Derivatives and Hedging

12 Months Ended

Dec. 31, 2013

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivatives and Hedging

Derivatives and Hedging:

Sterling enters into interest rate swap transactions with loan customers. The interest rate risk on these swap transactions is hedged by Sterling entering into offsetting interest rate swap agreements with various unaffiliated counterparties ("broker-dealers"). Both customer and broker-dealer related interest rate derivatives are carried at fair value, which includes consideration of counterparty credit risk.

As part of its mortgage banking activities, Sterling makes commitments to prospective borrowers on residential mortgage loan applications, which may have the interest rates locked for a period of 10 to 60 days or longer, if extended ("interest rate lock commitments"). The fair value of interest rate lock commitments presented in the table below has been adjusted to reflect the expected fallout. These interest rate lock commitments, and loans held for sale that have not been committed to investors, give rise to interest rate risk. Sterling hedges the interest rate risk arising from these mortgage banking activities by entering into forward sales agreements on MBS with third parties ("forward commitments").

Residential mortgage loans held for sale that were not committed to investors were $129.5 million and $419.1 million as of December 31, 2013 and December 31, 2012, respectively. The following table summarizes Sterling's mortgage banking operations and interest rate swaps:

	December 31, 2013
			Fair Value
	Notional		Asset		Liability
	(in thousands)
Interest rate lock commitments, net	$	99,215	$	1,740	$	0
Forward commitments	211,000		2,231		0
Interest rate swaps - broker-dealer	21,054		0		516
Interest rate swaps - customer	22,090		508		0
	December 31, 2012
			Fair Value
	Notional		Asset		Liability
	(in thousands)
Interest rate lock commitments, net	$	242,061	$	9,035	$	0
Forward commitments	531,000		0		1,881
Interest rate swaps - broker-dealer	44,846		0		2,144
Interest rate swaps - customer	36,158		2,148		0

The fair value of these derivatives is included in other assets and liabilities, respectively. Gains and losses on Sterling's mortgage banking derivative transactions are included in mortgage banking income, while gains and losses on Sterling's interest rate swap agreements are included in other noninterest income. The following table sets forth these gains and losses:

	Years Ended December 31,
	2013			2012			2011
	(in thousands)
Mortgage banking operations	$	(3,351	)	$	9,816		$	(10,297	)
Other noninterest income	143			(553		)	61

Also included in mortgage banking income, was income from loan servicing of $10.3 million and $383,000 for the years ended December 31, 2013 and 2012, respectively, and a loss on loan servicing of $3.2 million for 2011.