Sterling Bancorp's Management Discusses Q1 2012 Results - Earnings Call Transcript

Sterling Bancorp (STL)

Q1 2012 Earnings Call

April 23, 2012 10:00 am ET

Executives

Edward Nebb – Investor Relations, Comm-Counsellors, LLC

John C. Millman – President

John W. Tietjen – Executive Vice President & Chief Financial Officer

Analysts

Mark Fitzgibbon – Sandler O’Neill

Collyn Gilbert – Stifel Nicolaus & Co.

Richard D. Weiss – Janney Montgomery Scott LLC

Damon Delmonte – Keefe, Bruyette & Woods, Inc.

Lana Chan – BMO Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to Sterling Bancorp 2012 First 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) As a reminder, this conference is being recorded.

I’d now like to turn the conference over to our host Investor Relations Advisor, Mr. Ed Nebb. Please go ahead.

Edward Nebb

Thanks Brad. Good morning everyone. Thanks for joining us. Our news release announcing Sterling’s first quarter 2012 results was issued today prior to the market open. The release is posted on the sterlingbankcorp.com website, if you need a copy.

Before turning to the discussion of our financial results, let me remind you that any comments made today about future financial position or results, dividends, plans, and objectives, 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 for the first quarter 2012 and beyond depend on the company’s future results, financial condition, and other relevant factors. A discussion of the factors that could cause actual results to vary is contained in the Company’s annual and quarterly reports.

We’ll have introductory remarks today from John Millman, President of Sterling Bancorp; and John Tietjen, Executive Vice President, Chief Financial Officer. After their remarks, we’ll be open to your questions. And so without further ado, I will turn the call over to Mr. Millman.

John C. Millman

Thank you Ed and good morning everyone. Welcome to our conference call for the 2012 first quarter. I’m pleased to report that we saw strong trends in virtually every key area of Sterling’s business during the first quarter, as we successfully executed our strategies to drive profitable growth.

Our accomplishments during the quarter included substantial increases in loans and deposits, higher total revenues or wider net interest margin, and well controlled expenses, while asset quality metrics remained sound. As a result of our progress in these areas, we started 2012 with a solid increase in net income. This clearly demonstrates the revenue and earnings power of our business model, the value of our franchise and the effectiveness of our customer service.

Our performance was a direct result of the strategies that we have been implementing for the past several quarters, as discussed on previous conference calls. Specifically, we have been actively engaged in growing our loan volume. We positioned our balance sheet for this expected increase in lending by maintaining a sizable pool of liquidity through our securities portfolio and other short-term assets.

The benefits of this strategy were clearly evident in the recent quarter, as we experienced robust credit demand. We have shifted our mix of earning assets into loans from investments, leading to an increase in yield.

At the same time, we have carefully managed the liability side of the balance sheet taking a disciplined approach to deposit pricing, while also increasing our level of non-interest bearing demand deposits, which led to a decrease in funding cost during the first quarter. These positive factors along with firm control of non-interest expenses in continued solid asset quality metrics powered our strong results.

Let me highlight some of our specific accomplishments for the 2012 first quarter. Net income available to common shareholders was up almost 40% to $4.6 million. Earnings per share increased to $0.15 on a diluted basis, up 25%. The rate of increase included the impact of $3.3 million more average shares outstanding, due to our March 2011 equity offering.

Total revenues for the 2012 first quarter were $35.7 million, an increase of $1.5 million from the prior year. In contrast non-interest expenses increased only $744,000 or 3%, due to our rigorous expense management process. Net interest income was up 13%.

As I noted earlier, our yield benefited from the increase in loans in our asset mix, while funding cost declined, due to our liability management efforts. This led to an 18 basis points increase in the net interest margin to 4.07%. Loans and portfolio were up 13% approaching $1.5 billion.

I believe many lending institutions will be pleased to be able to report our pace of loan growth. Loan demand has been strong across our product range, including the mortgage warehouse lending product that we recently introduced. We are seeing increased economic activity among our existing clients and are also actively acquiring new customer relationships.

The loan pipeline remains robust, considering that our loan growth is usually somewhat muted in the first quarter, due to seasonal factors. This strong start to the new year is encouraging. Total deposits were up 15% to about $2 billion at year end, while total assets approached $2.5 billion rising 4%. Non-interest-bearing demand deposits increased to $816 million from $562 million.

Our credit metrics have remained sound. Net charge-offs were $2.9 million for the 2012 first quarter, improving by about 10% from a year ago. The allowance for loan losses as a percentage of non-accrual loans was 314% at March 31, 2012, versus 257% a year ago.

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