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Edited Transcript of STL earnings conference call or presentation 24-Oct-18 2:30pm GMT

Q3 2018 Sterling Bancorp Earnings Call

Oct 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Sterling Bancorp earnings conference call or presentation Wednesday, October 24, 2018 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jack L. Kopnisky

Sterling Bancorp - President, CEO & Director

* Luis Massiani

Sterling Bancorp - Senior Executive VP & CFO

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Conference Call Participants

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* Alexander Roberts Huxley Twerdahl

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Austin Lincoln Nicholas

Stephens Inc., Research Division - VP and Research Analyst

* Casey Haire

Jefferies LLC, Research Division - VP and Equity Analyst

* Collyn Bement Gilbert

Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst

* David Jason Bishop

FIG Partners, LLC, Research Division - Senior VP & Research Analyst

* Joseph Anthony Fenech

Hovde Group, LLC, Research Division - MD & Head of Research

* Matthew Breese

* Matthew M. Breese

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Sterling Bancorp Q3 2018 Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jack Kopnisky, President and CEO. Please go ahead, sir.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [2]

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Good morning, everyone, and thanks for joining us to present our results for the third quarter of 2018. Joining me on the call is Luis Massiani, our Chief Financial Officer.

We have a presentation on our website, which, along with our press release, provides detailed information on our quarter.

Our third quarter of 2018 reflects strong financial metrics, with adjusted earnings of $114 million, which is 139% greater than the third quarter of 2017. Adjusted earnings per share of $0.51 is 46% higher than the same period last year and $0.01 higher than our linked quarter. Operating metrics were strong, as adjusted return on average assets was 155 basis points, and adjusted return on average tangible common equity was 18.09%. The operating efficiency of 38.9% continues to result from the strong positive operating leverage demonstrated by our organic performance model and M&A activities. Revenues increased $134 million and expenses increased $50 million over the third quarter 2017, representing an operating leverage ratio of 2.7x.

Look, it's been 1 year since we completed the acquisition of Astoria Financial Corporation, which doubled the size of our company. On Page 6, you'll -- of the presentation, you'll see a highlight of the differences between before and after Astoria. To demonstrate the power of an acquisition like Astoria, earnings for the first 6 -- first 9 months of 2017, prior to the acquisition, were $133 million. For the first 9 months of 2018, earnings were $333 million. EPS increased from $0.98 to $1.45 during that same period. Additionally, if you compare third quarter 2018 earnings and EPS to fourth quarter 2017, earnings increased 36% and EPS increased 31%. Tangible book value increased by 27% from a year ago.

We have met or exceeded our objectives in completing this transaction and subsequent integration. We will continue to consolidate financial centers and transition the acquired loan book into 2019 and beyond, but the integration of Astoria is effectively complete, and it was a successful one.

Before I discuss the details of the performance in the quarter and our view of what you can expect in the future from us, I want to discuss the current market environment and our positioning to ensure continued success in 2019 and beyond.

First, as the economy has expanded, we have seen an approximate 50% increase in the pipeline of opportunities for organic commercial loans. Unfortunately, many of these opportunities do not come with a credit structure we're comfortable with or a yield that meets our hurdle rates. Our view is that this is a period of time where we need to be disciplined and stick to our established credit fundamentals and return targets. We are being selective in our approach to new commercial loan opportunities. We are also reviewing many commercial finance portfolio acquisition opportunities that have the potential to achieve the credit standards and return characteristics that we are seeking. We are very confident that these opportunities will result in portfolio acquisitions that will supplement appropriate organic growth over the coming quarters.

Second, given the continued increase in market interest rates and nonstrategic value of many of the loans and asset categories we acquired in the Astoria merger, we are evaluating the potential sale of a portion of these mortgage portfolios. The benefits of potential sale are numerous: we exit low-yielding, nonstrategic assets; we can exit at or above marked value while reducing interest rate risk; we accelerate the balance sheet transition; we improve core net interest margin; we can reduce pressure on funding costs by improving our funding profile and reducing our loan-to-deposit ratio; we can create increased tangible capital; and a sale provides increased liquidity to either purchase higher-yielding portfolios or grow organically.

We strongly believe in the model we have created, and we have demonstrated strong performance each quarter since 2011. We continue to see substantial opportunities to execute our strategy of growing loans and diversifying our balance sheet. However, we pride ourselves on being pragmatic and flexible regarding the allocation of capital and resources. To that extent that targeted growth is not available, we will look to share repurchases until such time as we find higher-yielding investment opportunities to meet our risk-adjusted return hurdles. We have authorization to potentially repurchase up to 10 million shares that would increase it, if needed, depending on where we see the best and most attractive investment returns. We are managing the company for the intermediate and long term, not the short term.

With that environmental background, let me highlight a number of balance sheet and income statement categories and the associated activities that will enable us to continue to appropriately drive results.

First, commercial loan growth based on average loan balances increased by $331 million relative to the linked quarter, and spot balances increased $1.8 billion since the completion of the Astoria merger. Our commercial loan growth is partially offset by continued runoff of residential mortgage loans, which, based on average loan balances, declined in the linked quarter by $270 million and have decreased by $879 million since the completion of the Astoria merger. Based on current market conditions and our estimate of one-off in the residential portfolio, we are targeting commercial loan growth to be in the 8% to 10% range and overall loan growth to be in the 6% to 8% range, excluding any potential sale of Astoria mortgage assets.

Secondly, total deposits grew by $490 million or 9% on an annualized basis. We enjoyed solid core commercial deposit growth, along with seasonal municipal deposit growth, consistent with the tax collection cycle. Our deposit mix improved and continues to be strong with approximately 42% DDA, 11% savings, 35% money market savings and 12% CDs at a cost of 68 basis points. The cost of deposits increased by 13 basis points, which was primarily due to increases in the higher balance muni, commercial and broker deposit segments. The total deposit beta since the fourth quarter of 2017 has been 24%. We anticipate deposit costs to moderate as we lower the current loan-to-deposit ratio of 95.7% over time.

Third, the core net interest margin for the third quarter was 316 basis points, a decline of 5 basis points relative to the linked quarter and within the guidance we provided. We are being cautious in adding new loans at yields that meet our standards. We anticipate that exiting a portion of low-yielding mortgage portfolio, reducing municipal deposit rates and targeting a combination of organic and M&A loan growth will improve our core net interest margins. The 2018 core net interest margin will continue to be in the 315 to 320 basis point range.

Fourth, core operating expense levels continue to be better than planned and are at [or] an annualized run rate of $420 million for 2018. We project we will further reduce OpEx to $415 million in 2019. As I mentioned previously, we have completed the majority of the integration, but will continue to lower the number of financial centers. Since the merger, we have consolidated 15 financial centers and anticipate consolidating an additional 22 over the next 18 months.

Fifth, credit quality and capital ratios remain very strong. Charge-offs for the quarter were 8 basis points. Nonperforming loans declined from the linked quarter. We have low levels of charge-offs and strong loan loss reserves and capital levels.

Finally, let me emphasize that we have built flexibility in the operating model of this company. We have a diverse asset mix, relatively low-cost funding and have demonstrated an ability to grow the company organically and through acquisitions. We have clear paths that we can execute against to achieve 10%-plus EPS growth in future years regardless of the general rate environment, and we have various alternatives to deliver high-performance results.

In summary, we are very confident that organic loan growth and deposit growth will occur in the fourth quarter and beyond and that we will find portfolio acquisitions that meet our standards over the next several quarters. We have consistently met or exceeded our growth targets, and we expect to do so in future quarters as pricing and credit structures more normalize. We expect to consistently deliver 10% or greater earnings and EPS growth, return on average tangible assets of 150 basis points or higher, return on average tangible common equity of 18% or greater and efficiency ratios of less than 40% on an annual basis. Our focus remains on building a company that creates ongoing positive operating leverage, where revenues grow 2 to 3x that of expenses.

So now let's open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Casey Haire with Jefferies.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [2]

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Jack, question for you on the strategy. Just given the backdrop that you laid out in terms of loan growth, obviously, skinny pricing and structures that are not fitting your parameters, it just doesn't seem like this is the environment to grow loans, be it organically or through M&A. So why not pursue, pivot the strategy towards moderating growth immediately, maybe even selling some of the Astoria loans, improving liquidity and being more aggressive on buyback today?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [3]

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So, one, we are going to sell some of the mortgage loans. We have already -- we just said that. So we're going to sell, push the mortgage loans to increase liquidity. Two, we are going to do share repurchases. Three, we did lower the guidance on the loan. So we took it from 8% to 10% growth to 6% to 8% overall. So it allows us -- there are still opportunities in the market. We're just being more selective. So to answer your question directly, we are going to do all 3 of those things. So we're going to sell the mortgage portfolios for all the reasons that I gave in the script. We're going to do share repurchases until such time as we find other investments that have higher yields. And three, we did lower the expectation on loan growth.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [4]

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And Casey, I'd add that on the M&A side, remember, if you're buying a portfolio that has been seasoned and outstanding for some time, the pricing term and structure of that is going to be different than what you're seeing in the new origination market today. So the pressures that Jack is alluding to are more on the organic side of what we're seeing market participants doing. To the extent that we stay patient and to the extent that we find the right opportunity, the right size at the right price with the ability for us to re-underwrite and to reserve for it appropriately upfront, similar to what we did with the Advantage Funding deal, that is the type of transaction that we're interested in. We think that those are available. We just have to stay patient to find the right one.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [5]

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Okay, fair enough. And I guess, on the NIM outlook, can you give us some updated thoughts? I guess, I was very surprised by the loan yields kind of holding flat, specifically the C&I. So where is the new money yield on C&I loan production? And was there something that elevated the second quarter loan yield within C&I specifically?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [6]

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So the prepayment activity that we were talking about was reflected -- that's in the press release, that was part of the C&I portfolio. It's not part of Commercial Real Estate. We talked about this in prior calls. A substantial portion of what we do on the diversified C&I and the franchise finance has prepayment activity associated with the 2, and there was a $1.4 million decrease in prepayment activity, specifically related to the C&I side and to the traditional, that would be embedded in the traditional C&I and commercial financial portfolios. So if you normalize for that and that happens -- it's not perfect, but it happens every other quarter. So there should be some bump-up in prepayments going forward. Again, it's not perfect, and it'll be a little bit volatile from quarter-to-quarter, but there will be some prepayment activity going forward, there always is. New origination yields are fine. From the perspective of the deals that we're doing, similar to the domestic that we've provided in prior quarters, it's 5%-plus type deals that we're seeing [currently] on the C&I side. When you look at asset-based lending, payroll and factoring, those are yields that are in excess of 6.5%. So those businesses from a yield and a return perspective are fine. Issue is that the volume has not been exactly we wanted it to be because a lot of the new originations have been competed away for term and structure.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [7]

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And then I'll take the other end of this. On the deposit side, we probably -- we had very good -- we had good deposit flows for the quarter. We did pay up on some of the higher-priced deposits by selling off some of the mortgages, keeping a little dry powder in terms of having a lower loan-to-deposit ratio. We're going to move back on some of the pricing of some of the more interest-sensitive deposits out there. So that also would have affected the NIM.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [8]

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Okay. And regarding the Astoria loan sales, I mean, is there an amount in mind that you -- that you're comfortable sharing?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [9]

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$1.5 billion to $2 billion focused mostly on the fixed rate components of the book that we acquired from Astoria.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [10]

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And that would be resi mortgage, right, Luis, primarily?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [11]

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Yes, primarily.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [12]

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And it's all resi, and it's...

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [13]

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It's all residential mortgage initially. We are exploring other opportunities for some of the Commercial Real Estate components as well. But the residential mortgage is the lower-hanging fruit that we can address first.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [14]

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Got you. And just last one for me. On the expenses, $415 million, you're at, I think, I believe, a $420 million run rate today. What -- there's a lot of financial centers consolidation on the com. Is that a conservative number? Or is there going to be -- you're going to have to pay for growth on top of that, that will backfill the saves from the branch cuts?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [15]

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That's an all-inclusive number that factors in remaining branch cuts as well as reinvestment into the business. We're going to continue hiring folks. So from that perspective, our strategy has not changed. We think that there continues to be good talent to hire out there, both on front lines on the sales side as well in more internal places. So we're going to continue investing in the business, and that factors in everything that we're doing from personnel perspective, investing in risk management, investing in technology and so forth. So that's an all-in number.

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Casey Haire, Jefferies LLC, Research Division - VP and Equity Analyst [16]

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Okay, all right. I'm sorry, just one more. Just the loan growth. What is the base for -- there was no update for the 2018 guide, and we're at 3% year-to-date. So what is the base for 2018 loans growth 6% to 8%?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [17]

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So the fourth quarter is going to be flat to slightly to up single digits relative to the third quarter. You're going to see some pressure on the warehouse lending balances, which, not surprisingly, given the interest in -- the increase in rates and slowdown of refinance balances on the warehouse lending side, we anticipate are going to be lower at period-end fourth quarter than what they were in the third quarter. And we continue to see that -- the wildcard is what happens with the progression of the residential mortgage book over the course of the next 2 months. We've started to see a little bit of a slowdown in October because of the increase in rates. But the portfolio continues to cash flow at a pretty rapid clip. So it should be flat to slightly up relative to third quarter.

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Operator [18]

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And moving on, we'll go to Austin Nicholas with Stephens.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [19]

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Maybe just taking a look at the capital management slide you put out a couple months ago, with the current strategy at that time of growing loans in the 8% to 10% range and not really tapping the buyback, is it fair to say that we've moved down to the alternative one, where loan growth is in that 5% range and buyback of 7 million to 8 million shares? Or are we somewhere in between that kind of initial strategy and that alternative one?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [20]

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No, I think we've moved to the middle here, and our connotation would be kind of the 6% to 8% range in total loan growth. But it's the middle tier-ups still being able to achieve the 10% EPS growth by doing that level of loan growth and share repurchases. We are mixing this a little bit more by picking the shot in this as with the sale of the mortgage portfolio -- part of the mortgage portfolio.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [21]

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Understood. That's helpful. And then I guess, just on -- maybe on the buyback, a little more detail there on how we should think about how active you're likely to be in repurchasing shares?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [22]

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So we have 10 million -- so we have an authorization for 10 million shares. We're going to do this progressively taking advantage and being pragmatic of when we -- what the competing investment alternative is related to buying back our own shares. We're going to do that progressively over the course of the year. But we provided in the guidance slide, you see what our target TCE ratio is, and you can pretty clearly see what -- here on the map, you can see what the excess capital component is. And we anticipate that over a 12-month window, there would be at least $350 million to $400 million of excess capital that we'll continue to generate that. To the extent that we are not successful in identifying an alternative investment opportunity, we will be pragmatic about the world, and if it makes sense from an economic perspective and an intrinsic value perspective on our shares, we will absolutely buy back and fully execute that 10 million if that is -- that's the best and most efficient use of our capital.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [23]

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Understood. That's helpful. And then maybe just on portfolio purchase expectations or optimism. Can you maybe give us a feel on how that's maybe changed since the end of the last quarter in terms of the sizing or the pricing on the deals that you're seeing come to market?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [24]

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I will tell you, we have never seen as many deals as there are today. So whether -- there are a variety of deals out there. There are more deals that have -- would appear to have appropriate pricing and appropriate structures than we have seen the prior quarter and, frankly, at the beginning of the year. Again, these deals all happen -- as we've discussed, with Astoria, we were very disciplined. Astoria and all the prior banks and all the prior Commercial Finance portfolio purchases we've made, we've been pretty disciplined about looking for this, and sometimes, when you hang around the hoop, there's good opportunities, you may turn things down once, and they come back again. But there is a significant amount of opportunities that we are running off -- I'm sorry, running out to determine -- to make sure that they fit our structure. And there are some other bidders too in some of these portfolios, but we think we're an advantageous bidder for a variety of different reasons in the way we run the company and, frankly, our demonstrated results. So there is meaningful and significant opportunities over the next several quarters to find portfolios or deals that make sense.

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Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [25]

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Okay, that's helpful. And then maybe just one last one. I appreciate the full year guidance for the NIM being intact. But could you maybe give us some clarity on the fourth quarter specifically, just given maybe some of your more variable rate loans beginning to reprice upward with LIBOR moving a little bit more in the fourth and the third?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [26]

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Yes. So we're being -- so we're -- we think that the NIM should stay at about 3.15 -- will stay at about 3.15 to 3.20 for the fourth quarter. We're being cautiously optimistic from the perspective of we have not seen the same level of repricing in the early parts of this quarter on the higher balance commercial and municipal deposit accounts. And so we kind of rewind back to the second and third -- or the early part of the third quarter, we did see a substantial chunk of greater repricing activity. So far this quarter has been better than the third quarter. So the deposit beta, we anticipate should be lower than, on a linked-quarter basis, between the fourth and third quarter than what it was in the third to the second quarter. But again, we're being cautiously optimistic on that front. The repricing of the loans on the floating rate side will have some impact, which you have to remember that the asset sensitivity profile of what we are going to end up being is not where it is today because we only have about $4 billion, $4.5 billion with 25% of the book that is really tied to that short end of the curve. We have to transition out of the residential mortgages and the commercial real estate that we acquired, which is still about $8.5 billion, almost $9 billion of loans to get to the place where the short end of the curve moving up will be meaningfully more impactful for our NIM. So from that perspective, we're going to -- we're anticipating we're going to be relatively flat. We should see it to the extent that there is a discontinued progression. On the deposit pricing side, we know we should do a little bit better than the 3.16 that we had this quarter on a core basis.

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Operator [27]

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And moving on, we'll go to Alex Twerdahl with Sandler O'Neill.

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Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [28]

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A couple more questions about this -- the residential mortgage sale, the $1.5 billion, $2 billion. Is there a specific timing associated with that? Is that something that will definitely happen in the fourth quarter? Is it contingent upon finding an acquisition on the Commercial Finance side to kind of fill that balance sheet cap that will be left?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [29]

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No. We are -- right now, we are targeting doing this in the fourth quarter and it could be agnostic to we -- to finding a -- this is a stepping stone that we have to accomplish anyway because the opportunities that we're seeing on the Commercial Finance side are big enough that we have, as we've talked about in the past, we have to have some balance sheet management to be able to do a deal and maintain the liquidity and funding profile that we want. So we are -- this is -- we are going to do this anyway. So our plan is to do it sooner rather than later, and we are anticipating doing it in the fourth quarter.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [30]

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And remember too, this takes some interest rate risk off the table. As rates go up, this potentially becomes less positive going forward. Creates all kinds of advantages by doing this now rather than later. I'm sorry, Alex, I cut you off.

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Alexander Roberts Huxley Twerdahl, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [31]

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That's okay. Now I totally agree that, it had to be done, but at least in the near term, I got to imagine that shedding $1.5 billion to $2 billion of mortgage loans is going to leave a fairly substantial earnings hole. So maybe, Luis, you can kind of just talk us through the earnings that will be lost from doing this and include in there some of the purchase accounting adjustments that we should be including in our model going forward that would be associated with these loans.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [32]

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Yes, so the purchase accounting adjustment. So assuming $1.5 billion of the fixed rate, the purchase accounting adjustments will decrease by about half relative to the guidance that we provided before. So the $75 million of accretion income that we have provided for 2018 would be -- sorry, half of the residential mortgage would decrease, sorry, not the entirety of the $75 million. And the residential mortgage represents about 50% of the $75 million. So it's 50% of the 50%. So the $75 million of 2015 would result in -- we'd lose approximately $20 million to $25 million -- about $20 million of that on the accretion income on the residential mortgage loans that were acquired. Now from a core NIM perspective, at $1.5 billion, you'd see an increase of about 12 to 15 basis points on a core NIM basis. And that's based on today's wholesale borrowing cost of funds. If you kind of extrapolate that out, this is the concept that Jack was talking about of just relieving pressure is the fact that we've stayed pretty short on the curve from a wholesale borrowings perspective. So taking out $1.5 billion to $2 billion of wholesale borrowings, which is about half of the wholesale borrowing that we have today will result in a substantially greater core NIM. So at the end of the day, this has to do -- we're doing this because we anticipate we're going to be able to replace that on a relatively short basis with other assets. And those assets are likely going to be on the acquisitions that we're talking about. So once you have those acquisitions in place, there would be no dropoff from the perspective of GAAP or core NIM. If anything, it should be the strategy that we're employing here is going to be accretive to both of those numbers.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [33]

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Yes. And once we transact this thing, I think, in fairness, you all are trying to build models on this thing. We're negotiating kind of the sale of this thing as we go forward. Once we complete this thing, we'll work with you on your models to be more explicit around what the NIM effect is and what the earnings effect is. But this is our view of accelerating the transition of the balance sheet at exactly the appropriate time so that we free up capital and free up liquidity to be able to do the things we want to do in the future appropriately.

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Operator [34]

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And next we'll go to Dave Bishop with FIG Partners.

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David Jason Bishop, FIG Partners, LLC, Research Division - Senior VP & Research Analyst [35]

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Sticking with our topic. Any sense what we could think of in terms of potential gain from a $1.5 billion divestiture? Any sort of scale [percent] that we can think of in terms of plugging that into the earnings stream?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [36]

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The gain -- there won't be a significant gain on the sale. So there's a good mark -- and as we talked about, we would get out of this securing value or better, but this isn't going to be a significant driver of capital. Capital will be generated more as we continue to work out some of the real estate that we are going to start seeing some additional sales of locations and so forth fitting in the fourth quarter and then into the first quarter. But the downsizing and reducing of this is more driven -- it's not driven by generating capital from a gains perspective. This is more driven by just easing off on funding pressures and kind of improving the liquidity profile of the balance sheet.

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David Jason Bishop, FIG Partners, LLC, Research Division - Senior VP & Research Analyst [37]

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Got it. And you said in terms of the financial center outlook over the next 18 months, how many are we thinking of exiting?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [38]

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22 additional financial centers. So we had originally talked about doing about total 30. We're now up to 37 in total from the beginning of Astoria.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [39]

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So we've done 15 to date. We're going to do an additional 22.

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David Jason Bishop, FIG Partners, LLC, Research Division - Senior VP & Research Analyst [40]

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I'm sorry, I just wanted to -- got it, got it. And in terms of the expense guidance for next year, does that contemplate additional lending teams? Would you still be out there being opportunistic investing on additional lending teams as you come across from an opportunistic perspective?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [41]

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No, we're still being very opportunistic. I will tell you what we've found, though. We are actually lifting our teams and putting them into existing teams. In some cases, we found that there's an effectiveness in the economy and scale by a certain size of the teams as we go forward. But we're still finding lots of opportunities out there that folks that can bring the right client contacts and right expertise to the company. And that's one of the things that we've constantly done in this company, and we must not be clear enough with everybody on this. But we've tried to continue to reinvent the company. So as we changed the size and scope of the company, we make constant adjustments to both the balance sheet, the portfolios and also the people as time goes on. We think that's what high-performing companies do. They adjust as the market dictates and as the opportunities present themselves. And we work hard to be able to create a company that is flexible and has alternatives moving forward regardless of the kind of economic and rate situation.

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Operator [42]

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And moving on, we'll go to Joe Fenech with Hovde Group.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - MD & Head of Research [43]

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So my first question was on the near-term earnings hold. Just building on that, appreciate the near-term will be volatile guide with these actons. But looking out longer term, is there anything you can give us so we can kind of hang our hat on, whether that's blessing, longer-term EPS consensus forecast or profitability forecast or just something we can use as a measuring stick and a target for how you expect this to play out longer term when all is said and done? Otherwise, it would seem to me as though the problem of the markets unwillingness to give you a multiple on the projected EPS has been the issue for the stock, that's going to persist. Or is that just all too much to expect at this point, until you execute on the divestiture?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [44]

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So from an -- so blessing an EPS forecast, I don't -- I think that would probably be a little bit too much. But I think that we -- so this is what we've been talking about all along, which is we continue to see the opportunity to, through a variety of different avenues, be it through growth or through capital management and through the various actions that we're talking about, being able to generate the 1.6%-plus ROA, 18%-plus ROE, then 10% EPS growth. And so we -- that's where our focus is, and we're going to continue focusing on that. And I'll leave it up to you all, Joe, and you guys are smarter than we are. You figure out how you value that. I think that you see our run rate today. We were $0.51 to $0.52. And in fact, we're in the various mechanisms and avenues that we have to be in to generate growth. That gives you a good guide to where we see things are going to shake out in 2019 for the full year. We're very confident of being able to deliver that EPS growth. How we're going to get there is going to take some -- it's not going to be a straight line from Point A to Point B because we are in the middle of executing a balance sheet transition and the full integration of a very large deal that we did last year. So we're confident in generating the results. How we're going to get there is, there's going to be a little bit more flexibility.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - MD & Head of Research [45]

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Okay, fair enough. Now on the expense side guide, you consistently talked about, and you delivered on this, the opportunity to exceed the cost save expectations out of Astoria, you said the integration is behind you now. Is there still a cushion there in that forward guidance so you might have the opportunity to exceed it? Or is that opportunity mostly passed now?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [46]

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I got to tell you. I think we are -- as demonstrated by the efficiency ratio, I think we're really good at managing kind of the operating leverage in the company. So there's always opportunity to make things more efficient and effective. And frankly, we have a group even internally, a transformation management group, that works with each of the lines of business to increase efficiency -- effectiveness first and also efficiency. So effectiveness in driving revenue and productivity and efficiency in terms of allocating the right cost to different areas. So one way to answer your question is there is always opportunity to improve the efficiency and effectiveness of the company. The second thing, back to your question of, Luis, on the guidance. That's the challenge with all markets. What we've tried to do is we've tried to say, "Look, this is a company that we have historically always delivered, and we are going to continue to deliver, and what we care about is that the returns of the company rather than the size of the company are where we're at." So we're talking about a 10% EPS growth, we're talking about 150 or above in return on assets and 18 or above on equity and efficiency ratio is less than 40%. Those numbers are high-performing numbers -- metrics. We are less concerned about getting to $40 billion or $50 billion or whatever. We're more concerned about the returns. And obviously, the market isn't seeing it that way. So the share buybacks and the balance sheet management, we're taking a much more aggressive stance to address that. But in the end, that's what we care about. We care about producing a company that demonstrates consistently those types of returns.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - MD & Head of Research [47]

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I guess, just trying to figure out ballpark though, Jack, that my question was, is this a 1-quarter kind of -- sort of, I wouldn't call it a hiccup, but transition in the earnings gap? Is this a multi-quarter situation, the transition from -- or just strictly from an earnings standpoint? Or is this just kind of execute and you're kind of back on the trajectory that you just talked about?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [48]

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I'm not sure how to answer that question. I -- because the variables of being able to put assets on the books over a period of time. So what we've said is we expect to put meaningful assets on the books over the next several quarters to be able to offset the exit of this portfolio. But in the end, we think this is the most efficient and effective way to create long-term value out of there.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - MD & Head of Research [49]

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Okay. And assuming, since these are portfolio, potentially portfolio acquisitions and stock multiples is an issue for you here, for any of the stuff that you're looking at?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [50]

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That's correct.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [51]

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That's right.

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Joseph Anthony Fenech, Hovde Group, LLC, Research Division - MD & Head of Research [52]

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Okay. And then last one for me. Jack, obviously, some concern in the market about national lending platforms in light of the Ozarks' disclosure, even though their issue seemed to be very specific to them from a decade or so ago. You did talk about seeing credit structures that aren't acceptable to you, assuming others are making those loans. How close do you think we are to seeing, what I'll call, a ramification for that bad decision making? Do you think the problems people are likely to see are still a ways out given some of the strength of the economy?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [53]

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Yes, it's interesting. This happens every time. I guess, I'm getting -- I'm old enough to know that I have gone through 5 or 6 cycles where rates go up when they've been low for a period of time. And the exact same thing has happened over that period of time. It's happening now. Banks start to stretch on credit structures. They start to stretch on -- or they're taking less yield. And then all of a sudden, at some point in the future, folks will back up and say, "Oh, my gosh. These loans aren't paying." We've -- I'll give you 1 example. We have -- I may get these numbers wrong by a little bit. But our ABL group is actually seeing -- saw 350 potential opportunities year-to-date. That's an incredible amount of deal flow coming in. In the end, they're doing about 50% or 75% of what they did before because the credit dynamics of what is happening in ABL has gotten off track. The yields aren't where they need to be in some cases and the credit structures aren't where they need to be. So there's a lot of people trying to put money to work, and they're stretching the credit parameter. So there will be a crunch at some point in time. Look at the capital markets here. A lot of the capital markets are providing lots more depth. There's more leverage in the market and there are usually kind of canaries in the cave before things start to go -- awry from a credit standpoint. So I don't know the answer exactly, but I -- there will be a credit crunch at some point in time. I do not think it will be anywhere close as bad as what it's been in many of the past times in part because the regulatory environment has been structured such that it's prevented a lot of the issues in the banking sector. I can't say the same thing in the nonbanking sector, but in the banking sector, I think the regulators have done a good job of limiting some of the craziness that happened before in real estate -- commercial real estate. And it's limited some of the banks and companies to go into leverage lending in a more highly leveraged manner. So I think the regulatory environment will help prevent that, but I think there will be some credit challenges in the future in the industry.

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Operator [54]

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And moving on, we'll go to Collyn Gilbert with KBW.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [55]

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So I just want to make sure I understand here. So the loan guidance that you guys put in the slide deck, does that include the sale of this resi book that you're talking about?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [56]

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It does not. So it does -- the 8% to 10% and -- well, the 8% to 10% is [well it doesn't include] that to begin with. The 6% to 8% does not include that.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [57]

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Okay. And then how about portfolio acquisitions? I think -- I thought in the past your loan growth target did assume perhaps an acquisition. Does it still?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [58]

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The portfolio acquisitions would take that to the higher end of the range or exceed it.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [59]

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Okay, all right. And then just broadly, I know there's a lot of moving parts here for you guys selling this portfolio. But are you -- is kind of the funding source that you're anticipating paying down with this sale? Is it borrowings? Or do you think you can unload some of the higher-cost muni deposits? I'm just trying to think about what the blend -- okay, so the blended yield on the $1.5 billion, did you say what that was, Luis?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [60]

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It's about $350 million core.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [61]

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$350 million. Okay, okay. And then so in terms of maybe what the associated borrowings are through munis in borrowings, is that like a $250 million funding source? Or...

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [62]

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Today, it's slightly higher than that. It's about $265 million. Going forward, that is the component of the deposit book. Also a host of borrowings have a beta of 1 over some short period of time. The municipal components that we're talking about are the ones that have the highest beta of our portfolio. And so today, it's about a 50 to 75 basis point difference between the spread on those loans and the cost of -- the weighted average cost of the deposit -- of the funding that we're talking about. Going forward, that is going to be a -- that spread will narrow. But today, it's about -- call it a 50 to 65 basis point difference.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [63]

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Got it. Okay. And then I just want to make sure I understand your comments on the accretion. So you guys are targeting total accretion income in 2019 of roughly $75 million. And then associated with the sale, leaving that will be $20 million to $25 million that will go with this portfolio?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [64]

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It will be [close to low end], but not $25 million. $25 million is too much. It's about $20 million.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [65]

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$20 million. Got it, okay, okay. So the -- just on the portfolio acquisitions, is there a concern at all? Or have you guys thought about -- I know you've been very patient in pursuing these, and I presume that means because pricing is just going to keep getting better and better or you think pricing is getting better and better on these portfolios. But do you think the window there -- how do you see that window? I guess, why I'm asking that is clearly we're sitting in a banking environment where loan generation and asset growth is just -- the outlook has decelerated quite meaningfully. So I would imagine banks are going to start to look to need to supplement assets. So do you think the competitive landscape changes for pricing on these assets? And if so, do you feel like you need to execute this more quickly than waiting further into '19?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [66]

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I'd add 2 things there. First and foremost, I think that the best deals are done in the worst of times. And so from that perspective, the tougher the environment gets and the more stretched some of these nonbank lenders and others get from a funding perspective, the better off we're going to be from a pricing and from a timing of being able to do these deals. We're very confident that as things -- as conditions continue to get a little bit further stretched, that's when good -- really good opportunities show up. And secondly, not every bank out there does these businesses that we're in. A lot of other folks are involved in these, but these are -- we are very confident with the infrastructure and platforms that we've created and the ability of providing a plug-and-play type of opportunity for the management team that will join us or for the person who's -- we are very good at managing the assets that we are looking at here from an acquisition perspective, and not everybody else can say that. So from -- this isn't a broad universe of buyers. We look at equipment financing those types of things, those are more commoditized type things that there is -- there would be more competition for. And the other types of business that we're looking at, it's not a broad universe of bank buyers that would be looking at these.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [67]

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Okay, okay, that's helpful. And then just trying to understand, Luis, you reconciled the C&I, the drop in the C&I loans quarter-to-quarter. But ironically, I feel like all this discussion could be mute when you look at the yield on the resi book at this quarter was 5.28. I know, obviously, accretion is in there. But I mean, it's one of your highest yielding assets. So what's going on there? And then the potential sale, I presume, of this -- the lower-yielding tranche of that, does that -- do we see that yield actually increase then or just kind of walk me through how to...

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [68]

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You'd see it increase a lot. So there's just -- so you will see it increase a lot. So this is why we are focusing on that component of the book is because there's -- when you look at the $4 billion rough numbers, $4 billion of residential mortgage assets that came to us from Astoria, the total $4.5 billion, incremental $500 million or so of assets are driven by the legacy Provident business in Rockland in Orange County, and those are mortgages that we're going to keep because those are mortgages that are tied to deposit customers that have been with us for a very long period of time back to the Provident days. So we don't get the $4 billion of Astoria mortgages, $1.5 billion of those are 15- and 30-year whole loans that are fixed rate. And those are the ones that have that 3.5% weighted average yield. And the remaining of the loans are either floating rate today already or 5, 7 and 10.1 ARMs that are going to start coming into the reset periods relatively quickly. So one of two things is going to happen with the reset rates on the -- on that, I guess, $2.5 billion of nonfixed rate loans. Either those loans are going to stay with us, and they're going to reset in which case we're going to get a bump-up in yields, which will be perfectly fine with us. Or they are going to pay off at par where we're going to get our money back [thrown] into the market we have today from a purchase accounting perspective. So the strategy behind eliminating the fixed rate is that those are the mortgages that are going to be with us for a very, very long period of time. And we've started to see a slowdown, specifically in the 30-year fixed-rate portion of that book because 30-year fixed-rate loans, yes, when rates go up, those are the ones that typically slow down the most, and we started to see that happen there. And so the yield on the residential mortgage book, it's not that we don't like it. That 5.28 does include the accretion income. There is a component of the residential mortgage book that if we retain, we will continue to either enjoy the benefits of a repricing asset or we're essentially going to get our money back at par, which we can then redeploy into something else. So there's flexibility in the resi. We don't want to get rid of the entirety of it because there is components of it that we're perfectly fine owning for a period of time.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [69]

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Okay. So then how should we think about the potential runoff in the book once you complete the sale?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [70]

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The runoff would stay at roughly the same rate where we are going today because the 2 components that we'd be selling are the components that are not running off meaningfully. So in this quarter, we had $250 million of runoff. If you tell me, Collyn, where rates are going to be for new mortgage originations in the next 3 months, I can tell you with a better certainty if these assets [prepay] or not. Well, that it also functions...

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [71]

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I'm not doing that.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [72]

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Yes. It's a function of -- it's a function of the alternatives, the financing alternatives that the individual mortgage borrower will have, right? So if somebody is coming into their adjustable rate period, and they can adjust for another 12 months at 4.5% or 5%. In some cases, the reset rates are going to be much higher than that. And they can essentially refinance into a 5 or 7.1 ARM at a lower than that, then you know what? That asset is going to repay over some relatively quicker period of time because it's a very efficient market. So the way that we are thinking about it today is the components of the book that are cash flowing, which is about $200 million to $250 million per quarter are the ones that we would retain because that is, from a yield perspective on a core basis as well as a prepayment activity and a cash flow activity perspective, it's the more attractive components of the book.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [73]

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Okay, that's super helpful. And then just you said it, Luis, but like the target -- the TCE target of 8.3%. I mean, that's sending a pretty clear message, right, because obviously you -- and this is going to be even more -- I mean, you're going to be shrinking the balance sheet, I presume, even more, which is going to generate even more capital through this acquisition -- sorry, the sale. So that's obviously a lot of capital that you can have to put to work. I hear what you're saying on the buyback. You're going to be sort of progressive or whatever the word was that you used. Just curious though why -- what's the process to increase that authorization? And why have you not done it yet?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [74]

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I think I said pragmatic, not progressive.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [75]

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Well, I would say, at $17.39, it's pretty pragmatic to be buying it back right now.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [76]

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Exactly...

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [77]

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Anyway, so I've said that a million times to you, I just want to say it again. But go ahead, so why -- what's the authorization process?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [78]

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The authorization process is -- we don't need to have secondary approvals or anything like that. This is essentially management and our Board of Directors approving an increase to the share repurchase authority. And similar to how we announced our $10 million share buyback authority in February -- sorry, we did it in February, and made it public in connection with the first quarter earnings. This will be the -- if we wanted to increase from $10 million, we can do that very quickly. This is not...

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [79]

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You don't have to wait for any kind of board meeting or any -- you can do that off board cycle?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [80]

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Yes, sure.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [81]

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Yes.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [82]

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Yes, okay. And I'm just curious, how come you have not done that yet?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [83]

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Because we're going to use the $10 million first, then we'll use the -- we -- again, we think that there's going to be good opportunities to continue to invest in other assets going forward. So to the extent that we have -- we determined that the best use of capital is take more than 10 million shares, then we can do that from 1 day to the next. So it's not -- we haven't done it. There is no other reason than that we're going to use the 10 million first, and then we'll going to reassess what the investment alternatives are and at that point, if it makes sense to continue buying back shares, we will.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [84]

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Yes, and importantly, Collyn, it is better for us to use capital to buy things and grow things than it is to do share repurchases. And maybe we're bullheaded on this thing, but we -- because we've demonstrated this, the returns that we've created out of those buying things or building things have been better than share repurchases, it's loudly clear that everybody and their brother, every investor out there wants us to look at share repurchases and put this capital to work rather than holding it all in a tank until such time we put it to work. So we're now -- this is -- given where the stock has kind of flown to or flown down to, this is the right thing to do now, and we fully expect to find things that we can put more capital to work for in the future that gives us higher returns. But in the interim, we're going to put this capital to work.

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Collyn Bement Gilbert, Keefe, Bruyette, & Woods, Inc., Research Division - MD and Analyst [85]

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Okay. And then, I think, I probably know the answer to this, given what you just said, Jack, but I'm just going to ask it anyway. I mean, again, you've got a lot of capital that you're building here. Any reconsideration on how you're thinking about the dividend?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [86]

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We actually -- we just had a board meeting yesterday and talked about the dividend, and it's an ongoing conversation with the dividend. Again, we've positioned ourselves as a growth stock and somebody that keeps on growing at 10% or more,[outsized than] the industry. Our view is we're not getting credit for that. So most investors are looking at bank stocks as value plays. And we're going kind of sequentially, here is the opportunities to buy things or to grow things, here's the opportunity to do share repurchases and here's the opportunity to improve the dividends. So all those things are on the table.

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Operator [87]

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(Operator Instructions) Moving on, we'll go to Matthew Breese with Piper Jaffray.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [88]

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I'm sorry to harp on the NIM once more, just want to make sure I had my numbers accurate. So I think you said with divestiture, it would be 12 to 15 basis points of accretive to the core NIM. Is that accurate?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [89]

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That is correct.

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Matthew Breese, [90]

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And so is that included in the 2019 guide? Or should we assume that once completed, that 2019 guide should also be 12 to 15 basis points higher?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [91]

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It is not included. It would be higher.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [92]

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Okay. And then as we think about post the divestiture, how should we think about your ability in this environment to defend the NIM? I mean, once done, can we start to see some margin expansion on a go-forward basis as the Fed hikes? Is that the situation you'll be in?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [93]

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I think for every dollar of fixed-rate assets that we take off the books that we replace with something else. Yes, we start to get to the position where we are going be able to defend that NIM in a substantially better fashion. That has 2 components to it: the transitioning of the balance sheet and then the being more -- the right word would be selective regarding the higher balance commercial and municipal types of deposits that we would take, where we would focus on exclusively places where we have full relationships with operating accounts and excess liquidity accounts and cash management products and so forth. So both components of that would -- both sides of both asset and net deposit and [also borrowing] funding would allow us to protect the NIM a little bit better.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [94]

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Hey, you think about it this way, that this creates better asset sensitivity. So we've been working our way back to the level that we were previous to Astoria acquisition of getting to being kind of 60% of the loans being variable rate and 40% fixed. We've been just the opposite of that to this point. So by this action, it gets us a little closer to improved asset sensitivity that ends up being able to slough off with the increases in rates.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [95]

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Okay. And I think you mentioned a second chapter of this could be a commercial real estate divestiture. What could that look like? And then what's the next leg of funding that you would look to, perhaps, run off the balance sheet?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [96]

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So too early to tell -- to give you specifics on it, Matt, but we have another $1.5 billion or so of long-term fixed rate commercial real estate. It's really multi-family loans that would be the next leg that we would look to do something with. What we would do with proceeds or something like that? We have $4 billion of wholesale borrowings that are all relatively short term. There is 300 in -- there's about $300 million of senior notes that we still have outstanding that have a yield of -- or cost of 3.5% that are also a component of funding that isn't really giving us anything other than high-cost fund. So we can take care of that as well. So there is plenty of things that we can still chip off from a borrowing perspective and unwinding some higher-cost municipals that we could -- we wouldn't sit around with excess liquidity for a long period of time.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [97]

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Right, okay. And then just thinking about the portfolio deal process. Following the Advantage deal, commentary has been very positive about the landscape for portfolio deals. Very -- there's been a lot of confidence you can get one done prior to the end of the year. So one, is there a likelihood that we could see something announced by the end of the year? What would be the size of that potentially? And then two, could you help me just better understand the process? How do you bid on these things? How do they come back to you and eventually you get the win, to help us better understand how ultimately these things end up in your hands?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [98]

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So the answer to your question is we're looking at things. So we see things all the time, and most of what we look at and evaluate, we pass on because either they're not the right price, they're not the right yields, they're not the right credit structures, not the right strategy. Any one of those 4 or 5 things that we look at. The ones we do generally have been, most likely scenarios, these are mostly coming out of private equity firms that -- and firms that have purchased businesses or portfolios. And their cost of funds keep on going up, and their ability to manage the portfolio purchase may or may not work. So a lot of these are coming out of private equity funds. Some are coming out of banks that these end up being nonstrategic assets. So we look at these things. We determine whether -- if they do fit, we then -- in some cases, they're exclusive. In most cases, they are bids. When they are bids, we look at the -- we evaluate the portfolio, look at trying to get those second round and then getting the due diligence and going from there. So the answer is the likelihood is over this quarter and next quarter that we have the opportunity to purchase anywhere from $0.5 billion to $2 billion worth of assets. That's what we are targeting as an objective to make happen. We are -- again, this is the hardest thing for you as analysts and investors. We can't be specific about the exact timing because, frankly, we're not going to stretch to things that don't make sense just to put numbers on the board. I said to Luis before we came on the call, we could have taken the pain of this quarter away on the loan growth side just by going out and buying 3 or 4 $500 million worth of assets at yields that would look okay today but would be terrible in the future. We're not going to do that. We're not going to print the balance sheet up on a short-term basis to be able to look good just for the quarter, we'd rather stick to the long term. So long way to answer -- sorry for the long answer on this thing. But that's the process we are looking -- we look at when we look at these deals. We're trying to be very smart, and like I said, do this over the term of this thing and not, frankly, take on assets that we'll regret in the future that either don't fit or look good short term but don't -- aren't accretive for the long term in terms of returns and quality.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [99]

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How many active bids do you have out there or active NDA do you have out there own portfolios?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [100]

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Probably half a dozen.

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Matthew Breese, [101]

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All in that $500 million to $2 billion range?

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [102]

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Yes, stretched to $400 million to $2 billion range, somewhere around there, yes.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [103]

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Okay, understood. Okay. And then two quick ones for me. Just curious on the share repurchases. Up to what levels do you find shares attractive to repurchase? And then the second one is just a better sense of where the provision can go over the next year.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [104]

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The provision, in what way -- you mean the provision for -- what's the progression of provision for loan losses?

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Matthew Breese, [105]

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Yes, the provision was a bit below what I was thinking this quarter. So I just want to get a sense if that's a good run rate.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [106]

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Yes. We've been guiding to $10 million to $12 million, and that was with some asset growth attached to it. So the reason for the provision being lower than what it's been in prior quarters is driven by the fact that there wasn't, from an average balance perspective and the length of period balance perspective, there wasn't a whole lot of loan growth, so we didn't have to provide for too much on the growth side.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [107]

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And low charge-offs.

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [108]

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And low charge-offs. Yes, charge-offs were $4.5 million relative to $7.5 million last couple of quarters, $7.5 million to $8 million. So that's the reason for that provision. Our guidance from the $10 million to $12 million number going forward is -- continues to be good. I think that's a good target for you to continue to use. On the share buybacks, again, it depends on the investment alternatives. We're not going to sit on the capital. To the extent that the stock continues to trade at these levels and below we determine intrinsic value, we'll continue to execute repurchases if that's what we determine as the best and most efficient use of our capital. So if you were to tell me today that the share price is back at $24 or $25, then, yes, we're probably not going to buy then. At $17 and change where it is this morning, $17.50 or so, if those types of levels remain, you can expect us to be pretty pragmatic about the world and buying shares in a way that we think makes sense if that's the best use of our capital. I hate to sound like a broken record, but it really is, at the end of the day, we are -- it is how we think about it. It's the universe of we get paid to allocate capital in resources and if that's the best and most efficient use of our capital, we will use it that way.

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Matthew M. Breese, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [109]

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Understood. And how quickly can you start to execute on a buyback?

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Luis Massiani, Sterling Bancorp - Senior Executive VP & CFO [110]

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We'll execute tomorrow, we're ready -- we're ready to go.

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Operator [111]

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And I'll turn it back to Mr. Kopnisky for any additional or closing comment.

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Jack L. Kopnisky, Sterling Bancorp - President, CEO & Director [112]

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Thanks for your time, and thanks for your terrific questions. And again, I'll emphasize the actions we're taking on this that we're being selective, and we're trying to be smart and, as Luis said, good use -- good patrons of the capital we have. We are taking action on the mortgage portfolio, and we are going to look at doing share buybacks. So we appreciate it and look forward to continue good things from the company going forward. Thanks.

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Operator [113]

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And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.