Good morning, everyone. Thank you for joining us today to discuss Sterling Bancorp's Financial Results for the Second Quarter ended June 30th, 2022. 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 second quarter results, 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 involves risks 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 statements 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, everyone, and welcome to our second quarter earnings call. We have reported this morning a net loss of $0.04 a share or $2.2 million. You know, predominantly, as I noted in the press release, related around some extraordinary items and, you know, what we'd guess call noisy entries we made. I guess the problem with these noisy quarters is it tends to mask some of the important progress that we make. Nonetheless, let's kind of go through them quickly here, and then we'll get to the more critical stuff at the end of my comments. First, you know, expenses are still stubbornly high, $19.5 million. You know, an awfully large part of that excess is due to the legal and related costs of dealing with the various investigations and the process that takes. It's a lot of time and energy and obviously money. Also in the quarter, we had some significant noise related to the surrender of a pretty large split dollar life policy and some smaller, older BOLI policies that were former executives and the split dollar policy being for a controlling shareholder. So there was, you know, tax implications for that and reversal of some accrued liabilities. Karen can probably go through any of that that you might have a particular interest in. More importantly, we did move to an outsourced platform, the Promontory MortgagePath program, for the origination prospectively of our residential home lending in our markets. MortgagePath will basically handle on kind of like a turnkey basis all of the origination work, including quality control, compliance, and originating subject to our final review and approval all of the mortgage loan products that we might offer at any given time. It's an innovative program, and we were all pretty impressed with it. We spent a fair amount of time in due diligence. I think from our perspective, it appeared to be a simpler program which has some variable origination costs but very limited fixed costs as opposed to the previous platform we had in-house. We anticipate, you know, fixed cost savings of around $3 million a year. I guess equally critical to the decision was that many of the burdens in residential lending reside in the compliance space and the disclosure world, and that is all assumed by MortgagePath. Again, we would certainly have our oversight and audit of that process, but you know, the critical parts of it are in this outsourced program and I think gets us away from a lot of the inherent risks in residential mortgage lending. Frankly, given the radical downturn in the residential business in the last couple of months with a slowing economy and significantly higher rates, for us, the timing could not have been better. With the adoption of that program, though, we did have some severance costs in the quarter. Again, that was about, I think, $400,000 of more noise. The margin, I don't know if I can be a little bit creative with numbers here. Actually, you know, improved about 13 basis points on a basis that doesn't consider the $1.5 million we had in recovered income last quarter. We reported a margin of 2.95% versus 3.03% last quarter and the 3.03% was favorably impacted by about 21 basis points in the first quarter. With a one-time recovery. You know, I guess one of the ways to look at it, I guess most favorable is, you know, we went from a 282 basis point margin to a 295. And if you want to look at it by the reported numbers, we went from 303 down to 295, decline of 8 basis points. But directionally, I think, you know, I feel pretty confident in terms of where we go with margin. Deposit costs, you know, will begin to go up. They already have in some instances. And, you know, depending on what happens with the Federal Reserve and inflation, I think our expectations are that there will be several more increases certainly in the current year and probably going into 2023. The magnitude of those increases, I think the Fed's already put a stake in the ground with 275 basis points increases. You know, perhaps they might be a little more moderate the next time around, depending on what the inflation numbers look like. But at the current rate, you know, of 9%, 8.5%, however you wanna look at it is an enormous cost for most people in the country to bear. Certainly my expectation is the Fed will adhere to its mandate and address inflation as aggressively as it need be to break that cycle. I guess the more important thing for most of us to talk about here is where we stand with these investigations. The work involved, I think you probably all appreciate the fact that it's been backbreaking for all of us, and then certainly the patience of our shareholders is, I hope you realize, always acknowledged and appreciated. It's just been a very big undertaking and dealing with two separate investigations takes a lot of time and energy and obviously cost. I think it's safe to say here that the Formal Agreement, which has been outstanding since 2019, you know, all of the requirements in the Formal Agreement are of course public. I think it's safe to say that the requirements were pretty extensive. As I noted in my remarks in the press release, I think we're now in a position where we have satisfied 100% of these findings and the requirements in the Formal Agreement. Our expectation is that it will be lifted with the formal conclusion of our exam. It's an achievement that's hard for me to underestimate how critically important it was. It's really a testament to the hard work and the expertise of Sterling's board and management and staff. From the start of our efforts, I think it's been about 18 months since we've been able to fully attack the Formal Agreement with the new management group and the, you know, the direction we've followed in terms of satisfying it. It's, you know, it's been a. If you've dealt with formal agreements before or different enforcement actions from the bank regulators, I think it's usually safe to say it's a you know generally at best a two-year process and more typically a three-year process. It's important to understand that the satisfaction of the formal agreement requirements is really critical to closing out the OCC enforcement. I would guess I'd say I have a reasonable level of confidence that both the DOJ and the OCC investigation will conclude this year. Again, we expect to be in a position to have much more clarity in the third quarter report. These investigations are independent of each other, so it can be a laborious process, which means time and expense. Again, we are complying with all of the requests and pushing as expeditiously as possible for, you know, finality, again, only with respect to Sterling and not individuals. The process is, you know, I think well underway. Again, as I said, I think we expect finality by the end of the year. The timeline with respect to getting all the i's dotted and t's crossed and, you know, coming up with what ultimately the fines and penalties are going to be takes some time. We don't have any insight at this point into what the fines and penalties are going to be or even proposed to be. That is, you know, remains to be discovered as we at least get the initial proposals from the agencies in the weeks and months ahead. As I said, I think by the end of the third quarter, we will have a pretty good sense of where these are going and hopefully have everything documented and completed by the end of the fourth quarter. There's, you know, good business and legal reasons to meet that timeline, and I think that's the sense we've been given. With that, probably worthwhile if Karen if you just wanna go through the noise with the insurance policy surrenders, how it impacted taxes and operating expenses. Sure, I'd be happy to. As Tom mentioned, we surrendered about $25 million worth of policies. With regard to that, the largest was the split dollar policy, which had a cash surrender value around $19 million. For that policy, we had two liabilities on the books recorded, one for the cost of the insurance, which is just an accounting way to account for the portion of those proceeds that would have gone to the beneficiaries that were not the bank. Another smaller piece to cover taxes, for the increase in the value. Those two totaled about $4.5 million, and those were reversed through the salary and benefit line on the expense side of the balance sheet. Additionally to that, we had to book taxes on the life to date gain on those policies. These were Modified Endowment Contracts. If we would have not surrendered them and waited to receive a death benefit, that would have been 100% tax-free. Because we surrendered them, we had to pay tax on the gain. The gain was about $13.1 million, and that equated to about $3.6 million additional income tax expense in below the line. Then lastly, just like if you cash in something of your own early, since we cashed in the policies early, there was a Modified Endowment Contract additional tax of 10%, and that is in the other expense line on the income statement. All in all, it netted to about a $0.5 mi llion of expense. It just happened to hit three different line items on the income statement. Thank you. That's why I said it created some noise on several different lines in the income statement. You know, the net result is the policies were surrendered, and we booked them accordingly. With all of that, I'm happy to take questions on any of the topics I covered. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you are 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 two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Ben Gerlinger with Hovde Group. Please go ahead. Hey, good morning, guys. Morning, Ben. I just kind of thinking big picture here about the expense base. I get that there's a lot of moving parts, especially given all the noise in the quarter. With the kind of the new process on MortgagePath and that new endeavor and kind of thinking with the BOLI and all the tax things stripped out of 2Q, when you think about 3Q, is there just like kind of a core run rate you guys would be guided to excluding professional fees? Because I know that can always be a bit of a wild card for any one quarter. Like, I'm just trying to think when you think holistically the new expense base is X, is there something you would guide to for a core? I'll give that to Karen. Yeah, I mean, obviously salaries and benefits needs to be higher than it was. If you're excluding the professional fees. Gonna do a little math here. Yeah. I would say around $15 million or so with excluding professional fees. Gotcha. If you were to strip out all the DOJ and OCC type, kind of actions you guys are doing behind the scenes, like, does professional fees account for anything else? Like is there something else that's also baked into that? Obviously it'd be minimal, but can professional fees go to zero or is that still something in there? No, there's definitely still expenses in there. You know, just the expenses of being a public company, general legal fees from, you know, doing business. By far, you know, it's extremely bolstered by these investigations. Gotcha. Yeah. Okay. That's what I was thinking too. Do you think just kind of bigger picture here, obviously I think everyone's well versed that the balance sheet is shrinking. With rates higher, on mortgage properties and just in general, do you think the melting of the ice cube, as Tom would put it here, do you think that slows at all, or are we still kind of on the same path that we've seen over the past couple quarters? Well, I'd say, Ben, you know, with higher rates and liquidity on the balance sheet, you know, we're getting some benefit in the margin, and that certainly is helpful to us. You know, it's still a concern as you get into the second half of 2023, depending on your forecast for rates and volumes. I mean, we've been pretty patient with even investing the bank's money when rates were quite so low. We invested a little bit as rates went up, and even that was too soon from a yield perspective. You know, we're fairly short-term invested. I think we can manage through the process. If the rates had stayed down basically at zero, I think the, you know, the ice cube theory was more of a current concern. I think we, you know, we buy a little time with higher rates. But we still have to obviously to address some significant, strategic issues once we get through the, you know, the sign-offs on the various investigations. It's a little tough because not having a clue where, you know, the fines and penalties may come out. You just don't know what you're dealing with. Got you. Yeah. No, I appreciate that. I think that's everything I got. Good. Thank you. Again, if you have a question, please press star then one. Our next question will come from Nick Cwikla with Piper Sandler. Please go ahead. Good morning, Tom and Karen. How are you? Very well, Nick. You? Good, thank you. I just wanted to follow up on the professional fees. Making the assumption that the DOJ and OCC investigations are concluded by year-end, do you have an estimate for a normalized level of professional fees? I don't. Karen, what do you? You know, one thing that I'm not sure will be resolved or not, maybe Tom can provide some color, is the legal expenses we're incurring for third parties. If that was all resolved, both the company and, you know, the third party, you know, you're looking at minimal amounts, right? Like $300000 -$500000 a quarter in a normal situation. Okay. That's helpful. Yeah. Nick, Do you think? The indemnified parties, I mean, there are obviously people in the bank who, you know, might be in a position to provide some information to either or both of the agencies. They are each entitled to advancement of legal fees under certain conditions. That's, you know, another thing that starts to get a little easier once we get sign-off on the final terms and conditions of the various investigations. Yeah. You know what, Nick? That's very helpful. I wanna change there a little bit because I was looking primarily at legal and professional, and I wasn't considering some regular, you know, audit expenses and stuff that we have. That's probably gonna be closer to $750 on a normalized quarter. Okay. Thank you for the clarification. You've made considerable progress in de-risking the balance sheet and bringing down higher risk credits. From an asset quality perspective, what are your remaining concerns at this point? You know, it's funny. I didn't get into the credit picture because, as I noted my quote in there. Last year at this time, I think, you know, I expressed a fairly high degree of concern with the aggressiveness in the commercial portfolio. You know, we've got some really good credit people now who, you know, taken apart the loans we were most concerned about. We got, you know, accurate risk ratings on them. And, you know, in some cases we worked with borrowers, other cases we exited out of the relationships. And, you know, in a more significant case, we sold a large pool of those single-room occupancy hotels. That brought the risk down a little. I think, as I noted in the press release, we'll probably look at one more commercial sale in the next quarter or two of loans that perform but are always going to be substandard, and the risk that they start to perform erratically. With respect to the residential loans, you know, our experience with those continues to be quite good in terms of ultimate loss exposure. I think of the group that we reported as non-accrual, $18 million or so was paying under some delayed terms or modified terms, but not really ready for prime time accrual status. The rest are, you know, loans that either are about to hit foreclosure or in foreclosure. Once we get clear to the investigations, then we might look at a, you know, a significant sale of the non-performing or under foreclosure Advantage loans and clean it up that way. It's not too different if you followed at all what we did at Sun National Bank when I was there. You know, a couple of big transactions, and all of a sudden the, you know, the risk profile was extremely modest. That's our goal here. You don't wanna make high-risk loans in a economy that's slowing down. You know, the challenge for us will be to, you know, balance that against the net interest margin. First and foremost is the credit. I think we're adequately reserved in the case of potential losses. As I mentioned, to date, you know, we've lost exposure on the Advantage loans that went into foreclosure or otherwise off the balance sheet. Pretty insignificant. You know, we had one that was a fire in the house and, you know, we lost some money on that. You know, for the most part, they go to foreclosure. At the foreclosure sale, we tend to be outbid because the loan-to-value at origination were, you know, fairly low and, but more importantly, prices have also improved in most of those markets. There's, you know, plenty of equity in those. It is, you know, the Advantage loans are the major part of our non-accruals. That's great color. Just one final one from me. Can you remind us how much remains in the mortgage repurchase liability allowance and where you stand with respect to further repurchases of Advantage loans? I can't, but Karen can. Sure. There's just under $2 million left in that repurchase reserve. There's about just under $90 million worth of total Advantage loans that have been sold to third-party investors. We were expecting to get a pool back, hopefully in the third quarter, might be pushed to the fourth quarter, of about probably $35 million by the time we get there, maybe a little less. And then there's another, a couple of others, one under agreement, one not. Those seem a little less likely at this point, given where the market is. Great. Thank you so much for taking my questions. I guess I'd add, Nick, just to put in perspective, when I joined the bank, the loans sold to others, which were all Advantage loans, was, I think, if memory serves correctly, around $850 million. We're down to pretty much the tag ends of our exposure to the loans sold to others, and I think most of them, you know, the performance levels we look at in terms of the loans sold to others that we service remains quite good. My guess is they'll just hang on to them. Yeah. Really big difference. Great job. Thank you very much. Sure. Thank you. Our next question will come from Ross Haberman with RLH. Please go ahead. If memory serves correctly, around $850 million. Good morning. Good morning, Tom. Hi, Ross. How are you? I'm fine. You? I just wanted to go back, one more further, some further questions on the non-accrual and non-performers. Generally, would you say, I don't know, would it be too aggressive to say you can knock that number in half by the end of the calendar year? No. I, you know, it's if you take the, well, you know, it depends. Sorry. -on when we finally satisfy the sign off on the Formal Agreement and the DOJ investigation. Let's just- Right. For argument's sake, you know, say that's 12/31. Right. We could look at selling the portfolio of Advantage loans that are 90 days or more delinquent and under foreclosure. That's more than half of the total. Yeah, in theory, that would all work. The timing, I can't quite pin it down to a quarter, but there's a market for those and it just requires us to get through the DOJ investigation. Could you remind us, have you adopted CECL yet? If not, are you running parallel programs and you're hopefully not gonna shock us in March with a multimillion-dollar addition. You seem pretty well reserved. Well, I'll say what I think, and then Karen can add color to it. We've had a CECL, you know, team in progress. We've had, you know, we have outside experts guiding us on the, you know, the issues in and around CECL, and we've hired another firm to validate everything we've done. I think, you know, we're in very good position to be providing a little more information directionally in the third quarter and even more in the fourth quarter, and then we should be fine with adoption in first quarter 2023. I would say, in my opinion, you won't see any shocks, but hear from the CFO too. Yeah, I would agree with that. You know, we've been running the models parallel without adding the qualitative factors. We're really just working on finalizing those and seeing what makes sense given, you know, the models are more robust since they already bake in the economic forecasts and such. I think we're pretty well reserved, and I would be surprised to have any shocking news come the end of the year when we report a number. Just one follow-up regarding the investment securities. The held for sale portion of that, what was the average yield or average duration of that? I don't think we have any investment securities in held for sale. Do we, Karen? Well, the whole portfolio. You have to make the I adjustment, so I figured that you must have. The whole portfolio is held for sale. You know, I don't have the data in front of me, but the duration's relatively short. Okay. You know, when we buy things, we're always looking at, you know, 2-3 years. It's pretty short. Okay. All right. Thanks so much. The best of luck. Hopefully you can wrap everything up by Christmas. Thank you. That would be a nice holiday gift. I was thinking of trading portfolio, not held for sale. Okay. Anything else? Our next question is a follow-up from Ben Gerlinger with Hovde Group. Please go ahead. Hey. Sorry for the the double question. You kind of answered half of it. I was just thinking about negative AOCI in the quarter, with rates up pretty notably over the past 180 days or so. I know you guys have a different liquidity strategy relative to most banks. Is it safe to say we've probably seen most of our lumps here and the AOCI is actually starting back to even? Or do you think we're gonna have another negative? I'm just thinking because the curve is all over the place. So the 10-year is lower, but the 2-year is higher. Yeah. I'm kind of thinking from that perspective of the balance sheet. Yeah, you know, with the yield curve the way that it is, I mean, as Karen mentioned, we tend to invest, you know, three years and in. We're probably a little more exposed to higher rates there from an AOCI perspective. You know, in a sense, my view is generally the rates will go where they go and the you know, the marks will be where they are. There's no credit risk in anything that we buy. It's hard to predict valuations other than even if those two-year kind of rates and shorter stay you know, inverted it'll impact the you know, the value of the securities. At the end of the day, you know, we get our money back and I don't lose a lot of sleep over it. I'd be more concerned obviously if we're at longer term investments, with greater exposure, because then it's just, you know, can drop like a stone back where we were when I first started in this business. Right. Yeah. No, I agree. I was just double checking. It seems like from a liquidity perspective, you guys, you're not going to have to sell for a loss or anything. No. Like you said, it's marks are where they are. You'll get it back in three years or less. Yeah. No matter how you look at these things, they're either, you know, they either come back to you, they're yield adjustments, you know. You know, the timing is always difficult for any institution buying securities, whether it's, you know, equities or bonds or anything. You try to buy smart, you don't always do it. Right. Gotcha. Well, appreciate the color. Thanks. Sure. This concludes our question- and- answer session. I would like to turn the conference back over to Tom O'Brien for any closing remarks. No, just to hope everybody enjoys the balance of the summer and the year is going incredibly quickly, but we will be talking to you again at the conclusion of the third quarter. That'll be in October. I think we'll have, you know, more to say at that point. I think, you know, obviously as I mentioned earlier, more clarity. As always, we appreciate your time and your interest and wish you a good rest of the day. Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.