EX-99.2 3 v19822exv99w2.htm EXHIBIT 99.2 exv99w2
 

EXHIBIT 99.2
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
                         
    March 31,     December 31,     March 31,  
(in thousands, except per share amounts, unaudited)   2006     2005     2005  
ASSETS:
                        
Cash and cash equivalents
   $ 117,722     $ 132,169     $ 125,261  
Loans receivable, net
     5,249,515       4,885,916       4,375,036  
Loans held for sale
     9,315       7,894       16,900  
Investment and mortgage-backed securities (“MBS”) available for sale
     1,983,252       2,076,615       2,070,384  
Investments and MBS held to maturity
     63,491       51,924       48,873  
Office properties and equipment, net
     83,748       82,432       79,054  
Real estate owned, net
     5,160       779       1,459  
Goodwill, net
     112,702       112,707       112,391  
Other intangible assets, net
     17,070       17,625       19,292  
Bank owned life insurance (“BOLI”)
     108,816       107,649       94,850  
Prepaid expenses and other assets, net
     89,494       83,218       71,007  
 
                  
Total assets
   $ 7,840,285     $ 7,558,928     $ 7,014,507  
 
                  
 
                        
LIABILITIES:
                        
Deposits
   $ 5,085,302     $ 4,806,301     $ 4,108,310  
Advances from Federal Home Loan Bank of Seattle
     1,371,152       1,443,462       1,510,140  
Repurchase agreements and fed funds
     660,420       611,676       744,880  
Other borrowings
     129,166       110,688       116,378  
Accrued expenses and other liabilities
     85,525       80,116       63,702  
 
                  
Total liabilities
     7,331,565       7,052,243       6,543,410  
 
                  
 
                        
SHAREHOLDERS’ EQUITY:
                        
Common stock
     35,067       34,856       23,048  
Additional paid-in capital
     388,800       385,353       395,159  
Accumulated comprehensive income (loss):
                        
Unrealized gain (loss) on investments and MBS (1)
     (49,152 )     (34,219 )     (26,134 )
Retained earnings
     134,005       120,695       79,024  
 
                  
Total shareholders’ equity
     508,720       506,685       471,097  
 
                  
Total liabilities and shareholders’ equity
   $ 7,840,285     $ 7,558,928     $ 7,014,507  
 
                  
 
                        
Book value per share (2)
   $ 14.51     $ 14.54     $ 13.63  
Tangible book value per share (2)(3)
   $ 10.81     $ 10.80     $ 9.82  
Shares outstanding at end of period
     35,066,735       34,855,549       23,048,133  
Shareholders’ equity to total assets
     6.49 %     6.70 %     6.72 %
Tangible shareholders’ equity to tangible assets (4)
     4.91 %     5.07 %     4.93 %
 
(1)   Net of deferred income taxes.
 
(2)   Amounts as of March 31, 2005 have been restated to reflect the 3 for 2 stock split that was effected on August 31, 2005.
 
(3)   Amount represents shareholders’ equity less net goodwill and other intangible assets divided by total shares outstanding.
 
(4)   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  
    March 31,     December 31,     March 31,  
(in thousands, except per share amounts, unaudited)   2006     2005     2005  
INTEREST INCOME:
                        
Loans
   $ 92,111     $ 82,269     $ 68,043  
Mortgage-backed securities
     23,345       22,985       23,082  
Investments and cash
     723       661       941  
 
                  
Total interest income
     116,179       105,915       92,066  
 
                  
 
                        
INTEREST EXPENSE:
                        
Deposits
     34,810       28,735       18,323  
Borrowings
     22,413       20,365       20,925  
 
                  
Total interest expense
     57,223       49,100       39,248  
 
                  
 
                        
Net interest income
     58,956       56,815       52,818  
Provision for losses on loans
     (4,650 )     (4,650 )     (3,750 )
 
                  
Net interest income after provision
     54,306       52,165       49,068  
 
                  
 
                        
NON-INTEREST INCOME:
                        
Fees and service charges
     9,079       9,834       7,403  
Mortgage banking operations
     2,271       3,452       5,372  
Loan servicing fees
     269       104       137  
Net gain (loss) on sales of securities
     0       0       (57 )
Real estate owned operations
     307       289       112  
BOLI
     1,183       2,583       1,060  
Charge related to early repayment of debt
     0       0       645  
Other non-interest income (expense)
     (192 )     (43 )     (33 )
 
                  
Total non-interest income
     12,917       16,219       14,639  
 
                  
 
                        
NON-INTEREST EXPENSES:
                        
Employee compensation and benefits
     25,089       25,742       22,017  
Occupancy and equipment
     6,916       7,170       6,046  
Amortization of core deposit intangibles
     556       555       556  
Other
     11,679       12,966       11,028  
 
                  
Total non-interest expenses
     44,240       46,433       39,647  
 
                  
 
                        
Income before income taxes
     22,983       21,951       24,060  
Income tax provision
     (7,567 )     (6,521 )     (8,169 )
 
                  
Net Income
   $ 15,416     $ 15,430     $ 15,891  
 
                  
 
                        
Earnings per share — basic (1)
   $ 0.44     $ 0.44     $ 0.46  
Earnings per share — diluted (1)
   $ 0.44     $ 0.44     $ 0.45  
 
                        
Core earnings (2)
   $ 15,416     $ 15,430     $ 15,521  
Core earnings per share — basic (2)
   $ 0.44     $ 0.44     $ 0.45  
Core earnings per share — diluted (2)
   $ 0.44     $ 0.44     $ 0.44  
 
                        
Weighted average shares outstanding — basic (1)
     34,946,649       34,789,284       34,484,822  
Weighted average shares outstanding — diluted (1)
     35,255,602       35,121,020       34,979,051  
 
(1)   Weighted average shares and per share amounts for the applicable prior periods have been restated to reflect the 3 for 2 stock split that was effected on August 31, 2005.
 
(2)   See Exhibit A.

2

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                         
    Three Months Ended  
    March 31,     December 31,     March 31,  
(in thousands, unaudited)   2006     2005     2005  
LOAN ORIGINATIONS:
                        
Residential real estate
   $ 71,097     $ 82,572     $ 156,483  
Multifamily real estate
     0       44,304       13,267  
Commercial real estate
     33,975       97,576       55,055  
Construction
     563,592       588,583       344,920  
Consumer — direct
     78,849       83,080       63,951  
Consumer — indirect
     29,535       22,483       15,042  
Business banking
     176,449       167,433       94,148  
Corporate Banking
     119,511       109,364       79,733  
 
                  
Total loan origination volume
   $ 1,073,008     $ 1,195,395     $ 822,599  
 
                  
 
                        
PERFORMANCE RATIOS:
                        
Return on average assets
     0.81 %     0.85 %     0.91 %
Return on average assets, core (1)
     0.81 %     0.85 %     0.89 %
Return on average shareholders’ equity
     12.1 %     12.1 %     13.5 %
Return on average shareholders’ equity, core (1)
     12.1 %     12.1 %     13.2 %
Return on average tangible equity (2)
     16.2 %     16.3 %     18.6 %
Operating efficiency
     61.6 %     63.6 %     58.8 %
Operating efficiency, core (1)
     61.6 %     63.6 %     59.7 %
Non interest expense to average assets (annualized)
     2.34 %     2.55 %     2.28 %
Average assets
   $ 7,673,383     $ 7,231,051     $ 7,065,612  
Average shareholders’ equity
   $ 515,551     $ 507,016     $ 477,712  
Average tangible equity (2)
   $ 385,418     $ 376,640     $ 345,660  
 
                        
OTHER:
                        
Regulatory capital ratios (Sterling Financial Corporation):
                        
Core capital ratio (3)
     7.2 %     7.4 %     N/A  
Tier 1 risk-based capital ratio (3)
     9.2 %     9.5 %     N/A  
Total risk-based capital ratio (3)
     10.1 %     10.5 %     N/A  
Regulatory capital ratios (Sterling Savings Bank):
                        
Core capital ratio
     7.1 %     7.2 %     6.7 %
Tier 1 risk-based capital ratio
     9.1 %     9.2 %     9.7 %
Total risk-based capital ratio
     10.1 %     10.2 %     10.7 %
 
                        
Sales of financial products
   $ 30,232     $ 19,309     $ 28,915  
Full-time equivalents employees at end of period
     1,832       1,789       1,640  
 
(1)   See Exhibit A
 
(2)   Average tangible equity is average shareholders’ equity less average net goodwill and other intangible assets.
 
(3)   Sterling Financial Corporation did not have regulatory capital ratio requirements prior to its conversion to a bank holding company in July of 2005.

3

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                         
    March 31,     December 31,     March 31,  
(in thousands, unaudited)   2006     2005     2005  
LOANS BY COLLATERAL TYPE:
                        
Residential
   $ 497,386     $ 488,633     $ 765,023  
Multifamily
     330,427       332,211       201,927  
Commercial
     786,215       792,219       696,321  
Construction
     1,261,061       1,021,502       731,072  
Consumer — direct
     640,941       618,528       551,033  
Consumer — indirect
     177,013       166,143       121,161  
Business banking
     1,128,397       1,079,939       956,402  
Corporate banking
     496,851       451,140       411,805  
Deferred loan fees, net
     (10,077 )     (8,916 )     (6,996 )
Allowance for losses on loans
     (58,699 )     (55,483 )     (52,712 )
 
                  
Net loans receivable
   $ 5,249,515     $ 4,885,916     $ 4,375,036  
 
                  
 
                        
ALLOWANCE FOR LOSSES ON LOANS:
                        
Balance at beginning of quarter
   $ 55,483     $ 53,671     $ 49,362  
Provision for losses on loans
     4,650       4,650       3,750  
Amounts written off net of recoveries and other
     (1,434 )     (2,838 )     (400 )
 
                  
Balance at end of quarter
   $ 58,699     $ 55,483     $ 52,712  
 
                  
 
                        
Net charge-offs to average net loans (annualized)
     0.11 %     0.24 %     0.04 %
Net charge-offs to average net loans (ytd)
     0.03 %     0.20 %     0.01 %
Loan loss allowance to total loans
     1.11 %     1.12 %     1.19 %
Loan loss allowance to nonperforming loans (excluding loans classified as loss)
     1553.6 %     975.9 %     374.3 %
Nonperforming loans to net loans
     0.09 %     0.16 %     0.38 %
 
                        
NONPERFORMING ASSETS:
                        
Nonaccrual loans
   $ 3,788     $ 6,542     $ 15,359  
Restructured loans
     1,039       1,081       1,301  
 
                  
Total nonperforming loans
     4,827       7,623       16,660  
REO
     5,160       779       1,459  
 
                  
Total nonperforming assets (NPA)
   $ 9,987     $ 8,402     $ 18,119  
 
                  
NPA to total assets
     0.13 %     0.11 %     0.26 %
Loan delinquency ratio (60 days and over)
     0.08 %     0.18 %     0.37 %
Classified assets
   $ 54,733     $ 59,611     $ 72,019  
Classified assets/total assets
     0.70 %     0.79 %     1.03 %
 
                        
DEPOSITS DETAIL:
                        
Interest-bearing transaction accounts
   $ 410,780     $ 432,936     $ 430,322  
Non-interest-bearing transaction accounts
     676,857       673,934       611,373  
Savings and money market demand accounts
     1,403,730       1,312,033       1,122,104  
Time deposits
     2,593,935       2,387,398       1,944,511  
 
                  
Total deposits
   $ 5,085,302     $ 4,806,301     $ 4,108,310  
 
                  
 
                        
Number of transaction accounts:
                        
Interest-bearing transaction accounts
     51,280       46,362       48,096  
Non-interest-bearing transaction accounts
     104,682       107,245       100,163  
 
                  
Total transaction accounts
     155,962       153,607       148,259  
 
                  

4

 

Sterling Financial Corporation
AVERAGE BALANCE, YIELDS AND RATES PAID
                                                                         
    Three Months Ended  
    March 31, 2006     December 31, 2005     March 31, 2005  
    Average             Average     Average             Average     Average             Average  
(in thousands, unaudited)   Balance     Amount     Rate     Balance     Amount     Rate     Balance     Amount     Rate  
INTEREST EARNING ASSETS:
                                                                        
Loans:
                                                                        
Mortgage
   $ 2,754,279     $ 49,504       7.29 %   $ 2,410,115     $ 42,400       6.98 %   $ 2,463,405     $ 36,641       6.03 %
Commercial and consumer
     2,346,225       42,607       7.36 %     2,228,997       39,869       7.10 %     1,998,730       31,402       6.37 %
 
                                                      
Total
     5,100,504       92,111       7.32 %     4,639,112       82,269       7.04 %     4,462,135       68,043       6.18 %
MBS
     1,966,595       23,345       4.81 %     1,981,771       22,985       4.60 %     2,019,649       23,082       4.63 %
Investments and cash
     177,151       723       1.66 %     170,913       661       1.53 %     172,993       941       2.21 %
 
                                                      
Total interest-earning assets
   $ 7,244,250       116,179       6.50 %   $ 6,791,796       105,915       6.19 %   $ 6,654,777       92,066       5.61 %
 
                                                      
 
                                                                        
INTEREST BEARING LIABILITIES:
                                                                        
Deposits:
                                                                        
Transaction accounts
   $ 1,055,363       349       0.13 %   $ 1,119,421       371       0.13 %   $ 1,010,348       307       0.12 %
Savings
     1,345,667       8,813       2.66 %     1,251,887       7,358       2.33 %     1,111,519       4,087       1.49 %
Time deposits
     2,527,672       25,648       4.12 %     2,210,650       21,006       3.77 %     1,902,555       13,929       2.97 %
 
                                                      
Total
     4,928,702       34,810       2.86 %     4,581,958       28,735       2.49 %     4,024,422       18,323       1.85 %
Borrowings
     2,075,072       22,413       4.38 %     2,056,837       20,365       3.93 %     2,505,019       20,925       3.39 %
 
                                                      
Total interest-bearing liabilities
   $ 7,003,774       57,223       3.31 %   $ 6,638,795       49,100       2.93 %   $ 6,529,441       39,248       2.44 %
 
                                                      
 
                                                                        
Net interest income and spread
           $ 58,956       3.19 %           $ 56,815       3.26 %           $ 52,818       3.17 %
 
                                                            
 
                                                                        
Net interest margin
                     3.30 %                     3.32 %                     3.22 %
 
                                                                  

5

 

Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
                         
    Three Months Ended  
    March 31,     December 31,     March 31,  
(in thousands, unaudited)   2006     2005     2005  
CORE EARNINGS: (1)
                        
Net income as reported
   $ 15,416     $ 15,430     $ 15,891  
Subtract: net (gain) loss on securities, net of tax
     0.00       0.00       36  
Add back: merger and acquisition costs, net of tax
     0.00       0.00       0.00  
Add back: charge on early debt repayment, net of tax
     0.00       0.00       (406 )
 
                  
Core earnings
   $ 15,416     $ 15,430     $ 15,521  
 
                  
 
                        
CORE EARNINGS PER SHARE — BASIC: (1) (2)
                        
Earnings per share — basic, as reported
   $ 0.44     $ 0.44     $ 0.46  
Subtract: net (gain) loss on securities, net of tax
     0.00       0.00       0.00  
Add back: merger and acquisition costs, net of tax
     0.00       0.00       0.00  
Add back: charge on early debt repayment, net of tax
     0.00       0.00       (0.01 )
 
                  
Core earnings per share — basic
   $ 0.44     $ 0.44     $ 0.45  
 
                  
 
                        
CORE EARNINGS PER SHARE — DILUTED: (1) (2)
                        
Earnings per share — basic, as reported
   $ 0.44     $ 0.44     $ 0.45  
Subtract: net (gain) loss on securities, net of tax
     0.00       0.00       0.00  
Add back: merger and acquisition costs, net of tax
     0.00       0.00       0.00  
Add back: charge on early debt repayment, net of tax
     0.00       0.00       (0.01 )
 
                  
Core earnings per share — diluted
   $ 0.44     $ 0.44     $ 0.44  
 
                  
 
                        
RETURN ON AVERAGE ASSETS, CORE: (1)
                        
Return on average assets, as reported
     0.81 %     0.85 %     0.91 %
Subtract: net (gain) loss on securities, net of tax
     0.00 %     0.00 %     0.00 %
Add back: merger and acquisition costs, net of tax
     0.00 %     0.00 %     0.00 %
Add back: charge on early debt repayment, net of tax
     0.00 %     0.00 %     (0.02 %)
 
                  
Return on average shareholders’ equity, core
     0.81 %     0.85 %     0.89 %
 
                  
 
                        
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY, CORE: (1)
                        
Return on average shareholders’ equity, as reported
     12.1 %     12.1 %     13.5 %
Subtract: net (gain) loss on securities, net of tax
     0.0 %     0.0 %     0.0 %
Add back: merger and acquisition costs, net of tax
     0.0 %     0.0 %     0.0 %
Add back: charge on early debt repayment, net of tax
     0.0 %     0.0 %     (0.3 %)
 
                  
Return on average shareholders’ equity, core
     12.1 %     12.1 %     13.2 %
 
                  
 
                        
OPERATING EFFICIENCY RATIO, CORE: (1)
                        
Operating efficiency ratio, as reported
     61.6 %     63.6 %     58.8 %
Add back: net (gain) loss on securities
     0.0 %     0.0 %     (0.1 %)
Subtract: merger and acquisition costs
     0.0 %     0.0 %     0.0 %
Subtract: charge on early debt repayment
     0.0 %     0.0 %     1.0 %
 
                  
Operating efficiency ratio, core
     61.6 %     63.6 %     59.7 %
 
                  
 
                        
ADJUSTED SHAREHOLDERS’ EQUITY:
                        
Shareholders’ equity, as reported
   $ 508,720     $ 506,685     $ 471,097  
Add (subtract) unrealized loss (gain) on investments and MBS, net
     49,152       34,219       26,134  
 
                  
Adjusted shareholders’ equity
   $ 557,872     $ 540,904     $ 497,231  
 
                  
 
                        
ADJUSTED BOOK VALUE PER SHARE:
                        
Book value per share, as reported
   $ 14.51     $ 14.54     $ 13.63  
Add (subtract) unrealized loss (gain) on investments and MBS, net
     1.40       0.98       1.13  
 
                  
Adjusted book value per share
   $ 15.91     $ 15.52     $ 14.76  
 
                  
 
(1)   Core earnings per share excludes net securities gains (losses), merger and acquisition costs and a charge for costs related to early repayment of debt, net of related income taxes. 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.
 
(2)   Weighted average shares and per share amounts for the applicable prior periods have been restated to reflect the 3 for 2 stock split that was effected on August 31, 2005.

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