Balance Sheet Analysis
The following table presents the components, yields, and duration of our securities available-for-sale as of
the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
Security Type
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
Yield
(1)
|
|
Duration
(in years)
|
|
|
|
(Dollars in thousands)
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise pass through securities
|
|
$
|
751,011
|
|
$
|
781,628
|
|
|
1.88
|
%
|
|
3.9
|
|
Government agency and government-sponsored enterprise collateralized mortgage obligations
|
|
|
97,524
|
|
|
99,105
|
|
|
1.03
|
%
|
|
3.6
|
|
Covered private label collateralized mortgage obligations
|
|
|
34,933
|
|
|
43,785
|
|
|
9.23
|
%
|
|
4.1
|
|
Municipal securities
(2)
|
|
|
362,212
|
|
|
365,425
|
|
|
2.79
|
%
|
|
6.5
|
|
Corporate debt securities
|
|
|
60,807
|
|
|
61,204
|
|
|
3.13
|
%
|
|
12.4
|
|
Other securities
|
|
|
6,385
|
|
|
11,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
(2)
|
|
$
|
1,312,872
|
|
$
|
1,362,777
|
|
|
2.35
|
%
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the yield for the month of March 2013.
-
(2)
-
The
tax equivalent yield was 4.10% and 2.70% for municipal securities and total securities available-for-sale,
respectively.
71
Table of Contents
The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
Carrying
Value
|
|
% of
Total
|
|
|
|
(In thousands)
|
|
Municipal Securities by State:
|
|
|
|
|
|
|
|
Texas
|
|
$
|
62,145
|
|
|
17
|
%
|
Washington
|
|
|
35,395
|
|
|
10
|
%
|
New York
|
|
|
24,640
|
|
|
7
|
%
|
Illinois
|
|
|
24,170
|
|
|
7
|
%
|
Colorado
|
|
|
18,372
|
|
|
5
|
%
|
Florida
|
|
|
16,089
|
|
|
4
|
%
|
California
|
|
|
15,190
|
|
|
4
|
%
|
Ohio
|
|
|
14,831
|
|
|
4
|
%
|
Connecticut
|
|
|
14,335
|
|
|
4
|
%
|
Minnesota
|
|
|
14,115
|
|
|
4
|
%
|
|
|
|
|
|
|
Total of 10 largest states
|
|
|
239,282
|
|
|
66
|
%
|
All other states
|
|
|
126,143
|
|
|
34
|
%
|
|
|
|
|
|
|
Total municipal securities
|
|
$
|
365,425
|
|
|
100
|
%
|
|
|
|
|
|
|
The following table presents the balance of our total gross loans and leases by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
173,676
|
|
|
5
|
%
|
$
|
184,032
|
|
|
5
|
%
|
SBA 504
|
|
|
55,403
|
|
|
2
|
%
|
|
54,158
|
|
|
1
|
%
|
Other
|
|
|
2,097,837
|
|
|
59
|
%
|
|
2,234,701
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
2,326,916
|
|
|
66
|
%
|
|
2,472,891
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
46,122
|
|
|
1
|
%
|
|
54,291
|
|
|
1
|
%
|
Commercial
|
|
|
92,934
|
|
|
3
|
%
|
|
98,888
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
139,056
|
|
|
4
|
%
|
|
153,179
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
2,465,972
|
|
|
70
|
%
|
|
2,626,070
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
444,207
|
|
|
13
|
%
|
|
467,779
|
|
|
13
|
%
|
Unsecured
|
|
|
78,964
|
|
|
2
|
%
|
|
70,484
|
|
|
2
|
%
|
Asset-based
|
|
|
258,264
|
|
|
7
|
%
|
|
239,430
|
|
|
7
|
%
|
SBA 7(a)
|
|
|
25,075
|
|
|
1
|
%
|
|
25,325
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
806,510
|
|
|
23
|
%
|
|
803,018
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
204,766
|
|
|
6
|
%
|
|
174,373
|
|
|
5
|
%
|
Consumer
|
|
|
19,221
|
|
|
1
|
%
|
|
23,081
|
|
|
1
|
%
|
Foreign
|
|
|
17,268
|
|
|
|
|
|
17,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans and leases
|
|
$
|
3,513,737
|
|
|
100
|
%
|
$
|
3,643,783
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
72
Table of Contents
Our real estate loan portfolio is predominantly commercial-related loans and as such does not expose us to the risks generally associated with
residential mortgage loans such as option ARM, interest-only, or subprime mortgage loans. Our portfolio does expose us to risk elements associated with mortgage loans on commercial
property. Commercial real estate mortgage loan repayments typically do not rely on the sale of the underlying collateral, but instead rely on the income producing potential of the collateral as the
source of repayment. Ultimately, though, due to the loan amortization period generally being greater than the contractual loan term, the borrower may be required to refinance the loan, either with us
or another lender, or pay off the loan, by selling the underlying collateral.
At
March 31, 2013, we had $190.4 million of commercial real estate mortgage loans maturing over the next 12 months. For any of these loans, in the event that we provide a
concession through a refinance or modification which we would not ordinarily consider in order to protect as much of our investment as possible, such loan may be considered a troubled debt
restructuring even though it was performing throughout its term. The circumstances regarding any modification and a borrower's specific situation, such as their ability to obtain financing from
another source at similar market terms, are evaluated on an individual basis to determine if a troubled debt restructuring has occurred. Higher levels of troubled debt restructurings may lead to
increased classified assets and credit loss provisions.
The
following table presents the composition of our total real estate mortgage loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
Loan Category
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Commercial real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial/warehouse
|
|
$
|
312,772
|
|
|
13.4
|
%
|
$
|
341,301
|
|
|
13.8
|
%
|
Retail
|
|
|
321,866
|
|
|
13.8
|
%
|
|
368,071
|
|
|
14.9
|
%
|
Office buildings
|
|
|
337,258
|
|
|
14.5
|
%
|
|
357,770
|
|
|
14.5
|
%
|
Owner-occupied
|
|
|
197,059
|
|
|
8.5
|
%
|
|
212,471
|
|
|
8.6
|
%
|
Hotel
|
|
|
173,676
|
|
|
7.5
|
%
|
|
184,032
|
|
|
7.4
|
%
|
Healthcare
|
|
|
116,732
|
|
|
5.0
|
%
|
|
111,384
|
|
|
4.5
|
%
|
Mixed use
|
|
|
53,150
|
|
|
2.3
|
%
|
|
54,213
|
|
|
2.2
|
%
|
Gas station
|
|
|
33,679
|
|
|
1.4
|
%
|
|
34,763
|
|
|
1.4
|
%
|
Self storage
|
|
|
82,557
|
|
|
3.5
|
%
|
|
78,625
|
|
|
3.2
|
%
|
Restaurant
|
|
|
18,120
|
|
|
0.8
|
%
|
|
18,441
|
|
|
0.7
|
%
|
Land acquisition/development
|
|
|
21,851
|
|
|
0.9
|
%
|
|
21,922
|
|
|
0.9
|
%
|
Unimproved land
|
|
|
12,247
|
|
|
0.5
|
%
|
|
13,666
|
|
|
0.6
|
%
|
Other
|
|
|
180,351
|
|
|
7.8
|
%
|
|
186,414
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate mortgage
|
|
|
1,861,318
|
|
|
79.9
|
%
|
|
1,983,073
|
|
|
80.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
259,663
|
|
|
11.2
|
%
|
|
273,343
|
|
|
11.0
|
%
|
Single family owner-occupied
|
|
|
116,650
|
|
|
5.0
|
%
|
|
125,085
|
|
|
5.1
|
%
|
Single family nonowner-occupied
|
|
|
31,964
|
|
|
1.4
|
%
|
|
33,098
|
|
|
1.3
|
%
|
Mixed use
|
|
|
2,460
|
|
|
0.1
|
%
|
|
2,474
|
|
|
0.1
|
%
|
HELOCs
|
|
|
54,861
|
|
|
2.4
|
%
|
|
55,818
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total residential real estate mortgage
|
|
|
465,598
|
|
|
20.1
|
%
|
|
489,818
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross real estate mortgage loans
|
|
$
|
2,326,916
|
|
|
100.0
|
%
|
$
|
2,472,891
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
73
Table of Contents
The following table presents the balance of our total gross loans and leases by portfolio segment and class, showing the non-covered
and covered components, at the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
Total Loans
and Leases
|
|
Non-Covered Loans
and Leases
|
|
Covered Loans
|
|
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
173,676
|
|
|
5
|
%
|
$
|
172,472
|
|
|
6
|
%
|
$
|
1,204
|
|
|
|
|
SBA 504
|
|
|
55,403
|
|
|
2
|
%
|
|
55,403
|
|
|
2
|
%
|
|
|
|
|
|
|
Other
|
|
|
2,097,837
|
|
|
59
|
%
|
|
1,568,609
|
|
|
53
|
%
|
|
529,228
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
2,326,916
|
|
|
66
|
%
|
|
1,796,484
|
|
|
61
|
%
|
|
530,432
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
46,122
|
|
|
1
|
%
|
|
43,073
|
|
|
1
|
%
|
|
3,049
|
|
|
1
|
%
|
Commercial
|
|
|
92,934
|
|
|
3
|
%
|
|
83,634
|
|
|
3
|
%
|
|
9,300
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
139,056
|
|
|
4
|
%
|
|
126,707
|
|
|
4
|
%
|
|
12,349
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
2,465,972
|
|
|
70
|
%
|
|
1,923,191
|
|
|
65
|
%
|
|
542,781
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
444,207
|
|
|
13
|
%
|
|
432,652
|
|
|
14
|
%
|
|
11,555
|
|
|
2
|
%
|
Unsecured
|
|
|
78,964
|
|
|
2
|
%
|
|
78,428
|
|
|
3
|
%
|
|
536
|
|
|
|
|
Asset-based
|
|
|
258,264
|
|
|
7
|
%
|
|
258,264
|
|
|
8
|
%
|
|
|
|
|
|
|
SBA 7(a)
|
|
|
25,075
|
|
|
1
|
%
|
|
25,075
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
806,510
|
|
|
23
|
%
|
|
794,419
|
|
|
26
|
%
|
|
12,091
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
204,766
|
|
|
6
|
%
|
|
204,766
|
|
|
7
|
%
|
|
|
|
|
|
|
Consumer
|
|
|
19,221
|
|
|
1
|
%
|
|
18,677
|
|
|
1
|
%
|
|
544
|
|
|
|
|
Foreign
|
|
|
17,268
|
|
|
|
|
|
17,268
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans and leases
|
|
$
|
3,513,737
|
|
|
100
|
%
|
|
2,958,321
|
|
|
100
|
%
|
|
555,416
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned income
|
|
|
|
|
|
|
|
|
(1,424
|
)
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,050
|
)
|
|
|
|
Allowance
|
|
|
|
|
|
|
|
|
(65,216
|
)
|
|
|
|
|
(29,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loans and leases
|
|
|
|
|
|
|
|
$
|
2,891,681
|
|
|
|
|
$
|
483,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
Table of Contents
Non-Covered Loans and Leases
The following table presents the balance of our non-covered loans and leases by portfolio segment and class as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
172,472
|
|
|
6
|
%
|
$
|
181,144
|
|
|
6
|
%
|
SBA 504
|
|
|
55,403
|
|
|
2
|
%
|
|
54,158
|
|
|
2
|
%
|
Other
|
|
|
1,568,609
|
|
|
53
|
%
|
|
1,682,368
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
1,796,484
|
|
|
61
|
%
|
|
1,917,670
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
43,073
|
|
|
1
|
%
|
|
48,629
|
|
|
1
|
%
|
Commercial
|
|
|
83,634
|
|
|
3
|
%
|
|
81,330
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
126,707
|
|
|
4
|
%
|
|
129,959
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,923,191
|
|
|
65
|
%
|
|
2,047,629
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
432,652
|
|
|
14
|
%
|
|
453,176
|
|
|
14
|
%
|
Unsecured
|
|
|
78,428
|
|
|
3
|
%
|
|
69,844
|
|
|
2
|
%
|
Asset-based
|
|
|
258,264
|
|
|
8
|
%
|
|
239,430
|
|
|
8
|
%
|
SBA 7(a)
|
|
|
25,075
|
|
|
1
|
%
|
|
25,325
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
794,419
|
|
|
26
|
%
|
|
787,775
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
204,766
|
|
|
7
|
%
|
|
174,373
|
|
|
6
|
%
|
Consumer
|
|
|
18,677
|
|
|
1
|
%
|
|
22,487
|
|
|
1
|
%
|
Foreign
|
|
|
17,268
|
|
|
1
|
%
|
|
17,241
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross non-covered loans and leases
|
|
$
|
2,958,321
|
|
|
100
|
%
|
$
|
3,049,505
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
75
Table of Contents
The following table presents the composition of our non-covered real estate mortgage loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
Loan Category
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Commercial real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial/warehouse
|
|
$
|
286,911
|
|
|
16.0
|
%
|
$
|
315,096
|
|
|
16.4
|
%
|
Retail
|
|
|
228,665
|
|
|
12.7
|
%
|
|
271,412
|
|
|
14.2
|
%
|
Office buildings
|
|
|
290,399
|
|
|
16.2
|
%
|
|
304,096
|
|
|
15.9
|
%
|
Owner-occupied
|
|
|
179,827
|
|
|
10.0
|
%
|
|
195,170
|
|
|
10.2
|
%
|
Hotel
|
|
|
172,472
|
|
|
9.6
|
%
|
|
181,144
|
|
|
9.4
|
%
|
Healthcare
|
|
|
108,693
|
|
|
6.1
|
%
|
|
102,816
|
|
|
5.4
|
%
|
Mixed use
|
|
|
50,243
|
|
|
2.8
|
%
|
|
51,294
|
|
|
2.7
|
%
|
Gas station
|
|
|
28,558
|
|
|
1.6
|
%
|
|
29,632
|
|
|
1.5
|
%
|
Self storage
|
|
|
32,662
|
|
|
1.8
|
%
|
|
29,688
|
|
|
1.5
|
%
|
Restaurant
|
|
|
16,480
|
|
|
0.9
|
%
|
|
16,755
|
|
|
0.9
|
%
|
Land acquisition/development
|
|
|
21,851
|
|
|
1.2
|
%
|
|
21,922
|
|
|
1.1
|
%
|
Unimproved land
|
|
|
11,778
|
|
|
0.7
|
%
|
|
13,173
|
|
|
0.7
|
%
|
Other
|
|
|
165,809
|
|
|
9.2
|
%
|
|
172,273
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate mortgage
|
|
|
1,594,348
|
|
|
88.8
|
%
|
|
1,704,471
|
|
|
88.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
100,666
|
|
|
5.6
|
%
|
|
103,742
|
|
|
5.4
|
%
|
Single family owner-occupied
|
|
|
40,014
|
|
|
2.2
|
%
|
|
46,125
|
|
|
2.4
|
%
|
Single family nonowner-occupied
|
|
|
11,896
|
|
|
0.6
|
%
|
|
12,789
|
|
|
0.7
|
%
|
HELOCs
|
|
|
49,560
|
|
|
2.8
|
%
|
|
50,543
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Total residential real estate mortgage
|
|
|
202,136
|
|
|
11.2
|
%
|
|
213,199
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross non-covered real estate mortgage loans
|
|
$
|
1,796,484
|
|
|
100.0
|
%
|
$
|
1,917,670
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
The largest subset of the "Other" commercial real estate mortgage category is for fixed base operators at airports with a balance of
$38.9 million, or 23.5% of the total in "Other".
76
Table of Contents
The following table presents the composition of our covered loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
1,204
|
|
|
|
|
$
|
2,888
|
|
|
|
|
Other
|
|
|
529,228
|
|
|
95
|
%
|
|
552,333
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
530,432
|
|
|
95
|
%
|
|
555,221
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
3,049
|
|
|
1
|
%
|
|
5,662
|
|
|
1
|
%
|
Commercial
|
|
|
9,300
|
|
|
2
|
%
|
|
17,558
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
12,349
|
|
|
3
|
%
|
|
23,220
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
542,781
|
|
|
98
|
%
|
|
578,441
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
11,555
|
|
|
2
|
%
|
|
14,603
|
|
|
2
|
%
|
Unsecured
|
|
|
536
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
12,091
|
|
|
2
|
%
|
|
15,243
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
544
|
|
|
|
|
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross covered loans
|
|
|
555,416
|
|
|
100
|
%
|
|
594,278
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
(43,050
|
)
|
|
|
|
|
(50,951
|
)
|
|
|
|
Allowance for loan losses
|
|
|
(29,303
|
)
|
|
|
|
|
(26,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covered loans, net
|
|
$
|
483,063
|
|
|
|
|
$
|
517,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Table of Contents
The following table presents our gross covered real estate mortgage loan portfolio as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
Loan Category
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Commercial real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial/warehouse
|
|
$
|
25,861
|
|
|
4.9
|
%
|
$
|
26,205
|
|
|
4.7
|
%
|
Retail
|
|
|
93,201
|
|
|
17.6
|
%
|
|
96,659
|
|
|
17.4
|
%
|
Office buildings
|
|
|
46,859
|
|
|
8.8
|
%
|
|
53,674
|
|
|
9.7
|
%
|
Owner-occupied
|
|
|
17,232
|
|
|
3.3
|
%
|
|
17,301
|
|
|
3.1
|
%
|
Hotel
|
|
|
1,204
|
|
|
0.2
|
%
|
|
2,888
|
|
|
0.5
|
%
|
Healthcare
|
|
|
8,039
|
|
|
1.5
|
%
|
|
8,568
|
|
|
1.5
|
%
|
Mixed use
|
|
|
2,907
|
|
|
0.5
|
%
|
|
2,919
|
|
|
0.5
|
%
|
Gas station
|
|
|
5,121
|
|
|
1.0
|
%
|
|
5,131
|
|
|
0.9
|
%
|
Self storage
|
|
|
49,895
|
|
|
9.4
|
%
|
|
48,937
|
|
|
8.8
|
%
|
Restaurant
|
|
|
1,640
|
|
|
0.3
|
%
|
|
1,686
|
|
|
0.3
|
%
|
Unimproved land
|
|
|
469
|
|
|
0.1
|
%
|
|
493
|
|
|
0.1
|
%
|
Other
|
|
|
14,542
|
|
|
2.7
|
%
|
|
14,141
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate mortgage
|
|
|
266,970
|
|
|
50.3
|
%
|
|
278,602
|
|
|
50.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Residential real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
158,997
|
|
|
30.0
|
%
|
|
169,601
|
|
|
30.6
|
%
|
Single family owner-occupied
|
|
|
76,636
|
|
|
14.4
|
%
|
|
78,960
|
|
|
14.2
|
%
|
Single family nonowner-occupied
|
|
|
20,068
|
|
|
3.8
|
%
|
|
20,309
|
|
|
3.7
|
%
|
Mixed use
|
|
|
2,460
|
|
|
0.5
|
%
|
|
2,474
|
|
|
0.4
|
%
|
HELOCs
|
|
|
5,301
|
|
|
1.0
|
%
|
|
5,275
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total residential real estate mortgage
|
|
|
263,462
|
|
|
49.7
|
%
|
|
276,619
|
|
|
49.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross covered real estate mortgage loans
|
|
$
|
530,432
|
|
|
100.0
|
%
|
$
|
555,221
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
The loans acquired in the Los Padres and Affinity acquisitions are covered by loss sharing agreements with the FDIC and we will be reimbursed for
a substantial portion of any future losses. Through March 31, 2013, gross losses for Los Padres covered assets totaled $68.2 million and gross losses for Affinity covered assets totaled $152.2
million. Of this total of $220.4 million in losses, we have received payment from the FDIC of $173.1 million, which represented 80% of our losses.
Under
the terms of the Los Padres loss sharing agreement, the FDIC will absorb 80% of losses and receive 80% of loss recoveries on the covered assets. The Los Padres loss sharing
provisions expire in the third quarters of 2015 and 2020 for non-single family and single family covered assets, respectively, while the related loss recovery provisions expire in the
third quarters of 2018 and 2020, respectively.
Under
the terms of the Affinity loss sharing agreement, the FDIC will (a) absorb 80% of losses and receive 80% of loss recoveries on the first $234 million of losses on
covered assets and (b) absorb 95% of losses and receive 95% of loss recoveries on covered assets exceeding $234 million. The Affinity loss sharing provisions expire in the third quarters
of 2014 and 2019 for non-single family covered assets and single family covered assets, respectively, while the related loss recovery provisions expire in the third quarters of 2017 and
2019, respectively.
78
Table of Contents
The allowance for credit losses on non-covered loans and leases is the combination of the allowance for loan and lease
losses and the reserve for unfunded loan commitments. The allowance for credit losses on non-covered loans and leases relates only to loans and leases which are not subject to loss sharing
agreements with the FDIC. The allowance for loan and lease losses is reported as a reduction of outstanding loan and lease balances and the reserve for unfunded loan commitments is included within
other liabilities. Generally, as loans are funded, the amount of the commitment reserve applicable to such funded loans is transferred from the reserve for unfunded loan commitments to the allowance
for loan and lease losses based on our
allowance methodology. The following discussion is for non-covered loans and leases and the allowance for credit losses thereon. Refer to "Balance Sheet
Analysis
Allowance for Credit Losses on Covered Loans
" for the policy on covered loans.
The
allowance for loan and lease losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan and lease portfolio and
other extensions of credit at the balance sheet date. The allowance is based upon a continuing review of the portfolio, past loan and lease loss experience, current economic conditions which may
affect the borrowers' ability to pay, and the underlying collateral value of the loans and leases. Loans and leases which are deemed to be uncollectible are charged off and deducted from the
allowance. The provision for loan and lease losses and recoveries on loans and leases previously charged off are added to the allowance.
The
methodology we use to estimate the amount of our allowance for credit losses is based on both objective and subjective criteria. While some criteria are formula driven, other
criteria are subjective inputs included to capture environmental and general economic risk elements which may trigger losses in the loan and lease portfolios, and to account for the varying levels of
credit quality in the loan and lease portfolios of the entities we have acquired that have not yet been captured in our objective loss factors.
Specifically,
our allowance methodology contains three key elements: (i) amounts based on specific evaluations of impaired loans and leases; (ii) amounts of estimated
losses on several pools of loans categorized by risk rating and loan and lease type; and (iii) amounts for environmental and general economic factors that indicate probable losses were incurred
but were not captured through the other elements of our allowance process. In addition, for loans and leases measured at fair value on the acquisition date and deemed to be non-impaired,
our allowance methodology captures deterioration in credit quality and other inherent risks of such acquired assets experienced after the purchase date.
Impaired
loans and leases are identified at each reporting date based on certain criteria and the majority of which are individually reviewed for impairment. Non-covered
nonaccrual loans and leases with an unpaid principal balance over $250,000 and all performing restructured loans are reviewed individually for the amount of impairment, if any. Non-covered
nonaccrual loans and leases with an unpaid principal balance of $250,000 or less are evaluated for impairment collectively. A loan or lease is considered impaired when it is probable that a creditor
will be unable to collect all amounts due according to the original contractual terms of the agreement. We measure impairment of a loan based upon the fair value of the loan's collateral if the loan
is collateral-dependent or the present value of cash flows, discounted at the loan's effective interest rate, if the loan is not collateral-dependent. The impairment amount on a collateral-dependent
loan is charged-off to the allowance, and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve. We measure impairment of a lease based upon the
present value of the scheduled lease and residual cash flows, discounted at the lease's effective interest rate. Increased charge-offs or additions to specific reserves generally result in
increased provisions for credit losses.
Our
loan and lease portfolio, excluding impaired loans and leases which are evaluated individually, is categorized into several pools for purposes of determining allowance amounts by
pool. The pools we
79
Table of Contents
currently
evaluate are: commercial real estate construction, residential real estate construction, SBA real estate, hospitality real estate, real estate other, commercial collateralized, commercial
unsecured, SBA commercial, consumer, foreign, asset-based and leasing. Within these pools, we then evaluate loans and leases not adversely classified, which we refer to as "pass" credits, separately
from adversely classified loans and leases. The adversely classified loans and leases are further grouped into three credit risk rating categories: "special mention," "substandard," and "doubtful,"
which we define as follows:
-
-
Special Mention: Loans and leases classified as "special mention" have a potential weakness that requires management's
attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
-
-
Substandard: Loans and leases classified as "substandard" have a well-defined weakness or weaknesses that
jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
-
-
Doubtful: Loans and leases classified as "doubtful" have all the weaknesses of those classified as "substandard," with the
additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.
In
addition, we may refer to the loans and leases classified as "substandard" and "doubtful" together as "criticized" loans and leases. For additional information on classified loans and
leases, see Note 5,
Loans and Leases
, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1.
Condensed Consolidated Financial Statements (Unaudited)."
The
allowance amounts for "pass" rated loans and leases and those loans and leases adversely classified, which are not reviewed individually, are determined using historical loss rates
developed
through migration analysis. The migration analysis is updated quarterly based on historic losses and movement of loans between ratings. As a result of this migration analysis and its quarterly
updating, decreases we experience in both charge-offs and adverse classifications generally result in lower loss factors.
Finally,
in order to ensure our allowance methodology is incorporating recent trends and economic conditions, we apply environmental and general economic factors to our allowance
methodology including: credit concentrations; delinquency trends; economic and business conditions; the quality of lending management and staff; lending policies and procedures; loss and recovery
trends; nature and volume of the portfolio; nonaccrual and problem loan trends; usage trends of unfunded commitments; and other adjustments for items not covered by other factors.
Management
believes that the allowance for loan and lease losses is adequate and appropriate for the known and inherent risks in our non-covered loan and lease portfolio. In
making its evaluation, management considers certain quantitative and qualitative factors including the Company's historical loss experience; the volume and type of lending conducted by the Company;
the results of our credit review process; the levels of classified and criticized loans and leases; the levels of impaired loans and leases, including nonperforming loans and leases and performing
restructured loans; regulatory policies; general economic conditions; underlying collateral values; and other factors regarding collectability and impairment. To the extent we experience, for example,
increased levels of documentation deficiencies, adverse changes in collateral values, or negative changes in economic and business conditions which adversely affect our borrowers, our classified loans
and leases may increase. Higher levels of classified loans and leases generally result in higher allowances for loan and lease losses.
We
recognize that the determination of the allowance for loan and lease losses is sensitive to the assigned credit risk ratings and inherent loss rates at any given point in time.
Therefore, we perform sensitivity analyses to provide insight regarding the impact that adverse changes in credit risk ratings may have on our allowance for loan and lease losses. The sensitivity
analyses have inherent limitations
80
Table of Contents
and
are based on various assumptions as of a point in time and, accordingly, it is not necessarily representative of the impact loan risk rating changes may have on the allowance for loan and lease
losses.
At
March 31, 2013, in the event that 1% of our non-covered loans and leases were downgraded one credit risk rating category for each category (e.g., 1% of the
"pass" category moved to the "special mention" category, 1% of the "special mention" category moved to "substandard" category, and 1% of the "substandard" category moved to the "doubtful" category
within our current
allowance methodology), the allowance for credit losses would have increased by approximately $1.3 million. In the event that 5% of our non-covered loans and leases were downgraded
one credit risk category, the allowance for credit losses would increase by approximately $6.4 million.
Given
our current risk management processes, we believe that the credit risk ratings and inherent loss rates currently assigned are appropriate. It is possible that others, given the
same information, may at any point in time reach different conclusions that could be significant to the Company's financial statements. In addition, current credit risk ratings are subject to change
as we continue to review loans and leases within our portfolio and as our borrowers are impacted by economic trends within their market areas.
Although
we have established an allowance for loan and lease losses that we consider appropriate, there can be no assurance that the established allowance for loan and lease losses will
be sufficient to offset losses on loans and leases in the future. Management also believes that the reserve for unfunded loan commitments is appropriate. In making this determination, we use the same
methodology for the reserve for unfunded loan commitments as we do for the allowance for loan and lease losses and consider the same quantitative and qualitative factors, as well as an estimate of the
probability of advances of the commitments correlated to their credit risk rating.
The
following table presents information regarding the allowance for credit losses on non-covered loans and leases as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Allowance for loan and lease losses
|
|
$
|
65,216
|
|
$
|
65,899
|
|
$
|
74,767
|
|
Reserve for unfunded loan commitments
|
|
|
6,680
|
|
|
6,220
|
|
|
6,970
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses
|
|
$
|
71,896
|
|
$
|
72,119
|
|
$
|
81,737
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses to loans and leases, net of unearned income
|
|
|
2.43
|
%
|
|
2.37
|
%
|
|
2.85
|
%
|
Allowance for credit losses to nonaccrual loans and leases
|
|
|
171.6
|
%
|
|
183.6
|
%
|
|
169.7
|
%
|
Allowance for credit losses to nonperforming assets
|
|
|
92.3
|
%
|
|
99.0
|
%
|
|
86.6
|
%
|
The following table presents the changes in our allowance for credit losses on non-covered loans and leases for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(In thousands)
|
|
Allowance for credit losses, beginning of period
|
|
$
|
72,119
|
|
$
|
75,012
|
|
$
|
93,783
|
|
Provision (negative provision) for credit losses
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
Net charge-offs
|
|
|
(223
|
)
|
|
(2,893
|
)
|
|
(2,046
|
)
|
|
|
|
|
|
|
|
|
Allowance for credit losses, end of period
|
|
$
|
71,896
|
|
$
|
72,119
|
|
$
|
81,737
|
|
|
|
|
|
|
|
|
|
81
Table of Contents
The following table presents the changes in our allowance for loan and lease losses on non-covered loans and leases for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Allowance for loan and lease losses, beginning of period
|
|
$
|
65,899
|
|
$
|
69,142
|
|
$
|
85,313
|
|
Loans and leases charged off:
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
|
(322
|
)
|
|
(1,789
|
)
|
|
(2,190
|
)
|
Commercial
|
|
|
(708
|
)
|
|
(1,865
|
)
|
|
(871
|
)
|
Leases
|
|
|
(114
|
)
|
|
(28
|
)
|
|
|
|
Consumer
|
|
|
(9
|
)
|
|
(32
|
)
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
Total loans and leases charged off
|
|
|
(1,153
|
)
|
|
(3,714
|
)
|
|
(3,260
|
)
|
|
|
|
|
|
|
|
|
Recoveries on loans charged off:
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
|
177
|
|
|
381
|
|
|
329
|
|
Real estate construction
|
|
|
323
|
|
|
14
|
|
|
10
|
|
Commercial
|
|
|
407
|
|
|
368
|
|
|
824
|
|
Consumer
|
|
|
23
|
|
|
58
|
|
|
31
|
|
Foreign
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Total recoveries on loans charged off
|
|
|
930
|
|
|
821
|
|
|
1,214
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(223
|
)
|
|
(2,893
|
)
|
|
(2,046
|
)
|
Provision (negative provision) for loan and lease losses
|
|
|
(460
|
)
|
|
(350
|
)
|
|
(8,500
|
)
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses, end of period
|
|
$
|
65,216
|
|
$
|
65,899
|
|
$
|
74,767
|
|
|
|
|
|
|
|
|
|
Ratios
(1)
:
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to loans and leases, net (end of period)
|
|
|
2.21
|
%
|
|
2.16
|
%
|
|
2.61
|
%
|
Allowance for loan and lease losses to nonaccrual loans and leases (end of period)
|
|
|
155.67
|
%
|
|
167.75
|
%
|
|
155.24
|
%
|
Annualized net charge-offs to average loans and leases
|
|
|
0.03
|
%
|
|
0.38
|
%
|
|
0.29
|
%
|
-
(1)
-
Ratios
apply only to non-covered loans.
The following table presents the changes in our reserve for unfunded loan commitments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(In thousands)
|
|
Reserve for unfunded loan commitments, beginning of period
|
|
$
|
6,220
|
|
$
|
5,870
|
|
$
|
8,470
|
|
Provision (negative provision)
|
|
|
460
|
|
|
350
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
Reserve for unfunded loan commitments, end of period
|
|
$
|
6,680
|
|
$
|
6,220
|
|
$
|
6,970
|
|
|
|
|
|
|
|
|
|
The loans acquired in the Los Padres and Affinity acquisitions are covered by loss sharing agreements with the FDIC and we will be
reimbursed for a substantial portion of any future losses as described in "Covered Loans."
82
Table of Contents
We evaluated the acquired covered loans and elected to account for them under Accounting Standards Codification ("ASC") Subtopic 310-30,
"
Loans and Debt Securities Acquired with Deteriorated Credit Quality
" ("ASC 310-30"), which we refer to as acquired impaired loan
accounting.
The
covered loans are subject to our internal and external credit review. If deterioration in the expected cash flows results in a reserve requirement, a provision for credit losses is
charged to earnings without regard to the FDIC loss sharing agreement. The portion of the estimated loss reimbursable from the FDIC is recorded in FDIC loss sharing income and increases the FDIC loss
sharing asset. For acquired impaired loans, the allowance for loan losses is measured at the end of each financial reporting period based on expected cash flows. Decreases or (increases) in the amount
and changes in the timing of expected cash flows on the acquired impaired loans as of the financial reporting date compared to those previously estimated are usually recognized by recording a
provision or a (negative provision) for credit losses on such covered loans.
Certain
home equity lines of credit acquired in the Los Padres acquisition are not eligible for acquired impaired loan accounting and are therefore accounted for as performing acquired
loans. Such acquired loans were initially recorded at a discount and are subject to our quarterly allowance for credit losses methodology. We record a provision for such loan losses only when the
reserve requirement exceeds any remaining credit discount on these covered loans.
The
following table presents the changes in our allowance for credit losses on covered loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(In thousands)
|
|
Allowance for credit losses on covered loans, beginning of period
|
|
$
|
26,069
|
|
$
|
30,704
|
|
$
|
31,275
|
|
Provision (negative provision)
|
|
|
3,137
|
|
|
(4,333
|
)
|
|
3,926
|
|
Net charge-offs
|
|
|
97
|
|
|
(302
|
)
|
|
609
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses on covered loans, end of period
|
|
$
|
29,303
|
|
$
|
26,069
|
|
$
|
35,810
|
|
|
|
|
|
|
|
|
|
Non-Covered Nonperforming Assets and Performing Restructured Loans
The following table presents non-covered nonperforming assets and performing restructured loans information as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Nonaccrual loans and leases
(1)
|
|
$
|
41,893
|
|
$
|
39,284
|
|
$
|
48,162
|
|
Other real estate owned
(1)
|
|
|
35,961
|
|
|
33,572
|
|
|
46,206
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
77,854
|
|
$
|
72,856
|
|
$
|
94,368
|
|
|
|
|
|
|
|
|
|
Performing restructured loans
(1)
|
|
$
|
80,501
|
|
$
|
106,288
|
|
$
|
110,062
|
|
Nonaccrual loans and leases to loans and leases, net of unearned income
(1)
|
|
|
1.42
|
%
|
|
1.29
|
%
|
|
1.68
|
%
|
Nonperforming assets ratio
(1)
(2)
|
|
|
2.60
|
%
|
|
2.37
|
%
|
|
3.24
|
%
|
-
(1)
-
Excludes
covered loans and covered OREO from the Los Padres and Affinity acquisitions.
-
(2)
-
Nonperforming
assets ratio is calculated as nonperforming assets divided by the sum of total non-covered loans and leases and
OREO.
83
Table of Contents
Non-covered nonperforming assets include non-covered nonaccrual loans and leases and non-covered OREO and
totaled $77.9 million at March 31, 2013 compared to $72.9 million at December 31, 2012. The $5.0 million increase in non-covered nonperforming assets is
due to a $2.6 million increase in nonaccrual loans and leases and a $2.4 million increase in OREO. The non-covered nonperforming assets ratio increased to 2.60% at
March 31, 2013 from 2.37% at December 31, 2012.
The $2.6 million increase in non-covered nonaccrual loans and leases during the first quarter of 2013 was
attributable to (a) additions of $6.4 million,
(b) charge-offs of $1.1 million and (c) other reductions, payoffs and returns to accrual status of $2.7 million.
The
following table presents our non-covered nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by portfolio segment and class
as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual Loans and Leases
(1)
|
|
|
|
|
|
|
|
Accruing and 30 - 89 Days Past Due
(1)
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
|
|
Amount
|
|
% of Loan
Category
|
|
Amount
|
|
% of Loan
Category
|
|
March 31,
2013
Amount
|
|
December 31,
2012
Amount
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
6,823
|
|
|
4.0
|
%
|
$
|
6,908
|
|
|
3.8
|
%
|
$
|
|
|
$
|
|
|
SBA 504
|
|
|
2,936
|
|
|
5.3
|
%
|
|
2,982
|
|
|
5.5
|
%
|
|
1,066
|
|
|
955
|
|
Other
(2)
|
|
|
20,045
|
|
|
1.3
|
%
|
|
15,929
|
|
|
0.9
|
%
|
|
26,077
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
29,804
|
|
|
1.7
|
%
|
|
25,819
|
|
|
1.3
|
%
|
|
27,143
|
|
|
2,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,046
|
|
|
2.4
|
%
|
|
1,057
|
|
|
2.2
|
%
|
|
|
|
|
|
|
Commercial
(2)
|
|
|
1,447
|
|
|
1.7
|
%
|
|
2,715
|
|
|
3.3
|
%
|
|
7,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
2,493
|
|
|
2.0
|
%
|
|
3,772
|
|
|
2.9
|
%
|
|
7,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
3,306
|
|
|
0.8
|
%
|
|
2,648
|
|
|
0.6
|
%
|
|
542
|
|
|
166
|
|
Unsecured
|
|
|
1,471
|
|
|
1.9
|
%
|
|
2,019
|
|
|
2.9
|
%
|
|
132
|
|
|
138
|
|
Asset-based
|
|
|
281
|
|
|
0.1
|
%
|
|
176
|
|
|
0.1
|
%
|
|
|
|
|
|
|
SBA 7(a)
|
|
|
3,867
|
|
|
15.4
|
%
|
|
4,181
|
|
|
16.5
|
%
|
|
118
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
8,925
|
|
|
1.1
|
%
|
|
9,024
|
|
|
1.1
|
%
|
|
792
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
244
|
|
|
0.1
|
%
|
|
244
|
|
|
0.1
|
%
|
|
44
|
|
|
357
|
|
Consumer
|
|
|
427
|
|
|
2.3
|
%
|
|
425
|
|
|
1.9
|
%
|
|
26
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
41,893
|
|
|
1.4
|
%
|
$
|
39,284
|
|
|
1.3
|
%
|
$
|
35,295
|
|
$
|
3,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Excludes
covered loans acquired from the Los Padres and Affinity acquisitions.
-
(2)
-
Included
in the 30-89 days past due amount at March 31, 2013 are two loans to the same borrower totaling
$32.3 million. These loans, which were 32 days past due at quarter-end, are now current.
84
Table of Contents
The following table lists the ten largest lending relationships on nonaccrual status, excluding SBA-related loans, as of the date
indicated:
|
|
|
|
|
|
|
|
March 31,
2013
Nonaccrual
Amount
|
|
Description
|
|
|
(In thousands)
|
|
|
|
|
$
|
6,823
|
|
Two loans, each secured by a hotel in San Diego County, California. The borrower is paying according to the restructured terms of each loan.
(1)
|
|
|
|
3,472
|
|
Two loans, one of which is secured by an office building in Clark County, Nevada, and the other is secured by an office building in Maricopa County, Arizona.
(1)
|
|
|
|
2,692
|
|
This loan is secured by an office building in San Diego County, California.
(2)
|
|
|
|
2,358
|
|
This loan is secured by a strip retail center in Riverside County, California.
(1)
|
|
|
|
1,877
|
|
This loan is secured by a strip retail center in Clark County, Nevada.
(1)
|
|
|
|
1,425
|
|
This loan is secured by two industrial buildings in San Diego County, California.
(1)
|
|
|
|
1,298
|
|
This loan is secured by an industrial building in San Bernardino County, California
(2)
.
|
|
|
|
1,250
|
|
This loan is unsecured and has a specific reserve for 100% of the balance.
(1)
|
|
|
|
1,173
|
|
Two loans, one of which is secured by an apartment building in San Diego County, California, and the other is secured by an office building in San Diego County, California.
(1)
|
|
|
|
1,147
|
|
This loan is secured by three industrial buildings in Riverside County, California.
(1)
|
|
|
|
|
|
|
|
$
|
23,515
|
|
Total
|
|
|
|
|
|
-
(1)
-
On
nonaccrual status at December 31, 2012.
-
(2)
-
New
nonaccrual in first quarter of 2013.
The following table presents the components of non-covered OREO by property type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Commercial real estate
|
|
$
|
791
|
|
$
|
1,684
|
|
$
|
20,885
|
|
Construction and land development
|
|
|
31,670
|
|
|
31,888
|
|
|
25,321
|
|
Single family residence
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered OREO
|
|
$
|
35,961
|
|
$
|
33,572
|
|
$
|
46,206
|
|
|
|
|
|
|
|
|
|
Non-covered OREO increased $2.4 million during the first quarter of 2013 due mainly to foreclosures of $3.5 million,
offset by sales of $1.0 million.
Non-covered performing restructured loans declined by $25.8 million during the first quarter of 2013 to
$80.5 million at March 31, 2013. The decline was attributable primarily to the removal of $26.6 million in loans from restructured loan status due to the performance of the loans
in accordance with their modified terms. Other items contributing to the decline were $1.5 million in loans removed from restructured loan status due to re-underwriting,
$1.3 million in transfers to nonaccrual status, and $1.0 million in payoffs and charge-offs. These factors were offset by $3.7 million in additions and
$1.2 million in transfers from nonaccrual status. At March 31, 2013, we had $65.4 million in real estate
85
Table of Contents
mortgage
loans, $11.2 million in real estate construction loans, $3.7 million in commercial loans, and $202,000 in consumer loans that were accruing interest under the terms of troubled
debt restructurings.
The
majority of the performing restructured loans was on accrual status prior to the loan modifications and has remained on accrual status after the loan modifications due to the
borrowers making payments before and after the restructurings. In these circumstances, generally, a borrower may have had a fixed-rate loan that they continued to repay, but may be having
cash flow difficulties. In an effort to work with certain borrowers, we have agreed to interest rate reductions to reflect the lower market interest rate environment and/or interest-only
payments for a period of time. In these cases, we do not forgive principal or extend the maturity date as part of the loan modification. As a result of the current economic environment in our market
areas, we anticipate loan restructurings to continue.
Loans accounted for under ASC 310-30 are generally considered accruing and performing loans as the loans accrete
interest income over the estimated life of the loan when cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing
and performing loans. If the timing and amount of future cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income is not recognized until the timing
and amount of future cash flows can be reasonably estimated.
The
following table presents a summary of covered loans that would be considered nonaccrual except for the accounting requirements regarding acquired impaired loans and other real estate
owned covered by the loss sharing agreement ("covered nonaccrual loans" and "covered OREO"; collectively, "covered nonperforming assets") as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
March 31,
2012
|
|
|
|
(In thousands)
|
|
Covered nonaccrual loans
|
|
$
|
108,830
|
|
$
|
114,782
|
|
$
|
140,555
|
|
Covered OREO
|
|
|
17,311
|
|
|
22,842
|
|
|
29,888
|
|
|
|
|
|
|
|
|
|
Total covered nonperforming assets
|
|
$
|
126,141
|
|
$
|
137,624
|
|
$
|
170,443
|
|
|
|
|
|
|
|
|
|
Covered performing restructured loans
|
|
$
|
28,154
|
|
$
|
21,553
|
|
$
|
16,652
|
|
The following table presents the balance of each major category of deposits at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
December 31, 2012
|
|
Deposit Category
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Noninterest-bearing deposits
|
|
$
|
1,941,234
|
|
|
43
|
%
|
$
|
1,939,212
|
|
|
41
|
%
|
Interest checking deposits
|
|
|
512,645
|
|
|
11
|
|
|
513,389
|
|
|
11
|
|
Money market deposits
|
|
|
1,184,987
|
|
|
26
|
|
|
1,282,513
|
|
|
28
|
|
Savings deposits
|
|
|
157,572
|
|
|
3
|
|
|
153,680
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
3,796,438
|
|
|
83
|
|
|
3,888,794
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits under $100,000
|
|
|
252,605
|
|
|
6
|
|
|
274,622
|
|
|
6
|
|
Time deposits $100,000 and over
|
|
|
504,187
|
|
|
11
|
|
|
545,705
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Total time deposits
|
|
|
756,792
|
|
|
17
|
|
|
820,327
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
4,553,230
|
|
|
100
|
%
|
$
|
4,709,121
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
86
Table of Contents
Total deposits decreased $155.9 million during the first quarter to $4.6 billion at March 31, 2013. Core deposits declined
$92.4 million during the first quarter due mostly to a decrease of $97.5 million in money market deposits, approximately $80 million of which was expected to occur. Time deposits
declined $63.5 million during the first quarter to $756.8 million at March 31, 2013. At March 31, 2013, core deposits totaled $3.8 billion, or 83% of total deposits,
and noninterest-bearing demand deposits, which held steady at $1.9 billion, were 43% of total deposits at that date.
The
following table summarizes the maturities of time deposits as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
Maturity
|
|
Time
Deposits
Under
$100,000
|
|
Time
Deposits
$100,000
or More
|
|
Total
Time
Deposits
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
|
Due in three months or less
|
|
$
|
90,542
|
|
$
|
184,361
|
|
$
|
274,903
|
|
|
1.26
|
%
|
Due in over three months through six months
|
|
|
46,877
|
|
|
107,703
|
|
|
154,580
|
|
|
0.83
|
%
|
Due in over six months through twelve months
|
|
|
62,221
|
|
|
115,282
|
|
|
177,503
|
|
|
0.78
|
%
|
Due in over 12 months through 24 months
|
|
|
32,946
|
|
|
52,540
|
|
|
85,486
|
|
|
0.74
|
%
|
Due in over 24 months
|
|
|
20,019
|
|
|
44,301
|
|
|
64,320
|
|
|
0.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
252,605
|
|
$
|
504,187
|
|
$
|
756,792
|
|
|
0.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Matters
Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines which compare
different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. Banks and bank holding companies considered to be "well
capitalized" must maintain a minimum Tier 1 leverage ratio of 5%, a minimum Tier 1 risk-based capital ratio of 6.0%, and a minimum total risk-based capital ratio
of 10%. Regulatory capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the
calculated limit are deducted from regulatory capital. There was no limitation on our deferred tax assets at March 31, 2013. No assurance can be given that the regulatory capital deferred tax
asset limitation will not increase in the future.
The
following table presents regulatory capital requirements and our regulatory capital ratios as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
Well
Capitalized
Requirement
|
|
Pacific
Western
Bank
|
|
PacWest
Bancorp
Consolidated
|
|
Tier 1 leverage capital ratio
|
|
|
5.00
|
%
|
|
10.15
|
%
|
|
10.89
|
%
|
Tier 1 risk-based capital ratio
|
|
|
6.00
|
%
|
|
14.51
|
%
|
|
15.58
|
%
|
Total risk-based capital ratio
|
|
|
10.00
|
%
|
|
15.78
|
%
|
|
16.85
|
%
|
Tangible common equity ratio
|
|
|
N/A
|
|
|
10.74
|
%
|
|
9.54
|
%
|
The Company issued subordinated debentures to trusts that were established by us or entities we have acquired, which, in turn, issued
trust preferred securities, which totaled $105.0 million at March 31, 2013. The Company includes in Tier 1 capital an amount of trust preferred securities equal
87
Table of Contents
to
no more than 25% of the sum of all core capital elements, which is generally defined as shareholders' equity less goodwill, net of any related deferred income tax liability. At March 31,
2013, the amount of trust preferred securities included in Tier I capital was $105.0 million. While our existing trust preferred securities are currently grandfathered as Tier 1
capital under the Dodd-Frank Wall Street Reform and Consumer Protection Act, proposed regulatory capital guidelines would phase them out of Tier 1 capital over a period of years.
However, the phase out rules have not been finalized. New issuances of trust preferred securities will not qualify as Tier 1 capital. If trust preferred securities are excluded from regulatory
capital, we remain "well capitalized."
Bank holding companies, such as PacWest Bancorp, are required to notify the Board of Governors of the Federal Reserve System ("FRB")
prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other
requirements. Interest payments on subordinated debentures are considered dividend payments under FRB regulations. We are not required to make such notification to the FRB.
Liquidity Management
The goals of our liquidity management are to ensure the ability of the Company to meet its financial commitments when contractually due
and to respond to other demands for funds such as the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who may need assurance
that sufficient funds will be available to meet their credit needs. We have an Executive Asset/Liability Management Committee, or Executive ALM Committee, which is comprised of members of senior
management and is responsible for managing balance sheet and off-balance sheet commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM
Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.
The
Company manages its liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and due from banks, interest-earning deposits in other financial
institutions and unpledged investment securities available-for-sale, which we refer to as our primary liquidity. In addition, we also maintain available borrowing capacity
under secured borrowing lines with the FHLB and the Federal Reserve Bank of San Francisco ("FRBSF"), which we refer to as our secondary liquidity. In addition to its secured lines of credit,
the Company also maintains unsecured lines of credit, subject to availability, of $80.0 million with correspondent banks for purchase of overnight funds.
88
Table of Contents
The
following table provides a summary of the Bank's primary and secondary liquidity levels at the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
|
|
(Dollars in thousands)
|
|
Primary LiquidityOn-Balance Sheet:
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
90,659
|
|
$
|
89,011
|
|
Interest-earning deposits at financial institutions
|
|
|
41,019
|
|
|
75,393
|
|
Investment securities available-for-sale
|
|
|
1,362,777
|
|
|
1,355,385
|
|
Less: pledged securities
|
|
|
(157,452
|
)
|
|
(157,279
|
)
|
|
|
|
|
|
|
Total primary liquidity
|
|
$
|
1,337,003
|
|
$
|
1,362,510
|
|
|
|
|
|
|
|
Ratio of primary liquidity to total deposits
|
|
|
29.4
|
%
|
|
28.9
|
%
|
|
|
|
|
|
|
Secondary LiquidityOff-Balance Sheet Available
|
|
|
|
|
|
|
|
Secured Borrowing Capacity:
|
|
|
|
|
|
|
|
Total secured borrowing capacity with the FHLB
|
|
$
|
995,145
|
|
$
|
1,024,261
|
|
Less: secured letters of credit outstanding
|
|
|
(1,244
|
)
|
|
(1,244
|
)
|
|
|
|
|
|
|
Net secured borrowing capacity with the FHLB
|
|
|
993,901
|
|
|
1,023,017
|
|
Secured credit line with the FRBSF
|
|
|
381,875
|
|
|
385,691
|
|
|
|
|
|
|
|
Total secondary liquidity
|
|
$
|
1,375,776
|
|
$
|
1,408,708
|
|
|
|
|
|
|
|
During the three months ended March 31, 2013, the Company's primary liquidity decreased $25.5 million due mostly to a
$34.4 million decrease in interest-earning deposits at financial institutions, offset by a $7.4 million increase in investment securities available-for-sale. The
Company's secondary liquidity decreased $32.9 million during the first quarter due to a reduction in borrowing capacity for the FHLB secured borrowing facility. This was attributable to the
decrease in the amount of loans pledged as collateral resulting from the decline in the balance of our loan portfolio. Our total liquidity and the ratio of primary liquidity to total deposits remain
at historically high levels. We expect to continue to maintain higher levels of on-balance sheet liquidity during the remainder of 2013 compared to historical levels until we are able to
effectively increase loan portfolio balances.
At
March 31, 2013, $486.5 million of certain qualifying loans were specifically pledged as collateral for the secured borrowing line maintained with the FRBSF. The FHLB
borrowing lines are secured by: (1) a blanket lien on certain qualifying loans in our loan portfolio, which are not pledged to the FRBSF, and (2) a portion of our
available-for-sale securities.
In
addition to our primary liquidity, we generate liquidity from cash flow from our amortizing loan and securities portfolios and from our large base of core customer deposits, defined
as noninterest-bearing demand, interest checking, savings and money market accounts. At March 31, 2013, such deposits totaled $3.8 billion and represented 83% of the Company's total
deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company promoting long-standing relationships and stable
funding sources.
During
the three months ended March 31, 2013, total core deposits decreased $92.4 million; such decline was centered in lower money market deposits. Deposits from our
customers may decline if interest rates increase significantly or if corporate customers move funds from the Company generally. In order to address the Company's liquidity risk as deposit balances may
fluctuate, the Company maintains adequate levels of available liquidity.
89
Table of Contents
The
following table provides a summary of the Bank's core deposits at the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
December 31,
2012
|
|
|
|
(In thousands)
|
|
Core Deposits:
|
|
|
|
|
|
|
|
Noninterest-bearing demand
|
|
$
|
1,941,234
|
|
$
|
1,939,212
|
|
Interest checking
|
|
|
512,645
|
|
|
513,389
|
|
Money market deposits
|
|
|
1,184,987
|
|
|
1,282,513
|
|
Savings deposits
|
|
|
157,572
|
|
|
153,680
|
|
|
|
|
|
|
|
Total core deposits
|
|
$
|
3,796,438
|
|
$
|
3,888,794
|
|
|
|
|
|
|
|
Our asset/liability management policy establishes various liquidity guidelines for the Company. The policy includes guidelines for
On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits), Coverage and Crisis Coverage Ratios (measurements of liquid assets to expected short-term
liquidity required for the loan and deposit portfolios under normal and stressed conditions), Loan to Funding Ratio, Wholesale Funding Ratio, and other guidelines developed for measuring and
maintaining liquidity. As of March 31, 2013, we were in compliance with all liquidity guidelines established in the asset/liability management policy.
We
may use large denomination brokered time deposits, the availability of which is uncertain and subject to competitive market forces, for liquidity management purposes. At
March 31, 2013, the Bank had none of these brokered deposits. However, we had $48.3 million of time deposits which were part of the CDARS program. The CDARS program represents deposits
that are participated with other
FDIC insured financial institutions as a means to provide FDIC deposit insurance coverage for the full amount of our participating customers' deposits.
The primary sources of liquidity for the Company, on a stand-alone basis, include dividends from the Bank and our ability to raise
capital, issue subordinated debt and secure outside borrowings. The ability of the Company to obtain funds for the payment of dividends to our stockholders and for other cash requirements is largely
dependent upon the Bank's earnings. Pacific Western is subject to restrictions under certain federal and state laws and regulations which limit its ability to transfer funds to the Company through
intercompany loans, advances or cash dividends.
Dividends
paid by state banks, such as Pacific Western, are regulated by the California Department of Financial Institutions ("DFI") under its general supervisory authority as it relates
to a bank's capital requirements. A state bank may declare a dividend without the approval of the DFI as long as the total dividends declared in a calendar year do not exceed either the retained
earnings or the total of net profits for three previous fiscal years less any dividends paid during such period. During the three months ended March 31, 2013, PacWest received
$12.0 million in dividends from the Bank. For the foreseeable future, any dividends from the Bank to the Company require DFI approval.
At
March 31, 2013, the Company had, on a stand-alone basis, $27.3 million in cash on deposit at the Bank. Management believes that this amount of cash, along with
anticipated dividends from the Bank, will be sufficient to fund the Company's 2013 cash flow needs.
90
Table of Contents
The following table presents the known contractual obligations of the Company as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
|
Due
Within
One Year
|
|
Due in
One to
Three Years
|
|
Due in
Three to
Five Years
|
|
Due
After
Five Years
|
|
Total
|
|
|
|
(In thousands)
|
|
Time deposits
|
|
$
|
606,986
|
|
$
|
109,618
|
|
$
|
40,188
|
|
$
|
|
|
$
|
756,792
|
|
Long-term debt obligations
|
|
|
5,603
|
|
|
4,729
|
|
|
864
|
|
|
108,250
|
|
|
119,446
|
|
Contractual interest
(1)
|
|
|
2,394
|
|
|
1,605
|
|
|
1,608
|
|
|
|
|
|
5,607
|
|
Operating lease obligations
|
|
|
14,601
|
|
|
23,700
|
|
|
13,707
|
|
|
11,501
|
|
|
63,509
|
|
Other contractual obligations
|
|
|
8,692
|
|
|
8,137
|
|
|
30
|
|
|
67
|
|
|
16,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
638,276
|
|
$
|
147,789
|
|
$
|
56,397
|
|
$
|
119,818
|
|
$
|
962,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Excludes
interest on subordinated debentures as these instruments are floating rate.
Time deposits included $48.3 million of customer deposits that were participated with other FDIC insured financial institutions through the
CDARS program as a means to provide FDIC deposit insurance coverage for the full amount of our customers' deposits.
Long-term
debt obligations include $108.3 million of subordinated debentures. Debt obligations are also discussed in Note 8,
Borrowings,
Subordinated Debentures and Brokered Deposits
, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated
Financial Statements (Unaudited)." Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the
year ended December 31, 2012. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party
provider and commitments to contribute capital to investments in low income housing project partnerships.
We
believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through
profitability, loan and securities repayment and maturity activity, and continued deposit gathering activities. We believe we have in place various borrowing mechanisms for both short-term
and long-term liquidity needs.
Off-Balance Sheet Arrangements
Our obligations also include off-balance sheet arrangements consisting of loan and lease-related commitments, of which only
a portion are expected to be funded. At March 31, 2013, our loan and lease-related commitments, including standby letters of credit, totaled $902.8 million. The commitments, which result
in funded loans and leases, increase our profitability through net interest income. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our
liquidity sources. Our liquidity sources have been and are expected to be sufficient to meet the cash requirements of our lending activities.
Asset/Liability Management and Interest Rate Sensitivity
Our market risk arises primarily from credit risk and interest rate risk inherent in our lending and financing activities. To manage
our credit risk, we rely on adherence to our underwriting standards and loan policies, internal loan monitoring and periodic credit review as well as our allowance for credit
91
Table of Contents
losses
methodology, all of which are administered by the Bank's credit administration department and overseen by the Company's Credit Risk Committee. To manage our exposure to changes in interest
rates, we perform asset and liability management activities which are governed by guidelines pre-established by our Executive ALM Committee, and approved by our Asset/Liability Management
Committee of the Board of Directors, which we refer to as our Board ALCO. Our Executive ALM Committee monitors our compliance with our asset/liability policies. These policies focus on providing
sufficient levels of net interest income while considering capital constraints and acceptable levels of interest rate exposure and liquidity.
Market
risk sensitive instruments are generally defined as derivatives and other financial instruments, which include investment securities, loans, deposits, and borrowings. At
March 31, 2013, we had not used any derivatives to alter our interest rate risk profile or for any other reason. However, both the repricing characteristics of our fixed-rate loans
and floating-rate loans and the significant percentage of noninterest-bearing deposits compared to interest-earning assets may influence our interest rate risk profile. Our financial
instruments include loans receivable, Federal funds sold, interest-earning deposits in financial institutions, Federal Home Loan Bank stock, investment securities, deposits, borrowings and
subordinated debentures.
We
measure our interest rate risk position on at least a quarterly basis using two methods: (i) net interest income simulation analysis, and (ii) market value of equity
modeling. The results of these analyses are reviewed by the Executive ALM Committee and the Board ALCO quarterly. If hypothetical changes to interest rates cause changes to our simulated net present
value of equity and/or net interest income outside our pre-established limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our
established limits.
We
evaluated the results of our net interest income simulation and market value of equity models prepared as of March 31, 2013, the results of which are presented below. Our net
interest income simulation indicates that our balance sheet is liability sensitive as rising interest rates would result in a decline in our net interest margin. This profile is primarily a result of
(a) the increased origination of fixed-rate loans and variable-rate loans with initial fixed-rate terms over the last several years and (b) declining
floating-rate construction loans. Our market value of equity model indicates an asset sensitive profile in the up 100 and 200 basis points scenarios, switching to liability sensitive in
the up 300 basis point scenario. An asset sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated market value of equity, while a
liability sensitive profile would suggest that our estimated market value of equity would decrease when rates increase. In general, we view the net interest income model results as more relevant to
the Company's current operating profile and manage our balance sheet giving priority to this information.
We used a simulation model to measure the estimated changes in net interest income that would result over the next 12 months
from immediate and sustained changes in interest rates as of March 31, 2013. This model is an interest rate risk management tool and the results are not necessarily an indication of our future
net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth in either our
interest-sensitive assets or liabilities over the next 12 months; therefore, the results reflect an interest rate shock to a static balance sheet.
This
analysis calculates the difference between net interest income forecasted using both increasing and decreasing interest rate scenarios and net interest income forecasted using a
base market interest rate derived from the U.S. Treasury yield curve at March 31, 2013. In order to arrive at the base case, we extend our balance sheet at March 31, 2013 one year and
reprice any assets and liabilities that
92
Table of Contents
would
contractually reprice or mature during that period using the products' pricing as of March 31, 2013. Based on such repricings, we calculate an estimated net interest income and net
interest margin.
The
repricing relationship for each of our assets and liabilities includes many assumptions. For example, many of our assets are floating-rate loans, which are assumed to
reprice to the same extent as the change in market rates according to their contracted index except for floating-rate loans tied to our base lending rate which are assumed to reprice
upward only after the first 75 basis point increase in market rates. This assumption is due to the fact that our base lending rate is 4.00% while the major bank prime rate is 3.25%. Some loans and
investment vehicles include the opportunity of prepayment (imbedded options) and the simulation model uses a prepayment model to estimate these prepayments and reinvest these proceeds at current
simulated yields. Our deposit products reprice at our discretion and are assumed to reprice more slowly in a rising or declining interest rate environment and usually reprice at a rate less than the
change in market rates. The effects of certain balance sheet attributes, such as fixed-rate loans, floating-rate loans that have reached their floors, and the volume of
noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our interest rate risk management model. Changes that could vary significantly
from our assumptions include loan and deposit growth or contraction, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, all of which may have
significant effects on our net interest income.
The
simulation analysis does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or the impact a change
in interest rates may have on our credit risk profile, loan prepayment estimates and spread relationships which can change regularly. In addition, the simulation analysis does not make any assumptions
regarding loan fee income, which is a component of our net interest income and tends to increase our net interest margin. Management reviews the model assumptions for reasonableness on a quarterly
basis.
The
following table presents as of March 31, 2013, forecasted net interest income and net interest margin for the next 12 months using a base market interest rate and the
estimated change to the base scenario given immediate and sustained upward and downward movements in interest rates of 100, 200 and 300 basis points:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
Interest Rate Scenario
|
|
Estimated
Net Interest
Income
|
|
Percentage
Change
From Base
|
|
Estimated
Net Interest
Margin
|
|
Estimated
Net Interest
Margin Change
From Base
|
|
|
|
(Dollars in thousands)
|
|
Up 300 basis points
|
|
$
|
259,660
|
|
|
(1.3
|
)%
|
|
5.27
|
%
|
|
(0.07
|
)%
|
Up 200 basis points
|
|
$
|
256,421
|
|
|
(2.5
|
)%
|
|
5.21
|
%
|
|
(0.13
|
)%
|
Up 100 basis points
|
|
$
|
255,579
|
|
|
(2.9
|
)%
|
|
5.19
|
%
|
|
(0.15
|
)%
|
BASE CASE
|
|
$
|
263,105
|
|
|
|
|
|
5.34
|
%
|
|
|
|
Down 100 basis points
|
|
$
|
259,781
|
|
|
(1.3
|
)%
|
|
5.28
|
%
|
|
(0.06
|
)%
|
Down 200 basis points
|
|
$
|
256,538
|
|
|
(2.5
|
)%
|
|
5.21
|
%
|
|
(0.13
|
)%
|
Down 300 basis points
|
|
$
|
256,632
|
|
|
(2.5
|
)%
|
|
5.21
|
%
|
|
(0.13
|
)%
|
The net interest income simulation model prepared as of March 31, 2013 suggests our balance sheet is liability sensitive. Liability
sensitivity indicates that in a rising interest rate environment, our net interest margin would decrease. Due to the historically low market interest rates as of March 31, 2013 the "down"
scenarios are not considered meaningful and are excluded from the following discussion. The liability sensitive profile is due mostly to the mix of fixed-rate loans to total loans in the
loan portfolio relative to our amount of interest-bearing deposits that would reprice as interest rates change. Although $1.8 billion of the $3.4 billion of total loans in the portfolio
have variable interest rate terms, only $469 million of those variable-rate loans would immediately reprice at March 31, 2013 under the modeled scenarios. Of the remaining
variable-rate loans, $1.0 billion would not immediately reprice
93
Table of Contents
because
the loans' fully indexed rates are below their floor rates. Of these $1.0 billion of loans at their floors, the fully indexed rates would rise off of the floors and reprice as follows:
|
|
|
|
|
|
Cumulative
Amount of
Loans
|
|
Rate
Increase
Needed to
Reprice
|
|
(Dollars in thousands)
|
|
$
|
446,000
|
|
|
100 bps
|
|
$
|
675,000
|
|
|
200 bps
|
|
$
|
822,000
|
|
|
300 bps
|
|
An additional $243 million of hybrid ARM loans would not immediately reprice because the loans contain an initial fixed-rate
period before they become adjustable. The cumulative amounts of hybrid ARM loans that would switch from being fixed-rate to floating-rate because the initial
fixed-rate term would expire is approximately $85 million, $131 million, and $168 million in the next one, two, and three years, respectively.
In
comparing the March 31, 2013 simulation results to December 31, 2012, our profile has remained relatively unchanged while our overall estimated net interest income has
decreased for all scenarios. The decrease in the simulated net interest income is primarily a result of lower interest income due to the lower average balance of the loan portfolio and lower estimated
yield of the securities portfolio.
We measure the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities and
off-balance sheet items, defined as the market value of equity, using a simulation model. This simulation model assesses the changes in the market value of our interest sensitive financial
instruments that would occur in response to an instantaneous and sustained increase or decrease in market interest rates of 100, 200, and 300 basis points. This analysis assigns significant value to
our noninterest-bearing deposit balances. The projections are by their nature forward looking and therefore inherently uncertain, and include various assumptions regarding cash flows and interest
rates.
This
model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results
suggested by the market value of equity table. Loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions,
among others, may vary significantly from our assumptions. The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets,
liabilities and off-balance sheet items existing at March 31, 2013.
94
Table of Contents
The
following table shows the projected change in the market value of equity for the set of rate shocks presented as of March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
Interest Rate Scenario
|
|
Estimated
Market
Value
|
|
Dollar
Change
From Base
|
|
Percentage
Change
From Base
|
|
Percentage
of Total
Assets
|
|
Ratio of
Estimated
Market Value
to Book Value
|
|
|
|
(Dollars in thousands)
|
|
Up 300 basis points
|
|
$
|
731,025
|
|
$
|
(36,040
|
)
|
|
(4.7
|
)%
|
|
13.8
|
%
|
|
123.9
|
%
|
Up 200 basis points
|
|
$
|
772,814
|
|
$
|
5,749
|
|
|
0.7
|
%
|
|
14.6
|
%
|
|
131.0
|
%
|
Up 100 basis points
|
|
$
|
783,510
|
|
$
|
16,445
|
|
|
2.1
|
%
|
|
14.8
|
%
|
|
132.8
|
%
|
BASE CASE
|
|
$
|
767,065
|
|
|
|
|
|
|
|
|
14.5
|
%
|
|
130.1
|
%
|
Down 100 basis points
|
|
$
|
720,074
|
|
$
|
(46,991
|
)
|
|
(6.1
|
)%
|
|
13.6
|
%
|
|
122.1
|
%
|
Down 200 basis points
|
|
$
|
728,026
|
|
$
|
(39,039
|
)
|
|
(5.1
|
)%
|
|
13.7
|
%
|
|
123.4
|
%
|
Down 300 basis points
|
|
$
|
745,497
|
|
$
|
(21,568
|
)
|
|
(2.8
|
)%
|
|
14.1
|
%
|
|
126.4
|
%
|
In comparing the March 31, 2013 simulation results to December 31, 2012, our base case estimated market value of equity has
decreased while our overall profile has not changed materially. Base case market value of equity decreased $3.7 million compared to December 31, 2012. The decrease was due to a
$12.3 million decline in the market value of loans, offset partially by a $7.6 million decline in the fair value of deposits.
Our
market value of equity profile is affected by the assumed floors in the Company's base lending rate and the significant value placed on the Company's noninterest-bearing deposits for
purposes of this analysis. Static balances of noninterest-bearing deposits do not impact the net interest income simulation, while at the same time the value of these deposits increases substantially
in the market value of equity model when market rates are assumed to rise.