Spokane-based Sterling Financial Corp. said today that it is negotiating with several private equity investors, its major creditors and regulators about various “strategic alternatives designed to put Sterling on a sound financial footing and to allow it to recapitalize and grow its business.”

Also, according to a release, Sterling requested and received a letter from the U.S. Department of the Treasury expressing conditional support for a plan to convert the Sterling preferred stock that Treasury holds into Sterling common stock.

Sterling said it has received several non-binding proposals from private equity firms, and has entered into a non-binding letter of intent with one firm to provide additional capital.

In a regulatory filing Tuesday, Sterling said it “faces a number of challenges resulting from current and prior year losses, driven by credit quality issues, and is categorized as being undercapitalized by regulatory guidelines.

“The uncertainty around Sterling’s ability to comply with these agreements
has raised substantial doubts about Sterling’s ability to continue as a going concern,” the filing said.

In the fourth quarter, Sterling Savings Bank entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist with the Federal Deposit Insurance Corporation and the Washington State Department of Financial Institutions.

Under the terms of the agreement, Sterling Savings Bank has agreed to, among other things, raise capital of at least $300 million, and maintain a Tier 1 leverage ratio of not less than 10%. The agreement set a deadline of December 15, 2009 for meeting these capital requirements, which Sterling was not able to meet, according to the filing.

At the end of last year, Sterling reported total assets of $10.9 billion and operated 178 deposit-taking branches throughout Washington, Oregon, Idaho, Montana and California.

“We continue to make progress toward raising capital and improving our financial condition. We are encouraged by the positive recognition of the value of Sterling’s franchise and the continued loyalty of the customers and the communities we serve,” said Greg Seibly, Sterling president and CEO, on Tuesday. “Treasury’s expression of support for this proposed conversion of its preferred stock is a significant step in Sterling’s capital recovery plan.”