Sterling Financial Corporation (NASDAQ:STSA) ("Sterling") today announced its operating results for the quarter and year ended December 31, 2013. For the quarter, Sterling recorded net income of $22.2 million, or $0.35 per diluted common share, compared to $21.0 million, or $0.33 per diluted common share, for the quarter ended September 30, 2013, and $20.9 million, or $0.33 per diluted common share, for the quarter ended December 31, 2012. For the year ended December 31, 2013, Sterling recorded net income of $93.6 million, or $1.48 per diluted common share, compared to $385.7 million, or $6.14 per diluted common share, for the year ended December 31, 2012. 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.

Following are selected financial highlights for the year ended December 31, 2013:

  • Completed three acquisitions: Borrego Springs Bank, N.A., the Puget Sound operations of Boston Private Bank & Trust Co., and Commerce National Bank.
  • Gross loans expanded by 19 percent; organic loan growth of 12 percent.
  • Portfolio loan originations were $2.39 billion, a 31 percent increase over 2012.
  • Deposits expanded by 10 percent.
  • Net interest margin (tax equivalent) was 3.64 percent, 18 basis points higher than 2012.
  • Nonperforming assets to total assets was 1.21 percent, down from 2.28 percent at December 31, 2012.
  • Sterling announced that it will merge with Umpqua Holdings Corporation, creating the largest community bank on the West Coast.

"2013 marked another year of solid financial performance" said Greg Seibly, Sterling's president and chief executive officer. "Significant progress was made on each of our key operating objectives, as we expanded loans, reduced funding costs, improved asset quality metrics and controlled operating expenses. We also completed three acquisitions and increased our cash dividend by 19 percent."

Operating Results

Net Interest Income

Sterling reported net interest income of $84.4 million for the quarter ended December 31, 2013, compared to $82.5 million for the prior quarter and $76.1 million for the quarter ended December 31, 2012. The net interest margin (tax equivalent) for the fourth quarter of 2013 was 3.58 percent, a decrease of 1 basis point from the prior quarter, and up 9 basis points over the fourth quarter of 2012. The decrease in net interest margin from the prior quarter was a result of lower yields on loans.

 
  Three Months Ended

December 31,
2013

 

September 30,
2013

 

December 31,
2012

(in thousands)
Net interest income $ 84,378 $ 82,548 $ 76,107
Net interest margin (tax equivalent) 3.58 % 3.59 % 3.49 %
Loan yield 4.55 % 4.63 % 4.96 %
 
Funding costs:
Cost of deposits 0.31 % 0.35 % 0.46 %
Total funding liabilities 0.61 % 0.64 % 0.90 %
 

Total interest income was $97.8 million for the fourth quarter of 2013, compared to $96.4 million for the prior quarter, and $94.3 million for the fourth quarter of 2012. The $1.4 million increase in interest income over the prior quarter was primarily due to higher average loan balances resulting from the acquisition of Commerce National Bank and organic loan growth.

Total interest expense was $13.4 million for the fourth quarter of 2013, compared to $13.9 million for the prior quarter and $18.1 million for the fourth quarter of 2012. Deposit interest expense was $5.5 million for the fourth quarter of 2013, a reduction of $564,000, or 9 percent, from the prior quarter, and down $2.2 million, or 29 percent, from the same period in 2012, reflecting the improved deposit mix and lower overall deposit costs.

Borrowing costs were $7.9 million for the fourth quarter of 2013, unchanged from the prior quarter, and down $2.5 million, or 24 percent, from the fourth quarter of 2012. The decrease from the same period a year ago reflected balance sheet repositioning activity undertaken during the fourth quarter of 2012.

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, a bargain purchase gain, net gains on branch divestitures, and gains on sales of securities. For the fourth quarter of 2013, noninterest income was $29.1 million, compared to $31.9 million for the prior quarter and $31.2 million for the fourth quarter of 2012.

Income from mortgage banking operations for the fourth quarter of 2013 was $9.5 million, compared to $13.5 million for the prior quarter and $28.2 million for the fourth quarter of 2012. The decreases are attributable to lower residential mortgage banking activity and reduced margins on residential loan sales, reflecting higher market interest rates. For the fourth quarter of 2013, Sterling closed $197.0 million of residential mortgage refinance loans, representing 36 percent of total residential mortgage originations, compared to $673.1 million, representing 68 percent of total residential mortgage originations, for the same period of 2012.

 
  Three Months Ended

December 31,
2013

 

September 30,
2013

 

December 31,
2012

(in thousands)
Residential loan sales $ 462,902 $ 672,604 $ 779,289
Change in warehouse and interest rate locks (122,814 ) (198,389 ) (44,931 )
Total mortgage banking activity $ 340,088   $ 474,215   $ 734,358  
 
Margin on mortgage banking activity 2.03 % 2.31 % 3.60 %
 

Included in income from mortgage banking operations for the fourth quarter was an $842,000 reversal of the valuation allowance on mortgage servicing rights ("MSR"). MSR valuation allowance reversals of $491,000 and $754,000 were recognized in the prior quarter and the fourth quarter of 2012, respectively.

For the quarter ended December 31, 2013, fees and service charges income contributed $15.8 million to noninterest income, compared to $15.4 million for the prior quarter and $14.2 million for the fourth quarter of 2012. The increase in fees and service charges income compared to the year ago period was primarily attributable to increased activity related to the acquisitions completed during the year.

For the fourth quarter of 2013, gains on other loan sales were $1.6 million, compared to $1.1 million for the prior quarter, and $485,000 for the same period a year ago. The increase over the prior quarter was primarily due to multifamily loan sales that occurred during the fourth quarter.

For the fourth quarter of 2013 and the prior quarter, Sterling recognized no gains or losses on the sale of securities, compared to a gain of $11.2 million for the fourth quarter of 2012, that was related to balance sheet repositioning.

Noninterest Expense

Noninterest expenses were $84.4 million for the fourth quarter of 2013, compared to $85.3 million for the prior quarter and $89.6 million for the fourth quarter of 2012. During the fourth quarter of 2013, employee compensation and benefits decreased by $811,000 compared to the prior quarter, and were down $3.3 million from the fourth quarter of 2012.

Other noninterest expense included merger and acquisition expenses of $3.6 million for the fourth quarter of 2013, compared to $3.9 million for the prior quarter and $2.0 million for the fourth quarter of 2012. Other noninterest expense included a Washington State Business and Occupation tax refund of $1.8 million received during the fourth quarter of 2013, which was recorded as a reduction in other noninterest expense.

Income Taxes

During the quarter ended December 31, 2013, Sterling recognized an income tax expense of $7.0 million, representing an effective tax rate of 24 percent. The effective tax rate for the year ended December 31, 2013 was 29 percent. As of December 31, 2013, the net deferred tax asset was $284.1 million, including $242.2 million of net operating loss and tax credit carryforwards.

Balance Sheet

On October 1, 2013, Sterling completed the acquisition of Newport Beach, Calif.-based Commerce National Bank, which added $164.8 million of loans and $189.6 million of deposits.

Total portfolio loan balances (which exclude residential loans held for sale) were $7.46 billion at December 31, 2013, compared to $7.15 billion at the end of the prior quarter, and $6.25 billion at December 31, 2012. During the fourth quarter of 2013, Sterling originated $606.3 million of new portfolio loans, compared to $587.8 million for the prior quarter and $561.7 million for the fourth quarter of 2012. For 2013, portfolio loan originations were $2.39 billion, compared to $1.82 billion for 2012, representing an increase of 31 percent.

Multifamily loan originations were $219.6 million for the fourth quarter of 2013, accounting for 36 percent of total portfolio originations. This compares to $169.9 million for the prior quarter, and $261.3 million for the fourth quarter of 2012.

Commercial loan originations, which include C&I and owner occupied CRE loans, were $138.1 million for the fourth quarter of 2013, accounting for 23 percent of total portfolio originations. This compares to $144.9 million for the prior quarter, and $136.8 million for the fourth quarter of 2012.

Investments and mortgage-backed securities available for sale were $1.43 billion at December 31, 2013, compared to $1.50 billion at the end of the prior quarter, and $1.51 billion at December 31, 2012.

At December 31, 2013, total deposits were $7.07 billion, compared to $6.85 billion at the end of the prior quarter, and $6.44 billion at December 31, 2012. The deposit composition is set forth in the following table:

 
 

December 31,
2013

 

September 30,
2013

 

December 31,
2012

 

Annual %
Change

(in thousands)

Deposits:
Retail:
Transaction $ 2,673,303 $ 2,568,893 $ 2,434,778 10%
Savings and MMDA 2,367,118 2,311,030 2,129,722 11%
Time deposits 1,290,964   1,316,745   1,529,566   (16)%
Total retail 6,331,385 6,196,668 6,094,066 4%
Public 382,043 260,480 174,161 119%
Brokered 361,562   397,294   167,890   115%
Total deposits $ 7,074,990   $ 6,854,442   $ 6,436,117   10%
Gross loans to deposits 105 % 104 % 97 %
 

At December 31, 2013, advances from the Federal Home Loan Bank were $1.15 billion, compared to $1.03 billion at the end of the prior quarter, and $605.3 million at December 31, 2012. The increased advances over the year ago period were used to fund acquisitions and loan growth, and replace deposit outflow associated with branch divestitures and runoff of CDs.

Credit Quality

During the fourth quarter of 2013, Sterling recognized net charge-offs of $904,000, compared to net charge-offs of $1.2 million for the prior quarter and net recoveries of $566,000 for the fourth quarter of 2012. Sterling has not recorded a provision for credit losses since the third quarter of 2012. The allowance for loan losses at December 31, 2013 was $137.3 million, or 1.84 percent of total loans, compared to $138.7 million, or 1.94 percent of total loans, at September 30, 2013, and $154.3 million, or 2.47 percent of total loans, at December 31, 2012.

At December 31, 2013, nonperforming assets were $125.1 million, or 1.21 percent of total assets, compared to $135.4 million, or 1.36 percent of total assets, at September 30, 2013, and $210.4 million, or 2.28 percent of total assets, at December 31, 2012. At December 31, 2013, the 60-day loan delinquency ratio was 0.74 percent, compared to 0.73 percent at September 30, 2013, and 1.64 percent at December 31, 2012.

Merger Update

On September 11, 2013, Sterling entered into a definitive agreement to merge with Umpqua Holdings Corporation ("Umpqua"), with headquarters located in Portland, Oregon. Upon completion of the merger, the combined company will operate under the Umpqua Bank name and brand. Integration planning commenced shortly after the announcement, and completion of the merger is expected to occur during the second quarter of 2014, subject to approval by each company's shareholders, regulatory approvals 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 February 27, 2014 to shareholders of record as of February 13, 2014.

Fourth Quarter 2013 Earnings Conference Call

Sterling plans to host a conference call on January 31, 2014 at 8:00 a.m. PST to discuss the company's financial results. 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 1-210-795-2680 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 28, 2014.

 

Sterling Financial Corporation
CONSOLIDATED BALANCE SHEETS

 
(in thousands, except per share amounts, unaudited)   Dec 31, 2013   Sep 30, 2013   Dec 31, 2012
ASSETS:
Cash and due from banks $ 545,435 $ 349,679 $ 331,550
Investments and mortgage-backed securities ("MBS") available for sale 1,429,812 1,498,377 1,513,157
Investments held to maturity 165 175 206
Loans held for sale 138,952 245,783 465,983
Loans receivable, net 7,331,228 7,024,326 6,101,749
Other real estate owned, net ("OREO") 8,047 17,464 25,042
Office properties and equipment, net 101,610 100,370 93,850
Bank owned life insurance ("BOLI") 191,553 189,906 179,828
Goodwill 52,018 36,633 22,577
Other intangible assets, net 15,561 16,154 19,072
Deferred tax asset, net 284,059 282,561 292,082
Other assets 220,809   222,908   191,814  
Total assets $ 10,319,249   $ 9,984,336   $ 9,236,910  
LIABILITIES:
Deposits $ 7,074,990 $ 6,854,442 $ 6,436,117
Advances from Federal Home Loan Bank 1,146,103 1,027,807 605,330
Repurchase agreements and fed funds 531,679 534,669 586,867
Other borrowings 245,299 245,298 245,294
Accrued expenses and other liabilities 105,231   106,239   145,379  
Total liabilities 9,103,302   8,768,455   8,018,987  
SHAREHOLDERS' EQUITY:
Preferred stock 0 0 0
Common stock 1,972,457 1,972,021 1,968,025
Accumulated other comprehensive income 19,857 29,919 60,712
Accumulated deficit (776,367 ) (786,059 ) (810,814 )
Total shareholders' equity 1,215,947   1,215,881   1,217,923  
Total liabilities and shareholders' equity $ 10,319,249   $ 9,984,336   $ 9,236,910  
Book value per common share $ 19.50 $ 19.51 $ 19.58
Tangible book value per common share $ 18.41 $ 18.66 $ 18.91
Shareholders' equity to total assets 11.8 % 12.2 % 13.2 %
Tangible common equity to tangible assets (1) 11.2 % 11.7 % 12.8 %
Common shares outstanding at end of period 62,363,741 62,314,862 62,207,529
Common stock warrants outstanding 2,902,566 2,874,594 2,749,044
 

(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   Twelve Months Ended

Dec 31, 2013

  Sep 30, 2013   Dec 31, 2012 Dec 31, 2013   Dec 31, 2012
INTEREST INCOME:
Loans $ 87,188 $ 86,099 $ 83,026 $ 338,910 $ 331,514
Mortgage-backed securities 8,306 8,079 8,810 31,015 47,442
Investments and cash 2,309   2,266   2,418   9,096   10,244  
Total interest income 97,803   96,444   94,254   379,021   389,200  
INTEREST EXPENSE:
Deposits 5,477 6,041 7,693 23,863 37,697
Borrowings 7,948   7,855   10,454   30,924   46,825  
Total interest expense 13,425   13,896   18,147   54,787   84,522  
Net interest income 84,378 82,548 76,107 324,234 304,678
Provision for credit losses 0   0   0   0   10,000  
Net interest income after provision 84,378   82,548   76,107   324,234   294,678  
NONINTEREST INCOME:
Fees and service charges 15,789 15,380 14,227 60,917 55,773
Mortgage banking operations 9,488 13,494 28,157 59,956 97,292
BOLI 1,614 1,640 1,450 6,235 8,625
Gain on sales of securities 0 0 11,243 0 23,835
Other-than-temporary impairment losses on securities 0 0 0 0 (6,819 )
Charge on prepayment of debt 0 0 (32,678 ) 0 (35,342 )
Gains (losses) on other loan sales 1,644 1,135 485 3,998 4,372
Other 592   241   8,343   9,480   6,517  
Total noninterest income 29,127   31,890   31,227   140,586   154,253  
NONINTEREST EXPENSE:
Employee compensation and benefits 46,247 47,058 49,523 181,544 189,025
OREO 933 1,877 2,492 7,389 11,829
Occupancy and equipment 10,550 9,959 10,677 39,935 42,930
Depreciation 3,743 3,358 2,936 13,093 11,690
Amortization of other intangible assets 1,753 1,676 1,792 6,799 6,780
Other 21,145   21,406   22,169   84,552   92,999  
Total noninterest expense 84,371   85,334   89,589   333,312   355,253  
Income before income taxes 29,134 29,104 17,745 131,508 93,678
Income tax (provision) benefit (6,980 ) (8,056 ) 3,201   (37,867 ) 292,043  
Net income $ 22,154   $ 21,048   $ 20,946   $ 93,641   $ 385,721  
Earnings per common share - basic $ 0.36 $ 0.34 $ 0.34 $ 1.50 $ 6.21
Earnings per common share - diluted $ 0.35 $ 0.33 $ 0.33 $ 1.48 $ 6.14
Dividends declared per share $ 0.20 $ 0.20 $ 0.65 $ 0.95 $ 0.80
Average common shares outstanding - basic 62,319,497 62,309,270 62,159,683 62,290,361 62,122,862
Average common shares outstanding - diluted 63,613,271 63,461,018 62,867,030 63,371,763 62,772,079
 
 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

 
(in thousands, unaudited)   Three Months Ended   Twelve Months Ended
Dec 31, 2013   Sep 30, 2013   Dec 31, 2012 Dec 31, 2013   Dec 31, 2012
LOAN ORIGINATIONS AND PURCHASES:
Loan originations:
Residential real estate:
For sale $ 412,171 $ 535,039 $ 903,916 $ 2,379,797 $ 2,901,407
Permanent 111,957     142,837     75,101   470,131   228,048  
Total residential real estate 524,128 677,876 979,017 2,849,928 3,129,455
Commercial real estate ("CRE"):
Investor CRE 22,841 8,539 26,451 68,716 63,986
Multifamily 219,586 169,868 261,254 855,803 813,495
Construction 25,753   8,767   6,487   43,181   8,931  
Total commercial real estate 268,180 187,174 294,192 967,700 886,412
Commercial:
Owner occupied CRE 56,080 59,403 46,578 215,340 158,411
Commercial & Industrial ("C&I") 81,988   85,495   90,265   354,544   296,575  
Total commercial 138,068 144,898 136,843 569,884 454,986
Consumer 88,055   112,887   55,578   385,394   255,459  
Total loan originations 1,018,431   1,122,835   1,465,630   4,772,906   4,726,312  
Total portfolio loan originations (excludes residential real estate for sale) 606,260   587,796   561,714   2,393,109   1,824,905  
Loan purchases:
Residential real estate 0 51 328 228 76,736
Commercial real estate:
Investor CRE 0 1,100 2,345 3,016 2,345
Multifamily 80   199   249   564   932  
Total commercial real estate 80 1,299 2,594 3,580 3,277
Commercial:
Owner occupied CRE 0 0 5,038 1,071 5,038
C&I 139   24,164   0   45,303   0  
Total commercial 139 24,164 5,038 46,374 5,038
Consumer 0   5,758   19,313   26,209   71,620  
Total loan purchases 219   31,272   27,273   76,391   156,671  
Total loan originations and purchases $ 1,018,650   $ 1,154,107   $ 1,492,903   $ 4,849,297   $ 4,882,983  
PERFORMANCE RATIOS:
Return on assets 0.87 % 0.84 % 0.88 % 0.97 % 4.10 %
Return on common equity 7.2 % 6.9 % 6.7 % 7.7 % 35.8 %
Operating efficiency (1) 71.3 % 70.8 % 70.1 % 69.2 % 71.1 %
Noninterest expense to assets 3.31 % 3.42 % 3.77 % 3.44 % 3.78 %
Average assets $ 10,115,326 $ 9,886,459 $ 9,447,551 $ 9,676,078 $ 9,410,562
Average common equity $ 1,220,708 $ 1,206,814 $ 1,252,222 $ 1,222,364 $ 1,078,542
 

(1) The efficiency ratio is noninterest expense, excluding OREO and amortization of other intangibles assets, 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, gain on branch divestitures and bargain purchase gain.

 
 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

 
(in thousands, unaudited)   Dec 31, 2013   Sep 30, 2013   Dec 31, 2012
INVESTMENT PORTFOLIO DETAIL:
Available for sale:
MBS $ 1,239,900 $ 1,305,456 $ 1,308,838
Municipal bonds 189,690 192,749 204,306
Other 222   172   13  
Total $ 1,429,812   $ 1,498,377   $ 1,513,157  
Held to maturity:
Tax credits $ 165   $ 175   $ 206  
Total $ 165   $ 175   $ 206  
LOAN PORTFOLIO DETAIL:
Residential real estate $ 1,119,574 $ 1,052,381 $ 806,722
Commercial real estate:
Investor CRE 1,114,768 1,125,477 1,219,847
Multifamily 2,156,434 2,029,820 1,580,289
Construction 71,693   52,929   74,665  
Total commercial real estate 3,342,895 3,208,226 2,874,801
Commercial:
Owner occupied CRE 1,431,140 1,404,006 1,276,591
C&I 742,142   681,666   540,499  
Total commercial 2,173,282 2,085,672 1,817,090
Consumer 822,068   807,964   754,621  
Gross loans receivable 7,457,819 7,154,243 6,253,234
Deferred loan fees, net 10,703 8,781 2,860
Allowance for loan losses (137,294 ) (138,698 ) (154,345 )
Net loans receivable $ 7,331,228   $ 7,024,326   $ 6,101,749  
DEPOSITS DETAIL:
Noninterest bearing transaction $ 1,881,360 $ 1,818,194 $ 1,702,740
Interest bearing transaction 791,943 750,699 732,038
Savings and MMDA 2,700,241 2,542,631 2,262,369
Time deposits 1,701,446   1,742,918   1,738,970  
Total deposits $ 7,074,990   $ 6,854,442   $ 6,436,117  
Number of transaction accounts (whole numbers):
Noninterest bearing transaction accounts 179,977 180,027 187,628
Interest bearing transaction accounts 45,880   46,113   47,859  
Total transaction accounts 225,857   226,140   235,487  
 
 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

 
(in thousands, unaudited)   Dec 31, 2013   Sep 30, 2013   Dec 31, 2012
ALLOWANCE FOR CREDIT LOSSES:
Allowance - loans, beginning of quarter $ 138,698 $ 141,949 $ 154,279
Provision (500 ) (2,100 ) (500 )
Charge-offs:
Residential real estate (1,289 ) (752 ) (1,218 )
Commercial real estate:
Investor CRE (4,944 ) (1,124 ) (942 )
Multifamily 0 (90 ) (357 )
Construction 0   (5 ) (189 )
Total commercial real estate (4,944 ) (1,219 ) (1,488 )
Commercial:
Owner occupied CRE (484 ) (905 ) (1,678 )
C&I (937 ) (146 ) (130 )
Total commercial (1,421 ) (1,051 ) (1,808 )
Consumer (1,287 ) (1,466 ) (3,167 )
Total charge-offs (8,941 ) (4,488 ) (7,681 )
Recoveries:
Residential real estate 658 309 53
Commercial real estate:
Investor CRE 1,843 363 104
Multifamily 6 15 262
Construction 3,826   1,026   4,144  
Total commercial real estate 5,675 1,404 4,510
Commercial:
Owner occupied CRE 159 577 1,248
C&I 1,180   741   2,172  
Total commercial 1,339 1,318 3,420
Consumer 365   306   264  
Total recoveries 8,037   3,337   8,247  
Net (charge-offs) recoveries (904 ) (1,151 ) 566  
Allowance - loans, end of quarter 137,294 138,698 154,345
Reserve for unfunded commitments, beginning of quarter 10,541 9,505 7,771
Provision 500 2,100 500
(Charge-offs) recoveries 80   (1,064 ) (269 )
Reserve for unfunded commitments, end of quarter 11,121   10,541   8,002  
Total credit allowance $ 148,415   $ 149,239   $ 162,347  
Net charge-offs to average loans (annualized) 0.05 % 0.06 % (0.03 )%
Loan loss allowance to total loans 1.84 % 1.94 % 2.47 %
Total credit allowance to total loans 1.99 % 2.08 % 2.60 %
Loan loss allowance to nonperforming loans 117 % 118 % 83 %
Total credit allowance to nonperforming loans 127 % 127 % 88 %
 
 

Sterling Financial Corporation
OTHER SELECTED FINANCIAL DATA

 
(in thousands, unaudited)   Dec 31, 2013   Sep 30, 2013   Dec 31, 2012
NONPERFORMING ASSETS:
Past 90 days due and accruing $ 0 $ 0 $ 0
Nonaccrual loans 69,302 65,410 121,113
Restructured loans 47,774   52,556   64,216  
Total nonperforming loans 117,076 117,966 185,329
OREO 8,047   17,464   25,042  
Total nonperforming assets 125,123 135,430 210,371
Specific reserve on nonperforming loans (6,917 ) (4,900 ) (8,463 )
Net nonperforming assets $ 118,206   $ 130,530   $ 201,908  
Government guaranteed portion of nonperforming loans $ 14,686 $ 13,818 $ 10,702
Nonperforming loans to total loans 1.57 % 1.65 % 2.96 %
Nonperforming assets to total assets 1.21 % 1.36 % 2.28 %
Loan delinquency ratio (60 days and over) 0.74 % 0.73 % 1.64 %
Classified assets $ 144,889 $ 140,558 $ 221,832
Classified assets to total assets 1.40 % 1.41 % 2.40 %
Nonperforming assets by collateral type:
Residential real estate $ 38,779 $ 38,720 $ 45,929
Commercial real estate:
Investor CRE 28,969 26,141 52,368
Multifamily 576 1,927 8,148
Construction 5,838   17,595   33,945  
Total commercial real estate 35,383 45,663 94,461
Commercial:
Owner occupied CRE 42,420 43,581 58,292
C&I 4,004   2,721   3,985  
Total commercial 46,424 46,302 62,277
Consumer 4,537   4,745   7,704  
Total nonperforming assets $ 125,123   $ 135,430   $ 210,371  
REGULATORY CAPITAL RATIOS:
Sterling Financial Corporation:
Tier 1 leverage ratio 11.6 % 11.8 % 12.1 %
Tier 1 risk-based capital ratio 14.9 % 15.4 % 17.5 %
Total risk-based capital ratio 16.1 % 16.7 % 18.7 %
Tier 1 common capital ratio 11.8 % 12.2 % 13.6 %
Sterling Bank:
Tier 1 leverage ratio 11.3 % 11.6 % 12.0 %
Tier 1 risk-based capital ratio 14.5 % 15.1 % 17.2 %
Total risk-based capital ratio 15.8 % 16.3 % 18.5 %
OTHER:
FTE employees at end of period (whole numbers) 2,547 2,564 2,532
 
 

Sterling Financial Corporation
AVERAGE BALANCE AND RATE

 
(in thousands, unaudited)   Three Months Ended
Dec 31, 2013   Sep 30, 2013   Dec 31, 2012

Average
Balance

 

Interest
Income/
Expense

 

Yields/
Rates

Average
Balance

 

Interest
Income/
Expense

 

Yields/
Rates

Average
Balance

 

Interest
Income/
Expense

 

Yields/
Rates

ASSETS:
Loans:
Mortgage $ 4,573,225 $ 50,059 4.38 % $ 4,495,451 $ 49,689 4.42 % $ 4,062,917 $ 47,241 4.65 %
Commercial and consumer 3,081,552   37,264   4.80 % 2,933,727   36,558   4.94 % 2,624,167   35,904   5.44 %
Total loans 7,654,777 87,323 4.55 % 7,429,178 86,247 4.63 % 6,687,084 83,145 4.96 %
MBS 1,273,912 8,306 2.61 % 1,313,728 8,079 2.46 % 1,593,455 8,810 2.21 %
Investments and cash 442,810 3,177 2.80 % 404,134 3,132 3.07 % 421,600 3,337 3.15 %
FHLB stock 96,093   0   0.00 % 95,923   0   0.00 % 98,131   0   0.00 %
Total interest earning assets 9,467,592 98,806   4.16 % 9,242,963 97,458   4.20 % 8,800,270 95,292   4.32 %
Noninterest earning assets 647,734   643,496   647,281  
Total average assets $ 10,115,326   $ 9,886,459   $ 9,447,551  
LIABILITIES and EQUITY:
Deposits:
Interest bearing transaction $ 766,118 66 0.03 % $ 745,131 66 0.04 % $ 717,169 63 0.04 %
Savings and MMDA 2,632,267 971 0.15 % 2,489,950 865 0.14 % 2,291,062 812 0.14 %
Time deposits 1,762,899   4,440   1.00 % 1,769,741   5,110   1.15 % 1,897,528   6,818   1.43 %
Total interest bearing deposits 5,161,284 5,477 0.42 % 5,004,822 6,041 0.48 % 4,905,759 7,693 0.62 %
Borrowings 1,746,505   7,948   1.81 % 1,777,268   7,855   1.75 % 1,412,411   10,454   2.94 %
Total interest bearing liabilities 6,907,789 13,425 0.77 % 6,782,090 13,896 0.81 % 6,318,170 18,147 1.14 %
Noninterest bearing transaction 1,887,627   0   0.00 % 1,787,716   0   0.00 % 1,742,565   0   0.00 %
Total funding liabilities 8,795,416 13,425   0.61 % 8,569,806 13,896   0.64 % 8,060,735 18,147   0.90 %
Other noninterest bearing liabilities 99,202   109,839   134,594  
Total average liabilities 8,894,618 8,679,645 8,195,329
Total average equity 1,220,708   1,206,814   1,252,222  
Total average liabilities and equity $ 10,115,326   $ 9,886,459   $ 9,447,551  
Net interest income and spread (tax equivalent) $ 85,381   3.39 % $ 83,562   3.39 % $ 77,145   3.18 %
Net interest margin (tax equivalent) 3.58 % 3.59 % 3.49 %
 
Deposits:
Total interest bearing deposits $ 5,161,284 $ 5,477 0.42 % $ 5,004,822 $ 6,041 0.48 % $ 4,905,759 $ 7,693 0.62 %
Noninterest bearing transaction 1,887,627   0   0.00 % 1,787,716   0   0.00 % 1,742,565   0   0.00 %
Total deposits $ 7,048,911   $ 5,477   0.31 % $ 6,792,538   $ 6,041   0.35 % $ 6,648,324   $ 7,693   0.46 %
 
 

Sterling Financial Corporation
AVERAGE BALANCE AND RATE

 
(in thousands, unaudited)   Twelve Months Ended
Dec 31, 2013   Dec 31, 2012

Average
Balance

 

Interest
Income/
Expense

 

Yields/
Rates

Average
Balance

 

Interest
Income/
Expense

 

Yields/
Rates

ASSETS:
Loans:
Mortgage $ 4,368,794 $ 196,027 4.49 % $ 3,834,111 $ 188,563 4.92 %
Commercial and consumer 2,887,515   143,419   4.97 % 2,572,469   143,392   5.57 %
Total loans 7,256,309 339,446 4.68 % 6,406,580 331,955 5.18 %
MBS 1,257,119 31,015 2.47 % 1,890,314 47,442 2.51 %
Investments and cash 414,905 12,587 3.01 % 520,590 13,971 2.68 %
FHLB stock 96,603   0   0.00 % 98,893   0   0.00 %
Total interest earning assets 9,024,936 383,048   4.24 % 8,916,377 393,368   4.41 %
Noninterest earning assets 651,142   494,185  
Total average assets $ 9,676,078   $ 9,410,562  
LIABILITIES and EQUITY:
Deposits:
Interest bearing transaction $ 746,934 267 0.04 % $ 657,231 334 0.05 %
Savings and MMDA 2,465,697 3,401 0.14 % 2,261,858 3,912 0.17 %
Time deposits 1,748,838   20,195   1.15 % 2,250,999   33,451   1.49 %
Total interest bearing deposits 4,961,469 23,863 0.48 % 5,170,088 37,697 0.73 %
Borrowings 1,608,257   30,924   1.92 % 1,470,244   46,825   3.18 %
Total interest bearing liabilities 6,569,726 54,787 0.83 % 6,640,332 84,522 1.27 %
Noninterest bearing transaction 1,772,182   0   0.00 % 1,559,828   0   0.00 %
Total funding liabilities 8,341,908 54,787   0.66 % 8,200,160 84,522   1.03 %
Other noninterest bearing liabilities 111,806   131,860  
Total average liabilities 8,453,714 8,332,020
Total average equity 1,222,364   1,078,542  
Total average liabilities and equity $ 9,676,078   $ 9,410,562  
Net interest income and spread (tax equivalent) $ 328,261   3.41 % $ 308,846   3.14 %
Net interest margin (tax equivalent) 3.64 % 3.46 %
 
Deposits:
Total interest bearing deposits $ 4,961,469 $ 23,863 0.48 % $ 5,170,088 $ 37,697 0.73 %
Noninterest bearing transaction 1,772,182   0   0.00 % 1,559,828   0   0.00 %
Total deposits $ 6,733,651   $ 23,863   0.35 % $ 6,729,916   $ 37,697   0.56 %
 
 

Sterling Financial Corporation
LOAN GROWTH SUMMARY

 
(in millions, unaudited)    

December 31,
2012

  

March 31,
2013

  

June 30,
2013

  

September 30,
2013

  

December 31,
2013

   YTD
Ending balance $ 6,253.2   $ 6,477.5   $ 7,001.9   $ 7,154.2   $ 7,457.8   $ 7,457.8
$ Growth:
Total, net 224.5 524.9 151.8 303.6 1,204.8
Purchased 2.9 42.1 30.6 0 75.6
Acquired/(divested), net 103.3 274.9 0 164.8 543.0
Multifamily loans transferred to HFS 0 0 (55.0 ) 0 (55.0 )
Sold (7.0 )   (13.9 )   (18.0 )   (45.2 )   (84.1 )
Organic, net $ 125.3     $ 221.8     $ 194.2     $ 184.0     $ 725.3  
 
% Growth (annualized):
Total, net 14 % 32 % 9 % 17 % 19 %
Purchased 0 % 3 % 2 % 0 % 1 %
Acquired/(divested), net 7 % 17 % 0 % 9 % 8 %
Multifamily loans transferred to HFS 0 % 0 % (3 )% 0 % (1 )%
Sold (1 )%   (1 )%   (1 )%   (3 )%   (1 )%
Organic, net 8 %   13 %   11 %   11 %   12 %
 

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 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 December 31, 2013, Sterling Financial Corporation had assets of $10.32 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") has filed 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 have each filed and will file other documents with respect to the proposed merger. The registration statement has been declared effective by the SEC. A definitive joint proxy statement/prospectus has been 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 filed or to be filed with the SEC carefully and in their entirety when they become available because they will contain important information. Investors and security holders are able to obtain free copies of the registration statement and the joint proxy statement/prospectus 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 are 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 are 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, June 30, 2013, and September 30, 2013, which were filed with the SEC on May 2, 2013, August 6, 2013, and November 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, are contained in the joint proxy statement/prospectus and other relevant materials filed or 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; the diversion of management time on issues related to the merger; and 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.

Sterling Financial Corporation
Media:
Cara Coon, 509-626-5348
cara.coon@bankwithsterling.com
or
Investors:
Patrick Rusnak, 509-227-0961
pat.rusnak@bankwithsterling.com