Sterling Bancorp, Inc.

Good morning and welcome to the Sterling Bancorp third quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Tom O'Brien. Please go ahead, sir.

Okay, thank you. And good morning, everyone. Welcome to the third quarter call. As always, I turn your attention to the disclosures regarding our presentation that are available for your review in the 8K. With that, I'll assume everybody has had a chance to look at those and understands them. So in the third quarter here, as I noted in the press release, we've made very good progress on several fronts. There's still a lot of noise. I mean, we recognize that obviously. And with all of that, we're managing a small profit. But notably in the quarter, credit continues to improve. On the commercial side, for the first time in my tenure, there were no delinquencies and no NPAs in any of the commercial portfolio. That was helped in large measure by our sale of $22 million worth of weaker commercial real estate credits, but also we saw a nice decline in the residential non-accruals and delinquencies through both payoffs and some reinstatements. The margin approved to 319 during the quarter helped obviously by higher interest rates that are in the market and our fairly liquid portfolio. But additionally, we had some interest recoveries from loans that paid off in the quarter. Prospectively, I think it's Fair to say liabilities will continue to reprice upwardly. You know, the idle funds from the past several years are, you know, now customers are looking for higher returns and better opportunities. So I think both Sterling and virtually all of the industry will experience, you know, continued increases in liability costs as interest rates continue to move up fairly. fairly aggressively and fairly quickly. Obviously, I think everybody knows we signed a consent order with the OCC right at the end of September. In that consent order, we agreed to a $6 million civil money penalty that was assessed by the OCC for prior bad acts in the old Advantage Loan Program. Simultaneously, the OCC released the bank from the formal agreement in recognition of the significant improvement we have made in the past two years in addressing a very significant level of very severe findings and many violations of law. So both of those, obviously one a little more painful than the other, but both of them are major accomplishments in a relatively short period of time as regulatory enforcement matters go. And then finally, the courts approved the settlement of the derivative shareholder action, and that is now done. So the only remaining outstanding issue for us is the Justice Department and SEC. As I've stated, I think on every call, we have very little viability or liability or, oh God, I'll say that, very limited visibility into the timing of the final resolution. And we continue to work aggressively and have regular conferences with the DOJ. Obviously, we're pushing that as quickly as we possibly can, but it's not something we have very much control over and certainly very, very limited feedback, so I can't provide any estimate of timing or cost. We're just hopeful that, you know, wraps up in the next few months and we can put that behind us. And then that for the, you know, the institution, Sterling Institution, that'll, you know, resolve many, many issues that have been dogging us for quite a long time. Individual actions will continue into the foreseeable future, notwithstanding how the bank settles out. So that's kind of the condition of things in the third quarter. You know, I think for most of us, the year went very quickly. We're now in the final stretches of 2022. And, you know, I think in the two years, I'd I'd say an awful lot was accomplished that really aren't visible to most people. We did a complete transformation of the IT platform, of the BSA and AML platform, of the risk platform, obviously of the credit acceptance and credit management, and obviously have been paying paying the price, you know, in expenses for legal and professional fees to get to this point. And that's another reason the sooner it's resolved, the happier we'll all be. So with that, operator, we can take some questions and go to that.

Thank you, sir. We will now begin our question and answer session. To ask a question, you may press star, then one on your touchtone song. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble that roster. And our first question will come from Nick Cucciarelli with Piper Sandler. Please go ahead.