Loans Receivable And Allowance For Credit Losses

3 Months Ended

Mar. 31, 2013

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:

	March 31, 2013			December 31, 2012
	(in thousands)
Residential real estate	$	857,864		$	806,722
Commercial real estate ("CRE"):
Investor CRE	1,163,821			1,219,847
Multifamily	1,725,403			1,580,289
Construction	71,213			74,665
Total CRE	2,960,437			2,874,801
Commercial:
Owner occupied CRE	1,372,949			1,276,591
Commercial & Industrial ("C&I")	533,955			540,499
Total commercial	1,906,904			1,817,090
Consumer	752,292			754,621
Gross loans receivable	6,477,497			6,253,234
Deferred loan costs (fees), net	6,736			2,860
Allowance for loan losses	(149,673		)	(154,345		)
Net loans receivable	$	6,334,560		$	6,101,749

As of March 31, 2013 and December 31, 2012, loans pledged as collateral for borrowings from the FHLB and the Federal Reserve were $4.28 billion and $4.15 billion, respectively. Loans receivable include purchased impaired loans, which are loans acquired that are deemed to exhibit evidence of credit deterioration since origination and therefore, are classified as impaired.

The accounting for purchased impaired loans is periodically updated for changes in the loans' cash flow expectations, and reflected in interest income over the life of the loans as accretable yield. As of March 31, 2013, no allowance for credit losses was recorded in connection with purchased impaired loans, and the unpaid principal balance and carrying amount of these loans were $37.0 million and $22.5 million, respectively. The following table presents a roll-forward of accretable yield over the periods presented:

	Three Months Ended March 31,
	2013			2012
	(in thousands)
Beginning balance	$	1,332		$	0
Additions	1,774			1,923
Accretion to interest income	(205		)	(14		)
Reclassifications	160			0
Ending balance	$	3,061		$	1,909

As of March 31, 2013 and December 31, 2012, net loans receivable included unamortized discounts on acquired loans of $27.0 million and $21.3 million, respectively. The following table presents, as of March 31, 2013, the five-year projected loan discount accretion to be recognized as an increase to interest income:

	Amount
	(in thousands)
Remainder of 2013	$	2,938
Years ended December 31,
2014	2,796
2015	1,724
2016	1,032
2017	679
2018	434

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)
March 31, 2013
Loans receivable, gross:
Individually evaluated for impairment	$	0	$	83,454	$	48,342	$	0	$	0	$	131,796
Collectively evaluated for impairment	857,864		2,876,983		1,858,562		752,292		0		6,345,701
Total loans receivable, gross	$	857,864	$	2,960,437	$	1,906,904	$	752,292	$	0	$	6,477,497
Allowance for loan losses:
Individually evaluated for impairment	$	0	$	4,308	$	5,106	$	0	$	0	$	9,414
Collectively evaluated for impairment	19,968		40,827		34,490		25,817		19,157		140,259
Total allowance for loan losses	$	19,968	$	45,135	$	39,596	$	25,817	$	19,157	$	149,673
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

Purchased credit impaired loans included in loans collectively evaluated for impairment as of March 31, 2013 are $22.5 million and as of December 31, 2012 are $11.2 million.

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)
2013 first quarter activity
Allowance for loan losses:
Beginning balance, Jan 1	$	19,847		$	48,094		$	41,874		$	25,602		$	18,928	$	154,345
Provisions	960			(1,091		)	(1,610		)	1,512			229		0
Charge-offs	(1,019		)	(2,923		)	(1,588		)	(1,644		)	0		(7,174		)
Recoveries	180			1,055			920			347			0		2,502
Ending balance, March 31	19,968			45,135			39,596			25,817			19,157		149,673
Reserve for unfunded credit commitments:
Beginning balance, Jan 1	2,230			405			2,806			2,118			443		8,002
Provisions	(309		)	(50		)	(373		)	604			128		0
Charge-offs	(12		)	0			0			0			0		(12		)
Recoveries	0			0			0			0			0		0
Ending balance, March 31	1,909			355			2,433			2,722			571		7,990
Total credit allowance	$	21,877		$	45,490		$	42,029		$	28,539		$	19,728	$	157,663
2012 first quarter activity
Allowance for loan losses:
Beginning balance, Jan 1	$	15,197		$	91,722		$	38,046		$	13,427		$	19,066	$	177,458
Provisions	(980		)	(2,824		)	4,458			2,638			708		4,000
Charge-offs	(2,187		)	(11,518		)	(9,533		)	(2,452		)	0		(25,690		)
Recoveries	212			3,234			1,512			547			0		5,505
Ending balance, March 31	12,242			80,614			34,483			14,160			19,774		161,273
Reserve for unfunded credit commitments:
Beginning balance, Jan 1	3,828			2,321			1,796			1,787			297		10,029
Provisions	(25		)	(713		)	665			(505		)	578		0
Charge-offs	(1		)	0			0			0			0		(1		)
Recoveries	0			0			0			0			0		0
Ending balance, March 31	3,802			1,608			2,461			1,282			875		10,028
Total credit allowance	$	16,044		$	82,222		$	36,944		$	15,442		$	20,649	$	171,301

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. 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. These risk ratings are divided into the following groups:

Pass - 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)
March 31, 2013
Pass	$	766,136	$	571,102	$	1,640,373	$	11,362	$	733,524	$	346,956	$	722,180	$	4,791,633	74	%
Marginal	52,250		453,064		69,576		41,995		499,192		149,595		15,901		1,281,573		20	%
Special mention	11,542		81,649		10,568		4,585		76,629		29,485		5,425		219,883		3	%
Substandard	27,625		55,001		4,667		12,187		58,560		7,894		8,786		174,720		3	%
Doubtful/Loss	311		3,005		219		1,084		5,044		25		0		9,688		0	%
Total	$	857,864	$	1,163,821	$	1,725,403	$	71,213	$	1,372,949	$	533,955	$	752,292	$	6,477,497	100	%
Restructured	$	24,407	$	8,482	$	3,504	$	9,718	$	22,263	$	806	$	304	$	69,484	1	%
Nonaccrual	18,421		35,765		1,321		7,488		40,458		4,407		5,787		113,647		2	%
Nonperforming	42,828		44,247		4,825		17,206		62,721		5,213		6,091		183,131		3	%
Performing	815,036		1,119,574		1,720,578		54,007		1,310,228		528,742		746,201		6,294,366		97	%
Total	$	857,864	$	1,163,821	$	1,725,403	$	71,213	$	1,372,949	$	533,955	$	752,292	$	6,477,497	100	%
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	%

Purchased credit impaired loans of $15.7 million as of March 31, 2013, and $2.1 million as of December 31, 2012, are included in the nonaccrual loans.

Aging by class for Sterling’s loan portfolio as of March 31, 2013 and December 31, 2012 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)
March 31, 2013
30 - 59 days past due	$	5,884	$	6,004	$	168	$	219	$	7,666	$	1,048	$	4,810	$	25,799	0	%
60 - 89 days past due	2,587		5,329		0		3,661		5,522		414		1,281		18,794		0	%
> 90 days past due	19,542		23,404		1,184		7,488		27,780		2,096		4,034		85,528		2	%
Total past due	28,013		34,737		1,352		11,368		40,968		3,558		10,125		130,121		2	%
Current	829,851		1,129,084		1,724,051		59,845		1,331,981		530,397		742,167		6,347,376		98	%
Total Loans	$	857,864	$	1,163,821	$	1,725,403	$	71,213	$	1,372,949	$	533,955	$	752,292	$	6,477,497	100	%
> 90 days and accruing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	0	%
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	%

Sterling considers its nonperforming loans to be impaired loans. The following table summarizes impaired loans by class as of March 31, 2013 and December 31, 2012:

					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
March 31, 2013
Residential real estate	$	47,967	$	5,139	$	42,517	$	311	$	311
CRE:
Investor CRE	50,451		6,204		34,451		9,796		3,005
Multifamily	5,562		737		3,575		1,250		219
Construction	31,541		14,335		11,584		5,622		1,084
Total CRE	87,554		21,276		49,610		16,668		4,308
Commercial:
Owner Occupied CRE	71,229		8,508		44,935		17,786		5,107
C&I	17,223		12,010		5,213		0		0
Total commercial	88,452		20,518		50,148		17,786		5,107
Consumer	6,509		418		6,091		0		0
Total	$	230,482	$	47,351	$	148,366	$	34,765	$	9,726
					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

The following table presents the average book balance and interest income recognized for impaired loans by class for the periods presented:

	Three Months Ended March 31,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	43,127	$	152	$	46,157	$	244
Investor CRE	47,490		347		49,703		582
Multifamily	6,487		35		6,519		95
Construction	16,951		1,701		89,477		852
Owner Occupied CRE	58,785		394		73,771		778
C&I	4,723		34		12,288		29
Consumer	6,668		5		5,517		0
Total	$	184,231	$	2,668	$	283,432	$	2,580

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

	Three Months Ended March 31,
	2013					2012
	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	9	$	2,134	$	1,929	4	1,041	1,040
Investor CRE	3	1,482		1,180		1	1,302	1,302
Multifamily	0	0		0		1	1,612	1,611
Construction	0	0		0		1	2,692	2,692
Owner Occupied CRE	3	2,432		2,414		3	6,632	6,624
C&I	0	0		0		4	1,988	706
Consumer	0	0		0		0	0	0
Total (1)	15	$	6,048	$	5,523	14	15,267	13,975

(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 March 31, 2013, Sterling had specific reserves of $706,000 on TDRs which were restructured during the previous three months. There were no loans that were removed from TDR status during this period.

The following table shows 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
Three Months Ended March 31, 2013	(in thousands)
Residential Real Estate	$	0	$	1,395	$	203	$	331	$	1,929
Investor CRE	0		1,139		0		41		1,180
Multifamily	0		0		0		0		0
Construction	0		0		0		0		0
Owner CRE	730		1,684		0		0		2,414
C&I	0		0		0		0		0
Consumer	0		0		0		0		0
Total	$	730	$	4,218	$	203	$	372	$	5,523
Three Months Ended March 31, 2012
Residential Real Estate	$	407	$	633	$	0	$	0	$	1,040
Investor CRE	0		1,302		0		0		1,302
Multifamily	0		1,611		0		0		1,611
Construction	0		0		2,692		0		2,692
Owner CRE	0		6,624		0		0		6,624
C&I	0		0		0		706		706
Consumer	0		0		0		0		0
Total	$	407	$	10,170	$	2,692	$	706	$	13,975

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 March 31, 2013 that subsequently defaulted during the period.