Q1 2024 Sterling Bancorp Inc (Southfield MI) Earnings Call
Good morning, I'll be quiet now thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth or first quarter ended March 31st 2020 for joining us today from Sterling management team, Tom O'brien, Chairman and CEO.
President and Karen not Chief Financial Officer and Treasurer.
Tom will discuss the first quarter 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.
<unk> Bancorp and the bank.
Banking industry generally that involve risks and uncertainties.
For a complete discussion of forward looking statements and factors that could cause actual results could differ from those statements. The company encourage us to refer to it as you can see filings.
Actually that was on forms 8-K, 10-Q and <unk>.
10-K.
The press release issued in conjunction with this conference call, which apply to any forward looking statements made on this 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.
Press release available on our website contains the financial and other quantum David quantum 'tatoes information to be discussed today as well as the reconciliation of the GAAP.
GAAP to non-GAAP measures at this time I'd like to turn the call over to Tom O'brien Tom.
Tom O'brien: Great. Thank you and.
Good morning.
On the call and welcome to the <unk>.
First quarter 'twenty four.
Earnings call so.
But first of all that kind of update you on some internal changes here at the bank.
Tom O'brien: We have got promoted Kristine Meredith to be our chief operating officer, and she has been our chief risk officer.
Christine was appointed to the <unk>.
Parts of the bank and the holding company, replacing Lyle Walberg, who stepped down.
Replacing Christine as the Chief risk Officer, Alaina Willis has been promoted to that role.
And I would tell you both of these individuals are quite qualified to take on these more demanding roles.
As far as the first quarter goes there's really not a lot to add to the press release you now.
Tom O'brien: For all intents and purposes, it was a breakeven quarter.
Sure.
Tom O'brien: Driven in large part by the what I'll go through in a minute, but some now.
Tom O'brien: Some legal expenses towards the tail end of these OCC investigations.
Tom O'brien: The bullet points in the press release really.
Now at least in my perspective provide.
Insight into all the meaningful highlights.
Last week VLCC completed its investigation.
Tom O'brien: Which is it's been focused in the <unk>.
Past year or so on the conduct of a former sterling executives.
Tom O'brien: Consent orders were issued to a former CEO and two our controlling shareholder.
Prior to this announcement the OCC had issued consent orders to three former senior executives of Sterling.
Tom O'brien: In each case, there was a civil money penalty assessed and lifetime industry bands from participating in the affairs of any federally insured depository along with other prohibitions.
For anybody that needed. The reminder, banking is a business of trust and integrity and character.
Tom O'brien: And there should be no room in our industry for self dealing or failing to do even the basics of our jobs.
The department of Justice has yet to speak and as I've said many times.
Tom O'brien: These calls we have very little visibility into their timing.
We do believe that the legal costs for selected eligible former employees.
Who cooperated and the investigations are essentially over.
There may be some future costs related to any action by the department of Justice.
Requiring interviews or witnesses from these individuals, but we believe.
Those will likely be immaterial.
Tom O'brien: Strategically we continue to operate deliberately to protect book value liquidity and credit.
There's enormous uncertainty in the capital markets today.
Commercial real estate remains under a cloud in many parts of the U S, especially in major cities.
Tom O'brien: Additionally, rent regulated multifamily in the Metro New York area has been extremely weak.
And that is likely to continue.
I feel the actions that we took care of Sterling early on in my tenure to build the allowance and exit very high risk commercial real estate and non performers.
Tom O'brien: Has served us very well in both cases.
We exited those credits at very attractive prices and.
Today, our metrics are quite strong and our risk profile quite modest.
The overall economy has remained impressively resilient, but I do expect within banking there will be a few more shoes to drop.
Tom O'brien: And I would suggest at this point prudent dictate strong reserves and clearer risk evaluations.
Tom O'brien: We work day to day on the strategies that we outlined in our prior 10-Q's and 10-K's.
We've talked about in prior earnings calls.
It is a oh, they're very as I mentioned earlier, a very uncertain market, but I believe we operate.
At least at that level from a position of relative strength and transparency.
There's not a lot of complexity in the bank anymore.
Very easy to.
To understand who we are what we are and as I mentioned a few minutes ago.
The risk profile in my opinion anyhow, it is really quite a quite modest.
Margins remain under some pressure.
Tom O'brien: We think that's likely to continue we do have a I think a 50 million dollar home loan bank advance.
That would mature I think in late May early June.
Middle of the day element okay.
And that's at a relatively low rate just under 2% if I recall correctly.
So as that leaves and depending on what happens with interest rates and.
In our markets and as we price our liabilities.
Now there is certainly may be some additional pressures on margins.
It's.
Kind of hard I think to view, where interest rates are going given what the fed has said.
Recently versus what the expectations were kind of at the beginning of the quarter.
Inflation remains stubbornly high especially in.
And what would be called kind of daily consumables groceries.
G.
Tom O'brien:
And that is finding its way throughout the year.
The economic forecast and I think probably we'll continue to put some discipline into the fed in terms of any.
Lowering of rates and.
Tom O'brien: And if they do I think the.
Discussion we had at <unk>.
Generally about rates coming down.
Three or so times the 'twenty 'twenty four is probably.
Not going to materialize and if it does it certainly won't be that many instances, but maybe maybe one or two but it.
It is.
As I said very uncertain and hard too.
Hard to read at this point, but inflate.
Inflation does.
Forced their hand on the more restricted side.
Everything else is kind of fairly quiet to be honest.
I think probably there are a couple of questions. It's just easier to move into those so operator, you can open the floor to questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys is it any time. Your question has been addressed and you would like to withdraw your question. Please.
Press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Ross Haberman with R. L. Ace investments. Please go ahead.
Good morning, Tom how are you.
Ross Haberman: Well Ross how are you.
I'd have to just have a couple of very.
Brief numbers questions.
Ross Haberman: Hmm.
Did I understand it on the expense side going forward.
Ross Haberman: That they'll begin to tail off a bit.
Compared to this march quarter or what.
Over $3 million in the quarter. AR is is is that gonna be a continuing for another couple of quarters.
Quarters at that rate.
Speaker Change: Now I think we're as I mentioned I think we're done without a lot of that was the.
Finality of the Occ's investigations and.
The time.
Required for certain of our people that we <unk>.
Advanced legal expenses for.
But with the central orders last week as we understand it.
The OCC has.
Done with their investigation, so I think that and keep in mind also in the prior quarter there was a.
And insurance reimbursement on some of those legal expenses.
So a little bit distorted.
For the quarter.
And as I mentioned, we might we might have some expenses.
Speaker Change: At some point in the future when the department of Justice.
Speaker Change: Actions to the extent they may want some of these people to what.
Interview or up here's what it shows, but we don't think that'll be a <unk>.
Significant so but I think we're.
Finally done with with all of that.
Were there any other sort of less recurring items in the quarter, but besides the.
The elevated professional fees.
Now I'm not too much and not salary and benefit line, we had a reversal of a former executive deferred compensation.
So there was a credit in there of about 360000 for that but.
We also had some terms at the beginning of the year. So next quarter I will reap the benefit of that so it should even itself out around the number that you see there.
And in terms of loans, which are our maturing or repricing and I know I know you've talked about this.
Our.
At the federal home loan borrower.
Borrowings, which are probably going to reprice up when they mature but.
Hmm.
Would you.
Alright.
Speaker Change: How does that.
How are your loan repricing over the next couple of quarters.
Hopefully offset some of that.
That increase.
Essentially increased our cost.
Well first we'll pay off the home loan bank advance, we're not going to renew it.
And.
I think.
Liability costs will determine the direction of margin as more than a repricing.
Do you have any like yeah, we have about $200 million of loans that reprice every quarter and they will reprice.
You now.
A couple of hundred basis points likely but as Tom mentioned I still think that it will be overwritten by the increasing deposit costs.
And these are the these are.
These are the these are something which are I guess rolling over from what from like two and a half for 3% up to four four and a half four five is that it or or what.
You said in prior quarters, we've run through most of that repricing and we were probably the top of the ninth inning in terms of that repricing up.
It is.
Well now I was going to just I think some of it is just with the regular money market type accounts, where there is a variable rate there.
As opposed to Cds and.
It just depends on the interest rate environment with Cds.
Speaker Change: Where they are coming off and where their.
Now being renewed but that.
I don't know that I ever said anything about that being in the ninth inning, but we've certainly been through a lot, but they got you now.
As they mature I mean, they tend to be relatively.
Yeah.
Short to intermediate term that we now we don't have you now three to five year type Cds. So if you say one year or 18 months being.
Being the.
The longer ones then.
They do come up periodically.
And.
They kind of reprice you now we try to price in the middle of the market.
But given the liquidity pressures that a lot of banks the.
You know the competition has been pretty steep.
So I think as Karen said I think the.
The likelihood is that.
You now the two factors on both sides of the balance sheet, what kind of fight each other and then the short run.
Deposits reprice faster.
Than assets.
And depending on where interest rates go.
Now it could be pluses or minuses.
We do you now with our liquidity, we kind of do get the benefit of.
Of Oh right.
Speaker Change: In higher at this point I think the now.
Speaker Change: A negative as we've kind of discussed.
About my time here.
Sterling was always now.
Funded more thrift like.
Speaker Change: And we didn't have a lot of transactional demand deposits are.
Lower cost deposits. So you know we've been trying to build that.
From virtually nothing.
Two more moderate the total cost of funds, but that is.
Now that's a work in progress, but we've had some good success.
And just one last question I know you have plenty of equity capital.
<unk>.
Speaker Change: With the stock trading below $5 would you ever consider buying back shares or are you in a blackout period with with that possibility or.
There is theirs.
Compelling reasons to do buybacks obviously.
There are strategic reasons, why we shouldnt or can't.
Okay.
Okay.
I'll leave it at that.
Okay.
Thank you for the time I greatly appreciate it yeah.
Good to hear from you.
Yeah.
Again, if you have a question. Please press Star then one now.
Next question comes from Anthony Pelini with American Capital Partners. Please go ahead.
Hey, Tom Hey, Karen.
How are you I haven't heard from you in awhile.
He has been on the Webcasts, mostly now okay.
It's tough when you get outraged huh.
[laughter] and you're doing such a great job now Oh, I hope you're almost done I wish you got the New York community gig.
Would do probably a better job and get a hell of a lot more money.
But uh huh.
Thank you.
Speaker Change: I always been a big fan of yours.
One little you might have.
I mean, it's it's the stories all here you know, it's just a question of when certain things fall into place that are actually largely out of your control at this point.
But as far as those Doj legal costs.
Any more expenses I guess from the regulatory side are we talking about baskets up a $100000 potentially is that is that what we're looking at.
But it's really hard to predict but.
It really depends on.
Speaker Change: What action, the Doj takes and whether it's a.
I'd like to finish or everybody kind of agrees to.
Settle out and.
You know Theres no further effort.
The extent of what we might be.
Inclined are presented with would be legal costs for a small handful of people who could potentially be called as either witnesses or you know for information hearings.
With the with the prosecutors.
Don't know when or if that will happen hard to predict the cost, but as I said.
Speaker Change: In the scheme of things.
It wouldn't be material.
Okay.
Turning now penalties they would pay them not back now.
There is nothing no nothing for us because it does not involve the company or the bank.
And it's just for individuals who we advanced our legal fees for who are in.
Employed at the time, who are.
Speaker Change:
Aware of and witnesses to certain conduct and behaviors.
Okay, and I really only had one other area and that's really why you kind of Miss down number.
And I understand the conservative attitude and.
You have capital, but you also have.
One could argue excess reserves now.
It took 6 million out of your reserves.
Still have a.
Well a reserve to loan ratio above 175.
Is it just a question of when is it a timing issue.
I was surprised there wasn't I'm, telling you the melanoma have released this quarter.
Speaker Change: Yes, I mean, we have a.
You now are fairly conservative model I, probably should take out the word fairly.
For good reason I think.
Well you know I mean, if you look around the industry Youll see kind of all sorts of the reserve.
Speaker Change: Our reserve levels.
Speaker Change: My own opinion.
If youre not at 1%, you're you're kidding yourself in your.
Hitting your investors.
Speaker Change: Now I'd say.
Just optically one and a half is probably the right level for.
The vast bulk of the the industry.
We do keep the Ars higher.
You know I don't know Hell.
Yes, we could keep it higher.
So there's probably room.
The credit profile has dramatically.
Dramatically improved.
But again, we kind of mark that on a very.
Cautious basis.
Speaker Change: And.
We'll probably continue to do so but I do now.
I guess I would personally be surprised it came.
Came a little closer to.
Now on to.
The levels you mentioned.
Over the course of the next few quarters.
Okay. I mean, it just seems logical it's not that you have a whole lot to do with the extra money right now either right now.
You now know you're not really growing the balance sheet you now.
Yeah.
It doesn't seem to be.
Speaker Change: Tom will you need to leverage up so to speak.
You're sitting on the cash.
Either in equity or in reserves.
Yeah, I mean, I honestly I think those are our strengths are what makes sterling.
Attractive today from a a lot of perspectives.
Speaker Change: Now the price of the stock Distresses me, but.
But whole bunch of other ones, but I look at distressed me too.
Speaker Change:
Speaker Change: I think the market is going to have to digest.
What's going on and.
A lot of these are these balance sheets and the.
And that's why I said you know it's.
It's silly in my view to try to defend their very low.
Speaker Change: Allowance today, because one way or the other coming out of your stock price. So.
Speaker Change: My advice to most of the banks that are below 1% would be just too.
Speaker Change: To bring it up because the market is doing that to you anyhow and how it is.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Now onto our aren't bad yeah, we have the good multifamily loans, we were not.
Speaker Change: I believe I've been saying that for a couple of years that was that was.
Speaker Change: That was due to happen, it's just a question of when but.
Speaker Change: But that market is suspect.
Speaker Change: I mean now something even if you are right it doesn't matter from a stock price standpoint, it doesn't matter now what do you or whether you're right or wrong, you want to trade at 40% of book Fair to 40% of book and keep you are now.
Speaker Change: Allowance for loan it doesn't matter, yes, but you know at the end of the day, if if you're right and you've never needed it take it back.
Speaker Change: Please.
Speaker Change: It's not lost to eternity.
Speaker Change: I would suspect in that particular product.
Speaker Change: There's a lot of pain to come over the next couple of years.
Speaker Change: Well I think youre sitting on the balance sheet strong right.
Speaker Change: I just wish I could see what to do with the money I mean, you can leverage those reserves.
Speaker Change: Are there certain reserves you can leverage your excess capital.
Just got to find a missing ingredient I guess, the one thing that's missing now as that business plan what to do you now because you have I think the raw fundamentals and the balance sheet to grow from here or grow into what is.
Here's the question now that.
I don't see that.
Yeah.
What we talk about here all the time, but it is the unfortunate consequence of having a mono line business all those years and when the mono line turned out to be.
Illegal.
All of a sudden you have no business.
And so whatever we do.
That context would require a.
And investment in systems controls people.
Client acquisition.
Speaker Change: And you know a relatively long startup period, so it becomes.
Yeah.
Speaker Change: That kind of a challenge.
Don't relish, the idea of going to shareholders and saying by the way we're going to spend.
You now a fairly large amount of money.
Building a business that we've never done.
Speaker Change: And.
And now the residential lending businesses.
Yeah.
And at least in my view not prudent to tie risk gets.
Makes an awful lot of.
Controls and compliance costs and.
You know the returns are modest.
And the multiples in the market or as low as they come so.
That's what we struggle with it.
Now we struggle with.
Yeah.
Kind of.
Reinvent the bank or you know where to reinvent it.
Yes.
And if it was a different market it would be an easier conversation.
Yeah, I mean now.
Got it okay. Yeah. So I don't expect you to go out and buy a private banking team.
Now youre not going to see us do that.
Or have you been doing a great job and I appreciate the time and are you counting thank you.
Okay.
Yep.
We have a follow up question from Ross Haberman with <unk> investments.
Please go ahead.
Ross Haberman: John just one follow up question regarding the non accruals the $9 million.
Well you can resolve those over the next quarter or two or three.
Yeah, they're they're they're I think they're 100% residential and.
Roughly half of them are.
Paying and current.
Oh, okay, but they've been they've been slow pace.
So I think it's safe to say there was theres no big issue Windows are.
Probably argue there's probably no loss content.
And the ones that are current and paying kind of work their way back into oil.
Performing over at least six months of Oh.
Steady payments.
And the other is I think we've got maybe two that are in foreclosure.
Three three that are in foreclosure.
But unlike New York, California is not a judicial foreclosure states. So they actually move relatively quickly.
And our experience has been that.
Ross Haberman: We never get to the point of the foreclosure sale that at some point.
And it may be immediately before the shale alone satisfies or somebody buys a salad or whatever but.
So that's why I said I don't.
The commercial portfolio.
Basically based on what we did previously is fine.
Fine I mean theres no delinquencies.
Of any significance there and that's.
That's pretty pristine in the residential is is what it is but.
Ross Haberman: Now I'm not worried about benign.
What is that okay.
And anything in the delinquency bucket or the criticized that that you're losing sleep about.
Ross Haberman: Now we you know I'll tell you we had one.
Old construction loan out and.
South San Francisco that now wasn't that was like $4 million to $5 million or so but I.
I would tell you that was one that for the last year.
Year or two.
When I'm out there I go look at it and I had a I didn't have a great feeling about it but the.
Ross Haberman: Yes.
And it was very slow coming to fruition, but the builders now got I.
I think three or four contracts.
Prices I.
Orange.
I can't believe it but.
Ross Haberman: Hum.
So it looks like we're fine but that was that was the one I was concerned about.
Ross Haberman: And we had.
A couple of criticized or classified loans.
You now are there for more technical reasons, you now one case theirs.
Oh, probably one or two cases there.
A small shortfall under debt service coverage, what the dollar amount is not significant.
And.
Now I think we're pretty.
Cautious and conservative on a room.
Ross Haberman: On our risk ratings and.
Yes.
Oh. Thank you now unlike the first year or so I don't think we're getting any big surprises anymore.
Uh huh.
And frankly most of the now.
A good part of the the legacy loans are.
They're either very well she's now or are they paid off.
So one final technical question I was looking at the 10-K and I was looking at that note, where you show the mark to markets on all the assets and liabilities that you had a very small mark on your loan I think it was five or 6 million Bucks.
Generally do you put much credence into that.
But no way.
But whether you're your banks or any other ones I'm just curious how do you look at that note for your bank the Mark and any other one do you put much credence intuit or again, it's a it's a snapshot in time no no bank is going to sell their whole loan book in one fell swoop I was just wondering how you look at that.
Well that data point, Yeah, I would say you know.
It's a data point.
It's a reasonable estimate.
You know in our case I think from a yield perspective.
That's pretty much how you'd get there.
From a performance perspective.
So I would say the economics, probably support it.
And you execute at that price either way, you now plus or minus side.
I don't know, but.
I think.
It is a good measure, though whatever the embedded.
Interest rate risk is now if youre looking at.
You now mostly adjustables and.
And low.
Loan to values.
And in case of residential owner occupied and things like that yeah.
That tells you it's like a like a bond portfolio if.
If it's if it's if it's down 20%. Today, then you know you've got a lot of duration risk you don't have to look.
At the individual.
Securities and if its you know if it's down 7% or something that's you know it's probably.
Market sensitive then.
That's the product of rates going up as quickly as they did.
Okay I can again I appreciate the help thank you very much.
Yes.
This concludes our question and answer session I would like to turn the contract conference back over to Tom O'brien for any closing remarks.
Okay, well. Thank you all for joining us so let's hope spring is here at least in the.
Tom O'brien: Midwest and northeast.
Overdue and well look forward to being with you in July thanks again.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.