Sterling Financial shares drop on loan-loss warning

Shares of Sterling Financial of Spokane lost 10.8 percent today after the company warned that loan losses and other charges would pull its fourth-quarter earnings about 40 percent below expectations.

Sterling, the state's third-largest banking company by market capitalization, said it will set aside $13 million for loan losses this quarter. In the first nine months of 2007 it set aside $12.1 million for bad loans.

Other charges include a $2.1 million prepayment fee to extinguish a high-interest preferred debt issue, and $1 million in costs for the unsuccessful effort to acquire North Valley Bancorp of California.

In a statement late Wednesday evening, Sterling said it now expects to report earnings in the range of 31 to 34 cents per diluted share for the quarter, compared with analysts' consensus estimate of 53 cents. For the year Sterling expects earnings to be in the range of $1.84 to $1.87 per diluted share.

The stock closed at $17.44, down $2.12.

Sterling, which does business in Washington, Oregon, Idaho, Montana and Northern California, said "residential construction lending in its primary markets in the Puget Sound region and Portland area is generally healthy." It didn't say where the costly problem loans originated.

"Along with other financial institutions across the country, Sterling is dealing with challenging market conditions, which we expect will continue into the next few quarters," Harold Gilkey, Sterling's chairman and chief executive officer, said in the statement.