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 March 31,June 30, 2013
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 filerx Accelerated filero
     
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 May 6,August 2, 2013, there were 78,981,40179,197,982 outstanding shares of the issuer’s Common Stock, $0.001 par value.


Table of Contents
 
  Page
PART I FINANCIAL INFORMATION
 
   
 
Forward-Looking Information
34
   
Item 1.
FINANCIAL STATEMENTS
 
   
 
Condensed Consolidated Statements of Financial Condition - March 31,June 30, 2013 (Unaudited) and December 31, 2012
45
   
 
Condensed Consolidated Statements of Income - Three and Six Months Ended March 31, 2013 and 2012 (Unaudited)
6
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31,June 30, 2013 and 2012 (Unaudited)
7
   
 
Condensed Consolidated Statements of Changes in Stockholders’ EquityComprehensive Income - Three and Six Months Ended March 31,June 30, 2013 and 2012 (Unaudited)
8
   
 
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity - ThreeSix Months Ended March 31,June 30, 2013 and 2012 (Unaudited)
9
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012 (Unaudited)
10
   
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
1012
   
Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4651
   
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
6271
   
Item 4.
CONTROLS AND PROCEDURES
6372
  
PART II OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
6473
   
Item 1A.
Risk Factors
6473
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
6473
   
Item 3.
Defaults Upon Senior Securities
6473
   
Item 4.
Mine Safety Disclosures
6473
   
Item 5.
Other Information
6473
   
Item 6.
Exhibits
6473
   
 
Signatures
6574
   
 
Index to Exhibits
6675
   
 Certifications 


23
Table of Contents

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, 2012.


34
Table of Contents

PART I
FINANCIAL INFORMATION

Item 1.Financial Statements


BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)  (Unaudited)  
March 31,
2013		 December 31,
2012		6/30/2013 December 31, 2012
ASSETS(In thousands, except share data)(In thousands, except share data)
Cash and cash equivalents:      
Cash and due from banks$73,125
 $88,506
$81,003
 $88,506
Interest-earning deposit at the Federal Reserve Bank (the "FRB")207,688
 224,410
215,327
 224,410
Total cash and cash equivalents280,813
 312,916
296,330
 312,916
Securities available for sale, at fair value717,441
 704,403
725,239
 704,403
Loans held for sale, at the lower of cost or fair value48,941
 51,635
43,111
 51,635
Loans receivable, net of allowance for loan losses (March 31, 2013 - $73,268; December 31, 2012 - $66,941)4,426,778
 4,229,311
Loans receivable, net of allowance for loan losses (June 30, 2013 - $71,675; December 31, 2012 - $66,941)4,446,447
 4,229,311
Other real estate owned ("OREO"), net8,419
 2,698
9,596
 2,698
Federal Home Loan Bank ("FHLB") stock, at cost24,308
 22,495
26,261
 22,495
Premises and equipment, net of accumulated depreciation and amortization (March 31, 2013 - $23,198; December 31, 2012 - $22,201)22,960
 22,609
Premises and equipment, net of accumulated depreciation and amortization (June 30, 2013 - $24,089; December 31, 2012 - $22,201)23,226
 22,609
Accrued interest receivable13,271
 12,117
13,054
 12,117
Deferred tax assets, net65,298
 60,240
73,899
 60,240
Customers’ liabilities on acceptances12,200
 10,493
9,533
 10,493
Bank owned life insurance44,079
 43,767
44,400
 43,767
Investments in affordable housing partnerships12,641
 13,164
12,487
 13,164
Goodwill93,404
 89,878
92,288
 89,878
Other intangible assets, net3,401
 3,033
3,125
 3,033
Prepaid FDIC insurance7,157
 7,574
—
 7,574
FDIC loss share receivable4,386
 5,797
3,455
 5,797
Other assets48,100
 48,531
40,563
 48,531
Total assets$5,833,597
 $5,640,661
$5,863,014
 $5,640,661
      
(Continued)(Continued) (Continued) 

45
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)  (Unaudited)  
March 31,
2013		 December 31,
2012		6/30/2013 December 31, 2012
LIABILITIES AND STOCKHOLDERS’ EQUITY(In thousands, except share data)(In thousands, except share data)
LIABILITIES:      
Deposits:      
Non-interest bearing$1,182,509
 $1,184,285
$1,210,563
 $1,184,285
Interest bearing:      
Money market and NOW accounts1,269,388
 1,248,304
1,261,905
 1,248,304
Savings deposits192,208
 180,686
181,672
 180,686
Time deposits of $100,000 or more1,237,366
 1,088,611
1,276,147
 1,088,611
Other time deposits674,203
 682,149
646,512
 682,149
Total deposits4,555,674
 4,384,035
4,576,799
 4,384,035
FHLB advances421,632
 420,722
421,539
 420,722
Subordinated debentures45,996
 41,846
41,920
 41,846
Accrued interest payable4,325
 4,355
4,499
 4,355
Acceptances outstanding12,200
 10,493
9,533
 10,493
Other liabilities21,495
 28,106
27,699
 28,106
Total liabilities5,061,322
 4,889,557
5,081,989
 4,889,557
STOCKHOLDERS’ EQUITY:      
Common stock, $0.001 par value; authorized 150,000,000 shares at March 31, 2013 and December 31, 2012; issued and outstanding, 78,812,140 and 78,041,511 shares at March 31, 2013 and December 31, 2012, respectively79
 78
Common stock, $0.001 par value; authorized 150,000,000 shares at June 30, 2013 and December 31, 2012; issued and outstanding, 79,205,840 and 78,041,511 shares at June 30, 2013 and December 31, 2012, respectively79
 78
Additional paid-in capital535,091
 525,354
537,085
 525,354
Retained earnings230,149
 216,590
248,866
 216,590
Accumulated other comprehensive income, net6,956
 9,082
(5,005) 9,082
Total stockholders’ equity772,275
 751,104
781,025
 751,104
Total liabilities and stockholders’ equity$5,833,597
 $5,640,661
$5,863,014
 $5,640,661

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

5
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months Ended March 31,
 2013 2012
 (In thousands, except share data)
INTEREST INCOME:   
Interest and fees on loans$63,029
 $63,419
Interest on securities3,427
 4,909
Interest on federal funds sold and other investments287
 227
Total interest income66,743
 68,555
INTEREST EXPENSE:   
Interest on deposits5,408
 5,403
Interest on FHLB advances1,224
 1,626
Interest on other borrowings395
 667
Total interest expense7,027
 7,696
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES59,716
 60,859
PROVISION FOR LOAN LOSSES7,506
 2,600
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES52,210
 58,259
NON-INTEREST INCOME:   
Service fees on deposit accounts2,875
 3,160
International service fees1,238
 1,224
Loan servicing fees, net969
 1,337
Wire transfer fees816
 741
Other income and fees1,249
 1,340
Net gains on sales of SBA loans2,694
 2,963
Net gains on sales of other loans43
 —
Net gains on sales of securities available for sale54
 816
Net valuation gains on interest rate swaps and caps—
 3
Net gains on sales of OREO2
 61
Total non-interest income9,940
 11,645
NON-INTEREST EXPENSE:   
Salaries and employee benefits16,332
 14,079
Occupancy4,011
 3,646
Furniture and equipment1,573
 1,218
Advertising and marketing1,273
 1,458
Data processing and communications1,644
 1,611
Professional fees1,301
 613
FDIC assessments694
 1,037
Credit related expenses1,715
 2,180
Merger and integration expense1,305
 1,773
Other3,427
 2,820
Total non-interest expense33,275
 30,435
INCOME BEFORE INCOME TAX PROVISION28,875
 39,469
INCOME TAX PROVISION11,414
 15,535
NET INCOME$17,461
 $23,934
DIVIDENDS AND DISCOUNT ACCRETION ON PREFERRED STOCK$—
 $(1,869)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$17,461
 $22,065
EARNINGS PER COMMON SHARE   
Basic$0.22
 $0.28
Diluted$0.22
 $0.28
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6
Table of Contents

BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012
 (In thousands, except share data)
INTEREST INCOME:       
Interest and fees on loans$65,473
 $62,504
 $128,502
 $125,923
Interest on securities3,526
 4,249
 6,953
 9,158
Interest on federal funds sold and other investments380
 190
 667
 417
Total interest income69,379
 66,943
 136,122
 135,498
INTEREST EXPENSE:       
Interest on deposits5,647
 5,245
 11,055
 10,648
Interest on FHLB advances1,218
 1,603
 2,442
 3,229
Interest on other borrowings411
 593
 806
 1,260
Total interest expense7,276
 7,441
 14,303
 15,137
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES62,103
 59,502
 121,819
 120,361
PROVISION FOR LOAN LOSSES800
 7,182
 8,306
 9,782
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES61,303
 52,320
 113,513
 110,579
NON-INTEREST INCOME:       
Service fees on deposit accounts2,922
 3,269
 5,797
 6,429
International service fees1,266
 1,403
 2,504
 2,627
Loan servicing fees, net1,036
 810
 2,005
 2,147
Wire transfer fees887
 775
 1,703
 1,516
Other income and fees1,204
 1,354
 2,453
 2,694
Net gains on sales of SBA loans3,295
 2,463
 5,989
 5,426
Net gains on sales of other loans19
 146
 62
 146
Net gains on sales of securities available for sale—
 —
 54
 816
Net valuation gains on interest rate swaps and caps—
 10
 —
 13
Net (loss) gain on sales of OREO(11) (8) (9) 53
Total non-interest income10,618
 10,222
 20,558
 21,867
NON-INTEREST EXPENSE:       
Salaries and employee benefits16,219
 14,658
 32,551
 28,737
Occupancy4,835
 4,232
 8,846
 7,878
Furniture and equipment1,613
 1,468
 3,186
 2,686
Advertising and marketing1,190
 1,525
 2,463
 2,983
Data processing and communications1,861
 1,573
 3,505
 3,184
Professional fees1,443
 1,069
 2,744
 1,682
FDIC assessments858
 51
 1,552
 1,088
Credit related expenses2,203
 2,290
 3,918

4,470
Merger and integration expense385
 1,348
 1,690
 3,121
Other3,822
 2,863
 7,249
 5,683
Total non-interest expense34,429
 31,077
 67,704
 61,512
INCOME BEFORE INCOME TAX PROVISION37,492
 31,465
 66,367
 70,934
INCOME TAX PROVISION14,821
 12,101
 26,235
 27,636
NET INCOME$22,671
 $19,364
 40,132
 $43,298
DIVIDENDS AND DISCOUNT ACCRETION ON PREFERRED STOCK$—
 $(3,771) $0
 $(5,640)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$22,671
 $15,593
 $40,132
 $37,658
EARNINGS PER COMMON SHARE       
Basic$0.29
 $0.20
 $0.51
 $0.48
Diluted$0.29
 $0.20
 $0.51
 $0.48
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7
Table of Contents



BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
Three Months Ended June 30, Six Months Ended June 30,
2013 20122013 2012 2013 2012
(In thousands)(In thousands)
Net income$17,461
 $23,934
$22,671
 $19,364
 $40,132
 $43,298
Other comprehensive income:   
Unrealized loss on securities available for sale and interest only strips(3,653) (312)
Other comprehensive income (loss):       
Unrealized (loss) gain on securities available for sale and interest only strips(19,699) 809
 (23,353) 493
Reclassification adjustments for gains realized in income (1)
(54) (816)—
 —
 (54) (816)
Tax benefit(1,581) (474)
Tax expense (benefit)(7,738) 269
 (9,320) (209)
Change in unrealized gain on securities available for sale and interest only strips(2,126) (654)(11,961) 540
 (14,087) (114)
          
Reclassification adjustment for the deferred gain on early settlement of interest-rate caps(2)—
 (11)—
 (11) —
 (22)
Tax benefit—
 (4)—
 (5) —
 (9)
Change in unrealized gain on interest-rate caps, net of tax(3)—
 (7)—
 (6) —
 (13)
          
Total other comprehensive loss(2,126) (661)
Total other comprehensive income (loss)(11,961) 534
 (14,087) (127)
Total comprehensive income$15,335
 $23,273
$10,710
 $19,898
 $26,045
 $43,171

(1) 
Reclassification adjustments realized in income were includedrecognized in net gains on sales of securities available for sale.sale in the consolidated statements of income.
(2)
Reclassification adjustments were recognized in accumulated other comprehensive income in the consolidated statements of financial position.
(3)
Reclassification adjustments were recognized in other income in the consolidated statements of income.

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


7
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
   Common stock      
 
Preferred
stock
 Shares Amount Additional paid-in capital 
Retained
earnings
 Accumulated other comprehensive income (loss), net
 (In thousands, except share data)
            
BALANCE, JANUARY 1, 2012$119,350
 77,984,252
 $78
 $524,644
 $142,909
 $8,958
Issuance of additional shares pursuant to various stock plans
 12,139
 
 81
 
 
Stock-based compensation
 
 
 398
 
 
Preferred stock cash dividends accrued (5%)
 
 
 
 (1,525) 
Accretion of preferred stock discount344
 
 
 
 (344) 
Comprehensive income:
 
 
 
 
 
Net income
 
 
 
 23,934
 
Other comprehensive loss
 
 
 
 
 (661)
BALANCE, MARCH 31, 2012$119,694
 77,996,391
 $78
 $525,123
 $164,974
 $8,297
            
BALANCE, JANUARY 1, 2013$—
 78,041,511
 $78
 $525,354
 $216,590
 $9,082
Acquisition of Pacific International Bank  663,843
 1
 8,640
    
Issuance of additional shares pursuant to various stock plans
 106,786
 

 414
 

 

Tax effect of stock plans      (26)    
Stock-based compensation
 

 

 709
 

 

Cash dividend declared on common stock ($0.05 per share)
 

 

 

 (3,902) 

Comprehensive income:
 

 

 

 

 

Net income
 

 

 

 17,461
 

Other comprehensive loss
 

 

 

 

 $(2,126)
BALANCE, MARCH 31, 2013$—
 78,812,140
 $79
 $535,091
 $230,149
 $6,956
            
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


8
Table of Contents


BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31
 2013 2012
 (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income$17,461
 $23,934
Adjustments to reconcile net income to net cash from operating activities:
 

      Depreciation, amortization, net of discount accretion(2,717) 2,023
Stock-based compensation expense709
 398
Provision for loan losses7,506
 2,600
Valuation adjustment of loans held for sale—
 668
Valuation adjustment of OREO115
 390
Proceeds from sales of loans29,144
 37,904
Originations of loans held for sale(23,713) (43,822)
Net gains on sales of SBA and other loans(2,737) (2,963)
Net change in bank owned life insurance(312) (305)
Net gains on sales of securities available for sale(54) (816)
Net gains on sales of OREO(2) (61)
Net valuation gains on interest rate swaps and caps—
 (3)
Change in accrued interest receivable(730) 1,186
Change in deferred income taxes1,524
 6,058
Change in prepaid FDIC insurance614
 960
Change in investments in affordable housing partnership523
 513
Change in FDIC loss share receivable1,411
 (27)
Change in other assets675
 (5,227)
Change in accrued interest payable(104) (34)
Change in other liabilities(9,836) 12,197
            Net cash provided by operating activities19,477
 35,573
CASH FLOWS FROM INVESTING ACTIVITIES   
            Net change in loans receivable(69,771) (1,028)
Proceeds from sales of securities available for sale6,636
 1,883
Proceeds from sales of OREO849
 2,066
Proceeds from matured term federal funds—
 40,000
Proceeds from sales of equipment—
 3
Purchase of premises and equipment(1,671) (752)
Purchase of securities available for sale(69,821) —
Purchase of FRB stock—
 1,309
Redemption of FHLB stock16
 —
Purchase of term federal funds—
 (20,000)
Proceeds from matured or paid-down securities available for sale52,488
 39,334
Net cash received from acquisition25,968
 —
Redemption of preferred stock upon the acquisition(7,475) —
          Net cash used in investing activities(62,781) 62,815
CASH FLOWS FROM FINANCING ACTIVITIES   
Net change in deposits28,412
 (20,428)
Cash dividends paid on Preferred Stock—
 (1,410)
Proceeds from FHLB advances90,000
 —
Repayment of FHLB advances(103,697) (11,062)
Cash dividends paid on Common Stock(3,902) —
Issuance of additional stock pursuant to various stock plans388
 81
            Net cash used in financing activities11,201
 (32,819)
NET CHANGE IN CASH AND CASH EQUIVALENTS(32,103) 65,569
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD312,916
 300,110
CASH AND CASH EQUIVALENTS, END OF PERIOD$280,813
 $365,679
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 

      Interest paid$7,057
 $7,730
      Income taxes paid$16,291
 $(4,250)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES   
Transfer from loans receivable to OREO$1,985
 $412
Non-cash goodwill adjustment, net$—
 $591
Pacific International Bank Acquisition:   
     Assets acquired$178,732
 $—
     Liabilities assumed$(165,828) $—
BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
   Common stock      
 
Preferred
stock
 Shares Amount Additional paid-in capital 
Retained
earnings
 Accumulated other comprehensive income (loss), net
 (In thousands, except share data)
            
BALANCE, JANUARY 1, 2012$119,350
 77,984,252
 $78
 $524,644
 $142,909
 $8,958
Redemption of 122,000 shares of TARP preferred stock(122,000)          
Issuance of additional shares pursuant to various stock plans
 29,855
 
 200
 
 
Stock-based compensation
 
 
 1,141
 
 
Preferred stock cash dividends accrued (5%)
 
 
 
 (2,990) 
Accretion of preferred stock discount2,650
 
 
 
 (2,650) 
Comprehensive income:
 
 
 
 
 
Net income
 
 
 
 43,298
 
Other comprehensive loss
 
 
 
 
 (127)
BALANCE, JUNE 30, 2012$—
 78,014,107
 $78
 $525,985
 $180,567
 $8,831
            
BALANCE, JANUARY 1, 2013$—
 78,041,511
 $78
 $525,354
 $216,590
 $9,082
Acquisition of Pacific International Bank  632,050
 1
 8,640
    
Issuance of additional shares pursuant to various stock plans
 532,279
 

 1,849
 

 

Tax effect of stock plans      234
    
Stock-based compensation
 

 

 1,008
 

 

Cash dividends declared on common stock
 

 

 

 (7,856) 

Comprehensive income:
 

 

 

 

 

Net income
 

 

 

 40,132
 

Other comprehensive loss
 

 

 

 

 (14,087)
BALANCE, JUNE 30, 2013$—
 79,205,840
 $79
 $537,085
 $248,866
 $(5,005)
            
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,
 2013 2012
 (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income$40,132
 $43,298
Adjustments to reconcile net income to net cash from operating activities:
 

      Depreciation, amortization, net of discount accretion(7,328) (14,353)
Stock-based compensation expense1,008
 1,141
Provision for loan losses8,306
 9,782
Valuation adjustment of loans held for sale—
 668
Valuation adjustment of OREO762
 1,067
Proceeds from sales of loans67,732
 88,822
Originations of loans held for sale(53,176) (73,003)
Net gains on sales of SBA and other loans(6,051) (6,014)
Net change in bank owned life insurance(633) (605)
Net gains on sales of securities available for sale(54) (816)
Net gains on sales of OREO9
 (53)
Net valuation gains on interest rate swaps and caps—
 (13)
Change in accrued interest receivable(513) 1,377
Change in deferred income taxes2,976
 7,604
Change in prepaid FDIC insurance7,771
 938
Change in investments in affordable housing partnership677
 1,206
Change in FDIC loss share receivable2,342
 1,781
Change in other assets8,376
 (10,384)
Change in accrued interest payable70
 (595)
Change in other liabilities(4,832) 6,421
            Net cash provided by operating activities67,574
 58,269
CASH FLOWS FROM INVESTING ACTIVITIES   
            Net change in loans receivable(84,982) (128,519)
Proceeds from sales of securities available for sale6,636
 1,883
Proceeds from sales of OREO1,425
 3,160
Proceeds from matured term federal funds—
 100,000
Proceeds from sales of equipment—
 3
Purchase of premises and equipment(3,348) (3,494)
Purchase of securities available for sale(147,995) (15,457)
            Purchase of FHLB stock(1,969) —
Redemption of FHLB stock32
 2,595
Purchase of term federal funds—
 (60,000)
Proceeds from matured or paid-down securities available for sale101,604
 84,735
Net cash received from acquisition25,968
 —
Redemption of preferred stock upon the acquisition(7,475) —
          Net cash used in investing activities(110,104) (15,094)
CASH FLOWS FROM FINANCING ACTIVITIES   
Net change in deposits49,537
 (56,693)
Redemption of preferred stock—
 (122,000)
Cash dividends paid on Preferred Stock—
 (3,647)
Redemption of subordinated debentures(4,124) (10,400)
Proceeds from FHLB advances140,000
 125,000
Repayment of FHLB advances(153,697) (96,124)
Cash dividends paid on Common Stock(7,855) —
Issuance of additional stock pursuant to various stock plans2,083
 200
            Net cash used in financing activities25,944
 (163,664)
NET CHANGE IN CASH AND CASH EQUIVALENTS(16,586) (120,489)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD312,916
 300,110
CASH AND CASH EQUIVALENTS, END OF PERIOD$296,330
 $179,621
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 

      Interest paid$14,159
 $15,732
      Income taxes paid$19,516
 $19,022
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES   
Transfer from loans receivable to OREO$4,396
 $3,262
Non-cash goodwill adjustment, net$(1,116) $591
Pacific International Bank Acquisition:   

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
     Assets acquired$181,048
 $—
     Liabilities assumed$(167,028) $—
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 the "Company" on a consolidated basis), headquartered in Los Angeles, California, is the holding company for BBCN Bank ("BBCN Bank" or the "Bank"). The Bank has branches in California, New York, New Jersey, Washington and Illinois, as well as loan production offices in the Atlanta, Dallas, Denver, Northern California, Seattle and Seattlemetropolitan Washington, D.C. markets. The Company is a corporation organized under the laws of Delaware and a financial holding company and bank holding company registered under the Bank Holding Company Act of 1956, as amended.
         
2.Basis of Presentation
The condensed consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), except for the Condensed Consolidated Statement of Financial Condition as of December 31, 2012 which was derived from audited financial statements included in the Company's 2012 Annual Report on Form 10-K. 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-owned subsidiaries, principally BBCN Bank. All intercompany transactions and balances have been eliminated in consolidation.
The Company has made all adjustments, consisting solely of normal recurring accruals, that in the opinion of management, are necessary to fairly present the Company's financial position at March 31,June 30, 2013 and the results of operations for the three and six months then ended. 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, the 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, the valuation of servicing assets, and the determination of the fair values of acquired assets and liabilities including the fair value of loans acquired with credit deterioration.
These unaudited condensed consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in the Company's 2012 Annual Report on Form 10-K.
Recent Accounting Pronouncements:
FASB has issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this ASU clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. Liquidation is the process by which a company converts its assets to cash or other assets and settles its obligations with creditors in anticipation of ceasing all of its activities. An organization in liquidation must prepare its financial statements using a basis of accounting that communicates information to users of those financial statements to enable those users to develop expectations about how much the organization will have available for distribution to investors after disposing of its assets and settling its obligations.
FASB ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” - ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The Company adopted ASU 2013-02 for the reporting period ending March 31, 2013, and its adoption did not have a material effect on the Company's consolidated financial statements.


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3.Business Combinations

The Company applies the acquisition method of accounting for business combinations under ASC 805 - Business Combinations. Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the assets acquired and liabilities assumed at their acquisition date fair values. Management utilizes valuation techniques appropriate for the asset or liability being measured in determining these fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred as merger and integration expenses.

Foster Bankshares, Inc.
10
TableOn April 15, 2013, the Company entered into an Agreement and Plan of ContentsMerger with Foster Bankshares, Inc., a Delaware corporation and a Chicago-based company, ("Foster") dated April 15, 2013. At June 30, 2013, Foster had total assets of approximately $381.0 million, including $302.1 million of gross loans and $333.2 million in deposits.


The transaction is valued at approximately $4.6 million, valuing each outstanding share of Foster common stock at $34.67. Foster shareholders will have a choice between electing to receive the cash value per share or, for shareholders who qualify as accredited investors, 2.62771 shares of BBCN common stock for each share of Foster common stock or a combination thereof, with no limitations on the consideration mix. The consideration for the transaction is subject to reduction in certain events. Foster has no outstanding options or warrants. The transaction is expected to be completed in the third quarter of 2013.

Pacific International Bancorp, Inc.     
On February 15, 2013, the Company completed the acquisition of Pacific International Bancorp, Inc. ("PIB"), a Seattle based company, pursuant to an Agreement and Plan of Merger, dated October 22, 2012. The Company acquired PIB in order to increase the Company's presence in terms of branch offices and deposit market share in the Seattle market. PIB's primary subsidiary, Pacific International Bank, a Washington state-chartered bank, operated four bank branches in the Seattle metropolitan area.
In connection with the acquisition, the consideration paid, the assets acquired, and the liabilities assumed are summarized in the following table:

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(In thousands)
 (In thousands)
Consideration paid:Consideration paid: Consideration paid: 
BBCN common stock issued$8,437
BBCN common stock issued$8,437
Cash in lieu of fractional shares paid to PIB stockholders1
Cash in lieu of fractional shares paid to PIB stockholders1
Redemption of Preferred Stock7,475
Redemption of Preferred Stock7,475
     Total consideration paid$15,913
     Total consideration paid$15,913
    
Assets Acquired:Assets Acquired: Assets Acquired: 
Cash and cash equivalents$25,968
Cash and cash equivalents$25,968
Investment securities available for sale7,810
Investment securities available for sale7,810
Loans, net131,589
Loans, net131,589
FRB and FHLB stock1,829
FRB and FHLB stock1,829
OREO3,418
OREO3,418
Deferred tax assets, net5,000
Deferred tax assets, net7,316
Other assets3,118
Other assets3,118
Liabilities Assumed:Liabilities Assumed: Liabilities Assumed: 
Deposits(143,665)Deposits(143,665)
Borrowings(14,698)Borrowings(14,698)
Subordinated debentures(4,108)Subordinated debentures(4,108)
Other liabilities(3,874)Other liabilities(5,074)
Total identifiable net assetsTotal identifiable net assets$12,387
Total identifiable net assets$13,503
Excess of consideration paid over fair value of net assets acquired (goodwill)Excess of consideration paid over fair value of net assets acquired (goodwill)$3,526
Excess of consideration paid over fair value of net assets acquired (goodwill)$2,410

The Company estimated the fair value for most loans acquired from PIB by utilizing a methodology wherein loans with comparable characteristics were aggregated by type of collateral, remaining maturity, and repricing terms. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value of the remaining loans, management analyzed the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral. The value of the collateral was based on recently completed appraisals adjusted to the valuation date based on recognized industry indices. We discounted those values using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of PIB’s allowance for loan losses associated with the loans we acquired as the loans were initially recorded at fair value. The loans acquired with deteriorated credit quality from PIB as of February 15, 2013 arewere as follows:

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 (In thousands)
Contractually required principal and interest at acquisition$54,462
Contractual cash flows not expected to be collected (nonaccretable discount)9,687
Expected cash flows at acquisition44,775
Interest component of expected cash flows (accretable discount)4.945
Fair value of acquired loans$39,830
The fair value of savings and transactional deposit accounts acquired from PIB was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by comparing the contractual cost of the the portfolio to an identical portfolio bearing current market rates. The projected cash flows from maturing certificates were calculated based on contractual rates. The fair value of the certificates of deposit was calculated by discounting their contractual cash flows at a market rate for a certificate of deposit with a corresponding maturity

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The fair value of borrowings assumed was determined by estimating projected future cash outflows and discounting them at a market rate of interest.
The fair value of the net deferred tax assets acquired from PIB iswas provisional as of March 31, 2013, and adjustments to the provisional amount may occur during the measurement period as the Company obtains additional information about the facts and circumstances that existed as of the acquisition date.
The $3.52.4 million of goodwill recognized in the PIB acquisition represents the future economic benefit arising from the acquisition including: the creation of a platform that can support future operations and strengthening the Company's existing presence in the Pacific Northwest market. Goodwill is not amortized for book purposes and is not deductible for tax purposes.
The goodwill arising from the PIB acquisition was reduced by a net $1.1 million down to $92.3 million due to adjustments to the deferred tax asset, which was provisional as of March 31, 2013, and other adjustments of certain acquisition date fair value asset and liability estimates during the second quarter of 2013.
For the three months ended March 31, 2013For the three months ended June 30, 2013
(In thousands)(In thousands)
Balance, beginning of period$89,878
$93,404
Acquired goodwill3,526
—
Adjustment(1,116)
Impairment—
—
Balance, end of period$93,404
$92,288
    
The operating results of PIB from the date of acquisition through March 31,June 30, 2013 are included in the Condensed Consolidated Statement of Income for 2013 and are not material to the total consolidated operating results for the three and six month period ended March 31,June 30, 2013 and, consequently, no pro forma information is presented. Direct costs related to the acquisition were expensed as incurred as merger related expenses. The Company incurred $81 thousand and $1.3 million in PIB acquisition related expenses during three months and six months ended March 31, 2013.June 30, 2013, respectively. These expenses were comprised of salaries and benefits, occupancy expenses, professional services, and other non-interest expense.

4.Stock-Based Compensation
The Company has a stock-based incentive plan, the 2007 BBCN Bancorp Equity Incentive Plan (the “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 the 2007 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

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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 recognized over the vesting period. 

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Table of Contents

The Company has another stock-based incentive plan, the Center Financial Corporation 2006 Stock Incentive Plan, adopted April 12, 2006, as amended and restated June 13, 2007 (the "2006 Plan"), which was assumed by the Company during the merger with Center Bank.
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 option 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.
Under the 2007 and 2006 Plans 2,649,0252,659,119 shares were available for future grants as of March 31,June 30, 2013.
The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2007 and 2006 Plans. 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 threesix months ended March 31,June 30, 2013:
 
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, 2013797,805
 $16.70
  797,805
 $16.70
  
Granted—
 —
  —
 —
  
Exercised(48,000) 8.64
  (214,100) 8.64
  
Forfeited—
 —
  (43,844) 26.99
  
Outstanding - March 31, 2013749,805
 $17.21
 2.56 $856,000
Options exercisable - March 31, 2013741,805
 $17.31
 2.48 $820,000
Unvested options expected to vest after March 31, 20138,000
 $8.64
 9.51 $36,000
Outstanding - June 30, 2013539,861
 $19.06
 3.14 $120,000
Vested or expected to be vested - June 30, 2013539,861
 $19.06
 3.14 $120,000
Options exercisable - June 30, 2013531,861
 $19.22
 3.10 $75,000

The following is a summary of restricted and performance unit activity under the 2007 and 2006 Plans for the threesix months ended March 31,June 30, 2013:
 
Number of
Shares
 
Weighted-
Average
Grant
Date Fair
Value
 
Weighted-
Average
Remaining
Contractual
Life (Years)
Number of
Shares
 
Weighted-
Average
Grant
Date Fair
Value
 
Outstanding - January 1, 2013512,183
 $9.78
 512,183
 $9.78
 
Granted5,000
 13.15
 48,000
 12.83
 
Vested(58,740) 9.40
 (306,140) 10.16
 
Forfeited(16,650) 10.42
 (29,550) 10.42
 
Outstanding - March 31, 2013441,793
 $9.84
 8.81
Outstanding - June 30, 2013224,493
 $10.75
 

The total fair value of performance units vested for the threesix months ended March 31,June 30, 2013 and 2012 was $718 thousand3.9 million and $022 thousand, respectively.

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The amount charged against income related to stock-based payment arrangements was $709299 thousand and $398743 thousand for the three months ended June 30, 2013 and 2012, before income tax benefit of $respectively. For the six months ended 67 thousandJune 30, 2013 and 2012, $1.0 million and $1691.1 million was charged against income related to stock-based payment arrangements.
The income tax benefit recognized was $1.3 million and $308 thousand, for the three months ended March 31,June 30, 2013 and 2012, respectively, and the amount recognized was $1.2 million and $477 thousand for the six months ended June 30, 2013 and 2012, respectively.

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At March 31,June 30, 2013, total unrecognized compensation expense related to non-vested stock option grants and restricted and performance units aggregated $2.0 million, and is expected to be recognized over a remaining weighted average vesting period of 1.832.84 years.
The estimated annual stock-based compensation expense as of March 31, 2013 for each of the succeeding years is indicated in the table below:
 
Stock Based
Compensation Expense
 (In thousands)
Remainder of 2013$651
For the year ended December 31: 
2014610
2015589
201696
20177
Total$1,953


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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 March 31,June 30, 2013 and 2012, stock options and restricted shares awards for approximately 565,000192,000 shares and 564,000 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were antidilutive. For the six months ended June 30, 2013 and 2012, stock options and restricted shares awards for approximately 199,000 shares and 564,000 shares of common stock, respectively, were excluded in computing diluted earnings per common share because they were antidilutive. Additionally, warrants to purchase 18,04519,000 shares and 337,48015,000 shares of common stock (related to the TARP Capital Purchase Plan) were antidilutive and excluded for the three and six months ended March 31,June 30, 2013, respectively. Warrants to purchase 337,000 shares common stock (related to the TARP Capital Purchase Plan) were antidilutive and 2012.excluded for the three and six months ended June 30, 2012
The following table shows the computation of basic and diluted EPS for the three ended March 31,June 30, 2013 and 2012.
 
For the three months ended March 31,For the three months ended June 30,
2013 20122013 2012
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)
(In thousands, except share and per share data)(In thousands, except share and per share data)
Net income as reported$17,461
     $23,934
    $22,671
     $19,364
    
Less: preferred stock dividends and accretion of preferred stock discount—
     (1,869)    —
     (3,771)    
Basic EPS - common stock$17,461
 78,389,434
 $0.22
 $22,065
 77,987,342
 $0.28
$22,671
 79,062,233
 $0.29
 $15,593
 78,007,270
 $0.20
Effect of Dilutive Securities:                      
Stock Options and Performance Units  79,311
     73,323
    155,890
     79,063
  
Common stock warrants  11,926
     41,153
    18,609
     55,194
  
Diluted EPS - common stock$17,461
 78,480,671
 $0.22
 $22,065
 78,101,818
 $0.28
$22,671
 79,236,732
 $0.29
 $15,593
 78,141,527
 $0.20

 For the six months ended June 30,
 2013 2012
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
available to
common
stockholders
(Numerator)
 
Shares
(Denominator)
 
Per
Share
(Amount)
 (In thousands, except share and per share data)
Net income as reported$40,132
     $43,298
    
Less: preferred stock dividends and accretion of preferred stock discount—
     (5,640)    
Basic EPS - common stock$40,132
 78,746,444
 $0.51
 $37,658
 77,997,305
 $0.48
Effect of Dilutive Securities:           
Stock Options and Performance Units  238,957
     75,621
  
Common stock warrants  15,410
     48,333
  
Diluted EPS - common stock$40,132
 79,000,811
 $0.51
 $37,658
 78,121,259
 $0.48




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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 March 31, 2013At June 30, 2013
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:              
GSE collateralized mortgage obligations*$299,271
 $4,451
 $(1,138) $302,584
GSE mortgage-backed securities*381,570
 9,150
 (994) 389,726
U.S. Government agency and U.S. Government sponsored enterprises       
Collateralized mortgage obligations$307,186
 $2,154
 $(7,598) $301,742
Mortgage-backed securities401,159
 3,901
 (5,953) 399,107
Trust preferred securities4,505
 —
 (573) 3,932
4,509
 —
 (738) 3,771
Municipal bonds5,706
 575
 —
 6,281
5,698
 394
 (36) 6,056
Total debt securities691,052
 14,176
 (2,705) 702,523
718,552
 6,449
 (14,325) 710,676
Mutual funds - GSE mortgage related securities14,710
 208
 —
 14,918
Mutual funds14,710
 —
 (147) 14,563
$705,762
 $14,384
 $(2,705) $717,441
$733,262
 $6,449
 $(14,472) $725,239
              
At December 31, 2012At December 31, 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:              
GSE collateralized mortgage obligations*$249,373
 $5,649
 $(110) $254,912
GSE mortgage-backed securities*415,925
 10,277
 (662) 425,540
U.S. Government agency and U.S. Government sponsored enterprises       
Collateralized mortgage obligations$249,373
 $5,649
 $(110) $254,912
Mortgage-backed securities415,925
 10,277
 (662) 425,540
Trust preferred securities4,502
 —
 (665) 3,837
4,502
 —
 (665) 3,837
Municipal bonds4,506
 612
 —
 5,118
4,506
 612
 —
 5,118
Total debt securities674,306
 16,538
 (1,437) 689,407
674,306
 16,538
 (1,437) 689,407
Mutual funds - GSE mortgage related securities14,710
 286
 —
 14,996
Mutual funds14,710
 286
 —
 14,996
$689,016
 $16,824
 $(1,437) $704,403
$689,016
 $16,824
 $(1,437) $704,403
 *
Government Sponsored Enterprises (GSE) investments were issued by GNMA, FNMA and FHLMC and are all residential mortgage-backed investments.
As of March 31,June 30, 2013 and December 31, 2012, 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.
For the three months ended March 31,June 30, 2013 and 2012, $3.7 million and $1.119.7 million of gross unrealized losses and $809 thousand of gross unrealized gains, respectively, were included in accumulated other comprehensive income during the period. For the six months ended June 30, 2013 and 2012, $23.4 million of gross unrealized losses and $493 thousand of gross unrealized gains, respectively, were included in accumulated other comprehensive income during the period. A total of $54 thousand and $816 thousand were reclassified out of accumulated other comprehensive income into earnings for the threesix months ended March 31,June 30, 2013 and 2012, respectively, as a result of securities being sold. There were no securities sold during the three month period ended June 30, 2013 and 2012.







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The proceeds from sales of securities and the associated gross gains and losses recorded in earnings are listed below:
 
For the three months ended March 31,For the three months ended June 30, For the six months ended June 30,
2013 20122013 2012 2013 2012
(In thousands)(In thousands)
Proceeds$6,636
 $1,883
$—
 $—
 $6,636
 $1,883
Gross gains54
 816
—
 —
 54
 816
Gross losses—
 —
—
 —
 —
 —

The amortized cost and estimated fair value of debt securities at March 31,June 30, 2013, 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$—
 $—
$—
 $—
Due after one year through five years340
 356
340
 354
Due after five years through ten years3,883
 4,393
3,883
 4,235
Due after ten years5,988
 5,464
5,984
 5,238
GSE collateralized mortgage obligations299,271
 302,584
GSE mortgage-backed securities381,570
 389,726
Mutual funds - GSE mortgage related securities14,710
 14,918
U.S. Government agency and U.S. Government sponsored enterprises   
Collateralized mortgage obligations307,186
 301,742
Mortgage-backed securities401,159
 399,107
Mutual funds14,710
 14,563
$705,762
 $717,441
$733,262
 $725,239

Securities with carrying values of approximately $346.0366.6 million and $338.6 million at March 31,June 30, 2013 and December 31, 2012, respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
















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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 March 31, 2013At June 30, 2013
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 collateralized mortgage obligations10
 $109,327
 $(1,138) —
 $—
 $—
 10
 $109,327
 $(1,138)
GSE mortgage-backed securities10
 43,668
 (925) 3
 7,675
 (69) 13
 51,343
 (994)
Collateralized mortgage obligations*18
 $175,605
 $(7,597) —
 $—
 $—
 18
 $175,605
 $(7,597)
Mortgage-backed securities*32
 197,082
 (5,839) 4
 8,305
 (114) 36
 205,387
 (5,953)
Trust preferred securities—
 —
 —
 1
 3,932
 (573) 1
 3,932
 (573)—
 —
 —
 1
 3,771
 (738) 1
 3,771
 (738)
Municipal bonds1
 1,156
 (37) —
 —
 —
 1
 1,156
 (37)
Mutual funds1
 10,563
 (147) —
 —
 —
 1
 10,563
 (147)
20
 $152,995
 $(2,063) 4
 $11,607
 $(642) 24
 $164,602
 $(2,705)52
 $384,406
 $(13,620) 5
 $12,076
 $(852) 57
 $396,482
 $(14,472)
* Investments in U.S. Government agency and U.S. Government sponsored enterprises

At December 31, 2012At December 31, 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 collateralized mortgage obligations3
 $18,009
 $(110) —
 $—
 $—
 3
 $18,009
 $(110)
GSE mortgage-backed securities7
 32,406
 (597) 3
 8,251
 (65) 10
 40,657
 (662)
Collateralized mortgage obligations*3
 $18,009
 $(110) —
 $—
 $—
 3
 $18,009
 $(110)
Mortgage-backed securities*7
 32,406
 (597) 3
 8,251
 (65) 10
 40,657
 (662)
Trust Preferred securities—
 —
 —
 1
 3,837
 (665) 1
 3,837
 (665)—
 —
 —
 1
 3,837
 (665) 1
 3,837
 (665)
10
 $50,415
 $(707) 4
 $12,088
 $(730) 14
 $62,503
 $(1,437)10
 $50,415
 $(707) 4
 $12,088
 $(730) 14
 $62,503
 $(1,437)
* Investments in U.S. Government agency and U.S. Government sponsored enterprises

The Company evaluates 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 values of the securities have been less than the cost of the securities, and management's intention to sell, or whether it is more likely than not that management will be

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required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. In analyzing an issuer’s financial condition, the Company considers 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 securities at March 31,June 30, 2013 had an amortized cost of $4.5 million and an unrealized loss of $573738 thousand at March 31,June 30, 2013. The trust preferred securities are scheduled to mature in May 2047. These securities are rated investment grade and there are no credit quality concerns with the obligor. Certain of the Company's GSE securitiesU.S. Government agency and U.S. Government sponsored enterprise investments were in an unrealized loss position at March 31,June 30, 2013. All of the Company's GSEU.S. Government agency and U.S. Government sponsored enterprise investments have high credit ratings ("AA" grade) upon purchase and there have been no credit rating changes since the purchase.. Interest on the trust preferred securities and the GSE securitiesU.S. Government agency and U.S. Government sponsored enterprise investments have been paid as agreed, and management believes this will continue in the future and that the securities will be repaid in full as scheduled. The market value declines for these securities are deemed to be due to the current market volatility

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and are not reflective of management’s expectations of its ability to fully recover these investments, which may be at maturity. For these reasons, no OTTI was recognized on the trust preferred securities GSEand the U.S. Government agency and U.S. Government sponsored collateralized mortgage obligations and GSE mortgage-backed securities that are in an unrealized loss position at March 31,June 30, 2013.
The Company considers the losses on the investments in unrealized loss positions at March 31,June 30, 2013 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 management's determination that it is more likely than not that management will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.



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7.Loans Receivable and Allowance for Loan Losses
The following is a summary of loans receivable by major category:
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
(In thousands)(In thousands)
Loan portfolio composition      
Real estate loans:      
Residential$10,667
 $9,247
$9,849
 $9,247
Commercial & industrial3,294,978
 3,100,466
3,328,606
 3,100,466
Construction69,087
 65,045
74,165
 65,045
Total real estate loans3,374,732
 3,174,758
3,412,620
 3,174,758
Commercial business943,860
 921,556
942,369
 921,556
Trade finance134,393
 152,070
117,827
 152,070
Consumer and other48,881
 49,954
47,088
 49,954
Total loans outstanding4,501,866
 4,298,338
4,519,904
 4,298,338
Less: deferred loan fees(1,820) (2,086)(1,782) (2,086)
Gross loans receivable4,500,046
 4,296,252
4,518,122
 4,296,252
Less: allowance for loan losses(73,268) (66,941)(71,675) (66,941)
Loans receivable, net$4,426,778
 $4,229,311
$4,446,447
 $4,229,311

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 loans accounted for under the amortized cost method ("Legacy Loans") and acquired loans that were originally recorded at fair value with no carryover of the related pre-acquisition allowance for loan losses ("Acquired Loans"). The Acquired Loans are further segregated between Acquired Credit Impaired Loans (loans with credit deterioration on the acquisition date and accounted for under ASC 310-30) and Acquired Performing Loans (loans that were pass graded on the acquisition date and the fair value adjustment is amortized over the contractual life under ASC 310-20). The outstanding principal balance and the related carrying amount of the acquired PIB loans included in the statement of financial condition as of March 31,June 30, 2013 was $148.7143.0 million and $130.0121.6 million, respectively.

The following table presents changes in the accretable discount on the Acquired Credit Impaired Loans for the three and six months ended March 31,June 30, 2013 and 2012:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
2013 20122013 2012 2013 2012
(In thousands)(In thousands)
Balance at beginning of period$18,652
 $31,999
$23,410
 $29,788
 $18,651
 $31,999
Additions due to acquisitions during the period4,945
 —
—
 —
 4,945
 —
Accretion(3,446) (3,561)(3,586) (3,890) (7,032) (7,451)
Changes in expected cash flows3,259
 1,350
17,266
 (2,932) 20,526
 (1,582)
Balance at end of period$23,410
 $29,788
$37,090
 $22,966
 $37,090
 $22,966

On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the Acquired Credit Impaired 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 following: 1) estimates of the remaining life of acquired loans will affect the amount of future interest income, 2) indices for variable rates of interest on Acquired Credit Impaired 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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The following tables detail the activity in the allowance for loan losses by portfolio segment for the three and six months ended March 31,June 30, 2013 and 2012:
 
For the three months ended March 31, 2013 
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 March 31, 2013
Three Months Ended June 30, 2013Three Months Ended June 30, 2013
Balance, beginning of period$41,505
 $16,490
 $2,349
 $658
 $4,718
 $1,115
 $3
 $103
 $66,941
$43,709
 $16,522
 $1,698
 $538
 $9,889
 $809
 $—
 $103
 $73,268
Provision (credit) for loan losses3,069
 39
 (625) (129) 5,320
 (189) (3) 24
 7,506
(1,057) 1,043
 637
 (20) (233) 484
 —
 (54) 800
Loans charged off(905) (183) (26) (7) (151) (124) —
 (33) (1,429)(777) (1,413) —
 (2) (24) (684) —
 —
 (2,900)
Recoveries of charged offs40
 176
 —
 16
 2
 7
 —
 9
 250
57
 368
 —
 12
 —
 45
 —
 25
 507
Balance, end of period$43,709
 $16,522
 $1,698
 $538
 $9,889
 $809
 $—
 $103
 $73,268
$41,932
 $16,520
 $2,335
 $528
 $9,632
 $654
 $—
 $74
 $71,675
Six Months Ended June 30, 2013                 
Balance, beginning of period$41,505
 $16,490
 $2,349
 $658
 $4,718
 $1,115
 $3
 $103
 $66,941
Provision (credit) for loan losses2,012
 1,082
 12
 (149) 5,087
 295
 (3) (30) 8,306
Loans charged off(1,682) (1,596) (26) (9) (175) (808) —
 (33) (4,329)
Recoveries of charged offs97
 544
 0
 28
 2
 52
 —
 34
 757
Balance, end of period$41,932
 $16,520
 $2,335
 $528
 $9,632
 $654
 $—
 $74
 $71,675


 
For the three months ended March 31, 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)
Three Months Ended March 31, 2012
Three Months Ended June 30, 2012Three Months Ended June 30, 2012
Balance, beginning of period$39,040
 $20,681
 $1,786
 $445
 $—
 $—
 $—
 $—
 $61,952
$35,809
 $21,591
 $1,823
 $1,010
 $1,543
 $517
 $16
 $—
 $62,309
Provision (credit) for loan losses(1,317) 1,627
 (23) 548
 1,254
 477
 16
 18
 2,600
2,650
 588
 1,341
 569
 895
 440
 624
 75
 7,182
Loans charged off(1,934) (1,362) —
 —
 (14) (47) —
 (25) (3,382)(2,330) (1,534) —
 (482) (155) (590) (300) (218) (5,609)
Recoveries of charged offs20
 645
 60
 17
 303
 87
 —
 7
 1,139
1,108
 235
 —
 18
 —
 30
 —
 232
 1,623
Balance, end of period$35,809
 $21,591
 $1,823
 $1,010
 $1,543
 $517
 $16
 $—
 $62,309
$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505
Six Months Ended June 30, 2012                 
Balance, beginning of period$39,040
 $20,681
 $1,786
 $445
 $—
 $—
 $—
 $—
 $61,952
Provision (credit) for loan losses1,333
 2,215
 1,318
 1,118
 2,149
 917
 640
 92
 9,782
Loans charged off(4,264) (2,896) —
 (483) (169) (637) (300) (243) (8,992)
Recoveries of charged offs1,128
 880
 60
 35
 303
 117
 —
 240
 2,763
Balance, end of period$37,237
 $20,880
 $3,164
 $1,115
 $2,283
 $397
 $340
 $89
 $65,505


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The following tables disaggregate the allowance for loan losses and the loans receivables by impairment methodology at March 31,June 30, 2013 and December 31, 2012:

March 31, 2013June 30, 2013
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$6,121
 $2,692
 $77
 $10
 $5,355
 $807
 $—
 $—
 $15,062
$5,993
 $2,890
 $481
 $7
 $5,096
 $654
 $—
 $—
 $15,121
Collectively evaluated for impairment37,588
 13,830
 1,621
 528
 —
 2
 —
 103
 53,672
35,939
 13,630
 1,854
 521
 1
 —
 —
 74
 52,019
Acquired Credit Impaired Loans—
 —
 —
 —
 4,534
 —
 —
 —
 4,534
—
 —
 —
 —
 4,535
 —
 —
 —
 4,535
Total$43,709
 $16,522
 $1,698
 $538
 $9,889
 $809
 $—
 $103
 $73,268
$41,932
 $16,520
 $2,335
 $528
 $9,632
 $654
 $—
 $74
 $71,675
                                  
Loans outstanding:                                  
Individually evaluated for impairment$41,077
 $20,912
 $6,886
 $534
 $28,488
 $3,351
 $—
 $784
 $102,032
$42,796
 $24,455
 $940
 $1,032
 $24,948
 $3,228
 $—
 $773
 $98,172
Collectively evaluated for impairment2,545,220
 751,927
 127,016
 27,247
 644,708
 116,308
 —
 17,582
 4,230,008
2,637,818
 768,830
 116,887
 29,298
 599,246
 103,599
 —
 10,994
 4,266,672
Acquired Credit Impaired Loans—
 —
 —
 —
 115,239
 51,362
 491
 2,734
 169,826
—
 —
 —
 —
 107,812
 42,257
 —
 4,991
 155,060
Total$2,586,297
 $772,839
 $133,902
 $27,781
 $788,435
 $171,021
 $491
 $21,100
 $4,501,866
$2,680,614
 $793,285
 $117,827
 $30,330
 $732,006
 $149,084
 $—
 $16,758
 $4,519,904

 December 31, 2012
 Legacy Acquired Total
 Real Estate Commercial Business Trade Finance Consumer and Other Real Estate Commercial Business Trade Finance Consumer and Other 
 (In thousands)
Allowance for loan losses:
Individually evaluated for impairment$4,723
 $3,084
 $96
 $—
 $183
 $1,074
 $—
 $—
 $9,160
Collectively evaluated for impairment36,782
 13,406
 2,253
 658
 —
 41
 3
 103
 53,246
Acquired Credit Impaired Loans—
 —
 —
 —
 4,535
 —
 —
 —
 4,535
Total$41,505
 $16,490
 $2,349
 $658
 $4,718
 $1,115
 $3
 $103
 $66,941
                  
Loans outstanding:                 
Individually evaluated for impairment$37,394
 $23,951
 $6,199
 $536
 $17,951
 $3,323
 $—
 $802
 $90,156
Collectively evaluated for impairment2,387,080
 729,904
 144,173
 27,284
 628,449
 114,621
 242
 18,257
 4,050,010
Acquired Credit Impaired Loans—
 —
 —
 —
 103,884
 49,757
 1,456
 3,075
 158,172
Total$2,424,474
 $753,855
 $150,372
 $27,820
 $750,284
 $167,701
 $1,698
 $22,134
 $4,298,338
As of March 31,June 30, 2013 and December 31, 2012, the liability for unfunded commitments was $802 thousand for both periods. For the three months ended March 31,June 30, 2013 and 2012, nothe recognized provision for credit losses was recognized related to unfunded commitments.commitments was $0 and $116 thousand, respectively. For the six months ended June 30, 2013 and 2012, the recognized provision for credit losses related to unfunded commitments was $0 and $116 thousand, respectively

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The recorded investment in individually impaired loans was as follows:
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
(In thousands)(In thousands)
With Allocated Allowance      
Without charge-off$72,518
 $65,526
$69,993
 $65,526
With charge-off1,125
 2,599
894
 2,599
With No Allocated Allowance      
Without charge-off23,096
 17,536
21,906
 17,536
With charge-off5,293
 4,495
5,379
 4,495
Allowance on Impaired Loans(15,062) (9,160)(15,121) (9,160)
Impaired Loans, net of allowance$86,970
 $80,996
$83,051
 $80,996


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The following tables detail impaired loans (Legacy and Acquired) as of March 31,June 30, 2013 and December 31, 2012 and for the three and six months ended March 31,June 30, 2013 and for the year ended December 31, 2012. Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value.
 
 As of March 31, 2013 For the three months ended March 31, 2013 For the three months ended March 31, 2012 As of June 30, 2013 For the six months ended June 30, 2013 For the three months ended June 30, 2013
Total 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 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) (In thousands)
With Related Allowance:                            
Real Estate—Residential $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial                            
Retail 7,680
 7,885
 1,387
 6,578
 51
 2,169
 12
 9,431
 9,590
 1,394
 7,529
 116
 8,556
 73
Hotel & Motel 12,138
 12,138
 2,859
 10,564
 137
 19,997
 211
 12,102
 12,926
 2,930
 11,077
 275
 12,120
 138
Gas Station & Car Wash 1,379
 2,194
 69
 1,635
 11
 3,827
 71
 1,862
 1,937
 107
 1,711
 53
 1,621
 27
Mixed Use 952
 970
 276
 926
 13
 3,965
 73
 1,818
 1,880
 276
 1,223
 23
 1,385
 10
Industrial & Warehouse 11,127
 11,750
 5,485
 6,600
 6
 4,748
 58
 13,438
 14,128
 5,082
 8,880
 127
 12,283
 62
Other 11,157
 12,199
 1,400
 13,670
 159
 13,754
 100
 5,780
 6,798
 1,300
 11,041
 110
 8,469
 55
Real Estate—Construction —
 —
 —
 —
 —
 64
 —
 —
 —
 —
 —
 —
 —
 —
Commercial Business 22,270
 24,686
 3,499
 24,312
 242
 23,033
 179
 24,964
 26,582
 3,544
 24,529
 550
 23,617
 270
Trade Finance 6,886
 7,884
 77
 6,543
 73
 2,468
 7
 940
 967
 481
 4,675
 —
 3,913
 —
Consumer and Other 54
 54
 10
 55
 1
 240
 —
 552
 552
 7
 221
 11
 303
 6
 $73,643
 $79,760
 $15,062
 $70,883
 $693
 $74,265
 $711
 $70,887
 $75,360
 $15,121
 $70,886
 $1,265
 $72,267
 $641
With No Related Allowance:                            
Real Estate—Residential $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial                            
Retail 1,310
 2,886
 —
 1,913
 —
 1,829
 5
 5,362
 7,692
 —
 3,063
 —
 3,336
 —
Hotel & Motel 6,125
 8,715
 —
 6,168
 —
 —
 —
 6,004
 9,196
 —
 6,114
 —
 6,065
 —
Gas Station & Car Wash 4,232
 6,682
 —
 2,981
 15
 883
 —
 3,291
 6,864
 —
 3,085
 —
 3,762
 —
Mixed Use 881
 916
 —
 890
 —
 —
 —
 —
 —
 —
 593
 —
 441
 —
Industrial & Warehouse 4,844
 7,766
 —
 4,618
 3
 4,985
 —
 4,815
 7,795
 —
 4,684
 5
 4,830
 3
Other 6,057
 10,321
 —
 4,214
 39
 3,175
 8
 2,165
 4,597
 —
 3,531
 16
 4,111
 8
Real Estate—Construction 1,683
 1,683
 —
 1,697
 22
 1,710
 28
 1,676
 1,676
 —
 1,690
 45
 1,680
 22
Commercial Business 1,993
 3,777
 —
 1,456
 16
 13,682
 181
 2,719
 4,505
 —
 1,877
 —
 2,356
 —
Trade Finance —
 —
 —
 —
 —
 2,364
 41
 —
 —
 —
 —
 —
 —
 —
Consumer and Other 1,264
 1,312
 —
 1,273
 5
 147
 —
 1,253
 1,311
 —
 1,266
 10
 1,259
 5
 $28,389
 $44,058
 $—
 $25,210
 $100
 $28,775
 $263
 $27,285
 $43,636
 $—
 $25,903
 $76
 $27,840
 $38
Total $102,032
 $123,818
 $15,062
 $96,093
 $793
 $103,040
 $974
 $98,172
 $118,996
 $15,121
 $96,789
 $1,341
 $100,107
 $679

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

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 As of March 31, 2013 For the three months ended March 31, 2013 For the three months ended March 31, 2012 For the six months ended June 30, 2012 For the three months ended June 30, 2012
Impaired Acquired 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
Total Impaired Loans Average Recorded Investment* Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment
 (In thousands)  
With Related Allowance:                      
Real Estate—Residential $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial                      
Retail 2,079
 2,117
 51
 1,683
 25
 111
 4
 2,543
 53
 2,910
 21
Hotel & Motel —
 —
 —
 —
 —
 3,107
 —
 21,037
 433
 22,835
 211
Gas Station & Car Wash —
 —
 —
 —
 —
 142
 —
 3,653
 46
 4,346
 23
Mixed Use —
 —
 —
 —
 —
 —
 —
 4,391
 103
 5,175
 46
Industrial & Warehouse 10,273
 10,870
 5,092
 5,552
 —
 —
 —
 3,646
 27
 3,348
 13
Other 3,146
 3,184
 212
 3,709
 62
 17
 —
 13,150
 179
 12,235
 87
Real Estate—Construction —
 —
 —
 —
 —
 —
 

 43
 —
 —
 —
Commercial Business 3,153
 3,665
 807
 3,063
 8
 299
 2
 23,874
 426
 25,975
 209
Trade Finance —
 —
 —
 —
 —
 —
 —
 1,646
 14
 220
 7
Consumer and Other —
 —
 —
 —
 —
 —
 —
 160
 —
 240
 —
 $18,651
 $19,836
 $6,162
 $14,007
 $95
 $3,676
 $6
 $74,143
 $1,281
 $77,284
 $617
With No Related Allowance:                      
Real Estate—Residential $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial                      
Retail 59
 103
 —
 430
 —
 —
 —
 1,530
 —
 1,261
 —
Hotel & Motel 5,929
 7,375
 —
 5,959
 —
 —
 —
 94
 —
 141
 —
Gas Station & Car Wash 1,856
 3,001
 —
 1,315
 15
 327
 —
 1,323
 —
 1,841
 —
Mixed Use —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Industrial & Warehouse 3,399
 3,659
 —
 3,294
 3
 1,514
 —
 5,526
 18
 6,547
 9
Other 1,747
 4,282
 —
 1,276
 8
 831
 8
 3,016
 17
 3,221
 8
Real Estate—Construction —
 —
 —
 —
 —
 —
 —
 1,710
 56
 1,710
 28
Commercial Business 198
 214
 —
 273
 —
 600
 18
 12,597
 10
 11,057
 5
Trade Finance —
 —
 —
 —
 —
 —
 —
 1,576
 57
 2,131
 42
Consumer and Other 784
 832
 —
 793
 —
 —
 —
 144
 —
 141
 —
 $13,972
 $19,466
 $—
 $13,340
 $26
 $3,272
 $26
 $27,516
 $158
 $28,050
 $92
Total $32,623
 $39,302
 $6,162
 $27,347
 $121
 $6,948
 $32
 $101,659
 $1,439
 $105,334
 $709
*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.


28
Table of Contents

  As of June 30, 2013 For the six months ended June 30, 2013 For the three months ended June 30, 2013
Impaired Acquired 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 $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial              
Retail 1,271
 1,271
 18
 1,546
 27
 1,676
 13
Hotel & Motel —
 —
 —
 —
 —
 —
 —
Gas Station & Car Wash 810
 885
 95
 270
 30
 405
 16
Mixed Use —
 —
 —
 —
 —
 —
 —
Industrial & Warehouse 10,180
 10,870
 4,964
 7,095
 —
 10,227
 —
Other 159
 166
 19
 2,525
 5
 1,652
 2
Real Estate—Construction —
 —
 —
 —
 —
 —
 —
Commercial Business 3,208
 3,423
 654
 3,112
 3
 3,181
 2
Trade Finance —
 —
 —
 —
 —
 —
 —
Consumer and Other —
 —
 —
 —
 —
 —
 —
  $15,628
 $16,615
 $5,750
 $14,548
 $65
 $17,141
 $33
With No Related Allowance:              
Real Estate—Residential $—
 $—
 $—
 $—
 $—
 $—
 $—
Real Estate—Commercial              
Retail 872
 957
 —
 577
 —
 466
 —
Hotel & Motel 5,869
 7,375
 —
 5,929
 —
 5,899
 —
Gas Station & Car Wash 765
 2,136
 —
 1,132
 —
 1,311
 —
Mixed Use —
 —
 —
 —
 —
 —
 —
Industrial & Warehouse 3,383
 3,658
 —
 3,324
 5
 3,391
 3
Other 1,639
 2,339
 —
 1,397
 16
 1,692
 8
Real Estate—Construction —
 —
 —
 —
 —
 —
 —
Commercial Business 20
 20
 —
 189
 —
 109
 —
Trade Finance —
 —
 —
 —
 —
 —
 —
Consumer and Other 773
 831
 —
 786
 —
 779
 —
  $13,321
 $17,316
 $—
 $13,334
 $21
 $13,647
 $11
Total $28,949
 $33,931
 $5,750
 $27,882
 $86
 $30,788
 $44

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



29
Table of Contents

  For the six months ended June 30, 2012 For the three months ended June 30, 2012
Impaired Acquired Loans 
Average
Recorded Investment*
 Interest Income Recognized during Impairment Average Recorded Investment* Interest Income Recognized during Impairment
  
With Related Allowance:        
Real Estate—Residential $—
 $—
 $—
 $—
Real Estate—Commercial        
Retail 390
 27
 585
 8
Hotel & Motel 4,109
 120
 6,163
 (12)
Gas Station & Car Wash 95
 —
 142
 —
Mixed Use —
 —
 —
 —
Industrial & Warehouse —
 —
 —
 —
Other 12
 —
 17
 —
Real Estate—Construction —
 —
 —
  
Commercial Business 681
 39
 1,021
 16
Trade Finance —
 —
 —
 —
Consumer and Other —
 —
 —
 —
  $5,287
 $186
 $7,928
 $12
With No Related Allowance:        
Real Estate—Residential $—
 $—
 $—
 $—
Real Estate—Commercial        
Retail —
 —
 —
 —
Hotel & Motel —
 —
 —
 —
Gas Station & Car Wash 489
 11
 734
 1
Mixed Use —
 —
 —
 —
Industrial & Warehouse 2,278
 (1) 3,417
 9
Other 1,108
 26
 1,662
 12
Real Estate—Construction —
 —
 —
 —
Commercial Business 875
 21
 1,313
 13
Trade Finance —
 —
 —
 —
Consumer and Other —
 —
 —
 —
  $4,750
 $57
 $7,126
 $35
Total $10,037
 $243
 $15,054
 $47

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




The table above includes only Acquired Loans that became impaired.




2430
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  As of December 31, 2012 
For the year ended
December 31, 2012
Total Impaired Loans Recorded Investment* 
Unpaid
Contractual Principal
Balance
 
Related
Allowance
 
Average
Recorded Investment*
 Interest Income Recognized during Impairment
  (In thousands)
With Related Allowance:          
Real Estate—Residential $—
 $—
 $—
 $—
 $—
Real Estate—Commercial          
Retail 5,477
 5,610
 1,167
 3,512
 255
Hotel & Motel 8,990
 8,995
 1,860
 17,536
 426
Gas Station & Car Wash 1,892
 2,440
 73
 2,908
 —
Mixed Use 900
 976
 250
 3,182
 —
Industrial & Warehouse 2,074
 2,153
 567
 3,052
 66
Other 16,184
 16,389
 989
 14,322
 805
Real Estate—Construction —
 —
 —
 26
 —
Commercial Business 26,354
 29,073
 4,158
 25,227
 1,252
Trade Finance 6,199
 7,173
 96
 3,510
 248
Consumer and Other 55
 56
 —
 119
 4
  $68,125
 $72,865
 $9,160
 $73,394
 $3,056
With No Related Allowance:          
Real Estate—Residential $—
 $—
 $—
 $—
 $—
Real Estate—Commercial          
Retail 2,516
 5,404
 —
 1,602
 48
Hotel & Motel 6,212
 8,202
 —
 1,365
 —
Gas Station & Car Wash 1,731
 4,359
 —
 1,775
 —
Mixed Use 899
 923
 —
 180
 —
Industrial & Warehouse 4,392
 6,450
 —
 4,408
 160
Other 2,371
 6,283
 —
 2,598
 —
Real Estate—Construction 1,710
 1,710
 —
 1,710
 111
Commercial Business 920
 1,368
 —
 8,028
 18
Trade Finance —
 —
 —
 946
 —
Consumer and Other 1,280
 1,316
 —
 357
 20
  $22,031
 $36,015
 $—
 $22,969
 $357
Total $90,156
 $108,880
 $9,160
 $96,363
 $3,413

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





2531
Table of Contents

  As of December 31, 2012 
For the year ended
December 31, 2012
Impaired Acquired Loans Recorded Investment* Unpaid Contractual Principal Balance Related Allowance Average Recorded Investment* Interest Income Recognized during Impairment
  (In thousands)
With Related Allowance:          
Real Estate—Residential $—
 $—
 $—
 $—
 $—
Real Estate—Commercial          
Retail 1,286
 1,286
 9
 920
 64
Hotel & Motel —
 —
 —
 3,676
 —
Gas Station & Car Wash —
 —
 —
 57
 —
Mixed Use —
 —
 —
 —
 —
Industrial & Warehouse 832
 887
 2
 331
 36
Other 4,272
 4,461
 172
 1,711
 288
Real Estate—Construction —
 —
 —
 —
 —
Commercial Business 2,974
 3,072
 1,074
 1,625
 26
Trade Finance —
 —
 —
 —
 —
Consumer and Other —
 —
 —
 —
 —
  $9,364
 $9,706
 $1,257
 $8,320
 $414
With No Related Allowance:          
Real Estate—Residential $—
 $—
 $—
 $—
 $—
Real Estate—Commercial   
      
Retail 800
 840
 —
 161
 48
Hotel & Motel 5,990
 7,375
 —
 1,198
 —
Gas Station & Car Wash 774
 1,865
 —
 608
 —
Mixed Use —
 —
 —
 —
 —
Industrial & Warehouse 3,190
 3,302
 —
 2,005
 160
Other 807
 3,156
 —
 993
 —
Real Estate—Construction —
 —
 —
 —
 —
Commercial Business 349
 681
 —
 680
 15
Trade Finance —
 —
 —
 —
 —
Consumer and Other 802
 836
 —
 160
 —
  $12,712
 $18,055
 $—
 $5,805
 $223
Total $22,076
 $27,761
 $1,257
 $14,125
 $637
*Unpaid contractual principal balance less charge-offs, interest applied to principal and purchase discounts.

Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectability 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 nonaccrual status whether or not the loan is 90 days or more past due. Generally, payments received on nonaccrual 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.

2632
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The following tables present the aging of past due loans as of March 31,June 30, 2013 and December 31, 2012 by class of loans:
As of March 31, 2013As of June 30, 2013
Past Due and Accruing    Past Due and Accruing    
30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total 
Nonaccrual Loans (3)
 Total Delinquent Loans30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total 
Nonaccrual Loans (3)
 Total Delinquent Loans
(In thousands)(In thousands)
Legacy Loans:  
Real estate—Residential$22
 $—
 $—
 $22
 $—
 $22
$—
 $—
 $—
 $—
 $—
 $—
Real estate—Commercial                      
Retail—
 2,272
 —
 2,272
 5,001
 7,273
56
 —
 —
 56
 6,539
 6,595
Hotel & Motel—
 —
 —
 —
 195
 195
311
 —
 —
 311
 196
 507
Gas Station & Car Wash355
 —
 —
 355
 2,696
 3,051
—
 —
 —
 —
 2,525
 2,525
Mixed Use—
 —
 —
 —
 1,018
 1,018
—
 —
 —
 —
 1,007
 1,007
Industrial & Warehouse221
 —
 —
 221
 1,807
 2,028
122
 —
 —
 122
 1,432
 1,554
Other—
 —
 —
 —
 1,944
 1,944
364
 —
 —
 364
 1,284
 1,648
Real estate—Construction—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
 —
Commercial business553
 139
 —
 692
 3,972
 4,664
1,182
 85
 —
 1,267
 5,578
 6,845
Trade finance—
 —
 —
 —
 941
 941
—
 —
 —
 —
 940
 940
Consumer and other23
 —
 —
 23
 —
 23
21
 —
 —
 21
 —
 21
Subtotal$1,174
 $2,411
 $—
 $3,585
 $17,574
 $21,159
$2,056
 $85
 $—
 $2,141
 $19,501
 $21,642
Acquired Loans: (1)
                      
Real estate—Residential$—
 $—
 $—
 $—
 $—
 $—
$—
 $—
 $—
 $—
 $—
 $—
Real estate—Commercial                      
Retail2,447
 —
 1,574
 4,021
 60
 4,081
1,361
 773
 1,843
 3,977
 860
 4,837
Hotel & Motel4,339
 1,505
 3,286
 9,130
 5,929
 15,059
3,200
 —
 5,064
 8,264
 5,869
 14,133
Gas Station & Car Wash3,725
 1,198
 2,209
 7,132
 782
 7,914
637
 2,043
 5,992
 8,672
 765
 9,437
Mixed Use90
 —
 244
 334
 —
 334
56
 —
 239
 295
 —
 295
Industrial & Warehouse243
 —
 361
 604
 13,552
 14,156
458
 121
 265
 844
 13,441
 14,285
Other891
 —
 3,995
 4,886
 767
 5,653
2,262
 522
 969
 3,753
 659
 4,412
Real estate—Construction—
 —
 6,167
 6,167
 —
 6,167
—
 —
 —
 —
 —
 —
Commercial business10,361
 806
 3,346
 14,513
 2,678
 17,191
359
 2,102
 3,887
 6,348
 3,111
 9,459
Trade finance58
 68
 —
 126
 —
 126
—
 —
 —
 —
 —
 —
Consumer and other398
 271
 439
 1,108
 927
 2,035
257
 13
 528
 798
 781
 1,579
Subtotal(2)
$22,552
 $3,848
 $21,621
 $48,021
 $24,695
 $72,716
$8,590
 $5,574
 $18,787
 $32,951
 $25,486
 $58,437
TOTAL$23,726
 $6,259
 $21,621
 $51,606
 $42,269
 $93,875
$10,646
 $5,659
 $18,787
 $35,092
 $44,987
 $80,079
(1) 
The Acquired Loans include Acquired Credit Impaired Loans (ASC 310-30 loans) and Acquired Performing Loans (loans that were pass graded at the time of acquisition).
(2) 
The past due and accruing Acquired Loans include Acquired Credit Impaired Loans accounted for under ASC 310-30 of $20.26.8 million, $3.83.5 million and $21.618.8 million that were 30-59 days, 60-89 days and 90 or more days past due, respectively.
(3) 
Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $18.621.0 million.


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 As of December 31, 2012
 Past Due and Accruing    
 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total 
Nonaccrual Loans (3)
 Total Delinquent Loans
 (In Thousands)
Legacy Loans: 
Real estate—Residential$—
 $—
 $—
 $—
 $—
 $—
Real estate—Commercial           
Retail87
 —
 —
 87
 3,316
 3,403
Hotel & Motel—
 —
 —
 —
 437
 437
Gas Station & Car Wash359
 —
 —
 359
 2,848
 3,207
Mixed Use34
 —
 —
 34
 1,799
 1,833
Industrial & Warehouse—
 —
 —
 —
 1,950
 1,950
Other—
 115
 —
 115
 2,379
 2,494
Real estate—Construction—
 —
 —
 —
 —
 —
Commercial business298
 234
 —
 532
 4,942
 5,474
Trade finance—
 —
 —
 —
 869
 869
Consumer and other190
 —
 —
 190
 —
 190
     Subtotal$968
 $349
 $—
 $1,317
 $18,540
 $19,857
Acquired Loans: (1)
           
Real estate—Residential$—
 $—
 $—
 $—
 $—
 $—
Real estate—Commercial           
Retail1,126
 6,604
 1,190
 8,920
 —
 8,920
Hotel & Motel1,522
 2,668
 944
 5,134
 5,990
 11,124
Gas Station & Car Wash2,218
 1,109
 875
 4,202
 774
 4,976
Mixed Use985
 1,918
 1,507
 4,410
 —
 4,410
Industrial & Warehouse53
 3,320
 61
 3,434
 —
 3,434
Other50
 25
 5,542
 5,617
 937
 6,554
Real estate—Construction—
 —
 5,972
 5,972
 —
 5,972
Commercial business1,359
 1,174
 1,236
 3,769
 2,442
 6,211
Trade finance—
 —
 —
 —
 —
 —
Consumer and other98
 17
 415
 530
 970
 1,500
     Subtotal(2)
$7,411
 $16,835
 $17,742
 $41,988
 $11,113
 $53,101
TOTAL$8,379
 $17,184
 $17,742
 $43,305
 $29,653
 $72,958
(1) 
The Acquired Loans include Acquired Credit Impaired Loans (ASC 310-30 loans) and Acquired Performing Loans (loans that were pass graded at the time of the acquisition).
(2) 
The past due and accruing Acquired Loans include Acquired Credit Impaired Loans accounted for under ASC 310-30 of $7.0 million, $12.1 million and $17.7 million that were 30-59 days, 60-89 days and 90 or more days past due, respectively.
(3) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $17.6 million.


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 estimated life of the loan when cash flows are reasonably estimable. Accordingly, Acquired Credit 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.
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, current financial information, historical payment experience, credit documentation, public information, and current economic 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.

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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 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.
The following tables present the risk rating for Legacy Loans and Acquired Loans as of March 31,June 30, 2013 and December 31, 2012 by class of loans:
As of March 31, 2013As of June 30, 2013
Pass 
Special
Mention
 Substandard Doubtful/Loss TotalPass 
Special
Mention
 Substandard Doubtful/Loss Total
(In thousands)(In thousands)
Legacy Loans:      
Real estate—Residential$9,955
 $—
 $23
 $—
 $9,978
$9,058
 $—
 $19
 $—
 $9,077
Real estate—Commercial                  
Retail643,204
 3,500
 14,599
 —
 661,303
672,250
 953
 16,945
 —
 690,148
Hotel & Motel466,140
 1,880
 16,462
 —
 484,482
490,162
 1,869
 13,790
 —
 505,821
Gas Station & Car Wash411,935
 1,014
 9,453
 —
 422,402
415,386
 1,010
 9,233
 —
 425,629
Mixed Use237,996
 2,117
 3,440
 —
 243,553
235,803
 2,104
 3,411
 —
 241,318
Industrial & Warehouse211,181
 12,342
 4,149
 362
 228,034
212,188
 14,296
 7,357
 —
 233,841
Other458,547
 1,213
 15,869
 —
 475,629
489,457
 2,195
 10,137
 —
 501,789
Real estate—Construction59,233
 —
 1,683
 —
 60,916
71,315
 —
 1,676
 —
 72,991
Commercial business728,412
 23,577
 20,735
 115
 772,839
737,365
 30,328
 25,440
 152
 793,285
Trade finance112,989
 14,027
 6,886
 —
 133,902
95,637
 14,008
 8,182
 —
 117,827
Consumer and other26,766
 11
 1,004
 —
 27,781
28,817
 11
 1,502
 —
 30,330
Subtotal$3,366,358
 $59,681
 $94,303
 $477
 $3,520,819
$3,457,438
 $66,774
 $97,692
 $152
 $3,622,056
Acquired Loans:                  
Real estate—Residential$229
 $251
 $209
 $—
 $689
$232
 $292
 $247
 $—
 $771
Real estate—Commercial                  
Retail219,918
 5,235
 13,382
 60
 238,595
210,311
 4,894
 13,265
 113
 228,583
Hotel & Motel123,518
 13,149
 18,908
 —
 155,575
126,010
 8,851
 18,063
 —
 152,924
Gas Station & Car Wash39,774
 5,561
 12,944
 —
 58,279
37,965
 5,562
 13,227
 —
 56,754
Mixed Use37,073
 6,643
 5,321
 —
 49,037
29,641
 2,413
 4,600
 —
 36,654
Industrial & Warehouse104,167
 1,455
 19,311
 —
 124,933
92,193
 3,618
 19,216
 —
 115,027
Other131,057
 4,946
 17,154
 —
 153,157
117,130
 5,407
 17,582
 —
 140,119
Real estate—Construction2,003
 —
 6,167
 —
 8,170
1,174
 —
 —
 —
 1,174
Commercial business119,344
 15,037
 35,618
 1,022
 171,021
105,850
 10,577
 31,788
 869
 149,084
Trade finance—
 —
 491
 —
 491
—
 —
 —
 —
 —
Consumer and other16,668
 445
 3,893
 94
 21,100
12,495
 400
 3,770
 93
 16,758
Subtotal$793,751
 $52,722
 $133,398
 $1,176
 $981,047
$733,001
 $42,014
 $121,758
 $1,075
 $897,848
Total$4,160,109
 $112,403
 $227,701
 $1,653
 $4,501,866
$4,190,439
 $108,788
 $219,450
 $1,227
 $4,519,904

 

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 As of December 31, 2012
 Pass 
Special
Mention
 Substandard Doubtful/Loss Total
 (In thousands)
Legacy Loans:   
Real estate—Residential$9,223
 $—
 $24
 $—
 $9,247
Real estate—Commercial         
Retail589,720
 3,584
 12,303
 —
 605,607
Hotel & Motel453,908
 1,894
 16,795
 —
 472,597
Gas Station & Car Wash370,803
 1,288
 9,982
 —
 382,073
Mixed Use233,687
 2,131
 3,423
 —
 239,241
Industrial & Warehouse202,066
 1,010
 4,295
 370
 207,741
Other431,685
 1,219
 17,084
 —
 449,988
Real estate—Construction56,270
 —
 1,710
 —
 57,980
Commercial business726,073
 6,164
 21,514
 104
 753,855
Trade finance136,197
 7,976
 6,199
 —
 150,372
Consumer and other26,801
 13
 1,006
 —
 27,820
Subtotal$3,236,433
 $25,279
 $94,335
 $474
 $3,356,521
Acquired Loans:   
Real estate—Residential$—
 $—
 $—
 $—
 $—
Real estate—Commercial         
Retail225,982
 6,469
 17,331
 —
 249,782
Hotel & Motel105,032
 16,150
 13,215
 —
 134,397
Gas Station & Car Wash33,360
 7,192
 4,119
 —
 44,671
Mixed Use34,927
 3,826
 6,526
 —
 45,279
Industrial & Warehouse114,616
 1,385
 9,470
 —
 125,471
Other121,667
 4,473
 17,479
 —
 143,619
Real estate—Construction1,093
 —
 5,972
 —
 7,065
Commercial business119,026
 14,057
 34,047
 571
 167,701
Trade finance242
 334
 1,122
 —
 1,698
Consumer and other17,292
 424
 4,329
 89
 22,134
Subtotal$773,237
 $54,310
 $113,610
 $660
 $941,817
Total$4,009,670
 $79,589
 $207,945
 $1,134
 $4,298,338
    
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.
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 risk 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 has two components: quantitative and qualitative risk factors. The quantitative risk factors are based on a historical loss migration methodology. The loans are classified by class and risk grade and the historical loss migration is tracked for the various classes. Loss experience is quantified for a specified period and then weighted to place more significance to the most recent loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For the Acquired Performing Loans, a general loan loss allowance is provided to the extent that there has been credit deterioration since the date of acquisition. 
The quantitative general loan loss allowance was $19.4 million ($19.3 million for Legacy Loans and $0.1 million for Acquired Loans) at March 31, 2013, compared to $20.6 million ($20.5 million for Legacy Loans and $0.1 million for Acquired Loans) at December 31, 2012.

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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 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 loans, Classified Loans, nonaccrual loans, 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; and
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 $34.3 million at March 31, 2013, compared to $32.6 million at December 31, 2012.
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 either obtain updated appraisals every twelve months from a qualified independent appraiser or an internal evaluation of the collateral is performed by qualified personnel. If the third party market data 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 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 smaller balances and are homogeneous in the underwriting of terms and conditions and in the type of collateral.

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Table of Contents

For our Acquired Credit Impaired Loans, the allowance for loan losses is based upon expected cash flows for these loans. To the extent that a deterioration in borrower credit quality results in a decrease in expected cash flows subsequent to the

37
Table of Contents

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 March 31,June 30, 2013 and December 31, 2012:
 
As of March 31, 2013As of June 30, 2013
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)$—
 $67,882
 $1,683
 $24,263
 $6,886
 $1,318
 $102,032
$—
 $66,068
 $1,676
 $27,683
 $940
 $1,805
 $98,172
Specific allowance$—
 $11,476
 $—
 $3,499
 $77
 $10
 $15,062
$—
 $11,089
 $—
 $3,544
 $481
 $7
 $15,121
Loss coverage ratio—% 16.9% —% 14.4% 1.1% 0.8% 14.8%0.0% 16.8% 0.0% 12.8% 51.2% 0.4% 15.4%
Non-impaired loans$10,667
 $3,227,096
 $67,404
 $919,597
 $127,507
 $47,563
 $4,399,834
$9,849
 $3,262,538
 $72,489
 $914,686
 $116,887
 $45,283
 $4,421,732
General allowance$84
 $41,119
 $919
 $13,832
 $1,621
 $631
 $58,206
$71
 $39,463
 $941
 $13,630
 $1,854
 $595
 $56,554
Loss coverage ratio0.8% 1.3% 1.4% 1.5% 1.3% 1.3% 1.3%0.7% 1.2% 1.3% 1.5% 1.6% 1.3% 1.3%
Total loans$10,667
 $3,294,978
 $69,087
 $943,860
 $134,393
 $48,881
 $4,501,866
$9,849
 $3,328,606
 $74,165
 $942,369
 $117,827
 $47,088
 $4,519,904
Total allowance for loan losses$84
 $52,595
 $919
 $17,331
 $1,698
 $641
 $73,268
$71
 $50,552
 $941
 $17,174
 $2,335
 $602
 $71,675
Loss coverage ratio0.8% 1.6% 1.3% 1.8% 1.3% 1.3% 1.6%0.7% 1.5% 1.3% 1.8% 2.0% 1.3% 1.6%

 As of December 31, 2012
 
Real estate -
Residential
 
Real estate -
Commercial
 
Real estate -
Construction
 
Commercial
business
 
Trade
finance
 
Consumer
and other
 Total
 (In thousands)
Impaired loans (Gross carrying value)$—
 $53,634
 $1,710
 $27,274
 $6,199
 $1,338
 $90,155
Specific allowance$—
 $4,906
 $—
 $4,158
 $96
 $—
 $9,160
Loss coverage ratio0.0% 9.1% 0.0% 15.2% 1.5% 0.0% 10.2%
Non-impaired loans$9,247
 $3,046,832
 $63,335
 $894,282
 $145,871
 $48,616
 $4,208,183
General allowance$74
 $40,256
 $986
 $13,448
 $2,256
 $761
 $57,781
Loss coverage ratio0.8% 1.3% 1.6% 1.5% 1.5% 1.6% 1.4%
Total loans$9,247
 $3,100,466
 $65,045
 $921,556
 $152,070
 $49,954
 $4,298,338
Total allowance for loan losses$74
 $45,162
 $986
 $17,606
 $2,352
 $761
 $66,941
Loss coverage ratio0.8% 1.5% 1.5% 1.9% 1.5% 1.5% 1.6%
Under certain circumstances, we provide borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. At March 31,June 30, 2013, total modified loans were $64.567.2 million, compared to $51.5 million at December 31, 2012. The temporary modifications generally consist of interest only payments for a three to 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

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generally downgraded to Special Mention or Substandard. 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.
 

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Troubled Debt Restructurings (“TDRs”) of loans are defined by ASC 310-40, “Troubled Debt Restructurings by Creditors” and ASC 470-60, “Troubled Debt Restructurings by 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 on 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 nonaccrual by type of concession as of March 31,June 30, 2013 and December 31, 2012 is presented below:
As of March 31, 2013As of June 30, 2013
TDRs on Accrual TDRs on Nonaccrual TotalTDRs on Accrual TDRs on Nonaccrual Total
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
(In thousands)(In thousands)
Payment concession$10,548
 $2,785
 $—
 $13,333
 $14,899
 $3,319
 $784
 $19,002
 $32,335
$7,273
 $5,400
 $—
 $12,673
 $14,760
 $2,779
 $773
 $18,312
 $30,985
Maturity / Amortization concession544
 3,811
 534
 4,889
 623
 2,156
 941
 3,720
 8,609
777
 6,564
 532
 7,873
 1,482
 2,328
 940
 4,750
 12,623
Rate concession12,829
 1,198
 —
 14,027
 9,482
 —
 —
 9,482
 23,509
14,689
 990
 —
 15,679
 7,822
 —
 —
 7,822
 23,501
Principal forgiveness—
 —
 —
 —
 —
 59
 —
 59
 59
—
 —
 —
 —
 —
 56
 —
 56
 56
$23,921
 $7,794
 $534
 $32,249
 $25,004
 $5,534
 $1,725
 $32,263
 $64,512
$22,739
 $12,954
 $532
 $36,225
 $24,064
 $5,163
 $1,713
 $30,940
 $67,165

 As of December 31, 2012
 TDRs on Accrual TDRs on Nonaccrual Total
 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
Real estate -
Commercial
 
Commercial
Business
 Other Total 
 (In thousands)
Payment concession$9,608
 $687
 $—
 $10,295
 $4,735
 $4,618
 $802
 $10,155
 $20,450
Maturity / Amortization concession348
 3,847
 536
 4,731
 652
 1,941
 869
 3,462
 8,193
Rate concession13,594
 1,229
 —
 14,823
 7,923
 —
 —
 7,923
 22,746
Principal forgiveness—
 —
 —
 —
 —
 62
 —
 62
 62
 $23,550
 $5,763
 $536
 $29,849
 $13,310
 $6,621
 $1,671
 $21,602
 $51,451
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 nonaccrual 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 March 31,June 30, 2013 were comprised of 1415 commercial real estate loans totaling $23.922.7 million and 2227 commercial business loans totaling $7.813.0 million, and 2 consumer loans totaling $534532 thousand. TDRs on accrual status at December 31, 2012 were comprised of 12 commercial real estate loans totaling $23.6 million and 20 commercial business loans totaling $5.8 million, and 2 consumer loans totaling $536 thousand.  The Company expects that the TDRs on accrual status as of March 31,June 30, 2013, 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 but are still monitored for potential impairment.
 

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We have allocated $12.412.6 million and $6.3 million of specific reserves to TDRs as of March 31,June 30, 2013 and December 31, 2012, respectively.  As of March 31,June 30, 2013 and December 31, 2012, we did not have any outstanding commitments to extend additional funds to these borrowers.
The following table presents loans by class modified as TDRs that occurred during the three and six months ended March 31,June 30, 2013:

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Three Months Ended March 31, 2013Three Months Ended June 30, 2013 Six Months Ended June 30, 2013
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
 Number of
Loans 		 Pre-
Modification		 Post-
Modification 
(Dollars in thousand)(Dollars in thousand)      
Legacy Loans:                
Real estate - Commercial   
  
   
  
      
Retail2
 $712
 $709
2
 $4,132
 $4,272
 4
 $4,871
 $4,979
Hotel & Motel—
 —
 —
—
 —
 —
 —
 —
 —
Gas Station & Car Wash1
 1,371
 967
—
 —
 —
 1
 1,371
 938
Mixed Use—
 —
 —
—
 —
 —
 —
 —
 —
Industrial & Warehouse1
 370
 362
—
 —
 —
 1
 370
 354
Other—
 —
 —
—
 —
 —
 —
 —
 —
Real estate - Construction—
 —
 —
—
 —
 —
 —
 —
 —
Commercial business3
 1,156
 1,155
7
 6,256
 6,242
 9
 7,270
 7,247
Trade Finance—
 —
 —
—
 —
 —
 —
 —
 —
Subtotal7
 $3,609
 $3,193
9
 $10,388
 $10,514
 15
 $13,882
 $13,518
Acquired Loans:                
Real estate - Commercial   
  
   
  
      
Retail—
 $—
 $—
—
 $—
 $—
 —
 $—
 $—
Hotel & Motel—
 —
 —
—
 —
 —
 —
 —
 —
Gas Station & Car Wash1
 165
 171
—
 —
 —
 1
 165
 170
Mixed Use—
 —
 —
—
 —
 —
 —
 —
 —
Industrial & Warehouse1
 10,248
 10,273
1
 87
 84
 2
 10,336
 10,264
Other1
 980
 980
1
 158
 158
 2
 1,137
 1,138
Real estate - Construction—
 —
 —
—
 —
 —
 —
 —
 —
Commercial business2
 848
 190
3
 203
 198
 5
 1,055
 380
Trade Finance—
 —
 —
—
 —
 —
 —
 —
 —
Subtotal5
 $12,241
 $11,614
5
 $448
 $440
 10
 $12,693
 $11,952
Total12
 $15,850
 $14,807
14
 $10,836
 $10,954
 25
 $26,575
 $25,470
                
The specific reserves for the TDRs described above as ofthat occurred during the three months and six months period ended March 31,June 30, 2013 weretotaled $5.71.0 million and $6.2 million, respectively, and there were $00.0 million charge offs for the three months and six months ended March 31,June 30, 2013.
The following table presents loans by class for TDRs that have been modified within the previous twelve months and have subsequently had a payment default during the three and six months ended March 31,June 30, 2013:



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Three Months Ended
March 31, 2013
Three Months Ended
June 30, 2013
 
Six Months Ended
June 30, 2013
Number of Loans BalanceNumber of Loans Balance 
Number of
Loans
 
 
Balance
 
(Dollars In thousands)(Dollars In thousands)    
Legacy Loans:          
Real estate - Commercial          
Retail1
 $1,433
1
 $748
 1
 $748
Gas Station & Car Wash—
 —
—
 —
 —
 —
Industrial & Warehouse—
 —
—
 —
 —
 —
Other—
 —
—
 —
 —
 —
Commercial Business2
 78
4
 88
 4
 88
Subtotal3
 $1,511
5
 $836
 5
 $836
Acquired Loans:          
Real estate - Commercial 
  
 
  
    
Retail—
 $—
—
 $—
 —
 $—
Gas Station & Car Wash1
 171
1
 170
 1
 170
Hotel & Motel—
 —
—
 —
 —
 —
Industrial & Warehouse—
 —
—
 —
 1
 10,180
Other—
 —
—
 —
 —
 —
Commercial Business2
 1,098
3
 1,083
 3
 1,083
Subtotal3
 $1,269
4
 $1,253
 5
 $11,433
6
 $2,780
9
 $2,089
 10
 $12,269
A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. TheAs of June 30, 2013, the specific reserves totaled $238 thousand and $5.2 million for the TDRs described above as ofthat had payment defaults during the three months and six months ended March 31,June 30, 2013 were $808 thousand and the, respectively. The total charge offs for the TDRs that had payment defaults during the three and six months ended March 31,June 30, 2013 were $0387 thousand.
TheThere were threefive Legacy Loans that subsequently defaulted during the three months and six months ended March 31,June 30, 2013 that were modified as follows:two Commercial Business loans totaling $50 thousand were modified through maturity/amortization concessions, one Commercial Business loan totaling $4238 thousand was modified through a payment concession, one Commercial Business loan totaling $36 thousand was modified through a maturity/amortization concession, and onetwo Real Estate Commercial - Retail loan totaling $1.4 million748 thousand was modified through a rate concession.
The threefour Acquired Loans that subsequently defaulted during the three months ended March 31,June 30, 2013 were modified as follows: twothree Commercial Business loans totaling $1.1 million were modified through payment concessions and one Real Estate Commercial - Gas Station & Car Wash loan totaling $171170 thousand was modified through apayment concession.
The five Acquired Loans that subsequently defaulted during the six months ended June 30, 2013 were modified as follows: three Commercial Business loans totaling $1.1 million were modified through payment concessions, one Real Estate Commercial - Gas Station & Car Wash loan totaling $170 thousand was modified through payment concession, and one Real Estate Commercial - Industrial & Warehouse loan totaling $10.2 million was modified through payment concession.

Covered LoansAssets
On April 16, 2010, the Department of Financial Institutions closed Innovative Bank, California, and appointed the FDIC as its receiver. On the same date, the 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.
Covered nonperforming assets totaled $1.42.9 million and $882 thousand at March 31,June 30, 2013 and December 31, 2012, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at March 31,June 30, 2013 and December 31, 2012 were as follows:

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March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
(In thousands)(In thousands)
Covered loans on nonaccrual status$629
 $489
$434
 $489
Covered OREO738
 393
2,417
 393
Total covered nonperforming assets$1,367
 $882
$2,851
 $882
      
Acquired covered loans$69,112
 $72,528
$65,653
 $72,528
Related Party Loans
In the ordinary course of business, the Company entered into loan transactions with certain of its directors or associates of such directors (“Related Parties”). The loans to Related Parties are on substantially the same terms and conditions, including

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interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In management’s opinion, these transactions did not involve more than normal credit risk or present other unfavorable features. All loans to Related Parties were current as of March 31,June 30, 2013 and December 31, 2012, and the outstanding principal balance as of March 31,June 30, 2013 and December 31, 2012 was $7.58.2 million and $11.1 million, respectively.

8.Borrowings
We maintain a secured credit facility with the FHLB against which the Bank may take advances. The borrowing capacity is limited to the lower of 30% of the Bank’s total assets or the Bank’s collateral capacity, which was $1.501.59 billion at March 31,June 30, 2013 and $1.31.35 billion at December 31, 2012. 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 March 31,June 30, 2013 and December 31, 2012, real estate secured loans with a carrying amount of approximately $2.182.08 billion and $2.04 billion, respectively, were pledged as collateral for borrowings from the FHLB. At March 31,June 30, 2013 and December 31, 2012, other than FHLB stock, no securities were pledged as collateral for borrowings from the FHLB.
At March 31,June 30, 2013 and December 31, 2012, FHLB advances were $421.6421.5 million and $420.7 million, had a weighted average interest rate of 1.12%1.17% and 1.24%, respectively, and had various maturities through FebruaryMay 2018. At March 31,June 30, 2013 and December 31, 2012, $66.666.5 million and $66.7 million, respectively, of the advances were putable advances with various putable dates and strike prices. The cost of FHLB advances as of March 31,June 30, 2013 ranged between 0.25%0.47% and 3.89%. At March 31,June 30, 2013, the Company had a remaining borrowing capacity of $1.081.17 billion.
At March 31,June 30, 2013, the contractual maturities for FHLB advances were as follows:
 

Contractual
Maturities

Maturity/
Put Date
Contractual
Maturities

Maturity/
Put Date
(In thousands)(In thousands)
Due within one year$90,000
 $141,632
$40,000
 $91,540
Due after one year through five years331,632
 280,000
381,539
 329,999

$421,632
 $421,632
$421,539
 $421,539

In addition, as a member of the FRB system, we may also borrow from the FRB of San Francisco. The maximum amount that we may borrow from the FRB’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 March 31,June 30, 2013, the outstanding principal balance of the qualifying loans was $509.3470.2 million, and no borrowings were outstanding against this line.

9.Subordinated Debentures
At March 31,June 30, 2013, four wholly-owned subsidiary grantor trusts established by former Nara Bancorp had issued $28 million of pooled Trust Preferred Securities (“trust preferred securities”) and one wholly-owned subsidiary grantor trust established by former Center Financial Corporation had issued $18 million of trust preferred securities. Upon the acquisition of PIB, the Company assumed one grantor trust established by former PIB which issued $4.0 million of trust preferred securities, which the Company will redeemredeemed on the earliest redemption date of June 17, 2013. 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

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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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The following table is a summary of trust preferred securities and debentures at March 31,June 30, 2013:
 
Issuance Trust
Issuance
Date

Trust
Preferred
Security
Amount

Subordinated
Debentures
Amount

Rate
Type

Initial
Rate

Coupon Rate at
March 31, 2013

Maturity
Date

Issuance
Date

Trust
Preferred
Security
Amount

Subordinated
Debentures
Amount

Rate
Type

Initial
Rate

Coupon Rate at
June 30, 2013

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

$5,155

Variable
4.44%
3.43%
6/15/2033
6/5/2003
$5,000

$5,155

Variable
4.44%
3.43%
6/15/2033
Nara Statutory Trust IV
12/22/2003
5,000

5,155

Variable
4.02%
3.15%
1/7/2034
12/22/2003
5,000

5,155

Variable
4.02%
3.15%
1/7/2034
Nara Statutory Trust V
12/17/2003
10,000

10,310

Variable
4.12%
3.23%
12/17/2033
12/17/2003
10,000

10,310

Variable
4.12%
3.23%
12/17/2033
Nara Statutory Trust VI
3/22/2007
8,000

8,248

Variable
7.00%
1.93%
6/15/2037
3/22/2007
8,000

8,248

Variable
7.00%
1.93%
6/15/2037
Center Capital Trust I
12/30/2003
18,000

13,014

Variable
4.01%
3.15%
(1) 
1/7/2034
12/30/2003
18,000

13,052

Variable
4.01%
3.15%
(1) 
1/7/2034
PIB Trust I 6/28/2005 4,000
 4,114
 Variable 5.23% 2.03%
(2) 
9/15/2035
TOTAL ISSUANCE
$50,000

$45,996








$46,000

$41,920








(1)
The Center Capital Trust I trust preferred security was assumed in the merger with Center Financial Corporation. The remaining discount was $5.5 million at March 31,June 30, 2013 and the effective rate of the security, including the effect of the discount accretion, was 6.03% at March 31,June 30, 2013.
(2)

The PIB Trust I trust preferred security was assumed in the acquisition of PIB. The remaining discount was $10 thousand at March 31, 2013 and the effective rate of the security, including the effect of the discount accretion was 3.28% at March 31, 2013

The Company’s investment in the common trust securities of the issuer trusts of $1.71.6 million and $1.6 million at March 31,June 30, 2013 and December 31, 2012, 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 March 31,June 30, 2013, all of the $50.040.5 million 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 the ability of bank holding companies with total assets of more than $15 billion to treat trust preferred security debt issuances as Tier 1 capital. Since the Company had less than $15 billion in assets at March 31,June 30, 2013, we will be able to continue to include its existing trust preferred securities in Tier 1 capital under the Dodd-Frank Act.

10.Derivative Financial Instruments and Hedging Activities
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, which expired in February 2013. Under this cap agreement, the Company received quarterly payments from the counterparty when the quarterly resetting 3 Month London-Interbank Offered Rate exceeded the strike level of 2.00%. The upfront fee paid to the counterparty in entering into this interest rate cap agreement was $890 thousand.
The interest rate cap agreement was considered “free-standing” due to the non-designation of a hedge relationship to any of the Company's 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.


  


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The effect of derivative instruments on the Consolidated Statement of Income for the three months ended March 31,June 30, 2013 and 2012 are as follows:
 


 Three Months Ended March 31,
 Three Months Ended June 30,
Six Months Ended June 30,


 2013
2012
 2013
2012
2013
2012

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



 






Interest rate contracts (1)
Other income $—

$(8)Other income $—

$(1)
$—

$(9)
 
(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
The Company and its subsidiaries are subject to U.S. federal income tax as well as state income taxes.  The Company had total unrecognized tax benefits of $1.681.74 million and $748 thousand at March 31,June 30, 2013 and December 31, 2012, respectively, that relate primarily to uncertainties related to California enterprise zone loan interest deductions and anticipated adjustments from the 2010 Internal Revenue Service (IRS) examination.
We anticipate an increase of approximately $220 thousand in the unrecognized tax benefit related to the California enterprise zone loan interest deduction and a decrease of approximately $971 thousand in the unrecognized tax benefit related to an expected settlement with the IRS for the 2010 tax year within the next twelve months.
The statute of limitations related to the consolidated Federal income tax return is closed for all tax years up to and including 2008. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state. The Company is currently under examination by IRS for the 2010 and 2011 tax yearyears and was recently contacted for examination by the California Franchise Tax Board (FTB) for the 2009 and 2010 tax years. While the outcome of the FTB examinationexaminations is unknown, the Company expects no material adjustments. Within the last twelve months, examinations by the City of New York for tax years 2007, 2008, and 2009, and the FTB for tax years 2007 and 2008, were concluded with no material adjustments.
We recognize interest and penalties related to income tax matters in income tax expense.  We had approximately $7485 thousand and $52 thousand for accrued interest accruedand penalties at March 31,June 30, 2013 and December 31, 2012, 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 a valuation allowance for deferred tax assets was not required as of March 31,June 30, 2013.


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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.
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).
The fair values of the Company's Level 3 securities available for sale were measured using an income approach valuation technique. The primary inputs and assumptions used in the fair value measurement were derived from the securities' underlying collateral which included discount rates, prepayment speeds, payment delays, and an assessment of the risk of default of the underlying collateral, among other factors. Significant increases or decreases in any of the inputs or assumptions would result in a significant increase or decrease in the fair value measurement.
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, less costs to sell and result in a Level 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).
OREO
OREO is fair valued at the time the loan is foreclosed upon and the asset is transferred to OREO. The value is based primarily on third party appraisals, less costs to sell and result in a Level 2 classification of the inputs for determining fair value. OREO 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 3 inputs) or may be assessed based upon the fair value of the collateral which is obtained from recent real estate appraisals (Level 3 inputs). These appraisals may utilize a single valuation approach or a combination of approaches including 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.


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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
March 31, 2013
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
June 30, 2013
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$302,584

$—

$302,584

$—
$301,742

$—

$301,742

$—
GSE mortgage-backed securities389,726

—

389,726

—
399,107

—

399,107

—
Trust preferred securities3,932

—

3,932

—
3,771

—

3,771

—
Municipal bonds6,281

—

5,075

1,206
6,056

—

4,900

1,156
Mutual funds14,918

14,918

—

—
14,563

14,563

—

—
              


 
   Fair Value Measurements at the End of the Reporting Period Using
 December 31, 2012 
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:       
GSE collateralized mortgage obligations$254,912
 $—
 $254,912
 $—
GSE mortgage-backed securities425,540
 —
 425,540
 —
Trust preferred securities3,837
 —
 3,837
 —
Municipal bonds5,118
 —
 5,118
 —
Mutual funds14,996
 14,996
 —
 —

There were no transfers between Level 1, 2 and 3 during the period ended March 31,June 30, 2013 and 2012. There were no gains or losses recognized in earnings
The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the threesix months ended March 31, 2013:June 30, 2013:
 
Securities Available for Sale
Municipal Bonds
 
Securities Available for Sale
Municipal Bonds
 (in thousands) (in thousands)
Beginning Balance, January 1, 2013 $—
 $—
Purchases, issuances, and settlements 1,200
 1,202
Amortization (9)
Total gains or (losses) included in earnings —
 —
Total gains or (losses) included in other comprehensive income 6
 (37)
Ending Balance, March 31, 2013 $1,206
Ending Balance, June 30, 2013 $1,156



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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
March 31, 2013
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
June 30, 2013
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:













Impaired loans at fair value:













Real estate loans$13,752

$—

$13,752

$—
$7,381

$—

$7,381

$—
Commercial business1,027

—

1,027

—
890

—

890

—
OREO477

—

477

—
2,717

—

2,717

—

   Fair Value Measurements at the End of the Reporting Period Using
 December 31, 2012 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 (In thousands)
Assets:       
Impaired loans at fair value:       
Real estate loans$4,443
 $—
 $4,443
 $—
Commercial business1,164
 —
 1,164
 —
Loans held for sale, net803
 —
 803
 —
OREO2,636
 —
 2,636
 —

For assets measured at fair value on a non-recurring basis, the total net (losses) gains, which include charge offs, recoveries, specific reserves, and gains and losses on sales recognized are summarized below:

For the three months ended March 31,For the three months ended June 30, For the six months ended June 30,
2013 20122013 2012 2013 2012
(In thousands)(In thousands)
Assets:          
Impaired loans at fair value:          
Real estate loans$(7,584) $1,603
$(357) $(183) $(7,941) $1,420
Commercial business535
 (2,184)(1,729) (224) (1,194) (2,408)
Loans held for sale, net—
 (668)—
 (156) —
 (156)
OREO(114) (329)(657) (560) (771) (1,014)


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Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments, not previously presented, at March 31,June 30, 2013 and December 31, 2012 were as follows:
 
March 31, 2013June 30, 2013
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$280,813

$280,813
 Level 1$296,330

$296,330
 Level 1
Loans held for sale48,941

55,380
 Level 243,111

49,157
 Level 2
Loans receivable—net4,426,778

4,872,847
 Level 34,446,447

4,867,329
 Level 3
FHLB stock24,308

N/A
 N/A26,261

N/A
 N/A
FDIC loss share receivable4,386

4,386
 Level 33,455

3,455
 Level 3
Customers’ liabilities on acceptances12,200

12,200
 Level 29,533

9,533
 Level 2
Financial Liabilities:


 



 
Noninterest-bearing deposits$1,182,509

$1,182,509
 Level 2$1,210,563

$1,210,563
 Level 2
Saving and other interest bearing demand deposits1,461,596

1,461,596
 Level 21,443,577

1,443,577
 Level 2
Time deposits1,911,569

1,914,546
 Level 21,922,659

1,925,764
 Level 2
FHLB advances421,632

426,278
 Level 2421,539

421,232
 Level 2
Subordinated debentures45,996

47,524
 Level 241,920

43,965
 Level 2
Bank’s liabilities on acceptances outstanding12,200

12,200
 Level 29,533

9,533
 Level 2
December 31, 2012December 31, 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$312,916

$312,916
 Level 1$312,916

$312,916
 Level 1
Loans held for sale51,635

57,856
 Level 251,635

57,856
 Level 2
Loans receivable—net4,229,311

4,591,685
 Level 34,229,311

4,591,685
 Level 3
FHLB stock22,495

N/A
 N/A22,495

N/A
 N/A
FDIC loss share receivable5,797

5,797
 Level 35,797

5,797
 Level 3
Customers’ liabilities on acceptances10,493

10,493
 Level 210,493

10,493
 Level 2
Financial Liabilities:        
Noninterest-bearing deposits$1,184,285

$1,184,285
 Level 2$1,184,285

$1,184,285
 Level 2
Saving and other interest bearing demand deposits1,428,990

1,428,990
 Level 21,428,990

1,428,990
 Level 2
Time deposits1,770,760

1,772,778
 Level 21,770,760

1,772,778
 Level 2
FHLB advances420,722

425,107
 Level 2420,722

425,107
 Level 2
Subordinated debentures41,846

32,218
 Level 241,846

32,218
 Level 2
Bank’s liabilities on acceptances outstanding10,493

10,493
 Level 210,493

10,493
 Level 2

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

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 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

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time deposits and debt is based on current rates for similar financing. It was not practicable to determine the fair value of FRB stock or FHLB 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.
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 March 31,June 30, 2013 and December 31, 2012, the Company and the Bank met all capital adequacy requirements to which they are subject.
As of March 31,June 30, 2013 and December 31, 2012, 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.
In June 2012, the Company redeemed $55 million of our Fixed Rate Cumulative Perpetual Preferred Stock, Series B, issued by Center Financial under the Treasury Department's TARP Capital Purchase Program. A ten-year warrant to purchase Center Financial common stock issued in connection with Center Financial's sale of preferred 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, 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. The Company has not reached an agreement with the Treasury Department regarding repurchase of this warrant.
In December 2008, PIB granted a ten-year warrant to purchase up to 127,785 shares of its common stock (in relation to the TARP Capital Purchase Plan) which were assumed by the Company upon the acquisition of PIB. On the acquisition date of February 15, 2013, these warrants were canceled and converted into a warrant to purchase BBCN Bancorp common stock. The warrant entitles the holder to purchase, on one or more exercises of the warrant, up to 18,045 shares of BBCN Bancorp common stock at a price of $54.03 per share. The warrant expires on the December 12, 2018. The Company has not reached an agreement with the Treasury Department regarding repurchase of this warrant.

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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 March 31, 2013 
 
 
 
 
 
As of June 30, 2013 
 
 
 
 
 
Total capital (to risk-weighted assets):





















Company$772,633
 15.88%
$389,134

8.00%
N/A

N/A
$790,164
 16.12%
$392,021

8.00%
N/A

N/A
Bank$760,006
 15.64%
$388,835

8.00%
$486,044

10.00%$780,843
 15.95%
$391,740

8.00%
$489,676

10.00%
Tier I capital (to risk-weighted assets):
 









 








Company$711,574
 14.63%
$194,567

4.00%
N/A

N/A
$728,773
 14.87%
$196,010

4.00%
N/A

N/A
Bank$698,992
 14.38%
$194,418

4.00%
$291,626

6.00%$719,494
 14.69%
$195,870

4.00%
$293,805

6.00%
Tier I capital (to average assets):
 









 








Company$711,574
 12.64%
$225,175

4.00%
N/A

N/A
$728,773
 12.60%
$231,325

4.00%
N/A

N/A
Bank$698,992
 12.42%
$225,152

4.00%
$281,440

5.00%$719,494
 12.42%
$231,286

4.00%
$289,108

5.00%
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, 2012 
 
 
 
 
  
 
 
 
 
 
Total capital (to risk-weighted assets):





















Company$746,396

16.16%
$369,417

8.00%
N/A

N/A
$746,396

16.16%
$369,417

8.00%
N/A

N/A
Bank$725,655

15.73%
$369,134

8.00%
$461,417

10.00%$725,655

15.73%
$369,134

8.00%
$461,417

10.00%
Tier I capital (to risk-weighted assets):





















Company$688,422

14.91%
$184,708

4.00%
N/A

N/A
$688,422

14.91%
$184,708

4.00%
N/A

N/A
Bank$667,725

14.47%
$184,567

4.00%
$276,850

6.00%$667,725

14.47%
$184,567

4.00%
$276,850

6.00%
Tier I capital (to average assets):





















Company$688,422

12.76%
$215,861

4.00%
N/A

N/A
$688,422

12.76%
$215,861

4.00%
N/A

N/A
Bank$667,725

12.38%
$215,813

4.00%
$269,767

5.00%$667,725

12.38%
$215,813

4.00%
$269,767

5.00%

The following table presents the components of accumulated other comprehensive (loss) income at June 30, 2013 and December 31, 2012:

 
June 30,
2013
 December 31, 2012
 (In thousands)
Net unrealized (loss) gain on securities available for sale$(5,085) $9,004
Net unrealized gain on interest-only strips80
 78
Total accumulated other comprehensive (loss) income$(5,005) $9,082


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14.Subsequent Events
On April 15, 2013, the Company entered into an Agreement and Plan of Merger ("the Merger Agreement") with Foster Bankshares, Inc., a Delaware Corporation ("Foster"), a Chicago-based company, pursuant to an Agreement and Plan of Merger, dated April 15, 2013. Foster had total assets of approximately $412.6 million, including $326.9 million of gross loans and$357.4 million in deposits.
Under the terms of the merger agreement, the transaction is valued at approximately $4.6 million, valuing each outstanding share of Foster common stock at $34.67. Foster shareholders will have a choice between electing to receive the cash value per share or, for shareholders who qualify as accredited investors, 2.62771x shares of BBCN common stock for each share of Foster Bankshares or a combination thereof, with no limitations on the consideration mix. The consideration for the transaction is subject to reduction in certain events. Foster has no outstanding options or warrants.



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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, 2012 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 March 31,At or for the Three Months Ended June 30, At or for the Six Months Ended June 30,
2013 20122013 2012 2013 2012
(Dollars in thousands, except
share and per share data)
(Dollars in thousands, except
share and per share data)
Income Statement Data:          
Interest income$66,743
 $68,555
$69,379
 $66,943
 $136,122
 $135,498
Interest expense7,027
 7,696
7,276
 7,441
 14,303
 15,137
Net interest income59,716
 60,859
62,103
 59,502
 121,819
 120,361
Provision for loan losses7,506
 2,600
800
 7,182
 8,306
 9,782
Net interest income after provision for loan losses52,210
 58,259
61,303
 52,320
 113,513
 110,579
Non-interest income9,940
 11,645
10,618
 10,222
 20,558
 21,867
Non-interest expense33,275
 30,435
34,429
 31,077
 67,704
 61,512
Income before income tax provision28,875
 39,469
37,492
 31,465
 66,367
 70,934
Income tax provision11,414
 15,535
14,821
 12,101
 26,235
 27,636
Net income$17,461
 $23,934
$22,671
 $19,364
 $40,132
 $43,298
Dividends and discount accretion on preferred stock$—
 $(1,869)—
 (3,771) —
 (5,640)
Net income available to common stockholders$17,461
 $22,065
$22,671
 $15,593
 $40,132
 $37,658
Per Share Data:          
Earnings per common share - basic$0.22
 $—
$0.29
 $0.20
 $0.51
 $0.48
Earnings per common share - diluted$0.22
 $—
$0.29
 $0.20
 $0.51
 $0.48
Book value per common share (period end, excluding preferred stock and warrants)$9.79
 $8.92
$9.86
 $9.14
 $9.86
 $9.14
Cash dividends declared per common share$.05
 $—
$.05
 $—
 $.10
 $—
Tangible book value per common share (period end, excluding preferred stock and warrants) (11)
$8.57
 $7.72
$8.65
 $7.94
 $8.65
 $7.94
Number of common shares outstanding (period end)78,812,140
 77,996,391
79,205,840
 78,014,107
 79,205,840
 78,014,107
Weighted average shares - basic78,389,434
 77,987,342
79,062,233
 78,007,270
 78,746,444
 77,997,305
Weighted average shares - diluted78,480,671
 78,101,818
79,236,732
 78,141,527
 79,000,811
 78,121,259
Tangible common equity ratio (9)
11.77% 11.86%11.88% 12.49% 11.88% 12.49%
Statement of Financial Condition Data - at Period End:          
Assets$5,833,597
 $5,169,315
$5,863,014
 $5,049,405
 $5,863,014
 $5,049,405
Securities available for sale717,441
 697,808
725,239
 666,852
 725,239
 666,852
Gross loans, net of deferred loan fees and costs (excludes loans held for sale)4,500,046
 3,737,199
4,518,122
 3,874,538
 4,518,122
 3,874,538
Deposits4,555,674
 3,920,464
4,576,799
 3,882,680
 4,576,799
 3,882,680
FHLB advances421,632
 332,109
421,539
 371,143
 421,539
 371,143
Subordinated debentures45,996
 52,137
41,920
 41,772
 41,920
 41,772
Stockholders’ equity772,275
 818,166
781,025
 715,461
 781,025
 715,461

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At or for the Three Months Ended
March 31,
At or for the Three Months Ended
June 30,
 At or for the Six Months Ended June 30,
2013 20122013 2012 2013 2012
(Dollars in thousands)(Dollars in thousands)
Average Balance Sheet Data:          
Assets$5,727,738
 $5,139,396
$5,878,377
 $5,102,769
 $5,802,413
 $5,121,082
Securities available for sale691,984
 725,728
705,479
 692,399
 698,769
 709,063
Gross loans, including loans held for sale4,444,320
 3,777,495
4,546,461
 3,847,921
 4,495,673
 3,812,708
Deposits4,447,970
 3,903,661
4,592,036
 3,854,756
 4,520,401
 3,879,207
Stockholders’ equity765,230
 806,384
783,181
 823,839
 774,257
 815,111
Selected Performance Ratios:          
Return on average assets (1) (8)
1.22% 1.86%1.54% 1.52% 1.38% 1.69%
Return on average stockholders’ equity (1) (8)
9.13% 11.87%11.58% 9.40% 10.37% 10.62%
Average stockholders' equity to average assets13.36% 15.69%13.32% 16.14% 13.34% 15.92%
Return on average tangible equity (1) (8) (10)
10.42% 13.44%13.21% 10.61% 11.83% 12.01%
Dividend payout ratio (dividends per share / earnings per share)22.73% —%17.24% 0.0% 19.61% 0.0%
Pre-Tax Pre-Provision income to average assets (1)
2.54% 3.27%2.60% 3.03% 2.57% 3.15%
Efficiency ratio (2)
47.77% 41.98%47.34% 44.57% 47.55% 47.69%
Net interest spread4.26% 4.83%4.25% 4.72% 4.25% 4.77%
Net interest margin (3)
4.49% 5.11%4.49% 5.02% 4.49% 5.07%
Regulatory Capital Ratios (4)
          
Leverage capital ratio (5)
12.64% 15.08%12.61% 12.97% 12.61% 12.97%
Tier 1 risk-based capital ratio14.63% 18.85%14.89% 15.54% 14.89% 15.54%
Total risk-based capital ratio15.88% 20.11%16.14% 16.80% 16.14% 16.80%
Tier 1 common risk-based capital ratio (12)
13.72% 14.63%14.05% 14.58% 14.05% 14.58%
Asset Quality Ratios:          
Allowance for loan losses to gross loans, excluding loans held for sale1.63% 1.67%1.59% 1.69% 1.59% 1.69%
Allowance for loan losses to nonaccrual loans173.34% 156.03%159.32% 164.88% 159.32% 164.88%
Allowance for loan losses to nonperforming loans (6)
76.21% 75.91%71.67% 78.44% 71.67% 78.44%
Allowance for loan losses to nonperforming assets (7)
70.07% 71.03%65.40% 72.60% 65.40% 72.60%
Nonaccrual loans to gross loans, excluding loans held for sale0.94% 1.06%1.00% 1.03% 1.00% 1.03%
Nonperforming loans to gross loans, excluding loans held for sale (6)
2.14% 2.19%2.21% 2.16% 2.21% 2.16%
Nonperforming assets to gross loans and OREO (7)
2.32% 2.34%2.42% 2.32% 2.42% 2.32%
Nonperforming assets to total assets (7)
1.79% 1.70%1.87% 1.70% 1.87% 1.70%
(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) 
Nonperforming loans include nonaccrual 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) 
Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing interest, OREO, and accruing restructured loans.
(8) 
Based on net income before effect of dividends and discount accretion on preferred stock.

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(9) 
Excludes TARP preferred stock, net of discount, of $0 and $119.7 million and stock warrants of $378 thousand and $2.8 million at March 31,June 30, 2013 and 2012, respectively.
(10) 
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 March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
 (Dollars in thousands) (Dollars in thousands)
Net income $17,461
 $23,934
 $22,671
 $19,364
 $40,132
 $43,298
            
Average stockholders' equity $765,230
 $806,384
 $783,181
 $823,839
 $774,257
 $815,111
Less: Average goodwill and other intangible assets, net (95,021) (94,197) (96,660) (93,713) (95,824) (93,955)
Average tangible equity $670,209
 $712,187
 $686,521
 $730,126
 $678,433
 $721,156
            
Net income (annualized) to average tangible equity 10.42% 13.44% 13.21% 10.61% 11.83% 12.01%

(11) 
Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total stockholders' equity and dividing 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.
 March 31, 2013 March 31, 2012 June 30, 2013 June 30, 2012
 (In thousands) (In thousands)
Total stockholders' equity $772,275
 $818,166
 $781,025
 $715,461
Less: Preferred stock, net of discount 0
 (119,694) —
 —
Common stock warrant (378) (2,760) (378) (2,760)
Goodwill and other intangible assets, net (96,805) (93,820) (95,413) (93,518)
Tangible common equity $675,092
 $601,892
 $685,234
 $619,183
        
Common shares outstanding 78,812,140
 77,996,391
 79,205,840
 78,014,107
        
Tangible common equity per share $8.57
 $7.72
 $8.65
 $7.94

(12) 
Tier 1 common risk-based capital 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.
 March 31, 2013 March 31, 2012 June 30, 2013 June 30, 2012
 (In thousands) (In thousands)
Tier 1 capital $711,574
 $759,784
 $728,773
 $649,293
Less: Preferred stock, net of discount 0
 (119,694) —
 —
Trust preferred securities less unamortized acquisition discount (44,447) (50,312) (40,495) (40,347)
Tier 1 common risk-based capital $667,127
 $589,778
 $688,278
 $608,946
        
Total risk weighted assets less disallowed allowance for loan losses 4,864,169
 4,030,387
 4,900,260
 4,177,728
        
Tier 1 common risk-based capital ratio 13.72% 14.63% 14.05% 14.58%





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Results of Operations
Overview
Total assets increased $192.9$222.4 million from $5.64 billion at December 31, 2012 to $5.835.86 billion at March 31,June 30, 2013. The increase in total assets was primarily due to a $197.5$217.1 million increase in loans receivable, net of allowance for loan losses, from $4.23 billion at December 31, 2012 to $4.434.45 billion at March 31,June 30, 2013 and a $13.0$20.8 million increase in securities available for sale from $704.4 million at December 31, 2012 to $717.4725.2 million at March 31,June 30, 2013 These increases were partially offset by a $32.1$16.6 million decrease in cash and cash equivalents from $312.9 million at December 31, 2012 to $280.8296.3 million at March 31,June 30, 2013. The increase in total assets was funded by a $171.6$192.8 million increase in deposits from $4.38 billion at December 31, 2012 to $4.564.58 billion at March 31,June 30, 2013, a $910$817 thousand increase in FHLB advances from $420.7 million at December 31, 2012 to $421.6421.5 million at March 31,June 30, 2013 and net income available to common stockholders of $17.540.1 million.
The net income available to common stockholders for the firstsecond quarter of 2013 was $17.5$22.7 million, or $0.22$0.29 per diluted common share, compared to the net income available to common stockholders of $22.1$15.6 million, or $0.28$0.20 per diluted common share, for the same period of 2012, a decreasean increase of $4.6$7.1 million, or 20.87%45.4%. The net income available to common stockholders for the six months ended June 30, 2012 was $40.1 million, or $0.51 per diluted common share, compared to the net income available to common stockholders of $37.7 million, or $0.48 per diluted common share, for the same period of 2012, an increase of $2.5 million, or 6.6%. The acquisitions impact the comparability of the operating results for the firstsecond quarter and the six months period ending June 30 of 2013 and 2012 because the acquisitions resulted in increases in interest earning assets, interest bearing liabilities, employees and branch locations. In addition, the acquired assets and liabilities were recorded at fair value and certain acquisition premiums and discounts are being amortized or accreted into income or expense as adjustments to the yield/cost of the related asset or liability. The operating results for the three months ended March 31,June 30, 2013 and 2012 and the six months ended June 30, 2013 and 2012 include the following major pre-tax acquisition accounting adjustments and expenses related to acquisitions.

 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
 (Dollars in thousands) (Dollars in thousands)
Accretion of discounts on acquired performing loans $4,076
 $6,887
 $6,637
 $6,010
 $10,713
 $12,093
Accretion of discounts on acquired credit impaired loans 1,522
 2,757
 1,032
 1,686
 2,554
 5,247
Amortization of premiums on assumed FHLB advances 91
 1,231
 92
 904
 183
 2,135
Accretion of discounts on assumed subordinated debt (43) (35) (48) (36) (91) (71)
Amortization of premiums on assumed time deposits 438
 1,275
 247
 787
 685
 2,062
Increase to pre-tax income $6,084
 $12,115
 $7,960
 $9,351
 $14,044
 $21,466

The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.22%1.54% for the firstsecond quarter of 2013, compared to 1.86%1.52% for the same period of 2012. The annualized return on average stockholders' equity, before the effect of dividends and discount accretion on preferred stock, was 9.13%11.58% for the firstsecond quarter of 2013, compared to 11.87%9.40% for the same period of 2012. The efficiency ratio was 47.77%47.34% for the firstsecond quarter of 2013 compared to 41.98%44.57% for the same period of 2012.
The annualized return on average assets, before the effect of dividends and discount accretion on preferred stock on average assets, was 1.38% for the for the six months ended June 30, 2013, compared to 1.69% for the same period of 2012. The annualized return on average stockholders' equity, before the effect of dividends and discount accretion on preferred stock, was 10.37% for the six months ended June 30, 2013, compared to 10.62% for the same period of 2012. The efficiency ratio was 47.55% for the six months ended 2013 compared to 47.69% for the same period of 2012.

Net Interest Income and Net Interest Margin
Net Interest Income
A principal component of the 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. Net interest income is affected by changes in

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the balances of interest-earning assets and interest-bearing liabilities and changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities.
Comparison of Three Months Ended March 31,June 30, 2013 with the Same Period of 2012
Net interest income before provision for loan losses was $59.762.1 million for the firstsecond quarter of 2013, a decreasean increase of $1.1$2.6 million, or 1.88%4.37%, compared to $60.959.5 million for the same period of 2012. The decreaseincrease was principally attributable to the increase in interest earnings assets, which was partially offset by the decline in the net interest margin, which was partially offset by the increase in average interest earning assets.margin.
Interest income for the firstsecond quarter of 20122013 was $66.769.4 million, a decreaseincrease of $1.8$2.4 million, or 2.64%3.64%, compared to $68.666.9 million for the same period of 2012. The decreaseincrease resulted from a $11.4 million decrease in interest income due to a decrease

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in the yield on average interest-earnings assets and partially offset by a $9.610.8 million increase in interest income due to an increase in average interest-earning assets and partially offset by a $8.4 million decrease in interest income due to a decrease in the yield on average interest-earnings assets.
Comparison of Six Months Ended June 30, 2013 with the Same Period of 2012
Net interest income before provision for loan losses was $121.8 million for the six months ended June 30, 2013, an increase of $1.4 million, or 1.21%, compared to $120.4 million for the same period of 2012. The increase was principally attributable to the increase in average interest earning assets, which was partially offset by the decline in the net interest margin.
Interest income for the six months ended June 30, 2013 was $136.1 million, an increase of $0.6 million, or 0.05%, compared to $135.5 million for the same period of 2012. The increase resulted from a $20.4 million increase in interest income due to an increase in average interest-earning assets and partially offset by a $19.7 million decrease in interest income due to a decrease in the yield on average interest-earnings assets.

Net Interest Margin

The net interest margin for the firstsecond quarter of 2013 was 4.49%, a decrease of 6253 basis points from 5.11%5.02% for the same period of 2012. The decrease in the net interest margin was principally due to the effect of acquisition accounting adjustments, as summarized in the following table.
 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
Net interest margin, excluding the effect of acquisition accounting adjustments 3.97% 4.04% 3.86% 4.15% 3.91% 4.10%
Acquisition accounting adjustments(1)
 0.52
 1.07
 0.63
 0.87
 0.58
 0.97
Reported net interest margin 4.49% 5.11% 4.49% 5.02% 4.49% 5.07%
(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 net interest margin for the firstsecond quarter of 2013 decreased 729 basis points to 3.97%3.86% compared to 4.04%4.15% for the same period of 2012. The net interest margin excluding the effect of acquisition accounting adjustments for the six months ended June 30, 2013, decreased 19 basis points to 3.91%, compared with the net interest margin for the same period of 2012. The decrease was primarily duelargely attributable to continued pricing pressure on loan interest rates which was partially offset by decreasesthe decrease in the rates paidweighted average yield on deposits and borrowings.loans.

The weighted average yield on loans decreased to 5.75%5.78% for the firstsecond quarter of 2013 from 6.75%6.53% for the firstsecond quarter of 2012 and decreased to 5.76% for the six months period ended June 30, 2013 from 6.64% for the same period in 2012. The change in the yield was due to continued pricing pressure on loan interest rates and the decline in the effects of acquisition accounting adjustments, as summarized in the following table.


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 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
The weighted average yield on loans, excluding the effect of acquisition accounting adjustments 5.15% 5.61% 5.02% 5.59% 5.08% 5.60%
Acquisition accounting adjustments(1)
 0.60
 1.14
 0.76
 0.94
 0.68
 1.04
Reported weighted average yield on loans 5.75% 6.75% 5.78% 6.53% 5.76% 6.64%
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding the effect of acquisition accounting adjustments, from the reported weighted average yield on loans.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding the effect of acquisition accounting adjustments, from the reported weighted average yield on loans.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average yield on loans, excluding the effect of acquisition accounting adjustments, from the reported weighted average yield on loans.

Excluding the effects of acquisition accounting adjustments, the weighted average yield on loans for the firstsecond quarter of 2013 decreased 4657 basis points to 5.15%5.02% compared to 5.61%5.59% for the same period of 2012. This decrease was primarily due to the lower yields on acquired loan portfolios and the reduction in market rates compared to a year ago due to continued pricing pressures. At March 31,June 30, 2013, fixed rate loans accounted for 40% of the loan portfolio, compared to 39%38% at March 31,June 30, 2012, reflecting the Company's focus on variable rate business loans. The weighted average yield on the variable rate and fixed rate loan portfolios (excluding loan discount accretion) at March 31,June 30, 2013 was 4.49%4.50% and 5.47%5.31%, respectively, compared with 4.61%4.60% and 6.49%6.25% at March 31,June 30, 2012.

The weighted average yield on securities available for sale for the firstsecond quarter of 2013 was 1.98%2.0%, compared to 2.71%2.45% for the same period of 2012. The weighted average yield on securities available for sale for the six months ended June 30, 2013 was 1.99%, compared to 2.58% for the same period of 2012. The decrease was primarily attributable to the replacement of maturing securities with lower yielding investments as market interest rates declined.

The weighted average cost of deposits for the firstsecond quarter of 2013 was 0.49%, a decrease of 76 basis points from 0.56%0.55% for the same period of 2012. The amortization of the premium on time deposits assumed in the acquisition positively affected the weighted average cost of deposits, as summarized in the following table.

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 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
The weighted average cost of deposits, excluding effect of acquisition accounting adjustments 0.53 % 0.69 % 0.51 % 0.63 % 0.52 % 0.66 %
Acquisition accounting adjustments(1)
 (0.04) (0.13) (0.02) (0.08) (0.03) (0.11)
Reported weighted average cost of deposits 0.49 % 0.56 % 0.49 % 0.55 % 0.49 % 0.55 %
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding the effect of acquisition accounting adjustments, from the reported weighted average cost of deposits.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding the effect of acquisition accounting adjustments, from the reported weighted average cost of deposits.
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost of deposits, excluding the effect of acquisition accounting adjustments, from the reported weighted average cost of deposits.

Excluding the amortization of premiums on time deposits assumed in acquisitions, the weighted average cost of deposits was 0.53%0.51% for the firstsecond quarter of 2013, compared to 0.69%0.63% for the same period of 2012 and 0.52% for the six months ended June 30, 2013, compared to 0.66 for the same period of 2012. The decrease was due to reductions in the cost of interest-bearing demand deposits and an increase in the proportion of non-interest bearing demand deposits to total deposits. Non-interest bearing demand deposits accounted for 26.0% of total deposits at March 31,June 30, 2013, compared with 25.8% at March 31,June 30, 2012.

The weighted average cost of FHLB advances for the firstsecond quarter of 2013 was 1.17%1.16%, a decrease of 7579 basis points from 1.92%1.95% for the same period of 2012. The decrease was attributable to decreases in FHLB advance rates, which was partially offset by the decline in the amortization of premiums on FHLB advances assumed in acquisitions, as summarized in the following table.

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 Three Months Ended March 31, Three Months Ended June 30, Six Months Ended June 30,
 2013 2012 2013 2012 2013 2012
The weighted average cost on FHLB advances, excluding effect of acquisition accounting adjustments 1.27 % 3.41 % 1.25 % 3.08 % 1.26 % 3.25 %
Acquisition accounting adjustments (0.10) (1.49) (0.09) (1.13) (0.09) (1.31)
Reported weighted average cost on FHLB advances 1.17 % 1.92 % 1.16 % 1.95 % 1.17 % 1.94 %
(1) Acquisition accounting adjustments is calculated by subtracting the weighted average cost on FHLB advances, excluding the 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 the 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 the effect of acquisition accounting adjustments, from reported weighted average cost on FHLB advances.

Excluding amortization of premiums on FHLB advances assumed in acquisitions, the weighted average cost of FHLB advances decreased to 1.27%1.25% for the firstsecond quarter of 2013 from 3.41%3.08% for the same period of 2012, reflecting the addition of $470.0$415.0 million in new FHLB advances at an average rate of 0.62%0.59%, which was substantially lower than the weighted average rate paid on matured borrowings. The weighted average original maturity of the new borrowings was 2.602.10 years. In addition, a total of $390.1$364.1 million of FHLB advances, with weighted average rates of 1.24%1.13%, matured over the past twelve months.

Prepayment penalty income for the first quarter of 2013 and 2012 was $63 thousand and $116 thousand, respectively. Nonaccrual interest income recognized (reversed) was $236 thousand and ($349) thousand for the first quarter of 2013 and 2012, respectively. Excluding the effects of both nonaccrual loan interest income and prepayment penalty income, the net interest margin for first quarter 2013 and 2012 would have been 4.46% and 5.13%, respectively.


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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:

Three Months Ended March 31, 2013 Three Months Ended March 31, 2012Three Months Ended June 30, 2013 Three Months Ended June 30, 2012
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)
$4,444,313
 $63,029
 5.75% $3,777,495
 $63,419
 6.75%$4,546,461
 $65,473
 5.78% $3,847,921
 $62,504
 6.53%
Securities available for sale(3)
691,984
 3,427
 1.98% 725,728
 4,909
 2.71%705,479
 3,526
 2.00% 692,399
 4,249
 2.45%
FRB and FHLB stock and other investments257,526
 287
 0.45% 257,583
 178
 0.27%296,788
 380
 0.51% 203,935
 160
 0.31%
Federal funds sold—
 —
 N/A
 25,780
 49
 0.74%—
 —
 N/A
 19,794
 30
 0.59%
Total interest earning assets$5,393,823
 $66,743
 5.01% $4,786,586
 $68,555
 5.76%$5,548,728
 $69,379
 5.01% $4,764,049
 $66,943
 5.65%
INTEREST BEARING LIABILITIES:                      
Deposits:                      
Demand, interest-bearing$1,265,967
 $1,873
 0.60% $1,232,763
 $2,123
 0.69%$1,285,768
 $1,937
 0.60% $1,184,339
 $1,849
 0.63%
Savings186,189
 754
 1.64% 195,932
 922
 1.89%185,584
 721
 1.56% 187,872
 830
 1.78%
Time deposits:                      
$100,000 or more1,161,322
 1,730
 0.60% 767,171
 1,411
 0.74%1,252,934
 1,975
 0.63% 807,803
 1,498
 0.75%
Other695,802
 1,051
 0.61% 722,982
 947
 0.53%652,766
 1,013
 0.62% 652,937
 1,068
 0.66%
Total time deposits1,857,124
 2,781
 0.61% 1,490,153
 2,358
 0.64%1,905,700
 2,988
 0.63% 1,460,740
 2,566
 0.71%
Total interest bearing deposits3,309,280
 5,408
 0.66% 2,918,848
 5,403
 0.74%3,377,052
 5,646
 0.67% 2,832,951
 5,245
 0.74%
FHLB advances422,944
 1,224
 1.17% 339,964
 1,626
 1.92%421,595
 1,218
 1.16% 329,066
 1,603
 1.95%
Other borrowings42,264
 395
 3.74% 50,108
 667
 5.26%43,559
 411
 3.73% 47,488
 593
 4.95%
Total interest bearing liabilities3,774,488
 $7,027
 0.75% 3,308,920
 $7,696
 0.93%3,842,206
 $7,275
 0.75% 3,209,505
 $7,441
 0.93%
Non-interest bearing demand deposits1,138,690
     984,813
    1,214,984
     1,021,805
    
Total funding liabilities / cost of funds$4,913,178
   0.58% $4,293,733
   0.72%$5,057,190
   0.58% $4,231,310
   0.71%
Net interest income/net interest spread  $59,716
 4.26%   $60,859
 4.83%  $62,104
 4.25%   $59,502
 4.72%
Net interest margin    4.49%     5.11%    4.49%     5.02%
Net interest margin, excluding the effect of nonaccrual loan income (expense)(4)
    4.47%     5.14%    4.47%     5.06%
Net interest margin, excluding the effect of nonaccrual loan income (expense) and prepayment fee income(4) (5)
    4.46%     5.13%    4.46%     5.04%
Cost of deposits:                      
Non-interest bearing demand deposits$1,138,690
 $—
   $984,813
 $—
  $1,214,984
 $—
   $1,021,805
 $—
  
Interest bearing deposits3,309,280
 5,408
 0.66% 2,918,848
 5,403
 0.74%3,377,052
 5,646
 0.67% 2,832,951
 5,245
 0.74%
Total deposits$4,447,970
 $5,408
 0.49% $3,903,661
 $5,403
 0.56%$4,592,036
 $5,646
 0.49% $3,854,756
 $5,245
 0.55%
*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) 
Nonaccrual interest income recognized (reversed)reversed was $236$77 thousand and ($349)$400 thousand for the three months ended March 31,June 30, 2013 and 2012, respectively.
(5) 
Loan prepayment fee income excluded was $63$306 thousand and $116$198 thousand for the three months ended March 31,June 30, 2013 and 2012, respectively.

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 Six Months Ended June 30, 2013 Six Months Ended June 30, 2012
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield/
Rate *
 (Dollars in thousands)
INTEREST EARNINGS ASSETS:           
Loans(1) (2)
$4,495,673
 $128,502
 5.76% $3,812,708
 $125,923
 6.64%
Securities available for sale(3)
698,769
 6,953
 1.99% 709,063
 9,158
 2.58%
FRB and FHLB stock and other investments277,266
 667
 0.48% 230,789
 339
 0.29%
Federal funds sold—
 —
 N/A
 22,787
 78
 0.68%
Total interest earning assets$5,471,708
 $136,122
 5.01% $4,775,347
 $135,498
 5.70%
INTEREST BEARING LIABILITIES:           
Deposits:           
Demand, interest-bearing$1,275,922
 $3,809
 0.60% $1,208,551
 $3,973
 0.66%
Savings185,885
 1,475
 1.60% 191,902
 1,752
 1.84%
Time deposits:           
$100,000 or more1,207,381
 3,705
 0.62% 787,468
 2,895
 0.74%
Other674,165
 2,065
 0.62% 687,979
 2,029
 0.59%
Total time deposits1,881,546
 5,770
 0.62% 1,475,447
 4,924
 0.67%
Total interest bearing deposits3,343,353
 11,054
 0.67% 2,875,900
 10,649
 0.74%
FHLB advances422,266
 2,442
 1.17% 334,515
 3,229
 1.94%
Other borrowings42,915
 806
 3.74% 48,798
 1,260
 5.11%
Total interest bearing liabilities3,808,534
 $14,302
 0.76% 3,259,213
 $15,138
 0.93%
Non-interest bearing demand deposits1,177,048
     1,003,307
    
Total funding liabilities / cost of funds$4,985,582
   0.58% $4,262,520
   0.71%
Net interest income/net interest spread  $121,820
 4.25%   $120,360
 4.77%
Net interest margin    4.49%     5.07%
Net interest margin, excluding the effect of nonaccrual loan income (expense)(4)
    4.48%     5.10%
Net interest margin, excluding the effect of nonaccrual loan income (expense) and prepayment fee income(4) (5)
    4.47%     5.09%
Cost of deposits:           
Non-interest bearing demand deposits$1,177,048
 $—
   $1,003,307
 $—
  
Interest bearing deposits3,343,353
 11,054
 0.67% 2,875,900
 10,649
 0.74%
Total deposits$4,520,401
 $11,054
 0.49% $3,879,207
 $10,649
 0.55%
*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)
Nonaccrual interest income recognized (reversed) was $160 thousand and ($749) thousand for the six months ended June 30, 2013 and 2012, respectively.
(5)
Loan prepayment fee income excluded was $369 thousand and $314 thousand for the six months ended June 30, 2013 and 2012, respectively.


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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 sets forth information regarding the changes in interest income and interest expense for the periods indicated. The total change for each category of interest-earning assets and interest-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 (changes in rates multiplied by the old volume). Nonaccrual loans are included in average loans used to compute this table.

     
Three months ended
March 31, 2013 over March 31, 2012
Three months ended
June 30, 2013 over June 30, 2012
Net
Increase
(Decrease)
    
Net
Increase
(Decrease)
    
Change due toChange due to
Rate VolumeRate Volume
(Dollars in thousands)(Dollars in thousands)
INTEREST INCOME:          
Interest and fees on loans$(390) $(10,237) $9,847
$2,969
 $(7,701) $10,670
Interest on securities(1,482) (1,254) (228)(723) (792) 69
Interest on FRB and FHLB stock and other investments109
 106
 3
220
 127
 93
Interest on federal funds sold(49) —
 (49)(30) (15) (15)
Total interest income$(1,812) $(11,385) $9,573
$2,436
 $(8,381) $10,817
INTEREST EXPENSE:          
Interest on demand, interest bearing$(250) $(293) $43
$88
 $(80) $168
Interest on savings(168) (121) (47)(109) (97) (12)
Interest on time deposits423
 (114) 537
423
 (308) 731
Interest on FHLB advances(402) (732) 330
(385) (765) 380
Interest on other borrowings(272) (175) (97)(182) (135) (47)
Total interest expense$(669) $(1,435) $766
$(165) $(1,385) $1,220
Net Interest Income$(1,143) $(9,950) $8,807
$2,601
 $(6,996) $9,597


      
 
Six months ended
June 30, 2013 over June 30, 2012
 
Net
Increase
(Decrease)
    
 Change due to
 Rate Volume
 (Dollars in thousands)
INTEREST INCOME:     
Interest and fees on loans$2,579
 $(17,941) $20,520
Interest on securities328
 245
 83
Interest on FRB and FHLB stock and other investments(2,205) (2,050) (155)
Interest on federal funds sold(78) —
 (78)
Total interest income$624
 $(19,746) $20,370
INTEREST EXPENSE:     
Interest on demand, interest bearing$(164) $(392) $228
Interest on savings(277) (229) (48)
Interest on time deposits848
 (392) 1,240
Interest on FHLB advances(787) (1,511) 724
Interest on other borrowings(454) (317) (137)
Total interest expense$(834) $(2,841) $2,007
Net Interest Income$1,458
 $(16,905) $18,363



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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 in our market areas. Specifically, the provision for loan losses represents the amount charged against current period earnings to 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 firstsecond quarter of 2013 was $7.5 million, an increase$800 thousand, a decrease of $4.9$6.4 million, or 188.69%89.86%, from $2.67.2 million for the same period last year. The increasedecrease is primarily due an overall reduction in quantitative reserves as a result of decreasing historical loss rates. Net charge-offs decreased to $2.4 million for the three months ended June 30, 2013, compared to $4.0 million for the same period last year.
The provision for loan losses for the six months period ended June 30, 2013 was $8.3 million, a decrease of $1.5 million, or 15.09%, from $9.8 million for the same period last year. The decrease is primarily due an overall reduction in quantitative reserves as a result of decreasing historical loss rates. This overall decrease was offset by the addition of a new specific reserve of $5.1 million related to a TDR of an industrial warehouse loan loan growth and allowance needs related to increased concentration risk associated with growth in the CRE portfolio, which were partially offset by a decrease in net charge-offs.six months period ended June 30, 2013. Net charge-offs decreased to $1.2$3.6 million for the threesix months ended March 31,June 30, 2013, compared to $2.2$6.2 million for the same period last year.
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 deposit accounts, fees received on trade finance letters of credit and net gains on sales of loans and securities available for sale.loans.
Non-interest income for the firstsecond quarter of 2013 was $9.910.6 million, compared to $11.610.2 million for the same quarter of 2012, an increase of $0.4 million, or 3.9%. The increase was principally due to increases in loan servicing fees, net and net gains on sales of SBA loans. These increases were caused primarily by an increase in the volume of SBA loans sales, to $33.8 million during three months ended June 30, 2013 from $27.0 million during the same period last year. The increases in non-interest income were partially offset by decreases in service fees on deposit accounts and a decrease in international service fees.
Non-interest income for the six months ended 2013 was $20.6 million, compared to $21.9 million for the same period of 2012, a decrease of $1.71.3 million, or 14.6%6.0 %. The decrease was principally due to decreasesa decrease in service fees on deposit accounts, loan servicing fees, net, net gains on sales of SBA loans and net gains on sales of securities available for sale.sale and a decrease in service fees on deposit accounts. The Company posted a net gain of $816 thousand from the sale a Trust Preferred security, which had been marked to market in a prior period, during the six months ended June 30, 2012. This compares with none in the same reporting period of 2013. Service fees on deposit accounts decreased primarily due to a decrease in non-sufficient funds charges of $590 thousand.


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Non-interest income by category is summarized below:
 

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Three Months Ended March 31, Increase (Decrease)Three Months Ended June 30, Increase (Decrease)
2013 2012 Amount %2013 2012 Amount %
(Dollars in thousands)(Dollars in thousands)
Service fees on deposit accounts$2,875
 $3,160
 $(285) (9.0)%$2,922
 $3,269
 $(347) (10.6)%
International service fees1,238
 1,224
 14
 1.1 %1,266
 1,403
 (137) (9.8)%
Loan servicing fees, net969
 1,337
 (368) (27.5)%1,036
 810
 226
 27.9 %
Wire transfer fees816
 741
 75
 10.1 %887
 775
 112
 14.5 %
Other income and fees1,249
 1,340
 (91) (6.8)%1,204
 1,354
 (150) (11.1)%
Net gains on sales of SBA loans2,694
 2,963
 (269) (9.1)%3,295
 2,463
 832
 33.8 %
Net losses on sales of other loans43
 —
 43
 — %19
 146
 (127) — %
Net gains on sales of securities available for sale54
 816
 (762) (93.4)%
Net valuation gains (losses) on interest rate contracts—
 3
 (3) 100.0 %—
 10
 (10) 100.0 %
Net gains on sales of OREO2
 61
 (59) (96.7)%(11) (8) (3) 37.5 %
Total non-interest income$9,940
 $11,645
 $(1,705) (14.6)%$10,618
 $10,222
 $396
 3.9 %
       
       
       
Six months ended June 30, Increase (Decrease)
2013 2012 Amount Percent (%)
(Dollars in thousands)
Service fees on deposit accounts$5,797
 $6,429
 $(632) (9.8%)
International service fees2,504
 2,627
 (123) (4.7%)
Loan servicing fees, net2,005
 2,147
 (142) (6.6%)
Wire transfer fees1,703
 1,516
 187
 12.3%
Other income and fees2,453
 2,694
 (241) (8.9%)
Net gains on sales of SBA loans5,989
 5,426
 563
 10.4%
Net gains (losses) on sales of other loans62
 146
 (84) 57.5%
Net gains on sales and calls of securities available for sale54
 816
 (762) (93.4%)
Net valuation gains (losses) on interest rate contracts—
 13
 (13) 100.0%
Net gains on sales of OREO(9) 53
 (62) (117.0%)
Total non-interest income$20,558
 $21,867
 $(1,309) (6.0%)

Non-interest Expense
Non-interest expense for the firstsecond quarter of 2013 was $33.334.4 million, an increase of $2.83.4 million, or 9.3%10.8%, from $30.431.1 million for the same period of 2012. Salaries and employee benefits expense increased $2.31.6 million due to an increase in the number of full-time equivalent employees, which increased to 742 at June 30, 2013 from 653 at June 30, 2012 partially as a result of the PIB acquisition completed in the first quarter of 2013. Occupancy expense and furniture and equipment increased by a total of $603 thousand principally due to increased rental commitments during the period and due to increased depreciation expense for software and hardware resulting from recent equipment upgrades and purchases. The FDIC assessment for the second quarter of 2013 increased by $807 thousand. Professional fees increased by $374 thousand due to additional legal services during the quarter. Merger and integration expenses decreased by $963 thousand, as the Company incurred greater salaries and benefits expenses and professional service fees related to the merger with Center Financial compared to the acquisition of PIB.
Non-interest expense for the six months ended of 2013 was $67.7 million, an increase of $6.2 million, or 10.1%, from $61.5 million for the same period of 2012. Salaries and employee benefits expense increased $3.8 million due to one-time costs incurrred as part of a management transition and an increase in the number of full-time equivalent employees, which increased to 762 at March 31, 2013 from 661 at March 31, 2012.employees. Occupancy expense and furniture and equipment increased by a total of $720$968 thousand principally due to increased rental commitments during the period and due to increased depreciation expense for software and hard resulting recent equipment upgrades and purchases. Credit related expenses decreased by $465$552 thousand primarily due to a decrease of $668$614 thousand in valuation expenses for loans held for sale. The FDIC assessment for the first quarter of 2013 decreased by $343 thousand, reflecting an upgrade of the Company's risk category. Professional fees increased by $688 thousand$1.1 million due to additional accounting services and consulting services for the Company's information systems. Merger and integration expenses decreased by $468 thousand,$1.4 million, as the Company incurred greater salaries and benefits expenses and professional service fees related to the merger with Center Financial compared to the acquisition of PIB.

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The breakdown of changes in non-interest expense by category is shown below:
 
Three Months Ended March 31, Increase (Decrease)Three Months Ended June 30, Increase (Decrease)
2013 2012 Amount %2013 2012 Amount %
(Dollars in thousands)(Dollars in thousands)
Salaries and employee benefits$16,332
 $14,079
 $2,253
 16.0 %$16,219
 $14,658
 $1,561
 10.6 %
Occupancy4,011
 3,646
 365
 10.0 %4,835
 4,232
 603
 14.2 %
Furniture and equipment1,573
 1,218
 355
 29.1 %1,613
 1,468
 145
 9.9 %
Advertising and marketing1,273
 1,458
 (185) (12.7)%1,190
 1,525
 (335) (22.0)%
Data processing and communications1,644
 1,611
 33
 2.0 %1,861
 1,573
 288
 18.3 %
Professional fees1,301
 613
 688
 112.2 %1,443
 1,069
 374
 35.0 %
FDIC assessment694
 1,037
 (343) (33.1)%858
 51
 807
 1,582.4 %
Credit related expenses1,715
 2,180
 (465) (21.3)%2,203
 2,290
 (87) (3.8)%
Merger and integration expenses1,305
 1,773
 (468) (26.4)%385
 1,348
 (963) (71.4)%
Other3,427
 2,820
 607
 21.5 %3,822
 2,863
 959
 33.5 %
Total non-interest expense$33,275
 $30,435
 $2,840
 9.3 %$34,429
 $31,077
 $3,352
 10.8 %
       
       
Six Months Ended June 30, Increase (Decrease)
2013 2012 Amount Percent (%)
(Dollars in thousands)
Salaries and employee benefits$32,551
 $28,737
 $3,814
 13.3 %
Occupancy8,846
 7,878
 968
 12.3 %
Furniture and equipment3,186
 2,686
 500
 18.6 %
Advertising and marketing2,463
 2,983
 (520) -17.4 %
Data processing and communications3,505
 3,184
 321
 10.1 %
Professional fees2,744
 1,682
 1,062
 63.1 %
FDIC assessment1,552
 1,088
 464
 42.6 %
Credit related expenses3,918
 4,470
 (552) -12.3 %
Merge and integration expenses1,690
 3,121
 (1,431) (45.9)%
Other7,249
 5,683
 1,566
 27.6 %
Total non-interest expense$67,704
 $61,512
 $6,192
 10.1 %

Provision for Income Taxes
Income tax expense was $11.414.8 million and $15.512.1 million for the quarters ended March 31,June 30, 2013 and 2012, respectively. The effective income tax rate for the quarters ended March 31,June 30, 2013 and 2012 was 39.5% and 39.4%38.5%, respectively. Income tax expense was $26.2 million and $27.6 million for the six months ended June 30, 2013 and 2012, respectively. The effective income tax rate for the six months ended June 30, 2013 and 2012 was 39.5% and 39.0%, respectively.



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Financial Condition
At March 31,June 30, 2013, our total assets were $5.835.86 billion, an increase of $192.9$222.4 million from $5.64 billion at December 31, 2012. As previously discussed, the increase was principally due to a $197.5$221.9 million increase in loans receivable, net of allowance for loan losses which wasand a $20.8 million increase in securities available for sale. The increases were partially offset by decreasesa decrease in cash and cash equivalents of $32.1$16.6 million. The increase in total assets was funded by a $171.6$192.8 million increase in deposits, a $910$817 thousand increase in FHLB advances and net income of $17.5$40.1 million.
Investment Securities Portfolio
As of March 31,June 30, 2013, we had $717.4725.2 million in available for sale securities, compared to $704.4 million at December 31, 2012. The net unrealized gainloss on the available for sale securities at March 31,June 30, 2013 was $11.7$8.0 million, compared to a net unrealized gain on such securities of $15.4 million at December 31, 2012. During the threesix months ended March 31,June 30, 2013, $77.6$148.0 million in securities were purchased, $52.5$101.6 million in mortgage related securities were paid down, and $6.6 million in securities were sold. We recognized net gains of $54 thousand on the securities that were sold. We sold a $1.0 million corporate trust preferred security and recognized a gain of $816 thousand during the same period of last year. The weighted average duration (the weighted average of the times of the present values of all the cash flows) of the available for sale securities was 3.934.54 years and 3.26 years at March 31,June 30, 2013 and December 31, 2012, respectively. The weighted average life (the weighted average of the times of the principal repayments) of the available for sale securities was 4.275.11 years and 3.5 years at March 31,June 30, 2013 and December 31, 2012, respectively.
Loan Portfolio
As of March 31,June 30, 2013, gross loans outstanding, net of deferred loan fees and costs and excluding loans held for sale, was $4.50$4.52 billion, an increase of $203.8$217.1 million from $4.30$4.30 billion at December 31, 2012. Total loan originations during the three months ended March 31,June 30, 2013 were $220.9$208.0 million, including SBA loan originations of $49.5$42.7 million. Of the $49.5$42.7 million in SBA loan originations, $31.7$38.9 million was included as additions to loans held for sale during the period.
The following table summarizes our loan portfolio by amount and percentage of gross loans in each major loan category at the dates indicated:
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
Amount % Amount %Amount % Amount %
  (Dollars in thousands)    (Dollars in thousands)  
Loan portfolio composition              
Real estate loans:              
Residential$10,667
 0% $9,247
 0%$9,849
 0% $9,247
 0%
Commercial & industrial3,294,978
 73% 3,100,466
 72%3,328,606
 74% 3,100,466
 72%
Construction69,087
 2% 65,045
 2%74,165
 2% 65,045
 2%
Total real estate loans3,374,732
 75% 3,174,758
 73%3,412,620
 76% 3,174,758
 73%
Commercial business943,860
 21% 921,556
 21%942,369
 21% 921,556
 21%
Trade finance134,393
 3% 152,070
 4%117,827
 3% 152,070
 4%
Consumer and other48,881
 1% 49,954
 1%47,088
 1% 49,954
 1%
Total loans outstanding4,501,866
 100% 4,298,338
 100%4,519,904
 100% 4,298,338
 100%
Less: deferred loan fees(1,820)   (2,086)  (1,782)   (2,086)  
Gross loans receivable4,500,046
   4,296,252
  4,518,122
   4,296,252
  
Less: allowance for loan losses(73,268)   (66,941)  (71,675)   (66,941)  
Loans receivable, net$4,426,778
   $4,229,311
  $4,446,447
   $4,229,311
  

SBA loans are included in commercial business loans and commercial and industrial real estate loans. SBA loans included in commercial business loans were $80.3$52.7 million at March 31,June 30, 2013 and $69.8 million at December 31, 2012. SBA loans included in commercial and industrial real estate loans were $172.7 million$179.71million at March 31,June 30, 2013 and $148.0 million at December 31, 2012.
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:
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
(Dollars in thousands)(Dollars in thousands)
Loan commitments$710,762
 $690,917
$669,764
 $690,917
Standby letters of credit39,639
 39,176
30,272
 39,176
Other commercial letters of credit60,623
 51,257
71,031
 51,257
$811,024
 $781,350
$771,067
 $781,350

Nonperforming Assets
Nonperforming assets, which include nonaccrual loans, loans 90 days or more past due and on accrual status, restructured loans, and OREO, were $104.6 million at March 31,June 30, 2013, compared to $79.9 million at December 31, 2012. The ratio of nonperforming assets to gross loans plus OREO was 2.32%2.21% and 1.86% at March 31,June 30, 2013 and December 31, 2012, respectively.
The following table summarizes the composition of our nonperforming assets as of the dates indicated.
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
(Dollars in thousands)(Dollars in thousands)
Nonaccrual loans (1)
$42,269
 $29,653
$44,987
 $29,653
Loans 90 days or more days past due on accrual status (2)
21,621
 17,742
18,786
 17,742
Accruing restructured loans32,249
 29,849
36,225
 29,849
Total Nonperforming Loans96,139
 77,244
99,998
 77,244
OREO8,419
 2,698
9,596
 2,698
Total Nonperforming Assets$104,558
 $79,942
$109,594
 $79,942
Nonperforming loans to total gross loans, excluding loans held for sale2.14% 1.80%2.21% 1.80%
Nonperforming assets to gross loans plus OREO2.32% 1.86%2.21% 1.86%
Nonperforming assets to total assets1.79% 1.42%1.87% 1.42%
Allowance for loan losses to nonperforming loans (excludes delinquent loans 90 days or more on accrual status)98.32% 112.50%88.26% 112.50%
Allowance for loan losses to nonperforming assets70.07% 83.74%65.40% 83.74%
(1) 
Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $18.6$21.0 million and $17.6 million as of March 31,June 30, 2013 and December 31, 2012, respectively.
(2) 
Loans 90 days or more past due on accrual status are acquired loans accounted for under ASC 310-30.
Allowance for Loan Losses
The allowance for loan losses was $73.371.7 million at March 31,June 30, 2013, compared to $66.9 million at December 31, 2012. We recorded a provision for loan losses of $7.5$8.3 million during the threesix months ended March 31,June 30, 2013, compared to $2.6$9.8 million for the same period of 2012. The allowance for loan losses was 1.63%1.59% of gross loans at March 31,June 30, 2013 and 1.56% of gross loans at December 31, 2012. Impaired loans as defined by FASB ASC 310-10-35, “Accounting by Creditors for Impairment of a Loan,” totaled $102.098.2 million and $90.2 million as of March 31,June 30, 2013 and December 31, 2012, respectively, with specific allowances of $15.1 million and $9.2 million, respectively.

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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
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
Amount of Allowance for Loan Losses Percent of ALLL to Total ALLL Amount of Allowance for Loan Losses Percent of ALLL to Total ALLLAmount of Allowance for Loan Losses Percent of ALLL to Total ALLL Amount of Allowance for Loan Losses Percent of ALLL to Total ALLL
(Dollars in thousands)(Dollars in thousands)
Loan Type              
Real estate - Residential$84
 —% $74
 —%$71
 0% $74
 0%
Real estate - Commercial52,595
 72% 45,162
 67%50,552
 71% 45,162
 67%
Real estate - Construction919
 1% 986
 1%941
 1% 986
 1%
Commercial business17,331
 24% 17,606
 26%17,174
 24% 17,606
 26%
Trade finance1,698
 2% 2,352
 4%2,335
 3% 2,352
 4%
Consumer and other641
 1% 761
 1%602
 1% 761
 1%
Total$73,268
 100% $66,941
 100%$71,675
 100% $66,941
 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 (Legacy Loans) and loans acquired from acquisitions (Acquired Loans). The Acquired Loans were further segregated between Credit Impaired Loans (loans with credit deterioration at the time they were acquired and accounted for under ASC 310-30) and performing loans (loans that were pass graded at the time they were acquired). The activity in the ALLL for the three and six months ended March 31,June 30, 2013 is as follows:


   
Acquired Loans(2)
     
Acquired Loans(2)
  
 
Legacy Loans(1)
 Credit Impaired Loans Performing Loans Total
Three Months Ended June 30, 2013 
Legacy Loans(1)
 Credit Impaired Loans Performing Loans Total
 (Dollars in thousands) (Dollars in thousands)
Balance, beginning of period $61,002
 $4,534
 $1,405
 $66,941
 $62,467
 $4,535
 $6,266
 $73,268
Provision for loan losses 2,354
 —
 5,152
 7,506
 603
 —
 197
 800
Loans charged off (1,121) —
 (308) (1,429) (2,192) —
 (708) (2,900)
Recoveries of charged offs 232
 —
 18
 250
 437
 —
 70
 507
Balance, end of period $62,467
 $4,534
 $6,267
 $73,268
 $61,315
 $4,535
 $5,825
 $71,675
                
Gross loans, net of deferred loan fees and costs $3,520,819
 169,826
 811,221
 $4,501,866
 $3,622,056
 155,060
 742,792
 $4,519,908
Loss coverage ratio 1.77% 2.67% 0.77% 1.63% 1.69% 2.92% 0.78% 1.59%
                
(1) Legacy Loans includes acquired loans that have been renewed or refinanced after being acquired.
Six Months Ended June 30, 2013 
Legacy Loans (1)
 Credit Impaired Loans Performing Loans Total
 (Dollars in thousands)
Balance, beginning of period $61,952
 $0
 $0
 $61,952
Provision for loan losses 11,558
 2,112
 3,012
 16,682
Loans charged off (15,051) 0
 (1,710) (16,761)
Recoveries of charged offs 3,375
 0
 704
 4,079
Balance, end of period $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.
(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:
 
At or for the Three Months Ended March 31,At or for the Three Months Ended June 30,
2013 20122013 2012
(Dollars in thousands)(Dollars in thousands)
LOANS      
Average gross loans receivable, including loans held for sale (net of deferred fees)$4,444,320
 $3,777,495
$4,546,461
 $3,847,921
Total gross loans receivables, excluding loans held for sale (net of deferred fees)$4,500,046
 $3,737,199
$4,518,122
 $3,874,538
ALLOWANCE:      
Balance-beginning of period$66,941
 $61,952
$73,268
 $62,309
Less: Loan charge-offs:      
Commercial & industrial real estate(1,056) (1,934)(801) (2,485)
Commercial business loans(307) (1,422)(2,097) (2,124)
Trade finance(26) 0
—
 (300)
Consumer and other loans(40) (26)(2) (700)
Total loans charged off(1,429) (3,382)(2,900) (5,609)
Plus: Loan recoveries      
Commercial & industrial real estate42
 323
57
 1,108
Commercial business loans183
 792
413
 265
Consumer and other loans25
 24
37
 250
Total loans recoveries250
 1,139
507
 1,623
Net loan charge-offs(1,179) (2,243)(2,393) (3,986)
Provision for loan losses7,506
 2,600
800
 2,600
Balance-end of period$73,268
 $62,309
$71,675
 $60,923
Net loan charge-offs to average gross loans, including loans held for sale (net of deferred fees) *0.11% 0.24%0.21% 0.41%
Allowance for loan losses to gross loans at end of period1.63% 1.67%1.59% 1.57%
Net loan charge-offs to beginning allowance *7.05% 14.48%13.06% 25.59%
Net loan charge-offs to provision for loan losses15.71% 86.27%299.13% 153.31%
* Annualized      
We believe the allowance for loan losses as of March 31,June 30, 2013 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 March 31,June 30, 2013, deposits increased $171.6$192.8 million, or 3.92%4.40%, to $4.56$4.58 billion from $4.38 billion at December 31, 2012. The net increase in deposits is primarily due to the PIB acquisition during the first quarter of 2013 in which we assumed $143.7 million in deposits. Interest-bearing demand deposits, including money market and Super Now accounts, totaled $1.46$1.44 billion at March 31,June 30, 2013, an increase of $32.6$14.6 million from $1.43 billion at December 31, 2012.
At March 31,June 30, 2013, 26% of total deposits were non-interest bearing demand deposits, 42% were time deposits and 32% were interest bearing demand and savings deposits. By comparison, at December 31, 2012, 27% of total deposits were non-interest bearing demand deposits, 40% were time deposits, and 33% were interest bearing demand and savings deposits.
At March 31,June 30, 2013, we had $336.9$301.7 million in brokered deposits and $300.0 million in California State Treasurer deposits, compared to $307.2 million and $300.0 million of such deposits at December 31, 2012, respectively. The California State Treasurer deposits had three-month maturities with a weighted average interest rate of 0.12%0.09% at March 31,June 30, 2013 and were

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collateralized with securities with a carrying value of $346.0366.6 million. The weighted average interest rate for wholesale deposits was 0.33% at March 31,June 30, 2013.

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The following is a schedule of certificates of deposit maturities as of March 31,June 30, 2013:
 
      
Balance %Balance %
(Dollars in thousands)(Dollars in thousands)
Three months or less$753,687
 39%$597,509
 31%
Over three months through six months276,670
 14%512,953
 27%
Over six months through nine months435,145
 23%246,624
 13%
Over nine months through twelve months248,119
 13%324,920
 17%
Over twelve months197,948
 10%240,653
 13%
Total time deposits$1,911,569
 100%$1,922,659
 100%

Other Borrowings. Advances may be obtained from the FHLB as an alternative source of funds. FHLB advances 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 March 31,June 30, 2013, we had $421.6421.5 million of FHLB advances with average remaining maturities of 2.9 years, compared to $420.7 million with average remaining maturities of 2.6 years at December 31, 2012. The weighted average rate, including acquisition accounting adjustments, was 1.17%1.16% and 1.31% at March 31,June 30, 2013 and at December 31, 2012, respectively.
At March 31,June 30, 2013, sixfive wholly-owned subsidiary grantor trusts ("Trusts") established by us had issued $50$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 15 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 well as projected sources and uses of capital in conjunction with projected increases in assets and levels of risks.

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Total stockholders’ equity was $772.3781.0 million at March 31,June 30, 2013 compared to $751.1 million at December 31, 2012.
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 March 31,June 30, 2013, our Tier I capital, defined as stockholders’ equity less intangible assets, plus proceeds from the trust preferred securities (subject to limitations), was $711.6728.8 million, compared to $688.4 million at December 31, 2012, representing an increase of $23.2$40.4 million, or 3.36%5.54%. The increase was primarily due to the increase in additional paid-in capital from the net income during the quartersix months period of $17.540.1 million and an increase in trust preferred securities of $4.1 million assumed in the acquisition of PIB during the quarter.. At March 31,June 30, 2013, the total capital to risk-weighted assets ratio was 15.88%16.14% and the Tier I capital to risk-weighted assets ratio was 14.63%14.89%. The Tier I leverage capital ratio was 12.64%12.61%.
As of March 31,June 30, 2013 and December 31, 2012, 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 March 31, 2013 (Dollars in thousands)As of June 30, 2013 (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                      
Total risk-based capital ratio$772,633
 15.88% N/A
 N/A
    $790,164
 16.12% N/A
 N/A
    
Tier 1 risk-based capital ratio$711,574
 14.63% N/A
 N/A
    $728,773
 14.87% N/A
 N/A
    
Tier 1 capital to total assets$711,574
 12.64% N/A
 N/A
 

 

$728,773
 12.60% N/A
 N/A
 

 

BBCN Bank                      
Total risk-based capital ratio$760,006
 15.64% $486,044
 10.00% $273,962
 5.64%$780,843
 15.95% $489,676
 10.00% $291,167
 5.95%
Tier 1 risk-based capital ratio$698,992
 14.38% $291,626
 6.00% $407,366
 8.38%$719,494
 14.69% $293,805
 6.00% $425,689
 8.69%
Tier I capital to total assets$698,992
 12.42% $281,440
 5.00% $417,552
 7.42%$719,494
 12.42% $289,108
 5.00% $430,386
 7.42%
As of December 31, 2012 (Dollars in thousands)As of December 31, 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                      
Total risk-based capital ratio$746,396
 16.16% N/A
 N/A
    $746,396
 16.16% N/A
 N/A
    
Tier 1 risk-based capital ratio$688,422
 14.91% N/A
 N/A
    $688,422
 14.91% N/A
 N/A
    
Tier 1 capital to total assets$688,422
 12.76% N/A
 N/A
 

 

$688,422
 12.76% N/A
 N/A
 

 

BBCN Bank                      
Total risk-based capital ratio$725,655
 15.73% $461,417
 10.00% $264,238
 5.73%$725,655
 15.73% $461,417
 10.00% $264,238
 5.73%
Tier 1 risk-based capital ratio$667,725
 14.47% $276,850
 6.00% $390,875
 8.47%$667,725
 14.47% $276,850
 6.00% $390,875
 8.47%
Tier I capital to total assets$667,725
 12.38% $269,767
 5.00% $397,958
 7.38%$667,725
 12.38% $269,767
 5.00% $397,958
 7.38%

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

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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 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 FHLB and the FRB 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

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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.
AtA t March 31,June 30, 2013, our total borrowing capacity from the FHLB was $1.501.59 billion, of which $1.081.17 billion was unused and available to borrow. At March 31,June 30, 2013, our total borrowing capacity from the FRB was $406.8$370.6 million, of which $406.8$370.6 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 $647.1$683.2 million at March 31,June 30, 2013 compared to $661.3 million at December 31, 2012. Cash and cash equivalents, including federal funds sold were $280.8296.3 million at March 31,June 30, 2013 compared to $312.9 million at December 31, 2012. We believe our liquidity sources to be stable and adequate to meet our day-to-day cash flow requirements.


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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 the 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
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 March 31,June 30, 2013, 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 in market interest rates as projected by the model we use for this purpose are illustrated in the following table.
 
March 31, 2013 December 31, 2012June 30, 2013 December 31, 2012
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 points6.13 % (3.55)% 5.31 % (2.24)%6.53 % (3.77)% 5.31 % (2.24)%
+ 100 basis points2.57 % (1.37)% 2.51 % 1.01 %2.77 % (1.47)% 2.51 % 1.01 %
- 100 basis points(1.57)% 0.42 % (3.78)% 3.06 %(0.58)% 1.06 % (3.78)% 3.06 %
- 200 basis points(1.94)% 0.82 % (4.52)% 4.68 %(1.20)% 0.84 % (4.52)% 4.68 %

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.
 

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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 March 31,June 30, 2013. 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 March 31,June 30, 2013 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
    
We are involved in routine litigation incidental to our business, none of which is expected to have a material adverse effect on us. There were no material developments in legal proceedings which were previously disclosed in our 2012 Annual Report on Form 10-K.
Item 1A.Risk Factors
There were no material changes from risk factors previously disclosed in our 2012 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:May 8,August 9, 2013/s/ Kevin S. Kim 
  Kevin S. Kim 
  Chariman,Chairman, President and Chief Executive Officer 
    
Date:May 8,August 9, 2013  
    
  /s/ Douglas J. Goddard 
  Douglas J. Goddard 
  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 Exhibit 3.3 of 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 Exhibit 3.1.1 of the Registration StatementQuarterly Report 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 Appendix B of the RegistrationProxy 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 Appendix C of the RegistrationProxy 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 Exhibit 3.6 of the Registration StatementQuarterly Report 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 Exhibit 3.7 of the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2013)
   
10.1 Definitive Agreement and Plan of Merger, dated as of October 22, 2012, betweenApril 15, 2013, by and among BBCN Bancorp, Inc., Won Merger Sub Corp. and Pacific International Bancorp, IncFoster Bankshares, Inc.*
   
10.2 CEO Employment Agreement between BBCN Bank and Soobong Min,Kevin S. Kim, dated April 30, 2013 and effective May 1,31, 2013*
   
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
   
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*
   
99.1Certification of Principal Executive Officer and Principal Financial Officer pursuant to the Interim Final Rule - TARP Standards for Compensation and Corporate Governance at 31 CFR Part 30*
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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