Sterling Bancorp Repays TARP

NEW YORK ( TheStreet) -- Following a report on Tuesday of first-quarter earnings rising 71% year-over-year, Sterling Bancorp ( STL) of New York on Wednesday announced U.S. Treasury approval for its plan to fully redeem $42 million in preferred stock held by the government for bailout funds received through the Troubled Assets Relief Program, or TARP, it received in December 2008.

The TARP repayment follows the completion of a $38.6 million offering of common shares in March, and Sterling's previous common equity raise of $58.4 million, in a public offering completed last August.
Sterling National Bank president and CEO John Millman

Sterling on Tuesday reported first-quarter net income available to common stockholders of $3.3 million, or 12 cents a share, increasing from $1.9 million, or 10 cents a share, in the first quarter of 2010. The main factor in the earnings improvement was a decline in the bank's provision for loan losses to $3 million from $6 million a year earlier.

With first-quarter net charge-offs - loan losses less recoveries -- of $3.2 million, Sterling "released" roughly $200,000 in loan loss reserves. The bank's annualized ratio of net charge-offs to average loans was 1.02% during the first quarter, and reserves covered 1.37% of total loans as of March 31.

Nonaccrual loans totaled $7 million as of March 31, declining 59% from a year earlier. Overall asset quality was very strong, with nonperforming assets making up 0.30% of total assets as of March 31.

Total loans increased by 7.8% year-over-year, to $1.3 billion as of March 31. Sterling's net interest margin - the difference between its average yield on loans and securities investments and its average cost of funds - decline slightly to 4.90% in the first quarter, from 5.03% a year earlier, "largely due to the effect on interest income of a change in the loan portfolio mix," according to the company. CFO John Tietjen said during the company's earnings conference call that Sterling had, as planned, reduced its leasing portfolio to about $140 million as of March 31, from $179 million in March 2010.

Tietjen also said that Sterling was expecting loan growth at an annualized pace of 10% during 2011.

Sterling's noninterest income increased to $11.4 million in the first quarter from $11.1 million a year earlier, "primarily due to growth in accounts receivable management, factoring, trade finance and mortgage banking." The company said noninterest income made up 33.5% of total revenue, which was a significant percentage for a community bank.

Following the earnings report, Janney analyst Rick Weiss reiterated his "buy" rating on Sterling Bancorp, estimating that the company's stock had a fair value of $11 a share, and saying that the implied upside and "attractive dividend yield (3.5%) amply rewards investors for this uniquely positioned company." Weiss also said that "Sterling's longer-term appreciation potential is greater than the industry average due to its commercial lending niche and ability to take advantage of higher interest rates with commercial loans that should reprice more rapidly than its interest-bearing liabilities."

The company said that following the TARP repayment it would remain "well capitalized" under regulatory requirements. The tangible common equity ratio - which excludes the TARP money - was 8.30% as of March 31.

John Millman, the president and CEO of main subsidiary Sterling National Bank, said the company had decided to repay TARP "from a position of strength, as Sterling continues to deliver profitable growth while actively engaging in lending activities that support our clients and the overall economy."

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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