EX-99.1 2 q12012earningsresults.htm RESULTS OF OPERATIONS Q1 2012 Earnings Results

Exhibit 99.1
Sterling Financial Corporation of Spokane, Wash., Reports First Quarter 2012 Earnings and Operating Results

SPOKANE, Wash.--(BUSINESS WIRE)--April 25, 2012--Sterling Financial Corporation (NASDAQ:STSA) ("Sterling"), today announced its operating results for the quarter ended March 31, 2012. For the quarter, Sterling recorded net income of $13.3 million, or $0.21 per diluted common share, compared to $14.8 million, or $0.24 per diluted common share, for the linked quarter, and $5.4 million, or $0.09 per diluted common share, for the first quarter of 2011. Net income for the first quarter of 2012 included acquisition-related expenses of $6.1 million, severance charges of $2.6 million, and charges related to branch consolidations of $1.3 million.
 
Following are selected financial highlights for the quarter ended March 31, 2012:
•
Completed the acquisition of certain assets of First Independent Bank ("First Independent"), adding $350.1 million of loans and $695.9 million of deposits, and 14 branches in the Vancouver/Portland metro area.
•
Net interest margin (tax equivalent) expanded by 12 basis points compared to the linked quarter.
•
Deposit costs were reduced by 13 basis points compared to the linked quarter.
•
Portfolio loan originations of $347.5 million, a 31 percent increase over the same period in 2011.
•
Tier 1 leverage ratio was 11.1 percent at March 31, 2012, compared to 10.6 percent a year ago.

Greg Seibly, Sterling's president and chief executive officer, said, "Sterling made significant progress with continued execution on our key operating objectives during the first quarter of 2012. We had another quarter of reduced deposit costs (partly attributable to the First Independent transaction), robust portfolio loan originations, and continued improvement of our asset quality metrics. We also took meaningful steps to better position the company from an efficiency perspective, which we expect will contribute to improved earnings going forward."

Balance Sheet Management
Total loan balances were $6.01 billion at March 31, 2012, compared to $5.52 billion at the end of the prior quarter, and $5.56 billion at the same time a year ago. The growth from the end of the prior quarter is attributable to the $350.1 million in loans acquired in the First Independent transaction, $107.2 million of organic loan growth, and $37.2 million of purchased loans.

During the first quarter of 2012, Sterling originated $347.5 million of new portfolio loans (which exclude residential loans held for sale), compared to $346.3 million for the linked quarter and $265.3 million for the first quarter of 2011. The growth in originations over the same period last year was primarily driven by multifamily loans, which expanded by $52.9 million, or 44 percent, consumer loans, which expanded by $28.1 million, or 99 percent, and commercial and industrial loans, which expanded by $28.3 million, or 110 percent.



1

Seibly commented, "We had another quarter of solid performance with loan originations, particularly in categories that we consider important for portfolio balance and diversification. We are actively seeking quality lending opportunities and we are actively managing our balance sheet with a focus on generating improved earnings and higher shareholder returns."

At March 31, 2012, total deposits were $6.95 billion, compared to $6.49 billion at the end of the linked quarter. The increase over the linked quarter was primarily a result of the First Independent transaction, which contributed $695.9 million of new deposits. Excluding deposits acquired from First Independent, total deposits declined during the linked quarter by $231.9 million, or 4 percent, due primarily to a decline in public deposits and retail time deposits, partially offset by organic growth in transaction balances.

The deposit composition is highlighted in the following table:

 
 
 
 
 
 
 
 Annual % Change
 
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

 
 
(in thousands)
 
 
Deposits:
 
 
 
 
 
 
 
Retail:
 
 
 
 
 
 
 
Transaction
$
2,174,007

 
$
1,732,665

 
$
1,507,489

 
44
 %
Savings and MMDA
2,219,160

 
1,902,209

 
1,694,139

 
31
 %
Time deposits
1,889,654

 
1,993,260

 
2,499,546

 
(24
)%
Total retail
6,282,821

 
5,628,134

 
5,701,174

 
10
 %
Public
302,058

 
428,691

 
691,527

 
(56
)%
Brokered
364,989

 
428,993

 
331,726

 
10
 %
Total deposits
$
6,949,868

 
$
6,485,818

 
$
6,724,427

 
3
 %
Gross loans to deposits
87
%
 
85
%
 
79
%
 
 
 
 
 
 
 
 
 
Annual Basis Point Change
Funding costs:
 
 
 
 
 
 
 
Cost of deposits
0.67
%
 
0.80
%
 
1.01
%
 
(0.34
)
Total funding liabilities
1.15
%
 
1.24
%
 
1.39
%
 
(0.24
)

Seibly said, "Reducing our reliance on higher costing deposits by growing core deposits is one of our key operating objectives. The results of this strategy are reflected in the lower overall cost of deposits, which was down by 13 basis points from the linked quarter, and down by 34 basis points from the same period a year ago. The results for the first quarter of 2012 include only one month of activity from the First Independent accounts, so we anticipate further reductions next quarter."

During the first quarter of 2012, Sterling reduced its holding of cash and investments by $210.3 million, using the majority of the proceeds to pay down maturing FHLB borrowings, which were reduced by $200.1 million.




2

Operating Results
Net Interest Income
Sterling reported net interest income of $74.4 million for the quarter ended March 31, 2012, compared to $71.8 million for the linked quarter and $73.7 million for the quarter ended March 31, 2011. The increase of $2.5 million on a linked quarter basis is primarily a result of reduced deposit costs. Net interest margin (tax equivalent) for the first quarter of 2012 was 3.38 percent, an improvement of 12 basis points over the linked quarter, and up 16 basis points over the same period a year ago.

 
Three Months Ended
 
Mar 31, 2012
 
Dec 31, 2011
 
Mar 31, 2011
 
(in thousands)
Net interest income
$
74,353

 
$
71,809

 
$
73,743

Net interest margin (tax equivalent)
3.38
%
 
3.26
%
 
3.22
%
Loan yield
5.27
%
 
5.34
%
 
5.45
%

Total interest income was $98.0 million for the first quarter of 2012, compared to $97.3 million for the linked quarter, and $103.2 million for the same period a year ago. The increase on a linked quarter basis is attributable to earning assets acquired in the First Independent transaction and lower MBS premium amortization, partially offset by lower average loan balances and yields when excluding the impact of First Independent. The decrease from the comparable quarter a year ago is attributable to Sterling repositioning the securities portfolio during the first half of 2011 to manage interest rate risk.

Interest income reversals on nonperforming loans were $4.2 million in the first quarter of 2012, compared to $5.9 million in the linked quarter and $12.3 million in the first quarter of 2011. These reversals reduced net interest margin by 19 basis points, 27 basis points and 53 basis points, respectively, for these periods.

Total interest expense was $23.6 million for the first quarter of 2012, compared to $25.5 million for the linked quarter and $29.5 million for the first quarter of 2011. Deposit interest expense was $11.1 million for the first quarter of 2012, a reduction of $1.9 million, or 15 percent, from the linked quarter, and down $6.2 million, or 36 percent, from the same period last year, reflecting the improved deposit mix.

Noninterest Income
Noninterest income includes income from mortgage banking operations, fee and service charges income, and other items such as net gains on sales of securities and loan servicing fees. During the first quarter of 2012, noninterest income was $31.6 million, compared to $32.9 million for the linked quarter and $30.0 million for the first quarter of 2011.

Income from mortgage banking operations for the first quarter of 2012 was $16.2 million, compared to $14.9 million for the linked quarter and $10.3 million for the first quarter of 2011. The increase from the linked quarter is attributable to a higher volume of interest rate locks during the quarter and favorable market adjustments on those interest rate locks and the loans held for sale. The increase from the first quarter of 2011 reflects higher levels of residential mortgage loan sales. The margin on residential loan


3

sales decreased to 2.34 percent for the first quarter of 2012, down from 2.48 percent for the same period a year ago, representing a reduction of 14 basis points.

 
Three Months Ended
 
Mar 31, 2012
 
Dec 31, 2011
 
Mar 31, 2011
 
(in thousands)
Loan originations - residential real estate for sale
$
576,876

 
$
658,410

 
$
363,118

Loan sales - residential
567,100

 
646,000

 
498,310

Margin - residential loan sales
2.34
%
 
2.43
%
 
2.48
%

For the quarter ended March 31, 2012, fees and service charges income contributed $12.7 million to noninterest income compared to $12.2 million for the linked quarter and $12.6 million for the first quarter of 2011. The increase in fees and service charges income compared to the linked quarter was primarily attributable to the First Independent transaction.

Loan servicing fees for the first quarter of 2012 were $2.4 million and included a $2.2 million valuation allowance reversal for mortgage servicing rights ("MSR"). For the linked quarter, an MSR valuation allowance of $1.4 million was recorded, and for the first quarter of 2011, a $328,000 valuation reversal was recorded.

For the first quarter of 2012, gain on the sales securities was $142,000, compared to $1.9 million for the linked quarter and $6.0 million for the first quarter of 2011. The recognized gain in the year-ago period was associated with the aforementioned sale of securities during the first half of 2011.

During the first quarter of 2012, Sterling recognized $600,000 of gains on the sale of other loans. Included in this total was a gain of $567,000 recognized in connection with the sale of approximately $25 million of recently originated multifamily loans. During the linked quarter, the $2.7 million of reported gains on other loans included $1.3 million recognized in connection with the sale of approximately $49 million of multifamily loans.

Other noninterest income included $1.3 million of charges associated with planned branch consolidations. There were no similar charges in the comparable periods.

Noninterest Expense
Noninterest expenses were $88.6 million for the first quarter of 2012, compared to $85.9 million for the linked quarter and $88.3 million for the first quarter of 2011. The increase over the linked quarter is primarily a result of acquisition-related expenses of $6.1 million and severance costs of $2.6 million. Included in noninterest expense for the linked quarter was a $3.5 million charge to establish a reserve for the tentative settlement of a legal claim.

OREO operating expenses were $2.0 million in the first quarter of 2012, down from $4.9 million for the


4

linked quarter and $11.4 million for the same period last year.

FDIC insurance expense was $1.9 million in the first quarter of 2012, down from $3.4 million for the linked quarter, and $4.0 million for the same period last year. The reduction reflects the improved financial condition and risk profile of Sterling's bank subsidiary.

Income Taxes
For the first quarter of 2012, Sterling did not recognize any federal or state tax expense, as the income tax expense for the quarter was offset by a reduction in the deferred tax valuation allowance.

Sterling uses an estimate of future earnings and an evaluation of its loss carryback ability and tax planning strategies to determine whether it is more likely than not that it will realize the benefit of its deferred tax asset. Sterling determined that it did not meet the required threshold as of March 31, 2012, and accordingly, a full valuation reserve was recorded against the net deferred tax asset. As of March 31, 2012, the reserved net deferred tax asset was approximately $321.5 million, including approximately $290.0 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 investors acquiring more than 4.95 percent of Sterling's total outstanding common stock.

Credit Quality
During the first quarter of 2012, nonperforming assets were reduced by $19.0 million, or 5 percent, compared to the linked quarter and total nonperforming assets were reduced by $278.8 million, or 44 percent, compared to March 31, 2011.

OREO decreased to $70.4 million at March 31, 2012, compared to $81.9 million at December 31, 2011, and $151.8 million at March 31, 2011. This represents decreases of 14 percent and 54 percent, respectively.

During the first quarter of 2012, Sterling recognized net charge-offs of $20.2 million, compared to $10.7 million for the linked quarter and $24.1 million for the same period a year ago. For the first quarter of 2012, Sterling recorded a $4.0 million provision for credit losses, compared to $4.0 million for the linked quarter and $10.0 million for the first quarter of 2011. The allowance for loan losses at March 31, 2012 was $161.3 million, or 2.68 percent of total loans, compared to $177.5 million, or 3.22 percent of total loans, at December 31, 2011, and $232.9 million, or 4.19 percent of total loans, at March 31, 2011. There is no allowance for loan losses on the loans acquired from First Independent, as Sterling recorded a $28.9 million, or 7.6 percent, fair value discount on the loans at acquisition date.


5


First Quarter 2012 Earnings Conference Call
Sterling plans to host a conference call April 26, 2012 at 8:00 a.m. PDT to discuss the company's financial results. An audio webcast of the conference call can be accessed at Sterling's website. To access this audio presentation call, click on the audio webcast icon. Additionally, the conference call may be accessed by telephone. To participate in the conference call, domestic callers should dial 1-517-308-9324 approximately five minutes before the scheduled start time. You will be asked by the operator to identify yourself and provide the password “STERLING” to enter the call. A webcast replay of the conference call will be available on Sterling's website approximately one hour following the completion of the call. The webcast replay will be offered through May 26, 2012.



6
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS


(in thousands, except per share amounts, unaudited)
Mar 31, 2012
 
Dec 31, 2011
 
Mar 31, 2011
ASSETS:
 
 
 
 
 
Cash and due from banks
$
368,948

 
$
491,228

 
$
436,377

Investments and mortgage-backed securities ("MBS") available for sale
2,459,880

 
2,547,876

 
2,808,030

Investments held to maturity
1,736

 
1,747

 
12,742

Loans held for sale (at fair value: $234,933, $223,638 and $136,447)
234,933

 
273,957

 
136,447

Loans receivable, net
5,853,558

 
5,341,179

 
5,320,884

Other real estate owned, net ("OREO")
70,383

 
81,910

 
151,774

Office properties and equipment, net
86,362

 
84,015

 
85,542

Bank owned life insurance ("BOLI")
176,345

 
174,512

 
171,093

Goodwill and other intangible assets, net
46,177

 
12,078

 
15,704

Other assets
203,959

 
184,735

 
213,876

Total assets
$
9,502,281

 
$
9,193,237

 
$
9,352,469

LIABILITIES:
 
 
 
 
 
Deposits
$
6,949,868

 
$
6,485,818

 
$
6,724,427

Advances from Federal Home Loan Bank
205,540

 
405,609

 
407,142

Repurchase agreements and fed funds
1,065,795

 
1,055,763

 
1,051,995

Other borrowings
245,291

 
245,290

 
245,286

Accrued expenses and other liabilities
138,174

 
122,200

 
149,159

Total liabilities
8,604,668

 
8,314,680

 
8,578,009

SHAREHOLDERS' EQUITY:
 
 
 
 
 
Preferred stock
0

 
0

 
0

Common stock
1,965,542

 
1,964,234

 
1,961,763

Accumulated other comprehensive income
65,571

 
61,115

 
(6,795
)
Accumulated deficit
(1,133,500
)
 
(1,146,792
)
 
(1,180,508
)
Total shareholders' equity
897,613

 
878,557

 
774,460

Total liabilities and shareholders' equity
$
9,502,281

 
$
9,193,237

 
$
9,352,469

Book value per common share
$
14.46

 
$
14.16

 
$
12.50

Tangible book value per common share
13.71

 
13.96

 
12.25

Shareholders' equity to total assets
9.4
%
 
9.6
%
 
8.3
%
Tangible common equity to tangible assets (1)
9.0
%
 
9.4
%
 
8.1
%
Common shares outstanding at end of period
62,094,447

 
62,057,645

 
61,937,273

Common stock warrants outstanding
2,722,541

 
2,722,541

 
2,722,541


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


7
Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except per share amounts, unaudited)
Three Months Ended
 
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

INTEREST INCOME:
 
 
 
 
 
Loans
$
79,841

 
$
80,303

 
$
80,387

Mortgage-backed securities
15,335

 
14,535

 
20,034

Investments and cash
2,789

 
2,491

 
2,816

Total interest income
97,965

 
97,329

 
103,237

INTEREST EXPENSE:
 
 
 
 
 
Deposits
11,102

 
12,989

 
17,294

Borrowings
12,510

 
12,531

 
12,200

Total interest expense
23,612

 
25,520

 
29,494

Net interest income
74,353

 
71,809

 
73,743

Provision for credit losses
4,000

 
4,000

 
10,000

Net interest income after provision
70,353

 
67,809

 
63,743

NONINTEREST INCOME:
 
 
 
 
 
Fees and service charges
12,740

 
12,234

 
12,561

Mortgage banking operations
16,164

 
14,895

 
10,327

Loan servicing fees
2,380

 
(329
)
 
1,101

BOLI
1,746

 
1,526

 
1,732

Gain on sales of securities
142

 
1,938

 
6,001

Gains (losses) on other loan sales
600

 
2,650

 
(1,350
)
Other
(2,185
)
 
(15
)
 
(390
)
Total noninterest income
31,587

 
32,899

 
29,982

NONINTEREST EXPENSE:
 
 
 
 
 
Employee compensation and benefits
47,381

 
42,129

 
43,850

OREO
1,992

 
4,909

 
11,400

Occupancy and equipment
10,287

 
10,320

 
9,822

Depreciation
2,913

 
3,158

 
3,012

Amortization of other intangible assets
1,405

 
1,212

 
1,225

Other
24,671

 
24,147

 
18,999

Total noninterest expense
88,649

 
85,875

 
88,308

Income before income taxes
13,291

 
14,833

 
5,417

Income tax benefit
0

 
0

 
0

Net income
$
13,291

 
$
14,833

 
$
5,417

Earnings per common share - basic
$
0.21

 
$
0.24

 
$
0.09

Earnings per common share - diluted
$
0.21

 
$
0.24

 
$
0.09

Average common shares outstanding - basic
62,078,404

 
61,989,094

 
61,930,783

Average common shares outstanding - diluted
62,682,987

 
62,194,011

 
62,335,212





8
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)
Three Months Ended
 
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

LOAN ORIGINATIONS AND PURCHASES:
 
 
 
 
 
Loan originations:
 
 
 
 
 
Residential real estate:
 
 
 
 
 
For sale
$
576,876

 
$
644,135

 
$
363,118

Permanent
28,728

 
23,406

 
24,363

Total residential real estate
605,604

 
667,541

 
387,481

Commercial real estate ("CRE"):
 
 
 
 
 
Investor CRE
6,456

 
875

 
34,130

Multifamily
172,710

 
179,601

 
119,846

Construction
823

 
6,452

 
4,196

Total commercial real estate
179,989

 
186,928

 
158,172

Commercial:
 
 
 
 
 
Owner occupied CRE
28,355

 
41,640

 
28,661

Commercial & Industrial ("C&I")
53,986

 
54,001

 
25,729

Total commercial
82,341

 
95,641

 
54,390

Consumer
56,455

 
40,315

 
28,357

Total loan originations
924,389

 
990,425

 
628,400

Total portfolio loan originations (excludes residential real estate for sale)
347,513

 
346,290

 
265,282

Loan purchases:
 
 
 
 
 
Residential real estate
37,028

 
3,166

 
7,550

Commercial real estate:
 
 
 
 
 
Investor CRE
0

 
0

 
48,584

Multifamily
140

 
147

 
2,440

Total commercial real estate
140

 
147

 
51,024

Commercial:
 
 
 
 
 
Owner occupied CRE
0

 
0

 
52,221

C&I
0

 
0

 
0

Total commercial
0

 
0

 
52,221

Total loan purchases
37,168

 
3,313

 
110,795

Total loan originations and purchases
$
961,557

 
$
993,738

 
$
739,195

PERFORMANCE RATIOS:
 
 
 
 
 
Return on assets
0.58
%
 
0.64
%
 
0.23
%
Return on common equity
5.98
%
 
6.83
%
 
2.85
%
Operating efficiency
80
%
 
77
%
 
77
%
Noninterest expense to assets
3.84
%
 
3.72
%
 
3.77
%
Average assets
$
9,282,531

 
$
9,146,430

 
$
9,500,882

Average common equity
$
894,329

 
$
861,186

 
$
769,544

REGULATORY CAPITAL RATIOS:
 
 
 
 
 
Sterling Financial Corporation
 
 
 
 
 
Tier 1 leverage ratio
11.1
%
 
11.4
%
 
10.6
%
Tier 1 risk-based capital ratio
16.1
%
 
17.8
%
 
16.5
%
Total risk-based capital ratio
17.4
%
 
19.1
%
 
17.8
%
Sterling Bank:
 
 
 
 
 
Tier 1 leverage ratio
10.8
%
 
11.1
%
 
10.3
%
Tier 1 risk-based capital ratio
15.7
%
 
17.4
%
 
16.0
%
Total risk-based capital ratio
17.0
%
 
18.7
%
 
17.3
%
OTHER:
 
 
 
 
 
FTE employees at end of period (whole numbers)
2,493

 
2,496

 
2,493


(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.


9
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

INVESTMENT PORTFOLIO DETAIL:
 
 
 
 
 
Available for sale:
 
 
 
 
 
MBS
$
2,233,175

 
$
2,320,934

 
$
2,584,302

Municipal bonds
206,743

 
207,456

 
200,859

Other
19,962

 
19,486

 
22,869

Total
$
2,459,880

 
$
2,547,876

 
$
2,808,030

 
 
 
 
 
 
Held to maturity:
 
 
 
 
 
Tax credits
$
1,736

 
$
1,747

 
$
12,742

Total
$
1,736

 
$
1,747

 
$
12,742

LOAN PORTFOLIO DETAIL:
 
 
 
 
 
Residential real estate
$
738,739

 
$
688,020

 
$
719,458

Commercial real estate:
 
 
 
 
 
Investor CRE
1,421,085

 
1,275,667

 
1,348,646

Multifamily
1,149,498

 
1,001,479

 
638,250

Construction
166,607

 
174,608

 
396,300

Total commercial real estate
2,737,190

 
2,451,754

 
2,383,196

Commercial:
 
 
 
 
 
Owner occupied CRE
1,326,218

 
1,272,461

 
1,254,129

C&I
495,225

 
431,693

 
484,665

Total commercial
1,821,443

 
1,704,154

 
1,738,794

Consumer
715,971

 
674,961

 
715,206

Gross loans receivable
6,013,343

 
5,518,889

 
5,556,654

Deferred loan fees, net
1,488

 
(252
)
 
(2,826
)
Allowance for loan losses
(161,273
)
 
(177,458
)
 
(232,944
)
Net loans receivable
$
5,853,558

 
$
5,341,179

 
$
5,320,884

DEPOSITS DETAIL:
 
 
 
 
 
Noninterest bearing transaction
1,513,616

 
1,211,628

 
1,007,684

Interest bearing transaction
660,391

 
521,037

 
499,805

Savings and MMDA
2,312,494

 
2,092,283

 
1,972,781

Time deposits
2,463,367

 
2,660,870

 
3,244,157

Total deposits
$
6,949,868

 
$
6,485,818

 
$
6,724,427

Number of transaction accounts (whole numbers):
 
 
 
 
Interest bearing transaction accounts
55,298

 
44,309

 
44,648

Noninterest bearing transaction accounts
185,362

 
172,707

 
169,304

Total transaction accounts
240,660

 
217,016

 
213,952





10
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

ALLOWANCE FOR CREDIT LOSSES:
 
 
 
 
 
Allowance - loans, beginning of quarter
$
177,458

 
$
186,195

 
$
247,056

Provision
4,000

 
2,000

 
10,000

Charge-offs:
 
 
 
 
 
Residential real estate
(2,187
)
 
(3,323
)
 
(6,816
)
Commercial real estate:
 
 
 
 
 
Investor CRE
(4,992
)
 
(3,673
)
 
(1,648
)
Multifamily
(318
)
 
0

 
(211
)
Construction
(6,208
)
 
(3,112
)
 
(9,339
)
Total commercial real estate
(11,518
)
 
(6,785
)
 
(11,198
)
Commercial:
 
 
 
 
 
Owner occupied CRE
(7,692
)
 
(5,667
)
 
(6,134
)
C&I
(1,841
)
 
(1,441
)
 
(3,450
)
Total commercial
(9,533
)
 
(7,108
)
 
(9,584
)
Consumer
(2,452
)
 
(2,052
)
 
(2,146
)
Total charge-offs
(25,690
)
 
(19,268
)
 
(29,744
)
Recoveries:
 
 
 
 
 
Residential real estate
212

 
388

 
250

Commercial real estate:
 
 
 
 
 
Investor CRE
81

 
1,145

 
578

Multifamily
1

 
1

 
1

Construction
3,152

 
4,951

 
3,687

Total commercial real estate
3,234

 
6,097

 
4,266

Commercial:
 
 
 
 
 
Owner occupied CRE
1,193

 
1,229

 
43

C&I
319

 
407

 
452

Total commercial
1,512

 
1,636

 
495

Consumer
547

 
410

 
621

Total recoveries
5,505

 
8,531

 
5,632

Net charge-offs
(20,185
)
 
(10,737
)
 
(24,112
)
Allowance - loans, end of quarter
161,273

 
177,458

 
232,944

Reserve for unfunded commitments, beginning of quarter
10,029

 
9,376

 
10,707

Provision
0

 
2,000

 
0

Charge-offs
(1
)
 
(1,347
)
 
(66
)
Reserve for unfunded commitments, end of quarter
10,028

 
10,029

 
10,641

Total credit allowance
$
171,301

 
$
187,487

 
$
243,585

Net charge-offs to average net loans (annualized)
1.33
%
 
0.71
%
 
1.64
%
Net charge-offs to average net loans (ytd)
0.33
%
 
1.64
%
 
0.41
%
Loan loss allowance to total loans
2.68
%
 
3.22
%
 
4.19
%
Total credit allowance to total loans
2.85
%
 
3.40
%
 
4.39
%
Loan loss allowance to nonperforming loans
58
%
 
62
%
 
49
%
Total credit allowance to nonperforming loans
61
%
 
65
%
 
51
%




11
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

(in thousands, unaudited)
Mar 31, 2012

 
Dec 31, 2011

 
Mar 31, 2011

NONPERFORMING ASSETS:
 
 
 
 
 
Past 90 days due and accruing
$
0

 
$
0

 
$
0

Nonaccrual loans
187,202

 
210,221

 
380,388

Restructured loans
92,500

 
76,939

 
96,679

Total nonperforming loans
279,702

 
287,160

 
477,067

OREO
70,383

 
81,910

 
151,774

Total nonperforming assets
350,085

 
369,070

 
628,841

Specific reserve on nonperforming loans
(13,354
)
 
(16,305
)
 
(21,483
)
Net nonperforming assets
$
336,731

 
$
352,765

 
$
607,358

Nonperforming loans to total loans
4.65
%
 
5.20
%
 
8.59
%
Nonperforming assets to total assets
3.68
%
 
4.01
%
 
6.72
%
Loan delinquency ratio (60 days and over)
3.25
%
 
3.55
%
 
6.34
%
Classified assets
$
410,568

 
$
425,746

 
$
811,831

Classified assets to total assets
4.32
%
 
4.63
%
 
8.68
%
Classified assets to Sterling Bank Tier 1 capital plus total credit allowance
35
%
 
35
%
 
67
%
Nonperforming assets by collateral type:
 
 
 
 
 
Residential real estate
$
54,041

 
$
48,184

 
$
83,173

Commercial real estate:
 
 
 
 
 
Investor CRE
55,238

 
61,901

 
80,626

Multifamily
7,216

 
5,867

 
21,089

Construction
130,564

 
153,819

 
324,590

Total commercial real estate
193,018

 
221,587

 
426,305

Commercial:
 
 
 
 
 
Owner occupied CRE
81,746

 
77,920

 
89,102

C&I
14,937

 
14,899

 
19,901

Total commercial
96,683

 
92,819

 
109,003

Consumer
6,343

 
6,480

 
10,360

Total nonperforming assets
$
350,085

 
$
369,070

 
$
628,841





12
Sterling Financial Corporation
AVERAGE BALANCE AND RATE            

(in thousands, unaudited)
Three Months Ended
 
Mar 31, 2012
 
Dec 31, 2011
 
Mar 31, 2011
 
Average Balance
 
Interest Income/ Expense
 
Yields/Rates
 
Average Balance
 
Interest Income/ Expense
 
Yields/Rates
 
Average Balance
 
Interest Income/ Expense
 
Yields/Rates
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
$
3,544,106

 
$
44,083

 
4.98
%
 
$
3,557,298

 
$
45,255

 
5.09
%
 
$
3,428,296

 
$
43,111

 
5.04
%
Commercial and consumer
2,540,330

 
35,857

 
5.68
%
 
2,446,293

 
35,148

 
5.70
%
 
2,520,610

 
37,393

 
6.02
%
Total loans
6,084,436

 
79,940

 
5.27
%
 
6,003,591

 
80,403

 
5.34
%
 
5,948,906

 
80,504

 
5.45
%
MBS
2,225,040

 
15,335

 
2.76
%
 
2,273,767

 
14,535

 
2.56
%
 
2,590,546

 
20,034

 
3.09
%
Investments and cash
582,753

 
3,819

 
2.64
%
 
479,922

 
3,431

 
2.84
%
 
792,959

 
3,900

 
1.99
%
FHLB stock
99,057

 
0

 
0.00
%
 
99,159

 
0

 
0.00
%
 
99,953

 
0

 
0.00
%
Total interest earning assets
8,991,286

 
99,094

 
4.42
%
 
8,856,439

 
98,369

 
4.43
%
 
9,432,364

 
104,438

 
4.46
%
Noninterest earning assets
291,245

 
 
 
 
 
289,991

 
 
 
 
 
68,518

 
 
 
 
Total average assets
$
9,282,531

 
 
 
 
 
$
9,146,430

 
 
 
 
 
$
9,500,882

 

 
 
LIABILITIES and EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest bearing transaction
$
559,643

 
104

 
0.07
%
 
$
514,312

 
107

 
0.08
%
 
$
493,651

 
146

 
0.12
%
Savings and MMDA
2,185,621

 
1,191

 
0.22
%
 
2,064,607

 
1,692

 
0.33
%
 
1,959,561

 
1,970

 
0.41
%
Time deposits
2,562,754

 
9,807

 
1.54
%
 
2,685,746

 
11,190

 
1.65
%
 
3,453,419

 
15,178

 
1.78
%
Total interest bearing deposits
5,308,018

 
11,102

 
0.84
%
 
5,264,665

 
12,989

 
0.98
%
 
5,906,631

 
17,294

 
1.19
%
Borrowings
1,625,916

 
12,510

 
3.09
%
 
1,706,022

 
12,531

 
2.91
%
 
1,694,391

 
12,200

 
2.92
%
Total interest bearing liabilities
6,933,934

 
23,612

 
1.37
%
 
6,970,687

 
25,520

 
1.45
%
 
7,601,022

 
29,494

 
1.57
%
Noninterest bearing transaction
1,326,770

 
0

 
0.00
%
 
1,192,639

 
0

 
0.00
%
 
1,005,290

 
0

 
0.00
%
Total funding liabilities
8,260,704

 
23,612

 
1.15
%
 
8,163,326

 
25,520

 
1.24
%
 
8,606,312

 
29,494

 
1.39
%
Other noninterest bearing liabilities
127,498

 
 
 
 
 
121,918

 
 
 
 
 
125,026

 
 
 
 
Total average liabilities
8,388,202

 
 
 
 
 
8,285,244

 
 
 
 
 
8,731,338

 
 
 
 
Total average equity
894,329

 
 
 
 
 
861,186

 
 
 
 
 
769,544

 
 
 
 
Total average liabilities and equity
$
9,282,531

 
 
 
 
 
$
9,146,430

 
 
 
 
 
$
9,500,882

 
 
 
 
Net interest income and spread (tax equivalent)
 
 
$
75,482

 
3.05
%
 
 
 
$
72,849

 
2.98
%
 
 
 
$
74,944

 
2.89
%
Net interest margin (tax equivalent)
 
 
 
 
3.38
%
 
 
 
 
 
3.26
%
 
 
 
 
 
3.22
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest bearing deposits
$
5,308,018

 
$
11,102

 
0.84
%
 
$
5,264,665

 
$
12,989

 
0.98
%
 
$
5,906,631

 
$
17,294

 
1.19
%
Noninterest bearing transaction
1,326,770

 
0

 
0.00
%
 
1,192,639

 
0

 
0.00
%
 
1,005,290

 
0

 
0.00
%
Total deposits
$
6,634,788

 
$
11,102

 
0.67
%
 
$
6,457,304

 
$
12,989

 
0.80
%
 
$
6,911,921

 
$
17,294

 
1.01
%





13


About Sterling Financial Corporation

Sterling Financial Corporation of Spokane, Wash., is the bank holding company for Sterling Savings Bank, a Washington state chartered and federally insured commercial bank that operates under the following registered trade names: Sterling Bank, First Independent Bank and Sonoma Bank. Sterling Savings Bank operates as Sonoma Bank only in the State of California. Sterling offers banking products and services, mortgage lending, and investment products to individuals, small businesses, commercial organizations and corporations. As of March 31, 2012, Sterling Financial Corporation had assets of $9.50 billion and operated 189 depository branches throughout Washington, Oregon, Idaho, Montana and California. Visit Sterling’s website at www.sterlingfinancialcorporation-spokane.com.

Forward-Looking Statements

This release contains forward-looking statements that are not historical facts and that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about Sterling's plans, objectives, expectations, 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 complete recovery plans, and Sterling's ability to reduce future loan losses, improve its deposit mix, execute its asset resolution initiatives, execute its lending initiatives, contain costs and potential liabilities, realize operating efficiencies, execute its business strategy, compete in the marketplace and provide increased customer support and service. When used in this release, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond Sterling's control. These include but are not limited to: Sterling's ability to execute on its business plan and maintain adequate liquidity; the possibility of continued adverse economic developments that may, among other things, increase default and delinquency risks in Sterling's loan portfolios; shifts in market interest rates that may result in lower interest rate margins; shifts in the demand for Sterling's loan and other products; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; changes in laws, regulations and the competitive environment; exposure to material litigation; lower-than-expected revenue or cost savings or other issues in connection with mergers and acquisitions; and Sterling's ability to comply with regulatory actions and agreements. Other factors that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements may be found under the headings “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Sterling's Annual Report on Form 10-K, as updated periodically in Sterling's filings with the Securities and Exchange Commission. Unless legally required, Sterling disclaims any obligation to update any forward-looking statements.

CONTACT:
Sterling Financial Corporation

Media contact:
Cara Coon, 509-626-5348
cara.coon@bankwithsterling.com
or
Investor contact:
Patrick Rusnak, 509-227-0961



14