When Sterling Financial Corp. met with potential investors before wrapping up its $730 million recapitalization Aug. 26, the Spokane company provided them with nonpublic information, including projected net income many times higher than its previous record.

Though the company calls such figures "assumptions" in a Sept. 22 filing in which it disclosed them, and it also says those projections and others weren't prepared in accordance with U.S. Securities and Exchange Commission or American Institute of Certified Public Accountants guidelines, the filing includes fascinating information.

For example, the documents assume that a recapitalized Sterling would suffer a net loss of $241.2 million for 2010, then break into the black with net income of just under $9 million in 2011, boost its earnings to an unprecedented $263.5 million in 2012, and increase them further, to $356.7 million, in 2013. Sterling's record net income previously was $93.3 million, in 2007.

Meanwhile, the documents prepared by Sterling's management team put the company's assets at $9.9 billion at the end of 2010, then project they would increase steadily to $11.7 billion in 2013. Its assets totaled $10.9 billion at the end of 2009, down from $12.8 billion a year earlier.

Sterling also says in the filing that it provided potential investors who signed confidentiality agreements with a list of prospective actions and initiatives it's undertaking in 2010—including cutting 100 jobs—that could result in changes in its estimated 2011 earnings.

"Attrition has been a lot of that," says Sterling spokeswoman Cara Coon. Keeping Sterling's back-office operation here intact had been a desire of Spokane's business community as the institution went through its recapitalization after the nation's economic downturn ended years of rapid expansion.

Sterling said Sept. 27 that the Federal Deposit Insurance Corp. and the Washington state Department of Financial Institutions had lifted a cease-and-desist order placed against its Sterling Savings Bank subsidiary in October 2009. The company also has reconfigured its board of directors, naming former top executives with Wells Fargo & Co. and Bank of America to its board, along with a former FDIC division director.

Sterling has called a shareholder's meeting Oct. 21 here to implement a number of actions in the wake of its recapitalization. Those actions include changes to its articles of incorporation, a reduction in its number of shares that's part of a bid to lift its share price and bring it into compliance with Nasdaq listing standards, and other moves.

The list of actions the company planned to take this year to improve earnings in 2011 included:

•The assumed reduction of 100 employees that would result in additional earnings of $4 million. Though most of the reductions have been made, "there are some based on redundancy and performance management," Coon says. Sterling currently has about 2,575 employees, down from about 2,750 in October 2009.

•An estimated 35 percent reduction in OREO, or "other real estate owned," related costs and expenses and in the reversal of interest income on nonaccrual loans resulting in additional earnings of $48.5 million. OREO reflects real estate a bank owns because previous owners failed to repay loans. Nonaccrual loans are ones on which a bank isn't being paid interest.

•The integration of Golf Savings Bank into Sterling Savings Bank and an improved deposit mix, resulting in $15 million of additional earnings. Sterling already has folded Golf into a new Sterling Home Loans Division, Coon says.

•An assumed elimination of a rebate program for homebuyers who buy a Sterling-financed builder home would result in $3.6 million in additional savings. Through that program, when customers bought homes that Sterling had financed for builders, Sterling Savings would contribute up to 3 percent of the sales price, to a maximum of $20,000, which the buyers could use to pay for financing costs as long as they financed the new mortgage through Sterling Savings.

•An assumed 50 percent reduction in the assessment rate for FDIC deposit insurance would save Sterling an additional $18.9 million.

•Investment of an assumed $1.3 billion of excess cash would result in additional interest income of $32.2 million, assuming a yield of 2.75 percent.

•Improvement in core operational systems would result in projected savings of $350,000 a month beginning in the third quarter of 2011.

•An assumed net increase in assets of $200 million, with an associated net margin of 3 percent, would result in a projected $6 million of additional earnings.

More immediately, Sterling told the investors that as of June 30, it would reduce its classified loans by an estimated $200 million to $300 million in the next 90 days, and it expected its construction loan balances would be at or below $600 million by year-end. Sterling's classified loans, those to which it has assigned a certain risk rating indicating problems, totaled $1.2 billion on June 30.

Sterling also said that in the 18 months following June 30, some $490 million of brokered deposits would mature at a cost in excess of 3.4 percent. The bank has said it's trying to reduce its brokered deposits, which are placed by brokers rather than conventional depositors.

Tellingly, Sterling said it would reduce its nonperforming loans from an expected $600 million at the end of 2010 to $378.9 million at the end of 2011, $133.7 million at the end of 2012, and $33.7 million at the end of 2013. Nonperforming loans are those on which payments of interest and principal are past due by 90 days or the bank doubts, for other reasons, that repayment will be made in full.

The company's provision for loan losses, through which it sets aside money to cover loans for which it believes it might not be repaid, were estimated at a total of $304.3 million in 2010, then were projected to decline to $160 million in 2011, $50 million in 2012, and $35 million in 2013. Performing loans, on the other hand, were expected to increase from $5.17 billion to $7.36 billion by the end of 2013.

Sterling's deposits were projected to rise from $6.95 billion at the end of 2010 to $8.39 billion at the end of 2013, while its equity was projected to grow from $783.9 million to $1.41 billion in that period.