Sterling Bancorp, Inc.

Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the third quarter, September 30th, 2021. Joining us today from Sterling's management team are Tom O'Brien, Chairman, CEO, and President, and Karen Knott, Chief Financial Officer and Treasurer. Tom will discuss the third 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 that involve risk and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to Tom O'Brien. Tom?

Great. Thank you. Good morning, everyone, and welcome to our third quarter earnings call. I'm joined this morning by our newly appointed CFO, Karen Knott. Karen brings long experience with Sterling to us, and I look forward to working together. So today we reported earnings per share of 19 cents, which was comprised largely of a $6.5 million credit that we received under the CARES Act for employee retention. Sterling's eligible for this credit because we've maintained our employee base without furloughs or layoffs and met the criteria for eligibility, which was revenues down year over year by 20% and fewer than 500 employees. So we expect also to be eligible for a similar credit in the fourth quarter which we think will amount to about 2.2 million. These are employee tax credits and not income tax credits or refunds. But more importantly, we had some improvement in NIM in the quarter, reached 283. We had a decline in operating expenses, excluding the employee retention credit to about 17.6 million. We had been hoping to see some modest decline in OPEX as certain of our remedial projects neared conclusion. Notably, the look-back required by the OCC under the formal agreement is now just about complete, and that represented about a $10 million effort over several quarters. We are also near finality on the securities litigation matters, and that also helps to bring some expenses down. So while the risk of volatile expenses remains elevated, we are working tirelessly to move things along as best we can. The various investigations and supervisory issues confronting Sterling continue to be significant, and we continue to cooperate fully and address those issues under our control as quickly and comprehensively as we can. I believe we have made substantial progress on the matters found in our formal agreement. The system conversion was a huge step in that direction since multiple remedial steps required that successful transition. On the DOJ side, we have less insight into criminal investigations of various individuals. Again, we continue to fully cooperate and be as transparent as we can whenever requested. I continue to believe we'll have some greater insight into these matters as year-end approaches, but resolution from the bank's perspective will not be forthcoming, at least in my opinion, until well into 2022. The credit story in the bank remains, I'd say, pretty much unchanged. We continue to work the commercial criticized and classified list aggressively. NPAs are pretty much unchanged from prior quarter, but as you can see from the tables in our release, the split between the residential and commercial is roughly 40 million each. We have not experienced significant credit losses to date on the residential side, notwithstanding obviously the horrendous costs that we've incurred to remediate the origination fraud that occurred in the past. Also included in the residential NPAs are several loans that are paying but have yet to return to accrual status. As I've noted over the last several quarters, my concern from the credit loss perspective remains centered in the commercial portfolio. We have not seen much in the way of migration into classified territory, and I think we, at this point now, we've properly risk-rated the vast majority of the commercial portfolio. So, again, that's where I think we retain some element of risk in the credit loss side, but we're looking at various alternatives. We've had some success in moving loans out of the bank without incident. We would probably look at some you know, individual or bulk loan sales in the quarter ahead and beyond. And, you know, our goal is to get the number down as efficiently and as quickly as we can with a minimal loss. But as I've said over probably since I've been at the bank, the exposure to loss really, in my view, continues to be heavily centered in that commercial portfolio. So that's kind of the story with the bank for the quarter. We made a lot of progress, probably some of it below the waterline that you don't see or as appreciate as much as those of us who are on the inside can see every day. But fixing the supervisory issues that are found in the formal agreement are really are, you know, one through infinity. We're focused really on nothing else other than clearing those things away as quickly as we can and trying to bring some finality to the supervisory efforts of the difficulties that the bank has. So with that, Operator, I'm through with anything I wanted to say, and maybe, you know, Karen and I can take some – questions from those on the phone.

We will now begin the question and answer session. To ask a question, you may press star then 1 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 require your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ben Gerlinger with the hubby group. You may go ahead. Hey, good morning. Good morning, Ben.