Sterling Bancorp, Inc.

Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the third quarter ended September 30th, 2023. 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 conditions of Sterling Bancorp that involve risks and uncertainties. In particular, forward-looking statements may be made on this conference call regarding the economy and financial markets, government investigations, credit quality, the regulatory scheme governing the company's industry, competition in the company's industry, interest rates, the company's liquidity, the company's business, and the company's governance. Any forward-looking statement made during this conference call are based primarily on the company's current expectations and projections about future events and trends that the company believes may affect its business, financial conditions, results of operations, prospects, business strategy, and financial needs. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors as well as examples of forward-looking statements are discussed in the company's SEC filings, which are available on the company's website. These are not exhaustive. New risks and uncertainties emerge from time to time, and it is not possible for the company to predict all risks and uncertainties. These could have an impact on the forward-looking statements made during this conference call. The company disclaims any obligation to update any forward-looking statements made during this call. Additionally, management may refer to non-GAAP measures which are intended to supplement but not substitute for 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. Please note, this call is being recorded. At this time, I'd like to turn the call over to Tom O'Brien. Tom?

Thank you. Good morning, everyone. Welcome to our third quarter earnings call. I'll run through some of the highlights as I see them here and And then we'll take some questions. Just generally, I'd say the quarter was relatively quiet. We had accomplished the redemption of the subordinated debt in mid-July and finished up the settlement with the Department of Justice and also in July. So those accomplishments kind of over and done. The quarter had a very, very modest profit of $300,000. Margin flattish at 262. I think we're, you know, it's still seeing both here and, you know, in the industry pressures from higher interest rates and competition on deposit accounts. And that doesn't show any sign of letting up in the immediate future. So, you know, I think trying to be careful in terms of liability pricing and balances. But it's a difficult time of both, you know, high interest rates after an extended period of ultra-low interest rates and high inflation combined. Probably not seen since, probably since I started in banking, which was 100 years ago. So, you know, we're navigating that. both at the bank and I think in the industry in general. We had a recovery in the quarter as we've had in the last few in the allowance for credit losses. The ratios maintain basically the same at 2.42%. I would also tell you that deposits have been relatively flat. The balance sheet was relatively flat too, except for the payment that went out of the company to redeem the subordinated debt and the settlement with the Justice Department that is in the form of return to certain shareholders. So that combined with about $90 million, I think, in the quarter. But other than that, things were relatively flat here. Credit levels continue to be about the same. Our capital remains very strong. Our liquidity is strong. As I said, credit I think is pretty strong. It's a very uncertain time just in terms of what's available for us to do. We're trying to preserve our capital. We're trying to maintain the strengths that we have. I think we've been timely with respect to addressing and disposing of a lot of the non-accrual and low-grade loans that the bank had, especially on the commercial side. As I mentioned in the press release, I think in selected markets, but I'd say predominantly coastal markets, there continues to be an awful lot of pressure in the office and hospitality space. And I think more in the Northeast, you're going to see problems emerging with multifamily property loans just based on higher cap rates, interest rates. If you're lucky, flat rents and revenues and expenses like taxes and oil going up. So I just anticipate that area is going to have you know, a fair amount of pressure and the time ahead. And, again, I think that probably just highlights the timeliness of our disposition of, I don't even remember the totals now, but well over $100 million of loans that both on the commercial and then in the second quarter on the residential side that were just, you know, long-term dead weight for us. And other than that, it's relatively quiet here at Sterling. Even as we get into the fourth quarter, it doesn't seem like an awful lot is changing. I think, as I said, the pressures that have been brought to bear, mostly in terms of liability pricing and what the Fed may or may not do in terms of increased interest rates. I think, you know, my own sense is that they'll be a little cautious and patient, but that, you know, the bias is still towards, you know, another one or two increases until there's a sense that inflation is more under control. And, you know, it remains stubbornly high. And high inflation is a very difficult road to navigate in the in all industries, but certainly in financial services. So with that, as I said, not an awful lot to spend time talking about here, so operator, probably best to take some questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. 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 two. At this time, we will pause momentarily to assemble the roster. The first question today comes from Ross Haberman with RLH Investments. Please go ahead.