a6808175.htm
Filed Pursuant to Rule 424(B)(3)
Registration Statement No. 333-169579
 

 
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 16, 2010)
 
 
 
 
 
STERLING FINANCIAL CORPORATION
 
 
 
 
RECENT DEVELOPMENTS
 
We have attached to this prospectus supplement our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2011.
 
 
 
 
July 27, 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): July 27, 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:
 
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o 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 July 27, 2011, Sterling Financial Corporation ("Sterling") issued a press release regarding its financial results for the quarter ended June 30, 2011.  A copy 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 June 30, 2011, as part of its quarterly report on Form 10-Q 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 July 27, 2011.
 
 
 
 
 
 
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)
  
           
           
July 27, 2011
  
By:
/s/  Patrick J. Rusnak
  
Date
    
Patrick J. Rusnak
  
       
Chief Financial Officer
  
 
 
 
 
 
 
EXHIBIT INDEX
 
Exhibit No.
  
Exhibit Description
     
99.1
  
Press release text of Sterling Financial Corporation dated July 27, 2011.

 
 
 
 
 
 
 
Exhibit 99.1
 
Sterling Financial Corporation of Spokane, Wash. Reports Second-Quarter 2011 Earnings and Operating Results
 
SPOKANE, Wash.--(BUSINESS WIRE)--July 27, 2011--Sterling Financial Corporation (NASDAQ:STSA), the bank holding company of Sterling Savings Bank, today announced results for the quarter ended June 30, 2011. For the quarter, Sterling recorded net income attributable to common shareholders of $7.6 million, or $0.12 per common share, compared to $5.4 million, or $0.09 per common share, for the first quarter of 2011, and compared to a net loss of $58.2 million, or $73.91 per common share, for the second quarter of 2010 (per share amount adjusted for a 1-for-66 reverse stock split in November 2010).
 
Following are selected financial highlights for the second quarter of 2011:
 
·  
Loan originations were $883.0 million, a 41 percent increase over the linked quarter.
 
·  
Retail transaction, savings and MMDA account balances increased by $81.7 million, or 3 percent, for the quarter.
 
·  
Net interest margin expanded to 3.31 percent, improving 9 basis points for the quarter.
 
·  
Nonperforming assets declined by $131.3 million, or 21 percent, for the quarter.
 
Greg Seibly, Sterling’s president and chief executive officer, noted, “Sterling’s earnings growth for the quarter was a result of net interest margin expansion and growth of non-interest income. The margin expansion was a function of growth of the loan portfolio and the success of our deposit strategy, which reduced the cost of deposits by 10 basis points for the quarter. The loan growth was a result of higher loan production, which outpaced the significant reduction in nonperforming assets. Our production teams are continuing to generate momentum as we enter the second half of the year.”
 
Balance Sheet Management
 
Seibly continued, “During the second quarter, we made additional progress improving our mix of deposits by increasing checking account balances and reducing our reliance on CDs, while growing our loan portfolio in multifamily and commercial banking. Additionally, we repositioned a portion of the securities portfolio to manage interest rate risk and to prepare for funding of anticipated future loan growth.”
 
 
 
 
 
       
June 30, 2011
    
March 31, 2011
    
June 30, 2010
    
             
% of
          
% of
          
% of
  
Annual
       
Amount
    
Loans
    
Amount
    
Loans
    
Amount
    
Loans
  
% Change
       
(in thousands)
Total assets
      
$
9,241,595
          
$
9,352,469
          
$
9,737,781
        
-5%
Investments and MBS
        
2,496,056
            
2,820,772
            
1,955,890
        
28%
Loans receivable:
                                          
Residential real estate
        
712,638
    
13%
      
719,458
    
13%
      
778,196
    
12%
  
-8%
Multifamily real estate
        
811,917
    
14%
      
638,250
    
12%
      
460,393
    
7%
  
76%
Commercial real estate
        
1,324,058
    
24%
      
1,348,646
    
24%
      
1,367,122
    
21%
  
-3%
Construction
        
308,273
    
6%
      
396,300
    
7%
      
958,825
    
15%
  
-68%
Consumer
        
703,675
    
13%
      
715,206
    
13%
      
827,123
    
13%
  
-15%
Commercial banking
        
1,741,819
    
30%
      
1,738,794
    
31%
      
2,018,871
    
32%
  
-14%
Gross loans receivable
      
$
5,602,380
    
100%
    
$
5,556,654
    
100%
    
$
6,410,530
    
100%
  
-13%
                                                 
 
Loan originations were $883.0 million for the second quarter of 2011, up $254.6 million, or 41 percent from the linked quarter. Growth in loan originations came primarily within the multifamily portfolio, with multifamily originations expanding by $97.3 million, or 81 percent for the quarter. Other notable growth was achieved in commercial banking, with originations increasing by $74.8 million, or 138 percent, and in residential real estate, with originations increasing by $96.2 million, or 25 percent. These originations outpaced the continued runoff of construction loans, which contracted by $88.0 million, or 22 percent, during the quarter.
 
       
June 30,
      
March 31,
      
June 30,
            
Annual
       
2011
      
2011
      
2010
            
% Change
Deposits:
      
(in thousands)
              
Retail:
                                      
Transaction
      
$
1,572,771
      
$
1,507,489
      
$
1,465,691
            
7%
Savings and MMDA
        
1,710,527
        
1,694,139
        
1,508,272
            
13%
Time deposits
        
2,279,025
        
2,499,546
        
3,122,547
            
-27%
Total retail
        
5,562,323
        
5,701,174
        
6,096,510
            
-9%
Public
        
561,651
        
691,527
        
683,528
            
-18%
Brokered
        
480,024
        
331,726
        
460,731
            
4%
Total deposits
      
$
6,603,998
      
$
6,724,427
      
$
7,240,769
            
-9%
Net loans to deposits
        
82%
        
79%
        
85%
            
-3%
                                     
Annual Basis
                                     
Point Change
Funding costs:
                                      
Cost of deposits
        
0.91%
        
1.01%
        
1.36%
            
(45)
Total funding liabilities
        
1.31%
        
1.39%
        
1.71%
            
(40)
                                       
 
Sterling’s total deposits were $6.60 billion at June 30, 2011, down from $6.72 billion at March 31, 2011, and down from $7.24 billion at June 30, 2010. The decrease during the second quarter of 2011 reflects the expected reduction in retail CDs, as Sterling allowed certain higher-rate CDs to run off, improving the deposit mix and reducing funding costs. This run-off was partially offset by an increase in retail transaction, savings and MMDA accounts, which increased by $81.7 million over the linked quarter. Total funding costs declined to 1.31 percent for the second quarter of 2011, compared to 1.39 percent for the linked quarter and 1.71 percent for the same period a year ago.
 
At June 30, 2011, Sterling had total shareholders’ equity of $807.6 million, compared to $774.5 million at March 31, 2011, and $193.1 million at June 30, 2010. Sterling’s ratio of shareholders’ equity to total assets was 8.7 percent at June 30, 2011, compared to 8.3 percent at March 31, 2011. The tier 1 leverage ratio increased to 10.9 percent at June 30, 2011, from 10.6 percent at March 31, 2011, and tangible common equity to tangible assets increased to 8.6 percent at June 30, 2011, from 8.1 percent at March 31, 2011.
 
 
 
 
 
Operating Results
 
Net Interest Income
 
Sterling reported net interest income of $74.8 million for the quarter ended June 30, 2011, compared to $73.7 million in the linked quarter and $73.1 million for the same period a year ago.
 
       
Three Months Ended
       
June 30,
      
March 31,
      
June 30,
       
2011
      
2011
      
2010
       
(in thousands)
Net interest income
      
$
74,807
      
$
73,743
      
$
73,095
Net interest margin (tax equivalent)
        
3.31%
        
3.22%
        
2.88%
                         
 
Improvements in both net interest income and net interest margin during the quarter, as compared to the linked quarter, primarily reflect the decline in nonperforming assets, reduced deposit costs, and the increase in loan balances. The reversal of interest income from nonperforming loans reduced the net interest margin by 42 basis points for the second quarter of 2011, compared to 53 basis points for the linked quarter and 80 basis points for the same period a year ago.
 
Non-interest Income
 
For the second quarter of 2011, non-interest income was $34.3 million, compared to $30.0 million for the linked quarter and $41.2 million for the same period a year ago. For the quarter ended June 30, 2011, fees and service charges income contributed $12.9 million to non-interest income, compared to $12.6 million in the linked quarter and $14.2 million in the same period a year ago. The reduction in fees and service charges income from last year is primarily related to lower non-sufficient funds (NSF) fees and financial services commission income.
 
Income from mortgage banking operations for the second quarter of 2011 totaled $10.8 million, up from $10.3 million for the linked quarter, and down from $11.7 million from the same period a year ago, when the federal government was offering incentives to homebuyers. The table below presents residential loan originations and sales for the periods indicated.
 
       
Three Months Ended
        
       
June 30,
      
March 31,
      
June 30,
      
Annual
       
2011
      
2011
      
2010
      
% Change
       
(in thousands)
        
Loan originations - residential real estate for sale
      
$
457,123
      
$
363,118
      
$
606,706
      
-25%
Loan sales - residential
        
398,120
        
498,310
        
660,310
      
-40%
                               
Annual Basis
                               
Point Change
Margin - residential loan sales
        
2.21%
        
2.48%
        
2.22%
      
(1)
                                       
 
 
 
 
 
For the quarter ended June 30, 2011, Sterling recorded a gain on sales of securities of $8.3 million, compared to $6.0 million for the linked quarter and $15.3 million for the same period a year ago.
 
Non-interest Expense
 
Non-interest expense was $91.6 million for the second quarter of 2011, compared to $88.3 million in the linked quarter and $97.3 million for the same period a year ago. The increase compared to the linked quarter was primarily the result of higher expenses related to other real estate owned (OREO), which increased by $3.1 million. The $5.7 million reduction of non-interest expense compared to the second quarter of last year primarily reflects lower Federal Deposit Insurance Corporation (FDIC) deposit insurance premiums.
 
During the second quarter of 2011, Sterling successfully completed the conversion to a new core operating system that is expected to support future growth and reduce associated operating expenses. In connection with the core conversion, Sterling incurred $2.3 million of non-recurring implementation expenses during the second quarter of 2011, compared to $1.5 million during the first quarter of 2011.
 
Income Taxes
 
During the second quarter of 2011, Sterling did not recognize any federal or state tax expense, as the income tax expense for the quarter was offset by a reduction in the deferred tax valuation allowance.
 
Sterling uses an estimate of future earnings and an evaluation of its loss carryback 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 determined that it did not meet the required threshold as of June 30, 2011, and accordingly, a full valuation reserve was provided against the deferred tax asset. As of June 30, 2011, the reserved deferred tax asset was approximately $350 million, including approximately $279 million of net operating loss carry-forwards.
 
 
 
 
 
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, during 2010, Sterling’s shareholders approved a protective amendment to the restated articles of incorporation and Sterling’s board adopted a tax preservation rights plan, both of which restrict certain stock transfers that would result in investors acquiring more than 4.95 percent of Sterling’s total outstanding common stock.
 
Credit Quality
 
For the second quarter of 2011, Sterling reported a provision for credit losses of $10.0 million, compared to $10.0 million for the linked quarter and $70.8 million for the same period a year ago. Net charge-offs for the second quarter of 2011 were $33.4 million, compared to $24.1 million for the linked quarter, and $101.8 million for the same period a year ago. The loan loss allowance at June 30, 2011 was $212.1 million, or 3.79 percent, of total loans, compared to $232.9 million, or 4.19 percent, of total loans at March 31, 2011.
 
The reduction in the allowance as a percent of total loans was warranted by the continued improvement in asset quality metrics during the quarter. At June 30, 2011, classified assets were $603.8 million, a reduction of $208.1 million, or 26 percent, from March 31, 2011, and down $782.8 million, or 56 percent, from June 30, 2010. These reductions were a result of improved risk ratings, sales of OREO, and net charge-offs. Nonperforming assets were $497.5 million at June 30, 2011, compared to $628.8 million at March 31, 2011, and $1.02 billion at June 30, 2010, representing reductions of 21 percent and 51 percent, respectively. At June 30, 2011, nonperforming assets as a percentage of total assets were 5.38 percent, compared to 6.72 percent at March 31, 2011, and 10.47 percent at June 30, 2010.
 
At the end of the second quarter of 2011, OREO, which is included in nonperforming assets, was $101.4 million, down 33 percent from $151.8 million at March 31, 2011. During the second quarter of 2011, Sterling sold 253 properties with a carrying value of $76.5 million.
 
Seibly commented, “We continue to experience favorable reductions in nonperforming assets and expect significant additional resolutions during the remainder of the year. Our asset quality metrics are the best we have reported in the last two years.”
 
 
 
 
The following table presents an analysis of Sterling’s nonperforming assets by loan category and geographic region as of the dates indicated.
 
Nonperforming Asset Analysis
                            
           
June 30,
      
March 31,
      
June 30,
           
2011
      
2011
      
2010
Residential construction
          
(in thousands)
Puget Sound
          
$
21,121
      
4%
      
$
35,617
      
6%
      
$
128,742
      
13%
Portland, OR
            
21,014
      
4%
        
35,594
      
6%
        
82,717
      
8%
Vancouver, WA
            
1,829
      
0%
        
7,697
      
1%
        
14,969
      
1%
Northern California
            
5,387
      
1%
        
5,555
      
1%
        
22,628
      
2%
Southern California
            
1,652
      
0%
        
3,558
      
1%
        
6,761
      
1%
Bend, OR
            
993
      
0%
        
1,199
      
0%
        
13,878
      
1%
Boise, ID
            
535
      
0%
        
1,034
      
0%
        
10,746
      
1%
Other
            
12,641
      
3%
        
21,830
      
3%
        
40,393
      
4%
Total residential construction
            
65,172
      
12%
        
112,084
      
18%
        
320,834
      
31%
Commercial construction
                                                    
Puget Sound
            
32,390
      
7%
        
32,243
      
5%
        
47,682
      
5%
Northern California
            
18,618
      
4%
        
25,022
      
4%
        
30,041
      
3%
Southern California
            
14,804
      
3%
        
17,956
      
3%
        
37,113
      
4%
Other
            
72,817
      
15%
        
75,314
      
12%
        
101,266
      
10%
Total commercial construction
            
138,629
      
29%
        
150,535
      
24%
        
216,102
      
22%
Multifamily construction
                                                    
Puget Sound
            
28,430
      
6%
        
39,221
      
6%
        
53,711
      
5%
Portland, OR
            
3,353
      
1%
        
5,817
      
1%
        
11,497
      
1%
Other
            
9,529
      
2%
        
16,933
      
3%
        
32,042
      
3%
Total multifamily construction
            
41,312
      
9%
        
61,971
      
10%
        
97,250
      
9%
Total construction
            
245,113
      
50%
        
324,590
      
52%
        
634,186
      
62%
Commercial banking
            
104,988
      
21%
        
109,003
      
17%
        
147,941
      
15%
Commercial real estate
            
66,811
      
13%
        
80,626
      
13%
        
84,043
      
8%
Residential real estate
            
64,748
      
13%
        
83,173
      
13%
        
115,716
      
11%
Multifamily real estate
            
9,523
      
2%
        
21,089
      
3%
        
27,447
      
3%
Consumer
            
6,332
      
1%
        
10,360
      
2%
        
10,035
      
1%
Total nonperforming assets
          
$
497,515
      
100%
      
$
628,841
      
100%
      
$
1,019,368
      
100%
Specific reserve - loans
            
(17,083)
                
(21,483)
                
(18,060)
        
Net nonperforming assets (1)
          
$
480,432
              
$
607,358
              
$
1,001,308
        
 
(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, and $592.8 million for June 30, 2010.
 
 
 
 
 
 
Second-Quarter 2011 Earnings Conference Call
 
Sterling plans to host a conference call July 28, 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 August 28, 2011.
 
Sterling Financial Corporation
                            
CONSOLIDATED BALANCE SHEETS
                            
(in thousands, except per share amounts, unaudited)
          
June 30,
      
March 31,
      
June 30,
           
2011
      
2011
      
2010
ASSETS:
                            
Cash and due from banks
          
$
587,210
      
$
436,377
      
$
823,315
Investments and mortgage-backed securities ("MBS") available for sale
            
2,494,002
        
2,808,030
        
1,940,710
Investments held to maturity
            
2,054
        
12,742
        
15,180
Loans held for sale (at fair value: $197,643, $136,447 and $191,338)
            
197,643
        
136,447
        
192,411
Loans receivable, net
            
5,387,714
        
5,320,884
        
6,140,913
Other real estate owned, net ("OREO")
            
101,406
        
151,774
        
135,233
Office properties and equipment, net
            
83,923
        
85,542
        
85,841
Bank owned life insurance ("BOLI")
            
172,774
        
171,093
        
165,805
Core deposit intangibles, net
            
14,480
        
15,704
        
19,378
Prepaid expenses and other assets, net
            
200,389
        
213,876
        
218,995
Total assets
          
$
9,241,595
      
$
9,352,469
      
$
9,737,781
                             
LIABILITIES:
                            
Deposits
          
$
6,603,998
      
$
6,724,427
      
$
7,240,769
Advances from Federal Home Loan Bank
            
407,071
        
407,142
        
875,134
Repurchase agreements and fed funds
            
1,058,694
        
1,051,995
        
1,023,027
Other borrowings
            
245,287
        
245,286
        
248,283
Accrued expenses and other liabilities
            
118,935
        
149,159
        
157,449
Total liabilities
            
8,433,985
        
8,578,009
        
9,544,662
                             
SHAREHOLDERS' EQUITY:
                            
Preferred stock
            
0
        
0
        
295,203
Common stock
            
1,962,830
        
1,961,763
        
963,600
Accumulated comprehensive income (loss):
                            
Unrealized gain (loss) on investments and MBS (1)
            
17,733
        
(6,795)
        
31,362
Accumulated deficit
            
(1,172,953)
        
(1,180,508)
        
(1,097,046)
Total shareholders' equity
            
807,610
        
774,460
        
193,119
Total liabilities and shareholders' equity
          
$
9,241,595
      
$
9,352,469
      
$
9,737,781
                             
Book value per common share (2)
          
$
13.04
      
$
12.50
      
$
(129.09)
Tangible book value per common share (2)
          
$
12.80
      
$
12.25
      
$
(153.60)
Shareholders' equity to total assets
            
8.7%
        
8.3%
        
2.0%
Tangible common equity to tangible assets (3)
            
8.6%
        
8.1%
        
-1.2%
Common shares outstanding at end of period (2)
            
61,952,072
        
61,937,273
        
790,771
Common stock warrants outstanding (2)
            
2,722,541
        
2,722,541
        
97,541
                             
(1) Net of deferred income taxes.
(2) Reflects the 1-for-66 reverse stock split in Nov 2010.
(3) Common shareholders' equity less core deposit intangibles divided by assets less core deposit intangibles.
 
 
 
 
 
                             
Sterling Financial Corporation
        
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
        
(in thousands, except per share amounts, unaudited)
      
Three Months Ended
      
Six Months Ended
       
June 30,
      
March 31,
      
June 30,
      
June 30,
      
June 30,
       
2011
        
2011
          
2010
          
2011
          
2010
  
INTEREST INCOME:
                                        
Loans
      
$
79,735
      
$
80,387
        
$
93,885
        
$
160,122
        
$
190,861
  
Mortgage-backed securities
        
19,928
        
20,034
          
18,616
          
39,962
          
38,442
  
Investments and cash
        
2,684
        
2,816
          
2,708
          
5,500
          
5,398
  
Total interest income
        
102,347
        
103,237
          
115,209
          
205,584
          
234,701
  
                                         
INTEREST EXPENSE:
                                        
Deposits
        
15,216
        
17,294
          
25,063
          
32,510
          
52,514
  
Borrowings
        
12,324
        
12,200
          
17,051
          
24,524
          
34,202
  
Total interest expense
        
27,540
        
29,494
          
42,114
          
57,034
          
86,716
  
                                         
Net interest income
        
74,807
        
73,743
          
73,095
          
148,550
          
147,985
  
Provision for credit losses
        
10,000
        
10,000
          
70,781
          
20,000
          
159,337
  
Net interest income (loss) after provision
        
64,807
        
63,743
          
2,314
          
128,550
          
(11,352
)
                                         
NONINTEREST INCOME:
                                        
Fees and service charges
        
12,946
        
12,561
          
14,233
          
25,507
          
27,268
  
Mortgage banking operations
        
10,794
        
10,327
          
11,713
          
21,121
          
22,945
  
Loan servicing fees
        
709
        
1,101
          
(408
)
        
1,810
          
738
  
BOLI
        
1,578
        
1,732
          
1,560
          
3,310
          
3,855
  
Gain on sales of securities
        
8,297
        
6,001
          
15,349
          
14,298
          
17,260
  
Other
        
11
        
(1,740
)
        
(1,219
)
        
(1,729
)
        
(5,541
)
Total noninterest income
        
34,335
        
29,982
          
41,228
          
64,317
          
66,525
  
                                         
NONINTEREST EXPENSE:
                                        
Employee compensation and benefits
        
41,836
        
43,850
          
40,858
          
85,686
          
80,917
  
OREO
        
14,452
        
11,400
          
17,206
          
25,852
          
28,129
  
Occupancy and equipment
        
13,170
        
12,834
          
13,170
          
26,004
          
26,684
  
Amortization of core deposit intangibles
        
1,224
        
1,225
          
1,224
          
2,449
          
2,449
  
Other
        
20,905
        
18,999
          
24,857
          
39,904
          
55,113
  
Total noninterest expense
        
91,587
        
88,308
          
97,315
          
179,895
          
193,292
  
                                         
Income (loss) before income taxes
        
7,555
        
5,417
          
(53,773
)
        
12,972
          
(138,119
)
Income tax (provision) benefit
        
0
        
0
          
0
          
0
          
0
  
Net income (loss)
        
7,555
        
5,417
          
(53,773
)
        
12,972
          
(138,119
)
Preferred stock dividend
        
0
        
0
          
(4,469
)
        
0
          
(8,881
)
Net income (loss) available to common shareholders
      
$
7,555
      
$
5,417
        
$
(58,242
)
      
$
12,972
        
$
(147,000
)
                                         
Earnings per common share - basic (1)
      
$
0.12
      
$
0.09
        
$
(73.91
)
      
$
0.21
        
$
(186.60
)
Earnings per common share - diluted (1)
      
$
0.12
      
$
0.09
        
$
(73.91
)
      
$
0.21
        
$
(186.60
)
                                         
Average common shares outstanding - basic (1)
        
61,943,851
        
61,930,783
          
788,020
          
61,937,353
          
787,799
  
Average common shares outstanding - diluted (1)
        
62,312,224
        
62,335,212
          
788,020
          
62,320,028
          
787,799
  
                         
(1) Reflects the 1-for-66 reverse stock split in Nov 2010.
 
 
 
 
 
                         
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
        
(in thousands, unaudited)
            
Three Months Ended
      
Six Months Ended
             
June 30,
      
March 31,
      
June 30,
      
June 30,
      
June 30,
             
2011
      
2011
      
2010
      
2011
      
2010
LOAN ORIGINATIONS AND PURCHASES:
                                              
Loan originations:
                                              
Residential real estate:
                                              
For sale
            
$
457,123
      
$
363,118
      
$
606,706
      
$
820,241
      
$
1,021,149
Permanent
              
26,578
        
24,363
        
15,438
        
50,941
        
32,052
Total residential real estate
              
483,701
        
387,481
        
622,144
        
871,182
        
1,053,201
Multifamily real estate
              
217,139
        
119,846
        
977
        
336,985
        
1,727
Commercial real estate
              
7,236
        
34,130
        
5,237
        
41,366
        
37,327
Construction:
                                              
Residential
              
3,886
        
4,196
        
5,671
        
8,082
        
9,262
Commercial
              
1,800
        
0
        
0
        
1,800
        
500
Total construction
              
5,686
        
4,196
        
5,671
        
9,882
        
9,762
Consumer
              
40,018
        
28,357
        
20,825
        
68,375
        
49,112
Commercial banking
              
129,234
        
54,390
        
25,352
        
183,624
        
71,280
Total loan originations
              
883,014
        
628,400
        
680,206
        
1,511,414
        
1,222,409
Loan purchases:
                                              
Residential real estate
              
0
        
7,550
        
0
        
7,550
        
0
Multifamily real estate
              
0
        
2,440
        
0
        
2,440
        
0
Commercial real estate
              
0
        
48,584
        
0
        
48,584
        
0
Commercial banking
              
0
        
52,221
        
0
        
52,221
        
0
Total loan purchases
              
0
        
110,795
        
0
        
110,795
        
0
Total loan originations and purchases
            
$
883,014
      
$
739,195
      
$
680,206
      
$
1,622,209
      
$
1,222,409
                                               
PERFORMANCE RATIOS:
                                              
Return on assets
              
0.32%
        
0.23%
        
-2.11%
        
0.28%
        
-2.67%
Return on common equity
              
3.82%
        
2.85%
      
NM (1)
        
3.35%
      
NM (1)
Operating efficiency (2)
              
74%
        
77%
        
79%
        
75%
        
81%
Noninterest expense to assets
              
3.93%
        
3.77%
        
3.82%
        
3.85%
        
3.73%
Average assets
            
$
9,338,409
      
$
9,500,882
      
$
10,216,996
      
$
9,419,196
      
$
10,441,289
Average common equity
            
$
792,748
      
$
769,544
      
$
(80,090)
      
$
781,210
      
$
(40,722)
                                               
REGULATORY CAPITAL RATIOS:
                                              
Sterling Financial Corporation:
                                              
Tier 1 leverage ratio
              
10.9%
        
10.6%
        
2.0%
        
10.9%
        
2.0%
Tier 1 risk-based capital ratio
              
16.9%
        
16.5%
        
3.0%
        
16.9%
        
3.0%
Total risk-based capital ratio
              
18.2%
        
17.8%
        
5.8%
        
18.2%
        
5.8%
Sterling Savings Bank:
                                              
Tier 1 leverage ratio
              
10.6%
        
10.3%
        
3.4%
        
10.6%
        
3.4%
Tier 1 risk-based capital ratio
              
16.4%
        
16.0%
        
5.1%
        
16.4%
        
5.1%
Total risk-based capital ratio
              
17.7%
        
17.3%
        
6.5%
        
17.7%
        
6.5%
                                               
OTHER:
                                              
FTE employees at end of period (whole numbers)
              
2,480
        
2,493
        
2,507
        
2,480
        
2,507
               
(1) NM stands for "not meaningful," as the balance of common equity reflected a deficiency for the periods indicated.
(2) Operating efficiency ratio calculated as noninterest expense, excluding OREO and amortization of core deposit intangibles, divided by net interest income (tax equivalent) plus noninterest income, excluding gain on sales of securities.
 
 
 
 
 
               
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
          
June 30,
      
March 31,
      
June 30,
             
2011
          
2011
          
2010
  
INVESTMENT PORTFOLIO DETAIL:
                            
Available for sale
                            
MBS
          
$
2,282,497
        
$
2,584,302
        
$
1,741,395
  
Municipal bonds
            
189,647
          
200,859
          
178,220
  
Other
            
21,858
          
22,869
          
21,095
  
Total
          
$
2,494,002
        
$
2,808,030
        
$
1,940,710
  
                             
Held to maturity
                            
Tax credits
          
$
2,054
        
$
12,742
        
$
15,180
  
Total
          
$
2,054
        
$
12,742
        
$
15,180
  
                             
LOAN PORTFOLIO DETAIL:
                            
Residential real estate
          
$
712,638
        
$
719,458
        
$
778,196
  
Multifamily real estate
            
811,917
          
638,250
          
460,393
  
Commercial real estate
            
1,324,058
          
1,348,646
          
1,367,122
  
Construction:
                            
Residential
            
67,789
          
106,051
          
380,677
  
Multifamily
            
49,908
          
72,885
          
158,704
  
Commercial
            
190,576
          
217,364
          
419,444
  
Total construction
            
308,273
          
396,300
          
958,825
  
Consumer
            
703,675
          
715,206
          
827,123
  
Commercial banking
            
1,741,819
          
1,738,794
          
2,018,871
  
Gross loans receivable
            
5,602,380
          
5,556,654
          
6,410,530
  
Deferred loan fees, net
            
(2,578
)
        
(2,826
)
        
(4,767
)
Allowance for loan losses
            
(212,088
)
        
(232,944
)
        
(264,850
)
Net loans receivable
          
$
5,387,714
        
$
5,320,884
        
$
6,140,913
  
                             
DEPOSITS DETAIL:
                            
Interest-bearing transaction
          
$
505,134
        
$
499,805
        
$
770,367
  
Noninterest-bearing transaction
            
1,067,637
          
1,007,684
          
980,039
  
Savings and MMDA
            
1,933,941
          
1,972,781
          
1,627,336
  
Time deposits
            
3,097,286
          
3,244,157
          
3,863,027
  
Total deposits
          
$
6,603,998
        
$
6,724,427
        
$
7,240,769
  
                             
Number of transaction accounts (whole numbers):
                
Interest-bearing transaction accounts
            
44,116
          
44,648
          
52,849
  
Noninterest-bearing transaction accounts
            
166,483
          
169,304
          
158,939
  
Total transaction accounts
            
210,599
          
213,952
          
211,788
  
 
 
 
 
 
                             
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)
      
June 30,
      
March 31,
      
June 30,
       
2011
      
2011
      
2010
                         
ALLOWANCE FOR CREDIT LOSSES:
                        
Allowance - loans, beginning of quarter
      
$
232,944
      
$
247,056
      
$
294,798
Provision
        
12,500
        
10,000
        
71,901
Charge-offs:
                        
Residential real estate
        
(4,210)
        
(6,816)
        
(11,338)
Multifamily real estate
        
(457)
        
(211)
        
(1,566)
Commercial real estate
        
(9,269)
        
(1,648)
        
(14,587)
Construction:
                        
Residential
        
(10,218)
        
(7,538)
        
(35,236)
Multifamily
        
(2,158)
        
(83)
        
(12,617)
Commercial
        
(6,643)
        
(1,718)
        
(25,262)
Total construction
        
(19,019)
        
(9,339)
        
(73,115)
Consumer
        
(2,117)
        
(2,146)
        
(4,558)
Commercial banking
        
(3,908)
        
(9,584)
        
(3,677)
Total charge-offs
        
(38,980)
        
(29,744)
        
(108,841)
Recoveries:
                        
Residential real estate
        
603
        
250
        
484
Multifamily real estate
        
1,167
        
1
        
0
Commercial real estate
        
875
        
578
        
401
Construction:
                        
Residential
        
784
        
3,407
        
4,820
Multifamily
        
62
        
130
        
569
Commercial
        
1,033
        
150
        
0
Total construction
        
1,879
        
3,687
        
5,389
Consumer
        
337
        
621
        
453
Commercial banking
        
763
        
495
        
265
Total recoveries
        
5,624
        
5,632
        
6,992
Net charge-offs
        
(33,356)
        
(24,112)
        
(101,849)
Allowance - loans, end of quarter
        
212,088
        
232,944
        
264,850
Allowance - unfunded commitments, beginning of quarter
        
10,641
        
10,707
        
12,323
Provision
        
(2,500)
        
0
        
(1,120)
Charge-offs
        
(710)
        
(66)
        
(252)
Allowance - unfunded commitments, end of quarter
        
7,431
        
10,641
        
10,951
Total credit allowance
      
$
219,519
      
$
243,585
      
$
275,801
                         
Net charge-offs to average net loans (annualized)
        
2.23%
        
1.64%
        
5.47%
Net charge-offs to average net loans (ytd)
        
0.96%
        
0.41%
        
3.09%
Loan loss allowance to total loans
        
3.79%
        
4.19%
        
4.13%
Total credit allowance to total loans
        
3.92%
        
4.39%
        
4.31%
Loan loss allowance to nonperforming loans
        
54%
        
49%
        
30%
Loan loss allowance to nonperforming loans excluding loans individually evaluated for impairment
        
148%
        
161%
        
154%
Total credit allowance to nonperforming loans
        
55%
        
51%
        
31%
                         
NONPERFORMING ASSETS:
                        
Past 90 days due and accruing
      
$
0
      
$
0
      
$
0
Nonaccrual loans
        
311,832
        
380,388
        
760,136
Restructured loans
        
84,277
        
96,679
        
123,999
Total nonperforming loans
        
396,109
        
477,067
        
884,135
OREO
        
101,406
        
151,774
        
135,233
Total nonperforming assets
        
497,515
        
628,841
        
1,019,368
Specific reserve on nonperforming loans
        
(17,083)
        
(21,483)
        
(18,060)
Net nonperforming assets
      
$
480,432
      
$
607,358
      
$
1,001,308
Nonperforming loans to total loans
        
7.07%
        
8.59%
        
13.80%
Nonperforming assets to total assets
        
5.38%
        
6.72%
        
10.47%
Loan delinquency ratio (60 days and over)
        
5.46%
        
6.34%
        
9.29%
Classified assets
        
603,758
        
811,831
      
$
1,386,595
Classified assets to total assets
        
6.53%
        
8.68%
        
14.24%
                         
Nonperforming assets by collateral type:
                        
Residential real estate
      
$
64,748
      
$
83,173
      
$
115,716
Multifamily real estate
        
9,523
        
21,089
        
27,447
Commercial real estate
        
66,811
        
80,626
        
84,043
Construction:
                        
Residential
        
65,172
        
112,084
        
320,834
Multifamily
        
41,312
        
61,971
        
97,250
Commercial
        
138,629
        
150,535
        
216,102
Total Construction
        
245,113
        
324,590
        
634,186
Consumer
        
6,332
        
10,360
        
10,035
Commercial banking
        
104,988
        
109,003
        
147,941
Total nonperforming assets
      
$
497,515
      
$
628,841
      
$
1,019,368
 
 
 
 
 
                         
Sterling Financial Corporation
AVERAGE BALANCE AND RATE
(in thousands, unaudited)
    
Three Months Ended
     
June 30, 2011
      
March 31, 2011
      
June 30, 2010
             
Interest
                      
Interest
                      
Interest
        
     
Average
      
Income/
      
Yields/
      
Average
      
Income/
      
Yields/
      
Average
      
Income/
      
Yields/
     
Balance
      
Expense
      
Rates
      
Balance
      
Expense
      
Rates
      
Balance
      
Expense
      
Rates
ASSETS:
                                                                      
Loans:
                                                                      
Mortgage
    
$
3,516,320
      
$
43,777
      
4.98%
      
$
3,428,296
      
$
43,111
      
5.04%
      
$
4,422,766
      
$
49,060
      
4.44%
Commercial and consumer
      
2,478,564
        
36,074
      
5.84%
        
2,520,610
        
37,393
      
6.02%
        
3,041,988
        
44,984
      
5.93%
Total loans
      
5,994,884
        
79,851
      
5.33%
        
5,948,906
        
80,504
      
5.45%
        
7,464,754
        
94,044
      
5.05%
MBS
      
2,450,178
        
19,928
      
3.25%
        
2,590,546
        
20,034
      
3.09%
        
1,699,890
        
18,616
      
4.38%
Investments and cash
      
668,553
        
3,732
      
2.24%
        
792,959
        
3,900
      
1.99%
        
1,095,491
        
3,815
      
1.40%
FHLB stock
      
99,629
        
0
      
0.00%
        
99,953
        
0
      
0.00%
        
100,601
        
0
      
0.00%
Total interest-earning assets
      
9,213,244
        
103,511
      
4.50%
        
9,432,364
        
104,438
      
4.46%
        
10,360,736
        
116,475
      
4.50%
Noninterest-earning assets
      
125,165
                        
68,518
                        
(143,740)
                
Total average assets
    
$
9,338,409
                      
$
9,500,882
                      
$
10,216,996
                
                                                                       
LIABILITIES and EQUITY:
                                                                      
Deposits:
                                                                      
Interest-bearing transaction
    
$
502,303
        
128
      
0.10%
      
$
493,651
        
146
      
0.12%
      
$
835,572
        
496
      
0.24%
Savings and MMDA
      
1,981,455
        
1,740
      
0.35%
        
1,959,561
        
1,970
      
0.41%
        
1,628,250
        
2,934
      
0.72%
Time deposits
      
3,172,641
        
13,348
      
1.69%
        
3,453,419
        
15,178
      
1.78%
        
3,910,867
        
21,633
      
2.22%
Total interest-bearing deposits
      
5,656,399
        
15,216
      
1.08%
        
5,906,631
        
17,294
      
1.19%
        
6,374,689
        
25,063
      
1.58%
Borrowings
      
1,704,126
        
12,324
      
2.90%
        
1,694,391
        
12,200
      
2.92%
        
2,508,813
        
17,051
      
2.73%
Total interest-bearing liabilities
      
7,360,525
        
27,540
      
1.50%
        
7,601,022
        
29,494
      
1.57%
        
8,883,502
        
42,114
      
1.90%
Noninterest-bearing transaction
      
1,040,000
        
0
      
0.00%
        
1,005,290
        
0
      
0.00%
        
990,726
        
0
      
0.00%
Total funding liabilities
      
8,400,525
        
27,540
      
1.31%
        
8,606,312
        
29,494
      
1.39%
        
9,874,228
        
42,114
      
1.71%
Other noninterest-bearing liabilities
      
145,136
                        
125,026
                        
128,007
                
Total average liabilities
      
8,545,661
                        
8,731,338
                        
10,002,235
                
Total average equity
      
792,748
                        
769,544
                        
214,761
                
Total average liabilities and equity
    
$
9,338,409
                      
$
9,500,882
                      
$
10,216,996
                
                                                                             
Net interest income and spread (tax equivalent)
            
$
75,971
      
3.00%
              
$
74,944
      
2.89%
              
$
74,361
      
2.60%
                                                                       
Net interest margin (tax equivalent)
                    
3.31%
                      
3.22%
                      
2.88%
                                                                       
Deposits:
                                                                      
Total interest-bearing deposits
    
$
5,656,399
      
$
15,216
      
1.08%
      
$
5,906,631
      
$
17,294
      
1.19%
      
$
6,374,689
      
$
25,063
      
1.58%
Noninterest-bearing transaction
      
1,040,000
        
0
      
0.00%
        
1,005,290
        
0
      
0.00%
        
990,726
        
0
      
0.00%
Total deposits
    
$
6,696,399
      
$
15,216
      
0.91%
      
$
6,911,921
      
$
17,294
      
1.01%
      
$
7,365,415
      
$
25,063
      
1.36%
 
 
 
 
 
 
About Sterling Financial Corporation
 
Sterling Financial Corporation of Spokane, Wash., is the bank holding company for Sterling Savings Bank, a state chartered and federally insured commercial bank. Sterling offers banking products and services, mortgage lending, and investment products to individuals, small businesses, commercial organizations and corporations. As of June 30, 2011, Sterling Financial Corporation had assets of $9.24 billion and operated 178 depository branches throughout Washington, Oregon, Idaho, Montana and California. Visit Sterling’s website at www.sterlingfinancialcorporation-spokane.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 execute on its business plan and maintain adequate liquidity; 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 contact:
Cara Coon, 509-626-5348
cara.coon@sterlingsavings.com
or
Investor contacts:
Patrick Rusnak, 509-227-0961
or
Daniel Byrne, 509-458-3711