Sterling Bancshares CEO Discusses Q3 2010 Results - Earnings Call Transcript

Sterling Bancshares CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Sterling Bancshares (

SBIB

)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Graham Painter - EVP of Corporate Communications

Downey Bridgwater - President & CEO

Bob Smith - EVP and CCO

Zach Wasson - EVP & CFO

Analysts

Bob Patten - Morgan Keegan

John Pancari - Evercore Partners

Brett Rabatin - Sterne Agee

Brad Milsaps - Sandler O'Neill

Kevin Reynolds - Wunderlich Securities

Dave Bishop - Stifel Nicolaus

Tom Alonso - Macquarie

Mike Zaremski - Credit Suisse

Matt Olney - Stephens, Inc.

Presentation

Operator

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Ladies and gentlemen, thank you very much for standing by. Welcome to today's Third Quarter 2010 Sterling Bancshares Earnings Release Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. (Operator Instructions). As a reminder, this conference is being recorded and information on accessing the replay at today's conference will be given at the end of today's call. With that, I'd like to turn the conference over to our host today, Mr. Graham Painter. Please go ahead sir.

Graham Painter

Thank you, operator, good morning everyone. I'm Graham Painter, Director of Corporate Communications. This morning Sterling Bancshares released results for the third quarter ended September 30, 2010. To discuss those results with you today are Downey Bridgwater, Chairman, President and Chief Executive Officer; and Zach Wasson, Executive Vice President and Chief Financial Officer; and Bob Smith, Executive Vice President and Chief Credit Officer.

I'd like to remind everyone of the Safe Harbor statement included in today's earnings release. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for certain forward-looking statements including statements made during the course of today's conference call. These forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There could be no assurance that the future developments affecting Sterling will be those anticipated by the company. Factors that could cause actual results to differ from those projected in the forward-looking statements are set forth in today's earnings release, which has been posted on the Investor Relations page of our website at bancsterling.com.

For additional detail on these matters and other risks that could affect the company, please refer to the company's annual and quarterly reports which are filed with the Securities and Exchange Commission and available online at sec.gov.

On today's call, our speakers may reference certain non-GAAP financial measures, which we believe provide useful information for investors. If necessary, we will post reconciliations of these non-GAAP numbers to GAAP results on the Investor Relations page of our website. Sterling assumes no obligation to update the information presented on this call including any of its forward looking statements. I'd now like to turn the call over to our CEO, Downey Bridgwater. 

Downey

Bridgwater

Thanks Graham and welcome everyone. We appreciate you taking the time to join us on the call. Hopefully you had a chance a review our third quarter 2010 results which we released this morning before the market opened. We reported a net profit of $4.5 million or $0.04 per share for the third quarter which is an improvement of $0.03 per share as compared to the second quarter of this year. The improvement in earnings is a result of the lower provision for credit losses and decrease in ordinary costs and an increase in non-interest income.

The decrease in provision is the product of stabilization and the credit quality of our loan portfolio as well as lower overall loan balances. We have been working to improve our credit quality and are pleased to see some positive results. Non-performing loans, ORE and past due loans decreased during the third quarter and our net charge-offs remain at very manageable levels for the second quarter as well.

Assuming the property values continue to remain somewhat stable, we would expect net-charge offs to remain fairly consistent for the last couple of quarters excluding any possible future bulk NPA sales. Our allowance per credit losses to loans currently stands at a healthy 2.88%, an increase of 13 basis points over June 30

th

2010. Based on what we are currently seeing in our loan portfolio, we don't expect to fill the allowance above credit levels. This of course assumes we bought another downturn in the economy.

Period-end loans were down approximately $129 million same quarter, about 65% of the decrease or $84 million was due to reductions in CRE and construction and development loans. The remaining decrease was in C&I which was impacted by continued low line usage and by a large commercial mortgage warehouse line paying down during quarter due to increased secondary market activity.

Our funded energy loans were flat for the quarter and loan demand continues to be low overall. In our discussions with customers and in reviewing the financial results. We're beginning to see some potential increased activity. A number of our commercial customers are showing improved liquidity and profitability due to their aggressive cost cutting efforts put in place during the early stages of the recession.

As the economic recovery continues and there is additional clarity in the political and regulatory environment, we would anticipate that more of our business customers will begin to expand and grow their businesses. Sterling is extremely well positioned from capital and liquidity standpoint to take advantage of these future opportunities to serve our Texas markets. For the remainder of the year, we expect total loans to be flat to slightly down with modest growth coming in C&I including Energy, owner-occupied commercial real estate and our residential and consumer loan categories.

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