Good morning everyone. Thank you for joining us today to discuss Sterling Bancorp's financial results for the fourth quarter and year ended December 31, 2021. Joining us today from Sterling management's team are Tom O'Brien, Chairman, CEO and President; and Karen Knott, Chief Financial Officer and Treasurer.

Tom will discuss the fourth quarter and year-end results. And then we'll open the call to your questions..

Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Sterling Bancorp that involve risk and uncertainties.

Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website..

The company disclaims any obligation to update any forward-looking statement made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.

The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures..

At this time, I'd like to turn the call over to Tom O'Brien.

Tom?.

Thank you. Good morning, everybody. I'm delighted to welcome you to our year-end 2021 earnings call. First of all, the shock of all things is that it's actually the end of 2021. The year went by very quickly for most of us, and things at the bank kept us all pretty busy during the year, and I'll go through a few of those things in a few minutes..

But the headline news basically is, in the quarter we made $4.8 million or $0.10 a share, and a little over $20 million or $0.40 a share for the quarter (sic) [ year ]. Margin improved nicely. Primarily, we've tried to begin to position the bank into a better funding mix, less reliance on higher cost CDs.

And we're trying to build more in the transaction and relationship-type business on the deposit side. But the runoff on deposits really is predominantly a function of our reduced reliance on certificates of deposit.

And as you also saw in the earnings release, we took advantage of an opportunity in the quarter to pay down about $150 million of advances. And there was no prepayment penalty with that, just given the state of interest rates on that particular day.

So again, that kind of all helps under the guise of improving the margin and getting to a more sustainable level over time..

Bank's capital continues to be quite good. The leverage ratio, which is really the one most of us look at, is a little over 11%. The story during the quarter included a lot of things. Some of those, I'll say, both in the quarter and the year, and I've kind of highlighted those in my comments in the press release.

But -- it's -- it really is fairly remarkable in my experience that the list of things I'm going to give you here were done, really, in the period of 2021. A lot of these undertakings would normally be 18 months to 24 months to implement and accomplish.

And we did that by really a singular focus on addressing the regulatory issues that the bank has been confronted with and trying to improve the entire platform across the board. So we've got a very talented group of people in each of our key departments. And I will tell you firsthand that they all work long and hard, and very smart.

And we made very good progress, not the least of which in the major category, we did a complete platform conversion on our technology product..

And with that, we also did a complete platform implementation of a new AML system. Each of those are critical to addressing the items in the formal agreement. And if you read the formal agreement with all the different articles in there for our attention, I think you're going to find 6 out of 8 of those are related to BSA and AML.

With that, we also completed the look-back process that was required under the formal agreement. That was probably a $10 million undertaking over the course of 4 or 5 quarters. And we have successfully addressed all of that..

And then as I note in there, the issues with respect to the credit front, and of course the margin I've already spoken about. On the credit side, I think most of you know the story that we've confronted there.

So what we have tried to do is work with the loans, the legacy loans that I would say were done more aggressively than one might be comfortable with. We've tried to address those and have successfully secured some curtailments and paydowns from the borrowers. We've had several that -- in the quarter that just paid off.

And most of those were on the construction front..

And the outcome is an improvement in the loan classifications, which is another one of those critical measures we need to get down from the stratosphere to more market levels, and we're doing that. Part of doing that was moving about $62 million of predominantly SRO, single room occupancy loans that I've talked about in previous quarters.

We moved those down to held for sale and are now embarking in this quarter on a liquidation process. We marked them down to market, which was about $0.80 on the dollar, and we hope to have that concluded as expeditiously as possible. Again, that brings down the classified loans pretty dramatically..

The nonperforming and troubled debt at $65 million is a nice decline from the September 30 numbers. I'd also say the -- within the $65 million, kind of low mid-$40 million of that is nonperforming Advantage loans.

And of that $40-some million, about half of them are paying, sometimes paying in arrears, sometimes paying currently, but we have to give them 6 months or so or better to have sustained performance before we can move them to accrual status..

So the kind of below the waterline credit picture has improved, in my opinion pretty dramatically.

And I think with the hard work of the people in the credit department, we've made very good progress in what was a -- probably -- I don't remember what I said at this time last year, but that there was a fairly high degree of concern on my part with what we were facing on the commercial side..

Additionally, during the year we settled the 2 major litigations that were confronting us. The class action lawsuit was settled. And the derivative lawsuit, which began I think a couple of months after I arrived at the bank, that was resolved -- officially resolved in early January. So those are 2 big items there.

The costs for those suits in time and energy was quite high. A lot of the -- virtually all of the settlement expense was borne by the insurers, although obviously we incurred some of our own legal expenses. So we're certainly glad to have those out of the way..

And the -- as I mentioned earlier, the real long-term goal is to improve the funding mix, improve the loan book, so that it has more market level credit risk profile and certainly more diversity of product than has been the long-term experience at the bank.

And again, the margin improvement, I think is part of that, and that's kind of what you see in the improvement in the quarter..

Noninterest expenses still high. I kind of said since I think last summer that we expect kind of a slower trickle down in the -- towards the end of the year. And that was generally achieved. I mean, there was some noise in there because we had that credit under the CARES Act in the third quarter.

We had some insurance recoveries and then some additional expenses to pay. But again, looking at the run rate ex all of these extras, we're seeing some benefit, because obviously the look back, which was expensive, and the litigation with the shareholder matters, that was expensive too..

So I think to sum it up, we're making -- if I can put the challenges for the institution into 2 categories, one being what we'll call the supervisory category, which is the regulatory issues that predominantly found in the formal agreement, but elsewhere too. And then the enforcement or the criminal side of it, which is a DOJ matter.

On the supervisory side, my opinion is we've made extraordinary progress in a very short period of time. We have pretty regular -- many exams or visitations from the OCC. We're in very frequent communication with them.

And I think it's safe to say that they're getting quite satisfied with both the direction and the comprehensiveness of the solutions that we've introduced in the bank in the last 18 months or so. So I think that's a pretty good story..

On the other side of the equation, as I've said, I think, every call since I've been there, I don't have a lot of visibility into that. The time line is such that I think we'll probably be closer to a resolution by midyear. But in terms of the outcome, I'm just not able to say much more about that because I really don't know much more.

But we're anxious to get that behind us and kind of move on. But that -- if I had to guess, just given the history and the -- I think most anybody would say the extraordinary cooperation we've provided to all the agencies, I think the time is getting closer to some resolution on that, and certainly hopefully so.

But as I said, we continue to cooperate fully and transparently and we'll keep moving towards resolution..

So with that, it's probably easier if Karen and I take some questions and hear what's on your mind. .

[Operator Instructions] Our first question comes from Nick Cucharale with Piper Sandler. .

So I wanted to start with expenses. It looks like you've made some really good progress and some projects are coming to a close.

Can you update us on your expectations for professional fees and the broader expense base?.

That's a hard -- it's not always -- it's not always in our control. But I think as we knock some of these items off, they inevitably will go down. The DOJ stuff continues to roll on. So that's obviously going to be expensive. But there's fewer things to deal with or defend than there were a year ago..

So I think it's fair to say they'll continue to trend in the aggregate, and I'm talking about the extraordinary expenses -- continue to trend in the aggregate, lower than they have been. But the big relief is only in sight when we come to conclusion on all of these matters. .

It's a -- having done this my whole life, it's -- the cost of institutional problems in the banking world is usually a 2 or 3 multiple of what people anticipate, and the time line is usually substantially longer. I think we've cut the time line a lot. But the cost has been obviously burdensome..

But I'd be reluctant to give a dollar figure, Nick, just because it kind of comes in waves. But the efficiencies and the settlements, just -- there's fewer items on which the cost can rest. But I'd say the DOJ stuff is going to continue to be costly.

But I don't think it would be wrong to -- Karen, correct me if you don't agree, but I think we should be able to see some aggregate reduction in extraordinary professional fees in each of the quarters, but maybe on the order of 10%..

Karen, tell me if you don't agree with that, but... .

I will. That [ sum seems ] about right. .

Prediction is [ prayer ]. .

Yes, understood. Understood.

So with respect to the $73 million of loan repurchases over the next 18 months, can you provide us some color on when you expect those purchases to be made?.

That's just, I think, roughly 50-50 in 2 buckets. One will be in next month in March, and the other one will be in July. And I think on the one in July, there's a technical risk that it could be pushed out to the next July. But that's -- at least the last I looked, not likely.

So I would guess most of them -- the 2 of them, 2 tranches will be done March and July. .

Okay. Great.

And then when you look at the paydowns and payoffs in the loan book, are you expecting a lower rate of decline in 2022?.

It's a little hard to predict. A lot of it was due, of course, to -- on the commercial side to our efforts to reduce the very high credit risk exposure we had. And on the Advantage Loan side, they just pay down quickly as I think everybody realizes..

So it's hard to stay ahead of that. And then given the regulatory issues we have, it's very difficult to devote the time and resources, and attract the talent and technology to diversify our businesses at this time.

So I would say even though we've had some recent loan production, I would say that 2022, there's still going to be some more net liquidation in the loan book than now. .

Okay. And then lastly... .

On the Advantage side, Nick, it's a little bit of the devil you know and the devil you don't. But the sooner they're gone, the better from the -- just from the perspective of us having to deal with them. And that's one of those decisions we'll make post regulatory settlement, too.

Those are -- [ it's ] kind of a smart way to address these issues holistically..

But the loans have behaved [ we know ] -- they continue to behave well. I mean from the credit side -- if the credit side were the only issue to deal with, that wouldn't be the same challenge, but the problem has been obviously on the compliance and BSA side. .

I appreciate all the color. And then lastly, just there was some quarter-to-quarter volatility in the tax rate. Okay.

What's your expectation for the go-forward tax rate?.

That's why we have our CFO on the call. .

Yes. We had some noise when we look at year-end and our allocations in different market areas. But we like the 28%, is a pretty solid number, 28% to 30% is a pretty good range. .

[Operator Instructions] There are currently no other 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. .

Well, that's great. Thank you, you're making it easy on us today. So we appreciate that. Anyhow, listen, as always, we appreciate your interest in Sterling and our progress. We're committed to getting these issues resolved as expeditiously and as comprehensively as humanly possible.

A lot of people in the bank, as I said, are just working long and hard in the interest of shareholders, and putting this episode behind us..

So we will continue to do that. I wish you all a wonderful day, and I look forward to the first quarter 2022 call coming up in April. Thank you. .

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