Loans Receivable And Allowance For Credit Losses

12 Months Ended

Dec. 31, 2012

Loans and Leases Receivable, Allowance [Abstract]

Loans Receivable And Allowance For Credit Losses

4. Loans Receivable and Allowance for Credit Losses:

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

	December 31, 2012			December 31, 2011
	(in thousands)
Residential real estate	$	806,722		$	688,020
Commercial real estate ("CRE"):
Investor CRE	1,219,847			1,275,667
Multifamily	1,580,289			1,001,479
Construction	74,665			174,608
Total CRE	2,874,801			2,451,754
Commercial:
Owner occupied CRE	1,276,591			1,272,461
Commercial & Industrial ("C&I")	540,499			431,693
Total commercial	1,817,090			1,704,154
Consumer	754,621			674,961
Gross loans receivable	6,253,234			5,518,889
Deferred loan costs (fees), net	2,860			(252		)
Allowance for loan losses	(154,345		)	(177,458		)
Net loans receivable	$	6,101,749		$	5,341,179

Gross loans pledged as collateral for borrowings from the FHLB and the Federal Reserve totaled $4.15 billion and $4.02 billion as of December 31, 2012 and December 31, 2011, respectively. As of December 31, 2012 and December 31, 2011, the unamortized portion of discounts on acquired loans was $21.3 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)
December 31, 2012
Loans receivable, gross:
Individually evaluated for impairment	$	9,134	$	68,317	$	48,312	$	494	$	0	$	126,257
Collectively evaluated for impairment	797,588		2,806,484		1,768,778		754,127		0		6,126,977
Total loans receivable, gross	$	806,722	$	2,874,801	$	1,817,090	$	754,621	$	0	$	6,253,234
Allowance for loan losses:
Individually evaluated for impairment	$	365	$	3,182	$	4,916	$	0	$	0	$	8,463
Collectively evaluated for impairment	19,482		44,912		36,958		25,602		18,928		145,882
Total allowance for loan losses	$	19,847	$	48,094	$	41,874	$	25,602	$	18,928	$	154,345
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
Allowance for loan losses:
Beginning balance, January 1	$	15,197		$	91,722		$	38,046		$	13,427		$	19,066		$	177,458
Provisions	8,778			(33,184		)	12,189			19,855			(138		)	7,500
Charge-offs	(5,203		)	(27,385		)	(17,005		)	(9,144		)	0			(58,737		)
Recoveries	1,075			16,941			8,644			1,464			0			28,124
Ending balance, December 31	19,847			48,094			41,874			25,602			18,928			154,345
Reserve for unfunded credit commitments:
Beginning balance, January 1	3,828			2,321			1,796			1,787			297			10,029
Provisions	2,929			(1,916		)	1,010			331			146			2,500
Charge-offs	(4,527		)	0			0			0			0			(4,527		)
Recoveries	0			0			0			0			0			0
Ending balance, December 31	2,230			405			2,806			2,118			443			8,002
Total credit allowance	$	22,077		$	48,499		$	44,680		$	27,720		$	19,371		$	162,347
2011
Allowance for loan losses:
Beginning balance, January 1	$	17,307		$	124,907		$	56,951		$	14,645		$	33,246		$	247,056
Provisions	15,024			19,129			2,708			5,819			(14,180		)	28,500
Charge-offs	(18,553		)	(73,379		)	(28,369		)	(8,868		)	0			(129,169		)
Recoveries	1,419			21,065			6,756			1,831			0			31,071
Ending balance, December 31	15,197			91,722			38,046			13,427			19,066			177,458
Reserve for unfunded credit commitments:
Beginning balance, January 1	3,189			4,157			1,515			817			1,029			10,707
Provisions	2,817			(1,836		)	281			970			(732		)	1,500
Charge-offs	(2,178		)	0			0			0			0			(2,178		)
Recoveries	0			0			0			0			0			0
Ending balance, December 31	3,828			2,321			1,796			1,787			297			10,029
Total credit allowance	$	19,025		$	94,043		$	39,842		$	15,214		$	19,363		$	187,487

	Residential Real Estate			Commercial Real Estate			Commercial			Consumer			Unallocated			Total
2010
Allowance for loan losses:
Beginning balance, January 1	$	28,319		$	236,501		$	59,136		$	19,198		$	289		$	343,443
Provisions	24,204			151,323			33,764			8,343			32,957			250,591
Charge-offs	(37,347		)	(283,578		)	(41,165		)	(14,765		)	0			(376,855		)
Recoveries	2,131			20,661			5,216			1,869			0			29,877
Ending balance, December 31	17,307			124,907			56,951			14,645			33,246			247,056
Reserve for unfunded credit commitments:
Beginning balance, January 1	798			9,228			1,952			1,107			(1,118		)	11,967
Provisions	3,291			(5,071		)	(437		)	(290		)	2,147			(360		)
Charge-offs	(900		)	0			0			0			0			(900		)
Recoveries	0			0			0			0			0			0
Ending balance, December 31	3,189			4,157			1,515			817			1,029			10,707
Total credit allowance	$	20,496		$	129,064		$	58,466		$	15,462		$	34,275		$	257,763

In establishing the allowance for loan losses, Sterling groups its loan portfolio into segments for loans collectively evaluated for impairment. 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. The calculated expected loss for each loan class is compared to the actual one-year and three-year (annualized) losses. Beginning in 2012, if the calculated expected loss rate is less than the actual one and three year loss rates, then the expected loss rate would be set at the greater of the actual one or three year loss rate. 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. During the fourth quarter of 2012, the additional category of Marginal was added to the analysis to further enhance the model used to calculate the allowance for loan losses. These risk ratings are divided into the following groups:

Pass (excluding marginal) - the asset is considered of sufficient quality to preclude a Marginal 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.

Marginal - the asset is susceptible to deterioration if stressed from a cash flow or earnings shock, with liquidity and leverage possibly below industry norms. The borrower may have few reserves to cover debt service, besides current income. A business generating cash flows that service the debt may be dependent on the successful reception of new products in the marketplace.

Special Mention - the 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 of 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 - the 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 - the 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 the portion of the asset that 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)
December 31, 2012
Pass	$	714,346	$	599,660	$	1,486,824	$	10,946	$	678,916	$	349,674	$	723,698	$	4,564,064	73	%
Marginal	53,722		472,801		74,379		42,518		454,348		146,554		17,255		1,261,577		20	%
Special mention	11,739		77,342		10,122		3,401		85,228		38,874		4,864		231,570		4	%
Substandard	26,550		67,347		8,745		17,534		53,183		5,397		8,804		187,560		3	%
Doubtful/Loss	365		2,697		219		266		4,916		0		0		8,463		0	%
Total	$	806,722	$	1,219,847	$	1,580,289	$	74,665	$	1,276,591	$	540,499	$	754,621	$	6,253,234	100	%
Restructured	$	22,968	$	4,334	$	4,094	$	8,551	$	23,152	$	810	$	307	$	64,216	1	%
Nonaccrual	20,457		46,399		4,055		8,144		31,696		3,424		6,938		121,113		2	%
Nonperforming	43,425		50,733		8,149		16,695		54,848		4,234		7,245		185,329		3	%
Performing	763,297		1,169,114		1,572,140		57,970		1,221,743		536,265		747,376		6,067,905		97	%
Total	$	806,722	$	1,219,847	$	1,580,289	$	74,665	$	1,276,591	$	540,499	$	754,621	$	6,253,234	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	%

Note: Marginal loans are pass loans that were separated out in 2012 to better analyze loans with this rating.

Aging by class for Sterling’s loan portfolio as of December 31, 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)
December 31, 2012
30 - 59 days past due	$	5,800	$	10,565	$	707	$	611	$	10,543	$	2,690	$	4,028	$	34,944	1	%
60 - 89 days past due	1,576		1,042		479		0		3,300		376		1,796		8,569		0	%
> 90 days past due	20,507		34,196		3,436		8,243		20,883		1,954		4,717		93,936		2	%
Total past due	27,883		45,803		4,622		8,854		34,726		5,020		10,541		137,449		3	%
Current	778,839		1,174,044		1,575,667		65,811		1,241,865		535,479		744,080		6,115,785		97	%
Total Loans	$	806,722	$	1,219,847	$	1,580,289	$	74,665	$	1,276,591	$	540,499	$	754,621	$	6,253,234	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	%

The following table summarizes impaired loans by class as of December 31, 2012 and December 31, 2011:

					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
December 31, 2012
Residential real estate	$	49,816	$	6,391	$	43,060	$	365	$	365
CRE:
Investor CRE	59,099		8,366		33,540		17,193		2,697
Multifamily	9,554		1,405		6,873		1,276		219
Construction	31,040		14,345		15,421		1,274		266
Total CRE	99,693		24,116		55,834		19,743		3,182
Commercial:
Owner Occupied CRE	61,300		6,452		42,075		12,773		4,916
C&I	16,959		12,725		4,234		0		0
Total commercial	78,259		19,177		46,309		12,773		4,916
Consumer	7,671		426		7,245		0		0
Total	$	235,439	$	50,110	$	152,448	$	32,881	$	8,463
					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 table presents the average book balance and interest income recognized for impaired loans by class for the periods presented:

	Years Ended December 31,
	2012				2011
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	43,164	$	819	$	67,157	$	992
Investor CRE	51,463		1,595		79,139		2,245
Multifamily	7,007		441		14,704		804
Construction	55,956		1,708		215,436		1,401
Owner Occupied CRE	64,060		2,553		75,553		2,757
C&I	8,057		105		12,009		460
Consumer	6,537		8		6,901		0
Total	$	236,244	$	7,229	$	470,899	$	8,659

The following tables present loans that were modified and recorded as TDRs during the following periods:

	Years Ended December 31,
	2012					2011
	Number of Contracts	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Contracts	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(in thousands, except number of contracts)
Residential real estate	29	$	5,887	$	5,835	1	$	1,372	$	1,372
Investor CRE	1	1,302		1,302		8	3,271		3,282
Multifamily	3	2,955		2,945		0	0		0
Construction	4	10,062		9,194		3	23,701		24,348
Owner Occupied CRE	11	16,186		15,921		6	14,411		14,502
C&I	9	3,482		2,206		6	4,384		3,944
Consumer	3	468		472		0	0		0
Total (1)	60	$	40,342	$	37,875	24	$	47,139	$	47,448

⁽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 December 31, 2012, Sterling had specific reserves of $2.1 million on TDRs which were restructured during the previous twelve months. There were 33 loans totaling $29.8 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 tables show the post-modification recorded investment by class for TDRs restructured during the periods presented by the primary type of concession granted:

	Principal Deferral		Rate Reduction		Extension of Terms		Forgiveness of Principal and/or Interest		Total
	(in thousands)
Year Ended December 31, 2012
Residential Real Estate	$	407	$	5,428	$	0	$	0	$	5,835
Investor CRE	0		1,302		0		0		1,302
Multifamily	571		2,374		0		0		2,945
Construction	0		3,261		5,933		0		9,194
Owner CRE	6,219		9,393		0		309		15,921
C&I	0		1,317		183		706		2,206
Consumer	0		173		299		0		472
	$	7,197	$	23,248	$	6,415	$	1,015	$	37,875
Year Ended December 31, 2011
Residential Real Estate	$	0	$	1,372	$	0	$	0	$	1,372
Investor CRE	0		1,856		1,426		0		3,282
Multifamily	0		0		0		0		0
Construction	2,816		2,302		0		19,230		24,348
Owner CRE	10,159		0		0		4,343		14,502
C&I	576		3,368		0		0		3,944
Consumer	0		0		0		0		0
	$	13,551	$	8,898	$	1,426	$	23,573	$	47,448

Restructurings that result in the forgiveness of principal or interest are typically part of a bankruptcy settlement. There were no TDRs completed during the twelve month period ended December 31, 2012 that subsequently defaulted during this period. During the twelve month period ended December 31, 2011, there was one Investor CRE TDR completed that subsequently defaulted. The recorded investment at default for this TDR was $223,000.