Sterling Bancshares, Inc. (SBIB)

Q2 2010 Earnings Call

July 22, 2010; 11:00 am ET


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


Dave Rochester - FBR Capital Market

Mike Zaremski - Credit Suisse

Brett Rabatin - Sterne, Agee

Terry McEvoy - Oppenheimer

Jennifer Demba - SunTrust

Bob Patten - Morgan Keegan

Matt Olney - Stephens Inc.



Ladies and gentleman, thank you for standing by and welcome to the second quarter of 2010 Sterling Bank shares earnings results conference call. At this time all participants are on a listen-only mode. Later there will be a question-answer session with instructions given at that time. (Operator Instructions)

At this point I’ll now turn the meeting over to our host, Mr. Graham Painter. Please go ahead.

Graham Painter

Thank you and good morning everyone, I’m Graham Painter, Executive Vice President, Director of Corporate Communications. This morning Sterling Bancshares released results for the second quarter ending June 30, 2010. To discuss those results with you today are Downey Bridgwater, Chairman, President and Chief Executive Officer; 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 can be no assurance that 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 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

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. Sterling assumes no obligation to update the information presented on this call including any of its forward-looking statements.

And now I’d like to turn the call over to our CEO, Downey Bridgwater. Downey.

Downey Bridgwater

Thanks Graham and welcome everyone. We appreciate you taking the time to join us on the call. Hopefully, you had a chance to review our second quarter 2010 results, which we released this morning before the market opened. We reported a net profit of $596,000 or $0.01 per share for the second quarter, which is an improvement of $0.08 per share as compared to the first quarter of this year.

Improvement in earnings is a direct result of a lower provision for credit losses. The decrease in provision was due to several factors, but was primarily related to a substantial reduction in FAS 114 write-downs of CRE loans during the second quarter, as net charge offs total $6.4 million as compared to $21 million in the first quarter of 2010.

While we continue to receive new appraisals in the second quarter, we then experienced the same level of deficiency in valuations that require major adjustments to loan carrying values as we experienced during the first quarter. Even though economic growth may now be a little slower than some experts had predicted, although national and Texas economies appear to be in a recovery phase and the bottom to the CRE market seems to fall. It will take some time for the CRE sector as a whole to heal completely as demand for new space will ultimately depend on sustained employment growth and business expansion.

But it appears that Texas business activity seems to be moving in a positive direction. We continue to see incremental improvement in key economic indicators that lead us to believe the worst of the recession is behind us. In May, every major metro area in Texas added jobs and the unemployment rates continue to improve albeit slightly and still remain below U.S. average. The population growth continues in all of our Texas markets.

Oil and natural gas prices have remained relatively healthy and are expected to increase slightly over the remainder of this year and into 2011 based on the latest forecast from the Energy Information Administration which should benefit our markets. The U.S. active rig count is up over 70% from this time last year and the active rig count in Texas is more than doubled what it was in July 2009. Because energy represents a considerable part of our economy in Texas, let me take a few moments to address the potential impact of the Gulf oil spill on our markets and specifically Sterling.

For Sterling, we don’t expect to see any direct impact to our loan portfolio and as of June 30, 2010, we have approximately $125 million in funded direct energy loans. These loans are primarily secured by onshore domestic oil and gas production. We do not have any direct offshore exposure.

To date, only a very small amount of oil from the Deepwater Horizon has washed the shore on Texas beaches. Therefore, we would not expect to see any meaningful negative impact on tourism or other businesses along the Texas coast. Even if for some unexpected reason that were to change, our loan portfolio would still not be at risk, as we don’t have any material loan exposure to any industry along the Texas Gulf coast.

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