February 2, 2010 in Business

Sterling begins recapitalization

Bank parent company repurchasing securities
By The Spokesman-Review
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Sterling Financial Corp. will have a recapitalization plan in place, or nearly so, by the end of March, bank executives said Monday.

The clock started Monday on a key step in the process, a repurchase of $238 million in bank securities, said President Ezra Eckhardt. Holders have 20 business days to respond.

The tender is one of several efforts he and Chief Executive Officer Greg Seibly said they expect to culminate with an injection of capital that will restore Sterling’s financial footing.

Regulators in October ordered the Spokane bank to raise $300 million to shore up a balance sheet marred by collapsing real estate values and construction loan problems.

The extent of the damage was reiterated Monday with the release of fourth-quarter and year-end earnings.

Writedowns on Sterling’s loan portfolio resulted in a quarterly loss of $333.1 million, or $6.41 per common share, compared with $356.3 million, or $6.87 per share, for the last quarter of 2008.

For the year, Sterling lost $855.5 million, or $16.48 per share, compared with $336.7 million, or $6.51 per share, for 2008.

The bank set aside a $340.3 million allowance for loan losses in the fourth quarter, and $681.4 million for the year.

Assets decreased to $10.9 billion at year end, down from $12.8 billion a year ago.

Sterling’s risk-based capital ratio, at 7.9 percent, remained short of the 10 percent required by regulators working to assure financial institutions are sound. Six Washington banks have been shut down within the last 13 months, the most recent on Friday.

Seibly said Sterling has more aggressively set aside reserves against loan losses than did the failed banks. And potential investors are attracted by Sterling’s size – it is the largest bank based in the Northwest – and its 178-branch footprint in five states.

“We think we have something pretty special,” he said.

Sterling shares fell 17 cents, or 23 percent, in trading after the earnings release.

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