Sterling Financial Corporation of Spokane, Wash., Reports Third Quarter 2013 Earnings and Declares Quarterly Cash Dividend

Business Wire

SPOKANE, Wash.--(BUSINESS WIRE)--

Sterling Financial Corporation (STSA) ("Sterling") today announced its operating results for the quarter ended September 30, 2013. Sterling recorded net income of $21.0 million, or $0.33 per diluted common share, compared to $27.8 million, or $0.44 per diluted common share, for the quarter ended June 30, 2013, and $30.6 million, or $0.49 per diluted common share, for the quarter ended September 30, 2012.

Following are selected financial highlights for the third quarter of 2013:

  • Gross loans expanded by 9 percent (annualized).
  • Deposits expanded by 14 percent (annualized).
  • Loan delinquency ratio (60 days and over) was 0.73 percent, down from 0.92 percent for the prior quarter.
  • A special dividend of $0.35 per share was paid on July 12, 2013, and a quarterly cash dividend of $0.20 per share was paid on August 20, 2013.
  • Sterling announced that it will merge with Umpqua Holdings Corporation, creating the largest community bank on the West Coast.

"Our third quarter operating results reflect a substantial reduction in mortgage banking activity and elevated merger-related expenses," said Greg Seibly, Sterling's president and chief executive officer. "With the exception of these two items, our core banking performance was solid. We continued to expand loans, reduce funding costs and improve asset quality metrics."

Operating Results

Net Interest Income

Sterling reported net interest income of $82.5 million for the quarter ended September 30, 2013, compared to $80.4 million for the prior quarter and $75.3 million for the quarter ended September 30, 2012. The net interest margin (tax equivalent) for the third quarter of 2013 was 3.59 percent, a decrease of 11 basis points from the prior quarter, and an increase of 16 basis points from the third quarter of 2012. The decrease in net interest margin from the prior quarter was a result of lower yields on loans.

      Three Months Ended
September 30,     June 30,     September 30,
2013 2013 2012
(in thousands)
Net interest income $ 82,548 $ 80,414 $ 75,308
Net interest margin (tax equivalent) 3.59 % 3.70 % 3.43 %
Loan yield 4.63 % 4.76 % 5.15 %
 
Funding costs:
Cost of deposits 0.35 % 0.37 % 0.53 %
Total funding liabilities 0.64 % 0.67 % 1.01 %
 

Total interest income was $96.4 million for the third quarter of 2013, compared to $94.0 million for the prior quarter, and $96.0 million for the same period a year ago. The $2.4 million increase in interest income over the prior quarter was primarily due to higher average loan balances, which were up $307.8 million, or 4 percent. The yield on loans was 4.63 percent for the third quarter of 2013, compared to 4.76 percent for the prior quarter, and 5.15 percent for the third quarter of 2012.

For the third quarter of 2013, income from mortgage-backed securities ("MBS") was up $746,000, or 10 percent, from the prior quarter, and down $2.3 million, or 22 percent, from the third quarter of 2012. The year-over-year decline was primarily due to lower average MBS balances.

Total interest expense was $13.9 million for the third quarter of 2013, compared to $13.6 million for the prior quarter, and $20.7 million for the third quarter of 2012. The decrease from the same period a year ago reflected balance sheet repositioning activity undertaken during the fourth quarter of 2012. Additionally, deposit interest expense was down $2.9 million, or 33 percent, from the same period a year ago, reflecting the improved deposit mix and lower overall deposit costs, which were down 18 basis points.

Noninterest Income

Noninterest income includes fees and service charges income, income from mortgage banking operations, and other items such as gains on other loan sales, BOLI income, net gains on branch divestitures, and gains on sales of securities. During the third quarter of 2013, noninterest income was $31.9 million, compared to $42.0 million for the prior quarter and $46.7 million for the third quarter of 2012.

Income from mortgage banking operations for the third quarter of 2013 was $13.5 million, compared to $23.2 million for the prior quarter and $26.4 million for the third quarter of 2012. The decrease from the prior period is attributable to lower residential mortgage banking activity, reflecting a 50 percent reduction in mortgage refinance originations.

      Three Months Ended
September 30,     June 30,     September 30,
2013 2013 2012
(in thousands)
Residential loan sales $ 672,604 $ 791,942 $ 728,642
Change in warehouse and interest rate locks (198,389 ) 7,419   36,018  
Total mortgage banking loan activity $ 474,215   $ 799,361   $ 764,660  
 
Margin on residential loan sales 2.31 % 2.35 % 3.68 %
 

Included in income from mortgage banking operations for the third quarter was a $491,000 reversal of the valuation allowance on mortgage servicing rights. A reversal of the valuation allowance on mortgage servicing rights of $2.8 million was recorded in the prior quarter and a write-down of $2.1 million was recorded in the third quarter of 2012.

For the quarter ended September 30, 2013, fees and service charges income contributed $15.4 million to noninterest income, compared to $15.6 million for the prior quarter and $14.7 million for the third quarter of 2012. For the third quarter of 2013, gains on other loan sales were $1.1 million, compared to $1.2 million for the prior quarter, and $476,000 for the same period a year ago.

For the third quarter of 2013 and the prior quarter, Sterling recognized no gains or losses on the sale of securities, compared to a gain of $3.1 million for the third quarter of 2012.

Noninterest Expense

Noninterest expense was $85.3 million for the third quarter of 2013, compared to $81.7 million for the prior quarter and $89.4 million for the third quarter of 2012. Compared to the prior quarter, employee compensation and benefits increased by $1.3 million, primarily due to acquisition-related activity and new employees added in Southern California.

Other noninterest expense included merger and acquisition expenses of $3.9 million for the third quarter of 2013, compared to $2.3 million for the prior quarter and $1.6 million for the third quarter of 2012.

Income Taxes

During the quarter ended September 30, 2013, Sterling recognized income tax expense of $8.1 million, representing an effective tax rate of 28 percent. The effective tax rate for the nine months ended September 30, 2013 was 30 percent. As of September 30, 2013, the net deferred tax asset was $282.6 million, including $245.3 million of net operating loss and tax credit carryforwards.

Balance Sheet

At September 30, 2013, total loan balances were $7.15 billion, compared to $7.00 billion at the end of the prior quarter, and $6.14 billion at September 30, 2012. During the third quarter of 2013, Sterling originated $587.8 million of new portfolio loans (which exclude residential loans held for sale), compared to $686.9 million for the prior quarter and $457.1 million for the third quarter of 2012. For the third quarter of 2013, multifamily loan originations remained strong and represented 29 percent of portfolio loan originations; commercial banking loan originations, which include C&I and owner occupied CRE, represented 25 percent of portfolio loan originations; and residential and consumer loan originations represented 24 percent and 19 percent of portfolio loan originations, respectively.

Investments and mortgage-backed securities available for sale were $1.50 billion at September 30, 2013, compared to $1.54 billion at the end of the prior quarter, and $2.05 billion at September 30, 2012. The decrease from a year ago reflects the sale of securities to fund a $400 million reduction in repurchase agreements.

At September 30, 2013, total deposits were $6.85 billion, compared to $6.63 billion at the end of the prior quarter, and $6.74 billion at September 30, 2012. The deposit composition is set forth in the following table:

      September 30,     June 30,     September 30,     Annual %
2013 2013 2012 Change
(in thousands)
Deposits:
Retail:
Transaction $ 2,568,893 $ 2,454,910 $ 2,403,518 7 %
Savings and MMDA 2,311,030 2,282,055 2,191,517 5 %
Time deposits 1,316,745   1,414,239   1,717,720   (23

)%

Total retail 6,196,668 6,151,204 6,312,755 (2 )%
Public 260,480 174,425 202,187 29 %
Brokered 397,294   302,830   224,968   77 %
Total deposits $ 6,854,442   $ 6,628,459   $ 6,739,910   2 %
Gross loans to deposits 104 % 106 % 91 %
 

At September 30, 2013, advances from the Federal Home Loan Bank were $1.03 billion, compared to $1.20 billion at the end of the prior quarter, and $155.4 million at September 30, 2012. The increase over a year ago was due to the funding of acquisitions, loan growth, and deposit outflow associated with branch divestitures and runoff of high-rate CDs.

Credit Quality

During the third quarter of 2013, Sterling recognized net charge-offs of $1.2 million, compared to $5.1 million for the prior quarter and $6.0 million for the same period a year ago. Sterling did not record a provision for credit losses for the third quarter of 2013 or the prior quarter, compared to a provision of $2.0 million for the third quarter of 2012. The allowance for loan losses at September 30, 2013 was $138.7 million, or 1.94 percent of total loans, compared to $141.9 million, or 2.02 percent of total loans, at June 30, 2013, and $154.3 million, or 2.51 percent of total loans, at September 30, 2012.

At September 30, 2013, nonperforming assets were $135.4 million, or 1.36 percent of total assets, compared to $169.2 million, or 1.70 percent of total assets, at June 30, 2013, and $259.0 million, or 2.73 percent of total assets, at September 30, 2012. At September 30, 2013, the 60-day loan delinquency ratio was 0.73 percent, compared to 0.92 percent at June 30, 2013, and 1.96 percent at September 30, 2012.

Merger and Acquisition Update

On October 1, 2013, Sterling completed the acquisition of Newport Beach, Calif.-based Commerce National Bank. At closing, Commerce National Bank had assets of $249.6 million, gross loans of $164.8 million, and deposits of $189.4 million. Total cash consideration for the transaction was $42.9 million.

On September 11, 2013, Sterling entered into a definitive agreement to merge with Umpqua Holdings Corporation ("Umpqua"), headquartered in Portland, Oregon. Upon completion of the merger, the company will operate under the Umpqua Bank name and brand. The transaction is expected to be completed in the first half of 2014, subject to shareholder and regulatory approval and other customary closing conditions.

Cash Dividend Declaration

Sterling's board of directors has approved a quarterly cash dividend of $0.20 per common share, payable on November 19, 2013 to shareholders of record as of November 5, 2013.

Third Quarter 2013 Earnings Conference Call

Sterling plans to host a conference call October 25, 2013 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 (www.sterlingfinancialcorporation.com). 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 212-287-1835 approximately five minutes before the scheduled start time. You will be asked by the operator to identify yourself and provide the password "STERLING" to enter the call. A webcast replay of the conference call will be available on Sterling's website approximately one hour following the conclusion of the call. The webcast replay will be offered through November 26, 2013.

             
Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS
                     
(in thousands, except per share amounts, unaudited) Sep 30, 2013 Jun 30, 2013 Sep 30, 2012
ASSETS:
Cash and due from banks $ 349,679 $ 325,710 $ 263,884
Investments and MBS available for sale 1,498,377 1,538,880 2,049,961
Investments held to maturity 175 185 1,716
Loans held for sale 245,783 307,511 320,823
Loans receivable, net 7,024,326 6,868,866 5,990,365
Other real estate owned, net ("OREO") 17,464 26,511 46,575
Office properties and equipment, net 100,370 98,483 92,987
Bank owned life insurance ("BOLI") 189,906 188,178 178,279
Goodwill 36,633 36,633 22,577
Other intangible assets, net 16,154 17,830 20,864
Deferred tax asset, net 282,561 290,377 280,373
Other assets 222,908   240,409   204,033  
Total assets $ 9,984,336   $ 9,939,573   $ 9,472,437  
LIABILITIES:
Deposits $ 6,854,442 $ 6,628,459 $ 6,739,910
Advances from Federal Home Loan Bank 1,027,807 1,197,857 155,401
Securities sold under repurchase agreements 534,669 527,925 942,547
Other borrowings 245,298 245,297 245,293
Accrued expenses and other liabilities 106,239   133,699   137,799  
Total liabilities 8,768,455   8,733,237   8,220,950  
SHAREHOLDERS' EQUITY:
Preferred stock 0 0 0
Common stock 1,972,021 1,970,229 1,967,562
Accumulated other comprehensive income 29,919 30,751 75,263
Accumulated deficit (786,059 ) (794,644 ) (791,338 )
Total shareholders' equity 1,215,881   1,206,336   1,251,487  
Total liabilities and shareholders' equity $ 9,984,336   $ 9,939,573   $ 9,472,437  
Book value per common share $ 19.51 $ 19.36 $ 20.14
Tangible book value per common share $ 18.66 $ 18.49 $ 19.44
Shareholders' equity to total assets 12.2 % 12.1 % 13.2 %
Tangible common equity to tangible assets (1) 11.7 % 11.7 % 12.8 %
Common shares outstanding at end of period 62,314,862 62,297,712 62,150,650
Common stock warrants outstanding 2,874,590 2,847,154 2,625,000
 

(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
               

(in thousands, except per share amounts, unaudited)

Three Months Ended

Nine Months Ended

Sep 30, 2013     Jun 30, 2013     Sep 30, 2012 Sep 30, 2013     Sep 30, 2012
INTEREST INCOME:
Loans $ 86,099 $ 84,436 $ 83,110 $ 251,722 $ 248,488
Mortgage-backed securities 8,079 7,333 10,361 22,709 38,632
Investments and cash 2,266   2,248   2,520   6,787   7,826  
Total interest income 96,444   94,017   95,991   281,218   294,946  
INTEREST EXPENSE:
Deposits 6,041 6,038 8,981 18,386 30,004
Borrowings 7,855   7,565   11,702   22,976   36,371  
Total interest expense 13,896   13,603   20,683   41,362   66,375  
Net interest income 82,548 80,414 75,308 239,856 228,571
Provision for credit losses 0   0   2,000   0   10,000  
Net interest income after provision 82,548   80,414   73,308   239,856   218,571  
NONINTEREST INCOME:
Fees and service charges 15,380 15,618 14,675 45,128 41,546
Mortgage banking operations 13,494 23,180 26,410 50,468 69,135
BOLI 1,640 1,424 1,660 4,621 7,175
Gains on sales of securities 0 0 3,129 0 12,592
Other-than-temporary impairment losses on securities 0 0 0 0 (6,819 )
Charge on prepayment of debt 0 0 0 0 (2,664 )
Gains on other loan sales 1,135 1,194 476 2,354 3,887
Other 241   587   348   8,888   (1,826 )
Total noninterest income 31,890   42,003   46,698   111,459   123,026  
NONINTEREST EXPENSE:
Employee compensation and benefits 47,058 45,803 45,636 135,297 139,502
OREO 1,877 2,549 4,008 6,456 9,337
Occupancy and equipment 9,959 9,567 11,034 29,385 32,253
Depreciation 3,358 3,058 2,918 9,350 8,754
Amortization of other intangible assets 1,676 1,711 1,792 5,046 4,988
Other 21,406   18,990   24,020   63,407   70,830  
Total noninterest expense 85,334   81,678   89,408   248,941   265,664  
Income before income taxes 29,104 40,739 30,598 102,374 75,933
Income tax (provision) benefit (8,056 ) (12,978 ) 0   (30,887 ) 288,842  
Net income $ 21,048   $ 27,761   $ 30,598   $ 71,487   $ 364,775  
Earnings per common share - basic $ 0.34 $ 0.45 $ 0.49 $ 1.15 $ 5.87
Earnings per common share - diluted $ 0.33 $ 0.44 $ 0.49 $ 1.13 $ 5.81
Dividends declared per share $ 0.20 $ 0.55 $ 0.15 $ 0.75 $ 0.15
Average common shares outstanding - basic 62,309,270 62,289,437 62,139,833 62,280,542 62,110,498
Average common shares outstanding - diluted 63,461,018 63,107,913 62,845,864 63,271,060 62,745,177
 
         
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
               
(in thousands, unaudited) Three Months Ended Nine Months Ended
Sep 30, 2013     Jun 30, 2013     Sep 30, 2012 Sep 30, 2013     Sep 30, 2012
LOAN ORIGINATIONS AND PURCHASES:
Loan originations:
Residential real estate:
For sale $ 535,039 $ 799,682 $ 842,197 $ 1,967,626 $ 1,997,491
Permanent 142,837     118,023     77,650   358,174   152,947  
Total residential real estate 677,876 917,705 919,847 2,325,800 2,150,438
Commercial real estate ("CRE"):
Investor CRE 8,539 22,894 14,889 45,875 37,535
Multifamily 169,868 280,435 144,560 636,217 552,241
Construction 8,767   6,931   776   17,428   2,444  
Total commercial real estate 187,174 310,260 160,225 699,520 592,220
Commercial:
Owner occupied CRE 59,403 39,380 53,541 159,260 111,833
Commercial & Industrial ("C&I") 85,495   103,964   102,255   272,556   206,310  
Total commercial 144,898 143,344 155,796 431,816 318,143
Consumer 112,887   115,225   63,435   297,339   199,881  
Total loan originations 1,122,835   1,486,534   1,299,303   3,754,475   3,260,682  
Total portfolio loan originations (excludes residential real estate for sale) 587,796   686,852   457,106   1,786,849   1,263,191  
Loan purchases:
Residential real estate 51 0 1,646 228 76,408
Commercial real estate:
Investor CRE 1,100 67 0 3,016 0
Multifamily 199   64   292   484   683  
Total commercial real estate 1,299 131 292 3,500 683
Commercial:
Owner occupied CRE 0 0 0 1,071 0
C&I 24,164   21,000   0   45,164   0  
Total commercial 24,164 21,000 0 46,235 0
Consumer 5,758   20,451   41,567   26,209   52,307  
Total loan purchases 31,272   41,582   43,505   76,172   129,398  
Total loan originations and purchases $ 1,154,107   $ 1,528,116   $ 1,342,808   $ 3,830,647   $ 3,390,080  
PERFORMANCE RATIOS:
Return on assets 0.84 % 1.17 % 1.28 % 1.00 % 5.18 %
Return on common equity 6.9 % 9.0 % 9.8 % 7.8 % 45.5 %
Efficiency ratio(1) 70.8 % 63.1 % 69.7 % 68.7 % 71.5 %
Noninterest expense to assets 3.42 % 3.45 % 3.74 % 3.49 % 3.78 %
Average assets $ 9,886,459 $ 9,498,070 $ 9,520,530 $ 9,528,053 $ 9,398,143
Average common equity $ 1,206,814 $ 1,241,314 $ 1,237,205 $ 1,224,295 $ 1,070,993
 

(1) The efficiency ratio is noninterest expense, excluding OREO and amortization of other intangible assets, divided by net interest income (tax equivalent) plus noninterest income, excluding gains on sales of securities, other-than-temporary impairment losses on securities, charge on prepayment of debt, gain on branch divestitures and bargain purchase gain.

             
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                     
(in thousands, unaudited) Sep 30, 2013 Jun 30, 2013 Sep 30, 2012
INVESTMENT PORTFOLIO DETAIL:
Available for sale:
MBS $ 1,305,456 $ 1,343,181 $ 1,825,448
Municipal bonds 192,749 195,530 205,405
Other 172   169   19,108  
Total $ 1,498,377   $ 1,538,880   $ 2,049,961  
Held to maturity:
Tax credits $ 175   $ 185   $ 1,716  
Total $ 175   $ 185   $ 1,716  
LOAN PORTFOLIO DETAIL:
Residential real estate $ 1,052,381 $ 964,872 $ 818,323
Commercial real estate:
Investor CRE 1,125,477 1,172,433 1,274,774
Multifamily 2,029,820 1,962,919 1,359,506
Construction 52,929   69,796   99,553  
Total commercial real estate 3,208,226 3,205,148 2,733,833
Commercial:
Owner occupied CRE 1,404,006 1,411,576 1,304,224
C&I 681,666   636,727   517,588  
Total commercial 2,085,672 2,048,303 1,821,812
Consumer 807,964   783,601   768,359  
Gross loans receivable 7,154,243 7,001,924 6,142,327
Deferred loan fees, net 8,781 8,891 2,317
Allowance for loan losses (138,698 ) (141,949 ) (154,279 )
Net loans receivable $ 7,024,326   $ 6,868,866   $ 5,990,365  
DEPOSITS DETAIL:
Noninterest bearing transaction $ 1,818,194 $ 1,702,022 $ 1,709,612
Interest bearing transaction 750,699 752,888 693,906
Savings and MMDA 2,542,631 2,424,615 2,286,832
Time deposits 1,742,918   1,748,934   2,049,560  
Total deposits $ 6,854,442   $ 6,628,459   $ 6,739,910  
Number of transaction accounts (whole numbers):
Noninterest bearing transaction accounts 180,027 180,477 194,997
Interest bearing transaction accounts 46,113   46,677   49,678  
Total transaction accounts 226,140   227,154   244,675  
 
             
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                     
(in thousands, unaudited) Sep 30, 2013 Jun 30, 2013 Sep 30, 2012
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of quarter $ 141,949 $ 149,673 $ 158,244
Provision (2,100 ) (2,600 ) 2,000
Charge-offs:
Residential real estate (752 ) (1,107 ) (1,641 )
Commercial real estate:
Investor CRE (1,124 ) (1,970 ) (2,329 )
Multifamily (90 ) (51 ) (463 )
Construction (5 ) (615 ) (2,106 )
Total commercial real estate (1,219 ) (2,636 ) (4,898 )
Commercial:
Owner occupied CRE (905 ) (2,237 ) (1,544 )
C&I (146 ) (275 ) (514 )
Total commercial (1,051 ) (2,512 ) (2,058 )
Consumer (1,466 ) (1,503 ) (1,882 )
Total charge-offs (4,488 ) (7,758 ) (10,479 )
Recoveries:
Residential real estate 309 342 137
Commercial real estate:
Investor CRE 363 2 694
Multifamily 15 0 347
Construction 1,026   1,284   2,532  
Total commercial real estate 1,404 1,286 3,573
Commercial:
Owner occupied CRE 577 295 236
C&I 741   326   305  
Total commercial 1,318 621 541
Consumer 306   385   263  
Total recoveries 3,337   2,634   4,514  
Net charge-offs (1,151 ) (5,124 ) (5,965 )
Allowance - loans, end of quarter 138,698 141,949 154,279
Reserve for unfunded commitments, beginning of quarter 9,505 7,990 7,952
Provision 2,100 2,600 0
Charge-offs (1,064 ) (1,085 ) (181 )
Reserve for unfunded commitments, end of quarter 10,541   9,505   7,771  
Total credit allowance $ 149,239   $ 151,454   $ 162,050  
Net charge-offs to average loans (annualized) 0.06 % 0.29 % 0.37 %
Loan loss allowance to loans 1.94 % 2.02 % 2.51 %
Total credit allowance to loans 2.08 % 2.16 % 2.64 %
Loan loss allowance to nonperforming loans 118 % 99 % 73 %
Total credit allowance to nonperforming loans 127 % 106 % 76 %
 
             
Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA
                     
(in thousands, unaudited) Sep 30, 2013 Jun 30, 2013 Sep 30, 2012
ASSET QUALITY:
Past due 90 days or more and accruing $ 0 $ 0 $ 0
Nonaccrual loans 65,410 80,387 146,095
Restructured loans 52,556   62,344   66,343  
Total nonperforming loans 117,966 142,731 212,438
OREO 17,464   26,511   46,575  
Total nonperforming assets 135,430 169,242 259,013
Specific reserve on nonperforming loans (4,900 )   (4,829 )   (10,104 )
Net nonperforming assets $ 130,530     $ 164,413     $ 248,909  
Guaranteed portion of nonperforming loans $ 13,818 $ 19,427 $ 13,544
Nonperforming loans to loans 1.65 % 2.04 % 3.46 %
Nonperforming assets to assets 1.36 % 1.70 % 2.73 %
Loan delinquency ratio (60 days and over) 0.73 % 0.92 % 1.96 %
Classified assets $ 140,558 $ 161,440 $ 267,469
Classified assets to assets 1.41 % 1.62 % 2.82 %
Nonperforming assets by collateral type:
Residential real estate $ 38,720 $ 42,548 $ 44,822
Commercial real estate:
Investor CRE 26,141 32,934 59,477
Multifamily 1,927 2,065 9,221
Construction 17,595   28,423   55,743  
Total commercial real estate 45,663 63,422 124,441
Commercial:
Owner occupied CRE 43,581 53,857 71,448
C&I 2,721   3,764   12,072  
Total commercial 46,302 57,621 83,520
Consumer 4,745   5,651   6,230  
Total nonperforming assets $ 135,430   $ 169,242   $ 259,013  
REGULATORY CAPITAL RATIOS:
Sterling Financial Corporation
Tier 1 leverage ratio 11.9 % 12.2 % 12.7 %
Tier 1 risk-based capital ratio 15.5 % 16.3 % 17.6 %
Total risk-based capital ratio 16.8 % 17.6 % 18.9 %
Tier 1 common capital ratio 12.3 % 12.9 % 13.9 %
Sterling Bank:
Tier 1 leverage ratio 11.6 % 12.0 % 12.6 %
Tier 1 risk-based capital ratio 15.1 % 16.0 % 17.5 %
Total risk-based capital ratio 16.3 % 17.3 % 18.8 %
OTHER:
FTE employees at end of period (whole numbers) 2,564 2,541 2,527
 
     
Sterling Financial Corporation
AVERAGE BALANCE AND RATE
 
(in thousands, unaudited) Three Months Ended
Sep 30, 2013     Jun 30, 2013     Sep 30, 2012
    Interest         Interest         Interest    
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balance Expense Rates Balance Expense Rates Balance Expense Rates
ASSETS:
Loans:
Mortgage $ 4,495,451 $ 49,689 4.42 % $ 4,257,888 $ 48,278 4.54 % $ 3,863,670 $ 47,757 4.94 %
Commercial and consumer 2,933,727   36,558   4.94 % 2,863,458   36,296   5.08 % 2,583,756   35,479   5.46 %
Total loans 7,429,178 86,247 4.63 % 7,121,346 84,574 4.76 % 6,447,426 83,236 5.15 %
MBS 1,313,728 8,079 2.46 % 1,218,352 7,333 2.41 % 1,762,950 10,361 2.35 %
Investments and cash 404,134 3,132 3.07 % 379,665 3,125 3.30 % 529,407 3,392 2.55 %
FHLB stock 95,923   0   0.00 % 96,936   0   0.00 % 99,160   0   0.00 %
Total interest earning assets 9,242,963 97,458   4.20 % 8,816,299 95,032   4.32 % 8,838,943 96,989   4.38 %
Noninterest earning assets 643,496   681,771   681,587  
Total average assets $ 9,886,459   $ 9,498,070   $ 9,520,530  
LIABILITIES and EQUITY:
Deposits:
Interest bearing transaction $ 745,131 66 0.04 % $ 748,977 68 0.04 % $ 684,906 73 0.04 %
Savings and MMDA 2,489,950 865 0.14 % 2,396,010 806 0.13 % 2,284,749 884 0.15 %
Time deposits 1,769,741   5,110   1.15 % 1,743,611   5,164   1.19 % 2,168,056   8,024   1.47 %
Total interest bearing deposits 5,004,822 6,041 0.48 % 4,888,598 6,038 0.50 % 5,137,711 8,981 0.70 %
Borrowings 1,777,268   7,855   1.75 % 1,543,552   7,565   1.97 % 1,358,348   11,702   3.43 %
Total interest bearing liabilities 6,782,090 13,896 0.81 % 6,432,150 13,603 0.85 % 6,496,059 20,683 1.27 %
Noninterest bearing transaction 1,787,716   0   0.00 % 1,713,809   0   0.00 % 1,656,318   0   0.00 %
Total funding liabilities 8,569,806 13,896   0.64 % 8,145,959 13,603   0.67 % 8,152,377 20,683   1.01 %
Other noninterest bearing liabilities 109,839   110,797   130,948  
Total average liabilities 8,679,645 8,256,756 8,283,325
Total average equity 1,206,814   1,241,314   1,237,205  
Total average liabilities and equity $ 9,886,459   $ 9,498,070   $ 9,520,530  
Net interest income and spread (tax equivalent) $ 83,562   3.39 % $ 81,429   3.47 % $ 76,306   3.11 %
Net interest margin (tax equivalent) 3.59 % 3.70 % 3.43 %
 
Deposits:
Total interest bearing deposits $ 5,004,822 $ 6,041 0.48 % $ 4,888,598 $ 6,038 0.50 % $ 5,137,711 $ 8,981 0.70 %
Noninterest bearing transaction 1,787,716   0   0.00 % 1,713,809   0   0.00 % 1,656,318   0   0.00 %
Total deposits $ 6,792,538   $ 6,041   0.35 % $ 6,602,407   $ 6,038   0.37 % $ 6,794,029   $ 8,981   0.53 %
 

About Sterling Financial Corporation

Sterling Financial Corporation (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 in Washington, Oregon and Idaho and as Argent Bank in California, offering banking products and services, mortgage lending, and trust and investment products to individuals, small businesses, corporations and other commercial organizations. As of September 30, 2013, Sterling Financial Corporation had assets of $9.98 billion and operated depository branches in Washington, Oregon, Idaho and California. Visit Sterling Financial Corporation's website at www.sterlingfinancialcorporation.com.

Important Information For Investors And Shareholders

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Umpqua Holdings Corporation ("Umpqua") will file with the Securities and Exchange Commission ("SEC") a registration statement on Form S-4 containing a joint proxy statement/prospectus of Sterling Financial Corporation ("Sterling") and Umpqua, and Sterling and Umpqua will each file other documents with respect to the proposed merger. A definitive joint proxy statement/prospectus will be mailed to shareholders of Sterling and Umpqua. Investors and security holders of Sterling and Umpqua are urged to read the joint proxy statement/prospectus and other documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information. Investors and security holders will be able to obtain free copies of the registration statement and the joint proxy statement/prospectus (when available) and other documents filed with the SEC by Sterling or Umpqua through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by Sterling will be available free of charge on Sterling’s website at www.sterlingfinancialcorporation.com or by contacting Sterling’s Investor Relations Department at 509-358-8097. Copies of the documents filed with the SEC by Umpqua will be available free of charge on Umpqua’s website at www.umpquaholdingscorp.com or by contacting Umpqua’s Investor Relations Department at 503-268-6675.

Sterling, Umpqua, their respective directors and executive officers and other members of management and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information about the directors and executive officers of Sterling is set forth in its Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on February 27, 2013, its proxy statement for its 2013 annual meeting of stockholders, which was filed with the SEC on March 15, 2013, and its Current Reports on Form 8-K or 8-K/A, which were filed with the SEC on January 28, 2013 (Item 1.01), March 4, 2013, May 2, 2013 (Item 5.07), May 10, 2013, June 20, 2013 and August 9, 2013, respectively. Information about the directors and executive officers of Umpqua is set forth in its Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on February 15, 2013, its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2013 and June 30, 2013, which were filed with the SEC on May 2, 2013 and August 6, 2013, respectively, its proxy statement for its 2013 annual meeting of stockholders, which was filed with the SEC on February 25, 2013, and its Current Reports on Form 8-K, which were filed with the SEC on January 14, 2013, April 11, 2013 and April 22, 2013 (Item 5.07), respectively. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

Cautionary Statement Regarding Forward-Looking Statements

This release contains certain "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "anticipate," "may," "can," "believe," "expect," "project," "intend," "likely," "plan," "seek," "should," "would," "estimate" and similar expressions and any other statements that predict or indicate future events or trends or that are not statements of historical facts. These forward-looking statements 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. All forward-looking statements are subject to numerous risks and uncertainties. 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 and Umpqua’s control. These risks and uncertainties include, but are not limited to, the following: changes in general economic conditions 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 the monetary and fiscal policies of the federal government; changes in laws, regulations or the competitive environment; exposure to material litigation; failure to obtain the approval of shareholders of Sterling or Umpqua in connection with the merger; the timing to consummate the proposed merger; the risk that a condition to closing of the proposed merger may not be satisfied; the risk that a regulatory approval that may be required for the proposed merger is not obtained or is obtained subject to conditions that are not anticipated; the parties’ ability to achieve the synergies and value creation contemplated by the proposed merger, or lower-than-expected revenue or cost savings or other issues in connection with mergers and acquisitions generally; the parties’ ability to promptly and effectively integrate the businesses of Sterling and Umpqua; and the diversion of management time on issues related to the merger; the failure to consummate or delay in consummating the merger for other reasons. Sterling and Umpqua undertake no obligation (and expressly disclaim any such obligation) to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. For additional information concerning factors that could cause actual conditions, events or results to materially differ from those described in the forward-looking statements, please refer to the factors set forth under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Sterling’s and Umpqua’s most recent Form 10-K and 10-Q reports and to Sterling’s and Umpqua’s most recent Form 8-K reports, which are available online at www.sec.gov. No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of Sterling or Umpqua.

Contact:
Sterling Financial Corporation
Media contact:
Cara L. Coon, 509-626-5348
cara.coon@bankwithsterling.com
or
Investor contact:
Patrick Rusnak, 509-227-0961
patrick.rusnak@bankwithsterling.com
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