Sterling Bancorp, Inc.

Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and full year ended December 31st, 2022. Joining us today from Sterling's management team are Tom O'Brien, Chairman, CEO, and President, and Karen Nott, Chief Financial Officer and Treasurer. Tom will discuss the fourth 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 two 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.

Good morning. Thanks, Joe. Welcome again to another quarterly call for Sterling Bank. We're happy to have those of you on the call that could join us. The quarter, you know, not an awful lot of note going on to spend a lot of time on. We had a small loss in the quarter that came out to zero per share, but... As I mentioned in the press release, a lot of the issues that have dogged the bank for the last two years continue to be present in a lot of our financial results. So we'll kind of go through those highlights a little bit here and then take some questions. But, you know, as I said, the loss was $200,000.25. For the year, we made $4 million. The margin at $3.09 in the quarter, obviously better than it was earlier in the year. I think higher rates have helped us on the liquidity return side and with the adjustable rate nature of most of the bank's loans. The subordinated debt at the holding company level is a depressant on the a consolidated margin to the tune of probably a drag of 25 or so basis points. We can't do much to address the subordinated debt until we finish with the governmental investigation. So we'll unfortunately just have to tolerate that as we go along. We did buy some loans during the quarter, not a huge amount, but $31 million. And Karen will kind of go through the interest expense breakdown, but, you know, you'll see we still carry a pretty significant expense relative to these investigations. You know, asset quality also continues to be pretty good. And I should note, too, that, you know, we continue to have a low loss ratio on the legacy advantage loans, notwithstanding all of their room. There are other issues that have been the source of the investigations and the internal control issues that existed at the bank previously. We tried to keep the balance sheet fairly stable, maintain a high capital ratio just to protect the company and its shareholders as we deal with these uncertainties. I'm sure the big question on everybody's mind is going to be where we are with the Department of Justice. And as I said in the quote there, we don't have a lot of visibility into it. We continue to cooperate. It would appear to us that the investigation focus at their end is heavily on individuals. And I think with respect to the bank, we believe they have all the information they need. And as I said, we continue to cooperate completely. I was hoping to have a little more to say at this point in time, but I don't. And I can't say that there's anything in the way of hints or direction. um you know guidance that they might give us that would help um you know help you understand where it's going we just as i said we have no visibility into that other than that you know we'll get an expression of appreciation for the cooperation and the information we continue to provide um we do think collectively that it's going to be resolved um or at least the beginnings of a resolution sometime this quarter. But again, it's very hard to predict and they don't necessarily hold to my timeline by any stretch of the imagination. But we certainly have a strong sense of urgency on pushing that forward and do everything I can to respond quickly and completely to any questions. And as I said, we just, you know, make the case known that we need and would like resolution as quickly as possible. And hopefully we get it. But I can't, I just can't predict at this point. So, you know, with that, the, you know, the bank itself, you know, we continue to, you know, just I guess I'd say watch the time evaporate here. We're trying to find opportunities where we can to maintain the margin and control costs, but it's obviously a challenge. Fortunately, as you know from the last quarter call, we're done with the OCC issues and we've you know, completed all that, signed the consent order, and paid the fine. So, and I would say, you know, in terms of all of the agencies that have taken an interest in the bank, we continue to provide, you know, transparency and cooperation wherever it's needed. So, that part, you should have no concerns with respect to that. You know, and I guess, you know, just going back to the the DOJ should try to understand, too, that this was a multi-year problem. And, you know, as the frauds were uncovered early in 2020 and continuing, it was a multi-year. It wasn't an incident. It wasn't, you know, a single person who misbehaved. It was, you know, much more substantial than that, as you all know, and there's just an awful lot of records to look at and understand and ask questions about. I'm going to ask Karen to just go through a couple of highlights on the financial condition, and then I'll get back on it. So, Karen, if you would.

Sure. So I guess, you know, I was just going to talk a little bit about the non-interest expense for the quarter. We did see a reduction of 13%, even though we still continue to see elevated professional fees. So that professional fee number, $5.9 million, you know, consists both of legal expenses and other professional fees to help us become compliant with all the stuff that's going on. So I guess if we look at that number and try to normalize it, probably two-thirds of it is due to these investigations, and then the other third is more normal stuff of being a public company and just general operations. Same thing in the salary and benefits line, $8.9 million. That's not a bad run rate for the bank, although, again, we have a lot of – people there for BSA work, other work that a bank of our size might not normally have. In terms of the allowance, we didn't have a big recapture this month. There wasn't a huge reduction in the loan book as it had been in prior quarters. And as Tom noted, we did purchase a pool of high-balance conforming or jumbo residential loans. In terms of CECL, which I'm sure is on everyone's mind, you know, we've worked through most of that process and really now that we are, need to be thought controls, you know, validated by our internal and external auditors and then we'll be prepared to implement that and, you know, as required. Tom noted the non-performing assets, you know, they were down slightly quarter over quarter at $38.3 million. And just to remind everyone, similar to prior quarters, over half of that are loans that are paying. A lot of them are current even, and we just want to see six months of consistent payments before we go ahead and upgrade those and put them back on accrual status. The balance sheet was relatively stable. month over month, or quarter over quarter, just a $3 million reduction. We were able to stabilize deposits, but as you can see in the NIM, it came at a little bit of a price as the deposit book increased. Tom? Okay.