EMPLOYMENT AGREEMENT

Exhibit 10.7

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is made effective as of August 28, 2008, by and between STERLING FINANCIAL CORPORATION (“Sterling”) and J. GREGORY SEIBLY (the “Executive”).

W I T N E S S E T H :

WHEREAS, the Executive is an Officer of Sterling’s wholly-owned subsidiary Sterling Savings Bank (the “Bank”), 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 supersede any existing employment agreement between the parties;

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.

2. Position and Duties . Sterling agrees to employ the Executive to serve as the Chief Production Executive of the Bank, and the Executive will have such powers and duties as are commensurate with such position and as may be conferred upon him or her by the Board of Directors of Sterling (the “Board”) or the Board of Directors of the Bank. Executive shall faithfully perform such duties and shall do nothing inconsistent with his or her duties to Sterling and the Bank. Except for illness or incapacity and reasonable vacation periods as shall be consistent with Sterling and the Bank’s policies for senior officers, the Executive shall devote all of his or her business time, attention, skill and efforts exclusively to the business and affairs of Sterling and its subsidiaries.

3. Compensation . For all services rendered by the Executive in any capacity required hereunder, including, without limitation, services as an 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 $325,000 per annum (such amount or such higher annual amount as is paid from time to time

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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 deemed appropriate in accordance with Sterling and the Bank’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) Other Benefits. 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.

(c) Deferred Compensation Bonus . In consideration for entering into employment with Sterling, Sterling has contributed Two Hundred Thousand Dollars ($200,000.00) on behalf of Executive to the Sterling Savings Bank Deferred Compensation Plan, which vests in accordance with the following schedule, so long as Executive remains employed hereunder on the dates listed below:

4. Termination of Employment .

(a) Termination. Either Sterling or Executive may terminate Executive’s employment at any time in such party’s sole discretion. Except as expressly provided in this Agreement, upon termination of employment Sterling shall have no liability to pay any further compensation or any other benefit or sum whatsoever to Executive.

(b) In the event that the Executive’s employment hereunder terminates, earned but unpaid Base Salary as of the date of Termination of Employment shall be payable in full. Except as

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provided herein for Termination Upon a Change in Control, no other payments shall be made, or benefits provided, by Sterling under this Agreement except for vested 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 nonqualified deferred compensation plans then in effect in which Executive participates, and any other vested benefits that the Executive is entitled to receive under the terms of employee benefit programs maintained by Sterling or its subsidiaries for its employees.

(c) Payments for Termination Upon a Change in Control. Within twenty days of the Executive’s Termination Upon a Change in Control, Sterling shall pay to the Executive in a single payment in cash and/or provide to the Executive, as applicable, the following:

(i) the Executive’s earned but unpaid Base Salary as of the date of Termination of Employment;

(ii) the benefits, if any, to which the Executive is entitled as a former employee under the employee benefit programs and compensation plans and programs maintained for the benefit of Sterling’s officers and employees;

(iii) an amount equal to two times Executive’s Annual Compensation; and

(iv) Options and Other Incentive Awards. All stock options and other incentive awards held by the Executive shall become fully vested and exercisable.

(d) Adjustment for Taxes. In the event that either Sterling’s independent public accountants or the Internal Revenue Service determines that any payment, coverage, benefit or benefit acceleration provided to Executive, whether specifically provided for in this Agreement or otherwise, is subject to the excise tax imposed by Section 4999 (or any successor provision) (“Section 4999”) of the Internal Revenue Code of 1986, as amended (the “Code”), Sterling, within 30 days thereafter, shall pay to Executive, in addition to any other payment or benefit due and owing hereunder, an amount determined by multiplying the rate of excise tax then imposed by Section 4999 by the amount of the “excess parachute payment” (as defined in Section 280G of the Code) received by Executive (determined without regard to any payments made to the Executive pursuant to this paragraph) and dividing the product so obtained by the amount obtained by subtracting the aggregate local, state and Federal income tax rate applicable to the receipt by Executive of the “excess parachute payment” (taking into account the deductibility for Federal income tax purposes of the payment of state and local income taxes thereon) from the amount obtained by subtracting from 1.00

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the rate of excise tax then imposed by Section 4999 of the Code, it being Sterling’s intention that the Executive’s net after tax position be identical to that which would have obtained had Sections 280G and 4999 not been part of the Code.

(e) If the actual excise tax imposed by Section 4999 of the Code is less than the amount that was taken into account in determining the adjustment for taxes under Section 4(d), Executive shall repay at the time that the amount of the reduced excise tax is finally determined the portion of the adjustment for taxes under Section 4(d) attributable to that reduction (plus the portion attributable to the excise tax, FICA tax and federal, state and local income tax imposed on the portion of the adjustment being repaid by Executive, to the extent the repayment results in a reduction in or refund of excise tax, FICA tax or federal, state or local income tax), plus interest on the amount of the repayment at the rate provided in Section 1274(b)(2)(B) of the Code. If the actual excise tax imposed is more than the amount that was taken into account in determining the amount of the adjustment under Section 4(d), Sterling shall make an additional payment in respect of such excess (plus interest at the rate provided in Section 1274(b)(2)(B) of the Code) at the time that the amount of the excess is finally determined.

(f) In the event that, on or after the occurrence of a Change in Control, Sterling fails to make any payment or provide any benefit to Executive arising out of or relating in any way to this Agreement or to the Executive’s employment by Sterling (collectively, “Employment Rights”), then Sterling shall pay to the Executive and reimburse the Executive for the Executive’s full costs (including, without limitation, the fees and expenses of the Executive’s attorneys and court and related costs) of enforcing the Executive’s Employment Rights. In addition, if the enforceability of this Agreement or the payment of any benefit to the Executive hereunder is disputed by Sterling on or after the occurrence of a Change in Control, then the Term of this Agreement shall be extended for the period of the dispute in the event of a final judicial determination that the Executive is entitled to at least fifty percent (in dollar amount) of the benefits that Executive claimed from, and that were disputed by, Sterling.

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

(i) Executive’s “Annual Compensation” shall include (A) the greater of: (1) the total of Executive’s Base Salary and any target bonus for the calendar year in which the

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termination occurs (if established before the termination), or (2) Executive’s Base Salary and any actual bonus for the prior calendar year (annualized if Executive was not employed by Sterling for the entire previous calendar year) or (3) Executive’s Base Salary and any actual bonus for the calendar year prior to the Change in Control (annualized if Executive was not employed by Sterling for the entire previous calendar year); and (B) the amount of the contributions made or anticipated to have been made by Sterling on Executive’s behalf to Sterling’s benefit plans for the calendar year in which the termination occurs, including without limitation contributions to pension and welfare plans maintained by Sterling for its employees. Annual Compensation shall not include the value of any stock options or restricted stock granted to Executive.

(ii) 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 4(g)(ii).

(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. §1.409A-3(i)(5)(v). If a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of Sterling, or to have effective control of such corporation within the meaning of part (B) of this Section, and such person or group acquires additional stock of such corporation, the acquisition of additional stock by such person or group shall not be considered to cause a “change in the ownership” of Sterling.

(B) A “change in effective control” of Sterling shall occur only on either of the following dates:

(1) The date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of Sterling possessing 30% or more of the total voting power of the stock of Sterling, as determined in accordance with Treas. Reg. §1.409A-3(i)(5)(vi). If a person or group is considered to possess 30% or more of the total voting power of th