STERLING FINANCIAL CORP /WA/ - FORM 8-K - EX-99.1 - RESULTS OF OPERATIONS

Attached files

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8-K - FORM 8-K - STERLING FINANCIAL CORP /WA/	a012420138-k.htm
EX-99.2 - INVESTOR PRESENTATION - STERLING FINANCIAL CORP /WA/	earningsreleasesupplemen.htm

Exhibit 99.1

Sterling Financial Corporation of Spokane, Wash., Reports 2012 Earnings and Balance Sheet Repositioning

SPOKANE, Wash. — (BUSINESS WIRE) — January 24, 2013 — Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its operating results for the quarter and year ended December 31, 2012. For the quarter, Sterling recorded net income of $20.9 million, or $0.33 per diluted common share, compared to $30.6 million, or $0.49 per diluted common share, for the quarter ended September 30, 2012, and $14.8 million, or $0.24 per diluted common share, for the quarter ended December 31, 2011. For the year ended December 31, 2012, Sterling recorded net income of $385.7 million, or $6.14 per diluted common share, compared to $39.1 million, or $0.63 per diluted common share, for the year ended December 31, 2011. The 2012 annual net income included an income tax benefit of $292.0 million associated with the release of a deferred tax asset valuation allowance.

During the fourth quarter of 2012, there were four significant items that, in the aggregate, reduced net income by $11.9 million, or $0.19 per diluted share.

Sterling elected to effect a partial repositioning of its balance sheet in light of the current interest rate environment and outlook by prepaying $250.0 million of repurchase agreements and selling $361.8 million of mortgage-backed securities and other investments. A prepayment penalty of $32.7 million was recorded in connection with the debt prepayment and a gain of $11.2 million was recorded in connection with the securities sales.


2.	A net gain of $8.4 million was recognized as a result of the divestiture of Sterling's Montana operations in a transaction that was completed on November 30, 2012.


3.	A charge of $2.0 million was recorded in connection with a tentative settlement related to a previously disclosed ERISA class action complaint.


4.	An income tax benefit of $3.2 million was recorded principally as the result of the aforementioned three items, which were not contemplated at the time Sterling released substantially all of its deferred tax asset valuation allowance effective June 30, 2012.

Following are selected financial highlights for the quarter and year ended December 31, 2012:


•	Gross loans were $6.25 billion, a 7 percent annualized increase over the prior quarter.


•	Portfolio loan originations for the quarter were $561.7 million, a 23 percent increase over the prior quarter.


•	Net interest margin was 3.49 percent, up 6 basis points from the prior quarter, and up 23 basis points from the fourth quarter of 2011.


•	Deposit costs were reduced by 7 basis points compared to the prior quarter, and by 34 basis points compared to the fourth quarter of 2011.


•	Income from mortgage banking operations for the year was $96.9 million, up 85 percent over 2011.


•	Nonperforming assets to total assets was 2.28 percent, down from 2.73 percent at September 30, 2012, and 4.01 percent at December 31, 2011.


•	Net recoveries were $566,000 for the quarter, compared to net charge-offs of $6.0 million for the prior quarter.


•	A total of $40.4 million, or $0.65 per share, was returned to shareholders during the fourth quarter of 2012 through payment of a $0.15 per share regular dividend, a $0.35 per share special dividend and the accelerated payment of the $0.15 regular dividend that would have otherwise been paid during the first quarter of 2013.


•	During the fourth quarter, Sterling announced the signing of definitive agreements to acquire American Heritage Holdings and its wholly-owned subsidiary, Borrego Springs Bank, N.A., and to acquire the Puget Sound operations of Boston Private Bank & Trust.

"The fourth quarter capped a year of solid financial performance." said Greg Seibly, Sterling's president and chief executive officer. "Our strong financial position has allowed us to take steps to reduce costly borrowings in order to improve our profitability in future periods. We were also able to take steps to manage excess capital by re-establishing cash dividends during 2012. This is a result of continued attention on our key operating objectives of growing loans, reducing deposit costs, eliminating asset quality challenges and controlling operating expenses."

Balance Sheet

Total portfolio loan balances (which exclude residential loans held for sale) were $6.25 billion at December 31, 2012, compared to $6.14 billion at the end of the prior quarter, and $5.52 billion at December 31, 2011. During the fourth quarter of 2012, Sterling originated $561.7 million of new portfolio loans, compared to $457.1 million for the prior quarter and $346.3 million for the fourth quarter of 2011. For the year, portfolio loan originations were $1.82 billion, compared to $1.39 billion for 2011, representing an increase of 32 percent. Approximately $41 million of loans were sold in connection with Sterling's Montana divestiture.

Multifamily loan originations were $261.3 million for the fourth quarter of 2012, accounting for 47 percent of total portfolio originations. This compares to $144.6 million for the prior quarter, and $179.6 million for the same period a year ago.

Commercial loan originations, which include C&I and owner occupied CRE loans, were $136.8 million for the fourth quarter of 2012, accounting for 24 percent of total portfolio originations. This compares to $155.8 million for the prior quarter, and $95.6 million for the same period a year ago.

Investments and mortgage-backed securities available for sale were $1.51 billion at December 31, 2012, compared to $2.05 billion at the end of the prior quarter, and $2.55 billion at the same time last year. The reduction reflects the sale of $361.8 million of MBS and other investments during the quarter.

At December 31, 2012, total deposits were $6.44 billion, compared to $6.74 billion at the end of the prior quarter, and $6.49 billion at December 31, 2011. The decrease from the prior quarter was primarily a result of the sale of approximately $182 million of deposits in connection with the Montana divestiture. This decrease was partially offset by growth in transaction deposits, which expanded by $31.3 million, or 1 percent, during the fourth quarter of 2012.

The deposit composition is set forth in the following table:



										Annual % Change
	December 31, 2012			September 30, 2012			December 31, 2011			Annual % Change
	(in thousands)
Deposits:
Retail:
Transaction	$	2,434,778		$	2,403,518		$	1,732,665		41	%
Savings and MMDA	2,129,722			2,191,517			1,902,209			12	%
Time deposits	1,529,566			1,717,720			1,993,260			(23	)%
Total retail	6,094,066			6,312,755			5,628,134			8	%
Public	174,161			202,187			428,691			(59	)%
Brokered	167,890			224,968			428,993			(61	)%
Total deposits	$	6,436,117		$	6,739,910		$	6,485,818		(1	)%
Gross loans to deposits	97		%	91		%	85		%

At December 31, 2012, advances from the Federal Home Loan Bank were $605.3 million, compared to $155.4 million at the end of the prior quarter, and $405.6 million at December 31, 2011. The increase over the prior quarter was to fund the deposit outflow associated with the Montana divestiture, to fund loan growth, and to replace CD runoff.

Operating Results

Net Interest Income

Sterling reported net interest income of $76.1 million for the quarter ended December 31, 2012, compared to $75.3 million for the prior quarter and $71.8 million for the quarter ended December 31, 2011. The increase of $799,000 from the prior quarter was primarily a result of lower deposit costs. The net interest margin (tax equivalent) for the fourth quarter of 2012 was 3.49 percent, an increase of 6 basis points from the prior quarter, and up 23 basis points over the same period a year ago.



	Three Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011
	(in thousands)
Net interest income	$	76,107		$	75,308		$	71,809
Net interest margin (tax equivalent)	3.49		%	3.43		%	3.26		%
Loan yield	4.96		%	5.15		%	5.34		%

Funding costs:
Cost of deposits	0.46		%	0.53		%	0.80		%
Total funding liabilities	0.90		%	1.01		%	1.24		%

Total interest income was $94.3 million for the fourth quarter of 2012, compared to $96.0 million for the prior quarter, and $97.3 million for the same period a year ago. Interest income on loans decreased by $84,000 from the prior quarter as a result of lower loan yields, reflecting the low interest rate environment. Additionally, interest income was adversely impacted by a reduction in interest income on MBS, which declined by $1.6 million compared to the prior quarter and by $5.7 million from the same period in 2011. For the fourth quarter of 2012, average MBS balances were down $169.5 million, or 10 percent, from the prior quarter resulting primarily from prepayments.

Total interest expense was $18.1 million for the fourth quarter of 2012, compared to $20.7 million for the prior quarter and $25.5 million for the fourth quarter of 2011. Deposit interest expense was $7.7 million for the fourth quarter of 2012, a reduction of $1.3 million, or 14 percent, from the prior quarter, and down $5.3 million, or 41 percent, from the same period last year, reflecting the improved deposit mix.

Borrowing costs were $10.5 million for the fourth quarter of 2012, compared to $11.7 million for the prior quarter, and $12.5 million for the fourth quarter of 2011. The decrease from the prior quarter is due to lower average costs, which were down 49 basis points. The decrease from the fourth quarter of 2011 is a result of lower average outstanding borrowings, which were down $293.6 million, or 17 percent.

Noninterest Income

During the fourth quarter of 2012, noninterest income was $31.2 million, compared to $46.7 million for the prior quarter and $32.9 million for the fourth quarter of 2011.

Income from mortgage banking operations for the fourth quarter of 2012 was $27.6 million, compared to $28.5 million for the prior quarter and $14.9 million for the fourth quarter of 2011. The decrease from the prior period is attributable to a decline in the volume of mortgage banking activity, as well as a decrease in the related margin, while the increase over the year ago period is attributable to an increase in volume of mortgage banking activity, and higher margins on residential loan sales. The margin on residential loan sales was 3.60 percent for the fourth quarter of 2012, down from 3.68 percent for the prior quarter and up from 2.43 percent for the same period a year ago.



	Three Months Ended
	December 31, 2012			September 30, 2012			December 31, 2011
	(in thousands)
Residential loan sales	$	779,289		$	728,642		$	646,000
Change in warehouse and interest rate locks	(44,931		)	36,018			(57,123		)
Total mortgage banking activity	$	734,358		$	764,660		$	588,877

Margin on residential loan sales	3.60		%	3.68		%	2.43		%

For the quarter ended December 31, 2012, fees and service charges income contributed $14.2 million to noninterest income, compared to $14.7 million for the prior quarter and $12.2 million for the fourth 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.

As previously noted, in order to reduce its funding costs in future periods, Sterling prepaid $250.0 million of repurchase agreements during the fourth quarter of 2012, resulting in a prepayment charge of $32.7 million. A similar charge of $2.7 million was incurred during the second quarter of 2012, resulting in total debt prepayment charges of $35.3 million for the full year. No such charges were incurred during 2011.

For the fourth quarter of 2012, the gain on sales of securities was $11.2 million, compared to $3.1 million for the prior quarter and $1.9 million for the fourth quarter of 2011. Included in the gain for the fourth quarter of 2012 is a gain on the sale of a trust preferred security of $2.5 million.

The gain on the sale of assets for the quarter ended December 31, 2012, included a gain, before associated selling expenses, of $9.1 million recognized in conjunction with the Montana divestiture.

Noninterest Expense

Noninterest expenses were $89.6 million for the fourth quarter of 2012, compared to $89.4 million for the prior quarter and $85.9 million for the fourth quarter of 2011. During the fourth quarter of 2012, employee compensation and benefits increased by $3.9 million over the prior quarter due to increased production and other incentive compensation. Other noninterest expenses were down $1.9 million, despite a charge of $2.0 million in connection with a tentative settlement related to a previously disclosed ERISA class action complaint. The key drivers of the decline in other expenses included reductions in advertising, professional services, FDIC insurance and data processing expenses.

OREO operating expenses were $2.5 million for the fourth quarter of 2012, compared to $4.0 million for the prior quarter and $4.9 million for the same period last year, reflecting continued reductions in the level of OREO.

Income Taxes

During the quarter ended December 31, 2012, Sterling recognized an income tax benefit of $3.2 million, which represents the release of the remaining portion of Sterling's deferred tax valuation allowance.

For the year, Sterling recognized an income tax benefit of $292.0 million, which was principally the result of reversing substantially all of the deferred tax asset valuation allowance during the second quarter of 2012. As of December 31, 2012, the net deferred tax asset was $292.1 million, including $274.0 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 fourth quarter of 2012, Sterling recognized net recoveries of $566,000, compared to net charge-offs of $6.0 million for the prior quarter and $10.7 million for the same period a year ago. Sterling did not record a provision for credit losses for the fourth quarter of 2012, compared to a provision of $2.0 million for the prior quarter and $4.0 million for the fourth quarter of 2011. The allowance for loan losses at December 31, 2012 was $154.3 million, or 2.47 percent of total loans, compared to $154.3 million, or 2.51 percent of total loans, at September 30, 2012, and $177.5 million, or 3.22 percent of total loans, at December 31, 2011.

At December 31, 2012, nonperforming assets were $210.4 million, or 2.28 percent of total assets, compared to $259.0 million, or 2.73 percent of total assets, at September 30, 2012, and $369.1 million, or 4.01 percent of total assets, at December 31, 2011.

As a result of Sterling's continued efforts to sell foreclosed properties, OREO decreased to $25.0 million at December 31, 2012, compared to $46.6 million at September 30, 2012, and $81.9 million at December 31, 2011. This represents decreases of 46 percent and 69 percent, respectively.

Fourth Quarter 2012 Earnings Conference Call

Sterling plans to host a conference call on January 25, 2013 at 8:00 a.m. PST to discuss the company's financial results. In addition to this press release, management will reference a slide presentation filed with the SEC and available on Sterling's website at www.sterlingfinancialcorporation.com. An audio webcast of the conference call can also 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 1-517-308-9210 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 February 25, 2013.

Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS



(in thousands, except per share amounts, unaudited)	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011
ASSETS:
Cash and due from banks	$	331,550		$	263,884		$	491,228
Investments and mortgage-backed securities ("MBS") available for sale	1,513,157			2,049,961			2,547,876
Investments held to maturity	206			1,716			1,747
Loans held for sale	465,983			320,823			273,957
Loans receivable, net	6,101,749			5,990,365			5,341,179
Other real estate owned, net ("OREO")	25,042			46,575			81,910
Office properties and equipment, net	93,850			92,987			84,015
Bank owned life insurance ("BOLI")	179,828			178,279			174,512
Goodwill	22,577			22,577			0
Other intangible assets, net	19,072			20,864			12,078
Deferred tax asset, net	292,082			280,373			0
Other assets	191,814			204,033			184,735
Total assets	$	9,236,910		$	9,472,437		$	9,193,237
LIABILITIES:
Deposits	$	6,436,117		$	6,739,910		$	6,485,818
Advances from Federal Home Loan Bank	605,330			155,401			405,609
Repurchase agreements and fed funds	586,867			942,547			1,055,763
Other borrowings	245,294			245,293			245,290
Accrued expenses and other liabilities	145,379			137,799			122,200
Total liabilities	8,018,987			8,220,950			8,314,680
SHAREHOLDERS' EQUITY:
Preferred stock	0			0			0
Common stock	1,968,025			1,967,562			1,964,234
Accumulated other comprehensive income	60,712			75,263			61,115
Accumulated deficit	(810,814		)	(791,338		)	(1,146,792		)
Total shareholders' equity	1,217,923			1,251,487			878,557
Total liabilities and shareholders' equity	$	9,236,910		$	9,472,437		$	9,193,237
Book value per common share	$	19.58		$	20.14		$	14.16
Tangible book value per common share	$	18.91		$	19.44		$	13.96
Shareholders' equity to total assets	13.2		%	13.2		%	9.6		%
Tangible common equity to tangible assets (1)	12.8		%	12.8		%	9.4		%
Common shares outstanding at end of period	62,207,529			62,150,650			62,057,645
Common stock warrants outstanding	2,748,672			2,625,000			2,722,541

(1) Common shareholders' equity less goodwill and other intangible assets, divided by assets, less goodwill and other intangible assets.

Sterling Financial Corporation

CONSOLIDATED STATEMENTS OF INCOME (LOSS)



(in thousands, except per share amounts, unaudited)	Three Months Ended									Twelve Months Ended
	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011			Dec 31, 2012			Dec 31, 2011
INTEREST INCOME:
Loans	$	83,026		$	83,110		$	80,303		$	331,514		$	322,435
Mortgage-backed securities	8,810			10,361			14,535			47,442			71,216
Investments and cash	2,418			2,520			2,491			10,244			10,641
Total interest income	94,254			95,991			97,329			389,200			404,292
INTEREST EXPENSE:
Deposits	7,693			8,981			12,989			37,697			59,634
Borrowings	10,454			11,702			12,531			46,825			49,463
Total interest expense	18,147			20,683			25,520			84,522			109,097
Net interest income	76,107			75,308			71,809			304,678			295,195
Provision for credit losses	0			2,000			4,000			10,000			30,000
Net interest income after provision	76,107			73,308			67,809			294,678			265,195
NONINTEREST INCOME:
Fees and service charges	14,227			14,675			12,234			55,773			50,073
Mortgage banking operations	27,591			28,502			14,895			96,909			52,376
Loan servicing fees	566			(2,092		)	(329		)	383			(3,213		)
BOLI	1,450			1,660			1,526			8,625			6,448
Gain on sales of securities	11,243			3,129			1,938			23,835			16,236
Other-than-temporary impairment losses on securities	0			0			0			(6,819		)	0
Charge on prepayment of debt	(32,678		)	0			0			(35,342		)	0
Gains (losses) on other loan sales	485			476			0			4,372			4,442
Gains (losses) on assets	8,210			(136		)	(5		)	6,515			(85		)
Other	133			484			2,640			2			51
Total noninterest income	31,227			46,698			32,899			154,253			126,328
NONINTEREST EXPENSE:
Employee compensation and benefits	49,523			45,636			42,129			189,025			171,643
OREO	2,492			4,008			4,909			11,829			41,500
Occupancy and equipment	10,677			11,034			10,320			42,930			39,878
Depreciation	2,936			2,918			3,158			11,690			12,184
Amortization of other intangible assets	1,792			1,792			1,212			6,780			4,851
Other	22,169			24,020			24,147			92,999			82,334
Total noninterest expense	89,589			89,408			85,875			355,253			352,390
Income before income taxes	17,745			30,598			14,833			93,678			39,133
Income tax benefit	3,201			0			0			292,043			0
Net income	$	20,946		$	30,598		$	14,833		$	385,721		$	39,133
Earnings per common share - basic	$	0.34		$	0.49		$	0.24		$	6.21		$	0.63
Earnings per common share - diluted	$	0.33		$	0.49		$	0.24		$	6.14		$	0.63
Dividends declared per share	$	0.65		$	0.15		$	0.00		$	0.80		$	0.00
Average common shares outstanding - basic	62,159,683			62,139,833			61,989,094			62,122,862			61,955,659
Average common shares outstanding - diluted	62,867,030			62,845,864			62,194,011			62,772,079			62,231,208

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA



(in thousands, unaudited)	Three Months Ended									Twelve Months Ended
	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011			Dec 31, 2012			Dec 31, 2011
LOAN ORIGINATIONS AND PURCHASES:
Loan originations:
Residential real estate:
For sale	$	903,916		$	842,197		$	644,135		$	2,901,407		$	2,009,654
Permanent	75,101			77,650			23,406			228,048			89,240
Total residential real estate	979,017			919,847			667,541			3,129,455			2,098,894
Commercial real estate ("CRE"):
Investor CRE	26,451			14,889			875			63,986			42,551
Multifamily	261,254			144,560			179,601			813,495			720,192
Construction	6,487			776			6,452			8,931			19,557
Total commercial real estate	294,192			160,225			186,928			886,412			782,300
Commercial:
Owner occupied CRE	46,578			53,541			41,640			158,411			158,347
Commercial & Industrial ("C&I")	90,265			102,255			54,001			296,575			217,723
Total commercial	136,843			155,796			95,641			454,986			376,070
Consumer	55,578			63,435			40,315			255,459			138,203
Total loan originations	1,465,630			1,299,303			990,425			4,726,312			3,395,467
Total portfolio loan originations (excludes residential real estate for sale)	561,714			457,106			346,290			1,824,905			1,385,813
Loan purchases:
Residential real estate	328			1,646			3,166			76,736			13,417
Commercial real estate:
Investor CRE	2,345			0			0			2,345			48,584
Multifamily	249			292			147			932			2,896
Total commercial real estate	2,594			292			147			3,277			51,480
Commercial:
Owner occupied CRE	5,038			0			0			5,038			74,716
C&I	0			0			0			0			0
Total commercial	5,038			0			0			5,038			74,716
Consumer	19,313			41,567			0			71,620			0
Total loan purchases	27,273			43,505			3,313			156,671			139,613
Total loan originations and purchases	$	1,492,903		$	1,342,808		$	993,738		$	4,882,983		$	3,535,080
PERFORMANCE RATIOS:
Return on assets	0.88		%	1.28		%	0.64		%	4.10		%	0.42		%
Return on common equity	6.7		%	9.8		%	6.8		%	35.8		%	4.8		%
Operating efficiency (1)	70.1		%	69.7		%	76.8		%	71.1		%	74.7		%
Noninterest expense to assets	3.77		%	3.74		%	3.72		%	3.78		%	3.79		%
Average assets	$	9,447,551		$	9,520,530		$	9,146,430		$	9,410,562		$	9,303,539
Average common equity	$	1,252,222		$	1,237,205		$	861,186		$	1,078,542		$	818,965

(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, charge on prepayment of debt and net gain on MT branch disposition.

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA



(in thousands, unaudited)	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011
INVESTMENT PORTFOLIO DETAIL:
Available for sale:
MBS	$	1,308,838		$	1,825,448		$	2,320,934
Municipal bonds	204,306			205,405			207,456
Other	13			19,108			19,486
Total	$	1,513,157		$	2,049,961		$	2,547,876
Held to maturity:
Tax credits	$	206		$	1,716		$	1,747
Total	$	206		$	1,716		$	1,747
LOAN PORTFOLIO DETAIL:
Residential real estate	$	806,722		$	818,323		$	688,020
Commercial real estate:
Investor CRE	1,219,847			1,274,774			1,275,667
Multifamily	1,580,289			1,359,506			1,001,479
Construction	74,665			99,553			174,608
Total commercial real estate	2,874,801			2,733,833			2,451,754
Commercial:
Owner occupied CRE	1,276,591			1,304,224			1,272,461
C&I	540,499			517,588			431,693
Total commercial	1,817,090			1,821,812			1,704,154
Consumer	754,621			768,359			674,961
Gross loans receivable	6,253,234			6,142,327			5,518,889
Deferred loan fees, net	2,860			2,317			(252		)
Allowance for loan losses	(154,345		)	(154,279		)	(177,458		)
Net loans receivable	$	6,101,749		$	5,990,365		$	5,341,179
DEPOSITS DETAIL:
Noninterest bearing transaction	$	1,702,740		$	1,709,612		$	1,211,628
Interest bearing transaction	732,038			693,906			521,037
Savings and MMDA	2,262,369			2,286,832			2,092,283
Time deposits	1,738,970			2,049,560			2,660,870
Total deposits	$	6,436,117		$	6,739,910		$	6,485,818
Number of transaction accounts (whole numbers):
Noninterest bearing transaction accounts	187,628			194,997			172,707
Interest bearing transaction accounts	47,859			49,678			44,309
Total transaction accounts	235,487			244,675			217,016

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA



(in thousands, unaudited)	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of quarter	$	154,279		$	158,244		$	186,195
Provision	(500		)	2,000			2,000
Charge-offs:
Residential real estate	(1,218		)	(1,641		)	(3,323		)
Commercial real estate:
Investor CRE	(942		)	(2,329		)	(3,673		)
Multifamily	(357		)	(463		)	0
Construction	(189		)	(2,106		)	(3,112		)
Total commercial real estate	(1,488		)	(4,898		)	(6,785		)
Commercial:
Owner occupied CRE	(1,678		)	(1,544		)	(5,667		)
C&I	(130		)	(514		)	(1,441		)
Total commercial	(1,808		)	(2,058		)	(7,108		)
Consumer	(3,167		)	(1,882		)	(2,052		)
Total charge-offs	(7,681		)	(10,479		)	(19,268		)
Recoveries:
Residential real estate	53			137			388
Commercial real estate:
Investor CRE	104			694			1,145
Multifamily	262			347			1
Construction	4,144			2,532			4,951
Total commercial real estate	4,510			3,573			6,097
Commercial:
Owner occupied CRE	1,248			236			1,229
C&I	2,172			305			407
Total commercial	3,420			541			1,636
Consumer	264			263			410
Total recoveries	8,247			4,514			8,531
Net recoveries (charge-offs)	566			(5,965		)	(10,737		)
Allowance - loans, end of quarter	154,345			154,279			177,458
Reserve for unfunded commitments, beginning of quarter	7,771			7,952			9,376
Provision	500			0			2,000
Charge-offs	(269		)	(181		)	(1,347		)
Reserve for unfunded commitments, end of quarter	8,002			7,771			10,029
Total credit allowance	$	162,347		$	162,050		$	187,487
Net charge-offs to average loans (annualized)	(0.03		)%	0.37		%	0.71		%
Loan loss allowance to total loans	2.47		%	2.51		%	3.22		%
Total credit allowance to total loans	2.60		%	2.64		%	3.40		%
Loan loss allowance to nonperforming loans	83		%	73		%	62		%
Total credit allowance to nonperforming loans	88		%	76		%	65		%

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA



(in thousands, unaudited)	Dec 31, 2012			Sep 30, 2012			Dec 31, 2011
NONPERFORMING ASSETS:
Past 90 days due and accruing	$	0		$	0		$	0
Nonaccrual loans	121,113			146,095			210,221
Restructured loans	64,216			66,343			76,939
Total nonperforming loans	185,329			212,438			287,160
OREO	25,042			46,575			81,910
Total nonperforming assets	210,371			259,013			369,070
Specific reserve on nonperforming loans	(8,463		)	(10,104		)	(16,305		)
Net nonperforming assets	$	201,908		$	248,909		$	352,765
Nonperforming loans to total loans	2.96		%	3.46		%	5.20		%
Nonperforming assets to total assets	2.28		%	2.73		%	4.01		%
Loan delinquency ratio (60 days and over)	1.64		%	1.96		%	3.55		%
Classified assets	$	221,832		$	267,469		$	425,746
Classified assets to total assets	2.40		%	2.82		%	4.63		%
Classified assets to Sterling Bank Tier 1 capital plus total credit allowance	18		%	21		%	35		%
Nonperforming assets by collateral type:
Residential real estate	$	45,929		$	44,822		$	48,184
Commercial real estate:
Investor CRE	52,368			59,477			61,901
Multifamily	8,148			9,221			5,867
Construction	33,945			55,743			153,819
Total commercial real estate	94,461			124,441			221,587
Commercial:
Owner occupied CRE	58,292			71,448			77,920
C&I	3,985			12,072			14,899
Total commercial	62,277			83,520			92,819
Consumer	7,704			6,230			6,480
Total nonperforming assets	$	210,371		$	259,013		$	369,070
REGULATORY CAPITAL RATIOS:
Sterling Financial Corporation:
Tier 1 leverage ratio	12.0		%	12.7		%	11.4		%
Tier 1 risk-based capital ratio	17.3		%	17.6		%	17.8		%
Total risk-based capital ratio	18.6		%	18.9		%	19.1		%
Tier 1 common capital ratio	13.6		%	13.9		%	13.8		%
Sterling Bank:
Tier 1 leverage ratio	11.9		%	12.6		%	11.1		%
Tier 1 risk-based capital ratio	17.2		%	17.5		%	17.4		%
Total risk-based capital ratio	18.4		%	18.8		%	18.7		%
OTHER:
FTE employees at end of period (whole numbers)	2,532			2,527			2,496

Sterling Financial Corporation

AVERAGE BALANCE AND RATE



(in thousands, unaudited)	Three Months Ended
	Dec 31, 2012						Sep 30, 2012						Dec 31, 2011
	Average Balance		Interest Income/ Expense		Yields/Rates		Average Balance		Interest Income/ Expense		Yields/Rates		Average Balance		Interest Income/ Expense		Yields/Rates
ASSETS:
Loans:
Mortgage	$	4,062,917	$	47,241	4.65	%	$	3,863,670	$	47,757	4.94	%	$	3,557,298	$	45,255	5.09	%
Commercial and consumer	2,624,167		35,904		5.44	%	2,583,756		35,479		5.46	%	2,446,293		35,148		5.70	%
Total loans	6,687,084		83,145		4.96	%	6,447,426		83,236		5.15	%	6,003,591		80,403		5.34	%
MBS	1,593,455		8,810		2.21	%	1,762,950		10,361		2.35	%	2,273,767		14,535		2.56	%
Investments and cash	421,600		3,337		3.15	%	529,407		3,392		2.55	%	479,922		3,431		2.84	%
FHLB stock	98,131		0		0.00	%	99,160		0		0.00	%	99,159		0		0.00	%
Total interest earning assets	8,800,270		95,292		4.32	%	8,838,943		96,989		4.38	%	8,856,439		98,369		4.43	%
Noninterest earning assets	647,281						681,587						289,991
Total average assets	$	9,447,551					$	9,520,530					$	9,146,430
LIABILITIES and EQUITY:
Deposits:
Interest bearing transaction	$	717,169	63		0.04	%	$	684,906	73		0.04	%	$	514,312	107		0.08	%
Savings and MMDA	2,291,062		812		0.14	%	2,284,749		884		0.15	%	2,064,607		1,692		0.33	%
Time deposits	1,897,528		6,818		1.43	%	2,168,056		8,024		1.47	%	2,685,746		11,190		1.65	%
Total interest bearing deposits	4,905,759		7,693		0.62	%	5,137,711		8,981		0.70	%	5,264,665		12,989		0.98	%
Borrowings	1,412,411		10,454		2.94	%	1,358,348		11,702		3.43	%	1,706,022		12,531		2.91	%
Total interest bearing liabilities	6,318,170		18,147		1.14	%	6,496,059		20,683		1.27	%	6,970,687		25,520		1.45	%
Noninterest bearing transaction	1,742,565		0		0.00	%	1,656,318		0		0.00	%	1,192,639		0		0.00	%
Total funding liabilities	8,060,735		18,147		0.90	%	8,152,377		20,683		1.01	%	8,163,326		25,520		1.24	%
Other noninterest bearing liabilities	134,594						130,948						121,918
Total average liabilities	8,195,329						8,283,325						8,285,244
Total average equity	1,252,222						1,237,205						861,186
Total average liabilities and equity	$	9,447,551					$	9,520,530					$	9,146,430
Net interest income and spread (tax equivalent)			$	77,145	3.18	%			$	76,306	3.11	%			$	72,849	2.98	%
Net interest margin (tax equivalent)					3.49	%					3.43	%					3.26	%

Deposits:
Total interest bearing deposits	$	4,905,759	$	7,693	0.62	%	$	5,137,711	$	8,981	0.70	%	$	5,264,665	$	12,989	0.98	%
Noninterest bearing transaction	1,742,565		0		0.00	%	1,656,318		0		0.00	%	1,192,639		0		0.00	%
Total deposits	$	6,648,324	$	7,693	0.46	%	$	6,794,029	$	8,981	0.53	%	$	6,457,304	$	12,989	0.80	%

Sterling Financial Corporation

AVERAGE BALANCE AND RATE



(in thousands, unaudited)	Twelve Months Ended
	Dec 31, 2012						Dec 31, 2011
	Average Balance		Interest Income/ Expense		Yields/Rates		Average Balance		Interest Income/ Expense		Yields/Rates
ASSETS:
Loans:
Mortgage	$	3,834,111	$	188,563	4.92	%	$	3,484,108	$	177,992	5.11	%
Commercial and consumer	2,572,469		143,392		5.57	%	2,481,470		144,892		5.84	%
Total loans	6,406,580		331,955		5.18	%	5,965,578		322,884		5.41	%
MBS	1,890,314		47,442		2.51	%	2,375,515		71,216		3.00	%
Investments and cash	520,590		13,971		2.68	%	676,677		14,659		2.17	%
FHLB stock	98,893		0		0.00	%	99,531		0		0.00	%
Total interest earning assets	8,916,377		393,368		4.41	%	9,117,301		408,759		4.48	%
Noninterest earning assets	494,185						186,238
Total average assets	$	9,410,562					$	9,303,539
LIABILITIES and EQUITY:
Deposits:
Interest bearing transaction	$	657,231	334		0.05	%	$	503,091	504		0.10	%
Savings and MMDA	2,261,858		3,912		0.17	%	1,994,335		7,004		0.35	%
Time deposits	2,250,999		33,451		1.49	%	3,063,679		52,126		1.70	%
Total interest bearing deposits	5,170,088		37,697		0.73	%	5,561,105		59,634		1.07	%
Borrowings	1,470,244		46,825		3.18	%	1,703,782		49,463		2.90	%
Total interest bearing liabilities	6,640,332		84,522		1.27	%	7,264,887		109,097		1.50	%
Noninterest bearing transaction	1,559,828		0		0.00	%	1,093,252		0		0.00	%
Total funding liabilities	8,200,160		84,522		1.03	%	8,358,139		109,097		1.31	%
Other noninterest bearing liabilities	131,860						126,435
Total average liabilities	8,332,020						8,484,574
Total average equity	1,078,542						818,965
Total average liabilities and equity	$	9,410,562					$	9,303,539
Net interest income and spread (tax equivalent)			$	308,846	3.14	%			$	299,662	2.98	%
Net interest margin (tax equivalent)					3.46	%					3.29	%

Deposits:
Total interest bearing deposits	$	5,170,088	$	37,697	0.73	%	$	5,561,105	$	59,634	1.07	%
Noninterest bearing transaction	1,559,828		0		0.00	%	1,093,252		0		0.00	%
Total deposits	$	6,729,916	$	37,697	0.56	%	$	6,654,357	$	59,634	0.90	%

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, in California, as Sonoma Bank. Sterling offers banking products and services, mortgage lending, and trust and investment products to individuals, small businesses, corporations and other commercial organizations. As of December 31, 2012, Sterling had assets of $9.24 billion and operated depository branches in Washington, Oregon, Idaho 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; 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.

CONTACT:

Sterling Financial Corporation

Media contact:

Cara Coon, 509-626-5348

cara.coon@bankwithsterling.com

Investor contact:

Patrick Rusnak, 509-227-0961

pat.rusnak@bankwithsterling.com

STERLING FINANCIAL CORP /WA/ - FORM 8-K - EX-99.1 - RESULTS OF OPERATIONS - January 25, 2013

Attached files

STERLING FINANCIAL CORP /WA/ Reports