By Christina P. O’Neill
When Sterling National Bank opened in New York City in 1929, the city had a robust garment trade. Dresses were made in New York, and Sterling Bank financed the manufacturers. Today, the city has a robust import trade. Dresses are made in China, Vietnam, Pakistan and India. And Sterling Bank finances the importers.
While the textile and apparel trade constitutes less than 15 percent of Sterling’s lending portfolio, its needs are the same as any other industry sector in a global economy. The race belongs to the swift and the liquid. A bank that can provide quick support to help its customers beat their competition to lease that storefront or buy that equipment is a true ally.
Sterling President and CEO John Millman notes that Sterling’s core customers are small to midsized businesses with borrowing requirements ranging from $500,000 to $15 million. They are, he says, “the great underserved companies in New York City, but they account for a lot of the business activity.”
They also represent Sterling’s strength. In today’s difficult banking climate, the bank’s net income has grown from $10.8 million in 2006 to $16.0 million in 2008. It has about $2.2 billion in assets. With 62.6 percent of its loan portfolio consisting of commercial and industrial business, it stakes its reputation on quality, service, and an ability to move quickly.
Sterling offers working capital lines, asset-based financing, factoring, accounts receivable financing and management, payroll funding and processing, equipment leasing and financing, commercial and residential mortgages, and import trade financing – in fact, the bank’s international division has authored “A Guide to International Trade and Letters of Credit,” a 35-page guide to the basics of import financing.
The national curtailment of credit to small and midsized companies presents another opportunity for Sterling. A few years ago, banks and nonbanks alike offered credit to small companies on overly generous terms. The subsequent contraction of the money center lenders has lessened pricing pressure. “Three or four years ago, we were competing with the most aggressive lenders in the marketplace. Many of them suffered losses, so the pricing and terms on credit have reverted back to more normal terms, more typical to what we have done over the years,” Millman notes. “We never sold pricing, we sold quality and service.”
A Sterling expertise is factoring, or accounts receivable management. The bank purchases clients’ invoices and advances most of the invoice amount in cash, keeping the rest until collection, less a service fee. Typical factoring candidates are small to mid-sized companies, sometimes startups, that are growing faster than their available capital. A factor provides liquidity in today’s icy credit market.
Sterling has been factoring since its 1929 debut and cut its teeth on textile and apparel. “They may not have the strongest balance sheet, but they have high quality receivables,” Millman says. Those clients sell to Wal Mart or Fortune 100 companies. “Many clients regard us as their credit department,” Millman says. “They outsource the whole function of analyzing and collecting receivables to us.”
The factoring business focuses on business activity as the creation of value, and that gives Sterling a relatively high level of expertise in understanding accounts receivable. “Perhaps more important than the financial statements is the information we get when we send our field auditors in,” he notes.
In April, Sterling purchased the business of two related factoring and import-trade financing companies, DCD Capital LLC and DCD Trade Services LLC, and now operates them as Sterling Trade Capital. This new division is expected to complement Sterling’s previously existing factoring subsidiary, Sterling Factors Corp.
The new division brings to the table an expertise in the overseas markets that many Sterling clients import from – South Asia and Pakistan. Sterling had been familiar with the DCD companies for years before the sale. “They didn’t have the resources we have – with our $2 billion balance sheet, we can fund their operations at a lower cost,” Millman says. Sterling can augment the offerings of its new division with lines of credit and a full range of banking services. “It’s a really comfortable fit.”
Today’s weak dollar presents a challenge to importers. With China on its way to becoming one of the most powerful global economies, its labor expenses are rising. “You see manufacturing move away from China to [lower-cost countries],” Millman says. “That’s another reason DCD is so attractive to us. It has the ability to follow the market wherever it goes.”
Christina P. O’Neill is Custom Publications Editor at The Warren Group, publisher of Banking New York.