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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