As filed with the Securities and Exchange Commission on September 27, 2006.

Registration No. 333-137011

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

Sterling Financial Corporation

(Exact name of registrant as specified in its charter)

 

 

 

111 North Wall Street

Spokane, Washington 99201

(509) 227-5389

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Andrew J. Schultheis, Secretary

Sterling Financial Corporation

111 North Wall Street

Spokane, Washington 99201

(509) 227-5389

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of communications to:

 

 

 

Approximate date of commencement of the proposed sale of the securities to the public:  As soon as practicable after the effective date of this Registration Statement and upon consummation of the transactions described herein.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

PRELIMINARY — SUBJECT TO COMPLETION — DATED SEPTEMBER 27, 2006

 

 

To the Shareholders of FirstBank NW Corp.:

 

You are cordially invited to attend the Annual Meeting of Shareholders of FirstBank NW Corp (“FirstBank NW”). The meeting will be held at the Quality Inn, 700 Port Drive, Clarkston, Washington, on November 8, 2006, at 2:00 p.m., local time.

 

As described in the enclosed proxy statement/prospectus, the board of directors of FirstBank NW has approved the Agreement and Plan of Merger that provides for the merger of FirstBank NW with and into Sterling Financial Corporation (“Sterling”) with Sterling being the surviving entity in the merger. We are seeking your vote on this important transaction, as well as the other matters to be considered at the annual meeting.

 

If the merger is completed, Sterling will issue 0.7890 shares of Sterling common stock and $2.55 in cash in exchange for each outstanding share of FirstBank NW common stock. Sterling’s common stock is traded on the Nasdaq Global Select Market under the symbol “STSA.” Based on the closing sales price of Sterling’s common stock of $32.62 per share on September 26, 2006, each FirstBank NW shareholder would receive cash and shares valued at approximately $28.29 per share of FirstBank NW common stock. The value of the merger consideration will fluctuate with the market price of Sterling common stock.

 

We cannot complete the merger unless FirstBank NW shareholders approve the merger agreement. Your vote is very important. FirstBank NW will hold its annual meeting of shareholders on November 8, 2006 to vote on the merger agreement, as well as the election of directors and ratification of the appointment of auditors. Your board of directors recommends that you vote FOR approval of the merger agreement and the other items to be considered at the annual meeting. Whether or not you plan to attend the annual meeting, please take the time to vote on the proposal to approve the merger agreement and the other matters to be considered by completing and mailing the enclosed proxy card to us. Please vote as soon as possible to make sure that your shares are represented at the annual meeting. If you do not vote, it will have the same effect as voting against the merger agreement.

 

We encourage you to read carefully the detailed information about the merger contained in this proxy statement/prospectus, including the section entitled “Risk Factors” beginning on page 9.  The proxy statement/prospectus incorporates important business and financial information and risk factors about Sterling that are not included in or delivered with this document. See the section entitled “Where You Can Find More Information” on page 92.

 

We look forward to seeing you at the meeting.

     

/s/  Clyde E. Conklin

           Clyde E. Conklin

President and Chief Executive Officer

          FirstBank NW Corp.

 

 

 

The securities that Sterling is offering through this proxy statement/prospectus are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of Sterling or FirstBank NW, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or any other governmental agency.

 

You should rely only on the information provided or incorporated by reference in this proxy statement/prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this proxy statement/prospectus is accurate as of any date other than the date below.

 

 

 

 

This proxy statement/prospectus is dated September 27, 2006 and is first being mailed to FirstBank NW shareholders on or about September 29, 2006.

REFERENCES TO ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about Sterling and FirstBank NW from other documents that are not included in or delivered with this document. This information is available to you without charge upon written or oral request. You can obtain documents relating to Sterling that are incorporated by reference in this document through the website of the Securities and Exchange Commission (“SEC”) at www.sec.gov or by requesting them in writing or by telephone from Sterling at:

 

Sterling Financial Corporation

111 North Wall Street

Spokane, Washington 99201

Attn: Investor Relations

(509) 227-5389

 

You can obtain documents relating to FirstBank NW through the website of the SEC at www.sec.gov or by requesting them in writing or by telephone from FirstBank NW at:

 

FirstBank NW Corp.

1300 16th Avenue

Clarkston, Washington 99403

Attn: Investor Relations

(509) 295-5100

 

All website addresses given in this document are for information only and are not intended to be an active link or to incorporate any website information into this document.

 

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into the documents or this document.

 

If you would like to request documents, please do so by November 1, 2006 in order to receive them before FirstBank NW’s annual meeting of shareholders. See the section entitled “Where You Can Find More Information” on page 92.

 

This proxy statement/prospectus is accompanied by a copy of the FirstBank NW’s 2006 Annual Report to Shareholders, including financial statements, referred to in this document as the Annual Report. Any shareholder who has not received a copy of the Annual Report may obtain a copy by writing to FirstBank NW as set forth above.

FirstBank NW Corp.

1300 16th Avenue

Clarkston, Washington 99403

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

• Date:  Wednesday, November 8, 2006

 

• Time:  2:00 p.m., local time

 

 

TO OUR SHAREHOLDERS:

 

We are pleased to notify you of and invite you to our annual meeting of shareholders. At the meeting, you will be asked to vote on the following matters:

 

 

Common shareholders of record at the close of business on September 15, 2006 are entitled to notice of, and to vote at, the annual meeting and any adjournments or postponements of the annual meeting. The affirmative vote of the holders of a majority of the outstanding shares of FirstBank NW common stock as of that date is required to approve the merger agreement. Directors will be elected by a plurality of the votes cast and ratification of the appointment of the independent auditors requires the affirmative vote of a majority of the outstanding shares of common stock present in person or by proxy and entitled to vote at the annual meeting.

 

In connection with the proposed merger, you may exercise dissenters’ rights as provided under the Revised Code of Washington. If you meet all of the requirements under applicable Washington law, and follow all of its required procedures, you may receive cash in the amount equal to the fair value of your shares of common stock. The procedure for exercising your dissenters’ rights is summarized under the heading “Dissenters’ Rights” in the attached proxy statement/prospectus. The relevant Washington statutory provisions regarding dissenters’ rights are attached to this document as Appendix C.

 

Your vote is very important. To ensure that your shares are voted at the annual meeting, please complete, sign and date your proxy card and return it in the enclosed envelope promptly. If you hold your shares in “street name” with a bank or broker, you can also vote by telephone or through the internet.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Larry K. Moxley

Secretary

 

September 27, 2006

 

TABLE OF CONTENTS

 

 

The following are some of the questions that you, as a shareholder of FirstBank NW, may have and answers to those questions. These questions and answers, as well as the following summary, are not meant to be a substitute for the information contained in the remainder of this document, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this document. We urge you to read this document in its entirety prior to making any decision as to your FirstBank NW common stock and the merger agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you respond and abstain from voting, your abstention will have the same effect as a vote against approval of the merger agreement against the ratification of the appointment of auditors and against any proposal by the FirstBank NW board of directors to adjourn or postpone the annual meeting, if necessary. Votes withheld on the election of directors will have no effect on the outcome of this matter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For further information concerning U.S. federal income tax consequences of the merger, please see the section entitled “The Merger — Material United States Federal Income Tax Considerations of the Merger” beginning on page 47 of this proxy statement/prospectus.

 

 

 

 

 

111 North Wall Street

Spokane, Washington 99201

Attn: Investor Relations

(509) 227-5389

 

FirstBank NW Corp.

1300 16th Avenue

Clarkston, Washington 99403

Attn: Investor Relations

(509) 295-5100

 

SUMMARY

		Sterling				FirstBank NW				Equivalent Price
		Common Stock				Common Stock				Per FirstBank Share
June 2, 2006		$	31.19			$	22.03			$	27.16
September 26, 2006		$	32.62			$	27.85			$	28.29

	•	approval of the merger agreement by the holders of a majority of all outstanding shares of FirstBank NW’s common stock;
	•	authorization of the shares of Sterling common stock to be issued in the merger for quotation on the Nasdaq stock market;
	•	the filing and effectiveness of a registration statement on Form S-4 with the SEC in connection with the issuance of Sterling common stock in the merger;
	•	absence of any order, injunction, or regulatory prohibition to completion of the merger;
	•	receipt by each party of an opinion from such party’s tax counsel that the merger will qualify as a tax-free reorganization;
	•	accuracy of the representations and warranties of FirstBank NW and Sterling, except those that would not have or be reasonably likely to have a material adverse effect on FirstBank NW or Sterling;
	•	performance in all material respects by FirstBank NW and Sterling of all obligations required to be performed by either of them under the merger agreement;
	•	Sterling’s receipt, and the continued effectiveness, of voting agreements from certain FirstBank NW shareholders, including Messrs. Acuff, Conklin, Cox, Durgan, Gentry, Jurgens, Marker, Moxley, Otte, Powell, Reuling, Young and Zenner; and
	•	receipt by Sterling of resignations from each director of FirstBank NW and each of its subsidiaries.

	•	if any governmental entity that must grant a required regulatory approval has denied such approval and such denial has become final and nonappealable;
	•	if any governmental entity of competent jurisdiction has issued a final nonappealable order enjoining or otherwise prohibiting the consummation of the transactions contemplated by the merger agreement, unless the denial or order is due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of that party set forth in the merger agreement;
	•	failure to complete the merger by January 31, 2007, unless the failure of the closing to occur by that date is due to the material breach by the party seeking to terminate the merger agreement to perform or observe the covenants or obligations of that party;
	•	if the other party has materially breached any of the covenants, agreements, representations or warranties contained in the merger agreement, and the party seeking to terminate is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement, and the breach is not cured within 30 days following written notice to the party committing the breach, or which breach, by its nature, cannot be cured prior to the closing date; and
	•	if the approval of the shareholders of FirstBank NW contemplated by the merger agreement is not obtained by reason of the failure to obtain the vote required at the FirstBank NW annual meeting, unless the failure was caused by FirstBank NW or a party to a voting agreement entered into in connection with the merger agreement.

	•	if the board of directors of FirstBank NW fails to recommend to its shareholders the approval of the merger, or changes, or publicly announces its intention to change its recommendation; or
	•	if a tender offer or exchange offer for 25% or more of the outstanding shares of FirstBank NW common stock is commenced (other than by Sterling or a subsidiary thereof), and the board of directors of FirstBank NW recommends that the shareholders of FirstBank NW tender their shares in the tender or exchange offer or otherwise fails to recommend that such shareholders reject the tender offer or exchange offer within a ten-business day period.

	•	if the average closing price of Sterling’s common stock during a specified period just prior to the closing date is less than $25.95 and the Sterling common stock price has also declined from a price of $30.53 per share such that the percentage decline of the Sterling common stock price from $30.53 reflects underperformance of Sterling’s common stock by at least 15% relative to the price performance of a weighted average index of a certain group of financial institution holding companies. Sterling, however, would then have the option to avoid the termination by increasing the consideration paid to FirstBank NW shareholders, as provided in the merger agreement.

	•	FirstBank NW must pay Sterling a termination fee of $6.35 million if Sterling terminates the merger agreement and elects to receive the fee as a result of: (i) the FirstBank NW board of directors failing to recommend the approval of the merger or changing or publicly announcing its intention to change its recommendation and the FirstBank NW shareholders failing to approve the merger; (ii) FirstBank NW breaching its nonsolicitation or related obligations as provided in the merger agreement; or (iii) the board of directors recommending that FirstBank NW shareholders tender their shares in a tender or exchange offer or failing to recommend that the FirstBank NW shareholders reject such an offer.
	•	FirstBank NW must pay Sterling a termination fee of $1.75 million (which amount may be increased to $6.35 million in certain circumstances) if Sterling terminates the merger agreement and elects to receive the fee as a result of the willful or intentional material breach by FirstBank NW of any of the covenants and agreements or representations or warranties it made in the merger agreement, such that any of its closing conditions would not be satisfied by the closing date, and the breach is not cured within 30 days following written notice to FirstBank NW, or which breach, by its nature, cannot be cured prior to the closing date; and
	•	Sterling must pay FirstBank NW a termination fee of $1.75 million if FirstBank NW terminates the merger agreement and elects to receive the fee as a result of the willful or intentional material breach by Sterling of any of the covenants and agreements or representations or warranties it made in the merger agreement, such that any of its closing conditions would not be satisfied by the closing date, and the breach is not cured within 30 days following written notice to Sterling, or which breach, by its nature, cannot be cured prior to the closing date.

 

By voting in favor of the merger, you will be choosing to invest in the common stock of Sterling and FirstBank NW as a combined company to the extent you receive Sterling common stock in exchange for your shares of FirstBank NW common stock. An investment in the combined company’s common stock contains a high degree of risk. In addition to the other information included in this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” on page 14, you should carefully consider the matters described below in determining whether to approve the principal terms of the merger agreement.

 

Because the market price of Sterling common stock will fluctuate, FirstBank NW shareholders cannot be sure of the value of the merger consideration they will receive.

 

Upon completion of the merger, each share of FirstBank NW common stock will be converted into the right to receive merger consideration equal to 0.7890 shares of Sterling common stock and $2.55 in cash pursuant to the terms of the merger agreement. Any change in the market price of Sterling common stock prior to completion of the merger will affect the value of the merger consideration that FirstBank NW shareholders will receive upon completion of the merger. Accordingly, at the time of the FirstBank NW annual meeting and prior to the closing of the merger, FirstBank NW shareholders will not necessarily know or be able to calculate the actual value of the merger consideration they would receive upon completion of the merger. Although FirstBank NW will have the right to terminate the merger agreement in the event of a specified decline in the market value of Sterling common stock and a specified decline relative to the performance of a designated market index unless Sterling elects to increase the aggregate merger consideration (see “The Merger Agreement — Termination of the Merger Agreement”), neither company is otherwise permitted to terminate the merger agreement or resolicit the vote of FirstBank NW’s shareholders solely because of changes in the market prices of either company’s stock. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond the control of our companies. You should obtain current market prices for shares of Sterling common stock and for shares of FirstBank NW common stock.

 

If Sterling is unable to integrate the combined operations successfully, its business and earnings may be negatively affected.

 

The merger involves the integration of companies that have previously operated independently. Successful integration of FirstBank NW’s operations will depend primarily on Sterling’s ability to consolidate operations, systems and procedures and to eliminate redundancies and costs. No assurance can be given that Sterling will be able to integrate its post-merger operations without encountering difficulties including, without limitation, the loss of key employees and customers, the disruption of its respective ongoing businesses or possible inconsistencies in standards, controls, procedures and policies. Estimated cost savings and revenue enhancements are projected to come from various areas that Sterling’s management has identified through the due diligence and integration planning process. The elimination and consolidation of duplicate tasks are projected to result in annual cost savings. If Sterling has difficulties with the integration, it might not fully achieve the economic benefits it expects to result from the merger. In addition, Sterling may experience greater than expected costs or difficulties relating to the integration of the business of FirstBank NW, and/or may not realize expected cost savings from the merger within the expected time frame. The fairness opinion obtained by FirstBank NW from its financial advisor will not reflect changes in circumstances between approval of the merger agreement and the time the merger is completed.

The fairness opinion obtained by FirstBank NW from its financial advisor will not reflect changes in circumstances between the date of this proxy statement/prospectus and the completion of the merger.

 

Changes in the operations and prospects of Sterling or FirstBank NW’s general market and economic conditions, and other factors that may be beyond the control of Sterling and FirstBank NW and on which the fairness opinion was based, may alter the value of Sterling or FirstBank NW or the prices of shares of Sterling common stock or FirstBank NW common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the dates of such opinion. Because FirstBank NW does not currently anticipate asking its financial advisor to update its opinion, the September 21, 2006 opinion does not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. For a description of the opinion that FirstBank NW received from its financial advisor, please refer to “The Merger — Opinion of FirstBank NW’s Financial Advisor.” For a description of the other factors considered by the board of directors of FirstBank NW in determining to approve the merger, please refer to “The Merger — Recommendation of the FirstBank NW Board of Directors and Reasons for the Merger.”

 

The merger agreement limits FirstBank NW’s ability to pursue alternatives to the merger.

 

The merger agreement contains non-solicitation provisions that, subject to limited exceptions, limit FirstBank NW’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of FirstBank NW. Although FirstBank NW’s board of directors is permitted to take certain actions in connection with the receipt of a competing acquisition proposal if it determines in good faith that the failure to do so would violate its fiduciary duties, taking such actions could, and other actions (such as withdrawing or modifying its recommendation to FirstBank NW shareholders that they vote in favor of approval of the merger agreement) would, entitle Sterling to terminate the merger agreement and receive a termination fee of $6.35 million. See “The Merger — Termination of the Merger Agreement” and “— Termination Fee.” These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of FirstBank NW from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire FirstBank NW than it might otherwise have proposed to pay.

 

FirstBank NW’s directors and executive officers might have additional interests in the merger.

 

In deciding how to vote on the proposal to approve the merger agreement, you should be aware that FirstBank NW’s directors and executive officers might have interests in the merger that are different from, or in addition to, the interests of FirstBank NW shareholders generally. See the section entitled “The Merger — Interests of Certain Persons in the Merger.” FirstBank NW’s board of directors was aware of these interests and considered them when it recommended approval of the merger agreement.

 

The merger is subject to the receipt of consents and approvals from regulatory and other authorities that may impose conditions that could have an adverse effect on Sterling.

 

Before the merger may be completed, various approvals or consents must be obtained from various bank regulatory and other authorities. These authorities may impose conditions on the completion of the merger or require changes to the terms of the merger. While Sterling and FirstBank NW do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of Sterling following the merger, any of which might have a material adverse effect on Sterling following the merger.

 

Unless otherwise specified, references to “we,” “our” and “us” in this subsection means Sterling and its subsidiaries on a consolidated basis.

 

As a bank holding company, our earnings are dependent upon the performance of our bank and non-bank subsidiaries as well as by business, economic and political conditions.

 

Sterling is a legal entity separate and distinct from its subsidiaries, including Sterling Savings Bank and Golf Savings Bank, although the principal source of Sterling’s cash is dividends from Sterling Savings Bank and Golf Savings Bank. Our right to participate in the assets of any subsidiary upon that subsidiary’s liquidation, reorganization or otherwise will be subject to the claims of the subsidiary’s creditors, which will take priority except to the extent that we may be a creditor with a recognized claim.

 

Sterling Savings Bank and Golf Savings Bank are also subject to restrictions under federal law that limit the transfer of funds to us or to other affiliates, whether in the form of loans, extensions of credit, investments, asset purchases or otherwise. Such transfers by Sterling Savings Bank or Golf Savings Bank to us or any other affiliate are limited in amount to 10% of each bank’s capital and surplus. Furthermore, such loans and extensions of credit are required to be collateralized.

 

Earnings are impacted by business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, monetary supply, fluctuations in both debt and equity capital markets, and the strength of the U.S. economy and the local economies in which we operate. Business and economic conditions that negatively impact household or corporate incomes could decrease the demand for our products and increase the number of customers who fail to pay their loans.

 

We have shifted our focus to community banking.

 

We are increasing our business banking, consumer and construction lending, while placing an increased emphasis on attracting greater volumes of retail deposits. Business banking, consumer and construction loans generally produce higher yields than residential mortgage loans. Such loans, however, generally involve a higher degree of risk than the financing of residential real estate, primarily because the collateral may be difficult to obtain or liquidate in the event of default. Construction lending is subject to risks such as construction delays, cost overruns, insufficient collateral and the inability to obtain permanent financing in a timely manner. Business banking and construction loans are more expensive to originate than residential mortgage loans. As a result, our operating expenses are likely to increase as we increase our lending in these areas. Additionally, we are likely to experience higher levels of loan losses than we would on residential mortgage loans. There can be no assurance that our emphasis on community banking will be successful or that any increase in the yields on business banking, consumer and construction loans will offset higher levels of expense and losses on such loans.

 

Our loan originations are highly concentrated in certain types of loans.

 

Our loans, with limited exceptions, are secured by either real estate, marketable securities or corporate assets. A significant portion of our loans are residential construction loans. At June 30, 2006, approximately 26% of Sterling Savings Bank’s total loan portfolio consisted of construction loans, approximately 23% of which were for speculative endeavors. Additionally, 19% of Sterling Savings Bank’s loan portfolio consisted of multifamily residential and commercial property loans at June 30, 2006. A reduction in the demand for new construction or multifamily residential and commercial property loans could have a negative impact on Sterling Savings Bank. In addition, 17% of the loans in FirstBank NW’s portfolio as of June 30, 2006 were residential construction loans.

 

Our ability to continue to originate such loans may be impaired by adverse changes in local and regional economic conditions in the real estate markets, or by acts of nature. Due to the concentration of real estate

collateral, these events could have a material adverse impact on the value of the collateral, resulting in losses or delinquencies. Our residential mortgage and home equity loans are primarily secured by residential property in the Pacific Northwest. As a result, conditions in the real estate markets specifically, and the Pacific Northwest economy generally, can materially impact the ability of our borrowers to repay their loans and affect the value of the collateral securing these loans. Customer demand for loans secured by real estate could be reduced by a weaker economy, an increase in unemployment, a decrease in real estate values or an increase in interest rates.

 

Competition may adversely affect our ability to attract and retain customers at current levels.

 

The banking and financial services businesses in our market areas are highly competitive. Competition in the banking, mortgage and finance industries may limit our ability to attract and retain customers. We face competition from other banking institutions, savings banks, credit unions and other financial institutions. We also compete with non-bank financial service companies within the states that we serve and out-of-state financial intermediaries that have opened loan production offices or that solicit deposits in our market areas. There also has been a general consolidation of financial institutions in recent years, which results in new competitors and larger competitors in our market areas.

 

In particular, our competitors include major financial companies whose greater resources may provide them a marketplace advantage. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits and the range and quality of services provided. Because we have fewer financial and other resources than larger institutions with which we compete, we may be limited in our ability to attract customers. In addition, some of the current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we can accommodate. If we are unable to attract and retain customers, we may be unable to continue our loan and deposit growth, and our results of operations and financial condition may otherwise be negatively impacted.

 

We may not be able to successfully implement our internal growth strategy.

 

We have pursued and intend to continue to pursue an internal growth strategy, the success of which will depend primarily on generating an increasing level of loans and deposits at acceptable risk levels and terms without proportionate increases in non-interest expenses. There can be no assurance that we will be successful in implementing our internal growth strategy. Furthermore, the success of our growth strategy will depend on maintaining sufficient regulatory capital levels and on continued favorable economic conditions in the Pacific Northwest.

 

There are risks associated with potential acquisitions.

 

We may make opportunistic acquisitions of other banks or financial institutions from time to time that further our business strategy, such as our recently announced proposed acquisition of Northern Empire Bancshares and its wholly owned subsidiary Sonoma National Bank. These acquisitions could involve numerous risks including lower than expected performance or higher than expected costs, difficulties in the integration of operations, services, products and personnel, the diversion of management’s attention from other business concerns, changes in relationships with customers and the potential loss of key employees. Any acquisitions will be subject to regulatory approval, and there can be no assurance that we will be able to obtain such approvals. We may not be successful in identifying further acquisition candidates, integrating acquired institutions or preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions in our market area is highly competitive, and we may not be able to acquire other institutions on attractive terms. There can be no assurance that we will be successful in completing future acquisitions, or if such transactions are completed, that we will be successful in integrating acquired businesses into our operations. Our ability to grow may be limited if we are unable to successfully make future acquisitions.

 

We are expanding our lending activities in riskier areas.

 

We have identified commercial real estate, commercial business and consumer loans as areas for increased lending emphasis. While increased lending diversification is expected to increase interest income, non-residential loans carry greater risk of payment default than residential real estate loans. As the volume of these loans increases, credit risk increases. In the event of substantial borrower defaults, our provision for loan losses would increase and therefore earnings would be reduced.

 

Shares eligible for future sale could have a dilutive effect.

 

Shares of Sterling common stock eligible for future sale, including those that may be issued in the acquisition of FirstBank NW, in future acquisitions, such as our recently announced proposed acquisition of Northern Empire Bancshares and its wholly owned subsidiary Sonoma National Bank, and any other offering of Sterling common stock for cash, could have a dilutive effect on the market for Sterling common stock and could adversely affect its market price. For example, on July 25, 2006, Sterling filed a “shelf” registration statement on Form S-3 that provides for the issuance by Sterling of up to $100 million in Sterling common stock and preferred stock.

 

As of September 15, 2006, there were 60,000,000 shares of Sterling common stock authorized, of which 37,022,461 shares were outstanding. As a result of the merger, a maximum of 4,991,563 shares of Sterling common stock may be issued to FirstBank NW shareholders.

 

This document, including information included or incorporated by reference in this document, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Sterling and FirstBank NW intend for such forward-looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the merger, including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the merger; (ii) statements about our respective plans, objectives, expectations and intentions and other statements that are not historical facts; (iii) statements about expectations regarding the timing of the closing of the merger and the ability to obtain regulatory approvals on a timely basis; and (iv) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or words of similar meaning. These forward-looking statements are based on current beliefs and expectations of Sterling’s and FirstBank NW’s respective management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and beyond Sterling’s and FirstBank NW’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

 

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed under “Risk Factors” beginning on page 9 and in Sterling’s reports filed with the SEC.

 

ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS CONCERNING THE PROPOSED TRANSACTION OR OTHER MATTERS ATTRIBUTABLE TO STERLING OR FIRSTBANK NW OR ANY PERSON ACTING ON BEHALF OF STERLING OR FIRSTBANK NW ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS ABOVE. NEITHER STERLING NOR FIRSTBANK NW UNDERTAKE ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.

 

Sterling is providing the following information to aid you in your analysis of the financial aspects of the merger. Sterling derived the information as of and for the five years ended December 31, 2005 from its historical audited consolidated financial statements for these fiscal years. The audited consolidated financial information contained herein is the same historical information that Sterling has presented in its prior filings with the SEC. The historical consolidated financial data for the six months ended June 30, 2006 and 2005 is derived from unaudited consolidated financial statements. However, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation at such dates and for such periods have been made.

 

The operating results for the six months ended June 30, 2006 are not necessarily indicative of the operating results that may be expected for any future interim period or the year ending December 31, 2006. This information is only a summary, and you should read it in conjunction with Sterling’s consolidated financial statements and notes thereto contained in Sterling’s 2005 Annual Report on Form 10-K, which has been incorporated by reference into this document. See the section entitled “Where You Can Find More Information” on page 92. All prior period per share and weighted average share amounts have been restated to reflect the three-for-two stock split that was paid in the form of a 50% stock dividend on August 31, 2005.

 

 

 

 

 

 

The following selected financial data with respect to FirstBank NW’s statements of financial position and its statements of income for the fiscal years ended March 31, 2002 through March 31, 2006 have been derived from its historical audited financial statements for those fiscal years. The audited consolidated financial information contained herein is the same historical information that FirstBank NW has presented in its prior filings with the SEC. The historical consolidated financial data for the three months ended June 30, 2006 and 2005 is derived from unaudited consolidated financial statements. However, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation at such dates and for such periods have been made.

 

The operating results for the three months ended June 30, 2006 are not necessarily indicative of the operating results that may be expected for any interim period or the year ending March 31, 2007. This information is only a summary, and you should read it in conjunction with FirstBank NW’s consolidated financial statements and notes thereto contained in FirstBank NW’s 2006 Annual Report on Form 10-K, which has been incorporated by reference into this document. See the section entitled “Where You Can Find More Information” on page 92. FirstBank NW’s audited financial statements are also contained in the Annual Report, a copy of which has been furnished to you together with this proxy statement/prospectus. All prior period per share and weighted average share amounts have been adjusted to reflect the two-for-one split paid in the form of a 100% stock dividend on February 9, 2006.

 

 

The following table summarizes unaudited per share information for Sterling and FirstBank NW on a historical basis and a pro forma combined basis for Sterling. For purposes of the pro forma financial information provided below, it has been assumed that the merger was completed on January 1, 2005 and April 1, 2005, respectively, for income statement purposes, and on December 31, 2005 and March 31, 2006, respectively, for balance sheet purposes. Sterling’s fiscal year end is December 31st and FirstBank NW’s fiscal year end is March 31st. Therefore, the following information should be read in conjunction with the audited consolidated financial statements of Sterling as of and for the year ended December 31, 2005, which are incorporated by reference into this document, and the audited consolidated financial statements of FirstBank NW as of and for the year ended March 31, 2006, which are incorporated by reference into this document. The following pro forma information has been prepared in accordance with the rules and regulations of the SEC and accordingly includes the effects of purchase accounting. It does not reflect cost savings, synergies or certain other adjustments that may result from the merger of either Lynnwood Financial Group, Inc or FirstBank NW into Sterling, nor does it include pro forma information for Sterling’s proposed acquisition of Northern Empire. This information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the dates indicated, nor is it necessarily indicative of the future operating results or financial position of the combined company.

 

The historical book value per share is computed by dividing total shareholders’ equity by the number of shares of common stock outstanding at the end of the period. The pro forma income per share of the combined company is computed by dividing the pro forma net income available to holders of the combined company’s common stock by the pro forma weighted average number of shares outstanding for the periods presented. The pro forma combined book value per share is computed by dividing total pro forma shareholders’ equity by the pro forma number of common stock outstanding at the end of the period presented.

 

 

 

 

The following table presents trading information for Sterling common stock and FirstBank NW common stock on the Nasdaq Global Market on June 2, 2006, the last trading day prior to the announcement of the signing of the merger agreement, and on September 26, 2006, the last practical trading day for which information was available prior to the date of the printing of this proxy statement/prospectus.

 

 

 

 

You should obtain current market quotations for Sterling common stock. The market price of Sterling common stock will likely fluctuate between the date of this document and the date on which the merger is completed and after the merger. Because the market price of Sterling common stock is subject to fluctuation, the value of the shares of Sterling common stock that you may receive in the merger may increase or decrease prior to and after the merger.

 

  Sterling.

 

Sterling common stock is listed on the Nasdaq Global Select Market System under the symbol “STSA.” The following table sets forth, for the calendar quarters indicated, the high and low sales prices per share of Sterling common stock as reported on the Nasdaq Global Select Market System.

 

As of June 30, 2006, there were 35,092,842 outstanding shares of Sterling common stock held by approximately 1,850 shareholders of record.

 

The board of directors of Sterling from time to time evaluates the payment of cash dividends. The timing and amount of any future dividends will depend upon earnings, cash and capital requirements, the financial condition of Sterling and its subsidiaries, applicable government regulations and other factors deemed relevant by Sterling’s board of directors. Sterling paid the following historical cash dividends:

 

 

In July 2006, Sterling announced a quarterly cash dividend of $0.07 per share, payable on October 13, 2006 to shareholders of record as of September 29, 2006.

  FirstBank NW.

 

FirstBank NW common stock is listed on the Nasdaq Global Market System under the symbol “FBNW.” The following table sets forth, for the calendar quarters indicated, the high and low sales prices per share of FirstBank NW common stock as reported on the Nasdaq Global Market System.

 

As of June 30, 2006, there were 6,062,186 outstanding shares of FirstBank NW common stock held by approximately 477 holders of record.

 

The board of directors of FirstBank NW from time to time evaluates the payment of cash dividends. The timing and amount of any future dividends will depend upon earnings, cash requirements, capital requirements, the financial condition of FirstBank NW and its subsidiaries, applicable government regulations and other factors deemed relevant by FirstBank NW’s board of directors. FirstBank NW paid the following historical cash dividends:

 

 

  Sterling and FirstBank NW Quarterly Stock Price and Dividend Paid Information.