Attached files
file | filename |
---|---|
8-K - 8-K - UMPQUA HOLDINGS CORP | a14-10421_38k.htm |
EX-23.1 - EX-23.1 - UMPQUA HOLDINGS CORP | a14-10421_3ex23d1.htm |
EX-99.3 - EX-99.3 - UMPQUA HOLDINGS CORP | a14-10421_3ex99d3.htm |
EX-99.1 - EX-99.1 - UMPQUA HOLDINGS CORP | a14-10421_3ex99d1.htm |
EX-3.1 - EX-3.1 - UMPQUA HOLDINGS CORP | a14-10421_3ex3d1.htm |
Exhibit 99.2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Sterling Financial Corporation
We have audited the accompanying consolidated balance sheets of Sterling Financial Corporation and subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2013. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sterling Financial Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sterling Financial Corporation and subsidiaries internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2014 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG LLP |
|
|
|
|
|
Seattle, Washington |
|
February 26, 2014 |
|
STERLING FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
|
|
December 31, |
|
December 31, |
| ||
ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents: |
|
|
|
|
| ||
Interest bearing |
|
$ |
428,746 |
|
$ |
173,962 |
|
Noninterest bearing |
|
109,942 |
|
125,916 |
| ||
Total cash and cash equivalents |
|
538,688 |
|
299,878 |
| ||
Restricted cash |
|
6,747 |
|
31,672 |
| ||
Investments and mortgage-backed securities (MBS): |
|
|
|
|
| ||
Available for sale |
|
1,429,812 |
|
1,513,157 |
| ||
Held to maturity |
|
165 |
|
206 |
| ||
Loans held for sale, at fair value |
|
138,952 |
|
465,983 |
| ||
Loans receivable, net ($26,462 and $23,177 at fair value) |
|
7,331,228 |
|
6,101,749 |
| ||
Accrued interest receivable |
|
28,493 |
|
28,019 |
| ||
Other real estate owned, net (OREO) |
|
8,047 |
|
25,042 |
| ||
Properties and equipment, net |
|
101,610 |
|
93,850 |
| ||
Bank-owned life insurance (BOLI) |
|
191,553 |
|
179,828 |
| ||
Goodwill |
|
52,018 |
|
22,577 |
| ||
Other intangible assets, net |
|
15,561 |
|
19,072 |
| ||
Mortgage servicing rights, net |
|
60,100 |
|
32,420 |
| ||
Deferred tax asset, net |
|
284,059 |
|
292,082 |
| ||
Other assets, net |
|
132,216 |
|
131,375 |
| ||
Total assets |
|
$ |
10,319,249 |
|
$ |
9,236,910 |
|
LIABILITIES: |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Noninterest bearing |
|
$ |
1,881,360 |
|
$ |
1,702,740 |
|
Interest bearing |
|
5,193,630 |
|
4,733,377 |
| ||
Total deposits |
|
7,074,990 |
|
6,436,117 |
| ||
Advances from Federal Home Loan Bank (FHLB) |
|
1,146,103 |
|
605,330 |
| ||
Securities sold under repurchase agreements |
|
531,679 |
|
586,867 |
| ||
Junior subordinated debentures |
|
245,299 |
|
245,294 |
| ||
Accrued interest payable |
|
4,284 |
|
4,229 |
| ||
Accrued expenses and other liabilities |
|
100,947 |
|
141,150 |
| ||
Total liabilities |
|
9,103,302 |
|
8,018,987 |
| ||
SHAREHOLDERS EQUITY: |
|
|
|
|
| ||
Preferred stock, 10,000,000 shares authorized; no shares outstanding |
|
0 |
|
0 |
| ||
Common stock, 151,515,151 shares authorized; 62,363,741 and 62,207,529 shares outstanding, respectively |
|
1,972,457 |
|
1,968,025 |
| ||
Accumulated other comprehensive income |
|
19,857 |
|
60,712 |
| ||
Accumulated deficit |
|
(776,367 |
) |
(810,814 |
) | ||
Total shareholders equity |
|
1,215,947 |
|
1,217,923 |
| ||
Total liabilities and shareholders equity |
|
$ |
10,319,249 |
|
$ |
9,236,910 |
|
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share amounts)
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
Interest income: |
|
|
|
|
|
|
| |||
Loans |
|
$ |
338,910 |
|
$ |
331,514 |
|
$ |
322,435 |
|
MBS |
|
31,015 |
|
47,442 |
|
71,216 |
| |||
Investments and cash equivalents |
|
9,096 |
|
10,244 |
|
10,641 |
| |||
Total interest income |
|
379,021 |
|
389,200 |
|
404,292 |
| |||
Interest expense: |
|
|
|
|
|
|
| |||
Deposits |
|
23,863 |
|
37,697 |
|
59,634 |
| |||
Short-term borrowings |
|
1,275 |
|
7,364 |
|
1,882 |
| |||
Long-term borrowings |
|
29,649 |
|
39,461 |
|
47,581 |
| |||
Total interest expense |
|
54,787 |
|
84,522 |
|
109,097 |
| |||
Net interest income |
|
324,234 |
|
304,678 |
|
295,195 |
| |||
Provision for credit losses |
|
0 |
|
10,000 |
|
30,000 |
| |||
Net interest income after provision for credit losses |
|
324,234 |
|
294,678 |
|
265,195 |
| |||
Noninterest income: |
|
|
|
|
|
|
| |||
Fees and service charges |
|
60,917 |
|
55,773 |
|
50,073 |
| |||
Mortgage banking operations |
|
59,956 |
|
97,292 |
|
49,163 |
| |||
BOLI |
|
6,235 |
|
8,625 |
|
6,448 |
| |||
Gains on sales of securities |
|
0 |
|
23,835 |
|
16,236 |
| |||
Other-than-temporary impairment credit losses on securities (1) |
|
0 |
|
(6,819 |
) |
0 |
| |||
Charge on prepayment of debt |
|
0 |
|
(35,342 |
) |
0 |
| |||
Gains on other loan sales |
|
3,998 |
|
4,372 |
|
4,442 |
| |||
Other |
|
9,480 |
|
6,517 |
|
(34 |
) | |||
Total noninterest income |
|
140,586 |
|
154,253 |
|
126,328 |
| |||
Noninterest expense |
|
333,312 |
|
355,253 |
|
352,390 |
| |||
Income before income taxes |
|
131,508 |
|
93,678 |
|
39,133 |
| |||
Income tax (provision) benefit: |
|
|
|
|
|
|
| |||
Current |
|
27 |
|
163 |
|
275 |
| |||
Deferred |
|
(37,894 |
) |
291,880 |
|
(275 |
) | |||
Total income tax (provision) benefit |
|
(37,867 |
) |
292,043 |
|
0 |
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
Earnings per share - basic |
|
$ |
1.50 |
|
$ |
6.21 |
|
$ |
0.63 |
|
Earnings per share - diluted |
|
$ |
1.48 |
|
$ |
6.14 |
|
$ |
0.63 |
|
Dividends declared per share |
|
$ |
0.95 |
|
$ |
0.80 |
|
$ |
0.00 |
|
Weighted average shares outstanding - basic |
|
62,290,361 |
|
62,122,862 |
|
61,955,659 |
| |||
Weighted average shares outstanding - diluted |
|
63,371,763 |
|
62,772,079 |
|
62,231,208 |
|
(1) The other-than-temporary impairment recognized in earnings during 2012 did not have a portion recognized in accumulated other comprehensive income.
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
| |||
Change in unrealized gains (losses) on investments and MBS available for sale |
|
(64,849 |
) |
16,119 |
|
86,140 |
| |||
Realized net gains reclassified from other comprehensive income |
|
0 |
|
(17,016 |
) |
(18,462 |
) | |||
Less deferred income tax benefit (provision) |
|
23,994 |
|
494 |
|
(2,384 |
) | |||
Net other comprehensive income (loss) |
|
(40,855 |
) |
(403 |
) |
65,294 |
| |||
Comprehensive income |
|
$ |
52,786 |
|
$ |
385,318 |
|
$ |
104,427 |
|
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share amounts)
|
|
|
|
|
|
Accumulated |
|
|
|
|
| ||||
|
|
|
|
|
|
Other |
|
Retained |
|
Total |
| ||||
|
|
Common Stock |
|
Comprehensive |
|
Earnings |
|
Shareholders |
| ||||||
|
|
Shares |
|
Amount |
|
Income (Loss) |
|
(Deficit) |
|
Equity |
| ||||
Balance, January 1, 2011 |
|
61,926,187 |
|
$ |
1,960,871 |
|
$ |
(4,179 |
) |
$ |
(1,185,925 |
) |
$ |
770,767 |
|
Change in unrealized gain or loss on investments and MBS available for sale |
|
0 |
|
0 |
|
65,294 |
|
0 |
|
65,294 |
| ||||
Equity based compensation and related tax amounts |
|
131,458 |
|
3,363 |
|
0 |
|
0 |
|
3,363 |
| ||||
Net income |
|
0 |
|
0 |
|
0 |
|
39,133 |
|
39,133 |
| ||||
Balance, December 31, 2011 |
|
62,057,645 |
|
1,964,234 |
|
61,115 |
|
(1,146,792 |
) |
878,557 |
| ||||
Change in unrealized gain or loss on investments and MBS available for sale |
|
0 |
|
0 |
|
(403 |
) |
0 |
|
(403 |
) | ||||
Equity based compensation and related tax amounts |
|
110,958 |
|
3,130 |
|
0 |
|
0 |
|
3,130 |
| ||||
Employee stock purchase plan |
|
38,926 |
|
661 |
|
0 |
|
0 |
|
661 |
| ||||
Cash dividends paid to common shareholders |
|
0 |
|
0 |
|
0 |
|
(49,743 |
) |
(49,743 |
) | ||||
Net income |
|
0 |
|
0 |
|
0 |
|
385,721 |
|
385,721 |
| ||||
Balance, December 31, 2012 |
|
62,207,529 |
|
1,968,025 |
|
60,712 |
|
(810,814 |
) |
1,217,923 |
| ||||
Change in unrealized gain or loss on investments and MBS available for sale |
|
0 |
|
0 |
|
(40,855 |
) |
0 |
|
(40,855 |
) | ||||
Equity based compensation and related tax amounts |
|
120,024 |
|
3,564 |
|
0 |
|
0 |
|
3,564 |
| ||||
Employee stock purchase plan |
|
36,188 |
|
868 |
|
0 |
|
0 |
|
868 |
| ||||
Cash dividends paid to common shareholders |
|
0 |
|
0 |
|
0 |
|
(59,194 |
) |
(59,194 |
) | ||||
Net income |
|
0 |
|
0 |
|
0 |
|
93,641 |
|
93,641 |
| ||||
Balance, December 31, 2013 |
|
62,363,741 |
|
$ |
1,972,457 |
|
$ |
19,857 |
|
$ |
(776,367 |
) |
$ |
1,215,947 |
|
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
| |||
Provision for credit losses |
|
0 |
|
10,000 |
|
30,000 |
| |||
Net gain on sales of loans |
|
(51,253 |
) |
(98,223 |
) |
(61,097 |
) | |||
Net gain on sales of investments and MBS |
|
0 |
|
(23,835 |
) |
(16,236 |
) | |||
Net (gain) loss on mortgage servicing rights |
|
(6,948 |
) |
216 |
|
6,179 |
| |||
Other-than-temporary impairment credit losses on securities |
|
0 |
|
6,819 |
|
0 |
| |||
Stock based compensation |
|
3,564 |
|
3,130 |
|
3,363 |
| |||
Loss on OREO |
|
2,418 |
|
247 |
|
16,628 |
| |||
Deferred income tax provision (benefit) |
|
37,894 |
|
(291,880 |
) |
275 |
| |||
Charge on prepayment of debt |
|
0 |
|
35,342 |
|
0 |
| |||
Increase in cash surrender value of BOLI |
|
(5,931 |
) |
(8,401 |
) |
(6,213 |
) | |||
Depreciation and amortization |
|
43,184 |
|
45,843 |
|
42,651 |
| |||
Bargain purchase gain |
|
(7,544 |
) |
0 |
|
0 |
| |||
Change in: |
|
|
|
|
|
|
| |||
Accrued interest receivable |
|
1,106 |
|
8,337 |
|
1,261 |
| |||
Prepaid expenses and other assets |
|
(16,676 |
) |
(24,098 |
) |
(1,342 |
) | |||
Accrued interest payable |
|
11 |
|
(18,479 |
) |
5,316 |
| |||
Accrued expenses and other liabilities |
|
(50,475 |
) |
29,548 |
|
(9,003 |
) | |||
Proceeds from sales of loans originated for sale |
|
2,745,176 |
|
2,728,418 |
|
2,076,393 |
| |||
Loans originated for sale |
|
(2,375,378 |
) |
(2,915,204 |
) |
(2,043,236 |
) | |||
Net cash provided by (used in) operating activities |
|
412,789 |
|
(126,499 |
) |
84,072 |
| |||
Cash flows from investing activities: |
|
|
|
|
|
|
| |||
Change in restricted cash |
|
24,925 |
|
(11,043 |
) |
(4,948 |
) | |||
Net change in loans |
|
(852,445 |
) |
(500,452 |
) |
(285,736 |
) | |||
Proceeds from sales of loans |
|
143,151 |
|
139,356 |
|
91,456 |
| |||
Purchase of investment securities |
|
0 |
|
(3,734 |
) |
(10,357 |
) | |||
Proceeds from maturities of investment securities |
|
4,085 |
|
20,588 |
|
2,012 |
| |||
Proceeds from sale of investment securities |
|
18,219 |
|
199,966 |
|
30,987 |
| |||
Purchase of MBS |
|
(322,965 |
) |
(287,849 |
) |
(760,519 |
) | |||
Principal payments received on MBS |
|
328,142 |
|
613,809 |
|
533,851 |
| |||
Proceeds from sales of MBS |
|
48,886 |
|
679,208 |
|
555,353 |
| |||
Proceeds from BOLI death benefits |
|
0 |
|
3,714 |
|
1,187 |
| |||
Changes in office properties and equipment, net |
|
(19,365 |
) |
(9,853 |
) |
(15,881 |
) | |||
Improvements and other changes to OREO |
|
(551 |
) |
(1,282 |
) |
(5,613 |
) | |||
Proceeds from sales of OREO |
|
39,890 |
|
91,402 |
|
246,609 |
| |||
Net change in cash and cash equivalents from acquisitions |
|
(150,120 |
) |
121,098 |
|
0 |
| |||
Net cash (used in) provided by investing activities |
|
$ |
(738,148 |
) |
$ |
1,054,928 |
|
$ |
378,401 |
|
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS cont.
(in thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
Cash flows from financing activities: |
|
|
|
|
|
|
| |||
Net change in deposits |
|
$ |
162,842 |
|
$ |
(745,620 |
) |
$ |
(425,189 |
) |
Advances from FHLB |
|
1,875,000 |
|
545,000 |
|
0 |
| |||
Repayment of advances from FHLB |
|
(1,360,158 |
) |
(345,210 |
) |
(1,519 |
) | |||
Net change in short term repurchase agreements |
|
(5,188 |
) |
(18,896 |
) |
23,251 |
| |||
Payments under structured repurchase agreements |
|
(50,000 |
) |
(485,342 |
) |
0 |
| |||
Proceeds from stock issuance, net |
|
868 |
|
661 |
|
0 |
| |||
Cash dividends paid |
|
(59,195 |
) |
(49,743 |
) |
0 |
| |||
Net cash provided by (used in) financing activities |
|
564,169 |
|
(1,099,150 |
) |
(403,457 |
) | |||
Net change in cash and cash equivalents |
|
238,810 |
|
(170,721 |
) |
59,016 |
| |||
Cash and cash equivalents, beginning of period |
|
299,878 |
|
470,599 |
|
411,583 |
| |||
Cash and cash equivalents, end of period |
|
$ |
538,688 |
|
$ |
299,878 |
|
$ |
470,599 |
|
Supplemental disclosures: |
|
|
|
|
|
|
| |||
Cash paid during the period for: |
|
|
|
|
|
|
| |||
Interest |
|
$ |
54,732 |
|
$ |
102,868 |
|
$ |
103,781 |
|
Income taxes, net |
|
599 |
|
44 |
|
(250 |
) | |||
Noncash financing and investing activities: |
|
|
|
|
|
|
| |||
Foreclosed real estate acquired in settlement of loans |
|
19,959 |
|
33,499 |
|
177,881 |
|
See notes to consolidated financial statements.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
1. Significant Accounting Policies:
Sterling Financial Corporation, with headquarters in Spokane, Washington, was organized under the laws of Washington State in 1992 as the bank holding company for Sterling Savings Bank, which commenced operations in 1983. References to Sterling, the Company, we, our, or us in this report are to Sterling Financial Corporation, a Washington corporation, and its consolidated subsidiaries on a combined basis, unless otherwise specified or the context otherwise requires. References to Sterling Bank refer to our subsidiary Sterling Savings Bank, a Washington state-chartered commercial bank. Sterling Savings Bank does business as Sterling Bank in Washington, Oregon and Idaho, and as Argent Bank in California, offering retail and commercial banking products and services, mortgage lending and trust and investment products to individuals, small businesses, commercial organizations and corporations. As of December 31, 2013, Sterling had assets of $10.32 billion and operated 173 depository branches in Washington, Oregon, Idaho and California.
Basis of Presentation. The accompanying consolidated financial statements include the accounts of Sterling and its directly and indirectly wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of Sterlings consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of Sterlings consolidated financial position and results of operations.
Cash and Cash Equivalents. Cash equivalents include investments with a remaining maturity of three months or less at the date of purchase. Cash and cash equivalents are deposited with other banks and financial institutions in amounts that may at times exceed the federal insurance limit. Sterling evaluates the credit quality of these banks and financial institutions to mitigate its credit risk.
Restricted cash consists of noninterest bearing deposits maintained as a reserve at the Federal Reserve Bank, and cash collateral balances with correspondent banks.
Sterling occasionally purchases securities under agreements with other institutions to resell the same or similar securities. The amounts advanced under these agreements represent short-term loans and are reflected as interest bearing cash equivalents in the consolidated balance sheet. The securities underlying the agreements are comprised of mutual fund shares that are primarily invested in U.S. government securities.
Investments and MBS. Sterling classifies debt and equity securities as follows:
· Trading Securities. Debt or equity securities are classified as trading securities if acquired principally for the purpose of generating a profit from short-term fluctuations in price. As of December 31, 2013, Sterling did not hold any securities that it deems to be trading securities.
· Available for Sale. Debt and equity securities that are not classified as trading securities or held to maturity are classified as available for sale and are carried at fair value.
· Held to Maturity. These are investments that Sterling has the intent and ability to hold until maturity.
Premiums and discounts are amortized using the effective yield method over the weighted average life of the underlying security as estimated at time of purchase. Realized gains and losses on sales of investments and MBS are recognized in the statement of operations in the period sold using the specific identification method. FHLB stock is carried at cost, and is included in other assets.
Month end security price valuations are provided by a third party pricing service. These valuations are based on market data using pricing models that vary by asset class and incorporate available current trade, bid and other market information, and for structured securities, cash flow and loan performance data. The pricing processes utilize benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. Option adjusted spread models are also used to assess the impact of changes in interest rates and to develop prepayment scenarios. All models and processes used take into account market convention.
Declines in the fair value of securities below their amortized cost that are other-than-temporary are reflected in earnings or other comprehensive income, as appropriate. For those debt securities whose fair value is less than their amortized cost basis, we consider our intent to sell the securities, whether it is more likely than not that we will be required to sell the securities before recovery, and whether or not we expect to recover our entire amortized cost basis in the investment. In making this assessment, considerations will include whether the issue is a government or government sponsored security, and whether or not rating downgrades have occurred. The assessment of other-than-temporary impairment includes an assessment of the carrying value of FHLB stock. FHLB stock is not a marketable security, and therefore, its value is primarily attributable to the borrowing capacity it provides.
Loans Receivable. Loans receivable that management of Sterling has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance net of unamortized origination and commitment fees, direct loan origination costs and an allowance for loan losses.
Interest income is recognized over the term of loans based on their unpaid principal balance. The accrual of interest on loans is discontinued when, in managements opinion, a borrower may be unable to make payments as they become due, generally due to the payment of principal or interest being in default for a period of 90 days or more. When interest accrual is discontinued, all unpaid accrued interest is reversed. The interest payments received on these loans is accounted for on the cash basis or cost recovery method, until qualifying for a return to an accrual status. Loans return to an accrual status when all principal and interest is brought current, and future payments are reasonably assured.
Loans are designated as troubled debt restructurings (TDRs) when a borrower has financial difficulties and Sterling grants a concession that it would not otherwise consider. The concession can take the form of an interest rate or principal reduction or an extension of payments of principal or interest, or both. TDRs may be the result of granting extensions to troubled credits which have already been adversely classified. We grant such extensions to reassess the borrowers financial status and develop a plan for repayment. We rarely forgive principal for TDRs, but in those situations where principal is forgiven, the entire amount of such principal forgiveness is immediately charged off, if not done so previously. We may grant an extension on the timing of the repayment of a portion of principal (principal forbearance) and charge off any amounts not considered fully collectible. We also consider insignificant delays in payments when determining if a loan should be classified as a TDR. Loans designated as TDRs may be returned to accrual status after the borrower performs in accordance with the modified loan terms, generally for a period of at least six months. A loan may be removed from TDR status after at least one year of performance under the modified term of the loan, unless the modification includes an interest rate concession that is below a market rate of interest for a new loan with similar characteristics. TDRs are periodically evaluated for impairment for the remainder of their term.
Certain acquired loans may be deemed to exhibit evidence of credit deterioration since their origination. When it is considered probable that all contractually required principal and interest payments will not be collected, a loan will be considered a purchased credit impaired (PCI) loan. The accounting for PCI loans is periodically updated for changes in cash flow expectations, and reflected in interest income over the life of the loans as accretable yield.
Allowance for Credit Losses. Sterling maintains an allowance for credit losses at a level deemed appropriate by management to provide for estimated losses. Additions to the allowance, in the form of provisions, are reflected in current operating results. Other changes to the allowance occur from reductions due to credit charge-offs when a loss is determined to be a confirmed loss, or additions to the allowance from the recovery of amounts previously charged-off.
Sterling regularly reviews its classified assets for impairment. If a loan is determined to be impaired, Sterling performs a valuation analysis on the loan. The analysis compares the estimated fair value (discounted cash flow analysis or collateral market value less selling costs), and the book balance (loan principal and accrued interest). A loan is considered collateral-dependent if repayment of the loan is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. For loans that are considered collateral-dependent, the difference between the fair value and the book value is charged off as a confirmed loss. For certain non-collateral-dependent loans, Sterling generally establishes a specific reserve for the difference between fair value and book value of these loans, as the loss is not defined as a confirmed loss because it is not based solely on collateral values.
The allowance is based upon historical loss experience, loan migration analysis, delinquency trends, portfolio size, concentrations of risk, prevailing and anticipated economic conditions, industry experience, estimated collateral values, managements assessment of credit risk inherent in the portfolio, specific problem loans and other relevant factors. The portfolio is grouped into several segments for loans collectively evaluated for impairment based on characteristics such as loan type, borrower and collateral. Loan migration to loss data is used to determine the annual probability of default. The annual probability of default is adjusted for the estimated loss emergence period and may be further adjusted based on an assessment of qualitative factors. The estimated loss rates are established considering historical life-to-date losses net of recoveries on loans remaining in the portfolio, the trailing twelve months of losses on OREO (including losses on foreclosure, write-downs, and losses on sale), and losses on discounted note sales, resulting in a quantified loss given default. The loss given default is then combined with the probability of default. The resulting estimated loss rates are validated against multiple metrics, including historical one-year and three-year annualized losses, net of recoveries, the historical trend in prior period estimated loss rates and managements assessment of the inherent losses based upon specific knowledge of the loan portfolio.
If the calculated loss rates differ significantly from the one-year and three-year actual loss rates and/or is inconsistent with the historical trends, Sterling performs further analysis to identify and evaluate the possible causes of the differences. This includes evaluating the characteristics of the historical loss and recovery data used in calculating the loss rates to determine whether such activity is an appropriate reflection, in managements judgment, of the current inherent losses in the various loan categories. This analysis takes into consideration the impact of the qualitative factors that increase the probability of default in the calculated loss rates in assessing whether there is additional qualitative risk. Because the allowance for credit losses is based on managements estimate, ultimate losses may materially differ from the estimates.
Loans Held for Sale. Any loan that management determines will not be held to maturity is classified as held for sale. Residential loans held for sale are carried at fair value in order to match changes in the value of the loans with the value of the economic hedges on the loans without applying complex hedge accounting. The fair value of loans held for sale is determined based upon an analysis of investor quoted pricing inputs in the secondary market. Other loan types classified as held for sale are carried at the lower of cost or market.
Loan Origination and Commitment Fees. Loan origination fees, net of direct origination costs, are deferred and recognized as interest income using the effective yield method. If the related loan is sold, the remaining net amount, which is part of the basis of the loan, is considered in determining the gain or loss on sale.
Loan commitment fees are deferred until the expiration of the commitment period unless management believes there is a remote likelihood that the underlying commitment will be exercised, in which case the fees are amortized to fee income using the straight-line method over the commitment period. If a loan commitment is exercised, the deferred commitment fee is accounted for in the same manner as a loan origination fee. Deferred commitment fees associated with expired commitments are recognized as fee income.
Other Real Estate Owned. Prior to foreclosure, Sterling considers all viable alternatives, checks with the proper authorities to ensure the existence of a valid and recorded lien on the property and determines the current market value of the collateral.
Property and other assets acquired through foreclosure of defaulted mortgage or other collateralized loans are recorded at fair value, less estimated costs to sell the property and other assets. The fair value of OREO is generally determined using as is or disposition values from appraisals obtained by independent appraisers.
An allowance for losses on OREO is designed to include amounts for estimated losses as a result of impairment in value of the real property after repossession. Sterling reviews its OREO for impairment at least quarterly or whenever events or circumstances indicate that the carrying value of the property or other assets may not be recoverable. In performing the review, if the fair value, less selling costs, is less than its carrying value, a specific reserve is established as a charge to noninterest expenses.
Property and Equipment. Property and equipment is carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the lesser of the estimated useful lives or the related lease terms of the assets. Expenditures for new property and equipment and major renewals or betterments are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. Upon sale or retirement, the cost and related accumulated depreciation are removed from the respective property or equipment accounts, and the resulting gains or losses are reflected in operations.
Goodwill and Other Intangible Assets. Goodwill represents the difference between the value of consideration paid and the fair value of the net assets received in a business combination. Sterling records impairment losses as charges to noninterest expense and adjustments to the carrying value of goodwill.
Goodwill is tested for impairment on an annual basis as of June 30, or more frequently as events occur, or as current circumstances and conditions warrant. A qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, determines the extent to which further testing is required. If the qualitative analysis concludes that further analysis is required, that analysis would compare the fair value of each of the reporting units to the respective carrying amounts. For the 2013 annual impairment analysis, a qualitative assessment was completed and no further steps were considered necessary.
Other intangible assets are comprised primarily of core deposit intangibles, as well as other identifiable intangibles related to First Independents trust and wealth management business. Core deposit intangibles are amortized on an accelerated basis over the estimated useful life of the deposit relationship, which ranges from seven to 11 years. Other intangible assets are periodically assessed for impairment when certain triggering events occur that indicate the possibility of impairment.
Mortgage Servicing Rights and Transfers of Financial Assets. Gains or losses on servicing-retained loan sale transactions generally include a component reflecting the differential between the contractual interest rate of the loan and the interest rate to be received by the investor. The present value of the estimated future profit for servicing the loans and changes in the fair value of any related derivatives,is also taken into account in determining the amount of gain or loss on the sale of these loans. For loans sold servicing-retained, the fair value of mortgage servicing rights is recorded as an asset, with their value estimated using a discounted cash flow methodology to arrive at the present value of future expected earnings from the servicing of the loans. Model inputs include prepayment speeds, market interest rates, servicing costs, contractual interest rates on the loans being serviced, and the amount of other fee income generated over the servicing contract. Mortgage servicing rights are amortized in proportion to, and over the estimated period of the servicing revenues. To the extent the carrying value of mortgage servicing rights exceeds the subsequent fair value estimates, a valuation allowance is recognized. Subsequent recoveries in value are recognized up to the original carrying value of the mortgage servicing rights only to the extent of cumulative valuation adjustments.
Loans sold into the secondary market are considered transfers of financial assets. These transfers are accounted for as sales when control over the asset has been surrendered, which is deemed to have occurred when: an asset does not have any claims to it by the transferor or their creditors, including in bankruptcy or other receivership situations; the transferee obtains the
unconditional right to pledge or exchange the asset; or the transfer does not include a repurchase provision above the limited recourse provisions of these loan sales.
Income Taxes. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in Sterlings income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Sterling estimates income taxes payable based on the amount it expects to owe various taxing authorities. Accrued income taxes represent the net estimated amount due to, or to be received from, taxing authorities. In estimating accrued income taxes, Sterling assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account the applicable statutory, judicial and regulatory guidance in the context of Sterlings tax position. Sterling also considers recent audits and examinations, as well as its historical experience in making such estimates. Although Sterling uses available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances. Penalties and interest associated with any potential estimate variances would be included in income tax expense in the consolidated financial statements.
A deferred tax asset valuation allowance was established during 2009 due to the three year cumulative loss and uncertainty at that time regarding Sterlings ability to generate future taxable income. Reversal of substantially all of the deferred tax asset valuation allowance occurred during 2012. Prior to reversing the allowance, management analyzed both positive and negative evidence that could affect the realization of the deferred tax asset. As of December 31, 2013, Sterling determined that it continues to be more likely than not that substantially all of the net deferred tax asset would be realized.
Earnings Per Share. Earnings per sharebasic is computed by dividing net income or loss available to common shareholders by the weighted average number of shares outstanding during the period. Earnings per sharediluted is computed by dividing net income or loss available to common shareholders by the weighted average number of shares outstanding, increased by the additional shares that would have been outstanding if all potentially dilutive and contingently issuable shares had been issued. The accounting standards codification requires a two-class method of computing earnings per share for entities that have participating securities such as Sterlings unvested restricted shares. Application of the two-class method resulted in the equivalent earnings per share to the treasury method.
Stock-Based Compensation. Stock options and restricted stock issued as compensation are recorded as an expense, over the vesting term of the awards, at their estimated grant date fair value. The Black-Scholes option pricing model is used to estimate the fair value of stock options granted, while the value of restricted stock awards are recorded using the grant date market closing price of Sterlings common stock.
Comprehensive Income. Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) is comprised of unrealized gains and losses on securities available for sale, and is a separate component of shareholders equity. Sterling reports and displays comprehensive income and its components (revenues, expenses, gains and losses) on its Statement of Comprehensive Income. For the periods presented, accumulated other comprehensive income was comprised solely of unrealized market value adjustments on securities available for sale. The realized portion reclassified out of other comprehensive income is reflected on the income statement in gains on sales of securities and other-than-temporary impairment.
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 interest rate lock commitments are recorded at fair value net of the anticipated 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).
Reclassifications. Certain amounts in prior period financial statements have been reclassified to conform to the current years presentation. These reclassifications had no effect on the accumulated deficit or net income as previously reported.
During 2012, Sterling identified an error related to the classification of the loss on foreclosure amounts reported in the Consolidated Statement of Cash Flows for the quarter ended March 31, 2012, and for the years ended December 31, 2011 and 2010, and the interim periods therein. The loss on foreclosure amounts were previously included in the cash flows from operating activities in the Loss on OREO line item, instead of the cash flows from investing activities in the Net change in loans line item. In accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the error from qualitative and quantitative perspectives and concluded that the error was immaterial to prior periods. Consequently, the Consolidated Statement of Cash Flows contained in this Report has been revised for the year ended December 31, 2011. This change resulted in a decrease of $51.3 million to cash flows from operating activities and an increase of the same amount to cash flows from investing activities for the year ended December 31, 2011. This change did not affect net income, the balance sheet, or shareholders equity for any period.
Recent Accounting Pronouncements. In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of such obligations. ASU 2013-04 is effective for fiscal years beginning after December 15, 2013, and is not expected to have a material impact on Sterlings consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013, and is not expected to have a material impact on Sterlings consolidated financial statements.
In January 2014, the FASB issued ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. ASU 2014-01 provides an election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit. ASU 2014-01 is effective for fiscal years beginning after December 15, 2014, and is not expected to have a material impact on Sterlings consolidated financial statements.
In January 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. ASU 2014-04 clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property serving as collateral for a consumer mortgage loan such that the loan receivable should no longer be recognized, and instead, the real estate property should be recognized. ASU 2014-01 is effective for annual periods beginning after December 15, 2014, and is not expected to have a material impact on Sterlings consolidated financial statements.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
2. Business Combinations:
Commerce National Bank. On October 1, 2013, Sterling paid $42.9 million in cash to acquire Commerce National Bank (CNB). The following table summarizes the amounts recorded at closing:
|
|
October 1, 2013 |
| |
|
|
(in thousands) |
| |
Cash and cash equivalents |
|
$ |
8,555 |
|
Investments and MBS |
|
69,353 |
| |
Loans receivable, net |
|
161,043 |
| |
Goodwill |
|
15,384 |
| |
Core deposit intangible |
|
1,160 |
| |
Other assets |
|
5,325 |
| |
Total assets acquired |
|
$ |
260,820 |
|
Deposits |
|
$ |
189,563 |
|
Advances from FHLB |
|
25,000 |
| |
Other liabilities |
|
3,350 |
| |
Total liabilities assumed |
|
217,913 |
| |
Net assets acquired |
|
$ |
42,907 |
|
The recorded goodwill represents the inherent value of the CNB transaction, as a result of the expected enhancement of Sterlings operations in Southern California. The amount of goodwill deductible for income tax purposes is approximately equivalent to the recorded book value. The core deposit intangible has an amortization period of approximately ten years and will be amortized on an accelerated basis. The fair value of assets acquired and liabilities assumed are presented above.
As of October 1, 2013, the unpaid principal balance and contractual interest (contractual cash flows) on purchased loans was $164.2 million. Sterling estimated that $3.7 million of these cash flows would be uncollectable, resulting in a combined credit and interest rate discount of $3.8 million being recorded on these loans. As of the acquisition date, the amount of loans purchased from CNB that exhibited evidence of credit deterioration was immaterial.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Boston Private Bank and Trust Company. On May 10, 2013, Sterling paid $123.0 million in cash to acquire the Puget Sound operations of Boston Private Bank & Trust Company (Boston Private). The Boston Private Puget Sound offices were located in Seattle, Bellevue and Redmond, Washington. Upon acquisition, the Boston Private Seattle branch was consolidated into one of Sterlings existing Seattle branches. The following table summarizes the amounts recorded at closing:
|
|
May 10, 2013 |
| |
|
|
(in thousands) |
| |
Cash and cash equivalents |
|
340 |
| |
Loans receivable, net |
|
273,353 |
| |
Goodwill |
|
14,056 |
| |
Core deposit intangible |
|
1,674 |
| |
Other assets |
|
2,721 |
| |
Total assets acquired |
|
$ |
292,144 |
|
Deposits |
|
$ |
168,246 |
|
Other liabilities |
|
913 |
| |
Total liabilities assumed |
|
169,159 |
| |
Net assets acquired |
|
$ |
122,985 |
|
The recorded goodwill represents the inherent value of the Boston Private transaction, which expands Sterlings presence in the Puget Sound market through the addition of two branch offices and the associated customer relationships. The additional branches are along the I-5 corridor, which Sterling identified as its primary focus for growth. The amount of goodwill deductible for income tax purposes is approximately equivalent to the recorded book value. The core deposit intangible will be amortized on an accelerated basis over approximately ten years.
As of May 10, 2013, the contractual cash flows on purchased loans was $280.7 million. Sterling estimated that $3.5 million of these cash flows would be uncollectable, resulting in a combined credit and interest rate discount of $5.1 million being recorded on these loans. As of the acquisition date, none of the loans purchased from Boston Private exhibited evidence of credit deterioration.
American Heritage Holdings. On February 28, 2013, Sterling paid $6.5 million in cash and paid off an existing note payable of $2.2 million for a total of $8.7 million in consideration to acquire American Heritage Holdings, the holding company for Borrego Springs Bank, N.A. (Borrego). Immediately following the acquisition, Borrego was merged with and into Sterling Bank. As a result of this transaction, Sterling has expanded its SBA lending platform and added depository branches in Southern California. The following table summarizes the amounts recorded at closing:
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
February 28, 2013 |
| |
|
|
(in thousands) |
| |
Cash and cash equivalents |
|
$ |
15,626 |
|
Investments and MBS |
|
1,030 |
| |
Loans receivable, net |
|
97,262 |
| |
Core deposit intangible |
|
453 |
| |
Other assets |
|
27,197 |
| |
Total assets acquired |
|
$ |
141,568 |
|
Deposits |
|
$ |
118,221 |
|
Other liabilities |
|
7,054 |
| |
Total liabilities assumed |
|
125,275 |
| |
Net assets acquired |
|
16,293 |
| |
Consideration paid |
|
8,749 |
| |
Bargain purchase gain |
|
$ |
7,544 |
|
Sterling recognized a bargain purchase gain of $7.5 million in the transaction for the net assets acquired in excess of the purchase price, primarily due to a limited market for Borregos assets, as well as Borregos regulatory and capital constraints. The bargain purchase gain is included in other noninterest income on the income statement for the year ended December 31, 2013. The core deposit intangible will be amortized for 11 years on an accelerated basis. On the acquisition date of February 28, 2013, the contractual cash flows of purchased impaired loans, which are described in Note 4, from Borrego were $16.1 million, cash flows expected to be collected were $13.6 million, and the fair value of the loans was $11.9 million, with $9.8 million of these loans being guaranteed by government agencies.
As of February 28, 2013, the contractual cash flows on purchased loans that had not exhibited evidence of credit deterioration was $83.3 million. Sterling estimated that $3.9 million of these cash flows would be uncollectable, resulting in a combined credit and interest rate discount of $4.5 million being recorded on these loans.
First Independent Bank. On February 29, 2012, Sterling Bank completed its acquisition of the operations of First Independent Bank (First Independent) of Vancouver, Washington, by acquiring certain assets and assuming certain liabilities, including all deposits for a net purchase price of $40.6 million, comprised of $28.9 million of cash paid at closing and contingent consideration with a fair value of $11.7 million at acquisition date. During the third quarter of 2013, the contingent consideration was paid in full. See Note 22. The following table summarizes the amounts recorded at closing:
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
February 29, 2012 |
| |
|
|
(in thousands) |
| |
Cash and cash equivalents |
|
$ |
150,045 |
|
Investments and MBS |
|
187,465 |
| |
Loans receivable, net |
|
349,990 |
| |
Goodwill |
|
22,577 |
| |
Core deposit intangible |
|
11,974 |
| |
Fixed assets |
|
4,038 |
| |
Other assets |
|
10,886 |
| |
Total assets acquired |
|
$ |
736,975 |
|
Deposits |
|
$ |
695,919 |
|
Other liabilities |
|
409 |
| |
Total liabilities assumed |
|
696,328 |
| |
Net assets acquired |
|
$ |
40,647 |
|
The recorded goodwill of $22.6 million represents the inherent long-term value anticipated from synergies expected to be achieved as a result of the transaction. The First Independent transaction expanded Sterlings presence in the Vancouver and Portland markets. The amount of goodwill deductible for income tax purposes is approximately equivalent to the recorded book value. The core deposit intangible has a weighted average amortization period of ten years and will be amortized on an accelerated basis. On the acquisition date of February 29, 2012, the contractual cash flows of purchased impaired loans from First Independent were $24.4 million, cash flows expected to be collected were $17.2 million, and the fair value of the loans was $15.3 million.
As of February 29, 2012, the contractual cash flows on purchased loans that had not exhibited evidence of credit deterioration was $403.8 million. Sterling estimated that $12.7 million of these cash flows would be uncollectable, resulting in a discount of $21.8 million being recorded on these loans.
The following table presents certain First Independent stand alone amounts and pro forma Sterling and First Independent combined amounts as if the transaction had occurred on January 1, 2011. Cost savings estimates are not included in the pro forma combined results, nor are certain credit impaired loans and associated losses excluded from the purchase and assumption transaction.
|
|
First Independent |
|
Pro Forma Combined |
| |||||
|
|
Years Ended December 31, |
| |||||||
|
|
2012 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands, except per share data; unaudited) |
| |||||||
Net interest income |
|
$ |
20,145 |
|
$ |
311,159 |
|
$ |
326,916 |
|
Noninterest income |
|
4,757 |
|
155,258 |
|
135,828 |
| |||
Net income |
|
10,817 |
|
389,935 |
|
49,469 |
| |||
Earnings per share - basic |
|
0.17 |
|
6.28 |
|
0.80 |
| |||
Earnings per share - diluted |
|
$ |
0.17 |
|
$ |
6.21 |
|
$ |
0.79 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
3. Investments and MBS:
The carrying and fair values of investments and MBS are summarized as follows:
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair Value |
| ||||
|
|
(in thousands) |
| ||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
| ||||
Available for sale |
|
|
|
|
|
|
|
|
| ||||
MBS |
|
$ |
1,248,908 |
|
$ |
13,269 |
|
$ |
(22,277 |
) |
$ |
1,239,900 |
|
Municipal bonds |
|
184,642 |
|
6,045 |
|
(997 |
) |
189,690 |
| ||||
Other |
|
212 |
|
10 |
|
0 |
|
222 |
| ||||
Total |
|
$ |
1,433,762 |
|
$ |
19,324 |
|
$ |
(23,274 |
) |
$ |
1,429,812 |
|
Held to maturity |
|
|
|
|
|
|
|
|
| ||||
Tax credits |
|
$ |
165 |
|
$ |
0 |
|
$ |
0 |
|
$ |
165 |
|
Total |
|
$ |
165 |
|
$ |
0 |
|
$ |
0 |
|
$ |
165 |
|
December 31, 2012 |
|
|
|
|
|
|
|
|
| ||||
Available for sale |
|
|
|
|
|
|
|
|
| ||||
MBS |
|
$ |
1,263,786 |
|
$ |
45,052 |
|
$ |
0 |
|
$ |
1,308,838 |
|
Municipal bonds |
|
188,467 |
|
16,452 |
|
(613 |
) |
204,306 |
| ||||
Other |
|
5 |
|
8 |
|
0 |
|
13 |
| ||||
Total |
|
$ |
1,452,258 |
|
$ |
61,512 |
|
$ |
(613 |
) |
$ |
1,513,157 |
|
Held to maturity |
|
|
|
|
|
|
|
|
| ||||
Tax credits |
|
$ |
206 |
|
$ |
0 |
|
$ |
0 |
|
$ |
206 |
|
Total |
|
$ |
206 |
|
$ |
0 |
|
$ |
0 |
|
$ |
206 |
|
Sterlings MBS portfolio is comprised primarily of residential agency securities. Total sales of Sterlings securities during the years ended December 31, 2013, 2012 and 2011 are summarized as follows:
|
|
Proceeds from |
|
Gross Realized |
|
Gross Realized |
| |||
|
|
(in thousands) |
| |||||||
Years Ended: |
|
|
|
|
|
|
| |||
December 31, 2013 |
|
$ |
67,105 |
|
$ |
0 |
|
$ |
0 |
|
December 31, 2012 |
|
879,174 |
|
24,024 |
|
189 |
| |||
December 31, 2011 |
|
586,340 |
|
18,771 |
|
2,535 |
| |||
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table summarizes Sterlings investments and MBS that had a market value below their amortized cost as of December 31, 2013 and December 31, 2012, segregated by those investments that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or longer:
|
|
Less than 12 months |
|
12 months or longer |
|
Total |
| ||||||||||||
|
|
Market Value |
|
Unrealized |
|
Market Value |
|
Unrealized |
|
Market Value |
|
Unrealized |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS |
|
$ |
679,954 |
|
$ |
(22,277 |
) |
$ |
0 |
|
$ |
0 |
|
$ |
679,954 |
|
$ |
(22,277 |
) |
Municipal bonds |
|
10,051 |
|
(268 |
) |
12,947 |
|
(729 |
) |
22,998 |
|
(997 |
) | ||||||
Other |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||||
Total |
|
$ |
690,005 |
|
$ |
(22,545 |
) |
$ |
12,947 |
|
$ |
(729 |
) |
$ |
702,952 |
|
$ |
(23,274 |
) |
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MBS |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
Municipal bonds |
|
0 |
|
0 |
|
12,921 |
|
(613 |
) |
12,921 |
|
(613 |
) | ||||||
Other |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||||
Total |
|
$ |
0 |
|
$ |
0 |
|
$ |
12,921 |
|
$ |
(613 |
) |
$ |
12,921 |
|
$ |
(613 |
) |
Management evaluates investment securities for other-than-temporary declines in fair value each quarter. If the fair value of investment securities falls below the amortized cost and the decline is deemed to be other-than temporary, the securities are written down to current market value, resulting in the recognition of an other-than-temporary impairment (OTTI). During 2013, no securities were determined to be other-than-temporarily impaired, as the unrealized losses in the portfolio are driven by market interest rates. During 2012, $6.8 million of OTTI was recognized on a single issuer trust preferred security. During the fourth quarter of 2012, the security was sold at a gain of $2.5 million.
The following table presents the amortized cost and fair value of securities available for sale and held to maturity as of December 31, 2013, grouped by contractual maturity. Actual maturities for MBS will differ from contractual maturities as a result of the level of prepayments experienced on the underlying mortgages.
|
|
Held to maturity |
|
Available for sale |
| ||||||||
|
|
Amortized Cost |
|
Estimated Fair |
|
Amortized Cost |
|
Estimated Fair |
| ||||
|
|
(in thousands) |
| ||||||||||
Due within one year |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
Due after one year through five years |
|
0 |
|
0 |
|
20,140 |
|
20,395 |
| ||||
Due after five years through ten years |
|
0 |
|
0 |
|
83,919 |
|
83,539 |
| ||||
Due after ten years |
|
165 |
|
165 |
|
1,329,703 |
|
1,325,878 |
| ||||
Total |
|
$ |
165 |
|
$ |
165 |
|
$ |
1,433,762 |
|
$ |
1,429,812 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
4. Loans Receivable and Allowance for Credit Losses:
The following table presents the composition of Sterlings loan portfolio as of the balance sheet dates:
|
|
December 31, |
|
December 31, |
| ||
|
|
(in thousands) |
| ||||
Residential real estate |
|
$ |
1,119,574 |
|
$ |
806,722 |
|
Commercial real estate (CRE): |
|
|
|
|
| ||
Investor CRE |
|
1,114,768 |
|
1,219,847 |
| ||
Multifamily |
|
2,156,434 |
|
1,580,289 |
| ||
Construction |
|
71,693 |
|
74,665 |
| ||
Total CRE |
|
3,342,895 |
|
2,874,801 |
| ||
Commercial: |
|
|
|
|
| ||
Owner occupied CRE |
|
1,431,140 |
|
1,276,591 |
| ||
Commercial & Industrial (C&I) |
|
742,142 |
|
540,499 |
| ||
Total commercial |
|
2,173,282 |
|
1,817,090 |
| ||
Consumer |
|
822,068 |
|
754,621 |
| ||
Gross loans receivable |
|
7,457,819 |
|
6,253,234 |
| ||
Deferred loan costs (fees), net |
|
10,703 |
|
2,860 |
| ||
Allowance for loan losses |
|
(137,294 |
) |
(154,345 |
) | ||
Net loans receivable |
|
$ |
7,331,228 |
|
$ |
6,101,749 |
|
Gross loans pledged as collateral for borrowings from the FHLB and the Federal Reserve totaled $4.95 billion and $4.15 billion as of December 31, 2013 and December 31, 2012, respectively.
Loans receivable include purchased impaired loans, which are loans acquired that are deemed to exhibit evidence of credit deterioration since origination, and are therefore 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 December 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 $28.0 million and $16.7 million, respectively.
The following table presents a roll-forward of accretable yield over the periods presented:
|
|
Years Ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Beginning balance |
|
$ |
1,332 |
|
$ |
0 |
|
Additions |
|
1,774 |
|
1,923 |
| ||
Accretion to interest income |
|
(1,739 |
) |
(756 |
) | ||
Reclassifications from non-accretable |
|
1,622 |
|
165 |
| ||
Ending balance |
|
$ |
2,989 |
|
$ |
1,332 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
As of December 31, 2013 and December 31, 2012, net loans receivable included unamortized discounts on acquired loans of $28.4 million and $21.3 million, respectively. The following table presents, as of December 31, 2013, the five-year projected loan discount accretion expected to be recognized as interest income:
Years ended December 31, |
|
Amount |
| |
|
|
(in thousands) |
| |
2014 |
|
$ |
5,707 |
|
2015 |
|
3,536 |
| |
2016 |
|
2,201 |
| |
2017 |
|
1,502 |
| |
2018 |
|
1,052 |
| |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table sets forth details by segment for Sterlings loan portfolio and related allowance as of the balance sheet dates:
|
|
Residential |
|
Commercial |
|
Commercial |
|
Consumer |
|
Unallocated |
|
Total |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans receivable, gross: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
|
$ |
7,924 |
|
$ |
58,232 |
|
$ |
37,794 |
|
$ |
0 |
|
$ |
0 |
|
$ |
103,950 |
|
Collectively evaluated for impairment |
|
1,111,650 |
|
3,284,663 |
|
2,135,488 |
|
822,068 |
|
0 |
|
7,353,869 |
| ||||||
Total loans receivable, gross |
|
$ |
1,119,574 |
|
$ |
3,342,895 |
|
$ |
2,173,282 |
|
$ |
822,068 |
|
$ |
0 |
|
$ |
7,457,819 |
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment |
|
$ |
2,968 |
|
$ |
952 |
|
$ |
2,842 |
|
$ |
155 |
|
$ |
0 |
|
$ |
6,917 |
|
Collectively evaluated for impairment |
|
11,277 |
|
40,201 |
|
39,272 |
|
27,423 |
|
12,204 |
|
130,377 |
| ||||||
Total allowance for loan losses |
|
$ |
14,245 |
|
$ |
41,153 |
|
$ |
42,114 |
|
$ |
27,578 |
|
$ |
12,204 |
|
$ |
137,294 |
|
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 $16.7 million and $11.2 million as of December 31, 2013 and 2012, respectively.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following tables present a roll-forward by segment of the allowance for credit losses for the periods presented:
|
|
Residential |
|
Commercial |
|
Commercial |
|
Consumer |
|
Unallocated |
|
Total |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance, January 1 |
|
$ |
19,847 |
|
$ |
48,094 |
|
$ |
41,874 |
|
$ |
25,602 |
|
$ |
18,928 |
|
$ |
154,345 |
|
Provisions |
|
(2,924 |
) |
(4,639 |
) |
2,614 |
|
6,473 |
|
(6,724 |
) |
(5,200 |
) | ||||||
Charge-offs |
|
(4,167 |
) |
(11,722 |
) |
(6,572 |
) |
(5,900 |
) |
0 |
|
(28,361 |
) | ||||||
Recoveries |
|
1,489 |
|
9,420 |
|
4,198 |
|
1,403 |
|
0 |
|
16,510 |
| ||||||
Ending balance, December 31 |
|
14,245 |
|
41,153 |
|
42,114 |
|
27,578 |
|
12,204 |
|
137,294 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reserve for unfunded credit commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance, January 1 |
|
2,230 |
|
405 |
|
2,806 |
|
2,118 |
|
443 |
|
8,002 |
| ||||||
Provisions |
|
3,171 |
|
593 |
|
326 |
|
1,481 |
|
(371 |
) |
5,200 |
| ||||||
Charge-offs |
|
(2,081 |
) |
0 |
|
0 |
|
0 |
|
0 |
|
(2,081 |
) | ||||||
Recoveries |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||||
Ending balance, December 31 |
|
3,320 |
|
998 |
|
3,132 |
|
3,599 |
|
72 |
|
11,121 |
| ||||||
Total credit allowance |
|
$ |
17,565 |
|
$ |
42,151 |
|
$ |
45,246 |
|
$ |
31,177 |
|
$ |
12,276 |
|
$ |
148,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
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 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
Residential |
|
Commercial |
|
Commercial |
|
Consumer |
|
Unallocated |
|
Total |
| ||||||
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 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
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.
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 managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or of Sterlings 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 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.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table presents credit quality indicators for Sterlings loan portfolio grouped according to internally assigned risk ratings and performance status:
|
|
|
|
Commercial Real Estate |
|
Commercial |
|
|
|
|
|
|
| ||||||||||||||
|
|
Residential |
|
Investor CRE |
|
Multifamily |
|
Construction |
|
Owner |
|
Commercial & |
|
Consumer |
|
Total |
|
% of |
| ||||||||
|
|
(in thousands) |
| ||||||||||||||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Pass |
|
$ |
1,038,460 |
|
$ |
602,384 |
|
$ |
2,058,031 |
|
$ |
14,591 |
|
$ |
785,237 |
|
$ |
521,711 |
|
$ |
794,032 |
|
$ |
5,814,446 |
|
78 |
% |
Marginal |
|
52,154 |
|
435,022 |
|
87,830 |
|
53,742 |
|
544,329 |
|
177,998 |
|
15,955 |
|
1,367,030 |
|
18 |
% | ||||||||
Special mention |
|
7,808 |
|
44,934 |
|
9,296 |
|
1,128 |
|
61,103 |
|
17,761 |
|
6,193 |
|
148,223 |
|
2 |
% | ||||||||
Substandard |
|
18,184 |
|
31,613 |
|
1,140 |
|
2,232 |
|
38,709 |
|
24,672 |
|
5,733 |
|
122,283 |
|
2 |
% | ||||||||
Doubtful/Loss |
|
2,968 |
|
815 |
|
137 |
|
0 |
|
1,762 |
|
0 |
|
155 |
|
5,837 |
|
0 |
% | ||||||||
Total |
|
$ |
1,119,574 |
|
$ |
1,114,768 |
|
$ |
2,156,434 |
|
$ |
71,693 |
|
$ |
1,431,140 |
|
$ |
742,142 |
|
$ |
822,068 |
|
$ |
7,457,819 |
|
100 |
% |
Restructured |
|
$ |
22,337 |
|
$ |
3,005 |
|
$ |
0 |
|
$ |
2,084 |
|
$ |
19,553 |
|
$ |
774 |
|
$ |
21 |
|
$ |
47,774 |
|
1 |
% |
Nonaccrual |
|
15,571 |
|
23,709 |
|
222 |
|
1,582 |
|
20,472 |
|
3,230 |
|
4,516 |
|
69,302 |
|
1 |
% | ||||||||
Nonperforming |
|
37,908 |
|
26,714 |
|
222 |
|
3,666 |
|
40,025 |
|
4,004 |
|
4,537 |
|
117,076 |
|
2 |
% | ||||||||
Performing |
|
1,081,666 |
|
1,088,054 |
|
2,156,212 |
|
68,027 |
|
1,391,115 |
|
738,138 |
|
817,531 |
|
7,340,743 |
|
98 |
% | ||||||||
Total |
|
$ |
1,119,574 |
|
$ |
1,114,768 |
|
$ |
2,156,434 |
|
$ |
71,693 |
|
$ |
1,431,140 |
|
$ |
742,142 |
|
$ |
822,068 |
|
$ |
7,457,819 |
|
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 |
% |
As of December 31, 2013 and 2012, purchased credit impaired loans of $5.7 million and $2.1 million, respectively, were included in the nonaccrual loans.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Aging by class for Sterlings loan portfolio as of December 31, 2013 and December 31, 2012 was as follows:
|
|
|
|
Commercial Real Estate |
|
Commercial |
|
|
|
|
|
|
| ||||||||||||||
|
|
Residential |
|
Investor |
|
Multifamily |
|
Construction |
|
Owner |
|
Commercial & |
|
Consumer |
|
Total |
|
% of |
| ||||||||
|
|
(in thousands) |
| ||||||||||||||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
30 - 59 days past due |
|
$ |
2,544 |
|
$ |
1,575 |
|
$ |
378 |
|
$ |
0 |
|
$ |
6,069 |
|
$ |
1,066 |
|
$ |
5,332 |
|
$ |
16,964 |
|
0 |
% |
60 - 89 days past due |
|
1,258 |
|
1,230 |
|
0 |
|
0 |
|
1,350 |
|
1,893 |
|
1,473 |
|
7,204 |
|
0 |
% | ||||||||
90 days or more past due |
|
15,175 |
|
12,553 |
|
222 |
|
1,582 |
|
12,086 |
|
1,997 |
|
4,030 |
|
47,645 |
|
1 |
% | ||||||||
Total past due |
|
18,977 |
|
15,358 |
|
600 |
|
1,582 |
|
19,505 |
|
4,956 |
|
10,835 |
|
71,813 |
|
1 |
% | ||||||||
Current |
|
1,100,597 |
|
1,099,410 |
|
2,155,834 |
|
70,111 |
|
1,411,635 |
|
737,186 |
|
811,233 |
|
7,386,006 |
|
99 |
% | ||||||||
Total Loans |
|
$ |
1,119,574 |
|
$ |
1,114,768 |
|
$ |
2,156,434 |
|
$ |
71,693 |
|
$ |
1,431,140 |
|
$ |
742,142 |
|
$ |
822,068 |
|
$ |
7,457,819 |
|
100 |
% |
Past due 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 |
% |
Past due 90 days or more and accruing |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
$ |
0 |
|
0 |
% |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Sterling considers its nonperforming loans to be impaired loans. The following table summarizes impaired loans by class as of December 31, 2013 and December 31, 2012:
|
|
|
|
|
|
Book Balance |
|
|
| |||||||
|
|
Unpaid Principal |
|
Charge-Offs |
|
Without Specific |
|
With Specific Reserve |
|
Specific Reserve |
| |||||
|
|
(in thousands) |
| |||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential real estate |
|
$ |
43,910 |
|
$ |
6,002 |
|
$ |
29,984 |
|
$ |
7,924 |
|
$ |
2,968 |
|
CRE: |
|
|
|
|
|
|
|
|
|
|
| |||||
Investor CRE |
|
32,908 |
|
6,194 |
|
21,732 |
|
4,982 |
|
815 |
| |||||
Multifamily |
|
222 |
|
0 |
|
222 |
|
0 |
|
0 |
| |||||
Construction |
|
12,986 |
|
9,320 |
|
3,666 |
|
0 |
|
0 |
| |||||
Total CRE |
|
46,116 |
|
15,514 |
|
25,620 |
|
4,982 |
|
815 |
| |||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
| |||||
Owner Occupied CRE |
|
43,810 |
|
3,785 |
|
26,154 |
|
13,871 |
|
2,842 |
| |||||
C&I |
|
10,806 |
|
6,802 |
|
4,004 |
|
0 |
|
0 |
| |||||
Total commercial |
|
54,616 |
|
10,587 |
|
30,158 |
|
13,871 |
|
2,842 |
| |||||
Consumer |
|
4,770 |
|
233 |
|
3,953 |
|
584 |
|
155 |
| |||||
Total |
|
$ |
149,412 |
|
$ |
32,336 |
|
$ |
89,715 |
|
$ |
27,361 |
|
$ |
6,780 |
|
|
|
|
|
|
|
Book Balance |
|
|
| |||||||
|
|
Unpaid Principal |
|
Charge-Offs |
|
Without Specific |
|
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 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
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, |
| ||||||||||||||||
|
|
2013 |
|
2012 |
|
2011 |
| ||||||||||||
|
|
Average Book |
|
Interest |
|
Average Book |
|
Interest |
|
Average Book |
|
Interest |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
Residential real estate |
|
$ |
40,667 |
|
$ |
594 |
|
$ |
43,164 |
|
$ |
819 |
|
$ |
67,157 |
|
$ |
992 |
|
Investor CRE |
|
38,723 |
|
774 |
|
51,463 |
|
1,595 |
|
79,139 |
|
2,245 |
| ||||||
Multifamily |
|
4,185 |
|
61 |
|
7,007 |
|
441 |
|
14,704 |
|
804 |
| ||||||
Construction |
|
10,181 |
|
2,276 |
|
55,956 |
|
1,708 |
|
215,436 |
|
1,401 |
| ||||||
Owner Occupied CRE |
|
47,437 |
|
1,200 |
|
64,060 |
|
2,553 |
|
75,553 |
|
2,757 |
| ||||||
C&I |
|
4,119 |
|
187 |
|
8,057 |
|
105 |
|
12,009 |
|
460 |
| ||||||
Consumer |
|
5,891 |
|
5 |
|
6,537 |
|
8 |
|
6,901 |
|
0 |
| ||||||
Total |
|
$ |
151,203 |
|
$ |
5,097 |
|
$ |
236,244 |
|
$ |
7,229 |
|
$ |
470,899 |
|
$ |
8,659 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following tables present loans that were modified and recorded as TDRs during the following periods:
|
|
Years Ended December 31, |
| ||||||
|
|
2013 |
| ||||||
|
|
Number of |
|
Pre-Modification |
|
Post-Modification |
| ||
|
|
(in thousands, except number of contracts) |
| ||||||
Residential real estate |
|
17 |
|
$ |
3,906 |
|
$ |
3,750 |
|
Investor CRE |
|
4 |
|
1,745 |
|
1,442 |
| ||
Multifamily |
|
0 |
|
0 |
|
0 |
| ||
Construction |
|
0 |
|
0 |
|
0 |
| ||
Owner Occupied CRE |
|
9 |
|
5,007 |
|
3,750 |
| ||
C&I |
|
5 |
|
452 |
|
456 |
| ||
Consumer |
|
0 |
|
0 |
|
0 |
| ||
Total (1) |
|
35 |
|
$ |
11,110 |
|
$ |
9,398 |
|
|
|
|
| ||||||
|
|
2012 |
| ||||||
Residential real estate |
|
29 |
|
$ |
5,887 |
|
$ |
5,835 |
|
Investor CRE |
|
1 |
|
1,302 |
|
1,302 |
| ||
Multifamily |
|
3 |
|
2,955 |
|
2,945 |
| ||
Construction |
|
4 |
|
10,062 |
|
9,194 |
| ||
Owner Occupied CRE |
|
11 |
|
16,186 |
|
15,921 |
| ||
C&I |
|
9 |
|
3,482 |
|
2,206 |
| ||
Consumer |
|
3 |
|
468 |
|
472 |
| ||
Total (1) |
|
60 |
|
$ |
40,342 |
|
$ |
37,875 |
|
|
|
|
| ||||||
|
|
2011 |
| ||||||
Residential real estate |
|
1 |
|
$ |
1,372 |
|
$ |
1,372 |
|
Investor CRE |
|
8 |
|
3,271 |
|
3,282 |
| ||
Multifamily |
|
0 |
|
0 |
|
0 |
| ||
Construction |
|
3 |
|
23,701 |
|
24,348 |
| ||
Owner Occupied CRE |
|
6 |
|
14,411 |
|
14,502 |
| ||
C&I |
|
6 |
|
4,384 |
|
3,944 |
| ||
Consumer |
|
0 |
|
0 |
|
0 |
| ||
Total (1) |
|
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, 2013, Sterling had specific reserves of $629,000 on TDRs which were restructured during the previous twelve months. There were 24 loans totaling $18.8 million that were removed from TDR status during the year ended December 31, 2013, as they had met the conditions for removal by achieving twelve consecutive months of performance at market equivalent rates of interest.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
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 |
|
Rate |
|
Extension of |
|
Forgiveness of |
|
Total |
| |||||
|
|
(in thousands) |
| |||||||||||||
Year Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential Real Estate |
|
$ |
73 |
|
$ |
2,718 |
|
$ |
628 |
|
$ |
331 |
|
$ |
3,750 |
|
Investor CRE |
|
262 |
|
1,139 |
|
0 |
|
41 |
|
1,442 |
| |||||
Multifamily |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| |||||
Construction |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| |||||
Owner CRE |
|
1,464 |
|
1,684 |
|
124 |
|
478 |
|
3,750 |
| |||||
C&I |
|
450 |
|
0 |
|
6 |
|
0 |
|
456 |
| |||||
Consumer |
|
0 |
|
0 |
|
0 |
|
0 |
|
0 |
| |||||
|
|
$ |
2,249 |
|
$ |
5,541 |
|
$ |
758 |
|
$ |
850 |
|
$ |
9,398 |
|
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 years ended December 31, 2013 and 2012 that subsequently defaulted during these periods. During the year ended December 31, 2011, there was one Investor CRE TDR completed that subsequently defaulted during 2011. The recorded investment at default for this TDR was $223,000. During the years ended December 31, 2013, and 2012, there were $5.9 million, and $20.6 million of TDRs that were returned to accrual status.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table outlines accrual status of TDRs as of the dates shown:
|
|
December 31, |
|
December 31, |
| ||
|
|
(in thousands) |
| ||||
TDRs on nonaccrual status |
|
$ |
14,889 |
|
$ |
19,510 |
|
TDRs on accrual status |
|
32,885 |
|
44,706 |
| ||
Total TDRs |
|
$ |
47,774 |
|
$ |
64,216 |
|
5. OREO:
At foreclosure, OREO is recorded at the fair value of the real estate, less the estimated costs to sell. The carrying value of OREO is periodically evaluated and, if necessary, an allowance is established to reduce the carrying value to net realizable value. Changes in OREO and the related allowance were as follows for the periods presented:
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
OREO, gross: |
|
|
| |||||||
Beginning balance, January 1 |
|
$ |
28,597 |
|
$ |
98,187 |
|
$ |
183,452 |
|
Additions |
|
24,763 |
|
33,499 |
|
177,881 |
| |||
Sales |
|
(37,626 |
) |
(85,837 |
) |
(241,028 |
) | |||
Charge-offs |
|
(6,565 |
) |
(18,534 |
) |
(27,731 |
) | |||
Other changes |
|
550 |
|
1,282 |
|
5,613 |
| |||
Ending balance, December 31 |
|
$ |
9,719 |
|
$ |
28,597 |
|
$ |
98,187 |
|
Allowance, OREO: |
|
|
|
|
|
|
| |||
Beginning balance, January 1 |
|
$ |
3,555 |
|
$ |
16,277 |
|
$ |
21,799 |
|
Provision |
|
4,682 |
|
5,812 |
|
22,209 |
| |||
Charge-offs |
|
(6,565 |
) |
(18,534 |
) |
(27,731 |
) | |||
Ending balance, December 31 |
|
$ |
1,672 |
|
$ |
3,555 |
|
$ |
16,277 |
|
OREO, net |
|
$ |
8,047 |
|
$ |
25,042 |
|
$ |
81,910 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
6. Loan Servicing:
Loans serviced for others are not included in the consolidated balance sheets. The following table presents an analysis of the changes in mortgage servicing rights and related allowance as of the dates indicated:
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Mortgage servicing rights, gross: |
|
|
|
|
| ||
Beginning balance, January 1 |
|
$ |
39,956 |
|
$ |
30,409 |
|
Originated servicing |
|
34,504 |
|
19,727 |
| ||
Amortization |
|
(13,772 |
) |
(10,180 |
) | ||
Ending balance, December 31 |
|
60,688 |
|
39,956 |
| ||
Allowance, mortgage servicing rights: |
|
|
|
|
| ||
Beginning balance, January 1 |
|
$ |
7,536 |
|
$ |
7,307 |
|
Additions |
|
117 |
|
3,560 |
| ||
Recoveries |
|
(7,065 |
) |
(3,331 |
) | ||
Ending balance, December 31 |
|
588 |
|
7,536 |
| ||
Mortgage servicing rights, net |
|
$ |
60,100 |
|
$ |
32,420 |
|
The following table presents the unpaid principal balances of loans serviced for others as of the dates indicated:
|
|
December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Balance of loans serviced for others |
|
|
|
|
| ||
Residential |
|
$ |
5,899,019 |
|
$ |
4,132,570 |
|
Commercial real estate |
|
928,214 |
|
983,782 |
| ||
Commercial |
|
519,055 |
|
132,903 |
| ||
Total |
|
$ |
7,346,288 |
|
$ |
5,249,255 |
|
As of December 31, 2013, the residential portion of MSR was carried at approximately 88 basis points of the unpaid principal balance, compared with at 71 basis points as of December 31, 2012. Valuation inputs used in determining the fair value of MSR included:
|
|
December 31, |
| ||
|
|
2013 |
|
2012 |
|
Key assumptions |
|
|
|
|
|
Weighted average prepayment speed |
|
9.3 |
% |
18.3 |
% |
Weighted average discount rate |
|
10.2 |
% |
10.1 |
% |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
7. Property and Equipment:
The components of property and equipment are as follows:
|
|
December 31, |
|
Estimated |
| ||||
|
|
2013 |
|
2012 |
|
Useful Life |
| ||
|
|
(in thousands) |
|
|
| ||||
Buildings and improvements |
|
$ |
71,736 |
|
$ |
68,129 |
|
20-40 years |
|
Furniture, fixtures, equipment and computer software |
|
90,267 |
|
85,481 |
|
3-10 years |
| ||
Leasehold improvements |
|
21,813 |
|
17,893 |
|
5-20 years |
| ||
|
|
183,816 |
|
171,503 |
|
|
| ||
Less accumulated depreciation and amortization |
|
(95,490 |
) |
(91,651 |
) |
|
| ||
|
|
88,326 |
|
79,852 |
|
|
| ||
Land |
|
13,284 |
|
13,998 |
|
|
| ||
Total property and equipment, net |
|
$ |
101,610 |
|
$ |
93,850 |
|
|
|
8. Goodwill and Other Intangible Assets:
Goodwill represents the excess of a purchase price over the net assets acquired. The following table presents a roll-forward of Sterlings goodwill:
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Beginning balance, January 1 |
|
$ |
22,577 |
|
$ |
0 |
|
Acquired |
|
29,441 |
|
22,577 |
| ||
Ending Balance, December 31 |
|
$ |
52,018 |
|
$ |
22,577 |
|
Additions to goodwill during 2013 and 2012 have been allocated to the Community Banking segment. Goodwill is not amortized, but is reviewed for impairment at least annually. Other intangible assets at December 31, 2013 and December 31, 2012 were comprised of core deposit intangibles from various acquisitions, and other identifiable intangibles related to First Independents trust and wealth management business.
The following table provides details of other intangible assets:
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
| |||
|
|
(in thousands) |
| |||||||
December 31, 2013 |
|
|
|
|
|
|
| |||
Core deposit intangibles |
|
$ |
58,707 |
|
$ |
44,652 |
|
$ |
14,055 |
|
Other |
|
1,800 |
|
294 |
|
1,506 |
| |||
|
|
$ |
60,507 |
|
$ |
44,946 |
|
$ |
15,561 |
|
December 31, 2012 |
|
|
|
|
|
|
| |||
Core deposit intangibles |
|
$ |
55,420 |
|
$ |
38,029 |
|
$ |
17,391 |
|
Other |
|
1,800 |
|
119 |
|
1,681 |
| |||
|
|
$ |
57,220 |
|
$ |
38,148 |
|
$ |
19,072 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table provides the projected core deposit and other intangibles amortization expense for the next five years:
Years ended: |
|
Amount |
| |
|
|
(in thousands) |
| |
December 31, 2014 |
|
$ |
3,859 |
|
December 31, 2015 |
|
2,779 |
| |
December 31, 2016 |
|
1,606 |
| |
December 31, 2017 |
|
1,447 |
| |
December 31, 2018 |
|
1,314 |
| |
9. Deposits:
The following table sets forth the composition of Sterlings deposits at the dates indicated:
|
|
December 31, |
| ||||||||
|
|
2013 |
|
2012 |
| ||||||
|
|
Amount |
|
% |
|
Amount |
|
% |
| ||
|
|
(in thousands) |
| ||||||||
Noninterest bearing transaction |
|
$ |
1,881,360 |
|
27 |
% |
$ |
1,702,740 |
|
26 |
% |
Interest bearing transaction |
|
791,943 |
|
11 |
% |
732,038 |
|
11 |
% | ||
Savings and MMDA |
|
2,700,241 |
|
38 |
% |
2,262,369 |
|
36 |
% | ||
Time deposits |
|
1,701,446 |
|
24 |
% |
1,738,970 |
|
27 |
% | ||
Total deposits |
|
$ |
7,074,990 |
|
100 |
% |
$ |
6,436,117 |
|
100 |
% |
The following presents the contractual maturities of time deposits:
|
|
December 31, 2013 |
| |
|
|
(in thousands) |
| |
Due within 1 year |
|
$ |
875,929 |
|
Due in 1 to 2 years |
|
391,309 |
| |
Due in 2 to 3 years |
|
310,607 |
| |
Due in 3 to 4 years |
|
41,820 |
| |
Due in 4 to 5 years |
|
38,724 |
| |
Due after 5 years |
|
43,057 |
| |
|
|
$ |
1,701,446 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following presents the contractual maturities of time deposits with a minimum balance of $100,000:
|
|
December 31, 2013 |
| |
|
|
(in thousands) |
| |
Three months or less |
|
$ |
142,676 |
|
After three months through six months |
|
96,075 |
| |
After six months through twelve months |
|
251,201 |
| |
After twelve months |
|
533,341 |
| |
|
|
$ |
1,023,293 |
|
10. Advances from Federal Home Loan Bank:
Sterling Bank has a secured credit line with the FHLB of Seattle. At December 31, 2013 and 2012, this credit line represented a total borrowing capacity of $2.84 billion and $1.93 billion, of which $1.70 billion and $1.32 billion was available, respectively. The advances from FHLB are repayable as follows:
|
|
December 31, 2013 |
|
December 31, 2012 |
| ||||||
|
|
Amount |
|
Weighted Average |
|
Amount |
|
Weighted Average |
| ||
|
|
(in thousands) |
| ||||||||
Due within 1 year |
|
$ |
365,000 |
|
0.28 |
% |
$ |
269,053 |
|
0.96 |
% |
Due in 1 to 2 years |
|
265,550 |
|
0.51 |
|
55,000 |
|
0.72 |
| ||
Due in 2 to 3 years |
|
335,142 |
|
0.74 |
|
50,550 |
|
0.64 |
| ||
Due in 3 to 4 years |
|
123,000 |
|
1.45 |
|
50,196 |
|
0.68 |
| ||
Due in 4 to 5 years |
|
50,495 |
|
1.20 |
|
123,000 |
|
1.45 |
| ||
Due after 5 years |
|
6,916 |
|
7.00 |
|
57,531 |
|
1.90 |
| ||
|
|
$ |
1,146,103 |
|
0.68 |
% |
$ |
605,330 |
|
1.08 |
% |
Only member institutions have access to advances from the Federal Home Loan Banks. As a condition of membership, Sterling is required to hold FHLB stock. As of December 31, 2013 and 2012, Sterling held $95.3 million and $97.5 million of FHLB stock, respectively, which is included as a component of other assets on the consolidated balance sheet. FHLB stock does not have a readily determinable fair value and the equity ownership rights are more limited than would be the case for ownership rights in a public company. FHLB stock is viewed as a long term investment and as a restricted investment security carried at cost. Sterling has evaluated its FHLB stock held at December 31, 2013, and determined there was no other-than-temporary impairment. During 2013, the FHLB repurchased excess stock totaling $4.0 million, compared with $6.5 million repurchased during 2012.
11. Securities Sold Under Repurchase Agreements:
Sterling sells securities under agreements to repurchase the same or similar securities (repurchase agreements). Repurchase agreements are financing arrangements, which Sterling reflects on its balance sheet. The obligations to repurchase securities sold are reflected as a liability, while the securities underlying these agreements are reflected as an asset. The risk of default under such agreements is limited by the financial strength of the counterparties and the level of borrowings relative to the market value of the pledged securities. At both December 31, 2013 and 2012, under repurchase agreements, Sterling had pledged as collateral $637.1 million and $738.6 million, respectively, of investments and MBS. The average balances of repurchase agreements were $535.5 million and $959.5 million during the years ended December 31, 2013 and 2012,
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
respectively. The maximum amount outstanding at any month end during these same periods was $587.4 million and $1.07 billion, respectively.
At December 31, 2013 and 2012, borrowings under repurchase agreements are contractually repayable as follows. Actual repayments may vary due to default and call provisions:
|
|
December 31, 2013 |
|
December 31, 2012 |
| ||||||
|
|
Amount |
|
Weighted Average |
|
Amount |
|
Weighted Average |
| ||
|
|
(in thousands) |
| ||||||||
Due within 1 yr |
|
$ |
31,679 |
|
0.05 |
% |
$ |
86,867 |
|
1.20 |
% |
Due within 2 yrs |
|
50,000 |
|
2.47 |
|
0 |
|
0.00 |
| ||
Due within 3 yrs |
|
0 |
|
0.00 |
|
50,000 |
|
2.47 |
| ||
Due within 4 yrs |
|
400,000 |
|
4.08 |
|
0 |
|
0.00 |
| ||
Due within 5 yrs |
|
50,000 |
|
2.62 |
|
400,000 |
|
4.08 |
| ||
Thereafter |
|
0 |
|
0.00 |
|
50,000 |
|
2.62 |
| ||
|
|
$ |
531,679 |
|
3.55 |
% |
$ |
586,867 |
|
3.18 |
% |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
12. Junior Subordinated Debentures:
Sterling has raised regulatory capital through the formation of trust subsidiaries that issued junior subordinated debentures, and has also assumed similar obligations through mergers with other financial institutions. The trusts are business trusts in which Sterling owns all of the common equity. The proceeds from the sale of the securities were used to purchase junior subordinated debentures issued by Sterling. Sterlings obligations under the junior subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by Sterling of the trusts obligations. The junior subordinated debentures are treated as debt of Sterling. The junior subordinated debentures mature 30 years after issuance, and are redeemable, subject to certain conditions. As of December 31, 2013, all of Sterlings junior subordinated debentures were redeemable at par, at their applicable quarterly or semiannual interest payment dates.
Details of the junior subordinated debentures are as follows:
|
|
|
|
Maturity |
|
Next Interest |
|
December 31, 2013 |
| |||
Subsidiary Issuer |
|
Issue Date |
|
Date |
|
Payment Date |
|
Rate |
|
Amount |
| |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
| |
Sterling Capital Trust IX |
|
July 2007 |
|
Oct 2037 |
|
Jan 2014 |
|
1.65 |
% |
$ |
46,392 |
|
Sterling Capital Trust VIII |
|
Sept 2006 |
|
Dec 2036 |
|
Mar 2014 |
|
1.87 |
|
51,547 |
| |
Sterling Capital Trust VII |
|
June 2006 |
|
June 2036 |
|
Mar 2014 |
|
1.77 |
|
56,702 |
| |
Lynnwood Financial Statutory Trust II |
|
June 2005 |
|
June 2035 |
|
Mar 2014 |
|
2.04 |
|
10,310 |
| |
Sterling Capital Trust VI |
|
June 2003 |
|
Sept 2033 |
|
Mar 2014 |
|
3.44 |
|
10,310 |
| |
Sterling Capital Statutory Trust V |
|
May 2003 |
|
June 2033 |
|
Mar 2014 |
|
3.50 |
|
20,619 |
| |
Sterling Capital Trust IV |
|
May 2003 |
|
May 2033 |
|
Feb 2014 |
|
3.39 |
|
10,310 |
| |
Sterling Capital Trust III |
|
April 2003 |
|
April 2033 |
|
Jan 2014 |
|
3.49 |
|
14,433 |
| |
Lynnwood Financial Statutory Trust I |
|
Mar 2003 |
|
Mar 2033 |
|
Mar 2014 |
|
3.40 |
|
9,429 |
| |
Klamath First Capital Trust I |
|
July 2001 |
|
July 2031 |
|
Jan 2014 |
|
4.15 |
|
15,247 |
| |
|
|
|
|
|
|
|
|
2.38 |
%* |
$ |
245,299 |
|
* Weighted average rate.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
13. Earnings Per Share:
The following table presents the computations for basic and diluted earnings per common share:
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands, except shares and per share amounts) |
| |||||||
Numerator: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
Denominator: |
|
|
|
|
|
|
| |||
Weighted average shares outstanding - basic |
|
62,290,361 |
|
62,122,862 |
|
61,955,659 |
| |||
Dilutive securities outstanding |
|
1,081,402 |
|
649,217 |
|
275,549 |
| |||
Weighted average shares outstanding - diluted |
|
63,371,763 |
|
62,772,079 |
|
62,231,208 |
| |||
Earnings per share - basic |
|
$ |
1.50 |
|
$ |
6.21 |
|
$ |
0.63 |
|
Earnings per share - diluted |
|
$ |
1.48 |
|
$ |
6.14 |
|
$ |
0.63 |
|
Antidilutive securities outstanding (weighted average): |
|
|
|
|
|
|
| |||
Stock options |
|
64,797 |
|
13,792 |
|
16,511 |
| |||
Restricted shares |
|
1,309 |
|
230 |
|
4,728 |
| |||
Total antidilutive securities outstanding |
|
66,106 |
|
14,022 |
|
21,239 |
|
Sterlings dilutive securities outstanding are comprised of warrants held by certain investors (see Note 17), and restricted stock units and stock options (see Note 16).
14. Noninterest Expense:
The following table details the components of Sterlings noninterest expense:
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Employee compensation and benefits |
|
$ |
181,544 |
|
$ |
189,025 |
|
$ |
171,643 |
|
Occupancy and equipment |
|
39,935 |
|
42,930 |
|
39,878 |
| |||
Data processing |
|
27,984 |
|
27,091 |
|
24,171 |
| |||
Professional fees |
|
16,143 |
|
16,691 |
|
13,902 |
| |||
Depreciation |
|
13,093 |
|
11,690 |
|
12,184 |
| |||
Merger and acquisition |
|
10,837 |
|
11,976 |
|
1,012 |
| |||
Advertising |
|
7,942 |
|
12,688 |
|
10,017 |
| |||
OREO operations |
|
7,389 |
|
11,829 |
|
41,500 |
| |||
Amortization of other intangible assets |
|
6,799 |
|
6,780 |
|
4,851 |
| |||
Travel and entertainment |
|
5,911 |
|
5,756 |
|
5,420 |
| |||
FDIC insurance |
|
5,827 |
|
7,493 |
|
14,328 |
| |||
Other |
|
9,908 |
|
11,304 |
|
13,484 |
| |||
Total noninterest expense |
|
$ |
333,312 |
|
$ |
355,253 |
|
$ |
352,390 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
15. Income Taxes:
During 2013, Sterling recognized income tax expense of $37.9 million, reflecting a 29% effective tax rate. During 2012, an income tax benefit of $292.0 million was recognized, the result of reversing Sterlings deferred tax asset valuation allowance. The effective tax rate for 2013 reflects permanent differences between book income and tax income from the Borrego acquisition bargain purchase gain, as well as tax exempt municipal bond and BOLI income. As of December 31, 2013, the net deferred tax asset was $284.1 million, including $242.3 million of net operating loss and tax credit carry-forwards, compared with $292.1 million as of December 31, 2012, including $274.0 million of net operating loss and tax credit carry-forwards.
The components of income tax expense (benefit) included in the consolidated statements of operations were as follows:
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Current income taxes: |
|
|
|
|
|
|
| |||
Federal |
|
$ |
(27 |
) |
$ |
(163 |
) |
$ |
(248 |
) |
State |
|
0 |
|
0 |
|
(27 |
) | |||
Total current income taxes |
|
(27 |
) |
(163 |
) |
(275 |
) | |||
|
|
|
|
|
|
|
| |||
Deferred income taxes: |
|
|
|
|
|
|
| |||
Federal |
|
35,900 |
|
(269,968 |
) |
248 |
| |||
State |
|
1,994 |
|
(21,912 |
) |
27 |
| |||
Total deferred income taxes |
|
37,894 |
|
(291,880 |
) |
275 |
| |||
Total income tax (benefit) expense |
|
$ |
37,867 |
|
$ |
(292,043 |
) |
$ |
0 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The tax effects of the principal temporary differences giving rise to deferred tax assets and liabilities were as follows:
|
|
December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Deferred tax assets: |
|
|
|
|
| ||
NOL carryforwards - federal |
|
$ |
206,841 |
|
$ |
242,318 |
|
NOL carryforwards - state |
|
19,831 |
|
21,443 |
| ||
Tax credits - federal |
|
13,172 |
|
7,671 |
| ||
Tax credits - state |
|
2,421 |
|
2,594 |
| ||
Allowance for losses on loans |
|
54,951 |
|
61,385 |
| ||
Deferred compensation |
|
13,727 |
|
10,760 |
| ||
Bonus accrual |
|
4,901 |
|
4,670 |
| ||
Intangibles |
|
4,591 |
|
2,284 |
| ||
Unrealized losses on available-for-sale securities |
|
1,368 |
|
0 |
| ||
Purchase accounting premiums and discounts |
|
3,470 |
|
2,087 |
| ||
Nonaccrual loans |
|
2,543 |
|
1,931 |
| ||
Deferred rent |
|
1,309 |
|
1,119 |
| ||
Other |
|
1,143 |
|
3,394 |
| ||
Total deferred tax assets |
|
330,268 |
|
361,656 |
| ||
Deferred tax liabilities: |
|
|
|
|
| ||
Mortgage servicing rights |
|
19,851 |
|
11,869 |
| ||
FHLB Seattle dividends |
|
15,451 |
|
16,325 |
| ||
Deferred loan fees |
|
6,799 |
|
5,867 |
| ||
Prepaid expenses |
|
1,955 |
|
2,151 |
| ||
Fair value - loans held for sale |
|
389 |
|
8,966 |
| ||
Unrealized gains on available-for-sale securities |
|
0 |
|
22,627 |
| ||
ASC 740 (FIN 48) - temporary differences |
|
0 |
|
5 |
| ||
Total deferred tax liabilities |
|
44,445 |
|
67,810 |
| ||
Valuation allowance |
|
(1,764 |
) |
(1,764 |
) | ||
Net deferred tax asset |
|
$ |
284,059 |
|
$ |
292,082 |
|
As of December 31, 2013, the net operating loss carry-forwards represented the tax effect of $591.0 million of federal operating loss carry-forwards, $332.7 million of state operating loss carry-forwards, federal tax credits of $13.2 million, and state tax credits of $2.4 million. These operating loss carry-forwards and tax credits expire between 2014 and 2032.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table summarizes the calculation of Sterlings effective tax rates for the periods presented:
|
|
Years Ended December 31, |
| ||||
|
|
2013 |
|
2012 |
|
2011 |
|
Income tax provision at the federal statutory rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
Tax effect of: |
|
|
|
|
|
|
|
Deferred tax valuation allowance |
|
0.0 |
% |
(347.8 |
)% |
(25.0 |
)% |
State taxes, net of federal benefit |
|
3.5 |
% |
3.8 |
% |
0.0 |
% |
Tax-exempt interest |
|
(1.8 |
)% |
(2.5 |
)% |
(6.3 |
)% |
Bank owned life insurance |
|
(1.7 |
)% |
(3.2 |
)% |
(5.8 |
)% |
Tax credits |
|
(2.4 |
)% |
0.0 |
% |
(1.6 |
)% |
Other, net |
|
(3.7 |
)% |
3.2 |
% |
3.7 |
% |
Effective tax rate |
|
28.9 |
% |
(311.5 |
)% |
0.0 |
% |
The following is a reconciliation of the beginning and ending amount of unrecognized tax positions for the periods presented:
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Balance at January 1 |
|
$ |
412 |
|
$ |
525 |
|
$ |
1,586 |
|
Additions - current year tax positions |
|
70 |
|
70 |
|
75 |
| |||
Additions - prior year tax positions |
|
0 |
|
0 |
|
0 |
| |||
Reductions - prior year tax positions |
|
(55 |
) |
(183 |
) |
(1,136 |
) | |||
Balance at December 31 |
|
427 |
|
412 |
|
525 |
| |||
Accrued interest and penalties, net of tax effect at December 31 |
|
63 |
|
100 |
|
103 |
| |||
Total liability for unrecognized tax positions at December 31 |
|
$ |
490 |
|
$ |
512 |
|
$ |
628 |
|
Sterlings tax positions for the years 2009 through 2013 remain subject to review by federal and state taxing authorities. Realization of $490,000 of unrecognized tax liabilities would result in an unfavorable impact to the effective tax rate.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
16. Stock Based Compensation:
The following table presents a summary of restricted stock unit activity during the periods:
|
|
Shares |
|
Weighted |
| |
Balance, January 1, 2011 |
|
368,805 |
|
$ |
18.24 |
|
Granted |
|
130,021 |
|
17.18 |
| |
Vested |
|
(163,680 |
) |
18.50 |
| |
Forfeited |
|
(33,773 |
) |
16.63 |
| |
Outstanding, December 31, 2011 |
|
301,373 |
|
$ |
17.82 |
|
|
|
|
|
|
| |
Balance, January 1, 2012 |
|
301,373 |
|
$ |
17.82 |
|
Granted |
|
305,157 |
|
20.06 |
| |
Vested |
|
(142,727 |
) |
19.44 |
| |
Forfeited |
|
(78,290 |
) |
17.02 |
| |
Outstanding, December 31, 2012 |
|
385,513 |
|
$ |
19.16 |
|
|
|
|
|
|
| |
Balance, January 1, 2013 |
|
385,513 |
|
$ |
19.16 |
|
Granted |
|
253,378 |
|
22.27 |
| |
Vested |
|
(171,339 |
) |
18.14 |
| |
Forfeited |
|
(13,473 |
) |
19.63 |
| |
Outstanding, December 31, 2013 |
|
454,079 |
|
$ |
21.27 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table presents a summary of stock option activity during the periods:
|
|
Shares |
|
Weighted |
| |
Balance, January 1, 2011 |
|
18,920 |
|
$ |
1,357.97 |
|
Granted |
|
0 |
|
0.00 |
| |
Exercised |
|
0 |
|
0.00 |
| |
Expired |
|
(2,600 |
) |
1,231.98 |
| |
Forfeited |
|
(520 |
) |
903.92 |
| |
Outstanding, December 31, 2011 |
|
15,800 |
|
$ |
1,393.65 |
|
Exercisable, December 31, 2011 |
|
14,011 |
|
$ |
1,507.87 |
|
|
|
|
|
|
| |
Balance, January 1, 2012 |
|
15,800 |
|
$ |
1,393.65 |
|
Granted |
|
0 |
|
0.00 |
| |
Exercised |
|
0 |
|
0.00 |
| |
Expired |
|
(1,211 |
) |
1,362.40 |
| |
Forfeited |
|
(2,190 |
) |
1,184.58 |
| |
Outstanding, December 31, 2012 |
|
12,399 |
|
$ |
1,433.63 |
|
Exercisable, December 31, 2012 |
|
11,996 |
|
$ |
1,447.69 |
|
|
|
|
|
|
| |
Balance, January 1, 2013 |
|
12,399 |
|
$ |
1,433.63 |
|
Granted |
|
245,847 |
|
21.69 |
| |
Exercised |
|
0 |
|
0.00 |
| |
Expired |
|
(5,524 |
) |
1,833.61 |
| |
Forfeited |
|
(96 |
) |
1,337.16 |
| |
Outstanding, December 31, 2013 |
|
252,626 |
|
$ |
50.87 |
|
Exercisable, December 31, 2013 |
|
77,301 |
|
$ |
116.85 |
|
During the year ended December 31, 2013, the fair value of options granted were $1.6 million. The Black-Scholes option-pricing model was used in estimating the fair value of option grants. The weighted average assumptions used for 2013 grants were:
|
|
Year Ended |
|
Expected volatility |
|
40 |
% |
Expected term (in years) |
|
8.4 |
|
Expected dividend yield |
|
3.28 |
% |
Risk free interest rate |
|
1.55 |
% |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The following table presents the weighted average remaining contractual life and the aggregate intrinsic value for stock options as of the dates indicated:
|
|
Stock Options |
| ||||||||
|
|
Outstanding |
|
Exercisable |
| ||||||
|
|
Weighted |
|
Intrinsic |
|
Weighted |
|
Intrinsic |
| ||
|
|
(Dollars in thousands) |
| ||||||||
December 31, 2013 |
|
9.0 years |
|
$ |
3,046 |
|
8.4 years |
|
$ |
889 |
|
December 31, 2012 |
|
1.3 years |
|
0 |
|
1.2 years |
|
0 |
| ||
As of December 31, 2013, a total of 4,936,148 shares remained available for grant under Sterlings 2007 and 2010 Long-Term Incentive Plans. Stock options outstanding have terms of six and 10 years. Stock based compensation expense recognized during the periods presented was as follows:
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Stock options |
|
$ |
692 |
|
$ |
43 |
|
$ |
268 |
|
Restricted stock |
|
4,255 |
|
3,765 |
|
3,595 |
| |||
Total |
|
$ |
4,947 |
|
$ |
3,808 |
|
$ |
3,863 |
|
As of December 31, 2013, unrecognized equity compensation expense totaled $7.4 million as the underlying outstanding awards had not yet been earned. This amount will be recognized over a weighted average period of 2.6 years.
17. Shareholders Equity:
As of December 31, 2013 and 2012, Sterling had 10 million shares of preferred stock authorized, with no shares being issued and outstanding. As of December 31, 2013 and 2012, there were 151,515,151 shares of common stock authorized, with one class of common stock issued and outstanding at both dates. As of December 31, 2013, 62,363,741 shares of common stock were issued and outstanding. As of December 31, 2012, 62,207,529 shares of common stock were outstanding, and 62,176,628 shares of common stock were issued. The common stock has no par value.
As of December 31, 2013, there were 2,902,566 warrants outstanding, with an exercise price of $13.13. As of December 31, 2012, there were 2,749,044 warrants outstanding, with an exercise price of $13.86. These warrants were issued as part of the 2010 recapitalization, and have an expiration date of August 26, 2017. Adjustments to the number and exercise price of these outstanding warrants occurred in 2013 and 2012 due to dividend distributions triggering an anti-dilutive provision.
18. 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
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
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 Sterlings 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 Sterlings mortgage banking derivative transactions are included in mortgage banking income, while gains and losses on Sterlings 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.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
19. Offsetting Assets and Liabilities:
Certain derivatives and repurchase agreements are subject to net settlement. Depending on the governing disclosure rules or elections made by management, amounts are presented gross or net on the balance sheet. The following summarizes Sterlings interest rate swaps and securities sold under repurchase agreements, all of which Sterling presents on a gross basis on its balance sheet:
|
|
Amount |
|
Amount Offset |
|
Amount |
|
Pledged Collateral on |
|
Net |
| ||||||||
|
|
Recognized |
|
Sheet |
|
Balance Sheet |
|
Securities |
|
Cash |
|
Position |
| ||||||
|
|
(in thousands) |
| ||||||||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate swaps |
|
$ |
508 |
|
$ |
0 |
|
$ |
508 |
|
$ |
0 |
|
$ |
0 |
|
$ |
508 |
|
Total |
|
$ |
508 |
|
$ |
0 |
|
$ |
508 |
|
$ |
0 |
|
$ |
0 |
|
$ |
508 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities sold under repurchase agreements |
|
$ |
531,679 |
|
$ |
0 |
|
$ |
531,679 |
|
$ |
531,679 |
|
$ |
0 |
|
$ |
0 |
|
Interest rate swaps |
|
516 |
|
0 |
|
516 |
|
0 |
|
516 |
|
0 |
| ||||||
Total |
|
$ |
532,195 |
|
$ |
0 |
|
$ |
532,195 |
|
$ |
531,679 |
|
$ |
516 |
|
$ |
0 |
|
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest rate swaps |
|
$ |
2,148 |
|
$ |
0 |
|
$ |
2,148 |
|
$ |
0 |
|
$ |
0 |
|
$ |
2,148 |
|
Total |
|
$ |
2,148 |
|
$ |
0 |
|
$ |
2,148 |
|
$ |
0 |
|
$ |
0 |
|
$ |
2,148 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Securities sold under repurchase agreements |
|
$ |
586,867 |
|
$ |
0 |
|
$ |
586,867 |
|
$ |
586,867 |
|
$ |
0 |
|
$ |
0 |
|
Interest rate swaps |
|
2,144 |
|
0 |
|
2,144 |
|
0 |
|
2,144 |
|
0 |
| ||||||
Total |
|
$ |
589,011 |
|
$ |
0 |
|
$ |
589,011 |
|
$ |
586,867 |
|
$ |
2,144 |
|
$ |
0 |
|
Sterlings cash, and investments and MBS included cash and securities pledged against its interest rate swap and securities sold under repurchase agreements liabilities.
20. Commitments and Contingencies:
Sterling is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate and purchase loans, provide funds under existing lines of credit, and include forward loan sale agreements to mortgage brokers. Commitments, which are disbursed subject to certain limitations, extend over various periods of time, with the majority of funds being disbursed within a twelve-month period. The undisbursed balances and other commitments as of the dates indicated are summarized as follows:
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Undisbursed loan funds - construction loans |
|
$ |
29,259 |
|
$ |
16,499 |
|
Undisbursed lines of credit - commercial loans |
|
571,889 |
|
524,065 |
| ||
Undisbursed lines of credit - consumer loans |
|
520,844 |
|
399,691 |
| ||
Firm commitments to sell loans |
|
7,502 |
|
28,485 |
| ||
As of December 31, 2013 and 2012, Sterling had approximately $19.2 million and $17.5 million of commercial and standby letters of credit outstanding, respectively. During the years ended December 31, 2013 and 2012, Sterling collected approximately $141,000 and $180,000 in fees from these off-balance sheet arrangements.
Future minimum rental commitments as of December 31, 2013, under non-cancelable operating leases with initial or remaining terms of more than one year, are as follows:
|
|
Amount |
| |
|
|
(in thousands) |
| |
Years ended: |
|
|
| |
December 31, 2014 |
|
$ |
15,970 |
|
December 31, 2015 |
|
13,391 |
| |
December 31, 2016 |
|
10,807 |
| |
December 31, 2017 |
|
8,448 |
| |
December 31, 2018 |
|
7,311 |
| |
Thereafter |
|
25,480 |
| |
|
|
$ |
81,407 |
|
Rent expense recorded for the years ended December 31, 2013, 2012 and 2011 was $17.0 million, $16.3 million and $15.2 million, respectively.
Merger Agreement. On September 11, 2013, Sterling entered into a definitive agreement to merge (the Merger) with and into Umpqua Holdings Corporation (Umpqua), with headquarters in Portland, Oregon. Immediately after the Merger, Sterling Bank will merge with and into Umpqua Bank, an Oregon state chartered bank and wholly owned subsidiary of Umpqua. Upon completion of the mergers, the combined company will operate under the Umpqua Bank name and brand. The transaction is expected to be completed in the second quarter of 2014, subject to regulatory approval and other customary closing conditions. Under the terms of the Merger, Sterling shareholders will receive 1.671 shares of Umpqua common stock and $2.18 in cash, without interest, for each share of Sterling common stock. On February 25, 2014, the shareholders of both Sterling and Umpqua approved the Merger.
Merger Litigation. Sterling, its directors and Umpqua are named as defendants in three lawsuits pending in the Superior Court of Washington in and for Spokane County, which have been consolidated under the caption In re Sterling Financial Corp. Merger Litigation, Lead No. 13-2-03848-4. The consolidated litigation generally alleges that the directors of Sterling breached their duties to the Sterling shareholders by approving the Merger, failing to take steps to maximize shareholder value, engaging in a flawed sales process, and agreeing to deal protection provisions in the merger agreement that are alleged to unduly favor Umpqua. Umpqua is alleged to have aided and abetted the alleged breaches of duty. The consolidated litigation also alleges that the disclosures approved by the Sterling board in connection with the Merger and the vote thereon are false and misleading in various respects. As relief, the complaints seek, among other things, an injunction against consummation of the Merger, rescission of the Merger if it is effected, damages in an unspecified amount, and the payment of plaintiffs attorneys fees and
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
costs. The defendants believe that the lawsuits are without merit. On January 16, 2014 the parties to the consolidated litigation entered into a memorandum of understanding to settle the consolidated litigation (such memorandum including plaintiffs agreement to stay the consolidated litigation, except for proceedings relating to the settlement), subject to court approval and other customary conditions, including the execution of definitive documentation. The proposed settlement covers all holders of Sterling common stock (other than the defendants and their immediate families, heirs and assigns) from and including November 1, 2012 until the consummation of the Merger. The proposed settlement provides for the defendants to make certain additional disclosures, which were included in the proxy statement/prospectus that was mailed to Sterling shareholders in connection with the special meeting at which the Merger was approved. The proposed settlement does not provide for any other consideration from the defendants, including any monetary consideration (other than potentially attorneys fees as described in the following paragraph). Sterling shareholders who are members of the proposed settlement class will, at a later date, receive written notice containing the full terms of the proposed settlement and proposed release of class claims and related matters.
In the event that the parties enter into a settlement, a hearing will be scheduled at which the Superior Court of Washington in and for Spokane County will consider the fairness, reasonableness, and adequacy of the settlement. If the settlement is finally approved by the court, it will resolve and release all claims in the consolidated litigation that were or could have been brought challenging any aspect of the proposed Merger, the merger agreement and the transactions contemplated thereby, and any disclosure made in connection therewith (but excluding dissenters rights pursuant to Chapter 23B.13 of the WBCA), among other claims, pursuant to terms that will be disclosed to shareholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiffs counsel will file a petition in the Superior Court of Washington in and for Spokane County for an award of attorneys fees and expenses to be paid by Sterling or its successor, which the defendants may oppose. Sterling or its successor will pay or cause to be paid any attorneys fees and expenses awarded by the Superior Court of Washington in and for Spokane County. There can be no assurance that the parties will ultimately enter into a settlement or that the Superior Court of Washington in and for Spokane County will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the memorandum of understanding may be terminated. Sterling management believes the proposed settlement will have no adverse material impact on Sterling.
Neither the memorandum of understanding nor the ultimate settlement is, and neither should be construed as, an admission of wrongdoing or liability by any defendant. Sterling, its directors and Umpqua continue to believe that the consolidated litigation is without merit and vigorously deny the allegations that Sterlings directors breached their fiduciary duties.
Securities Class Action Litigation. On December 11, 2009, a putative securities class action complaint, captioned City of Roseville Employees Retirement System v. Sterling Financial Corp., et al., No. CV 09-00368-EFS, was filed in the United States District Court for the Eastern District of Washington against Sterling and certain of its current and former officers. The Court appointed City of Roseville Employees Retirement System as lead plaintiff on March 9, 2010. On June 18, 2010, lead plaintiff filed a consolidated complaint alleging that the defendants violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 by making false and misleading statements concerning our business and financial results. The consolidated complaint purported to be brought on behalf of a class of persons who purchased or otherwise acquired Sterlings stock during the period from July 23, 2008 to October 15, 2009. The consolidated complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by failing to disclose the extent of Sterlings delinquent commercial real estate, construction and land development loans, properly record losses for impaired loans, and properly reserve for loan losses, thereby causing Sterlings stock price to be artificially inflated during the purported class period. Plaintiffs sought unspecified damages and attorneys fees and costs. On August 30, 2010, Sterling moved to dismiss the Complaint. On March 2, 2011, after complete briefing, the court held a hearing on the motion to dismiss. On August 5, 2013, the court granted the motion to dismiss without prejudice. On October 11, 2013, the lead plaintiff filed an amended consolidated complaint. The amended consolidated complaint names the same defendants, specifies the same class period, alleges the same violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and seeks the same relief. The amended consolidated complaint contains similar allegations of improper disclosure regarding Sterlings lending practices, status of loans and reserving and accounting for loans. On January 24, 2014, Sterling moved to dismiss the amended
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
consolidated complaint. Sterling believes the lawsuit is without merit and continues to vigorously defend against it. Failure by Sterling to obtain a favorable resolution of the claims set forth in the complaint could have a material adverse effect on our business, results of operations and financial condition. Currently, a loss resulting from these claims is not considered probable or reasonably estimable in amount.
Additionally, Sterling is involved in ongoing litigation, primarily related to its normal business operations. When establishing a liability for contingent litigation losses, Sterling determines a range of potential losses for each matter that is both probable and estimable, and records the amount it considers to be the best estimate within the range. For these matters and others where an unfavorable outcome is reasonably possible but not probable, there is no estimable range of possible losses. Sterling believes that the eventual outcome from these cases will not, individually or in the aggregate, have a material adverse effect on its consolidated financial position.
21. Benefit Plans:
Sterling maintains an employee savings plan under Section 401(k) of the Internal Revenue Code. Substantially all employees are eligible to participate in the plan subject to certain requirements. Under the plan, employees may elect to contribute up to 10% of their salary, and Sterling will make a matching contribution equal to 35% of the employees contribution. Each employee may make a supplemental contribution of an additional 65% of their salary. All employee contributions vest immediately and, if applicable, employer contributions vest over the employees first three years of employment. Employees have the option of investing their contributions among selected mutual funds and Sterling common stock. Sterling contributed $3.3 million during 2013, $2.9 million during 2012 and $2.8 million during 2011 to the employee savings plan.
Sterling sponsors supplemental executive retirement plans (SERPs). Sterling maintains and administers additional SERPs from past acquisitions. The SERPs are nonqualified, unfunded plans that are designed to provide retirement benefits for certain current and former key employees. All amounts and benefits were established and accrued at acquisition either by previous service or change of control clauses. Sterling continues to administer these benefit plans, as necessary. Sterling had recognized $1.1 million, $1.2 million, and $1.1 million for the years ended December 31, 2013, 2012 and 2011 in expenses related to the SERPs. As of December 31, 2013 and 2012, Sterling had $21.4 million and $19.6 million, respectively accrued for the SERPs.
In 2006, Sterling adopted a nonqualified deferred compensation plan (the 2006 DCP) which is primarily funded through employee deferral contributions. The 2006 DCP is designed to retain and attract key employees while serving as a vehicle to assist participants in deferring current compensation to a time when taxes may be at a more personally beneficial rate and aid in saving for long-term financial needs. Participation in the 2006 DCP is limited to Directors and a select group of management or highly compensated employees as determined by the plan Committee. No employer contributions have been made to the 2006 DCP. Sterling had $202,000, $172,000, and $94,000 of net expenses related to the 2006 DCP for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013 and 2012, Sterling had an accrued liability for the 2006 DCP of $4.4 million and $4.3 million, respectively.
During 2011, Sterling initiated an Employee Stock Purchase Plan (ESPP). Employees are eligible to participate in the ESPP, with share purchases discounted from 0% - 15% from the closing price of Sterlings common stock on the last day of the semiannual offering period. The applicable discount for 2013 and 2012 was 15%. During 2013 and 2012, 36,188 shares and 38,926 shares, respectively were issued under the plan, leaving 1,924,886 shares available for future purchase as of December 31, 2013.
22. Fair Value:
Fair value estimates are determined as of a specific date using quoted market prices, where available, or various assumptions and estimates. As the assumptions underlying these estimates change, the fair value of the financial instruments will change. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
instruments, will likely reduce the comparability of fair value disclosures between financial institutions. Accordingly, the aggregate fair value amounts presented do not represent and should not be construed to represent the full underlying value of Sterling.
The carrying amounts and fair values of financial instruments as of the periods indicated were as follows. Other assets are comprised of FHLB stock and derivatives, while other liabilities are comprised of derivatives:
|
|
|
|
December 31, 2013 |
|
December 31, 2012 |
| ||||||||
|
|
Level |
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
| ||||
|
|
|
|
(in thousands) |
| ||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
|
1 |
|
$ |
545,435 |
|
$ |
545,435 |
|
$ |
331,550 |
|
$ |
331,550 |
|
Investments and MBS: |
|
|
|
|
|
|
|
|
|
|
| ||||
Available for sale |
|
2 |
|
1,429,812 |
|
1,429,812 |
|
1,513,157 |
|
1,513,157 |
| ||||
Held to maturity |
|
2 |
|
165 |
|
165 |
|
206 |
|
206 |
| ||||
Loans held for sale |
|
2 |
|
138,952 |
|
138,952 |
|
465,983 |
|
465,983 |
| ||||
Loans receivable, net |
|
3 |
|
7,331,228 |
|
7,344,637 |
|
6,101,749 |
|
6,154,296 |
| ||||
Mortgage servicing rights, net |
|
3 |
|
60,100 |
|
75,017 |
|
32,420 |
|
32,420 |
| ||||
Other assets (1) |
|
2 |
|
99,756 |
|
99,756 |
|
108,642 |
|
108,642 |
| ||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Non-maturity deposits |
|
2 |
|
5,373,544 |
|
5,373,544 |
|
4,697,147 |
|
4,697,147 |
| ||||
Deposits with stated maturities |
|
2 |
|
1,701,446 |
|
1,717,039 |
|
1,738,970 |
|
1,768,818 |
| ||||
Borrowings |
|
2 |
|
1,923,081 |
|
1,845,614 |
|
1,437,491 |
|
1,457,911 |
| ||||
Other liabilities |
|
2 |
|
516 |
|
516 |
|
4,025 |
|
4,025 |
| ||||
(1) Other assets includes FHLB stock. As of December 31, 2013 and December 31, 2012, FHLB stock was carried at $95.3 million and $97.5 million, respectively.
Companies have the option of carrying financial assets and liabilities at fair value, which can be implemented on all or individually selected financial instruments. The framework for defining and measuring fair value requires that one of three valuation methods be used to determine fair market value: the market approach, the income approach or the cost approach. To increase consistency and comparability in fair value measurements and related disclosures, the standard also creates a fair value hierarchy to prioritize the inputs to these valuation methods into the following three levels:
· Level 1 inputs are a select class of observable inputs, based upon the quoted prices for identical instruments in active markets that are accessible as of the measurement date, and are to be used whenever available.
· Level 2 inputs are other types of observable inputs, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; or other inputs that are observable or can be derived from or supported by observable market data. Level 2 inputs are to be used whenever Level 1 inputs are not available.
· Level 3 inputs are substantially unobservable, reflecting the reporting entitys own assumptions regarding what market participants would assume when pricing a financial instrument. Level 3 inputs are to be used only when Level 1 and Level 2 inputs are unavailable.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
The methods and assumptions used to estimate the fair value of certain financial instruments are as follows:
Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value due to the relatively short-term nature of these instruments.
Investments and MBS. The fair value of investments and MBS are provided by a third-party pricing service. These valuations are based on market data using pricing models that vary by asset class and incorporate available current trade, bid and other market information, and for structured securities, cash flow and loan performance data. The pricing processes utilize benchmark curves, benchmarking of similar securities, sector groupings, and matrix pricing. Option adjusted spread models are also used to assess the impact of changes in interest rates and to develop prepayment scenarios. All models and processes used take into account market convention.
Loans Held for Sale. Sterling has elected to carry residential loans held for sale at fair value. The fair values of residential loans are based on investor quotes in the secondary market, determined by the fair value of options and commitments to sell or issue mortgage loans. The fair value election was made to match changes in the value of these loans with the value of their economic hedges. Loan origination fees, costs and servicing rights, which were previously deferred on these loans, are now recognized as part of the loan value at origination. Nonresidential loans held for sale are carried at the lower of cost or market (LOCOM) due to the frequency of these loan sale transactions, as well as the availability of market data for these loan types.
Loans Receivable. The fair value of performing loans is estimated by discounting the cash flows using interest rates that consider the current credit and interest rate risk inherent in the loans and current economic and lending conditions and does not incorporate the exit price concept of fair value. Certain residential mortgage loans that were previously classified as held for sale are carried at fair value because at origination Sterling elected to carry these loans at fair value. The fair value of these loans is based on current market rates with various discounts applied to each individual loan. The fair value of nonperforming collateral-dependent loans is estimated based upon the value of the underlying collateral. The fair value of other nonperforming loans is estimated by discounting managements current estimate of future cash flows using a rate estimated to be commensurate with the risks involved. Changes in the various inputs in the fair value of nonperforming loans will have a significant impact on the fair value.
Mortgage Servicing Rights. The fair value of mortgage servicing rights is estimated using a discounted cash flow model to arrive at the net present value of expected earnings from the servicing of the loans. Model inputs include prepayment speeds, market interest rates, contractual interest rates on the loans being serviced, the amount of other fee income generated and other factors. The fair value of mortgage servicing rights is impacted by any changes in these inputs.
Deposits. The fair values of deposits subject to immediate withdrawal such as interest and noninterest bearing checking, regular savings, and money market deposit accounts, are equal to the amounts payable on demand at the reporting date. Fair values for time deposits are estimated by discounting future cash flows using interest rates currently offered on time deposits with similar remaining maturities.
Borrowings. The carrying amounts of short-term borrowings under repurchase agreements, federal funds purchased, short-term FHLB advances and other short-term borrowings approximate their fair values due to the relatively short period of time between the origination of the instruments and the expected payment dates on the instruments. The fair value of long-term FHLB advances and other long-term borrowings is estimated using discounted cash flow analysis based on Sterlings current incremental borrowing rates for similar types of borrowing arrangements with similar remaining terms.
Derivatives. Interest rate lock commitments and forward commitments valuations are estimated using quoted market prices for similar instruments. Fair values for the interest rate swaps are based on the present value differential between the fixed interest rate payments and the floating interest rate payments as projected by the forward interest rate curve, over the term of the swap, with the recorded amount net of any credit valuation adjustments.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents Sterlings financial instruments that are measured at fair value on a recurring basis:
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
(in thousands) |
| ||||||||||
December 31, 2013 |
|
|
|
|
|
|
|
|
| ||||
Investment securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
MBS |
|
$ |
1,239,900 |
|
$ |
0 |
|
$ |
1,239,900 |
|
$ |
0 |
|
Municipal bonds |
|
189,690 |
|
0 |
|
189,690 |
|
0 |
| ||||
Other |
|
222 |
|
0 |
|
222 |
|
0 |
| ||||
Total investment securities available for sale |
|
1,429,812 |
|
0 |
|
1,429,812 |
|
0 |
| ||||
Loans held for sale |
|
138,952 |
|
0 |
|
138,952 |
|
0 |
| ||||
Loans receivable, net |
|
26,462 |
|
0 |
|
0 |
|
26,462 |
| ||||
Other assets - derivatives |
|
4,479 |
|
0 |
|
4,479 |
|
0 |
| ||||
Total assets |
|
$ |
1,599,705 |
|
$ |
0 |
|
$ |
1,573,243 |
|
$ |
26,462 |
|
Other liabilities - derivatives |
|
516 |
|
0 |
|
516 |
|
0 |
| ||||
Total liabilities |
|
$ |
516 |
|
$ |
0 |
|
$ |
516 |
|
$ |
0 |
|
December 31, 2012 |
|
|
|
|
|
|
|
|
| ||||
Investment securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
MBS |
|
$ |
1,308,838 |
|
$ |
0 |
|
$ |
1,308,838 |
|
$ |
0 |
|
Municipal bonds |
|
204,306 |
|
0 |
|
204,306 |
|
0 |
| ||||
Other |
|
13 |
|
0 |
|
13 |
|
0 |
| ||||
Total investment securities available for sale |
|
1,513,157 |
|
0 |
|
1,513,157 |
|
0 |
| ||||
Loans held for sale |
|
465,983 |
|
0 |
|
465,983 |
|
0 |
| ||||
Loans receivable, net |
|
23,177 |
|
0 |
|
0 |
|
23,177 |
| ||||
Other assets - derivatives |
|
11,183 |
|
0 |
|
11,183 |
|
0 |
| ||||
Total assets |
|
$ |
2,013,500 |
|
$ |
0 |
|
$ |
1,990,323 |
|
$ |
23,177 |
|
Contingent consideration |
|
15,442 |
|
$ |
0 |
|
$ |
0 |
|
$ |
15,442 |
| |
Other liabilities - derivatives |
|
4,025 |
|
0 |
|
4,025 |
|
0 |
| ||||
Other liabilities - derivatives |
|
$ |
19,467 |
|
$ |
0 |
|
$ |
4,025 |
|
$ |
15,442 |
|
The following table presents the changes in fair value for loans receivable measured at fair value on a recurring basis using Level 3 inputs:
|
|
Years Ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Beginning balance |
|
$ |
23,177 |
|
$ |
12,776 |
|
Transfers from held for sale |
|
16,060 |
|
14,450 |
| ||
Principal payments and payoffs |
|
(11,511 |
) |
(3,515 |
) | ||
Valuation adjustments |
|
(1,264 |
) |
(534 |
) | ||
Ending balance |
|
$ |
26,462 |
|
$ |
23,177 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Differences between the aggregate fair value and the aggregate unpaid principal balance of loans receivable carried at fair value were $1.3 million, and $534,000 during the years ended December 31, 2013, and 2012, respectively, and were included in income from mortgage banking operations. Valuation adjustments were based on current market rates for comparable loans, in addition to discounts applied based on specific loan characteristics.
Contingent consideration represents the estimated liability for additional payments related to the First Independent transaction based on the application of a discounted cash flow methodology. The following table presents a roll-forward of contingent consideration.
|
|
Years Ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Beginning balance |
|
$ |
15,442 |
|
$ |
0 |
|
Additions |
|
0 |
|
11,700 |
| ||
Valuation adjustments |
|
1,395 |
|
3,742 |
| ||
Payout |
|
(16,837 |
) |
0 |
| ||
Ending balance |
|
$ |
0 |
|
$ |
15,442 |
|
Valuation adjustments are included in noninterest expense within merger and acquisition expense. The final contingent consideration payment was made in the third quarter of 2013.
Derivatives include mortgage banking interest rate lock and loan delivery commitments, and interest rate swaps. See Note 11 for a further discussion of these derivatives. The differences between the aggregate fair value and the aggregate unpaid principal balance of loans held for sale that are carried at fair value were included in earnings as follows:
|
|
Years Ended December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Mortgage banking operations |
|
$ |
(17,299 |
) |
$ |
11,447 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Sterling may be required to measure certain assets at fair value on a non-recurring basis from application of LOCOM accounting or write-downs of individual assets. The following table presents the carrying value for these assets as of the dates indicated:
|
|
December 31, 2013 |
|
Gains |
| |||||||||||
|
|
Total Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
(Losses) During the |
| |||||
|
|
(in thousands) |
| |||||||||||||
Loans |
|
$ |
118,037 |
|
$ |
0 |
|
$ |
0 |
|
$ |
118,037 |
|
$ |
(15,352 |
) |
OREO |
|
522 |
|
0 |
|
0 |
|
522 |
|
(930 |
) | |||||
Mortgage servicing rights |
|
60,100 |
|
0 |
|
0 |
|
60,100 |
|
6,948 |
| |||||
|
|
December 31, 2012 |
|
Losses During the Year |
| |||||||||||
|
|
Total Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Ended |
| |||||
|
|
(in thousands) |
| |||||||||||||
Loans |
|
$ |
172,172 |
|
$ |
0 |
|
$ |
0 |
|
$ |
172,172 |
|
$ |
(27,649 |
) |
OREO |
|
18,074 |
|
0 |
|
0 |
|
18,074 |
|
(1,296 |
) | |||||
Mortgage servicing rights |
|
32,420 |
|
0 |
|
0 |
|
32,420 |
|
(230 |
) | |||||
The loans disclosed above represent the net balance of loans as of period end that have been individually evaluated for impairment during the years ended December 31, 2013 and 2012, with the losses comprised of charge-offs and increases in the specific reserve. OREO represents the carrying value of properties for which a specific reserve was recorded during the periods presented as a result of updated appraisals subsequent to foreclosure. The appraisals may use comparable sales and income approach valuation methods and may be adjusted to reflect current market or property information. In addition to the loan and OREO losses disclosed above, charge-offs at foreclosure for properties held as of period end totaled $884,000 and $3.9 million for the years ended December 31, 2013 and 2012, respectively. Fair value adjustments to the mortgage servicing rights were mainly due to market derived assumptions associated with mortgage prepayment speeds. Sterling carries its mortgage servicing rights at LOCOM, and they are accordingly measured at fair value on a non-recurring basis. Qualitative information regarding the fair value measurements for Level 3 financial instruments are as follows:
|
|
December 31, 2013 | ||
|
|
Method |
|
Inputs |
Loans |
|
Income, Market, Comparable Sales, Discounted Cash Flows |
|
External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors; selling costs ranging from 4.5% to 9%. |
OREO |
|
Income, Market, Comparable Sales, Discounted Cash Flows |
|
External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors; selling costs ranging from 4.5% to 9%. |
Mortgage servicing rights |
|
Discounted Cash Flow |
|
Weighted average prepayment speed: residential 9.3%, commercial 11.7%; weighted average discount rate: residential 10.2%, commercial 15.7%. |
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
23. Regulatory Capital:
The following table sets forth the respective regulatory capital positions for Sterling and Sterling Bank:
|
|
Actual |
|
Adequately |
|
Well-Capitalized |
| |||||||||
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
| |||
|
|
(in thousands) |
| |||||||||||||
As of December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tier 1 leverage ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
$ |
1,138,988 |
|
11.6 |
% |
$ |
393,693 |
|
4.0 |
% |
$ |
492,117 |
|
5.0 |
% |
Sterling Bank |
|
1,112,281 |
|
11.3 |
% |
393,604 |
|
4.0 |
% |
492,005 |
|
5.0 |
% | |||
Tier 1 risk-based capital ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
1,138,988 |
|
14.9 |
% |
306,509 |
|
4.0 |
% |
459,764 |
|
6.0 |
% | |||
Sterling Bank |
|
1,112,281 |
|
14.5 |
% |
306,681 |
|
4.0 |
% |
460,021 |
|
6.0 |
% | |||
Total risk-based capital ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
1,235,422 |
|
16.1 |
% |
613,018 |
|
8.0 |
% |
766,273 |
|
10.0 |
% | |||
Sterling Bank |
|
1,208,768 |
|
15.8 |
% |
613,361 |
|
8.0 |
% |
766,701 |
|
10.0 |
% | |||
As of December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Tier 1 leverage ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
1,115,834 |
|
12.1 |
% |
367,909 |
|
4.0 |
% |
459,886 |
|
5.0 |
% | |||
Sterling Bank |
|
1,100,443 |
|
12.0 |
% |
368,053 |
|
4.0 |
% |
460,066 |
|
5.0 |
% | |||
Tier 1 risk-based capital ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
1,115,834 |
|
17.5 |
% |
255,750 |
|
4.0 |
% |
383,625 |
|
6.0 |
% | |||
Sterling Bank |
|
1,100,443 |
|
17.2 |
% |
255,875 |
|
4.0 |
% |
383,812 |
|
6.0 |
% | |||
Total risk-based capital ratio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Sterling |
|
1,196,773 |
|
18.7 |
% |
511,499 |
|
8.0 |
% |
639,374 |
|
10.0 |
% | |||
Sterling Bank |
|
1,181,421 |
|
18.5 |
% |
511,749 |
|
8.0 |
% |
639,687 |
|
10.0 |
% | |||
24. Segment Information:
Sterlings operations are divided into two primary business segments that represent its core businesses:
· Community Banking - providing traditional banking services through the retail banking, private banking and commercial banking groups, including the originating and servicing of commercial real estate, owner occupied CRE and C&I loans.
· Home Loan Division - originating and selling residential real estate loans through its mortgage banking operations, on both a servicing-retained and servicing-released basis.
The Other and Eliminations caption represents holding company-level transactions and intercompany eliminations. In 2012, Sterling combined its Commercial Real Estate and Community Banking segments to improve how it made decisions and measured the segments performance. Segment results for the 2011 comparable period have been restated to reflect current period presentation.
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
As of and for the Year Ended December 31, 2013 |
| ||||||||||
|
|
Community |
|
Home Loan |
|
Other and |
|
Total |
| ||||
|
|
(in thousands) |
| ||||||||||
Interest income |
|
$ |
352,907 |
|
$ |
26,114 |
|
$ |
0 |
|
$ |
379,021 |
|
Interest expense |
|
49,634 |
|
0 |
|
5,153 |
|
54,787 |
| ||||
Net interest income |
|
303,273 |
|
26,114 |
|
(5,153 |
) |
324,234 |
| ||||
Provision for credit losses |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||
Noninterest income |
|
73,380 |
|
67,670 |
|
(464 |
) |
140,586 |
| ||||
Noninterest expense |
|
246,185 |
|
80,592 |
|
6,535 |
|
333,312 |
| ||||
Income (loss) before income taxes |
|
$ |
130,468 |
|
$ |
13,192 |
|
$ |
(12,152 |
) |
$ |
131,508 |
|
Total assets |
|
$ |
10,147,510 |
|
$ |
144,403 |
|
$ |
27,336 |
|
$ |
10,319,249 |
|
|
|
As of and for the Year Ended December 31, 2012 |
| ||||||||||
|
|
Community |
|
Home Loan |
|
Other and |
|
Total |
| ||||
|
|
(in thousands) |
| ||||||||||
Interest income |
|
$ |
360,901 |
|
$ |
28,299 |
|
$ |
0 |
|
$ |
389,200 |
|
Interest expense |
|
78,004 |
|
0 |
|
6,518 |
|
84,522 |
| ||||
Net interest income |
|
282,897 |
|
28,299 |
|
(6,518 |
) |
304,678 |
| ||||
Provision for credit losses |
|
9,980 |
|
20 |
|
0 |
|
10,000 |
| ||||
Noninterest income |
|
46,433 |
|
108,391 |
|
(571 |
) |
154,253 |
| ||||
Noninterest expense |
|
266,486 |
|
92,742 |
|
(3,975 |
) |
355,253 |
| ||||
Income (loss) before income taxes |
|
$ |
52,864 |
|
$ |
43,928 |
|
$ |
(3,114 |
) |
$ |
93,678 |
|
Total assets |
|
$ |
8,754,170 |
|
$ |
477,127 |
|
$ |
5,613 |
|
$ |
9,236,910 |
|
|
|
As of and for the Year Ended December 31, 2011 |
| ||||||||||
|
|
Community |
|
Home Loan |
|
Other and |
|
Total |
| ||||
|
|
(in thousands) |
| ||||||||||
Interest income |
|
$ |
387,365 |
|
$ |
16,927 |
|
$ |
0 |
|
$ |
404,292 |
|
Interest expense |
|
102,963 |
|
0 |
|
6,134 |
|
109,097 |
| ||||
Net interest income |
|
284,402 |
|
16,927 |
|
(6,134 |
) |
295,195 |
| ||||
Provision for credit losses |
|
56,507 |
|
71 |
|
(26,578 |
) |
30,000 |
| ||||
Noninterest income |
|
76,337 |
|
48,865 |
|
1,126 |
|
126,328 |
| ||||
Noninterest expense |
|
295,139 |
|
58,979 |
|
(1,728 |
) |
352,390 |
| ||||
Income (loss) before income taxes |
|
$ |
9,093 |
|
$ |
6,742 |
|
$ |
23,298 |
|
$ |
39,133 |
|
Total assets |
|
$ |
9,219,398 |
|
$ |
2,594 |
|
$ |
(28,755 |
) |
$ |
9,193,237 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
25. Parent Company Only Financial Information:
The following parent company-only financial information should be read in conjunction with the other notes to consolidated financial statements. The accounting policies for the parent company-only financial statements are the same as those used in the presentation of the consolidated financial statements other than the parent company-only financial statements account for the parent companys investments in its subsidiaries under the equity method.
Parent Only Balance Sheets
|
|
December 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
(in thousands) |
| ||||
Assets: |
|
|
| ||||
Cash and cash equivalents |
|
$ |
29,881 |
|
$ |
24,443 |
|
Investments in subsidiaries: |
|
|
|
|
| ||
Sterling Bank |
|
1,416,724 |
|
1,417,025 |
| ||
Other subsidiaries |
|
8,271 |
|
8,307 |
| ||
Other assets |
|
15,463 |
|
20,755 |
| ||
Total assets |
|
$ |
1,470,339 |
|
$ |
1,470,530 |
|
Liabilities and Shareholders Equity: |
|
|
|
|
| ||
Accrued expenses payable |
|
$ |
7,454 |
|
$ |
3,072 |
|
Junior subordinated debentures |
|
245,299 |
|
245,294 |
| ||
Due to affiliates |
|
1,639 |
|
4,241 |
| ||
Shareholders equity |
|
1,215,947 |
|
1,217,923 |
| ||
Total liabilities and shareholders equity |
|
$ |
1,470,339 |
|
$ |
1,470,530 |
|
Parent Only Statements of Operations
(in thousands)
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Interest income |
|
$ |
216 |
|
$ |
268 |
|
$ |
300 |
|
Interest expense |
|
6,034 |
|
6,785 |
|
6,433 |
| |||
Net interest expense |
|
(5,818 |
) |
(6,517 |
) |
(6,133 |
) | |||
Equity in net earnings of subsidiary |
|
104,497 |
|
380,294 |
|
50,961 |
| |||
Noninterest expenses |
|
11,090 |
|
5,385 |
|
5,699 |
| |||
Income before income taxes |
|
87,589 |
|
368,392 |
|
39,129 |
| |||
Income tax benefit |
|
6,052 |
|
17,329 |
|
4 |
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Parent Only Statements of Cash Flows
|
|
Years Ended December 31, |
| |||||||
|
|
2013 |
|
2012 |
|
2011 |
| |||
|
|
(in thousands) |
| |||||||
Cash flows from operating activities: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
93,641 |
|
$ |
385,721 |
|
$ |
39,133 |
|
Adjustments to reconcile net income to net cash used in operating activities |
|
(102,676 |
) |
(412,528 |
) |
(42,051 |
) | |||
Net cash used in operating activities |
|
(9,035 |
) |
(26,807 |
) |
(2,918 |
) | |||
Cash flows from investing activities: |
|
|
|
|
|
|
| |||
Investments in subsidiaries, net |
|
0 |
|
0 |
|
0 |
| |||
Dividends from subsidiary |
|
72,800 |
|
52,600 |
|
0 |
| |||
Net cash provided by investing activities |
|
72,800 |
|
52,600 |
|
0 |
| |||
Cash flows from financing activities: |
|
|
|
|
|
|
| |||
Net proceeds from stock issuances |
|
868 |
|
3,791 |
|
0 |
| |||
Dividends paid |
|
(59,195 |
) |
(49,743 |
) |
0 |
| |||
Net cash used in financing activities |
|
(58,327 |
) |
(45,952 |
) |
0 |
| |||
Net change in cash and cash equivalents |
|
5,438 |
|
(20,159 |
) |
(2,918 |
) | |||
Cash and cash equivalents, beginning of year |
|
24,443 |
|
44,602 |
|
47,520 |
| |||
Cash and cash equivalents, end of year |
|
$ |
29,881 |
|
$ |
24,443 |
|
$ |
44,602 |
|
26. Quarterly Financial Data (Unaudited):
The following tables present Sterlings condensed operations on a quarterly basis for the years ended December 31, 2013 and 2012:
|
|
2013 Quarters Ended |
| ||||||||||
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
| ||||
|
|
(in thousands, except per share amounts) |
| ||||||||||
Interest income |
|
$ |
90,757 |
|
$ |
94,017 |
|
$ |
96,444 |
|
$ |
97,803 |
|
Interest expense |
|
13,863 |
|
13,603 |
|
13,896 |
|
13,425 |
| ||||
Net interest income |
|
76,894 |
|
80,414 |
|
82,548 |
|
84,378 |
| ||||
Provision for credit losses |
|
0 |
|
0 |
|
0 |
|
0 |
| ||||
Net interest income after provision |
|
76,894 |
|
80,414 |
|
82,548 |
|
84,378 |
| ||||
Noninterest income |
|
37,566 |
|
42,003 |
|
31,890 |
|
29,127 |
| ||||
Noninterest expenses |
|
81,929 |
|
81,678 |
|
85,334 |
|
84,371 |
| ||||
Income before income taxes |
|
32,531 |
|
40,739 |
|
29,104 |
|
29,134 |
| ||||
Income tax benefit |
|
(9,853 |
) |
(12,978 |
) |
(8,056 |
) |
(6,980 |
) | ||||
Net income |
|
22,678 |
|
27,761 |
|
21,048 |
|
22,154 |
| ||||
Earnings per share - basic |
|
$ |
0.36 |
|
$ |
0.45 |
|
$ |
0.34 |
|
$ |
0.36 |
|
Earnings per share - diluted |
|
$ |
0.36 |
|
$ |
0.44 |
|
$ |
0.33 |
|
$ |
0.35 |
|
Weighted average shares outstanding - basic |
|
62,242,183 |
|
62,289,437 |
|
62,309,270 |
|
62,319,497 |
| ||||
Weighted average shares outstanding - diluted |
|
63,004,784 |
|
63,107,913 |
|
63,461,018 |
|
63,613,271 |
|
STERLING FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
|
|
2012 Quarters Ended |
| ||||||||||
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
| ||||
|
|
(in thousands, except per share amounts) |
| ||||||||||
Interest income |
|
$ |
97,965 |
|
$ |
100,990 |
|
$ |
95,991 |
|
$ |
94,254 |
|
Interest expense |
|
23,612 |
|
22,080 |
|
20,683 |
|
18,147 |
| ||||
Net interest income |
|
74,353 |
|
78,910 |
|
75,308 |
|
76,107 |
| ||||
Provision for credit losses |
|
4,000 |
|
4,000 |
|
2,000 |
|
0 |
| ||||
Net interest income after provision |
|
70,353 |
|
74,910 |
|
73,308 |
|
76,107 |
| ||||
Noninterest income |
|
31,587 |
|
44,741 |
|
46,698 |
|
31,227 |
| ||||
Noninterest expenses |
|
88,649 |
|
87,607 |
|
89,408 |
|
89,589 |
| ||||
Income before income taxes |
|
13,291 |
|
32,044 |
|
30,598 |
|
17,745 |
| ||||
Income tax benefit |
|
0 |
|
288,842 |
|
0 |
|
3,201 |
| ||||
Net income |
|
13,291 |
|
320,886 |
|
30,598 |
|
20,946 |
| ||||
Earnings per share - basic |
|
$ |
0.21 |
|
$ |
5.17 |
|
$ |
0.49 |
|
$ |
0.34 |
|
Earnings per share - diluted |
|
$ |
0.21 |
|
$ |
5.13 |
|
$ |
0.49 |
|
$ |
0.33 |
|
Weighted average shares outstanding - basic |
|
62,078,404 |
|
62,112,936 |
|
62,139,833 |
|
62,159,683 |
| ||||
Weighted average shares outstanding - diluted |
|
62,682,987 |
|
62,610,054 |
|
62,845,864 |
|
62,867,030 |
|
27. Subsequent Event:
On February 19, 2014 Sterling entered into a definitive agreement for the sale of six depository branches located in Coos County and Douglas County, Oregon to Banner Bank (Banner), a wholly owned subsidiary of Banner Corporation. The branches are being divested in connection with the Merger pursuant to agreements with the United States Department of Justice and the Federal Reserve Board. Under the terms of the agreement, Sterling Bank will pay a negative premium of approximately $7.0 million for Banner to acquire approximately $226 million of deposits and $95 million of performing loans. This transaction is subject to completion of the Merger, regulatory approval and other customary closing conditions, and is expected to be completed during the second quarter of 2014.