Sterling shares sink after report

Sterling Financial Corp. late Wednesday revised quarterly and annual earnings estimates, triggering a sharp decline Thursday in the price of its stock.

The Spokane-based holding company for Sterling Savings Bank had projected fourth-quarter earnings between 52 cents and 56 cents per share in an Oct. 23 conference call with investment analysts. The estimate for all of 2007 was between $2.09 and $2.13 per share.

Wednesday, those estimates were lowered to between 31 cents and 34 cents for the quarter and $1.84 and $1.87 for the year. Sterling shares, which had been recovering from a 52-week low of $16.40 set Nov. 26, fell $2.12 to $17.44, almost 11 percent.

Sterling said problems in its residential construction loan portfolio, the termination of a planned merger, and a decision to prepay $24 million in high-interest securities accounted for the revisions.

Chief Financial Officer Dan Byrne said excess inventory is hurting some Sterling-financed contractors, particularly in the Bend, Ore., and Boise areas. Some prospective homebuyers lost their financing, he said; others were pulling back to await possible markdowns.

The result is a $13 million provision for credit losses in the fourth quarter.

Prepayment of the securities carrying a 10.25 percent coupon rate will add $2.1 million in unbudgeted costs, but Byrne said the expense should be made up in 14-15 months by issuing new notes at lower interest.

Sterling will also take a $1 million charge to cover costs related to the doomed merger with California-based North Valley Bank, which was called off last month.

Byrne said Sterling will issue its fourth-quarter and year-end earnings Jan. 28, and projections for 2008 in a conference call the next day.

Bank officials have made their best guess on credit conditions, he said, adding “It’s been a little bit of an evolving process.”

He said it may take two quarters for builders to work through their inventories.