Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sterling Bancorp Inc (SBT, Financial) has successfully ended all forms of wholesale funding, including a $50 million Home Loan Bank advance.
- Expenses are trending in the right direction due to cost-cutting measures and the conclusion of various investigations.
- The Department of Justice has closed its investigation, reducing legal and compliance costs.
- Capital and liquidity remain strong, positioning the bank well for future opportunities.
- Credit conditions are mild, with reserve levels remaining healthy and asset quality described as pristine.
Negative Points
- The company is operating at a breakeven level, with minimal profit margins.
- The cost of liquidity remains relatively high, impacting overall financial performance.
- There is no current plan to originate residential loans, limiting growth opportunities in that sector.
- The commercial real estate market is cautious, with potential weaknesses in office spaces and overbuilt multifamily areas.
- Noninterest expenses, including professional fees, remain significant, with an estimated $1.8 million expected in the next few quarters.
Q & A Highlights
Q: The legal and compliance costs, how much of that was in the $2.1 million of professional fees for the quarter?
A: (Karen Knott, CFO) In terms of legal fees, there's about $1.3 million. The other professional fees were around $800,000. There wasn't too much noise in terms of the investigation, but there was a couple of hundred thousand related to those matters.
Q: So that should be going away. So that number should average around $1.5 million a quarter?
A: (Karen Knott, CFO) Maybe more like $1.8 million or so at least through the next couple of quarters.
Q: Was there any other sort of less recurring items besides that couple of hundred thousand going forward?
A: (Karen Knott, CFO) Within the noninterest expense, there wasn't really too much other noise in the quarter. It was pretty quiet.
Q: What are you seeing on roll-off of your loans, if we do see a drop-off in rates, say, quarter in September then another quarter in December? Do you think you'll see -- and will that help your margin if reduced to two quarter rate drops?
A: (Thomas O'Brien, CEO) It will. The question I always have in this context is do we see one 0.5 point drop in September-ish to put a bigger statement in terms of the decline in rates as you mentioned, to one 0.25 point drops. But I think that's the magnitude of what we're talking about. I don't see any real change in our prepayment levels because on the residential because virtually all of them are in the adjustable periods now. So they all had the payment changes and the level of prepayments there.
Q: Any large expenditures expected over the next quarter, two, or three or everything will be basically similar, what was your ongoing legal expenses?
A: (Karen Knott, CFO) Our annual merit process takes effect in the third quarter. But other than that, I don't foresee anything.
A: (Thomas O'Brien, CEO) Yes, but nothing that would be out of the ordinary. I think over the last couple of years, we were always talking about the kind of the quarterly level run rate for expenses. And I think we generally were saying $14 million-ish was probably the right level and we're gradually getting down there. I mean, there's always a couple of hundred thousand of things that go one way or the other. But as a general matter, don't see anything out of the ordinary here.
Q: Your asset quality seems pristine. Anything delinquencies or criticize that's keeping you up at night?
A: (Thomas O'Brien, CEO) No. I'll go to the commercial stuff. The things that kept me up at night over the years here were sold off a while ago. So generally, our commercial portfolio has been at least for the last several quarters, virtually no delinquencies or if they are, they're just loans that are matured and going through the renewal or the payoff process, so we really haven't seen anything there. The residential, we always tend to see slow pays and loans that I think virtually all of our nonaccruals at this point are residential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
