Sterling Financial Shares Jump 13%

Investors responded after a large capital raise in August and a buy rating from an analyst last week.
By Philip van Doorn ,

P/>SPOKANE, WASH. (TheStreet) -- Shares of Sterling Financial (STSA) - Get Report were up 13% on Monday afternoon, trading at $19.59, one week after FBR Capital Markets analyst Paul Miller initiated his firm's coverage of the lender with a buy rating.

The share price already exceeded Miller's $19 arget.

The analyst cited the company's capital raise in August, along with its "aggressive credit management actions that should moderate credit losses over the next several quarters." Miller added that "Sterling has consistently realized recoveries on loans that it has sold," and said once Sterling resolves its credit concerns, "its developing core deposit franchise and strong loan origination platform should shine through."

In august, the company completed a $730 recapitalization, which included issuances of common shares to private equity investors

Thomas H. Lee Partners

and

Warburg Pincus LLC

and the conversion of $303 in preferred stock held by the U.S. Treasury Department for bailout funds received through the Troubled Assets Relief Program, or TARP, to common shares.

Following the capital actions, main subsidiary

Sterling Savings Bank

returned to being

well-capitalized

under regulatory guidelines and exceeded the minimum capital ratios required by a cease and desist order the bank entered into with state regulators and the

Federal Deposit Insurance Corp.

in October 2009. The order was terminated in September. Prior to the capital raise, Sterling Savings Bank had been included in

TheStreet's

Bank Watch List

of

undercapitalized

institutions for several quarters.

On the holding company level, Sterling appears to have several more quarters of losses ahead. Nonperforming assets - including loans past due 90 days, nonaccrual loans and repossessed assets - made up 9.22% of total assets as of September 30, although this was an improvement from 9.90% the previous quarter.

The annualized ratio of net charge-offs to average loans for the third quarter was 4.63% and reserves covered 3.99% of total loans as of September 30, according to SNL Financial.

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--

Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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