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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
______________________________________________ 
(Mark One)
xQuarterly report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended JuneSeptember 30, 2012
or
oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to             
Commission File Number: 000-50245
______________________________________________ 
BBCN BANCORP, INC.
(Exact name of registrant as specified in its charter)
______________________________________________ 
Delaware 95-4849715
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
   
3731 Wilshire Boulevard, Suite 1000, Los Angeles, California 90010
(Address of Principal executive offices) (ZIP Code)
(213) 639-1700
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
______________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filero Accelerated filerx
     
Non-accelerated filero Smaller Reporting Companyo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o   No  x
As of June 30,October 31, 2012, there were 78,014,10778,041,511 outstanding shares of the issuer’s Common Stock, $0.001 par value.


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Table of Contents
 
  Page
 
   
 
   
Item 1. 
   
 
   
 
   
 
   
 
   
 
   
 
   
Item 2
   
Item 3.
   
Item 4.
  
 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   
 
   
 
   
 Certifications 


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Forward-Looking Information
Certain matters discussed in this report may constitute forward-looking statements under Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because our business involves inherent risks and uncertainties. The risks and uncertainties include: possible deterioration in economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; and regulatory risks associated with current and future regulations. For additional information concerning these and other risk factors, see "Part II, Item 1A. Risk Factors" contained herein and “Part I, Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2011.


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PART I
FINANCIAL INFORMATION

Item 1.Financial Statements

BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)  (Unaudited)  
June 30,
2012
 December 31,
2011
September 30,
2012
 December 31,
2011
ASSETS(In thousands, except share data)(In thousands, except share data)
Cash and cash equivalents:      
Cash and due from banks$74,675
 $81,785
$74,441
 $81,785
Interest-earning deposit at Federal Reserve Bank104,946
 217,800
155,202
 217,800
Federal funds sold0
 525
0
 525
Total cash and cash equivalents179,621
 300,110
229,643
 300,110
Term federal funds sold, original maturities more than 90 days0
 40,000
0
 40,000
Securities available for sale, at fair value666,852
 740,920
687,059
 740,920
Loans held for sale, at the lower of cost or fair value32,590
 42,407
58,484
 42,407
Loans receivable, net of allowance for loan losses (June 30, 2012 - $65,505; December 31, 2011 - $61,952)3,809,033
 3,676,874
Loans receivable, net of allowance for loan losses (September 30, 2012 - $65,952; December 31, 2011 - $61,952)4,003,542
 3,676,874
Other real estate owned, net6,712
 7,624
4,135
 7,624
Federal Home Loan Bank ("FHLB") stock, at cost24,778
 27,373
23,500
 27,373
Premises and equipment, net of accumulated depreciation and amortization (June 30, 2012 - $20,275; December 31, 2011 - $19,018)21,805
 20,913
Premises and equipment, net of accumulated depreciation and amortization (September 30, 2012 - $21,473; December 31, 2011 - $19,018)22,672
 20,913
Accrued interest receivable12,062
 13,439
12,881
 13,439
Deferred tax assets, net64,780
 72,604
63,497
 72,604
Customers’ liabilities on acceptances11,206
 10,515
10,373
 10,515
Bank owned life insurance43,119
 42,514
43,416
 42,514
Investments in affordable housing partnerships14,161
 15,367
13,776
 15,367
Goodwill89,882
 90,473
89,882
 90,473
Other intangible assets, net3,636
 4,276
3,335
 4,276
Prepaid FDIC insurance8,782
 9,720
8,212
 9,720
FDIC loss share receivable9,287
 10,819
7,325
 10,819
Other assets51,099
 40,656
50,247
 40,656
Total assets$5,049,405
 $5,166,604
$5,331,979
 $5,166,604
      
(Continued)(Continued) (Continued) 

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)  (Unaudited)  
June 30,
2012
 December 31,
2011
September 30,
2012
 December 31,
2011
LIABILITIES AND STOCKHOLDERS’ EQUITY(In thousands, except share data)(In thousands, except share data)
LIABILITIES:      
Deposits:      
Non-interest bearing$1,064,013
 $984,350
$1,105,161
 $984,350
Interest bearing:      
Money market and NOW accounts1,143,329
 1,237,378
1,145,304
 1,237,378
Savings deposits183,087
 198,063
185,709
 198,063
Time deposits of $100,000 or more834,719
 759,923
892,941
 759,923
Other time deposits657,532
 761,178
723,409
 761,178
Total deposits3,882,680
 3,940,892
4,052,524
 3,940,892
Federal Home Loan Bank borrowings371,143
 344,402
460,815
 344,402
Subordinated debentures41,772
 52,102
41,809
 52,102
Accrued interest payable5,924
 6,519
5,451
 6,519
Acceptances outstanding11,206
 10,515
10,373
 10,515
Other liabilities21,219
 16,235
26,552
 16,235
Total liabilities4,333,944
 4,370,665
4,597,524
 4,370,665
STOCKHOLDERS’ EQUITY:      
Preferred stock, $0.001 par value - authorized 10,000,000 undesignated shares; issued and outstanding 122,000 shares as of December 31, 2011      
Series A, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 67,000 shares at December 31, 2011, net, with a liquidation preference of $67,428,000 at December 31, 20110
 65,158
0
 65,158
Series B, Fixed Rate Cumulative Perpetual Preferred Stock, issued and outstanding 55,000 shares at December 31, 2011, net, with a liquidation preference of $55,229,000 at December 31, 20110
 54,192
0
 54,192
Common stock, $0.001 par value; authorized, 150,000,000 shares at June 30, 2012 and December 31, 2011; issued and outstanding, 78,014,107 and 77,984,252 shares at June 30, 2012 and December 31, 2011, respectively78
 78
Additional Paid-in Capital525,985
 524,644
Common stock, $0.001 par value; authorized 150,000,000 shares at September 30, 2012 and December 31, 2011; issued and outstanding, 78,016,260 and 77,984,252 shares at September 30, 2012 and December 31, 2011, respectively78
 78
Additional paid-in capital524,608
 524,644
Retained earnings180,567
 142,909
198,964
 142,909
Accumulated other comprehensive income, net8,831
 8,958
10,805
 8,958
Total stockholders’ equity715,461
 795,939
734,455
 795,939
Total liabilities and stockholders’ equity$5,049,405
 $5,166,604
$5,331,979
 $5,166,604

See accompanying notes to condensed consolidated financial statements (unaudited)

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and sixnine months ended JuneSeptember 30, 2012 and 2011
(Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(In thousands, except share data) (In thousands, except share data)(In thousands, except share data)
INTEREST INCOME:              
Interest and fees on loans$62,504
 $33,150
 $125,923
 $66,235
$61,553
 $34,902
 $187,476
 $101,137
Interest on securities4,249
 3,965
 9,158
 7,895
3,782
 3,843
 12,940
 11,738
Interest on federal funds sold and other investments190
 179
 417
 358
120
 182
 537
 540
Total interest income66,943
 37,294
 135,498
 74,488
65,455
 38,927
 200,953
 113,415
INTEREST EXPENSE:              
Interest on deposits5,245
 5,090
 10,648
 10,221
5,214
 4,977
 15,862
 15,198
Interest on FHLB advances1,603
 2,412
 3,229
 4,984
1,603
 2,438
 4,832
 7,422
Interest on other borrowings593
 461
 1,260
 1,069
407
 459
 1,667
 1,528
Total interest expense7,441
 7,963
 15,137
 16,274
7,224
 7,874
 22,361
 24,148
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES59,502
 29,331
 120,361
 58,214
58,231
 31,053
 178,592
 89,267
PROVISION FOR LOAN LOSSES7,182
 10,047
 9,782
 15,309
6,900
 3,483
 16,682
 18,792
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES52,320
 19,284
 110,579
 42,905
51,331
 27,570
 161,910
 70,475
NON-INTEREST INCOME:              
Service fees on deposit accounts3,269
 1,413
 6,429
 2,910
3,121
 1,352
 9,550
 4,262
International service fees1,403
 669
 2,627
 1,239
1,183
 603
 3,810
 1,842
Loan servicing fees, net810
 418
 2,147
 881
1,031
 464
 3,178
 1,345
Wire transfer fees775
 348
 1,516
 670
833
 343
 2,349
 1,013
Other income and fees1,354
 557
 2,694
 1,064
1,364
 534
 4,058
 1,598
Net gains on sales of SBA loans2,463
 4,354
 5,426
 5,514
0
 823
 5,426
 6,337
Net gains on sales of other loans146
 0
 146
 0
Net gains (losses) on sales of other loans0
 (30)
 146
 (30)
Net gains on sales and calls of securities available for sale0
 6
 816
 6
133
 64
 949
 70
Net valuation gains (losses) on interest rate swaps and caps10
 (106)
 13
 (117)11
 (3)
 24
 (120)
Net gains (losses) on sales of OREO(8)
 25
 53
 27
(12)
 108
 41
 135
Total non-interest income10,222
 7,684
 21,867
 12,194
7,664
 4,258
 29,531
 16,452
NON-INTEREST EXPENSE:              
Salaries and employee benefits14,658
 7,625
 28,737
 14,779
13,611
 7,657
 42,348
 22,436
Occupancy4,232
 2,445
 7,878
 4,882
3,910
 2,480
 11,788
 7,362
Furniture and equipment1,468
 934
 2,686
 1,869
1,495
 984
 4,181
 2,853
Advertising and marketing1,525
 594
 2,983
 1,173
1,159
 354
 4,142
 1,527
Data processing and communications1,573
 923
 3,184
 1,906
1,659
 813
 4,843
 2,719
Professional fees1,069
 769
 1,682
 1,478
876
 612
 2,558
 2,090
FDIC assessments51
 877
 1,088
 2,166
644
 983
 1,732
 3,149
Credit related expenses2,290
 1,004
 4,470

1,748
2,497
 867
 6,967

2,615
Merger and integration expense1,348
 381
 3,121
 892
183
 574
 3,304
 1,465
Other2,863
 1,334
 5,683
 2,688
2,736
 1,493
 8,419
 4,182
Total non-interest expense31,077
 16,886
 61,512
 33,581
28,770
 16,817
 90,282
 50,398
INCOME BEFORE INCOME TAX PROVISION31,465
 10,082
 70,934 21,518
30,225
 15,011
 101,159 36,529
INCOME TAX PROVISION12,101
 3,764
 27,636
 8,454
11,827
 5,196
 39,463
 13,650
NET INCOME$19,364
 $6,318
 $43,298
 $13,064
$18,398
 $9,815
 $61,696
 $22,879
DIVIDENDS AND DISCOUNT ACCRETION ON PREFERRED STOCK$(3,771) $(1,075) $(5,640) $(2,150)$0
 $(1,077) $(5,640) $(3,227)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$15,593
 $5,243
 $37,658
 $10,914
$18,398
 $8,738
 $56,056
 $19,652
EARNINGS PER COMMON SHARE              
Basic$0.20
 $0.14
 $0.48
 $0.29
$0.24
 $0.23
 $0.72
 $0.52
Diluted$0.20
 $0.14
 $0.48
 $0.29
$0.24
 $0.23
 $0.72
 $0.52
See accompanying notes to condensed consolidated financial statements (unaudited)

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and sixnine months ended JuneSeptember 30, 2012 and 2011
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(In thousands) (In thousands)(In thousands)
Net income$19,364
 $6,318
 $43,298
 $13,064
$18,398
 $9,815
 $61,696
 $22,879
Other comprehensive income (loss):              
Unrealized gain on securities available for sale and interest only strips809
 3,384
 493
 3,127
3,374
 3,479
 3,867
 6,606
Reclassification adjustments for gains realized in income0
 (6) (816) (6)(133) (64) (949) (70)
Tax expense (benefit)269
 1,318
 (209) 1,224
1,261
 1,308
 1,051
 2,532
Change in unrealized gain on securities available for sale and interest only strips540
 2,060
 (114) 1,897
1,980
 2,107
 1,867
 4,004
              
Reclassification adjustment for the deferred gain on early settlement of interest-rate caps(11) (11) (22) (22)(11) (11) (33) (33)
Tax benefit(5) (4) (9) (9)(5) (4) (13) (13)
Change in unrealized gain on interest-rate caps(6) (7) (13) (13)(6) (7) (20) (20)
              
Total other comprehensive gain (loss)534
 2,053
 (127) 1,884
1,974
 2,100
 1,847
 3,984
Total comprehensive income$19,898
 $8,371
 $43,171
 $14,948
$20,372
 $11,915
 $63,543
 $26,863

See accompanying notes to condensed consolidated financial statements (unaudited)


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BBCN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2012 AND 2011
(Unaudited)
  Common Stock        Common stock      
Preferred
Stock
 Shares Amount 
Capital
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (loss), net
Preferred
stock
 Shares Amount Additional paid-in capital 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss), net
(In thousands, except share data)(In thousands, except share data)
                      
BALANCE, JANUARY 1, 2011$64,203
 37,983,027

$38

$171,364

$120,361

$2,597
$64,203
 37,983,027

$38

$171,364

$120,361

$2,597
Issuance of additional shares pursuant to various stock plans
 114,300



524





 112,233



510




Tax effects of stock plans
 



139





 



139




Stock-based compensation
 



39





 



52




Preferred stock cash dividends accrued (5%)
 





(1,674)


 





(2,512)

Accretion of preferred stock discount476
 





(476)

715
 





(715)

Comprehensive income:
 









 








Net income
 





13,064



 





22,879


Other comprehensive income (loss):
 









 








Change in unrealized gain on securities available for sale, net of tax
 







1,892

 







3,999
Change in unrealized gain on interest-only strips, net of tax
 







5

 







5
Change in unrealized gain (loss) on interest rate swaps, net of tax
 







(13)
 







(20)
BALANCE, JUNE 30, 2011$64,679
 38,097,327
 $38
 $172,066
 $131,275
 $4,481
BALANCE, SEPTEMBER 30, 2011$64,918
 38,095,260
 $38
 $172,065
 $140,013
 $6,581
                      
BALANCE, JANUARY 1, 2012$119,350

77,984,252

$78

$524,644

$142,909

$8,958
$119,350

77,984,252

$78

$524,644

$142,909

$8,958
Redemption of 122,000 shares of TARP preferred stock(122,000)          (122,000)          
Issuance of additional shares pursuant to various stock plans

29,855




200








32,008




200






Tax effects of stock plans























(6)





Stock-based compensation







1,141














1,959






Redemption of common stock warrant      (2,189)    
Preferred stock cash dividends accrued (5%)










(2,990)













(2,991)


Accretion of preferred stock discount2,650










(2,650)


2,650










(2,650)


Comprehensive income:































Net income










43,298














61,696



Other comprehensive income (loss):































Change in unrealized gain on securities available for sale, net of tax













(141)













1,840
Change in unrealized gain on interest-only strips, net of tax













27














27
Change in unrealized gain (loss) on interest rate swaps, net of tax













(13)













(20)
BALANCE, JUNE 30, 2012$0

78,014,107

$78

$525,985

$180,567

$8,831
BALANCE, SEPTEMBER 30, 2012$0

78,016,260

$78

$524,608

$198,964

$10,805
                      
See accompanying notes to condensed consolidated financial statements (unaudited)


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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2012 AND 2011
(Unaudited) 

Six Months Ended June 30,Nine Months Ended September 30,
2012
20112012
2011
(In thousands)(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES





Net income$43,298

$13,064
$61,696

$22,879
Adjustments to reconcile net income to net cash from operating activities:









Depreciation, amortization, net of discount accretion(14,353)
4,329
(18,518)
6,242
Stock-based compensation expense1,141

39
1,959

52
Provision for loan losses9,782

15,309
16,682

18,792
Valuation adjustment of loans held for sale668

35
703

35
Valuation adjustment of OREO1,067

105
2,659

491
Proceeds from sales of loans88,822

65,602
90,022

82,849
Originations of loans held for sale(73,003)
(43,007)(97,968)
(57,713)
Net gains on sales of SBA and other loans(6,014)
(5,514)(6,014)
(6,307)
Net change in bank owned life insurance(605)
(372)(902)
(560)
Net gains on sales and calls of securities available for sale(816)
(6)(949)
(70)
Net gains on sales of OREO(53)
(27)(41)
(135)
Net valuation (gains) losses on interest rate swaps and caps(13)
117
(24)
120
Change in accrued interest receivable1,377

579
558

391
Change in deferred income taxes7,604

5,131
7,625

6,524
Change in prepaid FDIC insurance938

2,056
1,508

2,995
Change in investments in affordable housing partnership1,206

0
1,591

0
Change in FDIC loss share receivable1,781

0
3,743

0
Change in other assets(10,384)
(12,008)(9,532)
(9,377)
Change in accrued interest payable(595)
(1,448)(1,068)
(1,078)
Change in other liabilities6,421

(2,676)11,754

1,017
Net cash provided by operating activities58,269

41,308
65,484

67,147
CASH FLOWS FROM INVESTING ACTIVITIES      
Net change in loans receivable(128,519)
(95,082)(326,194)
(171,323)
Proceeds from sales of securities available for sale1,883

0
28,446

0
Proceeds from sales of OREO3,160

2,238
4,341

2,945
Proceeds from matured term federal funds100,000

0
100,000

0
Proceeds from sales of equipment3

0
3

0
Purchase of premises and equipment(3,494)
(586)(5,572)
(833)
Purchase of securities available for sale(15,457)
(19,808)(111,696)
(64,517)
Purchase of Federal Reserve Bank stock0
 (5)0
 (5)
Redemption of Federal Home Loan Bank Stock2,595

1,432
3,873

2,156
Purchase of term federal funds(60,000)
0
(60,000)
0
Proceeds from matured, called, or paid-down securities available for sale84,735

76,143
135,686

139,903
Net cash used in investing activities(15,094)
(35,668)(231,113)
(91,674)
CASH FLOWS FROM FINANCING ACTIVITIES      
Net change in deposits(56,693)
56,066
114,344

91,082
Net change in secured borrowings0

(11,758)0

(11,057)
Redemption of subordinated debenture(10,400) 0
(10,400) 0
Redemption of preferred stock(122,000) 0
(122,000) 0
Payment of cash dividends on Preferred Stock(3,647)
(1,674)(3,648)
(2,512)
Proceeds from FHLB borrowings125,000

0
625,000

0
Repayment of FHLB borrowings(96,124)
(50,000)(506,145)
(50,000)
Issuance of additional stock pursuant to various stock plans200

524
200

510
Redemption of common stock warrant(2,189) 0
Net cash used in financing activities(163,664)
(6,842)95,162

28,023
NET CHANGE IN CASH AND CASH EQUIVALENTS(120,489)
(1,202)(70,467)
3,496
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD300,110

172,331
300,110

172,331
CASH AND CASH EQUIVALENTS, END OF PERIOD$179,621

$171,129
$229,643

$175,827
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION









Interest paid$15,732

$17,722
$23,429

$25,226
Income taxes paid$19,022

$15,169
$26,663

$15,182
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES      
Transfer from loans receivable to other real estate owned$3,262

$5,139
$3,470

$6,558
Transfer from loan receivables to loans held for sale$656

$17,309
$2,820

$23,279
Non-cash goodwill adjustment, net$591

0
$591

$0
See accompanying notes to condensed consolidated financial statements (unaudited)

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BBCN Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
1.BBCN Bancorp, Inc.
BBCN Bancorp, Inc. ("BBCN Bancorp", on a parent-only basis, and "Company,""Company", "we" or "our" on a consolidated basis), formerly named Nara Bancorp, Inc., is a bank holding company headquartered in Los Angeles, California. BBCN Bank ("BBCN Bank" or "the Bank"), formerly named Nara Bank, opened for business in June 1989 under the name “United Citizens National Bank” as a national banking association, was renamed “Nara Bank, National Association” in January 1994 and, in January 2005, became “Nara Bank” upon converting to a California state-chartered bank in connection with its holding company reorganization transaction.bank. On November 30, 2011, we merged with Center Financial Corporation ("Center Financial" or "Center") in a merger of equals transaction. ConcurrentConcurrently with the merger, Nara Bancorp, Inc. ("Nara") changed its name to "BBCN Bancorp, Inc." At the bank level, Nara Bank merged into Center Bank and, concurrentconcurrently with the merger, Center Bank changed its name to "BBCN Bank." The Bank has branches in California, the New York metropolitan area, New Jersey, the Seattle area of Washington and Chicago, as well as loan production offices in Atlanta, Dallas, SeattleDenver and Denver.Seattle.


2.Basis of Presentation
Our condensed consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations.
The condensed consolidated financial statements include the accounts of BBCN Bancorp and its wholly ownedwholly-owned subsidiaries, principally BBCN Bank. All intercompany transactions and balances have been eliminated in consolidation.
We believe that we have made all adjustments, consisting solely of normal recurring accruals, necessary to fairly present our financial position at JuneSeptember 30, 2012 and the results of our operations for the three and sixnine months then ended. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.
        
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are susceptible to change in the near term relate to the determination of the allowance and provision for loan losses, the evaluation of other than temporary impairment of investment securities, accounting for derivatives and hedging activities, determiningthe determination of the carrying value for cash surrender value of life insurance, the determination of the carrying value of goodwill and other intangible assets, accounting for deferred tax assets and related valuation allowances, the determination of the fair values of investment securities and other financial instruments, accounting for lease arrangements, accounting for incentive compensation, profit sharing and bonus payments and the valuation of servicing assets.
These unaudited condensed consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in our 2011 Annual Report on Form 10-K.
Recent Accounting Pronouncements:
FASB ASC 350 – In September 2011, the FASB issued an update (ASU No. 2011-08, Testing Goodwill for Impairment) impacting FASB ASC 350-20, Intangibles – Goodwill and Other. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If after assessing the totality of events or circumstances, it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If an entity concludes that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, the entity is required to perform the first step of the two-step impairment. If the carrying amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure the amount of the impairment loss. This update became effective for the Company for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company has performed an analysis under this approach and it did not have a material impact on the consolidated financial statements.
8


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FASB ASC 220 – In December 2011, the FASB issued an update (ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05) impacting FASB ASC 220, Comprehensive Income. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement where net income is presented and the statement where other comprehensive income is presented. An entity should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. This update became effective for the Company for interim and annual reporting periods beginning after December 15, 2011 and did not have a material impact on the consolidated financial statements.
FASB ASC 805 – In October 2012, the FASB issued an update (ASU No. 2012-06, Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution) impacting FASB ASC 805, Business Combinations. This update specifies that when an entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). This update becomes effective for interim and annual periods beginning on or after December 15, 2012, and is consistent with the Company’s current accounting treatment of changes in expected cash flows and the indemnification asset and will not have a material impact on the consolidated financial statements.

3.Center Merger
On November 30, 2011, the merger of Center and Nara (the "Merger") was completed. Pursuant to the merger agreement, holders of Center common stock received 0.7805 shares of a share ofBBCN common stock of BBCN for each share of Center common stock held immediately prior to the effective time of the merger,merger. The total Company shares issued to each Center shareholder was rounded down to the nearest whole share plusand cash in lieu of the issuance ofwas paid for any remaining fractional shares, resulting in our issuance of approximatelyshares. Approximately 31.2 million shares of Company common stock, with a Merger date fair value of $292 million., were issued to Center shareholders. Outstanding Center stock options and restricted stock awards were converted into stock options with respect to shares of BBCN common stock or shares of BBCN common stock, respectively, with appropriate adjustments to reflect the share exchange ratio.
The Merger was accounted for by BBCN using the acquisition method of accounting under ASC 805, Business Combinations. Accordingly, the assets and liabilities of Center were recorded at their respective fair values and represent management's estimates based on available information. Through the Merger we acquired Center Bank's 21 full-service branch offices, as well as two Loan Production Offices,loan production offices, $326 million in cash, loans with a fair value of $1.4 billion, deposits with a fair value of $1.8 billion, and borrowings with a fair value of $149 million. Goodwill of approximately $88 million was initially recorded in conjunction with the transaction. The goodwill related to the Merger represents the future economic benefit arising from the merger is intangibleacquisition of Center Financial. The future benefit toeconomic benefits include the

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Company of acquiring Center Financial, thereby creating a platform forthat can support future operations,operations; strengthening our existing presence in the primary existing markets in Southern California,California; expanding our national presence through the addition of Center's offices in Chicago, Seattle and Northern California,California; and realizing annualfuture cost synergies. The results of Center's operations are included in our Consolidated Statements of Income fromsubsequent to the date of merger.the Merger.
The change in goodwill during the three and sixnine months ended JuneSeptember 30, 2012 and 2011 is as follows:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(In Thousands)(In thousands)
Beginning of period$89,882
 $2,509
 $90,473
 $2,509
$89,882
 $2,509
 $90,473
 $2,509
Adjustment0
 0
 (591) 0
0
 0
 (591) 0
Impairment0
 0
 0
 0
0
 0
 0
 0
End of period$89,882
 $2,509
 $89,882
 $2,509
$89,882
 $2,509
 $89,882
 $2,509

The goodwill arising from the Merger was reduced by a net $591 thousand to $87.4 million due to adjustments of certain acquisition date fair value asset and liability estimates during first quarter 2012.  There are a number of estimatesEstimates made in the acquisition date accounting as of the acquisition date that may beare subject to revisions during the subsequent one-year measurement period.  Due to the immateriality of the

11

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revision amount, the Company elected not to retrospectively adjust the acquisition date accounting and instead recorded the adjustments in first quarter 2012. Goodwill is not amortized for book purposes and is not deductible for tax purposes.

Direct costs related to the Merger were expensed as incurred. During the three months ended JuneSeptember 30, 2012, we incurred $1.3 million183 thousand in merger and integration expenses, including $0.5 million33 thousand in salaries and benefits and $0.9 million150 thousand in professional fees. During the three months ended JuneSeptember 30, 2011, we incurred $381574 thousand in merger and integration expenses. During the sixnine months ended JuneSeptember 30, 2012, we incurred $3.13.3 million in merger and integration expenses, including $1.1 million in salaries and benefits and $2.02.2 million in professional fees. During the sixnine months ended JuneSeptember 30, 2011, we incurred $892 thousand1.5 million in merger and integration expenses.
   

4.Stock-Based Compensation

The Company has a stock-based incentive plan, the 2007 BBCN Bancorp Equity Incentive Plan (“2007 Plan”). The 2007 Plan, approved by our stockholders on May 31, 2007, was amended and restated on July 25, 2007 and again on December 1, 2011. The 2007 Plan provides for grants of stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and performance units (sometimes referred to individually or collectively as “awards”) to non-employee directors, officers, employees and consultants of the Company. Stock options may be either “incentive stock options” (“ISOs”), as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options (“NQSOs”).
The 2007 Plan gives the Company flexibility to (i) attract and retain qualified non-employee directors, executives and other key employees and consultants with appropriate equity-based awards, (ii) motivate high levels of performance, (iii) recognize employee contributions to the Company’s success, and (iv) align the interests of Plan participants with those of the Company’s stockholders. The exercise price for shares under an ISO may not be less than 100% of fair market value (“FMV”) on the date the award is granted under Code Section 422. Similarly, under the terms of the 2007 Plan the exercise price for SARs and NQSOs may not be less than 100% of FMV on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2007 Plan.
ISOs, SARs and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units will be granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recorded over the vesting period. 
ConcurrentConcurrently with the merger, Center's stock-based incentive plan, the Center Financial Corporation 2006 Stock Incentive Plan, adopted April 12, 2006, as amended and restated June 13, 2007 ("2006 Plan") converted, was assumed by BBCN, with the outstanding share awards of 585,860 shares and the 2,443,513 shares available for future grants at November 30, 2011 being converted at an exchange ratio of 0.7805.

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The 2006 Plan provides for the granting of incentive stock options to officers and employees, and non-qualified stock options and restricted stock awards to employees (including officers) and non-employee directors. The optionsoption prices of all options granted under the 2006 Plan must be not less than 100% of the fair market value at the date of grant. All options granted generally vest at the rate of 20% per year except that the options granted to the non-employee directors vest at the rate of 33% per year. All options not exercised generally expire ten years after the date of grant.
From bothUnder the 2007 and 2006 plans 2,630,4512,630,050 shares were available for future grants as of JuneSeptember 30, 2012.
The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2007 Plan and the 2006 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.
The following is a summary of stock option activity under the 2007 and 2006 Plans for the sixnine months ended JuneSeptember 30, 2012:
 

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Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Outstanding - January 1, 2012830,011
 $16.35
  830,011
 $16.35
  
Granted0
 0
  0
 0
  
Exercised(28,639) 7.11
  (28,639) 7.11
  
Forfeited0
 0
  0
 0
  
Outstanding - June 30, 2012801,372
 $16.68
 5.94 $584,000
Options exercisable - June 30, 2012791,146
 $16.66
 5.89 $584,000
Unvested options expected to vest after June 30, 201210,226
 $18.63
 9.42 $0
Outstanding - September 30, 2012801,372
 $16.68
 5.68 $992,000
Options exercisable - September 30, 2012798,484
 $16.68
 5.67 $992,000
Unvested options expected to vest after September 30, 20122,888
 $15.95
 9.17 $0

The following is a summary of restricted and performance unit activity under the 2007 and 2006 Plans for the sixnine months ended JuneSeptember 30, 2012:
 
Number of
Shares
 
Weighted-
Average
Grant
Date Fair
Value
 
Weighted-
Average
Remaining
Contractual
Life (Years)
Number of
Shares
 
Weighted-
Average
Grant
Date Fair
Value
 
Weighted-
Average
Remaining
Contractual
Life (Years)
Outstanding - January 1, 201252,480
 $7.42
 52,480
 $7.42
 
Granted497,710
 10.42
 502,710
 10.45
 
Vested(2,000) 8.52
 (9,401) 6.69
 
Forfeited0
 0
 (4,599) 7.46
 
Outstanding - June 30, 2012548,190
 $10.21
 9.52
Outstanding - September 30, 2012541,190
 $10.31
 9.31

The total fair value of performance units vested for the sixnine months endingended JuneSeptember 30, 2012 and 2011 was $22100 thousand and $7956 thousand, respectively.
The amount charged against income, before income tax benefit of $308328 thousand and $5 thousand, in relation to the stock-based payment arrangements, was $743818 thousand and $1213 thousand for the three months endingended JuneSeptember 30, 2012 and 2011, respectively. The amount charged against income, before income tax benefit of $477805 thousand and $1621 thousand, in relation to the stock-based payment arrangements, was $1.12.0 million and $3952 thousand for the sixnine months endingended JuneSeptember 30, 2012 and 2011, respectively. At JuneSeptember 30, 2012, unrecognized compensation expense related to non-vested stock option grants and restricted and performance units aggregated $4.33.6 million, and is expected to be recognized over a remaining weighted average vesting period of 1.691.68 years.
The estimated annual stock-based compensation expense as of JuneSeptember 30, 2012 for each of the succeeding years is indicated in the table below:
 
 
Stock Based
Compensation Expense
 (In thousands)
Remainder of 2012$751
For the year ended December 31: 
20131,412
2014659
2015639
2016101
20177
Total$3,569



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Stock Based
Compensation Expense
 (In thousands)
Remainder of 2012$1,480
For the year ended December 31: 
20131,413
2014666
2015645
2016102
20177
Total$4,313


5.Earnings Per Share (“EPS”)
Basic EPS does not reflect the possibility of dilution that could result from the issuance of additional shares of common stock upon exercise or conversion of outstanding securities, and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted to common stock that would then share in our earnings. For the three months ended JuneSeptember 30, 2012 and 2011, stock options and restricted shares awards for approximately 564565 thousand shares and 190381 thousand shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were antidilutive. For the sixnine months ended JuneSeptember 30, 2012 and 2011, stock options and restricted shares awards for approximately 564 thousand and 150376 thousand shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were antidilutive. Additionally, warrants to purchase 337,000 shares of common stock (related to the TARP Capital Purchase Plan) were also antidilutive and excluded for the three and sixnine months ended JuneSeptember 30, 2012. Warrants to purchase 337,000521,000 shares of common stock (related to the TARP Capital Purchase Plan) were antidilutive and excluded for the three and sixnine months ended JuneSeptember 30, 2011.
The following table shows the computation of basic and diluted EPS for the three and six months ended JuneSeptember 30, 2012 and 2011.
 
For the three months ended June 30,For the three months ended September 30,
2012 20112012 2011
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
(Dollars in thousands, except share and per share data)(In thousands, except share and per share data)
Net income as reported$19,364
     $6,318
    $18,398
     $9,815
    
Less: preferred stock dividends and accretion of preferred stock discount(3,771)     (1,075)    0
     (1,077)    
Basic EPS - common stock$15,593
 78,007,270
 $0.20
 $5,243
 38,047,371
 $0.14
$18,398
 78,015,960
 $0.24
 $8,738
 38,098,142
 $0.23
Effect of Dilutive Securities:                      
Stock Options and Performance Units  79,063
     34,652
    87,835
     5,541
  
Common stock warrants  55,194
     0
    0
     0
  
Diluted EPS - common stock$15,593
 78,141,527
 $0.20
 $5,243
 38,082,023
 $0.14
$18,398
 78,103,795
 $0.24
 $8,738
 38,103,683
 $0.23


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For the six months ended June 30,For the nine months ended September 30,
June 30, 2012 June 30, 20112012 2011
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
(Dollars in thousands, except share and per share data)(In thousands, except share and per share data)
Net income as reported$43,298
     $13,064
    $61,696
     $22,879
    
Less: preferred stock dividends and accretion of preferred stock discount(5,640)     (2,150)    (5,640)     (3,227)    
Basic EPS - common stock$37,658
 77,997,305
 $0.48
 $10,914
 38,017,473
 $0.29
$56,056
 78,004,458
 $0.72
 $19,652
 38,044,625
 $0.52
Effect of Dilutive Securities:                      
Stock Options and Performance Units  75,621
     62,177
    77,601
     25,516
  
Common stock warrants  48,333
     0
    0
     0
  
Diluted EPS - common stock$37,658
 78,121,259
 $0.48
 $10,914
 38,079,650
 $0.29
$56,056
 78,082,059
 $0.72
 $19,652
 38,070,141
 $0.52



14

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6.    Securities Available for Sale
The following is a summary of securities available for sale as of the dates indicated:
 
At June 30, 2012At September 30, 2012
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
(In thousands)(In thousands)
Debt securities:              
U.S. Treasury$0
 $0
 $0
 $0
$0
 $0
 $0
 $0
GSE collateralized mortgage obligations*189,221
 4,335
 (25) 193,531
230,819
 4,875
 (25) 235,669
GSE mortgage-backed securities*439,123
 10,967
 (245) 449,845
414,487
 13,243
 (141) 427,589
Trust preferred security4,494
 0
 (1,112) 3,382
4,498
 0
 (961) 3,537
Municipal bonds4,507
 551
 0
 5,058
4,506
 633
 0
 5,139
Total debt securities637,345
 15,853
 (1,382) 651,816
654,310
 18,751
 (1,127) 671,934
Mutual funds - GSE mortgage related securities14,710
 326
 0
 15,036
14,710
 415
 0
 15,125
$652,055
 $16,179
 $(1,382) $666,852
$669,020
 $19,166
 $(1,127) $687,059
At December 31, 2011At December 31, 2011
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
(In thousands)(In thousands)
Debt securities:              
U.S. Treasury$300
 $0
 $0
 $300
$300
 $0
 $0
 $300
GSE collateralized mortgage obligations*222,400
 5,480
 (44) 227,836
222,400
 5,480
 (44) 227,836
GSE mortgage-backed securities*477,555
 10,322
 (123) 487,754
477,555
 10,322
 (123) 487,754
Trust preferred securities5,532
 0
 (1,184) 4,348
5,532
 0
 (1,184) 4,348
Municipal bonds5,257
 507
 0
 5,764
5,257
 507
 0
 5,764
Total debt securities711,044
 16,309
 (1,351) 726,002
711,044
 16,309
 (1,351) 726,002
Mutual funds - GSE mortgage related securities14,710
 227
 (19) 14,918
14,710
 227
 (19) 14,918
$725,754
 $16,536
 $(1,370) $740,920
$725,754
 $16,536
 $(1,370) $740,920
 * Government Sponsored Enterprises (GSE) investments are backed by GNMA, FNMA and FHLMC, and are all residential based investments.
Government Sponsored Enterprises (GSE) investments were issued by GNMA, FNMA and FHLMC and are all residential mortgage-backed investments.
As of JuneSeptember 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.
The proceeds from sales of securities and the associated gains are listed below:
 
For the three months ended June 30, For the six months ended June 30,For the three months ended September 30, For the nine months ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(In thousands)(In thousands)
Proceeds$0
 $0
 $1,883
 $0
$26,563
 $0
 $28,446
 $0
Gross gains0
 0
 816
 0
132
 0
 948
 0
Gross losses0
 0
 0
 0
0
 0
 0
 0

The amortized cost and estimated fair value of debt securities at JuneSeptember 30, 2012, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 

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Amortized
Cost
 
Estimated
Fair Value
Amortized
Cost
 
Estimated
Fair Value
(In thousands)(In thousands)
Available for sale:      
Due within one year$0
 $0
$0
 $0
Due after one year through five years340
 359
340
 358
Due after five years through ten years2,480
 2,791
3,883
 4,451
Due after ten years6,181
 5,290
4,781
 3,867
GSE collaterized mortgage obligations189,221
 193,531
230,819
 235,669
GSE mortgage-backed securities439,123
 449,845
414,487
 427,589
Mutual funds - GSE mortgage related securities14,710
 15,036
14,710
 15,125
$652,055
 $666,852
$669,020
 $687,059

Securities with carrying values of approximately $380.9348.9 million and $425.5 million at JuneSeptember 30, 2012 and December 31, 2011, respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
The following table shows our investments’ gross unrealized losses and estimated fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.
 
At June 30, 2012At September 30, 2012
Less than 12 months 12 months or longer TotalLess than 12 months 12 months or longer Total
Description of
Securities
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 (In thousands) (In thousands)
GSE collaterized mortgage obligations3
 $6,879
 $(25) 0
 $0
 $0
 3
 $6,879
 $(25)4
 $7,323
 $(25) 0
 $0
 $0
 4
 $7,323
 $(25)
GSE mortgage-backed securities5
 35,691
 (217) 1
 3,956
 (28) 6
 39,647
 (245)6
 9,541
 (107) 1
 3,756
 (34) 7
 13,297
 (141)
Trust preferred security0
 0
 0
 1
 3,382
 (1,112) 1
 3,382
 (1,112)0
 0
 0
 1
 3,537
 (961) 1
 3,537
 (961)
Mutual funds - GSE mortgage related security0
 0
 0
 0
 0
 0
 0
 0
 0
0
 0
 0
 0
 0
 0
 0
 0
 0
8
 $42,570
 $(242) 2
 $7,338
 $(1,140) 10
 $49,908
 $(1,382)10
 $16,864
 $(132) 2
 $7,293
 $(995) 12
 $24,157
 $(1,127)

 At December 31, 2011
 Less than 12 months 12 months or longer Total
Description of
Securities
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
  (In thousands)
GSE collaterized mortgage obligations2
 $3,305
 $(28) 1
 $14,007
 $(16) 3
 $17,312
 $(44)
GSE mortgage-backed securities5
 38,082
 (123) 0
 0
 0
 5
 38,082
 (123)
Trust Preferred security0
 0
 0
 1
 3,303
 (1,184) 1
 3,303
 (1,184)
Mutual funds - GSE mortgage related security1
 5,229
 (19) 0
 0
 0
 1
 5,229
 (19)
 8
 $46,616
 $(170) 2
 $17,310
 $(1,200) 10
 $63,926
 $(1,370)

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 At December 31, 2011
 Less than 12 months 12 months or longer Total
Description of
Securities
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
 
Number of
Securities
 Fair Value 
Gross
Unrealized
Losses
  (In thousands)
GSE collaterized mortgage obligations2
 $3,305
 $(28) 1
 $14,007
 $(16) 3
 $17,312
 $(44)
GSE mortgage-backed securities5
 38,082
 (123) 0
 0
 0
 5
 38,082
 (123)
Trust Preferred security0
 0
 0
 1
 3,303
 (1,184) 1
 3,303
 (1,184)
Mutual funds - GSE mortgage related security1
 5,229
 (19) 0
 0
 0
 1
 5,229
 (19)
 8
 $46,616
 $(170) 2
 $17,310
 $(1,200) 10
 $63,926
 $(1,370)
We evaluate securities for other-than-temporary-impairment ("OTTI") on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and the extent to which the fair value of the securities has been less than our cost for the securities, and our intention to sell, or whether it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, we consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
The trust preferred security at JuneSeptember 30, 2012 has an amortized cost of $4.5 million and an unrealized loss of $1.11.0 million at JuneSeptember 30, 2012. The trust preferred security is scheduled to mature in May 2047, withand had a first call date option in May 2012. Management determined this unrealized loss did not represent OTTI at JuneSeptember 30, 2012 as the investment is rated investment grade and there are no credit quality concerns with the obligor. The market value decline is deemed to be due to the current market volatility and is not reflective of management’s expectations of our ability to fully recover this investment, which may be at maturity. Interest on the trust preferred security been paid as agreed and management believes this will continue in the future and the trust preferred security will be repaid in full as scheduled. For these reasons, no OTTI was recognized on the trust preferred security at JuneSeptember 30, 2012.
We consider the losses on our investments in an unrealized loss positionpositions at JuneSeptember 30, 2012 to be temporary based on: 1) the likelihood of recovery; 2) the information relative to the extent and duration of the decline in market value; and 3) the Company’s intention not to sell, and our determination that it is more likely than not that we will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.



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Table of Contents

7.Loans Receivable and Allowance for Loan Losses
The following is a summary of loans receivable by major category:
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
(In thousands)(In thousands)
Loan portfolio composition      
Real estate loans:      
Residential$1,931
 $2,043
$3,354
 $2,043
Commercial & industrial2,717,924
 2,631,880
2,881,079
 2,631,880
Construction43,365
 44,756
56,433
 44,756
Total real estate loans2,763,220
 2,678,679
2,940,866
 2,678,679
Commercial business877,405
 849,576
898,977
 849,576
Trade finance175,638
 146,684
177,285
 146,684
Consumer and other60,732
 66,631
54,442
 66,631
Total loans outstanding3,876,995
 3,741,570
4,071,570
 3,741,570
Less: deferred loan fees(2,457) (2,744)(2,076) (2,744)
Gross loans receivable3,874,538
 3,738,826
4,069,494
 3,738,826
Less: allowance for loan losses(65,505) (61,952)(65,952) (61,952)
Loans receivable, net$3,809,033
 $3,676,874
$4,003,542
 $3,676,874

Our loan portfolio is made up of four segments: real estate loans, commercial business, trade finance and consumer and other. These segments are further segregated between our loans accounted for under the amortized cost method (referred to as "legacy" loans)"Legacy Loans") and loans acquired (referred to as "acquired" loans), as acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses.losses (referred to as "Acquired Loans"). The loans acquired loansfrom Center are further segregated between Credit Impaired Loans (ASC 310-30, Loans Acquired(loans with the Credit Deterioration) and Performing Loans (pass graded loans acquired from Centercredit deterioration at the time of merger). The following table presents the outstanding principal balanceMerger and accounted for under ASC 310-30) and Performing Loans (loans that were pass graded at the related carrying amounttime of the acquired loans included in our Consolidated Statements of Condition at June 30, 2012 and December 31, 2011:Merger).
 June 30, 2012 December 31, 2011
 (In thousands)
Outstanding principal balance$1,200,216
 $1,458,133
Carrying amount1,110,669
 1,347,524

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The following table presents changes in the accretable discount on the acquired Credit Impaired Loans in the merger for the three and sixnine months ended JuneSeptember 30, 2012:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(In thousands) (In thousands)(In thousands)
Balance at beginning of period$29,788
 $0
 $31,999
 $0
$22,966
 $0
 $31,999
 $0
Accretion(3,890) 0
 (7,451) 0
(3,415) 0
 (10,866) 0
Changes in expected cash flows(2,932) 0
 (1,582) 0
516
 0
 (1,066) 0
Balance at end of period$22,966
 $0
 $22,966
 $0
$20,067
 $0
 $20,067
 $0

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial reporting date and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans. The accretable yield will change from period to period due to the followings: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income, 2) indicies for variable rates of interest on acquired loans may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change.


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Table of Contents

The activity in the allowance for loan losses by portfolio segment for the three and sixnine months ended JuneSeptember 30, 2012 is as follows:
 
Legacy Acquired TotalLegacy Acquired Total
Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other 
(In thousands)(In thousands)
Three Months Ended June 30, 2012
Three Months Ended September 30, 2012Three Months Ended September 30, 2012
Balance, beginning of period$35,809
 $21,591
 $1,823
 $1,010
 $1,543
 $517
 $16
 $0
 $62,309
$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505
Provision (credit) for loan losses2,650
 588
 1,341
 569
 895
 440
 624
 75
 7,182
5,499
 988
 (495) (418) 750
 784
 (157) (51) 6,900
Loans charged off(2,330) (1,534) 0
 (482) (155) (590) (300) (218) (5,609)(1,832) (5,574) 0
 (2) (242) (118) 0
 (1) (7,769)
Recoveries of charged offs1,108
 235
 0
 18
 0
 30
 0
 232
 1,623
973
 275
 0
 24
 0
 15
 0
 29
 1,316
Balance, end of period$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505
$41,877
 $16,569
 $2,669
 $719
 $2,791
 $1,078
 $183
 $66
 $65,952
Six Months Ended June 30, 2012                 
Nine Months Ended September 30, 2012                 
Balance, beginning of period$39,040
 $20,681
 $1,786
 $445
 $0
 $0
 $0
 $0
 $61,952
$39,040
 $20,681
 $1,786
 $445
 $0
 $0
 $0
 $0
 $61,952
Provision (credit) for loan losses1,333
 2,215
 1,318
 1,118
 2,149
 917
 640
 92
 9,782
6,831
 3,203
 823
 700
 2,899
 1,701
 483
 42
 16,682
Loans charged off(4,264) (2,896) 0
 (483) (169) (637) (300) (243) (8,992)(6,095) (8,470) 0
 (485) (411) (755) (300) (244) (16,760)
Recoveries of charged offs1,128
 880
 60
 35
 303
 117
 0
 240
 2,763
2,101
 1,155
 60
 59
 303
 132
 0
 268
 4,078
Balance, end of period$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505
$41,877
 $16,569
 $2,669
 $719
 $2,791
 $1,078
 $183
 $66
 $65,952

The activity in the allowance for loan losses by portfolio segment for the three and sixnine months ended JuneSeptember 30, 2011 is as follows:
 
Legacy TotalLegacy Total
Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other 
(In thousands)(In thousands)
Three Months Ended June 30, 2011         
Three Months Ended September 30, 2011         
Balance, beginning of period$40,910
 $21,771
 $170
 $489
 $63,340
$39,063
 $20,058
 $188
 $387
 $59,696
Provision (credit) for loan losses10,394
 (239) 18
 (126) 10,047
(429) 2,007
 1,602
 303
 3,483
Loans charged off(12,752) (2,431) 0
 (8) (15,191)(2,358) (1,479) 0
 (133) (3,970)
Recoveries of charged offs511
 957
 0
 32
 1,500
455
 321
 0
 24
 800
Balance, end of period$39,063
 $20,058
 $188
 $387
 $59,696
$36,731
 $20,907
 $1,790
 $581
 $60,009
Six Months Ended June 30, 2011         
Nine Months Ended September 30, 2011         
Balance, beginning of period$36,563
 $24,930
 $192
 $635
 $62,320
$36,563
 $24,930
 $192
 $635
 $62,320
Provision (credit) for loan losses17,589
 (1,944) (4) (332) 15,309
17,161
 62
 1,598
 (28) 18,793
Loans charged off(15,834) (4,544) 0
 (123) (20,501)(18,193) (6,022) 0
 (256) (24,471)
Recoveries of charged offs745
 1,616
 0
 207
 2,568
1,200
 1,937
 0
 230
 3,367
Balance, end of period$39,063
 $20,058
 $188
 $387
 $59,696
$36,731
 $20,907
 $1,790
 $581
 $60,009


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The following table disaggregates the allowance for loan losses and the loans receivables by impairment methodology at JuneSeptember 30, 2012 and December 31, 2011:

June 30, 2012September 30, 2012
Legacy Acquired TotalLegacy Acquired Total
Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other 
(In thousands)(In thousands)
Allowance for loan losses:
Individually evaluated for impairment$5,735
 $6,919
 $57
 $0
 $368
 $121
 $0
 $0
 $13,200
$4,510
 $2,529
 $82
 $0
 $678
 $905
 $0
 $0
 $8,704
Collectively evaluated for impairment31,502
 13,961
 3,107
 1,115
 (4) 276
 340
 89
 50,386
37,367
 14,040
 2,587
 719
 1
 173
 183
 66
 55,136
Loans acquired with credit deterioration0
 0
 0
 0
 1,919
 0
 0
 0
 1,919
0
 0
 0
 0
 2,112
 0
 0
 0
 2,112
Total$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505
$41,877
 $16,569
 $2,669
 $719
 $2,791
 $1,078
 $183
 $66
 $65,952
                                  
Loans outstanding:                                  
Individually evaluated for impairment$48,694
 $23,581
 $4,970
 $136
 $12,039
 $1,949
 $0
 $0
 $91,369
$35,031
 $24,912
 $5,968
 $134
 $13,611
 $2,663
 $0
 $0
 $82,319
Collectively evaluated for impairment1,896,017
 606,281
 159,289
 27,358
 700,593
 191,281
 9,783
 30,065
 3,620,667
2,152,581
 689,949
 161,907
 28,014
 635,692
 133,098
 9,102
 23,197
 3,833,540
Loans acquired with credit deterioration0
 0
 0
 0
 105,877
 54,313
 1,596
 3,173
 164,959
0
 0
 0
 0
 103,951
 48,355
 308
 3,097
 155,711
Total$1,944,711
 $629,862
 $164,259
 $27,494
 $818,509
 $247,543
 $11,379
 $33,238
 $3,876,995
$2,187,612
 $714,861
 $167,875
 $28,148
 $753,254
 $184,116
 $9,410
 $26,294
 $4,071,570

December 31, 2011December 31, 2011
Legacy Acquired TotalLegacy Acquired Total
Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other 
(In thousands)(In thousands)
Allowance for loan losses:
Individually evaluated for impairment$10,525
 $7,168
 $342
 $0
 $0
 $0
 $0
 $0
 $18,035
$10,525
 $7,168
 $342
 $0
 $0
 $0
 $0
 $0
 $18,035
Collectively evaluated for impairment28,515
 13,513
 1,444
 445
 0
 0
 0
 0
 43,917
28,515
 13,513
 1,444
 445
 0
 0
 0
 0
 43,917
Loans acquired with credit deterioration0
 0
 0
 0
 0
 0
 0
 0
 0
0
 0
 0
 0
 0
 0
 0
 0
 0
Total$39,040
 $20,681
 $1,786
 $445
 $0
 $0
 $0
 $0
 $61,952
$39,040
 $20,681
 $1,786
 $445
 $0
 $0
 $0
 $0
 $61,952
                                  
Loans outstanding:                                  
Individually evaluated for impairment$51,752
 $25,150
 $4,997
 $150
 $0
 $0
 $0
 $0
 $82,049
$53,023
 $34,922
 $4,963
 $149
 $0
 $0
 $0
 $0
 $93,057
Collectively evaluated for impairment1,694,483
 507,841
 97,013
 12,660
 824,786
 250,050
 43,327
 50,003
 3,480,163
1,744,740
 529,195
 100,658
 13,963
 780,152
 223,928
 40,110
 48,700
 3,481,446
Loans acquired with credit deterioration0
 0
 0
 0
 107,658
 66,535
 1,347
 3,818
 179,358
0
 0
 0
 0
 100,764
 61,531
 953
 3,819
 167,067
Total$1,746,235
 $532,991
 $102,010
 $12,810
 $932,444
 $316,585
 $44,674
 $53,821
 $3,741,570
$1,797,763
 $564,117
 $105,621
 $14,112
 $880,916
 $285,459
 $41,063
 $52,519
 $3,741,570
As of JuneSeptember 30, 2012 and December 31, 2011, we had a liability for unfunded commitments of $802 thousand and $686 thousand, respectively. For the three months ended JuneSeptember 30, 2012 and 2011, we recognized provision for credit losses related to our unfunded commitments of $116 thousand0 and $0. For the sixnine months ended JuneSeptember 30, 2012 and 2011, we recognized provision for credit losses related to our unfunded commitments of $116 thousand and $0.

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IndividuallyThe recorded investment in individually impaired loans werewas as follows:
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
(In Thousands)(In thousands)
With Allocated Allowance      
Without charge-off$70,704
 $67,202
$72,827
 $67,262
With charge-off2,057
 341
448
 341
With No Allocated Allowance      
Without charge-off15,073
 8,123
5,111
 19,064
With charge-off3,919
 6,383
3,933
 6,390
Allowance on Impaired Loans(13,200) (18,035)(8,704) (18,035)
Impaired Loans, net of allowance$78,553
 $64,014
$73,615
 $75,022
Note that the impaired loans balances represent recorded investment balances.

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The following table details the amount of ourtables detail impaired loans by class with no related allowance for loan losses, as well as the amount of impaired loans for which there is a related allowance for loan losses(Legacy and Acquired) as of JuneSeptember 30, 2012 andDecember 31, 2011 and for the three and nine months ended September 30, 2012 and for the year ended December 31, 2011. Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value, and in some circumstances, have been written down to their current carrying value, which is based on the fair value of the collateral.value.
 
 As of June 30, 2012 For the six months ended June 30, 2012 For the three months ended June 30, 2012 As of September 30, 2012 For the nine months ended September 30, 2012 For the three months ended September 30, 2012
Total Impaired Loans Recorded Investment Gross Carrying Value* Unpaid Contractual Principal Balance 
Related
Allowance
 
Average
Recorded Investment
 Interest Income Recognized during Impairment 
Average
Recorded Investment
 Interest Income Recognized during Impairment Recorded Investment* Unpaid Contractual Principal Balance 
Related
Allowance
 
Average
Recorded Investment*
 Interest Income Recognized during Impairment 
Average
Recorded Investment*
 Interest Income Recognized during Impairment
 
 (In thousands)
As of and for the three and six months ended June 30, 2012
With Related Allowance:                              
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                              
Retail 3,340
 3,291
 3,381
 (604) 2,571
 53
 2,952
 21
 4,453
 4,608
 (585) 3,021
 124
 3,872
 39
Hotel & Motel 23,210
 23,117
 24,404
 (3,210) 21,137
 433
 22,986
 211
 15,580
 16,932
 (2,457) 19,673
 327
 19,349
 106
Gas Station & Car Wash 3,312
 3,304
 5,065
 (908) 3,676
 46
 4,381
 23
 1,688
 1,726
 (539) 3,162
 69
 2,496
 23
Mixed Use 5,253
 5,242
 5,283
 (163) 4,401
 103
 5,187
 46
 1,837
 1,914
 (260) 3,753
 0
 3,540
 0
Industrial & Warehouse 1,446
 1,442
 1,456
 (394) 3,658
 27
 3,355
 13
 2,248
 2,332
 (443) 3,297
 67
 1,845
 22
Other 11,964
 11,942
 12,120
 (824) 13,132
 179
 12,264
 87
 15,249
 17,293
 (904) 13,675
 483
 13,596
 160
Real Estate—Construction 0
 0
 0
 0
 42
 0
 0
 0
 0
 0
 0
 32
 0
 0
 0
Commercial Business 23,696
 23,606
 26,236
 (7,040) 23,126
 426
 24,982
 209
 26,191
 28,873
 (3,434) 23,850
 1,048
 24,899
 341
Trade Finance 540
 518
 968
 (57) 1,837
 14
 491
 7
 5,968
 6,417
 (82) 2,856
 108
 3,243
 63
Consumer and Other 0
 0
 0
 0
 160
 0
 240
 0
 60
 60
 0
 135
 3
 30
 2
 $72,761
 $72,462
 $78,913
 $(13,200) $73,740
 $1,281
 $76,838
 $617
 $73,274
 $80,155
 $(8,704) $73,454
 $2,229
 $72,870
 $756
With No Related Allowance                              
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                              
Retail 953
 930
 3,627
 0
 1,321
 0
 1,288
 0
 948
 3,847
 0
 1,384
 0
 939
 0
Hotel & Motel 282
 282
 491
 0
 94
 0
 141
 0
 333
 2,338
 0
 154
 0
 308
 0
Gas Station & Car Wash 1,675
 1,667
 4,127
 0
 964
 0
 1,302
 0
 2,649
 5,593
 0
 1,382
 0
 2,158
 0
Mixed Use 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
Industrial & Warehouse 5,893
 5,874
 11,450
 0
 4,743
 18
 5,789
 9
 376
 2,814
 0
 3,644
 0
 3,125
 0
Other 1,937
 1,931
 3,346
 0
 2,339
 17
 2,457
 8
 1,569
 2,528
 0
 2,269
 0
 1,750
 0
Real Estate—Construction 1,714
 1,710
 1,710
 0
 1,719
 56
 1,719
 28
 1,710
 1,710
 0
 1,710
 85
 1,710
 28
Commercial Business 1,920
 1,924
 3,188
 0
 3,240
 10
 1,992
 5
 1,384
 3,818
 0
 9,442
 15
 5,818
 5
Trade Finance 4,482
 4,452
 4,452
 0
 3,079
 57
 4,384
 42
 0
 0
 0
 2,295
 0
 2,226
 0
Consumer and Other 136
 136
 171
 0
 144
 0
 141
 0
 74
 93
 0
 126
 0
 105
 0
 $18,992
 $18,906
 $32,562
 $0
 $17,643
 $158
 $19,213
 $92
 $9,043
 $22,741
 $0
 $22,406
 $100
 $18,139
 $33
Total $91,753
 $91,368
 $111,475
 $(13,200) $91,383
 $1,439
 $96,051
 $709
 $82,317
 $102,896
 $(8,704) $95,860
 $2,329
 $91,009
 $789
The table above includes total impaired loans (Legacy and Acquired impaired loans).
* Gross carrying value represents unpaid principal balances that were net of charge-offs.
*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.

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  As of June 30, 2012 For the six months ended June 30, 2012 For the three months ended June 30, 2012
Acquired Impaired Loans Recorded Investment Gross Carrying Value* 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment
 Interest Income Recognized during Impairment 
Average
Recorded Investment
 Interest Income Recognized during Impairment
  (In Thousands)
As of and for the three and six months ended June 30, 2012
With Related Allowance:                
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                
Retail 953
 948
 948
 (23) 392
 27
 588
 8
Hotel & Motel 6,112
 6,112
 7,375
 (345) 4,151
 120
 6,227
 (12)
Gas Station & Car Wash 0
 0
 0
 0
 95
 0
 142
 0
Mixed Use 0
 0
 0
 0
 0
 0
 0
 0
Industrial & Warehouse 0
 0
 0
 0
 0
 0
 0
 0
Other 0
 0
 0
 0
 12
 0
 18
 0
Real Estate—Construction 0
 0
 0
 0
 0
 0
 0
 0
Commercial Business 547
 544
 1,454
 (121) 357
 39
 535
 16
Trade Finance 0
 0
 0
 0
 0
 0
 0
 0
Consumer and Other 0
 0
 0
 0
 0
 0
 0
 0
  $7,612
 $7,604
 $9,777
 $(489) $5,007
 $186
 $7,510
 $12
With No Related Allowance                
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                
Retail 0
 0
 0
 0
 0
 0
 0
 0
Hotel & Motel 0
 0
 0
 0
 0
 0
 0
 0
Gas Station & Car Wash 276
 276
 1,878
 0
 125
 11
 167
 1
Mixed Use 0
 0
 0
 0
 0
 0
 0
 0
Industrial & Warehouse 3,810
 3,807
 3,935
 0
 2,279
 (1) 3,039
 9
Other 899
 896
 1,760
 0
 596
 26
 795
 12
Real Estate—Construction 0
 0
 0
 0
 0
 0
 0
 0
Commercial Business 1,404
 1,405
 1,459
 0
 569
 21
 758
 13
Trade Finance 0
 0
 0
 0
 0
 0
 0
 0
Consumer and Other 0
 0
 0
 0
 0
 0
 0
 0
  $6,389
 $6,384
 $9,032
 $0
 $3,569
 $57
 $4,759
 $35
Total $14,001
 $13,988
 $18,809
 $(489) $8,576
 $243
 $12,269
 $47
  As of September 30, 2012 For the nine months ended September 30, 2012 For the three months ended September 30, 2012
Acquired Impaired Loans Recorded Investment* 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment*
 Interest Income Recognized during Impairment 
Average
Recorded Investment*
 Interest Income Recognized during Impairment
  (In thousands)
With Related Allowance:              
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial              
Retail 2,144
 2,186
 (148) 828
 86
 1,546
 26
Hotel & Motel 6,051
 7,375
 (351) 4,595
 0
 6,082
 0
Gas Station & Car Wash 0
 0
 0
 71
 0
 0
 0
Mixed Use 0
 0
 0
 0
 0
 0
 0
Industrial & Warehouse 822
 889
 (57) 206
 27
 411
 9
Other 3,484
 4,467
 (123) 880
 216
 1,742
 72
Real Estate—Construction 0
 0
 0
 0
 0
 0
 0
Commercial Business 2,282
 3,176
 (905) 837
 69
 1,413
 21
Trade Finance 0
 0
 0
 0
 0
 0
 0
Consumer and Other 0
 0
 0
 0
 0
 0
 0
  $14,783
 $18,093
 $(1,584) $7,417
 $398
 $11,194
 $128
With No Related Allowance              
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial              
Retail 4
 224
 0
 1
 0
 2
 0
Hotel & Motel 0
 0
 0
 0
 0
 0
 0
Gas Station & Car Wash 272
 1,872
 0
 162
 0
 237
 0
Mixed Use 0
 0
 0
 0
 0
 0
 0
Industrial & Warehouse 0
 0
 0
 1,709
 0
 1,839
 0
Other 835
 1,248
 0
 655
 0
 796
 0
Real Estate—Construction 0
 0
 0
 0
 0
 0
 0
Commercial Business 381
 515
 0
 521
 15
 769
 5
Trade Finance 0
 0
 0
 0
 0
 0
 0
Consumer and Other 0
 0
 0
 0
 0
 0
 0
  $1,492
 $3,859
 $0
 $3,048
 $15
 $3,643
 $5
Total $16,275
 $21,952
 $(1,584) $10,465
 $413
 $14,837
 $133

*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.

The table above includes only Acquired Loans that became impaired.
* Gross carrying value represents unpaid principal balances that were net of charge-offs.


2223

Table of Contents

For the six months ended June 30, 2011 For the three months ended June 30, 2011For the nine months ended September 30, 2011 For the three months ended September 30, 2011
Average
Recorded Investment
 Interest Income Recognized during Impairment 
Average
Recorded Investment
 Interest Income Recognized during Impairment
Average
Recorded Investment*
 Interest Income Recognized during Impairment 
Average
Recorded Investment*
 Interest Income Recognized during Impairment
 (In thousands)
As of and for the three and six months ended June 30, 2012
With Related Allowance:              
Real Estate—Residential$0
 $0
 $0
 $0
$0
 $0
 $0
 $0
Real Estate—Commercial              
Retail4,509
 41
 3,091
 22
3,891
 25
 2,713
 8
Hotel & Motel12,631
 487
 16,272
 229
13,866
 764
 17,448
 246
Gas Station & Car Wash3,256
 47
 3,313
 24
2,964
 71
 2,591
 24
Mixed Use1,438
 0
 2,568
 0
1,336
 52
 1,234
 17
Industrial & Warehouse5,194
 166
 4,021
 83
4,967
 231
 4,163
 77
Other1,744
 28
 1,267
 14
4,000
 382
 7,400
 127
Real Estate—Construction4,131
 240
 3,303
 120
3,099
 0
 0
 0
Commercial Business25,448
 0
 20,192
 0
23,808
 327
 22,188
 115
Trade Finance0
 0
 0
 0
0
 0
 0
 0
Consumer and Other0
 0
 0
 0
0
 0
 0
 0
$58,351
 $1,009
 $54,027
 $492
$57,931
 $1,852
 $57,737
 $614
With No Related Allowance              
Real Estate—Residential$0
 $0
 $0
 $0
$0
 $0
 $0
 $0
Real Estate—Commercial              
Retail6,190
 0
 5,212
 0
5,742
 0
 3,838
 0
Hotel & Motel6,090
 8
 5,247
 4
5,182
 0
 2,369
 0
Gas Station & Car Wash4,101
 0
 3,736
 0
3,204
 0
 2,307
 0
Mixed Use3,113
 35
 2,931
 17
2,606
 0
 1,861
 0
Industrial & Warehouse2,186
 0
 2,792
 0
2,313
 0
 2,571
 0
Other13,479
 160
 12,129
 80
12,629
 40
 8,878
 13
Real Estate—Construction3,799
 56
 3,576
 28
3,673
 84
 3,421
 28
Commercial Business5,411
 41
 5,538
 29
11,480
 133
 10,887
 43
Trade Finance461
 0
 458
 0
831
 0
 1,076
 0
Consumer and Other140
 0
 157
 0
144
 0
 154
 0
$44,970
 $300
 $41,776
 $158
$47,804
 $257
 $37,362
 $84
Total$103,321
 $1,309
 $95,803
 $650
$105,735
 $2,109
 $95,099
 $698

*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.


2324

Table of Contents

 As of December 31, 2011 For the year ended December 31, 2011 As of December 31, 2011 For the year ended December 31, 2011
 Recorded Investment Gross Carrying Value* 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment
 Interest Income Recognized during Impairment Recorded Investment* 
Unpaid
Contractual Principal
Balance**
 
Related
Allowance
 
Average
Recorded Investment*
 Interest Income Recognized during Impairment
 (In Thousands)   (In thousands)
As of and for the year ended December 31, 2011
With Related Allowance:                      
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                      
Retail 1,810
 1,810
 2,686
 (668) 3,475
 34
 1,810
 2,686
 (668) 3,611
 34
Hotel & Motel 17,439
 17,441
 17,459
 (4,093) 14,581
 1,013
 17,441
 17,459
 (4,093) 14,581
 1,013
Gas Station & Car Wash 2,266
 2,265
 2,669
 (550) 2,825
 95
 2,265
 2,669
 (550) 2,824
 95
Mixed Use 2,828
 2,822
 2,840
 (128) 1,953
 158
 2,822
 2,840
 (128) 1,705
 158
Industrial & Warehouse 4,262
 4,242
 4,246
 (407) 4,826
 310
 4,242
 4,246
 (407) 4,822
 310
Other 14,870
 14,982
 14,994
 (4,630) 6,192
 298
 14,982
 14,994
 (4,630) 6,300
 298
Real Estate—Construction 127
 128
 128
 (49) 2,504
 0
 128
 128
 (49) 2,504
 0
Commercial Business 19,413
 19,416
 20,248
 (7,168) 22,929
 538
 19,416
 20,248
 (7,168) 24,941
 538
Trade Finance 4,528
 4,497
 4,497
 (342) 906
 71
 4,497
 4,497
 (342) 899
 71
Consumer and Other 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
 0
��$67,543
 $67,603
 $69,767
 $(18,035) $60,191
 $2,517
 $67,603
 $69,767
 $(18,035) $62,187
 $2,517
With No Related Allowance                      
Real Estate—Residential $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
 $0
Real Estate—Commercial                      
Retail 1,388
 1,391
 4,113
 0
 4,485
 0
 2,067
 4,789
 0
 4,871
 0
Hotel & Motel 0
 0
 0
 0
 3,770
 0
 0
 0
 0
 4,146
 0
Gas Station & Car Wash 288
 287
 2,851
 0
 2,621
 0
 287
 2,851
 0
 2,621
 0
Mixed Use 0
 0
 0
 0
 1,868
 0
 0
 0
 0
 2,013
 0
Industrial & Warehouse 2,651
 2,662
 8,346
 0
 2,380
 0
 2,662
 8,346
 0
 2,383
 0
Other 2,102
 2,092
 3,739
 0
 8,934
 0
 2,605
 4,252
 0
 10,521
 0
Real Estate—Construction 1,721
 1,710
 1,710
 0
 3,283
 113
 1,710
 1,710
 0
 3,280
 113
Commercial Business 5,737
 5,740
 6,964
 0
 5,191
 203
 15,506
 16,905
 0
 10,274
 203
Trade Finance 469
 467
 467
 0
 759
 30
 467
 467
 0
 758
 30
Consumer and Other 150
 150
 180
 0
 145
 0
 150
 180
 0
 145
 0
 $14,506
 $14,499
 $28,370
 $0
 $33,436
 $346
 $25,454
 $39,500
 $0
 $41,012
 $346
Total $82,049
 $82,102
 $98,137
 $(18,035) $93,627
 $2,863
 $93,057
 $109,267
 $(18,035) $103,199
 $2,863
The table has been revised to present unpaid contractual principal balances, whereas the Company had previously disclosed unpaid contractual principal balances that were net of charge-offs.
*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.
**The table has been revised to present unpaid contractual principal balances, whereas the Company had previously disclosed unpaid contractual principal balances that were net of charge-offs, interest applied to principal and purchase discounts.
* Gross carrying value represents unpaid principal balances that were net of charge-offs.



2425

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Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for non-accrual status whether or not the loan is 90 days or more past due. Generally, payments received on non-accrual loans are recorded as principal reductions. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following table presentstables present the aging of past due loans as of JuneSeptember 30, 2012 and December 31, 2011 by class of loans:
As of June 30, 2012As of September 30, 2012
30-59
Days Past
Due
 60-89 Days
Past Due
 Greater
than 90
Days Past
Due
 Total Past
Due
 Non-accrual loans Total Delinquent loans Greater than 90 days and accruing30-59
Days Past
Due
 60-89 Days
Past Due
 Greater
than 90
Days Past
Due
 Total Past
Due
 Non-accrual loans Total Delinquent loans Greater than 90 days and accruing
(In Thousands)(In thousands)
Legacy Loans  
Real estate—Residential$31
 $0
 $0
 $31
 $0
 $31
 $0
$29
 $0
 $0
 $29
 $0
 $29
 $0
Real estate—Commercial                          
Retail459
 0
 0
 459
 2,360
 2,819
 0
1,670
 0
 0
 1,670
 2,291
 3,961
 0
Hotel & Motel2,160
 0
 0
 2,160
 991
 3,151
 0
0
 0
 364
 364
 1,021
 1,385
 364
Gas Station & Car Wash2,182
 0
 0
 2,182
 3,539
 5,721
 0
362
 0
 0
 362
 2,904
 3,266
 0
Mixed Use0
 0
 0
 0
 1,886
 1,886
 0
0
 0
 0
 0
 1,837
 1,837
 0
Industrial & Warehouse356
 0
 0
 356
 2,473
 2,829
 0
125
 0
 0
 125
 758
 883
 0
Other0
 118
 0
 118
 6,615
 6,733
 0
0
 263
 0
 263
 6,150
 6,413
 0
Real estate—Construction0
 0
 0
 0
 0
 0
 0
0
 0
 0
 0
 0
 0
 0
Commercial business313
 725
 0
 1,038
 10,166
 11,204
 0
855
 254
 0
 1,109
 4,843
 5,952
 0
Trade finance0
 0
 0
 0
 50
 50
 0
50
 0
 0
 50
 50
 100
 0
Consumer and other16
 0
 0
 16
 136
 152
 0
17
 0
 0
 17
 74
 91
 0
Subtotal$5,517
 $843
 $0
 $6,360
 $28,216
 $34,576
 $0
$3,108
 $517
 $364
 $3,989
 $19,928
 $23,917
 $364
Acquired Loans (1)
                          
Real estate—Residential$0
 $0
 $0
 $0
 $0
 $0
 $0
$0
 $0
 $0
 $0
 $0
 $0
 $0
Real estate—Commercial                          
Retail333
 19
 2,149
 2,501
 0
 2,501
 2,149
810
 22
 1,930
 2,762
 4
 2,766
 1,930
Hotel & Motel0
 1,530
 948
 2,478
 6,112
 8,590
 948
0
 1,549
 938
 2,487
 6,051
 8,538
 938
Gas Station & Car Wash254
 1,249
 3,062
 4,565
 276
 4,841
 3,062
232
 0
 3,134
 3,366
 272
 3,638
 3,134
Mixed Use0
 0
 2,815
 2,815
 0
 2,815
 2,815
467
 0
 2,811
 3,278
 0
 3,278
 2,811
Industrial & Warehouse48
 813
 0
 861
 2,996
 3,857
 0
18
 119
 0
 137
 0
 137
 0
Other1,325
 1,077
 4,500
 6,902
 681
 7,583
 4,500
543
 52
 5,402
 5,997
 965
 6,962
 5,402
Real estate—Construction0
 0
 6,245
 6,245
 0
 6,245
 6,245
0
 0
 6,305
 6,305
 0
 6,305
 6,305
Commercial business1,326
 1,020
 459
 2,805
 1,303
 4,108
 459
1,592
 676
 1,147
 3,415
 1,315
 4,730
 1,147
Trade finance77
 3
 74
 154
 0
 154
 74
0
 0
 0
 0
 0
 0
 0
Consumer and other253
 376
 449
 1,078
 146
 1,224
 449
349
 20
 423
 792
 833
 1,625
 423
Subtotal3,616
 6,087
 20,701
 30,404
 11,514
 41,918
 20,701
4,011
 2,438
 22,090
 28,539
 9,440
 37,979
 22,090
TOTAL9,133
 6,930
 20,701
 36,764
 39,730
 76,494
 20,701
7,119
 2,955
 22,454
 32,528
 29,368
 61,896
 22,454
 (1) The acquired loans include credit impaired loans (ASC 310-30 loans) and performing loans (pass graded loans acquired from Center at the time of merger).
 (1)The acquired loans include Credit Impaired Loans (ASC 310-30 loans) and Performing Loans (loans that were pass graded at the time of the Merger).

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As of December 31, 2011As of December 31, 2011
30-59
Days Past
Due
 60-89 Days
Past Due
 Greater
than 90
Days Past
Due
 Total Past
Due
 Non-accrual loans Total Delinquent loans Greater than 90 days and accruing30-59
Days Past
Due
 60-89 Days
Past Due
 Greater
than 90
Days Past
Due
 Total Past
Due
 Non-accrual loans Total Delinquent loans Greater than 90 days and accruing
(In Thousands)(In Thousands)
Legacy Loans  
Real estate—Residential$36
 $0
 $0
 $36
 $0
 $36
 $0
$36
 $0
 $0
 $36
��$0
 $36
 $0
Real estate—Commercial                          
Retail431
 0
 0
 431
 2,612
 3,043
 0
428
 0
 0
 428
 2,615
 3,043
 0
Hotel & Motel0
 0
 0
 0
 482
 482
 0
0
 0
 0
 0
 481
 481
 0
Gas Station & Car Wash634
 0
 0
 634
 1,368
 2,002
 0
627
 0
 0
 627
 1,367
 1,994
 0
Mixed Use0
 0
 0
 0
 822
 822
 0
0
 0
 0
 0
 820
 820
 0
Industrial & Warehouse360
 0
 0
 360
 3,055
 3,415
 0
360
 0
 0
 360
 3,066
 3,426
 0
Other0
 119
 0
 119
 10,865
 10,984
 0
0
 119
 0
 119
 10,992
 11,111
 0
Real estate—Construction0
 0
 0
 0
 127
 127
 0
0
 0
 0
 0
 128
 128
 0
Commercial business1,396
 392
 0
 1,788
 11,462
 13,250
 0
1,388
 388
 0
 1,776
 11,477
 13,253
 0
Trade finance0
 0
 0
 0
 117
 117
 0
0
 0
 0
 0
 117
 117
 0
Consumer and other5
 0
 0
 5
 150
 155
 0
3
 0
 0
 3
 150
 153
 0
Subtotal2,862
 511
 0
 3,373
 31,060
 34,433
 0
2,842
 507
 0
 3,349
 31,213
 34,562
 0
Acquired Loans (1)
                          
Real estate—Residential$0
 $0
 $0
 $0
 $0
 $0
 $0
$0
 $0
 $0
 $0
 $0
 $0
 $0
Real estate—Commercial      

   

        

   

  
Retail147
 64
 1,675
 1,886
 0
 1,886
 1,675
145
 64
 1,675
 1,884
 0
 1,884
 1,675
Hotel & Motel0
 45
 0
 45
 0
 45
 0
0
 45
 0
 45
 0
 45
 0
Gas Station & Car Wash2,547
 177
 817
 3,541
 0
 3,541
 817
2,536
 175
 820
 3,531
 0
 3,531
 820
Mixed Use1,178
 1,702
 389
 3,269
 0
 3,269
 389
1,178
 1,677
 389
 3,244
 0
 3,244
 389
Industrial & Warehouse3,393
 0
 110
 3,503
 0
 3,503
 110
3,372
 0
 110
 3,482
 0
 3,482
 110
Other1,472
 228
 4,237
 5,937
 0
 5,937
 4,237
1,467
 226
 4,237
 5,930
 0
 5,930
 4,237
Real estate—Construction0
 4,499
 0
 4,499
 0
 4,499
 0
0
 4,499
 0
 4,499
 0
 4,499
 0
Commercial business1,747
 1,402
 9,125
 12,274
 0
 12,274
 9,125
1,739
 1,383
 9,132
 12,254
 0
 12,254
 9,132
Trade finance0
 0
 202
 202
 0
 202
 202
0
 0
 202
 202
 0
 202
 202
Consumer and other705
 370
 700
 1,775
 0
 1,775
 700
701
 369
 700
 1,770
 0
 1,770
 700
Subtotal$11,189
 $8,487
 $17,255
 $36,931
 $0
 $36,931
 $17,255
$11,138
 $8,438
 $17,265
 $36,841
 $0
 $36,841
 $17,265
TOTAL$14,051
 $8,998
 $17,255
 $40,304
 $31,060
 $71,364
 $17,255
$13,980
 $8,945
 $17,265
 $40,190
 $31,213
 $71,403
 $17,265
 (1) The acquired loans include credit impaired loans (ASC 310-30 loans) and performing loans (pass graded loans acquired from Center at the time of merger).
 (1)The acquired loans include Credit Impaired Loans (ASC 310-30 loans) and Performing Loans (loans that were pass graded at the time of the Merger).
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as:including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.trends. We analyze loans individually by classifying the loans as to credit risk. This analysis includes all non-homogeneous loans. This analysis is performed at least on a quarterly basis. We use the following definitions for risk ratings:
Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful/Loss: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with

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the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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Loans not meeting the criteria above thatassigned a risk rating of Special Mention or worse are analyzed individuallyreferred to as partCriticized Loans and loans assigned a risk rating of the above described processSubstandard or worse are consideredreferred to be Pass-rated loans.as Classified Loans. As of JuneSeptember 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loansCriticized Loans by class of loans iswere as follows:
As of June 30, 2012As of September 30, 2012
Special
Mention
 Substandard Doubtful/Loss Total
Special
Mention
 Substandard Doubtful/Loss Total
(In thousands)(In thousands)
Legacy Loans:  
Real estate—Residential$0
 $31
 $0
 $31
$0
 $29
 $0
 $29
Real estate—Commercial              
Retail3,411
 13,231
 0
 16,642
3,059
 12,188
 0
 15,247
Hotel & Motel3,724
 16,353
 0
 20,077
3,692
 16,565
 0
 20,257
Gas Station & Car Wash3,824
 4,712
 0
 8,536
1,658
 9,399
 0
 11,057
Mixed Use1,786
 5,867
 0
 7,653
1,774
 3,480
 0
 5,254
Industrial & Warehouse3,953
 4,099
 390
 8,442
4,036
 2,943
 382
 7,361
Other8,010
 10,866
 0
 18,876
2,958
 14,695
 0
 17,653
Real estate—Construction0
 1,714
 0
 1,714
0
 1,710
 0
 1,710
Commercial business16,301
 26,095
 5,140
 47,536
7,638
 23,924
 215
 31,777
Trade finance7,802
 5,006
 0
 12,808
7,893
 5,968
 0
 13,861
Consumer and other0
 995
 0
 995
0
 954
 0
 954
Subtotal$48,811
 $88,969
 $5,530
 $143,310
$32,708
 $91,855
 $597
 $125,160
Acquired Loans:              
Real estate—Residential$0
 $0
 $0
 $0
$0
 $0
 $0
 $0
Real estate—Commercial              
Retail13,219
 12,774
 0
 25,993
13,042
 7,296
 0
 20,338
Hotel & Motel16,017
 22,593
 0
 38,610
17,726
 13,287
 0
 31,013
Gas Station & Car Wash6,383
 5,803
 0
 12,186
6,301
 5,894
 0
 12,195
Mixed Use2,354
 4,026
 0
 6,380
2,320
 4,017
 0
 6,337
Industrial & Warehouse1,379
 9,184
 0
 10,563
1,370
 6,109
 0
 7,479
Other4,823
 12,728
 0
 17,551
4,739
 16,327
 0
 21,066
Real estate—Construction0
 7,338
 0
 7,338
0
 7,383
 0
 7,383
Commercial business16,099
 31,184
 174
 47,457
15,728
 31,078
 188
 46,994
Trade finance248
 491
 0
 739
303
 6
 0
 309
Consumer and other338
 4,432
 99
 4,869
422
 4,226
 91
 4,739
Subtotal$60,860
 $110,553
 $273
 $171,686
$61,951
 $95,623
 $279
 $157,853
Total$109,671
 $199,522
 $5,803
 $314,996
$94,659
 $187,478
 $876
 $283,013

 

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As of December 31, 2011As of December 31, 2011
Special
Mention
 Substandard Doubtful/Loss Total
Special
Mention
 Substandard Doubtful/Loss Total
(In thousands)(In thousands)
Legacy Loans:  
Real estate—Residential$0
 $36
 $0
 $36
$0
 $36
 $0
 $36
Real estate—Commercial              
Retail3,430
 13,477
 0
 16,907
3,434
 13,468
 0
 16,902
Hotel & Motel5,008
 17,875
 0
 22,883
5,005
 17,876
 0
 22,881
Gas Station & Car Wash3,489
 2,554
 0
 6,043
3,491
 2,552
 0
 6,043
Mixed Use2,279
 3,026
 0
 5,305
2,281
 3,019
 0
 5,300
Industrial & Warehouse3,998
 7,238
 404
 11,640
3,992
 7,227
 404
 11,623
Other5,914
 15,393
 0
 21,307
5,904
 15,500
 0
 21,404
Real estate—Construction0
 1,848
 0
 1,848
0
 1,838
 0
 1,838
Commercial business11,357
 30,114
 5,994
 47,465
11,360
 30,116
 6,007
 47,483
Trade finance274
 4,997
 0
 5,271
273
 4,963
 0
 5,236
Consumer and other0
 1,081
 0
 1,081
0
 1,079
 0
 1,079
Subtotal$35,749
 $97,639
 $6,398
 $139,786
$35,740
 $97,674
 $6,411
 $139,825
Acquired Loans:  
Real estate—Residential$0
 $0
 $0
 $0
$0
 $0
 $0
 $0
Real estate—Commercial              
Retail11,591
 11,334
 0
 22,925
11,562
 11,286
 0
 22,848
Hotel & Motel13,138
 16,746
 0
 29,884
13,081
 16,677
 0
 29,758
Gas Station & Car Wash5,665
 5,760
 0
 11,425
5,645
 5,755
 0
 11,400
Mixed Use3,532
 2,829
 0
 6,361
3,500
 2,823
 0
 6,323
Industrial & Warehouse2,673
 3,770
 0
 6,443
2,659
 3,750
 0
 6,409
Other6,702
 12,598
 0
 19,300
6,673
 12,579
 0
 19,252
Real estate—Construction0
 5,489
 0
 5,489
0
 5,485
 0
 5,485
Commercial business16,096
 39,630
 353
 56,079
16,062
 39,536
 353
 55,951
Trade finance128
 829
 0
 957
126
 827
 0
 953
Consumer and other1,662
 2,526
 0
 4,188
1,658
 2,518
 0
 4,176
Subtotal$61,187
 $101,511
 $353
 $163,051
$60,966
 $101,236
 $353
 $162,555
Total$96,936
 $199,150
 $6,751
 $302,837
$96,706
 $198,910
 $6,764
 $302,380

The following table presents loans sold from loans held for investment or transfered from held for investment to held for sale during the three and sixnine months ended JuneSeptember 30, 2012 and 2011 by portfolio segment:
 
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
Sales or reclassification to held for sale(In thousands)(In thousands)
Real estate - Commercial$656
 $10,739
 $1,882
 $15,985
$2,163
 $5,970
 $2,819
 $18,679
Real estate - Construction0
 4,600
 0
 4,600
0
 0
 0
 4,600
Commercial Business20,892
 49
 20,892
 49
0
 0
 0
 0
Total$21,548
 $15,388
 $22,774
 $20,634
$2,163
 $5,970
 $2,819
 $23,279
 
The adequacy of the allowance for loan losses is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors.

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Table of Contents

The Migration Analysis is a formula methodology based on the Bank's actual historical net charge-off experience for each loan class (type) pool and loan risk grade (Pass, Special Mention, Substandard and Doubtful).grade. The migration analysis is centered on the Bank's internal credit risk rating system. Our internal loan review and external contracted credit review examinations are used to determine and validate loan risk grades. This credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, fair value and volatility of the fair value of collateral; lien position; and the financial strength of any guarantors.
A general loan loss allowance is provided on loans not specifically identified as impaired (“non-impaired loans”). The Bank's general loan loss allowance is determined firsthas two components: quantitative and qualitative risk factors. The quantitative risk factors are based on a quantitative analysis using a historical loss migration methodology. The loans are classified by typeclass and loanrisk grade and the historical loss migration is tracked for the various stratifications.classes. Loss experience is quantified for the most recent 12 quarters and then weighted to giveplace more weightsignificance to the most recent losses.loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For the Performing Loans acquired from Center, a general loan loss allowance is provided to the extent that there has been credit deterioration since the acquisition.  The estimation of that credit deterioration becomes more evident as time passes since the acquisition.  As of June 30, 2012, the recent loss experience on the acquired portfolio was utilized to provide for a nominal allowance.Merger. 
The quantitative general loan loss allowance was $21.620.7 million ($20.920.3 million for legacy loans and $0.70.4 million for acquired loans) at JuneSeptember 30, 2012, compared to $20.4 million at December 31, 2011.
Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the Migration Analysis within established parameters. The parameters for making adjustments are established under a Credit Risk Matrix that provides seven possible scenarios for each of the factors below. The matrix allows for up to three positive (Major, Moderate, and Minor), three negative (Major, Moderate, and Minor), and one neutral credit risk scenarios within each factor for each loan type pool. Generally, the factors are considered to have no significant impact (neutral) to our historical migration ratios. However, if information exists to warrant adjustment to the Migration Analysis, changes are made in accordance with the established parameters supported by narrative and/or statistical analysis. The Credit Risk Matrix and the nine possible scenarios enable the Bank to qualitatively adjust the Loss Migration Ratio or individual specific reserve allocations by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following nine factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:
Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.
Changes in national and local economic and business conditions and developments, including the condition of various market segments.
Changes in the nature and volume of the loan portfolio.
Changes in the experience, ability and depth of lending management and staff.
Changes in the trends of the volume and severity of past due and classified loans; and changes in trends in the volume ofloans, Classified Loans, non-accrual loans, and troubled debt restructurings and other loan modifications.
Changes in the quality of our loan review system and the degree of oversight by the Directors.
Changes in the value of underlying collateral for collateral-dependent loans.
The existence and effect of any concentrations of credit and changes in the level of such concentrations.
The effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated losses in our loan portfolio.
The qualitative loan loss allowance on the loan portfolio was $28.834.1 million at JuneSeptember 30, 2012, compared to $23.5 million at December 31, 2011.
We also establish specific loss allowances for loans where we have identified potential credit risk conditions or circumstances related to a specific individual credit. The specific allowance amounts are determined by a method prescribed by FASB ASC 310-10-35-22, Measurement of Impairment. The loans identified as impaired will be accounted for in accordance with one of the three acceptable valuation methods: 1) the present value of future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of the collateral, if the loan is collateral dependent. For the collateral dependent impaired loans, we obtain a new appraisal to determine the amount of impairment as of the date that the loan became impaired. The appraisals are based on an “as is” valuation. To ensure that appraised values remain current, we generallyeither obtain an updated appraisalappraisals every twelve months from a qualified independent appraiser. Furthermore, if the most current appraisal is dated more than six months prior to the effective dateappraiser or an internal re-valuation of the impairment test, we validate the most current value with third party market data appropriate to the location and property type of the collateral.collateral is performed by qualified personnel. If the third party market data

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indicates that the value of our collateral property has declined since the most recent valuation date, we adjust the value of the property downward to reflect current market conditions. If the fair value of the collateral, less cost to sell, is less than the recorded amount of the loan, we then recognize

30

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impairment by creating or adjusting an existing valuation allowance with a corresponding charge to the provision for loan losses. If an impaired loan is expected to be collected through liquidation of the underlying collateral, the loan is deemed to be collateral dependent and the amount of impairment is charged off against the allowance for loan losses.
The Bank considers a loan to be impaired when it is probable that not all amounts due (principal and interest) will be collectible in accordance with the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The significance of payment delays and payment shortfalls is determined on a case-by-case basis by taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
For commercial business loans, real estate loans and certain consumer loans, we base the measurement of loan impairment on the present value of the expected future cash flows, discounted at the loan's effective interest rate or on the fair value of the loan's collateral, less estimated costs to sell, if the loan is collateral dependent. We evaluate most consumer loans for impairment on a collective basis because these loans generally have generally smaller balances and are homogeneous in the underwriting of terms and conditions and in the type of collateral.
Impaired loans (recorded investment balance) at June 30, 2012, were $91.8 million, a net increase of $9.7 million from $82.0 million at December 31, 2011. This net increase in impaired loans is due primarily to inflow of acquired loans.
For our Credit Impaired Loans, ourthe allowance for loan losses is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resultingresults in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.
The following table presents loans by portfolio segment and impairment method at JuneSeptember 30, 2012 and December 31, 2011:
 
As of June 30, 2012As of September 30, 2012
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 Total
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 Total
(In Thousands)(In thousands)
Impaired loans (Gross carrying value)$0
 $59,023
 $1,710
 $25,529
 $4,970
 $136
 $91,368
$0
 $46,930
 $1,710
 $27,575
 $5,968
 $134
 $82,317
Specific allowance$0
 $6,103
 $0
 $7,040
 $57
 $0
 $13,200
$0
 $5,188
 $0
 $3,434
 $82
 $0
 $8,704
Loss coverage ratio0.0% 10.3% 0.0% 27.6% 1.1% 0.0% 14.4%0.0% 11.1% 0.0% 12.5% 1.4% 0.0% 10.6%
Non-impaired loans$1,931
 $2,658,901
 $41,655
 $851,876
 $170,668
 $60,596
 $3,785,627
$3,354
 $2,834,149
 $54,723
 $871,402
 $171,317
 $54,308
 $3,989,253
General allowance$9
 $32,891
 $521
 $14,233
 $3,447
 $1,204
 $52,305
$32
 $38,640
 $808
 $14,213
 $2,770
 $785
 $57,248
Loss coverage ratio0.5% 1.2% 1.3% 1.7% 2.0% 2.0% 1.4%1.0% 1.4% 1.5% 1.6% 1.6% 1.4% 1.4%
Total loans$1,931
 $2,717,924
 $43,365
 $877,405
 $175,638
 $60,732
 $3,876,995
$3,354
 $2,881,079
 $56,433
 $898,977
 $177,285
 $54,442
 $4,071,570
Total allowance for loan losses$9
 $38,994
 $521
 $21,273
 $3,504
 $1,204
 $65,505
$32
 $43,828
 $808
 $17,647
 $2,852
 $785
 $65,952
Loss coverage ratio0.5% 1.4% 1.2% 2.4% 2.0% 2.0% 1.7%1.0% 1.5% 1.4% 2.0% 1.6% 1.4% 1.6%


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As of December 31, 2011As of December 31, 2011
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 Total
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 Total
(In Thousands)(In thousands)
Impaired loans (Gross carrying value)$0
 $49,994
 $1,838
 $25,156
 $4,964
 $150
 $82,102
$0
 $51,183
 $1,838
 $34,922
 $4,964
 $150
 $93,057
Specific allowance$0
 $10,476
 $49
 $7,168
 $342
 $0
 $18,035
$0
 $10,476
 $49
 $7,168
 $342
 $0
 $18,035
Loss coverage ratio0.0% 21.0% 2.7% 28.5% 6.9% 0.0% 22.0%0.0% 20.5% 2.7% 20.5% 6.9% 0.0% 19.4%
Non-impaired loans$2,043
 $2,581,886
 $42,918
 $824,420
 $141,720
 $66,481
 $3,659,468
$2,043
 $2,580,697
 $42,918
 $814,654
 $141,720
 $66,481
 $3,648,513
General allowance$9
 $27,831
 $675
 $13,513
 $1,444
 $445
 $43,917
$9
 $27,831
 $675
 $13,513
 $1,444
 $445
 $43,917
Loss coverage ratio0.4% 1.1% 1.6% 1.6% 1.0% 0.7% 1.2%0.4% 1.1% 1.6% 1.7% 1.0% 0.7% 1.2%
Total loans$2,043
 $2,631,880
 $44,756
 $849,576
 $146,684
 $66,631
 $3,741,570
$2,043
 $2,631,880
 $44,756
 $849,576
 $146,684
 $66,631
 $3,741,570
Total allowance for loan losses$9
 $38,307
 $724
 $20,681
 $1,786
 $445
 $61,952
$9
 $38,307
 $724
 $20,681
 $1,786
 $445
 $61,952
Loss coverage ratio0.4% 1.5% 1.6% 2.4% 1.2% 0.7% 1.7%0.4% 1.5% 1.6% 2.4% 1.2% 0.7% 1.7%
Under certain circumstances, we provide borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”), or are more substantive. At JuneSeptember 30, 2012, total modified loans were $48.145.1 million, compared to $32.732.8 million at December 31, 2011. The temporary modifications generally consist of interest only payments for a three-three to six-six month period, whereby principal payments are deferred. At the end of the modification period, the remaining principal balance is re-amortized based on the original maturity date. Loans subject to temporary modifications are generally downgraded to Substandard or Special Mention. At the end of the modification period, the loan either 1) returns to the original contractual terms; 2) is further modified and accounted for as a troubled debt restructuring in accordance with ASC 310-10-35; or 3) is disposed of through foreclosure or liquidation.
 
Troubled Debt RestructuredRestructurings (“TDR”TDRs”) of loans are defined by ASC 310-40, “Troubled Debt Restructurings by Creditors” and ASC 470-60, “Troubled Debt Restructurings by Debtors,”Debtors” and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.
A summary of TDRs on accrual and non-accrual by type of concession as of JuneSeptember 30, 2012 and December 31, 2011 is presented below:
As of June 30, 2012As of September 30, 2012
TDR on accrual TDR on non-accrual TOTALTDR on accrual TDR on non-accrual TOTAL
Real estate -
Commercial
 
Commercial
Business
 Trade Finance Total 
Real estate -
Commercial
 
Commercial
Business
 Consumer & Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
(In thousands)(In thousands)
Payment concession$2,514
 $1,639
 $0
 $4,153
 $8,665
 $3,614
 $0
 $12,279
 $16,432
$2,491
 $2,028
 $0
 $4,519
 $8,871
 $3,299
 $0
 $12,170
 $16,689
Maturity / Amortization concession0
 2,789
 490
 3,279
 678
 1,841
 186
 2,705
 5,984
398
 4,267
 60
 4,725
 662
 1,810
 74
 2,546
 7,271
Rate concession14,344
 1,306
 0
 15,650
 9,842
 48
 0
 9,890
 25,540
11,896
 1,035
 0
 12,931
 8,055
 47
 0
 8,102
 21,033
Principal forgiveness0
 0
 0
 0
 0
 109
 0
 109
 109
0
 0
 0
 0
 0
 67
 0
 67
 67
$16,858
 $5,734
 $490
 $23,082
 $19,185
 $5,612
 $186
 $24,983
 $48,065
$14,785
 $7,330
 $60
 $22,175
 $17,588
 $5,223
 $74
 $22,885
 $45,060


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As of December 31, 2011As of December 31, 2011
TDR on accrual TDR on non-accrual TOTALTDR on accrual TDR on non-accrual TOTAL
Real estate -
Commercial
 
Commercial
Business
 Trade Finance Total 
Real estate -
Commercial
 
Commercial
Business
 Trade Finance and Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
(In thousands)(In thousands)
Payment concession$949
 $1,365
 $0
 $2,314
 $3,769
 $3,441
 $0
 $7,210
 $9,524
$947
 $1,364
 $0
 $2,311
 $3,840
 $3,438
 $0
 $7,278
 $9,589
Maturity / Amortization concession0
 888
 469
 1,357
 1,178
 1,578
 150
 2,906
 4,263
0
 1,355
 0
 1,355
 1,181
 1,738
 0
 2,919
 4,274
Rate concession12,384
 2,740
 0
 15,124
 3,335
 396
 0
 3,731
 18,855
12,375
 2,735
 0
 15,110
 3,344
 397
 0
 3,741
 18,851
Principal forgiveness0
 0
 0
 0
 0
 78
 0
 78
 78
0
 0
 0
 0
 0
 78
 0
 78
 78
$13,333
 $4,993
 $469
 $18,795
 $8,282
 $5,493
 $150
 $13,925
 $32,720
$13,322
 $5,454
 $0
 $18,776
 $8,365
 $5,651
 $0
 $14,016
 $32,792
TDRs on accrual status are comprised of loans that were accruing at the time of restructuring and for which the Bank anticipates full repayment of both principal and interest under the restructured terms. TDRs that are on non-accrual can be returned to accrual status after a period of sustained performance, generally determined to be six months of timely payments as modified. Sustained performance includes the periods prior to the modification if the prior performance met or exceeded the modified terms. TDRs on accrual status at JuneSeptember 30, 2012 were comprised of 9 commercial real estate loans totaling $16.914.8 million and 2527 commercial business loans totaling $5.77.3 million. TDRs on accrual status at December 31, 2011 were comprised of 6 commercial real estate loans totaling $13.3 million and 19 commercial business loans totaling $5.05.5 million. We expect that the TDRs on accrual status as of JuneSeptember 30, 2012, which were all performing in accordance with their restructured terms, to continue to comply with the restructured terms because of the reduced principal or interest payments on these loans. TDRs that were restructured at market interest rates and had sustained performance as agreed under the modified loan terms may be reclassified as non-TDRs after each year end.end but are still monitored for potential impairment.
 
The following table presents loans by class modified as troubled debt restructuringsTDRs that occurred during the three and sixnine months ended JuneSeptember 30, 2012:

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Three Months Ended June 30, 2012 Six Months Ended June 30, 2012Three Months Ended September 30, 2012 Nine Months Ended September 30, 2012
Number of
Loans 
Pre-
Modification
Post-
Modification 
 Number of
Loans 
Pre-
Modification
Post-
Modification 
Number of
Loans 
Pre-
Modification
Post-
Modification 
 Number of
Loans 
Pre-
Modification
Post-
Modification 
($ in thousand)(Dollars in thousand)
Legacy Loans:          
Real estate - Commercial  
 
     
 
   
Retail1
$288
$283
 4
$969
$943
0
$0
$0
 4
$976
$935
Hotel & Motel0
0
0
 0
0
0
0
0
0
 1
1,479
1,447
Gas Station & Car Wash0
0
0
 1
218
101
0
0
0
 1
216
97
Mixed Use0
0
0
 1
2,319
2,316
0
0
0
 

0
0
Industrial & Warehouse0
0
0
 1
1,064
1,056
0
0
0
 1
1,060
1,045
Other0
0
0
 2
7,335
5,646
0
0
0
 2
8,604
5,581
Real estate - Construction0
0
0
 0
0
0
0
0
0
 0
0
0
Commercial business2
89
88
 8
2,397
2,339
4
2,299
2,251
 11
3,666
4,528
Trade Finance1
157
50
 1
157
50
0
0
0
 1
0
50
Subtotal4
$534
$421
 18
$14,459
$12,451
4
$2,299
$2,251
 21
$16,001
$13,683
Acquired Loans:          
Real estate - Commercial  
 
     
 
   
Retail1
$957
$953
 1
$957
$953
1
$401
$398
 2
$1,458
$1,341
Hotel & Motel1
6,341
6,112
 1
6,341
6,112
0
0
0
 1
6,165
6,051
Gas Station & Car Wash0
0
0
 0
0
0
0
0
0
 0
0
0
Mixed Use0
0
0
 0
0
0
0
0
0
 0
0
0
Industrial & Warehouse0
0
0
 0
0
0
0
0
0
 0
0
0
Other0
0
0
 0
0
0
1
654
643
 1
670
643
Real estate - Construction0
0
0
 0
0
0
0
0
0
 0
0
0
Commercial business2
244
1,062
 4
474
1,278
1
241
230
 5
748
1,425
Trade Finance0
0
0
 0
0
0
0
0
0
 0
0
0
Subtotal4
$7,542
$8,127
 6
$7,772
$8,343
3
$1,296
$1,271
 9
$9,041
$9,460
Total8
$8,076
$8,548
 24
$22,231
$20,794
7
$3,595
$3,522
 30
$25,042
$23,143
          
The specific reserves for the troubled debt restructuringsTDRs described above as of JuneSeptember 30, 2012 waswere $1.31.9 million and the charge offs for the three and sixnine months ended JuneSeptember 30, 2012 were $06 thousand and $0124 thousand, respectively.
The following table presents loans by class for TDR loansTDRs that have been modified within the previous twelve months and have subsequently had a payment default during the three and sixnine months ended JuneSeptember 30, 2012:



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Three Months Ended June 30, 2012 Six Months Ended June 30, 2012Three Months Ended September 30, 2012 Nine Months Ended September 30, 2012
Number of
Loans 
 
Balance 
 
 
Number of
Loans 
 
Balance 
 
Number of
Loans 
Balance
 
 
Number of
Loans
 
Balance
 
($ In thousands)(Dollars In thousands)
Legacy Loans:          
Real estate - Commercial          
Retail1
$283
 2
$536
0
$0
 0
$0
Gas Station & Car Wash1
219
 1
219
1
215
 1
215
Industrial & Warehouse2
1,093
 2
1,093
0
0
 1
1,045
Other2
1,021
 2
1,021
1
718
 1
718
Commercial Business4
992
 7
1,188
2
45
 2
45
Subtotal10
$3,608
 14
$4,057
4
$978
 5
$2,023
Acquired Loans:          
Real estate - Commercial 
 
    
 
   
Retail0
$0
 0
$0
0
$0
 0
$0
Hotel & Motel1
6,112
 1
6,112
0
0
 1
6,051
Industrial & Warehouse0
0
 0
0
0
0
 0
0
Other0
0
 0
0
0
0
 0
0
Commercial Business1
153
 2
244
1
148
 1
148
Subtotal2
$6,265
 3
$6,356
1
$148
 2
$6,199
12
$9,873
 17
$10,413
5
$1,126
 7
$8,222
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. The specific reserves for the troubled debt restructuringsTDRs described above as of JuneSeptember 30, 2012 were $133113 thousand and the charge offs for the three and sixnine months ended JuneSeptember 30, 2012 waswere $1186 thousand and $$118124 thousand, respectively.
We have allocated $6.46.1 million and $6.4 million of specific reserves to TDRs as of JuneSeptember 30, 2012 and December 31, 2011, respectively. As of JuneSeptember 30, 2012 and December 31, 2011, we did not have any outstanding commitments to extend additional funds to these borrowers.

Covered Loans
On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, Center Bank assumed the banking operations of Innovative Bank from the FDIC under a purchase and assumption agreement and two related loss sharing agreements with the FDIC. Upon the merger between Nara Bancorp and Center Financial, the Company assumed the loss sharing agreements with the FDIC.
Covered nonperforming assets totaled $4.22.3 million and $3.6 million at JuneSeptember 30, 2012 and December 31, 2011, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at JuneSeptember 30, 2012 and December 31, 2011 were as follows:
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
(In thousand)(In thousands)
Covered loans on non-accrual status$242
 $0
$476
 $0
Covered other real estate owned3,961
 3,575
1,821
 3,575
Total covered nonperforming assets$4,203
 $3,575
$2,297
 $3,575
      
Acquired covered loans$76,339
 $89,959
$78,141
 $89,959
Loans accounted for under ASC 310-30 are generally considered accruing and performing loans and the accretable discount is accreted to interest income over the estimate life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans. The loans may be classified as nonaccrual if the timing and amount of future cash flows is not reasonably estimable.


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8.Borrowings
We maintain a secured credit facility with the Federal Home Loan Bank of San Francisco (“FHLB”) against which the Bank may take advances. The borrowing capacity is limited to the lower of 25% of the Bank’s total assets or the Bank’s collateral capacity, which was $1.2 billion and $1.3 billion at JuneSeptember 30, 2012 and December 31, 2011, respectively.. The terms of this credit facility require the Company to pledge eligible collateral with the FHLB equal to at least 100% of outstanding advances.
At JuneSeptember 30, 2012 and December 31, 2011, real estate secured loans with a carrying amount of approximately $1.9 billion and $2.0 billion, respectively, were pledged as collateral for borrowings from the FHLB. At JuneSeptember 30, 2012 and December 31, 2011, other than FHLB stock, securities totaling $1.5 million0 and $3.0 million, respectively, were pledged as collateral for borrowings from the FHLB.
At JuneSeptember 30, 2012 and December 31, 2011, FHLB borrowings were $371.1460.8 million and $344.4 million, had a weighted average interest rate of 1.77%1.33% and 1.93%, respectively, and had various maturities through September 2017. At JuneSeptember 30, 2012 and December 31, 2011, $155.080.0 million and $205.0 million, respectively, of the advances were putable advances with various putable dates and strike prices. The cost of FHLB borrowings as of JuneSeptember 30, 2012 ranged between 0.28% and 4.52%3.93%. At JuneSeptember 30, 2012, the Company had a remaining borrowing capacity of $837.7836.7 million.
At JuneSeptember 30, 2012, the contractual maturities for FHLB borrowings were as follows:
 

Contractual
Maturities

Maturity/
Put Date
Contractual
Maturities

Maturity/
Put Date
(In thousands)(In thousands)
Due within one year$174,021
 $264,021
$194,000
 $245,815
Due after one year through five years175,000
 105,000
266,815
 215,000
Due after five years through ten years20,000
 0
0
 0

$369,021
 $369,021
$460,815
 $460,815

In addition, as a member of the Federal Reserve Bank system, we may also borrow from the Federal Reserve Bank of San Francisco. The maximum amount that we may borrow from the Federal Reserve Bank’s discount window is up to 95% of the outstanding principal balance of the qualifying loans and the fair value of the securities that we pledge. At JuneSeptember 30, 2012, the principal balance of the qualifying loans was $472.2480.2 million and the collateral value of investment securities were $43.00.6 million, and no borrowings were outstanding against this line.

9.Subordinated Debentures
At JuneSeptember 30, 2012, 4 wholly-owned subsidiary grantor trusts established by former Nara Bancorp had issued $28 million of pooled Trust Preferred Securities (“trust preferred securities”) and 1 wholly-owned subsidiary grantor trust established by former Center Financial Corporation had issued $18 million of trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”) of BBCN Bancorp. The Debentures are the sole assets of the trusts. BBCN Bancorp’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by BBCN Bancorp of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. BBCN Bancorp has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. BBCN Bancorp also has a right to defer consecutive payments of interest on the debentures for up to five years.

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Table of Contents

The following table is a summary of trust preferred securities and debentures at JuneSeptember 30, 2012:
 

35

Table of Contents


 
(Dollars in Thousands)
 
 
 
 
Issuance Trust
Issuance
Date

Trust
Preferred
Security
Amount

Subordinated
Debentures
Amount

Rate
Type

Initial
Rate

Rate at
June 30, 2012

Maturity
Date

Issuance
Date

Trust
Preferred
Security
Amount

Subordinated
Debentures
Amount

Rate
Type

Initial
Rate

Coupon Rate at
September 30, 2012

Maturity
Date
 (Dollars in thousands)     
Nara Capital Trust III
6/5/2003
$5,000

$5,155

Variable
4.44%
3.62%
6/15/2033
6/5/2003
$5,000

$5,155

Variable
4.44%
3.54%
6/15/2033
Nara Statutory Trust IV
12/22/2003
5,000

5,155

Variable
4.02%
3.32%
1/7/2034
12/22/2003
5,000

5,155

Variable
4.02%
3.31%
1/7/2034
Nara Statutory Trust V
12/17/2003
10,000

10,310

Variable
4.12%
3.42%
12/17/2033
12/17/2003
10,000

10,310

Variable
4.12%
3.34%
12/17/2033
Nara Statutory Trust VI
3/22/2007
8,000

8,248

Variable
7.00%
2.12%
6/15/2037
3/22/2007
8,000

8,248

Variable
7.00%
2.04%
6/15/2037
Center Capital Trust I
12/29/2003
18,000

12,904

Variable
4.01%
3.32%
1/7/2034
12/30/2003
18,000

12,941

Variable
4.01%
3.31%*1/7/2034
TOTAL ISSUANCE
$46,000

$41,772







$46,000

$41,809








*
The Center Capital Trust I trust preferred security was assumed in the Merger. The remaining discount was $5.6 million at September 30, 2012 and the effective rate of the security, including the effect of the discount accretion, was 6.03% at September 30, 2012.
The Company’s investment in the common trust securities of the issuer trusts of $1.61.4 million and $2.0 million at JuneSeptember 30, 2012 and December 31, 2011, respectively, is included in other assets. Although the subordinated debt issued by the trusts are not included as a component of stockholders' equity in the consolidated balance sheets, the debt is treated as capital for regulatory purposes. The trust preferred security debt issuances are includable in Tier I capital up to a maximum of 25% of capital on an aggregate basis. Any amount that exceeds 25% qualifies as Tier 2 capital. At JuneSeptember 30, 2012, all of the $46 million of the trusts’ securities qualified as Tier 1 capital. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law which, among other things, limits tothe ability of bank holding companies havingwith total assets of more than $15 billion the ability to treat trust preferred security debt issuances as Tier 1 capital. Since the Company had less than $15 billion in assets at JuneSeptember 30, 2012, under the Dodd-Frank Act, we will be able to continue to include its existing trust preferred securities in Tier 1 capital.capital under the Dodd-Frank Act.

10.Derivative Financial Instruments and Hedging Activities
As part of our asset and liability management strategy, the Company may enter into derivative financial instruments, such as interest rate swaps, caps and floors, with the overall goal of minimizing the impact of interest rate fluctuations on our net interest margin. Interest rate swaps and caps involve the exchange of fixed-rate and variable-rate interest payment obligations without the exchange of the underlying notional amounts.
During the first quarter of 2010, the Company entered into a three-year interest rate cap agreement with an aggregate notional amount of $50.0 million. Under this cap agreement, the Company receives quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate exceeds the strike level of 2.00%. The upfront fee paid to the counterparty in entering into this interest rate cap agreement was $890 thousand.
These interest rate cap agreements are considered “free-standing” due to non-designation of a hedge relationship to any of its financial assets or liabilities. Under FASB ASC 815, valuation gains or losses on interest rate caps not designated as hedging instruments are recognized in earnings. At JuneSeptember 30, 2012, the aggregate fair value of the outstanding interest rate caps was $0, and we recognized mark-to-market losses on valuation of $1 thousand0 and $9 thousand for the three and sixnine months ended JuneSeptember 30, 2012.
At JuneSeptember 30, 2012 and December 31, 2011, summary information about these interest-rate caps is as follows:
 

June 30, 2012December 31, 2011September 30, 2012December 31, 2011
Notional amounts$50 million$50 million$50 million$50 million
Weighted average pay ratesN/A
N/A
N/A
N/A
Weighted average receive ratesN/A
N/A
N/A
N/A
Weighted average maturity0.65 years
1.16 years
0.41 years
1.16 years
Fair value of combined interest rate caps$0
$9 thousand$0
$9 thousand


37

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The effect of derivative instruments on the Consolidated Statement of Income for the three and sixnine months ended JuneSeptember 30, 2012 and 2011 are as follows:
 

36

Table of Contents


Three Months Ended September 30,
Nine Months Ended September 30,


Three Months Ended June 30,
Six Months Ended June 30,
2012
2011
2012
2011


2012
2011
2012
2011
Location of Gain or (Loss)
Recognized in Income on
Derivatives
Amount of Gain or (Loss)
Recognized in Income on
Derivatives

Amount of Gain or (Loss)
Recognized in Income on
Derivatives

Location of Gain or (Loss)
Recognized in Income on
Derivatives
(In thousands)
Amount of Gain or (Loss)
Recognized in Income on
Derivatives

(In thousands)
Amount of Gain or (Loss)
Recognized in Income on
Derivatives
 (In thousands)
Derivatives not designated as hedging instruments under FASB ASC 815:















Interest rate contracts (1)Other income$(1)
$(118)
$(9)
$(140)Other income$

$(14)
$(9)
$(153)
 
(1)Includes amounts representing the net interest payments as stated in the contractual agreements and the valuation gains or (losses) on interest rate contracts not designated as hedging instruments.

11.Income Taxes
OurThe Company and its subsidiaries are subject to U.S. federal income tax as well as state income taxes. WeThe Company had total unrecognized tax benefits of $665734 thousand at JuneSeptember 30, 2012 and $569 thousand at December 31, 2011 that relate primarily to uncertainties related to California enterprise zone loan interest deductions.
We anticipate an increase of approximately $193220 thousand in the unrecognized tax benefit related to the California enterprise zone loan interest deduction within the next twelve months. We areThe Company is subject to U.S. federal income taxes, California franchise taxes and various other state income and franchise taxes.
The statute of limitations related to the consolidated Federal income tax return is closed for all tax years up to and including 20072008. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state. We are currentlywere under examination by New York City for the 2007, 2008, and 2009 tax years. While the outcome ofNew York City tax authority recently closed the examination is unknown, we do not expect any material adjustments.for the 2007, 2008 and 2009 tax years with an immaterial adjustment.
We recognize interest and penalties related to income tax matters in income tax expense. We had approximately $5358 thousand and $77 thousand for interest and penalties accrued at JuneSeptember 30, 2012 and December 31, 2011, respectively.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that except for the valuation allowance against the capital loss carryforwards of $53 thousand, a valuation allowance for deferred tax assets was not required as of JuneSeptember 30, 2012.

12.Fair Value Measurements
FASB ASC 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect estimates of assumptions that market participants would use in pricing the asset or liability.

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the asset or liability.
Securities Available for Sale
The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Impaired Loans
The fair values of impaired loans are generally measured for impairment using the practical expedients permitted by FASB ASC 310-10-35 including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost relatedless costs to liquidation of the collateral. These are consideredsell and result in a Level 3 inputs.2.
Derivatives
The fair value of our derivative financial instruments, including interest rate swaps and caps, is based on derivative valuation models using market data inputs as of the valuation date that can generally be verified and do not typically involve significant management judgments. (Level 2 inputs).
Other Real Estate Owned
Other real estate owned is fair valued at the time the loan is foreclosed upon and the asset is transferred to other real estate owned. The value is based primarily on third party appraisals, less costs to sell and result in a Level 32 classification of the inputs for determining fair value. Other real estate owned is reviewed and evaluated on at least an annual basis for additional impairment and adjusted to lower of cost or market accordingly, based on the same factors identified above.
Loans held for sale
Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments from investors, or based on recent comparable sales (Level 2 inputs), if available, and if not available, are based on discounted cash flows using current market rates applied to the estimated life and credit risk (Level 23 inputs) or may be assessed based upon the fair value of the collateral which is obtained from recent real estate appraisals.appraisals (Level 3 inputs). These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in Level 3 classification of the inputs for determining fair value.
For the quarter ended March 31, 2012, there were no changes in valuation techniques and related inputs resulting from the adoption of ASU 2011-04. The table below summarizes information about valuation method and unobservable inputs for nonrecurring Level 3 fair value measurements. The weight assigned to each input is based on the facts and circumstances that exist at the date of measurement.

38

Table of Contents

Valuation MethodUnobservable Inputs
Impaired loans at fair valueMarketAdjustments to external or internal appraised values for selling cost of 8.5%.
Probability weighting of broker price opinions

Management assumptions regarding market trends or
other relevant factors

Loans held for sale, netMarketAdjustments to external or internal appraised values for selling cost in a range of 0% to 5%.
Probability weighting of broker price opinions

Management assumptions regarding market trends or
other relevant factors

Other real estate ownedMarketAdjustments to external or internal appraised values for selling cost of 8.5%.
Probability weighting of broker price opinions

Management assumptions regarding market trends or
other relevant factors


Assets and liabilities measured at fair value on a recurring basis are summarized below:

 
Fair Value Measurements at the End of the Reporting Period Using 
Fair Value Measurements at the End of the Reporting Period Using
June 30, 2012
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
September 30, 2012
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
(In thousands)(In thousands)
Assets:













Securities available for sale:













GSE collateralized mortgage obligations$193,531

$0

$193,531

$0
$235,669

$0

$235,669

$0
GSE mortgage-backed securities449,845

0

449,845

0
427,589

0

427,589

0
Trust preferred security3,382

0

3,382

0
3,537

0

3,537

0
Municipal bonds5,058

0

5,058

0
5,139

0

5,139

0
Mutual funds15,036

15,036

0

0
15,125

15,125

0

0
              

There were no transfers between Level 1, 2 and 3 during the period ended JuneSeptember 30, 2012.
 

39

Table of Contents

   Fair Value Measurements at the End of the Reporting Period Using
 December 31, 2011 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 (In thousands)
Assets:       
Securities available for sale:       
U.S. Treasury$300
 $0
 $300
 $0
GSE collateralized mortgage obligations227,836
 0
 227,836
 0
GSE mortgage-backed securities487,754
 0
 487,754
 0
Trust preferred security4,348
 0
 4,348
 0
Municipal bonds5,764
 0
 5,764
 0
Mutual funds14,918
 14,918
 0
 0
Derivatives - Interest rate caps9
 0
 9
 0
Fair value adjustments for interest rate caps resulted in a net expense of $9 thousand for the sixnine months ended JuneSeptember 30, 2012 and $157 thousand for the year ended December 31, 2011.
Assets measured at fair value on a non-recurring basis are summarized below:
 
 
Fair Value Measurements at the End of the Reporting Period Using

 
Fair Value Measurements at the End of the Reporting Period Using

  
June 30, 2012
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Gains (Losses) for the Six Months Ended June 30, 2012September 30, 2012
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Gains (Losses) for the Nine Months Ended September 30, 2012 Total Gains (Losses) for the Three Months Ended September 30, 2012
(In thousands)(In thousands)  
Assets:

















  
Impaired loans at fair value:

















  
Real estate loans$12,221

$0

$0

$12,221

$(1,863)$7,928

$0

$7,928

$0

$(1,794) $(800)
Commercial business6,265

0
0
6,265

492
727

0
727
0

(494) (160)
Loans held for sale, net656

0

656

0

(156)2,725

0

2,725

0

(536) (380)
Other real estate owned5,379

0

0

5,379

(922)4,072

0

4072

0

(2,433) (1,611)


  Fair Value Measurements at the End of the Reporting Period Using    Fair Value Measurements at the End of the Reporting Period Using  
June 30, 2012 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total Gains (Losses) for the Three Months Ended June 30, 2012December 31, 2011 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total Gains (Losses) for the Twelve Months Ended December 31, 2011
(In thousands)(In thousands)
Assets:                  
Impaired loans at fair value:         
 
 
 
 
Real estate loans$12,378
 $0
 $0
 $12,378
 $(1,050)$15,485
 $0
 $15,485
 $0
 $(6,018)
Commercial business1,887
 0
 0
 1,887
 (28)6,360
 0 6360 0
 (2,553)
Loans held for sale, net656
 0
 656
 0
 (156)6,901
 0
 6,901
 0
 (3,393)
Other real estate owned2,634
 0
 0
 2,634
 (560)3,471
 0
 3471
 0
 (1,031)

40

Table of Contents

   Fair Value Measurements at the End of the Reporting Period Using  
 December 31, 2011 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total Gains (Losses) for the Twelve Months Ended December 31, 2011
 (In thousands)
Assets:         
Impaired loans at fair value:
 
 
 
 
Real estate loans$15,485
 $0
 $0
 $15,485
 $(6,018)
Commercial business6,360
 0 0 6,360
 (2,553)
Loans held for sale, net6,901
 0
 6,901
 0
 (3,393)
Other real estate owned3,471
 0
 0
 3,471
 (1,031)
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments, not previously presented, at JuneSeptember 30, 2012 and December 31, 2011 were as follows:
 

41

Table of Contents

June 30, 2012September 30, 2012
Carrying
Amount

Estimated
Fair Value
 Fair Value Measurement Using
Carrying
Amount

Estimated
Fair Value
 Fair Value Measurement Using
(In thousands)(In thousands)
Financial Assets:


 



 
Cash and cash equivalents$179,621

$179,621
 Level 1$229,643

$229,643
 Level 1
Term federal funds sold0

0
 Level 10

0
 Level 1
Loans held for sale32,590

35,674
 Level 258,484

64,501
 Level 2
Loans receivable—net3,809,033

4,147,077
 Level 34,003,542

4,301,334
 Level 3
Federal Home Loan Bank stock24,778

N/A
 N/A23,500

N/A
 N/A
Accrued interest receivable12,062

12,062
 Level 212,881

12,881
 Level 2
FDIC loss share receivable9,287

9,287
 Level 37,325

7,325
 Level 3
Customers’ liabilities on acceptances11,206

11,206
 Level 210,373

10,373
 Level 2
Financial Liabilities:


 



 
Noninterest-bearing deposits$1,064,013

$1,064,013
 Level 2$1,105,161

$1,105,161
 Level 2
Saving and other interest bearing demand deposits1,326,416

1,326,416
 Level 21,331,013

1,331,013
 Level 2
Time deposits1,492,251

1,496,548
 Level 21,616,350

1,611,240
 Level 2
Borrowings from Federal Home Loan Bank371,143

376,222
 Level 2460,815

458,392
 Level 2
Subordinated debentures41,772

40,174
 Level 241,809

32,822
 Level 2
Accrued interest payable5,924

5,924
 Level 25,451

5,451
 Level 2
Bank’s liabilities on acceptances outstanding11,206

11,206
 Level 210,373

10,373
 Level 2
December 31, 2011 December 31, 2011 
Carrying
Amount

Estimated
Fair Value
 
Carrying
Amount

Estimated
Fair Value
 
(In thousands) (In thousands) 
Financial Assets:


 


 
Cash and cash equivalents$300,110

$300,110
 $300,110

$300,110
 
Term federal funds sold40,000

40,000
 40,000

40,000
 
Loans held for sale42,407

43,782
 42,407

43,782
 
Loans receivable—net3,676,874

3,933,710
 3,676,874

3,933,710
 
Federal Home Loan Bank stock27,373

N/A
 27,373

N/A
 
Accrued interest receivable13,439

13,439
 13,439

13,439
 
FDIC loss share receivable10,819

10,819
 10,819

10,819
 
Customers’ liabilities on acceptances10,515

10,515
 10,515

10,515
 
Financial Liabilities:




 




 
Noninterest-bearing deposits984,350

984,350
 984,350

984,350
 
Saving and other interest bearing demand deposits1,435,441

1,435,441
 1,435,441

1,435,441
 
Time deposits1,521,101

1,532,152
 1,521,101

1,532,152
 
Borrowings from Federal Home Loan Bank344,402

349,311
 344,402

349,311
 
Subordinated debentures52,102

53,757
 52,102

53,757
 
Accrued interest payable6,519

6,519
 6,519

6,519
 
Bank’s liabilities on acceptances outstanding10,515

10,515
 10,515

10,515
 

The methods and assumptions used to estimate fair value are described as follows.

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The carrying amount is the estimated fair value for cash and cash equivalents, savings and other interest bearing demand deposits, accrued interest receivable and payable, customer’s and Bank’s liabilities on acceptances, non-interest-bearing deposits, short-term debt, secured borrowings, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. The allowance for loan losses is

42

Table of Contents

considered to be a reasonable estimate of discount for credit quality concerns. Fair value of SBA loans held for sale is based on market quotes. For fair value of non-SBA loans held for sale, see the measurement method discussed previously. Fair value of time deposits and debt is based on current rates for similar financing. It was not practicable to determine the fair value of Federal Reserve Bank stock or Federal Home Loan Bank stock due to restrictions placed on their transferability. The fair value of commitments to fund loans represents fees currently charged to enter into similar agreements with similar remaining maturities and is not presented herein. The fair value of these financial instruments is not material to the consolidated financial statements.

13.Stockholders’ Equity and Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements, such as restrictions on the growth, expansion or the payment of dividends or other capital distributions or management fees. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes that, as of JuneSeptember 30, 2012 and December 31, 2011, the Company and the Bank met all capital adequacy requirements to which they are subject.
As of JuneSeptember 30, 2012 and December 31, 2011, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below. There are no conditions or events since the notification that management believes have changed the Bank’s category.
On November 21, 2008, the Company received $67 million from the U.S. Treasury through its TARP capital purchase plan and issued 67,000 shares of cumulative preferred stock, Series A. The preferred stock payspaid cumulative dividends at the rate of 5% per year for the first five years and 9% per year thereafter. The shares are callable by the Company at par after three years if the repurchase is made with proceeds of a new offering or placement of common equity or of certain preferred stock treated as Tier 1 capital under applicable Federal banking regulations.
In conjunction with the purchase of the Company’s preferred stock, the U.S. Treasury received a warrant to purchase 1,042,531 shares of the Company’s common stock at $9.64 per share. The term of the warrant iswas ten years. On December 3, 2009, US Treasury approved the Company’s request for an adjustment to the Company’s warrant share position due to a qualified equity offering in November 2009. The adjusted number of warrant shares is 521,266, which is 50% of original number of warrant shares 1,042,531.
Upon the merger with Center Financial, the Company issued 55,000 shares of a new series of our preferred stock, designated as our Fixed Rate Cumulative Perpetual Preferred Stock, Series B, having substantially the same rights, preferences, privileges and voting powers as our Series A Preferred Stock in exchange for the shares of similar preferred stock issued by Center Financial under the Treasury Department's TARP Capital Purchase Program. The new series of preferred stock is designated as our Fixed Rate Cumulative Perpetual Preferred Stock, Series B. The ten-year warrant to purchase Center Financial common stock that was issued in connection with Center Financial's sale of its Series A Preferred Stockpreferred stock to the Treasury Department was converted into a warrant to purchase BBCN Bancorp common stock upon our merger with Center. Reflecting the merger exchange ratio of 0.7805, and a reduction of 50% of the original number of warrant shares is issued due to additional capital raise, the warrant now entitles the holder of the warrant to purchase, in one or more exercises of the warrant, up to 337,480 shares of BBCN Bancorp common stock at a price of $12.22 per share.
OnIn June 27, 2012, the Company redeemed $67 million and $55 million of the aforementioned Series A and Series B Preferred Stock, respectively. The preferred
On August 8, 2012, we purchased from the Treasury Department, the outstanding warrant dated November 21, 2008 relating to 521,266 shares of the Company's common stock, at a purchase price of $2.2 million. We have not reached agreement with the Treasury Department regarding repurchase of the warrant for the purchase of 337,480 shares of of the Company's common stock that we issued qualifies as Tier 1 capital.in connection with our merger with Center Financial.

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The Company’s and the Bank’s actual capital amounts and ratios are presented in the table below:
 
Actual
Required
For Capital
Adequacy Purposes

Required
To Be Well
Capitalized under
Prompt Corrective
Action Provisions
Actual
Required
For Capital
Adequacy Purposes

Required
To Be Well
Capitalized under
Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
RatioAmount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)(Dollars in thousands)
As of June 30, 2012 
 
 
 
 
 
As of September 30, 2012 
 
 
 
 
 
Total capital (to risk-weighted assets):





















Company$701,835
 16.8%
$334,218

8.0%
N/A

N/A
$723,954
 16.5%
$351,432

8.0%
N/A

N/A
Bank$677,914
 16.2%
$333,972

8.0%
$417,465

10.0%$702,825
 16.0%
$351,209

8.0%
$439,011

10.0%
Tier I capital (to risk-weighted assets):
 









 








Company$649,293
 15.5%
$167,109

4.0%
N/A

N/A
$668,710
 15.2%
$175,716

4.0%
N/A

N/A
Bank$625,409
 15.0%
$166,986

4.0%
$250,479

6.0%$647,616
 14.8%
$175,604

4.0%
$263,407

6.0%
Tier I capital (to average assets):
 









 








Company$649,293
 13.0%
$200,203

4.0%
N/A

N/A
$668,710
 13.2%
$203,354

4.0%
N/A

N/A
Bank$625,409
 12.5%
$200,284

4.0%
$250,355

5.0%$647,616
 12.7%
$203,307

4.0%
$254,134

5.0%
Actual
Required
For Capital
Adequacy Purposes

Required
To Be Well
Capitalized under
Prompt Corrective
Action Provisions
Actual
Required
For Capital
Adequacy Purposes

Required
To Be Well
Capitalized under
Prompt Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
RatioAmount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)(Dollars in thousands)
As of December 31, 2011 
 
 
 
 
  
 
 
 
 
 
Total capital (to risk-weighted assets):





















Company$784,054

19.4%
$323,144

8.0%
N/A

N/A
$784,054

19.4%
$323,144

8.0%
N/A

N/A
Bank$721,551

17.9%
$322,891

8.0%
$403,613

10.0%$721,551

17.9%
$322,891

8.0%
$403,613

10.0%
Tier I capital (to risk-weighted assets):





















Company$733,319

18.2%
$161,572

4.0%
N/A

N/A
$733,319

18.2%
$161,572

4.0%
N/A

N/A
Bank$670,855

16.6%
$161,445

4.0%
$242,168

6.0%$670,855

16.6%
$161,445

4.0%
$242,168

6.0%
Tier I capital (to average assets):





















Company$733,319

19.8%
$148,044

4.0%
N/A

N/A
$733,319

19.8%
$148,044

4.0%
N/A

N/A
Bank$670,855

18.1%
$148,038

4.0%
$185,048

5.0%$670,855

18.1%
$148,038

4.0%
$185,048

5.0%

Under federal banking law, dividends declared by the Bank in any calendar year may not, without the approval of the regulatory agency, exceed its net income for that year combined with its retained income from the preceding two years. However, the regulatory agency has previously issued a bulletin to all banks outlining guidelines limiting the circumstances under which banks may pay dividends even if the banks are otherwise statutorily authorized to pay dividends. The limitations impose a requirement or in some cases suggest that prior approval of the regulatory agency should be obtained before a dividend is paid if a bank is the subject of administrative action or if the payment could be viewed by the regulatory agency as unsafe or unusual.

Under California Financial Code Section 1133, a bank, or a majority-owned subsidiary of a bank may, with the prior approval of the commissioner, make a distribution to the shareholders of such bank in an amount not exceeding the greatest of: a) the retained earnings of the bank; (b) the net income of the bank for its last fiscal year; or (c) the net income of the bank for its current fiscal year.


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14.Subsequent Event

On October 22, 2012, the Company announced that it has signed a definitive agreement under which Pacific International Bancorp, a Seattle-based company, will merge with the Company. Pacific International has total assets of approximately August 8, 2012$200 million, we purchased fromand its primary subsidiary, Pacific International Bank, a Washington state-chartered bank, has four bank locations in the Treasury Department, the outstanding warrant dated November 21, 2008 relating to 521,266 sharesSeattle metropolitan area. Upon completion of the Company'stransaction, which is expected to close during first quarter 2013, the Company will have six branches in the Seattle area.
Under the terms of the merger agreement, the stock-for-stock transaction is valued at approximately $8.2 million, valuing each outstanding share of Pacific International common stock at a purchase price of $$2.2 million1.75. We have not reached agreement with the Treasury Department regarding repurchaseAs part of the warrant fortransaction, Pacific International’s $6.5 million in Series A Preferred Stock issued under the purchase of U.S. Treasury’s TARP Capital Purchase Program will be retired.337,480 shares of
The transaction is subject to regulatory approval, the approval of the Company's common stock that we issued in connection with our merger with Center Financial. See Note 13 Stock holders' Equityshareholders of Pacific International, and Regulatory Matters for further information regarding the warrants.other customary closing conditions.


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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011 and the unaudited consolidated financial statements and notes set forth elsewhere in this report.

GENERAL
Selected Financial Data
The following table sets forth certain selected financial data concerning the periods indicated:
 
At or for the Three Months Ended June 30, At or for the Six Months Ended June 30,At or for the Three Months Ended September 30, At or for the Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(Dollars in thousands, except
share and per share data)
(Dollars in thousands, except
share and per share data)
Income Statement Data:              
Interest income$66,943
 $37,294
 $135,498
 $74,488
$65,455
 $38,927
 $200,953
 $113,415
Interest expense7,441
 7,963
 15,137
 16,274
7,224
 7,874
 22,361
 24,148
Net interest income59,502
 29,331
 120,361
 58,214
58,231
 31,053
 178,592
 89,267
Provision for loan losses7,182
 10,047
 9,782
 15,309
6,900
 3,483
 16,682
 18,792
Net interest income after provision for loan losses52,320
 19,284
 110,579
 42,905
51,331
 27,570
 161,910
 70,475
Non-interest income10,222
 7,684
 21,867
 12,194
7,664
 4,258
 29,531
 16,452
Non-interest expense31,077
 16,886
 61,512
 33,581
28,770
 16,817
 90,282
 50,398
Income before income tax expense31,465
 10,082
 70,934
 21,518
30,225
 15,011
 101,159
 36,529
Income tax expense12,101
 3,764
 27,636
 8,454
11,827
 5,196
 39,463
 13,650
Net income$19,364
 $6,318
 $43,298
 $13,064
$18,398
 $9,815
 $61,696
 $22,879
Dividends and discount accretion on preferred stock$(3,771) $(1,075) $(5,640) $(2,150)$0
 $(1,077) $(5,640) $(3,227)
Gain on repurchase of stock warrant193
 0
 193
 0
Net income available to common stockholders$15,593
 $5,243
 $37,658
 $10,914
$18,591
 $8,738
 $56,249
 $19,652
Per Share Data:              
Earnings per common share - basic$0.20
 $0.14
 $0.48
 $0.29
$0.24
 $0.23
 $0.72
 $0.52
Earnings per common share - diluted$0.20
 $0.14
 $0.48
 $0.29
$0.24
 $0.23
 $0.72
 $0.52
Book value per common share (period end, excluding preferred stock and warrants)$9.14
 $8.02
 $9.14
 $8.02
$9.41
 $8.30
 $9.41
 $8.30
Tangible book value per common share (period end, excluding preferred stock and warrants) (1) (12)
$7.94
 $7.94
 $7.94
 $7.94
Tangible book value per common share (period end, excluding preferred stock and warrants) (12)
$8.21
 $8.23
 $8.21
 $8.23
Number of common shares outstanding (period end)78,014,107
 38,097,327
 78,014,107
 38,097,327
78,016,260
 38,095,260
 78,016,260
 38,095,260
Weighted average shares - basic78,007,270
 38,047,371
 77,997,305
 38,017,473
78,015,960
 38,098,142
 78,004,458
 38,044,625
Weighted average shares - diluted78,141,527
 38,082,023
 78,121,259
 38,079,650
78,103,795
 38,103,683
 78,082,059
 38,070,141
Tangible common equity ratio (9)
12.49% 10.21% 12.49% 10.21%12.23% 10.40% 12.23% 10.40%
Statement of Financial Condition Data - at Period End:              
Assets$5,049,405
 $2,967,288
 $5,049,405
 $2,967,288
$5,331,979
 $3,016,127
 $5,331,979
 $3,016,127
Securities available for sale666,852
 472,420
 666,852
 472,420
687,059
 455,789
 687,059
 455,789
Gross loans, net of deferred loan fees and costs (excludes loans held for sale)3,874,538
 2,202,446
 3,874,538
 2,202,446
4,069,494
 2,257,667
 4,069,494
 2,257,667
Deposits3,882,680
 2,232,180
 3,882,680
 2,232,180
4,052,524
 2,267,196
 4,052,524
 2,267,196
Federal Home Loan Bank borrowings371,143
 300,000
 371,143
 300,000
460,815
 300,000
 460,815
 300,000
Subordinated debentures41,772
 39,268
 41,772
 39,268
41,809
 39,268
 41,809
 39,268
Stockholders’ equity715,461
 372,539
 715,461
 372,539
734,455
 383,615
 734,455
 383,615

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At or for the Three Months Ended
June 30,
 At or for the Six Months Ended June 30,
At or for the Three Months Ended
September 30,
 At or for the Nine Months Ended September 30,
2012 2011 2012 20112012 2011 2012 2011
(Dollars in thousands)(Dollars in thousands)
Average Balance Sheet Data:              
Assets$5,102,769
 $2,933,003
 $5,121,082
 $2,934,546
$5,179,186
 $2,987,441
 $5,140,591
 $2,952,371
Securities available for sale692,399
 501,298
 709,063
 513,751
679,764
 486,009
 699,225
 504,402
Gross loans, including loans held for sale3,847,921
 2,190,436
 3,812,708
 2,179,150
4,007,402
 2,248,544
 3,878,080
 2,202,535
Deposits3,854,756
 2,193,202
 3,879,207
 2,175,751
3,962,379
 2,244,808
 3,906,834
 2,199,023
Stockholders’ equity823,839
 369,485
 815,111
 366,343
728,038
 377,654
 785,875
 370,155
Selected Performance Ratios:              
Return on average assets (1) (8)
1.52% 0.86% 1.69% 0.89%1.42% 1.31% 1.60% 1.03%
Return on average stockholders’ equity (1) (8)
9.40% 6.84% 10.62% 7.13%10.11% 10.40% 10.47% 8.24%
Return on average tangible equity (8) (11)
10.61% 6.89% 12.01% 7.19%
Return on average tangible equity (1) (8) (11)
11.60% 10.48% 11.89% 8.31%
Pre Tax- Pre Provision income to average assets (1)
3.03% 2.75% 3.15% 2.51%2.87% 2.48% 3.06% 2.50%
Efficiency ratio (2)
44.57% 45.62% 43.25% 47.69%43.66% 47.63% 43.38% 47.67%
Net interest margin (3)
5.02% 4.16% 5.07% 4.15%4.79% 4.29% 4.97% 4.20%
Regulatory Capital Ratios (4)
              
Leverage capital ratio (5)
12.97% 13.32% 12.97% 13.32%13.15% 13.50% 13.15% 13.50%
Tier 1 risk-based capital ratio15.54% 16.42% 15.54% 16.42%15.22% 16.71% 15.22% 16.71%
Total risk-based capital ratio16.80% 17.69% 16.80% 17.69%16.48% 17.98% 16.48% 17.98%
Tier 1 common -risk based capital ratio (13)
14.58% 12.08% 14.58% 12.08%14.26% 12.42% 14.26% 12.42%
Asset Quality Ratios:              
Allowance for loan losses to gross loans, excluding loans held for sale1.69% 2.71% 1.69% 2.71%1.62% 2.66% 1.62% 2.66%
Allowance for loan losses to legacy loans (10)
2.26% 2.71% 2.26% 2.71%2.00% 2.66% 2.00% 2.66%
Allowance for loan losses to non-accrual loans164.88% 168.70% 164.88% 168.70%224.56% 215.94% 224.56% 215.94%
Allowance for loan losses to non-performing loans (6)
78.44% 116.66% 78.44% 116.66%89.13% 116.90% 89.13% 116.90%
Allowance for loan losses to non-performing assets (7)
72.60% 107.41% 72.60% 107.41%84.41% 106.83% 84.41% 106.83%
Nonaccrual loans to gross loans, excluding loans held for sale1.03% 1.61% 1.03% 1.61%0.72% 1.23% 0.72% 1.23%
Nonperforming loans to gross loans, excluding loans held for sale (6)
2.16% 2.32% 2.16% 2.32%1.82% 2.26% 1.82% 2.26%
Nonperforming assets to gross loans and OREO (7)
2.32% 2.52% 2.32% 2.52%1.92% 2.47% 1.92% 2.47%
Total non-performing assets to total assets (7)
1.79% 1.87% 1.79% 1.87%1.47% 1.86% 1.47% 1.86%
(1)Annualized.
(2)Efficiency ratio is defined as non-interest expense divided by the sum of net interest income before provision for loan losses and non-interest income.
(3)Net interest margin is calculated by dividing annualized net interest income by average total interest-earning assets.
(4)The ratios required to meet the definition of a “well-capitalized” institution under certain banking regulations are 5% leverage capital, 6% tier I risk-based capital and 10% total risk-based capital.
(5)Calculations are based on average quarterly asset balances.
(6)Non-performing loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and accruing restructured loans. Loans 90 days or more past due and still accruing consist of acquired loans that were originally recorded at fair value upon acquisitions. These loans are considered to be accruing as we can reasonably estimate future cash flows on acquired loans and we expect to fully collect the carrying value of these loans.
(7)Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest, other real estate owned, and accruing restructured loans.
(8)Based on net income before effect of dividends and discount accretion on preferred stock.
(9)
Excludes TARP preferred stock, net of discount, of $0 and $64.7$64.9 million and stock warrants of $2.8 million$378 thousand and $2.4 million at JuneSeptember 30, 2012 and 2011, respectively.
(10)Legacy loans are those loans accounted for under the amortized cost method and do not include loans acquired from Center Financial Corporation on November 30, 2011. This is a non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position. Allowance for loan losses to legacy loans is calculated by

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that is useful in understanding our financial performance and position. Allowance for loan losses to legacy loans is calculated by dividing the gross legacy loan balance by allowance for loan losses.
(11)Average tangible equity is calculated by subtracting average goodwill and average other intangibles from average stockholders' equity. This is a non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position.
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
 2012 2011 2012 2011 2012 2011 2012 2011
 (In Thousands) (Dollars in thousands)
Net income $19,364
 $6,318
 $43,298
 $13,064
 $18,398
 $9,815
 $61,696
 $22,879
                
Average stockholders' equity $823,839
 $369,485
 $815,111
 $366,343
 $728,038
 $377,654
 $785,875
 $370,155
Less: Average goodwill and other intangible assets, net (93,713) (2,939) (93,955) (2,977) (93,407) (2,861) (93,771) (2,938)
Average tangible equity $730,126
 $366,546
 $721,156
 $363,366
 $634,631
 $374,793
 $692,104
 $367,217
                
Net income (annualized) to average tangible equity 10.61% 6.89% 12.01% 7.19% 11.60% 10.48% 11.89% 8.31%

(12)Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total stockholders' equity and divingdividing the difference by the number of shares of common stock outstanding. This is a non-GAAP measure that we believe provides investors with information that is useful in understanding our financial performance and position.
 June 30, 2012 June 30, 2011 September 30, 2012 September 30, 2011
 (In Thousands) (In thousands)
Total stockholders' equity $715,461
 $372,539
 $734,455
 $383,615
Less: Preferred stock, net of discount 0
 (64,679) 0
 (64,918)
Common stock warrant (2,760) (2,383) (378) (2,383)
Goodwill and other intangible assets, net (93,518) (2,888) (93,216) (2,811)
Tangible common equity $619,183
 $302,589
 $640,861
 $313,503
        
Common shares outstanding 78,014,107
 38,097,327
 78,016,260
 38,095,260
        
Tangible common equity per share $7.94
 $7.94
 $8.21
 $8.23

(13)Tier 1 common is calculated as Tier 1 capital less non-common elements, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities.
 June 30, 2012 June 30, 2011 September 30, 2012 September 30, 2011
 (In Thousands) (In thousands)
Tier 1 capital $649,293
 $388,176
 $666,652
 $401,441
Less: Preferred stock, net of discount 0
 (64,679) 0
 (64,918)
Trust Preferred (40,347) (38,000)
Trust preferred securities less unamortized acquisition discount of $5,616 (40,384) (38,000)
Tier 1 common-risk based capital $608,946
 $285,497
 $626,268
 $298,523
        
Total risk weighted assets less disallowed allowance for loan losses 4,177,728
 2,363,799
 4,392,505
 2,402,920
        
Tier 1 common-risk based capital ratio 14.58% 12.08% 14.26% 12.42%




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Results of Operations
Overview
Our totalTotal assets decreasedincreased $165.4 million from $5.17 billion at December 31, 2011 to $5.055.33 billion at JuneSeptember 30, 2012. The decreaseincrease in total assets was primarily due to thea $326.7 million increase in loans receivable, net of allowance for loan losses, from $3.7 billion at December 31, 2011 to $4.0 billion at September 30, 2012. This increase was partially offset by a $70.5 million decrease in cash and cash equivalentequivalents from $300.1 million at December 31, 2011 to $179.6229.6 million at JuneSeptember 30, 2012, a $40.0 million decrease in term federal funds sold from $40.0 million at December 31, 2011 to redeemnone at September 30, 2012 and a $53.9 million decrease in securities available for sale from $740.9 million at December 31, 2011 to 687.1 million at September 30, 2012. The increase in total assets was funded by a $111.6 million increase in deposits from $3.94 billion at December 31, 2011 to $4.05 billion at September 30, 2012, a $116.4 million increase in borrowings from the FHLB from $344.4 million at December 31, 2011 to $460.8 million at September 30, 2012 and net income available to common stockholders of $56.1 million. The increases in deposits and net income available to common shareholders were partially offset by the $122 million redemption of the Series A and Series B Perpetual Preferred Stock issued under the U.S. Treasury's TARP Capital Purchase Program onin June 27, 2012. The redemption covered the total combined preferred stock investment by the U.S. Treasury of $67 million in the former Nara Bancorp, Inc. and $55 million in the former Center Financial Corporation ("Center"). Gross loans receivable increased by $136 million at $3.87 billion during the six months ended June 30, 2012. Our deposits decreased $58 million, or 1%, to $3.88 billion at June 30, 2012 from $3.94 billion at December 31, 2011. Securities available for sale declined 10% during the first six months of 2012 as a result of paydowns and maturities.
OurThe net income available to common stockholders for the secondthird quarter of 2012 was $15.6$18.4 million,, or $0.20$0.24 per diluted common share, compared to the net income available to common stockholders of $5.2$8.7 million, or $0.14$0.23 per diluted common share, for the same period of 2011, representing an increase in net income of $10.4$9.7 million, or 197%111%. OurThe net income available to common stockholders for the sixnine months ended JuneSeptember 30,2012 was $37.7$56.1 million,, or $0.48$0.72 per diluted common share, compared to the net income available to common stockholders of $10.9$19.7 million, or $0.29$0.52 per diluted common share, for the same period of 2011, representing an increase in net income of $26.7$36.4 million, or 245%185%. The merger with Center completed on November 30, 2011(the "Merger") impacts the comparability of the operating results for the second quarterthird quarters of 2012 compared to the same period ofand 2011 and for the six monthsnine month periods ended JuneSeptember 30, 2012 compared toand 2011 because the same reporting periodMerger closed in the fourth quarter of 2011. As the balances of2011 and resulted in significant increases in interest earning assets, interest bearing liabilities, employees and liabilities significantly increased as a result of the merger of equals, the amounts of interest income and expenses were significantly larger when comparing to the same reporting period of 2011.branch locations. In addition, the applicationassets and liabilities of acquisition accounting results in theCenter were recorded at fair value and certain acquisition premiums and discounts reflecting the acquisition date fair value adjustmentare being recorded and impacting yields as they are amortized or accreted byinto income or expense as adjustments to the interest method based onyield/cost of the related assetsasset or liabilities. Ourliability. The operating results for the three months ended JuneSeptember 30, 2012 and 2011 and the sixnine months ended JuneSeptember 30, 2012 and 2011 include the following pre-tax acquisition accounting adjustments and expenses related to the merger. The increase (decrease) to pre-tax income of these adjustments is summarized below. The impact which these adjustments have on certain yields and costs are described in subsequent sections.Merger.
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2012 2011 2012 2011
Accretion of discount on acquired Center loans (1)
 $7,696
 $0
 $17,340
 $0
 2012 2011 2012 2011
 (In thousands)
Accretion of discount on Center loans (1)
 $6,105
 $0
 $23,445
 $0
Amortization of premiums on Center FHLB borrowings (2)
 904
 0
 2,135
 0
 307
 0
 2,442
 0
Accretion of discount on Center subordinated debt (3)
 (36) 0
 (71) 0
 (37) 0
 (108) 0
Amortization of premium on Center time deposits (4)
 787
 0
 2,062
 0
 650
 0
 2,712
 0
Amortization of core deposit intangibles from Center (5)
 (253) 0
 (543) 0
 (253) 0
 (796) 0
Accretion of discounts on other Center assets (6)
 57
 0
 114
 0
 158
 0
 272
 0
Amortization of unfavorable lease liability (7)
 57
 0
 115
 0
 53
 0
 168
 0
Merger and integration expense (8)
 (1,348) (381) (3,121) (892) (183) (574) (3,304) (1,466)
Increase (decrease) to pre-tax income $7,864
 $(381) $18,031
 $(892) $6,800
 $(574) $24,831
 $(1,466)
(1) We have estimated theThe fair value of the Center loans acquired as the result of our merger. The valuation resulted in a discount of approximatelywas estimated to be $118.0 million asbelow the principal amount of November 30, 2011.such loans on the Merger date. The accretionaccretable portion of this purchase discountthe discounts on the loans is being accreted into interest income over the remaining lives of the acquired loans is included in our reported interest income on loans.
(2) The fair value of the outstanding FHLB borrowings assumed from Center was estimated to be above the face amount of such debt. Our reportedThe premiums on FHLB borrowings are being amortized into interest expense on FHLB advances includes amortization to the face amount of these advances over the remaining term of the debt.
(3) The fair value of the outstanding subordinated debt assumed from Center was estimated to be below the face amount of such debt. Our reportedThe discounts on the subordinated debt are being accreted into interest expense on other borrowings includes accretion to the face amount of this debt over the remaining term of the debt.
(4) The fair value of certificate of deposit liabilitiestime deposits assumed from Center was estimated to be above the face amount of such deposits. Our reportedThe premiums on certificates of deposits are being amortized into interest expense on deposits includes amortization to the face amount of such liabilities over the remaining term of the deposits.

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(5) A core deposit intangible arises fromin an acquisition of a financial institution or a financial institution branch having a deposit base comprised of funds associated with stable customer relationships. These customer relationships provide a costfuture benefit to the acquiring

49

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institution since the associated customer deposits typically are at lower interest rates and can be expected to be retained on a long-term basis. Deposit customer relationships have value due to their favorable interest rates in comparison to market rates for alternative funding sources with expected lives comparableterms similar to expected livesthe length of time the core deposits. The discounted cash flow method, which we have used to estimate this value, is based upon the principle of future benefits; economic value tendscustomer relationships are expected to be based on anticipatedretained. The initial value assigned to a core deposit intangible represents the present value of this future benefits as measured by cash flows expected to occur in the future.economic benefit. The core deposit intangible asset recognized as part of the Center mergerMerger is being amortized over its estimated useful life of approximately seven years utilizing an accelerated amortization method.
(6) Accretion of discountsDiscounts on other assets primarily consist ofrelate to servicing assets, investments in affordable housing partnerships and the fair value of the favorable operating leases.
(7) Amortization of unfavorableUnfavorable lease liability representsrelates to the Center facilitiesfacility lease contracts havingwhich had rental rates that exceeded current market rental rates aton the mergerMerger date.
(8) Direct costs related to the Center merger were expensed as incurred. During the three months ended JuneSeptember 30, 2012, we incurred $1.3 million$183 thousand in merger and integration expenses, including $0.5 million$33 thousand in salaries and benefits and $0.9 million$150 thousand in professional fees. During the three months ended JuneSeptember 30, 2011, we incurred $381$574 thousand in merger and integration expenses. During the sixnine months ended JuneSeptember 30, 2012, we incurred $3.1$3.3 million in merger and integration expenses, including $1.1$1.1 million in salaries and benefits and $2.0$2.2 million in professional fees. During the sixnine months ended JuneSeptember 30, 2011, we incurred $892 thousand$1.5 million in merger and integration expenses.
The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.52%1.42% for the secondthird quarter of 2012 compared to 0.86%1.31% for the same period of 2011. The annualized return on average stockholders' equity, before the effect of dividends and discount accretion on preferred stock, was 9.40%10.11% for the secondthird quarter of 2012 compared to 6.84%10.40% for the same period of 2011. The efficiency ratio was 44.57%43.66% for the secondthird quarter of 2012 compared to 45.62%47.63% for the same period of 2011.
The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.69%1.60% for the sixnine months ended JuneSeptember 30, 2012, compared to 0.89%1.03% for the same period of 2011. The annualized return on average stockholders' equity, before the effect of dividends and discount accretion on preferred stock, was 10.62%10.47% for the sixnine months ended JuneSeptember 30, 2012, compared to 7.13%8.24% for the same period of 2011. The efficiency ratio was 43.25%43.38% for the sixnine months ended JuneSeptember 30, 2012, compared to 47.69%47.67% for the same period of 2011.
Net Interest Income and Net Interest Margin
Net Interest Income and Expense
TheA principal component of ourthe Company's earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds. Net interest income expressed as a percentage of average interest-earning assets is referred to as the net interest margin. The net interest spread is the yield on average interest-earning assets less the cost of average interest-bearing liabilities (interest-bearing deposits and borrowed funds).liabilities. Net interest income is affected by changes in the respective volumesbalances of interest-earning assets and fundinginterest-bearing liabilities as well as byand changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities.
Comparison of Three Months Ended JuneSeptember 30, 2012 with the Same Period of 2011
Net interest income before provision for loan losses was $59.558.2 million for the secondthird quarter of 2012, an increase of $30.2$27.1 million, or 103%88%, compared to $29.331.1 million for the same period of 2011. The increase was principally attributable to the higher level of interest earning assets as well asand the improvement in the net interest margin following the merger. The net interest margin improvedincreased to 5.02%4.79% for the secondthird quarter of 2012, compared to 4.16%4.29% for the same period of 2011. The improvement in the net interest marginincrease was largely attributableprincipally due to the effect of acquisition accounting adjustments.
Interest income for the secondthird quarter of 2012 was $66.965.5 million, an increase of $26.5 million, or 68%, compared to $37.338.9 million for the same period of 2011. The increase of $29.6 million was primarily the result ofresulted from a $1.628.2 million increase in interest income due to an increase in average interest-earning assets, which was partially offset by a $1.7 million decrease in interest income due to a decrease in the yield on average interest-earnings assets.
Interest expense for the third quarter of 2012 was $7.2 million, a decrease of $0.7 million, or 8%, compared to interest expense of $7.9 million for the same period of 2011. The decrease resulted from a $3.6 million decrease in interest expense due to a decrease in the rates paid on average interest-bearing liabilities, which was partially offset by a $2.9 million increase in interest expense due to an increase in average interest-bearing liabilities.
Comparison of Nine Months Ended September 30, 2012 with the Same Period of 2011
Net interest income before provision for loan losses was $178.6 million for the nine months ended September 30, 2012, an increase of $89.3 million, or 100%, compared to $89.3 million for the same period of 2011. The increase was principally due to the higher level of interest earning assets and the improvement in the net interest margin following the merger.
Interest income for the nine months ended September 30, 2012 was $201.0 million, an increase of $87.6 million, or 77%,

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compared to $113.4 million for the same period of 2011. The increase resulted from a $2.6 million increase in interest income due to an increase in the yield on average interest-earnings assets and a $28.185.0 million increase in interest income due to an increase in the volume of average interest-earning assets.
Interest expense for the secondnine quarter ofmonths ended September 30, 2012 was $7.422.4 million, a decrease of $0.6$1.7 million, or 7%, compared to interest expense of $8.024.1 million for the same quarterperiod of 2011. The decrease was the result ofresulted from a $3.110.1 million decrease in interest expense due to a decrease in the average rates paid on interest-bearing liabilities, which was partially offset by an increase in the volume of average interest-bearing liabilities of $2.6$8.4 million.
Comparison of Six Months Ended June 30, 2012 with the Same Period of 2011
Net interest income before provision for loan losses was $120.4 million for the six months ended June 30, 2012, an increase of $62.1 million, or 107%, compared to $58.2 million for the same period of 2011. The increase was principally attributable to the higher level of interest earning assets, as well as the improvement in net interest margin, following the merger.

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Interest income for the six months ended June 30, 2012 was $135.5 million compared to $74.5 million for the same period of 2011. The increase of $61.0 million was primarily the result of a $4.6 million increase in interest incomeexpense due to an increase in the average yield earnings on average interest-earnings assets and a $56.4 million increase in interest income due to an increase in the volume of average interest-earning assets.
Interest expense for the six months ended June 30, 2012 was $15.1 million, a decrease of $1.1 million, or 7%, compared to interest expense of $16.3 million for the same quarter of 2011. The decrease was the result of a $6.3 million decrease in interest expense due to a decrease in the average rates paid on interest-bearing liabilities, which was offset by an increase in the volume of average interest-bearing liabilities of $5.2 million.liabilities.

Net Interest Margin

NetThe net interest margin (net interest income divided by average interest-earning assets) for the secondthird quarter of 2012 was 5.02%4.79%, an increase of 8650 basis points from 4.16%4.29% for the same period of 2011. Net interest margin for the sixnine months ended JuneSeptember 30, 2012 was 5.07%4.97%, an increase of 9277 basis points from 4.15%4.20% for the same period of 2011. The improvement in net interest margin was largely attributableprincipally due to the effect of acquisition accounting adjustments, as summarized in the following table.
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
 2012 2011 2012 2011 2012 2011 2012 2011
Net interest margin, excluding the effect of acquisition accounting adjustments 4.15% 4.16% 4.10% 4.15% 4.14% 4.29% 4.29% 4.20%
Acquisition accounting adjustments (1)
 0.87
 0.00
 0.97
 0.00
 0.65
 0.00
 0.68
 0.00
Reported net interest margin 5.02% 4.16% 5.07% 4.15% 4.79% 4.29% 4.97% 4.20%
(1) Acquisition accounting adjustments is calculated by subtracting net interest margin, excluding effect of acquisition accounting adjustments, from reported net interest margin.
(1) Acquisition accounting adjustments is calculated by subtracting net interest margin, excluding effect of acquisition accounting adjustments, from reported net interest margin.
(1) Acquisition accounting adjustments is calculated by subtracting net interest margin, excluding effect of acquisition accounting adjustments, from reported net interest margin.

Excluding the effect of acquisition accounting adjustments, the core net interest margin for the secondthird quarter of 2012 decreased 1 basis point to 4.15% over the second quarter of 2011. The core interest margin for the six months ended June 30, 2012, decreased 515 basis points to 4.10%,4.14% compared withto the core net interest margin for the same period of 2011. The decrease was largely attributableprimarily due to continued pricing pressure on loan interest rates which was partially offset by decreases in the rates paid on deposits and borrowings. Excluding the effect of acquisition accounting adjustments, the interest margin for the nine months ended September 30, 2012 increased 9 basis points to 4.29% compared to the net interest margin for the same period of 2011. The increase was principally due to the decrease in the weighted average yield on loans.cost of deposits and borrowings.

The weighted average yield on loans increaseddecreased to 6.53%6.11% for the secondthird quarter of 2012 from 6.07%6.16% for the secondthird quarter of 2011. The weighted average yield on loans increased to 6.64%6.46% for the sixnine months ended JuneSeptember 30, 2012 from 6.13%6.14% for the same period of 2011. The increasechange in the yield is largely attributable to the accretion of discounts on acquired loans, acquired, as summarized in the following table.

 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
 2012 2011 2012 2011 2012 2011 2012 2011
The weighted average yield on loans, excluding the effect of acquisition accounting adjustments 5.59% 6.07% 5.60% 6.13% 5.39% 6.16% 5.53% 6.14%
Acquisition accounting adjustments (1)
 0.94
 0.00
 1.04
 0.00
 0.72
 0.00
 0.93
 0.00
Reported weighted average yield on loans 6.53% 6.07% 6.64% 6.13% 6.11% 6.16% 6.46% 6.14%
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding effect of acquisition accounting adjustments, from reported weighted average yield on loans.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding effect of acquisition accounting adjustments, from reported weighted average yield on loans.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding effect of acquisition accounting adjustments, from reported weighted average yield on loans.

Excluding the accretion of discounts on acquired loans, the weighted average yield on loans for the secondthird quarter of 2012 was 5.59%, down 48decreased 77 basis points fromto 5.39% compared to the second quarterweighted average yield on loans for the same period of 2011. Excluding the accretion of discounts on acquired loans, the weighted average yield on loans for the sixnine months ended JuneSeptember 30, 2012 was 5.60%decreased 61 basis points to 5.53% compared to 6.13%the weighted average yield on loans for the same period of 2011. The reduction in yield, excluding the effect of acquisition accounting adjustments, isThese decreases were primarily due to the lower yieldingyields on the acquired loan portfolio and, to a lesser extent, continued pricing pressures in the market place. At JuneSeptember 30, 2012, fixed rate loans accounted for 38% of the loan portfolio, compared with 45%to 44% at JuneSeptember 30, 2011, reflecting the Company's focus on variable rate business loans. The weighted average yield on the

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variable rate and fixed rate loan portfolios (excluding loan discount

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accretion) at JuneSeptember 30, 2012 was 4.60%4.57% and 6.25%5.97%, respectively, compared with 4.91%4.60% and 7.06%6.25% at JuneSeptember 30, 2011.

The weighted average yield on securities available for sale for the secondthird quarter of 2012 was 2.45%,2.23% compared withto 3.16% for the second quartersame period of 2011. The weighted average yield on securities available for sale for the sixnine months ended JuneSeptember 30, 2012 was 2.58%,2.47% compared with 3.07%to 3.10% for the same period of 2011. The reductionsdecreases were primarily attributable to the replacement of maturing securities with lower yielding investments as market interest rates declined, as well as the impact of acquisition accounting.declined.

The weighted average cost of deposits for the secondthird quarter of 2012 was 0.55%0.52%, an improvementa decrease of 3836 basis points from 0.93%0.88% for the second quartersame period of 2011. The weighted average cost of deposits for the sixnine months ended JuneSeptember 30, 2012 was 0.55%0.54%, compared with 0.95%a decrease of 38 basis points from 0.92% for the same period of 2011. The amortization of premium on time deposits assumed from mergerin the Merger positively affected the weighted average cost of deposits, as summarized in the following table.
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
 2012 2011 2012 2011 2012 2011 2012 2011
The weighted average cost of deposits, excluding effect of acquisition accounting adjustments 0.63 % 0.93% 0.66 % 0.95% 0.59 % 0.88% 0.64 % 0.92%
Acquisition accounting adjustments (1)
 (0.08) 0.00
 (0.11) 0.00
 (0.07) 0.00
 (0.10) 0.00
Reported weighted average cost of deposits 0.55 % 0.93% 0.55 % 0.95% 0.52 % 0.88% 0.54 % 0.92%
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding effect of acquisition accounting adjustments, from reported weighted average cost of deposits.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding effect of acquisition accounting adjustments, from reported weighted average cost of deposits.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding effect of acquisition accounting adjustments, from reported weighted average cost of deposits.

Excluding amortization of premium on time deposits assumed from merger, the weighted average cost of deposits was 0.63%0.59% for the secondthird quarter of 2012, compared with 0.93%to 0.88% for the same period of 2011 and 0.66%2011. Excluding amortization of premium on time deposits assumed from merger, the weighted average cost of deposits was 0.64% for the sixnine months ended JuneSeptember 30, 2012, compared with 0.95%to 0.92% for the same period of 2011. The improvement was driven bydecreases were due to reductions in the cost of interest-bearing demand deposits as well as a favorable shiftand an increase in the mix of deposits to higher concentrationsproportion of non-interest bearing demand deposits to total deposits. Non-interest bearing demand deposits accounted for 27% of total deposits at JuneSeptember 30, 2012, compared with 19%20% at JuneSeptember 30, 2011.

The weighted average cost of FHLB advances for the secondthird quarter of 2012 was 1.95%1.56%, a decrease of 128167 basis points from 3.23% infor the second quartersame period of 2011. The weighted average cost of FHLB advances for the sixnine months ended JuneSeptember 30, 2012 was 1.94%1.79%, compared witha decrease of 143 basis points from 3.22% for the same period of 2011. The significant improvement wasdecreases were attributable to decreases in FHLB advance rates and the amortization of premiums on assumed FHLB borrowings assumed in the Merger, as summarized in the following table.
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended September 30,
 2012 2011 2012 2011 2012 2011 2012 2011
The weighted average cost on FHLB advances, excluding effect of acquisition accounting adjustments 3.08 % 3.23% 3.25 % 3.22% 1.87 % 3.23% 2.72 % 3.22%
Acquisition accounting adjustments (1.13) 0.00
 (1.31) 0.00
 (0.31) 0.00
 (0.93) 0.00
Reported weighted average cost on FHLB advances 1.95 % 3.23% 1.94 % 3.22% 1.56 % 3.23% 1.79 % 3.22%
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost on FHLB advances, excluding effect of acquisition accounting adjustments, from reported weighted average cost on FHLB advances.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost on FHLB advances, excluding effect of acquisition accounting adjustments, from reported weighted average cost on FHLB advances.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost on FHLB advances, excluding effect of acquisition accounting adjustments, from reported weighted average cost on FHLB advances.

Excluding amortization of premiums on assumed FHLB borrowings assumed in the Merger, the weighted average cost of FHLB advances decreased to 3.08%1.87% for the secondthird quarter of 2012 from 3.23% for the same period of 2011, reflecting the addition of $105.0$175.0 million in new FHLB borrowings at a rate of 0.76%0.54%, which was substantially lower than the weighted average rate of the rest of the borrowings. The weighted average original maturity of the new borrowings was 3.672.10 years. In addition, a total of $65.1$85.0 million of FHLB borrowings, with weighted average rates of 0.57%1.64%, matured during the quarter and were paid off.quarter.

Excluding amortization of premiums on assumed FHLB borrowings assumed in the Merger, the weighted average cost of FHLB advances slightly increaseddecreased to 3.25%2.72% for the sixnine months ended JuneSeptember 30, 2012, compared with 3.22% for the same period of 2011. The increase was attributed to higher rates on the assumed FHLB borrowings in relation to the Company's legacy rates.


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2011. The decrease was attributed to decreases in FHLB advance rates.

Prepayment penalty income for the secondthird quarter of 2012 and 2011 was $198$119 thousand and $34$175 thousand, respectively. Non-accrual interest income reversed(reversed) recognized was $400($44) thousand and $237$154 thousand for the secondthird quarter of 2012 and 2011, respectively. Excluding the effects of both non-accrual loan interest income and prepayment penalty income, the net interest margin for secondthird quarter 2012 and 2011 would have been as 5.04%4.78% and 4.19%4.24%, respectively.

Prepayment penalty income for the sixnine months ended JuneSeptember 30, 2012 and 2011 was $314$433 thousand and $263$438 thousand, respectively. Non-accrual interest income reversed was $749$793 thousand and $337$184 thousand for the sixnine months ended JuneSeptember 30, 2012 and 2011, respectively. Excluding the effects of both non-accrual loan interest income and prepayment penalty income, the net interest margin for the sixnine months ended JuneSeptember 30, 2012 and 2011 would have been as 5.09%4.98% and 4.16%4.18%, respectively.

The following table presents our condensed consolidated average balance sheet information, together with interest rates earned and paid on the various sources and uses of funds for the periods indicated:
 

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Three months ended
June 30, 2012
 
Three months ended
June 30, 2011
Three months ended
September 30, 2012
 
Three months ended
September 30, 2011
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
(Dollars in thousands)(Dollars in thousands)
INTEREST EARNINGS ASSETS:                      
Loans(1) (2)
$3,847,921
 $62,504
 6.53% $2,190,436
 $33,150
 6.07%$4,007,402
 $61,553
 6.11% $2,248,544
 $34,902
 6.16%
Securities available for sale(3)
692,399
 4,249
 2.45% 501,298
 3,965
 3.16%679,764
 3,782
 2.23% 486,009
 3,843
 3.16%
FRB and FHLB stock and other investments203,935
 160
 0.31% 132,957
 179
 0.54%155,590
 120
 0.30% 142,306
 182
 0.51%
Federal funds sold19,794
 30
 0.59% 0
 0
 N/A
0
 0
 N/A
 0
 0
 N/A
Total interest earning assets$4,764,049
 $66,943
 5.65% $2,824,691
 $37,294
 5.29%$4,842,756
 $65,455
 5.38% $2,876,859
 $38,927
 5.37%
INTEREST BEARING LIABILITIES:                      
Deposits:                      
Demand, interest-bearing$1,184,339
 $1,849
 0.63% $710,948
 $1,545
 0.87%$1,156,915
 $1,775
 0.61% $701,109
 $1,490
 0.84%
Savings187,872
 830
 1.78% 126,238
 729
 2.32%184,219
 820
 1.77% 126,231
 764
 2.40%
Time deposits:                      
$100,000 or more807,803
 1,498
 0.75% 315,278
 381
 0.49%843,388
 1,533
 0.72% 363,155
 351
 0.38%
Other652,937
 1,068
 0.66% 623,361
 2,435
 1.57%672,861
 1,086
 0.64% 607,193
 2,372
 1.55%
Total time deposits1,460,740
 2,566
 0.71% 938,639
 2,816
 1.20%1,516,249
 2,619
 0.69% 970,348
 2,723
 1.11%
Total interest bearing deposits2,832,951
 5,245
 0.74% 1,775,825
 5,090
 1.15%2,857,383
 5,214
 0.73% 1,797,688
 4,977
 1.10%
FHLB advances329,066
 1,603
 1.95% 300,000
 2,412
 3.23%407,325
 1,603
 1.56% 300,000
 2,438
 3.23%
Other borrowings47,488
 593
 4.95% 42,624
 461
 4.27%40,407
 407
 3.95% 37,816
 459
 4.75%
Total interest bearing liabilities3,209,505
 $7,441
 0.93% 2,118,449
 $7,963
 1.51%3,305,115
 $7,224
 0.87% 2,135,504
 $7,874
 1.46%
Non-interest bearing demand deposits1,021,805
     417,377
    1,104,996
     477,120
    
Total funding liabilities / cost of funds$4,231,310
   0.71% $2,535,826
   1.26%$4,410,111
   0.65% $2,612,624
   1.21%
Net interest income/net interest spread  $59,502
 4.72%   $29,331
 3.78%  $58,231
 4.51%   $31,053
 3.91%
Net interest margin    5.02%     4.16%    4.79%     4.29%
Net interest margin, excluding the effect of non-accrual loan income (expense)(4)
    5.06%     4.20%    4.79%     4.27%
Net interest margin, excluding the effect of non-accrual loan income (expense) and prepayment fee income(4) (5)
    5.04%     4.19%    4.78%     4.24%
Cost of deposits:                      
Non-interest bearing demand deposits$1,021,805
 $0
   $417,377
 $0
  $1,104,996
 $0
   $477,120
 $0
  
Interest bearing deposits2,832,951
 5,245
 0.74% 1,775,825
 5,090
 1.15%2,857,383
 5,214
 0.73% 1,797,688
 4,977
 1.10%
Total deposits$3,854,756
 $5,245
 0.55% $2,193,202
 $5,090
 0.93%$3,962,379
 $5,214
 0.52% $2,274,808
 $4,977
 0.88%
 *    Annualized
(1)Interest income on loans includes loan fees.
(2)Average balances of loans are net of deferred loan fees and costs and include nonaccrual loans and loans held for sale.
(3)Interest income and yields are not presented on a tax-equivalent basis.
(4)
Non-accrual interest income reversed(reversed) recognized was $400 thousand($44 thousand) and $237$154 thousand for the three months ended JuneSeptember 30, 2012 and 2011, respectively.
(5)
Loan prepayment fee income excluded was $198$119 thousand and $34$175 thousand for the three months ended JuneSeptember 30, 2012 and 2011, respectively.


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Six months ended
June 30, 2012
 
Six months ended
June 30, 2011
Nine months ended
September 30, 2012
 
Nine months ended
September 30, 2011
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
(Dollars in thousands)(Dollars in thousands)
INTEREST EARNINGS ASSETS:                      
Loans(1) (2)
$3,812,708
 $125,923
 6.64% $2,179,150
 $66,235
 6.13%$3,878,080
 $187,476
 6.46% $2,202,535
 $101,137
 6.14%
Securities available for sale(3)
709,063
 9,158
 2.58% 513,751
 7,895
 3.07%699,225
 12,940
 2.47% 504,402
 11,738
 3.10%
FRB and FHLB stock and other investments230,789
 339
 0.29% 135,016
 358
 0.53%205,540
 459
 0.29% 137,473
 540
 0.52%
Federal funds sold22,787
 78
 0.68% 0
 0
 N/A
15,136
 78
 0.68% 0
 0
 N/A
Total interest earning assets$4,775,347
 $135,498
 5.70% $2,827,917
 $74,488
 5.31%$4,797,981
 $200,953
 5.59% $2,844,410
 $113,415
 5.33%
INTEREST BEARING LIABILITIES:                      
Deposits:                      
Demand, interest-bearing$1,208,551
 $3,973
 0.66% $695,686
 $3,009
 0.87%$1,191,213
 $5,748
 0.64% $697,513
 $4,500
 0.86%
Savings191,902
 1,752
 1.84% 126,449
 1,439
 2.29%189,322
 2,571
 1.81% 126,375
 2,202
 2.33%
Time deposits:                      
$100,000 or more787,468
 2,895
 0.74% 318,475
 837
 0.53%806,244
 4,428
 0.73% 333,532
 1,187
 0.48%
Other687,979
 2,029
 0.59% 631,907
 4,936
 1.58%682,903
 3,115
 0.61% 623,579
 7,309
 1.57%
Total time deposits1,475,447
 4,924
 0.67% 950,382
 5,773
 1.23%1,489,147
 7,543
 0.68% 957,111
 8,496
 1.19%
Total interest bearing deposits2,875,900
 10,649
 0.74% 1,772,517
 10,221
 1.16%2,869,682
 15,862
 0.74% 1,780,999
 15,198
 1.14%
FHLB advances334,515
 3,229
 1.94% 312,238
 4,984
 3.22%358,962
 4,832
 1.79% 308,114
 7,422
 3.22%
Other borrowings48,798
 1,260
 5.11% 48,822
 1,069
 4.35%45,981
 1,667
 4.77% 45,113
 1,528
 4.47%
Total interest bearing liabilities3,259,213
 $15,138
 0.93% 2,133,577
 $16,274
 1.54%3,274,625
 $22,361
 0.93% 2,134,226
 $24,148
 1.51%
Non-interest bearing demand deposits1,003,307
     403,234
    1,037,152
     418,024
    
Total funding liabilities / cost of funds$4,262,520
   0.71% $2,536,811
   1.29%$4,311,777
   0.69% $2,552,250
   1.26%
Net interest income/net interest spread  $120,360
 4.77%   $58,214
 3.77%  $178,592
 4.68%   $89,267
 3.82%
Net interest margin    5.07%     4.15%    4.97%     4.20%
Net interest margin, excluding the effect of non-accrual loan income (expense)(4)
    5.10%     4.17%    4.99%     4.20%
Net interest margin, excluding the effect of non-accrual loan income (expense) and prepayment fee income(4) (5)
    5.09%     4.16%    4.98%     4.18%
Cost of deposits:                      
Non-interest bearing demand deposits$1,003,307
 $0
   $403,234
 $0
  $1,037,152
 $0
   $418,024
 $0
  
Interest bearing deposits2,875,900
 10,649
 0.74% 1,772,517
 10,221
 1.16%2,869,682
 15,862
 0.74% 1,780,999
 15,198
 1.14%
Total deposits$3,879,207
 $10,649
 0.55% $2,175,751
 $10,221
 0.95%$3,906,834
 $15,862
 0.55% $2,199,023
 $15,198
 0.92%
*    Annualized
(1)Interest income on loans includes loan fees.
(2)Average balances of loans are net of deferred loan fees and costs and include nonaccrual loans and loans held for sale.
(3)Interest income and yields are not presented on a tax-equivalent basis.
(4)
Non-accrual interest income reversed was $749$793 thousand and $337$184 thousand for the sixnine months ended JuneSeptember 30, 2012 and 2011, respectively.
(5)
Loan prepayment fee income excluded was $314$433 thousand and $263$438 thousand for the sixnine months ended JuneSeptember 30, 2012 and 2011, respectively.


5554

Table of Contents

Changes in net interest income are a function of changes in interest rates and volumes of interest-earning assets and interest-bearing liabilities. The following table illustratessets forth information regarding the changes in our interest income and interest expense for the periods indicated. The total change for each category of interest-earning assets and amountsinterest-bearing liabilities is segmented into the change attributable to variations in volume (changes in volume multiplied by the old rate) and the change attributable to variations in interest rates and volumes for(changes in rates multiplied by the periods indicated. The variances attributableold volume). Nonaccrual loans are included in average loans used to simultaneous volume and rate changes have been allocated to the changes due to volume and the changes due to rate categories in proportion to the relationship of the absolute dollar amounts attributable solely to the change in volume and to the change in rate.compute this table.

Three months ended
June 30, 2012 over June 30, 2011
Three months ended
September 30, 2012 over September 30, 2011
Net
Increase
(Decrease)
    
Net
Increase
(Decrease)
    
Change due toChange due to
Rate VolumeRate Volume
(Dollars in thousands)(In thousands)
INTEREST INCOME:          
Interest and fees on loans$29,354
 $2,685
 $26,669
$26,651
 $(286) $26,937
Interest on securities284
 (1,013) 1,297
(61) (1,332) 1,271
Interest on FRB and FHLB stock and other investments(19) (94) 75
(62) (81) 19
Interest on federal funds sold30
 0
 30
Total interest income$29,649
 $1,578
 $28,071
$26,528
 $(1,699) $28,227
INTEREST EXPENSE:          
Interest on demand, interest bearing$304
 $(508) $812
$285
 $(485) $770
Interest on savings101
 (197) 298
56
 (234) 290
Interest on time deposits(250) (1,417) 1,167
(104) (1,260) 1,156
Interest on FHLB advances(809) (1,032) 223
(835) (1,528) 693
Interest on other borrowings132
 77
 55
(52) (80) 28
Total interest expense$(522) $(3,077) $2,555
$(650) $(3,587) $2,937
Net Interest Income$30,171
 $4,655
 $25,516
$27,178
 $1,888
 $25,290

Six months ended
June 30, 2012 over June 30, 2011
Nine months ended
September 30, 2012 over September 30, 2011
Net
Increase
(Decrease)
    
Net
Increase
(Decrease)
    
Change due toChange due to
Rate VolumeRate Volume
(Dollars in thousands)(In thousands)
INTEREST INCOME:          
Interest and fees on loans$59,688
 $6,182
 $53,506
$86,339
 $5,549
 $80,790
Interest on securities1,263
 (1,401) 2,664
1,202
 (2,703) 3,905
Interest on FRB and FHLB stock and other investments(19) (203) 184
(81) (293) 212
Interest on federal funds sold78
 0
 78
78
 0
 78
Total interest income$61,010
 $4,578
 $56,432
$87,538
 $2,553
 $84,985
INTEREST EXPENSE:          
Interest on demand, interest bearing$964
 $(853) $1,817
$1,248
 $(1,368) $2,616
Interest on savings313
 (325) 638
369
 (569) 938
Interest on time deposits(849) (3,247) 2,398
(953) (4,551) 3,598
Interest on FHLB advances(1,755) (2,089) 334
(2,590) (3,705) 1,115
Interest on other borrowings191
 192
 (1)139
 103
 36
Total interest expense$(1,136) $(6,322) $5,186
$(1,787) $(10,090) $8,303
Net Interest Income$62,146
 $10,900
 $51,246
$89,325
 $12,643
 $76,682

Provision for Loan Losses
The provision for loan losses reflects our judgment of the current period cost associated with credit risk inherent in our loan portfolio. The loan loss provision for each period is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, assessments by management, third parties’ and regulators’ examination of the loan portfolio, the value of the underlying collateral for problem loans and the general economic conditions

55

Table of Contents

in our market areas. Specifically, the provision for loan losses represents the amount charged against current period earnings to

56


achieve an allowance for loan losses that, in our judgment, is adequate to absorb probable incurred losses inherent in our loan portfolio. Periodic fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the allowance for loan losses; however, actual loan losses may vary in material respects from current estimates. If the allowance for loan losses is inadequate, it may have a material adverse effect on our financial condition.
The provision for loan losses for the secondthird quarter of 2012 was $7.2$6.9 million, a decreasean increase of $2.9$3.4 million, or 29%98%, from $10.0$3.5 million for the same period last year. The decreaseincrease is primarily due to lowerhigher net charge-offs, forstrong loan growth and allowance needs related to increased concentration risk associated with the most recent quarters resultinggrowth in lower historical loss rates that are used to calculate general reserve requirements.the CRE portfolio. Net charge-offs decreasedincreased to $4.0$6.5 million for the three months ended JuneSeptember 30, 2012, compared to $13.7$3.2 million for the same period last year.
The provision for loan losses for the sixnine months ended JuneSeptember 30, 2012 was $9.8$16.7 million, a decrease of $5.5$2.1 million, or 36%11%, from $15.3$18.8 million for the same period last year. The decrease is alsoprimarily due to improvement in the same reasons previously discussed forcredit quality of the second quarter.loan portfolio. Net charge-offs decreased to $6.2$12.7 million for the sixnine months ended JuneSeptember 30, 2012, compared to $17.9$21.1 million for the same period last year.of 2011.
See Note 7 of the Notes to Condensed Consolidated Financial Statements (unaudited) and Financial Condition-Loans Receivable and Allowance for Loan Losses for further discussion.
Non-interest Income
Non-interest income is primarily comprised of service fees on depositsdeposit accounts, fees received from ouron trade finance letters of credit operations and net gains on sales of loans and securities available for sale.
Non-interest income for the secondthird quarter of 2012 was $10.27.7 million, compared to $7.74.3 million for the same quarter of 2011, an increase of $2.53.4 million, or 33%80%. The increase reflected operations as a combined Company,was principally due to the Merger, which was partially offset by a $1.9$0.8 million reduction in net gains on sale of SBA loans from $4.40.8 million for the secondthird quarter of 2011 to $2.5 millionnone for the secondthird quarter of 2012.
Non-interest income for the sixnine months ended JuneSeptember 30, 2012 was $21.929.5 million, compared to $12.216.5 million for the same period of 2011, an increase of $9.713.1 million, or 79 %. The increase was primarily attributableprincipally due to the merger with Center,Merger. The $0.9 million increase in net gains on sales and calls of securities available for sale for the nine months ended September 30, 2012 as discussed previously. We posted a netcompared to the same period of 2011 was primarily due to an $816 thousand gain on the sale of securities consisted of a Trust Preferred security, which had been marked to market in a prior period, of $816 thousand during the six months ended June 30, 2012. This compares with none in the same reporting period of 2011.period.
The breakdown of changes in our non-interestNon-interest income by category is shownsummarized below:
 
Three Months Ended June 30, Increase (Decrease)Three Months Ended September 30, Increase (Decrease)
2012 2011 Amount Percent (%)2012 2011 Amount Percent (%)
(Dollars in thousands)(Dollars in thousands)
Service fees on deposit accounts$3,269
 $1,413
 $1,856
 131.4 %$3,121
 $1,352
 $1,769
 130.8 %
International service fees1,403
 669
 734
 109.7 %1,183
 603
 580
 96.2 %
Loan servicing fees, net810
 418
 392
 93.8 %1,031
 464
 567
 122.2 %
Wire transfer fees775
 348
 427
 122.7 %833
 343
 490
 142.9 %
Other income and fees1,354
 557
 797
 143.1 %1,364
 534
 830
 155.4 %
Net gains on sales of SBA loans2,463
 4,354
 (1,891) (43.4)%0
 823
 (823) (100.0)%
Net gains on sales of other loans146
 0
 146
 100.0 %
Net losses on sales of other loans0
 (30) 30
 100.0 %
Net gains on sales and calls of securities available for sale0
 6
 (6) -100.0 %133
 64
 69
 107.8 %
Net valuation gains (losses) on interest rate contracts10
 (106) 116
 -109.4 %11
 (3) 14
 466.7 %
Net gains (losses) on sales of OREO(8) 25
 (33) -132.0 %(12) 108
 (120) -111.1 %
Total non-interest income$10,222
 $7,684
 $2,538
 33.0 %$7,664
 $4,258
 $3,406
 80.0 %

5756


Six Months Ended June 30, Increase (Decrease)Nine Months Ended September 30, Increase (Decrease)
2012 2011 Amount Percent (%)2012 2011 Amount Percent (%)
(Dollars in thousands)(Dollars in thousands)
Service fees on deposit accounts$6,429
 $2,910
 $3,519
 120.9%$9,550
 $4,262
 $5,288
 124.1%
International service fees2,627
 1,239
 1,388
 112.0%3,810
 1,842
 1,968
 106.8%
Loan servicing fees, net2,147
 881
 1,266
 143.7%3,178
 1,345
 1,833
 136.3%
Wire transfer fees1,516
 670
 846
 126.3%2,349
 1,013
 1,336
 131.9%
Other income and fees2,694
 1,064
 1,630
 153.2%4,058
 1,598
 2,460
 153.9%
Net gains on sales of SBA loans5,426
 5,514
 (88) (1.6%)5,426
 6,337
 (911) (14.4%)
Net gains on sales of other loans146
 0
 146
 100.0%
Net gains (losses) on sales of other loans146
 (30) 176
 586.7%
Net gains on sales and calls of securities available for sale816
 6
 810
 (100.0%)949
 70
 879
 1,255.7%
Net valuation gains (losses) on interest rate contracts13
 (117) 130
 (111.1%)24
 (120) 144
 120.0%
Net gains (losses) on sales of OREO53
 27
 26
 96.3%
Net gains on sales of OREO41
 135
 (94) (69.6%)
Total non-interest income$21,867
 $12,194
 $9,673
 79.3%$29,531
 $16,452
 $13,079
 79.5%


Non-interest Expense
Non-interest expense for the secondthird quarter of 2012 was $31.128.8 million, an increase of $14.212.0 million, or 84%71%, from $16.916.8 million for the same period of last year.2011. The significant increase reflectedwas principally due to the combined operations of BBCN in 2012 compared with the pre-merger totals for 2011.Merger. Salaries and benefits expense increased $7.06.0 million, or 92%78%, to $14.713.6 million for the secondthird quarter of 2012, compared tofrom $7.67.7 million for the same period of 2011. The increase was due to an increase in the number of full-time equivalent (FTE) employees, which increased to 653684 at JuneSeptember 30, 2012 from 369377 at JuneSeptember 30, 2011. The FTEsFTE employees as of JuneSeptember 30, 2011 on a pro forma basis was 682. The adjusted number of FTEs as of the merger closing date of November 30, 2011 was 690. Notwithstanding a slight decrease in FTEs from March 31, 2012 of 661, salaries and benefits expense increased modestly, reflecting annual salary increases, as well as higher vacation and bonus accruals.696. Occupancy expense for the secondthird quarter of 2012 rose 73%58% to $4.23.9 million from $2.42.5 million for the same period of 2011, principally due to the increased number branches post-merger. Credit related expenses for the third quarter of 2012 were $2.5 million, an increase of $1.6 million, or 188%, from $0.9 million for the same period of 2011. The increase was primarily reflectingdue to OREO valuation allowances of $1.2 million and an increase in the combined number of branchesOREO properties post-merger. The FDIC assessment for the secondthird quarter of 2012 amounted to $51$644 thousand, compared with $877$983 thousand for the second quartersame period of 2011. The significant decline is attributed to the recognition of a $686 thousand assessment rate reduction for fourth quarter of 2011 as a result ofThis decrease reflects an upgrade of the Company's risk category. We noted that the FDIC assessment is primarily based on assets and expects it will be approximately $1.0 million for the third quarter of 2012. Other non-interest expense for the second quarter of 2012 included a $461 thousand loss incurred on the early retirement of a $10.0 million Trust Preferred security, bearing a 10.18% interest rate.
Non-interest expense for the sixnine months ended JuneSeptember 30, 2012 was $61.590.3 million, an increase of $27.939.9 million, or 83%79%, from $33.650.4 million for the same period of last year.2011. The increase largely reflectedwas principally due to the combined operations of new BBCN.Merger. Salaries and benefits expense increased $14.019.9 million, or 94%89%, to $28.742.3 million for the the sixnine months ended JuneSeptember 30, 2012, compared to $14.822.4 million for the same period of 2011. The increase was due to an increase in the FTE employees as previously discussed for the second quarter.post-merger.


5857


The breakdown of changes in non-interest expense by category is shown below:
 
Three Months Ended June 30, Increase (Decrease)Three Months Ended September 30, Increase (Decrease)
2012 2011 Amount Percent (%)2012 2011 Amount Percent (%)
(Dollars in thousands)(Dollars in thousands)
Salaries and employee benefits$14,658
 $7,625
 $7,033
 92.2 %$13,611
 $7,657
 $5,954
 77.8 %
Occupancy4,232
 2,445
 1,787
 73.1 %3,910
 2,480
 1,430
 57.7 %
Furniture and equipment1,468
 934
 534
 57.2 %1,495
 984
 511
 51.9 %
Advertising and marketing1,525
 594
 931
 156.7 %1,159
 354
 805
 227.4 %
Data processing and communications1,573
 923
 650
 70.4 %1,659
 813
 846
 104.1 %
Professional fees1,069
 769
 300
 39.0 %876
 612
 264
 43.1 %
FDIC assessment51
 877
 (826) -94.2 %644
 983
 (339) (34.5)%
Credit related expenses2,290
 1,004
 1,286
 128.1 %2,497
 867
 1,630
 188.0 %
Merge and integration expenses1,348
 381
 967
 253.8 %183
 574
 (391) (68.1)%
Other2,863
 1,334
 1,529
 114.6 %2,736
 1,493
 1,243
 83.3 %
Total non-interest expense$31,077
 $16,886
 $14,191
 84.0 %$28,770
 $16,817
 $11,953
 71.1 %

Six Months Ended June 30, Increase (Decrease)Nine Months Ended September 30, Increase (Decrease)
2012 2011 Amount Percent (%)2012 2011 Amount Percent (%)
(Dollars in thousands)(Dollars in thousands)
Salaries and employee benefits$28,737
 $14,779
 $13,958
 94.4 %$42,348
 $22,436
 $19,912
 88.8 %
Occupancy7,878
 4,882
 2,996
 61.4 %11,788
 7,362
 4,426
 60.1 %
Furniture and equipment2,686
 1,869
 817
 43.7 %4,181
 2,853
 1,328
 46.5 %
Advertising and marketing2,983
 1,173
 1,810
 154.3 %4,142
 1,527
 2,615
 171.3 %
Data processing and communications3,184
 1,906
 1,278
 67.1 %4,843
 2,719
 2,124
 78.1 %
Professional fees1,682
 1,478
 204
 13.8 %2,558
 2,090
 468
 22.4 %
FDIC assessment1,088
 2,166
 (1,078) -49.8 %1,732
 3,149
 (1,417) (45.0)%
Credit related expenses4,470
 1,748
 2,722
 155.7 %6,967
 2,615
 4,352
 166.4 %
Merge and integration expenses3,121
 892
 2,229
 249.9 %3,304
 1,465
 1,839
 125.5 %
Other5,683
 2,688
 2,995
 111.4 %8,419
 4,182
 4,237
 101.3 %
Total non-interest expense$61,512
 $33,581
 $27,931
 83.2 %$90,282
 $50,398
 $39,884
 79.1 %

Provision for Income Taxes
Income tax expense was $12.111.8 million and $3.85.2 million for the secondthird quarter ended JuneSeptember 30, 2012 and 2011, respectively. The effective income tax rate for the quarters ended JuneSeptember 30, 2012 and 2011 was 38.5%39.1% and 37.3%34.6%, respectively. Income tax expense was $27.639.5 million and $8.513.7 million for the sixnine months ended JuneSeptember 30, 2012 and 2011, respectively. The effective income tax rate for the sixnine months ended JuneSeptember 30, 2012 and 2011 was 39.0% and 39.3%37.4%.


Financial Condition
At JuneSeptember 30, 2012, our total assets were $5.055.33 billion, a decreasean increase of $117$165.4 million from $5.17 billion at December 31, 2011. As previously discussed, previously, the decreaseincrease was principally due to a $326.7 million increase in loans receivable, net of allowance for loan losses, which was partially offset by decreases in cash and cash equivalents, term federal funds sold and securities available for sale of $70.5 million, $40.0 million and $53.9 million, respectively. The increase in total assets was duefunded by a $111.6 million increase in deposits, a $116.4 million increase in borrowings from the FHLB and net income available to the decreasecommon stockholders of $56.1 million. The increases in Cashdeposits and cash equivalent from $300.1 million at December 31, 2011net income available to $179.6 million at June 30, 2012 to redeemcommon shareholders were partially offset by the $122 million redemption of the Series A and Series B Perpetual Preferred Stock issued under the U.S. Treasury's TARP Capital Purchase Program onin June 27, 2012.2012

58


Investment Securities Portfolio
As of JuneSeptember 30, 2012, we had $666.9687.1 million in available-for-sale securities, compared to $740.9 million of such securities at December 31, 2011. The net unrealized gain on the available-for-sale securities at JuneSeptember 30, 2012 was $14.8$18.0 million, compared to a net unrealized gain on such securities of $15.2 million at December 31, 2011. During the sixnine months ended JuneSeptember 30, 2012, $15.5$111.7 million in securities were purchased, $83.5$134.7 million in mortgage related securities were paid down, and $1.1 million in securities were either called or matured.matured, and $27.5 million in securities were sold. We sold a $1.0 million corporate Trust Preferred security acquired inrecognized net gains of $949 thousand on the merger, and recognized a gain of $0.8 million.securities that were sold. No securities were sold during the same period of last year. The weighted

59


average duration (the weighted average of the times of the present values of all the cash flows) of the available-for-sale securities was 3.383.23 years and 3.54 years at JuneSeptember 30, 2012 and December 31, 2011, respectively. The weighted average life (the weighted average of the times of the principal repayments) of the available-for-sale securities was 3.703.47 years and 3.91 years at JuneSeptember 30, 2012 and December 31, 2011, respectively.
Loan Portfolio
As of JuneSeptember 30, 2012, gross loans outstanding, net of deferred loan fees and costs and excluding loans held for sale, was $3.87$4.07 billion, an increase of $135.7$330.7 million from $3.74 billion at December 31, 2011. Total loan originations during the sixnine months ended JuneSeptember 30, 2012 were $409.1$721.8 million, including SBA loan originations of $101.7$165.4 million, compared to $204.2$319.6 million during the same period of 2011.

The following table summarizes our loan portfolio by amount and percentage of gross loans in each major loan category at the dates indicated:
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
Amount Percent Amount PercentAmount Percent Amount Percent
  (In thousands)    (Dollars in thousands)  
Loan portfolio composition              
Real estate loans:              
Residential$1,931
 0% $2,043
 0%$3,354
 0% $2,043
 0%
Commercial & industrial2,717,924
 70% 2,631,880
 70%2,881,079
 71% 2,631,880
 70%
Construction43,365
 1% 44,756
 1%56,433
 1% 44,756
 1%
Total real estate loans2,763,220
 71% 2,678,679
 73%2,940,866
 72% 2,678,679
 73%
Commercial business877,405
 23% 849,576
 23%898,977
 22% 849,576
 23%
Trade finance175,638
 5% 146,684
 4%177,285
 4% 146,684
 4%
Consumer and other60,732
 2% 66,631
 2%54,442
 1% 66,631
 2%
Total loans outstanding3,876,995
 100% 3,741,570
 100%4,071,570
 100% 3,741,570
 100%
Less: deferred loan fees(2,457)   (2,744)  (2,076)   (2,744)  
Gross loans receivable3,874,538
   3,738,826
  4,069,494
   3,738,826
  
Less: allowance for loan losses(65,505)   (61,952)  (65,952)   (61,952)  
Loans receivable, net$3,809,033
   $3,676,874
  $4,003,542
   $3,676,874
  

SBA loans, consisting principally of the unguaranteed portion, are included in commercial business loans and commercial and industrial real estate loans. SBA loans included in commercial business loans were $74.0$84.3 million at JuneSeptember 30, 2012 and $81.6 million at December 31, 2011. SBA loans included in commercial and industrial real estate loans were $145.8$148.7 million at JuneSeptember 30, 2012 and $152.5 million at December 31, 2011.
We normally do not extend lines of credit or make loan commitments to business customers for periods in excess of one year. We use the same credit policies in making commitments and conditional obligations as we do for providing loan facilities to our customers. We perform annual reviews of such commitments prior to renewal.

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The following table shows our loan commitments and letters of credit outstanding at the dates indicated:
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
(Dollars in thousands)(In thousands)
Loan commitments$554,256
 $458,096
$571,150
 $458,096
Standby letters of credit37,097
 29,028
37,599
 29,028
Other commercial letters of credit60,484
 49,457
53,932
 49,457
$651,837
 $536,581
$662,681
 $536,581

Nonperforming Assets
Nonperforming assets, which include non-accrual loans, loans past due 90 days or more and accruing, restructured loans,

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and other real estate owned, were $90.2$78.1 million at JuneSeptember 30, 2012, compared to $73.8$74.9 million at December 31, 2011. The increase in the dollar amount of non-performing loans primarily reflects three commercial real estate (CRE) loans, aggregating $9.9 million, which were placed on non-accrual status and three loans, two CRE and one C&I, totaling $5.4 million, which were restructured. The ratio of nonperforming assets to gross loans plus OREO was 2.32%1.92% and 1.97%2.00% at JuneSeptember 30, 2012 and December 31, 2011, respectively.
The following table summarizes the composition of our nonperforming assets as of the dates indicated.
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
(Dollars in thousands)(Dollars in thousands)
Nonaccrual loans$39,730
 $31,212
$29,369
 $31,213
Delinquent loans 90 days or more on accrual status20,701
 16,169
22,454
 17,265
Accruing restructured loans23,082
 18,775
22,175
 18,776
Total Nonperforming Loans83,513
 66,156
73,998
 67,254
Other real estate owned6,712
 7,625
4,135
 7,625
Total Nonperforming Assets$90,225
 $73,781
$78,133
 $74,879
Nonperforming loans to total gross loans, excluding loans held for sale2.16% 1.77%1.82% 1.80%
Nonperforming assets to gross loans plus OREO2.32% 1.97%1.92% 2.00%
Nonperforming assets to total assets1.79% 1.43%1.47% 1.45%
Allowance for loan losses to non-performing loans (excludes delinquent loans 90 days or more on accrual status)104.29% 123.94%127.95% 123.93%
Allowance for loan losses to non-performing assets72.60% 83.97%84.41% 82.74%
 
Allowance for Loan Losses
The allowance for loan losses was $65.5$66.0 million at JuneSeptember 30, 2012, compared to $62.0 million at December 31, 2011. We recorded a provision for loan losses of $9.8$16.7 million during the sixnine months ended JuneSeptember 30, 2012, compared to $15.3$18.8 million for the same period of 2011. The allowance for loan losses was 1.69%1.62% of gross loans at JuneSeptember 30, 2012 and 1.66% of gross loans at December 31, 2011. Impaired loans as defined by FASB ASC 310-10-35, “Accounting by Creditors for Impairment of a Loan,” totaled $91.4$82.3 million and $82.0 million as of JuneSeptember 30, 2012 and December 31, 2011, respectively, with specific allowances of $13.2$8.7 million and $18.0 million, respectively. The $9.3 million increase in impaired loans from December 31, 2011 to June 30, 2012 was due primarily to inflow

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The following table reflects our allocation of the allowance for loan and lease losses ("ALLL") by loan type and the ratio of each loan category to total loans as of the dates indicated:
 
Allocation of Allowance for Loan LossesAllocation of Allowance for Loan Losses
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
Amount of allowance for loan losses Percent of loans to total loans Amount of allowance for loan losses Percent of loans to total loansAmount of allowance for loan losses Percent of loans to total loans Amount of allowance for loan losses Percent of loans to total loans
(Dollars in thousands)(Dollars in thousands)
Loan Type              
Real estate - Residential$9
 0% $9
 0%$32
 0% $9
 0%
Real estate - Commercial38,994
 70% 38,307
 70%43,828
 71% 38,307
 70%
Real estate - Construction521
 1% 724
 1%808
 1% 724
 1%
Commercial business21,273
 23% 20,681
 23%17,647
 22% 20,681
 23%
Trade finance3,504
 4% 1,786
 4%2,852
 5% 1,786
 4%
Consumer and other1,204
 2% 445
 2%785
 1% 445
 2%
Total$65,505
 100% $61,952
 100%$65,952
 100% $61,952
 100%

For a better understanding of the changes in the ALLL, the loan portfolio has been segmented for disclosures purposes between loans, which are accounted for under the amortized cost method (referred to as "legacy" loans)"Legacy Loans") and loans acquired from Center (referred to as "acquired" loans)"Acquired Loans"). The acquired loansAcquired Loans were further segregated between Credit Impaired Loans

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(the Merger and accounted for under ASC 310-30, Loans Acquired with the Credit Deterioration)310-30) and performing loans (pass(loans that were pass graded loans acquired from Center inat the merger)time of the Merger). The activity in the ALLL for the three and sixnine months ended JuneSeptember 30, 2012 is as follows:


   
Acquired Loans (2)
     
Acquired Loans (2)
  
For three months 
Legacy Loans (1)
 Credit Impaired Loans Performing Loans Total 
Legacy Loans (1)
 Credit Impaired Loans Performing Loans Total
 (Dollars in thousands) (Dollars in thousands)
Balance, beginning of period $60,233
 $814
 $1,262
 $62,309
 $62,396
 $1,914
 $1,195
 $65,505
Provision for loan losses 5,148
 1,100
 934
 7,182
 5,574
 198
 1,128
 6,900
Loans charged off (4,346) 0
 (1,263) (5,609) (7,408) 0
 (361) (7,769)
Recoveries of charged offs 1,361
 0
 262
 1,623
 1,272
 0
 44
 1,316
Balance, end of period $62,396
 $1,914
 $1,195
 $65,505
 $61,834
 $2,112
 $2,006
 $65,952
                
Gross loans, net of deferred loan fees and costs $2,763,869
 164,959
 945,710
 $3,874,538
 $3,098,496
 155,712
 817,362
 $4,071,570
Loss coverage ratio 2.26% 1.16% 0.13% 1.69% 2.00% 1.36% 0.25% 1.62%


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Acquired Loans (2)
     
Acquired Loans (2)
  
For six months 
Legacy Loans (1)
 Credit Impaired Loans Performing Loans Total
For nine months 
Legacy Loans (1)
 Credit Impaired Loans Performing Loans Total
 (Dollars in thousands) (Dollars in thousands)
Balance, beginning of period $61,952
 $0
 $0
 $61,952
 $61,952
 $0
 $0
 $61,952
Provision for loan losses 5,984
 1,914
 1,884
 9,782
 11,558
 2,112
 3,012
 16,682
Loans charged off (7,643) 0
 (1,349) (8,992) (15,051) 0
 (1,710) (16,761)
Recoveries of charged offs 2,103
 0
 660
 2,763
 3,375
 0
 704
 4,079
Balance, end of period $62,396
 $1,914
 $1,195
 $65,505
 $61,834
 $2,112
 $2,006
 $65,952
                
(1) Legacy Loans includes acquired loans that have been renewed or refinanced after the merger.
(1) Legacy Loans includes acquired loans that have been renewed or refinanced after the merger.
(1) Legacy Loans includes acquired loans that have been renewed or refinanced after the merger.
(2) Acquired loans were marked to fair value at the acquisition date, and provisions for loan losses reflect credit deterioration since the acquisition date.
(2) Acquired loans were marked to fair value at the acquisition date, and provisions for loan losses reflect credit deterioration since the acquisition date.
(2) Acquired loans were marked to fair value at the acquisition date, and provisions for loan losses reflect credit deterioration since the acquisition date.


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The following table shows the provisions made for loan losses, the amount of loans charged off and the recoveries on loans previously charged off, together with the balance in the allowance for loan losses at the beginning and end of each period, the amount of average and gross loans outstanding, and certain other ratios as of the dates and for the periods indicated:
 

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Six Months Ended June 30,At or for the Nine Months Ended September 30,
2012 20112012 2011
(Dollars in thousands)(Dollars in thousands)
LOANS      
Average gross loans receivable, including loans held for sale (net of deferred fees)$3,812,708
 $2,167,739
$3,878,080
 $2,202,535
Total gross loans receivables, excluding loans held for sale at end of year (net of deferred fees)$3,874,538
 $2,202,446
Total gross loans receivables, excluding loans held for sale (net of deferred fees)$4,069,494
 $2,257,667
ALLOWANCE:      
Balance-beginning of period$61,952
 $62,320
$61,952
 $62,320
Less: Loan charge-offs:      
Residential real estate0
 0
0
 0
Commercial & industrial real estate(4,285) (12,580)(6,506) (14,938)
Construction0
 (3,254)0
 (3,254)
Commercial business loans(3,533) (4,544)(9,225) (6,023)
Trade finance(300) 0
(300) 0
Consumer and other loans(874) (123)(729) (256)
Total loans charged off(8,992) (20,501)(16,760) (24,471)
Plus: Loan recoveries      
Commercial & industrial real estate1,283
 745
2,404
 1,200
Commercial business loans997
 1,616
1,287
 1,937
Trade Finance60
 0
60
 0
Consumer and other loans423
 207
327
 231
Total loans recoveries2,763
 2,568
4,078
 3,368
Net loan charge-offs(6,229) (17,933)(12,682) (21,103)
Provision for loan losses9,782
 15,309
16,682
 18,792
Balance-end of period$65,505
 $59,696
$65,952
 $60,009
Net loan charge-offs to average gross loans, including loans held for sale (net of deferred fees) *0.33% 1.65%0.44% 1.28%
Allowance for loan losses to gross loans at end of period1.69% 2.71%1.62% 2.66%
Net loan charge-offs to beginning allowance *20.11% 57.55%27.29% 45.15%
Net loan charge-offs to provision for loan losses63.68% 117.14%76.02% 112.30%
* Annualized      
We believe the allowance for loan losses as of JuneSeptember 30, 2012 is adequate to absorb probable incurred losses in the loan portfolio. However, no assurance can be given that actual losses will not exceed the estimated amounts.
Deposits and Other Borrowings
Deposits. Deposits are our primary source of funds used in our lending and investment activities. At JuneSeptember 30, 2012, our deposits had decreased by $58increased $111.6 million, or 1%3%, to $3.88$4.05 billion from $3.94 billion at December 31, 2011. Retail deposits totaled $3.48$3.49 billion at JuneSeptember 30, 2012, a decrease of $83$67 million from $3.56 billion at December 31, 2011. Interest-bearing demand deposits, including money market and Super Now accounts, totaled $1.33 billion at JuneSeptember 30, 2012, a decrease of $109$104 million from $1.44 billion at December 31, 2011. The decrease reflected the deposit mix shift to non-interest bearing deposits, which increased to $1.06$1.11 billion at JuneSeptember 30, 2012, from $984 million at December 31, 2011.
At JuneSeptember 30, 2012, 27.4%27.2% of total deposits were non-interest bearing demand deposits, 38.4%39.9% were time deposits and 34.2%32.9% were interest bearing demand and savings deposits. By comparison, at December 31, 2011, 25.0% of total deposits were non-interest bearing demand deposits, 38.6% were time deposits, and 36.4% were interest bearing demand and saving deposits.
At JuneSeptember 30, 2012, we had $105.2$259.2 million in brokeredwholesale deposits and $300.0 million in California State Treasurer

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deposits, compared to $80.7 million and $300.0 million of such deposits at December 31, 2011, respectively. The California State Treasurer deposits had three-month maturities with a weighted average interest rate of 0.14%0.13% at JuneSeptember 30, 2012 and were collateralized with securities with a carrying value of $326.6$348.4 million. The weighted average interest rate for brokeredwholesale deposits was 0.35%0.34% at JuneSeptember 30, 2012.
The following is a schedule of CD maturities as of JuneSeptember 30, 2012:

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Maturity Schedule of Time Deposits
($Dollars in thousands)
 
  Weighted Average  Weighted Average
Quarter EndingBalance Interest RateBalance Interest Rate
September 30, 2012$579,259
 0.53%
December 31, 2012306,344
 1.12%$751,628
 0.57%
March 31, 2013250,683
 1.22%329,130
 1.04%
June 30, 2013228,969
 0.97%222,070
 0.97%
September 30, 2013213,164
 0.90%
Total one year or less1,365,255
 0.86%1,515,992
 0.78%
Over one year126,996
 1.27%100,358
 1.23%
Total time deposits$1,492,251
 0.90%$1,616,350
 0.80%

Other Borrowings. Advances may be obtained from the FHLB as an alternative source of funds. Advances from the FHLB are typically secured by a pledge of commercial real estate loans and/or securities with a market value at least equal to the outstanding advances plus our investment in FHLB stock.
At JuneSeptember 30, 2012, we had $371.1460.8 million of FHLB advances with average remaining maturities of 1.82.0 years, compared to $344.4 million with average remaining maturities of 1.3 years at December 31, 2011. The weighted average rate, including the acquisition accounting adjustments was 1.77%1.33% and 1.93% at JuneSeptember 30, 2012 and at December 31, 2011, respectively.
During the second quarter of 2012, we retired a $10.0 million Trust Preferred Security (Nara Bancorp Capital Trust I), beatingbearing a 10.18% interest rate. At JuneSeptember 30, 2012 , five wholly-owned subsidiary grantor trusts ("Trusts") established by us had issued $46 million of pooled trust preferred securities (“Trust Preferred Securities”). The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the related indentures for the securities. The Trusts used the net proceeds from their respective offerings to purchase a like amount of subordinated debentures (the “Debentures”) issued by us. The Debentures are the sole assets of the trusts. Our obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by us of the obligations of the trusts. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. We have the right to redeem the Debentures in whole (but not in part) on or after specific dates, at redemption prices specified in the indentures plus any accrued but unpaid interest to the redemption date.
Off-Balance-Sheet Activities and Contractual Obligations
We routinely engage in activities that involve, to varying degrees, elements of risk that are not reflected, in whole or in part, in the consolidated financial statements. These activities are part of our normal course of business and include traditional off-balance-sheet credit-related financial instruments, interest rate swap contracts, operating leases and long-term debt.
Traditional off-balance-sheet credit-related financial instruments are primarily commitments to extend credit and standby letters of credit. These activities could require us to make cash payments to third parties if certain specified future events occur. The contractual amounts represent the extent of our exposure in these off-balance-sheet activities. However, since certain off-balance-sheet commitments, particularly standby letters of credit, are expected to expire or be only partially used, the total amount of commitments does not necessarily represent future cash requirements. These activities are necessary to meet the financing needs of our customers.
We enter into interest rate swap contracts under which we are required to either receive cash from or pay cash to counterparties depending on changes in interest rates. We also purchase interest rate caps to protect against increases in market interest rates. We utilize interest rate swap contracts and interest rate caps to help manage the risk of changing interest rates.
We do not anticipate that our current off-balance-sheet activities will have a material impact on our future results of operations or our financial condition. Further information regarding our financial instruments with off-balance-sheet risk can be found in Item 3 “Quantitative and Qualitative Disclosures about Market Risk”.

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Our leased banking facilities and equipment are leased under non-cancelable operating leases under which we must make monthly payments over periods up to 20 years.
Stockholders’ Equity and Regulatory Capital
Historically, our primary source of capital has been the retention of earnings, net of dividend payments to shareholders. We seek to maintain capital at a level sufficient to assure our stockholders, our customers, and our regulators that our company and our bank subsidiary are financially sound. For this purpose, we perform ongoing assessments of our components of capital as

64


well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risks.
Total stockholders’ equity was $715.5734.5 million at JuneSeptember 30, 2012 compared to $795.9 million at December 31, 2011. The decrease was primarily due to the redemption of $122 million of Series A and Series B Preferred Stock issued under the U.S. Treasury's TARP Capital Purchase Program ("TARP") onin June 27, 2012, as discussed previously. The overall decreasewhich was partially offset by the net income to common stockholders of $37.756.1 million for the sixnine months ended JuneSeptember 30, 2012. Our ratio of tangible common equity to tangible assets was 12.49%12.23% at JuneSeptember 30, 2012, compared to 11.42% at December 31, 2011. The increase was attributable to the increase in common stockholders' equity.
The federal banking agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 8% and a minimum ratio of Tier I capital to risk-weighted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier I capital to average total assets, referred to as the leverage ratio. Capital requirements apply to the Company and the Bank separately. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
At JuneSeptember 30, 2012, our Tier I capital, defined as stockholders’ equity less intangible assets, plus proceeds from the trust preferred securities (subject to limitations), was $649.3$668.7 million, compared to $733.3 million at December 31, 2011, representing an increase of $84$64.6 million, or 11%9%. The decrease was primarily due to the redemption of $122 million of Series A and Series B Preferred Stock issued under the U.S. Treasury's TARP onCapital Purchase Program in June 27, 2012. At JuneSeptember 30, 2012, the total capital to risk-weighted assets ratio was 16.80%16.48% and the Tier I capital to risk-weighted assets ratio was 15.54%15.22%. The Tier I leverage capital ratio was 12.97%13.15%.
As of JuneSeptember 30, 2012 and December 31, 2011, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage capital ratios as set forth in the table below.
 
As of June 30, 2012 (Dollars in thousands)As of September 30, 2012 (Dollars in thousands)
Actual To Be Well-Capitalized ExcessActual To Be Well-Capitalized Excess
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
BBCN Bancorp, Inc                      
Tier 1 capital to total assets$649,292
 13.0% N/A
 N/A
 

 

$668,710
 13.2% N/A
 N/A
 

 

Tier 1 risk-based capital ratio$649,292
 15.5% N/A
 N/A
 

 

$668,710
 15.2% N/A
 N/A
 

 

Total risk-based capital ratio$701,835
��16.8% N/A
 N/A
 

 

$723,954
 16.5% N/A
 N/A
 

 

BBCN Bank                      
Tier I capital to total assets$625,409
 12.5% $250,355
 5.0% $375,054
 7.5%$647,616
 12.7% $254,134
 5.0% $393,482
 7.7%
Tier 1 risk-based capital ratio$625,409
 15.0% $250,479
 6.0% $374,930
 9.0%$647,616
 14.8% $263,407
 6.0% $384,209
 8.8%
Total risk-based capital ratio$677,914
 16.2% $417,465
 10.0% $260,449
 6.2%$702,825
 16.0% $439,011
 10.0% $263,814
 6.0%
As of December 31, 2011 (Dollars in thousands)As of December 31, 2011 (Dollars in thousands)
Actual To Be Well-Capitalized ExcessActual To Be Well-Capitalized Excess
Amount Ratio Amount Ratio Amount RatioAmount Ratio Amount Ratio Amount Ratio
BBCN Bancorp, Inc                      
Tier 1 capital to total assets$733,319
 19.8% N/A
 N/A
 

 

$733,319
 19.8% N/A
 N/A
 

 

Tier 1 risk-based capital ratio$733,319
 18.2% N/A
 N/A
 

 

$733,319
 18.2% N/A
 N/A
 

 

Total risk-based capital ratio$784,054
 19.4% N/A
 N/A
 

 

$784,054
 19.4% N/A
 N/A
 

 

BBCN Bank                      
Tier I capital to total assets$670,855
 18.1% $185,048
 5.0% $485,807
 13.1%$670,855
 18.1% $185,048
 5.0% $485,807
 13.1%
Tier 1 risk-based capital ratio$670,855
 16.6% $242,168
 6.0% $428,687
 10.6%$670,855
 16.6% $242,168
 6.0% $428,687
 10.6%
Total risk-based capital ratio$721,551
 17.9% $403,613
 10.0% $317,938
 7.9%$721,551
 17.9% $403,613
 10.0% $317,938
 7.9%


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Liquidity Management
Liquidity risk is the risk of reduction in our earnings or capital that would result if we were not able to meet our obligations when they come due without incurring unacceptable losses. Liquidity risk includes the risk of unplanned decreases or changes in funding sources and changes in market conditions that affect our ability to liquidate assets quickly and with minimum loss of value. Factors considered in liquidity risk management are the stability of the deposit base; the marketability, maturity, and pledging of our investments; the availability of alternative sources of funds; and our demand for credit. The objective of our liquidity management is to have funds available to meet cash flow requirements arising from fluctuations in deposit levels and the demands of daily operations, which include funding of securities purchases, providing for customers' credit needs, and

65


ongoing repayment of borrowings.
Our primary sources of liquidity are derived from financing activities, which include customer and broker deposits, federal funds facilities, and borrowings from the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank Discount Window. These funding sources are augmented by payments of principal and interest on loans and securities, proceeds from sale of loans and the liquidation or sale of securities from our available for sale portfolio. Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.
At JuneSeptember 30, 2012, our total borrowing capacity from the Federal Home Loan Bank of San Francisco was $1.2$1.3 billion, of which $838$837 million was unused and available to borrow. At JuneSeptember 30, 2012, our total borrowing capacity from the Federal Reserve Bank was $339$378 million, of which $339$378 million was unused and available to borrow. In addition to these lines, our liquid assets, consisting of cash and cash equivalent, interest-bearing cash deposits with other banks, overnight federal funds sold to other banks, liquid investment securities available for sale, and loan repayments within 30 days, were $519.1 $634.5million at JuneSeptember 30, 2012 compared to $689.8 million at December 31, 2011. Cash and cash equivalents, including federal funds sold were $179.6229.6 million at JuneSeptember 30, 2012 compared to $300.1 million at December 31, 2011. We believe our liquidity sources to be stable and adequate to meet our day-to-day cash flow requirements.

Item 3.Quantitative and Qualitative Disclosures About Market Risk
The objective of our asset and liability management activities is to improve our earnings by adjusting the type and mix of assets and liabilities to effectively address changing conditions and risks. Through overall management of our balance sheet and by controlling various risks, we seek to optimize our financial returns within safe and sound parameters. Our operating strategies for attaining this objective include managing net interest margin through appropriate risk/return pricing of assets and liabilities and emphasizing growth in retail deposits, as a percentage of interest-bearing liabilities, to reduce our cost of funds. We also seek to improve earnings by controlling non-interest expense, and enhancing non-interest income. We also use risk management instruments to modify interest rate characteristics of certain assets and liabilities to hedge against our exposure to interest rate fluctuations with the objective of, reducing the effects these fluctuations might have on associated cash flows or values. Finally, we perform internal analysis to measure, evaluate and monitor risk.
Interest Rate Risk
Interest rate risk is the most significant market risk impacting us. Interest rate risk occurs when interest rate sensitive assets and liabilities do not reprice simultaneously and in equal volume. A key objective of asset and liability management is to manage interest rate risk associated with changing asset and liability cash flows and values of our assets and liabilities and market interest rate movements. The management of interest rate risk is governed by policies reviewed and approved annually by the Board of Directors. Our Board delegates responsibility for interest rate risk management to the Asset Liability Committee of the Board ("ALCO") and to the Asset and Liability Management Committee (“ALM”), which is composed of NaraBBCN Bank’s senior executives and other designated officers.
Market risk is the risk of adverse impacts on our future earnings, the fair values of our assets and liabilities, or our future cash flows that may result from changes in the price of a financial instrument. The fundamental objective of our ALM is to manage our exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. Our ALM meets regularly to monitor interest rate risk, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of our assets and liabilities, and our investment activities. It also directs changes in the composition of our assets and liabilities . Our strategy has been to reduce the sensitivity of our earnings to interest rate fluctuations by more closely matching the effective maturities or repricing characteristics of our assets and liabilities. Certain assets and liabilities, however, may react in different degrees to changes in market interest rates. Furthermore, interest rates on certain types of assets and liabilities may fluctuate prior to changes in market interest rates, while interest rates on other types may lag behind. We consider the anticipated effects of these factors when implementing our interest rate risk management objectives.
Interest Rate Sensitivity

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We monitor interest rate risk through the use of a simulation model that provides us with the ability to simulate our net interest income. In order to measure, at JuneSeptember 30, 2012, the sensitivity of our forecasted net interest income to changing interest rates, both rising and falling interest rate scenarios were projected and compared to base market interest rate forecasts. One application of our simulation model measures the impact of market interest rate changes on the net present value of estimated cash flows from our assets and liabilities, defined as our market value of equity. This analysis assesses the changes in market values of interest rate sensitive financial instruments that would occur in response to immediate and parallel changes in market interest rates.
The impacts on our net interest income and market value of equity exposed to immediate and parallel hypothetical changes

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in market interest rates as projected by the model we use for this purpose are illustrated in the following table.
 
June 30, 2012 December 31, 2011September 30, 2012 December 31, 2011
Simulated
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
 
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
 
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
Rate Changes  
+ 200 basis points3.69 % (1.24)% 5.46% (4.61)%6.02 % (0.71)% 5.46% (4.61)%
+ 100 basis points(0.26)% 0.21 % 2.91% (1.84)%2.72 % 0.07 % 2.91% (1.84)%
- 100 basis points(1.87)% (0.90)% 0.77% 4.57 %(0.61)% 2.70 % 0.77% 4.57 %
- 200 basis points(7.15)% 3.75 % 0.83% 8.58 %(0.89)% 4.58 % 0.83% 8.58 %

The results obtained from using the simulation model are somewhat uncertain as the model does not take into account other impacts or changes and the effect they could have on Company’s business or changes in business strategy the Company might make in reaction to changes in the interest rate environment.
 
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) for the period ended JuneSeptember 30, 2012. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer determined that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended JuneSeptember 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION

Item 1.Legal Proceedings
    
BBCN has received communications from the Small Business Administration ("SBA") asserting that the SBA is entitled to receive from BBCN a portion of the amounts to be paid to BBCN by the FDIC in respect of SBA loans that are covered by the FDIC loss share agreements. The amounts claimed by the SBA with respect to covered SBA loans are based on the SBA's guarantee percentage of the individual covered loans referred to in the communications. An aggregate of $55 million of SBA loans were subject to the loss share agreements at inception. BBCN disagrees with the SBA's position. The discussions with the SBA regarding this matter are at an early stage and BBCN is not presently able to determine the probable outcome.
Item 1A.Risk Factors
There were no material changes from risk factors previously disclosed in our 2011 Annual Report on Form 10-K.
 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None
 
Item 3.Defaults Upon Senior Securities
None
 
Item 4.Mine Safety Disclosures
 
None

Item 5.Other Information
None
 
Item 6.Exhibits
See “Index to Exhibits”.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  BBCN BANCORP, INC. 
    
Date:August 9,November 7, 2012/s/ Alvin D. Kang 
  Alvin D. Kang 
  President and Chief Executive Officer 
    
Date:August 9,November 7, 2012  
    
  /s/ Philip E. Guldeman 
  Philip E. Guldeman 
  Executive Vice President and Chief Financial Officer 

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INDEX TO EXHIBITS
 
Exhibit Number Description
   
3.1 Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on June 5, 2000 (incorporated herein by reference to the Registration Statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) on November 16, 2000)
   
3.2 Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on May 31, 2002 (incorporated herein by reference to the Registration Statement on Form S-8 Exhibit 3.3 filed with the SEC on February 5, 2003)
   
3.3 Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on June 1, 2004 (incorporated herein by reference to the Registration Statement on Form 10-Q Exhibit 3.1.1 filed with the SEC on November 8, 2004)
   
3.4 Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on November 2, 2005 (incorporated herein by reference to the Registration Statement on DEF14 A, Appendix B filed with the SEC on September 6, 2005)
   
3.5 Certificate of Amendment of Certificate of Incorporation of the Company, filed with the Delaware Secretary of State on July 20, 2007 (incorporated herein by reference to the Registration Statement on DEF14 A, Appendix C filed with the SEC on April 19, 2007)
   
3.6 
Certificate of Merger, filed with the Delaware Secretary of State on November 30, 2011 (incorporated herein by reference to the Registration Statement on Form 10-Q Exhibit 3.6 filed with SEC on May 10, 2012)

   
3.7 Amended and Restated Bylaws of BBCN Bancorp, Inc. (incorporated herein by reference to Current Report on Form 8-K Exhibit 5.1 filed with the SEC on February 1, 2012, SEC file number 000-50245)
   
10.1 
Amendment No. 2 toDefinitive Agreement and Plan of Merger, dated as of July 6, 2011,October 22, 2012, between NaraBBCN Bancorp, Inc. and Center Financial Corporation (incorporated herein by reference to the Current Report on Form 8-K, Exhibit 2.1, filed with the SEC on July 7, 2011)Pacific International Bancorp, Inc

   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
  and
   
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
   
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002*
   
32.2 Certification of Chief Financial Officer pursuant to section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002*
   
101.INS** XBRL Instance Document
   
101.SCH** XBRL Taxonomy Extension Schema Document
   
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith
**Furnished herewith


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