Sterling Bancorp Reports 2010 Third Quarter Results

NEW YORK, Nov. 1, 2010 /PRNewswire-FirstCall/ --

Third Quarter Highlights

• Improved credit quality – Sterling sharply reduced its level of nonaccrual loans to pre-recession levels.  Management determined to accelerate the resolution of certain nonaccrual loans, principally in lease financing.  After recognizing net charge-offs of $15.9 million, the level of nonaccrual loans fell by more than two-thirds, to $6.3 million or 0.47% of total loans at September 30, 2010, from $19.8 million or 1.60% of total loans a year earlier.  The allowance for loan losses as a percent of nonaccrual loans rose to 289.5% at September 30, 2010, three times the year-ago level.
• Loan growth – Total loans in portfolio rose to $1.3 billion at September 30, 2010, an increase of 7.3% from a year ago.  While maintaining its traditional rigorous underwriting practices, the Company experienced growth in most lending categories.  Sterling believes it is gaining market share in its core lending business and winning new customer relationships from competing financial institutions that have shifted their focus away from the Company's market.  
• Deposits increase – Total deposits were $1.6 billion at September 30, 2010, rising 16.8% from the prior year.  Noninterest-bearing demand deposits were $539.6 million, representing nearly 33% of total deposits, one of the highest ratios in the banking industry.
• Newer businesses drive income – Sterling noted that the progress of its mortgage warehouse lending business, launched in April 2010, is meeting expectations.  Also, the Company's accounts receivable management, factoring and import trade finance business has continued to grow organically following an acquisition in April 2009.  
• Strong capital foundation – Sterling's capital ratios continued to exceed regulatory "well-capitalized" requirements and its tangible common equity ratio was 7.05% at September 30, 2010, up from 4.58% a year earlier.

Sterling Bancorp (NYSE: STL), a financial holding company headquartered in New York City and the parent company of Sterling National Bank, today reported a net loss available to common shareholders of $3.3

million, or $0.12 per diluted share, for the 2010 third quarter.  The recent results included an additional provision for loan losses of $8.5 million, reflecting the Company's decision to accelerate the resolution of certain nonaccrual loans, principally in its lease financing receivable portfolio.

Sterling's non-GAAP net income available to common shareholders for the 2010 third quarter, which excludes the impact of the additional provision for loan losses, was $2.6 million, an increase of nearly 50% from the comparable figure a year ago.  This was equivalent to $0.10 per diluted share, unchanged from the 2009 third quarter, as the average number of shares outstanding in the 2010 third quarter increased 48% from the prior year as a result of the Company's March 2010 stock offering.    

Management Perspective

"Sterling delivered third quarter results distinguished by profitability from our main business lines, strong growth in loans and deposits, and a solid capital base.  The Company has steadily navigated the economic turmoil of recent years and has seized upon opportunities to grow our business and our market share, although meaningful signs of a broad-based economic recovery remain few and far between.  We concluded that it was the appropriate time to further reinforce our asset quality in this period of economic uncertainty by accelerating the resolution of certain nonaccrual loans during the 2010 third quarter," said Louis J. Cappelli, Sterling's Chairman and Chief Executive Officer.

"Specifically, we adopted a more aggressive methodology toward charge-offs of certain nonaccrual loans, primarily in lease financing which has been particularly sensitive to the economic downturn.  As a result, our nonaccruals at the end of the 2010 third quarter were at the lowest point in three years, essentially returning to pre-recession levels. By taking this action, we have reduced the Company's exposure to the risks of an uncertain economy, and built a strong foundation for future earnings improvement."

Financial Outlook

"We believe our actions will have a beneficial impact on the Company's financial results going forward.   We expect that future loan loss provisions and charge-offs should trend toward historic levels, given our current expectations for credit trends, resulting in an improvement in net income beginning in the 2010 fourth quarter.  We continue to pursue opportunities to provide credit, deposit accounts and other financial solutions to quality customers as other institutions under-serve our core markets, and we have the strong capital and liquidity to support prudent growth.  Our actions will enable Sterling to focus even more sharply on growing our business profitably, providing superior service to our customers, and delivering greater shareholder value," Mr. Cappelli noted.

Third Quarter 2010 Financial Results

The net loss available to common shareholders for the third quarter of 2010 was $3.3 million, or $0.12 per share, including the impact of the additional provision for loan losses noted earlier.  In the same period of 2009, net income available to common shareholders was $1.8 million, or $0.10 per diluted share.  

Non-GAAP net income available to common shareholders, which excludes the impact of the additional $8.5 million tax-effected provision for loan losses, was $2.6 million, or $0.10 per diluted share, for the 2010 third quarter.  The Company's performance in the 2010 third quarter benefitted from higher noninterest income, which was offset by lower net interest income due to asset mix and prevailing interest rates.  Earnings per share in the 2010 period reflected the impact of a 48% increase in the average number of common shares outstanding due to Sterling's stock offering completed on March 19, 2010.

Net interest income, on a tax-equivalent basis, was $21.6 million for the 2010 third quarter, compared to $22.3 million for the 2009 period.  This change primarily reflected higher average loan and investment securities balances, reduced borrowings and lower funding costs, offset by the impact of lower yields on loans and securities, and higher interest-bearing deposit balances.  The reduced yield on loans reflects a shift in the portfolio mix as the impact of the planned reduction in lease financing receivables balances was offset by growth in loan categories having lower yields.  Net interest margin was 4.11% for the 2010 third quarter, on a tax-equivalent basis, compared to 4.12% for the 2010 second quarter and 4.57% for the third quarter of 2009, primarily due to Sterling's deployment of the proceeds of its March 2010 stock offering in short-term, lower yielding investment securities.  

Reflecting the actions noted above with respect to asset quality, the provision for loan losses was $14.0 million for the 2010 third quarter, compared to $7.0 million a year earlier.

Noninterest income rose 11.3% to $13.1 million for the 2010 third quarter from $11.7 million a year earlier.  This increase primarily reflected higher accounts receivable management, factoring and import trade finance fees, due to Sterling's expansion of that business through an acquisition as well as organic growth.          

Noninterest expenses increased only 2.5% to $23.8 million for the 2010 third quarter, from $23.2 million a year ago.  Lower professional fee expenses largely offset higher compensation and occupancy expenses due to the growth of the business.

Nine Months 2010 Financial Results

Net income available to common shareholders for the first nine months of 2010 was $0.9 million, or $0.04 per diluted share, including the impact of the additional provision for loan losses noted earlier.  This compared to $4.7 million, or $0.26 per diluted share, for the same period of 2009.  Earnings per share in the 2010 period reflected the impact of the increase in the average number of common shares outstanding due to Sterling's stock offering completed on March 19, 2010.

Non-GAAP net income available to common shareholders, which excludes the impact of the additional $8.5 million tax-effected provision for loan losses, was $6.9 million, or $0.29 per diluted share, for the first nine months of 2010, compared to $4.7 million, or $0.26 per diluted share, for the year-ago period.    

Net interest income, on a tax-equivalent basis, was $63.1 million for the first nine months of 2010, compared to $65.3 million for the same 2009 period.  The decrease primarily reflected higher average loan and investment securities balances, reduced borrowings and

lower funding costs, offset by the impact of lower yields on loans and securities, and higher interest-bearing deposit balances.  The reduced yield on loans reflected, in part, a shift in the portfolio mix as the planned reduction in lease financing receivables led to assets being temporarily redeployed in lower yielding loan categories.  Net interest margin was 4.26% for the first nine months of 2010, on a tax-equivalent basis, compared to 4.60% for the same period of 2009, primarily due to Sterling's deployment of the proceeds of its March 2010 stock offering in short-term, lower yielding investment securities.

Reflecting the actions noted above with respect to asset quality, the provision for loan losses was $25.5 million for the first nine months of 2010, compared to $20.0 million in the year-ago period.

Noninterest income rose to $35.5 million for the first nine months of 2010, compared to $33.3 million a year ago.  This increase primarily reflected Sterling's expansion of its accounts receivable management, factoring and import trade finance business through acquisition and organic growth.  This was partially offset by lower mortgage banking income and securities gains.

Noninterest expenses declined slightly to $67.2 million for the first nine months of 2010, from $67.4 million in 2009, primarily as a result of lower professional fees and deposit insurance expenses.  

Loans and Deposits

Total loans held in portfolio were $1.30 billion at September 30, 2010, rising from $1.21 billion a year earlier.  Excluding lease financing receivables, which experienced a planned reduction in volume, loans held in portfolio increased 15.4% from a year ago.  Sterling extended a significant level of new credit facilities during the first nine months of 2010, while maintaining its traditional disciplined credit standards.    

Noninterest-bearing demand deposits totaled $539.6 million at September 30, 2010, a 14.7% increase from a year ago, and represented 32.8% of total deposits, one of the highest ratios of demand to total deposits in the industry.  Total deposits were $1.65 billion at September 30, 2010, up from $1.41 billion a year earlier.  

Asset Quality

The Company continued to experience an overall improvement in credit quality during 2010.  However, the level of certain nonaccruals, principally related to lease financing, has remained elevated since early 2009 due to the disproportionately negative impact of the recession on the small businesses that make up most of the Company's customers for these products.  In view of the persistent weakness in economic conditions, the Company determined that it was prudent and appropriate to implement an accelerated resolution of this category of nonaccruals, and accordingly charged off a significant portion of such nonaccruals in the 2010 third quarter.  In a related action, the Company also increased the provision for loan losses.  Following these actions, the Company believes that levels of charge-offs and provision for loan losses are likely to decline in subsequent periods.          

Reflecting the actions noted above, net charge-offs were $15.9 million for the 2010 third quarter, compared to $5.7 million a year ago.  The allowance for loan losses as a percent of nonaccrual loans was 289.5% at September 30, 2010, compared to 96.5% at September 30, 2009.      

The level of nonaccrual loans was $6.3 million at September 30, 2010, compared to $19.8 million a year earlier.  The ratio of nonaccrual loans to total loans was 0.47% at September 30, 2010, versus 1.60% at September 30, 2009.

Capital

Sterling's capital base has consistently exceeded all regulatory requirements for well-capitalized institutions.  At September 30, 2010, Sterling's Tier 1 risk-based capital ratio was 13.63% (compared to a requirement of 6.00%), total risk-based capital was 14.70% (requirement of 10.00%), and the Tier 1 leverage ratio was 10.35% (requirement of 5.00%).  

The tangible common equity ratio rose to 7.05% at September 30, 2010 from 4.59% at December 31, 2009 and 4.58% at September 30, 2009.  Book value per common share increased to $6.85 at September 30, 2010 from $6.73 at December 31, 2009 and $6.66 at September 30, 2009.    

Conference Call

Sterling Bancorp will host a teleconference call for the financial community on November 1, 2010, at 10:00 a.m. Eastern Time to discuss the third quarter 2010 financial results.  To access the conference call live, interested parties may dial 800-230-1766 at least 10 minutes prior to the call.

A replay of the conference call will be available beginning at approximately 1:00 p.m. Eastern Time on November 1, 2010, until 11:59 p.m. Eastern Time on November 15, 2010.  To access the replay by telephone, interested parties may dial 800-475-6701 and enter the Access Code 175999.

About Sterling Bancorp

Sterling Bancorp (NYSE: STL) is a New York City-based financial corporation with assets exceeding $2 billion. Since 1929, Sterling National Bank, the company's principal banking subsidiary, has successfully served the needs of businesses, professionals and individuals in the NY metropolitan area and beyond. Sterling is well-known for its high-touch, hands-on approach to customer service and a special focus on serving the business community.

Sterling offers clients a full range of depository and cash management services plus a broad portfolio of financing solutions – including working capital lines, accounts receivable and inventory financing, factoring, international trade financing, payroll funding and processing, equipment leasing and financing, commercial and residential mortgages, mortgage warehouse lines and trust and custodial account services.

Certain statements in this press release, including but not limited to, statements as to future events, future liquidity, future interest rate risk and operating expenses, statements concerning future results of operations, financial position or dividends, and plans and objectives for future operations, future capital, future liquidity and future growth, statements concerning the economic environment, asset quality and future levels of nonaccrual loans, charge-offs and provisions for loan losses, and the Company's position for future growth and ability to benefit from an economic recovery, and other statements contained herein regarding matters that are not historical facts, are "forward-looking statements" as defined in the Securities Exchange Act of 1934. These statements are not historical facts but instead are subject to numerous assumptions, risks and uncertainties, and represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside its control. Any forward-looking statements the Company may make speak only as of the date on which such statements are made.  The Company's actual results and financial position may differ materially from the anticipated results and financial condition indicated in or implied by these forward-looking statements, and the Company makes no commitment to update or revise forward-looking statements to reflect new information or subsequent events or changes in expectations. For a discussion of some of the risks and important factors that could affect the Company's future results and financial condition, see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements and Factors that Could Affect Future Results" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.