EX-99.2 3 v32095exv99w2.htm EXHIBIT 99.2 exv99w2
 

Exhibit 99.2
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
                         
    June 30,     Mar 31,     June 30,  
(in thousands, except per share amounts, unaudited)   2007     2007     2006  
ASSETS:
                        
Cash and cash equivalents
   $ 192,401     $ 217,824     $ 116,795  
Loans receivable, net
     8,507,423       8,370,625       5,514,022  
Loans held for sale
     84,613       71,446       12,181  
Investments and mortgage-backed securities (“MBS”) available for sale
     1,697,424       1,782,947       1,892,983  
Investments held to maturity
     108,430       101,150       81,473  
Office properties and equipment, net
     96,361       97,629       83,185  
Real estate owned, net
     4,012       4,076       5,101  
Goodwill, net
     456,315       452,540       112,702  
Other intangible assets, net
     34,078       35,304       16,514  
Bank owned life insurance (“BOLI”)
     147,354       145,182       110,150  
Prepaid expenses and other assets, net
     135,236       120,898       103,066  
 
                  
Total assets
   $ 11,463,647     $ 11,399,621     $ 8,048,172  
 
                  
 
                        
LIABILITIES:
                        
Deposits
   $ 7,620,362     $ 7,574,058     $ 5,337,791  
Advances from Federal Home Loan Bank
     1,594,844       1,605,060       1,337,138  
Repurchase agreements and fed funds
     744,903       707,733       583,041  
Other borrowings
     250,074       252,230       185,874  
Accrued expenses and other liabilities
     131,293       146,811       90,186  
 
                  
Total liabilities
     10,341,476       10,285,892       7,534,030  
 
                  
 
                        
SHAREHOLDERS’ EQUITY:
                        
Common stock
     51,330       51,245       35,093  
Additional paid-in capital
     889,890       887,961       390,324  
Accumulated comprehensive loss:
                        
Unrealized loss on investments and MBS (1)
     (44,974 )     (28,795 )     (59,929 )
Retained earnings
     225,925       203,318       148,654  
 
                  
Total shareholders’ equity
     1,122,171       1,113,729       514,142  
 
                  
Total liabilities and shareholders’ equity
   $ 11,463,647     $ 11,399,621     $ 8,048,172  
 
                  
 
                        
Book value per share
   $ 21.86     $ 21.73     $ 14.65  
Tangible book value per share (2)
   $ 12.31     $ 12.21     $ 10.97  
Shares outstanding at end of period
     51,329,826       51,245,273       35,092,842  
Shareholders’ equity to total assets
     9.79 %     9.77 %     6.39 %
Tangible shareholders’ equity to tangible assets (3)
     5.76 %     5.74 %     4.86 %
 
(1)   Net of deferred income taxes.
 
(2)   Amount represents shareholders’ equity less net goodwill and other intangible assets divided by total shares outstanding.
 
(3)   Amount represents shareholders’ equity less net goodwill and other intangible assets divided by assets less net goodwill and other intangible assets.

1

 

Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME
                                         
    Three Months Ended     Six Months Ended  
    June 30,     Mar 31,     June 30,     June 30,     June 30,  
(in thousands, except per share amounts, unaudited)   2007     2007     2006     2007     2006  
INTEREST INCOME:
                                        
Loans
   $ 172,825     $ 152,763     $ 103,356     $ 325,588     $ 195,467  
Mortgage-backed securities
     19,356       20,468       22,473       39,824       45,818  
Investments and cash
     1,880       1,671       891       3,551       1,614  
 
                              
Total interest income
     194,061       174,902       126,720       368,963       242,899  
 
                              
 
                                        
INTEREST EXPENSE:
                                        
Deposits
     70,666       63,720       40,909       134,386       75,719  
Borrowings
     34,355       30,566       24,762       64,921       47,175  
 
                              
Total interest expense
     105,021       94,286       65,671       199,307       122,894  
 
                              
 
                                        
Net interest income
     89,040       80,616       61,049       169,656       120,005  
Provision for losses on loans
     (3,975 )     (4,225 )     (4,650 )     (8,200 )     (9,300 )
 
                              
Net interest income after provision
     85,065       76,391       56,399       161,456       110,705  
 
                              
 
                                        
NONINTEREST INCOME:
                                        
Fees and service charges
     13,694       12,192       10,615       25,886       19,694  
Mortgage banking operations
     9,807       8,858       2,725       18,665       4,996  
Loan servicing fees
     410       683       482       1,093       751  
Real estate owned operations
     (93 )     (45 )     78       (138 )     385  
BOLI
     1,717       1,547       1,203       3,264       2,386  
Other non-interest income (expense)
     (757 )     213       27       (544 )     (165 )
 
                              
Total noninterest income
     24,778       23,448       15,130       48,226       28,047  
 
                              
 
                                        
NONINTEREST EXPENSES:
                                        
Employee compensation and benefits
     39,162       38,072       25,710       77,234       50,799  
Occupancy and equipment
     11,681       10,467       7,375       22,148       14,291  
Amortization of core deposit intangibles
     1,226       1,041       555       2,267       1,111  
Other
     17,822       16,089       13,349       33,911       25,028  
 
                              
Total noninterest expenses
     69,891       65,669       46,989       135,560       91,229  
 
                              
 
                                        
Income before income taxes
     39,952       34,170       24,540       74,122       47,523  
Income tax provision
     (12,971 )     (11,249 )     (7,609 )     (24,220 )     (15,176 )
 
                              
Net Income
   $ 26,981     $ 22,921     $ 16,931     $ 49,902     $ 32,347  
 
                              
 
                                        
Earnings per share — basic
   $ 0.53     $ 0.51     $ 0.48     $ 1.03     $ 0.92  
Earnings per share — diluted
   $ 0.52     $ 0.50     $ 0.48     $ 1.02     $ 0.92  
 
                                        
Core earnings (1)
   $ 27,699     $ 23,682     $ 16,931     $ 51,381     $ 32,347  
Core earnings per share — basic (1)
   $ 0.54     $ 0.52     $ 0.48     $ 1.07     $ 0.92  
Core earnings per share — diluted (1)
   $ 0.54     $ 0.52     $ 0.48     $ 1.05     $ 0.92  
 
                                        
Weighted average shares outstanding — basic
     51,189,438       45,238,924       35,077,647       48,230,619       35,012,510  
Weighted average shares outstanding — diluted
     51,699,098       45,833,530       35,404,364       48,776,780       35,326,837  
 
(1)   See Exhibit A.

2

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                                         
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,     June 30,     June 30,  
(in thousands, unaudited)   2007     2007     2006     2007     2006  
LOAN ORIGINATIONS:
                                        
Residential real estate
   $ 454,921     $ 344,617     $ 78,124     $ 799,539     $ 149,221  
Multifamily real estate
     4,650       0       1,465       4,650       1,465  
Commercial real estate
     1,200       11,210       36,528       12,410       70,503  
Construction
     735,552       534,821       462,523       1,270,372       1,026,115  
Consumer — direct
     113,321       63,568       103,659       176,889       182,508  
Consumer — indirect
     57,013       64,913       41,152       121,925       70,687  
Commercial banking
     339,077       259,203       316,150       598,279       612,110  
 
                              
Total loan origination volume
   $ 1,705,734     $ 1,278,332     $ 1,039,601     $ 2,984,064     $ 2,112,609  
 
                              
 
                                        
PERFORMANCE RATIOS:
                                        
Return on average assets
     0.94 %     0.91 %     0.85 %     0.93 %     0.83 %
Return on average assets, core (1)
     0.97 %     0.94 %     0.85 %     0.96 %     0.83 %
Return on average shareholders’ equity
     9.6 %     10.3 %     13.1 %     9.9 %     12.6 %
Return on average shareholders’ equity, core (1)
     9.9 %     10.7 %     13.1 %     10.2 %     12.6 %
Return on average tangible equity (2)
     16.9 %     16.8 %     17.5 %     16.9 %     16.9 %
Operating efficiency
     61.4 %     63.1 %     61.7 %     62.2 %     61.6 %
Operating efficiency, core (1)
     60.4 %     61.9 %     61.7 %     61.2 %     61.6 %
Non interest expense to average assets (annualized)
     2.45 %     2.60 %     2.36 %     2.54 %     2.35 %
Average assets
   $ 11,463,375     $ 10,255,943     $ 7,981,266     $ 10,782,522     $ 7,825,473  
Average shareholders’ equity
   $ 1,127,110     $ 900,987     $ 517,791     $ 1,014,673     $ 516,677  
Average tangible equity (2)
   $ 638,591     $ 553,619     $ 388,240     $ 596,729     $ 386,835  
 
                                        
REGULATORY CAPITAL RATIOS:
                                        
Sterling Financial Corporation:
                                        
Tier 1 leverage (to average assets)
     8.8 %     9.5 %     7.9 %     8.8 %     7.9 %
Tier 1 (to risk-weighted assets)
     10.0 %     9.9 %     9.8 %     10.0 %     9.8 %
Total (to risk-weighted assets)
     11.2 %     10.9 %     10.9 %     11.2 %     10.9 %
Sterling Savings Bank:
                                        
Tier 1 leverage (to average assets)
     8.7 %     9.2 %     7.5 %     8.7 %     7.5 %
Tier 1 (to risk-weighted assets)
     10.0 %     9.8 %     9.5 %     10.0 %     9.5 %
Total (to risk-weighted assets)
     11.2 %     10.9 %     10.5 %     11.2 %     10.5 %
 
                                        
OTHER:
                                        
Sales of financial products
   $ 28,798     $ 41,696     $ 48,449     $ 70,494     $ 74,796  
FTE employees at end of period (whole numbers)
     2,612       2,570       1,814       2,612       1,814  
 
(1)   See Exhibit A.
 
(2)   Average tangible equity is average shareholders’ equity less average net goodwill and other intangible assets.

3

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                         
    June 30,     Mar 31,     June 30,  
(in thousands, unaudited)   2007     2007     2006  
LOANS BY COLLATERAL TYPE:
                        
Residential real estate
   $ 676,761     $ 639,326     $ 494,698  
Multifamily real estate
     234,349       248,590       264,241  
Commercial real estate
     1,374,218       1,401,248       801,995  
Construction
     2,657,972       2,515,392       1,433,305  
Consumer — direct
     765,217       749,183       673,483  
Consumer — indirect
     337,491       318,426       196,110  
Commercial banking
     2,579,134       2,608,482       1,720,193  
Deferred loan fees, net
     (18,085 )     (16,185 )     (11,032 )
Allowance for losses on loans
     (99,634 )     (93,837 )     (58,971 )
 
                  
Net loans receivable
   $ 8,507,423     $ 8,370,625     $ 5,514,022  
 
                  
 
                        
ALLOWANCE FOR LOSSES ON LOANS AND UNFUNDED COMMITMENTS:
                        
Allowance — loans, beginning of quarter
   $ 93,837     $ 77,849     $ 54,480  
Acquired
     2,494       12,535       0  
Provision
     3,975       4,225       4,650  
Charge offs, net of recoveries
     (671 )     (832 )     (544 )
Transfers
     (1 )     60       385  
 
                  
Allowance — loans, end of quarter
     99,634       93,837       58,971  
 
                  
Allowance — unfunded commitments, beginning of quarter
     6,046       5,840       4,219  
Acquired
     0       266       0  
Transfers
     1       (60 )     (385 )
 
                  
Allowance — unfunded commitments, end of quarter
     6,047       6,046       3,834  
 
                  
Total credit allowance
   $ 105,681     $ 99,883     $ 62,805  
 
                  
 
                        
Net charge-offs to average net loans (annualized)
     0.03 %     0.04 %     0.04 %
Net charge-offs to average net loans (ytd)
     0.02 %     0.01 %     0.04 %
Loan loss allowance to total loans
     1.16 %     1.11 %     1.06 %
Total credit allowance to total loans
     1.23 %     1.18 %     1.13 %
Loan loss allowance to nonperforming loans (excluding loans classified as loss)
     411.9 %     681.4 %     1357.4 %
Total allowance to nonperforming loans
     437.7 %     725.9 %     1447.2 %
Nonperforming loans to net loans
     0.31 %     0.18 %     0.10 %
 
                        
NONPERFORMING ASSETS:
                        
Past 90 days due
   $ 803     $ 0     $ 0  
Nonaccrual loans
     25,618       14,855       4,390  
Restructured loans
     0       0       904  
 
                  
Total nonperforming loans
     26,421       14,855       5,294  
REO
     4,012       4,076       5,101  
 
                  
Total nonperforming assets (NPA)
   $ 30,433     $ 18,931     $ 10,395  
 
                  
NPA to total assets
     0.27 %     0.17 %     0.13 %
Loan delinquency ratio (60 days and over)
     0.33 %     0.27 %     0.11 %
Classified assets
   $ 95,041     $ 79,098     $ 57,075  
Classified assets/total assets
     0.83 %     0.69 %     0.71 %
 
                        
DEPOSITS DETAIL:
                        
Interest-bearing transaction accounts
   $ 490,695     $ 524,492     $ 409,296  
Noninterest-bearing transaction accounts
     918,393       896,506       689,423  
Savings and money market demand accounts
     2,132,732       2,045,493       1,476,357  
Time deposits
     4,078,542       4,107,567       2,762,715  
 
                  
Total deposits
   $ 7,620,362     $ 7,574,058     $ 5,337,791  
 
                  
 
                        
Number of transaction accounts (whole numbers):
                        
Interest-bearing transaction accounts
     48,558       48,949       41,903  
Noninterest-bearing transaction accounts
     144,878       142,938       115,852  
 
                  
Total transaction accounts
     193,436       191,887       157,755  
 
                  

4

 

Sterling Financial Corporation
AVERAGE BALANCE, YIELDS AND RATES PAID
                                                                         
    Three Months Ended  
    June 30, 2007     March 31, 2007     June 30, 2006  
    Average             Average     Average             Average     Average             Average  
(in thousands, unaudited)   Balance     Amount     Rate     Balance     Amount     Rate     Balance     Amount     Rate  
ASSETS:
                                                                        
Loans:
                                                                        
Mortgage
   $ 4,959,970     $ 99,925       8.08 %   $ 4,558,555     $ 91,696       8.16 %   $ 2,949,789     $ 55,561       7.55 %
Commercial and consumer
     3,692,248       73,028       7.93 %     3,122,975       61,185       7.95 %     2,525,246       47,887       7.61 %
 
                                                      
Total loans
     8,652,218       172,953       8.02 %     7,681,530       152,881       8.07 %     5,475,035       103,448       7.58 %
MBS
     1,634,759       19,356       4.75 %     1,719,281       20,468       4.83 %     1,896,134       22,473       4.75 %
Investments and cash
     267,455       2,485       3.73 %     257,468       2,210       3.48 %     192,661       1,268       2.64 %
 
                                                      
Total interest-earning assets
     10,554,432       194,794       7.40 %     9,658,279       175,559       7.37 %     7,563,830       127,189       6.74 %
 
                                                            
Noninterest-earning assets
     908,943                       597,664                       417,436                  
 
                                                      
Total average assets
   $ 11,463,375                     $ 10,255,943                     $ 7,981,266                  
 
                                                                  
 
                                                                        
LIABILITIES and EQUITY:
                                                                        
Deposits:
                                                                        
Transaction
   $ 1,379,952       780       0.23 %   $ 1,294,108       672       0.21 %   $ 1,069,682       409       0.15 %
Savings
     2,088,620       18,247       3.50 %     1,928,862       16,762       3.52 %     1,453,641       11,029       3.04 %
Time deposits
     4,061,162       51,639       5.10 %     3,740,658       46,286       5.02 %     2,694,370       29,471       4.39 %
 
                                                      
Total deposits
     7,529,734       70,666       3.76 %     6,963,628       63,720       3.71 %     5,217,693       40,909       3.14 %
Borrowings
     2,623,002       34,355       5.25 %     2,364,132       30,566       5.24 %     2,157,017       24,762       4.60 %
 
                                                      
Total interest-bearing liabilities
     10,152,736       105,021       4.15 %     9,327,760       94,286       4.10 %     7,374,710       65,671       3.57 %
 
                                                            
Noninterest-bearing liabilities
     183,529                       27,196                       88,765                  
 
                                                                  
Total average liabilities
     10,336,265                       9,354,956                       7,463,475                  
Total average shareholders’ equity
     1,127,110                       900,987                       517,791                  
 
                                                                  
Total average liabilities and equity
   $ 11,463,375                     $ 10,255,943                     $ 7,981,266                  
 
                                                                  
 
                                                                        
Tax equivalent net interest income and spread
           $ 89,773       3.25 %           $ 81,273       3.27 %           $ 61,518       3.17 %
 
                                                            
 
                                                                        
Tax equivalent net interest margin
                     3.41 %                     3.41 %                     3.26 %
 
                                                                  

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Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
                                         
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,     June 30,     June 30,  
(in thousands, unaudited)   2007     2007     2006     2007     2006  
CORE EARNINGS: (1)
                                        
Net income as reported
   $ 26,981     $ 22,921     $ 16,931     $ 49,902     $ 32,347  
Add back: merger and acquisition costs, net of tax
     260       761       0       1,021       0  
Add back: other nonrecurring costs, net of tax
     458       0       0       458       0  
 
                              
Core earnings
   $ 27,699     $ 23,682     $ 16,931     $ 51,381     $ 32,347  
 
                              
 
                                        
CORE EARNINGS PER SHARE — BASIC: (1)
                                        
Earnings per share — basic, as reported
   $ 0.53     $ 0.51     $ 0.48     $ 1.03     $ 0.92  
Add back: merger and acquisition costs, net of tax
     0.00       0.01       0.00       0.03       0.00  
Add back: other nonrecurring costs, net of tax
     0.01       0.00       0.00       0.01       0.00  
 
                              
Core earnings per share — basic
   $ 0.54     $ 0.52     $ 0.48     $ 1.07     $ 0.92  
 
                              
 
                                        
CORE EARNINGS PER SHARE — DILUTED: (1)
                                        
Earnings per share — basic, as reported
   $ 0.52     $ 0.50     $ 0.48     $ 1.02     $ 0.92  
Add back: merger and acquisition costs, net of tax
     0.01       0.02       0.00       0.02       0.00  
Add back: other nonrecurring costs, net of tax
     0.01       0.00       0.00       0.01       0.00  
 
                              
Core earnings per share — diluted
   $ 0.54     $ 0.52     $ 0.48     $ 1.05     $ 0.92  
 
                              
 
                                        
RETURN ON AVERAGE ASSETS, CORE: (1)
                                        
Return on average assets, as reported
     0.94 %     0.91 %     0.85 %     0.93 %     0.83 %
Add back: merger and acquisition costs, net of tax
     0.01 %     0.03 %     0.00 %     0.02 %     0.00 %
Add back: other nonrecurring costs, net of tax
     0.02 %     0.00 %     0.00 %     0.01 %     0.00 %
 
                              
Return on average assets, core
     0.97 %     0.94 %     0.85 %     0.96 %     0.83 %
 
                              
 
                                        
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY, CORE: (1)
                                        
Return on average shareholders’ equity, as reported
     9.6 %     10.3 %     13.1 %     9.9 %     12.6 %
Add back: merger and acquisition costs, net of tax
     0.1 %     0.4 %     0.0 %     0.3 %     0.0 %
Add back: other nonrecurring costs, net of tax
     0.2 %     0.0 %     0.0 %     0.0 %     0.0 %
 
                              
Return on average shareholders’ equity, core
     9.9 %     10.7 %     13.1 %     10.2 %     12.6 %
 
                              
 
                                        
OPERATING EFFICIENCY RATIO, CORE: (1)
                                        
Operating efficiency ratio, as reported
     61.4 %     63.1 %     61.7 %     62.2 %     61.6 %
Subtract: merger and acquisition costs
     (0.4 %)     (1.2 %)     0.0 %     (0.7 %)     0.0 %
Subtract: other nonrecurring costs
     (0.6 %)     0.0 %     0.0 %     (0.3 %)     0.0 %
 
                              
Operating efficiency ratio, core
     60.4 %     61.9 %     61.7 %     61.2 %     61.6 %
 
                              
 
(1)   Core earnings per share excludes net securities gains (losses), merger and acquisition costs, and other nonrecurring costs, net of related income taxes. Core earnings is a non-GAAP financial measure. Management believes that this presentation of non-GAAP information regarding core earnings provides useful information to investors regarding the registrant’s financial condition and results of operations as core earnings are widely used for comparison purposes in the financial services industry.

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