Sterling Bancshares Inc. in Houston has hit speed bumps including a terminated branch deal, an earnings restatement and a sharp rise in nonperforming assets.

And the $4.9 billion-asset company announced late Tuesday that it is operating under an informal agreement with regulators that requires it to maintain higher than "well-capitalized" capital ratios. Sterling said it would raise $80 million in capital.

Analysts say they expect Sterling's strong core deposit base and relatively healthy banking markets to attract investors.

"There are only a handful of publicly traded banks in Texas, so there are only a few opportunities to invest in this market," said Dan Bass, the managing director of Carson Medlin Co. "And once they work through any asset-quality problems, the long-term potential at Sterling is attractive for investors. So now you can get in at a good price."

Sterling already has more capital than regulators require to be considered "well capitalized," but its nonperforming assets are expected to continue growing. Consequently, analysts suspect much of the new capital will cover chargeoffs.

"There is potential for some of the capital raised to be offensive, but you can look at the stock market today and see it is viewing it as a sign of a defensive move," said Brett Rabatin, an analyst at Sterne, Agee & Leach. "The capital raise is less indicative of the informal agreement with regulators and more that they want to get credit issues behind them."

While other bank stocks generally rose Wednesday, Sterling's shares fell 7.33%, to $4.93, on news of the planned common stock sale.

Sterling's ratio of nonperforming assets to total assets has risen in recent quarters, despite efforts to move bad loans off its books via asset sales.

The nonperforming asset ratio climbed 40 basis points in the fourth quarter, to 2.42%, up from 1.84% at the end of 2008.

"Unfortunately, we continued to feel the impact of the economic recession in the fourth quarter through increased nonperforming loans," J. Downey Bridgwater, Sterling's chairman, president and chief executive, said in a conference call with analysts last month.

He would not comment for this story, citing a "quiet period" related to the capital-raising effort.

In January, he said that, though nonperforming loans grew by only $7.5 million in the fourth quarter compared with the third, the actual increase was larger because Sterling had sold roughly $20 million of nonperforming loans.

Overall, Texas banks' loan portfolios are holding up better than those in many other regions. The average nonperformer ratio at Texas banks at the end of the fourth quarter was 2.42%, compared with 3.32% for banks nationwide, according to Federal Deposit Insurance Corp. data.

Sterling's fourth-quarter growth in nonperforming loans can be attributed to its out-of-state loan portfolio, analysts said. The company has a $359 million Small Business Administration portfolio, of which $111 million is in California.

Sterling also had to restate its third-quarter results, posting a $24.7 million loss after losses tied to a fourth-quarter loan sale required it to add $28.6 million to its loan-loss provision.

In August, Sterling agreed to acquire 19 branches from First Banks Inc. in St. Louis, but the deal was called off after the companies failed to get regulatory approval by a self-imposed deadline.

Sterling was the first Texas bank to repay a Treasury Department investment under the Troubled Asset Relief Program. Terry McEvoy, an analyst at Oppenheimer & Co., said the Tarp repayment should make raising capital easier.

"It was good for them to get rid of the stigma and the cost of capital," he said, "and now with[out] the restrictions and additional regulatory oversight that came along with Tarp, they are able to make decisions like this one."

A filing with the Securities and Exchange Commission said that Sterling's subsidiary bank entered into the informal agreement with the Federal Deposit Insurance Corp. and the Texas Department of Banking on Jan. 26. The agreement requires Sterling to submit a capital plan to remain better than "well capitalized."

As of Dec. 31, it reported a leverage ratio of 8.89%, a Tier 1 risk-weighted ratio of 11.61% and a total risk-based capital ratio of 14.41%. A report from Sterne Agee's Rabatin said that raising $80 million in capital would push Sterling's total risk-based capital ratio to 16.66%, its leverage ratio to 10.52% and its Tier 1 risk-based ratio to 13.88%.

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