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Press release from Business Wire

Sterling Financial Corporation of Spokane, Wash., Reports Third Quarter 2012 Earnings of $30.6 Million and Declaration of Cash Dividend

Thursday, October 25, 2012

Sterling Financial Corporation of Spokane, Wash., Reports Third Quarter 2012 Earnings of $30.6 Million and Declaration of Cash Dividend16:00 EDT Thursday, October 25, 2012 SPOKANE, Wash. (Business Wire) -- Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its operating results for the quarter ended September 30, 2012. For the quarter, Sterling recorded net income of $30.6 million, or $0.49 per diluted common share, compared to $320.9 million, or $5.13 per diluted common share, for the quarter ended June 30, 2012, and $11.3 million, or $0.18 per diluted common share, for the quarter ended September 30, 2011. As previously reported, net income for the prior quarter included an income tax benefit of $288.8 million associated with the release of a deferred tax asset valuation allowance. Following are selected financial highlights for the quarter ended September 30, 2012: Gross loans were $6.14 billion, a 9 percent increase over September 30, 2011. Portfolio loan originations were $457.1 million, a 31 percent increase over the third quarter of 2011. Deposit costs were reduced by 33 basis points compared to the third quarter of 2011. Income from mortgage banking operations was $28.5 million, up 74 percent over the third quarter of 2011. Nonperforming assets to total assets was 2.73 percent, down from 4.74 percent at September 30, 2011. Net charge-offs to average loans (annualized) was 0.37 percent, down from 1.99 percent for the third quarter of 2011. Tangible book value was $19.44 per common share, compared to $13.66 per common share at September 30, 2011. Tier 1 leverage ratio was 12.7 percent, compared to 11.1 percent at September 30, 2011. "The solid financial performance for the third quarter reflects Sterling's progress on our fundamental operating objectives," said Greg Seibly, Sterling's president and chief executive officer. "We are growing loans and improving the mix and cost of deposits and asset quality metrics. Our management team remains focused on implementing initiatives to reduce our infrastructure costs." Balance Sheet Total loan balances were $6.14 billion at September 30, 2012, compared to $6.08 billion at the end of the prior quarter, and $5.62 billion at September 30, 2011. During the third quarter of 2012, Sterling originated $457.1 million of new portfolio loans (which exclude residential loans held for sale), compared to $458.6 million for the prior quarter and $348.4 million for the third quarter of 2011. Commercial loan originations, which include C&I and owner occupied CRE loans, were $155.8 million for the third quarter of 2012, compared to $80.0 million for the prior quarter, and $96.8 million for the same period a year ago. Investments and mortgage-backed securities available for sale were $2.05 billion at September 30, 2012, compared to $2.12 billion at the end of the prior quarter, and $2.45 billion at the same time last year. The reduction reflects the sale of $140.2 million of MBS during the quarter, for which a gain of $3.1 million was recognized. At September 30, 2012, total deposits were $6.74 billion, compared to $6.80 billion at the end of the prior quarter, and $6.48 billion at September 30, 2011. The decrease from the prior quarter was primarily a result of expected runoff of retail time deposits, brokered time deposits, and public deposits, which were reduced by $94.3 million, $71.7 million, and $67.0 million, respectively. These decreases were partially offset by growth in transaction deposits, which expanded by $167.5 million, or 7 percent, during the third quarter of 2012. The deposit composition is set forth in the following table:           Annual % September 30,   September 30, 2012 June 30, 2012 2011 Change   (in thousands) Deposits: Retail: Transaction $ 2,403,518 $ 2,235,991 $ 1,675,741 43 % Savings and MMDA 2,191,517 2,182,969 1,814,682 21 % Time deposits 1,717,720   1,812,000   2,150,998   (20 )% Total retail 6,312,755 6,230,960 5,641,421 12 % Public 202,187 269,191 466,423 (57 )% Brokered 224,968   296,623   371,396   (39 )% Total deposits $ 6,739,910   $ 6,796,774   $ 6,479,240   4 % Gross loans to deposits 91 % 90 % 87 %   Annual Basis Point Change Funding costs: Cost of deposits 0.53 % 0.58 % 0.86 % (33 ) Total funding liabilities 1.01 % 1.07 % 1.27 % (26 )   Operating ResultsNet Interest Income Sterling reported net interest income of $75.3 million for the quarter ended September 30, 2012, compared to $78.9 million for the prior quarter and $74.8 million for the quarter ended September 30, 2011. The decrease of $3.6 million from the prior quarter was primarily a result of lower loan yields, and lower balances and yields on MBS. The net interest margin (tax equivalent) for the third quarter of 2012 was 3.47 percent, a decrease of 9 basis points from the prior quarter, and up 13 basis points over the same period a year ago.     Three Months Ended September 30,     September 30, 2012 June 30, 2012 2011 (in thousands) Net interest income $ 75,308 $ 78,910 $ 74,836 Net interest margin (tax equivalent) 3.47 % 3.56 % 3.34 % Loan yield 5.23 % 5.36 % 5.47 %   Total interest income was $96.0 million for the third quarter of 2012, compared to $101.0 million for the prior quarter, and $101.4 million for the same period a year ago. Interest income on loans decreased by $2.4 million from the prior quarter as a result of lower loan yields, reflecting the low interest rate environment. Additionally, interest income was impacted by a reduction in interest income on MBS, which declined by $2.6 million compared to the prior quarter and by $6.4 million from the same period in 2011. For the third quarter of 2012, average MBS balances were down $221.5 million, or 11 percent, from the prior quarter. Total interest expense was $20.7 million for the third quarter of 2012, compared to $22.1 million for the prior quarter and $26.5 million for the third quarter of 2011. Deposit interest expense was $9.0 million for the third quarter of 2012, a reduction of $0.9 million, or 9 percent, from the prior quarter, and down $5.2 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 charge income, and other items such as net gains on sales of securities and loan servicing fees. During the third quarter of 2012, noninterest income was $46.7 million, compared to $44.7 million for the prior quarter and $29.1 million for the third quarter of 2011. Income from mortgage banking operations for the third quarter of 2012 was $28.5 million, compared to $24.7 million for the prior quarter and $16.4 million for the third quarter of 2011. The increase over the comparable prior periods is principally attributable to increased margins associated with residential mortgage banking activity. The margin on residential loan sales was 3.68 percent for the third quarter of 2012, up from 3.07 percent for the prior quarter and 2.66 percent for the same period a year ago.     Three Months Ended September 30,     September 30, 2012 June 30, 2012 2011 (in thousands) Residential loan sales $ 728,642 $ 576,545 $ 475,034 Change in warehouse and interest rate locks 36,018   220,252   123,859   Total mortgage banking loan activity $ 764,660   $ 796,797   $ 598,893     Margin on residential loan sales 3.68 % 3.07 % 2.66 %   For the quarter ended September 30, 2012, fees and service charges income contributed $14.7 million to noninterest income compared to $14.1 million for the prior quarter and $12.3 million for the third quarter of 2011. The increase in fees and service charges income compared to the year ago period was primarily attributable to increased activity related to the business acquired from First Independent Bank, which was completed during the first quarter of 2012. Due to a decline in prevailing mortgage interest rates and an increase in estimated prepayment speeds, Sterling recorded a fair value write down of $2.1 million on its mortgage servicing rights asset, which resulted in negative loan servicing fees for the third quarter of 2012. Similar write downs of $1.1 million and $5.1 million were recognized during the second quarter of 2012 and the third quarter of 2011, respectively. For the third quarter of 2012, the gain on sales of securities was $3.1 million, compared to $9.3 million for the prior quarter. There were no sales of securities in the third quarter of 2011. Also, as previously reported, for the prior quarter Sterling recognized an other-than-temporary impairment charge of $6.8 million and a charge on prepayment of debt of $2.7 million; there were no similar charges in the third quarter of 2012 or the prior year period. For the quarter ended September 30, 2012, BOLI income was $1.7 million, compared to $3.8 million for the prior quarter and $1.6 million for the third quarter of 2011. The decrease in BOLI income from the prior quarter was due to the recognition of a $2.4 million death benefit during the second quarter of 2012. Noninterest Expense Noninterest expenses were $89.4 million for the third quarter of 2012, compared to $87.6 million for the prior quarter and $86.6 million for the third quarter of 2011. The increase from the prior quarter was primarily a result of a Washington State Business and Occupation tax refund of $1.9 million received during the second quarter of 2012, which was included as a reduction in other noninterest expense. OREO operating expenses were $4.0 million for the third quarter of 2012, compared to $3.3 million for the prior quarter and $10.7 million for the same period last year. As of September 30, 2012, OREO consisted of 70 properties, compared to 81 properties at June 30, 2012 and 178 properties at September 30, 2011. Income Taxes During the quarter ended September 30, 2012, Sterling did not recognize any federal or state income tax expense. In the prior period, Sterling recorded a $288.8 million income tax benefit, which was the result of reversing substantially all of the deferred tax asset valuation allowance. As of September 30, 2012, the net deferred tax asset was $280.4 million, including $273.0 million of net operating loss and tax credit carryforwards. With regard to the deferred tax asset, the benefits of Sterling's accumulated tax losses would be reduced in the event of an "ownership change," as determined under Section 382 of the Internal Revenue Code. During 2010, in order to preserve the benefits of these tax losses, Sterling's shareholders approved a protective amendment to Sterling's restated articles of incorporation and Sterling's board of directors adopted a tax preservation rights plan, both of which restrict certain stock transfers that would result in an investor acquiring more than 4.95 percent of Sterling's total outstanding common stock. Credit Quality During the third quarter of 2012, Sterling recognized net charge-offs of $6.0 million, compared to $5.0 million for the prior quarter and $29.9 million for the same period a year ago. For the third quarter of 2012, Sterling recorded a $2.0 million provision for credit losses, compared to $4.0 million for the prior quarter and $6.0 million for the third quarter of 2011. The allowance for loan losses at September 30, 2012 was $154.3 million, or 2.51 percent of total loans, compared to $158.2 million, or 2.60 percent of total loans, at June 30, 2012, and $186.2 million, or 3.32 percent of total loans, at September 30, 2011. At September 30, 2012, nonperforming assets were $259.0 million, or 2.73 percent of total assets, compared to $321.1 million, or 3.35 percent of total assets, at June 30, 2012, and $434.7 million, or 4.74 percent of total assets, at September 30, 2011. As a result of Sterling's continued efforts to sell foreclosed properties, OREO decreased to $46.6 million at September 30, 2012, compared to $55.8 million at June 30, 2012, and $111.6 million at September 30, 2011. This represents decreases of 17 percent and 58 percent, respectively. Recent Events On October 22, 2012, Sterling announced it had entered into a definitive agreement to acquire American Heritage Holdings ("AHH") of La Mesa, California. AHH is the holding company for Borrego Springs Bank, N.A., which had total assets of $142 million as of September 30, 2012 and operates three depository branches and seven loan production offices. The transaction is subject to regulatory approval and customary closing conditions and is expected to be completed during the first quarter of 2013. Cash Dividend Declaration Sterling's board of directors has approved a quarterly cash dividend of $0.15 per share of common stock. The dividend is payable on November 20, 2012 to shareholders of record as of November 6, 2012. Third Quarter 2012 Earnings Conference Call Sterling plans to host a conference call October 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 1-517-308-9459 approximately five minutes before the scheduled start time. You will be asked by the operator to identify yourself and provide the password “STERLING” to enter the call. A webcast replay of the conference call will be available on Sterling's website approximately one hour following the conclusion of the call. The webcast replay will be offered through November 26, 2012.       Sterling Financial CorporationCONSOLIDATED BALANCE SHEETS   (in thousands, except per share amounts, unaudited) Sep 30, 2012 Jun 30, 2012 Sep 30, 2011 ASSETS: Cash and due from banks $ 263,884 $ 454,692 $ 481,717 Investments and mortgage-backed securities ("MBS") available for sale 2,049,961 2,119,008 2,446,523 Investments held to maturity 1,716 1,726 1,900 Loans held for sale 320,823 226,907 241,039 Loans receivable, net 5,990,365 5,926,575 5,428,355 Other real estate owned, net ("OREO") 46,575 55,801 111,566 Office properties and equipment, net 92,987 86,556 84,380 Bank owned life insurance ("BOLI") 178,279 176,593 174,092 Goodwill 22,577 22,577 0 Other intangible assets, net 20,864 22,656 13,290 Deferred tax asset, net 280,373 285,141 0 Other assets 204,033   221,281   193,012   Total assets $ 9,472,437   $ 9,599,513   $ 9,175,874   LIABILITIES: Deposits $ 6,739,910 $ 6,796,774 $ 6,479,240 Advances from Federal Home Loan Bank 155,401 205,470 407,000 Repurchase agreements and fed funds 942,547 1,006,324 1,056,352 Other borrowings 245,293 245,292 245,289 Accrued expenses and other liabilities 137,799   124,859   128,500   Total liabilities 8,220,950   8,378,719   8,316,381   SHAREHOLDERS' EQUITY: Preferred stock 0 0 0 Common stock 1,967,562 1,966,307 1,963,820 Accumulated other comprehensive income 75,263 67,102 57,297 Accumulated deficit (791,338 ) (812,615 ) (1,161,624 ) Total shareholders' equity 1,251,487   1,220,794   859,493   Total liabilities and shareholders' equity $ 9,472,437   $ 9,599,513   $ 9,175,874   Book value per common share $ 20.14 $ 19.65 $ 13.87 Tangible book value per common share $ 19.44 $ 18.92 $ 13.66 Shareholders' equity to total assets 13.2 % 12.7 % 9.4 % Tangible common equity to tangible assets (1) 12.8 % 12.3 % 9.2 % Common shares outstanding at end of period 62,150,650 62,124,551 61,968,510 Common stock warrants outstanding 2,625,000 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   Nine Months Ended Sep 30, 2012   Jun 30, 2012   Sep 30, 2011 Sep 30, 2012   Sep 30, 2011 INTEREST INCOME: Loans $ 83,110 $ 85,537 $ 82,010 $ 248,488 $ 242,132 Mortgage-backed securities 10,361 12,936 16,719 38,632 56,681 Investments and cash 2,520   2,517   2,650   7,826   8,150   Total interest income 95,991   100,990   101,379   294,946   306,963   INTEREST EXPENSE: Deposits 8,981 9,921 14,135 30,004 46,645 Borrowings 11,702   12,159   12,408   36,371   36,932   Total interest expense 20,683   22,080   26,543   66,375   83,577   Net interest income 75,308 78,910 74,836 228,571 223,386 Provision for credit losses 2,000   4,000   6,000   10,000   26,000   Net interest income after provision 73,308   74,910   68,836   218,571   197,386   NONINTEREST INCOME: Fees and service charges 14,675 14,131 12,332 41,546 37,839 Mortgage banking operations 28,502 24,652 16,360 69,318 37,481 Loan servicing fees (2,092 ) (471 ) (4,694 ) (183 ) (2,884 ) BOLI 1,660 3,769 1,612 7,175 4,922 Gain on sales of securities 3,129 9,321 0 12,592 14,298 Other-than-temporary impairment losses on securities 0 (6,819 ) 0 (6,819 ) 0 Charge on prepayment of debt 0 (2,664 ) 0 (2,664 ) 0 Gains (losses) on other loan sales 476 2,811 2,671 3,887 1,792 Other 348   11   831   (1,826 ) (19 ) Total noninterest income 46,698   44,741   29,112   123,026   93,429   NONINTEREST EXPENSE: Employee compensation and benefits 45,636 46,485 43,828 139,502 129,514 OREO 4,008 3,337 10,739 9,337 36,591 Occupancy and equipment 11,034 10,932 9,580 32,253 29,558 Depreciation 2,918 2,923 3,000 8,754 9,026 Amortization of other intangible assets 1,792 1,791 1,190 4,988 3,639 Other 24,020   22,139   18,283   70,830   58,187   Total noninterest expense 89,408   87,607   86,620   265,664   266,515   Income before income taxes 30,598 32,044 11,328 75,933 24,300 Income tax benefit 0   288,842   0   288,842   0   Net income $ 30,598   $ 320,886   $ 11,328   $ 364,775   $ 24,300   Earnings per common share - basic $ 0.49 $ 5.17 $ 0.18 $ 5.87 $ 0.39 Earnings per common share - diluted $ 0.49 $ 5.13 $ 0.18 $ 5.81 $ 0.39 Dividends declared per share $ 0.15 $ 0.00 $ 0.00 $ 0.15 $ 0.00 Average common shares outstanding - basic 62,139,833 62,112,936 61,958,183 62,110,498 61,944,392 Average common shares outstanding - diluted 62,845,864 62,610,054 62,041,203 62,745,177 62,236,465     Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA     (in thousands, unaudited)   Three Months Ended   Nine Months Ended Sep 30, 2012   Jun 30, 2012   Sep 30, 2011 Sep 30, 2012   Sep 30, 2011 LOAN ORIGINATIONS AND PURCHASES: Loan originations: Residential real estate: For sale $ 842,197 $ 578,418 $ 545,278 $ 1,997,491 $ 1,365,519 Permanent 77,650     46,569     14,893   152,947   65,834   Total residential real estate 919,847 624,987 560,171 2,150,438 1,431,353 Commercial real estate ("CRE"): Investor CRE 14,889 16,190 310 37,535 41,676 Multifamily 144,560 234,971 203,606 552,241 540,591 Construction 776   845   3,223   2,444   13,105   Total commercial real estate 160,225 252,006 207,139 592,220 595,372 Commercial: Owner occupied CRE 53,541 29,937 42,360 111,833 116,707 Commercial & Industrial ("C&I") 102,255   50,069   54,446   206,310   163,723   Total commercial 155,796 80,006 96,806 318,143 280,430 Consumer 63,435   79,991   29,513   199,881   97,888   Total loan originations 1,299,303   1,036,990   893,629   3,260,682   2,405,043   Total portfolio loan originations (excludes residential real estate for sale) 457,106   458,572   348,351   1,263,191   1,039,524   Loan purchases: Residential real estate 1,646 37,734 2,701 76,408 10,251 Commercial real estate: Investor CRE 0 0 0 0 48,584 Multifamily 292   251   309   683   2,749   Total commercial real estate 292 251 309 683 51,333 Commercial: Owner occupied CRE 0 0 22,495 0 74,716 C&I 0   0   0   0   0   Total commercial 0 0 22,495 0 74,716 Consumer 41,567   10,740   0   52,307   0   Total loan purchases 43,505   48,725   25,505   129,398   136,300   Total loan originations and purchases $ 1,342,808   $ 1,085,715   $ 919,134   $ 3,390,080   $ 2,541,343   PERFORMANCE RATIOS: Return on assets 1.28 % 13.74 % 0.49 % 5.18 % 0.35 % Return on common equity 9.8 % 138.7 % 5.4 % 45.5 % 4.1 % Operating efficiency (1) 69.7 % 66.1 % 71.1 % 71.5 % 74.0 % Noninterest expense to assets 3.74 % 3.75 % 3.72 % 3.78 % 3.81 % Average assets $ 9,520,530 $ 9,390,288 $ 9,233,112 $ 9,398,143 $ 9,356,487 Average common equity $ 1,237,205 $ 930,377 $ 832,237 $ 1,070,993 $ 802,076 REGULATORY CAPITAL RATIOS: Sterling Financial Corporation Tier 1 leverage ratio 12.7 % 12.2 % 11.1 % 12.7 % 11.1 % Tier 1 risk-based capital ratio 17.6 % 17.3 % 17.1 % 17.6 % 17.1 % Total risk-based capital ratio 18.9 % 18.6 % 18.4 % 18.9 % 18.4 % Sterling Bank: Tier 1 leverage ratio 12.6 % 12.0 % 10.8 % 12.6 % 10.8 % Tier 1 risk-based capital ratio 17.5 % 17.1 % 16.6 % 17.5 % 16.6 % Total risk-based capital ratio 18.8 % 18.4 % 17.9 % 18.8 % 17.9 % OTHER: FTE employees at end of period (whole numbers) 2,527 2,523 2,461 2,527 2,461   (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) Sep 30, 2012   Jun 30, 2012   Sep 30, 2011 INVESTMENT PORTFOLIO DETAIL: Available for sale: MBS $ 1,825,448 $ 1,897,310 $ 2,221,948 Municipal bonds 205,405 203,537 205,005 Other 19,108   18,161   19,570   Total $ 2,049,961   $ 2,119,008   $ 2,446,523   Held to maturity: Tax credits $ 1,716   $ 1,726   $ 1,900   Total $ 1,716   $ 1,726   $ 1,900   LOAN PORTFOLIO DETAIL: Residential real estate $ 818,323 $ 785,482 $ 701,921 Commercial real estate: Investor CRE 1,274,774 1,324,917 1,287,381 Multifamily 1,359,506 1,311,247 990,707 Construction 99,553   111,550   221,611   Total commercial real estate 2,733,833 2,747,714 2,499,699 Commercial: Owner occupied CRE 1,304,224 1,309,587 1,299,035 C&I 517,588   504,396   430,591   Total commercial 1,821,812 1,813,983 1,729,626 Consumer 768,359   736,397   683,972   Gross loans receivable 6,142,327 6,083,576 5,615,218 Deferred loan fees, net 2,317 1,243 (668 ) Allowance for loan losses (154,279 ) (158,244 ) (186,195 ) Net loans receivable $ 5,990,365   $ 5,926,575   $ 5,428,355   DEPOSITS DETAIL: Noninterest bearing transaction $ 1,709,612 $ 1,539,786 $ 1,167,552   Interest bearing transaction 693,906 696,205 508,189 Savings and MMDA 2,286,832 2,270,395 2,016,594 Time deposits 2,049,560   2,290,388   2,786,905   Total deposits $ 6,739,910   $ 6,796,774   $ 6,479,240   Number of transaction accounts (whole numbers): Noninterest bearing transaction accounts 194,997 192,644 170,636 Interest bearing transaction accounts 49,678   50,617   44,428   Total transaction accounts 244,675   243,261   215,064       Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA   (in thousands, unaudited)   Sep 30, 2012   Jun 30, 2012   Sep 30, 2011 ALLOWANCE FOR CREDIT LOSSES: Allowance - loans, beginning of quarter $ 158,244 $ 161,273 $ 212,088 Provision 2,000 2,000 4,000 Charge-offs: Residential real estate (1,641 ) (157 ) (4,204 ) Commercial real estate: Investor CRE (2,329 ) (6,577 ) (11,189 ) Multifamily (463 ) 0 (1,035 ) Construction (2,106 ) (2,904 ) (14,426 ) Total commercial real estate (4,898 ) (9,481 ) (26,650 ) Commercial: Owner occupied CRE (1,544 ) (3,164 ) (4,758 ) C&I (514 ) (442 ) (3,011 ) Total commercial (2,058 ) (3,606 ) (7,769 ) Consumer (1,882 ) (1,643 ) (2,554 ) Total charge-offs (10,479 ) (14,887 ) (41,177 ) Recoveries: Residential real estate 137 673 178 Commercial real estate: Investor CRE 694 3,459 31 Multifamily 347 1 684 Construction 2,532   2,164   6,066   Total commercial real estate 3,573 5,624 6,781 Commercial: Owner occupied CRE 236 1,249 155 C&I 305   1,922   3,707   Total commercial 541 3,171 3,862 Consumer 263   390   463   Total recoveries 4,514   9,858   11,284   Net charge-offs (5,965 ) (5,029 ) (29,893 ) Allowance - loans, end of quarter 154,279 158,244 186,195 Reserve for unfunded commitments, beginning of quarter 7,952 10,028 7,431 Provision 0 2,000 2,000 Charge-offs (181 ) (4,076 ) (55 ) Reserve for unfunded commitments, end of quarter 7,771   7,952   9,376   Total credit allowance $ 162,050   $ 166,196   $ 195,571   Net charge-offs to average loans (annualized) 0.37 % 0.32 % 1.99 % Loan loss allowance to total loans 2.51 % 2.60 % 3.32 % Total credit allowance to total loans 2.64 % 2.73 % 3.48 % Loan loss allowance to nonperforming loans 73 % 60 % 58 % Total credit allowance to nonperforming loans 76 % 63 % 61 %     Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA   (in thousands, unaudited)   Sep 30, 2012   Jun 30, 2012   Sep 30, 2011 NONPERFORMING ASSETS: Past 90 days due and accruing $ 0 $ 0 $ 0 Nonaccrual loans 146,095 176,220 240,142 Restructured loans 66,343   89,120   82,997   Total nonperforming loans 212,438 265,340 323,139 OREO 46,575   55,801   111,566   Total nonperforming assets 259,013 321,141 434,705 Specific reserve on nonperforming loans (10,104 ) (10,196 ) (15,276 ) Net nonperforming assets $ 248,909   $ 310,945   $ 419,429   Nonperforming loans to total loans 3.46 % 4.36 % 5.75 % Nonperforming assets to total assets 2.73 % 3.35 % 4.74 % Loan delinquency ratio (60 days and over) 1.96 % 2.60 % 4.23 % Classified assets $ 267,469 $ 327,336 $ 500,484 Classified assets to total assets 2.82 % 3.41 % 5.45 % Classified assets to Sterling Bank Tier 1 capital plus total credit allowance 21 % 26 % 42 % Nonperforming assets by collateral type: Residential real estate $ 44,822 $ 46,781 $ 53,168 Commercial real estate: Investor CRE 59,477 80,436 68,858 Multifamily 9,221 26,508 7,325 Construction 55,743   68,082   197,408   Total commercial real estate 124,441 175,026 273,591 Commercial: Owner occupied CRE 71,448 81,640 84,550 C&I 12,072   12,526   17,337   Total commercial 83,520 94,166 101,887 Consumer 6,230   5,168   6,059   Total nonperforming assets $ 259,013   $ 321,141   $ 434,705       Sterling Financial CorporationOTHER SELECTED FINANCIAL DATA   (in thousands, unaudited)   Three Months Ended   Sep 30, 2012   Jun 30, 2012   Sep 30, 2011   Interest     Interest     Interest   Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Balance Expense Rates Balance Expense Rates Balance Expense Rates ASSETS: Loans: Mortgage $ 3,820,634 $ 47,757 5.00 % $ 3,863,940 $ 49,486 5.12 % $ 3,470,241 $ 45,843 5.24 % Commercial and consumer 2,533,474   35,479   5.57 % 2,540,930   36,147   5.72 % 2,483,204   36,282   5.80 % Total loans 6,354,108 83,236 5.23 % 6,404,870 85,633 5.36 % 5,953,445 82,125 5.47 % MBS 1,762,950 10,361 2.35 % 1,984,471 12,936 2.61 % 2,193,055 16,719 3.02 % Investments and cash 529,407 3,392 2.55 % 549,590 3,422 2.50 % 767,714 3,596 1.86 % FHLB stock 99,160   0   0.00 % 99,227   0   0.00 % 99,395   0   0.00 % Total interest earning assets 8,745,625 96,989   4.43 % 9,038,158 101,991   4.52 % 9,013,609 102,440   4.51 % Noninterest earning assets 774,905   352,130   219,503   Total average assets $ 9,520,530   $ 9,390,288   $ 9,233,112   LIABILITIES and EQUITY: Deposits: Interest bearing transaction $ 684,906 73 0.04 % $ 666,243 93 0.06 % $ 501,884 123 0.10 % Savings and MMDA 2,284,749 884 0.15 % 2,285,426 1,025 0.18 % 1,970,823 1,601 0.32 % Time deposits 2,168,056   8,024   1.47 % 2,380,453   8,803   1.49 % 2,952,566   12,411   1.67 % Total interest bearing deposits 5,137,711 8,981 0.70 % 5,332,122 9,921 0.75 % 5,425,273 14,135 1.03 % Borrowings 1,358,348   11,702   3.43 % 1,486,167   12,159   3.29 % 1,710,388   12,408   2.88 % Total interest bearing liabilities 6,496,059 20,683 1.27 % 6,818,289 22,080 1.30 % 7,135,661 26,543 1.48 % Noninterest bearing transaction 1,656,318   0   0.00 % 1,510,591   0   0.00 % 1,132,589   0   0.00 % Total funding liabilities 8,152,377 20,683   1.01 % 8,328,880 22,080   1.07 % 8,268,250 26,543   1.27 % Other noninterest bearing liabilities 130,948   131,031   132,625   Total average liabilities 8,283,325 8,459,911 8,400,875 Total average equity 1,237,205   930,377   832,237   Total average liabilities and equity $ 9,520,530   $ 9,390,288   $ 9,233,112   Net interest income and spread (tax equivalent) $ 76,306   3.16 % $ 79,911   3.22 % $ 75,897   3.03 % Net interest margin (tax equivalent) 3.47 % 3.56 % 3.34 %   Deposits: Total interest bearing deposits $ 5,137,711 $ 8,981 0.70 % $ 5,332,122 $ 9,921 0.75 % $ 5,425,273 $ 14,135 1.03 % Noninterest bearing transaction 1,656,318   0   0.00 % 1,510,591   0   0.00 % 1,132,589   0   0.00 % Total deposits $ 6,794,029   $ 8,981   0.53 % $ 6,842,713   $ 9,921   0.58 % $ 6,557,862   $ 14,135   0.86 %   About Sterling Financial Corporation Sterling Financial Corporation (NASDAQ:STSA) of Spokane, Washington, is the bank holding company for Sterling Savings Bank, a Washington state chartered and federally insured commercial bank. Sterling Savings Bank does business as Sterling Bank and Sonoma Bank (in California). Sterling offers banking products and services, mortgage lending, and trust and investment products to individuals, small businesses, corporations and other commercial organizations. As of September 30, 2012, Sterling had assets of $9.47 billion and operated 183 depository branches in Washington, Oregon, Idaho, Montana and California. Visit Sterling's website at www.sterlingfinancialcorporation.com. Forward-Looking Statements This release contains forward-looking statements that are not historical facts and that are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about Sterling's plans, objectives, expectations, strategies and intentions and other statements contained in this release that are not historical facts and pertain to Sterling's future operating results and capital position, including Sterling's ability to reduce future loan losses, improve its deposit mix, execute its asset resolution initiatives, execute its lending initiatives, contain costs and potential liabilities, realize operating efficiencies, execute its business strategy, make dividend payments, compete in the marketplace and provide increased customer support and service. When used in this release, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward-looking statements. Actual results may differ materially from the results discussed in these forward-looking statements because such statements are inherently subject to significant assumptions, risks and uncertainties, many of which are difficult to predict and are generally beyond Sterling's control. These include but are not limited to: Sterling's ability to execute on its business plan 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; and lower-than-expected revenue or cost savings or other issues in connection with mergers and acquisitions. Other factors that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements may be found under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Sterling's Annual Report on Form 10-K, as updated periodically in Sterling's filings with the Securities and Exchange Commission. Unless legally required, Sterling disclaims any obligation to update any forward-looking statements. Sterling Financial CorporationMedia contact:Cara Coon, 509-626-5348cara.coon@bankwithsterling.comorInvestor contact:Patrick Rusnak, 509-227-0961pat.rusnak@bankwithsterling.com