Loans Receivable And Allowance For Credit Losses

6 Months Ended

Jun. 30, 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:

	June 30, 2013			December 31, 2012
	(in thousands)
Residential real estate	$	964,872		$	806,722
Commercial real estate ("CRE"):
Investor CRE	1,172,433			1,219,847
Multifamily	1,962,919			1,580,289
Construction	69,796			74,665
Total CRE	3,205,148			2,874,801
Commercial:
Owner occupied CRE	1,411,576			1,276,591
Commercial & Industrial ("C&I")	636,727			540,499
Total commercial	2,048,303			1,817,090
Consumer	783,601			754,621
Gross loans receivable	7,001,924			6,253,234
Deferred loan costs (fees), net	8,891			2,860
Allowance for loan losses	(141,949		)	(154,345		)
Net loans receivable	$	6,868,866		$	6,101,749

As of June 30, 2013 and December 31, 2012, loans pledged as collateral for borrowings from the FHLB and the Federal Reserve were $4.82 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 updated quarterly for changes in the loans' cash flow expectations, and reflected in interest income over the life of the loans as accretable yield. As of June 30, 2013 and December 31, 2012, 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 $32.5 million and $19.9 million, respectively. The following table presents a roll-forward of accretable yield over the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Beginning balance	$	3,061		$	1,909		$	1,332		$	0
Additions	0			0			1,774			1,923
Accretion to interest income	(497		)	(308		)	(702		)	(322		)
Reclassifications	184			730			344			730
Ending balance	$	2,748		$	2,331		$	2,748		$	2,331

As of June 30, 2013 and December 31, 2012, net loans receivable included unamortized discounts on acquired loans of $28.2 million and $21.3 million, respectively. The following table presents, as of June 30, 2013, the five-year projected loan discount accretion to be recognized as interest income:

	Amount
	(in thousands)
Remainder of 2013	$	3,463
Years ended December 31,
2014	4,589
2015	2,982
2016	1,856
2017	1,284
2018	924

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)
June 30, 2013
Loans receivable, gross:
Individually evaluated for impairment	$	0	$	62,018	$	43,336	$	0	$	0	$	105,354
Collectively evaluated for impairment	964,872		3,143,130		2,004,967		783,601		0		6,896,570
Total loans receivable, gross	$	964,872	$	3,205,148	$	2,048,303	$	783,601	$	0	$	7,001,924
Allowance for loan losses:
Individually evaluated for impairment	$	0	$	1,793	$	2,739	$	0	$	0	$	4,532
Collectively evaluated for impairment	18,989		39,794		36,785		27,744		14,105		137,417
Total allowance for loan losses	$	18,989	$	41,587	$	39,524	$	27,744	$	14,105	$	141,949
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

Loans collectively evaluated for impairment include purchased credit impaired loans, which were $19.9 million as of June 30, 2013, and $11.2 million as of December 31, 2012.

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 second quarter activity
Allowance for loan losses:
Beginning balance, April 1	$	19,968		$	45,135		$	39,596		$	25,817		$	19,157		$	149,673
Provisions	(214		)	(2,198		)	1,819			3,045			(5,052		)	(2,600		)
Charge-offs	(1,107		)	(2,636		)	(2,512		)	(1,503		)	0			(7,758		)
Recoveries	342			1,286			621			385			0			2,634
Ending balance, June 30	18,989			41,587			39,524			27,744			14,105			141,949
Reserve for unfunded credit commitments:
Beginning balance, April 1	1,909			355			2,433			2,722			571			7,990
Provisions	2,318			152			119			525			(514		)	2,600
Charge-offs	(1,085		)	0			0			0			0			(1,085		)
Recoveries	0			0			0			0			0			0
Ending balance, June 30	3,142			507			2,552			3,247			57			9,505
Total credit allowance	$	22,131		$	42,094		$	42,076		$	30,991		$	14,162		$	151,454
2012 second quarter activity
Allowance for loan losses:
Beginning balance, April 1	$	12,242		$	80,614		$	34,483		$	14,160		$	19,774		$	161,273
Provisions	(377		)	(9,905		)	6,222			4,052			2,008			2,000
Charge-offs	(157		)	(9,481		)	(3,606		)	(1,643		)	0			(14,887		)
Recoveries	673			5,624			3,171			390			0			9,858
Ending balance, June 30	12,381			66,852			40,270			16,959			21,782			158,244
Reserve for unfunded credit commitments:
Beginning balance, April 1	3,802			1,608			2,461			1,282			875			10,028
Provisions	2,595			(910		)	889			228			(802		)	2,000
Charge-offs	(4,076		)	0			0			0			0			(4,076		)
Recoveries	0			0			0			0			0			0
Ending balance, June 30	2,321			698			3,350			1,510			73			7,952
Total credit allowance	$	14,702		$	67,550		$	43,620		$	18,469		$	21,855		$	166,196

	Residential Real Estate			Commercial Real Estate			Commercial			Consumer			Unallocated			Total
	(in thousands)
2013 year to date
Allowance for loan losses:
Beginning balance, January 1	$	19,847		$	48,094		$	41,874		$	25,602		$	18,928		$	154,345
Provisions	746			(3,289		)	209			4,557			(4,823		)	(2,600		)
Charge-offs	(2,126		)	(5,559		)	(4,100		)	(3,147		)	0			(14,932		)
Recoveries	522			2,341			1,541			732			0			5,136
Ending balance, June 30	18,989			41,587			39,524			27,744			14,105			141,949
Reserve for unfunded credit commitments:
Beginning balance, January 1	2,230			405			2,806			2,118			443			8,002
Provisions	2,009			102			(254		)	1,129			(386		)	2,600
Charge-offs	(1,097		)	0			0			0			0			(1,097		)
Recoveries	0			0			0			0			0			0
Ending balance, June 30	3,142			507			2,552			3,247			57			9,505
Total credit allowance	$	22,131		$	42,094		$	42,076		$	30,991		$	14,162		$	151,454
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	(1,357		)	(12,729		)	10,680			6,690			2,716			6,000
Charge-offs	(2,344		)	(20,999		)	(13,139		)	(4,095		)	0			(40,577		)
Recoveries	885			8,858			4,683			937			0			15,363
Ending balance, June 30	12,381			66,852			40,270			16,959			21,782			158,244
Reserve for unfunded credit commitments:
Beginning balance, January 1	3,828			2,321			1,796			1,787			297			10,029
Provisions	2,570			(1,623		)	1,554			(277		)	(224		)	2,000
Charge-offs	(4,077		)	0			0			0			0			(4,077		)
Recoveries	0			0			0			0			0			0
Ending balance, June 30	2,321			698			3,350			1,510			73			7,952
Total credit allowance	$	14,702		$	67,550		$	43,620		$	18,469		$	21,855		$	166,196

In establishing the allowance for loan losses, Sterling groups its loan portfolio into classes 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. This 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 either the actual one or three year loss rates, then the expected loss rate may be set at the greater of the actual one or three year loss rates. Sterling evaluates the results of this analysis, and based on qualitative factors, the highest of the three loss rates may be used to better reflect the inherent losses for those loan classes.

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 would 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)
June 30, 2013
Pass	$	875,419	$	652,127	$	1,880,798	$	13,785	$	659,774	$	420,985	$	754,887	$	5,257,775	75	%
Marginal	55,340		421,988		68,210		43,640		629,299		193,252		16,337		1,428,066		20	%
Special mention	8,764		66,836		9,077		2,979		73,522		16,661		4,712		182,551		3	%
Substandard	25,053		30,174		4,615		9,126		46,304		5,817		7,665		128,754		2	%
Doubtful/Loss	296		1,308		219		266		2,677		12		0		4,778		0	%
Total	$	964,872	$	1,172,433	$	1,962,919	$	69,796	$	1,411,576	$	636,727	$	783,601	$	7,001,924	100	%
Restructured	$	23,290	$	7,429	$	1,225	$	8,814	$	20,266	$	1,225	$	95	$	62,344	1	%
Nonaccrual	17,205		17,843		840		6,050		30,792		2,538		5,119		80,387		1	%
Nonperforming	40,495		25,272		2,065		14,864		51,058		3,763		5,214		142,731		2	%
Performing	924,377		1,147,161		1,960,854		54,932		1,360,518		632,964		778,387		6,859,193		98	%
Total	$	964,872	$	1,172,433	$	1,962,919	$	69,796	$	1,411,576	$	636,727	$	783,601	$	7,001,924	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 June 30, 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 June 30, 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)
June 30, 2013
30 - 59 days past due	$	1,829	$	6,947	$	651	$	2,692	$	4,828	$	1,395	$	4,162	$	22,504	0	%
60 - 89 days past due	2,118		424		0		0		2,135		395		1,217		6,289		0	%
> 90 days past due	19,054		9,316		704		6,050		17,987		1,634		3,221		57,966		1	%
Total past due	23,001		16,687		1,355		8,742		24,950		3,424		8,600		86,759		1	%
Current	941,871		1,155,746		1,961,564		61,054		1,386,626		633,303		775,001		6,915,165		99	%
Total Loans	$	964,872	$	1,172,433	$	1,962,919	$	69,796	$	1,411,576	$	636,727	$	783,601	$	7,001,924	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 June 30, 2013 and December 31, 2012:

					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
June 30, 2013
Residential real estate	$	45,620	$	5,125	$	40,199	$	296	$	296
CRE:
Investor CRE	28,527		3,255		20,774		4,498		1,308
Multifamily	2,802		737		840		1,225		219
Construction	29,323		14,459		13,596		1,268		266
Total CRE	60,652		18,451		35,210		6,991		1,793
Commercial:
Owner Occupied CRE	55,838		4,780		38,166		12,892		2,740
C&I	3,764		0		3,764		0		0
Total commercial	59,602		4,780		41,930		12,892		2,740
Consumer	5,530		316		5,214		0		0
Total	$	171,404	$	28,672	$	122,553	$	20,179	$	4,829
					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 June 30,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	41,662	$	165	$	46,485	$	174
Investor CRE	34,760		109		60,793		421
Multifamily	3,445		4		16,839		255
Construction	16,035		470		58,289		21
Owner Occupied CRE	56,890		195		73,688		628
C&I	4,488		24		11,530		6
Consumer	5,653		0		4,897		0
Total	$	162,933	$	967	$	272,521	$	1,505
	Six Months Ended June 30,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	41,960	$	317	$	43,231	$	418
Investor CRE	38,003		456		63,283		1,003
Multifamily	5,106		39		16,188		350
Construction	15,779		2,171		64,030		873
Owner Occupied CRE	52,953		589		73,188		1,406
C&I	3,999		58		11,122		35
Consumer	6,229		5		5,209		0
Total	$	164,029	$	3,635	$	276,251	$	4,085

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

	Three Months Ended June 30,
	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	1	$	184	$	186	8	$	1,193	$	1,188
Investor CRE	1	263		262		0	0		0
Multifamily	0	0		0		1	767		763
Construction	0	0		0		1	3,252		3,261
Owner Occupied CRE	4	1,616		759		6	8,809		8,766
C&I	4	449		454		5	1,494		1,500
Consumer	0	0		0		2	296		299
Total (1)	10	$	2,512	$	1,661	23	$	15,811	$	15,777
	Six Months Ended June 30,
	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	10	$	2,318	$	2,115	12	$	2,234	$	2,228
Investor CRE	4	1,745		1,442		1	1,302		1,302
Multifamily	0	0		0		2	2,379		2,374
Construction	0	0		0		2	5,944		5,953
Owner Occupied CRE	7	4,048		3,173		9	15,441		15,390
C&I	4	449		454		9	3,482		2,206
Consumer	0	0		0		2	296		299
Total (1)	25	$	8,560	$	7,184	37	$	31,078	$	29,752

(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 June 30, 2013, Sterling had specific reserves of $691,000 on TDRs which were restructured during the previous six months. There were nine loans totaling $6.7 million that were removed from TDR status during the three and six months ended June 30, 2013, 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 periods presented by the primary type of concession granted:

	Principal Deferral		Rate Reduction		Extension of Terms		Forgiveness of Principal and/or Interest		Total
Six Months Ended June 30, 2013	(in thousands)
Residential Real Estate	$	0	$	1,581	$	203	$	331	$	2,115
Investor CRE	262		1,139		0		41		1,442
Multifamily	0		0		0		0		0
Construction	0		0		0		0		0
Owner CRE	1,365		1,684		124		0		3,173
C&I	447		0		7		0		454
Consumer	0		0		0		0		0
Total	$	2,074	$	4,404	$	334	$	372	$	7,184
Six Months Ended June 30, 2012
Residential Real Estate	$	407	$	1,821	$	0	$	0	$	2,228
Investor CRE	0		1,302		0		0		1,302
Multifamily	0		2,374		0		0		2,374
Construction	0		3,261		2,692		0		5,953
Owner CRE	5,688		9,393		0		309		15,390
C&I	0		1,317		183		706		2,206
Consumer	0		0		299		0		299
Total	$	6,095	$	19,468	$	3,174	$	1,015	$	29,752

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 June 30, 2013 that subsequently defaulted during the period.

During the three months ended June 30, 2013 and 2012, $3.3 million and $3.7 million, respectively, of TDRs were returned to accrual status, and during the six month periods ended June 30, 2013 and 2012, $4.3 million and $5.1 million, respectively, of TDRs were returned to accrual status. The following table outlines accrual status of TDRs as of the dates shown:

	June 30,		December 31,
	2013		2012
	(in thousands)
TDRs on nonaccrual status	$	42,988	$	44,706
TDRs on accrual status	19,356		19,510
Total TDRs	$	62,344	$	64,216