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Press release from Business Wire

Sterling Financial Corporation of Spokane, Wash., Reports Second Quarter 2012 Earnings of $320.9 Million, Including Release of Deferred Tax Asset Valuation Allowance, and Declaration of Cash Dividend

Thursday, July 26, 2012

Sterling Financial Corporation of Spokane, Wash., Reports Second Quarter 2012 Earnings of $320.9 Million, Including Release of Deferred Tax Asset Valuation Allowance, and Declaration of Cash Dividend16:30 EDT Thursday, July 26, 2012 SPOKANE, Wash. (Business Wire) -- Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its operating results for the quarter ended June 30, 2012. For the quarter, Sterling recorded net income of $320.9 million, or $5.13 per diluted common share, compared to $13.3 million, or $0.21 per diluted common share, for the quarter ended March 31, 2012, and $7.6 million, or $0.12 per diluted common share, for the quarter ended June 30, 2011. Net income for the second quarter of 2012 included a $288.8 million release of the deferred tax asset valuation allowance. Income before income taxes for the second quarter of 2012 was $32.0 million, reflecting an increase of 141 percent from the first quarter of 2012, and 324 percent from the second quarter of 2011. Following are selected financial highlights for the quarter ended June 30, 2012: Net interest margin (tax equivalent) expanded by 18 basis points compared to the prior quarter. Deposit costs were reduced by 9 basis points compared to the prior quarter. Portfolio loan originations were $458.6 million, a 32.0 percent increase over the prior quarter. Tangible book value was $18.92 per common share, compared to $13.71 per common share at the end of the prior quarter. Tier 1 leverage ratio was 12.2 percent at June 30, 2012, compared to 10.9 percent a year ago. Efficiency ratio was 66 percent, compared to 80 percent for the prior quarter. Greg Seibly, Sterling's president and chief executive officer, said, "Sterling had another quarter of strong financial performance, and, as expected, substantially all of the deferred tax asset allowance was released. After several quarters of improved performance, our capital position is healthier than any point in the company's history. Accordingly, I am pleased to announce that our board of directors has unanimously approved a quarterly cash dividend of $0.15 per share of common stock. The dividend will be paid on August 20, 2012, to shareholders of record as of August 6, 2012. Any future cash dividends will be subject to ongoing review and approval by the board of directors on a quarterly basis." Balance Sheet Management Total loan balances were $6.08 billion at June 30, 2012, compared to $6.01 billion at the end of the prior quarter, and $5.60 billion at the same time a year ago. During the second quarter of 2012, Sterling originated $458.6 million of new portfolio loans (which exclude residential loans held for sale), compared to $347.5 million for the prior quarter and $425.9 million for the second quarter of 2011. The growth in originations over the prior quarter was primarily driven by multifamily loans, which expanded by $62.3 million, or 36 percent, and consumer loans, which expanded by $23.5 million, or 42 percent. Investments and mortgage-backed securities available for sale were $2.12 billion at June 30, 2012, compared to $2.46 billion at the end of the prior quarter, and $2.49 billion at the same time last year. The reduction reflects the sale of $174.0 million of mortgage-backed securities during the quarter, for which a gain of $9.3 million was recognized. At June 30, 2012, total deposits were $6.80 billion, compared to $6.95 billion at the end of the prior quarter, and $6.60 billion at June 30, 2011. The decrease from the prior quarter was primarily a result of decreased retail and brokered time deposits, which were reduced by $77.7 million and $68.4 million, respectively. The deposit composition is set forth in the following table:         Annual % Change June 30, 2012 March 31, 2012 June 30, 2011 (in thousands) Deposits: Retail: Transaction $ 2,235,991 $ 2,174,007 $ 1,572,771 42 % Savings and MMDA 2,182,969 2,219,160 1,710,527 28 % Time deposits 1,812,000   1,889,654   2,279,025   (20 )% Total retail 6,230,960 6,282,821 5,562,323 12 % Public 269,191 302,058 561,651 (52 )% Brokered 296,623   364,989   480,024   (38 )% Total deposits $ 6,796,774   $ 6,949,868   $ 6,603,998   3 % Gross loans to deposits 90 % 87 % 85 % Annual Basis Point Change Funding costs: Cost of deposits 0.58 % 0.67 % 0.91 % (0.33 ) Total funding liabilities 1.07 % 1.15 % 1.31 % (0.24 ) Seibly said, "The cost of deposits for the second quarter was down 33 basis points from the same period last year. We continue to be successful at implementing our strategy of growing core deposits and relying less on brokered and public deposits. The decrease in deposit costs from the prior quarter reflects the full quarter's impact of deposit activity related to the First Independent Bank purchase transaction, which closed on February 29, 2012." Operating ResultsNet Interest Income Sterling reported net interest income of $78.9 million for the quarter ended June 30, 2012, compared to $74.4 million for the prior quarter and $74.8 million for the quarter ended June 30, 2011. The increase of $4.6 million over the prior quarter was primarily a result of higher average loan balances, coupled with lower deposit costs. The net interest margin (tax equivalent) for the second quarter of 2012 was 3.56 percent, an improvement of 18 basis points over the prior quarter, and up 25 basis points over the same period a year ago.   Three Months Ended June 30, 2012   March 31, 2012   June 30, 2011 (in thousands) Net interest income $ 78,910 $ 74,353 $ 74,807 Net interest margin (tax equivalent) 3.56 % 3.38 % 3.31 % Loan yield 5.36 % 5.27 % 5.33 % Total interest income was $101.0 million for the second quarter of 2012, compared to $98.0 million for the prior quarter, and $102.3 million for the same period a year ago. Interest income on loans increased by $5.7 million over the prior quarter as a result of higher average loan balances and an increase in the amount of discount accretion on acquired loans. The growth in loan interest income was partially offset by a reduction in interest income on MBS, which declined by $2.4 million compared to the prior quarter and by $7.0 million from the same period in 2011. Interest income reversals on nonperforming loans were $3.2 million in the second quarter of 2012, compared to $4.2 million in the prior quarter and $9.6 million in the second quarter of 2011. These reversals reduced net interest margin by 14 basis points, 19 basis points and 42 basis points, respectively, for these periods. Total interest expense was $22.1 million for the second quarter of 2012, compared to $23.6 million for the prior quarter and $27.5 million for the second quarter of 2011. Deposit interest expense was $9.9 million for the second quarter of 2012, a reduction of $1.2 million, or 11 percent, from the prior quarter, and down $5.3 million, or 35 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 second quarter of 2012, noninterest income was $44.7 million, compared to $31.6 million for the prior quarter and $34.3 million for the second quarter of 2011. Income from mortgage banking operations for the second quarter of 2012 was $24.7 million, compared to $16.2 million for the prior quarter and $10.8 million for the second quarter of 2011. The increase from the prior quarter is attributable to higher margins on residential loan sales and higher volume of interest rate locks during the quarter. The increase from the second quarter of 2011 reflects higher levels of residential mortgage loan sales and associated margins. The margin on residential loan sales increased to 3.07 percent for the second quarter of 2012, up from 2.34 percent for the prior quarter and 2.21 percent for the same period a year ago.   Three Months Ended June 30, 2012   March 31, 2012   June 30, 2011 (in thousands) Loan originations - residential real estate for sale $ 578,418 $ 576,876 $ 457,123 Loan sales - residential 576,545 567,100 398,120 Margin - residential loan sales 3.07 % 2.34 % 2.21 % For the quarter ended June 30, 2012, fees and service charges income contributed $14.1 million to noninterest income compared to $12.7 million for the prior quarter and $12.9 million for the second quarter of 2011. The increase in fees and service charges income compared to the prior periods was primarily attributable to the first full quarter of activity related to First Independent. For the second quarter of 2012, the gain on sales of securities was $9.3 million, compared to $142,000 for the prior quarter and $8.3 million for the second quarter of 2011. Also, during the second quarter of 2012, Sterling recognized an other-than-temporary impairment charge of $6.8 million related to a single issuer trust preferred security issued by a leading global money center bank. There were no similar charges in the comparable periods. For the quarter ended June 30, 2012, BOLI income was $3.8 million, compared to $1.7 million for the prior quarter and $1.6 million for the second quarter of 2011. The increase in BOLI income included $2.4 million related to the recognition of a death benefit. During the second quarter of 2012, Sterling incurred a $2.7 million charge related to the prepayment of a $50.0 million term repurchase agreement with a fixed interest cost of 3.99 percent. There were no similar charges in the comparable periods. Noninterest Expense Noninterest expenses were $87.6 million for the second quarter of 2012, compared to $88.6 million for the prior quarter and $91.6 million for the second quarter of 2011. The decrease from the prior quarter is primarily a result of reduced acquisition-related expenses, a tax refund and lower employee compensation and benefits expense. OREO operating expenses were $3.3 million for the second quarter of 2012, compared to $2.0 million for the prior quarter and $14.5 million for the same period last year. As of June 30, 2012, OREO consisted of 81 properties, compared to 118 properties at March 31, 2012 and 250 properties at June 30, 2011. During the second quarter of 2012, Sterling received a $1.9 million Washington state Business and Occupation tax refund, which is included as a reduction in other noninterest expense. There were no similar refunds in the comparable periods. Income Taxes During the quarter ended June 30, 2012, Sterling recorded a $288.8 million income tax benefit, which was the result of reversing substantially all of the deferred tax asset valuation allowance. Sterling did not recognize any federal or state income tax expense during the comparable prior periods. Sterling does not expect to recognize any income tax expense until the first quarter of 2013, as the remaining deferred tax asset valuation allowance is expected to offset income tax expense for the third and fourth quarters of 2012. The deferred tax asset valuation allowance was established during 2009 due to the three year cumulative loss and the uncertainty at that time of Sterling's ability to generate future taxable income. The quarter ended June 30, 2012 marked the sixth consecutive quarter of profitability for Sterling. Based on this earnings performance trend, improvement in asset quality, higher net interest margin and the expectation of continued profitability, Sterling determined that the requirements to release the deferred tax asset valuation allowance had been met. As of June 30, 2012, the net deferred tax asset was $285.1 million, including $283.2 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 second quarter of 2012, Sterling recognized net charge-offs of $5.0 million, compared to $20.2 million for the prior quarter and $33.4 million for the same period a year ago. Additionally, a charge-off of $4.1 million against the reserve for unfunded commitments was recognized during the second quarter of 2012, which included a $4.0 million settlement with a financial institution of any potential claims related to prior mortgage sales. For the second quarter of 2012, Sterling recorded a $4.0 million provision for credit losses, unchanged from the prior quarter and down by $6.0 million compared to the second quarter of 2011. The allowance for loan losses at June 30, 2012 was $158.2 million, or 2.60 percent of total loans, compared to $161.3 million, or 2.68 percent of total loans, at March 31, 2012, and $212.1 million, or 3.79 percent of total loans, at June 30, 2011. At June 30, 2012, nonperforming assets were $321.1 million, or 3.35 percent of total assets, compared to $350.1 million, or 3.68 percent of total assets, at March 31, 2012, and $497.5 million, or 5.38 percent of total assets, at June 30, 2011. As a result of Sterling's continued efforts to sell foreclosed properties, OREO decreased to $55.8 million at June 30, 2012, compared to $70.4 million at March 31, 2012, and $101.4 million at June 30, 2011. This represents decreases of 21 percent and 45 percent, respectively. Second Quarter 2012 Earnings Conference Call Sterling plans to host a conference call July 27, 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 August 27, 2012. Sterling Financial CorporationCONSOLIDATED BALANCE SHEETS       (in thousands, except per share amounts, unaudited) June 30, 2012 Mar 31, 2012 June 30, 2011 ASSETS: Cash and due from banks $ 454,692 $ 368,948 $ 587,210 Investments and mortgage-backed securities ("MBS") available for sale 2,119,008 2,459,880 2,494,002 Investments held to maturity 1,726 1,736 2,054 Loans held for sale 226,907 234,933 197,643 Loans receivable, net 5,926,575 5,853,558 5,387,714 Other real estate owned, net ("OREO") 55,801 70,383 101,406 Office properties and equipment, net 86,556 86,362 83,923 Bank owned life insurance ("BOLI") 176,593 176,345 172,774 Goodwill 22,577 21,730 0 Other intangible assets, net 22,656 24,447 14,480 Deferred tax asset, net 285,141 0 0 Other assets 221,281   203,959   200,389   Total assets $ 9,599,513   $ 9,502,281   $ 9,241,595   LIABILITIES: Deposits $ 6,796,774 $ 6,949,868 $ 6,603,998 Advances from Federal Home Loan Bank 205,470 205,540 407,071 Repurchase agreements and fed funds 1,006,324 1,065,795 1,058,694 Other borrowings 245,292 245,291 245,287 Accrued expenses and other liabilities 124,859   138,174   118,935   Total liabilities 8,378,719   8,604,668   8,433,985   SHAREHOLDERS' EQUITY: Preferred stock 0 0 0 Common stock 1,966,307 1,965,542 1,962,830 Accumulated other comprehensive income 67,102 65,571 17,733 Accumulated deficit (812,615 ) (1,133,500 ) (1,172,953 ) Total shareholders' equity 1,220,794   897,613   807,610   Total liabilities and shareholders' equity $ 9,599,513   $ 9,502,281   $ 9,241,595   Book value per common share $ 19.65 $ 14.46 $ 13.04 Tangible book value per common share 18.92 13.71 12.80 Shareholders' equity to total assets 12.7 % 9.4 % 8.7 % Tangible common equity to tangible assets (1) 12.3 % 9.0 % 8.6 % Common shares outstanding at end of period 62,124,551 62,094,447 61,952,072 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 CorporationCONSOLIDATED STATEMENTS OF INCOME (LOSS)     (in thousands, except per share amounts, unaudited) Three Months Ended Six Months Ended June 30, 2012   Mar 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011 INTEREST INCOME: Loans $ 85,537 $ 79,841 $ 79,735 $ 165,378 $ 160,122 Mortgage-backed securities 12,936 15,335 19,928 28,271 39,962 Investments and cash 2,517   2,789   2,684   5,306   5,500   Total interest income 100,990   97,965   102,347   198,955   205,584   INTEREST EXPENSE: Deposits 9,921 11,102 15,216 21,023 32,510 Borrowings 12,159   12,510   12,324   24,669   24,524   Total interest expense 22,080   23,612   27,540   45,692   57,034   Net interest income 78,910 74,353 74,807 153,263 148,550 Provision for credit losses 4,000   4,000   10,000   8,000   20,000   Net interest income after provision 74,910   70,353   64,807   145,263   128,550   NONINTEREST INCOME: Fees and service charges 14,131 12,740 12,946 26,871 25,507 Mortgage banking operations 24,652 16,164 10,794 40,816 21,121 Loan servicing fees (471 ) 2,380 709 1,909 1,810 BOLI 3,769 1,746 1,578 5,515 3,310 Gain on sales of securities 9,321 142 8,297 9,463 14,298 Other-than-temporary impairment losses on securities (6,819 ) 0 0 (6,819 ) 0 Charge on prepayment of debt (2,664 ) 0 0 (2,664 ) 0 Gains (losses) on other loan sales 2,811 600 471 3,411 (879 ) Other 11   (2,185 ) (460 ) (2,174 ) (850 ) Total noninterest income 44,741   31,587   34,335   76,328   64,317   NONINTEREST EXPENSE: Employee compensation and benefits 46,485 47,381 41,836 93,866 85,686 OREO 3,337 1,992 14,452 5,329 25,852 Occupancy and equipment 10,932 10,287 10,156 21,219 19,978 Depreciation 2,923 2,913 3,014 5,836 6,026 Amortization of other intangible assets 1,791 1,405 1,224 3,196 2,449 Other 22,139   24,671   20,905   46,810   39,904   Total noninterest expense 87,607   88,649   91,587   176,256   179,895   Income before income taxes 32,044 13,291 7,555 45,335 12,972 Income tax benefit 288,842   0   0   288,842   0   Net income $ 320,886   $ 13,291   $ 7,555   $ 334,177   $ 12,972   Earnings per common share - basic $ 5.17 $ 0.21 $ 0.12 $ 5.38 $ 0.21 Earnings per common share - diluted $ 5.13 $ 0.21 $ 0.12 $ 5.33 $ 0.21 Average common shares outstanding - basic 62,112,936 62,078,404 61,943,851 62,095,670 61,937,353 Average common shares outstanding - diluted 62,610,054 62,682,987 62,312,224 62,648,152 62,320,028 Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA     (in thousands, unaudited) Three Months Ended Six Months Ended June 30, 2012   Mar 31, 2012   June 30, 2011 June 30, 2012   June 30, 2011 LOAN ORIGINATIONS AND PURCHASES: Loan originations: Residential real estate: For sale $ 578,418 $ 576,876 $ 457,123 $ 1,155,294 $ 820,241 Permanent 46,569     28,728     26,578   75,297   50,941   Total residential real estate 624,987 605,604 483,701 1,230,591 871,182 Commercial real estate ("CRE"): Investor CRE 16,190 6,456 7,236 22,646 41,366 Multifamily 234,971 172,710 217,139 407,681 336,985 Construction 845   823   5,686   1,668   9,882   Total commercial real estate 252,006 179,989 230,061 431,995 388,233 Commercial: Owner occupied CRE 29,937 28,355 45,686 58,292 74,347 Commercial & Industrial ("C&I") 50,069   53,986   83,548   104,055   109,277   Total commercial 80,006 82,341 129,234 162,347 183,624 Consumer 79,991   56,455   40,018   136,446   68,375   Total loan originations 1,036,990   924,389   883,014   1,961,379   1,511,414   Total portfolio loan originations (excludes residential real estate for sale) 458,572   347,513   425,891   806,085   691,173   Loan purchases: Residential real estate 37,734 37,028 0 74,762 7,550 Commercial real estate: Investor CRE 0 0 0 0 48,584 Multifamily 251   140   0   391   2,440   Total commercial real estate 251 140 0 391 51,024 Commercial: Owner occupied CRE 0 0 0 0 52,221 C&I 0   0   0   0   0   Total commercial 0 0 0 0 52,221 Consumer 10,740   0   0   10,740   0   Total loan purchases 48,725   37,168   0   85,893   110,795   Total loan originations and purchases $ 1,085,715   $ 961,557   $ 883,014   $ 2,047,272   $ 1,622,209   PERFORMANCE RATIOS: Return on assets 13.74 % 0.58 % 0.32 % 7.20 % 0.28 % Return on common equity 121.28 % 5.98 % 3.82 % 63.63 % 3.35 % Operating efficiency (1) 66 % 80 % 74 % 72 % 75 % Noninterest expense to assets 3.75 % 3.84 % 3.93 % 3.80 % 3.85 % Average assets $ 9,390,288 $ 9,282,531 $ 9,338,409 9,336,413 9,419,196 Average common equity $ 1,064,149 $ 894,329 $ 792,748 1,056,137 781,210 REGULATORY CAPITAL RATIOS: Sterling Financial Corporation Tier 1 leverage ratio 12.2 % 11.1 % 10.9 % 12.2 % 10.9 % Tier 1 risk-based capital ratio 17.3 % 16.1 % 16.9 % 17.3 % 16.9 % Total risk-based capital ratio 18.6 % 17.4 % 18.2 % 18.6 % 18.2 % Sterling Bank: Tier 1 leverage ratio 12.0 % 10.8 % 10.6 % 12.0 % 10.6 % Tier 1 risk-based capital ratio 17.1 % 15.7 % 16.4 % 17.1 % 16.4 % Total risk-based capital ratio 18.4 % 17.0 % 17.7 % 18.4 % 17.7 % OTHER: FTE employees at end of period (whole numbers) 2,523 2,493 2,480 2,523 2,480 (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 and charge on prepayment of debt. Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA       (in thousands, unaudited) June 30, 2012 Mar 31, 2012 June 30, 2011 INVESTMENT PORTFOLIO DETAIL: Available for sale: MBS $ 1,897,310 $ 2,233,175 $ 2,282,497 Municipal bonds 203,537 206,743 189,647 Other 18,161   19,962   21,858   Total $ 2,119,008   $ 2,459,880   $ 2,494,002   Held to maturity: Tax credits $ 1,726   $ 1,736   $ 2,054   Total $ 1,726   $ 1,736   $ 2,054   LOAN PORTFOLIO DETAIL: Residential real estate $ 785,482 738,739 712,638 Commercial real estate: Investor CRE 1,324,917 1,421,085 1,324,058 Multifamily 1,311,247 1,149,498 811,917 Construction 111,550   166,607   308,273   Total commercial real estate 2,747,714 2,737,190 2,444,248 Commercial: Owner occupied CRE 1,309,587 1,326,218 1,280,425 C&I 504,396   495,225   461,394   Total commercial 1,813,983 1,821,443 1,741,819 Consumer 736,397   715,971   703,675   Gross loans receivable 6,083,576 6,013,343 5,602,380 Deferred loan fees, net 1,243 1,488 (2,578 ) Allowance for loan losses (158,244 ) (161,273 ) (212,088 ) Net loans receivable $ 5,926,575   $ 5,853,558   $ 5,387,714   DEPOSITS DETAIL: Noninterest bearing transaction 1,539,786 1,513,616 1,067,637 Interest bearing transaction 696,205 660,391 505,134 Savings and MMDA 2,270,395 2,312,494 1,933,941 Time deposits 2,290,388   2,463,367   3,097,286   Total deposits $ 6,796,774   $ 6,949,868   $ 6,603,998   Number of transaction accounts (whole numbers): Interest bearing transaction accounts 50,617 55,298 44,116 Noninterest bearing transaction accounts 192,644   185,362   166,483   Total transaction accounts 243,261   240,660   210,599   Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA       (in thousands, unaudited) June 30, 2012 Mar 31, 2012 June 30, 2011 ALLOWANCE FOR CREDIT LOSSES: Allowance - loans, beginning of quarter $ 161,273 $ 177,458 $ 232,944 Provision 2,000 4,000 12,500 Charge-offs: Residential real estate (157 ) (2,187 ) (4,210 ) Commercial real estate: Investor CRE (6,577 ) (4,992 ) (9,269 ) Multifamily 0 (318 ) (457 ) Construction (2,904 ) (6,208 ) (19,019 ) Total commercial real estate (9,481 ) (11,518 ) (28,745 ) Commercial: Owner occupied CRE (3,164 ) (7,692 ) (3,908 ) C&I (442 ) (1,841 ) 0   Total commercial (3,606 ) (9,533 ) (3,908 ) Consumer (1,643 ) (2,452 ) (2,117 ) Total charge-offs (14,887 ) (25,690 ) (38,980 ) Recoveries: Residential real estate 673 212 603 Commercial real estate: Investor CRE 3,459 81 875 Multifamily 1 1 1,167 Construction 2,164   3,152   1,879   Total commercial real estate 5,624 3,234 3,921 Commercial: Owner occupied CRE 1,249 1,193 0 C&I 1,922   319   763   Total commercial 3,171 1,512 763 Consumer 390   547   337   Total recoveries 9,858   5,505   5,624   Net charge-offs (5,029 ) (20,185 ) (33,356 ) Allowance - loans, end of quarter 158,244 161,273 212,088 Reserve for unfunded commitments, beginning of quarter 10,028 10,029 10,641 Provision 2,000 0 (2,500 ) Charge-offs (4,076 ) (1 ) (710 ) Reserve for unfunded commitments, end of quarter 7,952   10,028   7,431   Total credit allowance $ 166,196   $ 171,301   $ 219,519   Net charge-offs to average net loans (annualized) 0.16 % 1.33 % 2.23 % Net charge-offs to average net loans (ytd) 0.08 % 0.33 % 0.96 % Loan loss allowance to total loans 2.60 % 2.68 % 3.79 % Total credit allowance to total loans 2.73 % 2.85 % 3.92 % Loan loss allowance to nonperforming loans 60 % 58 % 54 % Total credit allowance to nonperforming loans 63 % 61 % 55 % Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA       (in thousands, unaudited) June 30, 2012 Mar 31, 2012 June 30, 2011 NONPERFORMING ASSETS: Past 90 days due and accruing $ 0 $ 0 $ 0 Nonaccrual loans 176,220 187,202 311,832 Restructured loans 89,120   92,500   84,277   Total nonperforming loans 265,340 279,702 396,109 OREO 55,801   70,383   101,406   Total nonperforming assets 321,141 350,085 497,515 Specific reserve on nonperforming loans (10,196 ) (13,354 ) (17,083 ) Net nonperforming assets $ 310,945   $ 336,731   $ 480,432   Nonperforming loans to total loans 4.36 % 4.65 % 7.07 % Nonperforming assets to total assets 3.35 % 3.68 % 5.38 % Loan delinquency ratio (60 days and over) 2.60 % 3.25 % 5.46 % Classified assets $ 327,336 $ 410,568 $ 603,758 Classified assets to total assets 3.41 % 4.32 % 6.53 % Classified assets to Sterling Bank Tier 1 capital plus total credit allowance 26 % 35 % 50 % Nonperforming assets by collateral type: Residential real estate $ 46,781 $ 54,041 $ 64,748 Commercial real estate: Investor CRE 80,436 55,238 66,811 Multifamily 26,508 7,216 9,523 Construction 68,082   130,564   245,113   Total commercial real estate 175,026 193,018 321,447 Commercial: Owner occupied CRE 81,640 81,746 104,988 C&I 12,526   14,937   0   Total commercial 94,166 96,683 104,988 Consumer 5,168   6,343   6,332   Total nonperforming assets $ 321,141   $ 350,085   $ 497,515   Sterling Financial CorporationAVERAGE BALANCE AND RATE   (in thousands, unaudited) Three Months Ended June 30, 2012   Mar 31, 2012   June 30, 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 $ 3,863,940 $ 49,486 5.12 % $ 3,544,106 $ 44,083 4.98 % $ 3,516,320 $ 43,777 4.98 % Commercial and consumer 2,540,930   36,147   5.72 % 2,540,330   35,857   5.68 % 2,478,564   36,074   5.84 % Total loans 6,404,870 85,633 5.36 % 6,084,436 79,940 5.27 % 5,994,884 79,851 5.33 % MBS 1,984,471 12,936 2.61 % 2,225,040 15,335 2.76 % 2,450,178 19,928 3.25 % Investments and cash 549,590 3,422 2.50 % 582,753 3,819 2.64 % 668,553 3,732 2.24 % FHLB stock 99,227   0   0.00 % 99,057   0   0.00 % 99,629   0   0.00 % Total interest earning assets 9,038,158 101,991   4.52 % 8,991,286 99,094   4.42 % 9,213,244 103,511   4.50 % Noninterest earning assets 352,130   291,245   125,165   Total average assets $ 9,390,288   $ 9,282,531   $ 9,338,409   LIABILITIES and EQUITY: Deposits: Interest bearing transaction $ 666,243 93 0.06 % $ 559,643 104 0.07 % $ 502,303 128 0.10 % Savings and MMDA 2,285,426 1,025 0.18 % 2,185,621 1,191 0.22 % 1,981,455 1,740 0.35 % Time deposits 2,380,453   8,803   1.49 % 2,562,754   9,807   1.54 % 3,172,641   13,348   1.69 % Total interest bearing deposits 5,332,122 9,921 0.75 % 5,308,018 11,102 0.84 % 5,656,399 15,216 1.08 % Borrowings 1,486,167   12,159   3.29 % 1,625,916   12,510   3.09 % 1,704,126   12,324   2.90 % Total interest bearing liabilities 6,818,289 22,080 1.30 % 6,933,934 23,612 1.37 % 7,360,525 27,540 1.50 % Noninterest bearing transaction 1,510,591   0   0.00 % 1,326,770   0   0.00 % 1,040,000   0   0.00 % Total funding liabilities 8,328,880 22,080   1.07 % 8,260,704 23,612   1.15 % 8,400,525 27,540   1.31 % Other noninterest bearing liabilities (2,741 ) 127,498   145,136   Total average liabilities 8,326,139 8,388,202 8,545,661 Total average equity 1,064,149   894,329   792,748   Total average liabilities and equity $ 9,390,288   $ 9,282,531   $ 9,338,409   Net interest income and spread (tax equivalent) $ 79,911   3.22 % $ 75,482   3.05 % $ 75,971   3.00 % Net interest margin (tax equivalent) 3.56 % 3.38 % 3.31 %   Deposits: Total interest bearing deposits $ 5,332,122 $ 9,921 0.75 % $ 5,308,018 $ 11,102 0.84 % $ 5,656,399 $ 15,216 1.08 % Noninterest bearing transaction 1,510,591   0   0.00 % 1,326,770   0   0.00 % 1,040,000   0   0.00 % Total deposits $ 6,842,713   $ 9,921   0.58 % $ 6,634,788   $ 11,102   0.67 % $ 6,696,399   $ 15,216   0.91 % 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 registered trade names of Sterling 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 June 30, 2012, Sterling Financial Corporation had assets of $9.60 billion and operated 186 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 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 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. Sterling Financial CorporationMedia contact:Cara Coon, 509-626-5348cara.coon@bankwithsterling.comorInvestor contact:Patrick Rusnak, 509-227-0961