Sterling Bancorp, the parent company of New York City-based Sterling National Bank, today reported that net income grew to $16.0 million for 2008, from $14.6 million for 2007. Earnings per share on a diluted basis for 2008 rose to $0.88, an increase of 11.4% from $0.79 per share a year ago.
2008 Highlights: -- Earnings Growth - The 11.4% rise in diluted EPS for 2008 was primarily driven by an increase in net interest income due to higher balances of loans and other interest-earning assets, as well as management's focus on pricing of assets and liabilities to enhance the net interest margin. -- Strong ROE - Sterling's return on average tangible equity was 16.52% for 2008. -- Higher Net Interest Margin - The net interest margin, on a tax-equivalent basis, was 4.60%, up 11 basis points from a year ago. -- Increased Loan Volume - Loans held in portfolio averaged $1,141.4 million for 2008, an increase of 6.7% from a year ago. -- Solid Core Deposits - Demand deposits averaged $448.2 million for the year, equivalent to 36.0% of total deposits as of December 31, 2008. -- Sound Asset Quality - The ratio of nonperforming assets to total assets at December 31, 2008 was 0.40%, compared to 0.42% at the end of the third quarter and 0.40% at December 31, 2007. -- Strong Capital Base - Sterling's capital ratios exceeded regulatory requirements for a well-capitalized institution, with total risk-based capital of 13.56% at December 31, 2008.
For the fourth quarter of 2008, Sterling's net income was $4.0 million, compared to $4.2 million for the same period of the prior year. Diluted EPS was $0.22 for the fourth quarter of 2008, compared to $0.23 per diluted share for the 2007 period.
Management Comments
"Sterling's solid performance during 2008 is particularly noteworthy in light of the dramatic decline in overall economic conditions during the past year and the adverse impact on many financial institutions," stated Louis J. Cappelli, Sterling's Chairman and Chief Executive Officer. "We delivered a double-digit percentage increase in earnings per share for the full year and produced solid loan growth by continuing to focus on serving the needs of our marketplace. At the same time, we significantly increased our capital base and preserved our traditionally strong asset quality - both of which are key elements of Sterling's strength and stability."
"We have been - and continue to be - an active lender throughout the current economic cycle. As a strong and sound institution, we welcomed the opportunity to participate in the U.S. Treasury's Capital Purchase Program, which has further enhanced our capacity to make loans, serve the needs of our market and grow our business. In keeping with the spirit and purpose of the program, we have already originated new credits for commercial loans and home mortgages in excess of the Treasury funds we received. A significant percentage of this amount represents new customers, whose previous sources of credit may have been unable or unwilling to meet their needs in this environment. We remain committed to responsibly and prudently serving borrowers and supporting business activity in our market," Mr. Cappelli said.
"Our Company was founded in 1929 and, as we begin our 80th year in business, we are well acquainted with and prepared for the ups and downs of the economic cycle. Our staying power over eight decades reflects our sharp focus on serving the needs of our marketplace, while maintaining our longstanding rigorous lending and risk management standards. With our conservative investment model, we have largely avoided the large mark-to-market adjustments that have led to sizeable losses at other institutions. In addition, we have a strong capital base and a pool of liquidity that we believe will permit us to withstand economic challenges and pursue opportunities that continue to emerge," Mr. Cappelli noted.
Full Year 2008 Financial Results
Net income for 2008 was $16.0 million or $0.88 per diluted share, up from $14.6 million or $0.79 per diluted share for 2007. Results for 2007 included a loss on discontinued operations, net of taxes, of $0.8 million.
Net interest income for 2008, on a tax-equivalent basis, was $85.2 million, a 14.6% increase from 2007. The growth in net interest income primarily reflected higher average loan and investment securities balances, higher yields on investments and lower funding costs due to Sterling's asset-liability management strategy. Net interest margin for 2008, on a tax-equivalent basis, increased 11 basis points from the prior year, to 4.60%.
"Our balance sheet management strategy has contributed to Sterling's strong financial performance," said Mr. Cappelli. "We have employed cost-effective wholesale funding in lieu of higher-priced time deposits, while at the same time maintaining our core depositor relationships. Also, we have not faced the capital and liquidity issues that have obliged some competing institutions to overpay for deposits. The result has been a meaningful improvement in our net interest margin despite a volatile interest rate environment."
Noninterest income was $33.3 million for 2008, compared to $35.4 million for the prior year. The decrease was primarily due to other than temporary impairment charges totaling $1.7 million recognized in the second and third quarters of 2008, and a slight decline in mortgage banking income due to the lower origination volume experienced within the industry generally.
Noninterest expenses for 2008 were $84.5 million, compared to $79.5 million for 2007. The increase primarily reflected higher personnel expenses due to normal salary increases and investments in the growth of the Sterling franchise, increased occupancy costs due to higher rents and increased professional fees, primarily related to revenue enhancement projects, as well as the settlement of certain litigation.
The provision for income taxes was $9.2 million and $8.6 million, respectively, for the years 2008 and 2007.
Fourth Quarter 2008 Financial Results
Net income was $4.0 million or $0.22 per diluted share for the 2008 fourth quarter, compared to $4.2 million or $0.23 per diluted share for the same period in 2007.
Net interest income increased 13.6% to $21.8 million on a tax-equivalent basis for the fourth quarter of 2008. The increase, as noted above, was primarily due to the higher average loan and investment securities balances, as well as reduced funding costs arising from the Company's wholesale funding strategy. Reflecting the above factors, the net interest margin rose 18 basis points from the prior year, to 4.50% on a tax-equivalent basis.
Noninterest income was $8.8 million for the fourth quarter of 2008, compared to $9.5 million in the year-ago period. The decrease primarily reflects lower mortgage banking income as discussed above.
Noninterest expenses were $21.5 million for the 2008 fourth quarter, compared to $20.4 million in the same 2007 period.
The provision for income taxes was $2.7 million for the fourth quarter of 2008, compared to $2.6 million for the same period of 2007.
Earning Assets and Deposits
Loans held in portfolio, net of unearned discounts, averaged $1,141.4 million for 2008, an increase of 6.7% from a year ago. The increase reflected growth across a wide range of Sterling's lending products and services from both existing and new customers. The Company believes that its strong liquidity should provide capacity for further loan growth, as the ratio of loans held in portfolio to deposits was 87.6% as of December 31, 2008.
Investment securities averaged $756.3 million for 2008, up from $586.5 million a year ago, primarily due to the implementation of asset/liability management strategies designed to capitalize on current market conditions. Approximately 93.7% of Sterling's investment portfolio is comprised of debt obligations of U.S. government corporations and government sponsored enterprises, with another 2.9% in obligations of states and political subdivisions.
Demand deposits averaged $448.2 million for 2008, compared with $444.7 million a year earlier. Demand deposits represented 36.0% of total deposits as of December 31, 2008, one of the highest ratios of demand to total deposits in the industry.
Asset Quality Highlights
The ratio of nonperforming assets to total assets was 0.40% at December 31, 2008, unchanged from a year earlier. The allowance for loan losses as a percentage of total loans held in portfolio increased to 1.31% at December 31, 2008, from 1.27% a year ago.
Recognizing the possibility of a further downturn in economic conditions, management's attention has been fully focused on maintaining Sterling's well-established sound asset quality through continued diligent underwriting and credit standards, careful evaluation of borrowers and business conditions, and prudent approaches to loan loss provisions and reserve coverage. The provision for loan losses increased to $8.3 million for the full year and $2.2 million for the fourth quarter of 2008, from $5.9 million and $1.4 million, respectively, for the corresponding periods of 2007.
