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, 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 up 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 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 company's 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 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 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 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 in Southfield, Michigan by Karen Knott, our CFO; and Chris Meredith, our Chief Risk Officer; and Liz Keogh, 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 has looked at the press release..

But for the quarter, we reported net income of $0.10; for the year, $0.15.

Quarter has mostly driven recovery on D&O insurance that I think we referenced in the third quarter call as being expected in the fourth quarter and then an allowance reversal driven by the strong credit metrics for the bank and reduced loan portfolio and our general process and assessment.

But the allowance continues to remain at about 2.25% roughly. .

2.18%. .

2.18%, 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 here. Can't say there's a lot going on..

I think the big issue prospectively remains what happens with interest rates and NIM compression. I would say at this point, we're reasonably looking at kind of flattish change in margins. But the risk is always the cost of funds and the underlying interest rates 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 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 end of the bulk of those in the next few weeks..

Our own legal costs are likewise moderating durably. Again, as we put all the issues with the regulators and the Justice Department behind the company and the bank, then 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, but 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 the uncertain period that we find ourselves in. The economy, the general market, the kind of malaise that we're seeing in the capital markets continues to put pressure on our margin and our ability to maintain profitability.

But I would say 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..

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. 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 visions 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 very moderate risk -- credit risk profile. And we believe that those items -- those 3 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 in store 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 modest. 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, those pay off the next to nothing.

They've been more than cut in half in my tenure at the bank, but they're still $600 million, some $630 million?.

Yes. .

$630 million. So well below half of what it was when I joined the bank, probably almost 1/3 -- 2/3 lower. So that's our plan with those basically is just to let them continue to run off.

They behave and perform relatively well, and we haven't had any concerns with the performance of the loans, notwithstanding the issues that we had over the last several years with the underwriting and the bad actors that created the problems for the bank..

So I said my comments are probably about the same as the intro on the call. Not an awful lot that I can think to add to the conversation other than we continue to keep our eyes open and work hard. And we'll see what the questions are now..

So operator, you can open the line up for questions. .

[Operator Instructions] The first question comes from Ross Haberman with Rlh Investments. .

Quick question regarding the NIM or the margin.

If we do get a cut or two in March or June, how do you see that affecting the spread of the margin?.

I'll ask Karen to comment on that. .

Yes. I think that the margin is going to stay relatively flat. We've done some work for the, obviously, 2024 projections and we forecasted a couple of rate cuts, and the margin is pretty resilient even with those cuts. Our loan portfolio still is repricing upward even with rate cuts because of period caps and the quick rise of rates the last 18 months.

.

And just a quick question about the nonperformers, the $9 million.

Refresh my memory, what's in that? And do you think you'll resolve most of that over the next, I don't know, quarter or 2 or 3 and possibly to take any more recoveries over the next quarter or 2 or 3?.

The $9 million are 100% residential loans.

And I think the bulk of those are in foreclosure, $7-or-so million of it?.

Yes. 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 the bulk of them are in the foreclosure process. At least the loans in California, everything moves normally through there.

So we're waiting for the redemption period to expire and then we'll have the sale. They're all very well collateralized. As you know, those advantage loans have low LTV to begin with, and they're very seasoned at this point. .

And possibility of 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 benefits to that. .

Yes. I mean provision recovery, for sure. And interest recovery, we haven't taken charge-offs on this particular pool that's in nonaccrual due to the collateral value. .

And then, Ross, I don't know if you're aware of it, California is a -- not a judicial foreclosure stake the way New York was. So in New York, I know we would hang around with the loans and foreclosure for a generation. California is, in many respects, a challenging place to do business.

But in terms of the foreclosure process, it is, I think, about a 6- to 9-month 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 owned real estate. .

And just one final. Could you put a number on what you think your ongoing noninterest expense base is going to be? Is it -- even if you add back the professionals, you were running, what, about $13.7 million it looks like for the quarter.

Is that a good base to sort of -- or using that as a base, let's just say, could you be saving, I don't know, $0.5 million to $1 million as a reduction of that accrual?.

Yes. No, I see 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 legal recovery in there. So we're probably going to be a little bit north of $15 million, I would suspect, in a quarter in noninterest expense. .

But I think you threw out the idea that you're working on some cost saves. .

Oh, yes. .

From that -- 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 3 years have been very volatile. But I think we've kind of always thought that the normalized 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 I think -- as Karen said, I think $15-ish million is probably where we are for now. .

[Operator Instructions] 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. .

Just quickly, thank you all for joining us today. I -- the analysts who covered us, we had one at Hovde and one at Piper Sandler, and both of those analysts at around the same time went on to other firms. So we have not had the research coverage that we had been used to..

But I do believe that at some point in the near future, Piper Sandler is going to pick up an analyst with the assignment for Sterling. And I suspect, at some point in this quarter anyhow, maybe Hovde will be doing the same process. But it's just unfortunate we have to deal with that.

But in any case, I do wish you all a very happy new year, and thank you for participating as always. And we'll see you with the April call. Thanks. .

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