Sterling Bancorp STL recently concluded the sale of two loan portfolios. This comprises the major portion of the bank’s residential mortgage non-performing loans and the remaining part of small business commercial transportation loans.
Further, the bank provided details of its loan deferral balance, which witnessed a reduction from Jun 30, 2020.
Following these developments, shares of Sterling Bancorp appreciated 1.8% at the end of Thursday’s trading session.
Details of Loan Sales
Sterling Bancorp closed the loan portfolio sale in two separate transactions. The bank sold equipment finance loans worth $106.1 million. This represented the remaining balance of its small business commercial transportation loans.
Further, the bank sold residential mortgage non-performing loans with a carrying value of $57.6 million. In total, loan sales comprised $84.5 million in non-performing loans and net charge-offs of $55.1 million.
Sterling Bancorp does not expect these transactions to have a significant impact on its third-quarter 2020 provision for loan losses or allowance for credit loss numbers. This is because most of the charge-offs incurred in relation to the transactions had been recorded in its allowance for credit losses earlier.
Jack Kopnisky, CEO of Sterling Bancorp said, “The two loan portfolio sales include assets that did not meet our risk-adjusted return targets and were not core to our strategy of providing superior lending products and services to middle market commercial clients.”
He further added that the funds raised from the sale of these loan portfolios will enable the bank to allocate its capital more efficiently and profitably.
Loan Deferral Update
As of Aug 31, 2020, Sterling Bancorp had total loan deferrals of $704 million, which reflected 3.2% of its total portfolio loans. This represents an improvement of 59.2% from the Jun 30, 2020 level, when total deferrals were 7.7% of total portfolio loans.
The bank expects a substantial portion of its ongoing loan deferrals in the hospitality, residential mortgage and retail commercial real estate sectors. Of the total loan deferral balance as of August-end, $248 million can be attributed to the commercial real estate sector, representing 35.2% of the total loan deferrals.
Kopnisky said, "While the early effects of the pandemic led many companies to defer payments under the guidance of the CARES Act, the businesses and operations of many of our commercial clients have been resilient through these difficult economic conditions.”
With the economy gradually continue to reopen and business activity starting, several banks are witnessing a fall in loan deferral balances. A few banks that provided updates on loan deferrals recently are Central Pacific Financial Corp. CPF, German American Bancorp GABC and First Hawaiian FHB. All these companies recorded an improvement in their loan deferral balance relative to the end of the second quarter.
Amid the pandemic-induced economic slowdown and the low rate environment, Sterling Bancorp is taking measures to improve its loan portfolio and make the bank’s operations more efficient, which will likely boost profitability.
Shares of this Zacks Rank #3 (Hold) company have lost 2.7% in the past three months compared with the 8.3% decline recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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