Loans Receivable And Allowance For Credit Losses

9 Months Ended

Sep. 30, 2012

Loans Receivable And Allowance For Credit Losses [Abstract]

Loans Receivable And Allowance For Credit Losses

Loans Receivable and Allowance for Credit Losses:

The following table presents the composition of Sterling’s loan portfolio as of the balance sheet dates:

	September 30, 2012			December 31, 2011
	(in thousands)
Residential real estate	$	818,323		$	688,020
Commercial real estate ("CRE"):
Investor CRE	1,274,774			1,275,667
Multifamily	1,359,506			1,001,479
Construction	99,553			174,608
Total CRE	2,733,833			2,451,754
Commercial:
Owner occupied CRE	1,304,224			1,272,461
Commercial & Industrial ("C&I")	517,588			431,693
Total commercial	1,821,812			1,704,154
Consumer	768,359			674,961
Gross loans receivable	6,142,327			5,518,889
Deferred loan costs (fees), net	2,317			(252		)
Allowance for loan losses	(154,279		)	(177,458		)
Net loans receivable	$	5,990,365		$	5,341,179

Gross loans pledged as collateral for borrowings from the FHLB and the Federal Reserve totaled $3.61 billion and $4.02 billion as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012 and December 31, 2011, the unamortized portion of discounts on acquired loans was $23.4 million and $4.3 million, respectively.

The following table sets forth details by segment for Sterling’s loan portfolio and related allowance as of the balance sheet dates:

	Residential Real Estate		Commercial Real Estate		Commercial		Consumer		Unallocated		Total
	(in thousands)
September 30, 2012
Loans receivable, gross:
Individually evaluated for impairment	$	8,565	$	82,543	$	60,510	$	827	$	0	$	152,445
Collectively evaluated for impairment	809,758		2,651,290		1,761,302		767,532		0		5,989,882
Total loans receivable, gross	$	818,323	$	2,733,833	$	1,821,812	$	768,359	$	0	$	6,142,327
Allowance for loan losses:
Individually evaluated for impairment	$	365	$	3,660	$	6,036	$	43	$	0	$	10,104
Collectively evaluated for impairment	10,383		53,518		35,479		19,949		24,846		144,175
Total allowance for loan losses	$	10,748	$	57,178	$	41,515	$	19,992	$	24,846	$	154,279
December 31, 2011
Loans receivable, gross:
Individually evaluated for impairment	$	18,301	$	149,578	$	74,041	$	1,192	$	0	$	243,112
Collectively evaluated for impairment	669,719		2,302,176		1,630,113		673,769		0		5,275,777
Total loans receivable, gross	$	688,020	$	2,451,754	$	1,704,154	$	674,961	$	0	$	5,518,889
Allowance for loan losses:
Individually evaluated for impairment	$	872	$	11,170	$	4,206	$	57	$	0	$	16,305
Collectively evaluated for impairment	14,325		80,552		33,840		13,370		19,066		161,153
Total allowance for loan losses	$	15,197	$	91,722	$	38,046	$	13,427	$	19,066	$	177,458

The following tables present a roll-forward by segment of the allowance for credit losses for the periods presented:

	Residential Real Estate			Commercial Real Estate			Commercial			Consumer			Unallocated			Total
	(in thousands)
2012 third quarter activity
Allowance for loan losses:
Beginning balance, July 1	$	12,381		$	66,852		$	40,270		$	16,959		$	21,782		$	158,244
Provisions	(129		)	(8,349		)	2,762			4,652			3,064			2,000
Charge-offs	(1,641		)	(4,898		)	(2,058		)	(1,882		)	0			(10,479		)
Recoveries	137			3,573			541			263			0			4,514
Ending balance, September 30	10,748			57,178			41,515			19,992			24,846			154,279
Reserve for unfunded credit commitments:
Beginning balance, July 1	2,321			698			3,350			1,510			73			7,952
Provisions	66			(427		)	(1		)	165			197			0
Charge-offs	(181		)	0			0			0			0			(181		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	2,206			271			3,349			1,675			270			7,771
Total credit allowance	$	12,954		$	57,449		$	44,864		$	21,667		$	25,116		$	162,050
2011 third quarter activity
Allowance for loan losses:
Beginning balance, July 1	$	20,826		$	102,607		$	46,602		$	13,800		$	28,253		$	212,088
Provisions	3,250			4,823			(4,525		)	902			(450		)	4,000
Charge-offs	(4,204		)	(26,650		)	(7,769		)	(2,554		)	0			(41,177		)
Recoveries	178			6,781			3,862			463			0			11,284
Ending balance, September 30	20,050			87,561			38,170			12,611			27,803			186,195
Reserve for unfunded credit commitments:
Beginning balance, July 1	2,435			2,555			924			2,108			(591		)	7,431
Provisions	624			(387		)	613			(383		)	1,533			2,000
Charge-offs	(55		)	0			0			0			0			(55		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	3,004			2,168			1,537			1,725			942			9,376
Total credit allowance	$	23,054		$	89,729		$	39,707		$	14,336		$	28,745		$	195,571

	Residential Real Estate			Commercial Real Estate			Commercial			Consumer			Unallocated			Total
	(in thousands)
2012 year to date
Allowance for loan losses:
Beginning balance, January 1	$	15,197		$	91,722		$	38,046		$	13,427		$	19,066		$	177,458
Provisions	(1,486		)	(21,078		)	13,442			11,342			5,780			8,000
Charge-offs	(3,985		)	(25,897		)	(15,197		)	(5,977		)	0			(51,056		)
Recoveries	1,022			12,431			5,224			1,200			0			19,877
Ending balance, September 30	10,748			57,178			41,515			19,992			24,846			154,279
Reserve for unfunded credit commitments:
Beginning balance, January 1	3,828			2,321			1,796			1,787			297			10,029
Provisions	2,636			(2,050		)	1,553			(112		)	(27		)	2,000
Charge-offs	(4,258		)	0			0			0			0			(4,258		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	2,206			271			3,349			1,675			270			7,771
Total credit allowance	$	12,954		$	57,449		$	44,864		$	21,667		$	25,116		$	162,050
2011 year to date
Allowance for loan losses:
Beginning balance, January 1	$	17,307		$	124,907		$	56,951		$	14,645		$	33,246		$	247,056
Provisions	16,941			14,280			(2,640		)	3,362			(5,443		)	26,500
Charge-offs	(15,230		)	(66,595		)	(21,261		)	(6,817		)	0			(109,903		)
Recoveries	1,032			14,969			5,120			1,421			0			22,542
Ending balance, September 30	20,050			87,561			38,170			12,611			27,803			186,195
Reserve for unfunded credit commitments:
Beginning balance, January 1	3,189			4,157			1,515			817			1,029			10,707
Provisions	646			(1,989		)	22			908			(87		)	(500		)
Charge-offs	(831		)	0			0			0			0			(831		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	3,004			2,168			1,537			1,725			942			9,376
Total credit allowance	$	23,054		$	89,729		$	39,707		$	14,336		$	28,745		$	195,571

In establishing the allowance for loan losses, Sterling groups its loan portfolio into segments for homogeneous loans. The groups are further segregated based on internal risk ratings. Both qualitative and quantitative data are considered in determining the probability of default and loss given default for each group of loans. The probability of default and loss given default are used to calculate an expected loss rate which is multiplied by the loan balance in each category to determine the general allowance for loan losses. If a loan is determined to be impaired, Sterling prepares an individual evaluation of the loan. The individual evaluation compares the present value of the expected future cash flows or the fair value of the underlying collateral to the recorded investment in the loan. The results of the individual impairment evaluation could determine the need to record a charge-off or establish a specific reserve.

Sterling assigns risk rating classifications to its loans. These risk ratings are divided into the following groups:

Pass-asset is considered of sufficient quality to preclude a Special Mention or an adverse rating. Pass assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral.

Special Mention-asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Sterling's credit position at some future date. Special Mention assets are not adversely classified and do not expose Sterling to sufficient risk to warrant adverse classification.

Substandard-asset is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have well-defined weaknesses. They are characterized by the distinct possibility that Sterling may sustain some loss if the deficiencies are not corrected.

Doubtful/Loss-a Doubtful asset has the weaknesses of those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and/or of such little value that its continuance as an asset, without a charge-off or establishment of a specific reserve, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off an asset that is no longer deemed to have financial value, even though partial recovery may be recognized in the future.

The following table presents credit quality indicators for Sterling’s loan portfolio grouped according to internally assigned risk ratings and performance status:

			Commercial Real Estate						Commercial
	Residential Real Estate		Investor CRE		Multifamily		Construction		Owner Occupied CRE		Commercial & Industrial		Consumer		Total		% of Total
	(in thousands)
September 30, 2012
Pass	$	779,226	$	1,085,091	$	1,337,555	$	71,752	$	1,160,239	$	470,667	$	756,162	$	5,660,692	93	%
Special mention	13,181		122,333		10,948		3,857		71,110		35,051		4,735		261,215		4	%
Substandard	25,551		64,811		10,001		23,825		66,839		11,870		7,419		210,316		3	%
Doubtful/Loss	365		2,539		1,002		119		6,036		0		43		10,104		0	%
Total	$	818,323	$	1,274,774	$	1,359,506	$	99,553	$	1,304,224	$	517,588	$	768,359	$	6,142,327	100	%
Restructured	$	22,131	$	4,339	$	3,567	$	13,176	$	20,689	$	1,966	$	475	$	66,343	1	%
Nonaccrual	21,095		48,779		5,654		14,286		42,746		7,944		5,591		146,095		2	%
Nonperforming	43,226		53,118		9,221		27,462		63,435		9,910		6,066		212,438		3	%
Performing	775,097		1,221,656		1,350,285		72,091		1,240,789		507,678		762,293		5,929,889		97	%
Total	$	818,323	$	1,274,774	$	1,359,506	$	99,553	$	1,304,224	$	517,588	$	768,359	$	6,142,327	100	%
December 31, 2011
Pass	$	643,071	$	1,116,991	$	975,583	$	51,284	$	1,123,796	$	385,643	$	663,829	$	4,960,197	90	%
Special mention	14,031		83,372		9,901		24,578		54,009		25,334		4,166		215,391		4	%
Substandard	30,046		70,412		15,279		93,185		90,613		19,355		6,909		325,799		6	%
Doubtful/Loss	872		4,892		716		5,561		4,043		1,361		57		17,502		0	%
Total	$	688,020	$	1,275,667	$	1,001,479	$	174,608	$	1,272,461	$	431,693	$	674,961	$	5,518,889	100	%
Restructured	$	17,638	$	4,366	$	0	$	38,833	$	13,519	$	2,583	$	0	$	76,939	1	%
Nonaccrual	25,265		47,827		5,867		56,385		59,752		9,296		5,829		210,221		4	%
Nonperforming	42,903		52,193		5,867		95,218		73,271		11,879		5,829		287,160		5	%
Performing	645,117		1,223,474		995,612		79,390		1,199,190		419,814		669,132		5,231,729		95	%
Total	$	688,020	$	1,275,667	$	1,001,479	$	174,608	$	1,272,461	$	431,693	$	674,961	$	5,518,889	100	%

Aging by class for Sterling’s loan portfolio as of September 30, 2012 and December 31, 2011 was as follows:

			Commercial Real Estate						Commercial
	Residential Real Estate		Investor CRE		Multifamily		Construction		Owner Occupied CRE		Commercial & Industrial		Consumer		Total		% of Total
	(in thousands)
September 30, 2012
30 - 59 days past due	$	5,742	$	12,602	$	709	$	72	$	9,161	$	1,612	$	6,509	$	36,407	1	%
60 - 89 days past due	3,670		6,806		230		4,347		2,154		819		1,458		19,484		0	%
> 90 days past due	19,155		26,678		3,241		10,260		32,178		4,128		5,298		100,938		2	%
Total past due	28,567		46,086		4,180		14,679		43,493		6,559		13,265		156,829		3	%
Current	789,756		1,228,688		1,355,326		84,874		1,260,731		511,029		755,094		5,985,498		97	%
Total Loans	$	818,323	$	1,274,774	$	1,359,506	$	99,553	$	1,304,224	$	517,588	$	768,359	$	6,142,327	100	%
> 90 days and accruing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	0	%
December 31, 2011
30 - 59 days past due	$	5,718	$	3,354	$	1,523	$	11,830	$	19,967	$	1,741	$	4,167	$	48,300	1	%
60 - 89 days past due	4,585		3,954		193		879		4,233		520		2,258		16,622		0	%
> 90 days past due	20,207		33,759		3,178		68,024		40,987		7,871		5,054		179,080		3	%
Total past due	30,510		41,067		4,894		80,733		65,187		10,132		11,479		244,002		4	%
Current	657,510		1,234,600		996,585		93,875		1,207,274		421,561		663,482		5,274,887		96	%
Total Loans	$	688,020	$	1,275,667	$	1,001,479	$	174,608	$	1,272,461	$	431,693	$	674,961	$	5,518,889	100	%
> 90 days and accruing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	0	%

Sterling considers its nonperforming loans to be impaired loans. The following table summarizes impaired loans by class as of September 30, 2012 and December 31, 2011:

					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
September 30, 2012
Residential real estate	$	49,633	$	6,407	$	42,861	$	365	$	365
CRE:
Investor CRE	61,789		8,671		39,481		13,637		2,539
Multifamily	10,358		1,137		5,877		3,344		1,002
Construction	44,692		17,230		25,990		1,472		119
Total CRE	116,839		27,038		71,348		18,453		3,660
Commercial:
Owner Occupied CRE	69,232		5,797		44,846		18,589		6,036
C&I	22,935		13,025		9,910		0		0
Total commercial	92,167		18,822		54,756		18,589		6,036
Consumer	6,361		295		5,617		449		43
Total	$	265,000	$	52,562	$	174,582	$	37,856	$	10,104
					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
December 31, 2011
Residential real estate	$	52,023	$	9,120	$	38,519	$	4,384	$	872
CRE:
Investor CRE	70,517		18,324		31,503		20,690		4,892
Multifamily	6,185		318		4,496		1,371		716
Construction	133,588		38,370		43,281		51,937		5,562
Total CRE	210,290		57,012		79,280		73,998		11,170
Commercial:
Owner Occupied CRE	89,604		16,333		48,194		25,077		4,043
C&I	25,497		13,618		11,207		672		163
Total commercial	115,101		29,951		59,401		25,749		4,206
Consumer	6,613		784		5,246		583		57
Total	$	384,027	$	96,867	$	182,446	$	104,714	$	16,305

The following tables present loans that were modified and recorded as troubled debt restructurings (“TDR’s”) during the following period:

	Three Months Ended September 30, 2012
	Number of Contracts	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(in thousands, except number of contracts)
Residential real estate	15	$	2,817	$	2,765
Investor CRE	0	0		0
Multifamily	0	0		0
Construction	2	4,118		3,241
Owner Occupied CRE	1	133		125
C&I	0	0		0
Consumer	1	172		173
Total (1)	19	$	7,240	$	6,304

	Nine Months Ended September 30, 2012
	Number of Contracts	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(in thousands, except number of contracts)
Residential real estate	27	$	5,051	$	4,993
Investor CRE	1	1,302		1,302
Multifamily	2	2,379		2,374
Construction	4	10,062		9,194
Owner Occupied CRE	10	15,574		15,515
C&I	9	3,482		2,206
Consumer	3	468		472
Total (1)	56	$	38,318	$	36,056

(1) Amounts exclude specific loan loss reserves.

Substantially all TDRs are determined to be impaired prior to being restructured. As such, they are individually evaluated for impairment, unless they are considered homogeneous loans in which case they are collectively evaluated for impairment. As of September 30, 2012, Sterling had specific reserves of $2.2 million on TDRs which were restructured during the previous nine months. There were 16 loans totaling $25.1 million that were removed from TDR status during this period, as they had met the conditions for removal by achieving twelve consecutive months of performance at market equivalent rates of interest. The following table shows the post-modification recorded investment by class for TDRs restructured during the nine months ended September 30, 2012 by the primary type of concession granted:

	Principal Deferral		Rate Reduction		Extension of Terms		Forgiveness of Principal and/or Interest		Total
	(in thousands)
Residential Real Estate	$	407	$	4,586	$	0	$	0	$	4,993
Investor CRE	0		1,302		0		0		1,302
Multifamily	0		2,374		0		0		2,374
Construction	0		3,261		5,933		0		9,194
Owner CRE	5,813		9,393		0		309		15,515
C&I	0		1,317		183		706		2,206
Consumer	0		173		299		0		472
	$	6,220	$	22,406	$	6,415	$	1,015	$	36,056

Restructurings that result in the forgiveness of principal or interest are typically part of a bankruptcy settlement. There were no TDR’s completed during the twelve month period ended September 30, 2012 that subsequently defaulted during the nine months ended September 30, 2012.