News Column

Sterling Financial Posts 2013 Earnings and Declares Quarterly Cash Dividend

February 4, 2014

Sterling Financial Corp. announced its operating results for the quarter and year ended December 31, 2013 . In a release on January 30 , the Company noted that for the quarter, Sterling recorded net income of $22.2 million , or $0.35 per diluted common share, compared to $21.0 million , or $0.33 per diluted common share, for the quarter ended September 30, 2013 , and $20.9 million , or $0.33 per diluted common share, for the quarter ended December 31, 2012 . For the year ended December 31, 2013 , Sterling recorded net income of $93.6 million , or $1.48 per diluted common share, compared to $385.7 million , or $6.14 per diluted common share, for the year ended December 31, 2012 . The 2012 annual net income included an income tax benefit of $292.0 million associated with the release of a deferred tax asset valuation allowance. Following are selected financial highlights for the year ended December 31, 2013 : -Completed three acquisitions: Borrego Springs Bank, N.A. , the Puget Sound operations of Boston Private Bank & Trust Co. , and Commerce National Bank . -Gross loans expanded by 19 percent; organic loan growth of 12 percent. -Portfolio loan originations were $2.39 billion , a 31 percent increase over 2012. -Deposits expanded by 10 percent. -Net interest margin (tax equivalent) was 3.64 percent, 18 basis points higher than 2012. -Nonperforming assets to total assets was 1.21 percent, down from 2.28 percent at December 31, 2012 . -Sterling announced that it will merge with Umpqua Holdings Corp. , creating the largest community bank on the West Coast . "2013 marked another year of solid financial performance" said Greg Seibly , Sterling's president and chief executive officer. "Significant progress was made on each of our key operating objectives, as we expanded loans, reduced funding costs, improved asset quality metrics and controlled operating expenses. We also completed three acquisitions and increased our cash dividend by 19 percent." Operating Results Net Interest Income Sterling reported net interest income of $84.4 million for the quarter ended December 31, 2013 , compared to $82.5 million for the prior quarter and $76.1 million for the quarter ended December 31, 2012 . The net interest margin (tax equivalent) for the fourth quarter of 2013 was 3.58 percent, a decrease of 1 basis point from the prior quarter, and up 9 basis points over the fourth quarter of 2012. The decrease in net interest margin from the prior quarter was a result of lower yields on loans. Total interest income was $97.8 million for the fourth quarter of 2013, compared to $96.4 million for the prior quarter, and $94.3 million for the fourth quarter of 2012. The $1.4 million increase in interest income over the prior quarter was primarily due to higher average loan balances resulting from the acquisition of Commerce National Bank and organic loan growth. Total interest expense was $13.4 million for the fourth quarter of 2013, compared to $13.9 million for the prior quarter and $18.1 million for the fourth quarter of 2012. Deposit interest expense was $5.5 million for the fourth quarter of 2013, a reduction of $564,000 , or 9 percent, from the prior quarter, and down $2.2 million , or 29 percent, from the same period in 2012, reflecting the improved deposit mix and lower overall deposit costs. Borrowing costs were $7.9 million for the fourth quarter of 2013, unchanged from the prior quarter, and down $2.5 million , or 24 percent, from the fourth quarter of 2012. The decrease from the same period a year ago reflected balance sheet repositioning activity undertaken during the fourth quarter of 2012. Noninterest Income Noninterest income includes fees and service charges income, income from mortgage banking operations, and other items such as gains on other loan sales, BOLI income, a bargain purchase gain, net gains on branch divestitures, and gains on sales of securities. For the fourth quarter of 2013, noninterest income was $29.1 million , compared to $31.9 million for the prior quarter and $31.2 million for the fourth quarter of 2012. Income from mortgage banking operations for the fourth quarter of 2013 was $9.5 million , compared to $13.5 million for the prior quarter and $28.2 million for the fourth quarter of 2012. The decreases are attributable to lower residential mortgage banking activity and reduced margins on residential loan sales, reflecting higher market interest rates. For the fourth quarter of 2013, Sterling closed $197.0 million of residential mortgage refinance loans, representing 36 percent of total residential mortgage originations, compared to $673.1 million , representing 68 percent of total residential mortgage originations, for the same period of 2012. Included in income from mortgage banking operations for the fourth quarter was an $842,000 reversal of the valuation allowance on mortgage servicing rights ("MSR"). MSR valuation allowance reversals of $491,000 and $754,000 were recognized in the prior quarter and the fourth quarter of 2012, respectively. For the quarter ended December 31, 2013 , fees and service charges income contributed $15.8 million to noninterest income, compared to $15.4 million for the prior quarter and $14.2 million for the fourth quarter of 2012. The increase in fees and service charges income compared to the year ago period was primarily attributable to increased activity related to the acquisitions completed during the year. For the fourth quarter of 2013, gains on other loan sales were $1.6 million , compared to $1.1 million for the prior quarter, and $485,000 for the same period a year ago. The increase over the prior quarter was primarily due to multifamily loan sales that occurred during the fourth quarter. For the fourth quarter of 2013 and the prior quarter, Sterling recognized no gains or losses on the sale of securities, compared to a gain of $11.2 million for the fourth quarter of 2012, that was related to balance sheet repositioning. Noninterest Expense Noninterest expenses were $84.4 million for the fourth quarter of 2013, compared to $85.3 million for the prior quarter and $89.6 million for the fourth quarter of 2012. During the fourth quarter of 2013, employee compensation and benefits decreased by $811,000 compared to the prior quarter, and were down $3.3 million from the fourth quarter of 2012. Other noninterest expense included merger and acquisition expenses of $3.6 million for the fourth quarter of 2013, compared to $3.9 million for the prior quarter and $2.0 million for the fourth quarter of 2012. Other noninterest expense included a Washington State Business and Occupation tax refund of $1.8 million received during the fourth quarter of 2013, which was recorded as a reduction in other noninterest expense. Income Taxes During the quarter ended December 31, 2013 , Sterling recognized an income tax expense of $7.0 million , representing an effective tax rate of 24 percent. The effective tax rate for the year ended December 31, 2013 was 29 percent. As of December 31, 2013 , the net deferred tax asset was $284.1 million , including $242.2 million of net operating loss and tax credit carryforwards. Balance Sheet On October 1, 2013 , Sterling completed the acquisition of Newport Beach, Calif. -based Commerce National Bank , which added $164.8 million of loans and $189.6 million of deposits. Total portfolio loan balances (which exclude residential loans held for sale) were $7.46 billion at December 31, 2013 , compared to $7.15 billion at the end of the prior quarter, and $6.25 billion at December 31, 2012 . During the fourth quarter of 2013, Sterling originated $606.3 million of new portfolio loans, compared to $587.8 million for the prior quarter and $561.7 million for the fourth quarter of 2012. For 2013, portfolio loan originations were $2.39 billion , compared to $1.82 billion for 2012, representing an increase of 31 percent. Multifamily loan originations were $219.6 million for the fourth quarter of 2013, accounting for 36 percent of total portfolio originations. This compares to $169.9 million for the prior quarter, and $261.3 million for the fourth quarter of 2012. Commercial loan originations, which include C&I and owner occupied CRE loans, were $138.1 million for the fourth quarter of 2013, accounting for 23 percent of total portfolio originations. This compares to $144.9 million for the prior quarter, and $136.8 million for the fourth quarter of 2012. Investments and mortgage-backed securities available for sale were $1.43 billion at December 31, 2013 , compared to $1.50 billion at the end of the prior quarter, and $1.51 billion at December 31, 2012 . At December 31, 2013 , total deposits were $7.07 billion , compared to $6.85 billion at the end of the prior quarter, and $6.44 billion at December 31, 2012 . At December 31, 2013 , advances from the Federal Home Loan Bank were $1.15 billion , compared to $1.03 billion at the end of the prior quarter, and $605.3 million at December 31, 2012 . The increased advances over the year ago period were used to fund acquisitions and loan growth, and replace deposit outflow associated with branch divestitures and runoff of CDs. Credit Quality The Company also noted, during the fourth quarter of 2013, Sterling recognized net charge-offs of $904,000 , compared to net charge-offs of $1.2 million for the prior quarter and net recoveries of $566,000 for the fourth quarter of 2012. Sterling has not recorded a provision for credit losses since the third quarter of 2012. The allowance for loan losses at December 31, 2013 was $137.3 million , or 1.84 percent of total loans, compared to $138.7 million , or 1.94 percent of total loans, at September 30, 2013 , and $154.3 million , or 2.47 percent of total loans, at December 31, 2012 . At December 31, 2013 , nonperforming assets were $125.1 million , or 1.21 percent of total assets, compared to $135.4 million , or 1.36 percent of total assets, at September 30, 2013 , and $210.4 million , or 2.28 percent of total assets, at December 31, 2012 . At December 31, 2013 , the 60-day loan delinquency ratio was 0.74 percent, compared to 0.73 percent at September 30, 2013 , and 1.64 percent at December 31, 2012 . Merger Update On September 11, 2013 , Sterling entered into a definitive agreement to merge with Umpqua Holdings Corp. ("Umpqua"), with headquarters located in Portland, Oregon . Upon completion of the merger, the combined company will operate under the Umpqua Bank name and brand. Integration planning commenced shortly after the announcement, and completion of the merger is expected to occur during the second quarter of 2014, subject to approval by each company's shareholders, regulatory approvals and other customary closing conditions. Cash Dividend Declaration Sterling's board of directors has approved a quarterly cash dividend of $0.20 per common share, payable on February 27 , to shareholders of record as of February 13 . Sterling Financial Corp. of Spokane, Washington , is the bank holding company for Sterling Savings Bank , a Washington state chartered and federally insured commercial bank. More information: sterlingfinancialcorporation.com ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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