8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 29, 2007

STERLING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Washington	0-20800	91-1572822
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

111 North Wall Street, Spokane, Washington 99201
(Address of principal executive offices) (Zip Code)

(509) 458-3711
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Item 7.01. Regulation FD Disclosure.

     Sterling Financial Corporation (“Sterling”) is hereby furnishing information regarding the amount of sub- prime lending in its loan portfolio. Information to be provided to market analysts regarding Sterling’s portfolio is included as Exhibit 99.1 and incorporated herein by reference. The information in this report (including Exhibit 99.1) shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

     (c) The following exhibit is being furnished herewith:

Exhibit No.	Exhibit Description
99.1	Information regarding Sterling Financial Corporation’s loan portfolio.

S I G N A T U R E

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STERLING FINANCIAL CORPORATION
	(Registrant)
March 29, 2007	By:	/s/ Daniel G. Byrne
Date		Daniel G. Byrne
		Executive Vice President, Assistant Secretary and Principal Financial Officer

2

EX-99.1

Exhibit 99.1

STERLING FINANCIAL CORPORATION OF SPOKANE, WASHINGTON,
ANALYZES ITS LOAN PORTFOLIO TRENDS — HAS
GOOD ASSET QUALITY

Spokane, Washington, March 29, 2007 — Sterling Financial Corporation (NASDAQ:STSA) today announced that it has analyzed its loan and asset quality in light of recent questions generally in the market relating to sub-prime lending by financial institutions. Management believes that this re-examination confirms that Sterling has good asset quality by any financial metric.

Daniel G. Byrne, Sterling’s Chief Financial Officer reported, “At December 31, 2006, Sterling’s total loans receivable were $7.0 billion, as set forth in Sterling’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “10-K”). Exhibits 1 and 2 to this release are derived from the 10-K. Exhibit 2 reflects that 24.1% of Sterling’s portfolio was in permanent mortgages, 32.2% was in construction mortgages and 43.7% was in commercial and consumer loans.”

As set forth in the 10-K, Sterling’s total classified assets decreased to $48.4 million at December 31, 2006 from $59.6 million at December 31, 2005, and as a percentage of total assets, classified assets decreased to 0.49% at December 31, 2006, from 0.79% at December 31, 2005. Nonperforming assets were $11.2 million, $8.4 million and $13.9 million at December 31, 2006, 2005 and 2004, respectively.

Sterling’s net charge-offs were $3.7 million for 2006, $9.1 million for 2005 and $5.1 million for 2004, as set forth in Exhibit 3. This represented 0.06%, 0.20% and 0.13%, respectively, of charge-offs to average loans outstanding during these periods.

With respect to sub-prime lending, the only lending segment that originates sub-prime loans is through Sterling’s wholly owned subsidiary Golf Savings Bank, which originates residential permanent loans that are sold to third-party investors. During 2006, Sterling originated approximately $4.97 billion in loans, with approximately 1.9% being sub-prime. At December 31, 2006, Sterling had $3.6 million of loans classified as sub-prime, representing 0.05% of Sterling’s total loans receivable. The average loans-to-values on these sub-prime loans are approximately 84%. These loans are either sold with no recourse or recourse limited to the first 120 days following origination. During the first two months of 2007, there were $12.3 million in loan originations considered sub-prime. At February 28, 2007, the balance of sub-prime loans in the portfolio was $3.9 million. The average loans-to-values on these loans was 85%.

The average FICO score for Sterling’s Consumer Indirect portfolio is relatively high. A summary of the portfolio at December 31, 2006, segmented by average FICO scores, is presented on Exhibit 4. Over 96% of the loans in the portfolio have an average FICO score greater than 620. Only $6.4 million of the loans in the portfolio have FICO scores less than 620. FICO scores of less than 620 are generally considered to be less than investment grade. Sterling’s net loan charge-offs for Consumer Indirect lending were $513,000 in 2006 and $248,000 in 2005. Mr. Byrne stated, “Sterling’s management does not believe there is any elevated risk in the Consumer Indirect portfolio.”

A summary of Sterling’s residential construction portfolio segmented by type of loan is presented on Exhibit 5. The geographic distribution of this portfolio is shown on Exhibit 6. As indicated on Exhibit 5, Sterling’s speculative construction lending (loans made to builders) has declined

from 2003, when it represented 48% of the construction portfolio, to 32% at the end of February 2007. Acquisition and development lending has declined since its peak of 34% of the construction portfolio at the end of 2005 to 20% at the end of February 2007. Furthermore, the distribution of the construction loan commitments has become more geographically diversified between the Puget Sound area of western Washington — 44%, Portland, Oregon, Metropolitan Area — 24%, Boise, Idaho — 11% and California — 5%. Mr. Byrne noted that, “These markets are generally performing well, despite some slowdown in activity in the past six months.”

Sterling’s commercial real estate portfolio originated through INTERVEST-Mortgage Investment Company had total outstanding commitments as of February 28, 2007 of $1.4 billion, as shown on Exhibit 7. The geographic distribution of these commitments is shown on Exhibit 7. As this information indicates, the portfolio is product and geographically diversified.

Loan charge-offs relating to the residential and commercial real estate construction lending segment had a net recovery of $8,000 in 2006 and a net charge-off of $19,000 in 2005. Mr. Byrne noted that, “Our charge-off experience in construction lending has been good, and we continue to monitor various trends for a reversal, but do not see any at this time.”

Mr. Byrne added that, “Our conclusion after re-examining Sterling’s asset quality is that our asset quality metrics have continued to improve and reflect Sterling’s conservative underwriting over time.”

ABOUT STERLING
Sterling Financial Corporation of Spokane, Washington, is a bank holding company, of which the principal operating subsidiaries are Sterling Savings Bank and Golf Savings Bank. Sterling Savings Bank is a Washington State-chartered, federally insured commercial bank, which opened in April 1983 as a stock savings and loan association. Sterling Savings Bank, based in Spokane, Washington, has financial service centers throughout Washington, Oregon, Idaho, California and Montana. Through Sterling Saving Bank’s wholly owned subsidiaries, Action Mortgage Company and INTERVEST-Mortgage Investment Company, it operates loan production offices in Washington, Oregon, Idaho, Montana, Utah, Arizona and California. Sterling Savings Bank’s subsidiary Harbor Financial Services provides non-bank investments, including mutual funds, variable annuities and tax-deferred annuities and other investment products through regional representatives throughout Sterling Savings Bank’s branch network.

Golf Savings Bank is a Washington State-chartered and FDIC insured savings bank. Golf Savings Bank’s primary focus is the origination of single-family residential mortgage loans.

FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, which are not historical facts and pertain to Sterling’s future operating results. These forward-looking statements are within the meaning of 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 and intentions and other statements contained in this report that are not historical facts. When used in this report, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond Sterling’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the results discussed in these forward-looking statements because of numerous possible risks and uncertainties. These include but are not limited to: the possibility of adverse economic developments that may, among other things, increase default and delinquency risks in Sterling’s loan portfolios; shifts in interest rates that may result in lower interest rate margins; shifts in the demand for Sterling’s loan and other products; lower-than-expected revenue or cost savings in connection with acquisitions; changes in accounting policies; changes in the monetary and fiscal policies of the federal government; and changes in laws, regulations and the competitive environment.

Investor Contacts:	Sterling Financial Corporation
	Daniel G. Byrne
	EVP, Chief Financial Officer
	509-458-3711

Exhibit 1

Loan Portfolio Analysis December 31, 2006 Consumer — indirect 4.1% One- to four-family residential- perm 9.2% Commercial & Multifamily- perm 14.9% One- to four-family residential- construction 20.1% Commercial & Multifamily- construction 12.1% Commercial Banking 29.1% Consumer - direct 10.5% Total Loan Portolio = $7,111 Million Source: 12/31/2006 Sterling Financial

Exhibit 2

Loan Portfolio Analysis

	December 31,
	2002					2003					2004					2005					2006
	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Mortgage — permanent:
One- to four-family residential	$	358,359			14.8	$	407,999			13.8	$	794,632			18.4	$	488,633			9.9	$	654,661			9.2
Multifamily residential		161,547			6.7		167,220			5.7		184,754			4.3		332,211			6.7		263,053			3.7
Commercial real estate		458,712			18.9		463,191			15.7		699,879			16.3		792,219			16.0		795,386			11.2
		978,618			40.4		1,038,410			35.2		1,679,265			39.0		1,613,063			32.6		1,713,100			24.1
Mortgage — construction:
One- to four-family residential		280,514			11.6		271,480			9.2		356,644			8.3		591,362			11.9		1,429,772			20.1
Multifamily residential		96,297			4.0		127,424			4.3		102,166			2.4		140,622			2.8		189,819			2.7
Commercial real estate		104,108			4.3		154,061			5.2		194,085			4.5		289,518			5.9		671,291			9.4
		480,919			19.9		552,965			18.7		652,895			15.2		1,021,502			20.6		2,290,882			32.2
Total mortgage loans		1,459,537			60.3		1,591,375			53.9		2,332,160			54.2		2,634,565			53.2		4,003,982			56.3
Commercial and consumer:
Commercial banking		655,727			27.0		948,304			32.2		1,311,197			30.4		1,531,079			30.9		2,069,086			29.1
Consumer — direct		246,578			10.2		309,931			10.5		543,895			12.6		618,528			12.5		749,626			10.5
Consumer — indirect		62,896			2.5		99,697			3.4		120,894			2.8		166,143			3.4		288,704			4.1
Total commercial and consumer loans		965,201			39.7		1,357,932			46.1		1,975,986			45.8		2,315,750			46.8		3,107,416			43.7
Total loans receivable		2,424,738			100.0		2,949,307			100.0		4,308,146			100.0		4,950,315			100.0		7,111,398			100.0
Deferred fees, net		(6,450	)				(7,276	)				(6,907	)				(8,916	)				(12,308	)
Gross loans receivable		2,418,288					2,942,031					4,301,239					4,941,399					7,099,090
Allowance for loan losses		(27,866	)				(35,605	)				(49,362	)				(55,483	)				(83,689	)
Loans receivable, net	$	2,390,422				$	2,906,426				$	4,251,877				$	4,885,916				$	7,015,401

Source: Sterling Financial Corporation Annual Report on Form 10-K

Exhibit 3

Charge-offs and Recoveries by Loan Type

	Years Ended December 31,
	2002			2003			2004			2005			2006
	(Dollars in thousands)
Balance at beginning of period	$	20,599		$	27,866		$	35,605		$	49,362		$	55,483
Charge-offs:
Mortgage — permanent		(48	)		(165	)		(59	)		(37	)		(32	)
Mortgage — construction		(868	)		(106	)		(645	)		(19	)		(12	)
Consumer — direct		(954	)		(1,146	)		(1,373	)		(1,107	)		(619	)
Consumer — indirect		(407	)		(445	)		(370	)		(449	)		(823	)
Commercial banking		(2,776	)		(2,391	)		(3,036	)		(8,039	)		(2,919	)
Total charge-offs		(5,053	)		(4,253	)		(5,483	)		(9,651	)		(4,405	)
Recoveries:
Mortgage — permanent		19			42			25			6			5
Mortgage — construction		2			3			2			0			20
Consumer — direct		208			160			214			237			193
Consumer — indirect		170			149			111			201			310
Commercial banking		54			268			16			128			225
Total recoveries		453			622			368			572			753
Net charge-offs		(4,600	)		(3,631	)		(5,115	)		(9,079	)		(3,652	)
Provisions for loan losses		11,867			10,500			12,150			15,200			18,703
Allowance for losses on assets acquired		0			870			6,722			0			13,155
Balance at end of period	$	27,866		$	35,605		$	49,362		$	55,483		$	83,689
Allowances allocated to loans classified as loss	$	2,067		$	2,897		$	3,528		$	2,159		$	1,379
Ratio of net charge-offs to average loans outstanding during the period		0.21	%		0.13	%		0.13	%		0.20	%		0.06	%

Source: Sterling Financial Corporation Annual Report on Form 10-K

Exhibit 4

Corporation Annual Report on Form 10-K Consumer Indirect Loans as of 12/31/06 FICO Scores as a percentage of the portfolio $        in Millions Source: Sterling Savings Bank $34.0 17.3% 8.3% $16.3 $6.4 3.3% 18.0% $35.2 $104.1 53.1%

Residential Construction Loan Commitments & Concentrations 2003 - 2007 1997 1998 1999 2000 2001 2002 2003 2004 1st Qtr. 2005 2nd Qtr. 2005 3rd Qtr. 2005 2005 1st Qtr 2006 2nd Qtr 2006 3rd Qtr 2006 2006 2/1/2007 Spec 108284218 109102996 143640052 173373089 178366660 210008615.98 226300339 266940971 313746915 381591388 388216300 360459953.66 490718773.33 569358687.33 817985947.33 698436038.33 759665928.2 A&D 39186321 34895440 60214644 65989000 42270360 56784435 79935605 188455510 207728850 264701778 291337503 315718603 302162228 383444983 416630983 469363985 471586985 Presold 12810430 36876550 20052525 21397025 33741705 53633361.91 45875168 69498377 96776888 106588404 118540196.2 136283476.53 123179324.2 111376630.2 104108520.2 95739931.2 146158506.33 Custom 13588700 11553850 35409596 26726500 24959962 27193376.93 39110217 53234423.25 50489383.92 51569094.92 50123190.92 53039091.92 51557372.92 61189924.47 55157095.47 42819569.2 45686641 Lot 4964810 5280793 9389107 10320135 27990829 32263342 25747987.5 16658500 27541625 39202697 49228902 72439226 95118817.5 90736940.5 127091928 177565385 214745907 Multi-Fam 431000 1640000 11043650 34619660 17194000 12882000 10382000 6100000 0 4554000 0 61546160 58483360 58133160 299642960 513113860 525156410 Collateral Pool 5392000 29464400 40932373.79 43715580 42406400 34406400 60247400 64589400 64589400 93568150 87043350 95848350 110274750 183418750 48% 17% 41% 29% 34% 30% 33% 22% 24% 5% 32% 20% 22% 8% Exhibit 5

2/28/2007 Puget Sound 952048004.97 Portland Metro/ Vancouver 531318076.77 Boise 244157523.69 California 111237792.52 Bend 63301841.91 Other 292687237.82 2/28/07 $2.195 Billion Commitments Residential Construction Portfolio Geographic Distribution 44% 24% 11% 5% 3% 13% Exhibit 6

INTERVEST Commercial and Multi-Family Construction Geographic Concentrations 2/28/2007 Washington 450408570 California 419830000 Oregon 273440820 Arizona 91417000 Idaho 89192177 Nevada 44846000 Montana 43700000 Colorado 18450000 Alaska 13600000 2/28/07 $1.445 Billion Commitments 32% 6% 3% 29% 6% 1% 19% 3% 1% Exhibit 7

Total Commercial and Multi-Family INTERVEST Perm Loans By Property Type Outstanding Balances December 2006 vs. February 2007 Office Shopping Center Twenty-one + Units Assisted Living Facility Motel Single Purpose Other 12/31/2006 139381625.49 139478222.49 104520637.48 60879674.78 27331844.31 30109890.62 97868148.25 Office Shopping Center Twenty-one + Units Assisted Living Facility Motel Single Purpose Other 2/28/2007 132156548.58 122182849.47 98073821.73 60707074.08 33548639 30037877.46 90417239.92 2/28/07 $567 Million 12/31/06 $600 Million 23% 17% 6% 16% 22% 11% 5% Exhibit 8