Sterling Bancorp's Earnings Ramp Up on Loan, Desposit Growth

Tickers in this article: STL

NEW YORK ( TheStreet) -- Sterling Bancorp (STL) has been firing on all cylinders, by growing its loans, and lowering its funding costs, growing its pre-tax fourth-quarter earnings by 58% in a tough operating environment.

Sterling is the holding company for Sterling National Bank , which is a commercial lender based in New York, which also operates in some specialized niches, including payroll financing for staffing companies, warehouse mortgage lending and factoring. The company had $2.7 billion in total assets as of Dec. 31, with 14 branches in Manhattan, Queens, Nassau County and Westchester County in New York. The company in September acquired Universal Mortgage of Brooklyn, and also plans soon to open another Brooklyn office.

Sterling on Thursday reported fourth-quarter net income available to common shareholders of $5.2 million, or 17 cents a share, declining from $5.3 million, or 17 cents a year earlier. However, the bottom-line results for the fourth-quarter of 2011 included a tax benefit of $1.9 million. Pre-tax earnings for the fourth quarter were $7.1 million, increasing from $4.5 million in the fourth quarter of 2011.

For all of 2012, with no adjustment for taxes, Sterling Bancorp reported earnings available to common shareholders of $20.0 million, or 65 cents a share, increasing from $15.5 million in 2011.

A major highlight for the company was its success in growing its net interest income and expanding its net interest margin , which is the difference between the average yield on loans and securities investments and the average cost for deposits and borrowings. Fourth-quarter net interest income totaled $24.8 million, increasing from $22.8 million in the fourth quarter of 2011. The net interest margin expanded to 4.00% in the fourth quarter from 3.90% a year earlier.

For all of 2012, net interest income increased by 8% to $93.9 million, while the net interest margin widened to 4.17% to 4.01%.

Sterling managed to improve its net interest income and margin, despite the headwinds from a difficult interest rate environment by "redeploying assets from lower yielding investments into higher yielding loans," according to CEO Louis Cappelli. Average loans, net of unearned discount, grew by 15% year-over-year to $1.6 billion.

Hand-in-hand with Sterling's loan-growth strategy is its focus on growing non-interest bearing deposits, which increased 19% year-over-year to $849.1 million as of Dec. 31, and made up over 40% of total deposits as of Dec. 31, which the company said was "among the highest ratios of demand to total deposits in the industry."

Sterling CFO John Tietjen says the growth in non-interest bearing deposits is "directly connected" to the company's growing commercial loan portfolio. "In our business model, part of our loan pricing is a compensating balance requirement, which we have on all of our lending relationships. That and our business development activities in non-lending areas have resulted in a big pickup in non-interest bearing deposits."