Sterling Bancorp, Inc.

Good afternoon, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the first quarter ended March 31, 2022. 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 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 of Sterling Bancorp that involve risks 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? Tom O' Great.

Thanks very much, and good afternoon, everyone. Welcome to our first quarter call. As you saw this morning, we announced earnings of $5.3 million, or 10 cents a share. You know, there was kind of the typical, you know, noise within the quarter that you've seen in the last four or five quarters anyhow. But the trends continue to be in the right direction, and I think we're feeling better about that. The margin got a nice boost as rates moved up a little bit, and we continue to shed some high-cost funding. So that's a big surprise for us and a big change from where it was a year ago. So at 303, we're... I think last year at one point we were like in the high 250s, so it's a good improvement in what we were hoping for with higher rates. We did have a recovery in the loan loss provision. Basically, improved credit quality continues to drive that. Capital continues to be quite strong. Loans and deposits, you know, moving more towards where we want them to in terms of the deposits to, you know, more transaction, lower cost deposits, less of the heavy reliance on CDs that the bank had historically had, and loans in the advantage portfolio, but also in the commercial portfolio continue to pay down. So the, you know, I'd say the concern I expressed in 2021, especially with respect to the commercial portfolio and the credit risk inherent in that has been significantly reduced in the last several quarters, predominantly by the great work in our credit department and by the sale of $62 million of what were the toughest loans in there, the single room occupancy hotel loans, I guess I'd call them, in San Francisco. And that was, at least in my view, a very successful sale and done quickly and efficiently. The non-performing loans now are down to $46 million. And as I mentioned in my quote in the press release, $16 or so million of that includes Advantage loans that are, at some point in the coming year, likely to be restored to Advantage. performing status. So, again, you know, I think we're all feeling a little bit better about the credit risk. And a lot of that, you know, the market in, especially in residential real estate for some of the construction projects we've had has, you know, frankly bailed out a couple of deals that were pretty thin. So, you know, we'll take that help where we can get it. And as I mentioned just a minute ago, the sale. Quarter also saw some continued and I think pretty significant improvements in a lot of the regulatory milestones that we had set out last year. Most notably, I think most of the regulatory items are moved into a position where we've got to just show sustained performance and competency. accomplished the foundational work of addressing the multiple issues that were in the formal agreement and which we've been working on pretty dramatically over the last six months. So that is good. I also mentioned in the report that we've begun some of the preliminary conversations with the regulatory enforcement side and with the DOJ criminal side. There's not much more I can say about that other than that we will continue to move that as much as we can in an expeditious manner. Our conversations to date have really just been laying the groundwork for what the issues are. how long they went on, what the magnitude was. And, you know, there's really no economics that I can speak to other than what is in the 10K and what will be in the 10Q. But I'm hopeful by the time we have the third quarter call that we'll be a lot more definitive on where we all stand. And as I've mentioned I think several times in the past, there's kind of two competing interests. in this conversation as it respects Sterling institutionally. One is that we have provided an enormous amount of effort and work and expense to remediate the issues, but also to investigate and identify the issues and the individuals who created the problem and who led the bank down the wrong path. And that has been dramatic in, I think, anybody's estimation. We've provided full cooperation, and I think that will certainly work in our favor. And the negative, as you all know, is that this went on for a fairly long period of time, and the volumes were fairly substantial. So those are, you know, I guess what I call the competing interests. And we'll have conversations about those in the in the weeks ahead, but that's kind of what I see at the moment. The rest of the story within the bank, again, things like asset quality and margin and all that are just going the way we had hoped. The continued increase in rates will likely have a further beneficial impact on us, although we'll, you know, I guess as most banks, we'll get some, you know, write down on the securities portfolio as rates move higher. But we're invested in a relatively short-term manner, so, you know, it really isn't going to be dramatic and gets recovered with maturity, so not a big concern there. You should also note we added two new directors at the bank and – or at the holding company. I'm sorry, not at the bank. And at the bank, that will be subject to the OCC's non-objection, which we should have hopefully in – well, they have up to 90 days, and let's hope it's not that long. But they are seated on the bank board now, and they will be up for – election at the shareholder meeting, which is upcoming in a couple of weeks. And I'll just note with respect to the shareholder meeting, there are several governance improvements items on there that I recommend to everybody. They are things we would, in the normal course, consider to be contemporary good governance measures and actions several of those are related to the derivative settlement and You know, we'll move things like, you know the annual election of directors and As you also know previously I can last year around this time we had already established a separate risk committee and an ethics and compliance committee and things things that at least in my view the institution was in need of to to meet today's governance expectations of our investors. So that's, I think, enough for me to say on this. As always, it's probably easier just to take questions and hear what's on your mind. So operator, if you can open it up for questions, I'll be happy to answer. And what I can't, Karen can pick up.

Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Nick Cusciarelli with Piper Sandler. Please go ahead.