Business Case for Sterling Bank Plc (SBP) Acquisition of Equitorial Trust Bank (ETB)

September 2011

Agenda
1 2 3 Deal Highlights Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts

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5 6 7

Summary

Deal Highlights
AMCON will inject Financial Accommodation Amount (FAA) of N64.45 billion to bring the Net Asset Value (NAV) of ETB to zero as a precondition for the acquisition. In exchange AMCON will receive 785,193,222 units of ETB shares subsequent to ETBs capital re-organization
Existing ETB shareholders will re-capitalize the institution up to N8.5 billion from zero Sterling Bank will issue 3,140,772,888 in exchange for the assumption of all assets and liabilities of ETB with impact as follows on its ownership: AMCON: 1,570,386,444 units (10%) of total Sterling shares in issue ETB legacy shareholders: 1,570,386,444 units (10%) of total Sterling shares in issue

Key Facts
Recapitalization funding to be provided by legacy ETB shareholders

N8,500,000,000

Sterling Bank Plc shares to be issued to legacy ETB shareholders

Per share value of ETB shareholder holding

3,140,772,888

N2.71

Valuation
Market Value 10 Oct, 2011 Sterling Bank Valuation Premium/ Discount Per share 1.43 June 30 Pre deal Book value 2.29

Legacy shareholders of Sterling Bank will retain existing holding, which total 80% of the enlarged Sterling Bank
Total Sterling Bank shares in issue will increase by 25% to 15,703,864,432 ordinary shares of 50 kobo each.
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90%

18%

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

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5 6

Overview of Sterling Bank

Parent Company
Banking License Accounting Credit Rating Focus Segment Employee Channels
Sterling Bank Plc is a full service commercial bank, which emerged from the successful merger of five banks in 2005 National Commercial Banking License Local GAAP; IFRS with effect from 2011 Short Term A3; Long term BBB (Stable Outlook) - GCR Mid-tier Corporates and Institutional focus 1,600 professional employees 96 business offices; 87 ATMs

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

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5 6 7

Transaction Dynamics
Pre-acquisition
Execution of Transaction Implementation Agreement (TIA) Capital re-organization of ETB

Acquisition & Capitalization

Injection of the Financial Accommodation Amount by AMCON to facilitate the acquisition Recapitalization of ETB up to N8.5b by existing shareholders SBP absorbs the newly capitalized ETB and issues its shares in favour of AMCON and ETB existing shareholders

Restructuring & Integration

Integration implementation planning Divestment from subsidiaries and associate business not within the scope of the new banking license Integration of ETB into SBP

Repositioning of the merged SBP for effective market penetration

Pro Forma Capital Position

Pre-acquisition ETB (97%)

14% Sterling

AMCON Intervention14%

ETB Recapitalization

Sterling Bank Post-deal CAR

15.3%
0%

15.3% 0%

15.0% 15.3%

15.0%

97%

Current Capital Adequacy Ratio of the Combining Banks

8

AMCON FAA brings ETBs net asset value (NAV) to zero

ETB recapitalized by legacy shareholders

Steady state capital adequacy ratio of the resultant Combined Entity, Sterling Bank

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

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5 6

10

711

UBA

611

First

570

Ecobank + Oceanic

491

Access + Intercontinental
Union FCMB + Finbank Zenith Skye Unity Diamond Mainstreet Keystone Sterling + ETB GTBank Fidelity StanbicIBTC

Market Share by Branches

349 333 315

#13

249 223 215 206 201 189 186 184 181 154

Wema
Enterprise Sterling ETB StanChart Citibank

120
#19

96 93 26 13

11 First Zenith

FY 2010, %

12.7% 11.5%11.1%

UBA
10.2% Access+Intercontinent al 8.7% Ecobank+Oceanic 6.6% GTBank 5.6% Union

4.7%

FCMB+Finbank
Skye Diamond Keystone Sterling+ETB Fidelity Mainstreet Unity Citibank Sterling Enterprise StanbicIBTC StanChart ETB Wema

Market Share by Deposits

4.1% 3.6% 3.4% #12 2.9% 2.9% 2.5%

#17

1.9% 1.8% 1.8% 1.7% 1.6% 1.3% 1.2% 1.1%

12 13.9% First 11.5% Zenith 9.8% UBA Access+Intercontinenta l 9.2% 8.7% Ecobank+Oceanic 7.0% GTB 6.1% Union FCMB+Finbank Skye Diamond Bank Fidelity Keystone Sterling+ETB 4.4% 4.3% 3.6% #13

Market Share by Assets

FY 2010, %

StanbicIBTC
Unity Sterling Mainstreet Citibank Standard Chart Enterprise Wema ETB

#16

2.9% 2.7% 2.5% 2.3% 1.8% 1.7% 1.6% 1.6% 1.4% 1.3% 1.2% 0.8%

Global Stakeholder Benefits

Customers
Enhanced institutional capacity to meet clients business requirements Array of financial products and services to a growing and discerning customer base The combined bank will initially have a network of 189 branches present in majority of the states. The footprint will bring the Bank within reach of its enlarged customer base, engendering banking convenience

Employees
Greater and promising career opportunities within a fast growing and more diversified organization Improved training and career development capacity Greater ability to attract and retain valuable human capital and senior talent

Shareholders
Tap cost and revenue benefits from economies of scale and operational synergies to achieve optimization
Instant leap into Tier 2 banks category with greater stock market liquidity and lower risk perception Increased financial strength and capital position to support future growth Value creation through revenue and cost synergies, Leadership by established management team and knowledge sharing of best practices across both institutions

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Unmatched value, superlative service

Excellent personal and professional development opportunities

Sustainable value creation

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

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5 6

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Key Transaction Timeline

Event
Last date for lodging proxy forms for Court-Ordered Meetings
ETB Court-Ordered Meeting SBP Court-Ordered Meeting File resolutions obtained at the Court-Ordered Meeting and obtain CAC certified documents Apply for CBN/SEC final approval of the Scheme

Date
Sep 26, 2011
Sep 28, 2011 Sep 28, 2011 Sep 29, 2011 Sep 29, 2011

Receive CBN/SEC final approval of the Scheme

Obtain Court sanction of the Scheme (Effective Date) Obtain CTC of Court sanction of the Scheme Obtain CTC of Court sanction with CAC File CTC of Court sanction with CBN/SEC and NSE and apply for registration of the Scheme shares File post merger documentation with CBN/SEC Publish copy of Court sanction in at least two national newspapers

Sep 29, 2011

Sep 30, 2011 Sep 30, 2011 Sep 30, 2011 Sep 30, 2011 Sep 30, 2011 Oct 3, 2011

Submit copy of Court sanction for publication in the Gazette

Obtain SEC approval for the registration of the Scheme Shares File Court-sanction / newspaper advert with the NSE Dispatch Sterling Bank share certificates to ETB existing shareholders/ credit CSCS accounts of ETB existing shareholders Listing of Scheme shares on the NSE
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Oct 3, 2011
Oct 5, 2011 Oct 5, 2011 Oct 7, 2011 Oct 7, 2011

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

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5 6

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Consolidated Balance Sheet 1H 2011

Indicators (N in Millions)
ASSETS
Cash & Short Term Investments Due from other Banks Loans & Advances Investment Securities Other Assets Fixed Assets TOTAL ASSETS

Sterling Bank

ETB

Consolidated
Notes
The Consolidated Capital & Reserves position of N44.72bn includes: N64.45 Financial Accommodation Amount (FAA) to bring ETBs net asset value (NAV) to zero Further injection of N8.5bn by legacy shareholders of ETB.

14,800 16,096 124,296 108,459 27,476 4,864 295,992

27,209 19,700 36,690 36,109 4,093 4,940 128,751

42,009 35,796 160,986 144,568 31,569 9,804 424,732

LIABILITIES
Customers' deposits Borrowings Other Liabilities TOTAL LIABILITIES

209,056 26,915 23,797 259,768

140,346 53,656 194,002

349,402 26,915 77,453 453,770

EQUITY
Tier II Capital Share Capital Reserves Capital & Reserves Contingencies Balance sheet size
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7,500 6,282 22,442 36,224

78,232 374,224

6,500 (70,950) (64,450)

3,701 132,442

7,500 12,782 15,942

44,724

81,933 506,665

Financial Forecasts: Balance Sheet

(N in Millions)
ASSETS
Cash in hand and balances with CBN Treasury bills Due from other banks Loans and advances to customers Advances under finance lease Investment securities Investment in associates Investment properties Other assets Deferred tax assets Property and equipment 41,113 17,000 53,778 157,327 3,812 233,903 106 9,115 31,100 4,257 10,146 561,657 37,617 15,554 49,204 228,117 16,981 285,375 4,557 34,788 1,757 10,526 684,478 40,023 16,549 52,352 295,878 22,067 341,456 39,030 7 10,932 818,294

2011E

2012E

2013E

TOTAL ASSETS LIABILITIES

Customers' deposits Due to other banks Current income tax payable Other liabilities Defined contribution obligations Deferred tax liabilities Long-term borrowing

TOTAL LIABILITIES NET ASSETS

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419,283 2,868 (111) 61,733 3,743 12 26,915 514,443

503,140 2,624 415 73,207 3,743 12 26,915 610,055

603,768 2,792 2,853 87,284 3,743 12 26,915 727,367

47,214

74,422

90,928

Financial Forecasts: Capital & Reserves

(N in Millions)
DEBT CAPITAL
13% subordinated unsecured Non-convertible stock 7,500 7,500 7,500

2011E

2012E

2013E

CAPITAL AND RESERVES

Share capital Share premium Share reserve Retained earnings Other reserves 7,852 19,244 5,276 1,836 5,506 10,346 31,749 5,276 9,466 10,086 10,346 31,749 5,276 19,782 16,274

Capital and Reserves

47,214

74,423

90,927

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Financial Forecasts: Profit & Loss

(N in Millions)
GROSS EARNINGS Interest and similar income Interest and similar expenses Net interest margin

2011E
45,703 30,849 (14,029) 16,820

2012E
89,682 60,146 (22,978) 37,168

2013E
115,209 75,860 (26,129) 49,731

Fee and commission income Fee and commission expenses Net fee and commission income
Income from investments Other income Operating income

8,501 8,501
1,674 4,680 31,674

18,784 18,784
1,065 9,687 66,704

25,134 25,134
1,254 12,961 89,080

Operating expenses Loan loss expenses Diminution in value of other risk assets PROFIT/(LOSS) ON ORDINARY ACTIVITIES
PROFIT/(LOSS) BEFORE TAXATION Taxation

(25,123) (138) (804) 5,610

5,610 272

(46,972) (2,649) (1,353) 15,731

15,731 (471)

(61,694) (2,553) (1,556) 23,277

23,277 (2,646)

PROFIT/(LOSS) AFTER TAXATION

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5,881

15,260

20,632

Agenda
1 2 3 Deal Facts Overview Transaction Dynamics Deal Rationale Timeline Financial Review and Forecasts Summary

4
5 6 7

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Summary
The acquisition of ETB by Sterling Bank is supported by a compelling business case
Increased critical mass in the retail banking space Business model scalability at an appealing price Strong corporate banking proposition

Attractive opportunity for growth and enhanced profitability

to deliver our long term strategic goals

Globally competitive financial services franchise

Fully scaled business model with institutionalized processes beyond the stewardship of current owners and managers
Systemically important operator materially impacting all our sectors of business participation

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Contact

Investor Relations
20 Marina, Lagos, Nigeria Tel: +234 1 4613152 Email: investor.relations@sterlingbankng.com Website: www.sterlingbankng.com

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