Sterling Bancorp Reports Operating Results (10-Q)
Sterling Bancorp is a bank holding company. Sterling provides a full range of financial products and services including business and consumer loans commercial and residential mortgage lending and brokerage asset-based financing accounts receivable management services trade financing equipment leasing corporate and consumer deposit services trust and estate administration and investment management services. Sterling National Mortgage Company Inc. Sterling National Mortgage Corp. and Sterling Factors Corporation are wholly owned subsidiaries of the bank. Sterling Bancorp has a market cap of $222.16 million; its shares were traded at around $12.27 with a P/E ratio of 13.94 and P/S ratio of 1.47. The dividend yield of Sterling Bancorp stocks is 6.19%. Sterling Bancorp had an annual average earning growth of 3.7% over the past 10 years. Highlight of Business Operations: The Company reported net income for the three months ended March 31, 2009 of $3.6 million, representing $0.20 per share calculated on a diluted basis, compared to $4.0 million, or $0.22 per share calculated on a diluted basis, for the first quarter of 2008. This decrease reflects a higher provision for loan losses partially offset by increases in net interest income and noninterest income and lower noninterest expenses and the provision for income taxes. After dividends on preferred shares and accretion, net income available to common shareholders for the first quarter of 2009 was $2.8 million, representing $0.15 per share calculated on a diluted basis.
Interest earned on the loan portfolio decreased to $17.6 million for the first quarter of 2009 from $20.8 million the prior year period. Average loan balances amounted to $1,180.2 million, an increase of $75.7 million from an average of $1,104.5 million in the prior year period. The increase in average loans, primarily due to the Company’s business development activities, accounted for a $1.2 million increase in interest earned on loans. The decrease in the yield on the loan portfolio to 6.19% for the first quarter of 2009 from 7.80% for the 2008 period was primarily attributable to the lower interest rate environment in 2009 and the mix of average outstanding balances among the components of the loan portfolio.
Interest earned on the securities portfolio, on a tax-equivalent basis, increased to $9.2 million for the first quarter of 2009 from $9.1 million in the prior year period. Average outstandings increased to $750.3 million (38.6% of average earning assets) for the first quarter of 2009 from $720.5 million (39.4% of average earning assets) in the prior year period. The average life of the securities portfolio was approximately 4.6 years at March 31, 2009 compared to 7.4 years at March 31, 2008.
Interest expense on borrowings decreased to $1.9 million for the first quarter of 2009 from $3.0 million for the 2008 period, primarily due to lower rates paid for borrowed funds partially offset by an increase in average balances. The average rate paid for borrowed funds was 1.64%, which was 199 basis points lower than the prior year period. The decrease in the average cost of borrowings reflects the lower interest rate environment in 2009. Average borrowings increased to $476.8 million for the first quarter of 2009 from $330.5 million in the prior year period, reflecting greater reliance by the Company on wholesale funding.
Based on management’s continuing evaluation of the loan portfolio (discussed under “Asset Quality” on page 24), the provision for loan losses for the first quarter of 2009 was $6.2 million, compared to $2.0 million for the prior year period. Factors affecting the larger provision for the first quarter of 2009 included further deterioration of economic conditions during the quarter, a $3.5 million increase in net charge-offs, a $9.7 million increase in nonaccrual loans, and growth in the loan portfolio.
At March 31, 2009, the Company’s portfolio of securities totaled $661.2 million, of which obligations of U.S. government corporations and government-sponsored enterprises amounted to $592.8 million, which is approximately 89.7% of the total. The Company has the intent and ability to hold to maturity securities classified as “held to maturity.” These securities are carried at cost, adjusted for amortization of premiums and accretion of discounts. The gross unrealized gains and losses on “held to maturity” securities were $8.0 million and $0.3 million, respectively. Securities classified as “available for sale” may be sold in the future, prior to maturity. These securities are carried at estimated fair value. Net aggregate unrealized gains or losses on these securities are included in a valuation allowance account and are shown net of taxes, as a component of shareholders’ equity. Given the generally high credit quality of the portfolio, management expects to realize all of its investment upon market recovery or the maturity of such instruments and thus believes that any impairment in value is interest rate related and therefore temporary. “Available for sale” securities included gross unrealized gains of $4.8 million and gross unrealized losses of $4.3 million. After reviewing all investment securities the Company holds in order to determine if the decline in the fair value of any security appears to be other-than-temporary, management expects to realize all of its investment upon the maturity of such instruments and, thus, believes that any fair value impairment is temporary. Management has made an evaluation that the Company has the ability to hold securities with unrealized losses until maturity and, given its current intention to do so, anticipates that it will realize the full carrying value of its investment.
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