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Sterling Bank: The Good, The Bad & The Ugly

Courtesy of bmoreland

This week’s “The Good, The Bad & The Ugly” from BankRegData.com reviews Sterling Bank.

Sterling (SBIB) is the 10th largest Texas-based bank with $5.04 Billion in Assets. They operate approximately 58 branches in Houston, San Antonio, Dallas & Fort Worth.

The data for the following tables and charts comes from the FDIC Call Reports and the spot review is not intended as advice. BankRegData holds no positions in any bank stocks nor has financial backing from any institution. If you’d like to be removed from the bi-weekly mailing, please reply to this email with a big X and we’ll kindly remove you.

The Good: Funding Costs

At 0.79% Sterling has an incredibly low Cost of Funding relative to similar sized national peers at 1.33%. Another piece of good news is that the low rate has not affected their Deposits, which have grown from $4.11 Billion to $4.22 Billion Q on Q.

Smaller to mid-size institutions often rely on Deposits more than Non-Deposit borrowings and you at times see a negative relationship between Cost of Funding and Deposits. See Bank of Smithtown as a prime example. SMTB saw their Cost of Funding drop from 2.10% to 1.83% while their Deposits correspondingly shrank from $2.08 Billion to $1.87 Billion. Poor results even while they added a branch during the quarter.

The Bad: Impact of Loan Sales

Sterling took a $2.412 million Net Loss on Loan Sales which hurt their Non Interest Income in the First Quarter 2010. This contibuted to their Non Interest Income to Average Earning Assets ratio of 0.63% which is considerably lower than peers at 1.53%. Please note that this marks the second consecutive quarter with a net loss.

A review of their Loans Held For Sale show that they have a Nonperforming Rate of 60.28% on what they are trying to unload:

While the losses are a short term drain on income, the strategy makes a lot sense and should position them well down the line.

The Ugly: Commercial Real Estate NPLs

CRE makes up 53.85% of Sterling’s loan book and the Nonperforming Loan percentage has climbed from 4.33% to 5.95%. What makes this number even more concerning is the fact that they also charged off $17.098 billion in the quarter. This means they had a net $44 million enter Nonaccrual status Q on Q. The $44 million is the $17 million CO plus the difference of $99 million and $72 million in sequential quarterly Nonaccrual.

Adding insult to injury is the fact that Early Stage CRE Delinquencies went from 1.57% to 1.77%.

 

Shameless Plug: Each week BankRegData.com reviews a financial insitution and breaks down a few metrics. Once again, BankRegData holds no positions in any bank stocks nor has financial backing from any institution. If you’d like to receive the weekly e-mail please send a request to info@bankregdata.com.

 


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