Sterling Financial Corporation of Spokane, Wash., Reports Third Quarter 2012 Earnings of $30.6 Million and Declaration of Cash

  Sterling Financial Corporation of Spokane, Wash., Reports Third Quarter 2012
  Earnings of $30.6 Million and Declaration of Cash Dividend

Business Wire

SPOKANE, Wash. -- October 25, 2012

Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its
operating results for the quarter ended September30, 2012. For the quarter,
Sterling recorded net income of $30.6 million, or $0.49 per diluted common
share, compared to $320.9 million, or $5.13 per diluted common share, for the
quarter ended June30, 2012, and $11.3 million, or $0.18 per diluted common
share, for the quarter ended September30, 2011. As previously reported, net
income for the prior quarter included an income tax benefit of $288.8 million
associated with the release of a deferred tax asset valuation allowance.

Following are selected financial highlights for the quarter ended
September30, 2012:

  *Gross loans were $6.14 billion, a 9 percent increase over September30,
    2011.
  *Portfolio loan originations were $457.1 million, a 31 percent increase
    over the third quarter of 2011.
  *Deposit costs were reduced by 33 basis points compared to the third
    quarter of 2011.
  *Income from mortgage banking operations was $28.5 million, up 74 percent
    over the third quarter of 2011.
  *Nonperforming assets to total assets was 2.73 percent, down from 4.74
    percent at September30, 2011.
  *Net charge-offs to average loans (annualized) was 0.37 percent, down from
    1.99 percent for the third quarter of 2011.
  *Tangible book value was $19.44 per common share, compared to $13.66 per
    common share at September30, 2011.
  *Tier 1 leverage ratio was 12.7 percent, compared to 11.1 percent at
    September30, 2011.

"The solid financial performance for the third quarter reflects Sterling's
progress on our fundamental operating objectives," said Greg Seibly,
Sterling's president and chief executive officer. "We are growing loans and
improving the mix and cost of deposits and asset quality metrics. Our
management team remains focused on implementing initiatives to reduce our
infrastructure costs."

Balance Sheet

Total loan balances were $6.14 billion at September30, 2012, compared to
$6.08 billion at the end of the prior quarter, and $5.62 billion at
September30, 2011. During the third quarter of 2012, Sterling originated
$457.1 million of new portfolio loans (which exclude residential loans held
for sale), compared to $458.6 million for the prior quarter and $348.4 million
for the third quarter of 2011. Commercial loan originations, which include C&I
and owner occupied CRE loans, were $155.8 million for the third quarter of
2012, compared to $80.0 million for the prior quarter, and $96.8 million for
the same period a year ago.

Investments and mortgage-backed securities available for sale were $2.05
billion at September30, 2012, compared to $2.12 billion at the end of the
prior quarter, and $2.45 billion at the same time last year. The reduction
reflects the sale of $140.2 million of MBS during the quarter, for which a
gain of $3.1 million was recognized.

At September30, 2012, total deposits were $6.74 billion, compared to $6.80
billion at the end of the prior quarter, and $6.48 billion at September30,
2011. The decrease from the prior quarter was primarily a result of expected
runoff of retail time deposits, brokered time deposits, and public deposits,
which were reduced by $94.3 million, $71.7 million, and $67.0 million,
respectively. These decreases were partially offset by growth in transaction
deposits, which expanded by $167.5 million, or 7 percent, during the third
quarter of 2012.

The deposit composition is set forth in the following table:

                                                                 Annual %
                     September 30,                   September 30,
                     2012            June 30, 2012    2011            Change
                                    (in thousands)
  Deposits:
  Retail:
  Transaction        $ 2,403,518     $  2,235,991     $ 1,675,741     43   %
  Savings and MMDA   2,191,517       2,182,969        1,814,682       21   %
  Time deposits      1,717,720      1,812,000       2,150,998      (20  )%
  Total retail       6,312,755       6,230,960        5,641,421       12   %
  Public             202,187         269,191          466,423         (57  )%
  Brokered           224,968        296,623         371,396        (39  )%
  Total deposits     $ 6,739,910    $  6,796,774    $ 6,479,240    4    %
  Gross loans to     91          %   90           %   87          %
  deposits
                                                                      
                                                                      Annual
                                                                      Basis
                                                                      Point
                                                                      Change
  Funding costs:
  Cost of deposits   0.53        %   0.58         %   0.86        %   (33  )
  Total funding      1.01        %   1.07         %   1.27        %   (26  )
  liabilities
                                                                           

Operating Results

Net Interest Income

Sterling reported net interest income of $75.3 million for the quarter ended
September30, 2012, compared to $78.9 million for the prior quarter and $74.8
million for the quarter ended September30, 2011. The decrease of $3.6 million
from the prior quarter was primarily a result of lower loan yields, and lower
balances and yields on MBS. The net interest margin (tax equivalent) for the
third quarter of 2012 was 3.47 percent, a decrease of 9 basis points from the
prior quarter, and up 13 basis points over the same period a year ago.

                              
                                 Three Months Ended
                                 September 30,                 September 30,
                                 2012            June 30, 2012   2011
                                 (in thousands)
  Net interest income            $  75,308       $  78,910       $  74,836
  Net interest margin (tax       3.47       %    3.56       %    3.34       %
  equivalent)
  Loan yield                     5.23       %    5.36       %    5.47       %
                                                                            

Total interest income was $96.0 million for the third quarter of 2012,
compared to $101.0 million for the prior quarter, and $101.4 million for the
same period a year ago. Interest income on loans decreased by $2.4 million
from the prior quarter as a result of lower loan yields, reflecting the low
interest rate environment. Additionally, interest income was impacted by a
reduction in interest income on MBS, which declined by $2.6 million compared
to the prior quarter and by $6.4 million from the same period in 2011. For the
third quarter of 2012, average MBS balances were down $221.5 million, or 11
percent, from the prior quarter.

Total interest expense was $20.7 million for the third quarter of 2012,
compared to $22.1 million for the prior quarter and $26.5 million for the
third quarter of 2011. Deposit interest expense was $9.0 million for the third
quarter of 2012, a reduction of $0.9 million, or 9 percent, from the prior
quarter, and down $5.2 million, or 36 percent, from the same period last year,
reflecting the improved deposit mix.

Noninterest Income

Noninterest income includes income from mortgage banking operations, fee and
service charge income, and other items such as net gains on sales of
securities and loan servicing fees. During the third quarter of 2012,
noninterest income was $46.7 million, compared to $44.7 million for the prior
quarter and $29.1 million for the third quarter of 2011.

Income from mortgage banking operations for the third quarter of 2012 was
$28.5 million, compared to $24.7 million for the prior quarter and $16.4
million for the third quarter of 2011. The increase over the comparable prior
periods is principally attributable to increased margins associated with
residential mortgage banking activity. The margin on residential loan sales
was 3.68 percent for the third quarter of 2012, up from 3.07 percent for the
prior quarter and 2.66 percent for the same period a year ago.

                              
                                 Three Months Ended
                                 September 30,                 September 30,
                                 2012            June 30, 2012   2011
                                 (in thousands)
  Residential loan sales         $  728,642      $  576,545      $  475,034
  Change in warehouse and        36,018         220,252        123,859     
  interest rate locks
  Total mortgage banking loan    $  764,660     $  796,797     $  598,893  
  activity
                                                                 
  Margin on residential loan     3.68        %   3.07        %   2.66        %
  sales
                                                                             

For the quarter ended September30, 2012, fees and service charges income
contributed $14.7 million to noninterest income compared to $14.1 million for
the prior quarter and $12.3 million for the third quarter of 2011. The
increase in fees and service charges income compared to the year ago period
was primarily attributable to increased activity related to the business
acquired from First Independent Bank, which was completed during the first
quarter of 2012.

Due to a decline in prevailing mortgage interest rates and an increase in
estimated prepayment speeds, Sterling recorded a fair value write down of $2.1
million on its mortgage servicing rights asset, which resulted in negative
loan servicing fees for the third quarter of 2012. Similar write downs of $1.1
million and $5.1 million were recognized during the second quarter of 2012 and
the third quarter of 2011, respectively.

For the third quarter of 2012, the gain on sales of securities was $3.1
million, compared to $9.3 million for the prior quarter. There were no sales
of securities in the third quarter of 2011. Also, as previously reported, for
the prior quarter Sterling recognized an other-than-temporary impairment
charge of $6.8 million and a charge on prepayment of debt of $2.7 million;
there were no similar charges in the third quarter of 2012 or the prior year
period.

For the quarter ended September30, 2012, BOLI income was $1.7 million,
compared to $3.8 million for the prior quarter and $1.6 million for the third
quarter of 2011. The decrease in BOLI income from the prior quarter was due to
the recognition of a $2.4 million death benefit during the second quarter of
2012.

Noninterest Expense

Noninterest expenses were $89.4 million for the third quarter of 2012,
compared to $87.6 million for the prior quarter and $86.6 million for the
third quarter of 2011. The increase from the prior quarter was primarily a
result of a Washington State Business and Occupation tax refund of $1.9
million received during the second quarter of 2012, which was included as a
reduction in other noninterest expense.

OREO operating expenses were $4.0 million for the third quarter of 2012,
compared to $3.3 million for the prior quarter and $10.7 million for the same
period last year. As of September30, 2012, OREO consisted of 70 properties,
compared to 81 properties at June30, 2012 and 178 properties at September30,
2011.

Income Taxes

During the quarter ended September30, 2012, Sterling did not recognize any
federal or state income tax expense. In the prior period, Sterling recorded a
$288.8 million income tax benefit, which was the result of reversing
substantially all of the deferred tax asset valuation allowance. As of
September30, 2012, the net deferred tax asset was $280.4 million, including
$273.0 million of net operating loss and tax credit carryforwards.

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. During 2010, in
order to preserve the benefits of these tax losses, Sterling's shareholders
approved a protective amendment to Sterling's restated articles of
incorporation and Sterling's board of directors adopted a tax preservation
rights plan, both of which restrict certain stock transfers that would result
in an investor acquiring more than 4.95 percent of Sterling's total
outstanding common stock.

Credit Quality

During the third quarter of 2012, Sterling recognized net charge-offs of $6.0
million, compared to $5.0 million for the prior quarter and $29.9 million for
the same period a year ago. For the third quarter of 2012, Sterling recorded a
$2.0 million provision for credit losses, compared to $4.0 million for the
prior quarter and $6.0 million for the third quarter of 2011. The allowance
for loan losses at September30, 2012 was $154.3 million, or 2.51 percent of
total loans, compared to $158.2 million, or 2.60 percent of total loans, at
June30, 2012, and $186.2 million, or 3.32 percent of total loans, at
September30, 2011.

At September30, 2012, nonperforming assets were $259.0 million, or 2.73
percent of total assets, compared to $321.1 million, or 3.35 percent of total
assets, at June30, 2012, and $434.7 million, or 4.74 percent of total assets,
at September30, 2011.

As a result of Sterling's continued efforts to sell foreclosed properties,
OREO decreased to $46.6 million at September30, 2012, compared to $55.8
million at June30, 2012, and $111.6 million at September30, 2011. This
represents decreases of 17 percent and 58 percent, respectively.

Recent Events

On October 22, 2012, Sterling announced it had entered into a definitive
agreement to acquire American Heritage Holdings ("AHH") of La Mesa,
California. AHH is the holding company for Borrego Springs Bank, N.A., which
had total assets of $142 million as of September 30, 2012 and operates three
depository branches and seven loan production offices. The transaction is
subject to regulatory approval and customary closing conditions and is
expected to be completed during the first quarter of 2013.

Cash Dividend Declaration

Sterling's board of directors has approved a quarterly cash dividend of $0.15
per share of common stock. The dividend is payable on November 20, 2012 to
shareholders of record as of November 6, 2012.

Third Quarter 2012 Earnings Conference Call

Sterling plans to host a conference call October 26, 2012 at 8:00 a.m. PDT 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 1-517-308-9459 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 conclusion of the call. The webcast replay will be offered
through November 26,2012.

                                                             
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS

(in thousands, except per        Sep 30, 2012    Jun 30, 2012    Sep 30, 2011
share amounts, unaudited)
ASSETS:
Cash and due from banks          $ 263,884       $ 454,692       $ 481,717
Investments and
mortgage-backed securities       2,049,961       2,119,008       2,446,523
("MBS") available for sale
Investments held to maturity     1,716           1,726           1,900
Loans held for sale              320,823         226,907         241,039
Loans receivable, net            5,990,365       5,926,575       5,428,355
Other real estate owned, net     46,575          55,801          111,566
("OREO")
Office properties and            92,987          86,556          84,380
equipment, net
Bank owned life insurance        178,279         176,593         174,092
("BOLI")
Goodwill                         22,577          22,577          0
Other intangible assets, net     20,864          22,656          13,290
Deferred tax asset, net          280,373         285,141         0
Other assets                     204,033        221,281        193,012     
Total assets                     $ 9,472,437    $ 9,599,513    $ 9,175,874 
LIABILITIES:
Deposits                         $ 6,739,910     $ 6,796,774     $ 6,479,240
Advances from Federal Home       155,401         205,470         407,000
Loan Bank
Repurchase agreements and fed    942,547         1,006,324       1,056,352
funds
Other borrowings                 245,293         245,292         245,289
Accrued expenses and other       137,799        124,859        128,500     
liabilities
Total liabilities                8,220,950      8,378,719      8,316,381   
SHAREHOLDERS' EQUITY:
Preferred stock                  0               0               0
Common stock                     1,967,562       1,966,307       1,963,820
Accumulated other                75,263          67,102          57,297
comprehensive income
Accumulated deficit              (791,338    )   (812,615    )   (1,161,624  )
Total shareholders' equity       1,251,487      1,220,794      859,493     
Total liabilities and            $ 9,472,437    $ 9,599,513    $ 9,175,874 
shareholders' equity
Book value per common share      $ 20.14         $ 19.65         $ 13.87
Tangible book value per common   $ 19.44         $ 18.92         $ 13.66
share
Shareholders' equity to total    13.2        %   12.7        %   9.4         %
assets
Tangible common equity to        12.8        %   12.3        %   9.2         %
tangible assets (1)
Common shares outstanding at     62,150,650      62,124,551      61,968,510
end of period
Common stock warrants            2,625,000       2,722,541       2,722,541
outstanding
                                                                             

(1) Common shareholders' equity less goodwill and other intangible assets,
divided by assets, less goodwill and other intangible assets.


Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands,
except per share      Three Months Ended                          Nine Months Ended
amounts, unaudited)
                       Sep 30, 2012  Jun 30, 2012  Sep 30, 2011   Sep 30, 2012  Sep 30, 2011
INTEREST INCOME:
Loans                  $  83,110      $  85,537      $  82,010      $  248,488     $  242,132
Mortgage-backed        10,361         12,936         16,719         38,632         56,681
securities
Investments and cash   2,520         2,517         2,650         7,826         8,150      
Total interest         95,991        100,990       101,379       294,946       306,963    
income
INTEREST EXPENSE:
Deposits               8,981          9,921          14,135         30,004         46,645
Borrowings             11,702        12,159        12,408        36,371        36,932     
Total interest         20,683        22,080        26,543        66,375        83,577     
expense
Net interest income    75,308         78,910         74,836         228,571        223,386
Provision for credit   2,000         4,000         6,000         10,000        26,000     
losses
Net interest income    73,308        74,910        68,836        218,571       197,386    
after provision
NONINTEREST INCOME:
Fees and service       14,675         14,131         12,332         41,546         37,839
charges
Mortgage banking       28,502         24,652         16,360         69,318         37,481
operations
Loan servicing fees    (2,092     )   (471       )   (4,694     )   (183       )   (2,884     )
BOLI                   1,660          3,769          1,612          7,175          4,922
Gain on sales of       3,129          9,321          0              12,592         14,298
securities
Other-than-temporary
impairment losses on   0              (6,819     )   0              (6,819     )   0
securities
Charge on prepayment   0              (2,664     )   0              (2,664     )   0
of debt
Gains (losses) on      476            2,811          2,671          3,887          1,792
other loan sales
Other                  348           11            831           (1,826     )   (19        )
Total noninterest      46,698        44,741        29,112        123,026       93,429     
income
NONINTEREST EXPENSE:
Employee
compensation and       45,636         46,485         43,828         139,502        129,514
benefits
OREO                   4,008          3,337          10,739         9,337          36,591
Occupancy and          11,034         10,932         9,580          32,253         29,558
equipment
Depreciation           2,918          2,923          3,000          8,754          9,026
Amortization of
other intangible       1,792          1,791          1,190          4,988          3,639
assets
Other                  24,020        22,139        18,283        70,830        58,187     
Total noninterest      89,408        87,607        86,620        265,664       266,515    
expense
Income before income   30,598         32,044         11,328         75,933         24,300
taxes
Income tax benefit     0             288,842       0             288,842       0          
Net income             $  30,598     $  320,886    $  11,328     $  364,775    $  24,300  
Earnings per common    $  0.49        $  5.17        $  0.18        $  5.87        $  0.39
share - basic
Earnings per common    $  0.49        $  5.13        $  0.18        $  5.81        $  0.39
share - diluted
Dividends declared     $  0.15        $  0.00        $  0.00        $  0.15        $  0.00
per share
Average common
shares outstanding -   62,139,833     62,112,936     61,958,183     62,110,498     61,944,392
basic
Average common
shares outstanding -   62,845,864     62,610,054     62,041,203     62,745,177     62,236,465
diluted
                                                                                              


Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA


(in
thousands,     Three Months Ended                             Nine Months Ended
unaudited)
                Sep 30, 2012   Jun 30, 2012   Sep 30, 2011    Sep 30, 2012   Sep 30, 2011
LOAN
ORIGINATIONS
AND
PURCHASES:
Loan
originations:
Residential
real estate:
For sale        $ 842,197       $ 578,418       $ 545,278       $ 1,997,491     $ 1,365,519
Permanent       77,650        46,569        14,893         152,947        65,834      
Total
residential     919,847         624,987         560,171         2,150,438       1,431,353
real estate
Commercial
real estate
("CRE"):
Investor CRE    14,889          16,190          310             37,535          41,676
Multifamily     144,560         234,971         203,606         552,241         540,591
Construction    776            845            3,223          2,444          13,105      
Total
commercial      160,225         252,006         207,139         592,220         595,372
real estate
Commercial:
Owner           53,541          29,937          42,360          111,833         116,707
occupied CRE
Commercial &
Industrial      102,255        50,069         54,446         206,310        163,723     
("C&I")
Total           155,796         80,006          96,806          318,143         280,430
commercial
Consumer        63,435         79,991         29,513         199,881        97,888      
Total loan      1,299,303      1,036,990      893,629        3,260,682      2,405,043   
originations
Total
portfolio
loan
originations    457,106        458,572        348,351        1,263,191      1,039,524   
(excludes
residential
real estate
for sale)
Loan
purchases:
Residential     1,646           37,734          2,701           76,408          10,251
real estate
Commercial
real estate:
Investor CRE    0               0               0               0               48,584
Multifamily     292            251            309            683            2,749       
Total
commercial      292             251             309             683             51,333
real estate
Commercial:
Owner           0               0               22,495          0               74,716
occupied CRE
C&I             0              0              0              0              0           
Total           0               0               22,495          0               74,716
commercial
Consumer        41,567         10,740         0              52,307         0           
Total loan      43,505         48,725         25,505         129,398        136,300     
purchases
Total loan
originations    $ 1,342,808    $ 1,085,715    $ 919,134      $ 3,390,080    $ 2,541,343 
and purchases
PERFORMANCE
RATIOS:
Return on       1.28        %   13.74       %   0.49        %   5.18        %   0.35        %
assets
Return on       9.8         %   138.7       %   5.4         %   45.5        %   4.1         %
common equity
Operating
efficiency      69.7        %   66.1        %   71.1        %   71.5        %   74.0        %
(1)
Noninterest
expense to      3.74        %   3.75        %   3.72        %   3.78        %   3.81        %
assets
Average         $ 9,520,530     $ 9,390,288     $ 9,233,112     $ 9,398,143     $ 9,356,487
assets
Average         $ 1,237,205     $ 930,377       $ 832,237       $ 1,070,993     $ 802,076
common equity
REGULATORY
CAPITAL
RATIOS:
Sterling
Financial
Corporation
Tier 1
leverage        12.7        %   12.2        %   11.1        %   12.7        %   11.1        %
ratio
Tier 1
risk-based      17.6        %   17.3        %   17.1        %   17.6        %   17.1        %
capital ratio
Total
risk-based      18.9        %   18.6        %   18.4        %   18.9        %   18.4        %
capital ratio
Sterling
Bank:
Tier 1
leverage        12.6        %   12.0        %   10.8        %   12.6        %   10.8        %
ratio
Tier 1
risk-based      17.5        %   17.1        %   16.6        %   17.5        %   16.6        %
capital ratio
Total
risk-based      18.8        %   18.4        %   17.9        %   18.8        %   17.9        %
capital ratio
OTHER:
FTE employees
at end of       2,527           2,523           2,461           2,527           2,461
period (whole
numbers)
                                                                                            

(1) 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, other-than-temporary impairment losses on securities and charge on
prepayment of debt.

                               
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                               
(in thousands, unaudited)        Sep 30, 2012   Jun 30, 2012   Sep 30, 2011
INVESTMENT PORTFOLIO DETAIL:
Available for sale:
MBS                              $ 1,825,448     $ 1,897,310     $ 2,221,948
Municipal bonds                  205,405         203,537         205,005
Other                            19,108         18,161         19,570      
Total                            $ 2,049,961    $ 2,119,008    $ 2,446,523 
Held to maturity:
Tax credits                      $ 1,716        $ 1,726        $ 1,900     
Total                            $ 1,716        $ 1,726        $ 1,900     
LOAN PORTFOLIO DETAIL:
Residential real estate          $ 818,323       $ 785,482       $ 701,921
Commercial real estate:
Investor CRE                     1,274,774       1,324,917       1,287,381
Multifamily                      1,359,506       1,311,247       990,707
Construction                     99,553         111,550        221,611     
Total commercial real estate     2,733,833       2,747,714       2,499,699
Commercial:
Owner occupied CRE               1,304,224       1,309,587       1,299,035
C&I                              517,588        504,396        430,591     
Total commercial                 1,821,812       1,813,983       1,729,626
Consumer                         768,359        736,397        683,972     
Gross loans receivable           6,142,327       6,083,576       5,615,218
Deferred loan fees, net          2,317           1,243           (668        )
Allowance for loan losses        (154,279    )   (158,244    )   (186,195    )
Net loans receivable             $ 5,990,365    $ 5,926,575    $ 5,428,355 
DEPOSITS DETAIL:
Noninterest bearing              $ 1,709,612     $ 1,539,786     $ 1,167,552
transaction
                                                                 
Interest bearing transaction     693,906         696,205         508,189
Savings and MMDA                 2,286,832       2,270,395       2,016,594
Time deposits                    2,049,560      2,290,388      2,786,905   
Total deposits                   $ 6,739,910    $ 6,796,774    $ 6,479,240 
Number of transaction accounts
(whole numbers):
Noninterest bearing              194,997         192,644         170,636
transaction accounts
Interest bearing transaction     49,678         50,617         44,428      
accounts
Total transaction accounts       244,675        243,261        215,064     
                                                                             


Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)          Sep 30, 2012  Jun 30, 2012  Sep 30, 2011
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of     $  158,244     $  161,273     $  212,088
quarter
Provision                           2,000          2,000          4,000
Charge-offs:
Residential real estate             (1,641     )   (157       )   (4,204     )
Commercial real estate:
Investor CRE                        (2,329     )   (6,577     )   (11,189    )
Multifamily                         (463       )   0              (1,035     )
Construction                        (2,106     )   (2,904     )   (14,426    )
Total commercial real estate        (4,898     )   (9,481     )   (26,650    )
Commercial:
Owner occupied CRE                  (1,544     )   (3,164     )   (4,758     )
C&I                                 (514       )   (442       )   (3,011     )
Total commercial                    (2,058     )   (3,606     )   (7,769     )
Consumer                            (1,882     )   (1,643     )   (2,554     )
Total charge-offs                   (10,479    )   (14,887    )   (41,177    )
Recoveries:
Residential real estate             137            673            178
Commercial real estate:
Investor CRE                        694            3,459          31
Multifamily                         347            1              684
Construction                        2,532         2,164         6,066      
Total commercial real estate        3,573          5,624          6,781
Commercial:
Owner occupied CRE                  236            1,249          155
C&I                                 305           1,922         3,707      
Total commercial                    541            3,171          3,862
Consumer                            263           390           463        
Total recoveries                    4,514         9,858         11,284     
Net charge-offs                     (5,965     )   (5,029     )   (29,893    )
Allowance - loans, end of quarter   154,279        158,244        186,195
Reserve for unfunded commitments,   7,952          10,028         7,431
beginning of quarter
Provision                           0              2,000          2,000
Charge-offs                         (181       )   (4,076     )   (55        )
Reserve for unfunded commitments,   7,771         7,952         9,376      
end of quarter
Total credit allowance              $  162,050    $  166,196    $  195,571 
Net charge-offs to average loans    0.37       %   0.32       %   1.99       %
(annualized)
Loan loss allowance to total        2.51       %   2.60       %   3.32       %
loans
Total credit allowance to total     2.64       %   2.73       %   3.48       %
loans
Loan loss allowance to              73         %   60         %   58         %
nonperforming loans
Total credit allowance to           76         %   63         %   61         %
nonperforming loans
                                                                             


Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)          Sep 30, 2012  Jun 30, 2012  Sep 30, 2011
NONPERFORMING ASSETS:
Past 90 days due and accruing       $  0           $  0           $  0
Nonaccrual loans                    146,095        176,220        240,142
Restructured loans                  66,343        89,120        82,997     
Total nonperforming loans           212,438        265,340        323,139
OREO                                46,575        55,801        111,566    
Total nonperforming assets          259,013        321,141        434,705
Specific reserve on nonperforming   (10,104    )   (10,196    )   (15,276    )
loans
Net nonperforming assets            $  248,909    $  310,945    $  419,429 
Nonperforming loans to total        3.46       %   4.36       %   5.75       %
loans
Nonperforming assets to total       2.73       %   3.35       %   4.74       %
assets
Loan delinquency ratio (60 days     1.96       %   2.60       %   4.23       %
and over)
Classified assets                   $  267,469     $  327,336     $  500,484
Classified assets to total assets   2.82       %   3.41       %   5.45       %
Classified assets to Sterling
Bank Tier 1 capital plus total      21         %   26         %   42         %
credit allowance
Nonperforming assets by
collateral type:
Residential real estate             $  44,822      $  46,781      $  53,168
Commercial real estate:
Investor CRE                        59,477         80,436         68,858
Multifamily                         9,221          26,508         7,325
Construction                        55,743        68,082        197,408    
Total commercial real estate        124,441        175,026        273,591
Commercial:
Owner occupied CRE                  71,448         81,640         84,550
C&I                                 12,072        12,526        17,337     
Total commercial                    83,520         94,166         101,887
Consumer                            6,230         5,168         6,059      
Total nonperforming assets          $  259,013    $  321,141    $  434,705 
                                                                             


Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in
thousands,   Three Months Ended                                                                                               
unaudited)
              Sep 30, 2012                          Jun 30, 2012                          Sep 30, 2011
                             Interest                             Interest                             Interest   
              Average         Income/      Yields/   Average         Income/      Yields/   Average         Income/      Yields/
              Balance         Expense      Rates     Balance         Expense      Rates     Balance         Expense      Rates
ASSETS:
Loans:
Mortgage      $ 3,820,634     $ 47,757     5.00  %   $ 3,863,940     $ 49,486     5.12  %   $ 3,470,241     $ 45,843     5.24  %
Commercial
and           2,533,474      35,479      5.57  %   2,540,930      36,147      5.72  %   2,483,204      36,282      5.80  %
consumer
Total loans   6,354,108       83,236       5.23  %   6,404,870       85,633       5.36  %   5,953,445       82,125       5.47  %
MBS           1,762,950       10,361       2.35  %   1,984,471       12,936       2.61  %   2,193,055       16,719       3.02  %
Investments   529,407         3,392        2.55  %   549,590         3,422        2.50  %   767,714         3,596        1.86  %
and cash
FHLB stock    99,160         0           0.00  %   99,227         0           0.00  %   99,395         0           0.00  %
Total
interest      8,745,625       96,989      4.43  %   9,038,158       101,991     4.52  %   9,013,609       102,440     4.51  %
earning
assets
Noninterest
earning       774,905                               352,130                               219,503     
assets
Total
average       $ 9,520,530                           $ 9,390,288                           $ 9,233,112 
assets
LIABILITIES
and EQUITY:
Deposits:
Interest
bearing       $ 684,906       73           0.04  %   $ 666,243       93           0.06  %   $ 501,884       123          0.10  %
transaction
Savings and   2,284,749       884          0.15  %   2,285,426       1,025        0.18  %   1,970,823       1,601        0.32  %
MMDA
Time          2,168,056      8,024       1.47  %   2,380,453      8,803       1.49  %   2,952,566      12,411      1.67  %
deposits
Total
interest      5,137,711       8,981        0.70  %   5,332,122       9,921        0.75  %   5,425,273       14,135       1.03  %
bearing
deposits
Borrowings    1,358,348      11,702      3.43  %   1,486,167      12,159      3.29  %   1,710,388      12,408      2.88  %
Total
interest      6,496,059       20,683       1.27  %   6,818,289       22,080       1.30  %   7,135,661       26,543       1.48  %
bearing
liabilities
Noninterest
bearing       1,656,318      0           0.00  %   1,510,591      0           0.00  %   1,132,589      0           0.00  %
transaction
Total
funding       8,152,377       20,683      1.01  %   8,328,880       22,080      1.07  %   8,268,250       26,543      1.27  %
liabilities
Other
noninterest   130,948                               131,031                               132,625     
bearing
liabilities
Total
average       8,283,325                              8,459,911                              8,400,875
liabilities
Total
average       1,237,205                             930,377                               832,237     
equity
Total
average       $ 9,520,530                           $ 9,390,288                           $ 9,233,112 
liabilities
and equity
Net
interest
income and                    $ 76,306    3.16  %                   $ 79,911    3.22  %                   $ 75,897    3.03  %
spread (tax
equivalent)
Net
interest                                   3.47  %                                3.56  %                                3.34  %
margin (tax
equivalent)
                                                                                                                         
Deposits:
Total
interest      $ 5,137,711     $ 8,981      0.70  %   $ 5,332,122     $ 9,921      0.75  %   $ 5,425,273     $ 14,135     1.03  %
bearing
deposits
Noninterest
bearing       1,656,318      0           0.00  %   1,510,591      0           0.00  %   1,132,589      0           0.00  %
transaction
Total         $ 6,794,029    $ 8,981     0.53  %   $ 6,842,713    $ 9,921     0.58  %   $ 6,557,862    $ 14,135    0.86  %
deposits
                                                                                                                               

About Sterling Financial Corporation

Sterling Financial Corporation (NASDAQ:STSA) of Spokane, Washington, is the
bank holding company for Sterling Savings Bank, a Washington state chartered
and federally insured commercial bank. Sterling Savings Bank does business as
Sterling Bank and Sonoma Bank (in California). Sterling offers banking
products and services, mortgage lending, and trust and investment products to
individuals, small businesses, corporations and other commercial
organizations. As of September30, 2012, Sterling had assets of $9.47 billion
and operated 183 depository branches in Washington, Oregon, Idaho, Montana and
California.Visit Sterling's website at www.sterlingfinancialcorporation.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, strategies 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 reduce future loan losses,
improve its deposit mix, execute its asset resolution initiatives, execute its
lending initiatives, contain costs and potential liabilities, realize
operating efficiencies, execute its business strategy, make dividend payments,
compete in the marketplace 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 market 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; exposure to material litigation; and
lower-than-expected revenue or cost savings or other issues in connection with
mergers and acquisitions. 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@bankwithsterling.com
or
Investor contact:
Patrick Rusnak, 509-227-0961
pat.rusnak@bankwithsterling.com
 
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