Attached files
| file | filename |
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| 8-K - STERLING FINANCIAL CORPORATION 8-K - STERLING FINANCIAL CORP /WA/ | d230272d8k.htm |
 Barclays Capital
Global Financial
Services Conference
New York City
September 12 and 13, 2011
Ticker: STSA
Spokane, Washington
www.sterlingfinancialcorporation-spokane.com
Exhibit 99.1 |
 Safe Harbor
(1) The Reform Act defines the term "forward-looking statements"
to include: statements of management plans and objectives, statements regarding the future economic performance, and projections of revenues and
other financial data, among others. The Reform Act precludes liability for
oral or written forward-looking statements if the statement is identified as such and accompanied by "meaningful cautionary statements
identifying important factors that could cause actual results to
differ materially from those made in the forward-looking
statements." In the course of our presentation, we may discuss
matters that are deemed to be forward-looking
statements,
which
are
intended
to
be
covered
by
the
safe
harbor
for
“forward-looking
statements”
provided
by
the
Private
Securities
Litigation
Reform
Act
of
1995
(the
“Reform
Act”)
(1)
.
Forward-looking
statements
involve
substantial
risks
and
uncertainties,
many
of
which
are
difficult
to
predict
and
are
generally beyond our control. Actual results may differ materially and
adversely from projected results. We assume no obligation to update
any forward-looking statements
(including
any
projections)
to
reflect
any
changes
or
events
occurring
after the date hereof. Additional information about risks of achieving
results suggested by any forward-looking statements may be found
in Sterling’s 10-K, 10-Q
and
other
SEC
filings,
including
under
the
headings
“Risk
Factors”
and
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations.”
This presentation contains certain non-GAAP financial measures.
Reconciliations to the comparable GAAP measures are set forth on page
24. 2 |
 Based in Spokane, Wash.,
Sterling is one of the largest
commercial banks
headquartered in the Pacific
Northwest
(1)
More than 25,000
commercial accounts and
nearly 200,000 retail deposit
accounts
$6.6 billion of deposits with
an average cost of 0.91%
(3)
$730 million recapitalization
completed in August 2010
178 branches in 5 states
Source: SNL Financial, Company filings
Note: Financial data as of June 30, 2011.
(1)
(2)
(3)
MONTANA
IDAHO
OREGON
WASHINGTON
San Jose
San
Francisco
Sacramento
Santa
Rosa
Eugene
Salem
Portland
Seattle
Spokane
Great Falls
Helena
Billings
Boise
Major cities
Sterling branches
Key Statistics as of 6/30/2011
(billions)
Total assets:
$9.2
Total deposits
$6.6
Net Loans
$5.4
Deposit Market Share
(2)
State
Branches
Rank
Market Share
Washington
72
7
3.20%
Oregon
67
7
3.58%
California
13
46
0.14%
Idaho
18
11
2.57%
Montana
8
14
1.21%
Franchise at a Glance
3
Pacific Northwest defined as Idaho, Oregon and Washington.
Deposit market share data as of 6/30/2010.
For the quarter ended June 30, 2011 |
 Improving quarterly results
Reported Q2 net income of $7.6 million
Compares to loss of $58.2 million for Q2 2010
Net interest margin (FTE) of 3.31%, up 43 bps from
Q2 2010
Average cost of deposits declined by 45 bps from Q2 2010
Reduced credit provisioning
Provision for Q2 credit losses totaled $10.0 million
Compares to $70.8 million provision for Q2 2010
Declining levels of non-performing assets (NPAs)
NPAs of $497.5 million, reflecting a 51% decline compared to
$1.02 billion of NPAs at June 30, 2010
Focus on liquidating OREO, note sales, short sales and other
workouts
Q2 2011 Performance Highlights
4 |
 Formula for
Success – “Back to Basics”
Banking
Cost-
effective
Funding
Improved
Asset
Quality
Expense
Control
Profitable
Growth
Focus on customers
Delivering value proposition to customers
•
Fair pricing
•
Competitive products and services
Resolving credit challenges
Improving credit metrics throughout the loan portfolio
Reducing non-performing loans and OREO
Strategic expansion in key markets and lines of business
Increased emphasis on sales and business development
Intelligent market segmentation
Expense control and emphasis on organizational efficiency
Managing through emerging regulatory changes
5
High Quality,
Relationship
Based Asset
Generation |
 Improving Trends
Summary (Q2 2011 vs. Q2 2010) Net interest margin
Funding costs
Non-interest
expense
Classified assets
Non-performing assets
Provision for loan losses
6
43
bps
40
bps
6%
Increased margins and improved expense management
Improved asset quality and reduced credit provisioning
56%
51%
86% |
 Deposit
Composition Source: SNL Financial and company filings.
(1) Peers include: BANR, CATY, CYN, CVBF, GBCI, PACW, SIVB, UMPQ, and
WABC. Figures based on median of peers. Overall improvement in
deposit mix leading to lower cost of
deposits
Decreased brokered deposits by
$600 million since year end 2009,
to $480 million
Deposit composition
Deposit balances
Reducing
avg.
cost
of
deposits
(%)
(1)
7
(in millions)
6/30/2010
6/30/2011
Annual
% change
Retail deposits:
Transaction
$1,466
$1,573
7%
Savings and MMDA
1,508
1,710
13%
Time deposits
3,123
2,279
-27%
Total retail
6,097
5,562
-9%
Public:
683
562
-18%
Brokered:
461
480
4%
Total deposits
$7,241
$6,604
-9%
Change
Depost funding costs
1.36%
0.91%
-45
Net loans to deposits
85%
82%
Non-interest
bearing transaction:
$1,068 / 16%
Time deposits-
retail:
$2,617 / 40%
brokered:
$480 / 7%
Savings and money
market demand:
$1,934 / 29%
Interest
-
bearing
transaction:
$505 / 8%
Balance of $6,604 million as of June 30, 2011
(in millions)
3.75%
3.75%
3.68%
3.26%
2.88%
2.82%
2.72%
2.31%
2.08%
1.98%
1.77%
1.45%
1.36%
1.27%
1.13%
1.01%
0.91%
2.12%
2.10%
2.18%
1.50%
1.10%
1.13%
1.33%
1.10%
0.90%
0.85%
0.73%
0.67%
0.66%0.56%
0.50%
0.51%
0.48%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Q2
07
Q3
07
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
2Q 2011 Y-o-Y Improvement (45 bps)
STSA
Peer
Time deposits- |
 Improving Trend
in Classified and Non-Performing Assets 8
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Classified Assets
Non
-perfoming Assets
Non
-performing Loans
$604
12/31/09: $1,648 |
 $533.7
$551.9
$639.6
$618.5
$540.4
$458.6
$335.7
$238.0
$175.8
$-
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
Non-performing construction loans
(in millions)
Construction Loan Reductions
Aggressively shrinking construction portfolio
Construction balances have decreased $2.6 billion,
or 89% since 2007
Residential construction concentration reduced to
1% at Q2 2011 from 6% at Q2 2010
Construction non-performing loans totaled $176
million (44% of total NPLs) as of 6/30/2011
Total construction loans
Construction loan balances
9
Commercial:
$191 / 62%
Multi-family:
$50 / 16%
vertical:
$38 / 12%
Lots: $18 / 6%
Raw land: $9 / 3%
A&D: $2 / 1%
Outstanding balance of $308 million as of June 30, 2011
(in millions)
Residential -
At 6/30/2011, construction loans had declined to
6% of total loans vs. 32% at 12/31/2007 (peak)
$-
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
(in millions)
Res
Multifam
Comm'l |
 (in millions)
6/30/2010
9/30/2010
12/31/2010
3/31/2011
6/30/2011
NPLs beginning-of-period
$958.8
$884.2
$809.0
$654.6
$477.1
Additions/increases
263.5
171.6
62.5
47.0
65.1
Return to accruing status
(45.2)
(16.6)
(11.1)
(77.3)
(13.7)
Charge-offs
(101.8)
(77.1)
(31.4)
(24.1)
(33.4)
Transfer to OREO
(83.1)
(74.3)
(58.6)
(68.2)
(32.9)
Payments/sales
(108.0)
(78.8)
(115.8)
(54.9)
(66.1)
NPLs end of period
$884.2
$809.0
$654.6
$477.1
$396.1
NPLs/Loans
13.7%
13.8%
11.6%
8.6%
7.1%
% decline ($) since Q2 2010:
55%
For the quarter ended
Non-performing Loan (NPL) Flow Analysis
10 |
 OREO Flow
Analysis 11
(in thousands)
Amount
Properties
Amount
Properties
OREO:
Beginning balance
$103,973
257
$151,774
363
Additions
83,087
221
32,920
140
Valuation adjustments
(9,447)
(8,646)
Sales
(39,746)
(141)
(74,837)
(253)
Other changes
(2,634)
195
Ending balance
$135,233
337
$101,406
250
For the three months ended June 30,
2010
2011 |
 Loan Portfolio
Summary Reducing Construction Loan Exposure and Focusing on Relationship-Based
Lending Gross loans increased
by $46 million during Q2 2011
Q2 2011 portfolio loan originations increased by $352 million, or 479%
over the same period a year ago
(1)
Source: Company filings.
(1) Excluding loans held for sale.
(2) Net of $187.5 million in FAS 114 writedowns.
Loan mix by geography
Loan mix by category
12
Residential RE:
$713 / 13%
Multi-family RE:
$812 / 14%
CRE, NOO:
$1,324 / 24%
CRE, OO:
$1,300 / 23%
C&I :
$442 / 8%
Construction:
$308 / 5%
Consumer,:
$704 / 13%
Oustanding balance of $5.6 billion as of June 30, 2011
(2)
(in millions)
Washington:
$2,134 / 38%
Oregon:
$1,318 / 23%
N. California:
$1,131 / 20%
Idaho:
$345 / 6%
S. California:
$265 / 5%
Arizona: $215 / 4%
Montana:
$101 / 2%
Other: $93 / 2%
Outstanding balance of $5.6 billion as of June 30, 2011
(2)
(in millions) |
 0
50
100
150
200
250
300
350
400
450
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Residential RE
Multifamily
CRE
Construction
Consumer
Commercial Banking
Loan Portfolio New Originations by Quarter
(1)
($ in millions)
13
$265
$180
$107
$74
$426
Source: Company filings.
(1) Excluding loans held for sale. |
 Expense Control
and Operating Efficiency Drivers 14
OREO Expense –
Expected decline with lower levels of OREO
SAD Expense –
Reductions of SAD team with lower levels of
challenged loans
Working to improve efficiency and effectiveness of
operations
Conversion
of
core
operating
system
during
2Q
2011;
expect
to
be
fully
phased in by YE 2011 with benefits to be realized in 2012
Ongoing vendor assessment
Review of branches and facilities
Line of Business staffing/profitability under review
Aspirational goal: Efficiency ratio less than 60%
|
 Summary
Executing on our strategic plan
Valuable, core-deposit franchise drives earnings power
Continued improvement in asset quality metrics
High-quality, relationship-driven asset generation
Ongoing expense management
Emphasizing increased earnings power
Focused on increasing pre-tax, pre-provision earnings
Benefit of Deferred Tax Asset of $350 million ($5.94 per share)
Capitalization
Significantly exceeds regulatory levels required for
“well-capitalized” status
Additional capital in place to support opportunistic growth
Capital ratios have improved since recapitalization in August 2010:
•
Tier 1 leverage ratio:
•
Tier 1 risk-based capital ratio:
•
Total risk-based capital ratio:
15
16.9%
18.2%
10.9% |
  Investor Contacts
Media Contact
Patrick Rusnak
Cara Coon
Chief Financial Officer
VP/Communications and Public Affairs Director
(509) 227-0961
(509) 626-5348
patrick.rusnak@sterlingsavings.com
cara.coon@sterlingsavings.com
Daniel Byrne
EVP/Corporate Development Director
(509) 458-3711
dan.byrne@sterlingsavings.com
16
Ticker: STSA
Spokane, Washington
www.sterlingfinancialcorporation-spokane.com
|
 Appendix
17 |
 Capital Compared
to Peers Source: SNL Financial and company filings. Sterling Financial
data as of June, 2011. Peer group data as of most recent quarter available.
(1) Peers include all U.S. bank holding companies with between $7 billion and
$25 billion in assets. 18
6/30/2011
Peer median
(1)
TCE/TA
8.6%
7.9%
Tier 1 leverage:
10.9%
9.3%
Tier 1 risk-based capital
16.9%
13.7%
Total risk-based capital
18.2%
15.4%
NPA/Tier 1 Capital + ALLL
40.5%
18.3% |
 (in millions)
6/30/2010
9/30/2010
12/31/2010
3/31/2011
6/30/2011
Asset Quality
NPAs
(1)
$1,033
$979
$816
$629
$498
Classified assets
$1,401
$1,136
$1,100
$812
$604
NPAs / assets
10.6%
9.8%
8.6%
6.7%
5.4%
ALLLs / NPLs
30.0
30.7
37.7
48.8
53.5
ALLL / loans
4.1
4.2
4.4
4.2
3.8
Net charge-offs (NCOs)
$102
$77
$31
$24
$33
NCOs / avg. loans
5.5%
4.5%
2.0%
1.6%
2.2%
Balance Sheet
Total assets
$9,738
$10,030
$9,493
$9,352
$9,242
Net loans
$6,141
$5,666
$5,379
$5,321
$5,388
Total construction loans
$959
$720
$526
$396
$308
Securities
$1,956
$2,723
$2,838
$2,821
$2,496
Core deposits
(2)
$6,780
$6,592
$6,662
$6,393
$6,124
Net loans/total deposits
85%
82%
78%
79%
82%
Capital
$193
$845
$771
$774
$808
TCE/TA
nm
8.3%
8.0%
8.1%
8.6%
Tier 1 leverage
2.0%
10.5%
10.1%
10.6%
10.9%
Operating Highlights
Operating income (loss) before taxes
($53.8)
($48.0)
($38.1)
$5.4
$7.6
Provision for credit losses
$70.8
$60.9
$30.0
$10.0
$10.0
Adj. pre-tax, pre-provision income
(3)
$54.9
$40.6
$42.7
$39.1
$41.6
FTE net interest margin
2.88%
2.77%
2.80%
3.22%
3.31%
Adj. FTE net interest margin
(4)
3.68%
3.47%
3.43%
3.75%
3.73%
For the quarters ended
Last Five Quarters Financial / Operating Highlights
19
(1)
Net of cumulative confirmed losses on loans and OREO of $375.7 million for
June 30, 2011, $423.8 million for March 31, 2011, $516.3 million for Dec. 31, 2010, $588.4 million for Sept. 30, 2010,
$592.8 million for June 30, 2010, and $626.3 million for March 31,
2010. (2)
Core deposits defined as total deposits less brokered CDs.
(3)
Adjusted for provision for credit losses, interest reversal on
non-performing loans, OREO-related expenses and charges on prepayment of debt.
(4)
Adjusted FTE NIM includes interest reversal on non-performing
loans. |
 $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
9/30/2010
12/31/2010
3/31/2011
6/30/2011
30-yr MBS
20-yr MBS
10-
& 15-yr MBS
CMO
High Quality, Low Risk Investment Portfolio
Strategy remains to reduce exposure to 30-yr
MBS and replace with 10-
and 15-year MBS
with good cash flows to fund loan growth
82% FNMA, FHLMC and GNMA pass-throughs
Sales in Q2 ‘11 of $258MM of
MBS/CMO/Munis completed to reduce
duration in anticipation of rising rates
Source: Company filings.
(1)
Durations and average life measures are base case, under current
market rates.
(2)
Yield at quarter end.
Investment portfolio
Weighted avg life and effective duration
3.31%
overall
portfolio
yield
(2)
MBS composition
Yield
(2)
3.58%
3.12% 3.21%
3.23%
$2.28B
$2.60B
$2.59B
20
$2.26B
MBS:
$2,040 / 82%
Muni bonds:
$188 / 8%
Corp: $25 / 1%
Non-agency:
$27 / 1%
Ginnie Mae:
$86 / 3%
Freddie Mac:
$44 / 2%
Fannie Mae:
$79 / 3%
Tax credit: $1 / 0%
Other: $1 / 0%
$2.5 billion total portfolio
(in millions)
3.5
5.0
5.1
4.5
2.6
3.6
4.0
3.4
0
1
2
3
4
5
6
9/30/2010
12/31/2010
3/31/2011
6/30/2011
WA Life-Base case
Eff Dur -
Base case |
 Loan Portfolio
– CRE Non-Owner-Occupied
Includes Multi-family
Non-owner-occupied commercial real estate, including
multi-family portfolio totals $2.1 billion as of 6/30/2011
Increased by $308 million, or 17% since Q2 2010
Represented 38% of gross loans as of 6/30/2011, up from 29% at
6/30/2010 3% of non-owner occupied CRE loans were
non-performing as of 6/30/2011 Source: Company filings.
CRE NOO loan mix by geography
CRE NOO loan mix by property type
21
$812
$407
$225
$218
$197
$166
$111
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Outstanding balance of $2,136 million at June 30, 2011
(in millions)
Washington:
$693 / 33%
N. California:
$610 / 29%
Oregon:
$372 / 17%
S. California:
$175 / 8%
Arizona: $115 / 5%
Idaho: $86 / 4%
Montana: $27 / 1%
Other,: $58 / 3%
Outstanding balance of $2,136 million at June 30, 2011
(in millions) |
 Multi-family
– Program to Date as of June 30, 2011
22
MF loan programs
MF geography
MF loan purpose
MF originations since program inception
Wtd Avg LTV: 66.5%; Wtd Avg DSC: 1.33:1; Wtd Avg Yield: 4.8%
$4
$28
$64
$81
$148
$184
$261
$365
$-
$50
$100
$150
$200
$250
$300
$350
$400
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Monthly Originations
Cumulative
7 Yr Fxd
6%
-ARM
H
Other
7%
3 Yr Fxd
H
ARM
-
19%
5 Yr Fixed
68%
Hybrid
ARM
38%
9%
32%
21%
WA
OR
N Cal
S Cal
78%
22%
Refi
Purchase |
 Loan Portfolio
– CRE Owner-Occupied
Includes SBA
Owner-occupied commercial real estate totaled $1.30 billion as of
6/30/2011 Represented 23% of gross loans at 6/30/2011
6% of owner-occupied CRE loans were non-performing at
6/30/2011 SBA loans are $94 million, or 7% of total
owner-occupied CRE loans at 6/30/2011 Source: Company
filings. CRE OO loan mix by geography
CRE OO loan mix by property type
23
Washington:
$432 / 33%
N. California:
$357 / 28%
Oregon:
$300 / 23%
Idaho: $76 / 6%
S. California:
$30 / 2%
Montana:
$14 / 1%
Other: $12 / 1%
Outstanding balance of $1,300 million at June 30, 2011
(in millions)
$339
$240
$231
$133
$126
$80
$56
$48
$46
$0
$50
$100
$150
$200
$250
$300
$350
$400
Outstanding balance of $1,300 million at June 30, 2011
(in millions)
Arizona: $79 / 6% |
 (in thousands,
unaudited) 6/30/2010
9/30/2010
12/31/2010
3/31/2011
6/30/2011
Income (loss) before income taxes
($53,773)
($48,022)
($38,141)
$5,417
$7,555
Provision for credit losses
70,781
60,892
30,000
10,000
10,000
OREO expense
17,206
10,456
23,993
11,400
14,452
Interest reversal on non-performing loans
20,711
17,302
15,527
12,271
9,596
Charge on prepayment of debt
-
-
11,296
-
-
Total
(1)
$54,925
$40,628
$42,675
$39,088
$41,603
For the quarters ended
Adjusted Pre-Tax, Pre-Provision Income
(1)
Management believes that this presentation of non-GAAP results provides
useful information to investors regarding the effects of the credit cycle on the Company’s reported results of operations.
24 |
 Ticker: STSA
Spokane, Washington
www.sterlingfinancialcorporation-spokane.com
Investor Contacts
Media Contact
Patrick Rusnak
Cara Coon
Chief Financial Officer
VP/Communications and Public Affairs Director
(509) 227-0961
(509) 626-5348
patrick.rusnak@sterlingsavings.com
cara.coon@sterlingsavings.com
Daniel Byrne
EVP/Corporate Development Director
(509) 458-3711
dan.byrne@sterlingsavings.com
25 |