In the wake of receiving a cease and desist order from the Washington Department of Financial Institutions and the FDIC, Sterling's two top executives left the company. Harold Gilkey, Sterling co-founder and chairman, stepped down, as did Heidi Stanley, chair of Sterling Savings Bank, Washington's largest commercial bank.
Sterling Savings was a major lender in the Portland area, particularly to residential developers and builders. Its local borrowers include Renaissance Homes of Lake Oswego, which went bankrupt last year, as well as JLS Custom Homes and Buena Vista Homes.
Sterling sued Buena Vista seeking to recover about $11 million in loans and foreclose on about 50 lots Buena Vista owns in a Happy Valley subdivision.
Several Northwest banks have successfully raised capital in recent weeks, but few if any from the position of weakness that Sterling now finds itself in. The company's stock fell 22 percent Thursday closing at $1.29 a share.
Sterling, with $12.4 billion in assets, has struggled with steep losses, particularly on real estate loans.
In August, the company announced it would defer interest payments on notes and preferred stock, triggering a sell-off of its common shares that dropped the price 20 percent to $2.42. The shares closed Wednesday at $1.66.
In its deal with federal and state regulators, Sterling agreed to develop new plans for maintaining adequate capital, reduce commercial real estate loans, and cut off loans to troubled borrowers, all within 60 days.
The bank also must review loan-loss allowances and submit a plan to reduce reliance on brokered deposits, which command higher interest rates.
Sterling has 120 days to develop a three-year strategic plan to improve profitability and lower risk.
The order signed Oct. 9 also required the board of directors to notify regulators of any change in management.
In a statement by Eisenhart released Wednesday afternoon, the bank said the changes took effect immediately.
"The board is committed to taking the actions necessary to respond to the challenges that face Sterling," Eisenhart said. "The board is bringing in a new generation of management to lead the efforts to strengthen Sterling's capital and liquidity positions."
Gilkey, 70, co-founded Sterling in 1983 and had been its chairman since. He was also corporate CEO and president, director of Sterling Bank, and CEO of Golf Savings Bank, another Sterling holding.
Stanley, 53, joined the bank in 1985. She became its CEO in 2008 and chairwoman earlier this year.
Eisenhart credited both for building a franchise that expanded from one branch in Spokane to 175 in Washington, Idaho, Montana, Oregon and California.
The appointments will become permanent when approved by the bank's regulators, the statement said.
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