EX-99.2 3 v29449exv99w2.htm EXHIBIT 99.2 exv99w2
 

Exhibit 99.2
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
                         
    Mar 31,     Dec 31,     Mar 31,  
    2007     2006     2006  
ASSETS:
                        
Cash and cash equivalents
   $ 217,824     $ 179,715     $ 117,722  
Loans receivable, net
     8,370,625       7,021,241       5,253,734  
Loans held for sale
     71,446       91,469       9,315  
Investments and mortgage-backed securities (“MBS”) available for sale
     1,782,947       1,820,583       1,983,252  
Investments held to maturity
     101,150       93,063       63,491  
Office properties and equipment, net
     97,629       93,796       83,748  
Real estate owned, net
     4,076       4,052       5,160  
Goodwill, net
     452,540       247,244       112,702  
Other intangible assets, net
     35,304       28,570       17,070  
Bank owned life insurance (“BOLI”)
     145,182       139,206       108,816  
Prepaid expenses and other assets, net
     120,898       115,553       89,494  
 
                  
Total assets
   $ 11,399,621     $ 9,834,492     $ 7,844,504  
 
                  
 
                        
LIABILITIES:
                        
Deposits
   $ 7,574,058     $ 6,746,028     $ 5,085,302  
Advances from Federal Home Loan Bank
     1,605,060       1,308,617       1,371,152  
Repurchase agreements and fed funds
     707,733       616,354       660,420  
Other borrowings
     252,230       240,226       129,166  
Accrued expenses and other liabilities
     146,811       139,851       89,744  
 
                  
Total liabilities
     10,285,892       9,051,076       7,335,784  
 
                  
 
                        
SHAREHOLDERS’ EQUITY:
                        
Common stock
     51,245       42,043       35,067  
Additional paid-in capital
     887,961       590,218       388,800  
Accumulated comprehensive loss:
                        
Unrealized loss on investments and MBS (1)
     (28,795 )     (33,350 )     (49,152 )
Retained earnings
     203,318       184,505       134,005  
 
                  
Total shareholders’ equity
     1,113,729       783,416       508,720  
 
                  
Total liabilities and shareholders’ equity
   $ 11,399,621     $ 9,834,492     $ 7,844,504  
 
                  
 
                        
Book value per share
   $ 21.73     $ 18.63     $ 14.51  
Tangible book value per share (2)
   $ 12.21     $ 12.07     $ 10.81  
Shares outstanding at end of period
     51,245,273       42,042,740       35,066,735  
Shareholders’ equity to total assets
     9.77 %     7.97 %     6.49 %
Tangible shareholders’ equity to tangible assets (3)
     5.74 %     5.31 %     4.91 %
 
(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
(in thousands, except per share amounts, unaudited)
                         
    Three Months Ended  
    Mar 31,     Dec 31,     Mar 31,  
    2007     2006     2006  
INTEREST INCOME:
                        
Loans
   $ 152,763     $ 137,537     $ 92,111  
Mortgage-backed securities
     20,468       20,954       23,345  
Investments and cash
     1,671       1,257       723  
 
                  
Total interest income
     174,902       159,748       116,179  
 
                  
 
                        
INTEREST EXPENSE:
                        
Deposits
     63,720       57,901       34,810  
Borrowings
     30,566       27,973       22,413  
 
                  
Total interest expense
     94,286       85,874       57,223  
 
                  
 
                        
Net interest income
     80,616       73,874       58,956  
Provision for losses on loans
     (4,225 )     (4,705 )     (4,650 )
 
                  
Net interest income after provision
     76,391       69,169       54,306  
 
                  
 
                        
NONINTEREST INCOME:
                        
Fees and service charges
     12,192       11,775       9,079  
Mortgage banking operations
     8,858       9,648       2,271  
Loan servicing fees
     683       588       269  
Real estate owned operations
     (45 )     (71 )     307  
BOLI
     1,547       1,409       1,183  
Other non-interest income (expense)
     213       (507 )     (192 )
 
                  
Total noninterest income
     23,448       22,842       12,917  
 
                  
 
                        
NONINTEREST EXPENSES:
                        
Employee compensation and benefits
     38,072       34,908       25,089  
Occupancy and equipment
     10,467       9,723       6,916  
Amortization of core deposit intangibles
     1,041       708       556  
Other
     16,089       14,503       11,679  
 
                  
Total noninterest expenses
     65,669       59,842       44,240  
 
                  
 
                        
Income before income taxes
     34,170       32,169       22,983  
Income tax provision
     (11,249 )     (9,909 )     (7,567 )
 
                  
Net Income
   $ 22,921     $ 22,260     $ 15,416  
 
                  
 
                        
Earnings per share — basic
   $ 0.51     $ 0.57     $ 0.44  
Earnings per share — diluted
   $ 0.50     $ 0.57     $ 0.44  
 
                        
Core earnings (1)
   $ 23,682     $ 22,426     $ 15,416  
Core earnings per share — basic (1)
   $ 0.52     $ 0.58     $ 0.44  
Core earnings per share — diluted (1)
   $ 0.52     $ 0.57     $ 0.44  
 
                        
Weighted average shares outstanding — basic
     45,238,924       38,729,376       34,946,649  
Weighted average shares outstanding — diluted
     45,833,530       39,159,001       35,255,602  
 
(1)   See Exhibit A.

2

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
                         
    Three Months Ended  
    Mar 31,     Dec 31,     Mar 31,  
    2007     2006     2006  
LOAN ORIGINATIONS:
                        
Residential real estate
   $ 344,617     $ 352,962     $ 71,097  
Commercial real estate
     11,210       24,760       33,975  
Construction
     534,821       720,057       563,592  
Consumer — direct
     63,568       65,456       78,849  
Consumer — indirect
     64,913       62,158       29,535  
Commercial banking
     259,203       229,954       295,960  
 
                  
Total loan origination volume
   $ 1,278,332     $ 1,455,347     $ 1,073,008  
 
                  
 
                        
PERFORMANCE RATIOS:
                        
Return on average assets
     0.91 %     0.96 %     0.81 %
Return on average assets, core (1)
     0.94 %     0.97 %     0.81 %
Return on average shareholders’ equity
     10.3 %     13.2 %     12.1 %
Return on average shareholders’ equity, core (1)
     10.7 %     13.3 %     12.1 %
Return on average tangible equity (2)
     16.8 %     18.6 %     16.2 %
Operating efficiency
     63.1 %     61.9 %     61.6 %
Operating efficiency, core (1)
     61.9 %     61.6 %     61.6 %
Non interest expense to average assets (annualized)
     2.60 %     2.58 %     2.34 %
Average assets
   $ 10,255,943     $ 9,197,563     $ 7,673,383  
Average shareholders’ equity
   $ 900,987     $ 671,011     $ 515,551  
Average tangible equity (2)
   $ 553,619     $ 474,619     $ 385,418  
 
                        
REGULATORY CAPITAL RATIOS:
                        
Sterling Financial Corporation:
                        
Tier 1 leverage (to average assets)
     9.5 %     8.7 %     7.2 %
Tier 1 (to risk-weighted assets)
     9.9 %     10.0 %     9.2 %
Total (to risk-weighted assets)
     10.9 %     11.1 %     10.1 %
Sterling Savings Bank:
                        
Tier 1 leverage (to average assets)
     9.2 %     8.6 %     7.2 %
Tier 1 (to risk-weighted assets)
     9.8 %     9.7 %     9.1 %
Total (to risk-weighted assets)
     10.9 %     10.8 %     10.1 %
 
                        
OTHER:
                        
Sales of financial products
   $ 49,161     $ 38,038     $ 30,232  
FTE employees at end of period (whole numbers)
     2,570       2,405       1,832  
 
(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
(in thousands, unaudited)
                         
    Mar 31,     Dec 31,     Mar 31,  
    2007     2006     2006  
LOANS BY COLLATERAL TYPE:
                        
Residential real estate
   $ 639,326     $ 654,661     $ 497,386  
Multifamily real estate
     248,590       263,053       330,427  
Commercial real estate
     1,401,248       795,386       786,215  
Construction
     2,515,392       2,290,882       1,261,061  
Consumer — direct
     749,183       749,626       640,941  
Consumer — indirect
     318,426       288,704       177,013  
Commercial banking
     2,608,482       2,069,086       1,625,248  
Deferred loan fees, net
     (16,185 )     (12,308 )     (10,077 )
Allowance for losses on loans
     (93,837 )     (77,849 )     (54,480 )
 
                  
Net loans receivable
   $ 8,370,625     $ 7,021,241     $ 5,253,734  
 
                  
 
                        
ALLOWANCE FOR LOSSES ON LOANS AND UNFUNDED COMMITMENTS:        
Allowance — loans, beginning of quarter
   $ 77,849     $ 66,505     $ 52,034  
Acquired
     12,535       8,603       0  
Provision
     4,225       4,705       4,650  
Charge offs, net of recoveries
     (832 )     (1,082 )     (1,434 )
Transfers
     60       (882 )     (770 )
 
                  
Allowance — loans, end of quarter
     93,837       77,849       54,480  
 
                  
Allowance — unfunded commitments, beginning of quarter
     5,840       4,958       3,449  
Acquired
     266       0       0  
Transfers
     (60 )     882       770  
 
                  
Allowance — unfunded commitments, end of quarter
     6,046       5,840       4,219  
 
                  
Total credit allowance
   $ 99,883     $ 83,689     $ 58,699  
 
                  
 
                        
Net charge-offs to average net loans (annualized)
     0.04 %     0.06 %     0.11 %
Net charge-offs to average net loans (ytd)
     0.01 %     0.06 %     0.03 %
Loan loss allowance to total loans
     1.11 %     1.10 %     1.03 %
Total credit allowance to total loans
     1.18 %     1.18 %     1.11 %
Loan loss allowance to nonperforming loans (excluding loans classified as loss)
     681.4 %     1335.0 %     1439.8 %
Total allowance to nonperforming loans
     725.9 %     1437.0 %     1553.6 %
Nonperforming loans to net loans
     0.18 %     0.10 %     0.09 %
 
                        
NONPERFORMING ASSETS:
                        
Past 90 days due
   $ 0     $ 0     $ 0  
Nonaccrual loans
     14,855       7,107       3,788  
Restructured loans
     0       0       1,039  
 
                  
Total nonperforming loans
     14,855       7,107       4,827  
REO
     4,076       4,052       5,160  
 
                  
Total nonperforming assets (NPA)
   $ 18,931     $ 11,159     $ 9,987  
 
                  
NPA to total assets
     0.17 %     0.11 %     0.13 %
Loan delinquency ratio (60 days and over)
     0.27 %     0.10 %     0.08 %
Classified assets
   $ 79,098     $ 48,356     $ 54,733  
Classified assets/total assets
     0.69 %     0.49 %     0.70 %
 
                        
DEPOSITS DETAIL:
                        
Interest-bearing transaction accounts
   $ 524,492     $ 483,551     $ 410,780  
Noninterest-bearing transaction accounts
     896,506       834,140       676,857  
Savings accounts
     2,045,493       1,830,313       1,403,730  
Time deposits
     4,107,567       3,598,024       2,593,935  
 
                  
Total deposits
   $ 7,574,058     $ 6,746,028     $ 5,085,302  
 
                  
 
                        
Number of transaction accounts (whole numbers):
                        
Interest-bearing transaction accounts
     48,949       48,730       45,912  
Noninterest-bearing transaction accounts
     142,938       136,628       110,050  
 
                  
Total transaction accounts
     191,887       185,358       155,962  
 
                  

4

 

Sterling Financial Corporation
AVERAGE BALANCE, YIELDS AND RATES PAID
(in thousands, unaudited)
                                                                         
    Three Months Ended  
    March 31, 2007     December 31, 2006     March 31, 2006  
    Average             Average     Average             Average     Average             Average  
    Balance     Amount     Rate     Balance     Amount     Rate     Balance     Amount     Rate  
ASSETS:
                                                                        
Loans:
                                                                        
Mortgage
   $ 4,558,555     $ 91,696       8.16 %   $ 3,908,164     $ 80,275       8.15 %   $ 2,754,279     $ 49,504       7.29 %
Commercial and consumer
     3,122,975       61,185       7.95 %     2,861,582       57,377       7.95 %     2,346,225       42,696       7.38 %
 
                                                      
Total loans
     7,681,530       152,881       8.07 %     6,769,746       137,652       8.07 %     5,100,504       92,200       7.33 %
MBS
     1,719,281       20,468       4.83 %     1,760,764       20,954       4.72 %     1,966,595       23,345       4.81 %
Investments and cash
     257,468       2,210       3.48 %     223,678       1,736       3.08 %     177,151       1,015       2.32 %
 
                                                      
Total interest-earning assets
     9,658,279       175,559       7.37 %     8,754,188       160,342       7.27 %     7,244,250       116,560       6.53 %
 
                                                            
Noninterest-earning assets
     597,664                       443,375                       429,133                  
 
                                                                  
Total average assets
   $ 10,255,943                     $ 9,197,563                     $ 7,673,383                  
 
                                                                  
 
                                                                        
LIABILITIES and EQUITY:
                                                                        
Deposits:
                                                                        
Transaction
   $ 1,294,108       672       0.21 %   $ 1,191,983       509       0.17 %   $ 1,055,363       349       0.13 %
Savings
     1,928,862       16,762       3.52 %     1,692,307       14,905       3.49 %     1,345,667       8,813       2.66 %
Time deposits
     3,740,658       46,286       5.02 %     3,410,706       42,487       4.94 %     2,527,672       25,648       4.12 %
 
                                                      
Total deposits
     6,963,628       63,720       3.71 %     6,294,996       57,901       3.65 %     4,928,702       34,810       2.86 %
Borrowings
     2,364,132       30,566       5.24 %     2,159,318       27,973       5.14 %     2,075,072       22,413       4.38 %
 
                                                      
Total interest-bearing liabilities
     9,327,760       94,286       4.10 %     8,454,314       85,874       4.03 %     7,003,774       57,223       3.31 %
 
                                                            
Noninterest-bearing liabilities
     27,196                       72,238                       154,058                  
 
                                                                  
Total average liabilities
     9,354,956                       8,526,552                       7,157,832                  
Total average shareholders’ equity
     900,987                       671,011                       515,551                  
 
                                                                  
Total average liabilities and equity
   $ 10,255,943                     $ 9,197,563                     $ 7,673,383                  
 
                                                                  
 
                                                                        
Tax equivalent net interest income and spread   $ 81,273       3.27 %           $ 74,468       3.24 %           $ 59,337       3.21 %
 
                                                            
 
                                                                        
Tax equivalent net interest margin             3.41 %                     3.37 %                     3.32 %
 
                                                                  

5

 

Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
(in thousands, unaudited)
                         
    Three Months Ended  
    Mar 31,     Dec 31     Mar 31,  
    2007     2006     2006  
CORE EARNINGS: (1)
                        
Net income as reported
   $ 22,921     $ 22,260     $ 15,416  
Add back: merger and acquisition costs, net of tax
     761       166       0  
 
                  
Core earnings
   $ 23,682     $ 22,426     $ 15,416  
 
                  
 
                        
CORE EARNINGS PER SHARE — BASIC: (1)
                        
Earnings per share — basic, as reported
   $ 0.51     $ 0.57     $ 0.44  
Add back: merger and acquisition costs, net of tax
     0.01       0.01       0.00  
 
                  
Core earnings per share — basic
   $ 0.52     $ 0.58     $ 0.44  
 
                  
 
                        
CORE EARNINGS PER SHARE — DILUTED: (1)
                        
Earnings per share — basic, as reported
   $ 0.50     $ 0.57     $ 0.44  
Add back: merger and acquisition costs, net of tax
     0.02       0.00       0.00  
 
                  
Core earnings per share — diluted
   $ 0.52     $ 0.57     $ 0.44  
 
                  
 
                        
RETURN ON AVERAGE ASSETS, CORE: (1)
                        
Return on average assets, as reported
     0.91 %     0.96 %     0.81 %
Add back: merger and acquisition costs, net of tax
     0.03 %     0.01 %     0.00 %
 
                  
Return on average assets, core
     0.94 %     0.97 %     0.81 %
 
                  
 
                        
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY, CORE: (1)
                        
Return on average shareholders’ equity, as reported
     10.3 %     13.2 %     12.1 %
Add back: merger and acquisition costs, net of tax
     0.4 %     0.1 %     0.0 %
 
                  
Return on average shareholders’ equity, core
     10.7 %     13.3 %     12.1 %
 
                  
 
                        
OPERATING EFFICIENCY RATIO, CORE: (1)
                        
Operating efficiency ratio, as reported
     63.1 %     61.9 %     61.6 %
Subtract: merger and acquisition costs
     (1.2 %)     (0.3 %)     0.0 %
 
                  
Operating efficiency ratio, core
     61.9 %     61.6 %     61.6 %
 
                  
 
(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. 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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