a6585501.htm
Filed Pursuant to Rule 424(B)(3)
Registration Statement No. 333-169579
 

 
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 16, 2010)
 
 
 
STERLING FINANCIAL CORPORATION
63,764,208 Shares of Common Stock
Warrants to Purchase 2,722,541 Shares of Common Stock
 
 
 
 
 
RECENT DEVELOPMENTS
 
We have attached to this prospectus supplement, and incorporated by reference into it, our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2011.
 
 
 
January 25, 2011
 
 
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Date of Report (Date of earliest event reported): January 25, 2011
 
 
 
STERLING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Washington
001-34696
91-1572822
(State or other jurisdiction of
(Commission File Number)
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
 
111 North Wall Street, Spokane, Washington 99201
(Address of principal executive offices) (Zip Code)
 
(509) 458-3711
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 
 
INFORMATION TO BE INCLUDED IN THE REPORT
 
Item 2.02.
Results of Operations and Financial Condition.
 
On January 25, 2011, Sterling Financial Corporation ("Sterling") issued a press release regarding its results of operations and financial condition for the year and quarter ended December 31, 2010.  The text of the press release is included as Exhibit 99.1 to this report.  The information included in the press release is considered to be "furnished" under the Securities Exchange Act of 1934.  Sterling will include final financial statements and additional analyses for the period ended December 31, 2010, as part of its annual report on Form 10-K covering that period.
 
 

 
Item 9.01.
Financial Statements and Exhibits.

(d)
  
The following exhibit is being furnished herewith:
 
   
Exhibit No.
  
Exhibit Description
 
   
99.1
  
Press release text of Sterling Financial Corporation dated January 25, 2011.
 

 
2
 
 
 
 
S I G N A T U R E
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 

 
   
STERLING FINANCIAL CORPORATION
   
(Registrant)
 
 
January 25, 2011
  
By:
/s/ Daniel G. Byrne
Date
    
Daniel G. Byrne
     
Executive Vice President, Assistant Secretary, and
     
Principal Financial Officer
 
 
 
 
 
 
EXHIBIT INDEX
 
Exhibit No.
  
Exhibit Description
 
99.1
  
Press release text of Sterling Financial Corporation dated January 25, 2011.

 
 
 
 
Exhibit 99.1
 
 
Sterling Financial Corporation of Spokane, Wash., Announces 2010 Operating Results
 
Reports Continued Progress in Key Areas
 
SPOKANE, Wash.--(BUSINESS WIRE)--January 25, 2011--Sterling Financial Corporation (NASDAQ:STSA) (“Sterling”), the bank holding company of Sterling Savings Bank, today announced its operating results for the quarter and year ended Dec. 31, 2010.
 
2010 Results
 
For the quarter ended Dec. 31, 2010, Sterling recorded a net loss of $38.1 million, compared to a net loss of $48.0 million for the quarter ended Sept. 30, 2010 and a net loss of $328.7 million for the fourth quarter of 2009. For the 12-month period ended Dec. 31, 2010, Sterling recorded a net loss of $224.3 million, compared to a net loss of $838.1 million for the year ended Dec. 31, 2009.
 
The quarterly results included a provision for credit losses of $30.0 million for the quarter ended Dec. 31, 2010, compared to $60.9 million for the third quarter of 2010 and $340.3 million for the same period last year. The 12-month results for the year ended Dec. 31, 2010 included a provision for credit losses of $250.2 million and a $90.0 million increase in the allowance against the deferred tax asset. By comparison, the 2009 12-month results included a provision for credit losses of $681.4 million and an initial allowance against the deferred tax asset of $269.0 million. The 2009 results also included a non-cash goodwill impairment charge of $227.6 million.
 
Additionally, in association with the $730 million capital raise completed in Aug., 2010, Sterling issued Series B and Series D preferred stock to certain investors at a price of $13.20 per share on an as-converted, common-share basis, representing a discount of $26.40 per share from the market price of $39.60 per share. For accounting purposes, the $26.40 per-share discount is considered a beneficial conversion feature. All share and per share amounts have been adjusted for the 1-for-66 stock split effected in November, 2010. During the fourth quarter 2010, the preferred stock was converted to common stock, and a $604.6 million discount was recognized as a non-cash dividend paid to the preferred shareholders and resulted in a non-cash reduction in income available to common shareholders during the period. This non-cash decrease in income available to common shareholders has no effect on Sterling’s overall equity or its regulatory capital. As a result, Sterling reported a fourth-quarter 2010 net loss attributable to common shareholders of $642.7 million, or $12.79 per common diluted share. This compares to the quarter ended Dec. 31, 2009, wherein Sterling reported a $333.1 million loss attributable to common shareholders, or $423.17 per common diluted share. For the year ended Dec. 31, 2010, Sterling reported a net loss attributable to common shareholders of $756.1 million, or $53.05 per common diluted share, compared with a net loss of $855.5 million, or $1,087.41 per common diluted share, for the prior year.
 
 
 
 
 
Greg Seibly, Sterling’s president and chief executive officer, said, “During 2010, we advanced the company’s key operating strategies by fortifying our capital base, improving the quality and composition of our deposit base, reducing loan exposure to challenged asset classes, retooling the lending capabilities of the organization, fortifying our board of directors, and strengthening our regulatory relations.”
 
During the year ended Dec. 31, 2010, Sterling successfully completed several objectives that were integral to its recovery plans.
 
·  
In August, Sterling completed a $730 million equity capital raise, converted the U.S. Treasury preferred stock to common stock, and completed the merger of Sterling Savings Bank and Golf Savings Bank.
 
·  
In September, the FDIC and the Washington Dept. of Financial Institutions jointly removed the cease and desist order from Sterling Savings Bank.
 
·  
In October, Sterling received shareholder approval at a special meeting to increase the authorized number of shares of common stock to 10 billion, to convert its outstanding Series B and Series D convertible participating voting preferred stock issued in conjunction with the recapitalization of the bank into common stock and for its board of directors to effect a reverse stock split (1-for-66).
 
·  
In December, Sterling’s shareholders approved a protective amendment to Sterling’s restated articles of incorporation to restrict certain transfers of its stock in order to preserve the tax treatment of Sterling’s net operating losses and certain unrealized tax losses. These restrictions generally limit an investor’s ability to acquire ownership of more than 4.95 percent of Sterling’s total outstanding shares.
 
Following are selected key financial measures for the fourth quarter of 2010 and the year ended Dec. 31, 2010:
 
·  
Tier 1 leverage ratio was 10.1 percent at Dec. 31, 2010, compared to 10.5 percent at the end of the prior quarter and 3.5 percent at Dec. 31, 2009.
 
·  
Non-performing loans declined 19 percent to $654.6 million at Dec. 31, 2010, compared to $809.0 million at the end of the prior quarter and $895.9 million at Dec. 31, 2009.
 
·  
Allowance for credit losses to total loans was 4.58 percent at Dec. 31, 2010, compared with 4.39 percent at Sept. 30, 2010, and 4.62 percent at Dec. 31, 2009.
 
·  
Construction loan exposure decreased 27 percent to $525.7 million during the quarter, compared to $720.1 million at the end of the third quarter 2010 and declined 65 percent from the $1.52 billion total at Dec. 31, 2009.
 
·  
Total loan originations and purchases amounted to $978.8 million (of which $896.1 million were originations) during the fourth quarter of 2010, an increase of 21 percent over the third quarter of 2010.
 
·  
Deposit funding costs decreased by 14 basis points during the fourth quarter, to 1.13 percent, 63 basis points below the same period in 2009.
 
 
 
 
 
Balance Sheet Management
 
Seibly said, “We continue to make strides in reducing our exposure to construction lending, which has been the most challenged segment of our loan portfolio through this economic cycle. At the end of 2010, total residential construction loans were less than $160 million, and total commercial and multifamily construction loans were less than $370 million.” As of Dec. 31, 2010, the combined construction segment is down 65 percent from a year ago. Additionally, total delinquent loans and delinquency rates are at the lowest level in over a year. He continued, “Our work in reducing exposure to and the impact from high risk loans continues, with the successes from 2010 providing a lot of energy to our teams as they move into 2011.”
 
At Dec. 31, 2010, total construction exposure represented 9 percent of the loan portfolio, down from 20 percent at the same time last year, and down from a peak of 32 percent in 2007.
 
         
Dec 31,
    
Sept 30,
    
Dec 31,
    
Annual
           
2010
      
2010
      
2009
    
% Change
         
(Dollars in thousands)
      
Total assets
        
$
9,493,169
    
$
10,030,043
    
$
10,877,423
    
-13%
Gross loans receivable
          
5,630,251
      
5,917,830
      
7,694,712
    
-27%
Construction loans:
                            
Residential
          
156,853
      
252,867
      
720,964
    
-78%
Percent of gross loans
          
3%
      
4%
      
9%
      
Multifamily
          
90,518
      
133,217
      
233,501
    
-61%
Percent of gross loans
          
2%
      
2%
      
3%
      
Commercial
          
278,297
      
334,056
      
561,643
    
-50%
Percent of gross loans
          
5%
      
6%
      
7%
      
Total construction loans
        
$
525,668
    
$
720,140
    
$
1,516,108
    
-65%
Percent of gross loans
          
9%
      
12%
      
20%
      
                                   
Sterling made solid progress in enhancing its lending capabilities by originating and purchasing $978.8 million in total loans (of which $896.1 million were originations) during the fourth quarter of 2010, an increase of 21 percent over the linked quarter. Of these originations, Sterling’s Home Loan Division originated $777.2 million of residential real estate mortgage loans.
 
Sterling’s cash and cash equivalents and securities were $3.27 billion at Dec. 31, 2010, compared to $3.44 billion at Sept. 30, 2010, and $2.75 billion at Dec. 31, 2009. During the fourth quarter of 2010, Sterling increased its investment portfolio to $2.84 billion from $2.72 billion and reduced its cash and cash equivalents to $427.3 million. During the fourth quarter of 2010, Sterling elected to prepay $295.0 million of FHLB borrowings with an average maturity of 14 months in order to reduce its funding costs. These liabilities had a weighted average cost of 3.78 percent and the prepayment is expected to have a positive impact on Sterling’s net interest margin for the next several quarters.
 
 
 
 
 
Sterling’s total deposits were flat despite a decline in brokered deposits, which were down 22 percent from the third quarter of 2010. Average deposit funding costs were reduced by 14 basis points from the third quarter of 2010 and by 63 basis points from the fourth quarter of 2009. Retail deposits remained flat year-over-year, despite a falling interest rate environment.
 
         
Dec 31,
    
Sept 30,
    
Dec 31,
    
Annual
           
2010
      
2010
      
2009
    
% Change
Deposits:
        
(Dollars in thousands)
      
Retail
        
$
5,865,954
    
$
6,032,085
    
$
5,879,034
    
0%
Brokered
          
249,029
      
317,503
      
1,079,997
    
-77%
Public
          
796,024
      
559,626
      
816,159
    
-2%
Total deposits
        
$
6,911,007
    
$
6,909,214
    
$
7,775,190
    
-11%
                           
Basis Point
                           
Change
Deposit funding costs
          
1.13%
      
1.27%
      
1.76%
    
-0.63%
Net loans to deposits
          
78%
      
82%
      
94%
      
                                   
 
Sterling attributes the stability of its deposits, in part, to its focus on customer service and maintaining customer relationships. Sterling Savings Bank was recently ranked “Highest Customer Satisfaction with Retail Banking in the Northwest Region,” with the Bank receiving the highest numerical score among retail banks in the Northwest region in the proprietary J.D. Power and Associates 2010 Retail Banking Satisfaction Study℠.
 
Sterling’s shareholders’ equity totaled $770.8 million as of Dec. 31, 2010, compared with $323.2 million on Dec. 31, 2009. Sterling’s ratio of shareholders’ equity to total assets was 8.12 percent at the end of the fourth quarter of 2010, compared with 2.97 percent at the end of the fourth quarter of 2009. As of Dec. 31, 2010, Sterling’s tier 1 leverage ratio was 10.1 percent, and its total risk-based capital ratio was 17.3 percent. This compares to 3.5 percent and 7.9 percent, respectively, as of Dec. 31, 2009.
 
Operating Results
 
Net Interest Income
 
Sterling reported net interest income of $68.6 million for the quarter ended Dec. 31, 2010, compared to $67.4 million in the linked quarter and $81.0 million for the quarter ended Dec. 31, 2009. For the 12-month period ended Dec. 31, 2010, Sterling reported net interest income of $284.0 million, compared to $344.0 million for the 12-month period ended Dec. 31, 2009.
 
 
 
 
 
         
Three Months Ended
    
Twelve Months Ended
         
Dec 31,
    
Sept 30,
    
Dec 31,
    
Dec. 31,
    
Dec. 31,
           
2010
      
2010
      
2009
      
2010
      
2009
         
(Dollars in thousands)
Net interest income
        
$
68,607
    
$
67,435
    
$
80,951
    
$
284,027
    
$
343,977
Net interest margin
          
2.80%
      
2.77%
      
2.85%
      
2.83%
      
2.92%
                                             
Net interest income reflects a decline in average earning assets, with average loan balances declining 7 percent and 26 percent, respectively, over the linked and prior year’s quarter. The net interest margin has also been impacted by the reversal of interest income on non-accrual loans, the carrying cost on non-performing assets, including other real estate owned (OREO), and the increase in lower-yielding cash and securities balances relative to loans.
 
Interest income reversals on non-performing loans were $15.5 million in the fourth quarter of 2010, compared to $17.3 million in the third quarter of 2010, and $21.5 million in the fourth quarter of 2009. These reversals reduced net interest margin by 63 basis points, 70 basis points, and 75 basis points for these respective periods. During the 12-month period ended Dec. 31, 2010, interest income reversals on non-performing loans were $77.3 million, compared to $60.6 million during the 12-month period ended Dec. 31, 2009, reducing the net interest margin by 76 basis points and 51 basis points for the comparative years, respectively.
 
These adverse impacts have been partially offset by a decline in funding costs. The total cost of funding includes costs of deposits and costs of FHLB-Seattle advances and other borrowings. The total cost of funding was 1.56 percent in the fourth quarter of 2010, compared to a total cost of funding of 1.69 percent in the linked quarter and 2.03 percent during the quarter ended Dec. 31, 2009. For the 12-month period ending Dec. 31, 2010, the total cost of funding was 1.69 percent (comprised of 1.31 percent of deposit costs, and 2.88 percent of borrowing costs), as compared to 2.28 percent for the same period a year ago (comprised of 2.04 percent of deposit costs, and 2.98 percent of borrowing costs).
 
 
 
 
 
Non-Interest Income
 
Non-interest income includes income from mortgage banking operations, fee and service charges income, and other items such as net gains on sales of securities and loan servicing fees. During the fourth quarter of 2010, non-interest income was $30.8 million, compared to $39.7 million in the third quarter of 2010 and $28.1 million in the fourth quarter of 2009. The decrease in the fourth quarter of 2010 is largely attributed to the $11.3 million prepayment charge on the early retirement of FHLB borrowings. Sterling expects to recapture this charge through lower interest expense in future periods.
 
Income from mortgage banking operations during the fourth quarter of 2010 was $20.2 million, compared to $19.4 million for the third quarter of 2010 and $10.8 million for the fourth quarter of 2009. Residential mortgage originations and residential mortgage sales were up in the fourth quarter of 2010 in comparison to the linked as well as the same period a year ago.
 
         
Three Months Ended
      
         
Dec 31,
    
Sept 30,
    
Dec 31,
    
Annual
           
2010
      
2010
      
2009
    
% Change
         
(Dollars in thousands)
      
Loan originations - residential real estate for sale
        
$
715,843
    
$
703,220
    
$
658,932
    
9%
Loan sales - residential
          
757,558
      
520,612
      
645,118
    
17%
                           
Basis Point
                           
Change
Margin - residential loan sales
          
2.80%
      
2.47%
      
1.83%
    
0.97%
                             
For the quarter ended Dec. 31, 2010, fees and service charges income contributed $13.6 million to non-interest income compared to $13.8 million in the third quarter of 2010 and $14.5 million in the fourth quarter of 2009. The reduction in fees and service charges income in the linked quarter and year over year is primarily related to lower non-sufficient funds fees and loan fees.
 
For the quarter ended Dec. 31, 2010, other non-interest income included a non-cash valuation gain of $2.2 million, which was related to the warrant held by the U.S. Treasury.
 
During the quarter ended Dec. 31, 2010, Sterling sold several loans with a written down carrying value of $11.3 million. Proceeds from these sales were $13.8 million, resulting in a net gain on sale of $2.5 million for the quarter. This compares to sales of $14.0 million and a loss on sale of $354,000 in the linked quarter, and a loss on sale of $110,000 during the fourth quarter of 2009.
 
 
 
 
 
For the 12-month period ending Dec. 31, 2010, non-interest income was $137.0 million, compared to $123.8 million for the same period a year ago. The increase was predominantly a result of increased income from mortgage banking operations and gains on the sale of securities.
 
Non-Interest Expenses
 
Non-interest expenses were $107.5 million for the fourth quarter of 2010, compared to $94.2 million in the linked quarter and $94.5 million for the fourth quarter of 2009. The increase reflects a higher level of OREO operating expenses and valuation write-downs due to increasing balances of OREO. FDIC insurance premiums for the quarter ended Dec. 31, 2010 were down $1.3 million from the linked quarter, and down $2.2 million from the same period a year ago.
 
For the 12-month period ending Dec. 31, 2010, non-interest expense was $395.0 million, compared to $597.5 million for the same period a year ago. The 2009 non-interest expense included a goodwill impairment charge of $227.6 million. OREO expense increased from $48.0 million in 2009 to $62.6 million in 2010.
 
Credit Quality
 
Sterling’s cumulative efforts to address credit quality over the last several quarters led to a lower provision for credit losses, a reduced rate of annualized net charge-offs and a reduction in the balance of total classified assets. For the fourth quarter of 2010, Sterling recorded a $30.0 million provision for credit losses, compared to $60.9 million for the linked quarter, and $340.3 million for the fourth quarter of 2009.
 
During the fourth quarter, Sterling recognized net charge-offs of $31.4 million, a 59 percent decrease compared to $77.1 million in the linked quarter. In the fourth quarter of 2009, net charge-offs were $272.1 million. Approximately 44 percent of the net charge-offs in the fourth quarter of 2010 were related to non-performing construction loans, compared to 75 percent in the fourth quarter of 2009. The allowance for credit losses at Dec. 31, 2010 was $257.8 million, or 4.58 percent of total loans, compared to $259.5 million, or 4.39 percent of total loans, at Sept. 30, 2010, and $355.4 million, or 4.62 percent of total loans, at Dec. 31, 2009.
 
 
 
 
 
Classified assets (which include performing substandard loans and non-performing assets) declined $214.2 million, or 16 percent, from the third quarter of 2010, to $1.12 billion at the end of the fourth quarter of 2010. At the end of the fourth quarter of 2009, classified assets were $1.65 billion. The largest decreases were in the construction portfolios. Residential construction classified assets were reduced by $75.0 million or 30 percent during the quarter, and commercial and multifamily construction classified assets were reduced by $101.2 million or 25 percent during the quarter.
 
Non-performing assets (which include non-performing and restructured loans and OREO) were $795.1 million at Dec. 31, 2010, compared to $950.7 million at Sept. 30, 2010 and $952.1 million at Dec. 31, 2009. Non-performing residential construction assets declined 26 percent during the fourth quarter of 2010 and 61 percent year over year.
 
The commercial real estate portfolio is the only loan classification that exhibited a notable increase in non-performing assets, with an increase from $116.8 million at the end of the third quarter of 2010, to $126.6 million at Dec. 31, 2010. Approximately $6.0 million of the $9.8 million increase during the quarter was a result of a reclassification from the construction portfolio for a loan that qualified and was underwritten to a permanent status.
 
The following table shows an analysis of Sterling’s non-performing assets by loan category and geographic region as of the quarters ended Dec. 31, 2010, Sept. 30, 2010, and Dec. 31, 2009.
 
 
 
 
 
Non-performing Asset Analysis
                              
         
Dec 31,
    
Sept 30,
    
Dec 31,
           
2010
      
2010
      
2009
Residential construction
        
(Dollars in thousands)
Puget Sound
        
$
57,261
    
7%
    
$
87,980
    
9%
    
$
154,369
    
16%
Portland, OR
          
49,868
    
6%
      
59,785
    
6%
      
114,628
    
12%
Vancouver, WA
          
12,455
    
2%
      
14,333
    
1%
      
23,332
    
2%
Northern California
          
9,951
    
1%
      
15,732
    
2%
      
20,535
    
2%
Bend, OR
          
7,763
    
1%
      
9,413
    
1%
      
29,344
    
3%
Southern California
          
4,574
    
1%
      
5,168
    
1%
      
8,893
    
1%
Boise, ID
          
2,614
    
0%
      
6,310
    
1%
      
21,659
    
2%
Utah
          
758
    
0%
      
1,200
    
0%
      
4,451
    
0%
Other
          
27,089
    
3%
      
32,307
    
3%
      
62,267
    
6%
Total residential construction
          
172,333
    
21%
      
232,228
    
24%
      
439,478
    
44%
Commercial construction
                                        
Northern California
          
50,605
    
6%
      
51,368
    
5%
      
47,044
    
5%
Puget Sound
          
48,619
    
6%
      
52,884
    
5%
      
22,045
    
2%
Southern California
          
27,924
    
3%
      
32,716
    
3%
      
38,003
    
4%
Other
          
76,860
    
9%
      
94,931
    
10%
      
60,775
    
6%
Total commercial construction
          
204,008
    
24%
      
231,899
    
23%
      
167,867
    
17%
Multi-Family construction
                                        
Puget Sound
          
41,747
    
5%
      
57,985
    
6%
      
27,195
    
3%
Portland, OR
          
7,420
    
1%
      
10,864
    
1%
      
15,497
    
2%
Other
          
17,966
    
2%
      
31,414
    
3%
      
32,639
    
3%
Total multi-family construction
          
67,133
    
8%
      
100,263
    
10%
      
75,331
    
8%
Total construction
          
443,474
    
53%
      
564,390
    
57%
      
682,676
    
69%
Commercial banking
          
113,766
    
14%
      
133,407
    
14%
      
136,464
    
14%
Commercial real estate
          
126,586
    
15%
      
116,826
    
12%
      
69,540
    
7%
Residential real estate
          
118,094
    
14%
      
127,770
    
13%
      
71,642
    
7%
Multi-family real estate
          
25,806
    
3%
      
25,640
    
3%
      
20,478
    
2%
Consumer
          
10,365
    
1%
      
10,948
    
1%
      
6,609
    
1%
Total non-performing assets
        
$
838,091
    
100%
    
$
978,981
    
100%
    
$
987,409
    
100%
Specific reserve
          
(43,038)
            
(28,269)
            
(35,334)
      
Net non-performing assets (1)
        
$
795,053
          
$
950,712
          
$
952,075
      
                                         
(1) Net of cumulative confirmed losses on loans and OREO of $516.3 million for Dec. 31, 2010, $588.4 million for Sept. 30, 2010, and $579.7 million for Dec. 31, 2009.
 
 
 
 
 
 
OREO increased to $161.7 million at Dec. 31, 2010. This is an increase of $4.9 million over the linked quarter and $78.4 million over the year ended Dec. 31, 2009. Seibly stated, “Gaining ownership of real estate is part of the process of curing non-performing loans and a critical phase of our de-risking strategy. We have been successful at selling properties once we are in control of them, and I am encouraged that the pace of OREO sales is nearing the pace of our OREO acquisitions.”
 
Income Taxes
 
Sterling uses an estimate of future earnings and an evaluation of its loss carry-back ability and tax planning strategies to determine whether it is more likely than not that it will realize the benefit of its net deferred tax asset. Sterling has determined that it does not meet the required threshold at this time, and therefore as of Dec. 31, 2010 has approximately $359 million of allowance against its deferred tax asset. Sterling’s deferred tax asset includes approximately $263 million of net operating loss carry-forwards as of Dec. 31, 2010.
 
With regard to the deferred tax asset, the benefits of Sterling’s accumulated tax losses would be reduced in the event of an “ownership change,” as determined under Section 382 of the Internal Revenue Code. In order to preserve the benefits of these tax losses, Sterling’s shareholders have approved a protective amendment to Sterling’s restated articles of incorporation and Sterling’s Board has adopted a 382 Rights Plan, both of which restrict certain transfers of stock that would result in investors acquiring more than 4.95 percent of Sterling’s total outstanding common stock.
 
Corporate Governance
 
Over the past year, Sterling has attracted several new board members with a broad range of financial services experience and regulatory expertise. In August, Sterling named Les Biller, the former vice chairman and chief operating officer of Wells Fargo & Company, as non-executive chairman of Sterling’s board. Additionally, the company added several new board members at approximately the same time, including: David A. Coulter, Warburg Pincus managing director and former chairman and chief executive officer of BankAmerica Corp.; Scott Jaeckel, Thomas H. Lee Partners managing director; Robert H. Hartheimer, a former FDIC division director and regulatory consultant; and Robert Donegan, president of Ivar’s, Inc., and former director of Golf Savings Bank. In January, 2011, two new board members were appointed, pending regulatory approval, including: Howard Behar, past president, North America, of Starbucks Coffee Company; and Webb Edwards, formerly president of Wells Fargo Services Company, the technology, call center and operations subsidiary of Wells Fargo & Company.
 
 
 
 
 
Fourth-Quarter 2010 Earnings Conference Call
 
Sterling plans to host a conference call Jan. 26, 2011 at 8:00 a.m. PT to discuss the company’s financial results. An audio webcast of the conference call can be accessed at Sterling’s website. To access this audio presentation call, click on the audio webcast icon. Additionally, the conference call may be accessed by telephone. To participate in the conference call, domestic callers should dial 1-773-756-4806 approximately five minutes before the scheduled start time. You will be asked by the operator to identify yourself and provide the password “STERLING” to enter the call. A webcast replay of the conference call will be available on Sterling’s website approximately one hour following the completion of the call. The webcast replay will be offered through Feb. 26, 2011.
 
 
 
 
 
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)
        
Dec 31,
      
Sept 30,
      
Dec 31,
           
2010
        
2010
        
2009
ASSETS:
                          
Cash and due from banks
        
$
427,264
      
$
713,991
      
$
573,006
Investments and mortgage-backed securities ("MBS") available for sale
          
2,825,010
        
2,708,595
        
2,160,325
Investments held to maturity
          
13,464
        
14,322
        
17,646
Loans receivable, net
          
5,379,081
        
5,665,503
        
7,344,199
Loans held for sale (at fair value: $222,216, $314,784 and $189,185)
          
222,216
        
314,784
        
190,412
Other real estate owned, net ("OREO")
          
161,653
        
156,801
        
83,272
Office properties and equipment, net
          
81,094
        
83,527
        
92,037
Bank owned life insurance ("BOLI")
          
169,288
        
167,391
        
164,743
Other intangible assets, net
          
16,929
        
18,153
        
21,827
Prepaid expenses and other assets, net
          
197,170
        
186,976
        
229,956
Total assets
        
$
9,493,169
      
$
10,030,043
      
$
10,877,423
                           
LIABILITIES:
                          
Deposits
        
$
6,911,007
      
$
6,909,214
      
$
7,775,190
Advances from Federal Home Loan Bank
          
407,211
        
837,303
        
1,337,167
Repurchase agreements and fed funds
          
1,032,512
        
1,034,945
        
1,049,146
Other borrowings
          
245,285
        
248,284
        
248,281
Accrued expenses and other liabilities
          
126,387
        
155,250
        
144,390
Total liabilities
          
8,722,402
        
9,184,996
        
10,554,174
                           
SHAREHOLDERS' EQUITY:
                          
Preferred stock
          
0
        
0
        
294,136
Common stock
          
1,960,871
        
1,959,697
        
962,874
Accumulated comprehensive loss:
                          
Unrealized gain (loss) on investments and MBS (1)
          
(4,179)
        
33,133
        
16,284
Accumulated deficit
          
(1,185,925)
        
(1,147,783)
        
(950,045)
Total shareholders' equity
          
770,767
        
845,047
        
323,249
Total liabilities and shareholders' equity
        
$
9,493,169
      
$
10,030,043
      
$
10,877,423
                                 
Book value per common share (2)
        
$
12.45
      
$
77.15
      
$
36.80
Diluted book value per common share (2)
        
$
11.92
      
$
13.09
      
$
36.80
Shareholders' equity to total assets
          
8.12%
        
8.43%
        
2.97%
Common shares outstanding at end of period (2)
          
61,926,187
        
10,953,089
        
791,077
Diluted common shares outstanding at end of period (2)
          
64,648,728
        
64,554,417
        
791,077
                           
(1) Net of deferred income taxes.
(2) Reflects the 1-for-66 reverse stock split in Nov 2010.
 
 
 
 
 
 
Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts, unaudited)
        
Three Months Ended
      
Twelve Months Ended
         
Dec 31,
      
Sept 30,
      
Dec 31,
      
Dec 31,
      
Dec 31,
           
2010
          
2010
          
2009
          
2010
          
2009
  
INTEREST INCOME:
                                          
Loans
        
$
82,825
        
$
85,886
        
$
109,469
        
$
359,572
        
$
479,436
  
Mortgage-backed securities
          
18,237
          
18,127
          
23,907
          
74,806
          
108,513
  
Investments and cash
          
2,716
          
2,641
          
2,553
          
10,755
          
11,398
  
Total interest income
          
103,778
          
106,654
          
135,929
          
445,133
          
599,347
  
                                           
INTEREST EXPENSE:
                                          
Deposits
          
19,554
          
22,639
          
35,733
          
94,707
          
169,261
  
Borrowings
          
15,617
          
16,580
          
19,245
          
66,399
          
86,109
  
Total interest expense
          
35,171
          
39,219
          
54,978
          
161,106
          
255,370
  
                                                               
Net interest income
          
68,607
          
67,435
          
80,951
          
284,027
          
343,977
  
Provision for credit losses
          
(30,000
)
        
(60,892
)
        
(340,257
)
        
(250,229
)
        
(681,371
)
Net interest income after provision
          
38,607
          
6,543
          
(259,306
)
        
33,798
          
(337,394
)
                                           
NONINTEREST INCOME:
                                          
Fees and service charges
          
13,646
          
13,826
          
14,520
          
54,740
          
58,326
  
Mortgage banking operations
          
20,210
          
19,409
          
10,773
          
62,564
          
47,298
  
Loan servicing fees
          
4,144
          
(1,120
)
        
677
          
3,762
          
2,378
  
BOLI
          
1,882
          
1,570
          
1,733
          
7,307
          
6,954
  
Gains on sales of securities
          
1,480
          
7,005
          
1,085
          
25,745
          
13,467
  
Charge on prepayment of debt
          
(11,296
)
        
0
          
0
          
(11,296
)
        
0
  
Other
          
716
          
(1,032
)
        
(723
)
        
(5,857
)
        
(4,609
)
Total noninterest income
          
30,782
          
39,658
          
28,065
          
136,965
          
123,814
  
                                           
NONINTEREST EXPENSES:
                                          
Employee compensation and benefits
          
45,315
          
42,561
          
40,215
          
168,793
          
165,254
  
Occupancy and equipment
          
13,462
          
12,888
          
14,716
          
53,034
          
50,452
  
OREO
          
23,993
          
10,456
          
11,944
          
62,578
          
48,041
  
Amortization of core deposit intangibles
          
1,224
          
1,225
          
1,224
          
4,898
          
4,898
  
Other
          
23,536
          
27,093
          
26,371
          
105,742
          
101,329
  
Noninterest expenses before impairment charge
          
107,530
          
94,223
          
94,470
          
395,045
          
369,974
  
Goodwill impairment
          
0
          
0
          
0
          
0
          
227,558
  
Total noninterest expenses
          
107,530
          
94,223
          
94,470
          
395,045
          
597,532
  
                                                               
Loss before income taxes
          
(38,141
)
        
(48,022
)
        
(325,711
)
        
(224,282
)
        
(811,112
)
Income tax benefit (provision)
          
0
          
0
          
(3,000
)
        
0
          
(26,982
)
Net loss
          
(38,141
)
        
(48,022
)
        
(328,711
)
        
(224,282
)
        
(838,094
)
Preferred stock dividend
          
0
          
(2,715
)
        
(4,357
)
        
(11,596
)
        
(17,369
)
Other shareholder allocations (1)
          
(604,592
)
        
84,329
          
0
          
(520,263
)
        
0
  
Net income (loss) available to common shareholders
        
$
(642,733
)
      
$
33,592
        
$
(333,068
)
      
$
(756,141
)
      
$
(855,463
)
                                                               
Earnings per common share - basic (2)
        
$
(12.79
)
      
$
7.05
        
$
(423.17
)
      
$
(53.05
)
      
$
(1,087.41
)
Earnings per common share - diluted (2)
        
$
(12.79
)
      
$
1.31
        
$
(423.17
)
      
$
(53.05
)
      
$
(1,087.41
)
                                                               
Average common shares outstanding - basic (2)
          
50,235,894
          
4,764,875
          
787,077
          
14,253,869
          
786,701
  
Average common shares outstanding - diluted (2)
          
50,235,894
          
25,739,308
          
787,077
          
14,253,869
          
786,701
  
 
(1) The August 26, 2010 conversion of Series C preferred stock into common stock resulted in an increase in income available to common shareholders. The October 22, 2010 conversion of Series B and D preferred stock into common stock resulted in a decrease in income available to common shareholders.
(2) Reflects the 1-for-66 reverse stock split in Nov 2010.
 
 
 
 
 
                         
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
        
Three Months Ended
      
Twelve Months Ended
         
Dec 31,
      
Sept 30,
      
Dec 31,
      
Dec 31,
      
Dec 31,
           
2010
        
2010
        
2009
        
2010
        
2009
LOAN ORIGINATIONS AND PURCHASES:
                                          
Residential real estate:
                                          
For sale
        
$
715,843
      
$
703,220
      
$
658,932
      
$
2,454,874
      
$
2,861,508
Permanent
          
61,395
        
28,894
        
25,695
        
107,679
        
185,872
Total residential real estate
          
777,238
        
732,114
        
684,627
        
2,562,553
        
3,047,380
Multifamily real estate
          
27,642
        
0
        
3,280
        
29,369
        
82,696
Commercial real estate
          
30,180
        
30,666
        
41,527
        
98,172
        
176,256
Construction:
                                          
Residential
          
6,502
        
3,820
        
8,862
        
19,584
        
32,692
Multifamily
          
0
        
0
        
0
        
0
        
0
Commercial
          
0
        
0
        
1,435
        
500
        
31,968
Total construction
          
6,502
        
3,820
        
10,297
        
20,084
        
64,660
Consumer - direct
          
15,048
        
13,772
        
29,298
        
65,809
        
191,789
Consumer - indirect
          
4,401
        
5,484
        
8,788
        
22,008
        
99,813
Commercial banking
          
35,098
        
24,599
        
67,008
        
130,976
        
318,544
Total loan originations
          
896,109
        
810,455
        
844,825
        
2,928,971
        
3,981,138
Loan purchases - multifamily
          
82,702
        
0
        
0
        
82,702
        
0
Total loan originations and purchases
        
$
978,811
      
$
810,455
      
$
844,825
      
$
3,011,673
      
$
3,981,138
                                           
PERFORMANCE RATIOS:
                                          
Return on assets
          
-1.53%
        
-1.94%
        
-11.38%
        
-2.21%
        
-6.81%
Return on common equity
          
-309.1%
        
50.4%
        
-504.3%
        
-297.2%
        
-129.8%
Operating efficiency
          
108.2%
        
88.0%
        
86.7%
        
93.8%
        
127.7%
Non interest expense to assets
          
4.31%
        
3.80%
        
3.27%
        
3.89%
        
4.86%
Average assets
        
$
9,894,238
      
$
9,825,509
      
$
11,461,202
      
$
10,168,329
      
$
12,306,211
Average common equity
        
$
824,963
      
$
264,436
      
$
262,032
      
$
254,395
      
$
659,278
                                           
REGULATORY CAPITAL RATIOS:
                                          
Sterling Financial Corporation:
                                          
Tier 1 leverage ratio
          
10.1%
        
10.5%
        
3.5%
        
10.1%
        
3.5%
Tier 1 risk-based capital ratio
          
16.0%
        
16.0%
        
4.9%
        
16.0%
        
4.9%
Total risk-based capital ratio
          
17.3%
        
17.3%
        
7.9%
        
17.3%
        
7.9%
Sterling Savings Bank:
                                          
Tier 1 leverage ratio
          
9.8%
        
10.2%
        
4.2%
        
9.8%
        
4.2%
Tier 1 risk-based capital ratio
          
15.5%
        
15.5%
        
5.9%
        
15.5%
        
5.9%
Total risk-based capital ratio
          
16.8%
        
16.8%
        
7.3%
        
16.8%
        
7.3%
                                           
OTHER:
                                          
Sales of financial products
        
$
40,831
      
$
37,268
      
$
51,773
      
$
155,301
      
$
177,769
FTE employees at end of period (whole numbers)
          
2,498
        
2,466
        
2,641
        
2,498
        
2,641
 
 
 
 
 
                                                     
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
          
Dec 31,
        
Sept 30,
      
Dec 31,
           
2010
          
2010
          
2009
  
INVESTMENT PORTFOLIO DETAIL:
                              
Available for sale
                              
MBS
        
$
2,602,610
        
$
2,489,129
        
$
1,944,989
  
Municipal bonds
          
199,934
          
199,786
          
195,282
  
Other
          
22,466
          
19,680
          
20,054
  
Total
        
$
2,825,010
        
$
2,708,595
        
$
2,160,325
  
                               
Held to maturity
                              
Tax credits
        
$
13,464
        
$
14,322
        
$
17,646
  
Total
        
$
13,464
        
$
14,322
        
$
17,646
  
                               
LOAN PORTFOLIO DETAIL:
                              
Residential real estate
        
$
758,410
        
$
752,763
        
$
839,170
  
Multifamily real estate
          
517,022
          
445,193
          
517,408
  
Commercial real estate
          
1,314,657
          
1,326,971
          
1,403,560
  
Construction:
                              
Residential
          
156,853
          
252,867
          
720,964
  
Multifamily
          
90,518
          
133,217
          
233,501
  
Commercial
          
278,297
          
334,056
          
561,643
  
Total construction
          
525,668
          
720,140
          
1,516,108
  
Consumer - direct
          
673,113
          
711,297
          
792,957
  
Consumer - indirect
          
70,955
          
75,896
          
323,565
  
Commercial banking
          
1,770,426
          
1,885,570
          
2,301,944
  
Gross loans receivable
          
5,630,251
          
5,917,830
          
7,694,712
  
Deferred loan fees, net
          
(4,114
)
        
(3,822
)
        
(7,070
)
Allowance for losses on loans
          
(247,056
)
        
(248,505
)
        
(343,443
)
Net loans receivable
        
$
5,379,081
        
$
5,665,503
        
$
7,344,199
  
                               
DEPOSITS DETAIL:
                              
Interest-bearing transaction accounts
        
$
497,395
        
$
702,052
        
$
1,014,032
  
Noninterest-bearing transaction accounts
          
992,368
          
1,011,378
          
1,001,771
  
Savings and money market demand accounts
          
1,886,425
          
1,677,831
          
1,577,900
  
Time deposits - brokered
          
249,029
          
317,503
          
1,079,997
  
Time deposits - retail
          
3,285,790
          
3,200,450
          
3,101,490
  
Total deposits
        
$
6,911,007
        
$
6,909,214
        
$
7,775,190
  
                               
Number of transaction accounts (whole numbers):
                              
Interest-bearing transaction accounts
          
46,332
          
47,645
          
46,621
  
Noninterest-bearing transaction accounts
          
165,821
          
164,913
          
162,143
  
Total transaction accounts
          
212,153
          
212,558
          
208,764
  
 
 
 
 
 
                               
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
        
Dec 31,
      
Sept 30,
      
Dec 31,
           
2010
          
2010
          
2009
  
ALLOWANCE FOR CREDIT LOSSES:
                          
Allowance - loans, beginning of quarter
        
$
248,505
        
$
264,850
        
$
275,751
  
Provision
          
30,000
          
60,800
          
339,793
  
Charge-offs:
                          
Residential real estate
          
(10,580
)
        
(10,708
)
        
(9,723
)
Multifamily real estate
          
(920
)
        
(5,173
)
        
(3,080
)
Commercial real estate
          
(7,093
)
        
(12,739
)
        
(30,842
)
Construction:
                          
Residential
          
(11,533
)
        
(25,405
)
        
(138,343
)
Multifamily
          
(1,968
)
        
(85
)
        
(18,745
)
Commercial
          
(4,205
)
        
(17,778
)
        
(50,198
)
Total construction
          
(17,706
)
        
(43,268
)
        
(207,286
)
Consumer - direct
          
(2,385
)
        
(3,153
)
        
(2,055
)
Consumer - indirect
          
(406
)
        
(543
)
        
(1,516
)
Commercial banking
          
(1,257
)
        
(8,225
)
        
(21,384
)
Total charge-offs
          
(40,347
)
        
(83,809
)
        
(275,886
)
Recoveries:
                          
Residential real estate
          
1,340
          
187
          
18
  
Multifamily real estate
          
44
          
145
          
0
  
Commercial real estate
          
118
          
627
          
256
  
Construction:
                          
Residential
          
3,271
          
4,584
          
2,170
  
Multifamily
          
483
          
0
          
0
  
Commercial
          
187
          
8
          
0
  
Total construction
          
3,941
          
4,592
          
2,170
  
Consumer - direct
          
170
          
268
          
127
  
Consumer - indirect
          
232
          
243
          
308
  
Commercial banking
          
3,053
          
602
          
906
  
Total recoveries
          
8,898
          
6,664
          
3,785
  
Net charge-offs
          
(31,449
)
        
(77,145
)
        
(272,101
)
Transfers
          
0
          
0
          
0
  
Allowance - loans, end of quarter
          
247,056
          
248,505
          
343,443
  
Allowance - unfunded commitments, beginning of quarter
          
11,017
          
10,951
          
11,503
  
Provision
          
0
          
92
          
464
  
Charge-offs
          
(310
)
        
(26
)
        
0
  
Transfers
          
0
          
0
          
0
  
Allowance - unfunded commitments, end of quarter
          
10,707
          
11,017
          
11,967
  
Total credit allowance
        
$
257,763
        
$
259,522
        
$
355,410
  
                           
Net charge-offs to average net loans (annualized)
          
1.97
%
        
4.50
%
        
12.57
%
Net charge-offs to average net loans (ytd)
          
4.86
%
        
4.25
%
        
6.17
%
Loan loss allowance to total loans
          
4.39
%
        
4.20
%
        
4.47
%
Total credit allowance to total loans
          
4.58
%
        
4.39
%
        
4.62
%
Loan loss allowance to nonperforming loans
          
37.7
%
        
30.7
%
        
38.3
%
Loan loss allowance to nonperforming loans excluding nonaccrual loans carried at fair value
          
195.3
%
        
160.2
%
        
163.5
%
Total allowance to nonperforming loans
          
39.4
%
        
32.1
%
        
39.7
%
                           
NONPERFORMING ASSETS:
                          
Past 90 days due
        
$
0
        
$
0
        
$
0
  
Nonaccrual loans
          
546,133
          
658,678
          
824,652
  
Restructured loans
          
108,504
          
150,293
          
71,279
  
Total nonperforming loans
          
654,637
          
808,971
          
895,931
  
OREO
          
183,454
          
170,010
          
91,478
  
Total nonperforming assets (NPA)
          
838,091
          
978,981
          
987,409
  
Specific reserve on nonperforming assets
          
(43,038
)
        
(28,269
)
        
(35,334
)
Net nonperforming assets
        
$
795,053
        
$
950,712
        
$
952,075
  
Nonperforming loans to loans
          
11.64
%
        
13.68
%
        
11.65
%
NPA to total assets
          
8.83
%
        
9.76
%
        
9.08
%
Loan delinquency ratio (60 days and over)
          
7.19
%
        
8.43
%
        
8.11
%
Classified assets
          
1,121,336
          
1,335,505
        
$
1,648,004
  
Classified assets/total assets
          
11.81
%
        
13.32
%
        
15.15
%
                           
Nonperforming assets by collateral type:
                          
Residential real estate
        
$
118,094
        
$
127,770
        
$
71,642
  
Multifamily real estate
          
25,806
          
25,640
          
20,478
  
Commercial real estate
          
126,586
          
116,826
          
69,540
  
Construction:
                          
Residential
          
172,333
          
232,228
          
439,478
  
Multifamily
          
67,133
          
100,263
          
75,331
  
Commercial
          
204,008
          
231,899
          
167,867
  
Total Construction
          
443,474
          
564,390
          
682,676
  
Consumer - direct
          
10,007
          
10,452
          
5,803
  
Consumer - indirect
          
358
          
496
          
806
  
Commercial banking
          
113,766
          
133,407
          
136,464
  
Total nonperforming assets
        
$
838,091
        
$
978,981
        
$
987,409
  
 
 
 
 
 
                           
Sterling Financial Corporation
AVERAGE BALANCE AND RATE
(in thousands, unaudited)
        
Three Months Ended
         
December 31, 2010
      
September 30, 2010
      
December 31, 2009
                 
Interest
                      
Interest
                      
Interest
        
         
Average
      
Income/
      
Yields/
      
Average
      
Income/
      
Yields/
      
Average
      
Income/
      
Yields/
         
Balance
      
Expense
      
Rates
      
Balance
      
Expense
      
Rates
      
Balance
      
Expense
      
Rates
ASSETS:
                                                                          
Loans:
                                                                          
Mortgage
        
$
3,685,518
      
$
42,773
      
4.64
%
      
$
3,954,265
      
$
43,495
      
4.36
%
      
$
5,058,404
      
$
56,633
      
4.44
%
Commercial and consumer
          
2,643,156
        
40,186
      
6.03
%
        
2,843,072
        
42,474
      
5.93
%
        
3,528,302
        
52,992
      
5.96
%
Total loans
          
6,328,674
        
82,959
      
5.22
%
        
6,797,337
        
85,969
      
5.02
%
        
8,586,706
        
109,625
      
5.07
%
MBS
          
2,598,482
        
18,237
      
2.81
%
        
1,920,690
        
18,127
      
3.74
%
        
2,144,564
        
23,907
      
4.42
%
Investments and cash
          
926,116
        
3,581
      
1.53
%
        
1,101,576
        
3,722
      
1.34
%
        
716,221
        
3,805
      
2.11
%
Total interest-earning assets
          
9,853,272
        
104,777
      
4.24
%
        
9,819,603
        
107,818
      
4.36
%
        
11,447,491
        
137,337
      
4.76
%
Noninterest-earning assets
          
40,966
                        
5,906
                        
13,711
                
Total average assets
        
$
9,894,238
                      
$
9,825,509
                      
$
11,461,202
                
                                                                           
LIABILITIES and EQUITY:
                                                                          
Deposits:
                                                                          
Transaction
        
$
1,645,958
        
244
      
0.06
%
      
$
1,738,126
        
315
      
0.07
%
      
$
1,968,576
        
724
      
0.15
%
Savings
          
1,784,893
        
2,008
      
0.45
%
        
1,653,751
        
2,288
      
0.55
%
        
1,616,735
        
3,198
      
0.78
%
Time deposits
          
3,454,372
        
17,302
      
1.99
%
        
3,671,278
        
20,036
      
2.17
%
        
4,484,636
        
31,811
      
2.81
%
Total deposits
          
6,885,223
        
19,554
      
1.13
%
        
7,063,155
        
22,639
      
1.27
%
        
8,069,947
        
35,733
      
1.76
%
Borrowings
          
2,033,896
        
15,617
      
3.05
%
        
2,152,611
        
16,580
      
3.06
%
        
2,677,671
        
19,245
      
2.85
%
Total interest-bearing liabilities
          
8,919,119
        
35,171
      
1.56
%
        
9,215,766
        
39,219
      
1.69
%
        
10,747,618
        
54,978
      
2.03
%
Noninterest-bearing liabilities
          
150,156
                        
165,568
                        
157,757
                
Total average liabilities
          
9,069,275
                        
9,381,334
                        
10,905,375
                
Total average equity
          
824,963
                        
444,175
                        
555,827
                
Total average liabilities and equity
        
$
9,894,238
                      
$
9,825,509
                      
$
11,461,202
                
                                                                                       
Tax equivalent net interest income and spread
                
$
69,606
      
2.68
%
              
$
68,599
      
2.67
%
              
$
82,359
      
2.73
%
                                                                                 
Tax equivalent net interest margin
                        
2.80
%
                      
2.77
%
                      
2.85
%
 
 
 
 
 
                                                                                 
Sterling Financial Corporation
AVERAGE BALANCE AND RATE
(in thousands, unaudited)
        
Twelve Months Ended
         
December 31, 2010
      
December 31, 2009
                 
Interest
                      
Interest
        
         
Average
      
Income/
      
Yields/
      
Average
      
Income/
      
Yields/
         
Balance
      
Expense
      
Rates
      
Balance
      
Expense
      
Rates
ASSETS:
                                                  
Loans:
                                                  
Mortgage
        
$
4,188,338
        
$
185,214
      
4.42
%
      
$
5,321,761
      
$
266,150
      
5.00
%
Commercial and consumer
          
2,951,479
          
174,896
      
5.93
%
        
3,685,058
        
213,828
      
5.80
%
Total loans
          
7,139,817
          
360,110
      
5.04
%
        
9,006,819
        
479,978
      
5.33
%
MBS
          
2,004,864
          
74,806
      
3.73
%
        
2,310,582
        
108,513
      
4.70
%
Investments and cash
          
1,066,024
          
15,005
      
1.41
%
        
631,044
        
15,647
      
2.48
%
Total interest-earning assets
          
10,210,705
          
449,921
      
4.41
%
        
11,948,445
        
604,138
      
5.06
%
Noninterest-earning assets
          
(42,376
)
                        
357,766
                
Total average assets
        
$
10,168,329
                        
$
12,306,211
                
                                                   
LIABILITIES and EQUITY:
                                                  
Deposits:
                                                  
Transaction
        
$
1,809,208
          
1,918
      
0.11
%
      
$
1,824,175
        
2,534
      
0.14
%
Savings
          
1,656,816
          
10,180
      
0.61
%
        
1,758,678
        
15,941
      
0.91
%
Time deposits
          
3,774,891
          
82,609
      
2.19
%
        
4,718,946
        
150,786
      
3.20
%
Total deposits
          
7,240,915
          
94,707
      
1.31
%
        
8,301,799
        
169,261
      
2.04
%
Borrowings
          
2,309,294
          
66,399
      
2.88
%
        
2,893,477
        
86,109
      
2.98
%
Total interest-bearing liabilities
          
9,550,209
          
161,106
      
1.69
%
        
11,195,276
        
255,370
      
2.28
%
Noninterest-bearing liabilities
          
172,338
                          
158,666
                
Total average liabilities
          
9,722,547
                          
11,353,942
                
Total average equity
          
445,782
                          
952,269
                
Total average liabilities and equity
        
$
10,168,329
                        
$
12,306,211
                
                                                           
Tax equivalent net interest income and spread
                
$
288,815
      
2.72
%
              
$
348,768
      
2.78
%
                                                       
Tax equivalent net interest margin
                        
2.83
%
                      
2.92
%
 
 
 
 
 
                                                       
Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
(in thousands, unaudited)
        
Three Months Ended
      
Twelve Months Ended
         
Dec 31,
      
Sept 30,
      
Dec 31,
      
Dec 31,
      
Dec 31,
           
2010
          
2010
          
2009
          
2010
          
2009
  
                                           
Loss before income taxes
        
$
(38,141
)
      
$
(48,022
)
      
$
(325,711
)
      
$
(224,282
)
      
$
(811,112
)
Goodwill impairment
          
0
          
0
          
0
          
0
          
227,558
  
Provision for credit losses
          
30,000
          
60,892
          
340,257
          
250,229
          
681,371
  
OREO
          
23,993
          
10,456
          
11,944
          
62,578
          
48,041
  
Interest reversal on nonperforming loans
          
15,527
          
17,302
          
21,518
          
77,261
          
60,608
  
Charge on prepayment of debt
          
11,296
          
0
          
0
          
11,296
          
0
  
Total (1)
        
$
42,675
        
$
40,628
        
$
48,008
        
$
177,082
        
$
206,466
  
 
(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.
 
 
 
 
 
 
About Sterling Financial Corporation
 
Sterling Financial Corporation of Spokane, Wash., is the bank holding company for Sterling Savings Bank, a commercial bank. The bank is state chartered and federally insured. Sterling offers banking products and services, mortgage lending, construction financing and investment products to individuals, small businesses, commercial organizations and corporations. As of Dec. 31, 2010, Sterling Financial Corporation had assets of $9.49 billion and operated 178 depository branches throughout Washington, Oregon, Idaho, Montana and California. Visit Sterling’s website at www.sterlingfinancialcorporation-spokane.com.
 
Sterling Savings Bank ranked “Highest Customer Satisfaction with Retail Banking in the Northwest Region” in the J.D. Power and Associates 2010 Retail Banking Satisfaction Study℠. Sterling Savings Bank received the highest numerical score among retail banks in the Northwest region in the proprietary J.D. Power and Associates 2010 Retail Banking Satisfaction Study℠. The study was based on 47,673 total responses measuring 6 providers in the Northwest Region (OR, WA) and measures opinions of consumers with their primary banking provider. Proprietary study results are based on experiences and perceptions of consumers surveyed in January 2010. Your experiences may vary. Visit jdpower.com.
 
Forward-Looking Statements
 
This release contains forward-looking statements that are not historical facts and that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about Sterling’s plans, objectives, expectations, strategy and intentions and other statements contained in this release that are not historical facts and pertain to Sterling’s future operating results and capital position, including Sterling’s ability to complete recovery plans, and Sterling’s ability to reduce future loan losses, improve its deposit mix, execute its asset resolution initiatives, execute its lending initiatives, contain costs, realize operating efficiencies and provide increased customer support and service. When used in this release, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond Sterling’s control. These include, but are not limited to: Sterling’s ability to complete the transactions discussed herein, future contemplated capital raises and other aspects of its recapitalization and recovery plans; Sterling’s ability to maintain adequate liquidity, and its viability as a going concern; the possibility of continued adverse economic developments that may, among other things, increase default and delinquency risks in Sterling’s loan portfolios; shifts in interest rates that may result in lower interest rate margins; shifts in the demand for Sterling’s loan and other products; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; changes in laws, regulations and the competitive environment; and Sterling’s ability to comply with regulatory actions and agreements. Other factors that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements may be found under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Sterling’s Annual Report on Form 10-K, as updated periodically in Sterling’s filings with the Securities and Exchange Commission. Unless legally required, Sterling disclaims any obligation to update any forward-looking statements.
 
CONTACT:
Sterling Financial Corporation
Media:
Cara L. Coon, 509-626-5348
cara.coon@sterlingsavings.com
or
Investors:
Daniel G. Byrne, 509-458-3711
David Brukardt, 509-863-5423