Edgar Filing: STERLING FINANCIAL CORP /WA/

a6688893.htm

Filed Pursuant to Rule 424(B)(3)

Registration Statement No. 333-169579

PROSPECTUS SUPPLEMENT

(To Prospectus dated November 16, 2010)

STERLING FINANCIAL CORPORATION

63,764,208 Shares of Common Stock
Warrants to Purchase 2,722,541 Shares of Common Stock

_____________________________

RECENT DEVELOPMENTS

We have attached to this prospectus supplement, and incorporated by reference into it, our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2011.

_____________________________

April 20, 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 19, 2011

STERLING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Washington	001-34696	91-1572822
(State or other jurisdiction of	(Commission File Number)	(I.R.S. Employer
incorporation or organization)		Identification No.)

111 North Wall Street, Spokane, Washington 99201

(Address of principal executive offices) (Zip Code)

(509) 458-3711

(Registrant's telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Item 2.02. Results of Operations and Financial Condition.

On April 19, 2011, Sterling Financial Corporation ("Sterling") issued a press release regarding its results of operations and financial condition for the quarter ended March 31, 2011. The text of the press release is included as Exhibit 99.1 to this report. The information included in the press release is considered to be "furnished" under the Securities Exchange Act of 1934. Sterling will include final financial statements and additional analyses for the period ended March 31, 2011, as part of its quarterly report on Form 10-Q covering that period.

Item 9.01. Financial Statements and Exhibits.

(d) The following exhibit is being furnished herewith:

Exhibit No. Exhibit Description

99.1 Press release text of Sterling Financial Corporation dated April 19, 2011.

S I G N A T U R E

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	STERLING FINANCIAL CORPORATION
	(Registrant)


April 19, 2011	By:	/s/ Patrick J. Rusnak
		Patrick J. Rusnak
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No. Exhibit Description

99.1 Press release text of Sterling Financial Corporation dated April 19, 2011.

Exhibit 99.1

111. North Wall Street Spokane, Wash. 99201-0696		Media contact: (509) 626-5348 Cara Coon cara.coon@sterlingsavings.com
		Investor contact: Patrick Rusnak (509) 227-0961 Daniel Byrne (509) 458-3711 David Brukardt (509) 863-5423

Sterling Financial Corporation of Spokane, Wash. Reports First-Quarter 2011 Earnings and Operating Results

SPOKANE, Wash.--(BUSINESS WIRE)--April 19, 2011--Sterling Financial Corporation (NASDAQ:STSA), the bank holding company of Sterling Savings Bank, today announced results for the quarter ended March 31, 2011. For the quarter, Sterling recorded net income attributable to common shareholders of $5.4 million, or $0.09 per common share, compared to a net loss of $88.8 million, or $112.70 per common share for the first quarter of 2010 (per share amounts adjusted for a 1-for-66 reverse stock split in November 2010).

For the first quarter, Sterling reported a lower provision for credit losses of $10.0 million, compared to $88.6 million for the first quarter of 2010. Net charge-offs for the reporting period were $24.1 million, compared to $136.5 million for the same period a year ago. Non-interest income increased $4.7 million and non-interest expense decreased by $7.7 million from the same period last year. Improvements in asset quality metrics included notable decreases in delinquent loans, classified assets and nonperforming assets.

“The first quarter financial results and the return to profitability reflect the efforts to reposition Sterling that were initiated over a year ago,” said Greg Seibly, Sterling president and chief executive officer. “While we still have work to do towards the resolution of our remaining troubled assets, Sterling gained significant momentum and we believe we are on the right track for growth in loans and core deposits, and improved earnings.”

Following are selected financial metrics for the first quarter of 2011:

●	Net interest margin expanded to 3.22 percent, improving 42 basis points during the quarter, and 37 basis points from the first quarter of 2010.

●	Total funding costs were reduced by 38 basis points from the same period last year.

●	Nonperforming assets decreased $187.4 million, or 23 percent, to $628.8 million during the first quarter of 2011, and are down 41 percent from the same period in 2010.

●	The loan loss allowance at March 31, 2011 was $232.9 million, or 4.19 percent of total loans, compared to $294.8 million, or 4.19 percent of total loans at March 31, 2010.

●	Tier 1 leverage ratio increased to 10.6 percent at March 31, 2011, from 2.6 percent a year ago, and tangible common equity to tangible assets increased to 8.1 percent at March 31, 2011.

Balance Sheet Management

Seibly said, “During the quarter, Sterling continued to focus on its primary goals: improving the mix of deposits, resolving problem assets, managing operating expenses, and increasing loan production to qualified borrowers, with the expectation that this focus will ultimately drive sustainable profits. Our special assets team has reduced Sterling’s exposure to problem assets, and our deposit shift has resulted in lower funding costs at the bank. We have attracted new loan production talent to expand our reach to customers within our footprint, and are pursuing lending relationships that are consistent with our business plan.”

	Mar 31, 2011				Dec 31, 2010				Mar 31, 2010
			% of				% of				% of		Annual
	Amount		Loans		Amount		Loans		Amount		Loans		% Change
	(in thousands)
Total assets	$	9,352,469			$	9,493,169			$	10,554,567			-11	%
Investments and MBS		2,820,772				2,838,474				1,986,397			42	%
Loans receivable:
Residential real estate		719,458	13	%		758,410	14	%		812,517	12	%	-11	%
Multifamily real estate		638,250	12	%		517,022	9	%		496,368	7	%	29	%
Commercial real estate		1,400,867	25	%		1,314,657	23	%		1,380,955	20	%	1	%
Construction		396,300	7	%		525,668	9	%		1,282,585	18	%	-69	%
Consumer		715,206	13	%		744,068	13	%		858,486	12	%	-17	%
Commercial banking		1,686,573	30	%		1,770,426	32	%		2,215,241	31	%	-24	%
Gross loans receivable	$	5,556,654	100	%	$	5,630,251	100	%	$	7,046,152	100	%	-21	%

During the first quarter, gross loan balances declined $73.6 million, including anticipated reductions in construction loans that totaled $129.4 million. Multifamily real estate originations increased $92.2 million from the linked quarter, reflecting Sterling’s strategic focus on multifamily lending, principally within its footprint. Loan purchases included $100.8 million of seasoned commercial real estate loans for both owner-occupied and non-owner-occupied properties within Sterling’s footprint.

	Mar 31,		Dec 31,		Mar 31,		Annual
	2011		2010		2010		% Change
Deposits:	(in thousands)
Retail	$	5,701,174	$	5,865,954	$	6,037,527	-6%
Brokered		331,726		249,029		722,957	-54%
Public		691,527		796,024		864,655	-20%
Total deposits	$	6,724,427	$	6,911,007	$	7,625,139	-12%
Net loans to deposits		79%		78%		88%	-9%
							Annual Basis
							Point Change
Funding costs:
Cost of deposits		1.01%		1.13%		1.45%	(44)
Total funding liabilities		1.39%		1.56%		1.77%	(38)

Sterling’s total deposits were $6.72 billion at March 31, 2011, down from $6.91 billion at the end of 2010 and from $7.63 billion a year ago. The decrease during the first quarter reflects the expected reduction in retail CDs, as Sterling allowed some higher-rate CDs to run off, thereby improving the deposit mix and reducing funding costs. This run-off was partially offset by the increase in transaction, savings and MMDA accounts. Also contributing to the reduction of funding costs was a prepayment of $295.0 million in FHLB borrowings during the fourth quarter of 2010. Total funding costs declined to 1.39 percent for the first quarter of 2011, compared to 1.56 percent for the linked quarter and 1.77 percent for the same period a year ago.

As of March 31, 2011, Sterling had total shareholders’ equity of $774.5 million, compared to $770.8 million as of Dec. 31, 2010, and $245.5 million as of March 31, 2010. Sterling’s ratio of shareholders’ equity to total assets was 8.28 percent at the end of the first quarter of 2011, compared to 8.12 percent at the end of the fourth quarter of 2010 and 2.33 percent at the end of the first quarter 2010. The increase from a year ago in both total shareholders’ equity and the ratio of shareholders’ equity to total assets was primarily due to the $730.0 million capital raise completed in August 2010.

Operating Results

Net Interest Income

Sterling reported net interest income of $73.7 million for the quarter ending March 31, 2011, compared to $68.6 million in the linked quarter and $74.9 million for the quarter ended March 31, 2010.

	Three Months Ended
	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
	(in thousands)
Net interest income	$	73,743		$	68,607		$	74,890
Net interest margin (tax equivalent)		3.22	%		2.80	%		2.85	%

Improvements in both net interest income and net interest margin during the quarter as compared to the linked quarter primarily reflect the decline in nonperforming assets and reduced deposit and borrowing funding costs. The reversal of interest income from nonperforming loans reduced the net interest margin by 53 basis points for the first quarter of 2011, and 63 basis points for the fourth quarter of 2010.

Non-interest Income

Non-interest income includes income from mortgage banking operations, fee and service-charges income, and other items such as net gains on sales of securities and loan servicing fees. For the first quarter of 2011, non-interest income was $30.0 million, compared to $30.8 million for the linked quarter and $25.3 million for the same period a year ago.

Income from mortgage banking operations during the reporting period totaled $10.3 million, down from $20.2 million during the prior quarter, and $11.2 million from the year-ago period, reflecting a lower level of refinancing activity due to higher mortgage rates. The decrease from the linked quarter is a result of lower residential loan originations, compounded by lower margins on loan sales. The table below highlights residential loan originations and sales for the periods indicated.

	Three Months Ended
	Mar 31,		Dec 31,		Mar 31,		Annual
	2011		2010		2010		% Change
	(in thousands)
Loan originations - residential real estate for sale	$	363,118	$	715,843	$	414,443	-12%
Loan sales - residential		498,310		757,558		486,605	2%
							Annual Basis
							Point Change
Margin - residential loan sales		2.48%		2.80%		2.07%	41

For the quarter ended March 31, 2011, fees and service charges income contributed $12.6 million to non-interest income, compared to $13.6 million in the linked quarter and $13.0 million in the same period last year. The reduction in fees and service charges income in the first quarter is primarily related to lower non-sufficient funds fees and loan fees.

For the quarter ended March 31, 2011, Sterling recorded a gain on sales of securities of $6.0 million, compared to $1.5 million for the linked quarter and $1.9 million for the same period a year ago. During the fourth quarter of 2010, Sterling took a charge on the prepayment of FHLB borrowings of $11.3 million, which reduced non-interest income; no such charge was taken during the first quarters of 2011 or 2010.

Non-interest Expense

Non-interest expense was $88.3 million for the first quarter of 2011, compared to $107.5 million in the linked quarter and $96.0 million for the first quarter of 2010. The decline compared to the linked quarter was principally the result of lower other-real-estate-owned (OREO) expenses, which declined by $12.6 million, or 52 percent compared to the fourth quarter of 2010. The $7.7 million reduction of non-interest expense compared to the first quarter of last year reflects lower Federal Deposit Insurance Corporation deposit insurance premiums and lower professional fees.

Income Taxes

During the first quarter, Sterling did not recognize any federal or state tax expense, as the income tax expense for the quarter was offset by a reduction in the deferred tax valuation allowance.

Sterling uses an estimate of future earnings and an evaluation of its loss carryback ability and tax planning strategies to determine whether it is more likely than not that it will realize the benefit of its net deferred tax asset. Sterling has determined that it does not at this time meet the required threshold, and accordingly, has a valuation against its deferred tax asset. As of March 31, 2011, the reserved deferred tax asset was approximately $358 million, including approximately $271 million of net operating loss carry-forwards.

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 has adopted a shareholder rights plan, both of which restrict certain transfers of stock that would result in investors acquiring more than 4.95 percent of Sterling’s total outstanding common stock.

Credit Quality

For the first quarter of 2011, Sterling recorded a $10.0 million provision for credit losses, compared to $30.0 million for the linked quarter, and $88.6 million for the first quarter of 2010. The reduced level of credit loss provisioning reflects improvement in asset quality as evidenced by the decline in nonperforming loans and charge-offs.

Nonperforming assets were $628.8 million at March 31, 2011, compared to $816.3 million at Dec. 31, 2010, and $1.06 billion at March 31, 2010. At March 31, 2011, nonperforming assets as a percentage of total assets was 6.72 percent, compared to 8.60 percent at Dec. 31, 2010, and 10.07 percent at March 31, 2010. During the first quarter, Sterling returned to performing status $92.2 million of previously impaired loans; the loans had been current for at least six months and were expected to continue to perform in accordance with original loan terms. Seibly said, “Our asset quality metrics continue to improve throughout the portfolio, and we remain focused on maintaining this favorable trend. We have been consistent at marking our nonperforming portfolio to reflect current market collateral values, which has facilitated timely resolutions. We continue to closely monitor our portfolio and the key economic factors in the markets we serve. We expect that the trends in our markets will continue to recover and that our asset quality metrics will continue to improve.”

The following table shows an analysis of Sterling’s nonperforming assets by loan category and geographic region as of the dates indicated.

Nonperforming Asset Analysis
	Mar 31,					Dec 31,					Mar 31,
	2011					2010					2010
Residential construction	(in thousands)
Puget Sound	$	35,617		6	%	$	55,365		7	%	$	147,982		14	%
Portland, OR		35,594		6	%		48,781		6	%		111,094		10	%
Vancouver, WA		7,697		1	%		12,455		2	%		17,580		2	%
Northern California		5,555		1	%		9,474		1	%		19,231		2	%
Southern California		3,558		1	%		4,574		1	%		7,647		1	%
Bend, OR		1,199		0	%		7,479		1	%		19,544		2	%
Boise, ID		1,034		0	%		2,614		0	%		14,814		1	%
Utah		363		0	%		757		0	%		2,210		0	%
Other		21,467		3	%		24,161		3	%		55,222		5	%
Total residential construction		112,084		18	%		165,660		21	%		395,324		37	%
Commercial construction
Puget Sound		32,243		5	%		48,619		6	%		37,601		4	%
Northern California		25,022		4	%		45,132		6	%		30,976		3	%
Southern California		17,956		3	%		27,227		3	%		39,833		4	%
Other		75,314		12	%		76,860		9	%		85,210		8	%
Total commercial construction		150,535		24	%		197,838		24	%		193,620		19	%
Multifamily construction
Puget Sound		39,221		6	%		41,407		5	%		47,289		4	%
Portland, OR		5,817		1	%		7,420		1	%		15,497		1	%
Other		16,933		3	%		17,965		2	%		27,269		3	%
Total multifamily construction		61,971		10	%		66,792		8	%		90,055		8	%
Total construction		324,590		52	%		430,290		53	%		678,999		64	%
Commercial banking		109,003		17	%		110,872		14	%		144,893		14	%
Commercial real estate		80,626		13	%		123,146		15	%		92,379		9	%
Residential real estate		83,173		13	%		115,923		14	%		82,863		8	%
Multifamily real estate		21,089		3	%		25,806		3	%		54,767		5	%
Consumer		10,360		2	%		10,253		1	%		8,838		0	%
Total nonperforming assets	$	628,841		100	%	$	816,290		100	%	$	1,062,739		100	%
Specific reserve - loans		(21,483	)				(21,237	)				(19,025	)
Net nonperforming assets (1)	$	607,358				$	795,053				$	1,043,714

(1) Net of cumulative confirmed losses on loans and OREO of $418.2 million for Mar. 31, 2011, $516.3 million for Dec. 31, 2010, and $626.3 million for Mar. 31, 2010.

First-Quarter 2011 Earnings Conference Call

Sterling plans to host a conference call April 20, 2011 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 1-773-756-4806 approximately five minutes before the scheduled start time. You will be asked by the operator to identify yourself and provide the password “STERLING” to enter the call. A webcast replay of the conference call will be available on Sterling’s website approximately one hour following the completion of the call. The webcast replay will be offered through May 20, 2011.

Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts, unaudited)	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
ASSETS:
Cash and due from banks	$	436,377		$	427,264		$	1,069,718
Investments and mortgage-backed securities ("MBS") available for sale		2,808,030			2,825,010			1,969,609
Investments held to maturity		12,742			13,464			16,788
Loans held for sale (at fair value: $136,447, $222,216 and $152,065)		136,447			222,216			153,342
Loans receivable, net		5,320,884			5,379,081			6,745,370
Other real estate owned, net ("OREO")		151,774			161,653			103,973
Office properties and equipment, net		85,542			81,094			89,281
Bank owned life insurance ("BOLI")		171,093			169,288			164,235
Core deposit intangibles, net		15,704			16,929			20,603
Prepaid expenses and other assets, net		213,876			197,170			221,648
Total assets	$	9,352,469		$	9,493,169		$	10,554,567

LIABILITIES:
Deposits	$	6,724,427		$	6,911,007		$	7,625,139
Advances from Federal Home Loan Bank		407,142			407,211			1,267,026
Repurchase agreements and fed funds		1,051,995			1,032,512			1,025,385
Other borrowings		245,286			245,285			248,282
Accrued expenses and other liabilities		149,159			126,387			143,274
Total liabilities		8,578,009			8,722,402			10,309,106

SHAREHOLDERS' EQUITY:
Preferred stock		0			0			294,665
Common stock		1,961,763			1,960,871			963,173
Accumulated comprehensive loss:
Unrealized gain (loss) on investments and MBS (1)		(6,795	)		(4,179	)		26,425
Accumulated deficit		(1,180,508	)		(1,185,925	)		(1,038,802	)
Total shareholders' equity		774,460			770,767			245,461
Total liabilities and shareholders' equity	$	9,352,469		$	9,493,169		$	10,554,567

Book value per common share (2)	$	12.50		$	12.45		$	(62.24	)
Tangible book value per common share (2)	$	12.25		$	12.17		$	(88.30	)
Shareholders' equity to total assets		8.3	%		8.1	%		2.3	%
Tangible common equity to tangible assets (3)		8.1	%		8.0	%		-0.7	%
Common shares outstanding at end of period (2)		61,937,273			61,926,187			790,550
Common stock warrants outstanding (2)		2,722,541			2,722,541			97,541

(1) Net of deferred income taxes.
(2) Reflects the 1-for-66 reverse stock split in Nov 2010.
(3) Common shareholders' equity less intangibles divided by assets less intangibles.

Sterling Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts, unaudited)	Three Months Ended
	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
INTEREST INCOME:
Loans	$	80,387		$	82,825		$	96,976
Mortgage-backed securities		20,034			18,237			19,826
Investments and cash		2,816			2,716			2,690
Total interest income		103,237			103,778			119,492

INTEREST EXPENSE:
Deposits		17,294			19,554			27,451
Borrowings		12,200			15,617			17,151
Total interest expense		29,494			35,171			44,602

Net interest income		73,743			68,607			74,890
Provision for credit losses		(10,000	)		(30,000	)		(88,556	)
Net interest income after provision		63,743			38,607			(13,666	)

NONINTEREST INCOME:
Fees and service charges		12,561			13,646			13,035
Mortgage banking operations		10,327			20,210			11,232
Loan servicing fees		1,101			4,144			1,146
BOLI		1,732			1,882			2,295
Gains on sales of securities		6,001			1,480			1,911
Charge on prepayment of debt		0			(11,296	)		0
Other		(1,740	)		716			(4,322	)
Total noninterest income		29,982			30,782			25,297

NONINTEREST EXPENSE:
Employee compensation and benefits		43,850			45,315			40,059
OREO		11,400			23,993			10,923
Occupancy and equipment		12,834			13,462			13,514
Amortization of core deposit intangibles		1,225			1,224			1,225
Other		18,999			23,536			30,256
Total noninterest expense		88,308			107,530			95,977

Income (loss) before income taxes		5,417			(38,141	)		(84,346	)
Income tax (provision) benefit		0			0			0
Net income (loss)		5,417			(38,141	)		(84,346	)
Preferred stock dividend		0			0			(4,412	)
Other shareholder allocations (1)		0			(604,592	)		0
Net income (loss) available to common shareholders	$	5,417		$	(642,733	)	$	(88,758	)

Earnings per common share - basic (2)	$	0.09		$	(12.79	)	$	(112.70	)
Earnings per common share - diluted (2)	$	0.09		$	(12.79	)	$	(112.70	)

Average common shares outstanding - basic (2)		61,930,783			50,235,894			787,576
Average common shares outstanding - diluted (2)		62,335,212			50,235,894			787,576

(1) The October 22, 2010 conversion of Series B and D preferred stock into common stock resulted in a decrease in income available to common shareholders.
(2) Reflects the 1-for-66 reverse stock split in Nov 2010.

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)	Three Months Ended
	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
LOAN ORIGINATIONS AND PURCHASES:
Loan originations:
Residential real estate:
For sale	$	363,118		$	715,843		$	414,443
Permanent		24,363			61,395			16,614
Total residential real estate		387,481			777,238			431,057
Multifamily real estate		119,846			27,642			750
Commercial real estate		34,130			30,180			32,090
Construction:
Residential		4,196			6,502			3,591
Multifamily		0			0			0
Commercial		0			0			500
Total construction		4,196			6,502			4,091
Consumer		28,357			19,449			28,287
Commercial banking		54,390			35,098			45,928
Total loan originations		628,400			896,109			542,203
Loan purchases:
Residential real estate		7,550			0			0
Multifamily real estate		2,440			82,702			0
Commercial real estate		100,805			0			0
Total loan purchases		110,795			82,702			0
Total loan originations and purchases	$	739,195		$	978,811		$	542,203

PERFORMANCE RATIOS:
Return on assets		0.23	%		-1.53	%		-3.20	%
Return on common equity		2.9	%		-309.1	%		N/A
Operating efficiency		85	%		108	%		96	%
Noninterest expense to assets		3.77	%		4.31	%		3.64	%
Average assets	$	9,500,882		$	9,894,238		$	10,693,901
Average common equity	$	769,544		$	824,963		$	(916	)

REGULATORY CAPITAL RATIOS:
Sterling Financial Corporation:
Tier 1 leverage ratio		10.6	%		10.1	%		2.6	%
Tier 1 risk-based capital ratio		16.5	%		16.2	%		3.7	%
Total risk-based capital ratio		17.8	%		17.5	%		6.9	%
Sterling Savings Bank:
Tier 1 leverage ratio		10.3	%		9.8	%		3.8	%
Tier 1 risk-based capital ratio		16.0	%		15.7	%		5.3	%
Total risk-based capital ratio		17.3	%		17.0	%		6.7	%

OTHER:
Sales of financial products	$	39,703		$	40,831		$	34,698
FTE employees at end of period (whole numbers)		2,493			2,498			2,555

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
INVESTMENT PORTFOLIO DETAIL:
Available for sale
MBS	$	2,584,302		$	2,602,610		$	1,760,978
Municipal bonds		200,859			201,143			186,478
Other		22,869			21,257			22,153
Total	$	2,808,030		$	2,825,010		$	1,969,609

Held to maturity
Tax credits	$	12,742		$	13,464		$	16,788
Total	$	12,742		$	13,464		$	16,788

LOAN PORTFOLIO DETAIL:
Residential real estate	$	719,458		$	758,410		$	812,517
Multifamily real estate		638,250			517,022			496,368
Commercial real estate		1,400,867			1,314,657			1,380,955
Construction:
Residential		106,051			156,853			540,430
Multifamily		72,885			90,518			223,056
Commercial		217,364			278,297			519,099
Total construction		396,300			525,668			1,282,585
Consumer		715,206			744,068			858,486
Commercial banking		1,686,573			1,770,426			2,215,241
Gross loans receivable		5,556,654			5,630,251			7,046,152
Deferred loan fees, net		(2,826	)		(4,114	)		(5,984	)
Allowance for losses on loans		(232,944	)		(247,056	)		(294,798	)
Net loans receivable	$	5,320,884		$	5,379,081		$	6,745,370

DEPOSITS DETAIL:
Interest-bearing transaction	$	499,805		$	497,395		$	949,515
Noninterest-bearing transaction		1,007,684			992,368			997,701
Savings and MMDA		1,972,781			1,886,425			1,634,982
Time deposits - brokered		331,726			249,029			722,957
Time deposits - retail		2,912,431			3,285,790			3,319,984
Total deposits	$	6,724,427		$	6,911,007		$	7,625,139

Number of transaction accounts (whole numbers):
Interest-bearing transaction accounts		44,648			46,332			52,898
Noninterest-bearing transaction accounts		169,304			165,821			157,509
Total transaction accounts		213,952			212,153			210,407

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
(in thousands, unaudited)	Mar 31,			Dec 31,			Mar 31,
	2011			2010			2010
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of quarter	$	247,056		$	248,505		$	343,443
Provision		10,000			30,000			87,890
Charge-offs:
Residential real estate		(6,816	)		(10,580	)		(4,721	)
Multifamily real estate		(211	)		(920	)		(10,380	)
Commercial real estate		(1,648	)		(7,093	)		(15,005	)
Construction:
Residential		(7,538	)		(11,533	)		(69,731	)
Multifamily		(83	)		(1,968	)		(10,688	)
Commercial		(1,718	)		(4,205	)		(24,089	)
Total construction		(9,339	)		(17,706	)		(104,508	)
Consumer		(2,146	)		(2,791	)		(3,721	)
Commercial banking		(9,584	)		(1,257	)		(5,524	)
Total charge-offs		(29,744	)		(40,347	)		(143,859	)
Recoveries:
Residential real estate		250			1,340			120
Multifamily real estate		1			44			0
Commercial real estate		578			118			165
Construction:
Residential		3,407			3,271			3,091
Multifamily		130			483			0
Commercial		150			187			3,200
Total construction		3,687			3,941			6,291
Consumer		621			402			503
Commercial banking		495			3,053			245
Total recoveries		5,632			8,898			7,324
Net charge-offs		(24,112	)		(31,449	)		(136,535	)
Transfers		0			0			0
Allowance - loans, end of quarter		232,944			247,056			294,798
Allowance - unfunded commitments, beginning of quarter		10,707			11,017			11,967
Provision		0			0			666
Charge-offs		(66	)		(310	)		(310	)
Transfers		0			0			0
Allowance - unfunded commitments, end of quarter		10,641			10,707			12,323
Total credit allowance	$	243,585		$	257,763		$	307,121

Net charge-offs to average net loans (annualized)		1.64	%		1.97	%		6.93	%
Net charge-offs to average net loans (ytd)		0.41	%		4.86	%		1.71	%
Loan loss allowance to total loans		4.19	%		4.39	%		4.19	%
Total credit allowance to total loans		4.39	%		4.58	%		4.36	%
Loan loss allowance to nonperforming loans		49	%		38	%		31	%
Loan loss allowance to nonperforming loans excluding nonaccrual loans carried at fair value		161	%		195	%		169	%
Total allowance to nonperforming loans		51	%		39	%		32	%

NONPERFORMING ASSETS:
Past 90 days due	$	0		$	0		$	0
Nonaccrual loans		380,388			546,133			821,981
Restructured loans		96,679			108,504			136,785
Total nonperforming loans		477,067			654,637			958,766
OREO		151,774			161,653			103,973
Total nonperforming assets		628,841			816,290			1,062,739
Specific reserve on nonperforming loans		(21,483	)		(21,237	)		(19,025	)
Net nonperforming assets	$	607,358		$	795,053		$	1,043,714
Nonperforming loans to total loans		8.59	%		11.64	%		13.62	%
Nonperforming assets to total assets		6.72	%		8.60	%		10.07	%
Loan delinquency ratio (60 days and over)		6.34	%		7.19	%		9.66	%
Classified assets		811,831			1,099,535		$	1,616,192
Classified assets to total assets		8.68	%		11.58	%		15.31	%

Nonperforming assets by collateral type:
Residential real estate	$	83,173		$	115,923		$	82,863
Multifamily real estate		21,089			25,806			54,767
Commercial real estate		80,626			123,146			92,379
Construction:
Residential		112,084			165,660			395,324
Multifamily		61,971			66,792			90,055
Commercial		150,535			197,838			193,620
Total Construction		324,590			430,290			678,999
Consumer		10,360			10,253			8,838
Commercial banking		109,003			110,872			144,893
Total nonperforming assets	$	628,841		$	816,290		$	1,062,739

Sterling Financial Corporation
AVERAGE BALANCE AND RATE
(in thousands, unaudited)	Three Months Ended
	Mar 31, 2011						Dec 31, 2010						Mar 31, 2010
			Interest						Interest							Interest
	Average		Income/		Yields/		Average		Income/		Yields/		Average			Income/		Yields/
	Balance		Expense		Rates		Balance		Expense		Rates		Balance			Expense		Rates
ASSETS:
Loans:
Mortgage	$	3,428,296	$	43,111	5.04	%	$	3,685,518	$	42,773	4.64	%	$	4,704,576		$	49,897	4.25	%
Commercial and consumer		2,520,610		37,393	6.02	%		2,643,156		40,186	6.03	%		3,285,954			47,242	5.83	%
Total loans		5,948,906		80,504	5.45	%		6,328,674		82,959	5.22	%		7,990,530			97,139	4.90	%
MBS		2,590,546		20,034	3.09	%		2,598,482		18,237	2.81	%		1,792,460			19,826	4.42	%
Investments and cash		792,959		3,900	1.99	%		825,991		3,581	1.72	%		962,400			3,887	1.64	%
FHLB stock		99,953		0	0.00	%		100,125		0	0.00	%		100,682			0	0.00	%
Total interest-earning assets		9,432,364		104,438	4.46	%		9,853,272		104,777	4.24	%		10,846,072			120,852	4.49	%
Noninterest-earning assets		68,518						40,966						(152,171	)
Total average assets	$	9,500,882					$	9,894,238					$	10,693,901

LIABILITIES and EQUITY:
Deposits:
Interest-bearing transaction accounts	$	493,651		146	0.12	%	$	629,995		244	0.15	%	$	1,040,020			863	0.34	%
Savings and MMDA		1,959,561		1,970	0.41	%		1,784,893		2,008	0.45	%		1,557,907			2,949	0.77	%
Time deposits		3,453,419		15,178	1.78	%		3,454,372		17,302	1.99	%		4,070,961			23,639	2.35	%
Total interest-bearing deposits		5,906,631		17,294	1.19	%		5,869,260		19,554	1.32	%		6,668,888			27,451	1.67	%
Borrowings		1,694,391		12,200	2.92	%		2,033,896		15,617	3.05	%		2,564,223			17,155	2.71	%
Total interest-bearing liabilities		7,601,022		29,494	1.57	%		7,903,156		35,171	1.77	%		9,233,111			44,606	1.96	%
Noninterest-bearing transaction accounts		1,005,290		0	0.00	%		1,015,963		0	0.00	%		991,447			0	0.00	%
Total funding liabilities		8,606,312		29,494	1.39	%		8,919,119		35,171	1.56	%		10,224,558			44,606	1.77	%
Other noninterest-bearing liabilities		125,026						150,156						175,939
Total average liabilities		8,731,338						9,069,275						10,400,497
Total average equity		769,544						824,963						293,404
Total average liabilities and equity	$	9,500,882					$	9,894,238					$	10,693,901

Net interest income and spread (tax equivalent)			$	74,944	2.89	%			$	69,606	2.47	%				$	76,246	2.53	%

Net interest margin (tax equivalent)					3.22	%					2.80	%						2.85	%

Deposits:
Total interest-bearing deposits	$	5,906,631	$	17,294	1.19	%	$	5,869,260	$	19,554	1.32	%	$	6,668,888		$	27,451	1.67	%
Noninterest-bearing transaction accounts		1,005,290		0	0.00	%		1,015,963		0	0.00	%		991,447			0	0.00	%
Total deposits	$	6,911,921	$	17,294	1.01	%	$	6,885,223	$	19,554	1.13	%	$	7,660,335		$	27,451	1.45	%

Sterling Financial Corporation
EXHIBIT A- RECONCILIATION SCHEDULE
(in thousands, unaudited)	Three Months Ended
	Mar 31,		Dec 31,			Mar 31,
	2011		2010			2010

Income (loss) before income taxes	$	5,417	$	(38,141	)	$	(84,346	)
Provision for credit losses		10,000		30,000			88,556
OREO		11,400		23,993			10,923
Interest reversal on nonperforming loans		12,271		15,527			23,158
Charge on prepayment of debt		0		11,296			0
Total (1)	$	39,088	$	42,675		$	38,291

(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.

About Sterling Financial Corporation

Sterling Financial Corporation of Spokane, Wash., is the bank holding company for Sterling Savings Bank, a state chartered and federally insured commercial bank. Sterling offers banking products and services, mortgage lending, construction financing and investment products to individuals, small businesses, commercial organizations and corporations. As of March 31, 2011, Sterling Financial Corporation had assets of $9.35 billion and operated 178 depository branches throughout Washington, Oregon, Idaho, Montana and California. Visit Sterling’s website at www.sterlingfinancialcorporation-spokane.com.

Forward-Looking Statements

This release contains forward-looking statements that are not historical facts and that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, but are not limited to, statements about Sterling’s plans, objectives, expectations, strategy 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 complete recovery plans, and Sterling’s ability to reduce future loan losses, improve its deposit mix, execute its asset resolution initiatives, execute its lending initiatives, contain costs, realize operating efficiencies 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 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; and Sterling’s ability to comply with regulatory actions and agreements. Other factors that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements may be found under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Sterling’s Annual Report on Form 10-K, as updated periodically in Sterling’s filings with the Securities and Exchange Commission. Unless legally required, Sterling disclaims any obligation to update any forward-looking statements.

CONTACT:

Sterling Financial Corporation

Media contact:

Cara Coon, 509-626-5348

cara.coon@sterlingsavings.com

Investor contact:

Patrick Rusnak, 509-227-0961

Daniel Byrne, 509-458-3711

David Brukardt, 509-863-5423