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

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.

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.

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 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 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.

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.

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.

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
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.

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  

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 %
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  
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 %

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.

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