Sterling Bancshares, Inc. Earnings Call Transcript

Sterling Bancshares, Inc. Earnings Call Transcript
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Sterling Bancshares, Inc. (SBIB)

Q1 2010 Earnings Call

April 22, 2010 11:00 am ET

Executives

Graham Painter - Executive Vice President of Corporate Communications

J. Downey Bridgwater - Chairman, President and Chief Executive Officer

Zach L. Wasson - Executive Vice President and Chief Financial Officer

Bob Smith - Executive Vice President and Chief Credit Officer

Analyst

Dave Rochester - FBR Capital Markets

Brett Rabatin - FTN Midwest

Jennifer H. Demba - SunTrust Robinson Humphrey

David J. Bishop - Stifel Nicolaus & Co.

[Ben Harvey] - [Den]

Bob Patten - Morgan Keegan

Presentation

Operator

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Ladies and gentlemen, good morning. Thank you for standing by and welcome to the first quarter 2010 Sterling Bancshares Earnings Release. At this time all lines are in a listen-only mode. Later, there will be enough [toning] for your questions and comments. Instructions will be given at that time. (Operator Instructions). And as a reminder, this conference is being recorded. This time I’d like to turn the conference over to our host, Sterling Bank spokesperson, Mr. Graham Painter. Please go ahead.

Graham Painter

Thank you, operator and good morning everyone. I’m Graham Painter, Executive Vice President of Corporate Communications. This morning Sterling Bancshares released results for the first quarter ending March 31, 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 had been posted on the Investor Relations page of our website at bancsterling.com. And in the company's quarterly and annual report which have followed the Securities and Exchange Commission and are available on their website 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’ll post reconciliations of these non-GAAP numbers to GAAP results on the Investor Relations page of our website.

For additional detail on these matters and other risks that could affect the company, please refer to the company’s most recent quarterly reports for the first three quarters of 2009 and the 2009 annual report on Form 10-K each of which have been filed with the Securities and Exchange Commission. Sterling assumes no obligation to update the information presented on this call including any of its forward-looking statements.

I would now like to turn the program over to our CEO, Downey Bridgwater.

J. Downey Bridgwater

Thanks Graham. Welcome, everyone. Hopefully by now you've all have a chance to review our first quarter 2010 results which we released this morning before the market opened.

As detailed in this release, our first quarter results were negatively impacted by increased credit cost due to the lingering effects of the economic recession particularly as it relates to commercial real estate values. The $0.07 per share net loss we reported was the direct result of increased provisions related to elevated levels of nonperforming loans and charge-offs we experienced during the quarter.

Approximately $17 million of the net charge-offs recorded was the result of writing down collateral-dependent commercial real estate loans to new values based on appraisals we ordered and received during the first quarter. Additionally, we wrote down loans held for sale by approximately $2.6 million also based on new appraisals, reducing other noninterest income by that same amount.

While we're disappointed in our first quarter results, we're taking the necessary steps to aggressively recognize and work through our credit issues and to continue to improve the risk profile of our balance sheet in order to return the bank to the best position possible to achieve normalized earnings as quickly as possible.

The good news is that we've continued to see some positive data points from an economic standpoint, both nationally and locally, that suggests the economic downturn maybe nearing the bottom and is beginning to show some incremental improvement in certain areas. On a positive note, reflected in our results for the first quarter, is an additional $87 million in capital that we raised in the form of a common stock offering which was completed in early March of this year.

This additional capital strengthens our balance sheet, improves the overall mix in quality of our capital base, and makes Sterling one of the better capitalized banks among our peers. Our rationale for raising this additional capital was to create a strong balance sheet, anticipate increase-required regulatory capital levels for the industry, withstand additional stress with our portfolio including a potential sale of homes, and to be prepared to take advantage of potential growth opportunity, such as new hires and assisted acquisition in Texas as they arise.

A quarter-end, our Tier 1 and total risk based capital ratios are now at 14.08% and 16.92%, respectively.  I'd like to take a few minutes to walk you through our balance sheet to describe some of the steps we've taken to better position the bank.

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