Fitch Downgrades Sterling Financial Corp; Outlook Negative

NEW YORK--(Business Wire)--
Fitch Ratings today downgraded Sterling Financial Corporation's (STSA) ratings
to reflect elevated levels of nonperforming loans (NPLs), recent poor operating
performance and the prospect for continued losses for the remainder of 2009. The
long-term and short-term Issuer Default Ratings (IDR) of STSA and its
subsidiaries were downgraded to 'BB' and 'B', respectively. The Outlook is
Negative.

Fitch has taken the following rating actions on Sterling Financial Corporation:

--Long-term IDR downgraded to 'BB' from 'BBB-';

--Short-Term IDR downgraded to 'B' from 'F3';

--Individual Rating downgraded to 'D' from 'C';

--Preferred Stock downgraded to 'B' from 'BB+';

--Support affirmed at '5';

--Support Floor affirmed at 'NF'.

Fitch placed STSA's ratings on Watch Negative in January 2009, after the
announcement of its 2008 results. Subsequently, first-quarter 2009 operating
performance showed continued pressure on profitability from escalated credit
costs. The largest credit risks and losses are emanating from the construction
and acquisition and development portfolios. Excluding construction loans, credit
quality metrics have remained relatively stable. Nevertheless, with construction
loans representing 79% of its nonperforming loan book, Fitch believes a quick
recovery in operating performance and asset quality metrics is unlikely in the
near term. With this said, Fitch recognizes actions management has taken to
realize losses inherent in the construction portfolio. Over the last six months,
management charged off $248 million of loans to reflect current market value of
underlying collateral. Taking this into consideration, the adjusted ratio of
reserves to NPLs at March 31, 2009 is 86.4% compared to the reported 36.6%.

STSA's capital and liquidity position have improved over the last 18 months. As
a participant in the U.S. Treasury's Capital Purchase Program, it sold $303
million of preferred stock in late 2008. To further maintain and build capital,
the dividend on its common stock was suspended in January 2009. At March 31,
2009, Tier 1 capital stood at 11.7%; however, tangible common equity capital has
declined to 4.78%, a ratio likely to remain under pressure as losses continue to
be recognized. The liquidity position has also been enhanced by deposit inflows
and a notable decline in end-of-period loan balances. While the deterioration of
credit metrics is a leading factor in today's downgrade, capital maintenance and
liquidity management have placed STSA in an adequate position to weather the
unprecedented stress on operating performance from the high level of NPAs.
Profitability in 2008 was largely affected by elevated provisions to the loan
loss reserve and goodwill impairment. Further, in first-quarter 2009, continued
provisioning for loan losses was the driver of the reported loss. On a positive
note, the net interest margin expanded 17 basis points (bps) due to favorable
shifts in its deposit base which reduced the overall cost of funding.

The Negative Outlook reflects uncertainty in the severity of further declines in
real estate values and its impact on profitability and capital metrics. If
further degradation of real estate values comes to pass, the losses STSA may
recognize will continue to hamper efforts to work through problem loans and
stabilize operating performance. A declining trend to capital ratios in tandem
with an escalation of losses from its loan portfolios may necessitate additional
rating action.

In addition, Fitch has taken the following rating action on STSA's affected
subsidiaries:

Sterling Savings Bank

--Long-term IDR downgraded to 'BB' from 'BBB-';

--Long-term Deposits downgraded to 'BB+' from 'BBB';

--Short-Term IDR downgraded to 'B' from 'F3';

--Short-Term Deposits downgraded to 'B' from 'F3';

--Individual Rating downgraded to 'D' from 'C';

--Support affirmed at '5';

--Support Floor affirmed at 'NF'.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Eric Newell, +1-212 908-0769
John Mackerey, +1-212-908-0366
Brian Bertsch, +1-212-908-0549 (Media Relations)
brian.bertsch@fitchratings.com

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