Q4 2023 Sterling Bancorp Inc Earnings Call

Presentation

Operator

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 31, 2023. Joining us today from Sterling's management team are Tom O'Brien, Chairman CYO. and President, and Kevin Clark, Chief Financial Officer and Treasurer. Tom will discuss the fourth quarter and year end results, and then we'll open the call up to your questions.
Before we again, 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. In particular, forward looking statements may be made on this conference call regarding the economy and financial markets. Government investigations, credit quality and regulatory scheme governing the Company's industry, competition in the Company's industry, interest rates and companies look at liquidity, the company's business and company's governance. Any forward-looking statements 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 condition, 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, and that 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 the most direct 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 as a reconciliation of the GAAP to non-GAAP measures.
At this time, I would like to turn the call over to Tom O'Brien. Tom?

Thank you. Good morning, everyone. That intro may be longer than my remarks here. So we'll see how this goes. But anyhow, I'm joined in the boardroom here and Southfield, Michigan by Karen, not our CFO, and Chris Meredith, our Chief Risk Officer, and Liz Caio, our General Counsel, and we're going to run through the Fourth Quarter and Year End '23 financial results. And I'll just hit the highlights. I assume everybody's looked at the press release, but for the quarter, we reported net income of $0.1 for the year of $0.15 some quarters, mostly driven, but the recovery on D&O insurance that I think we referenced in the third quarter call as been expected in the fourth quarter and then from on allowance reversal, driven by the strong credit metrics for the bank and reduced loan portfolio and our general process and assessment on the allowance continues to remain at about. So in a quarter percent roughly to 18 to hit the.

Come again.

Okay. So still very healthy relative to the loan portfolio. But again, the quarter and the year as it has been the last few years, pretty noisy at the top line. But beneath that things here as we got into the fourth quarter and then the end of the year and now into January, things are relatively quiet. And so there's a lot going on. I think the big issue prospectively remains what happens with interest rates and new compression come in. I would say at this point, we're reasonably looking at kind of flattish and change in margins. But the risk is always the cost of funds and the or the underlying interest rate in the general market and the economy, as I mentioned earlier, credit is benign. The allowance, of course, remains strong on a dollar and percentage basis. As you noticed, I assume the expenses are moderating considerably. I think third party legal expenses are showing decline. And I think as we get into this quarter, that decline should continue to accelerate. And we should be, I think, near the near the end of the bulk of those in the next few weeks.
Our own legal costs are likewise moderating considerably. Again, as we put all the issues with the regulators in the US and Justice Department behind the company and the bank notes, those costs have continued to moderate and again, we still see more of that in 2024, although we do have some modest costs related to the ongoing compliance and reporting that we do with the Justice Department put them that really shouldn't move the needle anywhere. We also put in some expense cuts for the coming year. We believe that will help us mitigate some of the uncertain period that we find ourselves in the economy, the general market, the kind of malaise the we're seeing in the capital markets, it continues to put pressure on our margin and our ability to maintain profitability. But I would say that's a that's the most difficult part about what we deal with going forward is just getting a real sense on what the markets are going to do and what the opportunities for us are. And in hindsight, I would say 2023 was a fairly amazing year given that all that was accomplished. I think the idea that Sterling Bank is here today is probably the best news. So that future was most assuredly, not guaranteed a few years ago. But at this point, we have the opportunity to look forward and to continue to work hard on the strategic vision, some in these markets, as I noted, our focus in at least the short run here for the next couple of quarters is really on maintaining our tangible book value, our liquidity and our at a very moderate risk credit risk profile. And we believe that those items those three items are probably among the most valuable components that the institution has. And so we're not inclined to risk any of those, and we'll just kind of see what the next couple of quarters have installed for us as an institution and just for the industry in general, on the regulatory side, things are very quiet and our relationship continues to be very transparent with our regulators. I think the business side remains very, very modest to come. We haven't stopped lending by any means, but we are being very careful in what we do and where we do it. And again, the runoff in the Advantage loan portfolio is always going to be very hard to keep up with. So at some point on those payoff the next nothing they spend more than cut in half in my tenure at the bank, but there's still some number $600 million,

Yeah, $630 million.

$630 million. So well, well below half of what it was when I joined the bank, probably almost the third, two-thirds lower. So one that's our plan with those basically is just to let them continue to run off. They behave. It performed relatively well and we haven't had any any concerns with the performance of the loans, notwithstanding the issues that we had over the last several years with the with the underwriting and the <unk> bad actors that have created the problems for the bank. So so so my comments are probably about the same as the intro on the pile of not an awful lot that I can think to work to add to the conversation other than what we continue to keep our eyes open and done and work hard, and we'll see what the questions are now. So operator, you can open the line up for questions.

Question and Answer Session

Operator

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're 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 one. At this time we will pause momentarily to assemble our roster. First question comes from Ross Haberman with RLH. investments. Please go ahead.

Good morning.
How are you guys on just on Ross' question, Neil, a quick question regarding the NIM. or the margin on if we do get a cut or two in March or June, is it how do you see that affecting the spread or the margin?
Thanks.

Then I'll ask Karen to comment on.

Yes.
I think that out, I think the margin is going to stay relatively flat. And we've done some work for the obviously 2020 for projections and we forecast that a couple of rate cuts and the margins pretty resilient on even with both cuts. Our loan portfolio still is repricing upward even with rate cuts because of period cap on that quick rise of rate the last U.S. 18 months.

And just a quick question about the U.S., the nonperformers, the $9 million, you refresh my memory, what's in that and do you think you'll resolve them and most of that over the next, I don't know, quarter two or three and possibly add take any more recoveries over the next quarter two or three things.

The $9 million are 100% residential loans and them. I think the bulk of those are in foreclosure, [$7 million or so of it].

Yes, there is, you know, there's a couple of million that are actually current. We're just waiting for performance to be sustained before we put them back on accrual status and then both of them are in the foreclosure process on at least the loans in California. Everything moves normally through there. So we're waiting for the redemption periods to expire and then we'll have the sale. They're all very well collateralized. As you know, those advantage loans have low LTVs to begin with, and I'm very seasoned at this point.

And yes, so we want to deliver it have any further recoveries like you did this last quarter?

Well, we hate to project recoveries, but if you do the math on process with declining loan balances and no loan losses, you probably can extrapolate some some benefits to that?

Yes.
I mean, provision recovery for sure, an interest recovery. We haven't taken charge-offs on this particular pool. That's in non-accrual due to the collateral values.

And then Russ, I don't know if you're aware, but California is a not a judicial foreclosure state the way New York was. So in New York I know we would hang around with the loans and foreclosure for a generation of California is and in many respects, challenging place to do business. But in terms of some of the foreclosure process. It is, I think about a six to nine months have a round trip. And our experience has been that the loans that go into foreclosure prior to the foreclosure sale get paid off. I don't know that we've had I won't say none, but virtually none that actually went into it on real estate.

And just one final, could you put a number on what you think your ongoing your ongoing noninterest expense base is going to be. Is it EBITDA back to the professionals you were running? And what about [13.7], it looks like for the quarter. Is that a good base to sort of or using that as a base, let's say, could you be saving on a I don't know a $0.5 million to $1 million, a reduction of that?

Yes, Mike, still where you're going with that.

Yes, I think that's a little light because the noninterest expense for the quarter was $12.8 million, but we had $3.8 million of a legal recovery in there. Several probably going to be a little bit north of {$15 million}, I would suspect and a quarter in noninterest expense.

But I think you threw out the idea that you could you're working on some cost saves.
Yes.
Are you from that?
We're using the starting point at the $15 million for argument's sake.

I think that pretty much gets us there. I know the I mean every quarter for the last three years have done a very volatile, but I think we've kind of always thought the normalized run rate, rough run rate was between 14 and 15.5 or so, depending on the first quarter is always higher with social security costs and things like that. But right phone, I think come. And as Karen said, I think $15 million issues is probably where we are for now.

Got it. Okay. Thank you. Guys the best of luck.

Thanks, Russ.

Operator

Again, if you have a question, please press star then one.
We have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks.

I'd just quickly thank you all for joining us today. Um, you know, like the analysts who covered us. We had one company and one at the Piper Sandler and and both of those analysts at around the same time went out to other firms. So we have not had the research coverage that we had been used to. But I do believe at some point in the near future.
Piper Sandler is going to pick up. I'm an analyst with the assignment for Sterling. And I suspect at some point and this quarter, anyhow, maybe Humpty will be doing the same process, but just unfortunate have to deal with that. But in any case. I do wish you all a very Happy New Year, and thank you for participating and as always, and we'll see you with the April call. Thanks.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.