Many banks have been constrained from making commercial real estate loans. Meanwhile, loan-to-value ratios have come down, so our opinion is that at this point in the cycle, this has presented an opportunity for us.
The third area is the warehouse lending business. We lend to mortgage bankers who themselves are originating mortgage loans on 1-4 family homes. Again, during the financial crisis, many banks stopped their lending warehouse activities and stopped lending to mortgage bankers. We have a history of asset-based lending and know how to manage collateral.
TheStreet: Can you describe Sterling's factoring business?
Millman: Factoring is a little bit different
from lending collateralized by accounts receivable
. You actually buy the receivable from a company. The company is essentially outsourcing the credit and collections functions to the bank. If for some reason we don't collect the accounts receivable, it is our risk, and not the client's risk.
There aren't too many community banks in the factoring business.
Can you provide any color on the seasonal swings in the receivables management and factoring revenue?
Typically, we see more activity in that business in the third and fourth quarter, as the businesses accumulate more inventory and their borrowings go up.
What about trade financing? We have seen a sequential and year-over-year decline in revenue.
Our letter of credit business serves importers, and a couple of large clients are now able to get imports on open credit, meaning they no longer have to post letters of credit to the exporters in other countries. As the world becomes more interconnected, people overseas are becoming much more comfortable with American companies.
Sterling Bancorp's shares rose over 4% on Tuesday to close at $9.44. The shares have returned 11% year-to-date, following a 14% decline during 2011.
Based on a quarterly payout of nine cents, the shares have a dividend yield of 3.81%.
Sterling's shares trade 1.3 times their reported June 30 book value of $7.36, and for 13 times the consensus 2013 EPS estimate of 72 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 64 cents.
Interested in more on Sterling Bancorp? See TheStreet Ratings' report card for this stock.
Written by Philip van Doorn in Jupiter, Fla.