Sterling Financial's 3Q loss: $463.7 million

Sterling Financial on Thursday reported a third-quarter loss of $463.7 million, or $8.93 a share, adding a flood of red ink to the challenges already facing the Spokane-based banking company, which last week replaced two top executives and said regulators had ordered its main unit to raise at least $300 million in new capital.

A year ago, Sterling earned $5 million in the third quarter. Since then, its loan portfolio has suffered huge losses, particularly in commercial real estate and land development.

The company wrote off $143.3 million in bad loans during the third quarter and added $195.5 million to the pool of money that covers loan losses. That pool now totals $275.8 million.

The parent company's assets, which are mostly the loans it holds, shrank 6 percent over the past year to $11.9 billion. That includes assets of Sterling Savings, the second-largest bank based in Washington, and Mountlake Terrace-based Golf Savings Bank.

Fewer loans, and fewer healthy loans, contributed to a 3 percent drop in the company's net interest income, to $87.1 million for the quarter.

Its deposits grew 3 percent to $8.3 billion.

Sterling's nonperforming assets — loans that are in bad shape but have not been written off — totaled $828.9 million in the third quarter, compared with $436.7 million a year earlier.

The quarterly loss includes $4.3 million in dividends it must pay related to money it received from the federal government.

Last week, Sterling said it had replaced its co-founder, chairman and CEO, Harold Gilkey, and the head of Sterling Savings Bank, Heidi Stanley.

It also reached an agreement with federal and state regulators to shrink its portfolio of problem loans and raise at least $300 million in new capital.

That was a tall order last week, when the stock market valued Sterling at less than $68 million. At Thursday's closing price, its market cap was just under $59 million.

Shares fell 2 cents to $1.12 in regular trading Thursday.

The earnings news came after the close of regular trading and sent shares down 17 cents more to 95 cents.

Although based in Spokane, 175-branch Sterling Financial does much of its lending in the Puget Sound area.

Currently, 16 percent of its nonperforming loans are around Puget Sound, making it the most troubled geographic area for the company, followed by Portland, with 15 percent.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com

Washington Federal reports profit

Washington Federal, parent company of Washington Federal Savings, said it earned $9.6 million, or 11 cents a share, for its fiscal fourth quarter, and $40.7 million, or 46 cents a share, for the year.

The Seattle-based thrift, the largest investor-owned financial institution in the state, said its provision for loan losses was $193 million for the year ended Sept. 30, a sharp increase from $60.5 million a year earlier.

The thrift's nonperforming assets declined to $557 million, or 4.43 percent, of total assets at year-end, from $606 million as of June 30.

"Despite our own high level of troubled assets, we are very gratified to be one of the few financial institutions in the Pacific Northwest to have been solidly profitable," said Washington Federal Chairman and CEO Roy Whitehead.

— Seattle Times business staff