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Sterling stock rallies despite $356 million quarterly loss

Non-performing construction loans blamed for damage

Sterling Financial Corp. stock rallied Tuesday despite earnings savaged by huge losses in the Spokane bank’s construction loan portfolio.

In an after-hours release, Sterling reported a net loss for fourth-quarter 2008 of $356.3 million, or $6.87 per share, compared with net income of $16.9 million, or 33 cents per share, for the 2007 period.

For the full year, the net loss was $336.7 million, or $6.51 per share, compared with net income of $93.3 million, or $1.86 per share, in 2007.

Sterling shares, which had closed regular trading up 7 cents at $2.51, climbed another 37 cents following the after-hours release.

Sterling had warned two weeks ago it would report a loss for 2008 as a result of non-cash charge of $223.8 million, and a $228.5 million provision for credit losses.

The dividend was suspended, and Tuesday the company said executive officers and some senior officers would not receive cash bonuses for 2008.

Non-performing construction loans of almost $485 million did much of the damage during 2008, Sterling said, with $117.4 million of that in Portland. Puget Sound and Southern California also were soft spots. Non-performing assets as of Dec. 31 totaled $610.7 million, a more than four-fold increase over Dec. 31, 2007.

Loans at the end of the year declined to $8.81 billion from $9.07 billion, and loan originations during the year fell to $3.62 billion from $5.48 billion, reflecting a pull-back from construction lending. Deposits grew 9 percent to $8.35 billion, and assets 5 percent to $12.8 billion.

Sterling said a $303 million investment by the U.S. Treasury helped two key capital ratios to levels substantially above levels set by regulators.

Of that investment, $233 million will be loaned through its Sterling Savings Bank and Golf Savings Bank to consumers and businesses, Sterling said.