Q2 2024 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 second quarter, ended June 30, 2024.
Operator: Financial Results for the second quarter ended June 30th, 2024. 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: Joining us today from Sterling's management team are Tom O'Brien, Chairman, CEO , and President, and Karen Knott, Chief Financial Officer and Treasurer.
Operator: Tom will discuss the second 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 of Sterling Bancorp and the banking industry generally, which involve risk and uncertainty. For a complete discussion of forward-looking statements and factors that could cause actual results to differ from those two statements, the company encourages all participants to refer to its SEC filings, especially those on Forms 8K, 10Q, and 10K and the press release issued in conjunction with this conference call, which applies to any forward-looking statements made on this call.
Speaker Change: Tom will discuss the second quarter results and then we'll open the call to your questions.
Operator: 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 directly comparable GAAP measures. The press release available on our website contains the financial and other quantitative information to be discussed today, as well as reconciliation of GAAP to non-GAAP. At this time, I'd like to turn the floor over to Tom O'Brien.
Speaker Change: 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 and the banking industry generally that involves risks and uncertainties.
Speaker Change: For a complete discussion of four looking statements and factors that could cause actual results to differ from those two statements.
Speaker Change: The company encourages all participants to refer to its SEC filings, especially those on Forms 8K, 10Q, 10K, and the press release issued in conjunction with this conference call, which applies to any forward-looking statements made on this call.
Speaker Change: 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, or the directly comparable GAAP measures .
Speaker Change: The press release available on our website contains the financial and other quantitative information to be discussed today, as well as reconciliation of the GAAP to non-GAAP measures.
Speaker Change: At this time, I'd like to turn the floor over to Tom O'Brien. Tom?
Unknown Attendee: Okay, thank you, and good morning everyone. Welcome to our second quarter. Earnings Call. So I'll start basically by saying the second quarter was. This is the continuation of what we have seen in recent quarters. We are operating essentially at a break-even level, plus or minus a few pennies each quarter. Our capital and liquidity continue to remain strong. Notable during this quarter was the final maturity of our last. Wholesale funding. The $50 million dollar home loan bank advance was called during the quarter.
Unknown Attendee: Okay, thank you and good morning everyone. Welcome to our second quarter.
Unknown Attendee: earnings call. So I'll start basically by saying the second quarter was
Speaker Change: The continuation of what we have seen in recent quarters.
Speaker Change: We are operating...
Speaker Change: essentially at a break-even level plus or minus a few pennies each quarter.
Speaker Change: Our capital and liquidity continue to remain strong. Notable during this quarter was the final maturity of our last wholesale funding.
Unknown Attendee: That brings to an end what were various forms of wholesale funding that we had on the balance sheet here some years ago, including, you know, brokered, listing deposits, these kinds of advances, and some above-market CDs at over a billion dollars a few years ago. So now we essentially are looking at deposit funding in the bank with nothing wholesale, nothing out of the ordinary course of what you expect to see in a Bank Deposit Portfolio.
Speaker Change: The $50 million dollar home loan bank advance was called during the quarter and
Speaker Change: That brings to an end what were various forms of wholesale funding that we had on the balance sheet here some years ago but including you know brokered
Speaker Change: listing deposits, these kind of advances, and some above-market CDs.
Speaker Change: Unknown Attendee that take Unknown Attendee
Speaker Change: at over a billion dollars a few years ago. So now we essentially are looking at
Speaker Change: or deposit funding in the bank with nothing wholesale.
Speaker Change: Unknown Attendee
Speaker Change: Bank Deposit Portfolio.
Unknown Attendee: Expenses are finally peaking and trending in the right direction, the result basically of some cost-cutting that we did in the beginning of the year and then additionally a reduction in fees and expenses related to all the different investigations that have been going on here since 2019. As we noted in the press release, it appears that we are done with all of the investigations and the costs related thereto. Since the Department of Justice notified us during the quarter that their investigation is now closed,
Speaker Change: Expenses are finally peaking and trending in the right direction.
Speaker Change: The result, basically, of some cost cutting that we did in the beginning of the year, and then additionally the reduction in fees and expenses.
Speaker Change: As we noted in the press release,
Speaker Change: It appears that we are done with all of the investigations and the costs related there too since the Department of Justice notified us during the quarter that their investigation is now closed.
Unknown Attendee: The time invested and the money spent by the company over the last four years to complete these investigations has been painful, as you all know. Unfortunately, in our system of justice, the price tag for the activities of individuals is all too often visited upon the company, and we have paid fairly. But more importantly, we continue to focus our efforts on the strategy that we have outlined over the last several quarters. Our strategies and objectives remain the same. We have, No, look at that variety of alternatives.
Speaker Change: The time invested and the money spent by the company over the last four years to complete these investigations
Speaker Change: It has been painful, as you all know. Unfortunately, in our system of justice,
Speaker Change: The price paid for the activities of individuals is all too often visited upon the companies.
Speaker Change: and we have paid fairly.
Speaker Change: But more importantly, we continue to focus our efforts on the strategy that we have outlined over the last several quarters.
Speaker Change: Our strategies and objectives remain the same.
Speaker Change: Unknown Speaker No, looked at, uh,
Speaker Change: A variety of alternatives, we continue to do that and
Unknown Attendee: We continue to do that and try to find ways to position the bank to be able to grow and prosper in the periods ahead. I think, you know, we kind of outlined the various strategies that we would consider. And these calls are public filings, or Press Releases.
Speaker Change: Try to find ways to position the bank.
Speaker Change: to be able to...
Speaker Change: to grow and prosper in the periods ahead. I think, you know, we kind of outlined the various strategies that we would consider.
Speaker Change: And these calls are public filings, are press releases.
Unknown Attendee: Unknown Attendee, Walter Bertke, Sterling Bancorp Inc. These tend to be a little bit chaotic given the nature of the market over the last year, but you know, there does appear to be, as I noted in the press release, some continued buying in the market and, and some greater regulatory certainty as to what the future holds for the industry. I think, you know, the formal end of these investigations and, as an additional matter, helps remove clouds of uncertainty that have surrounded the company in addition to the cost and the time efficiencies that, you know, should help us going forward.
Speaker Change: These
Speaker Change: These tend to be probably a little bit chaotic given the nature of the market over the last year but you know there does appear to be as I noted in the press release some
Speaker Change: Continued thawing in the market and and some greater regulatory certainty as to what
Speaker Change: Unknown Attendee
Speaker Change: I think, you know, the formal under these investigations and as an additional matter.
Speaker Change: Unknown Attendee
Speaker Change: In addition to the cost and the time efficiencies.
Speaker Change: Unknown Attendee
Unknown Attendee: I think the general direction of both Sterling and the industry probably will be helped. Assuming there's one rate cut this year, maybe as we get into September, there seems to be momentum in that direction. But that, you know, whether it's that meaningful or not in the scheme of things, I think it does help put an end to the speculation as to whether rates will stay at this elevated level where they go higher or will they, you know, be gripped a little bit lower. So, you know, I think the momentum towards lower rates, obviously, would be helpful.
Speaker Change: maybe as we get into September . There seems to be momentum in that direction.
Speaker Change: Unknown Attendee
Speaker Change: will rates stay at this elevated level where they go higher or will they?
Speaker Change: Unknown Attendee
Unknown Attendee: In terms of our margin, the, and again, as I noted in the press release, the cost of liquidity is relatively high. Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc., And, you know, the residential continues to pay down pretty aggressively, and I suspect that will continue on a, you know, kind of a similar path, month-to-month and quarter-to-quarter. We are not originating any residential loans and have no plans to do so.
Speaker Change: obviously would be helpful in terms of our margin the
Speaker Change: And again, as I noted in the press release, you know, the cost of liquidity is relatively high.
Speaker Change: Unknown Attendee
Speaker Change: And, you know, the residential continues to pay down pretty aggressively, and I suspect that will continue.
Speaker Change: on a, you know, kind of a similar path month to month and quarter to quarter. We are not originating any residential loans and have no plans to do so.
Unknown Attendee: And we will, you know, continue to look at commercial opportunities as they come along. But again, it's a market for us in particular to be cautious in and to be mindful of what our charge is here. And it's, you know, continue to state protect the book value and the integrity of the balance sheet and put us in a position to take advantage of opportunities that may present themselves over the coming months and quarters.
Speaker Change: And we will continue to look at commercial opportunities as they come along. But again, it's a market for us in particular to be cautious in.
Speaker Change: and to be mindful of what our charge is here and continue to state, you know, protect the book value and the integrity of the balance sheet and put us in a position to...
Speaker Change: Take advantage of opportunities that...
Speaker Change: that may present themselves over the coming months and quarters.
Unknown Attendee: So, you know, again, I don't think there will be too much difference in the quarters ahead in terms of financial performance. Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc., pretty mild for us. Reserve levels continue to be very healthy.
Speaker Change: So, you know, again, I don't think.
Speaker Change: too much different in the quarters ahead in terms of
Speaker Change: Financial performance.
Speaker Change: I think, you know, credit conditions, they...
Unknown Attendee: The, the industry in general, continues to see weakness in office and in some overbuilding areas and multifamily and then, of course, in the Metro New York area with the Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc., and probably will continue to experience a considerable degree of pressure as the values there have just been hammered. So with that, probably the easiest of. I take some questions and see what's on everybody's mind. So, operator.
Speaker Change: The industry in general is, you know, continues to see weakness in office and in
Speaker Change: Some overbuilding areas in multifamily and then of course in the metro New York area with the regulated multifamily is experienced and probably will continue to experience a
Speaker Change: considerable degree of pressure as the values there have just been hammered.
Speaker Change: So with that, probably easiest to...
Speaker Change: I take some questions and see what's on everybody's mind.
Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and then 1. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: Co-operator.
Speaker Change: Ladies and gentlemen, at this time we will begin the question and answer session. To ask a question, you may press star and then one. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality.
Operator: Which are your questions? You may press star and then one to join the question queue. We'll pause momentarily to assemble the roster, and our first question today comes from Ross Haberman from RLH Investments. Please go ahead with your question.
Speaker Change: Whichever your questions, you may press star and two.
Speaker Change: Once again, that is star and then one. Join the question queue. We'll pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from Ross Haberman from RLH Investments. Please go ahead with your question. Good morning, Tom. Tom, how are you? I'm doing well. Always good to hear from you.
Ross Haberman: Good morning, Tom. Tom, how are you? Um, I'm doing well. Always good to hear.
Unknown Attendee: Unknown Attendee Um, the legal and compliance costs. How much of that was in the $2.1 million of professional fees for the quarter? (inaudible) I'm going to ask Karen to answer that.
Speaker Change: The legal and compliance costs
Ross Haberman: How much of that was in the $2.1 million of professional fees for the quarter?
Speaker Change: Unknown Attendee
Speaker Change: Let me start that. Okay, I'm going to ask Karen to answer that.
Karen Zaborney Knott: So, in terms of legal fees, there was about $1.3 million. The other professional fees were around $800,000. There wasn't too much noise in terms of the investigation, but there were a couple hundred thousand related to those matters.
Unknown Attendee: So, in terms of legal fees, there's about 1.3 million; other professional fees around 800,000. There wasn't too much noise in terms of the investigation, but there were a couple hundred thousand related to those matters. So that should be going away.
Speaker Change: Unknown Speaker
Karen Zaborney Knott: So, in terms of legal fees, there was about $1.3 million. The other professional fees were around $800,000. There wasn't too much noise in terms of the investigation, but there was a couple hundred thousand related to those matters.
Ross Haberman: So that should be going away. So that number should have should be going down by an average of. What about a million and a half and a quarter?
Unknown Attendee: So that number should have should be going down by should average water around a million and a half a quarter. Maybe more like a million eight or so, at least through the next couple quarters.
Speaker Change: So that should be going away. So that number should be going down, should average what, around a million and a half a quarter?
Karen Zaborney Knott: Maybe more like a million eight or so, at least through the next couple quarters.
Speaker Change: Maybe more like a million eight or so, at least through the next couple quarters.
Ross Haberman: and was there any other sort of I guess what will be fewer recurring items besides that, that couple hundred?
Unknown Attendee: And was there any other sort of, I guess, what will be less recurring items besides that, that couple hundred thousand going forward.
Speaker Change: And was there any other sort of...
Speaker Change: I guess what will be less recurring items besides that, that couple hundred thousand going forward.
Karen Zaborney Knott: within that category or just in general? No, because they're not. They're not a non-interest expense. Karen Knott, Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc.
Unknown Attendee: Within that category or just in general, because that's not, that's not it. There wasn't really too much other noise in the quarter; it was pretty quiet.
Speaker Change: Within that category or just in general? Within the non-interest expense.
Speaker Change: There wasn't really too much other noise in the quarter. It was pretty quiet.
Ross Haberman: Okay, um... [inaudible] Seeing Tom, I guess... What are you seeing on the... on the roll-off of your loans? If we do see a drop-off in rates, say, a quarter in September, then another quarter in, say, December, for argument's sake. Do you think that he can reach her or, um..., and will that will that be will that help your March and it produced a two-quarter weight drop? Yeah, well, the question I always have in this context is, you know, do we see a one-half point drop?
Speaker Change: Okay.
Speaker Change: Okay.
Unknown Attendee: Seeing time, I guess.
Unknown Attendee: Seeing Tom, I guess...
Unknown Attendee: What do you think on, on, on roll walks off of your loans.
Unknown Attendee: What are you seeing on the...
Unknown Attendee: on roll-off of your loans.
Unknown Attendee: If you, if we do see a drop off in the rates, say quarter in September, then another quarter in say December for argument six.
Speaker Change: If we do see a drop-off in rates, say, a quarter in September , then another quarter in, say, December , for argument's sake.
Unknown Attendee: Do you think this is a review or. And, and will that, will that be, will that help your margin if we do see two quarter weight loss.
Speaker Change: and and will that will that be will that help your margin if we do see two quarter weight drops?
Unknown Attendee: And well, I, the question I would have in this context is, you know, do we see one half-point drop in September. To put a bigger statement in terms of the decline rates or, as you mentioned, to one quarter point drops, but I think that's the magnitude of what we're talking about.
Speaker Change: Yeah, well, the question I always have in this context is, you know, do we see one half point drop?
Unknown Attendee: September-ish. Unknown Attendee, Karen Knott, Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc. Unknown Attendee, Karen Knott, Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp, on the residential because virtually all of them are in the... Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc., and the level of prepayments there. There's some seasonality to it, but generally, it's been maintained at, on a percentage basis, similar levels, quarter-to-quarter during my tenure, and the performance really hasn't changed much. I don't know that.
Speaker Change: and
Speaker Change: September-ish, to put a bigger statement in terms of the decline in rates, as you mentioned, two one-quarter point drops, but I think that's the magnitude of what we're talking about. I don't see any real change in our prepayment levels because
Unknown Attendee: I don't see any real change in our pre payment levels because on the residential because virtually all of them. Our in the adjustable periods now, so they, you know, all had the payment changes. And the level of prepamence there. There's some seasonality to it, but generally it's been maintained at, on a percentage basis, similar levels quarter to quarter during my tenure here. And, you know, the performance really hasn't changed much, so I. I don't know that I'd expect to see much greater in the way of prepamence, but prepamence are.
Speaker Change: on the residential because virtually all of them are in the adjustable periods now so they you know all had the payment changes.
Speaker Change: and the level of prepayments there.
Speaker Change: There's some seasonality to it, but generally it's been maintained at on a percentage basis, similar levels.
Speaker Change: quarter-to-quarter during my tenure here.
Speaker Change: The performance really hasn't changed much.
Unknown Attendee: I'd expect to see much more in the way of prepayments, but prepayments are, you know, pretty significant in that portfolio. On the commercial side, I think it'll really depend more on the availability of credit to see if there are going to be, you know, more banks stepping into the market, and lower rate opportunities, but That might be a little bit. So I don't I don't expect to see much on that. I do think, as we reprice liabilities, we begin to help margin, and any any large expenditures expected over the next quarter, two or three, or or everything will be basically similar let's you know what your ongoing legal matter was.
Speaker Change: I don't know that, um...
Speaker Change: I'd expect to see much greater in the way of prepayments, but prepayments are.
Unknown Attendee: You know, pretty significant in that portfolio on the commercial side.
Speaker Change: I think it'll really depend more on the availability of credit to see if there's going to be, you know, more banks stepping into the market.
Speaker Change: to provide lower rate opportunities. But I think that might be a little bit slow coming. So I don't expect to see much on that. I do think, you know.
Speaker Change: lower rates as we reprice liabilities would we begin to help margin.
Speaker Change: Certainly.
Speaker Change: and and any any large expenditures expected over the next quarter two or three or or everything will be basically
Speaker Change: similar let's you know the what was your ongoing legal
Speaker Change: expenses.
Unknown Attendee: Our annual merit process takes effect in the third quarter, but other than that, I don't foresee anything.
Speaker Change: Our annual merit process takes effect in the third quarter, but other than that, I don't foresee anything. Yeah, nothing that would be out of the ordinary.
Unknown Attendee: Yeah, but nothing that would be out of the ordinary. I think, you know, over the last couple of years, we were always talking about the quarterly level run rate for expenses, and I think we generally were saying, you know, 14 ish million was probably the right level, and we're gradually getting down there. I think, you know, I mean, there are always a couple hundred thousand things that go, you know, one way or the other, but as a general matter, I don't see anything out of the ordinary here. And just one last question about, uh, Jurassic Quality seems pristine, things, delinquency, or or criticize that's keeping you up at night. Unknown Attendee No, we have. We'll go to the commercial stuff.
Speaker Change: I think, you know, over the last couple of years, we were always talking about the
Speaker Change: Unknown Attendee
Speaker Change: Gradually getting down there. I think, you know, I mean, there's always a couple hundred thousand of things that go, you know, one way or the other, but as a general matter, I don't see anything out of the ordinary here.
Speaker Change: And just one last question about, uh, uh, Jurassic Quality seems pristine. Any...
Speaker Change: things, delinquencies, or
Speaker Change: or criticize that's keeping you up at night.
Speaker Change: No, we have...
Unknown Attendee: The thing that kept me up at night... you know, over the years here, we were sold off a while ago. So, you know, generally, our commercial portfolio has had, for the last several quarters, virtually no delinquencies, or if they are, they're just loans that are matured and going through the Unknown Attendee, Ross Haberman, Walter Bertke, Sterling Bancorp Inc., [inaudible] loans that, you know, I think virtually all of our non-accrual loans at this point are residential. The vast bulk of them are paying in some fashion or another.
Speaker Change: We'll go to the commercial stuff. The things that kept me up at night...
Speaker Change: over the years here were sold off a while ago. So generally our commercial portfolio has been
Speaker Change: at least for the last...
Speaker Change: several quarters you know virtually no delinquencies or if they are they're just loans that are matured and going through the
Speaker Change: Unknown Attendee
Speaker Change: Loans that, you know, I think virtually all of our non-accruals at this point are residential. The vast bulk of them are paying in some fashion or another.
Unknown Attendee: So I think, you know, that'll continue to be a little bit volatile, but on the residential. They're all so well-seasoned that Even I think there are five that are in foreclosure residential or loans that are in foreclosure, and they'll go, they'll go pretty quickly, but today, we've not really lost any money on a residential foreclosure. They're kind of few and far between, and the market improvement because most all of these predate 2020 in terms of their origination. So they, you know, they certainly had price appreciation, especially in the West Coast Market.
Speaker Change: So I think, you know, that'll...
Speaker Change: That will continue to be a little bit volatile, but on the residential, it's...
Speaker Change: They're all so well-seasoned that even I think there's
Speaker Change: There's five that are in foreclosure, residential? Four. Four. Four loans that are in foreclosure.
Unknown Attendee: Today, we've not really lost any money on a residential foreclosure.
Speaker Change: And they'll go, they'll go pretty quickly, but...
Speaker Change: The date we've not really lost any money on a residential foreclosure. They're kind of few and far between and the the equity built up over the years plus the
Unknown Attendee: They're kind of few in part between, and the equity built up over the years, plus the, you know, the market improvement, because most all of these predate their 2020 in terms of their originations. So they, you know, they hadn't certainly price appreciation, especially in the West Coast market. So, you know, I think we're fine there.
Speaker Change: and the market improvement, because most all of these predate 2020.
Speaker Change: in terms of their origination. So they had certainly price appreciation, especially in the West Coast market, so.
Ross Haberman: So, you know, I think we're fine there. Okay, that was most of my questions. Thank you. Yeah, anytime. Thank you. Once again, if you would like to ask a question, please press star and one to withdraw your
Speaker Change: I think we're fine there.
Unknown Attendee: Okay, that was my question. Thank you.
Unknown Attendee: Yeah, any time. Thank you.
Speaker Change: Okay, that was most of my questions. Thank you.
Unknown Attendee: But again, if you would like to ask a question, please press star and one to withdraw your questions. You may press star and two. And a star, and then one to join the question to you.
Operator: Once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. Press star and then 1 to join the question queue. And ladies and gentlemen, at this time, I'm not showing any additional questions. I'd like to turn the floor back over to management for any closing remarks.
Speaker Change: Yeah, anytime. Thank you.
Speaker Change: Once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. Press star and then 1 to join the question queue.
Karen Zaborney Knott: Karen Knott, Unknown Attendee
Unknown Attendee: And ladies and gentlemen, at this time, I'm showing no additional questions.
Karen Zaborney Knott: www.TheBusinessProfessor.com
Karen Zaborney Knott: Karen Knott, Unknown Attendee
Ross Haberman: I'd like to turn the floor back over to management for any closing remarks. Okay, well, thank you for participating today. And Ross always pre-treat your questions. The summer is going by quickly. We will look forward to the third quarter call with you coming up in two short months.
Speaker Change: And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.
Unknown Attendee: Okay, well, thank you for participating today. And, Ross, I always appreciate your questions. The summer's going by quickly. We will look forward to the third quarter call with you coming up in a few months. Again, thank you for your interest and your time, and enjoy the balance of the summer.
Speaker Change: Okay well thank you for participating today and Ross always appreciate your questions.
Speaker Change: Unknown Speaker The.
Speaker Change: Summer's going by quickly. We will look forward to the third quarter call with you coming up in...
Unknown Attendee: And then, thank you for your interest and your time, and enjoy the balance of the summer. Thank you.
Speaker Change: short months and again thank you for your interest and your time and enjoy the balance of the summer. Thank you.
Unknown Attendee: And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for joining. You may now disconnect your lines.
Operator: And ladies and gentlemen, with that, we'll conclude today's conference call.