: We also put in some expense cuts for the coming year. We believe that'll help us mitigate the uncertain period that we find ourselves in, the economy, the general market, the kind of malaise that we're seeing in the capital markets, You know, continues to put pressure on us. Our margin and our ability to maintain profitability, But. I would say that's the most difficult part about what we deal with going forward is just getting a real sense of what the markets are going to do and what our opportunities for us are. In hindsight, I would say 2023 was a fairly amazing year, given that all that was accomplished.
Tom O'brien: I think, you know, the idea that Sterling Bank is here today is probably the best news. That future was most assuredly not guaranteed a few years ago, but at this point, you know, we have the opportunity to look forward and to continue to work hard on the strategic visions in these markets, as I noted. Our focus, in at least the short run here for the next couple of quarters, is really on maintaining our tangible book value, our liquidity, and our very moderate risk credit risk profile, and we believe that those items, those three items are probably, you know, among the most valuable components that the institution has. So we're not inclined to risk any of those.
Tom O'brien: And we'll just kind of see what the next couple of quarters have in style for us as an institution and just for the industry in general. On the regulatory side, things are, you know, very quiet. Our relationship continues to be very transparent with our regulators.
Tom O'brien: I think the business side remains, you know, very modest. We haven't stopped lending by any means, but we are being very careful in what we do and where we do it, and again, the run-up and the advantage loan portfolio is always going to be very hard to keep up with, so at some point, those pay off next to nothing. They've been more than cut in half in my tenure at the bank, but there's still, I don't know, $600 million, $630 million. So, well below half of what it was when I joined the bank, probably almost a third, two-thirds lower. So, you know, that's it.
Tom O'brien: Our plan with those basically is just to let them continue to run on their behavior, and perform relatively well, and we haven't had, you know, any concerns with the performance of the loans, notwithstanding the issues that we have had over the last several years with the underwriting and the bad actors that, um, created problems for the bank. So, as I said, my comments are probably about the same as the intro on the call, not an awful lot that I can think of to add to the conversation other than we continue to keep our eyes open and work hard, and we'll see what the questions are now, so operator, you can open the line up for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone.
Moderator: If you're using a speaker phone, 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 one. At this time, we will pause momentarily to assemble our roster. The first question comes from Ross Haberman with RLH Investments. Please go ahead. Good morning.
Ross Haberman: How are you guys? Just a quick question to hear from you. Quick question regarding NIM or the margin. If we do get a cut or two in March or June, how do you see that affecting the spread of the margin? Okay. Thanks. I'll ask Karen.
Yeah, I think that the margin is going to stay relatively flat. We've done some work for the obviously 2024 projections, and we forecasted a couple of rate cuts, and the margin's pretty resilient even with those cuts. Our loan portfolio still is repricing upward even with rate cuts because of period caps and the quick rise of rates in the last 18 months. And just a quick question, too, about the The non-performers, the 9 million. Refresh my memory, what's in that, and do you think you'll resolve it? Most of that over the next, I don't know, quarter, two, or three, and possibly take any more recoveries over the next quarter, two, or three. Thanks. The 9 million are 100% residential loans, and I think the bulk of those are in foreclosure, seven or so million of them. Yeah, there's, you know, there are a couple of million that are actually current.
We're just waiting for performance to be sustained before we put them back on accrual status, and then the bulk of them are in the foreclosure process. At least the loans in California, everything moves normally through there. So, you know, we're waiting for the redemption periods to expire, and then we'll have the sale. They're all very well collateralized.
Tom O'brien: As you know, those Advantage loans have low LTVs to begin with, and they're very seasoned at this point. And the possibility of any further recoveries like you did this last quarter? Well, we hate to project recoveries, but, you know, if you do the math on the process with declining loan balances and, Um, no loan losses, you probably can extrapolate some benefits to that. Yeah, I mean, provision recovery, for sure, and interest recovery, we haven't taken charge of on this particular pool that's in non-accrual due to the collateral value. And Russ, I don't know if you're aware, but California is not a judicial foreclosure state the way New York was, so... In New York, I know we would hang around with loans and foreclosure for a generation. California is, in many respects, a challenging place to do business, but in terms of the foreclosure process, it is I think about a six to nine month round trip, and our experience has been that the loans that go into foreclosure prior to the foreclosure sale get paid off.
Ross Haberman: I don't know that we've had none, but virtually none that actually went into owned real estate. And just one file could you put a number on what you think your ongoing, your ongoing non-interest expense base is going to be, is it, even if you add. Back to professionals, you were running, what, about 13.7, it looks like?
Ross Haberman: For the quarter, is that a good base to sort of – or use that as a base, let's just say? Could you be saving? I don't know, half a million to a million dollars.
As a reduction of that, Yeah, I can see where you're going with that. Yeah, I think that's a little light because, you know, the non-interest expense for the quarter was $12.8, but we had $3.8 of legal recovery in there. So we're probably going to be, you know, a little bit north of $15, I would suspect, in a quarter in non-interest expense. But I think you threw out the idea that you're working on some cost savings. Oh, yeah, from that – using the starting point as the 15 for argument's sake. I think that pretty much gets us there. I know the, you know, I mean every quarter for the last three, depending on, you know, the first quarter's always higher with social security costs and things like that, but
Tom O'brien: Right. I think, You know, as Karen said, I think 15 issues is probably where we are for now. I got it. Okay. Thank you, guys. The best of luck. Thanks, Rob. Again, if you have a question, please press star, then 1. We have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks. Just quickly, thank you all for joining us today. The analysts who covered us, we had one at Tufte and one at Piper Sandler and, Both of those analysts at around the same time went on to other firms So we have not had the, research coverage that we had been used to, but I do believe at some point in the near future, Piper Sandler is going to pick up, I'm an analyst with the assignment for Sterling, and I suspect, you know, at some point, you know, And this quarter, anyhow, maybe Hufty will be doing the same process, but just unfortunate, have to deal with that.
Tom O'brien: But in any case, I do wish you all a very Happy New Year and thank you for participating as always. See you at the April call. Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Tom O'brien: Again, if you have a question, please press star then 1. We have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks. Just quickly, thank you all for joining us today. The analysts who covered us, we had one at CUBDI and one at Piper Sandler, and both of those analysts, at around the same time, went on to other firms. So, we have not had the research coverage that we had been used to, but I do believe at some point in the near future, Piper Sandler is going to pick up or an analyst with the assignment for sterling, and I suspect, at some point, in this quarter, anyhow, maybe Hupty will be doing the same process, but just unfortunate. We have to deal with that.
Tom O'brien: But in any case, I do wish you all a very happy New Year and thank you for participating as always. See you at the April call. Thanks. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.