Sterling Financial Corporation of Spokane, Wash., Reports 2012 Earnings and Balance Sheet Repositioning

  Sterling Financial Corporation of Spokane, Wash., Reports 2012 Earnings and   Balance Sheet Repositioning  Business Wire  SPOKANE, Wash. -- January 24, 2013  Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its operating results for the quarter and year ended December31, 2012. For the quarter, Sterling recorded net income of $20.9 million, or $0.33 per diluted common share, compared to $30.6 million, or $0.49 per diluted common share, for the quarter ended September30, 2012, and $14.8 million, or $0.24 per diluted common share, for the quarter ended December31, 2011. For the year ended December31, 2012, Sterling recorded net income of $385.7 million, or $6.14 per diluted common share, compared to $39.1 million, or $0.63 per diluted common share, for the year ended December31, 2011. The 2012 annual net income included an income tax benefit of $292.0 million associated with the release of a deferred tax asset valuation allowance.  During the fourth quarter of 2012, there were four significant items that, in the aggregate, reduced net income by $11.9 million, or $0.19 per diluted share.  1. Sterling elected to effect a partial repositioning of its balance sheet in light of the current interest rate environment and outlook by prepaying $250.0 million of repurchase agreements and selling $361.8 million of mortgage-backed securities and other investments. A prepayment penalty of $32.7 million was recorded in connection with the debt prepayment and a gain of $11.2 million was recorded in connection with the securities sales.  2. A net gain of $8.4 million was recognized as a result of the divestiture of Sterling's Montana operations in a transaction that was completed on November 30, 2012.  3. A charge of $2.0 million was recorded in connection with a tentative settlement related to a previously disclosed ERISA class action complaint.  4. An income tax benefit of $3.2 million was recorded principally as the result of the aforementioned three items, which were not contemplated at the time Sterling released substantially all of its deferred tax asset valuation allowance effective June 30, 2012.  Following are selected financial highlights for the quarter and year ended December31, 2012:    *Gross loans were $6.25 billion, a 7 percent annualized increase over the     prior quarter.   *Portfolio loan originations for the quarter were $561.7 million, a 23     percent increase over the prior quarter.   *Net interest margin was 3.49 percent, up 6 basis points from the prior     quarter, and up 23 basis points from the fourth quarter of 2011.   *Deposit costs were reduced by 7 basis points compared to the prior     quarter, and by 34 basis points compared to the fourth quarter of 2011.   *Income from mortgage banking operations for the year was $96.9 million, up     85 percent over 2011.   *Nonperforming assets to total assets was 2.28 percent, down from 2.73     percent at September30, 2012, and 4.01 percent at December31, 2011.   *Net recoveries were $566,000 for the quarter, compared to net charge-offs     of $6.0 million for the prior quarter.   *A total of $40.4 million, or $0.65 per share, was returned to shareholders     during the fourth quarter of 2012 through payment of a $0.15 per share     regular dividend, a $0.35 per share special dividend and the accelerated     payment of the $0.15 regular dividend that would have otherwise been paid     during the first quarter of 2013.   *During the fourth quarter, Sterling announced the signing of definitive     agreements to acquire American Heritage Holdings and its wholly-owned     subsidiary, Borrego Springs Bank, N.A., and to acquire the Puget Sound     operations of Boston Private Bank & Trust.  "The fourth quarter capped a year of solid financial performance," said Greg Seibly, Sterling's president and chief executive officer. "Our strong financial position has allowed us to take steps to reduce costly borrowings in order to improve our profitability in future periods. We were also able to take steps to manage excess capital by re-establishing cash dividends during 2012. This is a result of continued attention on our key operating objectives of growing loans, reducing deposit costs, eliminating asset quality challenges and controlling operating expenses."  Balance Sheet  Total portfolio loan balances (which exclude residential loans held for sale) were $6.25 billion at December31, 2012, compared to $6.14 billion at the end of the prior quarter, and $5.52 billion at December31, 2011. During the fourth quarter of 2012, Sterling originated $561.7 million of new portfolio loans, compared to $457.1 million for the prior quarter and $346.3 million for the fourth quarter of 2011. For the year, portfolio loan originations were $1.82 billion, compared to $1.39 billion for 2011, representing an increase of 32 percent. Approximately $41 million of loans were sold in connection with Sterling's Montana divestiture.  Multifamily loan originations were $261.3 million for the fourth quarter of 2012, accounting for 47 percent of total portfolio originations. This compares to $144.6 million for the prior quarter, and $179.6 million for the same period a year ago.  Commercial loan originations, which include C&I and owner occupied CRE loans, were $136.8 million for the fourth quarter of 2012, accounting for 24 percent of total portfolio originations. This compares to $155.8 million for the prior quarter, and $95.6 million for the same period a year ago.  Investments and mortgage-backed securities available for sale were $1.51 billion at December31, 2012, compared to $2.05 billion at the end of the prior quarter, and $2.55 billion at the same time last year. The reduction reflects the sale of $361.8 million of MBS and other investments during the quarter.  At December31, 2012, total deposits were $6.44 billion, compared to $6.74 billion at the end of the prior quarter, and $6.49 billion at December31, 2011. The decrease from the prior quarter was primarily a result of the sale of approximately $182 million of deposits in connection with the Montana divestiture. This decrease was partially offset by growth in transaction deposits, which expanded by $31.3 million, or 1 percent, during the fourth quarter of 2012.  The deposit composition is set forth in the following table:                        December 31,   September 30,  December 31,   Annual %                       2012            2012            2011            Change                      (in thousands) Deposits: Retail: Transaction           $ 2,434,778     $ 2,403,518     $ 1,732,665     41   % Savings and MMDA        2,129,722       2,191,517       1,902,209     12   % Time deposits          1,529,566     1,717,720     1,993,260    (23  )% Total retail            6,094,066       6,312,755       5,628,134     8    % Public                  174,161         202,187         428,691       (59  )% Brokered               167,890       224,968       428,993      (61  )% Total deposits        $ 6,436,117    $ 6,739,910    $ 6,485,818    (1   )% Gross loans to          97        %     91        %     85        % deposits   At December31, 2012, advances from the Federal Home Loan Bank were $605.3 million, compared to $155.4 million at the end of the prior quarter, and $405.6 million at December31, 2011. The increase over the prior quarter was to fund the deposit outflow associated with the Montana divestiture, to fund loan growth, and to replace CD runoff.  Operating Results  Net Interest Income  Sterling reported net interest income of $76.1 million for the quarter ended December31, 2012, compared to $75.3 million for the prior quarter and $71.8 million for the quarter ended December31, 2011. The increase of $799,000 from the prior quarter was primarily a result of lower deposit costs. The net interest margin (tax equivalent) for the fourth quarter of 2012 was 3.49 percent, an increase of 6 basis points from the prior quarter, and up 23 basis points over the same period a year ago.                                     Three Months Ended                                    December 31,  September 30,  December 31,                                    2012           2012            2011                                    (in thousands) Net interest income                $  76,107      $  75,308       $  71,809 Net interest margin (tax           3.49       %   3.43       %    3.26       % equivalent) Loan yield                         4.96       %   5.15       %    5.34       %                                                                    Funding costs: Cost of deposits                   0.46       %   0.53       %    0.80       % Total funding liabilities          0.90       %   1.01       %    1.24       %   Total interest income was $94.3 million for the fourth quarter of 2012, compared to $96.0 million for the prior quarter, and $97.3 million for the same period a year ago. Interest income on loans decreased by $84,000 from the prior quarter as a result of lower loan yields, reflecting the low interest rate environment. Additionally, interest income was adversely impacted by a reduction in interest income on MBS, which declined by $1.6 million compared to the prior quarter and by $5.7 million from the same period in 2011. For the fourth quarter of 2012, average MBS balances were down $169.5 million, or 10 percent, from the prior quarter resulting primarily from prepayments.  Total interest expense was $18.1 million for the fourth quarter of 2012, compared to $20.7 million for the prior quarter and $25.5 million for the fourth quarter of 2011. Deposit interest expense was $7.7 million for the fourth quarter of 2012, a reduction of $1.3 million, or 14 percent, from the prior quarter, and down $5.3 million, or 41 percent, from the same period last year, reflecting the improved deposit mix.  Borrowing costs were $10.5 million for the fourth quarter of 2012, compared to $11.7 million for the prior quarter, and $12.5 million for the fourth quarter of 2011. The decrease from the prior quarter is due to lower average costs, which were down 49 basis points. The decrease from the fourth quarter of 2011 is a result of lower average outstanding borrowings, which were down $293.6 million, or 17 percent.  Noninterest Income  During the fourth quarter of 2012, noninterest income was $31.2 million, compared to $46.7 million for the prior quarter and $32.9 million for the fourth quarter of 2011.  Income from mortgage banking operations for the fourth quarter of 2012 was $27.6 million, compared to $28.5 million for the prior quarter and $14.9 million for the fourth quarter of 2011. The decrease from the prior period is attributable to a decline in the volume of mortgage banking activity, as well as a decrease in the related margin, while the increase over the year ago period is attributable to an increase in volume of mortgage banking activity, and higher margins on residential loan sales. The margin on residential loan sales was 3.60 percent for the fourth quarter of 2012, down from 3.68 percent for the prior quarter and up from 2.43 percent for the same period a year ago.                                     Three Months Ended                                    December 31,  September 30,  December 31,                                    2012           2012            2011                                    (in thousands) Residential loan sales             $  779,289     $  728,642      $  646,000 Change in warehouse and interest   (44,931    )   36,018         (57,123    ) rate locks Total mortgage banking activity    $  734,358    $  764,660     $  588,877                                                                     Margin on residential loan sales   3.60       %   3.68        %   2.43       %   For the quarter ended December31, 2012, fees and service charges income contributed $14.2 million to noninterest income, compared to $14.7 million for the prior quarter and $12.2 million for the fourth 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.  As previously noted, in order to reduce its funding costs in future periods, Sterling prepaid $250.0 million of repurchase agreements during the fourth quarter of 2012, resulting in a prepayment charge of $32.7 million. A similar charge of $2.7 million was incurred during the second quarter of 2012, resulting in total debt prepayment charges of $35.3 million for the full year. No such charges were incurred during 2011.  For the fourth quarter of 2012, the gain on sales of securities was $11.2 million, compared to $3.1 million for the prior quarter and $1.9 million for the fourth quarter of 2011. Included in the gain for the fourth quarter of 2012 is a gain on the sale of a trust preferred security of $2.5 million.  The gain on the sale of assets for the quarter ended December31, 2012, included a gain, before associated selling expenses, of $9.1 million recognized in conjunction with the Montana divestiture.  Noninterest Expense  Noninterest expenses were $89.6 million for the fourth quarter of 2012, compared to $89.4 million for the prior quarter and $85.9 million for the fourth quarter of 2011. During the fourth quarter of 2012, employee compensation and benefits increased by $3.9 million over the prior quarter due to increased production and other incentive compensation. Other noninterest expenses were down $1.9 million, despite a charge of $2.0 million in connection with a tentative settlement related to a previously disclosed ERISA class action complaint. The key drivers of the decline in other expenses included reductions in advertising, professional services, FDIC insurance and data processing expenses.  OREO operating expenses were $2.5 million for the fourth quarter of 2012, compared to $4.0 million for the prior quarter and $4.9 million for the same period last year, reflecting continued reductions in the level of OREO.  Income Taxes  During the quarter ended December31, 2012, Sterling recognized an income tax benefit of $3.2 million, which represents the release of the remaining portion of Sterling's deferred tax valuation allowance.  For the year, Sterling recognized an income tax benefit of $292.0 million, which was principally the result of reversing substantially all of the deferred tax asset valuation allowance during the second quarter of 2012. As of December31, 2012, the net deferred tax asset was $292.1 million, including $274.0 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 fourth quarter of 2012, Sterling recognized net recoveries of $566,000, compared to net charge-offs of $6.0 million for the prior quarter and $10.7 million for the same period a year ago. Sterling did not record a provision for credit losses for the fourth quarter of 2012, compared to a provision of $2.0 million for the prior quarter and $4.0 million for the fourth quarter of 2011. The allowance for loan losses at December31, 2012 was $154.3 million, or 2.47 percent of total loans, compared to $154.3 million, or 2.51 percent of total loans, at September30, 2012, and $177.5 million, or 3.22 percent of total loans, at December31, 2011.  At December31, 2012, nonperforming assets were $210.4 million, or 2.28 percent of total assets, compared to $259.0 million, or 2.73 percent of total assets, at September30, 2012, and $369.1 million, or 4.01 percent of total assets, at December31, 2011.  As a result of Sterling's continued efforts to sell foreclosed properties, OREO decreased to $25.0 million at December31, 2012, compared to $46.6 million at September30, 2012, and $81.9 million at December31, 2011. This represents decreases of 46 percent and 69 percent, respectively.  Fourth Quarter 2012 Earnings Conference Call  Sterling plans to host a conference call on January 25, 2013 at 8:00 a.m. PST to discuss the company's financial results. In addition to this press release, management will reference a slide presentation filed with the SEC and available on Sterling's website at www.sterlingfinancialcorporation.com. An audio webcast of the conference call can also 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 1-517-308-9210 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 February 25,2013.   Sterling Financial Corporation CONSOLIDATED BALANCE SHEETS  (in thousands, except per share     Dec 31, 2012       Sep 30, 2012       Dec 31, 2011 amounts, unaudited) ASSETS: Cash and due from     $  331,550          $  263,884          $  491,228 banks Investments and mortgage-backed       1,513,157           2,049,961           2,547,876 securities ("MBS") available for sale Investments held      206                 1,716               1,747 to maturity Loans held for        465,983             320,823             273,957 sale Loans receivable,     6,101,749           5,990,365           5,341,179 net Other real estate owned, net            25,042              46,575              81,910 ("OREO") Office properties     93,850              92,987              84,015 and equipment, net Bank owned life       179,828             178,279             174,512 insurance ("BOLI") Goodwill              22,577              22,577              0 Other intangible      19,072              20,864              12,078 assets, net Deferred tax          292,082             280,373             0 asset, net Other assets          191,814            204,033            184,735        Total assets          $  9,236,910       $  9,472,437       $  9,193,237   LIABILITIES: Deposits              $  6,436,117        $  6,739,910        $  6,485,818 Advances from Federal Home Loan     605,330             155,401             405,609 Bank Repurchase agreements and fed    586,867             942,547             1,055,763 funds Other borrowings      245,294             245,293             245,290 Accrued expenses and other             145,379            137,799            122,200        liabilities Total liabilities     8,018,987          8,220,950          8,314,680      SHAREHOLDERS' EQUITY: Preferred stock       0                   0                   0 Common stock          1,968,025           1,967,562           1,964,234 Accumulated other comprehensive         60,712              75,263              61,115 income Accumulated           (810,814      )     (791,338      )     (1,146,792    ) deficit Total shareholders'         1,217,923          1,251,487          878,557        equity Total liabilities and shareholders'     $  9,236,910       $  9,472,437       $  9,193,237   equity Book value per        $  19.58            $  20.14            $  14.16 common share Tangible book value per common      $  18.91            $  19.44            $  13.96 share Shareholders' equity to total       13.2          %     13.2          %     9.6           % assets Tangible common equity to tangible    12.8          %     12.8          %     9.4           % assets (1) Common shares outstanding at end    62,207,529          62,150,650          62,057,645 of period Common stock warrants              2,748,672           2,625,000           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                          Twelve Months Ended amounts, unaudited)                        Dec 31, 2012  Sep 30, 2012  Dec 31, 2011   Dec 31, 2012  Dec 31, 2011 INTEREST INCOME: Loans                  $  83,026      $  83,110      $  80,303      $  331,514     $  322,435 Mortgage-backed        8,810          10,361         14,535         47,442         71,216 securities Investments and cash   2,418         2,520         2,491         10,244        10,641      Total interest         94,254        95,991        97,329        389,200       404,292     income INTEREST EXPENSE: Deposits               7,693          8,981          12,989         37,697         59,634 Borrowings             10,454        11,702        12,531        46,825        49,463      Total interest         18,147        20,683        25,520        84,522        109,097     expense Net interest income    76,107         75,308         71,809         304,678        295,195 Provision for credit   0             2,000         4,000         10,000        30,000      losses Net interest income    76,107        73,308        67,809        294,678       265,195     after provision NONINTEREST INCOME: Fees and service       14,227         14,675         12,234         55,773         50,073 charges Mortgage banking       27,591         28,502         14,895         96,909         52,376 operations Loan servicing fees    566            (2,092     )   (329       )   383            (3,213     ) BOLI                   1,450          1,660          1,526          8,625          6,448 Gain on sales of       11,243         3,129          1,938          23,835         16,236 securities Other-than-temporary impairment losses on   0              0              0              (6,819     )   0 securities Charge on prepayment   (32,678    )   0              0              (35,342    )   0 of debt Gains (losses) on      485            476            0              4,372          4,442 other loan sales Gains (losses) on      8,210          (136       )   (5         )   6,515          (85        ) assets Other                  133           484           2,640         2             51          Total noninterest      31,227        46,698        32,899        154,253       126,328     income NONINTEREST EXPENSE: Employee compensation and       49,523         45,636         42,129         189,025        171,643 benefits OREO                   2,492          4,008          4,909          11,829         41,500 Occupancy and          10,677         11,034         10,320         42,930         39,878 equipment Depreciation           2,936          2,918          3,158          11,690         12,184 Amortization of other intangible       1,792          1,792          1,212          6,780          4,851 assets Other                  22,169        24,020        24,147        92,999        82,334      Total noninterest      89,589        89,408        85,875        355,253       352,390     expense Income before income   17,745         30,598         14,833         93,678         39,133 taxes Income tax benefit     3,201         0             0             292,043       0           Net income             $  20,946     $  30,598     $  14,833     $  385,721    $  39,133   Earnings per common    $  0.34        $  0.49        $  0.24        $  6.21        $  0.63 share - basic Earnings per common    $  0.33        $  0.49        $  0.24        $  6.14        $  0.63 share - diluted Dividends declared     $  0.65        $  0.15        $  0.00        $  0.80        $  0.00 per share Average common shares outstanding -   62,159,683     62,139,833     61,989,094     62,122,862     61,955,659 basic Average common shares outstanding -   62,867,030     62,845,864     62,194,011     62,772,079     62,231,208 diluted    Sterling Financial Corporation  OTHER SELECTED FINANCIAL DATA  (in thousands,     Three Months Ended                             Twelve Months Ended unaudited)                 Dec 31, 2012   Sep 30, 2012   Dec 31, 2011    Dec 31, 2012   Dec 31, 2011 LOAN ORIGINATIONS AND PURCHASES: Loan originations: Residential real estate: For sale        $ 903,916       $ 842,197       $ 644,135       $ 2,901,407     $ 2,009,654 Permanent       75,101        77,650        23,406         228,048        89,240       Total residential     979,017         919,847         667,541         3,129,455       2,098,894 real estate Commercial real estate ("CRE"): Investor CRE    26,451          14,889          875             63,986          42,551 Multifamily     261,254         144,560         179,601         813,495         720,192 Construction    6,487          776            6,452          8,931          19,557       Total commercial      294,192         160,225         186,928         886,412         782,300 real estate Commercial: Owner           46,578          53,541          41,640          158,411         158,347 occupied CRE Commercial & Industrial      90,265         102,255        54,001         296,575        217,723      ("C&I") Total           136,843         155,796         95,641          454,986         376,070 commercial Consumer        55,578         63,435         40,315         255,459        138,203      Total loan      1,465,630      1,299,303      990,425        4,726,312      3,395,467    originations Total portfolio loan originations    561,714        457,106        346,290        1,824,905      1,385,813    (excludes residential real estate for sale) Loan purchases: Residential     328             1,646           3,166           76,736          13,417 real estate Commercial real estate: Investor CRE    2,345           0               0               2,345           48,584 Multifamily     249            292            147            932            2,896        Total commercial      2,594           292             147             3,277           51,480 real estate Commercial: Owner           5,038           0               0               5,038           74,716 occupied CRE C&I             0              0              0              0              0            Total           5,038           0               0               5,038           74,716 commercial Consumer        19,313         41,567         0              71,620         0            Total loan      27,273         43,505         3,313          156,671        139,613      purchases Total loan originations    $ 1,492,903    $ 1,342,808    $ 993,738      $ 4,882,983    $ 3,535,080  and purchases PERFORMANCE RATIOS: Return on       0.88        %   1.28        %   0.64        %   4.10        %   0.42        % assets Return on       6.7         %   9.8         %   6.8         %   35.8        %   4.8         % common equity Operating efficiency      70.1        %   69.7        %   76.8        %   71.1        %   74.7        % (1) Noninterest expense to      3.77        %   3.74        %   3.72        %   3.78        %   3.79        % assets Average         $ 9,447,551     $ 9,520,530     $ 9,146,430     $ 9,410,562     $ 9,303,539 assets Average         $ 1,252,222     $ 1,237,205     $ 861,186       $ 1,078,542     $ 818,965 common equity  (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, charge on prepayment of debt and net gain on MT branch disposition.    Sterling Financial Corporation  OTHER SELECTED FINANCIAL DATA  (in thousands, unaudited)       Dec 31, 2012   Sep 30, 2012   Dec 31, 2011 INVESTMENT PORTFOLIO DETAIL: Available for sale: MBS                              $ 1,308,838     $ 1,825,448     $ 2,320,934 Municipal bonds                  204,306         205,405         207,456 Other                            13             19,108         19,486       Total                            $ 1,513,157    $ 2,049,961    $ 2,547,876  Held to maturity: Tax credits                      $ 206          $ 1,716        $ 1,747      Total                            $ 206          $ 1,716        $ 1,747      LOAN PORTFOLIO DETAIL: Residential real estate          $ 806,722       $ 818,323       $ 688,020 Commercial real estate: Investor CRE                     1,219,847       1,274,774       1,275,667 Multifamily                      1,580,289       1,359,506       1,001,479 Construction                     74,665         99,553         174,608      Total commercial real estate     2,874,801       2,733,833       2,451,754 Commercial: Owner occupied CRE               1,276,591       1,304,224       1,272,461 C&I                              540,499        517,588        431,693      Total commercial                 1,817,090       1,821,812       1,704,154 Consumer                         754,621        768,359        674,961      Gross loans receivable           6,253,234       6,142,327       5,518,889 Deferred loan fees, net          2,860           2,317           (252        ) Allowance for loan losses        (154,345    )   (154,279    )   (177,458    ) Net loans receivable             $ 6,101,749    $ 5,990,365    $ 5,341,179  DEPOSITS DETAIL: Noninterest bearing              $ 1,702,740     $ 1,709,612     $ 1,211,628 transaction Interest bearing transaction     732,038         693,906         521,037 Savings and MMDA                 2,262,369       2,286,832       2,092,283 Time deposits                    1,738,970      2,049,560      2,660,870    Total deposits                   $ 6,436,117    $ 6,739,910    $ 6,485,818  Number of transaction accounts (whole numbers): Noninterest bearing              187,628         194,997         172,707 transaction accounts Interest bearing transaction     47,859         49,678         44,309       accounts Total transaction accounts       235,487        244,675        217,016         Sterling Financial Corporation  OTHER SELECTED FINANCIAL DATA  (in thousands, unaudited)          Dec 31, 2012  Sep 30, 2012  Dec 31, 2011 ALLOWANCE FOR CREDIT LOSSES: Allowance - loans, beginning of     $ 154,279      $  158,244     $  186,195 quarter Provision                           (500      )    2,000          2,000 Charge-offs: Residential real estate             (1,218    )    (1,641     )   (3,323     ) Commercial real estate: Investor CRE                        (942      )    (2,329     )   (3,673     ) Multifamily                         (357      )    (463       )   0 Construction                        (189      )    (2,106     )   (3,112     ) Total commercial real estate        (1,488    )    (4,898     )   (6,785     ) Commercial: Owner occupied CRE                  (1,678    )    (1,544     )   (5,667     ) C&I                                 (130      )    (514       )   (1,441     ) Total commercial                    (1,808    )    (2,058     )   (7,108     ) Consumer                            (3,167    )    (1,882     )   (2,052     ) Total charge-offs                   (7,681    )    (10,479    )   (19,268    ) Recoveries: Residential real estate             53             137            388 Commercial real estate: Investor CRE                        104            694            1,145 Multifamily                         262            347            1 Construction                        4,144         2,532         4,951       Total commercial real estate        4,510          3,573          6,097 Commercial: Owner occupied CRE                  1,248          236            1,229 C&I                                 2,172         305           407         Total commercial                    3,420          541            1,636 Consumer                            264           263           410         Total recoveries                    8,247         4,514         8,531       Net recoveries (charge-offs)        566           (5,965     )   (10,737    ) Allowance - loans, end of quarter   154,345        154,279        177,458 Reserve for unfunded commitments,   7,771          7,952          9,376 beginning of quarter Provision                           500            0              2,000 Charge-offs                         (269      )    (181       )   (1,347     ) Reserve for unfunded commitments,   8,002         7,771         10,029      end of quarter Total credit allowance              $ 162,347     $  162,050    $  187,487  Net charge-offs to average loans    (0.03     )%   0.37       %   0.71       % (annualized) Loan loss allowance to total        2.47      %    2.51       %   3.22       % loans Total credit allowance to total     2.60      %    2.64       %   3.40       % loans Loan loss allowance to              83        %    73         %   62         % nonperforming loans Total credit allowance to           88        %    76         %   65         % nonperforming loans    Sterling Financial Corporation  OTHER SELECTED FINANCIAL DATA  (in thousands, unaudited)          Dec 31, 2012  Sep 30, 2012  Dec 31, 2011 NONPERFORMING ASSETS: Past 90 days due and accruing       $  0           $  0           $  0 Nonaccrual loans                    121,113        146,095        210,221 Restructured loans                  64,216        66,343        76,939      Total nonperforming loans           185,329        212,438        287,160 OREO                                25,042        46,575        81,910      Total nonperforming assets          210,371        259,013        369,070 Specific reserve on nonperforming   (8,463     )   (10,104    )   (16,305    ) loans Net nonperforming assets            $  201,908    $  248,909    $  352,765  Nonperforming loans to total        2.96       %   3.46       %   5.20       % loans Nonperforming assets to total       2.28       %   2.73       %   4.01       % assets Loan delinquency ratio (60 days     1.64       %   1.96       %   3.55       % and over) Classified assets                   $  221,832     $  267,469     $  425,746 Classified assets to total assets   2.40       %   2.82       %   4.63       % Classified assets to Sterling Bank Tier 1 capital plus total      18         %   21         %   35         % credit allowance Nonperforming assets by collateral type: Residential real estate             $  45,929      $  44,822      $  48,184 Commercial real estate: Investor CRE                        52,368         59,477         61,901 Multifamily                         8,148          9,221          5,867 Construction                        33,945        55,743        153,819     Total commercial real estate        94,461         124,441        221,587 Commercial: Owner occupied CRE                  58,292         71,448         77,920 C&I                                 3,985         12,072        14,899      Total commercial                    62,277         83,520         92,819 Consumer                            7,704         6,230         6,480       Total nonperforming assets          $  210,371    $  259,013    $  369,070  REGULATORY CAPITAL RATIOS: Sterling Financial Corporation: Tier 1 leverage ratio               12.0       %   12.7       %   11.4       % Tier 1 risk-based capital ratio     17.3       %   17.6       %   17.8       % Total risk-based capital ratio      18.6       %   18.9       %   19.1       % Tier 1 common capital ratio         13.6       %   13.9       %   13.8       % Sterling Bank: Tier 1 leverage ratio               11.9       %   12.6       %   11.1       % Tier 1 risk-based capital ratio     17.2       %   17.5       %   17.4       % Total risk-based capital ratio      18.4       %   18.8       %   18.7       % OTHER: FTE employees at end of period      2,532          2,527          2,496 (whole numbers)    Sterling Financial Corporation  AVERAGE BALANCE AND RATE  (in thousands,   Three Months Ended unaudited)               Dec 31, 2012                          Sep 30, 2012                          Dec 31, 2011               Average         Interest     Yields/   Average         Interest     Yields/   Average         Interest     Yields/               Balance        Income/     Rates     Balance        Income/     Rates     Balance        Income/     Rates                               Expense                                Expense                                Expense ASSETS: Loans: Mortgage      $ 4,062,917     $ 47,241     4.65  %   $ 3,863,670     $ 47,757     4.94  %   $ 3,557,298     $ 45,255     5.09  % Commercial and           2,624,167      35,904      5.44  %   2,583,756      35,479      5.46  %   2,446,293      35,148      5.70  % consumer Total loans   6,687,084       83,145       4.96  %   6,447,426       83,236       5.15  %   6,003,591       80,403       5.34  % MBS           1,593,455       8,810        2.21  %   1,762,950       10,361       2.35  %   2,273,767       14,535       2.56  % Investments   421,600         3,337        3.15  %   529,407         3,392        2.55  %   479,922         3,431        2.84  % and cash FHLB stock    98,131         0           0.00  %   99,160         0           0.00  %   99,159         0           0.00  % Total interest      8,800,270       95,292      4.32  %   8,838,943       96,989      4.38  %   8,856,439       98,369      4.43  % earning assets Noninterest earning       647,281                               681,587                               289,991      assets Total average       $ 9,447,551                           $ 9,520,530                           $ 9,146,430  assets LIABILITIES and EQUITY: Deposits: Interest bearing       $ 717,169       63           0.04  %   $ 684,906       73           0.04  %   $ 514,312       107          0.08  % transaction Savings and   2,291,062       812          0.14  %   2,284,749       884          0.15  %   2,064,607       1,692        0.33  % MMDA Time          1,897,528      6,818       1.43  %   2,168,056      8,024       1.47  %   2,685,746      11,190      1.65  % deposits Total interest      4,905,759       7,693        0.62  %   5,137,711       8,981        0.70  %   5,264,665       12,989       0.98  % bearing deposits Borrowings    1,412,411      10,454      2.94  %   1,358,348      11,702      3.43  %   1,706,022      12,531      2.91  % Total interest      6,318,170       18,147       1.14  %   6,496,059       20,683       1.27  %   6,970,687       25,520       1.45  % bearing liabilities Noninterest bearing       1,742,565      0           0.00  %   1,656,318      0           0.00  %   1,192,639      0           0.00  % transaction Total funding       8,060,735       18,147      0.90  %   8,152,377       20,683      1.01  %   8,163,326       25,520      1.24  % liabilities Other noninterest   134,594                               130,948                               121,918      bearing liabilities Total average       8,195,329                              8,283,325                              8,285,244 liabilities Total average       1,252,222                             1,237,205                             861,186      equity Total average       $ 9,447,551                           $ 9,520,530                           $ 9,146,430  liabilities and equity Net interest income and                    $ 77,145    3.18  %                   $ 76,306    3.11  %                   $ 72,849    2.98  % spread (tax equivalent) Net interest                                   3.49  %                                3.43  %                                3.26  % margin (tax equivalent)                                                                                                                           Deposits: Total interest      $ 4,905,759     $ 7,693      0.62  %   $ 5,137,711     $ 8,981      0.70  %   $ 5,264,665     $ 12,989     0.98  % bearing deposits Noninterest bearing       1,742,565      0           0.00  %   1,656,318      0           0.00  %   1,192,639      0           0.00  % transaction Total         $ 6,648,324    $ 7,693     0.46  %   $ 6,794,029    $ 8,981     0.53  %   $ 6,457,304    $ 12,989    0.80  % deposits    Sterling Financial Corporation  AVERAGE BALANCE AND RATE  (in thousands,   Twelve Months Ended unaudited)               Dec 31, 2012                           Dec 31, 2011               Average         Interest      Yields/   Average         Interest      Yields/               Balance        Income/      Rates     Balance        Income/      Rates                               Expense                                 Expense ASSETS: Loans: Mortgage      $ 3,834,111     $ 188,563     4.92  %   $ 3,484,108     $ 177,992     5.11  % Commercial and           2,572,469      143,392      5.57  %   2,481,470      144,892      5.84  % consumer Total loans   6,406,580       331,955       5.18  %   5,965,578       322,884       5.41  % MBS           1,890,314       47,442        2.51  %   2,375,515       71,216        3.00  % Investments   520,590         13,971        2.68  %   676,677         14,659        2.17  % and cash FHLB stock    98,893         0            0.00  %   99,531         0            0.00  % Total interest      8,916,377       393,368      4.41  %   9,117,301       408,759      4.48  % earning assets Noninterest earning       494,185                                186,238      assets Total average       $ 9,410,562                            $ 9,303,539  assets LIABILITIES and EQUITY: Deposits: Interest bearing       $ 657,231       334           0.05  %   $ 503,091       504           0.10  % transaction Savings and   2,261,858       3,912         0.17  %   1,994,335       7,004         0.35  % MMDA Time          2,250,999      33,451       1.49  %   3,063,679      52,126       1.70  % deposits Total interest      5,170,088       37,697        0.73  %   5,561,105       59,634        1.07  % bearing deposits Borrowings    1,470,244      46,825       3.18  %   1,703,782      49,463       2.90  % Total interest      6,640,332       84,522        1.27  %   7,264,887       109,097       1.50  % bearing liabilities Noninterest bearing       1,559,828      0            0.00  %   1,093,252      0            0.00  % transaction Total funding       8,200,160       84,522       1.03  %   8,358,139       109,097      1.31  % liabilities Other noninterest   131,860                                126,435      bearing liabilities Total average       8,332,020                               8,484,574 liabilities Total average       1,078,542                              818,965      equity Total average       $ 9,410,562                            $ 9,303,539  liabilities and equity Net interest income and                    $ 308,846    3.14  %                   $ 299,662    2.98  % spread (tax equivalent) Net interest                                    3.46  %                                 3.29  % margin (tax equivalent)                                                                                      Deposits: Total interest      $ 5,170,088     $ 37,697      0.73  %   $ 5,561,105     $ 59,634      1.07  % bearing deposits Noninterest bearing       1,559,828      0            0.00  %   1,093,252      0            0.00  % transaction Total         $ 6,729,916    $ 37,697     0.56  %   $ 6,654,357    $ 59,634     0.90  % 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, in California, as Sonoma Bank. Sterling offers banking products and services, mortgage lending, and trust and investment products to individuals, small businesses, corporations and other commercial organizations. As of December31, 2012, Sterling had assets of $9.24 billion and operated depository branches in Washington, Oregon, Idaho 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; 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: Cara Coon, 509-626-5348 cara.coon@bankwithsterling.com or Investors: Patrick Rusnak, 509-227-0961 pat.rusnak@bankwithsterling.com  
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