Sterling Bancorp Management Discusses Q3 2010 Results – Earnings Call Transcript
Sterling Bancorp (
)
Q3 2010 Earnings Call Transcript
November 1, 2010 10:00 am ET
Executives
Edward Nebb – IR
John Millman – President
John Tietjen – EVP & CFO
Analysts
Lana Chan – BMO Capital Markets
Timur Braziler – KBW
Dave Peppard – Janney
Frank Barkocy – Mendon Capital
Presentation
Operator
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Sterling Bancorp Q3 2009 Earnings Conference Call
Ladies and gentlemen, thank you for standing by. Welcome to the Sterling Bancorp 2010 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) And as a reminder, this conference is being recorded.
I would now like to turn the conference over to Edward Nebb. Please go ahead.
Edward Nebb
Thank you very much, Linda. Good morning, everyone. Thank you for joining us. Our news release announcing Sterling's third quarter 2010 results was issued today prior to the market open. We hope you've had a chance to review it. The release has also been posted to the company's website.
Before turning to the discussion of financial results, let me remind you that any comments made today about future financial results or other future events are forward-looking statements under the Securities Exchange Act of 1934. Actual results may differ substantially from such forward-looking statements. The amounts of any dividends in 2010 and beyond will depend on the company's future results of operations, financial condition, and other relevant factors. A discussion of the factors that could cause actual results to vary is contained in Sterling's annual and quarterly reports as filed with the SEC.
This morning, we will have introductory remarks from Mr. John Millman, President of Sterling Bancorp; and Mr. John Tietjen, Chief Financial Officer. And after their remarks, we will be happy to take your questions.
And so without further ado, let me turn the call over to Mr. Millman.
John Millman
Thank you, Ed and good morning, everyone. Welcome to our conference call for the third quarter ended September 30th, 2010. Sterling's results for the 2010 third quarter clearly demonstrate the company's fundamental strengths, the value of our growth strategies, and our willingness to take decisive actions to improve and maintain credit quality.
Among the key developments in the quarter, credit quality was enhanced significantly as we accelerated the resolution for majority of our nonaccruals, primarily in lease financing and recognized charge-offs of $15.9 million. As a result, nonaccruals are now at $6.3 million, a two-thirds decrease from a year ago and the lowest level over the past three years. As a percent of total loans, nonaccruals are now 47 basis points versus 1.6% a year ago. And the allowance as a percentage of nonaccruals tripled to 289.5% from the 2009 third quarter.
Due to the additional $8.5 million loss provision related to this accelerated resolution strategy, we did incur a net loss available to common shareholders of $3.3 million for the quarter. Had we not taken this aggressive approach, our non-GAAP net income available to common shareholders would have been $2.6 million on a pretax basis, excluding the additional loan loss provision. That is an increase of nearly 50% over comparable 2009 figure of $1.8 million.
Diluted EPS was $0.10 in both periods, reflecting the fact that weighted average shares outstanding increased from about 18.1 million to 26.8 million due to our successful March 2010 stock offering.
Loan growth was substantial, with portfolio loans rising 15% from a year ago. Adjusting for the planned reduction of the lease financing portfolio, we have grown our lending business by selectively adding new customer relationships that need our rigorous underwriting standards in markets that are underserved by our competition.
Our new business initiatives are doing very well. For example, our Warehouse Lending Group is fully meeting our expectations and our investment in building for – in building the accounts receivable management, factoring and import trade finance business both through acquisitions and organic growth continued to deliver strong volume and increasing noninterest income.
Total assets reached $2.3 billion at the end of the third quarter, setting an all-time record. Sterling has been able to grow in a prudent and fundamentally profitable manner, despite the fact that the general economic news is far from encouraging. Many economists, government agencies, and corporate leaders have noted that there is no convincing evidence of a meaningful and sustained recovery. For this reason, we concluded that it is prudent and appropriate to further reinforce Sterling's credit quality.
We have taken actions that should both avoid pressure from an uncertain economy and improve our earnings performance, beginning in the fourth quarter. In the 2010 third quarter, we accelerated the resolution of certain nonaccruals, primarily in the area of lease financing. Our nonaccruals in this category have been elevated due to the impact of the recession on the small to mid-size borrowers, typically served by our leasing business. These are primarily small ticket items and the performance of this portfolio is not representative of Sterling's solid overall asset quality.
Applying a more aggressive methodology to these lease financing credits, we charged off $15.9 million in the recent quarter. We believe the aggressive resolution of this category of nonaccruals significantly reduces our exposure at a time when the pace of the economic recovery is unsteady. Following the charge-offs, total nonaccruals ended the quarter at $6.3 million, a decrease of more than 65%. This is the lowest level of nonaccruals since September of 2007 and essentially marks a return to pre-recession levels.
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