EMPLOYMENT AGREEMENT

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made and entered into by and between Sterling Financial Corporation, a Washington corporation (“Sterling”) and Donn C. Costa (“Employee”) as of February 12, 2006. Because of Employee’s importance to Sterling and the value to be derived from Employee’s employment, Sterling and Employee desire to set forth certain terms and conditions relating to Employee’s employment as an inducement for Employee continuing his employment.

Therefore, the parties agree as follows:

1. Employment . Sterling agrees to employ Employee, and Employee agrees to and does hereby accept such employment on the terms in this Agreement.

2. Term . This Agreement shall commence at the time the merger between Sterling Financial Corporation and Lynnwood Financial Group, Inc., becomes effective and shall continue until December 31, 2009; provided, however, that the term hereof shall be automatically extended for two separate and consecutive additional one year periods unless Employer provides Employee notice that this Agreement will not be extended on or prior to October 1, 2009 with respect to the first one year extension, or on or prior to October 1, 2010, with respect to the second one year extension.

3. Duties . Employee shall perform such duties as Sterling may from time to time direct. Employee shall initially have the title of Senior Vice President of Golf Savings Bank with duties principally in the area of permanent mortgage lending, but this may be changed from time to time as Sterling may determine.

4. Compensation . During Employee’s employment under this Agreement, Employee shall receive as compensation for services rendered hereunder:

(a) Base Salary . Employee shall be paid a base salary in the amount of Three Hundred Seventy Thousand Dollars ($370,000.00), payable semi-monthly or in such manner as is consistent with Sterling’s policy relating to salaried employees.

(b) Deferred Compensation Bonus . In consideration for entering into this Agreement, Sterling shall contribute Three Hundred Thousand Dollars ($300,000.00) on behalf of Employee to the Sterling Savings Bank Deferred Compensation Plan, which shall vest 25% per year over four years as follows, so long as Employee remains employed hereunder on the dates listed below:

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(c) Discretionary Bonus . Annual bonus(es), if any, shall be awarded to Employee in accordance with the standard practices of Sterling for its employees at the senior vice president level.

5. Other Benefits .

(a) Employee Plans . Subject to the respective eligibility requirements and other terms and provisions of the applicable benefit or insurance plans (including relevant waiting periods), Employee shall be enrolled as a participant in all employee benefit plans (including retirement and insurance plans) generally available to other executives of Sterling, as the same may from time to time be adopted or amended. Employee is eligible to participate in Sterling’s stock option plan(s) then in effect subject to the terms and conditions of such plan(s).

(b) Vacation . Employee shall be entitled to twenty (20) business days of paid vacation each year at the convenience of Sterling. Unused vacation shall not be carried over from one year to the next unless otherwise approved by Employer.

(c) Perquisites . Sterling shall provide Employee with an automobile allowance comparable for Sterling employees at the senior vice president level, and shall reimburse Employee for all reasonable travel, entertainment or other business expenses reasonably incurred by him in the performance of his duties hereunder in accordance with the policies for such reimbursement of similarly situated senior executives as from time to time established by Sterling. Sterling shall also pay the appropriate dues at the Members Club at Aldarra or a similar organization approved by Sterling on the Employee’s behalf until the earliest of the expiration of this Agreement or the termination or resignation of Employee from employment with Sterling. Employee shall also be entitled to receive such other perquisites as Sterling may from time to time deem appropriate.

6. Performance of Duties . Employee agrees that during his employment with Sterling: (a) Employee will faithfully perform the duties of such office or offices as he may occupy, which duties shall be such as may be assigned to him by Sterling; (b) Employee will devote to the performance of his duties all such time and attention as Sterling shall reasonably require, taking, however, from time to time such reasonable vacations as are consistent with his duties and Sterling policy; and (c) Employee will do nothing inconsistent with his duties to Sterling.

7. Termination .

(a) Either Sterling or Employee may terminate Employee’s employment at any time in their 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 Employee.

(b) Upon termination of employment, Employee’s rights under all applicable employee pension plans, stock option grants, incentive plans or employee benefit plans, shall be

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determined under the terms of the applicable plans and grants, except as otherwise provided in this Agreement.

(c) If during the term of this Agreement (i) Employee’s employment is terminated by Sterling for any reason, other than for Cause, or (ii) Employee resigns for Good Cause (as defined below), then (but in no other circumstances), subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Employee shall be entitled to receive, within five business days after the effective date of such termination or resignation, from Sterling or its successor, an amount equal to two times Employee’s base salary, as provided in Section 4(a).

(d) If Sterling elects to discontinue Employee’s employment at the end of the term of this Agreement, Sterling may elect to pay Employee an amount equal to two times Employee’s base salary, as provided in Section 4(a), in exchange for Employee’s agreement to be bound by the non-compete provision of Section 10(b) for the two-year Non-Compete Period defined therein. In the event Sterling elects to not pay an amount equal to two times Employee’s base salary, as provided in Section 4(a), Employee shall not be subject to the non-compete provisions of Section 10(b).

(e) If upon or within two years after a Change in Control (as defined below) (i) Employee’s employment is terminated by Sterling for any reason, other than for Cause, or (ii) Employee resigns for Good Cause (as defined below), then (but in no other circumstances), subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and FDIC Regulation 12 C.F.R. Part 359, Employee shall be entitled to receive, within five business days after the effective date of such termination or resignation, from Sterling or its successor, an amount equal to two times Employee’s base salary, as provided in Section 4(a). In addition, upon such an event: all stock options held by Employee shall become immediately vested and exercisable notwithstanding any provisions in the grant of such options regarding vesting, and the lapse of the restrictions on Employee’s restricted stock, if any, shall automatically be accelerated; provided that the provision in this Section 7(e) shall be effective only if Sterling has taken action approving such vesting and/or acceleration; and provided further that Sterling may exclude any particular grant(s) of stock options or restricted stock from the vesting and acceleration provided for in this subsection, either at the time it approves such vesting and/or acceleration, or in connection with making any particular grant of stock options or restricted stock.

(f) If Employee becomes entitled to the payments and equity acceleration described in Section 7(c), (d) or (e) (collectively, the “Severance Payments”), and if any of the Severance Payments constitute a “parachute payment” under Section 280G, at the election of Employee, (i) such payments or benefits shall be payable or provided to Employee over the minimum period necessary to reduce the present value of such payments or benefits to an amount which is one dollar ($1.00) less than three (3) times Employee’s “base amount” as defined under §280G(b)(3) of the Internal Revenue Code of 1986, as amended or any successor statute then in effect (the “Code”) or (ii) Employee shall receive a sum equal to 2.99 times Employee’s “base amount,” within the meaning of §280G(b)(3) of the Code, as the sole benefit payable under this Section 7.

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8. Continuation of Medical Insurance . If Employee’s employment by Sterling terminates for any reason (including early retirement) other than gross misconduct, Employee shall be entitled to continue to participate in Sterling’s self-funded group medical plan at Employer’s expense, to the extent provided in the plan and under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

9. Disability or Death . If Employee should die or become disabled at any time during his or her employment hereunder, this Agreement shall terminate and neither Employee nor anyone claiming by, through or under him or her shall be entitled to any further compensation or other sum under this Agreement (other than payments made by insurers under policies of life and disability insurance and any sums that may become available under any employee benefit plan); provided however that in such event, the Deferred Compensation Bonus described in Section 4(b) hereof shall become fully vested.

10. Confidentiality; Non-Competition.

(a) Confidential Information . Employee recognizes and acknowledges that all information pertaining to the affairs, business, clients, or customers of Sterling or any of its subsidiaries (any or all of such entities being hereinafter referred to as the “Business”), as such information may exist from time to time, other than information that Sterling has previously made publicly available or that is in the public domain, is confidential information and is a unique and valuable asset of the Business, access to and knowledge of which are essential to the performance of Employee’s duties under this Agreement. Employee shall not, except to the extent reasonably necessary in the performance of his duties under this Agreement, divulge to any person, firm, association, corporation, governmental agency or other entity any information concerning the affairs, business, clients, or customers of the Business (except such information as is required by law to be divulged to a government agency or pursuant to lawful process), or make use of any such information for his own purposes or for the benefit of any person, firm, association, corporation or other entity (except the Business) and shall use his reasonable best efforts to prevent the disclosure of any such information by others. All records, memoranda, letters, books, papers, reports, accountings, experience or other data, and other records and documents relating to the Business, whether made by Employee or otherwise coming into his possession, are confidential information and are, shall be, and shall remain the property of the Business. No copies thereof shall be made that are not retained by the Business, and the Employee agrees, on termination of his employment or on demand of Sterling, to deliver the same to Sterling.

(b) Non-Compete . Except as provided under Section 7(d), for a period of two years following Employee’s termination of employment (the “Non-Compete Period”), Employee shall not, without express prior written approval of Sterling’s Board, directly or indirectly own or hold any proprietary interest in, or be employed by or receive remuneration from, any person, corporation, partnership, sole proprietorship or other entity engaged in competition with Sterling or any of its subsidiaries (a “Competitor”), other than severance-type or retirement-type benefits from entities constituting prior employers of Employee. During the Non-Compete Period, the Employee also agrees that he will not solicit for the account of any Competitor, any customer or

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client of Sterling or its subsidiaries. Employee also agrees not to act on behalf of any Competitor to interfere with the relationship between Sterling or its subsidiaries and their employees during the Non-Compete Period. In addition, if Employee obtains non-competitive employment during the Non-Compete Period, for such period Employee agrees not to solicit employees of Sterling or its subsidiaries for new employment without the prior written consent of Sterling. For purposes of this section, (i) the term “proprietary interest” means legal or equitable ownership, whether through stockholdings or otherwise, of greater than a 20% equity interest in a business, firm or entity, and (ii) an entity shall be considered to be “engaged in competition” if such entity is, or is a holding company for, a bank, savings and loan association or other financial services business engaged in a business that competes with Sterling in the States of Washington, Idaho, Montana or Oregon within 35 miles of a branch or office of Sterling or any of its subsidiaries. Employee acknowledges the receipt and sufficiency of specific con