Sterling Financial Corporation of Spokane, Washington, Announces Third-Quarter 2009 Results

http://www.businesswire.com/news/home/20091022006506/en

SPOKANE, Wash.--(Business Wire)--
Sterling Financial Corporation (NASDAQ:STSA), the bank holding company of
Sterling Savings Bank and Golf Savings Bank, today announced results for the
quarter and the nine months ended September 30, 2009.

The net loss attributable to Sterling's common shareholders was $463.7 million,
or $8.93 per common share, compared with net income in last year's third quarter
of $5.0 million or $0.10 per common share.

The net loss was $459.4 million before the accrual of $4.3 million in cumulative
preferred dividends associated with the U.S. Treasury's Capital Purchase
Program. The loss for the quarter reflects the following:

* a non-cash charge of $227.6 million to account for the impairment of the
remaining goodwill, which primarily relates to banks that Sterling acquired
between 1998 and 2007;
* a provision of $195.5 million to increase the allowance for loan losses; and,
* a non-cash valuation allowance of $143.0 million established against its
deferred tax asset.

"In the third quarter, Sterling continued to make progress on the four
objectives in the recovery plan that we launched last year. Sterling is working
through problem loans, maintaining liquidity, addressing capital needs and
improving management oversight. In addition, Sterling and its financial advisor
are exploring options for raising capital to strengthen Sterling," said William
L. Eisenhart, chairman of Sterling's board of directors. "Sterling's actions
reflect these important steps to put the company on the right course for the
future."

"The leadership team is committed to building upon the strength of Sterling's
relationship-focused franchise. Throughout this cycle, we have grown deposits,
lowered funding costs, deepened customer relationships, improved product
offerings and maintained good liquidity," said Greg Seibly, acting president and
chief executive officer. "We recognize the challenges before us and we have
developed a focused recovery plan that is aligned with the priorities
established by our board of directors."

Third-Quarter 2009 Highlights

* Total deposits increased 3% from September 30, 2008 to $8.28 billion.
* Tier I leverage capital ratio was 7.0%.
* Allowance for credit losses was 3.48%, up from 2.71% at June 30, 2009.
* The pace of growth of classified and non-performing assets has slowed since
June 30, 2009.
* Net interest margin was 2.98%, an improvement of 11 basis points over last
quarter.

Liquidity Management

A significant component of Sterling's strategy is to maintain a strong liquidity
position and grow core deposits. "We have made significant progress reaching new
customers, while ramping up our level of service to existing customers. We
continue to grow the number of our transaction accounts and business deposits,"
stated Mr. Seibly.

Sept 30, June 30, Sept 30, Annual
2009 2009 2008 % Change
Deposits: (Dollars in thousands)
Retail deposits $ 6,224,481 $ 6,062,951 $ 6,004,432 4 %
Brokered deposits 1,407,108 1,522,105 1,424,078 -1 %
Public funds 645,518 718,685 644,793 0 %
Total deposits $ 8,277,107 $ 8,303,741 $ 8,073,303 3 %

Basis Point
Change
Deposit funding costs 1.97 % 2.08 % 2.80 % -0.83 %
Total loans to deposits 97 % 102 % 112 %

The total value of Sterling's cash equivalents and investment-grade securities
was $3.12 billion at September 30, 2009, compared with $2.84 billion at June 30,
2009, and $2.41 billion at September 30, 2008. Sterling's investment portfolio
of $2.66 billion at quarter end is comprised mostly of high-quality
government-backed securities and is managed to provide liquidity and capital
preservation.

"Throughout this cycle, Sterling has focused on strengthening its liquidity.
Cash and securities are up over $700 million from a year ago," said Mr. Seibly.
As of October 16, 2009, Sterling had a total of $2.97 billion of available
liquidity.

Loans and Other Assets

Sterling continued to reduce the risk profile of its balance sheet by reducing
the concentration of residential and commercial construction loans within its
loan portfolio. This shift is consistent with Sterling's commitment to its
regulators to reduce the concentration of these types of loans.

Sept 30, June 30, Sept 30, Annual
2009 2009 2008 % Change
(Dollars in thousands)
Total assets $ 11,873,490 $ 12,399,775 $ 12,622,909 -6 %
Net loans receivable 7,968,947 8,441,402 9,074,911 -12 %
Construction loans:
Residential 988,827 1,185,313 1,684,872 -41 %
Percent of gross loans 12 % 14 % 18 %
Commercial (a) 919,239 976,078 1,082,023 -15 %
Percent of gross loans 11 % 11 % 12 %
Total construction loans $ 1,908,066 $ 2,161,391 $ 2,766,895 -31 %
Percent of gross loans 23 % 25 % 30 %

(a) Includes multi-family construction.

"As we work to identify and resolve our problem loans, we also are putting in
place new procedures to improve our credit quality going forward," said Mr.
Seibly. "We continue to reduce our exposure to construction loans, where our
problem loans are most heavily concentrated. The decline in the size of our
construction portfolio reflects our recognition of problem loans as well as the
curtailment of lending in this sector, thereby reducing our risk for loan losses
in the future."

Since the third quarter of 2008, total construction loans have declined 31%, or
by $858.8 million, with a decrease in residential construction loans of 41%
representing a reduction of $696.0 million.

Sept 30, June 30, Sept 30,
2009 2009 2008
Non-performing loans to loans 9.07% 8.05% 4.13%
Non-performing assets to total assets 6.98% 6.35% 3.46%

Net charge-offs to average net loans (ytd) 3.19% 1.52% 0.41%
Total credit allowance to total loans 3.48% 2.71% 1.99%

Other Balance Sheet Actions

During the quarter, Sterling recognized two non-cash items that lowered assets
by $370.6 million.

As of September 30, 2009, Sterling performed an impairment analysis and
determined that the remainder of its goodwill has been impaired. Accordingly,
Sterling wrote off its goodwill balance of $227.6 million, reflecting reduced
expectations for near-term profitability, as well as the protracted decline in
Sterling`s stock price and market capitalization. Most of this goodwill was
recorded as a result of acquisitions of other banks between 1998 and 2007.

Sterling also established a non-cash valuation allowance of $143.0 million
against its deferred tax asset to reflect the uncertainty of Sterling`s ability
to generate near-term taxable income. If Sterling does not generate taxable
income, it will not be able to realize the benefits of its deferred taxes.

Capital Management

Sterling's Tier I leverage capital ratio was 7.0% at September 30, 2009. On
October 15, 2009, Sterling announced that its subsidiary Sterling Savings Bank,
had received an order from its regulators that requires it, among other things,
to achieve and maintain a Tier I leverage capital ratio of not less than 10% by
December 15, 2009.

Sterling, as previously announced, has engaged Sandler O'Neill + Partners, L.P.
to evaluate options for raising additional capital. In July, Sterling filed a
shelf registration statement with the Securities and Exchange Commission to
provide the ability to raise up to $500 million over the next three years and,
in September, it received shareholder approval to increase the number of
authorized shares of Sterling common stock to facilitate the raising of capital.

Operating Results

Net Interest Income

Three Months Ended Nine Months Ended
Sept 30, June 30, Sept 30, Sept 30, Sept 30,
2009 2009 2008 2009 2008
(Dollars in thousands)
Net interest income $ 87,059 $ 87,619 $ 90,008 $ 263,026 $ 276,214
Net interest margin 2.98 % 2.87 % 3.04 % 2.94 % 3.17 %

The decline in net interest income primarily reflected the effects of Sterling's
higher level of non-performing assets, including non-accrual loans and other
real estate owned (OREO).

During the third quarter of 2009, Sterling reversed interest income on
non-performing assets of $16.6 million, representing 56 basis points, compared
with $12.6 million, or 41 basis points, for the second quarter of 2009, and $8.5
million, or 29 basis points, for the third quarter of 2008. During the
nine-month period ended September 30, 2009, Sterling reversed $39.1 million, or
43 basis points, of interest income on non-performing assets compared with $18.2
million, or 21 basis points, for the nine-month period ended September 30, 2008.

Sterling's net interest margin expanded between the second and third quarters,
reflecting a reduction in Sterling's cost of funds and a slight improvement in
interest-earning assets. This reversal of interest income on non-performing
assets muted net interest margin expansion. On a quarterly year-over-year basis,
the reversal of accrued interest income on non-performing assets and a shift in
the mix of interest-earning assets toward investments and cash, which generally
provide lower yields than other interest-earning assets, contributed to the
contraction in net interest margin.

For the nine months ended September 30, 2009, Sterling's higher level of
non-performing assets and a shift in its mix of interest-earning assets were the
main reasons for the decrease in net interest margin.

Non-Interest Income

Non-interest income includes fees and service charges income, mortgage banking
operations and other items such as bank-owned life insurance, loan servicing
fees and OREO operations. In the third quarter of 2009, non-interest income was
$21.0 million, compared with $13.5 million in the second quarter of 2009 and
$23.0 million in the third quarter of 2008. The increase in non-interest income
on a linked-quarter basis was driven by lower OREO costs of $6.5 million,
compared with $18.2 million in the second quarter of 2009. The year-over-year
decrease in non-interest income reflects higher OREO costs of $6.5 million,
compared with net gains of $0.1 million in the third quarter of 2008. The
increase in OREO costs during the last two quarters reflects Sterling's efforts
to resolve problem accounts through foreclosure and liquidation. Excluding OREO
costs, third-quarter non-interest income rose 20% over the comparable period
last year primarily due to mortgage banking operations income and fees and
service charges income.

For the quarter ended September 30, 2009, fees and service charges income
contributed $15.1 million to non-interest income, an increase of 1% from $14.9
million in the second quarter of 2009, but was down 2% from $15.3 million in the
third quarter of 2008. Income from certain fees and service charges is
influenced by the number of transaction accounts. On an annualized basis,
transaction accounts are up nearly 6%.

Mortgage banking operations income in the third quarter of 2009 rose 47% to $9.5
million from $6.4 million in the third quarter of 2008. For the third quarter of
2009, total residential mortgage originations were $705.7 million, with
residential loan sales of $734.1 million, compared with originations of $336.4
million and loan sales of $288.2 million in the third quarter of 2008. Relative
to the second quarter of 2009, mortgage banking operations income fell from
$13.7 million. "Although the level of re-financing of mortgages has slowed
following an unprecedented period of low interest rates, the level of mortgage
closings for new purchases continues to recover. Production of new mortgage
closings rose 11% over the previous quarter and new mortgage closings were 58%
of total production," commented Mr. Seibly.

Sterling's non-interest income was $66.6 million for the nine months ended
September 30, 2009, compared with $69.7 million for the nine months ended
September 30, 2008. The results reflect higher income from mortgage banking
operations as well as net gains on the sale of securities, offset by higher OREO
costs.

Non-Interest Expenses

Including the charge for goodwill impairment, non-interest expenses for the
third quarter of 2009 were $311.5 million. Excluding the charge for goodwill
impairment, non-interest expenses rose 17% to $83.9 million in the third quarter
of 2009 from $71.5 million in the third quarter of 2008 primarily due to higher
Federal Deposit Insurance Corporation (FDIC) deposit insurance premiums.

The increases in non-interest expenses also reflect expenses related to enhanced
credit resolution efforts as well as costs associated with the growth of
Sterling's mortgage banking operations. Sterling`s ratio of non-interest
expenses to average assets, excluding the charge for goodwill impairment, was
2.74% during the quarter.

"We continue to manage our overhead expenses relative to our asset base by
improving our cost structure and increasing operating efficiency," Mr. Seibly
said.

For the nine-month period ended September 30, 2009, non-interest expenses were
$473.9 million, or $246.4 million before the charge for goodwill impairment,
compared with $216.1 million for the nine-month period ended September 30, 2008.
The FDIC insurance premiums of $22.5 million for the period contributed the
majority of the increase in non-interest expenses.

Lending Activity

During the third quarter of 2009, Sterling originated total net loans of $889.5
million, a 17% increase over the third quarter of 2008. Residential real estate
mortgage originations represented $705.7 million of total originations in the
third quarter and consumer loan originations comprised $75.2 million.

"Our loan originations reflect our commitment to increase credit availability to
homebuyers, consumers and small businesses during a difficult credit cycle,
especially to support those customers who have built relationships with
Sterling," said Mr. Seibly.

Credit Quality

During the quarter, Sterling experienced moderating credit quality trends with
both linked-quarter growth in classified and non-performing assets slowing to
single digits. Classified assets (which include performing substandard loans,
non-performing loans and OREO) increased less than 3% to $1.25 billion at the
end of the third quarter of 2009 from $1.22 billion at the end of the second
quarter of 2009. Classified assets are concentrated in the construction
portfolio, which make up 68% of all classified assets. Non-performing assets
increased 5% to $828.9 million at September 30, 2009, compared with $787.5
million at June 30, 2009.

"Non-performing residential construction assets decreased for the first time
since the start of this cycle and shrank by more than 5% over the previous
quarter," observed Mr. Seibly. "Our success at decreasing both classified and
non-performing residential construction assets reflects the cumulative efforts
of our construction credit team, which has been in place since early 2008 to
manage and resolve stressed assets."

As a percentage of total non-performing loans, Sterling`s residential
construction loans concentration is steadily declining. At September 30, 2009,
residential construction assets comprised 53% of total non-performing assets,
down from 59% in the second quarter of 2009, and 73% in the third quarter of
2008.

The process of resolving problem assets involves restructuring loans, obtaining
additional collateral, repossessing problem assets, evaluating loans in relation
to fair market value and disposing of OREO assets.

In an effort to support that process, earlier this year Sterling introduced a
homebuyer loan program to assist builders and developers in the sale of their
Sterling-financed inventory.

"The special homebuyer program has generated approximately $200 million in home
sales to date, and $84 million in the third quarter of 2009. These special
homebuyer programs allow the bank to convert construction loans into performing
(mostly conforming) residential mortgage loans. The programs are directly
responsible for reducing the construction portfolio by approximately $160
million, year to date, of which approximately $158 million was sold in the
secondary market, and $2 million remains in the residential mortgage portfolio,"
said Mr. Seibly.

During the quarter, Sterling experienced linked-quarter growth in its
non-performing assets related to commercial construction, commercial real estate
and commercial banking. The $27.0 million increase in commercial construction is
primarily related to two significant projects. The $17.3 million rise in
commercial real estate reflects slower lease-up rates experienced by a handful
of borrowers in our northern California market. The $14.3 million increase in
commercial banking was attributable to two large borrowers in Washington State.

"Sterling recognizes the need to prevent performing loans from becoming
stressed, to accelerate the time to resolve problem assets and to improve its
processes to ensure ongoing credit quality. To proactively address emerging
problems in our commercial portfolios, we have mobilized a team of our most
experienced bankers to prevent credit deterioration and resolve deficiencies
before the loans become classified by working with our borrowers to improve
loan-to-value and debt service coverage ratios," Mr. Seibly continued.

Recognizing unmet needs in the credit markets, Sterling introduced a condo and
jumbo loan program to help homebuyers of Sterling-financed properties during the
quarter. To enhance and supplement the marketing efforts of our borrowers,
Sterling also launched a property-showcase website listing properties financed
by both of its operating subsidiaries. Sterling-Golf Available Properties can be
accessed at www.sterling-golf-availableproperties.com.

The accompanying table shows an analysis of Sterling's non-performing assets by
loan category and geographic region for the quarters ended September 30, and
June 30, 2009 and September 30, 2008.

NON-PERFORMING ASSET ANALYSIS
($ in thousands)
9/30/2009 6/30/2009 9/30/2008
Amt % of Amt % of Amt % of
Gross Gross Gross

Construction - residential (by location)
Puget Sound $ 134,730 16 % $ 129,248 16 % $ 38,128 9 %
Portland, OR 124,849 15 % 121,037 15 % 92,599 21 %
S. California 37,777 5 % 42,960 5 % 32,322 7 %
Bend, OR 22,926 3 % 29,474 4 % 22,793 5 %
Boise, ID 23,550 3 % 27,270 3 % 41,046 9 %
Vancouver, WA 15,504 2 % 20,447 3 % 19,704 5 %
Utah 5,244 1 % 20,230 3 % 38,143 9 %
Other 77,073 9 % 76,584 10 % 32,047 7 %
Total construction - residential 441,653 54 % 467,250 59 % 316,782 72 %
Construction - commercial 127,306 15 % 100,347 13 % 17,715 4 %
Commercial banking 100,370 12 % 86,117 11 % 45,163 10 %
Residential real estate 68,045 8 % 61,761 8 % 35,358 8 %
Commercial real estate 44,225 5 % 26,947 3 % 8,636 2 %
Construction - multi-family 27,414 3 % 27,373 3 % 3,894 1 %
Multi-family real estate 13,474 2 % 10,898 2 % 4,133 1 %
Consumer 6,403 1 % 6,761 1 % 5,028 2 %
Total gross NPAs (a) $ 828,890 100 % $ 787,454 100 % $ 436,709 100 %
Specific reserves (9,898 ) (24,554 ) (37,554 )
Total net NPAs (a) $ 818,992 $ 762,900 $ 399,155

(a) Net of confirmed loss amounts of $386.2 million for 9/30/2009, $282.1 million for 6/30/2009, and $67.7 million for 9/30/2008.

At September 30, 2009, the allowance for credit losses totaled $287.3 million,
or 3.48% of total loans, compared with $235.1 million, or 2.71% of total loans
at June 30, 2009, and $183.7 million, or 1.99% of total loans at September 30,
2008.

Shareholders' Equity

At September 30, 2009, Sterling's tangible book value per share was $6.66, down
from $10.53 at the end of the second quarter of 2009, and down from $13.45 at
the end of the third quarter of 2008. The decrease in tangible book value during
the third quarter of 2009 was primarily due to the provision for credit losses,
and the $143.0 million valuation allowance against its deferred tax asset. The
establishment of the deferred tax asset valuation allowance decreased tangible
book value by $2.73 per share. Sterling's ratio of tangible shareholders' equity
to tangible assets was 5.42% at the end of the third quarter of 2009, compared
with 6.95% at the end of the second quarter of 2009, and 5.77% at the end of the
third quarter of 2008.

Executive Appointments

On October 14, 2009, Sterling announced the appointment of Sterling Financial
Corporation director William L. Eisenhart as non-executive chairman of its board
of directors. It also announced the promotion of J. Gregory "Greg" Seibly to
acting president and chief executive officer of Sterling Financial Corporation,
the promotion of Ezra A. Eckhardt to acting chief operating officer of Sterling
Financial Corporation and the promotion of Donn C. Costa to acting president of
Golf Savings Bank.

Third-Quarter 2009 Earnings Conference Call

Sterling will host a conference call for investors the morning of October 23,
2009, at 8:00 a.m. PDT to discuss the company's financial results. A live audio
webcast of the conference call can be accessed at the company's website,
www.sterlingfinancialcorporation-spokane.com. To access this audio presentation
call, click on the audio webcast icon. Additionally, investors may listen to the
live conference call by telephone. To participate in the conference call,
domestic callers should dial 517-308-9194 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 the company's website approximately one
hour following the completion of the call. The webcast replay will be offered
through December 15, 2009.

About Sterling Financial Corporation

Sterling Financial Corporation of Spokane, Washington, is the bank holding
company for Sterling Savings Bank, a commercial bank, and Golf Savings Bank, a
savings bank focused on single-family mortgage originations. Both banks are
state chartered and federally insured. Sterling offers banking products and
services, mortgage lending, construction financing and investment products to
individuals, small businesses, commercial organizations and corporations. As of
September 30, 2009, Sterling Financial Corporation had assets of $11.87 billion
and operated 175 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, which are not historical facts
and pertain to Sterling's future operating results. These forward-looking
statements are within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements may include, but are not limited
to, statements about Sterling's plans, objectives, expectations and intentions
and other statements contained in this release that are not historical facts.
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. These forward-looking
statements are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond Sterling's
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change. Actual results may differ materially from the results
discussed in these forward-looking statements because of numerous possible risks
and uncertainties. These include but are not limited to: the possibility of
continued adverse economic developments that may, among other things, increase
default and delinquency risks in Sterling's loan portfolios; shifts in interest
rates that may result in lower interest rate margins; shifts in the demand for
Sterling's loan and other products; lower-than-expected revenue or cost savings
in connection with acquisitions; changes in accounting policies; changes in the
monetary and fiscal policies of the federal government; and changes in laws,
regulations and the competitive environment.

Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited) Sept 30, June 30, Sept 30,
2009 2009 2008
ASSETS:
Cash and due from banks $ 467,939 $ 125,246 $ 129,528
Investments and mortgage-backed securities ("MBS") available for sale 2,489,359 2,548,249 2,100,880
Investments held to maturity 167,559 167,972 177,519
Loans receivable, net 7,968,947 8,441,402 9,074,911
Loans held for sale (at fair value: $186,675, $226,067 and $84,395) 187,637 229,996 86,090
Other real estate owned, net ("OREO") 71,187 65,181 54,795
Office properties and equipment, net 91,692 92,178 91,138
Bank owned life insurance ("BOLI") 162,948 161,056 156,271
Goodwill, net 0 227,558 451,323
Other intangible assets, net 23,052 24,276 27,950
Prepaid expenses and other assets, net 243,170 316,661 272,504
Total assets $ 11,873,490 $ 12,399,775 $ 12,622,909

LIABILITIES:
Deposits $ 8,277,107 $ 8,303,741 $ 8,073,303
Advances from Federal Home Loan Bank 1,435,809 1,501,438 1,787,264
Repurchase agreements and fed funds 1,092,968 1,096,130 1,178,262
Other borrowings 248,280 248,278 248,275
Accrued expenses and other liabilities 153,478 153,729 155,378
Total liabilities 11,207,642 11,303,316 11,442,482

SHAREHOLDERS' EQUITY:
Preferred stock 293,614 293,084 0
Common stock 52,398 52,397 52,132
Additional paid-in capital 910,535 909,850 897,466
Accumulated comprehensive loss:
Unrealized gain (loss) on investments and MBS (1) 26,279 (5,619 ) (30,879 )
Retained earnings (616,978 ) (153,253 ) 261,708
Total shareholders' equity 665,848 1,096,459 1,180,427
Total liabilities and shareholders' equity $ 11,873,490 $ 12,399,775 $ 12,622,909

Book value per common share $ 7.10 $ 15.33 $ 22.64
Tangible book value per common share (2) $ 6.66 $ 10.53 $ 13.45
Common shares outstanding at end of period 52,397,717 52,397,188 52,131,757
Shareholders' equity to total assets 5.61 % 8.84 % 9.35 %
Tangible shareholders' equity to tangible assets (3) 5.42 % 6.95 % 5.77 %
Tangible common shareholders' equity to tangible assets (4) 2.95 % 4.54 % 5.77 %

(1) Net of deferred income taxes.
(2) Common equity less goodwill and other intangible assets divided by common shares outstanding.
(3) Shareholders' equity less goodwill and other intangible assets divided by assets less goodwill and other intangible assets.
(4) Excludes preferred equity from tangible shareholders' equity to tangible assets ratio.

Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts, unaudited) Three Months Ended Nine Months Ended
Sept 30, June 30, Sept 30, Sept 30, Sept 30,
2009 2009 2008 2009 2008
INTEREST INCOME:
Loans $ 119,096 $ 123,948 $ 147,585 $ 369,967 $ 461,976
Mortgage-backed securities 27,148 27,578 25,219 84,606 75,304
Investments and cash 2,524 2,993 3,523 8,845 8,672
Total interest income 148,768 154,519 176,327 463,418 545,952

INTEREST EXPENSE:
Deposits 40,606 44,608 57,101 133,528 177,409
Borrowings 21,103 22,292 29,218 66,864 92,329
Total interest expense 61,709 66,900 86,319 200,392 269,738

Net interest income 87,059 87,619 90,008 263,026 276,214
Provision for credit losses (195,505 ) (79,744 ) (36,950 ) (341,114 ) (105,080 )
Net interest income after provision (108,446 ) 7,875 53,058 (78,088 ) 171,134

NONINTEREST INCOME:
Fees and service charges 15,088 14,878 15,327 43,806 45,490
Mortgage banking operations 9,485 13,732 6,434 36,525 20,859
Loan servicing fees 1,146 1,022 737 1,701 1,286
OREO (6,475 ) (18,191 ) 102 (29,144 ) (242 )
BOLI 1,815 2,000 1,362 5,221 4,575
Other (103 ) 60 (943 ) 8,496 (2,289 )
Total noninterest income 20,956 13,501 23,019 66,605 69,679

NONINTEREST EXPENSES:
Employee compensation and benefits 41,924 42,927 39,851 125,039 121,874
Occupancy and equipment 12,859 11,635 10,829 35,736 33,054
Amortization of core deposit intangibles 1,225 1,224 1,225 3,674 3,677
Other 27,884 31,172 19,615 81,911 57,469
Noninterest expenses before impairment charge 83,892 86,958 71,520 246,360 216,074
Goodwill impairment 227,558 0 0 227,558 0
Total noninterest expenses 311,450 86,958 71,520 473,918 216,074

Income (loss) before income taxes (398,940 ) (65,582 ) 4,557 (485,401 ) 24,739
Income tax benefit (provision) (60,467 ) 36,049 441 (23,982 ) (5,190 )
Net income (loss) (459,407 ) (29,533 ) 4,998 (509,383 ) 19,549
Preferred stock dividend (4,318 ) (4,347 ) 0 (13,012 ) 0
Net income (loss) applicable to common shareholders $ (463,725 ) $ (33,880 ) $ 4,998 $ (522,395 ) $ 19,549

Earnings per common share - basic $ (8.93 ) $ (0.65 ) $ 0.10 $ (10.06 ) $ 0.38
Earnings per common share - diluted $ (8.93 ) $ (0.65 ) $ 0.10 $ (10.06 ) $ 0.38

Average common shares outstanding - basic 51,922,871 51,922,407 51,821,446 51,913,907 51,678,981
Average common shares outstanding - diluted 51,922,871 51,922,407 52,006,215 51,913,907 51,892,900

(1) See Exhibit A.

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited) Three Months Ended Nine Months Ended
Sept 30, June 30, Sept 30, Sept 30, Sept 30,
2009 2009 2008 2009 2008
LOAN ORIGINATIONS:
Residential real estate $ 705,721 $ 946,468 $ 336,392 $ 2,362,753 $ 1,123,630
Multifamily real estate 12,781 29,861 20,047 79,416 131,949
Commercial real estate 18,771 63,500 68,947 134,729 251,864
Construction:
Residential 5,182 11,403 61,018 23,830 349,938
Multifamily 0 0 9,574 0 12,324
Commercial 13,550 5,948 26,630 30,533 157,405
Total construction 18,732 17,351 97,222 54,363 519,667
Consumer - direct 50,811 63,133 72,313 162,491 277,948
Consumer - indirect 24,420 35,852 43,819 91,025 159,242
Commercial banking 58,282 86,816 120,785 251,536 439,306
Total loan origination volume $ 889,518 $ 1,242,981 $ 759,525 $ 3,136,313 $ 2,903,606

PERFORMANCE RATIOS:
Return on assets -14.98 % -0.92 % 0.16 % -5.41 % 0.21 %
Return on common equity -257.4 % -16.6 % 1.7 % -88.1 % 2.2 %
Return on common tangible equity (1) -394.7 % -24.0 % 2.8 % -129.0 % 3.7 %
Operating efficiency 288.3 % 86.0 % 63.3 % 143.8 % 62.5 %
Non interest expense to assets 10.15 % 2.71 % 2.24 % 5.03 % 2.29 %
Average assets $ 12,167,982 $ 12,859,872 $ 12,722,179 $ 12,597,102 $ 12,612,495
Average common equity $ 714,832 $ 819,642 $ 1,179,532 $ 793,148 $ 1,190,620
Average common tangible equity (1) $ 466,105 $ 567,400 $ 699,545 $ 541,553 $ 709,142

REGULATORY CAPITAL RATIOS:
Sterling Financial Corporation:
Tier 1 leverage (to average assets) 7.0 % 8.7 % 8.0 % 7.0 % 8.0 %
Tier 1 (to risk-weighted assets) 9.5 % 11.7 % 9.7 % 9.5 % 9.7 %
Total (to risk-weighted assets) 11.1 % 13.0 % 11.0 % 11.1 % 11.0 %
Sterling Savings Bank:
Tier 1 leverage (to average assets) 6.8 % 8.1 % 7.9 % 6.8 % 7.9 %
Tier 1 (to risk-weighted assets) 9.3 % 10.8 % 9.5 % 9.3 % 9.5 %
Total (to risk-weighted assets) 10.6 % 12.1 % 10.8 % 10.6 % 10.8 %

OTHER:
Sales of financial products $ 56,422 $ 40,675 $ 77,232 $ 125,996 $ 176,658
FTE employees at end of period (whole numbers) 2,600 2,594 2,523 2,600 2,523

(1) See Exhibit A.
(2) Average common tangible equity is average common equity less average net goodwill and other intangible assets.

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited) Sept 30, June 30, Sept 30,
2009 2009 2008
LOAN PORTFOLIO DETAIL:
Residential real estate $ 862,526 $ 885,999 $ 830,811
Multifamily real estate 525,580 514,475 454,500
Commercial real estate 1,406,977 1,413,895 1,352,954
Construction:
Residential 988,827 1,185,313 1,684,872
Multifamily 264,399 272,869 321,583
Commercial 654,840 703,209 760,440
Total construction 1,908,066 2,161,391 2,766,895
Consumer - direct 812,695 827,040 857,003
Consumer - indirect 355,936 372,654 398,031
Commercial banking 2,380,888 2,498,951 2,603,037
Gross loans receivable 8,252,668 8,674,405 9,263,231
Deferred loan fees, net (7,970 ) (9,294 ) (11,013 )
Allowance for losses on loans (275,751 ) (223,709 ) (177,307 )
Net loans receivable $ 7,968,947 $ 8,441,402 $ 9,074,911

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited) Sept 30, June 30, Sept 30,
2009 2009 2008
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of quarter $ 223,709 $ 208,985 $ 162,368
Provision 195,505 79,744 36,950
Net charge-offs (143,334 ) (74,980 ) (21,970 )
Transfers (129 ) 9,960 (41 )
Allowance - loans, end of quarter 275,751 223,709 177,307
Allowance - unfunded commitments, beginning of quarter 11,374 21,334 6,321
Provision 0 0 0
Charge-offs 0 0 (6 )
Transfers 129 (9,960 ) 50
Allowance - unfunded commitments, end of quarter 11,503 11,374 6,365
Total credit allowance $ 287,254 $ 235,083 $ 183,672

Net charge-offs to average net loans (annualized) 6.40 % 3.26 % 0.93 %
Net charge-offs to average net loans (ytd) 3.19 % 1.52 % 0.41 %
Loan loss allowance to total loans 3.34 % 2.58 % 1.92 %
Total credit allowance to total loans 3.48 % 2.71 % 1.99 %
Loan loss allowance to nonperforming loans 36.9 % 32.1 % 46.4 %
Loan loss allowance to nonperforming loans excluding nonaccrual loans carried at fair value 121.3 % 87.1 % 58.5 %
Total allowance to nonperforming loans 38.4 % 33.7 % 48.1 %

NONPERFORMING ASSETS:
Past 90 days due $ 0 $ 0 $ 0
Nonaccrual loans 646,092 592,450 380,599
Restructured loans 101,437 105,283 1,153
Total nonperforming loans 747,529 697,733 381,752
OREO 81,361 89,721 54,957
Total nonperforming assets (NPA) 828,890 787,454 436,709
Specific reserve on nonperforming assets (9,898 ) (24,554 ) (37,554 )
Net nonperforming assets $ 818,992 $ 762,900 $ 399,155
Nonperforming loans to loans 9.07 % 8.05 % 4.13 %
NPA to total assets 6.98 % 6.35 % 3.46 %
Loan delinquency ratio (60 days and over) 7.43 % 6.45 % 3.69 %
Classified assets $ 1,250,737 $ 1,215,271 $ 671,503
Classified assets/total assets 10.53 % 9.80 % 5.32 %

Nonperforming assets by collateral type:
Residential real estate $ 68,045 $ 61,761 $ 35,358
Multifamily real estate 13,474 10,898 4,133
Commercial real estate 44,225 26,947 8,636
Construction:
Residential 441,653 467,250 316,782
Multifamily 27,414 27,373 3,894
Commercial 127,306 100,347 17,715
Total Construction 596,373 594,970 338,391
Consumer - direct 5,232 6,107 4,113
Consumer - indirect 1,171 654 915
Commercial banking 100,370 86,117 45,163
Total nonperforming assets $ 828,890 $ 787,454 $ 436,709

DEPOSITS DETAIL:
Interest-bearing transaction accounts $ 818,281 $ 922,705 $ 437,447
Noninterest-bearing transaction accounts 1,011,443 967,780 924,270
Savings and money market demand accounts 1,719,640 1,708,212 2,028,035
Time deposits 4,727,743 4,705,044 4,683,551
Total deposits $ 8,277,107 $ 8,303,741 $ 8,073,303

Number of transaction accounts (whole numbers):
Interest-bearing transaction accounts 45,180 44,406 45,981
Noninterest-bearing transaction accounts 162,100 159,943 153,886
Total transaction accounts 207,280 204,349 199,867

Sterling Financial Corporation
AVERAGE BALANCE AND RATE
(in thousands, unaudited) Three Months Ended
September 30, 2009 June 30, 2009 September 30, 2008
Average Average Average Average Average Average
Balance Amount Rate Balance Amount Rate Balance Amount Rate
ASSETS:
Loans:
Mortgage $ 5,230,402 $ 66,500 5.04 % $ 5,464,596 $ 70,951 5.21 % $ 5,531,165 $ 86,219 6.20 %
Commercial and consumer 3,658,281 52,725 5.72 % 3,766,628 53,124 5.66 % 3,868,173 61,501 6.33 %
Total loans 8,888,683 119,225 5.32 % 9,231,224 124,075 5.39 % 9,399,338 147,720 6.25 %
MBS 2,348,941 27,148 4.59 % 2,363,603 27,578 4.68 % 2,009,041 25,219 4.99 %
Investments and cash 510,093 3,493 2.72 % 814,425 3,981 1.96 % 494,506 4,463 3.59 %
Total interest-earning assets 11,747,717 149,866 5.06 % 12,409,252 155,634 5.03 % 11,902,885 177,402 5.93 %
Noninterest-earning assets 420,265 450,620 819,294
Total average assets $ 12,167,982 $ 12,859,872 $ 12,722,179

LIABILITIES and EQUITY:
Deposits:
Transaction $ 1,854,150 630 0.13 % $ 1,991,833 887 0.18 % $ 1,347,646 339 0.10 %
Savings 1,730,058 3,434 0.79 % 1,734,687 3,754 0.87 % 2,129,438 11,028 2.06 %
Time deposits 4,611,249 36,542 3.14 % 4,857,696 39,967 3.30 % 4,636,368 45,734 3.92 %
Total deposits 8,195,457 40,606 1.97 % 8,584,216 44,608 2.08 % 8,113,452 57,101 2.80 %
Borrowings 2,771,325 21,103 3.02 % 3,042,457 22,292 2.94 % 3,292,920 29,218 3.53 %
Total interest-bearing liabilities 10,966,782 61,709 2.23 % 11,626,673 66,900 2.31 % 11,406,372 86,319 3.01 %
Noninterest-bearing liabilities 193,097 120,839 136,275
Total average liabilities 11,159,879 11,747,512 11,542,647
Total average equity 1,008,103 1,112,360 1,179,532
Total average liabilities and equity $ 12,167,982 $ 12,859,872 $ 12,722,179

Tax equivalent net interest income and spread $ 88,157 2.83 % $ 88,734 2.72 % $ 91,083 2.92 %

Tax equivalent net interest margin 2.98 % 2.87 % 3.04 %

Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
(in thousands, unaudited) Three Months Ended Nine Months Ended
Sept 30, June 30, Sept 30, Sept 30, Sept 30,
2009 2009 2008 2009 2008

Income (loss) before income taxes $ (398,940 ) $ (65,582 ) $ 4,557 $ (485,401 ) $ 24,739
Goodwill impairment 227,558 0 0 227,558 0
Provision for credit losses 195,505 79,744 36,950 341,114 105,080
OREO 6,475 18,191 (102 ) 29,144 242
Interest reversal on nonperforming loans 16,638 12,581 8,483 39,090 18,160
FDIC special assessment 0 5,605 0 5,605 0
Total (1) $ 47,236 $ 50,539 $ 49,888 $ 157,110 $ 148,221

(1) Management believes that this presentation of non-GAAP results provides useful information to investors regarding the effects of the credit cycle on the Company's reported results of operations.

Investor Contacts:
Sterling Financial Corporation
EVP/Chief Financial Officer
Daniel G. Byrne, 509-458-3711
or
VP/Investor Relations Director
Deborah L. Wardwell, CFA, 509-354-8165
or
Media Contact:
Sterling Savings Bank
VP/Communications Manager
Cara Coon, 509-626-5348

Copyright Business Wire 2009