Sterling Bancorp (NYSE:STL)
Annual General Meeting
February 20, 2014
Louis Cappelli – Chairman
Jack Kopnisky – President and CEO
Luis Massiani – EVP and CFO
Katharine Brown – Associate General Counsel and Corporate Secretary
Okay, the meeting will please come to order. Good morning everyone. I am Louis J. Cappelli, Chairman of the Board of Directors of newly combined Sterling Bancorp resulting from the merger of Provident New York Bancorp and Sterling National Bank and Sterling Bancorp, excuse me.
It’s my pleasure to welcome you to the Annual Meeting of Stockholders, the first virtual meeting for many of the newly expanded group of stockholders. I would like to introduce the other directors of the company who are here at this meeting; Jack Kopnisky, Director, President and Chief Executive Officer; and directors Robert Abrams, James Deutsch, Navy Djonovic, Fernando Ferrer, William Helmer, Thomas Kahn, Robert Lazar, John Millman, Burt Steinberg.
Following officers will be addressing this meeting, is Jack Kopnisky, the President and CEO, Luis Massiani, Executive Vice President and Chief Financial Officer and Katharine Brown, Associate General Counsel and Corporate Secretary. Chris Johnson of Crowe Horwath LLP, the representative of our independent auditors is also present.
We will vote in a few minutes. If any stockholder has not delivered their proxy, please vote now at the bottom right-hand corner of your computer screen. The Board of Directors has previously appointed Broadridge Financial Solutions Inc. to act as Inspector of Elections at this meeting and to count and examine all votes. Jen Driveman of Broadridge Financial has executed a vote of office which will be filed with the minutes of the meeting.
The Corporate Secretary has delivered to the Inspector a list of stockholders entitled to vote at this Annual Meeting. As of the close of business on December 23, 2013 the record date for the meeting, a copy of this list is available for inspection by stockholders.
We have previously received confirmation at on or about January 20 2014, proxy material or a notice of availability of proxy materials will mailed to stockholder of record. Copy of the affidavit of mailing with documents attached will be attached to the minutes.
The Corporate Secretary has previously delivered to the Inspector all proxies that have been received. Corporate Secretary reports that there are 83,930,874 outstanding shares entitled to vote at this Annual Meeting, of which 41,965,438 represent a majority and a quorum.
At the opening of this meeting, they were present in person or by proxy, 76,151,744 shares representing 91% of the shares outstanding and entitled to vote and constituting a quorum.
Accordingly, I declare that the meeting has been legally called and convened. No stockholder proposals were filed with the Company’s Secretary in advance of this Annual Meeting as provided in the Bylaws. Therefore the business of this meeting is limited to the matters set forth in the notice of the meeting.
There will be an opportunity for questions after voting is concluded during the question and answer period. You may submit your questions by typing in them and where indicated on the Virtual Meeting site.
If you have already voted by proxy, you need not vote at this Annual Meeting although you are welcome to do so if you wish. The polls are now open. The first item of business to be voted upon is the Election of five directors of the company as described in the proxy statement.
The directors to be elected are each to serve for a three year period or until their successors have been elected and qualified. The Board of Directors has nominated to serve as directors for the three year terms; Robert Abrams, James Klein, John Millman, Richard O'Toole and Burt Steinberg.
The second item to be acted on is a non-binding advisory vote of the compensation of the Named Executive Officers this is commonly referred to as Say-on–Pay vote.
The third item to be acted on is the Approval of the 2014 Stock Incentive Plan.
The fourth and final item to be acted on is the ratification of the appointment of Crowe Horwath LLP as the independent registered public accounting firm for the company for the fiscal years ending September 30, 2014.
If there is anyone who did not vote by proxy and who wishes to vote, please do so now and I will pause. I declare the poll is closed. While ballots and proxies will be tabulated by the Inspector of Election, while the Inspector completes her count, President and Chief Executive Officer, Jack Kopnisky and Chief Financial Officer, Luis Massiani will report on the business of the Company followed by a question and answer session.
I am pleased to introduce Jack.
Good morning everyone and thank you, Lou and thanks all of you who have joined us electronically for our Annual Shareholders Meeting. Please note that you can open up a larger copy of the presentation by clicking the presentation link on the lower right-hand side of the web page.
Joining me in the presentation is Luis Massiani our Chief Financial Officer. This is our first Shareholder Meeting since the completion of the Sterling merger and our rebranding as Sterling Bancorp. We are extremely excited about the opportunities presented by the merger and the potential benefits to our shareholders, customers, employees and communities.
Before we discuss our progress for fiscal 2013 and our continued strong momentum in the first quarter of fiscal 2014, let me remind you that this presentation includes forward-looking statements, some of the risks and uncertainties associated with these statements are set forth on slide number two.
So if you move to slide three, fiscal year 2013 highlights, the company delivered strong performance in fiscal 2013 marked by solid earnings growth, rising business volume generated by our banking team and improved operating efficiency in asset quality.
To highlight some of our key accomplishments, net income was up 27% to $25.3 million or $0.58 per diluted share on a GAAP basis. In fact, our profitability was even stronger if you exclude certain merger-related and other charges. On that basis, net income would have been $27.6 million or $0.63 per diluted share.
Our relationship banking teams continue to deliver results leading to new loan volume of $1.2 billion. We have expanded the number of teams at many parts of our markets and are excited about the opportunities we are seeing from new business across our growth in commercial and consumer target markets.
Core revenue growth of 12% outpaces the increase in core expenses which only increased 2%. Asset quality remains superb. We ended the fiscal year with ample capital and liquidity to support future growth.
So if you turn to – flip to page four. What we really want to focus is the future, an incredibly bright future resulting from the merger of Provident and Sterling on October 31, 2013. The results are game changing. The combined company is well positioned to be a high performing bank serving small to middle market commercial clients and consumers in the Greater New York Metropolitan area.
As summarized on this slide, the new Sterling has a number of powerful competitive strengths. We have a top ten position in the deposit market share among regional banks in a highly attractive market.
Our solid infrastructure of relationship banking team and broad origination capabilities will enable us to deliver a diverse portfolio of services and drive profitable growth and we are on track to capture major cross synergies that will make us a highly efficient organization and advance our profitability.
From the map on page five, you can see here that we have become a more significant player in a large and vibrant market. As I’ve noted, we have a top ten deposit share among the regional and community banks in the region. And the merger has increased our presence and footprint in the region.
This enables us to serve the desirable New York Metro market which has a large number and diverse mix of businesses in our small middle-market sweet spot as well as a high density of consumers.
Slide six, the merger has given us a more expansive, diverse and complementary portfolio of business lines and service offerings. This provides our teams with a broader product portfolio to offer to our clients with a wider range of financial choices. And we will continue to deliver these services with a proven commitment to client service that is second to none.
Now I would ask our CFO, Luis Massiani to review some of the financial highlights of our first quarter of fiscal 2014.
Thanks, Jack. Turning to slide seven, our positive momentum in operating performance and financial results from 2013 is continuing into 2014 and we anticipate and we will pick up speed as we go through the year. We did have a number of merger-related items that impacted our results during the 2014 first quarter. Also as a reminder, the Q1 results included three months of legacy Provident and two months of legacy Sterling.
Reported net loss was $14 million and loss per share was $0.20. However, excluding the number of merger-related and other charges, core result for the quarter was net income of $9.4 million and earnings per share of $0.13.
Among the other performance highlights of the quarter, the merger had a positive effect on net interest margin which increased 35 basis points to approximately 3.6%. Our core efficiency ratio, return on average tangible equity and return on tangible assets were within our normal range.
And we see potential to improve these ratios as the benefits of the merger take effect. Asset quality remains strong and we continue to have the capital and liquidity to support growth.
Lastly, we declared a cash dividend of $0.07 per share payable on February 24 to shareholders of record as of February 14.
Turning to slide eight. This slide presents a key positive outcome of the merger, a more balanced and diversified loan and funding mix. I also should point out that while we are still in the early stages of merger integration, we are already seeing favorable results in terms of client reaction.
Since October 31, total loans were up $24 million, deposit presents a similar story, while total deposit balances were down slightly since the merger due to seasonal factors, our cost-effective demand deposits are up $103 million. The pie charts on the bottom of the page show the results of the merger and the diversification of our business mix.
We have a broader asset mix with a more balanced exposure to asset classes including commercial, commercial real estate and consumer loans. From a funding perspective, we continue to enjoy the benefits of an attractive low cost deposit base of approximately 75% of deposits consisting of core retail and commercial demand savings and money market deposits.
On slide nine, another important benefit of the merger is that it expands our opportunity to generate fee income. Fee income for Q1 2014 was approximately $9.8 million, excluding the impact of a net loss on sale of securities that is more than double the level of the prior quarter.
Going forward, as shown on the chart on the right, we anticipate that mortgage banking, payroll finance and factory will be the main drivers of our non-interest income and will be supplemented by our other fee-based business.
On slide ten, another major benefit of the merger is the potential for significant cost synergies. Our expense ratio for the first quarter does not yet reflect the impact of anticipated cost savings from the merger. We expect to begin realizing those savings in the second quarter of fiscal 2014.
At the time we announced the merger, we said that our anticipated level of cost savings is $34.2 million or about 18% of baseline operating expenses. The bar chart shows that for the calendar year ending December 31, 2014, we are targeting a reduction in core operating expenses to a range of $165 million to $168 million.
Turning to slide 11, our asset quality remains strong and ratios continue to show improvements across the board. After making fair value adjustments related to the merger, we have reduced the ratios of non-performing loans, net charge-offs and non-performing assets.
Our ratio of loan loss allowance to total loans excluding the effect of loans acquired in the Gotham and legacy Sterling Bancorp transactions is in our target range.
Finally, let me review capital and liquidity on slide twelve. We continue to be in a strong capital position with a consolidated tangible equity to tangible assets ratio of close to 7.8% at December 31.
Our liquidity position also remains strong and we are looking to further enhance it by reducing collateralization requirements on our municipal deposits. Our municipal banking business is an attractive source of low-cost deposit funding and will be an efficient tool to continue funding loan growth.
We anticipate redeeming the legacy Sterling trust preferred securities by June 30, which will generate significant interest expense savings. Now let me turn the presentation back to Jack for concluding remarks.
Thanks, Luis and as you can see, we have already begun to realize the great opportunities presented by this merger with more to come. We remain committed to our goal becoming a high performing company targeting earnings growth of 10% to 15% per year, return on tangible equity of about 12%, return on tangible assets of better than 1% and positive operating leverage with revenue growth of 2 to 3 times expenses.
We expect our earnings to rise steadily throughout 2014 as we realize the cost and revenue synergies related to the merger. In fact, we have already identified about $100 million in loan opportunities that we would not have been available to either legacy Provident or legacy Sterling as a standalone company. We are adding commercial relationship teams to enable us to capture these opportunities.
We are on track to achieve the expected level of cost savings and as we always say, execution at the end of the day is the key and we have a highly talented, motivated and dedicated team working every day to execute well and deliver on the opportunities we see ahead.
Thanks a lot for your attention. Thanks a lot for your investment and we would now be pleased to respond to any of your questions.
All right, we don’t have any questions. So, we really do appreciate everybody’s attention and time on this. We look forward to a great 2014 and thank you for your support and now turn it back over to Lou.
Thank you, Jack. The Inspector has completed her count and the Corporate Secretary will now read the certificate and report of the Inspector of Election.
Thank you. The report confirms that a quorum has been in attendance at the Annual Meeting for all purposes. The report shows that Robert Abram, James B. Klein, John C. Millman, Richard O'Toole and Burt Steinberg have been elected by more than the requisite votes to serve for a term of three-years.
The report further shows that all other matters have been approved by more than the requisite votes.
The certificate and report of the Inspector of Elections will be attached to the minutes of the Annual Meeting. The precise vote on each matter will be included in a Form 8-K that the company will file with the SEC. There are being no further business to accommodate for the Annual Meeting, a motion to adjourn is in order.
Unidentified Company Representative
I move that the Annual Meeting to be adjourned.
Unidentified Company Representative
I second the move.
Thank you. Those in favor, signify by saying aye.
Unidentified Company Representative
Unidentified Company Representative
Any oppose. Motion is carried. The Annual Meeting is adjourned. Thank you for your attendance and your continued support of Sterling Bancorp.
[No formal Q&A for this event]
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