Loans Receivable And Allowance For Credit Losses

9 Months Ended

Sep. 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:

	September 30, 2013			December 31, 2012
	(in thousands)
Residential real estate	$	1,052,381		$	806,722
Commercial real estate ("CRE"):
Investor CRE	1,125,477			1,219,847
Multifamily	2,029,820			1,580,289
Construction	52,929			74,665
Total CRE	3,208,226			2,874,801
Commercial:
Owner occupied CRE	1,404,006			1,276,591
Commercial & Industrial ("C&I")	681,666			540,499
Total commercial	2,085,672			1,817,090
Consumer	807,964			754,621
Gross loans receivable	7,154,243			6,253,234
Deferred loan costs (fees), net	8,781			2,860
Allowance for loan losses	(138,698		)	(154,345		)
Net loans receivable	$	7,024,326		$	6,101,749

As of September 30, 2013 and December 31, 2012, loans pledged as collateral for borrowings from the FHLB and the Federal Reserve were $4.93 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 September 30, 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 $30.5 million and $18.2 million, respectively. The following table presents a roll-forward of accretable yield over the periods presented:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(in thousands)
Beginning balance	$	2,748		$	2,331		$	1,332		$	0
Additions	0			0			1,774			1,923
Accretion to interest income	(454		)	(223		)	(1,156		)	(545		)
Reclassifications	209			(678		)	553			52
Ending balance	$	2,503		$	1,430		$	2,503		$	1,430

As of September 30, 2013 and December 31, 2012, net loans receivable included unamortized discounts on acquired loans of $25.6 million and $21.3 million, respectively. The following table presents, as of September 30, 2013, the five-year projected loan discount accretion to be recognized as interest income:

	Amount
	(in thousands)
Remainder of 2013	$	1,620
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)
September 30, 2013
Loans receivable, gross:
Individually evaluated for impairment	$	0	$	55,583	$	38,884	$	0	$	0	$	94,467
Collectively evaluated for impairment	1,052,381		3,152,643		2,046,788		807,964		0		7,059,776
Total loans receivable, gross	$	1,052,381	$	3,208,226	$	2,085,672	$	807,964	$	0	$	7,154,243
Allowance for loan losses:
Individually evaluated for impairment	$	0	$	1,444	$	3,169	$	0	$	0	$	4,613
Collectively evaluated for impairment	17,276		39,669		39,442		25,220		12,478		134,085
Total allowance for loan losses	$	17,276	$	41,113	$	42,611	$	25,220	$	12,478	$	138,698
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 $18.2 million as of September 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 third quarter activity
Allowance for loan losses:
Beginning balance, July 1	$	18,989		$	41,587		$	39,524		$	27,744		$	14,105		$	141,949
Provisions	(1,270		)	(659		)	2,820			(1,364		)	(1,627		)	(2,100		)
Charge-offs	(752		)	(1,219		)	(1,051		)	(1,466		)	0			(4,488		)
Recoveries	309			1,404			1,318			306			0			3,337
Ending balance, September 30	17,276			41,113			42,611			25,220			12,478			138,698
Reserve for unfunded credit commitments:
Beginning balance, July 1	3,142			507			2,552			3,247			57			9,505
Provisions	1,721			237			342			(206		)	6			2,100
Charge-offs	(1,064		)	0			0			0			0			(1,064		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	3,799			744			2,894			3,041			63			10,541
Total credit allowance	$	21,075		$	41,857		$	45,505		$	28,261		$	12,541		$	149,239
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

	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	(524		)	(3,948		)	3,029			3,193			(6,450		)	(4,700		)
Charge-offs	(2,878		)	(6,778		)	(5,151		)	(4,613		)	0			(19,420		)
Recoveries	831			3,745			2,859			1,038			0			8,473
Ending balance, September 30	17,276			41,113			42,611			25,220			12,478			138,698
Reserve for unfunded credit commitments:
Beginning balance, January 1	2,230			405			2,806			2,118			443			8,002
Provisions	3,730			339			88			923			(380		)	4,700
Charge-offs	(2,161		)	0			0			0			0			(2,161		)
Recoveries	0			0			0			0			0			0
Ending balance, September 30	3,799			744			2,894			3,041			63			10,541
Total credit allowance	$	21,075		$	41,857		$	45,505		$	28,261		$	12,541		$	149,239
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

In establishing the allowance for loan losses, Sterling groups its loan portfolio into classes of 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 estimated inherent loss rate. This calculated estimated loss for each loan class is compared to the actual one-year and three-year (annualized) losses. Sterling evaluates the results of this analysis, and based on qualitative factors, one 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 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)
September 30, 2013
Pass	$	968,158	$	580,017	$	1,940,743	$	17,017	$	727,604	$	450,283	$	780,264	$	5,464,086	76	%
Marginal	53,331		448,165		76,840		30,515		571,100		192,527		15,689		1,388,167		19	%
Special mention	8,816		71,575		10,894		1,159		63,805		20,792		6,103		183,144		3	%
Substandard	21,789		24,428		1,343		4,086		39,349		18,061		5,908		114,964		2	%
Doubtful/Loss	287		1,292		0		152		2,148		3		0		3,882		0	%
Total	$	1,052,381	$	1,125,477	$	2,029,820	$	52,929	$	1,404,006	$	681,666	$	807,964	$	7,154,243	100	%
Restructured	$	22,153	$	7,351	$	1,216	$	2,101	$	19,035	$	678	$	22	$	52,556	1	%
Nonaccrual	15,657		16,669		357		3,588		22,434		2,043		4,662		65,410		1	%
Nonperforming	37,810		24,020		1,573		5,689		41,469		2,721		4,684		117,966		2	%
Performing	1,014,571		1,101,457		2,028,247		47,240		1,362,537		678,945		803,280		7,036,277		98	%
Total	$	1,052,381	$	1,125,477	$	2,029,820	$	52,929	$	1,404,006	$	681,666	$	807,964	$	7,154,243	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 $6.8 million as of September 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 September 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)
September 30, 2013
30 - 59 days past due	$	2,824	$	7,522	$	0	$	602	$	8,764	$	1,567	$	4,160	$	25,439	0	%
60 - 89 days past due	1,719		1,786		0		0		3,174		826		1,494		8,999		0	%
90 days or more past due	15,131		5,715		222		3,588		13,046		1,557		3,807		43,066		1	%
Total past due	19,674		15,023		222		4,190		24,984		3,950		9,461		77,504		1	%
Current	1,032,707		1,110,454		2,029,598		48,739		1,379,022		677,716		798,503		7,076,739		99	%
Total Loans	$	1,052,381	$	1,125,477	$	2,029,820	$	52,929	$	1,404,006	$	681,666	$	807,964	$	7,154,243	100	%
90 days or more 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 or more 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 or more 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, 2013 and December 31, 2012:

					Book Balance
	Unpaid Principal Balance		Charge-Offs		Without Specific Reserve		With Specific Reserve		Specific Reserve
	(in thousands)
September 30, 2013
Residential real estate	$	42,761	$	4,951	$	37,523	$	287	$	287
CRE:
Investor CRE	28,274		4,254		18,956		5,064		1,292
Multifamily	2,310		737		1,573		0		0
Construction	17,643		11,954		5,226		463		152
Total CRE	48,227		16,945		25,755		5,527		1,444
Commercial:
Owner Occupied CRE	46,212		4,743		26,377		15,092		3,169
C&I	14,677		11,956		2,721		0		0
Total commercial	60,889		16,699		29,098		15,092		3,169
Consumer	4,921		237		4,684		0		0
Total	$	156,798	$	38,832	$	97,060	$	20,906	$	4,900
					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 September 30,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	39,152	$	129	$	43,393	$	170
Investor CRE	24,646		147		63,746		278
Multifamily	1,819		22		17,865		55
Construction	10,276		60		30,152		692
Owner Occupied CRE	46,263		184		68,270		316
C&I	3,242		13		10,137		51
Consumer	4,949		0		5,327		4
Total	$	130,347	$	555	$	238,890	$	1,566
	Nine Months Ended September 30,
	2013				2012
	Average Book Balance		Interest Income Recognized		Average Book Balance		Interest Income Recognized
	(in thousands)
Residential real estate	$	40,618	$	446	$	43,065	$	588
Investor CRE	37,376		603		52,656		1,281
Multifamily	4,860		61		7,544		405
Construction	11,192		2,231		61,340		1,565
Owner Occupied CRE	48,159		773		68,353		1,722
C&I	3,478		71		10,895		86
Consumer	5,965		5		5,947		4
Total	$	151,648	$	4,190	$	249,800	$	5,651

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

	Three Months Ended September 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	3	$	496	$	513	15	$	2,817	$	2,765
Investor CRE	0	0		0		0	0		0
Multifamily	0	0		0		0	0		0
Construction	0	0		0		2	4,118		3,241
Owner Occupied CRE	0	0		0		1	133		125
C&I	0	0		0		0	0		0
Consumer	0	0		0		1	172		173
Total (1)	3	$	496	$	513	19	$	7,240	$	6,304
	Nine Months Ended September 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	13	$	2,814	$	2,628	27	$	5,051	$	4,993
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		4	10,062		9,194
Owner Occupied CRE	7	4,048		3,173		10	15,574		15,515
C&I	4	449		454		9	3,482		2,206
Consumer	0	0		0		3	468		472
Total (1)	28	$	9,056	$	7,697	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, 2013, Sterling had specific reserves of $591,000 on TDRs which were restructured during the previous nine months. There were10 loans totaling $5.9 million that were removed from TDR status during the three months ended September 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
Nine Months Ended September 30, 2013	(in thousands)
Residential Real Estate	$	0	$	2,094	$	203	$	331	$	2,628
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	$	4,917	$	334	$	372	$	7,697
Nine Months Ended September 30, 2012
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
Total	$	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, 2013 that subsequently defaulted during the period.

During the three months ended September 30, 2013 and 2012, $3.8 million and $4.5 million, respectively, of TDRs were returned to accrual status, and during the nine month periods ended September 30, 2013 and 2012, $8.1 million and $9.8 million, respectively, of TDRs were returned to accrual status. The following table outlines accrual status of TDRs as of the dates shown:

	September 30,		December 31,
	2013		2012
	(in thousands)
TDRs on nonaccrual status	$	14,640	$	19,510
TDRs on accrual status	37,916		44,706
Total TDRs	$	52,556	$	64,216