Satsuma Pharmaceuticals, Inc.

For Q4 2013, Sterling reported net income of $22.2 million, or $0.35 per share, versus $21.0 million, or $0.33 per share, in Q3 and $20.9 million, or $0.33 per share, in Q4 2012. For full-year 2013, net income was $93.6 million, or $1.48 per share, compared with $385.7 million, or $6.14 per share, in 2012; management noted 2012 included a $292 million tax benefit. On a pretax basis, 2013 net income increased $37.8 million, or 40%, year over year. The tax-equivalent net interest margin was 3.58%, down 1 basis point sequentially and up 9 basis points year over year; average deposit costs were 31 basis points, down 4 basis points from Q3 and down 15 basis points year over year. Nonperforming assets to assets were 1.21% at year-end, down from 1.36% in Q3 and 2.28% at year-end 2012. Net charge-offs were $904,000, versus $1.2 million in Q3 and net recoveries of $566,000 a year ago; the allowance for credit losses was $148 million, or 1.99% of loans, versus 2.08% in Q3 and 2.60% a year ago. Non-interest expense was $84.4 million, down from $85.3 million in Q3 and $89.6 million a year ago; merger-related expenses were $3.6 million. Gross portfolio loans ended at $7.5 billion, up $304 million in the quarter, and portfolio originations were $606 million, up 8% year over year. Organic loan growth was 10% for the quarter and $725 million, or 12%, for the full year. The company said it surpassed $10 billion in assets during the quarter, and the Tier 1 common equity ratio at year-end was 11.8%, down about 50 basis points sequentially. For guidance, management expects the effective tax rate to normalize to approximately 34% in 2014 and still expects the Umpqua merger to close in the second quarter of 2014.

Greg Seibly said the quarter reflected disciplined execution across Sterling’s core priorities: lower funding costs, better asset quality, loan growth, expense control, and active capital management. He repeatedly framed the quarter as evidence that the team stayed focused despite merger uncertainty, and he said integration planning with Umpqua is going well. His tone was confident and appreciative, emphasizing that employees are handling the transition well and that Sterling will keep focusing on operating performance until the merger closes.

Pat Rusnak highlighted the core financial trends: a 3.58% tax-equivalent net interest margin, average deposit costs of 31 basis points, and an allowance for credit losses of $148 million, or 1.99% of loans. He also noted non-interest expense of $84.4 million, including $3.6 million of merger-related costs, and said capital remained solid with an 11.8% Tier 1 common equity ratio, 11.6% leverage ratio, and 16.1% total risk-based capital ratio. On taxes, he said Q4 effective tax rate was 24% and expects it to normalize to about 34% in 2014.

Analysts focused on multifamily and C&I originations, mortgage banking trends, the Durbin threshold impact from crossing $10 billion in assets, and Southern California progress. Management said multifamily originations were up about $100 million year over year and expected modest growth from a roughly $1 billion run rate, while C&I new originations had doubled year over year despite some fourth-quarter paydowns. On mortgage banking, they said the pipeline was tracking the industry and that first-quarter seasonality usually makes the pipeline softer. They also said crossing $10 billion could add about $6 million annually in fees starting in July if the merger were delayed, and they described Southern California as moving from a fledgling operation to a meaningful one with more momentum expected in 2014.