EX-99.2 3 v40020exv99w2.htm EXHIBIT 99.2 exv99w2
 

Exhibit 99.2
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS  
                         
    Mar 31,     Dec 31,     Mar 31,  
(in thousands, except per share amounts, unaudited)   2008     2007     2007  
ASSETS:
                        
Cash and cash equivalents
   $ 181,333     $ 195,578     $ 217,824  
Investments and mortgage-backed securities (“MBS”) available for sale
     2,167,682       1,853,271       1,676,830  
Investments held to maturity
     149,142       132,793       101,150  
Loans receivable, net
     9,119,942       8,948,307       8,370,625  
Loans held for sale ($67,048 at fair value as of March 31, 2008)
     110,481       55,840       71,446  
Real estate owned, net
     13,027       11,075       4,076  
Office properties and equipment, net
     92,218       93,467       97,629  
Bank owned life insurance (“BOLI”)
     152,794       150,825       145,182  
Goodwill, net
     451,249       453,136       452,540  
Other intangible assets, net
     30,401       31,627       35,304  
Prepaid expenses and other assets, net
     222,884       223,856       227,015  
 
                  
Total assets
   $ 12,691,153     $ 12,149,775     $ 11,399,621  
 
                  
 
                        
LIABILITIES:
                        
Deposits
   $ 7,840,784     $ 7,677,772     $ 7,574,058  
Advances from Federal Home Loan Bank
     1,915,789       1,687,989       1,605,060  
Repurchase agreements and fed funds
     1,333,505       1,178,845       707,733  
Other borrowings
     248,273       273,015       252,230  
Accrued expenses and other liabilities
     161,416       146,824       146,811  
 
                  
Total liabilities
     11,499,767       10,964,445       10,285,892  
 
                  
 
                        
SHAREHOLDERS’ EQUITY:
                        
Common stock
     51,863       51,456       51,245  
Additional paid-in capital
     894,679       892,028       887,961  
Accumulated comprehensive loss:
                        
Unrealized loss on investments and MBS (1)
     (10,591 )     (17,967 )     (28,795 )
Retained earnings
     255,435       259,813       203,318  
 
                  
Total shareholders’ equity
     1,191,386       1,185,330       1,113,729  
 
                  
Total liabilities and shareholders’ equity
   $ 12,691,153     $ 12,149,775     $ 11,399,621  
 
                  
 
                        
Book value per share
   $ 22.97     $ 23.04     $ 21.73  
Tangible book value per share (2)
   $ 13.68     $ 13.61     $ 12.21  
Shares outstanding at end of period
     51,863,067       51,456,461       51,245,273  
Shareholders’ equity to total assets
     9.39 %     9.76 %     9.77 %
Tangible shareholders’ equity to tangible assets (3)
     5.81 %     6.01 %     5.74 %
 
(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  
    Mar 31,     Dec 31,     Mar 31,  
(in thousands, except per share amounts, unaudited)   2008     2007     2007  
INTEREST INCOME:
                        
Loans
   $ 162,120     $ 175,271     $ 152,763  
Mortgage-backed securities
     24,499       20,560       20,468  
Investments and cash
     2,364       2,266       1,671  
 
                  
Total interest income
     188,983       198,097       174,902  
 
                  
 
                        
INTEREST EXPENSE:
                        
Deposits
     62,870       71,739       63,720  
Borrowings
     34,026       34,318       30,566  
 
                  
Total interest expense
     96,896       106,057       94,286  
 
                  
 
                        
Net interest income
     92,087       92,040       80,616  
Provision for credit losses
     (37,143 )     (13,000 )     (4,225 )
 
                  
Net interest income after provision
     54,944       79,040       76,391  
 
                  
 
                        
NONINTEREST INCOME:
                        
Fees and service charges
     14,151       15,126       12,192  
Mortgage banking operations
     6,198       6,670       8,858  
Loan servicing fees
     (148 )     (17 )     683  
Real estate owned operations
     (106 )     (13 )     (45 )
BOLI
     1,466       1,683       1,547  
Other
     (399 )     (2,404 )     213  
 
                  
Total noninterest income
     21,162       21,045       23,448  
 
                  
 
                        
NONINTEREST EXPENSES:
                        
Employee compensation and benefits
     40,890       40,135       38,072  
Occupancy and equipment
     11,532       12,782       10,467  
Amortization of core deposit intangibles
     1,226       1,226       1,041  
Other
     18,459       21,730       16,089  
 
                  
Total noninterest expenses
     72,107       75,873       65,669  
 
                  
 
                        
Income before income taxes
     3,999       24,212       34,170  
Income tax provision
     (1,123 )     (7,355 )     (11,249 )
 
                  
Net Income
   $ 2,876     $ 16,857     $ 22,921  
 
                  
 
                        
Earnings per share - basic
   $ 0.06     $ 0.33     $ 0.51  
Earnings per share - diluted
   $ 0.06     $ 0.33     $ 0.50  
 
                        
Core earnings (1)
   $ 2,582     $ 18,447     $ 23,682  
Core earnings per share - basic (1)
   $ 0.05     $ 0.36     $ 0.52  
Core earnings per share - diluted (1)
   $ 0.05     $ 0.36     $ 0.52  
 
                        
Weighted average shares outstanding - basic
     51,526,332       51,354,316       45,238,924  
Weighted average shares outstanding - diluted
     51,786,038       51,643,958       45,833,530  
 
(1)   See Exhibit A.

2

 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA  
                         
    Three Months Ended  
    Mar 31,     Dec 31,     Mar 31,  
(in thousands, unaudited)   2008     2007     2007  
LOAN ORIGINATIONS:
                        
Residential real estate
   $ 411,116     $ 323,271     $ 344,617  
Multifamily real estate
     41,386       17,980       0  
Commercial real estate
     64,517       83,774       11,210  
Construction
     264,281       341,961       534,821  
Consumer - direct
     81,603       92,009       63,568  
Consumer - indirect
     71,681       57,383       64,913  
Commercial banking
     148,685       199,136       259,203  
 
                  
Total loan origination volume
   $ 1,083,269     $ 1,115,514     $ 1,278,332  
 
                  
 
                        
PERFORMANCE RATIOS:
                        
Return on average assets
     0.09 %     0.56 %     0.91 %
Return on average assets, core (1)
     0.08 %     0.61 %     0.94 %
Return on average shareholders’ equity
     1.0 %     5.7 %     10.3 %
Return on average shareholders’ equity, core (1)
     0.9 %     6.3 %     10.7 %
Return on average tangible equity (2)
     1.6 %     9.8 %     16.8 %
Operating efficiency
     63.7 %     67.1 %     63.1 %
Operating efficiency, core (1)
     63.9 %     65.3 %     61.9 %
Non interest expense to average assets (annualized)
     2.33 %     2.52 %     2.60 %
Average assets
   $ 12,444,665     $ 11,954,428     $ 10,255,943  
Average shareholders’ equity
   $ 1,192,461     $ 1,170,162     $ 900,987  
Average tangible equity (2)
   $ 709,139     $ 684,747     $ 553,619  
 
                        
REGULATORY CAPITAL RATIOS:
                        
Sterling Financial Corporation:
                        
Tier 1 leverage (to average assets)
     8.3 %     8.7 %     9.5 %
Tier 1 (to risk-weighted assets)
     9.6 %     10.1 %     9.9 %
Total (to risk-weighted assets)
     10.9 %     11.3 %     10.9 %
Sterling Savings Bank:
                        
Tier 1 leverage (to average assets)
     8.0 %     8.5 %     9.2 %
Tier 1 (to risk-weighted assets)
     9.6 %     9.8 %     9.8 %
Total (to risk-weighted assets)
     10.9 %     11.0 %     10.9 %
 
                        
OTHER:
                        
Sales of financial products
   $ 49,725     $ 34,794     $ 49,161  
FTE employees at end of period (whole numbers)
     2,557       2,571       2,570  
 
(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  
                         
    Mar 31,     Dec 31,     Mar 31,  
(in thousands, unaudited)   2008     2007     2007  
LOANS BY COLLATERAL TYPE:
                        
Residential real estate
   $ 761,887     $ 703,826     $ 639,326  
Multifamily real estate
     407,673       389,388       248,590  
Commercial real estate
     1,247,472       1,223,036       1,401,248  
Construction
     3,012,754       2,944,911       2,515,392  
Consumer - direct
     800,048       798,519       749,183  
Consumer - indirect
     402,520       376,937       318,426  
Commercial banking
     2,647,969       2,639,196       2,608,482  
Deferred loan fees, net
     (15,372 )     (16,480 )     (16,185 )
Allowance for losses on loans
     (145,009 )     (111,026 )     (93,837 )
 
                  
Net loans receivable
   $ 9,119,942     $ 8,948,307     $ 8,370,625  
 
                  
 
                        
ALLOWANCE FOR CREDIT LOSSES:
                        
Allowance - loans, beginning of quarter
   $ 111,026     $ 102,042     $ 77,849  
Acquired
     0       0       12,535  
Provision
     37,143       13,000       4,225  
Charge offs, net of recoveries
     (3,222 )     (4,016 )     (832 )
Transfers
     62       0       60  
 
                  
Allowance - loans, end of quarter
     145,009       111,026       93,837  
 
                  
Allowance - unfunded commitments, beginning of quarter
     6,306       6,304       5,840  
Provision
     21       2       266  
Transfers
     (62 )     0       (60 )
 
                  
Allowance - unfunded commitments, end of quarter
     6,265       6,306       6,046  
 
                  
Total credit allowance
   $ 151,274     $ 117,332     $ 99,883  
 
                  
 
                        
Net charge-offs to average net loans (annualized)
     0.14 %     0.18 %     0.04 %
Net charge-offs to average net loans (ytd)
     0.03 %     0.08 %     0.01 %
Loan loss allowance to total loans
     1.57 %     1.23 %     1.11 %
Total credit allowance to total loans
     1.63 %     1.30 %     1.18 %
Loan loss allowance to nonperforming loans (excluding loans classified as loss)
     73.3 %     95.8 %     681.4 %
Total allowance to nonperforming loans
     76.9 %     101.8 %     725.9 %
Nonperforming loans to loans
     2.06 %     1.27 %     0.18 %
 
                        
NONPERFORMING ASSETS:
                        
Past 90 days due
   $ 0     $ 0     $ 0  
Nonaccrual loans
     190,766       115,112       14,855  
Restructured loans
     207       350       0  
 
                  
Total nonperforming loans
     190,973       115,462       14,855  
REO
     13,027       11,075       4,076  
 
                  
Total nonperforming assets (NPA)
   $ 204,000     $ 126,537     $ 18,931  
 
                  
NPA to total assets
     1.61 %     1.04 %     0.17 %
Loan delinquency ratio (60 days and over)
     2.38 %     1.23 %     0.27 %
Classified assets
   $ 402,793     $ 234,336     $ 79,098  
Classified assets/total assets
     3.17 %     1.93 %     0.69 %
 
                        
DEPOSITS DETAIL:
                        
Interest-bearing transaction accounts
   $ 462,768     $ 469,428     $ 524,492  
Noninterest-bearing transaction accounts
     887,129       898,606       896,506  
Savings and money market demand accounts
     2,226,090       2,156,808       2,045,493  
Time deposits
     4,264,797       4,152,930       4,107,567  
 
                  
Total deposits
   $ 7,840,784     $ 7,677,772     $ 7,574,058  
 
                  
 
                        
Number of transaction accounts (whole numbers):
                        
Interest-bearing transaction accounts
     47,140       47,234       48,949  
Noninterest-bearing transaction accounts
     150,210       149,834       142,938  
 
                  
Total transaction accounts
     197,350       197,068       191,887  
 
                  

4

 

Sterling Financial Corporation
AVERAGE BALANCE, YIELDS AND RATES PAID            
                                                                         
    Three Months Ended  
    March 31, 2008     December 31, 2007     March 31, 2007  
    Average             Average     Average             Average     Average             Average  
(in thousands, unaudited)   Balance     Amount     Rate     Balance     Amount     Rate     Balance     Amount     Rate  
ASSETS:
                                                                        
Loans:
                                                                        
Mortgage
   $ 5,436,297     $ 95,381       7.06 %   $ 5,326,563     $ 104,008       7.75 %   $ 4,558,555     $ 91,696       8.16 %
Commercial and consumer
     3,833,230       66,881       7.02 %     3,751,270       71,398       7.55 %     3,122,975       61,185       7.95 %
 
                                                      
Total loans
     9,269,527       162,262       7.04 %     9,077,833       175,406       7.67 %     7,681,530       152,881       8.07 %
MBS
     1,976,815       24,499       4.98 %     1,683,267       20,560       4.85 %     1,719,281       20,468       4.83 %
Investments and cash
     306,443       3,193       4.19 %     285,415       2,993       4.16 %     257,468       2,210       3.48 %
 
                                                      
Total interest-earning assets
     11,552,785       189,954       6.61 %     11,046,515       198,959       7.15 %     9,658,279       175,559       7.37 %
 
                                                            
Noninterest-earning assets
     891,880                       907,913                       597,664                  
 
                                                                  
Total average assets
   $ 12,444,665                     $ 11,954,428                     $ 10,255,943                  
 
                                                                  
 
                                                                        
LIABILITIES and EQUITY:
                                                                        
Deposits:
                                                                        
Transaction
   $ 1,304,317       419       0.13 %   $ 1,366,137       514       0.15 %   $ 1,294,108       672       0.21 %
Savings
     2,236,228       13,780       2.48 %     2,158,234       17,688       3.25 %     1,928,862       16,762       3.52 %
Time deposits
     4,169,033       48,672       4.70 %     4,266,725       53,537       4.98 %     3,740,658       46,286       5.02 %
 
                                                      
Total deposits
     7,709,578       62,871       3.28 %     7,791,096       71,739       3.65 %     6,963,628       63,720       3.71 %
Borrowings
     3,357,477       34,026       4.08 %     2,791,340       34,318       4.88 %     2,364,132       30,566       5.24 %
 
                                                      
Total interest-bearing liabilities
     11,067,055       96,897       3.52 %     10,582,436       106,057       3.98 %     9,327,760       94,286       4.10 %
 
                                                            
Noninterest-bearing liabilities
     185,149                       201,830                       27,196                  
 
                                                                  
Total average liabilities
     11,252,204                       10,784,266                       9,354,956                  
Total average shareholders’ equity
     1,192,461                       1,170,162                       900,987                  
 
                                                                  
Total average liabilities and equity
   $ 12,444,665                     $ 11,954,428                     $ 10,225,943                  
 
                                                                  
 
                                                                        
Tax equivalent net interest income and spread
           $ 93,057       3.09 %           $ 92,902       3.17 %           $ 81,273       3.27 %
 
                                                            
 
                                                                        
Tax equivalent net interest margin
                     3.24 %                     3.34 %                     3.41 %
 
                                                                  

5

 

Sterling Financial Corporation
EXHIBIT A - RECONCILIATION SCHEDULE  
                         
    Three Months Ended  
    Mar 31,     Dec 31,     Mar 31,  
(in thousands, unaudited)   2008     2007     2007  
CORE EARNINGS: (1)
                        
Net income as reported
   $ 2,876     $ 16,857     $ 22,921  
Add back: merger and acquisition costs, net of tax
     0       599       761  
Add back: other nonrecurring items, net of tax
     (294 )     991       0  
 
                  
Core earnings
   $ 2,582     $ 18,447     $ 23,682  
 
                  
 
                        
CORE EARNINGS PER SHARE - BASIC: (1)
                        
Earnings per share - basic, as reported
   $ 0.06     $ 0.33     $ 0.51  
Add back: merger and acquisition costs, net of tax
     0.00       0.01       0.01  
Add back: other nonrecurring items, net of tax
     (0.01 )     0.02       0.00  
 
                  
Core earnings per share - basic
   $ 0.05     $ 0.36     $ 0.52  
 
                  
 
                        
CORE EARNINGS PER SHARE - DILUTED: (1)
                        
Earnings per share - diluted, as reported
   $ 0.06     $ 0.33     $ 0.50  
Add back: merger and acquisition costs, net of tax
     0.00       0.01       0.02  
Add back: other nonrecurring items, net of tax
     (0.01 )     0.02       0.00  
 
                  
Core earnings per share - diluted
   $ 0.05     $ 0.36     $ 0.52  
 
                  
 
                        
RETURN ON AVERAGE ASSETS, CORE: (1)
                        
Return on average assets, as reported
     0.09 %     0.56 %     0.91 %
Add back: merger and acquisition costs, net of tax
     0.00 %     0.02 %     0.03 %
Add back: other nonrecurring items, net of tax
     (0.01 %)     0.03 %     0.00 %
 
                  
Return on average assets, core
     0.08 %     0.61 %     0.94 %
 
                  
 
                        
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY, CORE: (1)                
Return on average shareholders’ equity, as reported
     1.0 %     5.7 %     10.3 %
Add back: merger and acquisition costs, net of tax
     0.0 %     0.2 %     0.4 %
Add back: other nonrecurring items, net of tax
     (0.1 %)     0.4 %     0.0 %
 
                  
Return on average shareholders’ equity, core
     0.9 %     6.3 %     10.7 %
 
                  
 
                        
OPERATING EFFICIENCY RATIO, CORE: (1)
                        
Operating efficiency ratio, as reported
     63.7 %     67.1 %     63.1 %
Subtract: merger and acquisition costs
     0.0 %     (0.9 %)     (1.2 %)
Subtract: other nonrecurring items
     0.2 %     (0.9 %)     0.0 %
 
                  
Operating efficiency ratio, core
     63.9 %     65.3 %     61.9 %
 
                  
 
(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.