AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Exhibit 10.3

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

     This Amended and Restated Employment Agreement (this “Agreement”) is made effective as of August 11, 2008, by and between STERLING FINANCIAL CORPORATION (“Sterling”) and DANIEL G. BYRNE (the “Executive”).

W I T N E S S E T H :

     WHEREAS, the Executive is Executive Vice President, Finance, and Chief Financial Officer of Sterling, and Sterling desires to retain the Executive and the Executive is willing to continue to serve in such capacities on the terms and conditions herein set forth; and

     WHEREAS, the parties desire to enter into this Agreement, which is intended to amend and supersede an existing Employment Agreement, as amended (the “Prior Agreement”).

     NOW THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

     1.  Employment . Sterling agrees to continue to employ the Executive, and the Executive agrees to continue to be employed by Sterling, upon the terms and conditions hereinafter provided until December 31, 2013 (the “Term”).

     2.  Position and Duties . During the Term, Sterling agrees to employ the Executive to serve as the Executive Vice President, Finance, and Chief Financial Officer of Sterling, and the Executive will have such powers and duties as are commensurate with such position and as may be conferred upon him by the Board of Directors of Sterling (the “Board”). During the Term, and except for illness or incapacity and reasonable vacation periods as shall be consistent with Sterling’s policies for other key executives, the Executive shall devote all of him business time, attention, skill and efforts exclusively to the business and affairs of Sterling and its subsidiaries; provided, however, that the Executive may serve on other boards as a director or trustee if such service does not interfere with him ability to discharge him duties and responsibilities to Sterling.

     3.  Compensation . For all services rendered by the Executive in any capacity required hereunder during the Term, including, without limitation, services as an executive officer, director,

or member of any committee of Sterling, or any subsidiary or division thereof, the Executive shall be compensated as follows:

          (a) Base Salary. Sterling shall pay the Executive a fixed minimum salary of $276,000 per annum (such amount or such higher annual amount as is paid from time to time pursuant to the terms hereof being referred to as the “Base Salary”). The Base Salary shall be subject to such periodic review (which shall occur at least annually) and such periodic increases as the Board shall deem appropriate in accordance with Sterling’s customary procedures and practices regarding the salaries of senior officers. The Base Salary shall be payable in accordance with the customary payroll practices of Sterling, but in no event less frequently than monthly.

          (b) Bonus Awards. The Executive shall be entitled to receive an incentive bonus (the “Incentive Bonus”) for each fiscal year during the Term. The Incentive Bonus shall be paid within thirty days of the end of each fiscal year. The Incentive Bonus may be increased, upon the recommendation of the Personnel Committee and the approval of the Board, depending, among other factors, upon the attainment of performance goals set by the Board for Sterling.

          (c) Equity Grants. The Executive may be awarded, for each fiscal year during the Term, equity grants under Sterling’s equity incentive plan(s) then in effect, subject to the terms and conditions of such plan(s).

          (d) Perquisites. Sterling also will furnish the Executive during each fiscal year of the Term, without cost to him except any associated tax liability, with reasonable (i) payment for tax preparation and financial planning; (ii) reimbursement for club membership fees or dues in accordance with Sterling policy; (iii) payment for an annual physical examination of the Executive by a physician selected by the Executive; and (iv) payment of an automobile allowance, it being understood that the automobile allowance shall be primarily to further the business of Sterling.

          (e) Additional Benefits. Except as modified by this Agreement, the Executive shall be entitled to participate in all compensation or employee benefit plans or programs, and to receive all benefits, perquisites and emoluments, for which any salaried employees of Sterling are eligible under any plan or program now or hereafter established and maintained by Sterling for senior officers, to the fullest extent permissible under the general terms and provisions of such plans or programs and in accordance with the provisions thereof, including group hospitalization, health, dental care, life or other insurance, tax-qualified pension, savings, thrift, 401(k) and profit-sharing plans, termination pay programs, sick-leave plans, travel or accident insurance, salary continuation

plans, disability insurance, automobile allowance or automobile lease plans, and executive contingent compensation plans, including, without limitation, stock option or incentive plan(s) then in effect.

     4.  Business Expenses . It is understood that for the Executive to successfully perform her duties hereunder so as to produce the greatest economic return to Sterling, it is necessary for the Executive to entertain persons having an existing or prospective business relationship with Sterling and to attend seminars, conventions and continuing education programs. Sterling, therefore, shall pay directly or reimburse the Executive for all reasonable travel, entertainment or other expenses incurred by the Executive (and his spouse where there is a legitimate business reason for his spouse to accompany him) in connection with the performance of his duties and obligations under this Agreement, subject to the Executive’s presentation of appropriate vouchers in accordance with such procedures as Sterling may from time to time establish for senior officers and to preserve any deductions for Federal income taxation purposes to which Sterling may be entitled.

     5.  Effect of Termination of Employment Other Than in Connection with a Change in Control .

          (a) Certain Terminations. In the event the Executive’s employment hereunder terminates due to either Permanent Disability, the Executive’s death, a Without Cause Termination or a Constructive Discharge, Sterling shall, as severance pay, continue, subject to the provisions of Section 7 below, to pay the Executive’s Base Salary, as in effect at the time of such termination for a three-year period beginning on the date of Termination of Employment (the “Severance Period”), provided, that in the case of Permanent Disability, such payments shall be offset by any amounts otherwise paid to the Executive under Sterling’s disability program generally available to other employees. In addition, earned but unpaid Base Salary and Incentive Bonus amounts and amounts (whether vested or not) held for the Executive’s account in Sterling’s deferred compensation plan and supplemental executive retirement plan then in effect as of the date of Termination of Employment shall be fully vested and payable in full, pursuant to the payment terms of the applicable plan document. The automobile allowance set forth in Section 3(d)(iv) shall continue through the end of the Severance Period. All stock options and other incentive awards held by the Executive shall become fully vested and exercisable during the Severance Period.

          (b) Other Terminations. In the event that the Executive’s employment hereunder terminates due to a Termination for Cause, or the Executive voluntarily terminates employment with

Sterling for reasons other than a Constructive Discharge or Permanent Disability, earned but unpaid Base Salary and Incentive Bonus amounts as of the date of Termination of Employment shall be payable in full. However, no other payments shall be made, or benefits provided, by Sterling under this Agreement except for stock options and other incentive awards held by the Executive pursuant to the terms of the grant(s) thereof, vested benefits payable under the terms of the deferred compensation plan and supplemental executive retirement plan then in effect, and any other benefits which the Executive is entitled to receive under the terms of employee benefit programs maintained by Sterling or its subsidiaries for its employees and under Section 18 below.

          (c) Payment in Accordance with §409A. In accordance with the regulations under Section 409A (§409A) of the Internal Revenue Code of 1986, as amended (the “Code”), the payment of Base Salary as severance and the provision of the automobile allowance to Executive, under Section 5(a) hereof, shall be treated as a separation pay plan that does not provide for the deferral of compensation to the extent of the exceptions provided under Treasury Regulations Sections (“Treas. Reg. §”) 1.409A-1(b)(9)(ii), (iii), (iv) and (v), which exceptions provide that such payments will not be subject to §409A, including the six-month delay in payments to specified employees following a separation from service, to the extent of such exceptions. All payments of Base Salary as severance and the provision of the automobile allowance shall be paid in accordance with the same schedule as when Executive was employed by Sterling.

          (d) Definitions. For purposes of this Agreement, the following terms have the following meanings:

               (i) The term “Termination for Cause” means:

                    (A) the continued failure of Executive to substantially perform the Executive’s duties with Sterling or one of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board, which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties, or

                    (B) the willful engaging by the Executive in illegal conduct that is materially and demonstrably injurious to Sterling or any of its subsidiaries, or

                    (C) conviction of a felony involving fraud, dishonesty or moral turpitude, or a guilty or nolo contendere plea by Executive with respect thereto, or

                    (D) violation of the provisions of Section 7 herein.

          For purposes of this provision, no act or failure to act on the part of Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that the Executive’s action or omission was in the best interest of Sterling or its subsidiaries. Any act or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for Sterling shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of Sterling and its subsidiaries. The cessation of employment of the Executive shall not be deemed to be a Termination for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (A), (B) or (D) above, and specifying the particulars thereof in detail.

               (ii) The term “Constructive Discharge” means a termination of the Executive’s employment by the Executive following the occurrence of any of the following events:

                    (A)  Inferior Duties . The assignment of duties by Sterling to Executive, without his express written consent, that (i) are inferior to Executive’s duties on the Effective Date in any material respect, (ii) result in Executive having inconsequential authority or responsibility compared to the authority or responsibility he had on the Effective Date, or (iii) result in Executive reporting to or being supervised by someone other than the Board of Sterling or any successor, as contemplated by Section 9 below.

                    (B)  Base Compensation Reduction . A material reduction by Sterling of Executive’s Base Salary.

                    (C)  Relocation . Executive, without his written consent, is required by his employment to perform a substantial part of his duties at one or more locations more than twenty-five miles distant from Spokane, Washington.

                    (D)  Breach . A material breach by Sterling of any provision of this Agreement.

          If an event constituting Constructive Discharge has occurred without the Executive’s consent, the Executive’s termination for Constructive Discharge must occur within two years of the

first occurrence of such event. The Executive shall give notice to Sterling, in accordance with Section 10, of the existence of an event constituting Constructive Discharge within 90 days of the initial occurrence of such event, and Sterling will have 60 days to cure or otherwise obtain Executive’s express written consent to the occurrence or continuance of such event. If Executive’s employment is terminated for Constructive Discharge, it will be treated as an involuntary separation from service under §409A.

               (iii) The term “Without Cause Termination” means a termination of the Executive’s employment by Sterling, for a reason other than Permanent Disability, retirement, expiration of the Term, or Termination for Cause.

               (iv) The term “Permanent Disability” means a condition pursuant to which an Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident or health policy covering employees of Employer.

     6.  Effect of Termination of Employment in Connection with a Change in Control .

          (a) Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

               (i) A “Change in Control” shall be deemed to have occurred at such time as the occurrence of a “change in ownership,” a “change in effective control” or a “change in the ownership of a substantial portion of the assets” of a corporation, as determined in accordance with this Section 6(a)(i).

                    (A) A “change in ownership” of Sterling shall occur on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of Sterling that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of Sterling, as determined in accordance with Treas. Reg.