This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: 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.
spk03: 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.
spk01: 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.
spk02: Hey, guys. It's actually Justin Crowley filling in for Nick this morning. Good morning, Justin. So, I wanted to start with expenses. So, just given the resolution with the OCC that you had alluded to and that's been disclosed, can you sort of share with us how you're thinking about that reduction in professional fees that we saw? And then, to the extent you can, maybe quantify your expectations for sort of a near-term run rate, just more broadly on expenses?
spk03: That, Justin, is a real challenge. I hear you. The timing, of course, impacts that dramatically. So the longer it goes on, the more we'll spend. The end of the OCC investigation plus the conclusion of the formal agreement will help reduce the expenses we had in that civil process. And then as soon as the DOJ is done, obviously, you know, there will undoubtedly be a penalty associated with that. We don't know what it's going to be, not even a clue. So, you know, we'll continue to have some legal and professional expenses with respect to that. but I'd be reluctant to put a number on it or a percentage other than we're doing our best to make it include as quickly as possible. Sure. It seems like every time I, I, I think they're going to go down, you know, they go down for a quarter or two and then the next quarter they're up. So, you know, more often wrong than right on my estimates there.
spk02: Got it. Yeah. Pretty hazy crystal ball. I totally understand. Um, And then I guess moving on, so you noted in the release, you spoke a little bit on it earlier, but the variable rate sub-debt contributing in part to the upward move in liability costs that you referenced. I just wonder, given this real strong capital position, is there any sort of potential to pay this down just to alleviate some of the funding pressures that you guys know and that are certainly impacting kind of everybody in this environment?
spk03: I would do it in a heartbeat if I were able, but the liquidity at the holding company is different than the liquidity at the bank, and I can't get that much money up to the holding company or even a fraction of it at this point in time. But obviously, the sooner I can, the better, and it is particularly painful right now.
spk02: Sure. And so I guess I don't want to put words in your mouth, but in the near term, sort of unlikely by the sounds of it?
spk03: I would say in the near term, unlikely.
spk02: Yes. Okay. And then just one last one for me. Can you just remind us how much remains in the mortgage repurchase liability allowance? And then sort of where you stand with respect to future or further purchases?
spk03: I can tell you that the balance of the loans sold to others has dropped dramatically with our purchase of the $35 million in the quarter. And keep in mind, when I joined the bank, I think it was around $800 million. And I'll let Karen speak to the reserve and what's outstanding.
spk00: Sure. So in terms of Advantage Program loans, There's only $45 million left outstanding. We don't expect that we will be repurchasing those loans, although we still have an agreement where one of the investors could still request that we do so. So to that end, we still have a modest, just over half a million dollars reserved in case they do pull the trigger on that agreement. And then we just have a small amount for our agency loans that's insignificant.
spk02: Okay, perfect. That's super helpful. I will leave it there, guys. Thanks so much for taking my questions. Sure. Thanks, Justin.
spk01: And once again, as a reminder, if you would like to ask a question, please press star then 1. And again, pressing star then 1 will allow you to ask a question. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks.
spk03: Well, you made it very easy on us today. Hopefully we answered all your questions in the press release and in the opening remarks. assure you that we continue to push forward and, um, move to successful resolution of all the remaining issues that, uh, we've had to deal with. And, um, you know, we never obviously forget the, uh, the interests of our, uh, public shareholders and our, all of the stakeholders and the, uh, ultimate success of Sterling. So, um, with that, enjoy your Halloween and, um, We'll look forward to talking to you at the year-end call. Thank you.
spk01: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation.
Disclaimer