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HOPE BANCORP INC - Quarter Report: 2015 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
______________________________________________ 
(Mark One)
x
Quarterly report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
or
o
Transition 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 filer
x
 
Accelerated filer
o
 
 
 
 
 
Non-accelerated filer
o
 
Smaller Reporting Company
o
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 4, 2015, there were 79,549,770 outstanding shares of the issuer’s Common Stock, $0.001 par value.



Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Condensed Consolidated Statements of Financial Condition - March 31, 2015 (Unaudited) and December 31, 2014
 
 
 
 
Condensed Consolidated Statements of Income - Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2015 and 2014 (Unaudited)
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 


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Forward-Looking Statements

Some statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, expectations regarding the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our business strategies, objectives and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the words “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. With respect to any such forward-looking statements the Company claims the protection provided for in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in any forward-looking statements. 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, 2014.
The Company does not undertake, and specifically disclaims any obligation, to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.


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PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements


BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(Unaudited)
 
 
 
March 31,
2015
 
December 31,
2014
ASSETS
(In thousands, except share data)
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
94,034

 
$
86,119

Interest bearing deposit at the Federal Reserve Bank ("FRB")
335,837

 
376,041

Total cash and cash equivalents
429,871

 
462,160

Securities available for sale, at fair value
812,372

 
796,523

Loans held for sale, at the lower of cost or fair value
26,432

 
28,311

Loans receivable (net of allowance for loan losses of $69,594 and $67,758 at March 31, 2015 and December 31, 2014, respectively)
5,641,045

 
5,497,434

Other real estate owned ("OREO"), net
19,606

 
21,938

Federal Home Loan Bank ("FHLB") stock, at cost
28,289

 
28,324

Premises and equipment (net of accumulated depreciation and amortization of $31,630 and $29,915 at March 31, 2015 and December 31, 2014, respectively)
30,074

 
30,722

Accrued interest receivable
13,904

 
13,634

Deferred tax assets, net
55,685

 
63,023

Customers’ liabilities on acceptances
1,029

 
1,889

Bank owned life insurance ("BOLI")
46,196

 
45,927

Investments in affordable housing partnerships
11,000

 
10,401

Goodwill
105,401

 
105,401

Core deposit intangible assets, net
3,620

 
3,887

Servicing assets
10,529

 
10,341

Other assets
32,852

 
20,415

Total assets
$
7,267,905

 
$
7,140,330

 
 
 
 
(Continued)
 

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
(Unaudited)
 
 
 
March 31,
2015
 
December 31,
2014
LIABILITIES AND STOCKHOLDERS’ EQUITY
(In thousands, except share data)
LIABILITIES:
 
 
 
Deposits:
 
 
 
Noninterest bearing
$
1,616,935

 
$
1,543,018

Interest bearing:
 
 
 
Money market and NOW accounts
1,592,151

 
1,663,855

Savings deposits
193,839

 
198,205

Time deposits of $100,000 or more
1,774,109

 
1,667,367

Other time deposits
626,220

 
621,007

Total deposits
5,803,254

 
5,693,452

FHLB advances
480,881

 
480,975

Subordinated debentures
42,199

 
42,158

Accrued interest payable
6,477

 
5,855

Acceptances outstanding
1,029

 
1,889

Other liabilities
34,867

 
33,228

Total liabilities
6,368,707

 
6,257,557

STOCKHOLDERS’ EQUITY:
 
 
 
Common stock, $0.001 par value; authorized 150,000,000 shares at March 31, 2015 and December 31, 2014; issued and outstanding, 79,542,321 and 79,503,552 shares at March 31, 2015 and December 31, 2014, respectively
79

 
79

Additional paid-in capital
541,824

 
541,589

Retained earnings
352,807

 
339,400

Accumulated other comprehensive income, net
4,488

 
1,705

Total stockholders’ equity
899,198

 
882,773

Total liabilities and stockholders’ equity
$
7,267,905

 
$
7,140,330


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

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except per share data)
INTEREST INCOME:
 
 
 
Interest and fees on loans
$
69,639

 
$
68,694

Interest on securities
4,219

 
4,095

Interest on federal funds sold and other investments
696

 
565

Total interest income
74,554

 
73,354

INTEREST EXPENSE:
 
 
 
Interest on deposits
7,754

 
6,690

Interest on FHLB advances
1,297

 
1,211

Interest on other borrowings
380

 
487

Total interest expense
9,431

 
8,388

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
65,123

 
64,966

PROVISION FOR LOAN LOSSES
1,500

 
3,026

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
63,623

 
61,940

NONINTEREST INCOME:
 
 
 
Service fees on deposit accounts
3,062

 
3,472

International service fees
814

 
1,004

Loan servicing fees, net
720

 
965

Wire transfer fees
763

 
905

Other income and fees
2,086

 
1,621

Net gains on sales of SBA loans
3,044

 
2,722

Net gains on sales of other loans
182

 

Net gains on sales of securities available for sale
424

 

Net gains losses on sales of OREO
110

 
406

Total noninterest income
11,205

 
11,095

NONINTEREST EXPENSE:
 
 
 
Salaries and employee benefits
21,181

 
18,938

Occupancy
4,692

 
4,623

Furniture and equipment
2,263

 
2,014

Advertising and marketing
1,391

 
1,088

Data processing and communication
2,349

 
2,122

Professional fees
1,424

 
1,313

FDIC assessments
1,112

 
1,023

Credit related expenses
2,189

 
1,421

Merger and integration expense
52

 
173

Other
2,581

 
3,560

Total noninterest expense
39,234

 
36,275

INCOME BEFORE INCOME TAX PROVISION
35,594

 
36,760

INCOME TAX PROVISION
14,236

 
14,564

NET INCOME
$
21,358

 
$
22,196

EARNINGS PER COMMON SHARE
 
 
 
Basic
$
0.27

 
$
0.28

Diluted
$
0.27

 
$
0.28


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

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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income
$
21,358

 
$
22,196

Other comprehensive income:
 
 
 
Unrealized gains on securities available for sale and interest only strips
5,255

 
11,140

Reclassification adjustments for gains realized in income
(424
)
 

Tax expense
2,048

 
4,696

Change in unrealized gains on securities available for sale and interest only strips
2,783

 
6,444

Total comprehensive income
$
24,141

 
$
28,640



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


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BBCN BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
 
 
Common stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional paid-in capital
 
Retained
earnings
 
Accumulated other comprehensive (loss) income, net
BALANCE, JANUARY 1, 2014
 
79,441,525

 
$
79

 
$
540,876

 
$
278,604

 
$
(10,185
)
Issuance of additional shares pursuant to various stock plans
 
47,374

 

 
(1
)
 

 

Stock-based compensation
 

 

 
104

 

 

Cash dividends declared on common stock
 
 
 
 
 
 
 
(5,958
)
 
 
Comprehensive income:
 

 

 

 

 

Net income
 

 

 

 
22,196

 

Other comprehensive income
 

 

 

 

 
6,444

BALANCE, MARCH 31, 2014
 
79,488,899

 
$
79

 
$
540,979

 
$
294,842

 
$
(3,741
)
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2015
 
79,503,552

 
$
79

 
$
541,589

 
$
339,400

 
$
1,705

Issuance of additional shares pursuant to various stock plans
 
38,769

 

 

 


 


Stock-based compensation
 


 


 
235

 


 


Cash dividends declared on common stock
 


 


 


 
(7,951
)
 


Comprehensive income:
 


 


 


 


 


Net income
 


 


 


 
21,358

 


Other comprehensive income
 


 


 


 


 
2,783

BALANCE, MARCH 31, 2015
 
79,542,321

 
$
79

 
$
541,824

 
$
352,807

 
$
4,488


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)
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES

 

Net income
$
21,358

 
$
22,196

Adjustments to reconcile net income to net cash from operating activities:

 


      Depreciation, amortization, net of discount accretion
(715
)
 
(4,564
)
Stock-based compensation expense
235

 
104

Provision for loan losses
1,500

 
3,026

Valuation adjustment of OREO
378

 
314

Proceeds from sales of loans held for sale
36,066

 
31,878

Originations of loans held for sale
(31,837
)
 
(28,414
)
Net gains on sales of SBA and other loans
(3,226
)
 
(2,722
)
Net change in BOLI
(269
)
 
(292
)
Net gains on sales of securities available for sale
(424
)
 

Net gains on sales of OREO
(110
)
 
(406
)
Loss on disposal of equipment
7

 

Change in accrued interest receivable
(270
)
 
(7
)
Change in deferred income taxes
5,290

 
6,284

Change in investments in affordable housing partnership
(599
)
 
507

Change in FDIC loss share receivable

 
857

Increase in servicing assets
(1,045
)
 
(815
)
Change in other assets
(12,428
)
 
7,972

Change in accrued interest payable
622

 
919

Change in other liabilities
1,715

 
(1,261
)
            Net cash provided by operating activities
16,248

 
35,576

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net change in loans receivable
(141,318
)
 
(109,295
)
Proceeds from sales of securities available for sale
22,510

 

Proceeds from sales of OREO
2,400

 
4,820

Proceeds from sales of other loans held for sale
1,326

 

Proceeds from sales and disposals of equipment
6

 

Purchase of premises and equipment
(1,101
)
 
(1,969
)
Purchase of securities available for sale
(65,632
)
 
(37,444
)
Redemption of FHLB stock
35

 
39

Proceeds from matured or paid-down securities available for sale
31,461

 
28,235

          Net cash used in investing activities
(150,313
)
 
(115,614
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net change in deposits
109,727

 
187,866

Redemption of subordinated debentures

 
(15,464
)
Cash dividends paid on Common Stock
(7,951
)
 
(5,958
)
            Net cash provided by financing activities
101,776

 
166,444

NET CHANGE IN CASH AND CASH EQUIVALENTS
(32,289
)
 
86,406

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
462,160

 
316,705

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
429,871

 
$
403,111

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
      Interest paid
$
8,809

 
$
7,469

      Income taxes paid
$
15,852

 
$
2,610

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
 
 
 
Transfer from loans receivable to OREO
$
412

 
$
187

Transfer from loans receivable to loans held for sale
$
450

 
$
34

Loans to facilitate sales of loans held for sale
$

 
$
5,250


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 Jersey, and the New York City, Chicago, Seattle and Washington, D.C. metropolitan areas, as well as loan production offices in Atlanta, Dallas, Denver, Northern California, Seattle and Annandale. The Company is a corporation organized under the laws of the state of Delaware and a 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, 2014 which was derived from audited financial statements included in the Company's 2014 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, 2015 and the results of operations for the three months then ended. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results to be anticipated for the full year.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are susceptible to change in the near term relate to the determination of the allowance and provision for loan losses, the evaluation of other than temporary impairment of investment securities, accounting for derivatives and hedging activities, 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, and the valuation of servicing assets.
These unaudited condensed consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in the Company's 2014 Annual Report on Form 10-K.
Recent Accounting Pronouncements:
FASB ASU No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. These amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Disclosures for a change in accounting principle are required upon transition. ASU 2014-01 is effective for interim and annual periods beginning after December 15, 2014. The Company did not elect to use the proportional amortization method in accounting for investments that qualify for low income housing tax credits. The adoption of ASU 2014-01 did not have a significant impact on the Company's financial statements.
FASB ASU No. 2014-04, Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. The amendment intends to clarify the terms defining when an in substance foreclosure occurs, which determines when the receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 will be effective for interim and annual periods beginning after December 31, 2014. The adoption of ASU No. 2014-04 did not have a material impact on the Company's consolidated financial statements.
FASB ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in ASU 2014-12 require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-

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date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. ASU 2014-12 is effective for interim and annual periods beginning after December 31, 2014 and did not have a significant impact on the Company's financial statements.
FASB ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The amendments in ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. ASU 2015-1 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. The adoption of ASU 2015-1 is not expected to have a significant impact on the Company's financial statements.
FASB ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. The adoption of ASU 2015-05 is not expected to have a significant impact on the Company's financial statements.
FASB ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The amendments in ASU 2015-07 remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient.The adoption of ASU 2015-07 is not expected to have a significant impact on the Company's financial statements.



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3.
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 the Company's 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 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 fair market value on the date of grant. Performance units are awarded to a participant at the market price of the Company’s common stock on the date of award (after the lapse of the restriction period and the attainment of the performance criteria). No minimum exercise price is prescribed for performance shares and restricted stock awarded under the 2007 Plan.
ISOs, SARs and NQSOs have vesting periods of three to five years and have 10-year contractual terms. Restricted stock, performance shares, and performance units will be granted with a restriction period of not less than one year from the grant date for performance-based awards and not more than three years from the grant date for time-based vesting of grants. Compensation expense for awards is recognized over the vesting period. 
The Company has another stock-based incentive plan, the 2006 Stock Incentive Plan, adopted April 12, 2006, as amended and restated June 13, 2007 (the "2006 Plan"). 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 Plan and 2006 Plan, 2,499,172 shares were available for future grants as of March 31, 2015.
The total shares reserved for issuance will serve as the underlying value for all equity awards under the 2007 Plan and 2006 Plan. With the exception of the shares underlying stock options and restricted stock awards, the board of directors may choose to settle the awards by paying the equivalent cash value or by delivering the appropriate number of shares.


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The following is a summary of stock option activity under the 2007 Plan and 2006 Plan for the three months ended March 31, 2015:
 
 
Number of
Shares
 
Weighted-
Average
Exercise
Price Per
Share
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
Outstanding - January 1, 2015
591,652

 
$
19.00

 
 
 
 
Granted

 

 
 
 
 
Exercised

 

 
 
 
 
Expired

 

 
 
 
 
Forfeited

 

 
 
 
 
Outstanding - March 31, 2015
591,652

 
$
19.00

 
1.73
 
$

Options exercisable - March 31, 2015
381,652

 
$
20.70

 
1.73
 
$


The following is a summary of restricted and performance unit activity under the 2007 Plan and 2006 Plan for the three months ended March 31, 2015:
 
 
Number of
Shares
 
Weighted-
Average Grant Date
Fair Value
Outstanding - January 1, 2015
175,668

 
$
13.52

Granted
5,000

 
13.69

Vested
(42,883
)
 
11.68

Forfeited

 

Outstanding - March 31, 2015
137,785

 
$
14.10


The total fair value of restricted performance units vested for the three months ended March 31, 2015 and 2014 was $575 thousand and $781 thousand, respectively.
The amount charged against income related to stock-based payment arrangements was $208 thousand and $104 thousand for the three months ended March 31, 2015 and 2014, respectively.
The income tax benefit recognized was $83 thousand and $43 thousand for the three months ended March 31, 2015 and 2014, respectively.
At March 31, 2015, the unrecognized compensation expense related to non-vested stock option grants $226 thousand which is expected to be recognized over a weighted average vesting period of 4.28 years. At March 31, 2015, the unrecognized compensation expense related to non-vested restricted units and performance units was $1.7 million which is expected to be recognized over a weighted average vesting period of 3.11 years.


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Table of Contents

4.
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 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, 2015 stock options and restricted shares awards for 627,818 shares of common stock were excluded in computing diluted earnings per common share because they were antidilutive. Additionally, warrants, issued pursuant to the Company's participation in the U.S. Treasury's TARP Capital Purchase Plan, to purchase 18,882 shares and 18,392 shares of common stock were antidilutive and excluded for the three months ended March 31, 2015 and 2014, respectively.
The following tables show the computation of basic and diluted EPS for the three months ended March 31, 2015 and 2014.
 
 
Three Months Ended March 31,
 
2015

2014
 
Net income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Per
Share
(Amount)
 
Net income
(Numerator)
 
Weighted-Average Shares
(Denominator)
 
Per
Share
(Amount)
 
(In thousands, except share and per share data)
Basic EPS - common stock
$
21,358

 
79,526,218

 
$
0.27

 
$
22,196

 
79,489,579

 
$
0.28

Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
 
Stock options and performance units
 
 
27,359

 
 
 
 
 
58,591

 
 
Common stock warrants
 
 
48,545

 
 
 
 
 
91,669

 
 
Diluted EPS - common stock
$
21,358

 
79,602,122

 
$
0.27

 
$
22,196

 
79,639,839

 
$
0.28


 
 
 
 
 
 
 
 
 
 
 
 



14

Table of Contents


5.    Securities Available for Sale
The following is a summary of securities available for sale as of the dates indicated:
 
 
At March 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government agency and U.S. Government sponsored enterprises
 
 
 
 
 
 
 
Collateralized mortgage obligations
$
328,066

 
$
2,650

 
$
(1,413
)
 
$
329,303

Mortgage-backed securities
441,097

 
7,178

 
(962
)
 
447,313

Trust preferred securities
4,535

 

 
(579
)
 
3,956

Municipal bonds
13,782

 
558

 
(7
)
 
14,333

Total debt securities
787,480

 
10,386

 
(2,961
)
 
794,905

Mutual funds
17,425

 
42

 

 
17,467

 
$
804,905

 
$
10,428

 
$
(2,961
)
 
$
812,372

 
 
 
 
 
 
 
 
 
At December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(In thousands)
Debt securities:
 
 
 
 
 
 
 
U.S. Government agency and U.S. Government sponsored enterprises
 
 
 
 
 
 
 
Collateralized mortgage obligations
$
304,947

 
$
1,376

 
$
(3,549
)
 
$
302,774

Mortgage-backed securities
460,487

 
6,528

 
(1,526
)
 
465,489

Trust preferred securities
4,531

 

 
(544
)
 
3,987

Municipal bonds
6,487

 
443

 

 
6,930

Total debt securities
776,452

 
8,347

 
(5,619
)
 
779,180

Mutual funds
17,425

 

 
(82
)
 
17,343

 
$
793,877

 
$
8,347

 
$
(5,701
)
 
$
796,523

 
As of March 31, 2015 and December 31, 2014, 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, 2015 and 2014, $5.3 million of unrealized gains and $11.1 million of unrealized gains, respectively, were included in accumulated other comprehensive income during the periods. A total of $424 thousand and $0 of net gains on sales of securities were reclassified out of accumulated other comprehensive loss into earnings for the three months ended March 31, 2015 and 2014, respectively.
The proceeds from sales of securities and the associated gross gains and losses recorded in earnings are listed below:
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Proceeds
$
22,510

 
$

Gross gains
424

 

Gross losses

 



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Table of Contents

The amortized cost and estimated fair value of debt securities at March 31, 2015, 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.
 
 
Amortized
Cost
 
Estimated
Fair Value
 
(In thousands)
Available for sale:
 
 
 
Due within one year
$
340

 
$
343

Due after one year through five years
754

 
839

Due after five years through ten years
9,207

 
9,605

Due after ten years
8,016

 
7,502

U.S. Government agency and U.S. Government sponsored enterprises
 
 
 
Collateralized mortgage obligations
328,066

 
329,303

Mortgage-backed securities
441,097

 
447,313

Mutual funds
17,425

 
17,467

 
$
804,905

 
$
812,372


Securities with carrying values of approximately $361.0 million and $366.2 million at March 31, 2015 and December 31, 2014, respectively, were pledged to secure public deposits, various borrowings and for other purposes as required or permitted by law.
The following table shows our investments’ gross unrealized losses and estimated fair value, aggregated by investment category and the length of time that the individual securities have been in a continuous unrealized loss position as of the dates indicated.
 
As of March 31, 2015
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
 (In thousands)
Collateralized mortgage obligations*
4

 
$
23,794

 
$
(66
)
 
9

 
$
89,356

 
$
(1,347
)
 
13

 
$
113,150

 
$
(1,413
)
Mortgage-backed securities*
6

 
48,076

 
(168
)
 
3

 
30,672

 
(794
)
 
9

 
78,748

 
(962
)
Trust preferred securities

 

 

 
1

 
3,956

 
(579
)
 
1

 
3,956

 
(579
)
Municipal bonds
2

 
1,399

 
(7
)
 

 

 

 
2

 
1,399

 
(7
)
Mutual funds

 

 

 

 

 

 

 

 

 
12

 
$
73,269

 
$
(241
)
 
13

 
$
123,984

 
$
(2,720
)
 
25

 
$
197,253

 
$
(2,961
)
* Investments in U.S. Government agency and U.S. Government sponsored enterprises


16

Table of Contents

 
As of December 31, 2014
 
Less than 12 months
 
12 months or longer
 
Total
Description of
Securities
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
Number of
Securities
 
Fair Value
 
Gross
Unrealized
Losses
 
 (In thousands)
Collateralized mortgage obligations*
7

 
$
71,189

 
$
(507
)
 
13

 
$
133,563

 
$
(3,042
)
 
20

 
$
204,752

 
$
(3,549
)
Mortgage-backed securities*
7

 
38,133

 
(139
)
 
6

 
62,036

 
(1,387
)
 
13

 
100,169

 
(1,526
)
Trust Preferred securities

 

 

 
1

 
3,988

 
(544
)
 
1

 
3,988

 
(544
)
Municipal bonds

 

 

 

 

 

 

 

 

Mutual funds

 

 

 
1

 
13,343

 
(82
)
 
1

 
13,343

 
(82
)
 
14

 
$
109,322

 
$
(646
)
 
21

 
$
212,930

 
$
(5,055
)
 
35

 
$
322,252

 
$
(5,701
)
* 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 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, among other considerations, 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 Company has certain collateralized mortgage obligations, mortgage-backed securities and trust preferred securities that were in a continuous unrealized loss position for twelve months or longer as of March 31, 2015. The trust preferred securities at March 31, 2015 had a an unrealized loss of $579 thousand at March 31, 2015. The trust preferred securities are scheduled to mature in May 2047. These securities were rated investment grade and there were no credit quality concerns with the obligor. The collateralized mortgage obligations and mortgage-backed securities in a continuous loss position for twelve months or longer had an unrealized loss of $1.3 million and $794 thousand, respectively at March 31, 2015. These securities were issued by U.S. Government agency and U.S. Government sponsored enterprises and have high credit ratings of "AA" grade or better. Interest on the trust preferred securities and the U.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 was primarily due to movements in interest rates and are not reflective of management’s expectations of the Company's ability to fully recover these investments, which may be at maturity. For these reasons, no OTTI was recognized on the trust preferred securities and the U.S. Government agency and U.S. Government sponsored collateralized mortgage obligations and mortgage-backed securities that are in an unrealized loss position at March 31, 2015.
The Company considers the losses on the investments in unrealized loss positions at March 31, 2015 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 the Company will not be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.



17

Table of Contents

6.
Loans Receivable and Allowance for Loan Losses
The following is a summary of loans receivable by major category:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Loan portfolio composition
 
 
 
Real estate loans:
 
 
 
Residential
$
23,092

 
$
21,415

Commercial & industrial
4,423,331

 
4,324,349

Construction
107,705

 
94,086

Total real estate loans
4,554,128

 
4,439,850

Commercial business
949,701

 
903,621

Trade finance
122,560

 
134,762

Consumer and other
87,558

 
89,849

Total loans outstanding
5,713,947

 
5,568,082

Less: deferred loan fees
(3,308
)
 
(2,890
)
Loans receivable
5,710,639

 
5,565,192

Less: allowance for loan losses
(69,594
)
 
(67,758
)
Loans receivable, net of allowance for loan losses
$
5,641,045

 
$
5,497,434


The 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"). 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, or "ACILs") 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, or "APLs").

The following table presents changes in the accretable discount on the ACILs for the three months ended March 31, 2015 and 2014:
 
Three Months Ended March 31,

2015

2014

(In thousands)
Balance at beginning of period
$
24,051


$
47,398

Accretion
(1,555
)

(4,867
)
Changes in expected cash flows
149


(9,948
)
Balance at end of period
$
22,645


$
32,583


On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated fair value of the ACILs 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 ACILs may change; and 3) estimates of the amount of the contractual principal and interest that will not be collected (nonaccretable difference) may change.

18

Table of Contents

The following tables detail the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2015 and 2014:
 
 
 
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
38,775

 
$
15,986

 
$
3,456

 
$
427

 
$
8,573

 
$
485

 
$

 
$
56

 
$
67,758

Provision (credit) for loan losses
(3,621
)
 
(22
)
 
(186
)
 
(1
)
 
5,310

 
23

 

 
(3
)
 
1,500

Loans charged off
(182
)
 
(451
)
 
(229
)
 
(13
)
 
(159
)
 
(87
)
 

 
(4
)
 
(1,125
)
Recoveries of charge offs
800

 
655

 

 
3

 

 
1

 

 
2

 
1,461

Balance, end of period
$
35,772

 
$
16,168

 
$
3,041

 
$
416

 
$
13,724

 
$
422

 
$

 
$
51

 
$
69,594


 
 
 
 
Legacy
 
Acquired
 
Total
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
Real Estate
 
Commercial Business
 
Trade Finance
 
Consumer and Other
 
 
(In thousands)
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
40,068

 
$
16,796

 
$
2,653

 
$
461

 
$
6,482

 
$
796

 
$

 
$
64

 
$
67,320

Provision (credit) for loan losses
(1,414
)
 
2,547

 
348

 
7

 
451

 
1,011

 

 
76

 
3,026

Loans charged off
(87
)
 
(3,725
)
 
(57
)
 
(1
)
 
(95
)
 
(1,220
)
 

 
(78
)
 
(5,263
)
Recoveries of charge offs
19

 
590

 

 

 

 
6

 

 
1

 
616

Balance, end of period
$
38,586

 
$
16,208

 
$
2,944

 
$
467

 
$
6,838

 
$
593

 
$

 
$
63

 
$
65,699



19

Table of Contents

The following tables disaggregate the allowance for loan losses and the loans outstanding by impairment methodology at March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
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
$
1,882

 
$
5,921

 
$
1,393

 
$

 
$
417

 
$
286

 
$

 
$

 
$
9,899

Collectively evaluated for impairment
33,890

 
10,247

 
1,648

 
416

 
660

 
136

 

 
51

 
47,048

ACILs

 

 

 

 
12,647

 

 

 

 
12,647

Total
$
35,772

 
$
16,168

 
$
3,041

 
$
416

 
$
13,724

 
$
422

 
$

 
$
51

 
$
69,594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
55,345

 
$
39,331

 
$
6,357

 
$
470

 
$
18,894

 
$
1,689

 
$

 
$
651

 
$
122,737

Collectively evaluated for impairment
4,029,737

 
842,903

 
116,203

 
37,886

 
354,580

 
36,771

 

 
24,619

 
5,442,699

ACILs

 

 

 

 
95,572

 
29,007

 

 
23,932

 
148,511

Total
$
4,085,082

 
$
882,234

 
$
122,560

 
$
38,356

 
$
469,046

 
$
67,467

 
$

 
$
49,202

 
$
5,713,947


 
December 31, 2014
 
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
$
1,940

 
$
6,929

 
$
1,312

 
$

 
$
434

 
$
307

 
$

 
$

 
$
10,922

Collectively evaluated for impairment
36,835

 
9,057

 
2,144

 
427

 
792

 
178

 

 
56

 
49,489

ACILs

 

 

 

 
7,347

 

 

 

 
7,347

Total
$
38,775

 
$
15,986

 
$
3,456

 
$
427

 
$
8,573

 
$
485

 
$

 
$
56

 
$
67,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
57,506

 
$
40,829

 
$
5,936

 
$
465

 
$
20,035

 
$
1,778

 
$

 
$
596

 
$
127,145

Collectively evaluated for impairment
3,864,289

 
784,407

 
128,826

 
37,312

 
397,147

 
43,460

 

 
25,859

 
5,281,300

ACILs

 

 

 

 
100,873

 
33,147

 

 
25,617

 
159,637

Total
$
3,921,795

 
$
825,236

 
$
134,762

 
$
37,777

 
$
518,055

 
$
78,385

 
$

 
$
52,072

 
$
5,568,082

As of March 31, 2015 and December 31, 2014, the liability for unfunded commitments was $1.3 million and $1.6 million, respectively. For the three months ended March 31, 2015 and 2014, the recognized credit or provision for credit losses related to unfunded commitments was $(240) thousand and $41 thousand, respectively.

20

Table of Contents

The recorded investment in individually impaired loans was as follows:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
With allocated allowance
 
 
 
Without charge off
$
65,201

 
$
67,352

With charge off
1,808

 
6,582

With no allocated allowance
 
 
 
Without charge off
49,330

 
46,885

With charge off
6,398

 
6,326

Allowance on impaired loans
(9,899
)
 
(10,922
)
Impaired loans, net of allowance
$
112,838

 
$
116,223



21

Table of Contents

The following tables detail impaired loans (Legacy and APLs that became impaired subsequent to being acquired) as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 and for the year ended December 31, 2014. Loans with no related allowance for loan losses are believed by management to have adequate collateral securing their carrying value.
 
 
 
As of March 31, 2015
 
For the Three Months Ended March 31, 2015
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
 
3,911

 
3,994

 
127

 
4,406

 
44

Hotel & motel
 
11,585

 
12,413

 
393

 
12,493

 
129

Gas station & car wash
 
813

 
965

 
343

 
1,359

 

Mixed use
 
481

 
497

 
10

 
481

 

Industrial & warehouse
 
6,921

 
6,935

 
31

 
4,516

 
76

Other
 
7,909

 
8,267

 
1,395

 
8,845

 
88

Real estate—construction
 

 

 

 

 

Commercial business
 
30,411

 
30,785

 
6,207

 
33,856

 
287

Trade finance
 
4,964

 
8,310

 
1,393

 
4,509

 
35

Consumer and other
 
14

 
16

 

 
7

 

 
 
$
67,009

 
$
72,182

 
$
9,899

 
$
70,472

 
$
659

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 

 

Retail
 
9,875

 
11,786

 

 
10,792

 
87

Hotel & motel
 
5,851

 
7,835

 

 
5,922

 

Gas station & car wash
 
3,797

 
6,358

 

 
3,245

 
25

Mixed use
 
1,998

 
2,305

 

 
1,793

 
9

Industrial & warehouse
 
9,460

 
11,189

 

 
11,917

 
77

Other
 
10,158

 
13,459

 

 
8,620

 
38

Real estate—construction
 
1,480

 
1,525

 

 
1,500

 

Commercial business
 
10,609

 
12,944

 

 
7,958

 
79

Trade finance
 
1,393

 
8,650

 

 
1,638

 

Consumer and other
 
1,107

 
1,182

 

 
1,084

 
7

 
 
$
55,728

 
$
77,233

 
$

 
$
54,469

 
$
322

Total
 
$
122,737

 
$
149,415

 
$
9,899

 
$
124,941

 
$
981


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

22

Table of Contents

 
 
For the Three Months Ended March 31, 2014
Total Impaired Loans
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
Real estate—residential
 
$

 
$

Real estate—commercial
 
 
 
 
Retail
 
5,826

 
23

Hotel & motel
 
11,831

 
133

Gas station & car wash
 
3,112

 
19

Mixed use
 
931

 
10

Industrial & warehouse
 
10,188

 
75

Other
 
10,137

 
94

Real estate—construction
 

 

Commercial business
 
31,269

 
297

Trade finance
 
5,490

 
49

Consumer and other
 
268

 

 
 
$
79,052

 
$
700

With no related allowance:
 
 
 
 
Real estate—residential
 
$

 
$

Real estate—commercial
 
 
 
 
Retail
 
6,134

 
58

Hotel & motel
 
6,501

 

Gas station & car wash
 
4,750

 

Mixed use
 
1,071

 

Industrial & warehouse
 
6,625

 
3

Other
 
2,844

 
16

Real estate—construction
 
1,615

 
21

Commercial business
 
8,854

 
61

Trade finance
 
488

 

Consumer and other
 
1,123

 
8

 
 
$
40,005

 
$
167

Total
 
$
119,057

 
$
867

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


23

Table of Contents

 
 
As of March 31, 2015
 
For the Three Months Ended March 31, 2015
Impaired APLs
 
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
 
2,602

 
2,588

 
66

 
2,128

 
37

Hotel & motel
 


 

 


 

 

Gas station & car wash
 
712

 
864

 
339

 
1,237

 

Mixed use
 
352

 
348

 
2

 
352

 

Industrial & warehouse
 
359

 
359

 
5

 
180

 
5

Other
 
317

 
317

 
6

 
1,040

 
4

Real estate—construction
 

 

 


 

 

Commercial business
 
657

 
831

 
286

 
713

 
1

Trade finance
 


 

 


 

 

Consumer and other
 
2

 
3

 

 
1

 

 
 
$
5,001

 
$
5,310

 
$
704

 
$
5,651

 
$
47

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
1,583

 
1,793

 

 
2,370

 
6

Hotel & motel
 
5,519

 
7,484

 

 
5,555

 

Gas station & car wash
 
1,032

 
1,079

 

 
521

 
15

Mixed use
 
223

 
372

 

 
111

 

Industrial & warehouse
 
1,224

 
1,381

 

 
1,481

 
1

Other
 
4,972

 
6,443

 

 
4,490

 
10

Real estate—construction
 

 

 

 

 

Commercial business
 
1,033

 
1,771

 

 
1,021

 
3

Trade finance
 

 

 

 

 

Consumer and other
 
649

 
723

 

 
622

 
2

 
 
$
16,235

 
$
21,046

 
$

 
$
16,171

 
$
37

Total
 
$
21,236

 
$
26,356

 
$
704

 
$
21,822

 
$
84


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




24

Table of Contents

 
 
For the Three Months Ended March 31, 2014
Impaired APLs
 
Average Recorded Investment*
 
Interest Income Recognized during Impairment
 
 
(In thousands)
With related allowance:
 
 
 
 
Real estate—residential
 
$

 
$

Real estate—commercial
 
 
 
 
Retail
 
248

 
1

Hotel & motel
 

 

Gas station & car wash
 
1,786

 
15

Mixed use
 

 

Industrial & warehouse
 
2,564

 

Other
 
1,387

 
2

Real estate—construction
 

 

Commercial business
 
1,468

 
5

Trade finance
 

 

Consumer and other
 

 

 
 
$
7,453

 
$
23

With no related allowance:
 
 
 
 
Real estate—residential
 
$

 
$

Real estate—commercial
 
 
 
 
Retail
 
1,539

 
7

Hotel & motel
 
6,410

 

Gas station & car wash
 
1,076

 

Mixed use
 
233

 

Industrial & warehouse
 
4,213

 
3

Other
 
2,179

 
8

Real estate—construction
 

 

Commercial business
 
1,215

 

Trade finance
 

 

Consumer and other
 
860

 
2

 
 
$
17,725

 
$
20

Total
 
$
25,178

 
$
43


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







25

Table of Contents

 
 
As of December 31, 2014
 
For the Year Ended
December 31, 2014
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
 
4,902

 
5,288

 
390

 
5,205

 
127

Hotel & motel
 
13,401

 
14,548

 
469

 
12,053

 
532

Gas station & car wash
 
1,904

 
3,507

 
379

 
2,440

 
60

Mixed use
 
482

 
497

 
13

 
823

 

Industrial & warehouse
 
2,111

 
2,126

 
13

 
7,309

 
119

Other
 
9,781

 
10,389

 
1,110

 
9,709

 
355

Real estate—construction
 

 

 

 

 

Commercial business
 
37,300

 
38,730

 
7,236

 
32,798

 
1,502

Trade finance
 
4,053

 
11,310

 
1,312

 
6,647

 

Consumer and other
 

 

 

 
114

 

 
 
$
73,934

 
$
86,395

 
$
10,922

 
$
77,098

 
$
2,695

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
Retail
 
11,708

 
13,492

 

 
8,462

 
358

Hotel & motel
 
5,992

 
8,728

 

 
6,655

 

Gas station & car wash
 
2,693

 
4,065

 

 
4,139

 
44

Mixed use
 
1,589

 
1,697

 

 
1,415

 
39

Industrial & warehouse
 
14,374

 
17,940

 

 
9,311

 
494

Other
 
7,083

 
9,886

 

 
5,118

 
93

Real estate—construction
 
1,521

 
1,545

 

 
1,583

 

Commercial business
 
5,307

 
6,880

 

 
8,349

 
50

Trade finance
 
1,883

 
5,000

 

 
724

 

Consumer and other
 
1,061

 
1,118

 

 
1,168

 
28

 
 
$
53,211

 
$
70,351

 
$

 
$
46,924

 
$
1,106

Total
 
$
127,145

 
$
156,746

 
$
10,922

 
$
124,022

 
$
3,801


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





26

Table of Contents

 
 
As of December 31, 2014
 
For the Year Ended
December 31, 2014
Impaired APLs
 
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
 
1,653

 
1,638

 
36

 
838

 
97

Hotel & motel
 

 

 

 

 

Gas station & car wash
 
1,762

 
1,953

 
379

 
1,783

 
60

Mixed use
 
352

 
348

 
2

 
212

 

Industrial & warehouse
 

 

 

 
1,026

 

Other
 
1,763

 
2,016

 
17

 
1,134

 
5

Real estate—construction
 

 

 

 

 

Commercial business
 
769

 
928

 
307

 
1,090

 
15

Trade finance
 

 

 

 

 

Consumer and other
 

 

 

 

 

 
 
$
6,299

 
$
6,883

 
$
741

 
$
6,083

 
$
177

With no related allowance:
 
 
 
 
 
 
 
 
 
 
Real estate—residential
 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 

 
 
 
 
 
 
Retail
 
3,158

 
3,376

 

 
1,869

 
27

Hotel & motel
 
5,591

 
7,493

 

 
6,067

 

Gas station & car wash
 
9

 
297

 

 
621

 

Mixed use
 

 

 

 
275

 

Industrial & warehouse
 
1,737

 
1,954

 

 
2,673

 
39

Other
 
4,009

 
5,174

 

 
3,798

 
41

Real estate—construction
 

 

 

 

 

Commercial business
 
1,009

 
1,758

 

 
1,321

 
4

Trade finance
 

 

 

 

 

Consumer and other
 
596

 
652

 

 
772

 
8

 
 
$
16,109

 
$
20,704

 
$

 
$
17,396

 
$
119

Total
 
$
22,408

 
$
27,587

 
$
741

 
$
23,479

 
$
296

*
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 collectibility of the principal and/or interest to be in question, as well as when required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are considered for 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.

27

Table of Contents

The following tables present the aging of past due loans as of March 31, 2015 and December 31, 2014 by class of loans:
 
As of March 31, 2015
 
Past Due and Accruing
 
 
 
 
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 or More Days Past Due
 
Total
 
Nonaccrual Loans (2)
 
Total Delinquent Loans
 
(In thousands)
Legacy Loans:
 
Real estate—residential
$

 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail

 
273

 

 
273

 
2,441

 
2,714

Hotel & motel
183

 
584

 

 
767

 
548

 
1,315

Gas station & car wash
329

 
241

 

 
570

 
2,151

 
2,721

Mixed use
436

 

 

 
436

 
1,120

 
1,556

Industrial & warehouse

 

 

 

 
1,251

 
1,251

Other

 
81

 

 
81

 
2,988

 
3,069

Real estate—construction

 

 

 

 
1,480

 
1,480

Commercial business
3,596

 
386

 

 
3,982

 
8,174

 
12,156

Trade finance
100

 

 

 
100

 
3,047

 
3,147

Consumer and other
257

 

 

 
257

 
12

 
269

     Subtotal
$
4,901

 
$
1,565

 
$

 
$
6,466

 
$
23,212

 
$
29,678

Acquired Loans: (1)
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
$

 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail

 

 

 

 
1,339

 
1,339

Hotel & motel

 

 

 

 
5,519

 
5,519

Gas station & car wash
1,032

 

 

 
1,032

 
712

 
1,744

Mixed use
113

 

 

 
113

 
574

 
687

Industrial & warehouse

 

 

 

 
1,151

 
1,151

Other

 

 

 

 
3,852

 
3,852

Real estate—construction

 

 

 

 

 

Commercial business
133

 
66

 

 
199

 
1,370

 
1,569

Trade finance

 

 

 

 

 

Consumer and other
16

 

 

 
16

 
1,026

 
1,042

     Subtotal
$
1,294

 
$
66

 
$

 
$
1,360

 
$
15,543

 
$
16,903

TOTAL
$
6,195

 
$
1,631

 
$

 
$
7,826

 
$
38,755

 
$
46,581

(1) 
The Acquired Loans exclude ACILs.
(2) 
Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $26.1 million.


28

Table of Contents

 
As of December 31, 2014
 
Past Due and Accruing
 
 
 
 
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 or More Days Past Due
 
Total
 
Nonaccrual Loans (2)
 
Total Delinquent Loans
 
(In Thousands)
Legacy Loans:
 
Real estate—residential
$

 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
201

 
351

 

 
552

 
4,586

 
5,138

Hotel & motel
299

 

 

 
299

 
2,336

 
2,635

Gas station & car wash

 

 

 

 
2,105

 
2,105

Mixed use
437

 

 

 
437

 
930

 
1,367

Industrial & warehouse

 
208

 

 
208

 
2,335

 
2,543

Other
455

 
524

 

 
979

 
2,150

 
3,129

Real estate—construction

 

 

 

 
1,521

 
1,521

Commercial business
655

 
729

 

 
1,384

 
9,640

 
11,024

Trade finance

 

 

 

 
3,194

 
3,194

Consumer and other
36

 

 

 
36

 
18

 
54

     Subtotal
$
2,083

 
$
1,812

 
$

 
$
3,895

 
$
28,815

 
$
32,710

Acquired Loans: (1)
 
 
 
 
 
 
 
 
 
 
 
Real estate—residential
$

 
$

 
$

 
$

 
$

 
$

Real estate—commercial
 
 
 
 
 
 
 
 
 
 
 
Retail
1,402

 

 

 
1,402

 
2,792

 
4,194

Hotel & motel

 

 

 

 
5,591

 
5,591

Gas station & car wash

 

 

 

 
736

 
736

Mixed use
345

 

 

 
345

 
352

 
697

Industrial & warehouse

 

 
361

 
361

 
1,185

 
1,546

Other

 

 

 

 
4,370

 
4,370

Real estate—construction

 

 

 

 

 

Commercial business
36

 
347

 

 
383

 
1,468

 
1,851

Trade finance

 

 

 

 

 

Consumer and other
23

 
90

 

 
113

 
1,044

 
1,157

     Subtotal
$
1,806

 
$
437

 
$
361

 
$
2,604

 
$
17,538

 
$
20,142

TOTAL
$
3,889

 
$
2,249

 
$
361

 
$
6,499

 
$
46,353

 
$
52,852

(1) 
The Acquired Loans exclude ACILs.
(2) Nonaccrual loans exclude guaranteed portion of delinquent SBA loans that are in liquidation totaling $28.9 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, ACILs 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.
The Company categorizes 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. The Company analyzes 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. The definitions for risk ratings are as follows:
Pass: Loans that meet a preponderance or more of the Company's underwriting criteria and evidence an acceptable level of risk.
Special Mention: Loans that 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.

29

Table of Contents

Substandard: Loans that 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 that 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, 2015 and December 31, 2014 by class of loans:
 
As of March 31, 2015
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—residential
$
22,366

 
$

 
$

 
$

 
$
22,366

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
998,800

 
19,594

 
13,262

 

 
1,031,656

Hotel & motel
817,621

 
114

 
5,900

 

 
823,635

Gas station & car wash
560,789

 
14,153

 
8,837

 

 
583,779

Mixed use
301,984

 
792

 
1,576

 

 
304,352

Industrial & warehouse
398,807

 
5,571

 
12,199

 

 
416,577

Other
754,685

 
25,572

 
14,755

 

 
795,012

Real estate—construction
106,225

 

 
1,480

 

 
107,705

Commercial business
823,050

 
18,996

 
39,972

 
216

 
882,234

Trade finance
104,595

 
5,242

 
12,723

 

 
122,560

Consumer and other
37,879

 
7

 
458

 
12

 
38,356

Subtotal
$
4,926,801

 
$
90,041

 
$
111,162

 
$
228

 
$
5,128,232

Acquired Loans:
 
 
 
 
 
 
 
 
 
Real estate—residential
$
438

 
$
288

 
$

 
$

 
$
726

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
150,030

 
3,699

 
22,038

 

 
175,767

Hotel & motel
54,108

 
3,834

 
9,037

 

 
66,979

Gas station & car wash
27,352

 
391

 
7,801

 

 
35,544

Mixed use
25,647

 
6,945

 
3,006

 

 
35,598

Industrial & warehouse
56,360

 
1,536

 
12,182

 

 
70,078

Other
69,129

 
549

 
14,640

 
36

 
84,354

Real estate—construction

 

 

 

 

Commercial business
43,488

 
3,319

 
19,481

 
1,179

 
67,467

Trade finance

 

 

 

 

Consumer and other
38,304

 
1,696

 
8,470

 
732

 
49,202

Subtotal
$
464,856

 
$
22,257

 
$
96,655

 
$
1,947

 
$
585,715

Total
$
5,391,657

 
$
112,298

 
$
207,817

 
$
2,175

 
$
5,713,947


 

30

Table of Contents

 
As of December 31, 2014
 
Pass
 
Special
Mention
 
Substandard
 
Doubtful/Loss
 
Total
 
(In thousands)
Legacy Loans:
 
 
 
Real estate—residential
$
20,586

 
$

 
$

 
$

 
$
20,586

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
1,015,195

 
20,177

 
14,805

 

 
1,050,177

Hotel & motel
784,586

 
114

 
7,746

 

 
792,446

Gas station & car wash
553,901

 

 
8,857

 

 
562,758

Mixed use
288,409

 
1,147

 
2,187

 

 
291,743

Industrial & warehouse
347,805

 
9,181

 
12,313

 

 
369,299

Other
699,644

 
28,044

 
13,013

 

 
740,701

Real estate—construction
92,564

 

 
1,521

 

 
94,085

Commercial business
765,280

 
18,792

 
41,138

 
26

 
825,236

Trade finance
103,844

 
18,599

 
12,319

 

 
134,762

Consumer and other
37,256

 
38

 
470

 
13

 
37,777

Subtotal
$
4,709,070

 
$
96,092

 
$
114,369

 
$
39

 
$
4,919,570

Acquired Loans:
 
 
 
Real estate—residential
$
539

 
$
290

 
$

 
$

 
$
829

Real estate—commercial
 
 
 
 
 
 
 
 
 
Retail
157,485

 
3,531

 
25,469

 

 
186,485

Hotel & motel
69,236

 
3,889

 
9,241

 

 
82,366

Gas station & car wash
27,936

 
369

 
8,542

 
268

 
37,115

Mixed use
25,843

 
7,001

 
3,048

 

 
35,892

Industrial & warehouse
66,214

 
667

 
14,177

 

 
81,058

Other
76,956

 
2,076

 
15,242

 
36

 
94,310

Real estate—construction

 

 

 

 

Commercial business
48,270

 
6,331

 
22,721

 
1,063

 
78,385

Trade finance

 

 

 

 

Consumer and other
40,136

 
2,089

 
9,066

 
781

 
52,072

Subtotal
$
512,615

 
$
26,243

 
$
107,506

 
$
2,148

 
$
648,512

Total
$
5,221,685

 
$
122,335

 
$
221,875

 
$
2,187

 
$
5,568,082

 
 
 
 
 
Three Months Ended March 31,
 
2015
 
2014
Reclassification to held for sale
(In thousands)
Real estate - Commercial
$
384

 
$

Commercial Business
66

 

     Total
$
450

 
$



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.
Migration analysis is a formula methodology derived from the Bank's actual historical net charge off experience for each loan class (type) pool and risk grade. The migration analysis ("Migration Analysis") is centered on the Bank's internal credit risk rating system. Management's 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.

31

Table of Contents

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 migration analysis methodology described above. 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 on the most recent loss history. That loss experience is then applied to the stratified portfolio at each quarter end. For ACILs, a general loan loss allowance is provided to the extent that there has been credit deterioration since the date of acquisition. 
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. 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 Company also establishes specific loss allowances for loans that 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, management obtains 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, management either obtains 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 the collateral property has declined since the most recent valuation date, management adjusts the value of the property downward to reflect current market conditions. If the fair value of the collateral is less than the recorded amount of the loan, management recognizes 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 Company 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, management bases 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

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value of the loan's collateral if the loan is collateral dependent. Management evaluates 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.
For ACILs, 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 acquisition of the loans, an allowance for loan losses would be established based on an 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, 2015 and December 31, 2014:
 
 
As of March 31, 2015
 
Real Estate—
Residential
 
Real Estate—
Commercial
 
Real Estate—
Construction
 
Commercial
Business
 
Trade
Finance
 
Consumer
and Other
 
Total
 
(In thousands)
Impaired loans (gross carrying value)
$

 
$
72,759

 
$
1,480

 
$
41,020

 
$
6,357

 
$
1,121

 
$
122,737

Specific allowance
$

 
$
2,299

 
$

 
$
6,207

 
$
1,393

 
$

 
$
9,899

Loss coverage ratio
0.0
%
 
3.2
%
 
0.0
%
 
15.1
%
 
21.9
%
 
0.0
%
 
8.1
%
Non-impaired loans
$
23,092

 
$
4,350,572

 
$
106,225

 
$
908,681

 
$
116,203

 
$
86,437

 
$
5,591,210

General allowance
$
146

 
$
46,295

 
$
756

 
$
10,383

 
$
1,648

 
$
467

 
$
59,695

Loss coverage ratio
0.6
%
 
1.1
%
 
0.7
%
 
1.1
%
 
1.4
%
 
0.5
%
 
1.1
%
Total loans
$
23,092

 
$
4,423,331

 
$
107,705

 
$
949,701

 
$
122,560

 
$
87,558

 
$
5,713,947

Total allowance for loan losses
$
146

 
$
48,594

 
$
756

 
$
16,590

 
$
3,041

 
$
467

 
$
69,594

Loss coverage ratio
0.6
%
 
1.1
%
 
0.7
%
 
1.7
%
 
2.5
%
 
0.5
%
 
1.2
%

 
As of December 31, 2014
 
Real Estate—
Residential
 
Real Estate—
Commercial
 
Real Estate—
Construction
 
Commercial
Business
 
Trade
Finance
 
Consumer
and Other
 
Total
 
(In thousands)
Impaired loans (gross carrying value)
$

 
$
76,020

 
$
1,521

 
$
42,607

 
$
5,936

 
$
1,061

 
$
127,145

Specific allowance
$

 
$
2,374

 
$

 
$
7,236

 
$
1,312

 
$

 
$
10,922

Loss coverage ratio
N/A

 
3.1
%
 
0.0
%
 
17.0
%
 
22.1
%
 
0.0
%
 
8.6
%
Non-impaired loans
$
21,415

 
$
4,248,329

 
$
92,565

 
$
861,014

 
$
128,826

 
$
88,788

 
$
5,440,937

General allowance
$
146

 
$
44,161

 
$
667

 
$
9,235

 
$
2,144

 
$
483

 
$
56,836

Loss coverage ratio
0.7
%
 
1.0
%
 
0.7
%
 
1.1
%
 
1.7
%
 
0.5
%
 
1.0
%
Total loans
$
21,415

 
$
4,324,349

 
$
94,086

 
$
903,621

 
$
134,762

 
$
89,849

 
$
5,568,082

Total allowance for loan losses
$
146

 
$
46,535

 
$
667

 
$
16,471

 
$
3,456

 
$
483

 
$
67,758

Loss coverage ratio
0.7
%
 
1.1
%
 
0.7
%
 
1.8
%
 
2.6
%
 
0.5
%
 
1.2
%
Under certain circumstances, the Company provides borrowers relief through loan modifications. These modifications are either temporary in nature (“temporary modifications”) or are more substantive. At March 31, 2015, total modified loans were

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$75.0 million, compared to $76.1 million at December 31, 2014. 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 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.
 
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 the Bank's internal underwriting policy.
A summary of TDRs on accrual and nonaccrual status by type of concession as of March 31, 2015 and December 31, 2014 is presented below:
 
As of March 31, 2015
 
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
$
12,137

 
$
511

 
$

 
$
12,648

 
$
3,886

 
$
479

 
$

 
$
4,365

 
$
17,013

Maturity / Amortization concession
3,952

 
18,887

 
3,943

 
26,782

 
1,039

 
2,035

 
1,629

 
4,703

 
31,485

Rate concession
13,563

 
4,911

 

 
18,474

 
7,762

 
42

 
174

 
7,978

 
26,452

Principal forgiveness

 

 

 

 

 
14

 

 
14

 
14

 
$
29,652

 
$
24,309

 
$
3,943

 
$
57,904

 
$
12,687

 
$
2,570

 
$
1,803

 
$
17,060

 
$
74,964


 
As of December 31, 2014
 
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
$
12,235

 
$
556

 
$

 
$
12,791

 
$
3,840

 
$
517

 
$

 
$
4,357

 
$
17,148

Maturity / Amortization concession
2,189

 
20,053

 
3,387

 
25,629

 
1,207

 
3,158

 
1,550

 
5,915

 
31,544

Rate concession
13,684

 
5,024

 

 
18,708

 
8,473

 
80

 
176

 
8,729

 
27,437

Principal forgiveness

 

 

 

 

 
15

 

 
15

 
15

 
$
28,108

 
$
25,633

 
$
3,387

 
$
57,128

 
$
13,520

 
$
3,770

 
$
1,726

 
$
19,016

 
$
76,144

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 status 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, 2015 were comprised of 26 commercial real estate loans totaling $29.7 million, 29 commercial business loans totaling $24.3 million, and 3 consumer and other loans totaling $3.9 million. TDRs on accrual status at December 31, 2014 were comprised of 24 commercial real estate loans totaling $28.1 million, 30 commercial business loans totaling $25.6 million and 3 consumer and other loans totaling $3.4 million.  The Company expects that the TDRs on accrual status as of March 31, 2015, 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 reserved for under ASC 310-10.
 
The Company has allocated $3.7 million and $5.7 million of specific reserves to TDRs as of March 31, 2015 and December 31, 2014, respectively. 

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The following table presents loans by class modified as TDRs that occurred during the three months ended March 31, 2015 and 2014:
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
 
Number of
Loans 
 
Pre-
Modification
 
Post-
Modification 
 
(Dollars in thousands)
Legacy Loans:
 
 
 
 
 
 
 
 
 
 
 
Real estate—commercial
 
 
 

 
 

 
 
 
 
 
 
Retail

 
$

 
$

 

 
$

 
$

Hotel & motel

 

 

 

 

 

Gas station & car wash
1

 
142

 
137

 

 

 

Mixed use

 

 

 

 

 

Industrial & warehouse

 

 

 

 

 

Other
2

 
1,762

 
1,765

 
1

 
1,023

 
1,018

Real estate - construction

 

 

 

 

 

Commercial business
2

 
91

 
46

 
2

 
296

 
121

Trade finance

 

 

 

 

 

Consumer and other

 

 

 
1

 
195

 
192

Subtotal
5

 
$
1,995

 
$
1,948

 
4

 
$
1,514

 
$
1,331

Acquired Loans:
 
 
 
 
 
 
 
 
 
 
 
Real estate—commercial
 
 
 

 
 

 
 
 
 
 
 
Retail

 
$

 
$

 
2

 
$
1,075

 
$
1,062

Hotel & motel

 

 

 

 

 

Gas station & car wash

 

 

 
1

 
794

 
756

Mixed use

 

 

 

 

 

Industrial & warehouse
1

 
361

 
359

 
1

 
75

 
74

Other

 

 

 
1

 
1,023

 
1,001

Real estate—construction

 

 

 

 

 

Commercial business

 

 

 
7

 
457

 
215

Trade finance

 

 

 

 

 

Consumer and other

 

 

 
1

 
195

 
187

Subtotal
1

 
$
361

 
$
359

 
13

 
$
3,619

 
$
3,295

Total
6

 
$
2,356

 
$
2,307

 
17

 
$
5,133

 
$
4,626

The specific reserves for the TDRs that occurred during the three ended March 31, 2015 totaled $5 thousand and there were $43 thousand in charge offs for the three months ended March 31, 2015. The specific reserves for the TDRs that occurred during the three months ended March 31, 2014 totaled $535 thousand and there were $18 thousand in charge offs for the three months ended March 31, 2014.
 

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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 months ended March 31, 2015 and 2014:

 
Three Months Ended
March 31, 2015
 
Three Months Ended
March 31, 2014
 
Number of Loans
 
Balance
 
Number of Loans
 
Balance
 
(Dollars In thousands)
Legacy Loans:
 
 
 
 
 
 
 
Real estate—commercial
 
 
 
 
 
 
 
Retail

 
$

 

 
$

Gas station & car wash
1

 
137

 

 

Industrial & warehouse
1

 
21

 

 

Other
1

 
348

 

 

Commercial business
1

 
14

 
2

 
536

Subtotal
4

 
$
520

 
2

 
$
536

Acquired Loans:
 
 
 
 
 
 
 
Real estate—commercial
 

 
 

 
 
 
 
Retail
2

 
$
1,025

 
2

 
$
268

Gas station & car wash

 

 

 

Hotel & motel

 

 

 

Industrial & warehouse

 

 

 

Other

 

 

 

Commercial business
1

 
48

 
2

 
44

Subtotal
3

 
$
1,073

 
4

 
$
312

 
7

 
$
1,593

 
6

 
$
848

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. As of March 31, 2015, the specific reserves totaled $11 thousand for the TDRs that had payment defaults during the three months ended March 31, 2015, respectively., and as of March 31, 2014, the specific reserves totaled $45 thousand. The total charge offs for the TDRs that had payment defaults during the three months ended March 31, 2015 were $0, and the charge offs totaled $480 thousand for the three months ended March 31, 2014.
There were four Legacy Loans that subsequently defaulted during the three months ended March 31, 2015 that were modified as follows: one Commercial Business loan totaling $14 thousand was modified through payment concession, two Real Estate Commercial loans totaling $158 thousand were modified through payment concessions, and one Real Estate Commercial loan totaling $348 thousand was modified through maturity concession.
There were three Acquired Loans that defaulted during the three months ended March 31, 2015 that were modified as follows: one Commercial Business loan totaling $48 thousand were modified through rate concession, one Real Estate Commercial loan totaling $906 thousand was modified through payment concession, and one Real Estate Commercial loan totaling $119 thousand was modified through rate concession.
There were two Commercial Business Legacy Loans that defaulted during the three months ended March 31, 2014. The loans totaled $536 thousand and were modified through a maturity/amortization concession.
There were four Acquired Loans that defaulted during the three months ended March 31, 2014 which were modified as follows: two Commercial Business loans totaling $44 thousand were modified through payment concessions and two Real Estate Commercial loans totaling $268 thousand were modified through payment concessions.

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Covered Assets
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 $1.4 million and $1.5 million at March 31, 2015 and December 31, 2014, respectively. These covered nonperforming assets are subject to the loss sharing agreements with the FDIC. The covered nonperforming assets at March 31, 2015 and December 31, 2014 were as follows:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Covered loans on nonaccrual status
$
1,304

 
$
1,355

Covered OREO
96

 
96

     Total covered nonperforming assets
$
1,400

 
$
1,451

 
 
 
 
Acquired covered loans
$
30,708

 
$
32,560

Related Party Loans
In the ordinary course of business, the Company enters 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 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, 2015 and December 31, 2014, and the outstanding principal balance as of March 31, 2015 and December 31, 2014 was $3.6 million and $3.7 million, respectively.


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7.
Borrowings
The Company maintains 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 $2.22 billion at March 31, 2015 and $2.17 billion at December 31, 2014. 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, 2015 and December 31, 2014, real estate secured loans with a carrying amount of approximately $2.95 billion and $2.89 billion, respectively, were pledged as collateral for borrowings from the FHLB. At March 31, 2015 and December 31, 2014, other than FHLB stock, no securities are pledged as collateral for borrowings from the FHLB.
At March 31, 2015 and December 31, 2014, FHLB advances were $480.9 million and $481.0 million, respectively, had a weighted average interest rate of 1.09% and 1.09%, respectively, and had various maturities through October 2019. At March 31, 2015 and December 31, 2014, $20.9 million and $21.0 million, respectively, of the advances were putable advances with various putable dates and strike prices. The cost of FHLB advances as of March 31, 2015 ranged between 0.47% and 3.67%. At March 31, 2015, the Company had a remaining borrowing capacity of $1.74 billion.
At March 31, 2015, the contractual maturities for FHLB advances were as follows:

Contractual
Maturities

Maturity/
Put Date
 
(In thousands)
Due within one year
$
50,000

 
$
70,881

Due after one year through five years
430,881

 
410,000


$
480,881

 
$
480,881


In addition, as a member of the FRB system, the Bank may also borrow from the FRB of San Francisco. The maximum amount that the Bank 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 are pledged. At March 31, 2015, the outstanding principal balance of the qualifying loans was $624.9 million, and the collateral value of investment securities was $1.4 million. There were no borrowings outstanding against this line as of March 31, 2015 and December 31, 2014.

8.
Subordinated Debentures
At March 31, 2015, the Company had five wholly-owned subsidiary grantor trusts that had issued $46 million of pooled trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”) of BBCN Bancorp. The Debentures are the sole assets of the trusts. The Company’s obligations under the subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company 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. The Company has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company also has a right to defer consecutive payments of interest on the debentures for up to five years.
The following table is a summary of trust preferred securities and Debentures at March 31, 2015:
Issuance Trust

Issuance
Date

Trust
Preferred
Security
Amount

Carrying Value of Subordinated
Debentures

Rate
Type

Stated Rate

Effective Rate

Maturity
Date
 
 
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
Nara Capital Trust III

6/5/2003

$
5,000


$
5,155


Variable

3.42
%

3.42
%

6/15/2033
Nara Statutory Trust IV

12/22/2003

5,000


5,155


Variable

3.10
%

3.10
%

1/7/2034
Nara Statutory Trust V

12/17/2003

10,000


10,310


Variable

3.22
%

3.22
%

12/17/2033
Nara Statutory Trust VI

3/22/2007

8,000


8,248


Variable

1.92
%

1.92
%

6/15/2037
Center Capital Trust I

12/30/2003

18,000


13,331


Variable

3.10
%

5.56
%
(1) 
1/7/2034
TOTAL ISSUANCE



$
46,000


$
42,199









(1) The Center Capital Trust I trust preferred security has a remaining discount of $5.3 million at March 31, 2015. The effective rate of the security includes the effect of the remaining discount accretion.

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The Company’s investment in the common trust securities of the issuer trusts of $1.5 million and $1.6 million at March 31, 2015 and December 31, 2014, 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, 2015, $40.8 million of the trusts’ securities qualified as Tier 1 capital.


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Table of Contents

9.    Derivative Financial Instruments

The Company offers a loan hedging program to certain loan customers.  Through this program, the Company originates a variable rate loan with the customer.  The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a correspondent bank. These “back to back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities.  The changes in fair value are recognized in the income statement in other income and fees.

At March 31, 2015, the following interest rate swaps related to our loan hedging program were outstanding

 
 
As of March 31, 2015
Interest rate swaps on loans with loan customers
 
 
Notional amount (in thousands)
 
$
79,662

Weighted average remaining term
 
7.3 years

Received fixed rate (weighted average)
 
4.35
%
Pay variable rate (weighted average)
 
2.50
%
Estimated fair value
 
$
2,764

 
 
 
Back to back interest rate swaps with correspondent banks
 
 
Notional amount (in thousands)
 
$
79,662

Weighted average remaining term
 
7.3 years

Received variable rate (weighted average)
 
2.50
%
Pay fixed rate (weighted average)
 
4.35
%
Estimated fair value
 
$
(2,764
)
 
 
 

 



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Table of Contents

10.
Intangible Assets
The carrying amount of the Company's goodwill as of March 31, 2015 and December 31, 2014 was $105.4 million. There was no impairment of goodwill during the three month periods ended March 31, 2015 and 2014.
Core deposit intangible assets are amortized over their estimated lives, which range from seven to ten years. Amortization expense related to core deposit intangible assets totaled $267 thousand and $324 thousand for the three months ended March 31, 2015 and 2014, respectively. The following table provides information regarding the core deposit intangibles at March 31, 2015:
 
 
 
As of March 31, 2015
 
Amortization period
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Core deposit—Center Financial Corporation acquisition
7 years
 
$
4,100

 
$
(2,828
)
Core deposit—PIB acquisition
7 years
 
603

 
(297
)
Core deposit—Foster acquisition
10 years
 
2,763

 
(721
)
Total
 
 
$
7,466

 
$
(3,846
)

 
 
 
 
 
 
 
 
 
 
Servicing assets are recognized when SBA loans are sold with servicing retained with the income statement effect recorded in gains on sales of SBA loans. Servicing assets are initially recorded at fair value based on the present value of the contractually specified servicing fee, net of servicing costs, over the estimated life of the loan, using a discount rate based on the related note rate. The Company's servicing costs approximates the industry average servicing costs of 40 basis points. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Management periodically evaluates servicing assets for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on loan type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount.
The changes in servicing assets for the three months ended March 31, 2015 and 2014 were as follows:

 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
Balance at beginning of period
 
$
10,341

 
$
8,915

Additions through originations of servicing assets
 
1,045

 
815

Amortization
 
(857
)
 
(607
)
Balance at end of period
 
$
10,529

 
$
9,123


The Company utilizes the discounted cash flow method to calculate the initial excess servicing assets. The inputs used in determining the fair value of the servicing assets at March 31, 2015 and December 31, 2014 are presented below.
 
 
March 31, 2015
 
December 31, 2014
 
 
Range
 
Range
Weighted-average discount rate
 
5.30% ~ 5.68%
 
5.44% ~ 5.74%
Constant prepayment rate
 
7.00% ~ 11.90%
 
8.80% ~12.40%

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Table of Contents

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 $1.8 million and $1.8 million at March 31, 2015 and December 31, 2014, respectively, that relate primarily to uncertainties related to California enterprise zone loan interest deductions.
Management does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
The statute of limitations related to the consolidated Federal income tax returns is closed for all tax years up to and including 2009. 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 the Internal Revenue Service (IRS) for the 2011 tax year and by the California Franchise Tax Board (FTB) for the 2009 and 2010 tax years. While the outcome of the examinations is unknown, the Company expects no material adjustments. The Company recognizes interest and penalties related to income tax matters in income tax expense.  The Company recorded approximately $110 thousand and $96 thousand for accrued interest and penalties at March 31, 2015 and December 31, 2014, 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, 2015.


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Table of Contents

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 and result in a Level 2.
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.


43

Table of Contents

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
 
March 31, 2015

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
$
329,303


$


$
329,303


$

GSE mortgage-backed securities
447,313




447,313



Trust preferred securities
3,956




3,956



Municipal bonds
14,333




13,138


1,195

Mutual funds
17,467


17,467





 
 
 
 
 
 
 
 


 
 
 
 
Fair Value Measurements at the End of the Reporting Period Using
 
December 31, 2014
 
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
$
302,774

 
$

 
$
302,774

 
$

GSE mortgage-backed securities
465,489

 

 
465,489

 

Trust preferred securities
3,987

 

 
3,987

 

Municipal bonds
6,930

 

 
5,752

 
1,178

Mutual funds
17,343

 
17,343

 

 


There were no transfers between Level 1, 2 and 3 during the period ended March 31, 2015 and 2014. 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 three months ended March 31, 2015:
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
Beginning Balance, January 1
 
$
1,178

 
$
1,112

Purchases, issuances and settlements
 

 

Amortization
 

 

Total gains or (losses) included in earnings
 

 

Total gains included in other comprehensive income
 
17

 
20

Ending Balance, March 31
 
$
1,195

 
$
1,132




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Table of Contents

Assets measured at fair value on a non-recurring basis are summarized below:
 
 
 

Fair Value Measurements at the End of the Reporting Period Using
 
March 31, 2015

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
$
37,813


$


$
37,813


$

Commercial business
5,545




5,545



Trade finance
1,654

 

 
1,654

 

Consumer
584

 

 
584

 

Loans held for sale, net
1,554




1,554



OREO
3,065




3,065




 
 
 
Fair Value Measurements at the End of the Reporting Period Using
 
December 31, 2014
 
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
$
43,708

 
$

 
$
43,708

 
$

Commercial business
4,114

 

 
4,114

 

Trade Finance
1,883

 

 
1,883

 

Consumer
596

 

 
596

 

Loans held for sale, net
2,000

 

 
2,000

 

OREO
17,985

 

 
17,985

 


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

 
For the Three Months ended March 31,
 
2015
 
2014
 
(In thousands)
Assets:
 
 
 
Impaired loans at fair value:
 
 
 
Real estate loans
$
534

 
$
1,704

Commercial business
1,274

 
(10,715
)
Trade Finance
(310
)
 
(659
)
Consumer
(12
)
 
(46
)
Loans held for sale, net
182

 

OREO
(425
)
 
(11
)


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Table of Contents

Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments, not previously presented, at March 31, 2015 and December 31, 2014 were as follows:
 
 
March 31, 2015
 
Carrying
Amount

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



 

Cash and cash equivalents
$
429,871


$
429,871

 
Level 1
Loans held for sale
26,432


27,676

 
Level 2
Loans receivable—net
5,641,045


5,998,374

 
Level 3
Customers’ liabilities on acceptances
1,029


1,029

 
Level 2
Financial Liabilities:



 

Noninterest bearing deposits
$
1,616,935


$
1,616,935

 
Level 2
Saving and other interest bearing demand deposits
1,785,990


1,785,990

 
Level 2
Time deposits
2,400,329


2,404,910

 
Level 2
FHLB advances
480,881


483,574

 
Level 2
Subordinated debentures
42,199


43,970

 
Level 2
Bank’s liabilities on acceptances outstanding
1,029


1,029

 
Level 2
 
December 31, 2014
 
Carrying
Amount

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



 
 
Cash and cash equivalents
$
462,160


$
462,160

 
Level 1
Loans held for sale
28,311


29,626

 
Level 2
Loans receivable—net
5,497,434


5,826,924

 
Level 3
Customers’ liabilities on acceptances
1,889


1,889

 
Level 2
Financial Liabilities:
 
 
 
 
 
Noninterest bearing deposits
$
1,543,018


$
1,543,018

 
Level 2
Saving and other interest bearing demand deposits
1,862,060


1,862,060

 
Level 2
Time deposits
2,288,374


2,292,831

 
Level 2
FHLB advances
480,975


481,290

 
Level 2
Subordinated debentures
42,158


43,987

 
Level 2
Bank’s liabilities on acceptances outstanding
1,889


1,889

 
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, noninterest 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 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.

46

Table of Contents


13.
Stockholders’ Equity
In June 2012, the Company redeemed all of the Fixed Rate Cumulative Perpetual Preferred Stock issued under the U.S. Treasury Department's TARP Capital Purchase Program. As of March 31, 2015, a warrant held by the U.S. Treasury Department for the purchase of 349,016 shares of the Company's common stock remains outstanding.
The Company assumed a warrant (related to the TARP Capital Purchase Plan) to purchase shares of its common stock. As of March 31, 2015, the U.S. Treasury Department held the warrant for the purchase of 18,883 shares of the Company's common stock.
The Company's Board of Directors declared quarterly dividends of $0.10 per common share for the first quarter of 2015 and $0.075 per common share for the first quarter of 2014.
The following table presents the components of accumulated other comprehensive loss at March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Net unrealized gain on securities available for sale
$
4,409

 
$
1,631

Net unrealized gain on interest-only strips
79

 
74

Total accumulated other comprehensive loss
$
4,488

 
$
1,705



47

Table of Contents

14.
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 and adverse effect on the Company’s and the Bank’s financial statements, such as restrictions on growth or the payment of dividends or other capital distributions or management fees. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
In July, 2013, the federal bank regulatory agencies adopted final regulations, which revised their risk-based and leverage capital requirements for banking organizations to meet requirements of Dodd-Frank and to implement Basel III international agreements reached by the Basel Committee. The final rules began for the Company and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019. The final rules that had an impact on the Company and the Bank include:

An increase in the minimum Tier 1 capital ratio from 4.00% to 6.00% of risk-weighted assets;
A new category and a required 4.50% of risk-weighted assets ratio is established for “common equity Tier 1” as a subset of Tier 1 capital limited to common equity;
A minimum non-risk-based leverage ratio is set at 4.00%, eliminating a 3.00% exception for higher rated banks;
Changes in the permitted composition of Tier 1 capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets and include unrealized gains and losses on available for sale debt and equity securities;
The risk-weights of certain assets for purposes of calculating the risk-based capital ratios are changed for high volatility commercial real estate acquisition, development and construction loans, certain past due non-residential mortgage loans and certain mortgage-backed and other securities exposures; and
A new additional capital conservation buffer of 2.5% of risk weighted assets over each of the required capital ratios will be phased in from 2016 to 2019 and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses.
Management believes that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well capitalized minimum capital requirements. As of March 31, 2015, the ratios for the Company and the Bank are sufficient to meet the fully phased-in conservation buffer.
As of March 31, 2015 and December 31, 2014, 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.

48

Table of Contents

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
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
As of March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital (to risk weighted assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
788,601

 
12.73
%
 
$
278,757

 
4.50
%
 
N/A

 
N/A

Bank
$
817,754

 
13.21
%
 
$
278,512

 
4.50
%
 
$
402,295

 
6.50
%
Total capital (to risk-weighted assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
900,301

 
14.53
%
 
$
495,568

 
8.00
%
 
N/A

 
N/A

Bank
$
888,680

 
14.36
%
 
$
495,132

 
8.00
%
 
$
618,916

 
10.00
%
Tier I capital (to risk-weighted assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
829,375

 
13.39
%
 
$
371,676

 
6.00
%
 
N/A

 
N/A

Bank
$
817,754

 
13.21
%
 
$
371,349

 
6.00
%
 
$
495,132

 
8.00
%
Tier I capital (to average assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
829,375

 
11.76
%
 
$
282,116

 
4.00
%
 
N/A

 
N/A

Bank
$
817,754

 
11.60
%
 
$
281,961

 
4.00
%
 
$
352,451

 
5.00
%
 
Actual
 
Required
For Capital
Adequacy Purposes
 
Required
To Be Well
Capitalized under
Prompt Corrective
Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
881,794

 
14.80
%
 
$
476,490

 
8.00
%
 
N/A

 
N/A

Bank
$
869,343

 
14.61
%
 
$
476,101

 
8.00
%
 
$
595,126

 
10.00
%
Tier I capital (to risk-weighted assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
812,464

 
13.64
%
 
$
238,245

 
4.00
%
 
N/A

 
N/A

Bank
$
800,013

 
13.44
%
 
$
238,050

 
4.00
%
 
$
357,076

 
6.00
%
Tier I capital (to average assets):
 
 
 
 
 
 
 
 
 
 
 
Company
$
812,464

 
11.62
%
 
$
279,709

 
4.00
%
 
N/A

 
N/A

Bank
$
800,013

 
11.45
%
 
$
279,585

 
4.00
%
 
$
349,481

 
5.00
%


49

Table of Contents

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 Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2014 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,
 
2015
 
2014
 
(Dollars in thousands, except
share and per share data)
Income Statement Data:
 
 
 
Interest income
$
74,554

 
$
73,354

Interest expense
9,431

 
8,388

Net interest income
65,123

 
64,966

Provision for loan losses
1,500

 
3,026

Net interest income after provision for loan losses
63,623

 
61,940

Noninterest income
11,205

 
11,095

Noninterest expense
39,234

 
36,275

Income before income tax provision
35,594

 
36,760

Income tax provision
14,236

 
14,564

Net income
$
21,358

 
$
22,196

Per Share Data:
 
 
 
Earnings per common share - basic
$
0.27

 
$
0.28

Earnings per common share - diluted
$
0.27

 
$
0.28

Book value per common share (period end, excluding warrants) (8)
$
11.30

 
$
10.46

Cash dividends declared per common share
$
0.10

 
$
0.075

Tangible book value per common share (period end, excluding warrants) (8) (10)
$
9.93

 
$
9.08

Number of common shares outstanding (period end)
79,542,321

 
79,488,899

Weighted average shares - basic
79,526,218

 
79,489,579

Weighted average shares - diluted
79,602,122

 
79,639,839

Tangible common equity ratio (8)
11.03
%
 
11.00
%
Statement of Financial Condition Data - at Period End:
 
 
 
Assets
$
7,267,905

 
$
6,667,551

Securities available for sale
812,372

 
725,229

Loans receivable
5,710,893

 
5,190,794

Deposits
5,803,254

 
5,334,560

FHLB advances
480,881

 
421,260

Subordinated debentures
42,199

 
42,037

Stockholders’ equity
899,198

 
832,159

          

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Table of Contents

 
At or for the Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
Average Balance Sheet Data:
 
 
 
Assets
$
7,161,811

 
$
6,525,548

Securities available for sale
782,305

 
698,931

Loans receivable and loans held for sale
5,617,929

 
5,183,801

Deposits
5,703,376

 
5,188,593

Stockholders’ equity
890,206

 
819,344

Selected Performance Ratios:
 
 
 
Return on average assets (1)
1.19
%
 
1.36
%
Return on average stockholders’ equity (1)
9.60
%
 
10.84
%
Average stockholders' equity to average assets
12.43
%
 
12.56
%
Return on average tangible equity (1) (9)
10.94
%
 
12.52
%
Dividend payout ratio (dividends per share / earnings per share)
37.04
%
 
26.79
%
Pre-Tax Pre-Provision income to average assets (1)
2.07
%
 
2.44
%
Efficiency ratio (2)
51.40
%
 
47.69
%
Net interest spread
3.62
%
 
4.05
%
Net interest margin (3)
3.87
%
 
4.29
%
Regulatory Capital Ratios (4)
 
 
 
Leverage capital ratio (5)
11.76
%
 
11.66
%
Tier 1 risk-based capital ratio
13.39
%
 
13.70
%
Total risk-based capital ratio
14.53
%
 
14.89
%
Common equity tier 1 capital ratio (11)
12.73
%
 
12.97
%
Asset Quality Ratios:
 
 
 
Allowance for loan losses to loans receivable
1.22
%
 
1.27
%
Allowance for loan losses to nonaccrual loans
179.57
%
 
138.86
%
Allowance for loan losses to nonperforming loans(6)
72.00
%
 
77.44
%
Allowance for loan losses to nonperforming assets(7)
59.86
%
 
62.66
%
Nonaccrual loans to loans receivable
0.68
%
 
0.91
%
Nonperforming loans to loans receivable (6)
1.69
%
 
1.63
%
Nonperforming assets to loans receivable and OREO (7)
2.03
%
 
2.01
%
Nonperforming assets to total assets (7)
1.60
%
 
1.57
%
(1) 
Annualized.
(2) 
Efficiency ratio is defined as noninterest expense divided by the sum of net interest income before provision for loan losses and noninterest income.
(3) 
Net interest margin is calculated by dividing annualized net interest income by average total interest earning assets.
(4) 
The ratios generally required to meet the definition of a “well-capitalized” institution under certain banking regulations are 5% leverage capital, 8% 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, Legacy Loans and APLs past due 90 days or more and still accruing interest, and accruing restructured loans.
(7) 
Nonperforming assets consist of nonperforming loans and OREO.
(8) 
Excludes TARP preferred stock related stock warrants of $378 thousand and $378 thousand at March 31, 2015 and 2014, respectively.
(9) 
Average tangible equity is calculated by subtracting average goodwill and average core deposit intangibles assets 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.

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Three Months Ended March 31,
 
 
2015
 
2014
 
 
(Dollars in thousands)
Net income
 
$
21,358

 
$
22,196

 
 
 
 
 
Average stockholders' equity
 
$
890,206

 
$
819,344

Less: Average goodwill and core deposit intangible assets, net
 
(109,173
)
 
(110,462
)
Average tangible equity
 
$
781,033

 
$
708,882

 
 
 
 
 
Net income (annualized) to average tangible equity
 
10.94
%
 
12.52
%

(10) 
Tangible book value per common share is calculated by subtracting goodwill and core deposit 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, 2015
 
March 31, 2014
 
 
(Dollars in thousands)
Total stockholders' equity
 
$
899,198

 
$
832,159

Less: Common stock warrant
 
(378
)
 
(378
)
Goodwill and core deposit intangible assets, net
 
(109,021
)
 
(110,260
)
Tangible common equity
 
$
789,799

 
$
721,521

 
 
 
 
 
Common shares outstanding
 
79,542,321

 
79,488,899

 
 
 
 
 
Tangible book value per common share
 
$
9.93

 
$
9.08


(11) 
The Common equity tier 1 capital ratio is calculated by dividing 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 by total risk-weighted assets less the disallowed allowance for loan losses.
 
 
March 31, 2015
 
March 31, 2014
 
 
(Dollars in thousands)
Tier 1 capital
 
$
829,375

 
$
764,197

Less: Trust preferred securities less unamortized acquisition discount
 
(40,774
)
 
(40,612
)
Common equity tier 1 capital
 
$
788,601

 
$
723,585

 
 
 
 
 
Total risk weighted assets less disallowed allowance for loan losses
 
6,180,818

 
5,578,204

 
 
 
 
 
Common equity tier 1 capital ratio
 
12.76
%
 
12.97
%




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Table of Contents


Results of Operations
Overview
Total assets increased $127.6 million from $7.14 billion at December 31, 2014 to $7.27 billion at March 31, 2015. The increase in total assets was primarily due to a $145.4 million increase in loans receivable, net of allowance for loan losses, from $5.50 billion at December 31, 2014 to $5.64 billion at March 31, 2015 and a $32.3 million decrease in cash and cash equivalents, from $462.2 million at December 31, 2014 to $429.9 million at March 31, 2015. The increase in total assets was funded by a $110.0 million increase in deposits from $5.69 billion at December 31, 2014 to $5.80 billion at March 31, 2015 and net income of $21.4 million for the three months ended March 31, 2015.
Net income for the first quarter of 2015 was $21.4 million, or $0.27 per diluted common share, compared to $22.2 million, or $0.28 per diluted common share, for the same period of 2014, which was a decrease of $838 thousand, or 3.78%. The decrease in net income was caused mainly by increases in total noninterest expense and a decreasing effect from our acquisition related adjustments as shown in the table below. These decreases were partially offset by increases in interest income and a decrease in the provision for loan losses.
 
 
Three Months Ended March 31,
 
 
2015
 
2014
 
 
(Dollars in thousands)
Accretion of discounts on acquired performing loans
 
$
2,183

 
$
3,202

Accretion of discounts on acquired credit impaired loans
 
1,555

 
2,645

Amortization of premiums on assumed FHLB advances
 
94

 
92

Accretion of discounts on assumed subordinated debt
 
(41
)
 
(91
)
Amortization of premiums on assumed time deposits
 
75

 
314

Amortization of core deposit intangible assets
 
(267
)
 
(324
)
Increase to pre-tax income
 
$
3,599

 
$
5,838


The annualized return on average assets was 1.19% for the first quarter of 2015, compared to 1.36% for the same period of 2014. The annualized return on average stockholders' equity was 9.60% for the first quarter of 2015, compared to 10.84% for the same period of 2014. The efficiency ratio was 51.40% for the first quarter of 2015, compared to 47.69% for the same period of 2014.
Net Interest Income and Net Interest Margin
Net Interest Income
A principal component of our 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 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, 2015 with the Same Period of 2014
Net interest income before provision for loan losses was $65.1 million for the first quarter of 2015, an increase of $157 thousand, or 0.24%, compared to $65.0 million for the same period of 2014. The increase was principally attributable to the increase in interest earning assets. The increase was partially offset by the decline in yields and an increase in the cost of deposits.
Interest income for the first quarter of 2015 was $74.6 million, an increase of $1.2 million, or 1.64%, compared to $73.4 million for the same period of 2014. The increase resulted from a $6.4 million increase in interest income due to an increase in average interest earning assets, which was partially offset by a $5.2 million decrease in interest income due to a decrease in the yield on average interest earnings assets.
Net Interest Margin


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Table of Contents

Our reported net interest margin is impacted by the weighted average rates we earn on interest earning assets and pay on interest bearing liabilities and the effect of acquisition accounting adjustments. The net interest margin for the first quarter of 2015 was 3.87%, a decrease of 42 basis points from 4.29% for the same period of 2014. The change in the our reported net interest margin for the three months ended March 31, 2015 and 2014 is summarized in the table below.

 
 
Three Months Ended March 31,
 
 
2015
 
2014
Net interest margin, excluding the effect of acquisition accounting adjustments
 
3.61
%
 
3.82
%
Acquisition accounting adjustments(1)
 
0.26

 
0.47

Reported net interest margin
 
3.87
%
 
4.29
%
(1) Acquisition accounting adjustments are calculated by subtracting net interest margin, excluding the effect of acquisition accounting adjustments, from reported net interest margin.

As noted in the table above, excluding the effect of the acquisition accounting adjustments, the net interest margin for the first quarter of 2015 decreased 21 basis points to 3.61% from 3.82% for the same period of 2014.

The decrease in the net interest margin was primarily due to a decline in the effect of acquisition accounting adjustments and a decline in the weighted average yield on the loan portfolio. The decrease in net interest margin was also caused by an increase in the cost of deposits and a decrease in yields from our investment securities.
 
The acquisition related adjustments that impact the net interest margin declined by $2.3 million, totaling $3.9 million during the first quarter of 2015, compared to $6.2 million for the same period of 2014.
The weighted average yield on loans decreased to 5.03% for the first quarter of 2015 from 5.37% for the first quarter of 2014. The change in the yield was due to continued pricing pressure on loan interest rates and a 22 basis point decline in the effects of acquisition accounting adjustments for the respective periods, as summarized in the following table.

 
 
Three Months Ended March 31,
 
 
2015
 
2014
The weighted average yield on loans, excluding the effect of acquisition accounting adjustments
 
4.71
%
 
4.83
%
Acquisition accounting adjustments(1)
 
0.32

 
0.54

Reported weighted average yield on loans
 
5.03
%
 
5.37
%
(1)     Acquisition accounting adjustments are 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 first quarter of 2015 decreased 12 basis points to 4.71% from 4.83% for the same period of 2014. In addition to the continued pricing pressures, the declining loan yields were caused by a higher mix of lower yielding fixed rate loans particularly from the acquired loan portfolios and the high demand for fixed rate loans in the market. At March 31, 2015, fixed rate loans accounted for 52% of the loan portfolio, compared to 49% at March 31, 2014. The weighted average yield on the variable rate and fixed rate loan portfolios (excluding loan discount accretion) at March 31, 2015 was 4.90% and 4.33%, respectively, compared with 4.43% and 5.16% at March 31, 2014.

The weighted average yield on securities available for sale for the first quarter of 2015 was 2.16%, compared to 2.34% for the same period of 2014. The decrease was primarily attributable to a decrease in treasury yields resulting in lower interest earned for the newly purchased collateralized mortgage obligations and mortgage-backed securities compared to the same period in 2014.

The weighted average cost of deposits for the first quarter of 2015 was 0.55%, an increase of 3 basis points from 0.52% for the same period of 2014. The amortization of the premium on time deposits assumed in the acquisitions positively affected the weighted average cost of deposits, as summarized in the following table.

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Table of Contents

 
 
Three Months Ended March 31,
 
 
2015
 
2014
The weighted average cost of deposits, excluding effect of acquisition accounting adjustments
 
0.56
 %
 
0.55
 %
Acquisition accounting adjustments(1)
 
(0.01
)
 
(0.03
)
Reported weighted average cost of deposits
 
0.55
 %
 
0.52
 %
(1)     Acquisition accounting adjustments are 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 0.56% for the first quarter of 2015, compared to 0.55% for the same period of 2014. The increase was due to an increase in retail deposits, primarily money market and time deposits, due to our deposit campaigns and promotions. The yields on these retail deposits was 0.84% at March 31, 2015 compared to 0.81% at March 31, 2014.

The weighted average cost of FHLB advances for the first quarter of 2015 and 2014 was 1.09% and 1.17%, respectively.
 
 
Three Months Ended March 31,
 
 
2015
 
2014
The weighted average cost of FHLB advances, excluding effect of acquisition accounting adjustments
 
1.17
 %
 
1.26
 %
Acquisition accounting adjustments(1)
 
(0.09
)
 
(0.09
)
Reported weighted average cost of FHLB advances
 
1.09
 %
 
1.17
 %
(1)     Acquisition accounting adjustments are 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 1.17% for the first quarter of 2015 from 1.26% for the same period of 2014. The yields decreased due to the maturity of two advances totaling $30.0 million that had a weighted average rate of 3.7%, while the effective rates for FHLB advances obtained during the most recent twelve months were no higher than 1.83%.

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

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Table of Contents


 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
 
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)
$
5,617,929

 
$
69,639

 
5.03
%
 
$
5,183,801

 
$
68,694

 
5.37
%
Securities available for sale(3)
782,305

 
4,219

 
2.16
%
 
698,931

 
4,095

 
2.34
%
FRB and FHLB stock and other investments
410,973

 
696

 
0.68
%
 
259,107

 
565

 
0.87
%
Total interest earning assets
$
6,811,206

 
$
74,554

 
4.44
%
 
$
6,141,839

 
$
73,354

 
4.84
%
INTEREST BEARING LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Demand, interest bearing
$
1,625,641

 
$
2,765

 
0.68
%
 
$
1,392,300

 
$
2,277

 
0.66
%
Savings
195,063

 
425

 
0.88
%
 
217,426

 
600

 
1.12
%
Time deposits:
 
 
 
 
 
 
 
 
 
 
 
$100,000 or more
1,713,331

 
3,377

 
0.80
%
 
1,561,170

 
2,679

 
0.70
%
Other
626,197

 
1,187

 
0.77
%
 
663,978

 
1,134

 
0.69
%
Total time deposits
2,339,528

 
4,564

 
0.79
%
 
2,225,148

 
3,813

 
0.69
%
Total interest bearing deposits
4,160,232

 
7,754

 
0.76
%
 
3,834,874

 
6,690

 
0.71
%
FHLB advances
480,942

 
1,297

 
1.09
%
 
421,318

 
1,211

 
1.17
%
Other borrowings
40,624

 
380

 
3.74
%
 
52,400

 
487

 
3.72
%
Total interest bearing liabilities
4,681,798

 
$
9,431

 
0.82
%
 
4,308,592

 
$
8,388

 
0.79
%
Noninterest bearing demand deposits
1,543,144

 
 
 
 
 
1,353,719

 
 
 
 
Total funding liabilities/cost of funds
$
6,224,942

 
 
 
 
 
$
5,662,311

 
 
 
0.60
%
Net interest income/net interest spread
 
 
$
65,124

 
3.62
%
 
 
 
$
64,966

 
4.05
%
Net interest margin
 
 
 
 
3.87
%
 
 
 
 
 
4.29
%
Net interest margin, excluding the effect of nonaccrual loan income (expense)(4)
 
 
 
 
3.88
%
 
 
 
 
 
4.30
%
Net interest margin, excluding the effect of nonaccrual loan income (expense) and prepayment fee income(4) (5)
 
 
 
 
3.85
%
 
 
 
 
 
4.26
%
Cost of deposits:
 
 
 
 
 
 
 
 
 
 
 
Noninterest bearing demand deposits
$
1,543,144

 
$

 
 
 
$
1,353,719

 
$

 
 
Interest bearing deposits
4,160,232

 
7,754

 
0.76
%
 
3,834,874

 
6,690

 
0.71
%
Total deposits
$
5,703,376

 
$
7,754

 
0.55
%
 
$
5,188,593

 
$
6,690

 
0.52
%
 
 
 
 
 
 
 
 
 
 
 
 
*
Annualized
(1) 
Interest income on loans includes loan fees.
(2) 
Average balances of loans consist of loans receivable and loans held for sale.
(3) 
Interest income and yields are not presented on a tax-equivalent basis.
(4) 
Nonaccrual interest income reversed was $24 thousand and $197 thousand for the three months ended March 31, 2015 and 2014, respectively.
(5) 
Loan prepayment fee income excluded was $510 thousand and $309 thousand for the three months ended March 31, 2015 and 2014, respectively.
 
 
 
 
 
 
 
 
 
 
 
 



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Table of Contents

Changes in net interest income are a function of changes in interest rates and volumes of interest earning assets and interest bearing liabilities. The following table 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, 2015 over March 31, 2014
 
Net
Increase
(Decrease)
 
 
 
 
 
Change due to
 
Rate
 
Volume
 
(Dollars in thousands)
INTEREST INCOME:
 
 
 
 
 
Interest and fees on loans
$
945

 
$
(4,663
)
 
$
5,608

Interest on securities
124

 
(341
)
 
465

Interest on FRB and FHLB stock and other investments
131

 
(147
)
 
278

Total interest income
$
1,200

 
$
(5,151
)
 
$
6,351

INTEREST EXPENSE:
 
 
 
 
 
Interest on demand, interest bearing
$
488

 
$
95

 
$
393

Interest on savings
(175
)
 
(120
)
 
(55
)
Interest on time deposits
751

 
556

 
195

Interest on FHLB advances
86

 
(79
)
 
165

Interest on other borrowings
(107
)
 
3

 
(110
)
Total interest expense
$
1,043

 
$
455

 
$
588

NET INTEREST INCOME
$
157

 
$
(5,606
)
 
$
5,763

 
 
 
 
 
 


57

Table of Contents


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 first quarter of 2015 was $1.5 million, a decrease of $1.5 million, or 50.43%, from $3.0 million for the same period last year. The decrease was primarily due to an decrease in quantitative reserves due to declining historical loss rates.
See Note 6 of the Notes to Condensed Consolidated Financial Statements (Unaudited) and Financial Condition - Loans Receivable and Allowance for Loan Losses for further discussion.
Noninterest Income
Noninterest 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.
Noninterest income for the first quarter of 2015 was $11.2 million, compared to $11.1 million for the same quarter of 2014, an increase of $110 thousand, or 1.0%. The increase was principally due to a $322 thousand increase in net gains on sales of SBA loans, a $182 thousand increase in net gains on sale of other loans, and a $424 thousand increase in net gains on sales of securities available for sale, which were offset by a $410 thousand decrease in servicing fees on deposit accounts, a $190 thousand decrease in international service fees, and a $245 thousand decrease in loan servicing fees, net.
Noninterest income by category is summarized below:
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2015
 
2014
 
Amount
 
Percent (%)
 
(Dollars in thousands)
Service fees on deposit accounts
$
3,062

 
$
3,472

 
$
(410
)
 
(11.8
%)
International service fees
814

 
1,004

 
(190
)
 
(18.9
%)
Loan servicing fees, net
720

 
965

 
(245
)
 
(25.4
%)
Wire transfer fees
763

 
905

 
(142
)
 
(15.7
%)
Other income and fees
2,086

 
1,621

 
465

 
28.7
%
Net gains on sales of SBA loans
3,044

 
2,722

 
322

 
11.8
%
Net gains on sales of other loans
182

 

 
182

 
NA

Net gains on sales of securities available for sale
424

 

 
424

 
NA

Net gains (losses) on sales of OREO
110

 
406

 
(296
)
 
72.9
%
Total noninterest income
$
11,205

 
$
11,095

 
$
110

 
1.0
%

Noninterest Expense
Noninterest expense for the first quarter of 2015 was $39.2 million, an increase of $3.0 million, or 8.2%, from $36.3 million for the same period of 2014. Salaries and employee benefits expense increased$2.2 million due to an increase in the number of full-time equivalent employees, which increased to 933 at March 31, 2015 from 860 at March 31, 2014. Credit related expenses increased by $768 thousand principally due to increased property tax and insurance payments to protect our interest in loan collateral and OREO. Advertising and marketing expenses increased by $303 thousand compared to the same period in 2014. Occupancy and FDIC expenses also increased by $69 thousand and $89 thousand, respectively, compared to the same period in 2014. These increases were offset by a decrease of $121 thousand in merger and integration expenses.
The breakdown of changes in noninterest expense by category is shown below:

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Table of Contents

 
Three Months Ended March 31,
 
Increase (Decrease)
 
2015
 
2014
 
Amount
 
%
 
(Dollars in thousands)
Salaries and employee benefits
$
21,181

 
$
18,938

 
$
2,243

 
11.8
 %
Occupancy
4,692

 
4,623

 
69

 
1.5
 %
Furniture and equipment
2,263

 
2,014

 
249

 
12.4
 %
Advertising and marketing
1,391

 
1,088

 
303

 
27.8
 %
Data processing and communications
2,349

 
2,122

 
227

 
10.7
 %
Professional fees
1,424

 
1,313

 
111

 
8.5
 %
FDIC assessment
1,112

 
1,023

 
89

 
8.7
 %
Credit related expenses
2,189

 
1,421

 
768

 
54.0
 %
Merger and integration expenses
52

 
173

 
(121
)
 
(69.9
)%
Other
2,581

 
3,560

 
(979
)
 
(27.5
)%
Total noninterest expense
$
39,234

 
$
36,275

 
$
2,959

 
8.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Income Taxes
Income tax expense was $14.2 million and $14.6 million for the quarters ended March 31, 2015 and 2014, respectively. The effective income tax rates were 40.0% and 39.6% for the quarters ended March 31, 2015 and 2014, respectively.

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Table of Contents

Financial Condition
At March 31, 2015, our total assets were $7.27 billion, an increase of $127.6 million from $7.14 billion at December 31, 2014. The increase was principally due to a $143.6 million increase in loans receivable, net of allowance for loan losses, a $15.8 million increase in securities available for sale, and a $12.4 million increase in other assets. The increases were offset by decreases in cash and cash equivalents totaling $32.3 million and decreases in deferred tax assets totaling $7.3 million. The increase in total assets was funded primarily by a $109.8 million increase in deposits and net income of $21.4 million.
Investment Securities Portfolio
As of March 31, 2015, we had $812.4 million in available for sale securities, compared to $796.5 million at December 31, 2014. The net unrealized gain on the available for sale securities at March 31, 2015 was $7.5 million, compared to a net unrealized gain on such securities of $2.6 million at December 31, 2014. During the three months ended March 31, 2015, $65.6 million in securities were purchased, $31.5 million in mortgage related securities were paid down and $22.1 million in securities were sold. During the same period last year, $37.4 million in securities were purchased, $28.2 in mortgage related securities were paid down and no securities were sold. 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 3.86 years and 4.06 years at March 31, 2015 and December 31, 2014, respectively. The weighted average life (the weighted average of the times of the principal repayments) of the available for sale securities was 4.24 years and 4.49 years at March 31, 2015 and December 31, 2014, respectively.
Loan Portfolio
As of March 31, 2015, loans receivable totaled $5.71 billion, an increase of $145.4 million from $5.57 billion at December 31, 2014. Total loan originations during the three months ended March 31, 2015 were $350.8 million, including SBA loan originations of $64.3 million, of which $31.8 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 total loans outstanding in each major loan category at the dates indicated:
 
 
March 31, 2015
 
December 31, 2014
 
Amount
 
%
 
Amount
 
%
 
 
 
(Dollars in thousands)
 
 
Loan portfolio composition
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Residential
$
23,092

 
0
%
 
$
21,415

 
0
%
Commercial & industrial
4,423,331

 
78
%
 
4,324,349

 
78
%
Construction
107,705

 
2
%
 
94,086

 
2
%
Total real estate loans
4,554,128

 
80
%
 
4,439,850

 
80
%
Commercial business
949,701

 
17
%
 
903,621

 
16
%
Trade finance
122,560

 
2
%
 
134,762

 
2
%
Consumer and other
87,558

 
2
%
 
89,849

 
2
%
Total loans outstanding
5,713,947

 
100
%
 
5,568,082

 
100
%
Less: deferred loan fees
(3,308
)
 
 
 
(2,890
)
 
 
Loans receivable
5,710,639

 
 
 
5,565,192

 
 
Less: allowance for loan losses
(69,594
)
 
 
 
(67,758
)
 
 
Loans receivable, net of allowance for loan losses
$
5,641,045

 
 
 
$
5,497,434

 
 

SBA loans are included in commercial business loans and commercial and industrial real estate loans. SBA loans included in commercial business loans were $49.1 million at March 31, 2015 and $52.0 million at December 31, 2014. SBA loans included in commercial and industrial real estate loans were $187.5 million at March 31, 2015 and $188.8 million at December 31, 2014.
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, 2015
 
December 31, 2014
 
(Dollars in thousands)
Loan commitments
$
625,830

 
$
586,714

Standby letters of credit
41,214

 
41,987

Other commercial letters of credit
54,697

 
37,439

 
$
721,741

 
$
666,140


Nonperforming Assets
Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more past due and on accrual status, accruing restructured loans and OREO, were $116.3 million at March 31, 2015, compared to $125.8 million at December 31, 2014. The ratio of nonperforming assets to loans receivable and OREO was 2.03% and 2.25% at March 31, 2015 and December 31, 2014, respectively.
The following table summarizes the composition of our nonperforming assets as of the dates indicated.
 
 
March 31, 2015
 
December 31, 2014
 
(Dollars in thousands)
Nonaccrual loans (1)
$
38,755

 
$
46,353

Loans 90 days or more days past due on accrual status

 
361

Accruing restructured loans
57,905

 
57,128

Total nonperforming loans
96,660

 
103,842

OREO
19,606

 
21,938

Total nonperforming assets
$
116,266

 
$
125,780

Nonperforming loans to loans receivable
1.69
%
 
1.87
%
Nonperforming assets to loans receivable and OREO
2.03
%
 
2.25
%
Nonperforming assets to total assets
1.60
%
 
1.76
%
Allowance for loan losses to nonperforming loans
72.00
%
 
65.25
%
Allowance for loan losses to nonperforming assets
59.86
%
 
53.87
%
(1) 
Nonaccrual loans exclude the guaranteed portion of delinquent SBA loans that are in liquidation totaling $26.1 million and $28.9 million as of March 31, 2015 and December 31, 2014, respectively.

Allowance for Loan Losses
The allowance for loan losses was $69.6 million at March 31, 2015, compared to $67.8 million at December 31, 2014. The allowance for loan losses was 1.22% of loans receivable at March 31, 2015 and 1.22% of loans receivable at December 31, 2014. Impaired loans as defined by FASB ASC 310-10-35, “Accounting by Creditors for Impairment of a Loan,” totaled $122.7 million and $127.1 million as of March 31, 2015 and December 31, 2014, respectively, with specific allowances of $9.9 million and $10.9 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 Losses
 
March 31, 2015
 
December 31, 2014
 
Amount 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)
Loan Type
 
 
 
 
 
 
 
Real estate - residential
$
146

 
0.21
%
 
$
146

 
0.22
%
Real estate - commercial
48,594

 
69.82
%
 
46,535

 
68.68
%
Real estate - construction
756

 
1.09
%
 
667

 
0.98
%
Commercial business
16,590

 
23.84
%
 
16,471

 
24.31
%
Trade finance
3,041

 
4.37
%
 
3,456

 
5.10
%
Consumer and other
467

 
0.67
%
 
483

 
0.71
%
Total
$
69,594

 
100
%
 
$
67,758

 
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). Acquired Loans have been further segregated between Acquired Credit Impaired Loans (loans with credit deterioration at the time they were acquired and accounted for under ASC 310-30, or "ACILs") and performing loans (loans that were pass graded at the time they were acquired, or "APLs"). The activity in the ALLL for the three months ended March 31, 2015 is as follows:


 
 
 
 
Acquired Loans(2)
 
 
Three Months Ended March 31, 2015
 
Legacy Loans(1)
 
ACILs
 
APLs
 
Total
 
 
(Dollars in thousands)
Balance, beginning of period
 
$
58,644

 
$
7,347

 
$
1,767

 
$
67,758

Provision for loan losses
 
(3,830
)
 
5,300

 
30

 
1,500

Loans charged off
 
(875
)
 

 
(250
)
 
(1,125
)
Recoveries of loan charge offs
 
1,458

 

 
3

 
1,461

Balance, end of period
 
$
55,397

 
$
12,647

 
$
1,550

 
$
69,594

 
 
 
 
 
 
 
 
 
Total loans outstanding
 
$
5,128,232


$
148,511


$
437,204


$
5,713,947

Loss coverage ratio
 
1.17
%

4.17
%

0.45
%

1.19
%
(1)  Legacy Loans includes Acquired Loans that have been renewed or refinanced subsequent to the acquisition date.
(2)  Acquired Loans were marked to fair value at the acquisition date and provisions for loan losses reflect credit deterioration subsequent to 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 loans receivable outstanding, and certain other ratios as of the dates and for the periods indicated:
 
 
At or for the Three Months Ended March 31,
 
2015
 
2014
 
(Dollars in thousands)
LOANS:
 
 
 
Average loans receivable, including loans held for sale
$
5,617,929

 
$
5,183,801

Loans receivable
$
5,710,639

 
$
5,190,794

ALLOWANCE:
 
 
 
Balance, beginning of period
$
67,758

 
$
67,320

Less loan charge offs:
 
 
 
Commercial & industrial real estate
(341
)
 
(182
)
Commercial business loans
(538
)
 
(4,945
)
Trade finance
(229
)
 
(57
)
Consumer and other loans
(17
)
 
(79
)
Total loan charge offs
(1,125
)
 
(5,263
)
Plus loan recoveries:
 
 
 
Commercial & industrial real estate
800

 
19

Commercial business loans
656

 
596

Consumer and other loans
5

 
1

Total loans recoveries
1,461

 
616

Net loan charge offs
336

 
(4,647
)
Provision for loan losses
1,500

 
3,026

Balance, end of period
$
69,594

 
$
65,699

Net loan (recoveries) charge offs to average loans receivable, including loans held for sale*
(0.01
)%
 
0.36
%
Allowance for loan losses to loans receivable at end of period
1.22
 %
 
1.27
%
Net loan (recoveries) charge offs to beginning allowance *
(1.98
)%
 
27.61
%
Net loan (recoveries) charge offs to provision for loan losses
(22.40
)%
 
153.57
%
* Annualized
 
 
 

We believe the allowance for loan losses as of March 31, 2015 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, 2015, deposits increased $109.8 million, or 1.9%, to $5.80 billion from $5.69 billion at December 31, 2014. The net increase in deposits is primarily due to increases in retail deposits due to the impact of recent deposit campaigns and promotions. In addition, wholesale deposits were increased to help fund loan growth. Interest bearing demand deposits, including money market and Super Now accounts and time deposits, totaled $4.18 billion at March 31, 2015 and $4.15 billion at December 31, 2014.
At March 31, 2015, 28% of total deposits were noninterest bearing demand deposits, 41% were time deposits and 31% were interest bearing demand and savings deposits. At December 31, 2014, 27% of total deposits were noninterest bearing demand deposits, 40% were time deposits, and 33% were interest bearing demand and savings deposits.
At March 31, 2015, we had $230.0 million in brokered deposits and $300.0 million in California State Treasurer deposits, compared to $206.3 million and $300.0 million of such deposits at December 31, 2014, respectively. The California State Treasurer deposits had seven-month maturities with a weighted average interest rate of 0.08% at March 31, 2015 and were collateralized with securities with a carrying value of $359.7 million.

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The following is a schedule of certificates of deposit maturities as of March 31, 2015:
 
 
 
 
 
Balance
 
%
 
(Dollars in thousands)
Three months or less
$
881,440

 
36.72
%
Over three months through six months
412,891

 
17.20
%
Over six months through nine months
330,179

 
13.76
%
Over nine months through twelve months
365,424

 
15.22
%
Over twelve months
410,395

 
17.10
%
Total time deposits
$
2,400,329

 
100.00
%

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, 2015, we had $480.9 million of FHLB advances with average remaining maturities of 2.3 years, compared to $481.0 million with average remaining maturities of 2.6 years at December 31, 2014. The weighted average rate was 1.09% and 1.09% at March 31, 2015 and December 31, 2014, respectively.
Subordinated debentures totaled $42.2 million at March 31, 2015 and $42.2 million at December 31, 2013. 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 sell interest rate swaps to certain adjustable rate commercial loan customers to fix the interest rate on their floating rate loan. When the fixed rate swap is originated with the customer, an identical offsetting swap is also entered into by us with a correspondent bank.
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.”
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

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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.
Total stockholders’ equity was $899.2 million at March 31, 2015, compared to $882.8 million at December 31, 2014.
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 6%. In addition to the risk-based guidelines, federal banking agencies require banking organizations to maintain a minimum amount of Tier I capital to average total assets, referred to as the leverage ratio, of 4%, referred to as the leverage ratio. Beginning January 1, 2015 agencies require a minimum Common Equity Tier 1 capital to risk weighted assets ratio of 4.5%. 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, 2015, our Common Equity Tier 1 capital was $788.6 million. Our Tier I capital, defined as stockholders’ equity less intangible assets was $829.4 million, compared to $812.5 million at December 31, 2014, representing an increase of $16.9 million, or 2.1%. The increase was primarily due to the increase in retained earnings from net income during the three months ended March 31, 2015 of $21.4 million, which was partially offset by $8.0 million of cash dividends. At March 31, 2015, the total capital to risk-weighted assets ratio was 14.53% and the Tier I capital to risk-weighted assets ratio was 13.39%. The Tier I leverage capital ratio was 11.76%.
As of March 31, 2015 and December 31, 2014, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be generally 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, 2015 (Dollars in thousands)
 
Actual
 
To Be Well-Capitalized
 
Excess
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
BBCN Bancorp, Inc
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 capital ratio
$
788,601

 
12.73
%
 
N/A

 
N/A

 
 
 
 
Total risk-based capital ratio
$
900,301

 
14.53
%
 
N/A

 
N/A

 
 
 
 
Tier 1 risk-based capital ratio
$
829,375

 
13.39
%
 
N/A

 
N/A

 
 
 
 
Tier 1 capital to total assets
$
829,375

 
11.76
%
 
N/A

 
N/A

 


 


BBCN Bank
 
 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 capital ratio
$
817,754

 
13.21
%
 
$
402,295

 
6.50
%
 
$
415,459

 
6.71
%
Total risk-based capital ratio
$
888,680

 
14.36
%
 
$
618,916

 
10.00
%
 
$
269,764

 
4.36
%
Tier 1 risk-based capital ratio
$
817,754

 
13.21
%
 
$
495,132

 
6.00
%
 
$
322,622

 
7.21
%
Tier I capital to total assets
$
817,754

 
11.60
%
 
$
352,451

 
5.00
%
 
$
465,303

 
6.60
%
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014 (Dollars in thousands)
 
Actual
 
To Be Well-Capitalized
 
Excess
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
BBCN Bancorp, Inc
 
 
 
 
 
 
 
 
 
 
 
Total risk-based capital ratio
$
881,794

 
14.80
%
 
N/A

 
N/A

 
 
 
 
Tier 1 risk-based capital ratio
$
812,464

 
13.64
%
 
N/A

 
N/A

 
 
 
 
Tier 1 capital to total assets
$
812,464

 
11.62
%
 
N/A

 
N/A

 


 


BBCN Bank
 
 
 
 
 
 
 
 
 
 
 
Total risk-based capital ratio
$
869,343

 
14.61
%
 
$
595,126

 
10.00
%
 
$
274,217

 
4.61
%
Tier 1 risk-based capital ratio
$
800,013

 
13.44
%
 
$
357,076

 
6.00
%
 
$
442,937

 
7.44
%
Tier I capital to total assets
$
800,013

 
11.45
%
 
$
349,481

 
5.00
%
 
$
450,532

 
6.45
%

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 from our available for sale portfolio.  Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.
At March 31, 2015, our total borrowing capacity from the FHLB was $2.22 billion, of which $1.74 billion was unused and available to borrow. At March 31, 2015, our total borrowing capacity from the FRB was $464.4 million, of which $464.4 million was unused and available to borrow. In addition to these lines, our liquid assets, consisting of cash and cash equivalents, 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 $895.8 million at March 31, 2015, compared to $929.0 million at December 31, 2014. Cash and cash equivalents, including federal funds sold, were $429.9 million at March 31, 2015, compared to $462.2 million at December 31, 2014. 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 maximize 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 noninterest expense, and enhancing noninterest 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, 2015, 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, 2015
 
December 31, 2014
Simulated
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
 
Estimated Net
Interest Income
Sensitivity
 
Market Value
Of Equity
Volatility
Rate Changes
 
 
 
 + 200 basis points
6.64
 %
 
(2.33
)%
 
5.74
 %
 
(2.77
)%
 + 100 basis points
3.12
 %
 
(0.81
)%
 
2.68
 %
 
(1.07
)%
 - 100 basis points
(0.90
)%
 
(0.10
)%
 
(1.02
)%
 
0.06
 %
 - 200 basis points
(1.26
)%
 
(2.38
)%
 
(1.39
)%
 
(2.09
)%


 

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Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company’s management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including the Principal Executive Officer and the Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
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, 2015 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 2014 Annual Report on Form 10-K.
Item 1A.
Risk Factors
Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2014. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2014, which could materially and adversely affect the Company’s business, financial condition and results of operations. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management presently believes not to be material
may also result in material and adverse effects on our business, financial condition and results of operations.


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

(a)           Additional Disclosures. None.
 
(b)           Stockholder Nominations. There have been no material changes in the procedures by which shareholders may recommend nominees to the Board of Directors during the three months ended March 31, 2015. Please see the discussion of these procedures in the most recent proxy statement on Schedule 14A filed with the SEC.

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 11, 2015
/s/ Kevin S. Kim
 
 
 
Kevin S. Kim
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
 
 
Date:
May 11, 2015
 
 
 
 
 
 
 
 
/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
 
Amended and Restated Bylaws of BBCN Bancorp, Inc.
 
 
 
10.1
 
Amended and Restated BBCN Bancorp, Inc. 2007 Equity Incentive Plan
 
 
 
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*
 
 
 
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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