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| 8-K - FORM 8-K - STERLING FINANCIAL CORP /WA/ | d232314d8k.htm |
 FBR Fall Investor Conference
New York City
November 29, 2011
Ticker: STSA
Spokane, Washington
www.sterlingfinancialcorporation-spokane.com
Exhibit 99.1
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 (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 on page
22. 2 |
 Based in Spokane, Wash.,
Sterling is one of the largest
commercial banks
headquartered in the Pacific
Northwest
(1)
More than 45,000
commercial accounts and
255,000 retail deposit
accounts
$6.5 billion of deposits with
an average cost of 0.86%
(3)
$730 million recapitalization
completed in August 2010
176
branches in 5 states
Source: SNL Financial, Company filings
Note: Financial data as of September 30, 2011.
(1)
Pacific
Northwest
defined
as
Idaho,
Oregon
and
Washington.
(2)
Deposit
market
share
data
as
of
6/30/2011.
(3)
For
the
quarter
ended
September
30,
2011
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 9/30/2011
(billions)
Total assets:
$9.2
Total deposits
$6.5
Net Loans
$5.4
Deposit Market Share
(2)
State
Branches
Rank
Market Share
Washington
71
8
2.93%
Oregon
67
7
3.16%
California
13
54
0.11%
Idaho
18
11
2.55%
Montana
7
16
1.09%
3 |
 Improving quarterly results
Reported Q3 net income of $11.3 million
Compares to loss of $48.0 million for Q3 2010
Net interest margin (FTE) of 3.34%, up 57 bps from
Q3 2010
Average cost of deposits declined by 41 bps from Q3 2010
Reduced credit provisioning
Provision for Q3 credit losses totaled $6.0 million
Compares to $60.9 million provision for Q3 2010
Declining levels of non-performing assets (NPAs)
NPAs of $434.7 million, reflecting a 55% decline compared to
$965.8 million of NPAs at September 30, 2010
Focus on liquidating OREO, note sales, short sales and other
workouts
4 |
 Cost-
effective
Funding
Improved
Asset
Quality
High Quality,
Relationship
Based Asset
Generation
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 |
 Improves
Sterling’s
deposit
market
share
in
the
Portland-Vancouver
MSA
to
#7
from
#12
(largest
market
in
Oregon)
Relatively
low
risk
transaction
–
unique
structure
and
in-market
expansion
with
achievable
synergies
and
attractive
pricing
Enhances
Sterling’s
business
mix
–
addition
of
low
cost
core
deposit
base
Expands
Wealth
Management
platform
and
adds
Trust
Services
to
product
offering
($455
million
AUM
at
10/31/11)
6
Recently Announced Acquisition of
First Independent Bank
Source: SNL Financial. Deposit market share data as of June 30, 2011.
Deposit Market Share: Portland-Vancouver MSA
Pro Forma Branch Map
Portland
Eugene
Spokane
Seattle
WA
84
90
5
OR
Washington
Columbia
Multnomah
Clackamas
Hood River
Clark
Skamania
Sterling
First Independent
Bank
Major Cities
Portland
($ in millions)
Rank
Institution
Deposits
Deposit
Market
Share
1
Bank of America
$8,552
23.2
%
2
U.S. Bancorp
7,589
20.6
3
Wells Fargo
6,241
16.9
4
JPMorgan Chase
3,105
8.4
5
KeyCorp
2,488
6.7
6
Umpqua
1,617
4.4
PF 7
Sterling Pro Forma
1,102
3.0
7
BNP Paribas / BancWest
912
2.5
8
West Coast Bancorp
842
2.3
9
First Independent Bank
695
1.9
10
Riverview Bancorp
619
1.7
11
Washington Federal
441
1.2
12
Sterling
407
1.1
13
HomeStreet
300
0.8
14
First Federal S&LA of McMinnville
285
0.8
15
Banner
266
0.7
($ in millions)
Sterling
First
Independent
Sterling
Pro Forma
Branches
176
14
190
Total Deposits per Branch
$37.1
$49.6
$38.0 |
 0.41%
0.95%
0.50%
0.54%
0.64%
0.79%
0.91%
0.75%
1.13%
1.11%
1.03%
0.91%
0.81%
1.24%
0.00%
0.40%
0.80%
1.20%
1.60%
Q1'10
Q2'10
Q3'10
Q4'10
Q1'11
Q2'11
Q3'11
First Independent
Peers
7
Loan Portfolio Composition
Cost of Interest-Bearing Deposits
Source: SNL Financial.
(1)
Peers defined as banks in Washington and Oregon with asset size greater than
$500 million and less than $5 billion. (1)
IRA
Accounts
3%
CD
Accounts
13%
Non-
Interest
Bearing DDA
26%
Savings
Accounts
7%
Money
Market
Demand
Accounts
35%
Interest
Bearing DDA
16%
Deposit Composition
Balance of $691mm as of September 30, 2011
C&I
16%
1-4 Family
6%
Multifamily
6%
CRE
47%
C&D
13%
Consumer &
Other
12%
Gross Balance of $474mm as of September 30, 2011
Seller retaining $49mm of loans
Impaired and other loans
Overlapping and related credit exposure
Estimated gross credit mark of 9.5% or
$40mm on remaining $425mm of gross loans
Net credit mark of 6.1%, or $26mm |
 8 |
 (in millions)
9/30/2010
9/30/2011
Annual
% change
Retail deposits:
Transaction
$1,495
$1,676
12%
Savings and MMDA
1,534
1,815
18%
Time deposits
3,003
2,151
-28%
Total retail
6,032
5,642
-6%
Public:
560
466
-17%
Brokered:
317
371
17%
Total deposits
$6,909
$6,479
-6%
Change
Depost funding costs
1.27%
0.86%
-41
Net loans to deposits
87%
86%
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
$700 million since year end 2009,
to $371 million
Deposit composition
Deposit balances
Reducing avg. cost of deposits (%)
(1)
9
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%
0.86%
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
Q3
11
3Q 2011 Y-o-Y Improvement (41 bps)
STSA
Peer
Non-interest
bearing transaction:
$1,167 / 18%
Time deposits-retail
& public:
$2,416 / 37%
Time deposits-
brokered:
$371 / 6%
Savings and money
market demand:
$2,017 / 31%
Interest-bearing
transaction:
$508 / 8%
Balance of $6,479 million as of September 30, 2011
(in millions) |
 Improving Trend
in Classified and Non-Performing Assets 12/31/09: $1,648
$500
10 |
 $534
$552
$640
$619
$540
$459
$336
$238
$176
$109
$-
$100
$200
$300
$400
$500
$600
$700
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
Non-performing construction loans
(in millions)
$-
$500
$1,000
$1,500
$2,000
$2,500
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
(in millions)
Res
Multifam
Comm'l
Aggressively shrinking construction portfolio
Construction balances have decreased $2.7 billion,
or 92% since 2007
At 9/30/2011, construction loans had declined
to 4% of total loans vs. 32% at 12/31/2007
(peak)
Construction non-performing loans totaled $109
million (34% of total NPLs) as of 9/30/2011
Total construction loans
Construction loan balances
11 |
 12 |
 (dollars in
millions) Amount
Properties
Amount
Properties
OREO:
Beginning balance
$135
337
$101
250
Additions
74
218
60
91
Valuation adjustments
(5)
(8)
Sales
(49)
(162)
(41)
(163)
Other changes
1
(1)
Ending balance
$157
393
$112
178
2010
2011
For the three months ended September 30,
13 |
 Residential
RE: $702 / 12%
Multi-family RE:
$991 / 18%
CRE, NOO:
$1,287 / 23%
CRE, OO:
$1,285 / 23%
C&I :
$444 / 8%
Construction:
$222 / 4%
Consumer:
$684 / 12%
Outstanding balance of $5.6 billion as of Sept. 30, 2011
(2)
(in millions)
Gross loans increased
by $13 million during Q3 2011
Q3 2011 portfolio loan originations increased by $241 million, or 225%
over the same period a year ago
(1)
Source: Company filings.
(1)
Excluding loans held for sale.
(2)
Net of $124.1 million in FAS 114 writedowns.
Loan mix by geography
Loan mix by category
14 |
 0
50
100
150
200
250
300
350
400
450
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Residential RE
Multifamily
CRE
Construction
Consumer
Commercial Banking
Loan
Portfolio
New
Originations
by
Quarter
(1)
($ in millions)
15
$265
$180
$107
$348
$426
Source: Company filings.
(1)
Excluding loans held for sale. |
 WA
33%
OR
12%
N Cal
28%
S Cal
27%
5 Yr Fixed
Hybrid
ARM
64%
3 Yr Fxd
H-ARM
19%
7 Yr Fxd
H-ARM
6%
Other
5%
Refi
78%
Purchase
22%
Multifamily –
Program to Date as of September 30, 2011
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MF loan programs
MF geography
MF loan purpose
MF originations since program inception
Wtd Avg LTV: 66.0%; Wtd Avg DSC: 1.34:1; Wtd Avg Yield: 4.8%
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 Expense Control and Operating Efficiency Drivers
17
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
Expansion in key markets –
recently announced acquisition of First Independent
Bank in Portland
Emphasizing increased earnings power
Focused on increasing pre-tax, pre-provision earnings
Benefit
of
Fully
Reserved
Net
Deferred
Tax
Asset
of
$335
million
($5.40
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:
11.1%
•
Tier 1 risk-based capital ratio:
17.1%
•
Total risk-based capital ratio:
18.4%
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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
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Appendix
20 |
 9/30/2011
Peer median
(1)
TCE/TA
9.2%
7.9%
Tier 1 leverage
11.1%
9.4%
Tier 1 risk-based capital
17.1%
13.8%
Total risk-based capital
18.4%
16.0%
NPA/Tier 1 Capital + ALLL
35.5%
18.1%
Capital Compared to Peers
Source: SNL Financial and company filings. Sterling Financial data as of
September 30, 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. 21 |
 Last
Five Quarters Financial / Operating Highlights 22
(1)
Net of cumulative confirmed losses on loans and OREO of $299.7 million for
Sept. 30, 2011, $375.7 million for June 30, 2011, $423.8 million for March 31, 2011, $516.3 million for Dec. 31, 2010, and
$588.4 million for Sept. 30, 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. |
 High
Quality, Low Risk Investment Portfolio Three considerations in
shaping investment portfolio composition are safety, liquidity and
yield
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
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
3.19%
overall
portfolio
yield
(2)
MBS composition
Yield
(2)
3.12%
3.21% 3.23%
3.08%
$2.60B
$2.22B
$2.59B
23
$2.26B |
 Non-owner-occupied commercial real estate, including multifamily
portfolio totals
$2.3 billion as of 9/30/2011
Increased by $506 million, or 29% since Q3 2010
Represented 41% of gross loans as of 9/30/2011, up from 30% at
9/30/2010 3% of non-owner occupied CRE loans were
non-performing as of 9/30/2011 Source: Company filings.
CRE NOO loan mix by geography
CRE NOO loan mix by property type
24 |
 Owner-occupied commercial real estate totaled $1.29 billion as of
9/30/2011 Represented 23% of gross loans at 9/30/2011
6% of owner-occupied CRE loans were non-performing at
9/30/2011 SBA loans are $96 million, or 7% of total
owner-occupied CRE loans at 9/30/2011 Source: Company
filings. CRE OO loan mix by geography
CRE OO loan mix by property type
25 |
 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
26
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