Sterne Agee Remains Neutral On Sterling Bancshares After Stress Test

Sterne Agee's thesis has been the shares of Sterling Bancshares SBIB are worth owning from a longer-term perspective given the franchise value of the Company, but that near-term catalysts were less likely until some resolution of the out-of-market portfolio is more visible from a “marked down” perspective. The letter sent last week by a 9.9% shareholder alters our thesis more to the positive for 2011, as investors are likely to expect an activist investor to bring the franchise value of SBIB into more focus. The stress test, which includes Sterne's base case for NCOs, an adverse level that assumes a 10% mark on the out-of-market portfolio and in-market hotel and retail exposure, and an extreme level of 20% on the three categories, as well as punitive levels on the other portion of the loan portfolio. The adverse case results in TBVPS in six quarters of ~$3.80 and the extreme case is ~$3.00 (compared to TBVPS of $4.35 last quarter). Sterne Agee has a Neutral rating on SBIB SBIB closed Friday at $5.88