Good morning and welcome to the Sterling Bancorp's Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tom O'Brien. Please go ahead sir..

Okay. Thank you and good morning, everyone. Welcome to the third quarter call. As always, I’d turn you attention to the disclosures. Regarding our presentation that are available for your review in the 8-K. With that, I'll assume everybody has had a chance to look at those understands them.

So, in the third quarter here, as I noted in the press release, we've made very good progress on several fronts. There's still a lot of noise. I mean, we recognize that obviously. And with all of that, we're managing a small profit, but notably in the quarter, credit continues to improve.

On the commercial side for the first time in my tenure, there were no delinquencies and no NPAs [in any] [ph] of the commercial portfolio.

That was helped in large measure by our sale of $22 million worth of weaker commercial real estate credits and – but also we saw a nice decline in the residential non-accruals and delinquencies through both payoffs and some reinstatement.

The margin improved to [3.19%] [ph] during the quarter helped obviously by higher interest rates that are in the market and our fairly liquid portfolio. And – but additionally, we had some interest recoveries from loans that paid off in the quarter. Prospectively, I think it's fair to say liabilities. will continue to reprice upwardly.

The idle funds from the past several years or now customers are looking for higher returns and better opportunities. So, I think both sterling and virtually all of the industry will experience continued increases in liability costs as interest rates continue to move up fairly aggressively and fairly quickly.

Obviously, I think everybody knows we signed a consent order with the OCC right at the end of September. In that consent order, we agreed to a $6 million civil money penalty that was assessed by the OCC for prior [FedEx] [ph] and the old Advantage Loan Program.

Simultaneously, the OCC released the bank from the formal agreement and recognition of the significant improvement we have made in the past two years and addressing a very significant level of very severe findings and many violations of law.

So, both of those, obviously, one of them more painful than the other, but the both of them are major accomplishments and in a relatively short period of time as regulatory enforcement matters go. And then finally, the courts approved the settlement of the derivative shareholder action and that is now done.

So the only remaining outstanding issue for us is the Justice Department and SEC. As I've stated, I think on every call, we have very little viability or liability or – I've got to say that, very limited visibility into the timing of the final resolution.

And we continue to work aggressively and have regular conferences with the DOJ, obviously, we're pushing that as quickly as we possibly can, but it's not something we have very much control over and certainly very, very limited feedback. So, I can't provide any estimate of timing or cost.

We're just hopeful it wraps up in the next few months and we can put that behind us. And then that for the institution, Sterling Institution, that'll you know resolve many, many issues that have been [bugging] [ph] us for quite a long-time. Individual actions will continue into the foreseeable future, notwithstanding how the bank settles-up.

So, that's kind of the condition of things in the third quarter. I think for most of us, the year went very quickly. We're now in the final stretches of 2022 and I think in the two years, I'd say an awful lot was accomplished that really aren't visible to most people.

We did a complete transformation of the IT platform, of the DSA and AML platform, of the risk platform, obviously, of the credit acceptance and credit management. And obviously have been paying, paying the price in expenses for legal and professional fees to get to this point.

And that's another reason the sooner it's resolved, the happier we'll all be. So with that, operator, we can take some questions and go to that..

Thank you, sir. [Operator Instructions] And our first question will come from Nick Cucharale with Piper Sandler. Please go ahead..

Hey, guys. It's actually Justin Crowley filling in for Nick this morning..

Good morning, Justin..

So, I wanted to start with expenses.

So, just given the resolution with the OCC that you had alluded to and that's been disclosed, can you, sort of share with us how you're thinking about that reduction in professional fees that we saw, and then to the extent you can maybe quantify your expectations for, sort of a near-term run rate just more broadly on expenses?.

That Justin is a real challenge..

I hear you..

The timing, of course, impacts that dramatically. So, the longer it goes on, you know, the more we'll spend, you know, if, you know, the end of the OCC investigation plus the conclusion of the formal agreement will help reduce the expenses we had and that civil process.

And then, as soon as the DOJ has done, obviously, you know, there will be a – undoubtedly be a penalty associated with that. We don't know what it's going to be, not even a clue. So, we'll continue to have some legal and professional expenses with respect to that.

I'd be reluctant to put a number on it or a percentage other than we're doing our best to make it conclude as quickly as possible. It seems like every time I think they're going to go down, they go down for a quarter or two and the next quarter they're up. So, more often, wrong than right on my estimates there..

Got it. Yes, pretty [crazy crystal ball] [ph], I totally understand.

And then I guess moving on, so you noted in the release, you spoke a little bit on it earlier, but the variable rate sub-debt contributing in parts with upward move in liability costs that you referenced, I just wonder, given this real strong capital position, is there any, sort of potential to pay this down just to alleviate some of the funding pressures that you guys know and that are certainly impacting kind of everybody in this environment?.

I would do it in a heartbeat if I were able, but the liquidity at the holding company is different than the liquidity at the bank. And I can't get that much money or up to the holding company or even a fraction of it at this point in time, but obviously the sooner I can, the better and it is particularly painful right now..

Sure.

And so I guess I don't want to put words in your mouth, but in the near-term, sort of unlikely by the sounds of it?.

I would say in the near-term unlikely. Yes..

Okay. And then just one last one for me.

Can you just remind us how much remains in the mortgage repurchase liability allowance and then, sort of where you stand with respect to future – further purchases?.

I can tell you that the balance of the loans sold to others has dropped dramatically with our purchase of the 35 million in the quarter. And keep in mind when I joined the bank, I think it was around 800 million. And it's – I'll let Karen speak to the reserve and what's outstanding. .

Sure. So, in terms of Advantage Program Loans, there's only 45 million left outstanding. We don't expect that we will be repurchasing those loans, although we still have an agreement where one of the investors could still request that we do so.

So to that end, we still have a modest just over [half a million dollars] [ph] reserves in case they do pull the trigger on that agreement. And then we just have a small amount for our agency loans that we – that's insignificant..

Okay, perfect. That's super helpful. I will leave it there guys. Thanks so much for taking my questions..

Sure. Thanks Justin..

[Operator Instructions] Ladies and gentlemen, 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, you made it very easy on us today. Hopefully, we answered all your questions in the press release and in the opening remarks. But I'd just assure you that we continue to push forward and move to successful resolution of all the remaining issues that we've had to deal with.

And we never obviously forget the interest of our public shareholders and our – all of the stakeholders and the ultimate success of Sterling. So, with that, enjoy your Halloween, and we'll look forward to talking to you at the year-end call. Thank you..

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